B Communications Ltd.
2022 Annual Report
Chapter A - Description of the Corporation's Business
Chapter B - Report of the Board of Directors on the State of the Corporation's business
Chapter C - Financial Statements
Chapter D - Additional Details on the Corporation and Corporate Governance Questionnaire
Chapter E - Report on the Effectiveness of Internal Control
THIS DOCUMENT IS AN ENGLISH TRANSLATION OF THE HEBREW
VERSION OF THE COMPANY’S FINANCIAL STATEMENTS AND THE
MANAGEMENT DISCUSSION AND ANALYSIS FOR FISCAL YEAR 2022
(THE “REPORTS”). THE HEBREW VERSION OF THE REPORTS IS THE
BINDING VERSION AND THE ONLY VERSION HAVING LEGAL EFFECT.
THE ENGLISH TRANSLATION HAS BEEN CREATED FOR THE PURPOSE
OF CONVENIENCE ONLY. THE APPROVAL OF THE COMPANY’S BOARD
OF DIRECTORS WAS GIVEN TO THE HEBREW VERSION ONLY AND NO
SUCH APPROVAL HAS BEEN GIVEN TO THE ENGLISH TRANSLATION.
THIS ENGLISH TRANSLATION WAS NOT SUBMITTED TO THE ISRAELI
IS NOT REVIEWED BY ANY
SECURITIES AUTHORITY AND
REGULATORY AUTHORITY.
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Chapter A
Description of the Corporation's Business
2022 Periodic Report
ב
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Chapter A - Description of the Corporation's Business - Table of Contents
1.
Description of the general development of the Group's business
1
1.1. Group activity and description of the development of its business .................... 1
1.2.
Areas of activity .................................................................................................. 10
1.3.
Investments in the corporation's capital and transactions in its shares ............ 10
1.4.
Dividend distribution .......................................................................................... 11
1.5.
Financial information regarding the areas of activity of the Group ................... 12
1.6.
Forecast in relation to the Group ...................................................................... 19
1.7. General environment and the influence of external factors on the group's activities
............................................................................................................................ 20
1.8.
Bezeq Group business strategy .......................................................................... 32
1.9.
Incident outside the scope of the corporation's business.................................. 34
1.10. Corporate accountability (ESG) .......................................................................... 35
2.
Bezeq – Interior landline communications
36
2.1. General information about the field of activity .................................................. 36
2.2.
Products and services ......................................................................................... 41
2.3.
Products and services revenue segmentation.................................................... 44
2.4.
Customers ........................................................................................................... 44
2.5. Marketing, distribution and service.................................................................... 44
2.6.
Competition ........................................................................................................ 45
2.7.
Property, plant and equipment and facilities ..................................................... 51
2.8.
Intangible assets ................................................................................................. 56
2.9. Human capital ..................................................................................................... 56
2.10. Equipment and suppliers .................................................................................... 59
2.11. Working equity ................................................................................................... 60
2.12.
Investments ........................................................................................................ 60
2.13. Funding ............................................................................................................... 60
2.14. Taxation .............................................................................................................. 62
2.15. Environmental risks and their ways of management ......................................... 62
2.16. Restrictions and supervision of Brezeq’s operations ......................................... 63
2.17. Material agreements .......................................................................................... 83
2.18. Legal Proceedings ............................................................................................... 85
2.19. Targets and Business Strategy ............................................................................ 92
2.20. Discussion of risk factors .................................................................................... 93
3.
Pelephone - Mobile radio (cellular telephony)
99
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
3.1. General information about the field of activity .................................................. 99
3.2.
Services and products ....................................................................................... 102
3.3.
Products and services revenue segmentation.................................................. 103
3.4.
Customers ......................................................................................................... 104
3.5. Marketing, distribution and service.................................................................. 104
3.6.
Competition ...................................................................................................... 104
3.7.
Property, plant and equipment and facilities ................................................... 105
3.8.
Intangible assets ............................................................................................... 107
3.9. Human capital ................................................................................................... 110
3.10. Suppliers ........................................................................................................... 112
3.11. Working equity ................................................................................................. 112
3.12. Taxation ............................................................................................................ 113
3.13. Environmental risks and their ways of management ....................................... 113
3.14. Restrictions and supervision of Pelephone’s operations ................................. 114
3.15. Material agreements ........................................................................................ 119
3.16. Legal proceedings ............................................................................................. 119
3.17. Targets and business strategy .......................................................................... 121
3.18. Expected development in the coming year ...................................................... 121
3.19. Discussion of risk factors .................................................................................. 121
4.
Bezeq International - Internet, international communications and network endpoint
services
128
4.1. General .............................................................................................................. 128
4.2.
Products and services ....................................................................................... 129
4.3.
Revenue ............................................................................................................ 130
4.4.
Customers ......................................................................................................... 123
4.5. Marketing, distribution and service.................................................................. 123
4.6.
Competition ...................................................................................................... 123
4.7.
Property, plant and equipment and facilities ................................................... 126
4.8. Human capital ................................................................................................... 134
4.9.
Suppliers ........................................................................................................... 136
4.10. Taxation ............................................................................................................ 137
4.11. Restrictions and supervision of Bezeq International's activities ...................... 138
4.12. Legal proceedings ............................................................................................. 139
4.13. Targets, business strategy and development prospects .................................. 132
4.14. Discussion of risk factors .................................................................................. 140
5.
DBS - Multi-channel TV
145
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
5.1. General information about the field of activity ................................................ 136
5.2.
Products and services ....................................................................................... 140
5.3.
Revenue from products and services ............................................................... 150
5.4.
Customers ......................................................................................................... 150
5.5. Marketing and distribution ............................................................................... 151
5.6.
Competition ...................................................................................................... 151
5.7.
Production capacity .......................................................................................... 153
5.8.
Property, plant and equipment, real estate and facilities ................................ 153
5.9.
Intangible assets ............................................................................................... 154
5.10. Broadcasting rights ........................................................................................... 155
5.11. Human capital ................................................................................................... 156
5.12. Suppliers ........................................................................................................... 157
5.13. Financing ........................................................................................................... 158
5.14. Taxation ............................................................................................................ 158
5.15. Restrictions and supervision of DBS ................................................................. 158
5.16. Material agreements ........................................................................................ 161
5.17. Legal proceedings ............................................................................................. 162
5.18. Targets and strategy ......................................................................................... 164
5.19. Discussion of risk factors .................................................................................. 165
6.
Appendix A - The Company
172
6.1.
Financing ........................................................................................................... 172
6.2.
Legal proceedings ............................................................................................. 172
7.
8.
Appendix A - Definitions
Appendix B - Financial Indices and Key Performance Indicators
175
180
ה
Chapter A - Description of the Corporation's Business
B. Communications Ltd. (“the Company") together with the subsidiary Bezeq the Israeli Telecommunications
Corporation Ltd. ("Bezeq") and Bezeq’s wholly owned subsidiaries, whose financial statements are consolidated with
Bezeq's statements, will be called together in this periodic report - "the Group” or "Bezeq Group".
For convenience, Appendix A this chapter contains a glossary of terms in relation to the key terms mentioned in it.
1. Description of the general development of the Group's business
1.1.
Group activity and description of the development of its business
1.1.2.
General
The Company was incorporated in Israel in 1999 under the name Gold E Ltd. and on March
16, 2010 changed its name to its current name. From its inception until October 2007, the
Company was fully owned by Internet Gold Ltd., in October 2007 the Company's shares
were first issued on the NASDAQ stock exchange and in November 2007 the Company's
shares were listed on the Tel Aviv Stock Exchange under a double listing arrangement. On
December 2, 2019, the transaction with Searchlight II BZQ LP and a corporation controlled
by the Forer family (TNR Investments Ltd.) was completed, in which control of the
Company and Bezeq was transferred to these entities, following the liquidation of
Eurocom Communications Ltd., in which the holdings in the Company of its subsidiary,
Internet Gold, were sold.
On September 9, 2020, the Company announced the voluntary delisting of its shares from
trading on the NASDAQ Stock Exchange, and as of that date, the Company's securities are
traded on the Tel Aviv Stock Exchange only and the Company is a “reporting corporation”
within the meaning of this term in the Securities Law, 5728-1968. ("Securities Law").
As of April 14, 2010, the Company operates in the field of communication, through its
holdings in Bezeq shares.
1.1.3.
Acquisition of control of Bezeq
On April 14, 2010, the Company completed an acquisition of 30.44% of the issued and
paid-up equity and voting rights in Bezeq, in exchange for a total amount of approximately
NIS 6.5 billion in cash and became the largest shareholder in Bezeq, and as of the financial
statements for the first quarter of 2010, the Company consolidates Bezeq's financial
statements in its own financial statements.
As of the date of this report, the Company holds approximately 26.81% of Bezeq's issued
and paid-up equity.
For further details regarding the control of the Company and the control permit in
connection with the Company's holding in Bezeq shares, see Section 1.1.4 below.
1.1.4.
Bezeq Group - General
radio
As of the date of publication of this periodic report, Bezeq Group is a major provider of
communications services in the State of Israel. Bezeq Group performs and provides a wide
range of Bezeq operations and Bezeq services, including landline interior communication
services, mobile
international
communication services, and multi-channel television services over satellite and over the
infrastructure and access services, call center services,
Internet (OTT), Internet
maintenance and development of
infrastructure, providing
communication services to other communication providers, including wholesale market
services, distribution of television and radio broadcasts, supply and maintenance of
equipment and services in customer premises (network endpoint services).
telephone services
communication
telephony),
(cellular
Bezeq was established in 1980 as a government company to which Bezeq's activities that
had taken place up to that date in the Ministry of Communications were transferred, and
it was privatized over the years. Since 1990, the Company has been a public company
whose shares are traded on the Stock Exchange.
Below is a diagram of the structure of the holdings in the Group as of the date of approval
of this report (March 14, 2022):
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
CThe
ompany
(*)
26.80%
Bezeq Israel Telecommunications Corporation Ltd.
Bezeq
Online
DBS
Bezeq
International
Pelephone
100%
100%
100%
100%
(*) Regarding the Company and the control of Bezeq - see Sections 1.1.1, 1.1.2 and 1.1.4 in this chapter.
1.1.4.
Control of the Company
On December 2, 2019, a debt arrangement was completed between the Company and its
bondholders, as part of which Searchlight II BZQ LP and a corporation controlled by the
Forer family (TNR
Investments Ltd.) purchased control of the Company (and
consequently, the control of Bezeq). It should be noted that as of the date of the report,
Bezeq shares are held by the Company directly.
As of the date of completion of the debt arrangement as stated above, the controlling
shareholders of the Company are Searchlight II BZQ LP, a limited partnership incorporated
in the Cayman Islands ("Searchlight") and TNR Investments Ltd. ("TNR"), a private
company incorporated in Israel. The final general partner of Searchlight is Searchlight
Capital Partners II GP LLC, a limited liability company incorporated in the State of
Delaware, which is held by a number of individuals including Eric Zinterhofer, Erol
Uzumeri and Oliver Harmaann, the latter being among the only ones to receive the
Company's control permit from the Ministry of Communications. TNR is wholly owned
and fully controlled by Mr. David Forer (50%) and Mrs. Michal Forer (50%). Searchlight
and TNR are considered controlling shareholders in the Company by virtue of a control
permit dated November 11, 2019 and by virtue of a voting agreement between them
which gives them a cumulative holding, as of the date of publication of this report, of
approximately 77.61% of the voting rights in the Company.
To the best of the Company's knowledge, the shareholders' agreement between
Searchlight and TNR includes, among other things, a provision according to which as long
as the holdings of an "Israeli factor" in Bezeq's controlling shareholder are required,
Searchlight will grant TNR power of attorney regarding the amount of shares that will
allow TNR to vote at the general meetings of the Company, an amount of shares equal to:
(a) the number of shares held by TNR on the effective date of the meeting, or (b) the
number of shares that reflects 19% of the issued equity and voting rights in the Company
on the effective date of the meeting, whichever is higher. To the best of the Company's
knowledge, the shareholders' agreement includes additional provisions, including an
obligation by Searchlight to refrain from voting for the approval of certain issues without
the consent of TNR.
The control permit
On November 11, 2019, the Minister of Communications, by virtue of his authority and by
virtue of the Prime Minister's authority (jointly: "the Ministers") transferred thereto,
granted Bezeq control permits under Article 4D of the Communications Law and Article 3
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
of the Communications Order (Bezeq and Broadcasting) (Determination of Essential
Service Provided by Bezeq the Israel Telecommunications Coropration Ltd.), 5757-1997
("Communications Order"), as follows:
a. A control permit for corporations is given to the Company, Searchlight corporations,
and TNR ("Permit for Corporartions").
b. A control permit for individuals to hold means of control in Bezeq and to control it is
given to Michal Forer, David Forer, Oliver Harmaann, Erol Uzumeri, Eric Zinterhofer,
and Darren Glatt1 ("Permit for Individuals").
The Permit for Corporations and the Permit for Individuals will be jointly referred to as
"the Control Permits" and the parties to whom such permits were granted will be
referred to as "the Permit Holders". It should be noted that as of October 11, 2021 and
in accordance with the amendment to the control permit dated August 22, 2021, Bezeq
shares are held by the Company directly.
The Control Permits were issued for the control and possession of means of control in
Bezeq at a minimum rate of not less than 25%2. The control permits allow the Permit
Holders to control Bezeq directly and indirectly, and they also allow Searchlight and TNR
to make a "joint appointment" of directors, as defined in the Communications Order, in
Bezeq and the Company.
The Control Permits also stipulate provisions regarding the minimum holding rate in
Bezeq of an "Israeli entity" as defined in the Communications Order3.
Preconditions set out in the Control Permits
The control permit stipulates, inter alia, as follows:
"3.1. The Articles of Association of BCOM, Bezeq and its subsidiaries
must include instructions as detailed below:
A.
The method of appointing the directors set forth in the
Company's Articles of Association will not be changed without
the prior written approval of the Minister of Communications;
B. The Company shall report to the Ministers on a holder of a
means of control therein holding excess holdings as soon as it
becomes aware of the existence of such excess holdings;
C. The Company shall
report
the
transformation of a shareholder therein into a stakeholder in
Bezeq within 48 hours from the date the Company became
aware of the change.
the Ministers on
to
3.2.
The Articles of Association of the subsidiaries must include
1 The permit is given to Mr. Darren Glatt for his status in Searchlight in the context of the acquisition of control of the Company. In addition,
he serves as Chairman of the Company's Board of Directors and as a director in Bezeq.
2 The minimum rate is defined as 25% of any type of means of control in Bezeq, or a lower rate according to the approval of the Ministers by
virtue of Article 3 (a2) of the Communications Order. The minimum rate may change if the Minister of Communications becomes convinced
that the conditions set forth in Article 3 (a3) of the Communications Order are met.
3 The Control Permits were issued subject to the fact that David and Michal Forer are citizens and residents of Israel, and it is stipulated therein
that as long as the Communications Order requires the possession of a means of control by an Israeli entity, as defined in the Communications
Order, TNR and / or Michal Forer and David Forer will not transfer means of control in Bezeq without the prior written approval of the
Ministers, if such a transfer is sufficient to reduce their holdings, as the case may be, in means of control of any kind in Bezeq to a rate lower
than the minimum rate according to the Communications Order. It was also determined that any change in the Israeli citizenship and
residency of Michal Forer and David Forer would constitute a ground for revoking the control permit. In July 2020, after a hearing, the
Ministry of Communications changed the requirement for the holding of a minimum percentage of means of control in a general licensee by
an Israeli entity and expanded the discretion of the Ministers to approve holdings by non-Israeli entities. Following this, the Ministry of
Communications amended the licenses of Cellcom and Partner, but the intended amendment proposed at the hearing in the Communications
Order applicable to Bezeq has not yet been implemented.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
provisions regarding the rights of the Israeli entity, as defined in
the Communications Order, for the appointment of directors
in accordance with Article 4(a)(2)(b)(2) of the
therein,
Communications Order;"
In accordance with the above, the Company amended its Articles of Association as
required.
On April 2, 2020, Bezeq’s Board of Directors convened a general meeting of Bezeq
shareholders for May 14, 2020, on the agenda of which is the amendment of Bezeq’s
Articles of Association in the wording requested by the Company, as follows:
"After Regulation 95 of the Articles of Association, Regulation 95A shall
be added as follows:
The method of appointing the directors set forth in the
95 a.
Company's Articles of Association will not be changed without prior
written approval from the Minister of Communications;
After Regulation 42, Regulations 42A and 42B shall be added to the
Articles of Association as follows:
42 a.
The Company shall report to the Ministers as defined in the
Communications Order, on a holder of a means of control therein
holding excess holdings therein as defined in the Communications Order,
as soon as it becomes aware of the existence of such excess holdings;
The Company shall
the
report
42 b.
transformation of a shareholder therein into a stakeholder in Bezeq
within 48 hours from the date the Company became aware of the
change."
the Ministers on
to
Bezeq's Board of Directors attached to the above summons a recommendation according
to which "it was found that the requested changes in the Company's Articles of
Association are in favor of the Company and all its shareholders”. Of Bezeq that took place
on 14.5.2020 did not approve the company's request to amend Bezeq's regulations as
required by the control permit.
Regarding the manner of amending each of the Articles of Association of each of the
subsidiaries (in order to include in each Articles of Association the provisions of Article
4(a)(2)(b)(2) of the Communications Order, regarding the rights of the Israeli entity, as
defined in the Communications Order, to appoint directors in subsidiaries) - it was agreed
that the amendment of the subsidiaries’ Articles of Association will be made after the
amendment of Bezeq’s Articles of Association.
The lien permit
On November 11, 2019, Reznik Paz Nevo Trust Ltd. was granted, as a trustee for
bondholders issued by the Company (“the Trustee") by the Ministers, a permit to hold
means of control in Bezeq by way of encumbrance on the entire shares held by the
Company, directly or indirectly, pursuant to Article 4d of the Communications Law and
Article 3 of the Communications Order ("the Lien Permit").
The Lien Permit stipulates that it constitutes a permit for holding or operating means of
control in Bezeq by way of lien only, and it does not constitute a permit for control or
transfer of control in Bezeq. In addition, it was determined that the rights granted to the
Trustee and anyone holding debentures in the framework of which debentures were
pledged to the Trustee for Bezeq should not be considered a transfer of ownership of the
means of control of Bezeq, but only a lien as collateral.
In addition, the Lien Permit includes restrictions on the procedures for exercising the lien
by virtue thereof, taking into account, among other things, the provisions of the
Communications Order, including provisions according to which the lien will be carried
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
out only by appointing a receiver and trustee whose identity has been approved by the
Ministers according to various parameters specified in the permit. In addition, similar to
the control permits as detailed above and the reuiqred changes, the Lien Permit also
includes provisions allowing the Ministry of Communications to revoke it, including in
circumstances of concern of harming State security or vital public needs and other cases4
in which, If the Ministers see that there is a real concern of harm to the provision of the
essential service by Bezeq or the ground for determining it as an essential service, the
Ministers will be entitled to act as stated in the Communications Order, including the issue
of provisions and revocation of the permit.
It should be noted that on June 19, 2022, approval was received from the Ministry of
Communications to amend the pledge permit in such a way that Bezeq shares pledged by
the Company will also be processed for the benefit of the holders of the Company's
debentures (series F). For details, see the Company's report of June 20, 2022 [reference:
2022-01-075823].
Amendment to the Communication Order
On September 4, 2022, the draft Communications Order (Bezeq and Broadcasting)
(Determining Essential Service Provided by Bezeq, the Israel Telecommunications Corp.
Ltd.), (Amendment), 5782-2022 (the “Draft Amendment”) was published on the
government legislation website for public comments until September 25, 2022. In
accordance with what is detailed in the introduction and in the explanatory notes to the
Draft Amendment, BCOM has applied to the Ministry of Communications with a request,
among other things, to amend the Communications Order in a way that will allow it to
gradually sell its holdings in the Company to the public in the future, so that at the end of
the process it will no longer have control over the Company. Further to this, it is proposed,
among other things, to amend the Communications Order in a way that would allow the
controlling shareholder, subject to obtaining the approval of the Prime Minister and the
Minister of Communications after consulting with the Minister of Defense, to transfer
means of control to another party if, as a result of the transfer, he ceases to be a
controlling owner. The draft amendment includes proposals for additional amendments
to the Communications Order, including, among others:
A. Adding an option for the controlling shareholder to replace the Israeliness
requirement with instructions from the General Security Service by virtue of Article
13 of the Communications Law.
B. Allowing an (Israeli) institutional investor to increase to a holding of up to 7.5% in a
certain type of control without the need for ministerial approval.
C. Repeal of Article 7(g) of the Communications Order which establishes reporting
obligations, conditions and limitations for any entity that owns 2.5% or more of some
type of control in a Company in a situation where over 75% of the Company's shares
will be held by the public.
In accordance with the announcement of the Secretary of the Government of Israel dated
March 5, 2023, the Government approved amendments to the media order on that day.
Amending the Communictions Order requires approval by a Knesset committee.
1.1.5.
In accordance with Article 50(a) of the Companies Law and in accordance with
Regulations 119 and 121 (1) of Bezeq’s Articles of Association - the powers of the CEO in
all matters related to the corporations held, directly or indirectly, by Bezeq (Including
Pelephone, Bezeq International, DBS And Bezeq Online) were transferred to the Board.
1.1.6.
Mergers, acquisitions and structural changes
Structural change in the subsidiaries
Following on from previous resolutions adopted by Bezeq as well as Bezeq's subsidiaries
- Bezeq International and DBS (in this Section: “the subsidiaries") regarding a structural
4 Including - inaccuracies in the data submitted in the permit application, failure on the part of the Trustee to provide a report as required or a
material change in the details provided by the Trustee, and failure on the part of the Trustee on behalf of the bondholders to apply for the
appointment of a receiver and trustee on the dates determined in the permit.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
change plan in which Bezeq International's private activities were to merge with and into
DBS, and the spin-off of Bezeq International’s ICT activities into a new company wholly
owned by Bezeq (“the merger / spin-off plan"). On March 16, 2022, the Boards of
Directors of Bezeq and the subsidiaries decided to cancel the merger / spin-off plan, and
to approve an alternative plan, according to which Bezeq International's ISP activity in the
private segment will be reduced following the abolition of the separation between
broadband infrastructure service and Internet access service (ISP) (as described in Note
12.3 below), and ISP activity will be established in DBS for the purpose of selling "triple"
packages to customers (“the alternative outline"), while striving to achieve, as far as
possible, the strategic, business and economic purposes that formed the basis for the
resolution to promote structural change, inter alia, adapting the activity to the structure
of the industry and the changing regulation, focusing on increasing revenues and growth,
and increasing the operational synergy and streamlining.
According to this alternative outline, the business purposes that were at the basis of the
spin-off / merger plan will be achieved, as DBS is expected to become a "triple" sales arm
that combines fiber and television, and at the end of the move Bezeq International will
become a growth-focused ICT company. In addition, this alternative outline has the
potential for a significant reduction in Bezeq International's expenses and investments in
the ISP field in parallel with an accelerated reduction in this activity.
In June 2022, following its request to the Ministry of Communications, DBS received a
special license for Internet access services (ISP) and began to provide such services while
focusing on the sale of combined packages of Internet and television to customers.
Further to what was stated in Section 1.7.4 regarding the change in the regulatory
structure in the field of Bezeq, as of October 2, 2022, the provisions of the
Communications Regulations (Bezeq and Broadcasting) (General Permit for the Provision
of Bezeq Services), 5782-2022, instead of the provisions of the said license.
On August 28, 2022, Mr. Ilan Siegel began to serve as CEO of the subsidiaries Pelephone,
DBS and Bezeq International, replacing Mr. Ran Guron who was appointed CEO of the
company (see Section 2.9.5). On January 1, 2023, Mr. Ron Galab began serving as CEO of
Bezeq International in place of Mr. Ilan Segal, in accordance with the strategy formulated
to transform Bezeq International into a company focused on integration, communication
and IT solutions for the business sector. Mr. Ilan Segal continues to serve as CEO of the
subsidiaries Pelephone and DBS.
Plan to self-purchase the Company's shares
For details about the Company's share repurchase plans, which were approved by the
Company's Board of Directors on March 23, 2022, May 24, 2022, June 8, 2022, August 9,
2022, and November 15, 2022, see Regulation 29(a) of chapter D (additional details
report) to this periodic report.
1.1.7.
Charges in connection with the transactions of the former controlling shareholder of
Bezeq and former officers of Bezeq and the "Case 4000"
Following the investigations of the Securities Authority from June 2017 and of the
Securities Authority and the Israel Police from February 2018 on suspicion of committing
offenses under the Securities Law and the Penal Code, 5737-1977 ("Penal Code"), in
respect of transactions related to the previous controlling shareholder in the Company
and former Chairman of Bezeq's Board of Directors, Shaul Elovich ("Elovich") regarding
the purchase of DBS shares5 and the provision of satellite communication services to DBS,
the Ministry of Communications' dealings with Bezeq ("the DBS Case") as well as
suspicions of the exercise of powers by former Prime Minister Binyamin Netanyahu, to
5 As of June 24, 2015, Bezeq owns all DBS shares after completing on that date the purchase of Eurocom DBS' entire holdings in DBS (the "Purchase
Transaction"). Since the final amount of the second conditional consideration in the Purchase Transaction was lower than the sum of the advances
paid by the Company to Eurocom DBS for said consideration, Eurocom DBS had to return the difference to Bezeq. In this framework, Bezeq
submitted to the Tel Aviv District Court a motion for the liquidation of Eurocom DBS due to its inability to return the aforementioned difference,
and on April 22, 2018, the Tel Aviv District Court issued an order for the liquidation of Eurocom DBS, while a proxy was appointed as a liquidator
to Eurocom DBS. Also, Bezeq joined as a creditor in the liquidation procedure of Eurocom Communications, the parent company of Eurocom DBS,
and on December 12, 2022 the debt claim filed by Bezeq was dismissed. Bezeq filed an appeal against the decision. It should be noted that in
Bezeq's 2018 statements, the write-off of the aforementioned debt balance was completed, so that the postponement of the debt claim is not
expected to affect Bezeq's results.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
advance issues concerning the business of Elovich and the economic interests of him and
the Bezeq Group ("Case 4000") -
1.1.7.1
1.1.7.2
On January 28, 2020, an indictment was filed with the Jerusalem District
Court in Case 4000, inter alia, against Elovich for various offenses, including
bribery and deliberate misstatement in an immediate report in connection
with suspicions of exercise of powers by former Prime Minister Binyamin
Netanyahu to advance issues concerning the business of Elovich and the
economic interests of him and the Bezeq Group.
On December 23, 2020, Bezeq received a notice from the Tel Aviv District
Attorney's Office (Taxation and Economy) regarding the consideration of
Bezeq's prosecution and its summons to a hearing on Case 4000 ("the
Notice")6 According to which:
a) After examining the evidence before him, the Attorney General is
considering filing an indictment against Bezeq on suspicion of bribery
(an offense under Article 291 of the Penal Code and Article 23 of the
Penal Code), and a reporting offense with the aim of misleading a
reasonable investor (offense under Article 53(a)(4) of the Securities Act
and Article 23 of the Penal Code).
b) According to the Notice, according to the suspicion, Bezeq's criminal
responsibility for the offense of bribery stems from the actions and
criminal thought of Elovich, who was its organ in the period relevant to
the suspicions.
c) Also, according to the Notice, according to the suspicion, Bezeq's
criminal responsibility for the reporting offense stems from the actions
and criminal thought of Elovich who was its organ in the period relevant
to the suspicions, and the actions and criminal thought of Stella Handler
(former Bezeq CEO), who was Bezeq's organ in the relevant period (see
Section 1.1.6.3b). According to allegations in this context, Bezeq
reported on a letter from the Director General of the Ministry of
Communications that allegedly included a misstatement (of which
Elovich and Stella Handler were aware), and only after the intervention
of senior officials in the State’s legal advice system, the letter was
amended and the amendment was reported by Bezeq to the public.
d) According to the Notice, before the Attorney General makes a final
decision regarding the criminal prosecution of Bezeq, and insofar as
Bezeq wishes to argue against the possibility of criminal prosecution, it
must coordinate a hearing within 30 days from the date of the Notice,
and submit written arguments two weeks before the date scheduled
for the hearing.
It should be noted that Walla (a former subsidiary of Bezeq) also received a
similar notice according to which, after examining the evidence presented
thereto, the Attorney General is also considering filing an indictment against
it as well, on suspicion of bribery (an offense under Article 291 of the Penal
Code and Article 23 of the Penal Code) when, according to the suspicion,
Walla's criminal liability for the offense of bribery stems from the criminal
acts and thought of Elovich who was its organ in the period relevant to the
suspicions.
Subsequently, on July 8, 2021, Bezeq and Walla submitted a written
argument for the hearing. On August 12, 2021, a hearing was held for
companies with the Deputy State Attorney (Criminal Enforcement) and with
the team of attorneys handling the case. As of the date of publication of the
report, a decision has not yet been made by the State Attorney's Office and
the Attorney General regarding the filing of an indictment following the
6It should be noted that on November 20, 2017, Bezeq received a "letter of suspect notification" according to which the investigation file in the
framework of which it was questioned as a suspect was transferred to the State Attorney's Office for review. Since then, no further notice has
been received by Bezeq on this matter.
7
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
1.1.7.3
1.1.7.3
allegations raised at the hearing, and the companies have not been given an
expected date for the decision.
On December 23, 2020, to the best of Bezeq’s knowledge, an
announcement by the State Attorney's Office was published, according to
which, among other things, the State Attorney's Office (Taxation and
Economics) filed on the same day an indictment against Elovich with the Tel
Aviv District Court, as well as against former senior officials in Bezeq Group
and BBS, Or Elovich, Amikam Shorer, Linor Yochelman , Ron Eilon and
Mickey Neiman in the DBS Case. According to the publication:
a) The indictment attributes to the defendants the offenses of aggravated
obtainment by fraud, fraud and breach of trust in a corporation, and
reporting offenses under the Securities Law, in relation to two cases:
Fraud in relation to the payment of the consideration for the purchase
of DBS shares by Bezeq, and fraud in relation to the conduct of the
independent committees established by Bezeq for the purpose of
examining Bezeq transactions in which Elovich had a personal interest.
b) The State Attorney's Office (Taxation and Economics) entered into a
conditional settlement agreement under the Securities Law with Stella
Handler, in which Stella Handler admitted the facts according to which
she was involved in intentional misstatement in Bezeq's statements. In
accordance with what is stated in the arrangement, the DBS case was
closed in the case of Stella Handler.
c) The investigation files in respect of other suspects investigated in the
cases mentioned above were closed, including against the former VP of
regulation at Bezeq, as well as against Or Elovich and Amikam Shorer
(in relation to both - except with regard to the DBS Case as indicated in
the preamble of this section).
On July 20, 2022, the decision of the Economic Department of the Tel-Aviv-
Yafo District Court was published on the request of some of the defendants
to drop charges in the case, according to which the second and third charges
in the indictment were dropped (fraud in relation to the conduct of the
independent committees in the "Bezeq-Yes" transaction and the "Yes-
Space" transaction) against all the defendants in these charges: Elovich,
former officers of Bezeq - Mr. Or Elovich, Mr. Amikam Shurer and Mrs. Linor
Yochelman, as well as against the companies accused in the same charges -
companies from the "Eurocom" group. The decision also stated, among
other things, that it is not possible to accept Elovich's claim that the
indictment does not reveal guilt in connection with the first charge
(fraudulent receipt of advances at the expense of the second contingent
consideration in the Bezeq-Yes transaction). It was emphasized in the
decision that it does not in any way impinge on the civil aspect, and the
pending proceedings in this regard (for civil proceedings against Bezeq
and/or former Bezeq officials, see Section 1.1.7.5). On September 6, 2022,
the Ministry of Justice published an announcement that the criminal
department of the State Attorney's Office filed an appeal against the
decision on the same day.
Bezeq does not yet have complete information regarding the investigations,
their content, materials and evidence in the possession of the law
authorities in the matter (although in January 2021, Bezeq received the core
of the investigation material in connection with Case 4000, following
Bezeq's summons to a hearing on this matter as detailed in Section 1.1.6.2).
Accordingly, Bezeq is still unable to assess the effects of the investigations,
their findings and results on Bezeq and its financial statements. For this
matter see Note 1.3 to the 2022 statements.
1.1.7.4
It should be noted that following the opening of the said investigations, a
number of civil legal proceedings were opened against Bezeq, DBS, Bezeq's
officers in the relevant period and companies from Bezeq’s former
controlling group, including motions for approval of class actions and
8
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
1.1.7.5
motions for disclosure of documents before filing a motion for approval of
a derivative claim. For details regarding these procedures see Section 2.18.
Regarding DBS, which, on November 20, 2017, received a "letter of suspect
notification" according to which the investigation case in which it was
questioned as a suspect was forwarded to the State Attorney's Office - in
accordance with the State Attorney's Office's notice received by DBS, after
the Securities Authority case (Ref. No. 03/2017), in which it was questioned
as a suspect, was examined by the Attorney General’s Office, it was decided
on January 11, 2021 to shelf the case against it, without filing an indictment
therein.
1.2.
Areas of activity
The Group has four main areas of activity that correspond to the corporate division among the
Group's companies and are reported as business segments in Bezeq’s consolidated financial
statements (see also Note 28 to the 2022 statements):
1.2.2.
Bezeq – Landline interior communications
This area mainly includes the activities carried out by Bezeq as an NIO (National Interior
Operator), including telephony services, Internet services (including service over fibers
and wholesale BSA service), transmission and data communication services and
wholesale services of using Bezeq's physical infrastructure. Bezeq’s activity in the field of
landline interior communications is described in Section 2 of this report.
1.2.3.
Pelephone - Cellular communication ("Mobile Radio Telehpone")
This field
includes the provision of cellular radio-telephone services (cellular
communications), marketing of end equipment, installation, operation and maintenance
of equipment and systems in the field of cellular communications. Pelephone activity is
described in Section 3 of this report.
1.2.4.
Bezeq International - Internet, international communications and ICT solutions (“Bezeq
International services”)
As of the date of the report, this area includes the provision of Internet services to existing
subscribers in a private service and does not include the marketing of this service to
new/renewing subscribers. As of the date of the report, Bezeq International focuses on
business services, including integration services, internet for businesses and more (for
international
structural change, see Section 1.1.6). Also,
communication services, hosting and cloud services and ICT solutions ("Bezeq
International Services"). Bezeq International's activity is described in Section 4 of this
report..
includes
field
this
1.2.5.
DBS - Multi-channel TV
This field includes the provision of digital multi-channel TV broadcasting services to
subscriptions over satellite (DBS) as well as over the Internet (OTT) and the provision of
value-added services to subscribers and Internet services (infrastructure component
through a wholesale market). DBS activity is described in Section 5 of this report.
It should be noted that in addition, Bezeq's consolidated financial statements include the
"other" segment, which includes mainly call center services for customers (via Bezeq
Online) and is immaterial in group terms.
1.3.
Investments in the corporation's equity and transactions in its shares
On December 29, 2020, the Company announced the purchase of 2,530,000 ordinary Bezeq shares
in exchange for a total amount of approximately NIS 15 million and an average price of NIS 5.95 per
share. Following the said acquisition, the Company holds 26.81% of the issued and paid-up share
equity and of the voting rights in Bezeq.
Except for the above, no investments were made in the Company's equity in the reporting year, and
the Company is not aware of any other material transactions made in Bezeq shares by a related party
outside the Stock Exchange.
9
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
1.4.
Dividend distribution
1.4.1.
Dividend distribution policy in the Company
The Company has not distributed dividends to its shareholders in the last three years
(2020-2022) and as of the date of this report, the Company does not have a valid dividend
distribution policy.
1.4.2.
Dividend policy at Bezeq
On March 13, 2023, the Bezeq Board of Directors decided to update Bezeq's dividend
distribution policy, so that Bezeq will distribute every six months 60% of the semi-annual
profit (after tax) according to Bezeq's consolidated statements, starting with the next
distribution (for the second half of 2022), this is In view of the trend of improvement in
the business results and the continued decrease in the extent of Bezeq's debt and in
accordance with Bezeq's forecasts regarding the business results for the following years.
Also, Bezeq will strive to update its dividend policy to the distribution of 70% of the semi-
annual profit (after tax) according to Bezeq's consolidated statements, subject to
maintaining the Company's credit rating in the AA group.
The implementation of the dividend distribution policy is subject to the provisions of any
law, including the distribution tests set forth in the Companies Law, all in consideration
of the expected cash flow, Bezeq's needs and obligations, Bezeq's cash balances, its plans
and condition as they will be from time to time, and subject to the approval of the general
assembly of Bezeq's shareholders regarding any specific distribution, all as stipulated in
Bezeq’s Articles of Association.
The approval of Bezeq's dividend policy does not obligate Bezeq to distribute a dividend
to Bezeq's shareholders, and any specific distribution will be examined in accordance with
the terms of implementation of the dividend distribution policy as stated above. In
addition, the approval of the aforesaid policy does not prevent Bezeq's Board of Directors
from periodically reviewing the policy of distributing dividends to Bezeq shareholders,
taking into account, inter alia, the provisions of the law, Bezeq's business situation and its
equity structure and balance, its level of debt and credit rating, and the ongoing
maximization of value to Bezeq's shareholders through the regular distribution of
dividends.
Bezeq's Board of Directors considers it important to maintain the balance between
ensuring Bezeq's financial strength and stability, while maintaining Bezeq's rating in the
current rating group [AA] over time, and continuing to unlock value for its shareholders
through regular dividend distribution. Bezeq's Board of Directors was presented with,
among other things, analysis and results of professional work, Bezeq's and the Bezeq
Group's forecasts, as well as sensitivity analyzes for unforeseen deterioration in Bezeq's
and Bezeq Group businesses. After Bezeq's Board of Directors examined all of the above,
the Board of Directors determined that this decision reflects the correct balance between
the abovementioned needs.
1.4.2.1
Dividend distribution in Bezeq - Bezeq did not distribute a dividend in 2020-
2021. For details regarding the dividend distribution carried out by the
Company in May and October 2022, see Note 20 to the 2022 statements.
The remaining distributable profits as of the date of the report are about
NIS 1,648 million (the said balance consists of surpluses accumulated in the
last two years after deducting the dividend amounts paid in May and
October 2022).
Regarding the recommendation of the Bezeq Board of Directors dated
March 13, 2023 to the general assembly of Bezeq’s shareholders regarding
the distribution of a dividend in respect of the profits of the second half of
the year 2022, see Note 20 to the 2022 statements.
10
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
1.5.
Financial information regarding the areas of activity of Bezeq Group
All data in sections 1.5.1 to 1.5.4 are stated in NIS millions.
1.5.1.
2022
Landline interior
communication
Cellular
communication
(mobile radio
telephone)
Bezeq
International
services
Multi-channel
TV (3)
Other
Consolidation
adjustments (2)
Consolidated
Total revenue:
External
From other areas of activity in the
corporation
Total revenue
Total attributable costs:
Variable costs attributed to the area
of activity (1)
Fixed costs attributed to the area of
activity (1)
Total costs
Costs that do not constitute
revenue in another area of activity
(3)
Costs that constitute revenue of
other areas of activity
Total costs
Profit from ordinary activities
attributed to the owner of the
Cmpany
Total assets attributed to activity as
of December 31, 2022
Total liabilities attributed to the
area of activity as of December 31,
2022
3,980
2,359
1,183
1,277
187
-
8,986
326
4,306
40
2,399
56
-
1,239
1,277
6
193
(
)428
(
)428
-
8,986
606
852
759
382
159
2,240
1,354
510
943
28
2,846
2,805
2,206
2,114
1,269
1,009
1,325
1,305
187
183
(
)484
)67(
7,349
7,349
41
92
260
20
4
(
)417
-
2,846
2,206
1,269
1,325
187
(
)484
7,349
1,460
193
)30(
)48(
6
56
1,637
9,023
4,080
760
1,249
87
(
1,787
)
13,412
10,468
1,563
570
469
32
(
1,314
)
11,788
(1) The Group companies, which are companies that provide services (as opposed to manufacturing companies), do not maintain a dedicated
pricing system that distinguishes between fixed and variable costs. The above division was made for the purposes of this report only. Variable
costs are costs that companies have flexibility in managing and controlling in the short term,a s well as their effect on direct output, compared
to fixed costs that are not flexible in the short term and do not directly affect output (in this regard, up to one year). The variable costs included
non-recurring expenses (revenue) that were included in the item of other expenses (revenue) of each company.
(2) Details of the adjustments to consolidated - transactions between areas of activity.
(3) See Notes 10 and 28 to the 2022 statements regarding the neutralization of the impairment loss in the multi-channel television segment. The
impairment loss in this segment is shown in the adjustments.
11
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
1.5.2.
2021
Landline interior
communication
Cellular
communication
(mobile radio
telephone)
Bezeq
International
services
Multi-channel
TV (3)
Other
Consolidation
adjustments (2)
Consolidated
Total revenue:
External
From other areas of activity in the
corporation
Total revenue
Total attributable costs:
Variable costs attributed to the area
of activity (1)
Fixed costs attributed to the area of
activity (1)
Total costs
Costs that do not constitute
revenue in another area of activity
(3)
Costs that constitute revenue of
other areas of activity
Total costs
Profit from ordinary activities
attributed to the owner of the
Company
Total assets attributed to activity as
of December 31, 2021
Total liabilities attributed to the
area of activity as of December 31,
2021
3,845
2,249
1,186
1,270
271
-
8,821
337
4,182
40
2,289
51
-
1,237
1,270
6
277
(
)434
(
)434
-
8,821
369
982
723
369
215
2,065
1,265
492
942
35
2,434
2,389
2,247
2,153
1,215
944
1,311
1,291
250
246
(
)506
)72(
6,951
6,951
45
94
271
20
4
(
)434
-
2,434
2,247
1,215
1,311
250
(
)506
6,951
1,748
42
22
)41(
27
72
1,870
9,245
4,452
783
1,293
100
(
1,939
)
13,934
11,415
1,753
566
474
37
(
1,407
)
12,838
(1) The Group companies, which are companies that provide services (as opposed to manufacturing companies), do not maintain a dedicated
pricing system that distinguishes between fixed and variable costs. The above division was made for the purposes of this report only. Variable
costs are costs that companies have flexibility in managing and controlling in the short term,a s well as their effect on direct output, compared
to fixed costs that are not flexible in the short term and do not directly affect output (in this regard, up to one year). The variable costs included
non-recurring expenses (revenue) that were included in the item of other expenses (revenue) of each company.
(2) Details of the adjustments to consolidated - transactions between areas of activity.
(3) See Notes 10 and 28 in the 2022 statements regarding the neutralization of the impairment loss in the multi-channel television segment. The
impairment loss in this segment is shown in the adjustments.
12
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
1.5.3.
2020
Landline interior
communication
Cellular
communication
(mobile radio
telephone)
Bezeq
International
services
Multi-channel
TV (3)
Other
Consolidation
adjustments (2)
Consolidated
Total revenue:
External
From other areas of activity in the
corporation
Total revenue
Total attributable costs:
Variable costs attributed to the area
of activity (1)
Fixed costs attributed to the area of
activity (1)
Total costs
Costs that do not constitute
revenue in another area of activity
(3)
Costs that constitute revenue of
other areas of activity
Total costs
Profit (loss) from ordinary activities
attributed to the owner of the
Company
Total assets attributed to activity as
of December 31, 2020
Total liabilities attributed to the
area of activity as of December 31,
2020
3,813
2,127
1,217
1,286
280
-
8,723
346
4,159
59
2,186
54
1,271
1
1,287
6
286
(
(
)466
)466
-
8,723
850
799
1,021
532
186
1,604
1,471
491
797
56
2,454
2,405
2,270
2,162
1,512
1,246
1,329
1,296
242
236
)539
(
)77(
7,268
7,268
49
108
266
33
6
(
)462
-
2,454
2,270
1,512
1,329
242
(
)539
7,268
1,705
)84(
(
)241
)42(
8,471
4,371
785
1,365
44
96
73
1,455
(
1,847
)
13,241
11,764
1,742
580
505
42
(
1,242
)
13,391
(1) The Group companies, which are companies that provide services (as opposed to manufacturing companies), do not maintain a dedicated
pricing system that distinguishes between fixed and variable costs. The above division was made for the purposes of this report only. Variable
costs are costs that companies have flexibility in managing and controlling in the short term,a s well as their effect on direct output, compared
to fixed costs that are not flexible in the short term and do not directly affect output (in this regard, up to one year). The variable costs included
non-recurring expenses (revenue) that were included in the item of other expenses (revenue) of each company.
(2) Details of the adjustments to consolidated - transactions between areas of activity.
(3) See Notes 10 and 28 in the 2022 statements regarding the neutralization of the impairment loss in the multi-channel television segment. The
impairment loss in this segment is shown in the adjustments.
For explanations about the developments in the financial data presented In sections 1.5.1 to 1.5.3 aee Section 1 of
the Board of Directors’ report on the state of the corporation's affairs ("Board of Directors' Report").
1.5.4.
Main results and operational data
The following is a summary of data on the results of each of the Company's main
areas of activity in 2021 and 2022.
13
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
1.5.4.1
Bezeq Fixed Lines
2022
2021
Q4/
2022
Q3/
2022
Q2/
2022
Q1/
2022
Q4/
2021
Q3/
2021
Q2/
2021
Q1/
2021
Revenue (NIS millions)
4,306
4,182
1,057
1,086
1,067
1,096
1,052
1,037
1,039
1,054
1,460
1,748
293
388
393
386
358
390
407
593
Operating profit (NIS millions)
Depreciation and amortization (NIS millions)
1,005
938
Operating profit before depreciation and
amortization (EBITDA) (NIS millions) (1)
2,465
2,686
Net profit (NIS millions)
849
1,063
Cash flow from operating activities (NIS millions)
2,230
2,024
1,135
1,155
Payments for investments in property, plant and
equipment and intangible assets and other
investments (NIS millions)
Receipts from the sale of property, plant and
equipment and intangible assets (NIS millions)
266
559
153
628
277
252
640
235
427
294
248
641
243
541
279
239
625
218
634
285
245
603
206
593
244
239
629
219
567
314
231
638
238
354
285
223
816
400
510
312
36
273
9
8
5
14
87
4
-
182
Lease payments
Free cash flow (NIS millions) (2)
138
993
116
35
34
33
36
32
31
1,026
325
107
234
327
404
226
24
45
29
351
Number of active telephone subscriber lines at the
end of the period (thousands) (3)
Average monthly revenue per telephony subscriber
(NIS) (ARPL) (4)
1,503
1,583
1,503
1,522
1,542
1,563
1,583
1,602
1,615
1,630
42
47
40
41
41
47
46
46
47
49
Outgoing usage minutes (millions)
Incoming usage minutes (millions)
2,979
3,385
3,939
4,627
698
922
754
986
726
951
801
811
782
827
965
1,080
1,096
1,152
1,095
1,284
Telephony subscriber churn rate (6)
10.9%
10.6%
2.5%
2.8%
2.6%
3.0%
2.8%
2.4%
2.6%
2.8%
Total number of Internet subscribers at the end of
the period (thousands) (7)
Of which are subscribers connected to the fiber
network at the end of the period - wholesale
(thousands) (7)
Of which are Internet lines at the end of the period -
in retail (thousands) (7)
Of which are subscribers connected to the fiber
network at the end of the period - in retail
(thousands) (7)
Internet lines at the end of the period – in wholesale
(thousands) (7)
Of which are subscribers connected to the fiber
network at the end of the period - in wholesale
(thousands) (7)
Average monthly revenue per Internet subscriber
(NIS) - retail (ARPU)(8)
Fiber optic network deployment at the end of the
period (thousands, households available for
connection) (9)
1,504
1,524
1,504
1,505
1,512
1,519
1,524
1,524
1,529
1,540
267
501
267
212
161
124
501
510
520
539
1,032
1,023
1,032
1,024
1,022
1,024
1,023
1,014
1,009
1,001
198
65
198
157
118
93
65
36
16
1
472
501
472
481
490
495
501
510
520
539
69
19
69
55
42
31
19
8
0
0
114
106
117
116
113
110
109
107
106
103
1,526
1,064
1,526
1,442
1,308
1,193
1,064
848
597
310
Churn rate of telephony subscribers (6)
220
130
220
192
164
151
130
104
88
78
(1) Operating profit before depreciation and amortization (EBITDA) is a financial index that is not based on generally accepted
accounting principles. Bezeq presents this index as another index for evaluating its business results since it is an accepted
index in the Bezeq area of activity which neutralizes aspects resulting from variability in capital structure, various taxation
aspects and manner and period of amortization of property, plant and equipment and intangible assets. This index is not a
substitute for indices based on generally accepted accounting principles, and does not serve as a single index for assessing the
14
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Company’s results of operations or cash flow. Also, the index presented in this report may not be calculated in the same way
as other indices in other companies. Bezeq‘s EBITDA is calculated as operating profit before depreciation, amortization and
ongoing losses from impairment of property, plant and equipment and intangible assets. For the purpose of adequate
presentation of economic activity, Bezeq presents ongoing losses from impairment of property, plant and equipment and
intangible assets in DBS and Bezeq International under the depreciation and amortization item, as well as ongoing losses from
impairment of broadcasting rights under the operating and general expenses item (in the statement of income). For this matter
see Note 10 to the financial statements and Section 8 of the chapter on the description of the corporation's business in the
2022 periodic report.
(2) Free cash flow is a financial measure that is not based on generally accepted accounting principles. Free cash flow is defined
as cash arising from current operations minus cash for the purchase / sale of property, plant and equipment. Bezeq presents
free cash flow as an additional index to evaluate business results and cash flows, since Bezeq is of the opinion that cash flow
is an important liquidity index that reflects the cash derived by Bezeq from its current operations after investing cash in
infrastructure and property, plant and equipment and other intangible assets. For this matter see Section 8 of the chapter on
the description of the corporation's business in the 2022 periodic report.
(3) Inactive subscribers are subscribers whose Bezeq lines have been physically disconnected (excluding a subscriber who has not
paid his debt to Bezeq on time in the first three months (approximately) of collection proceedings).
(4) Calculated according to the average of subscribers for the period. For this matter see also Section 8 of the chapter on the
description of the corporation's business in the 2022 periodic report.
(5) In plans where there is a range of speeds, the maximum speed in the plan is taken into account.
(6) Number (gross) of telephony subscribers who abandoned Bezeq Fixed Lines during the period divided by the average number
of telephony subscribers registered in the period. See also Section 8 of the chapter on the description of the corporation's
business in the 2022 periodic report.
(7) Total number of Internet subscribers including retail and wholesale subscribers. Retail – the Company’s direct Internet
subscribers. Wholesale - Internet subscribers through wholesale service to other communication providers.
(8) Revenue from retail Internet services divided by the average number of retail customers in the period. For this matter, see
also Section 8 of the chapter on the description of the corporation's business in the 2021 periodic report.
(9) As of the publication date of the report, fiber optic network deployment - about 1.654 million households are
available for connection, of which about 332k subscribers are connected to the fiber network (of which 235k retail
and 97k wholesale).
15
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
1.5.4.2
Pelephone
2022
2021
Q4/
2022
Q3/
2022
Q2/
2022
Q1/
2022
Q4/
2021
Q3/
2021
Q2/
2021
Q1/
2021
Revenue from services (NIS millions)
1,791
1,642
441
467
446
437
424
417
409
392
Revenue from the sale of end equipment (NIS
millions)
608
647
151
141
153
163
178
124
167
178
Total revenue (NIS millions)
2,399
2,289
592
608
599
600
602
541
576
570
Operating profit (loss) (NIS millions)
Depreciation and amortization (NIS millions)
Operating profit before depreciation and
amortization (EBITDA) (NIS millions) (1)
Net profit (loss) (NIS millions)
Cash flow from operating activities (NIS millions)
Payments for investments in property, plant and
equipment, intangible assets and other investments,
net (NIS millions)
Lease payments (NIS millions)
Free cash flow (NIS millions) (1)
Number of postpaid subscribers for the end of the
period (thousands) (2)
Number of prepaid subscribers for the end of the
period (thousands) (2)
Number of subscribers for the end of the period
(thousands) (2)
193
532
725
165
874
295
228
351
42
577
619
64
425
253
219
)47(
17
135
152
13
149
0
60
139
199
50
203
157
52
136
188
64
122
186
46
56
244
278
66
72
8
147
155
13
19
54
22
144
166
15
144
159
23
20
185
149
68
60
)3(
142
139
8
72
71
62
87
58
)12(
47
61
131
145
54
)89(
52
65
53
36
60
)59(
2,149
2,096
2,149
2,137
2,122
2,093
2,096
2,074
2,050
2,030
431
480
431
538
514
490
480
473
471
462
2,580
2,576
2,580
2,675
2,636
2,583
2,576
2,547
2,521
2,492
Average monthly income per subscriber (NIS) (ARPU)
(3)
Average monthly income per subscriber net of
interconnect (NIS) (ARPU) (6)
57
43
54
40
57
58
57
57
55
55
54
53
43
45
43
42
41
41
40
38
Subscriber churn rate (Churn Rate) (4)
24.1%
22.9%
6.1%
5.7%
5.5%
6.8%
5.8%
5.5%
5.8%
5.8%
(1) For the definition of operating profit before depreciation and amortization (EBITDA) and free cash flow, see notes (1) and (2)
in the Bezeq Fixed Lines table.
(2) The subscriber data include Pelephone subscribers (net of other operators’ subscribers hosted on Pelephone’s network, and
net of IoT subscribers) and do not include subscribers connected to Pelephone’s service for six months or more but are inactive.
Inactive subscribers are subscribers who in the last six months have not received at least one call, did not make at least one
call / message or did not perform a browsing operation or did not pay for Pelephone’s services. Prepaid subscribers are
included in the active subscriber base from the date of performing a charge and are deducted from the active subscriber base
when no making outbound use for six months or more. It should be noted that a customer may have more than one subscriber
("line"). The number of subscribers includes subscribers who consume various services (such as data for in-vehicle media
systems), the average income from which is significantly lower than the rest of the subscribers. It should be noted that
Pelephone markets packages with an increased volume of use that are also adapted to the needs of 5G when as of Decembr
31, 2022 Pelephone has about 813k subscribers in this type of packages.
(3) The average monthly income per subscriber (postpaid and prepaid). The index is calculated by dividing the average monthly
revenue from all cellular services from both Pelephone’s subscribers and other communication operators, including revenue
received from cellular operators using Pelephone’s network, repair service and extended warranty in the period by the average
active subscriber base in that same period. See also section 8 of the chapter on the description of the corporation's business
in the 2022 periodic report.
(4) The subscriber churn rate is calculated according to the ratio of the subscribers who disconnected from Pelephone services
and the subscribers who became inactive during the period to the average of active subscribers during the period. See also
section 8 of the chapter on the description of the corporation's business in the 2022 periodic report.
(5) In the examination carried out by Pelephone of the register of prepaid subscribers during the Q4/2022, it was found that about
96k subscribers were included in the register of subscribers even though they did not meet the definition of an active
subscriber. Accordingly, Bezeq deducted these subscriptions in a one-time manner. The subtraction of subscribers as
mentioned led to an increase of about NIS 2 in ARPU for Q4 and no change in the subscriber churn rate in this quarter.
(6) Average monthly revenue per subscriber (ARPU) excluding revenue from interconnect - the reform to change the interconnect
rates regime that will gradually apply from June 2023 until June 2025 is expected to lead to a decrease in interconnect revenues
and a decrease in ARPU, which is why Pelephone chose to present the average monthly revenue per subscriber (ARPU) minus
the component of revenue from interconnect, all in addition to the full ARPU.
16
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
1.5.4.3
Bezeq International
Revenue (NIS millions)
Operating profit (loss) (NIS millions)
Depreciation and amortization (NIS
millions)
Operating profit (loss) before depreciation
and amortization (EBITDA) (NIS millions)
(1)
Net profit (loss) (NIS millions)
Cash flow from operating activities (NIS
millions)
Payments for investments in property,
plant and equipment and intangible assets
and other investments, net (NIS millions)
(2)
Lease payments
Free cash flow (NIS millions) (1)
Subscriber churn rate (3)
2022
2021
Q4/
2022
Q3/
2022
Q2/
2022
Q1/
2022
Q4/
2021
Q3/
2021
Q2/
2021
Q1/
2021
1,239
1,237
)30(
134
22
173
319
)60(
35
311
302
307
328
287
310
312
17
32
17
29
)4(
38
1
40
13
38
16
46
)8(
49
104
195
)25(
49
46
34
41
51
62
41
)32(
210
8
)58(
131
56
16
5
15
37
)5(
)5(
112
)52(
10
96
11
26
)8(
61
93
98
17
23
27
26
14
27
27
30
36
81
33
0
9
30
9
)27(
9
1
9
77
7
)73(
9
60
9
)10(
8
23
46.5%
25.3%
15.0%
12.4%
12.9%
7.3%
5.9%
5.5%
6.0%
7.9%
(1) For the definition of operating profit before depreciation and amortization (EBITDA) and free cash flow, see notes (1) and
(2) in the Bezeq Fixed Lines table.
(2) The section also includes investments in long-term assets.
(3) Number of Internet subscribers who left Bezeq International during the period is an average of the average
Internet subscribers registered during the period. See also Section 8 of the chapter on the description of the
corporation's business in the periodic report for 2022.
17
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
1.5.4.4
DBS
2022
2021
Q4/
2022
Q3/
2022
Q2/
2022
Q1/
2022
Q4/
2021
Q3/
2021
Q2/
2021
Q1/
2021
Revenue (NIS millions)
1,277
1,270
330
315
316
316
8
199
32
203
0
57
0
46
)2(
46
10
50
322
)14(
52
318
315
315
30
45
22
45
)6(
61
Operating profit (loss) (NIS millions)
Depreciation, amortization and ongoing
impairment (NIS millions)
Operating profit before depreciation,
amortization and ongoing impairment
(EBITDA) (NIS millions) (1)
Net profit (loss) (NIS millions)
Cash flow from operating activities (NIS
millions)
Payments for investments in property, plant
and equipment and intangible assets and
other investments, net (in NIS millions)
Lease payments
Free cash flow (NIS millions) (1)
Number of subscribers (at the end of the
period, thousands) (2)
207
235
57
46
44
60
38
75
67
55
13
186
30
233
1
56
0
9
2
43
10
78
)17(
42
29
73
18
56
0
62
178
178
44
39
49
46
55
38
42
43
25
)17(
579
26
29
7
5
563
579
6
)36(
575
6
)12(
567
6
26
564
7
)20(
563
6
29
7
7
6
13
560
560
559
Of which are IP subscribers (3)
329
226
329
307
280
253
226
198
173
147
Of which are StingTV subscribers
104
84
104
101
94
89
84
79
74
70
Average monthly income per subscriber
(ARPU) (NIS) (3)
183
188
181
182
184
186
190
188
186
187
Subscriber churn rate (4)
12.8%
15.1%
3.0%
3.2%
2.9%
3.7%
3.4%
3.7%
3.7%
4.3%
(1) For the definition of operating profit before depreciation and amortization (EBITDA) and free cash flow, see notes (1) and
(2) in the Bezeq Fixed Lines table.
(2) Subscriber - one household or a small business customer. In the case of a business customer who owns more than a certain
number of decoders (such as a hotel, kibbutz or gym), the number of subscribers is adjusted. The number of non-small
business customers is calculated by dividing the total payment received from all non-small business customers by the
average income per small business customer, which is determined once per period.
(3) The number of DBS subscribers using Yes+ and STINGTV services transmitted via the Internet (as stated in Sections 5.2.2.1
and 5.2.2.2 of the chapter describing the corporation's business in the periodic report for 2022). As of the date of publication
of the report, is about 344k subscribers (of which, 107k are STINGTV subscribers), whioch constitute 60% of all DBS
subscribers. This rate also includes subscribers who also use satellite services at the same time.
(4) The average monthly revenue per subscriber is calculated by dividing the total DBS revenue (excluding revenue from the
sale of content to external broadcasters) by the average number of customers in the period. See also Section 8 of the chapter
on the description of the corporation's business in the 2022 periodic report.
(5) The number of DBS subscribers who abandoned DBS during the period divided by the average number of subscribers
registered in the period. See also Section 8 of the chapter on the description of the corporation's business in the 2022
periodic report.
18
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
1.6.
Forecast and short-term ambitions in relation to the Bezeq Group
1.6.1.
The following is the Group's forecast for 2023 based on the information currently known
to the Bezeq Group:
a. Adjusted net profit7 for shareholders is expected to be NIS 1.2 billion.
b. Adjusted EBITDA8 It is expected to be NIS 3.8 billion.
c. CAPEX9 It is expected to be NIS 1.75 billion.
Bezeq will report, as required, deviations of ±10% or more from the ranges specified in
the forecasts above.
d. The scope of the Company's fiber network deployment - reaching about 2 million
households.
e. Financial stability - maintaining high credit rating in the AA group.
1.6.2.
Medium-term ambitions
a. Adjusted EBITDA - Average annual growth in terms of CAGR of about 1% with an
adjusted EBITDA rate in revenue in the range of 41%-43%.
b. CAPEX – until 2025, stability in CAPEX and in relation to CAPEX's revenues; Gradual
decline thereafter
c. Free cash flow10 - average annual growth (in CAGR terms) at a medium single-digit
rate
d. The scope of the Company's fiber network deployment - reaching about 2.7 million
households
e. Dividend policy - aspiration to distribute 70% of the semi-annual profit (after tax)
according to the Company's consolidated statements, subject to maintaining the
Company's credit rating in the AA group.
f.
Financial stability - maintaining high credit rating in the AA group
The Company does not undertake to update on a regular basis or otherwise its ambitions
or any changes that will apply to the ambitions or actual results in relation to the
ambitions.
1.6.3.
Forward-looking information
The Company’s forecasts and ambitions detailed in this section are forward-looking
information, as defined in the Securities Law. The forecasts and ambitions are based on
Bezeq's assessments, assumptions and expectation, and among other things, on the
Group's assessments regarding the structure of competition in the communications
market and the regulation of the segment, on the current economic situation in the
economy, and accordingly, the on Group's ability to implement its plans for 2023 and in
the medium-term, as applicable, taking into account the changes in business conditions,
regulatory decisions, technological changes, developments in the structure of the
communications market, etc. or insofar as one or more of the risk factors listed in the
2022.
Also, with respect to Bezeq aspirations, given that it is a reference to the medium term
and the difficulty of predicting Bezeq results and actual market performance in the
medium term, there is no certainty that Bezeq ambitions will fully or partially materialize,
and deviation between Bezeq results and actual performance may be significant.
Moreover, ambitions, by nature, do not purport to be predictions and should not be read
7 Adjusted net profit and adjusted EBITDA – net of the other operating expenses / revenue, net item, non-recurring losses / gains
from impairment / increase in value, and expenses of the capital remuneration plan. It should be noted that the adjusted
EBITDA and the adjusted net profit for 2021 were approximately NIS 3.659 billion and approximately NIS 1.154 million,
respectively.
8 See Footnote 10.
9 CAPEX - Payments (gross) for investment in property, plant and equipment and intangible assets. It should be noted that the
CAPEX for 2021 was approximately NIS 1.713 billion.
10 For a definition of free cash flow, see Section 7.2.2.
19
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
as such.
1.7.
General environment and the influence of external factors on the Group's activities
The communications industry in the world and in the Israeli economy is characterized by a rapid pace
of development, and frequent changes in terms of technology, in terms of the business structure of
the industry and in terms of the regulation applied to it. The main trends and main characteristics of
the communications market in recent years, which have a significant impact on the Group's
operations as a whole, will be described below.
In view of the diversity in the areas of the Group's communications activities, regulatory and other
developments may sometimes have a different effect (and even in opposite directions) on various
areas of activity in the Group and on its risk factors (see Sections 2.20, 3.19, 4.14 and 5.19), that is -
changes in regulation and other factors that adversely affect one area may have a positive effect on
another area. In some cases, adverse effects on areas of activity may be partially offset against each
other at the group level.
1.7.1.
Competition in the communications market
In the communications market there is lively competition in most areas of the Group's
activity:
In the field of Internet services, there is lively competition against companies that own
infrastructure, including fiber infrastructure for households, as well as against companies
that offer services through the wholesale market (see Section 1.7.5 and Section 2.16.4).
In addition, the expansion of regional competition is evident in the light of giving the
possibility to those who do not have a general license to provide fiber Internet services
through a broadband infrastructure that they laid down themselves or through the use
of Bezeq's passive infrastructures.
In the field of cellular telephony, the multitude of competitors results in lively competition
that results in low prices and increased customer mobility. In the field of landline
telephony, competition, including from the cellular companies, leads to a decrease in the
consumption of landline telephony minutes as well as to the churn in landline telephony
services (including an increasing number of customers without a landline home line).
These phenomena damage the results of the Group.
In the field of television services, the increase in competition is evident through the
transmission of television content (VOD services and linear channels) over the Internet
(OTT), including by foreign providers such as Netflix, which are not subject to regulatory
oversight and the same obligations as those of multi-channel public broadcasting
providers, as well as reception of "Idan+" channels.
In order to reduce the damage resulting from the aforementioned, Bezeq Group
companies take streamlining measures as well as steps to improve the services they
provide and differentiate them from the competition.
1.7.2.
Communication groups in the Israeli market
The market is characterized by competition between communications groups (Bezeq
Group, Hot Group, Cellcom Group (which in 2020 also acquired Golan Telecom, which
operates in the cellular segment), and Partner Group ,operating simultaneously in several
segments of the communications market (landline and mobile telephony, landline and
mobile Internet services, multi-channel television and international calls)11.
Cellcom and Hot own together with the Israel Infrastructure Fund (23% each) and the
Electric Company (30%) in IBC, which deploys optical fiber infrastructure and mainly
provides services to communication providers (CARRIER'S CARRIER). The communication
groups market various communication service packages of each group's corporations, so
that it is possible to offer the customer a comprehensive solution that eliminates the need
to contract simultaneously with several different suppliers, as well as to offer the
customer attractive rates for the purchase of each service separately (in some cases with
a "cross subsidy" between the components included in the basket). Additionally, BSA
11
In this regard, a "group" is characterized by a close relationship that results from the identicality of shareholders, although
in some groups there is a corporate, accounting or marketing separation between the entities belonging to the group.
20
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
wholesale service (See Section 2.16.4.2) also allows operators who do not own
infrastructure, including operators who are not part of a telecommunications group, to
offer a package of unified Internet services to their customers (including infrastructure).
As of April 3, 2022, companies that own infrastructure - Bezeq and Hot, are allowed to
provide private customers themselves Internet access service, together with their
infrastructure service, after the obligation to separate infrastructure service and Internet
access service was lifted.
Competitors that are not part of a telecommunications group also operate in the market
(such as XFONE and MVNO operators in the cellular segment, including Internet providers
that provide service within the wholesale market. Also, as mentioned, the number of
small service providers (that are not part of a group) that provide broadband Internet
services, including infrastructure, has expanded (See Section 1.7.6).
As of the date of the report, Bezeq Group is subject to stricter restrictions on the
marketing of service packages than the other communication groups.
1.7.3.
Bezeq Group's activity as a communications group
As of the date of the report, the Group is subject to regulatory restrictions related to
creating collaborations between the Group's companies, which include a structural
separation obligation between Bezeq and its subsidiaries, as well as restrictions on shared
marketing and marketing shared service baskets which include the services of Bezeq and
its subsidiaries.
Against the background of the challenges the Group faces and the needs in the
communication market environment, in parallel with Bezeq’s activity for the elimination
of structural separation, a comprehensive strategic plan for the Group as a
communication group is implemented within the complex regulatory constraints imposed
on the Group (see Section 1.8).
1.7.3.1
Regulatory oversight - structural separation obligation
In accordance with the Communication Law, the Minister is authorized to
order accounting separation between different services provided by the
same group / company, as well as the power to require the existence of
separate corporations for the purpose of providing different services,
including separation between licensing services and subscriber services, and
provisions on the implementation of the separation.
Bezeq's NIO
license stipulates that Bezeq must maintain structural
separation between itself and its subsidiaries12. In this context, full
separation between Bezeq's management and the managements of the
subsidiaries is required, including everything related to the business system,
the financial system and the marketing system, and Bezeq is prohibited from
transferring commercial information to a subsidiary (subject to exceptions).
The limitations of structural separation place the Group in a position of
competitive disadvantage which exacerbates over time vis-à-vis the other
communication groups which are not subject to restrictions of a similar
extent. In addition, the limitations of structural separation cause high
overheads.
1.7.3.2
Elimination of structural separation
structural
separation
in accordance with
In the Company’s opinion, all the conditions that require the cancellation of
the
the Ministry of
Communications policy document dated May 2, 2012 regarding the
expansion of competition in the landline communications field - wholesale
market have been met. As part of an appeal filed by Bezeq with the Hight
Court of Justice in 2021 and withdrawn thereby, the State submitted an
interdepartmental report for examining the update of the structural
separation obligations in the Bezeq and Hot groups, in which the Minister
was advised not to cancel the structural separation obligation in the Bezeq
and Hot groups at this time. However, the team found that certain changes
12 Pelephone, Bezeq International, DBS and Bezeq Online.
21
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
can be made to the overall regulation, including examining the elimination
of the separation used in Israel between the infrastructure service and the
ISP service, which was in fact eliminated (for the abolition of separation, see
Section 1.7.5.1).
1.7.3.3
Marketing a shared basket of services with a subsidiary and between
subsidiaries
Bezeq was allowed to offer subscribers shared services ("Bundles") with the
subsidiaries, subject to approval by the Ministry of Communications and
subject to a number of conditions set forth in the NIO license, including:
The baskets will be "detachable", that is - each service included in them
will be offered separately outside the framework of a basket of services,
under the same conditions.
At the time of submitting the application for approval of the basket,
there is a group of services in a similar format that is marketed to a
subscriber as a package by a licensee who is not a Bezeq subsidiary, or
there is a group that includes licensees who provide a private subscriber
with all services included in the shared basket of services.
The marketing of shared service baskets by the subsidiaries, which
include Bezeq Services, is also subject, according to their licenses, to
similar restrictions,
including the requirement of "detachability"
(except for a basket marketed by a subsidiary that includes only Bezeq's
broadband access service for Internet providers).
These restrictions, and in particular the "detachability" obligation, which
severely
limits the Group's ability to provide discounts on various
components in the basket of services, place the Group in an inferior
competitive position relative to competing communications groups that are
not subject to similar restrictions on the marketing of bundles (except, to
the best of the Company's knowledge, Hot Group's diminishing limitations).
Following the amendment of the terms of the merger of the Company and
DBS in accordance with the decision of April 12, 2021 of the Commissioner
of Competition, DBS was allowed to sell communication packages that
include internet services and television services without the obligation to
sell the television services at a detachable price that will be uniform for
package buyers and those who are not Purchasers of packages - see Section
2.16.9.3.
The Company’s baskets with DBS - in recent years, the Ministry rejected
various requests from Bezeq to provide its Internet services together with
the television services of the subsidiary - DBS (including over the Internet).
1.7.3.4
Additional restrictions on collaboration and preference between group
companies
There are additional restrictions on cooperation between Bezeq and the
Group companies both by virtue of competition law and conditions set by
the Competition Commissioner for mergers between Bezeq and Group
companies, which prohibit discrimination in favor of the Group companies
in the provision of certain services (see Section 9.2.16), and by virtue of the
provisions of Bezeq's license, which require it to provide its services equally.
For additional restrictions see also Section 5.14.3.
Removal of the restrictions on structural separation and other restrictions
that apply to collaborations between the Group companies as detailed
above, insofar as they are removed, may create different opportunities for
the Group to exploit such synergies or facilitate the exploitation of such
synergies..
1.7.4.
Changing the regulatory structure - Amendment 76 to the Communications Law
On July 4, 2022, Amendment 76 to the Communications Law ("Amendment to the Law")
was published. In accordance with the amendment to the law, which largely entered into
22
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
force on October 2, 2022, the structure of the existing regulation in the field of Bezeq was
changed, among other things, in such a way that the obligation to obtain a specific license
in advance as a condition for the provision of Bezeq service, which was the main tool for
regulating the provision of communication services in Israel, was abolished, and instead
the default for the said regulation is through registration in the registry. In this way, the
Amendment to the Law allows any entity interested in providing a Bezeq service to know
in advance what the conditions are for its activity and to start operating without
requesting and without obtaining a license. The registry is managed by the Director
General of the Ministry of Communications. The Amendment to the Law established cases
in which the obligation to obtain a license will still apply when it comes to (a) a Bezeq
service provided through the mobile radio-telephone system; (b) a Bezeq service
provided through the Bezeq network whose number of users or subscribers or the
number of network terminal points or end points exceeds the number determined by the
Minister, with the exception of Bezeq service provided through the aforementioned
Bezeq network by another licensed provider (the regulations for this matter stipulate that
a license will be required from those who provide Bezeq service through a landline access
network13 with at least 100,000 users or through a fixed access network whose number
of subscribers who receive Internet access service at least 500,000); (c) Bezeq service
provided through a Bezeq network in which one of the following occurs: (1) It includes a
landline or mobile ground station in Israel for communication with a satellite; (2) It
includes a satellite located at the location or using the registered route In the name of the
State of Israel in the International Telecom Union (ITU); (d) Carrying out a Bezeq operation
in a landline lightning facility connecting a point in Israel and a point outside Israel (with
the exception of Judea and Samaria). Also, a local authority (including a municipal
company or a municipal subsidiary) will not provide Bezeq service whether it requires
registration in the registry or a license, unless it holds a license and in accordance with
the terms of the license; The Minister has the authority to determine, with the approval
of the Knesset's Economic Committee, additional Bezeq services that will require a
license, as well as additional service providers that will be subject to the licensing
obligation (for certain services or for all of the services provided), if he considers that
under the circumstances of the case it is not sufficient to regulate through registration in
the registry to comply One or more of the following considerations: maintaining state
security or public peace, efficient utilization of a scarce resource, promotion of
competition. Also, the Minister may, due to one or more of the considerations listed
above, order a Bezeq service provider registered in the registry, that the provision of a
Bezeq service thereby will be subject to obtaining a license for every lightning service it
provides or for a Bezeq service of a type it decides.
In addition, the law changed the definition of "Bezeq service" subject to regulation, in
order to reduce the services subject to regulation. "Bezeq service" is defined as a service
provided to the general public or a part of it through the Bezeq network, which is one of
the following: data transmission service, Internet access service, telephony service, other
service listed in the first supplement to the law (as of the date of the report, there is no
detail in the supplement to the law).
Further to this, on October 2, 2022, regulations were published implementing the
regulation format according to which many of the entities that provide Bezeq services
today will be transferred from regulation through a license to regulation through
registration in a dedicated registry and in accordance with the regulations. In accordance
with the provisions of the regulations, they will not apply to certain licensees, including
the Company and its subsidiaries Pelephone, Bezeq International, and DBS, except in
relation to the ISP service provided by DBS. In parallel, as it appears from the explanation
of the regulations, the Ministry of Communications intends to map the licenses and
actively cancel the instructions in the licenses that are regulated in the regulations, as
well as in the near future to examine the justifications for determining different
arrangements within the licenses. Regarding the obligation to disconnect dormant
subscribers stipulated in the regulations, see Section 1.7.7.10.
Also, on December 8, 2022, the Ministry published a "Hearing to Update the Wholesale
13 Access network for this matter - Bezeq devices used to link between a switchboard and a network END point, using a wired
infrastructure, a wireless infrastructure or a combination of both.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Market Regulations and the Service Files - Adaptation to the New Regulation", according
to which the Ministry is considering amending the service files of the wholesale services
(BSA+Telephony; Mutual use of passive infrastructures; Physical infrastructure service
and Appendix No. 2 "Documentation of Passive Infrastructure Works") so that they
conform to the language of the law after Amendment 76 enters into force, and to the
language of the new communications regulations that were established pursuant to it.
According to the hearing, the changes being considered are, among other things, a
derivative of the wholesale market regulations and the elimination of distinctions
according to different types of licenses as well as a change of terms. In its response, Bezeq
stated that the relevant distinctions must be maintained in relation to the provision of
the various wholesale services to various licensed providers. As of the date of the report
- a decision has not yet been made in the hearing and the service files have not yet been
corrected or replaced by the instructions of a manager.
A draft amendment to the usage regulations was also published in December 2022, which
also included adjustments following Amendment 76 to the law. As of the date of the
report, the regulations have not yet been amended.
The effect of the amendment of the Communications Law and regulations on the Group
companies depends, among other things, on the manner in which they are implemented
by the Ministry of Communications, including the amendment of the licenses of existing
license holders.
1.7.5.
Key developments during the report period (including years preceding the report period)
1.7.5.1
Unified Internet service
includes an
As of April 3, 2022, Bezeq markets and provides a unified Internet,
infrastructure, and Internet access service, both on a traditional network
(copper) and on an advanced network (fiber). From this date, Bezeq is not
Internet
allowed to market a basket ("bundle") that
infrastructure service with Bezeq International's or another licensee's
access service. This development is a follow-up to the decision of the
Minister of Communications dated June 20, 2021 regarding the cancellation
of the separation between the infrastructure service and the internet access
service, and the granting of permission to Bezeq, and later Hot, to provide a
unified internet service to subscribers in a private service. According to the
decision, it is required, among other things, to regulate through a shelf
agreement, key performance indicators (KPI - Key Performance Indicator)
for the level of service and liquidated damages arrangements of the
infrastructure owner (the Company and Hot) with an access applicant who
has an ISP license and at least 10,000 active customers in a wholesale
market. On September 19, 2021, the General Directorate of the Ministry of
Communications decided that the agreement governing key performance
indicators (KPIs) submitted by Bezeq, will be a "shelf offer" according to the
Minister's decision and will apply to all access applicants and without
discrimination.
The implementation of the move and Bezeq's ability to offer a unified
service have a positive effect on its business. Regarding Bezeq International,
the move resulted in a significant reduction in the status of its Internet
customers and the structural change described in Section 1.1.6, so that
Bezeq International does not market Internet services to customers in a
private service, and starting in the second half of 2022, DBS is an authorized
provider for providing access services to the Internet, and provides Internet
services over fiber (an infrastructure component through a wholesale
service). The total impact on the Group in the coming years is expected to
be positive.
1.7.5.2
Many small operators
Following changes in regulation, the number of small service providers that
provide broadband Internet services including infrastructure has expanded,
in practice and potentially, first through the granting of special licenses
instead of a unified/general license (subject to a limit on the number of
subscribers and time), in accordance with the decision of the Minister of
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Communications of October 13, 2022, and later by eliminating the need for
licenses (except for exceptions) and moving to the provision of
communication services
limited to broadband
(including but not
infrastructure) through registration in the registry only and subject to the
permit regulations by virtue of Amendment 76 to the Communications Law
(see Section 1.7.4). Authorized providers as mentioned are not required to
go through a license issuance procedure in order to provide Bezeq service.
Also, the conditions that licensed providers are subject to according to the
permit regulations, in the provision of the services and in general, do not
necessarily include all the conditions stipulated in the licenses, so for
example, instructions regarding maintaining functional continuity in an
emergency and certain consumer instructions apply only to a licensed
provider that provides service on an advanced network to at least 50,000
end users and to an authorized provider providing mobile telephony
services to at least 200,000 end subscribers.
1.7.6.
Wholesale market
Starting from 2015, a model of "wholesale market" has been implemented in Israel, in
which the owners of the nationwide landline access infrastructures in Israel (Bezeq and
Hot) have been required to allow other communications operators to use their
infrastructures, at prices not to exceed the maximum rates set in the regulations.
In this context, the Ministry of Communications established "service portfolios" for the
various services, in which the format of the provision of services by the infrastructure
companies was determined:
1.7.6.1
Wholesale BSA service
This service allows Internet service providers who do not own an
infrastructure to offer their customers a full Internet service that includes
both an Internet connection service (of the service provider) and an Internet
infrastructure service (based on the Bezeq or Hot network - both on the
traditional network and on the fiber network). Since the launch of the
service, hundreds of thousands of customers in Israel have moved to receive
service through the aforementioned service providers.
1.7.6.2
Wholesale passive infrastructure use service
This service allows providers to use Bezeq's passive infrastructure for the
passage of communication cables (for some providers only in incentive
areas) and for certain providers to use dark fiber at the rates set in the
regulations. For more, see Section 2.16.4.
Bezeq was also given the right to use passive infrastructures of other
companies, except that their rates (except Hot) are not set in the
regulations.
1.7.6.3
Wholesale telephony service
This service allows service providers who do not own infrastructure to offer
their customers telephony service at wholesale rates through the Bezeq
network. Currently there are no customers in the service. For this matter,
see Section 2.16.4.4.
The regulatory determinations in relation to the wholesale market as well
as its implementation and development during the reporting period have an
impact on a significant part of the Group's activities. For more details about
the wholesale market services and their regulation, see section 2.16.4.
1.7.7.
Additional regulatory aspects that are relevant to the whole Group or to a number of
companies in it
1.7.7.1
Interconnectivity rates
The Group's communications companies (Bezeq, Pelephone and Bezeq
International) pay
fees to other communications
operators for calls that end in the networks of those operators and some
(Bezeq and Pelephone) receive interconnectivity fee payments for calls that
interconnectivity
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
ended in their networks and from international communication operators
for outgoing and incoming calls to their networks. Interconnectivity rates
are set as maximum rates by the regulator in the interconnectivity
regulations. Changes in interconnectivity rates have a offsetting effect at the
Group level in light of their effect on Bezeq's expenses and income and the
subsidiaries in this matter.
On June 28, 2022, an amendment to the interconnect regulations was
published so that the transfer of interconnection payments for telephone
calls that end on the networks of mobile radio-telephone and NIO operators
will be stopped, with a gradual reduction plan over three years as follows:
(1) On June 15, 2023: for a call ending on the mobile radio-telephone
network, a maximum rate of 4 Agorot per minute, and for a call ending
on the NIO network 0.7 Agorot per minute, and for an outgoing
international call - depending on the network from which it originated
(NIO or mobile radio-telephone).
(2) On June 15, 2024: for a call that ends on the mobile radio-telephone
network, a maximum rate of 2 Agorot per minute, and for a call that
ends on the Mapa network - 0.4 Agorot per minute, and for an outgoing
international call - depending on the network from which it originated
(NIO or mobile radio-telephone).
(3) On June 15, 2025, an accompanying arrangement will enter into force
according to which each communication operator will bear its own
costs and there will no longer be a transfer of payments between NIO
and mobile radio-telephone licensees for a mutual connection service
with regard to call minutes, regarding calls ending in the networks of
mobile radio-telephone operators, and on Bill and Keep networks, and
an international operator will not pay for the transmission of an
outgoing international call.
For incoming international calls to the NIO or mobile radio-telephone
network, the payment to be paid by an international operator will be as
required by NIO or mobile radio-telephone respectively (effective from July
28, 2022). At this point, it is not different from the interconnect rate regime
in the SMS service
1.7.7.2
Limiting the exit fee that a licensee may charge from a subscriber
In accordance with the provisions of the Communications Law, NIO,
international operator and broadcasting licensees (including Bezeq, Bezeq
International and DBS) are not allowed to charge an exit fee for cancellation
of contract by a subscriber whose average monthly bill is less than NIS 5,000,
or deny him a benefit he would have received if he had not terminated the
14. Cellular operators (including Pelephone) - are not allowed to
contract1
charge exit fees from customers who hold up to 100 telephone lines or link
a contract for the receipt of cellular services to a contract for the purchase,
rent or borrowing of end equipment ("disconnection").
3F
1.7.7.3
License amendments and related legislation
a. Response times at call centers
The amendment to the licenses of Bezeq, Pelephone and Bezeq
International have established, among other things, provisions
regarding the obligation to route calls in certain matters to professional
human response, response times, as well as provisions regarding call
center hours, recording and documentation of calls and reporting
obligations. The amendment entered into force on the date of its entry
into force of the amendment to the Consumer Protection Law (July 25,
2019), which deals, among other things, with the waiting period for a
14 With regard to the operators' claim in the hearing held by the Ministry in connection with this directive, according to which discounts or
benefits stipulated by conditions that the subscriber is required to comply with do not constitute a violation of the directive, the Ministry
stated that it will examine whether the condition is true and relevant also when the subscriber remains a subscriber with the operator.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
human response. The DBS’s broadcasting license has been similarly
amended.
On June 30, 2021, the licenses of Bezeq, Pelephone, Bezeq International
and the licenses of other communications operators were amended.
The amendment stipulates that the call center for handling subscriber
inquiries (which are not inquiries regarding a malfunction in receiving
Bezeq services and loss of cellular equipment) will be staffed for 45
hours a week. It is also stipulated that the licensee will operate a digital
means of communication such as texting or chat, in order to receive
inquiries regarding the licensee's services, which are not inquiries
regarding malfunctions and loss of cellular end equipment. This
amendment does not apply to 24/7 call centers (fault handling centers,
etc.) the activity of which continues unchanged. On September 2, 2021
the DBS license was similarly amended.
b. Amendment of the IPv6 protocol (Internet addresses)
On July 3, 2019, the Ministry of Communications issued a decision by
way of hearing and amendment to the license according to which the
transition to the IPv6 protocol will be executed according to the
milestones determined. For Bezeq (as a holder of a landline NIO license)
and for holders of Internet access licenses, it has been determined,
among other things, that the network and its components will be
adapted in a way that allows access to Internet service subscribers via
IPv6 protocol from any end equipment supporting the IPv6 protocol,
and that the licensee must proactively transfer to addresses in the IPv6
protocol existing and new subscribers with end equipment that
supports the IPv6 protocol. The transfer of subscribers will be done
according to milestones, so that up to 24 months from the date of the
amendment, 50% of the subscribers will move, up to 36 months - 75%
and up to 48 months – 100% of subscribers (except subscribers who
hold private end equipment which does not support the IPv6 protocol
and decided not to replace it, provided that the licensee, among other
things, will sign a waiver). Bezeq is in the process of transitioning to the
IPv6 protocol in accordance with the established milestones, and it does
not anticipate a material expense in respect thereof. Regarding holders
of mobile radio telephone licenses (such as Pelephone), it was
determined that the proactive transfer will reach 100% within 24
months. Pelephone has completed the process of transferring
subscribers in its systems in support of the new protocol (except for
business subscribers who are receiving enterprise network services, for
which a dedicated solution will be implemented).
1.7.7.4
Consumer legislation and privacy protection laws
Changes in consumer legislation affect the activities of the Group companies
on an ongoing basis. In recent years, various amendments to the Consumer
Protection Law and its regulations have been approved. In addition, a
variety of bills for additional amendments to the Consumer Protection Law
have been brought before the Knesset, which may have an impact, among
other things, on the terms of the Group's contracting and conduct with their
subscribers.
On January 1, 2023, the provisions of the Consumer Protection Law entered
into force, which prohibit a trader or anyone on his behalf from making a
marketing appeal to a consumer whose telephone number is registered in
the database established by the Consumer Protection Authority in order to
enter into a transaction (subject to exceptions established by law). In
accordance with the amendment, telephone numbers of consumers who
wish to limit such marketing inquiries to them will be recorded in the
database. The provisions of the law may create a limit on marketing
activities and the degree of their effect will depend on the scope of joining
the database.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
In addition, the activity of the Group companies is affected by the provisions
of the Privacy Protection Law and its regulations regarding the management
and maintenance of databases and the security of the information
contained therein.
1.7.7.5
Enforcement and financial sanctions
The Communications Law, the Economic Competition Law, the Securities
Law, the Consumer Protection Law, the Law for Increasing the Enforcement
of Labor Law, 5772-2011 and the Telegraph Order entitle the regulators to
powers of enforcement, supervision and the imposition of significant tiered
financial sanctions for violations of the said laws or regulations and
provisions thereunder.
In Amendment 76 to the Communications Law, the Director General of the
Ministry of Communications was given the authority to impose a financial
sanction at a rate of up to 10 times the basic amount stipulated in the
Communications Law for violating a license provision regarding the
obligation to deploy an advanced network or provide a service over it.
In recent years, the Ministry of Communications has made extensive use of
the supervisory authority. For financial sanctions imposed by the Ministry of
Communications regarding wholesale services, see Section 2.16.4.2
(Footnote 40) for sanctions imposed.
The Consumer Protection and Fair Trade Authority also makes use of the
enforcement powers conferred on it by the Consumer Protection Act, and
from time to time data demands are issued, investigations are conducted
against the Group companies on suspicion of violating this law and fines are
imposed. In April 2022, a financial sanction of NIS 6.9 million was imposed
on Bezeq, for alleged violation of Article 2(a)(1) of the Consumer Protection
Law, claiming that Bezeq did not supply thousands of consumers who
purchased a browsing package of the type TOP 100 with this speed. Bezeq
filed an appeal Bezeq filed an appeal to the Magistrate's Court and asked,
among other things, to cancel the Authority's decision.
1.7.7.6
The Centralization Law
The Centralization Law enacted in 2013 establishes limitations in relation to
extending credit to business groups, separation between significant real
corporations and significant financial entities (Bezeq and the Group
companies are defined as significant real corporations according to the
Centralization Law) and consideration of economy-wide centralization
considerations in the allocation of rights - limitations on the allocation of
rights in essential infrastructure to "centralizing factor". For this matter, a
list of areas that will be considered "essential infrastructure areas" has been
defined, including activities in the area for which certain communication
licenses are required. Bezeq and the group companies are included in the
list published by the Competition Authority and are considered a
"concentrated entity". The law may have negative effects on the group's
ability to operate in new areas of activity and even on its activities in its
existing areas of activity.
1.7.7.7
Millimeter waves
Millimeter-wave technology makes it possible to wirelessly transmit
significantly larger bandwidth than previously available technologies. The
technology can be used both from point to point and from point to multiple
points, and is a solution for the last segment, that is, the connection to the
subscriber's end point. Through the use of this technology, it is possible to
connect large areas relatively quickly and at lower costs compared to the
deployment of a wired infrastructure.
In January 2022, the Ministry wrote to Bezeq that the approval to provide a
service not through wired deployment is given only in certain localities, that
the approval given by the Spectrum Division is for frequency use and not
approval to provide service by wireless means, and that insofar as Bezeq
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
intends to provide service through non-wired infrastructure to other
localities, the advisory committee should be contacted . Bezeq responded
that its license allows service to be provided via wireless infrastructure, such
as millimeter waves. According to the Company's position, it is possible to
provide a proper service to subscribers, as required by its license, using this
technology. On July 11, 2022, the Ministry contacted the Company with a
request for data regarding the deployment and provision of Bezeq services
using wireless technology and reiterated its position. The Company handed
over the data on August 4, 2022, explained its position again and even
offered a discussion on the matter.
1.7.7.8
Data demand hearing - Consumption of communication services
On January 17, 2021, the Ministry of Communications issued a hearing
according to which it intends to demand a very large monthly transfer of
data on the characteristics of the consumption of communication services
by subscribers (including identifying details about the subscriber, the
package consumed thereby, and details regarding each of the services
consumed by the subscriber). The data demand will be sent to all operators
in the communications market that provide services to end customers
(private and business) as well as to various licensees and it applies to all
types of customers who receive service from the licensee (private and
business), both wholesale and retail. According to the hearing, cross-
referencing the information will allow the Ministry to obtain a complete
picture of the activities of communications providers on the one hand, as
well as the characteristics of the communications consumer on the other,
and it is expected to allow the Ministry to monitor the level of competition
in the various sub-markets. On March 9, 2021, Bezeq submitted its response
to the hearing, according to which the hearing is fundamentally flawed by
many problems and failures, including a breach of privacy and business
secrecy; Information that is high in volume without defining a purpose on
the basis of which an adapted data demand has been clearly formulated,
when this is not intended by authority in law; Creating a very tangible
danger due to the construction of a huge database, which centralizes
detailed information, at the personal, financial and business level, of all
citizens of Israel and the business companies active in it, while creating
endless opportunity for cross-referencing information; The individual
resolution of the requested data creates an opening for a jungle of legal
issues. The reporting format is often irrelevant and / or inapplicable; The
scope of resources required by Bezeq for the benefit of the matter is very
significant and requires a diversion of manpower in the field of information
systems from critical business activities. Bezeq believes that the solution to
these problems is to shelf the intention presented at the hearing for the
comprehensive transfer of all Bezeq's customer data, or alternatively a
specific definition of targets and objectives on the basis of which the data
relevant for their achievement will be clearly and accurately defined, and
which complies with the Ministry's powers in receiving information and is
supported by the structure of Bezeq's information systems. A similar
reference was also submitted by the subsidiaries Pelephone, Bezeq
International and DBS.
1.7.7.9
Inactive subscribers
On September 10, 2020, the Ministry of Communications contacted the
telecommunications operators (including Bezeq, Pelephone and Bezeq
International) in a letter in which it raised concerns that some of the
subscribers to the operators' services are not using them and are not even
aware of it. The Ministry recommended in its appeal to operators to act to
notify and stop charging subscribers who do not use these services, and also
requested periodic reports on the matter. It was also stated that the
Ministry will consider in the future whether to set binding provisions in the
matter, in case proactive actions will not lead to a significant reduction
therein. Regarding the handling and consequences of the Ministry of
Communications' request to Bezeq International, see Section 4.4 and Note
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
10.6 to the 2021 statements. On January 14, 2021, a preliminary request
was also sent to DBS by the Cable and Satellite Broadcasting Council
regarding "Demand for information about "dormant" subscribers as well as
about services that subscribers pay for and do not use". In March 2021, DBS
replied that due notice was given to its subscribers, and that it could not
provide the requested information due in part to the lack of established
information in its hands, due to the Council's lack of authority in at least
some of its requests, and due to additional difficulties inherent in the
Council's application. It should be noted that in the permit regulations that
apply to the Internet access services of DBS (and not to the other Group
companies), there is an obligation to disconnect "dormant subscribers" from
Internet access services (a subscriber who has not used an Internet access
service for at least six consecutive months), except in relation to the service
for a medium-large business subscriber as defined in the regulations.
1.7.8.
Restrictions on creating liens on the assets of the Group companies
For the sake of convenience, the following are references to sections in the 2022 periodic
report that relate to the restrictions that apply to the Group companies in the lien on their
assets and the main restrictions:
1.7.8.1
1.7.8.2
Regulatory restrictions - The Communications Law, the Communications
Order (applicable to Bezeq) and some of the communications licenses of the
Group companies include restrictions on the granting of rights to third
parties in the assets used to provide the essential service or in the license
assets.15, as the case may be, including the need to obtain regulatory
approvals to create liens on these assets. In some cases, for example
Pelephone's mobile radio telephone license and Bezeq International's
unified license, there are exceptions that allow the creation of liens in favor
of a banking corporation without the need for advance regulatory approval,
provided that the lien agreement includes provisions ensuring that the
exercise of the lien by the banking corporation will not impair the provision
of the services under the license. In addition, according to the provisions of
the law and the media licenses, the license and the rights under it are not
transferable, and cannot be encumbered or foreclosed (subject to
exceptions). See also sections 2.16.3.7, 3.14.2 and 5.15.1.7.
Restrictions under agreements- Bezeq undertook to certain financiers in an
undertaking not to encumber its assets unless, at the same time, it creates
in favor of those financing bodies a lien of the same type, rank and amount
(negative lien), subject to certain exceptions. see also Note 13.3 to the 2022
statements.
1.7.9.
Pandemic - Outbreak of COVID-19
At the beginning of 2020, a global outbreak of the Coronavirus (COVID-19) began, ("the
Incident"). Following the Incident, many countries, including Israel, have taken various
steps and imposed restrictions in an attempt to prevent the spread of the virus. During
the year 2022, there was a significant decrease in the outbreak of the virus and the effects
of the Incident, while the consequences of the Incident on the Group's activities in 2022
were mainly manifested in the damage to Pelephone's revenues from roaming services
(an injury that gradually decreased throughout the year until the date of publication of
this report) and without significant negative effects in other areas of activity. As of the
date of publication of the report, there are no special effects of the event on the Group's
areas of activity.
Regarding epidemic as a general risk factor in the Group's areas of activity, see Sections
2.20.13, 3.19.1.2, 4.14.5 and 5.18.1.3.
1.7.10.
Cyber defense management
1.7.10.1
The Group companies implement a cyber protection policy that includes
security systems to protect their infrastructures and systems which are
designed to prevent and reduce the possibility of the companies' data being
15
The assets needed to ensure the provision of services by the licensee.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
exploited by an outside party or an internal party maliciously or inadvertently,
as well as the possibility of an outside party taking over and managing network
components or abusing information on the company's infrastructure and
systems. For more details regarding each field of activity and cyber risks see
Sections 2.20.11, 3.19.2.8, 4.14.7 and 5.18.3.9.
1.7.10.2 Also, on May 12, 2022, the Bezeq, Pelephone and Bezeq International licenses
were amended with an amendment regulating the issue of preparation for
cyber defense management. This amendment was replaced on December 26,
2022 by a director's order essentially identical to it. The principals of the
amendment to the Directorate deal, among other things, with the protection
of the communication network, maintaining the relevance and up-to-dateness
of systems, the licensee's dealing with cyber incidents and situations in which
the licensee is required to report and share information.
1.7.11.
Additional regulatory developments during the reporting period and the main
restrictions that apply to the Group's areas of activit – for a description on such matters,
see Sections 2.16, 3.14, 4.11 and 5.15.
For a description of these matters see Sections 2.16, 3.14, 4.11 and 5.14.
1.8.
Bezeq Group business strategy
Group vision
Bezeq Group – the largest, leading telecommunications group in Israel, will lead and promote the
digital revolution in Israel, through advanced infrastructure and services for the private and business
segments, and strive for continuous improvement in its business results.
Group strategy
1.8.1.
Strategic focus - focus on building infrastructure and growth engines
A. Accelerated deployment of fiber optics and the transition to a unified Internet
package will constitute a growth engine in Bezeq Fixed Lines.
B. Bezeq International's private segment Internet activity will be reduced, and ISP
activity will be established in DBS, which will become the "triple" sales arm that
combines fiber and television.
C. Pelephone will leverage the transition to 5G to increase revenue and ARPU.
D. Bezeq International will become a growth-focused ICT company.
1.8.2.
Focusing growth strategy by theaters
A. Communication, information and content services for households - investing and
focusing efforts on growing and strengthening the competitive position in the
theater, by offering as wide a basket of services as possible and deepening the
penetration of households.
B. Business communication services - maintaining and strengthening the leading
position in the theater through offering value-added to customers, based on quality
service and advanced products.
C. Cellular services - maintaining and strengthening the competitive status, while
striving to increase revenues and improve profits.
D.
ICT services for businesses - investment in building capabilities that will enable
significant growth.
1.8.3.
Additional strategic moves
The Group will work to locate investments in areas that are tangent and complementary
to the Group's activities and its competitive capabilities. Initiated investment and
acquisition activity will enable shareholders to increase their return by entering areas of
higher growth than that of the activity in the Group's traditional core areas. The
diversification of the portfolio will allow for the diversification of risk, and the reduction
of dependence on regulatory risks.
Beyond the strategic moves, the Group strives to strengthen the foundations that will
enable continued growth in the medium term - striving for operational excellence
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through expanding the digital transformation, streamlining the cost base, improving
market response times and flexibility for changes, and striving to eliminate structural
separation.
Optimal cash flow management – maximizing value to shareholders, while maintaining
an AA Group credit rating - the Group aims to maintain high credit rating in the AA group
while adjusting the debt repayment burden to self-generating cash flow and maintaining
significant liquidity, while distributing dividends to shareholders.
In addition, the Bezeq Group strives to be one of the leading companies in the field of
ESG.
This section includes forward-looking information, within the meaning thereof under the
Securities Law, including forecasts, targets, business strategy, assessments, aspirations
and estimates, both regarding the activities of Bezeq and the companies held by it and
the markets in which they operate, as well as regarding any other information relating to
future events or matters whose materialization is uncertain and not under the control of
the Company ("forward-looking information"). Although the Company believes that the
information is forward-looking based on reasonable estimates, the said information is
subject to certain risks and uncertainties. Forward-looking information is inherently
subject to risks of non- materialization and is uncertain, and the Company does not in any
way guarantee that its assessments, expectations, aspirations, plans and objectives will
be materialize in practice. Accordingly, forward-looking information should not be
construed as a promise that it will actually materialize. Implementation and / or other
changes in forward-looking information depend on factors that are not necessarily known
in advance, and are not necessarily under the Company's control, including risk factors
and the nature of its operations, developments in the general environment and external
factors and regulation affecting its activities and other factors. The results and
achievements of the Bezeq Group in the future may differ materially from those
presented in the forward-looking information presented in this section.
1.8.4.
Streamlining moves and promoting the assimilation of synergies between subsidiaries
Bezeq’s subsidiaries Pelephone, Bezeq International and DBS (the "Subsidiaries") have
implemented and are implementing significant moves to promote and assimilate the
synergy between them, including the signing of collective agreements which include
streamlining and synergy procedures; Maintaining managements
in a similar
composition, while streamlining decision-making processes, along with savings in
expenses; Implementing streamlining measures and saving on operating expenses;
Service sales through the distribution channels of the companies; Implementing a shared
customer management system (CRM) over an advanced Cloud platform; deepening
shared procurement and using shared resources. In this matter, see also Section 1.1.4.
Bezeq International, which is in the process of transitioning to a growth-focused ICT
company, is also taking streamlining measures, including the signing of a collective
agreement that includes streamlining, as well as streamlining and cost-saving measures.
Also, reducing the ISP activity at Bezeq International fits in with the synergy in the Group.
For details on additional strategic objectives in relation to each of the Group companies,
see Sections 2.19, 3.17, 4.13 and 5.17.
In respect of decisions by Bezeq’s Board of Directors and DBS’s Board of Directors
regarding an outline for a gradual transition from satellite broadcasts to transmission via
the Internet (OTT) see Section 5.17.1.
The assessments described in this section are forward-looking information, as defined in
the Securities Law, that may be affected by various factors, including future changes in
the Israeli market in general and in the communications market in particular, strategic
and other moves to be made in Bezeq and its subsidiaries, regulatory changes, Bezeq's
competitive position, etc. The above may be affected by the materialization of some of
the risk factors listed in the Sections 2.20, 3.19, 4.14 and 5.18.
1.9.
Corporate accountability (ESG)
On February 24, 2022, Bezeq's Board of Directors approved the expansion of its activity in the field
of corporate accountability (ESG - Environment, Social and Governance), following Bezeq's existing
activity in the field. In this context, the Board of Directors approved a sustainability vision for Bezeq
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
- "Bezeq connects Israel to a sustainable future", as well as setting ESG targets, including long-term
targets in the field of environmental responsibility that include reducing net greenhouse gas
emissions to zero by 2050 (Net zero 2050); and in the field of environmental responsibility, increasing
the rate of representation of women in the management ranks of Bezeq employees to 50% by 2030
(in Bezeq's Board of Directors - at least 40%); Increasing the rate of diversified populations to 20%
by 2030. The Company is working to apply the aforementioned ESG targets also in its subsidiaries
Pelephone, Bezeq International and DBS. Bezeq's Board of Directors also approved Bezeq's corporate
accountability policy documents on various topics at the same time and in February 2023..
In addition, during 2022, Bezeq continued to cooperate with civil society organizations to reduce the
digital divide and encourage the volunteering of its employees for the benefit of a wide range of
social goals, as well as investing resources in the continuous improvement of corporate governance
in the group, which includes the adoption of management norms and the management of advanced
compliance programs.
Bezeq publishes corporate responsibility reports in accordance with the reporting standard of the
Global Reporting Initiative (GRI).
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
2.
Bezeq – Landline interior communications
2.1.
General information about the field of activity
2.1.1.
The field of activity and changes that apply to it
Bezeq owns a general license for the provision of landline interior communications
services and provides a variety of communication services as specified in Section 2.2, the
main ones being: Internet access and infrastructure services, landline interior telephony,
transmission and data communication services, Cloud and digital services and wholesale
services (for wholesale services, see Section 2.16.4).
2.1.2.
Legislative and regulatory constraints and special constraints
2.1.2.1
Communications Law and Bezeq's NIO license
subject
to governmental
Bezeq's activities are
regulation and
comprehensive supervision arising from its status as a general licensee
under the Communications Law, subject to the provisions of the
Communications Law, the provisions, regulations, orders and rules enacted
thereunder and the provisions of the NIO license and other laws. In this
regard and for the restrictions on Bezeq's activities and changes in this
inter alia, regarding the determination of rates, structural
context,
separation, approvals for new services and service baskets as well as
wholesale market see section 1.7.2 and section 2.16.
Additionally, Bezeq has been declared an essential Bezeq service provider
under the Communications Order. By virtue of this declaration, Bezeq is
obligated to provide a number of basic services under the NIO license and
may not discontinue or reduce them without approval. The order further
stipulates restrictions on the transfer and purchase of means of control of
Bezeq and certain restrictions on Bezeq’s activity. For details, see section
2.16.8.
2.1.2.2
Laws of Economic Competition
Bezeq has been declared a monopoly in the main areas of its operations,
and it is also subject to supervision and restrictions under the Economic
Competition Law (see section 2.16.9).
2.1.2.3
Environmental law and planning and construction law
Some of Bezeq's activities involve the use of wireless frequencies and the
operation of facilities that emit electromagnetic radiation, which are subject
to the Telegraph Order (see Section 2.16.10), to the Non-Ionizing Radiation
Law (see Section 2.15.2), and to National Outline Plan 36 and National
Outline Plan 56 (see Section 2.16.11).
2.1.3.
Changes in the scope of activity in this field and its profitability and developments in the
market and in the characteristics of customers
For key data on the scope of activity in the field of landline interior communications and
its profitability in 2021 and 2022, See Section 1.5.4.1. The following is a description of the
main changes in the scope of activity in this field during the reported period16:
2.1.3.1
Wholesale market - At the beginning of 2015, Bezeq began providing a
wholesale BSA service for service providers, when as of the end of 2021, the
number of wholesale Internet subscribers on the Company’s network was
approximately 473k subscribers, constituting approximately 33% of all
Bezeq's Internet subscribers. In this context, it should be noted that within
these subscribers there are also subscribers that were not on the Company’s
network in the first place (new or from a competing network). There is no
demand for wholesale telephony services (zero subscriptions as of the date
of publication of the report).
Bezeq also provides a wholesale service that allows competitors to use
16
For details of the data as well as subscrber definitions and average revenue, see the notes to the table in Section 0.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
2.1.3.2
Bezeq's passive infrastructure.
Regarding the wholesale services, see Section 2.16.4.
The field of landline telephony - in recent years, the field of landline
telephony has been characterized by a decrease in demand, which is
reflected in a decrease in the rate of landline telephone subscribers and a
gradual erosion in the number of calls originating in landline networks. In
Bezeq's estimation, this trend is mainly due to the increase in the use of
personal, cellular, smart phones in light of large-scale call packages that
cellular companies have marketed extensively in recent years and from a
decrease in prices in the field (Bezeq estimates that 87% of all calls originate
in the cellular network), as well as an increase in the number of calls over
the Internet (See Section 2.1.4). In 2022, there was a decrease of about 3%
in the number of Bezeq subscribers compared to 2021.
Diagram - Rate of households without a landline telephone line17
63.7%
59.9%
56.1%
52.3%
45.3%
37.9%
35.0%
30.8%
27.1%
23.6%
11.4% 13.2% 14.9% 14.9% 15.7% 16.4% 17.6% 17.8% 19.1% 20.4%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
*
2021
*
2022
*
2.1.3.3
The field of Internet access - the Internet market saw a significant increase
in bandwidths and browsing speeds, mainly with the deployment of fiber
infrastructure and the adoption of advanced services and value-added
applications. Also, in recent years, the trend of growth in terms of the
number of customers continues. During the year 2022, Bezeq estimates that
the following changes compared to 2021 will apply: an increase of
approximately 2% in the number of landline Internet subscribers in Israel
and a decrease of approximately 1% in the total number of the Company's
Internet subscribers (increase in retail and decrease in wholesale). In terms
of browsing rates, Bezeq provides fiber service at rates of up to 300 Mbs,
600 Mbs, 1 Gb, 2.5 Gb in the areas where it deploys the fibers (for Beze’qs
choice areas see Section 2.7.2.2). The Company also provides speed at a rate
of up to 200 megabytes on its copper network
17 The data were taken from the publications of the Central Bureau of Statistics (Household expenditure survey for 2019 and
preliminary findings from the Household Expenditure Survey 2018) dated November 26, 2019 and July 31, 2022. In relation
to the data for the years 2020-2022 - in accordance with the Company’s assessment based on surveys by the Central Bureau
of Statistics from previous years.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Diagram - Distribution of Internet subscribers on Bezeq infrastructure (quarterly, in thousands):
2.1.3.4
Data transmission and communication services
The areas of transmission and communication data for business customers
and communication providers are characterized, on the one hand, by a rapid
increase in customers' bandwidth needs, and on the other hand, a decrease
in the price of a given volume of traffic, which stems from the development
of technology to increase bandwidth at lower costs than in the past (see
is a shift to the use of the
Section 2.6.4).
telecommunications providers' own infrastructure. For this matter see
Section.
In addition, there
2.1.3.5
Service packages
For an increase in the rate of consumption of packages and baskets of
services, see section 1.7.1. Regarding Bezeq's shared service baskets, see
Section 1.7.3.
2.1.4.
Technological changes that have a significant impact on this field of activity
2.1.4.1
In the communications market, a trend has been established towards IP-
based technologies, which promote the phenomenon of "technological
convergence" between the various communication systems (such as
telephony and DATA). There has also been an increase in the penetration of
integrated end devices that enable the consumption of various
communication solutions on the same device (such as cellular and Wi-Fi
services). These two, together with the increase in the availability of IP
protocol-based technologies and the continuing trend of
increasing
bandwidth, enable the customer, including the business customer, a wide
range of applications and services on IP based infrastructures, such as
telephony services, including private exchange services, video transmission
services
, TV, private networks, network services with enterprise
applications on the Internet infrastructure (ERP, CRM, etc.), cloud services
and services on the cloud. These developments are leading to an increase in
bandwidth demand by Bezeq's Internet infrastructure, transmission and
data communications customers. Technological developments and
declining equipment prices may even allow other operators to provide
services similar to those provided by Bezeq at lower costs.
Technological changes can also lead to the cannibalization of services. An
example of this is a decrease in the consumption of the Group's traditional
landline telephony services (for competition in the field of telephony
through the provision of services on Bezeq's Internet infrastructure (VoB),
see Section 2.6.3.1). The increase in the speedds of the cellular service
enables the cellular operators to compete with Bezeq's telephony and
Internet services, and to market greater bandwidths to their customers at
lower prices than in the past. In the Bezeq’s opinion, as of the date of the
report, the increase in the number of customers browsing the cellular
Internet did not materially affect the scope of Bezeq's Internet activity.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
However, the potential for increase in the use of cellular networks at the
expense of the use of the Bezeq network exists and may increase with the
establishment of 5G (see section 3.1.5), since it will also be able to provide
ultra-fast internet at the customer's home.
Bezeq also develops and provides services based on wireless technologies
for IoT (Internet of Things) solutions, including for smart homes, businesses
and complexes. See Section 2.2.5.
2.1.5.
The critical success factors in the field of activity and the changes that apply to them
2.1.5.1
2.1.5.2
2.1.5.3
2.1.5.4
2.1.5.5
2.1.5.6
The ability to offer reliable communication systems at a competitive price
based on a cost structure adapted to the frequent changes in Bezeq's
business environment.
Regulatory decisions and the ability to deal with them.
The ability to maintain innovation and technological leadership and
translate it into advanced, reliable and valuable applications for the
customer in short response times, as well as marketing primacy.
Preservation of brand values and their adaptation to the conditions of the
changing competitive environment.
Effectiveness of sales and service systems.
Informed pricing policy management, subject to regulatory restrictions.
2.1.6.
The main barriers to entry and exit of this field of activity and changes that apply to them
Activities in the field of landline interior communications require the receipt of
appropriate licenses. For a memorandum of understanding of the bill regarding a change
in the format of the regulation and transfer to the issuance of communication services
through registration in the registry only, see Section 1.7.4.
Traditionally, the main barrier to entry into this field has stemmed from the need for
heavy investments in technological infrastructure and enveloping systems to achieve size
advantages, and high costs associated with setting up marketing, sales, collection and
customer support systems and brand building. Over the years, the traditional barriers to
entry into Bezeq's areas of activity have significantly decreased as a result of the following
factors: technological improvements, declining prices of infrastructure and equipment,
changes in the rules of regulation (see sections 2.7.2 and 2.16.5), regulatory relief granted
to new competitors, the obligation to allow the use of Bezeq (and Hot) infrastructure and
services - including within the wholesale market and the use of VoB technology that
enables telephony services over another operator's broadband infrastructure, without
the need for an independent landline telephony infrastructure.
The main barriers to exit stem from the following: Bezeq's obligation, set forth in its
license, to provide its services on a universal basis (to the general public in Israel, except
in relation to fiber as specified in section 2.16.5); Its subordination to the provisions of
the Communications Order, regulations under the Communications Law, as well as
provisions under Article 13a of the Communications Law regarding emergency activities;
Its commitment to some of its employees employed under collective agreements; Large
investments that require a long return on investment; And a commitment to repay long-
term debentures and loans taken to finance investments. Some of these exit barriers are
unique to Bezeq and are not relevant to other operators operating in this field of activity.
2.1.7.
Substitutes for products in this field of activity and changes that apply thereto
Cellular communication services are a substitute product for Bezeq services, both in the
field of telephony, Including through apps and in IP technologies such as VoB (see Section
2.6.3.1), and in the field of the Internet (see Section 2.6.2), transmission and data
communication. Technological developments (such as 4G and 5G in cellular, fiber-optic-
based infrastructure, millimeter waves and advanced cable Internet protocols) enable the
provision of new services at high speeds and at competitive prices.
2.1.8.
The structure of competition in this field of activity and changes that apply thereto
The field of interior landline communications is regulated and supervised by the Ministry
of Communications, among other things, by allowing communication service providers to
37
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
register as authorized providers operating in accordance with the permit regulations as
well as by granting licenses, in circumstances where a license is required, to bodies
operating in the field.
In the communications market there are two licensees for the provision of landline
interior communications services obligated to provide service to everyone, nationwide
deployment and universal service (except in relation to the fiber network, where the
Company is obliged to provide service according to the constituencies - see Section
2.7.2.3): Bezeq, and Hot Telecom. IBC is also indebted for deployment, so that at the end
of 5 years from March 7, 211, 1.7 million households in Israel will be accessible to the
network18. The three companies compete with each other. At the same time, they were
allowed to make mutual use of each other’s physical infrastructure (except for
infrastructure owned by the IEC needed to provide essential service) and other authorized
provider’s infrastructure, so that in fact the competition could be through physical
infrastructure of another authorized provider, and in practice, today, mainly on Bezeq's
infrastructure (see Section 2.16.4.4 in this regard).
Cellcom and Partner, which have unique NIO licenses (which do not require universal
deployment), are deploying an independent fiber network.
The Internet field is characterized by high penetration rates attributed to the deployment
of national access infrastructure. In this field, there have been substantial changes in the
last two years: starting from March 2021, Bezeq provides an Internet infrastructure
service on an advanced network - the fiber network deployed by it; As of April 2022, Bezeq
is also a player in the unified Internet service, which includes both infrastructure (fiber or
copper) and an access service, and it is not allowed to market bundles with other access
providers; Providers with a special broadband infrastructure NIO license were allowed to
deploy landline infrastructure to provide Internet services and to use the Company's
passive infrastructure in the incentive areas for this purpose. After Amendment 76 came
into force, these and new providers became authorized providers registered in the
registry.
Bezeq's main competitor in the field of services provided over a traditional (copper)
network is Hot. Hot was handed over to provide a unified service in August 2022. Bezeq's
main competitor in service to communication providers on an advanced fiber network is
IBC (also owned by Hot and Cellcom), and in fiber Internet services for subscribers Bezeq's
main competitors are Partner and Cellcom. In addition, Bezeq is also exposed to
competition from the cellular networks (see Section 2.1.4).
Access service providers (ISP) became competitors of the Company upon the
implementation of the wholesale market in 2015, as they provide a package of services
that includes a broadband Internet access infrastructure through Bezeq infrastructures
that they use as part of the wholesale services. Starting in the middle of 2021, they can
also do so on the Company's fiber network.
The field of landline telephony is in competition, and Bezeq's competitors, some of them
within communication groups (see Section 1.7.1), are the cellular companies (see Section
2.6.3.2), Hot Telecom, as well as VoB service providers operating under licenses without
universal service obligation For several years now, without their own self-access
infrastructure. For details about wholesale telephony services see Section 2.16.4.
In the field of wholesale services, Bezeq Hot and IBC compete as infrastructure owners
committed to providing wholesale services. In practice, wholesale BSA services on the Hot
network began in the second half of 2018 (see also Section 2.16.4). Anyone who deploys
in the incentive area (whose license or an administrative order issued to an NIO
determines the obligation to deploy in the region it won in the tender) is also obligated
to provide a BSA wholesale service to other authorized suppliers in the same incentive
area.
In the field of data transmission and communication, Bezeq’s main competitors are Hot
Telecom, Cellcom and Partner, operating within the framework of communication groups
18 The duty of nationwide service for all also applies to holders of general licenses for the provision of mobile radio telephone
services such as Pelephone, Cellcom and Partner, as well as in the field of internaiotnal operator services - such as Bezeq
International.
38
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
and offering a complete communication solution to the customer.
Competition in the industry depends on various factors such as: regulatory decisions,
possible changes in the terms of the licenses of Bezeq and its subsidiaries and the terms
of the licenses of their competitors; mergers and collaborations between companies
competing with the Group companies; Possible implications of the Centralization Law;
Continued development of the wholesale market and the asymmetry between Bezeq's
ability and the ability of competitors to sell a comprehensive service; The new services
that Bezeq will be allowed to provide; The rates policy, elimination of the structural
separation and the degree of flexibility that will be given to Bezeq in offering
undetachable service packages,
technological
developments.
including with subsidiaries and
For a description of the development of competition, see Sections 1.7 and 2.6.
2.2.
Products and services
2.2.1.
General
Bezeq provides a wide range of communication services to its business and private
customers as detailed below.
2.2.2.
Telephony
Bezeq's telephony services mainly include the basic telephone services via the home
telephone line, and ancillary services such as: voicemail and caller ID.
Bezeq also provides its customers with national numbering services for businesses ("1-
800", "1-700"), the calls in which are paid in full or in part by the business.
Bezeq operates a unified call center19, under the code (1344) established by the Ministry
of Communications also for operators of landline and cellular telephony, as well as a
unified website free of charge, in addition to Bezeq's 144 service.
For the provision of a resale service and for wholesale telephony service, see section
2.16.4.4.
2.2.3.
Internet access infrastructure services and ISP
Bezeq provides broadband internet services over the copper infrastructure using xDSL
technology, wirelessly using VBAND technology and over the fiber network in statistical
areas subject to milestones in its license. Bezeq's fiber infrastructure allows for higher
speed, and accordingly, there will be an increase in the average package rate. Also, as of
April 3, 2022, Bezeq markets and provides a unified internet service, infrastructure and
internet access (for this matter, see Section 1.7.5.1).
For details regarding changes in the number of Bezeq Internet subscribers, the average
monthly income per Internet subscriber, and the average package speed, see Section
1.5.4. For details regarding Bezeq's market share in this field, see Section 2.6.2.
The Internet service is one of Bezeq's main occupations and a major route in its
investments in technologies, marketing, advertising and customer acquisition and
upgrade. The average package speed of Bezeq's Internet subscribers.20
Broadband Internet service is also provided on a subscriber line without telephony at no
extra charge for the access line.
Bezeq is obligated to provide a broadband Internet access service (including on an
advanced fiber network) in a BSA wholesale format to authorized providers, who in this
way provide their customers with a uniform Internet service, including infrastructure. For
this service see Section 2.16.4. For the agreement for the provision of the indefeasible
right-of-use (IRU) service in the BSA fiber service (wholesale market) by Bezeq to Partner,
19 "Unified" information service is an information service that contains data regarding the subscribers of all operators. Landline
and cellular telephony operators are required to provide unified intelligence services by virtue of their communications
licenses. The activity is exempt from receiving a restrictive arrangement approval, valid until November 11, 2023.
20
Including revenue from service providers in wholesale service
39
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
see Section 2.6.2.1.
Diagram - Changes in the package speeds of Bezeq Internet subscribers in the years 2013-2022
(Mbps, as of the end of each year)*:
100%
50%
0%
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Up
דע
to 5
15
16-40
41-100
101-200
201-2500
* In packages where there is a range of speeds, the maximum speed in the package is taken into
account
2.2.4.
Data transmission and communication services
Data communication services are network services for transferring data from point to
point, data transfer between computers and various communication networks, services
for connecting communication networks to the Internet and remote business access
services.
Bezeq offers transmission services, including at high speeds, to communications
operators, international parites and its business customers in a variety of interfaces (see
Section 2.6.4).
2.2.5.
Cloud and digital services
This category includes, among others, virtual server services, cyber services, "smart
home", "smart business" and smart complexes services, virtual private hub services (IP
Centrex), as well as the B144 service which is Bezeq's advertising platform for digital
advertising and marketing for small businesses, BCAM, SMS, WiFi and remote backup.
2.2.6.
Other services
2.2.6.1
Additional services for communications operators
Bezeq provides services to other communications operators, including:
cellular operators;
International operators; Hot; Network endpoint
operators; Internet Service Providers (ISPs); Interior operators; Palestinian
communications providers.
The services that Bezeq provides, as stated, include infrastructure services,
linking to the Bezeq network, billing and collection services, renting areas
and providing services in rented properties.
For the provision of wholesale services to communications operators and
infrastructure also for
for the possibility of using Bezeq's physical
infrastructure owners, see section 1.7.4. In this regard, it should be noted
that as of 2019, there has been a certain deterioration in the payment ethics
of communications operators, deferral of payments and an increase in the
volume of dispute claims. This state of affairs, in parallel with the erosion in
the financial strength of various operators, increases the risk of having to
recognize
loan-loss and bad debt. However, as of this date, this
deterioration does not have a material effect on Bezeq. On April 27, 2020,
Bezeq, through its attorney, contacted the Ministry of Communications and
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
announced that it does not intend to allow the continued provision of
wholesale services to service providers who do not pay for these services.
Following an investigation by the Ministry of Communications and a hearing
it published on the subject, on March 25, 2021, the Ministry decided to
establish a procedure for dealing with the issue, stating, among other things,
that the staff handling complaints in the Ministry of Communications can
recommend to the authorized factor within the Ministry that the Ministry
will not prevent the affected licensees from taking steps such as stopping
the provision of service, not connecting new subscribers and more,
depending on the circumstances and the severity of the case. Despite this,
there are still operator debts to Bezeq. Upon the expansion of the obligation
to also provide wholesale services to authorized providers, including use of
the Company's infrastructure (see Section 1.7.4, also regarding the hearing),
there may be a deterioration in this matter.
2.2.6.2
Broadcast services
Bezeq operates and maintains radio transmitters, among others, for the
broadcasting corporation, Galei Tzahal and a number of regional radio
stations. Bezeq also operates the DTT broadcasters for the Second
Authority. Bezeq is responsible solely for operating and maintaining the
transmitters for the purpose of distributing the broadcast of the radio and
television programs, and not for the content of the broadcasts. For this
matter, see also section 2.15.
2.2.6.3
Contractor work
Bezeq performs construction and operation of networks or sub-networks
for various customers (such as the Ministry of Defense, radio and television
broadcasting companies, cellular operators, international communications
operators, local authorities, municipalities and government bodies).
2.2.6.4
Electricity supply license
On September 1, 2021, Bezeq received a license from the Electricity
Authority to supply electricity without means of production. The Company
provides services to a small number of customers in accordance with the
terms of the license.
2.2.7.
Sale of end equipment and devices
As of 2019, Bezeq has been selling smartphones (in addition to other end equipment sold
thereby). Bezeq has expanded its offering to additional equipment and devices.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
2.3.
Revenue segmentation of products and services
The following is data about the distribution of Bezeq’s revenues according to the main products and
services in its field of activity in the years 2020-2022 (in NIS million):
Revenue from Internet infrastructure services
Rate out of the total Company revenue in the field of
activity
Revenue from landline telephony
Rate out of the total Company revenue in the field of
activity
Revenue from transmission and data communication
services
Rate out of the total Company revenue in the field of
activity
Revenue from Cloud and digital services
Rate out of the total Company revenue in the field of
activity
Revenue from other services and sale of end
equipment
Rate out of the total Company revenue in the field of
activity
Total revenues from the field of landline interior
communications
2022
1,789
41.55%
2021
1,624
38.83%
2020
1,622
39.0%
780
18.11%
913
21.83%
1,008
24.24%
1,132
1,087
1,011
26.29%
26.0%
24.31%
331
7.69%
318
7.6%
288
6.92%
274
240
230
6.36%
5.74%
5.53%
4,306
4,182
4,159
2.4.
Customers
Bezeq is not dependent on a single customer, and there is no customer Bezeq's revenues from whom
constitute 10% or more of its total revenues. Bezeq's revenues are divided into two main types of
customers: private customers (approximately 50%) and business customers (approximately 50%).21.
The aforesaid distribution is according to revenue, as detailed in the table below (in NIS millions):
Revenue from private customers
Revenue from business customers
Total revenue
2.5. Marketing, distribution and service
2022
2,099
2,207
4,306
2021
2,071
2,111
4,182
2020
2,033
2,126
4,159
Bezeq has marketing, sales and service systems for businesses and private customers, including
customer managers for the business segment, integrated sales and service centers throughout Israel,
technical support centers for private customers and business customers, several points of sale and
service (Bezeq Store chain of stores) throughout Israel, as well as an online virtual store.
Bezeq markets its services mainly through advertising in the mass media, telephone sales centers,
customer managers and through a system of marketers that includes outsourced sales centers.
Bezeq has independent service and sales channels on its website, in a dedicated application (My
Bezeq), and through a computerized voice answering service.
Also, the internet providers (ISPs) provide a unified internet service based on Bezeq's BSA wholesale
service and as of April 3, 2022, they can no longer market Bezeq's internet infrastructure to private
customers in a bundle outside of the wholesale market.
21
Including revenue from wholesale service providers.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
2.6.
Competition
The following is a description of the development of competition in the field of landline interior
communications:
2.6.1.
Wholesale market (see also section 2.16.4)
The wholesale market allows telecommunications providers to compete with Bezeq using
its services and physical infrastructure, at regulated maximum prices not determined by
Bezeq. The wholesale market allows telecommunications providers to offer their
subscribers, among other things, broadband services.
To the best of Bezeq's knowledge, the volume of wholesale subscribers on the Hot
network is not large (see in this regard section 2.16.4).
2.6.2.
The field of Internet
Bezeq estimates that as of the end of 2022 its market share in the Internet infrastructure
market (retail and wholesale customers) was about 55% (compared to about 57% at the
end of 2021). Also, according to Bezeq, its market share in terms of retail customers as of
the end of 2022 is about 38%22. Also, the proportion of the Company's unified internet
customers out of its retail customers by the end of 2022 is about 47%.
Beginning in March 2021, Bezeq marketed an Internet infrastructure service to customers
over an advanced network - the fiber network deployed by it, and competes with this
service against Partner, which deployed its own fiber network, Cellcom and Hot.
Authorized providers are also allowed to deploy a broadband Internet infrastructure,
including through the use of the Company's passive infrastructure, and provide services
through it.
As of April 2022, Bezeq is also a player in the unified Internet service, which includes both
infrastructure (fiber or copper) and an access service. Bezeq may continue to provide
infrastructure service only (without access service) to existing customers of this service,
but it cannot market the infrastructure service in a bundle with other access providers. In
this area, the competition is against service license holders and authorized suppliers.
2.6.3.
The field of Internet access
There is lively competition in the field, as detailed below:
Competition from Hot Group:
Hot has a traditional nationwide internet infrastructure through which a variety of
communication services can be provided. On July 28, 2019, the Minister of
Communications adopted the recommendations of the advisory committee and
approved for Hot to provide its services in areas lacking infrastructure in a technologically
neutral format, i.e. without being obligated to deploy a landline infrastructure, but rather
be allowed to use any cellular network to provide its services with download rates of up
to 12/30 Mbps, as well as to provide television service through the Company's services.
The adopted recommendations set, among other things, milestones for upgrading the
network for the cellular network alternative, minimum service quality and reporting
obligations.
Hot’s network is currently a main alternative to competition with the Company's
infrastructure in the private segment in regards to traditional networks. An obligation was
imposed on Hot to provide wholesale services, including the BSA service, and to the best
of the Company's knowledge, a BSA wholesale service over Hot’s network has been
marketed simce the middle of 2018.
During 2021 Hot announced that it launched its new fiber network. Hot and Celcom have
holdings in IBC (see this section below).
22 The Company's assessment of its market share in the field of Internet infrastructure services for the end of 2022 is based on
the number of customers consuming services over the Company's infrastructure (retail and wholesale) and publications
regarding the number of Partner and Cellcom subscribers. It should be noted that Hot and smaller companies operating in
the market are not reporting corporations and their data is not public, accordingly there is difficulty in giving accurate data
regarding market shares and these are only estimates.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Competition from IBC
IBC's license enables the provision of services mainly to license holders. IBC is also
committed to the deployment so that at the end of 5 years from March 7, 2021, 1.7
million households in Israel will have access to the network. IBC is owned by the Electric
Company (30%) and by Hot, Cellcom and the Israel Infrastructure Fund 23.3% each. In this
framework, to the best of Bezeq's knowledge, Cellcom sold its optical fiber infrastructure
to IBC, Hot's investment agreement in IBC and the IRU agreement according to which Hot
will acquire the right to use the infrastructure that IBC will build were signed. In addition,
the Ministry of Communications made an amendment to Hot's license, which, among
other things, permits the marketing of a shared basket of services on the IBC network as
well as an amendment to the IBC license, which requires it to submit for the Ministry's
approval a shelf proposal for the purchase of the fiber infrastructure service (in IRU
format) at a reduced rate, as was done in fact. IBC is a main competitor in providing the
fiber infrastructure service to service providers.
As far as Cellcom is concerned - in March 2023, Cellcom reported the formation of an
agreement with IBC (which has not yet been signed) in which it undertakes to increase its
commitment to purchase infrastructure lines from IBC in the IRU agreement to 12.5% and
later to 15% of connected customer homes. Cellcom also stated that against IBC's
obligation to act to expand the scope of infrastructure deployment beyond its obligations
according to its license, Cellcom undertakes to purchase IRU services only from IBC for a
period not less than 3 years, under certain conditions.
Competition from Partner
Communications group Partner provides Internet services on its own fiber infrastructure,
while also using the company's infrastructure within the wholesale market, and within
the framework of the IRU agreement signed between the Company and Partner as
detailed below.
Competition from small providers
licenses were allowed,
Holders of special
in the decision of the Minister of
Communications dated October 13, 2020, to deploy broadband infrastructure and
provide services over it (a step that significantly reduced the threshold requirements for
obtaining a license enabling the provision of broadband infrastructure services). These
special licenses were limited to up to 8,000 private subscribers or up to 800 network
endpoints of business subscribers, or up to 3 years from the date of the decision,
whichever is earlier. 23 As part of Amendment 76 to the Communications Law, which
changed the format of the regulation, authorized providers without a license were also
allowed to deploy a broadband infrastructure and provide services over it without the
need for a license, but by registering in the registry and operating in accordance with the
permit regulations. As part of the regulations by virtue of Amendment 76, a threshold is
set above which a license will be required (see Section 1.7.4). The providers are also
authorized to use the Company's passive infrastructure in the incentive areas after
complying with security instructions.
Agreement of indefeasible right-of-use (IRU) of the BSA service between the Company
and Partner
On December 21, 2022, a long-term agreement was signed between Bezeq and Partner
for the provision of the indefeasible right-of-use (IRU) service in the BSA fiber service
(wholesale market) by Bezeq to Partner. In accordance with the agreement, Partner was
granted a non-transferable and irrevocable right of self-use for providing service to its
customers on 120,000 unspecified Bezeq fiber optic lines at a rate of 1 gigabyte download
per line, for a period of 15 years starting on January 1, 2023 (beginning of the right to use
the lines will be in pulses, in a graded manner, over a period of up to five years). The
consideration for the provision of the service, which includes one-time payments and
annual payments, is expected to reach a total amount of approximately NIS one billion
(approximately NIS 574 million for one-time payments, annual maintenance fees at the
rate of 4% of the one-time payments for the lines for which the right of use will be granted
23 These restrictions were actually abolished in accordance with Amendment 76 to the Communications Law, and the holders of
the special licenses became licensed providers operating subject to the permit regulations.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
until that year, and with the addition of interest and/or linkage differences according to
the terms of the agreement), with most of the consideration amount expected to be paid
during the first 9 years of the agreement. The agreement includes the option to increase
the number of lines by up to 48k additional lines under the same conditions, to upgrade
rates as well as to extend the agreement period for two five-year option periods each
with less lines than in the first agreement period. Increasing the content of the
aforementioned agreement will result in a corresponding increase in the total financial
scope of the agreement. The agreement also includes a price protection mechanism for
Partner in a way that weighs the price of the regulatory line, starting from the sixth year
of the agreement. The agreement is expected to increase the usability and utilization of
the Company's fiber network, its revenues and profits, as well as its free cash flow (mainly
during the first 9 years of the agreement), and will create certainty regarding future
revenues from the wholesale market from the lines included therein. At the same time,
the agreement embodies a discount for a commitment to quantity and period in relation
to the wholesale market rates.
On December 27, 2022, Bezeq received a letter from the Ministry of Communications
according to which, from a preliminary point of view, it was found that the agreement
raises competitive concerns, noting that it is tailored to the characteristics of a single
authorized provider (Partner) and therefore cannot be used as a relevant off-the-shelf
offer for other authorized providers in the wholesale market. Following this, Bezeq held
talks with the Ministry of Communications for the purpose of making adjustments
following which the Company will reduce the prices of individual lines in the BSA fiber
service (at an aggregate rate of up to 1.1 gigabit/second) to a price of NIS 7224 per month
(indexed in accordance with the current customary price update mechanism) with the
addition of VAT, so that after this price reduction the Ministry will see the agreement as
a shelf offer for anyone interested in it. On January 16, 2023, the Ministry informed Bezeq
that, after taking into account the aforementioned price reduction, Bezeq's obligation to
act in an equitable manner and without discrimination, as well as the Company's
presentation of the agreement as an alternative available to anyone who requires it, it is
of the opinion that the agreement does not create a concern of significant harm to
competition. Accordingly, the Ministry does not object to the agreement.
It should be noted that in light of the number of lines in the BSA fiber service, which
currently stands at tens of thousands, the aforementioned reduction in the prices of
individual lines does not have material consequences for Bezeq's business results, and it
does not change its assessment regarding the benefits of the agreement for it as detailed
above.
Some of the information contained in this section is forward-looking information as
defined in the Securities Law based on Bezeq's assessments, among other things, in
relation to the structure of competition and regulation in the field of communication, the
behavior of communication operators and the behavior of consumers, as well as in
relation to how a partner will choose to take advantage of the right to use lines in the
various regions (distinguishing between areas where only the Company's fiber network is
deployed and areas where additional fiber infrastructure to that of the Company is
deployed). Estimates and actual results may vary depending on changes in the
aforementioned variables.
2.6.4.
Internet service area
Multiple unified service operators
The competition in the field of providing a unified Internet service has increased in the
last year, after Bezeq, and later Hot, were also allowed to provide a unified Internet
service (see Section 1.7.5.1); Holders of special licenses were allowed to deploy
broadband infrastructure and provide services on it, licensed providers without a license
were also allowed to do so, and some were allowed to use Bezeq infrastructure and its
wholesale services for that purpose. Also, in the incentive areas, the winners of the
tenders and other providers are allowed to provide service on an advanced network,
24 It should be noted that as of the date of the report, the price in the regulations for an individual line with an aggregate rate of
up to 550 Mbps and the price for an individual line with an aggregate rate of over 550 Mbps and up to 1,100 Mbps is NIS
76.5 and NIS 85.2, respectively, plus VAT .
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
while the Group is prohibited from doing so for five years from the date of the
determination of the obligation to deploy in the winner's license or by administrative
order. For this matter see also see Sections 2.16.4 and 2.16.5.
Partner and Cellcom launched and began marketing the internet service over fiber several
years before the Company, which gave them an advantage over Bezeq. Bezeq markets
the service over fiber from March 2021 (and the unified service from April 2022).
As of 2015, the wholesale market allows Internet providers and related companies to
offer customers service packages that also include Internet infrastructure based on Bezeq
infrastructure and services in return for payment (the Company's maximum rates are
regulated).
The service providers are allowed to provide BSA service also on the Company's fiber
infrastructure in return for payment (the Company's maximum rates in this segment are
also regulated). It should be noted that the provider that deploys infrastructure in the
incentive area (whose license or an administrative order issued to an NIO determines the
obligation to deploy an advanced network according to Article 14d(f) of the
Telecommunications Law) is also obligated to provide BSA service via fiber in the incnetive
areas.
The cellular companies have deepened their activities in the internet field on the cellular
medium both in the private segment and in the business segment. Browsing services are
provided both from the cellular device and through a cellular modem that connects to
mobile and stationary computers.
2.6.5.
The field of telephony
The field of private landline telephony is characterized by a decrease in the number of
owners of a landline telephone line and a gradual erosion in the number of calls
originating from landline networks (see section 2.1.3.2). Bezeq estimates that in 2022 the
entire telephony market continued to erode at a similar rate to 2021 and at a higher rate
compared to previous years. For this matter, see also Section 2.3. In Bezeq's estimation,
as of the end of 2022, its market share in the landline telephony market was about 53%
in the private market and about 69% in the business market, a decrease of about 1% in
both markets compared to 2021.25
2.6.5.1
Competition from additional NIO licensees
Bezeq and Hot Group have a fixed telephony infrastructure nationwide, and
there is competition between them, which is reflected, among other things,
in the fact that Hot Group markets a "Triple" (which combines Internet
infrastructure, telephony and cable television), and possibly also cellular
services, especially for households. In addition, Hot Group markets
telephony services for business customers.
In addition, there is competition with licensees for the provision of landline
interior communications services, including VoB (see Section 2.1.8), which
provide the service (including via "Triple"), inter alia, over Bezeq's
broadband access service, including the wholesale BSA service.
As of July 2017, Bezeq allows holders of unified licenses who are authorized
to provide NIO services, reselleing telephony service over Bezeq’s network.
As of the date of the report, there is no demand for service. For the
wholesale telephony service, see Section 2.16.4.
2.6.5.2
Telephony competition from cellular companies
Bezeq is of the opinion that the high penetration rate of cellular phones,
combined with low airtime rates compared to the rest of the world,
packages that include call minutes with no effective limit on a fixed monthly
fee, and diminishing interconnect rates have made cellular telephony a
substitute for landline telephony. In Bezeq's estimation, the deepening of
the interchangeability between a landline and a mobile line is one of the
25 These market shares are in terms of lines and are based on Bezeq’s estimates.It should be noted that Hot is not a reporting
corporation, and its data is not public, and accordingly, there is difficulty in obtaining accurate data regarding the market
shares, and these are only estimates.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
main reasons for the decrease in the average traffic per line, and the high
rate of removal of telephone lines (see section 2.1.3).
In the field of cellular telephony, there is a trend of moving to the use of
applications allowing you to make calls and send text messages over the
Internet.
Partner and Cellcom also provide landline NIO services through corporations
owned by them and also sell service baskets that combine landline
telephony, cellular telephony and Internet services.
2.6.6.
The field of transmission and data communication
In this field there is increasing competition, when, mainly Cellcom , Partner and Hot, as
well as ISP companies operate in this field in addition to Bezeq.
To the best of Bezeq's knowledge, Cellcom has established a transmission network, which
is used both for its own needs and for competition with Bezeq’s services in the
transmission and data communications market. Partner also operates in the field of
providing transmission and data communication services, combined with telephony and
Internet, to business customers (Regarding the sale of Cellcom's network to IBC, see
Section 2.6.2.1).
Cellcom and Partner use Bezeq's physical infrastructure as part of the wholesale service
(see Section 2.16.4.3)26, inter alia, in order to compete with Bezeq in this field.
Operating in this field are also infrastructure owners IBC and Hot (in a national but not
infrastructure owners may use Bezeq's physical
complete deployment). These
infrastructure. In this matter see Sections 2.16.4.3 and 2.6.5.
IBC’s is allowed to provide IPVPN services and broadband data communication lines.
2.6.7.
Additional competing infrastructures27
In addition, there are currently a number of infrastructures in Israel that have the
potential to serve as communications infrastructures, which are based on fiber optics and
mostly owned by companies and government bodies, such as: Israel Railways, Mekorot,
Oil Infrastructure Company and Trans-Israel Highway. Some local authorities are also
trying to create an alternative for laying pipes or fibers using their infrastructures.
Amendment 76 to the Communications Law states that a service requested by a local
authority, including a municipal company and a municipal subsidiary company, will
require a license in any case (and not just registration in the registry). It should be noted
that the amendment of the Communications Law regarding the deployment of fibers and
the decision of the Ministry regarding the granting of special licenses that allow for a
limited deployment may accelerate the deployment by such bodies.
2.6.8.
Bezeq's preparations and ways of dealing with the growing competition
Bezeq faces competition in the landline interior Bezeq services in a number of ways:
2.6.8.1
Bezeq launches communication services and new value-added applications
(such as a smart home, smart business, smart complexes, integration
services and more) as well as product and service packages and shared
baskets (equivalent to certain baskets marketed by its competitors,
although under a detachability limit, see Section 1.7.3), in order to expand
the scope of use of subscriber lines, to meet customer needs and strengthen
its image of technological innovation. Bezeq is investing in the improvement
and modernization of Bezeq's infrastructure, in order to enable the
provision of advanced services and products to its subscribers.
Bezeq is working to introduce the high-speed Internet infrastructure service
and to increase the number of its customers in this field (see also Sections
2.2.3 and 2.7.2). In March 2021, the Company launched the fiber service on
an advanced network deployed in the statistical areas (see Sections 2.7.2.2
and 2.16.5). Bezeq also has broadband wireless service VBAND technology.
26 Unified license owners eligible to provide NIO services are also eligible to receive wholesale service for the use Bezeq’s physical infrastructure.
27 Beyond Hot and IBC infrastructure.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
2.6.8.2
2.6.8.3
2.6.8.4
2.6.8.5
Bezeq is constantly working to improve the quality of its services and retain
its customers, simplify processes and automate and adapt its operations to
the structure of competition in its areas of activity.
Bezeq offers to telephony customers packages, consumption-adjusted plans
and promotions.
Bezeq is working to reduce its operating expenses and to focus investments
on growth activities and as a means of reducing maintenance expenses.
However, Bezeq's ability to make short- and medium-term adjustments to
its expenses is limited due to its cost structure, which is mainly rigid short-
and medium-term costs (mainly depreciation and payroll-related expenses,
as well as operating costs, such as infrastructure maintenance and rental
and maintenance of buildings).
As of 2018, Bezeq has been marketing its Be router. This is an advanced
router with an innovative design and advanced capabilities that include,
among other things, Smart Wi-Fi that enables quality and continuous
browsing over the home Internet and Cyber protection. The router and
services are managed by a dedicated app. As of the end of 2022, Bezeq's
customer base using the Be router is approximately 764k customers
(approximately 74% of Bezeq's retail Internet customers). Bezeq also
markets products to improve the reception range of the Be spot and Be
mesh home Internet networks, while as of the end of 2022, about 146k units
of these products were marketed by Bezeq. With the advent of Internet
services on the fiber, a router was launched that improves the reception
range that is compatible with the fiber network at ultra-fast speeds.
2.6.9.
Main positive and negative factors affecting Bezeq's competitive position
2.6.9.1
Positive factors
a. Quality nationwide infrastructure, through which a variety of services
are provided.
b. Presence in most businesses and households.
c. A well-known and strong brand.
d. Technological innovation.
e. High positive cash flow, financial resilience and access to financing
sources
f. Extensive service infrastructure and diverse customer interfaces.
g. Professional, experienced and skilled personnel.
2.6.9.2
Negative factors
a. Bezeq believes that various restrictions that apply to it make it difficult
for it to compete in its areas of activity. The following are the main
limitations in this regard:
Wholesale market (see section 2.16.4) - operating a wholesale market
at regulated prices, arrangements prone to intervention by the
regulator, implementation of a mechanism for supervising Bezeq's
retail marketing offers, Expanding uses and those authorized to use
Bezeq infrastructure.
b. Limited rate flexibility
Bezeq is limited in its ability to provide discounts on its main services
and offer differential rates.
For the hearing on the prevention of "margins reduction" in the
wholesale market, see Section 2.16.4.2.
c. Structural separation obligation
Regarding the obligation of structural separation applicable to Bezeq,
see section 1.7.3.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
d. The universal service and fiber deployment obligation
Bezeq has an obligation to provide service to the general public in Israel
at a uniform price (universal service), except in relation to advanced
network (fiber) for private customers. By virtue of this obligation, Bezeq
is required to provide services even in non-economic circumstances
(subject to the possibility of obtaining an exemption in exceptional
circumstances). Regarding the scope of the obligation in relation to the
provision of services on an ultra-broadband fiber infrastructure, see
Section 2.16.5. This obligation does not apply to other authorized
providers for the provision of stationary services (except Hot. Regarding
Hot and IBC, see Section 2.6.2.1), who may offer their services to
profitable customers only, who constitute a substantial source of
income for Bezeq. These companies has carried out and are carrying out
an accelerated deployment of fibers in economically viable areas. In
addition, Hot, which has a universal service obligation, received various
reliefs in the implementation of full deployment obligation, significant
exemptions and reliefs were granted to IBC, and Bezeq is committed to
allowing Hot and IBC to use Bezeq's passive infrastructure. (see section
2.16.4).
e. Restrictions on the marketing of shared service packages by Bezeq and
Group companies
See Section 1.7.3.2.
f.
The nature of end equipment in landline telephony
End equipment in the field of landline telephony does not have personal
characteristics. It is also less technologically advanced compared to
cellular end equipment, and the range of advanced services that can be
consumed through it is limited.
2.7.
Property, plant and equipment and facilities
2.7.1.
General
Bezeq's property, plant and equipment include, mainly: infrastructure and equipment for
interior communications, real estate assets (land and buildings), computer systems,
vehicles and office equipment.
2.7.2.
Infrastructure and stationary interior communications equipment
2.7.2.1
Telephony network
The infrastructure of Bezeq's telephony network consists of exchanges
(used to switch the calls and transfer them from the origin to the
destination), a transmission network (through which the connection
between the exchanges takes place), data communication networks, an
access network (connecting the subscriber's endpoint to the switchboard).
The infrastructure connects to the end equipment installed with the
subscriber. The connection from the end equipment to the access network
is based on copper cables, and this copper network forms Bezeq's access
infrastructure for telephony services (it should be noted that those copper
cables also form part of Bezeq's Internet network as detailed below).
Subscriber management is performed using a Class 5 telephony switch.
During 2020, Bezeq completed the replacement of its telephony switch with
a new switch and the conversion of all telephony customers to the new
switch.
2.7.2.2
Internet
Bezeq has an NGN network based on the core of an IP network and the
deployment of fiber optic infrastructure to street cabinets (a network
topology known as FTTC-Fiber To The Curb), as well as an access network (a
system that connects the network endpoint with the network subscriber)
and engineering systems. The connection from the home to the access
network is based on the copper cables (mentioned in the description of the
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
telephony network above) and the connection from the access systems to
the transmission network (Backbone) is based mainly on optical cables. In
addition, some of the end equipment (equipment installed by the
subscriber, such as routers) is owned by Bezeq and is rented by the
customer. The NNG network can now provide, through VDSL2 technology,
bandwidths of up to 100Mbps in the downloading channel, and through the
use of 35B technology, through which download rates of up to 200Mbps can
be provided in part of the Bezeq network, depending on the quality of the
copper infrastructure, as well as innovative value-added services. Additional
benefits of this network are simplification of network structure and
improved management capability.
2.7.2.3
Ultra-broadband fiber infrastructure
The Company works according to a plan for the deployment of ultra-
broadband landline infrastructure (“the Fiber Project"). The Fiber Project is
involves significant
a complex and resource-intensive project that
investments of billions of NIS by Bezeq over the years of the project.
As part of this, Bezeq began deploying fiber to buildings, including the
deployment of vertical GPON equipment in buildings, and on March 14,
2021, Bezeq announced the launch of services to its customers over its fiber
optic network.
For the amendment to Bezeq's license and the selection of areas for the
deployment of the fiber network by Bezeq, see Section 2.16.12.
As of the date of publication of the report, Bezeq has completed the physical
deployment of the fiber network to approximately 1.654 million households
throughout Israel that are available for commercial connection, of which
about 332k subscribers were connected to Bezeq’s fiber network (of which
235k retail and 97k wholesale).
2.7.2.4
Public appeal – closure of the copper networks
On September 19, 2022, Bezeq accepted a public appeal published by the
Ministry of Communications regarding policy principles for closing the
copper networks, in which the Ministry reviews the main issues, challenges
and principles for closing the copper networks and transitioning to networks
based on fiber infrastructure. According to the public appeal, there are
several possible regulatory actions that the Ministry of Communications can
take regarding the closure of the copper networks, among other things,
establishing an outline and milestones for the implementation of the closure
of the copper networks, and it asked the public and all license holders to
submit references and positions to the public appeal (until November 24,
2022). Bezeq submitted its comments, according to which, in view of the
complexity of the issue, the handling and phases must be separated
between existing customers on copper infrastructure and customers in new
neighborhoods and service areas, in a process that begins with stopping the
deployment of a new copper network and providing solutions for
connecting new lines.
2.7.3.
Computing
Bezeq's computing system supports four main areas: marketing and customer
management, Bezeq's engineering infrastructure, Bezeq's resource management and
lateral systems.
Bezeq's computer system is large and complex, it supports critical work processes and
handles very large volumes of data. This system consists of a large number of systems,
some are information systems whose development began many years ago, and some of
which are modern systems developed and implemented in recent years. Most systems
operate in open computing environments.
2.7.4.
Real estate
2.7.4.1
General
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Bezeq has real estate assets from four sources: assets transferred to Bezeq
by the State in 1984 as part of the asset transfer agreement (see Section
2.17.2.1), assets the rights in which were acquired by Bezeq after this date,
assets that it leases from third parties, and assets in which Bezeq has
received a right-of-use, according to the provisions of the Communications
Law and the regulations established pursuant to it, for the purpose of
providing Bezeq services and/or performing Bezeq operations, whether or
not there is a written arrangement of rights. In addition, the Company has
easements (rights of passage, etc.) in other real estate for the purpose of
providing Bezeq services (such as for laying cables)..
The following is a list of Bezeq assets in accordance with the nature of the
rights in the asset. In addition, Bezeq has easements (passage rights, etc.) in
other real estate (such as for the purpose of setting up transmitters and
laying cables):
The essence
of the right
Number
of assets
Lot area
(sqm.
thousands)
Approx.
825
Built-up
area (sqm.
thousands)
Approx. 181
Approx.
298
Ownership,
lease or
right to
lease
Possession
(authorized
by right /
right of
possession
according to
law)
rent
Various
rights in
"concentrat
ion rooms"
Approx.
40
Approx.
1.5
Approx. 0.8
Approx.
332
Approx. 31
Approx. 64
Approx.
2,600
Irrelevant
Approx. 27
(based on
an estimate)
Notes
From this, approx.. 295 field assets in the area
approx. 805k thousand sqm. of plots, approx. 71k
sqm. built-up are assets for communication needs
and the rest are for administrative needs.
Properties in Israeli localities in Judea and Samaria,
all for communication purposes. There
is no
written series of contractual rights, but in Bezeq's
opinion this does not create material exposure.
rooms and
Approx. 313 assets, of which a built-up area of
about 17k sqm. are for communication needs and
the rest for administrative needs. Approx. 2k sqm.
built-up of which are sublet.
These are cable
neighborhood communication needs.
As for most of the properties, this is a right-of-use
granted
the
Communications Law and regulations thereunder,
and there is no written rights arrangement with the
asset owners. In Bezeq’s opinion and based on past
experience, this does not create material exposure.
in accordance with
to Bezeq
facilities
for
2.7.4.2
Registration
As of the date of the periodic report, Bezeq's rights in a significant portion
of its real estate assets are not registered with the Land Registry, and
therefore are contractual rights. Bezeq is in the ongoing process of
registering in its name the real estate assets that can be registered with the
Land Registry.
2.7.4.3
Settlement agreement regarding the real estate
On March 10, 2004, an agreement signed on May 15, 2003 between Bezeq
and the Israel Land Administration (now ILA) and the State ("Settlement
Agreement") regarding most of the real estate assets which were
transferred to Bezeq as part of the transfer agreement signed prior to the
beginning of Bezeq's business operations was given the validitiy of a ruling.
The Settlement Agreement stipulated that the assets remaining with Bezeq
are in the status of a discounted lease, and subject to the signing of
individual lease contracts, Bezeq will be entitled to carry out any transaction
in the assets, as well as improvement operations. The agreement stipulates
a mechanism for payment to ILA for improvement actions to be performed
51
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
on the assets (if any) beyond rights under plans approved until 1993 as
stipulated in the agreement, at a rate of 51% of the increase in value of the
asset following the improvement actions (when in the event that the
Company also pays an improvement levy for that improvement operation,
it will be entitled to receive from ILA a refund of half of the payment paid to
RAMI due to the increase in value or from the improvement levy, whichever
is the lower). The Settlement Agreement also stipulates that 17 assets will
be returned to the State, through ILA, on various dates (until 2010) and
under the conditions set forth in the Settlement Agreement.
As of the publication date of this periodic report, Bezeq has returned 15
assets to ILA. Another asset will be returned in about a year and a half, after
Bezeq is currently receiving a replacement asset in its place. The remaining
asset will be returned to ILA after Bezeq receives a replacement property in
its place in accordance with the settlement agreement.
2.7.4.4
Real estate exercise
General
Subject to the approval of Bezeq’s Board of Directors, Bezeq continues to
act for the sale of assets that are inactive and / or that can be vacated
relatively easily and without significant expenses, or that the consideration
for them justifies the presentation of another suitable alternative, and
during the last few years Bezeq has sold such assets while registering equity
gains for these sales, which in some years were substantial.
Bezeq has completed the sale of most of the assets (in terms of value) that
met the aforesaid definition and intends to complete the sale of the balance
of such assets in the coming years. The sale of the balance of such assets
may yield Bezeq additional capital gains in substantial amounts (although in
a significantly lower amount than the cumulative amount of equity gains
that Bezeq has recorded in recent years for the sale of said assets).
It should be emphasized that the aforesaid also applies to real estate assets
for the sale of which a concrete decision has not yet been made and there
is no certainty as to the timing of their sale, if it is decided to sell them. Also,
the sale of some assets may involve difficulties, including circumstances of
lack of demand or various planning constraints.
In light of the aforesaid, it should be emphasized that Bezeq's assessments
as aforesaid are forward-looking information as defined in the Securities
Law, which may not materialize or materialize in a materially different
manner than anticipated. These assessments are based, among other
things, on Bezeq's assessments of the value of the real estate assets it owns
in relation to their book value, since Bezeq does not have appraisals in
relation to some of the assets, or Bezeq's appraisals are not up-to-date,
therefore, the assessments are also based on Bezeq's internal estimates,
Bezeq cannot anticipate the amount of consideration actually paid in
respect of the assets to be sold (if and to the extent that they are sold).
The asset in Sakia
On January 21, 2018, Bezeq entered into an agreement for sale of an near
the Mesubim junction where Bezeq had a discounted lease right (“the
Assets”). On May 5, 2019, the transaction was completed, when the total
consideration received by Bezeq for the asset (including linkage differences
and interest in accordance with the provisions of the agreement) amounted
to NIS 511 million, plus VAT.
On May 21, 2018, Bezeq received a demand from ILA for the payment of a
permit fee in the amount of NIS 148 million plus VAT, in respect of a property
improvement plan that was approved prior to the signing of the agreement
(“the Improvement Plan"). Bezeq filed an appeal on legal grounds to this
demand January 20, 2019, ILA rejected all of Bezeq's claims in the legal
attainment, however, the parties conducted contacts within the framework
of the dispute resolution mechanism set forth in the Settlement Agreement.
52
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
At the same time, Bezeq submitted an appraisal contention on the Demand.
On August 5, 2018, Bezeq received a demand from the Or Yehuda Local
Planning and Construction Committee to pay an improvements levy in the
amount of NIS 143.5 million due to the sale of the asset by way of a sale
("the Improvements Levy Demand”). On September 17, 2018, Bezeq filed
an appeal against the Improvements Levy Demand, and sent ILA a demand
for payment of the full improvements levy in accordance with the
Authority's obligation under the Settlement Agreement. On January 20,
2019, ILA rejected Bezeq's demand for payment of the said improvement
levy. Upon completion of the sale transaction as stated above and receipt
of the full consideration, Bezeq paid half of the improvements levy in the
amount of NIS 75 million and provided a bank guarantee for the other half
of the levy, without detracting from or harming the proceedings that Bezeq
has taken or will take in order to cause the cancellation or reduction of this
levy.
On June 27, 2021, Bezeq filed a lawsuit against ILA with the District Court in
Tel Aviv to recover all of the funds it paid as permit fees and the
improvement levy in a total amount of approximately NIS 217 million, as
well as to receive declaratory relief according to which ILA must pay Bezeq
any amount that is forfeited, if any, out of the bank guarantee in the amount
of NIS 75 million that Bezeq provided to the Or Yehuda Local Planning and
Construction Committee to guarantee the balance of the improvement levy.
As part of the lawsuit, Bezeq claimed that it is not obligated to pay the
permit fee and the improvement levy since, in accordance with the
provisions of the settlement agreement signed between itself, ILA, and the
State of Israel, it was entitled to receive the lease contract relating to the
asset when it is improved according to the plan and without paying the
permit fee to ILA, and that the liability The payment of the improvement
levy applies in accordance with the provisions of the settlement agreement,
to ILA.
On January 17 ,2022, the Israel Land Authority filed a letter of defense in
which it argued that the lawsuit should be dismissed for the following
reasons: (1) The payment of the permit fee, which Bezeq demands to be
returned, was lawfully imposed on Bezeq, since the Improvement Plan
deviated from the limited rights granted to Bezeq in the settlement
agreement; (2) With regard to Bezeq's claim to receive from the Authority
the improvement levy that Bezeq paid to the Local Committee, the
Authority's obligation in the settlement agreement to pay the improvement
levy, on which Bezeq bases its claim, was in relation to the above limited
rights, and today it is not possible to calculate the share of the improvement
levy that applies to Bezeq for the deviation from the restricted rights in the
Improvement Plan.
It should be noted that the amount of the permit fee that will be imposed
on the Company at the end of the procedures can also affect the amount of
the improvement levy that the Company will have to bear. In the Company's
estimation, the amount of the permit fee and the improvement levy it will
be required to pay is expected to be substantially lower than the total
amount of the requirements. therefore, Bezeq recorded an equity gain of
NIS 403 million. The equity gain recorded as aforesaid is on the basis of
Bezeq's assessment regarding the amount of the permit fee and the
improvements levy that it will be required to pay as aforesaid. To the extent
that Bezeq’s aforesaid estimates do not materialize, the final capital gain will
range from approximately NIS 250 million to approximately NIS 450 million.
For this matter see also Note 6.6 to the 2021 statements.
On January 1, 2023, in an interim decision, the appeals committee dismissed
Bezeq's claim that at the time the improvement plan was approved, it did
not own rights for which it could be charged the improvement levy. Bezeq
appealed this decision to the District Court. Following the aforementioned
interim decision, Bezeq's claims regarding the amount of the improvement
will be discussed in the appeals committee. It will be clarified that the
53
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
aforementioned interim decision does not lead to a change in the
Company's estimates regarding the amount of equity gain recorded as
mentioned, since Bezeq's estimates were also based on the legal situation
in the lawsuit against Rami , which as mentioned also includes an obligation
on the part of ILA in the settlement agreement to bear the improvement
levy for the asset.
The information contained in this section regarding Bezeq valuations and
capital gains as a result of the sale of the asset is forward-looking
information as defined in this term in the Securities Law, and is based, inter
alia, on the above as well as on Bezeq's assessments of the Company’s
claims regarding the payment of the requirements. The information may not
fully materialize as long as the said Bezeq assessments take place in a
manner different than expected.
2.8.
Intangible assets
2.8.1.
Bezeq's licenses
Bezeq operates under an NIO license, which, among other things, forms the basis for its
activity in the field of landline interior communications (for a description of the main
points of the NIO license, see section 2.16.2). Also, the Company has a general NIO license
for the Judea and Samaria region (see Section 2.16.2.9).
2.8.2.
Trademarks
Bezeq uses trademarks that characterize its services and products. As of the date of
publication of the periodic report, approximately 160 trademarks are registered in
Bezeq's name, or are in the process of being registered with the Registrar of Trademarks
as well as three samples. The main trademarks are Bezeq – Bezeq’s name, and "B" –
Bezeq’s logo.
2.9.
Human capital
2.9.1.
Organizational structure and employee base according to organizational structure
The following is a diagram of Bezeq's general organizational structure as of December 31,
2022:
Board of
Directors
CEO
Group
Secretary and
Internal
Compliance
Office
Internal
Auditor*
Corporate
Communication
Legal
Advisor
Management
(without
directors)
)33(
The
board
of
Finance
Division
Marketing
and
Innovation
Division
Operation
s and
Logistics
Division
Human
Resources
Division
Technolog
y and
Network
Division
Business
Division
Private
Division
(
1631
)
(
761
)
(
2634
)
Staff divisions)
539
(
)
54
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
2.9.2.
Number of Bezeq employees and employment frameworks
The number of employees at Bezeq as of December 31, 2022 was 5,598 employees
(compared to 5,475 employees at the end of 2021). About 93% of Bezeq employees are
employed under collective agreements (of which approximately 56% are permanent
employees and the rest are non-permanent employees). The rest of Bezeq’s employees
(approximately 7%) are employed under individual agreements not within the framework
of the collective agreements.
For details regarding the special collective agreement from December 2006 and its
amendments, see Section 2.9.4.
2.9.3.
Early retirement plans for employees
During 2022, 74 permanent Bezeq employees retired in accordance with the retirement
plan in Bezeq.
On December 28, 2022, as part of the implementation of a streamlining plan and under
the collective agreement in Bezeq, Bezeq’s Board of Directors approved the retirement
of approximately 80 veteran permanent employees during 2023 in the early retirement
track at a total cost of approximately NIS 95 million. In light of the aforesaid, Bezeq
recorded an expense accordingly in its statements for the fourth quarter of 2022.
For this matter see also Note 16.5 to the 2022 statements.
2.9.4.
The nature of the employment agreements with Bezeq
The employment relationship with Bezeq is regulated in collective agreements signed
between Bezeq and the representatives of Bezeq employees and the Histadrut, and in
individual agreements. Bezeq employees are also subject to extension orders for certain
general collective agreements, such as cost of living increase agreements.
The following are the main points of the special collective agreement between Bezeq, the
employees’ organization and the Histadrut from December 2006 and the amendments to
it that have been signed over the years (all together will be referred to in this section as
"the Agreement"), which regulates labor relations in the Company:
According to the Agreement, all existing agreements, arrangements and practices at
Bezeq on the eve of the signing of the Agreement, including the wage linkage mechanism
for the public sector, will continue to apply only to Bezeq's veteran permanent
employees, to whom the Agreement applies, subject to changes explicitly included in the
Agreement. The employment of existing and new temporary employees will be carried
out on the basis of monthly / hourly wage agreements based on a market wage model by
occupation, with high managerial flexibility. The Agreement set limits on certain types of
future organizational changes, as well as a mechanism for notification, dialogue and
arbitration with the employees’ organization in the event of organizational changes.
According to the Agreement, during the period of validity of the Agreement, two directors
from among the employees will serve on Bezeq's Board of Directors28 which will be
proposed by the employees' organization (subject to the approval of their identity by the
Chairman of the Board and their election to the general meeting). The directors from
among the employees are not entitled to payment for their office as directors and do not
participate in Board of Directors discussions dealing with the terms of employment of
senior executives.
The Agreement defined the status of "new permanent employee", whose terms of
employment are different from Bezeq's veteran permanent employee (according to the
collective agreement): his salary model is in accordance with Bezeq's salary policy in
accordance with market wages. Upon termination of his employment with Bezeq, he will
be entitled to an increased severance track only (in accordance with seniority).
28 At the beginning of 2016, the employees' representation announced that it agrees that as long as up to 15 directors serve
on Bezeq’s Board of Directors, one representative from among the employees will serve on the Board, and as the number
of directors exceeds 15, another representative from among the employees will serve on the Board.
55
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
The period of the agreement is until December 31, 2025 and the period of the retirement
arrangement in the collective agreement is until December 31, 2026.
As part of the retirement arrangements (as they are in effect as of the date of publication
of the report and as arranged as part of the last amendment, dated December 16, 2020,
to the collective agreement) Bezeq may, at its discretion, terminate the work of up to 80
permanent employees (including employees with the status of "new permanent
employee") in any year (and this is in addition to the retirement quota of about 300
permanent employees that was not realized according to the agreement, whose
employment Bezeq could terminate at the end of the agreement period)..
For a list of other material agreements in the field of labor relations, see section 2.17.3.
2.9.5.
Officers and employees of Bezeq's senior management
As of the date of publication of the periodic report, Bezeq has 9 directors (according to a
composition of 9 directors decided by Bezeq’s Board of Directors), of which three are
external directors, one independent director (who is not an external director) and 5
directors who are not independent directors (including one director from among the
employees). In addition, Bezeq has 11 senior management members.
As of June 19, 2022, Mr. Ran Guron serves as CEO of Bezeq in place of Mr. Dudu Mizrahi,
who ended his term (before his appointment as CEO of Bezeq, Mr. Guron served as CEO
of the subsidiaries Pelephone, Bezeq International and DBS). On September 14, 2022, the
general assembly of Bezeq's shareholders approved the terms of office and employment
of Mr. Guron as CEO of Bezeq.
Senior management members are employed under personal agreements that include,
but are not limited to, pension coverage, payment of target-based bonuses and early
notice period upon retirement.
For details regarding remuneration for office holders, see Section 7 of Chapter D of this
periodic report and Note 29 of the 2021 statements.
On December 10, 2020, Bezeq’s Board of Directors approved a capital remuneration plan
(“the Plan") by virtue of which options may be assigned which, as of the date of the Board
of Directors' approval, represented approximately 2.94% of Bezeq's fuully diluted, issued
and paid-up equity after exercise. On December 12, 2020 an outline based on the plan (as
amended on January 1, 2021 and May 9, 2022) was published (“the Outline"). The
Company makes assignments from time to time by virtue of the Outline to office holders
and/or employees in the company and its subsidiaries.
On April 18, 2022, the general assembly of the Company's shareholders approved, among
other things, an updated remuneration policy for a period of three (3) years, effective as
of January 1, 2022, which includes, among other things, clarifications regarding the return
of remuneration given on the basis of erroneous financial information, an adjustment
that allows the awarding of performance-dependent variable remuneration to the
Chairman of the Company's Board of Directors, as well as wording corrections and other
technical corrections. For more details on the updated remuneration policy, see the
immediate report on assembly convening dated March 23, 2022, which is included in this
report by way of reference.
Also, on March 13, 2023, Bezeq's Board of Directors approved the convening of a special
general assembly of Bezeq's shareholders, concerned, among other things, with the
approval of various amendments to Bezeq's remuneration policy, so that the
remuneration policy which includes such amendments will be in effect for a period of
three years from the date of its approval by the general assembly. The amendments
include, among other things, the application of the remuneration policy to the Chairman
of the Board of Directors, as well as the possibility of linking wages to the consumer price
index, reflecting expenses and related conditions, adjustment period grant and a
signature grant to officers. For this matter, see Bezeq's immediate report of March 14,
2023 regarding the convening of a general assembly included in this report by way of
reference.
For the capital remuneration plan - see Note 26 to the 2021 statements.
56
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
2.10. Equipment and suppliers
2.10.2.
Equipment
Most of the equipment used by Bezeq is: swithcboards, communication cabinets (MSAG),
copper cables, optical cables, transmission equipment, data communication systems and
equipment, servers, routers and Internet modems. Bezeq purchases most of the
equipment needed for its communications infrastructure from Israeli companies
associated with manufacturers of communications equipment around the world. In
addition, Bezeq purchases hardware and software from a number of suppliers.
2.10.3.
Rate of purchase from major suppliers and the form of contact therewith
Bezeq sees as a "major supplier", for the purposes of Article 23 of the First Schedule to
the Prospectus Details Regulations, a supplier whose scope of Bezeq's annual purchases
exceeds 5% of the Group's total annual purchases and the volume of purchases from
which out of the total volume of purchases in the field of activity exceeded 10%.
During 2022, Bezeq had no major supplier as defined above.
2.10.4.
Dependence on suppliers
Most of the equipment purchased in the fields of data communications, switching,
transmission and radio systems is unique equipment and the possibility of receiving
support for it throughout all its years of operation other than from the manufacturer is
limited. In view of the importance of the manufacturer's support in certain systems used
by Bezeq, Bezeq believes that it may be dependent on the following suppliers:
Supplier name
Nokia Solutions and Networks
Israel Ltd.
Juniper Networks
Cisco / BroadSoft
Dialogic Networks (Israel) Ltd.
Adtran Holdings Ltd.
IBM
VMware
Hits Telecom Ltd.
F5 Networks, Inc
Field
Metro transmission and NGN network access systems
GPON equipment for the fiber project.
Metro transmission
Subscriber switches
Transition switchboards for linking operators to the
Bezeq switching network
Network access systems - NGN
Hardware and solutions for backups, restorations and
infrastructure survivability, storage
system and
equipment
Infrastructure for most of the server virtualization
system
Be Router
ISP service (Carrier-grade NAT router)
Agreements with suppliers on which Bezeq may have a dependency as stated in this
section usually include a warranty period for a period of time and under the conditions
set forth in the agreements, followed by another period of maintenance or support. If
necessary, Bezeq may enter into an agreement with the supplier for the provision of
support and maintenance services for an additional period of time. As a rule, these
agreements will include various remedies to Bezeq in the event of a breach of the
agreement by the supplier. Usually, at the time of contracting with these providers, the
contract is long term.
2.11. Working equity
For details regarding Bezeq's working equity, see Section 1.4 of the Board of Directors' Report.
2.12.
Investments
For information on investments in investee companies, see Note 12 to the 2022 statements, and
also see Sections 3 and 4 of Chapter D of this periodic report.
57
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
2.13.
Funding
2.13.1.
The average and effective interest rate on loans
As of December 31, 2022, Bezeq is not financed by short-term credit (less than a year).
The following is the distribution of long-term loans (including current liabilities):
Loan
period
Source of
funding
Long-
term
loans
Banks
Banks
Non-
banking
sources
Non-
banking
sources
The
principal
amount
(NIS
millions)
705
700
3,449
2,416
Currency or
linkage
type
NIS
unlinked
NIS
unlinked
NIS
unlinked
CPI-linked
NIS
Average
interest
rate
3.43%
5.21%
Type of interest
rate and
change
mechanism
Fixed
Variable on
the basis of
the short-
term loan
interest rate
per year *
Fixed
3.07%
3.17%
Fixed
1.54%
1.58%
Effective
interest rate
Interest rate
range in
2021
3.36%
5.30%
3.20%
-
.30%4
2.13%-
.21%5
2.79%
-
.00%4
0.58%
-
.20%2
* Prime interest rate – 5.75% (as of February 2023)
For more details about Bezeq loans, see Note 13 to the 2022 statements.
2.13.2.
Credti receipt limitations
2.13.2.1
Limitations included in Bezeq loans
See Note 14 to the 2022 statements. As of the date of publication of the
statements and as of the date publication of of this periodic report, Bezeq
meets all the restrictions that apply to it.
2.13.2.2
Restrictions of the Bank of Israel related to a single borrower and a group of
borrowers
The directives of the Supervisor of Banks in Israel include restrictions on the
liability of a borrower and a group of borrowers towards the banks. The
Supervisor of Banks’ instructions may from time to time influence the ability
of banking corporations to grant additional credit to Bezeq. Regarding the
authorization to set restrictions on the provision of credit to a business
group in the Centralization Law, see section 1.7.7.6.
2.13.3.
Reportable credit
As of December 31, 2022, Bezeq's reportable credit, in accordance with legal position
104-15 of the Securities Authority (reportable credit incident) is Bezeq's debentures from
series 6, 9, 10, 11 and 12, all as specified Note 13 to the 2022 statements and in Section
4 of the Board of Directors’ report.
Further to the update to the Securities Authority staff legal position No. 104-15:
Reportable Credit Event, it should be noted that all of Bezeq's loan agreements (public
debentures and private loan agreements) include a cross breach clause in which a right
to immediate repayment is established in the case of a third party lender made Bezeq's
debts to him due for immediate payment as a result of a breach event (default) in
amounts that exceed the amounts stipulated in the various loan agreements. As of the
date of the report, Bezeq loans do not include financial benchmarks, so the cross breach
clause is not relevant to financial benchmarks.
2.13.4.
Amounts of credit received during the reporting period
On April 7, 2020, Bezeq published a prospectus of registration for trading and unblocking
of Bezeq debentures (Series 11 and 12) and a shelf prospectus (dated April 8, 2020) (“the
Prospectus"). In April 2022, the Securities Authority approved to extend the period for
offering securities according to a prospectus until April 7, 2023. In accordance with the
authority's approval, in light of the existence of enforcement procedures in Bezeq's case,
58
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
to the extent that Bezeq wishes to publish a shelf offer report by virtue of a prospectus
during the aforementioned period and as long as the procedures continue, each such
shelf offer report will be subject to obtaining a permit from the Securities Authority, in
accordance with Rule 2(8) ) to the Securities Rules (cases in which the publication of a
shelf offer report will require a permit from the Securities Authority), 5776-2016
For the purposes of this section, see also Section 4 of the Board of Directors' Report and
Note 13 to the 2021 statements.
2.13.5.
Bezeq's debentures
For details regarding the debentures issued by the Company and by Bezeq see Note 13 to
the 2022 statements and Section 4 of the Board of Directors' Report. Also, see Section
2.13.4.
On January 23, 2021, Bezeq made a partial early repayment, on its own intiative, of
Bezeq’s debentures (Series 9) in the amount of approx. NIS 370 million par value. Also, on
December 1, 2022, the Company's debentures from series 6 and 7 were paid off.
2.13.6.
Credit rating
Bezeq's debentures are rated by Standard & Force Maalot Ltd. as il/AA-/Stable and by
Midroog Ltd. as Aa3.il rating with a stable rating horizon.
For details regarding the history of Bezeq ratings in the last two years, see Bezeq's
immediate reports dated May 12, 2021, November 30, 2021 and May 10, 2022 (Standard
& Poors Maalot Ltd.), as well as dated May 2, 2021, December 1, 2021 and May 15, 2022
(Midroog Ltd.) included in this report by way of reference.
For this matter see also Section 4 of the Board of Directors' Report.
2.13.7.
Bezeq's assessment in relation to debt raising in the coming year (2023) and the sources
of borrowing
During 2023, Bezeq is expected to repay a total of NIS 1.2 billion for the principal and the
interest on its loans, including debentures.
Bezeq raises funds from time to time for the purpose of managing its cash flow. The
financing options available to Bezeq are: Raising debt through loans from banking
corporations and institutional bodies and by issuing securities (private or marketable).
2.13.8.
Liens and collateral
For information regarding Bezeq's liens and collateral, see Note 19 to the 2022
statements.
2.14. Taxation
For information on taxation, including losses carried forward for tax purposes in DBS, see Note 7 to
the 2022 statements.
On December 11, 2022, Bezeq received a letter from the Tax Authority extending, at Bezeq's request,
the validity of the taxation decision in the agreement that includes the prior approval of the Tax
Authority for tax purposes for the merger of DBS with and into Bezeq in accordance with the
provisions of Article 103b of the Income Tax Ordinance ("the Taxation Decision") for one year, i.e.,
until December 31, 2023. It should be noted that the letter included a similar statement to the one
included in the extension letter from the previous year, according to which, in light of the fact that
there were no material developments regarding the abolition of the structural separation between
Bezeq and DBS from the date of the Taxation Decision until the date of this extension, and in light of
the long time elapsed from the taxation on the subject, the Tax Authority will consider not extending
the validity of the taxation decision beyond December 31, 2023, as long as there are no significant
developments in 2023 regarding the abolition of the structural separation between Bezeq and DBS.
According to Bezeq's position, it is entitled to an extension of the Tax Authority's approval in
accordance with the terms of the Taxation Decision, and anyway, even if the validity of the Taxation
Decision is not extended, this does not prevent Bezeq from requesting from the Tax Authority at any
relevant time in the future a new taxation decision instead of the said taxation decision. It should
also be noted that Bezeq continues to work with the various regulatory bodies to abolish the
structural separation.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
2.15. Environmental risks and their ways of management
2.15.2.
General
Some Bezeq facilities, such as broadcasting facilities, wireless communication
facilities, or high-voltage facilities29 are sources of electromagnetic radiation which
are included in the definition of "radiation source" in the Non-Ionizing Radiation Law.
2.15.3.
Non-Ionizing Radiation Law
The law regulates the practice of radiation sources, their establishment and operation, as
well as their supervision. Among other things, the law stipulates that the construction and
operation of a radiation source is subject to a permit; Provides for punitive provisions,
and strict liability for a company that has violated the provisions of the law, its employees
and its officers; Imposes registration and reporting obligations on the permit holder and
confers supervisory powers mainly to the Commissioner for Non-Ionizing Radiation in the
Ministry of Environmental Protection (in this section - "the Commissioner"), including
regarding conditions in the permit, revocation of the permit and disposal of radiation
source.
Bezeq has operating permits from the Commissioner for the communication facilities and
broadcasting sites operated by it. In addition, Bezeq performed the necessary actions for
issuing radiation permits for high-voltage facilities located on its assets, and as of the date
of the report, the Company has radiation permits for 13 high-voltage facilities, all of which
have a construction and operating permit or a valid type approval.
It should be noted that the Commissioner requires building permits as a condition for the
continued validity of operating permits for communication facilities (including
broadcasting facilities) issued by him, as well as the existence of additional conditions,
inter alia, in relation to "wireless access facilities" that have a "type certificate" issued by
the Commissioner . See also section 2.16.11.
The law includes a penalty chapter which stipulates, inter alia, that the construction or
operation of a radiation source in violation of the terms of the permit and the
construction or operation of a radiation source without a permit after receiving written
notice from the Commissioner, are a criminal offense.
2.15.4.
Permits
For permits for broadcasting facilities required by the Planning and Construction Law, see
Section 2.16.10.
2.15.5.
Bezeq policy regarding radiation risk management
Bezeq implements a work procedure regarding the establishment, operation and
measurement of non-ionizing radiation sources, and an appropriate enforcement
procedure approved by Bezeq's Board of Directors. Bezeq has been appointed an
enforcement procedure implementation officer. Periodic reports on the status of
radiation sources are forwarded to Bezeq's CEO and the Board of Directors.
2.16. Restrictions and supervision of Bezeq operations
Bezeq is subject to various legal systems that regulate and limit its business activities. The main body
that supervises Bezeq's activities as a communications company and may give instructions on various
subjects is the Ministry of Communications.
2.16.1.
Supervision of Bezeq rates
Arrangements under Sections 5 and 15 to 17 of the Communications Act and under the
NIO license apply to Bezeq’s rates, as detailed later in this section.
Bezeq rates are subject to regulatory intervention (even if not provided for in regulations),
and from time to time, Bezeq is exposed to significant changes in its rate structure and
rate level. Rate control creates or may create difficulties for Bezeq in providing an
appropriate timely competitive response to changes in the market and competitors'
offers. In addition, the restrictions on the granting of discounts in rates limit Bezeq’s
29The construction and operation of these facilities requires an establishment permit as well as an operating permit in
accordance with the Non-Ionizing Radiation Law. The construction of high-voltage facilities (transformers) at Bezeq sites is
intended for the supply of energy for the use of Bezeq facilities.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
participation in certain tenders. The transition to maximum prices instead of FIX prices in
relation to Bezeq services stipulated in the regulations (mainly telephony) and the
exclusion of certain marginal services from the scope of the regulations as of April 1, 2022
gives Bezeq greater flexibility in relation to these services.
The following are the main principles of the control arrangements on Bezeq rates:
2.16.1.1
the Communications Law,
In accordance with
the Minister of
Communications, with the consent of the Minister of Finance, may
determine payments (including maximum or minimum payments) for
licensee services. Determination of payments can be made, inter alia, based
on (1) cost according to a calculation method ordered by the Minister plus
a reasonable profit; Or (2) by reference points derived from one of the
following: payment for services provided by the licensee, payment for
comparable services, payments in other countries for such services. Bezeq's
regulated service rates (telephony and other services) were set in the
regulations as fixed rates, which were updated according to the linkage
formula minus a reduction coefficient as stipulated in the regulations, so
that on average Bezeq's supervised rates were eroded in real terms
As of April 1, 2022, amendments to the payment regulations and the Bezeq
license entered into force, the FIX rates were canceled and in their place
maximum rates were set, so that the maximum payments for telephone line
usage fees and outgoing call rates (applicable to a subscriber who owns 3
lines or less) were gradually reduced on two dates – April 1, 2022 and July
1, 2023, the regulations determining the update mechanism were canceled.
a. The following is a breakdown of the rates in accordance with the
aforementioned dates (in NIS):
Two
stages
April 1,
2022
until
July 1,
2023
Starting
from July
1, 2023
Service
Monthly usage fee per
telephone line
Rate for call minutes to
landline networks30
Rate for call minutes to
mobile networks 31
Monthly usage fee per
telephone line
Rate for call minutes to
landline networks 32
Rate for call minutes to
mobile networks 33
Maximum rate
Net of VAT
VAT included
29.91
Peak
Low
0.035
0.0857
35
Peak
Low
0.041
0.100
1139 until June 14, 2023;
From 6/15/2023 to
6/30/2023: 0.088
20.82
0.0142
1327 until June 14, 2023;
From 6/15/2023 to
6/30/2023: 0.103
0.128
24.36
0.017
0.086
b. Upon the transition to a mechanism of maximum payments, the
existing alternative payment baskets that Bezeq has been marketing in
accordance with the provision of Article 15A of the Communications
Law were eliminated. In parallel, until July 1, 2023, with regard to
existing subscribers in these baskets, the maximum payment will be the
maximum payment for subscribers who, on the eve of the entry into
force of the amendment, paid for a cluster of services according to an
30
Including interconnectivity rate to landline destinations.
31
Including interconnectivity rate to mobile networks.
32 Including interconnectivity rate to landline destinations .
33 Including interconnectivity rate to mobile networks .
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
alternative payment basket, according to the conditions established in
that alternative payment basket or according to the payment
regulations as drafted after the Amendment, whichever is lower. Also,
Bezeq may market telephony service packages that include a telephone
line and call minutes, at rates that will be determined by it in
accordance with Section 17 of the Communications Law, provided that
the payments in these packages are lower than the payments derived
from the maximum rates that will be determined
The Ministry of Communications estimates (as indicated in the decision
of the Minister of Communications dated December 30, 2021) that such
a change in rates is expected to reduce telephony expenses of the
Company’s discrete line subscribers and reduce the Company’s landline
telephony consumers' expenses by NIS 370 million per year from July 1,
2023 onwards (including VAT).
The Minister of Communications' decision also states that in view of the
expected technological changes,
in particular the transition to
advanced networks, the decrease in the number of subscribers to the
landline telephony service and changes in the competitive situation,
whatever the situation, the Minister of Communications intends to
Bezeq's landline telephony service.
Bezeq estimates that the reduction of rates in accordance with the
decision is expected to have a material adverse effect on Bezeq's
financial results. At the same time, Bezeq estimates that the decrease
in its revenues is expected to be lower than that stated in the Ministry
of Communications' estimates.
According to Bezeq estimates, if the number of telephony lines and call
minutes in the Bezeq network had remained at their level as of the date
of this report, the reduction in rates would have led to a decrease in
Bezeq’s revenues in 2022 of NIS 70 million; a decrease in Bezeq's
revenues in 2023 in the amount of approximately NIS 150 million; and
from 2024 onwards, to a decrease in Bezeq's revenues in the amount
of approximately NIS 200 million per year. However, in light of the
continuing declining trend in both the number of Bezeq telephony lines
and the number of call minutes, which led to an erosion in Bezeq's
revenues from telephony services34, the impact of the decision alone
on Bezeq's revenues is expected to be smaller compared to this section.
Some of the information contained in this section is forward-looking
information as defined in the Securities Law based on assessments,
assumptions and expectations, including the demands for Bezeq
services and the behavior of various communications operators and any
other
information relating to future events or matters whose
materialization is uncertain and out of the control of the Company.
Forward-looking information is inherently uncertain, and accordingly,
the information may not materialize or materialize differently, even
materially, from what is stated depending on the materialization of the
above assessments.
2.16.1.2
Rates stipulated
in the regulations according to Article 5 of the
Communications Law - the Minister of Communications and Finance has the
authority (according to Article 5 of the Communications Law) to determine
payments for interconnection or for the use of a license holder in the Bezeq
facilities of another license holder and to issue instructions on the matter
(including in relation to ancillary arrangements) , among other things, based
on the parameters listed in Section 2.16.1.1. For the the outline of the
reduction of interconnection rates as stipulated in the interconnection
regulations, see Section 1.7.7.1.
2.16.1.3
Determining rates according to Article 15 of the Communications Law - a
34 Except in 2020 which was affected by the consequences of the COVID crisis.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
2.16.1.4
service for which no payment has been set or for which a maximum or
minimum payment has been set according to Articles 5 or 15 of the
Communications Law, Bezeq may demand a reasonable payment for it. In
accordance with the Bezeq license, it will offer rates as stated, to anyone
who requires it throughout Israel, and for an advanced network in the
service area specified in Appendix 11-1, without discrimination, and at a
uniform rate according to the types of services.
The Minister of Communications may order Bezeq to report to him the
payment that it intends to demand as stated and any change in payment
prior to the provision of the service or the implementation of the change. If
the Minister of Communications deems that Bezeq intends to demand a
payment that is unreasonable, or a payment that raises concerns about
harming competition, he will be entitled to order Bezeq (for a period not to
exceed one year) on the amount of payment that it is entitled to demand
for the service, or to order the separation of payment for service from the
payment for the services cluster.
The Minister's examination of whether a payment is unreasonable can be
done, among other things, in accordance with the parameters stated in
Section 2.16.1.1(1), and the Minister may examine the payment based on
what is stated in Section 2.16.1.1(2). According to the license, Bezeq must
notify the Ministry of Communications of the rate it sets 14 days in advance.
On December 20, 2022, a hearing was published on behalf of the Ministry
of Communications regarding the determination of a format for examining
the reduction of margins by owners of
landline communications
infrastructure.35 Among other things, it is proposed that the margin
reduction test will take place on a retail product based on an advanced
network of authorized suppliers who have significant market power
(including the Company). The recommendation details the method of
calculating the prices underlying the test and suggests that the retail margin
component be calculated as a 25% addition to the wholesale costs, or
alternatively - as a 20% reduction from the retail price to the end customer.
It is suggested that the test be used as part of a self-examination, and this
goes beyond establishing a rigid framework that includes reports and pre-
approvals of every marketing proposal. Failure to comply with the margin
reduction test will lead, among other things, to the exercise of the authority
of the Minister of Communications according to Article 17(c) of the
Communications Law and to a reduction of the wholesale payment for the
BSA service in a way that will bring it within the limits of the proposed test
for a period of one year. It should be noted that the Company is still
conducting a self-examination for not reducing margins in the BSA service,
so that insofar as the hearing is applied to the Company in the published
format, it does not expect it to have a material impact on its business.36
Some of the information contained in this paragraph is forward-looking
information as defined in the Securities Law based on the Company's
assessments regarding the final decisions that will be made following the
hearing and their effects. Actual estimates may vary depending on the
aforementioned variables.
2.16.1.5
For wholesale rates and new pricing for all wholesale rates see Section
35 According to what was said in the hearing, it replaces two previous hearings (from the years 2014 and 2017) in which no final
decision was made due to implementation difficulties. "Margin Squeeze" takes place when an infrastructure owner who holds
market power and provides wholesale services to his competitors, reduces the margin between his retail rate to the consumer
and his wholesale rate to the competitors, in a way that harms the economic viability of the competitors to purchase wholesale
inputs from him and market retail services to the consumer based on them.
36 In this context, it should be noted that according to the test applied by the Ministry of Communications to check the reduction
of margins between Hot's retail rates and wholesale rates (including on a traditional network - Co-ax), the retail rate is required
to be 25% above the wholesale rate and the wholesale rate is required to be 20% below the retail rate. The retail rate included
infrastructure and provider and did not include the component of international gigas.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
2.16.4, and regarding margin reduction see Section 2.16.4.2.
2.16.2.
Bezeq's NIO license
Bezeq operates, among other things, under the NIO license37. The NIO license contains
provisions that mainly concern:
2.16.2.1
The scope of the license, the services that Bezeq must provide and the
universal service obligation
Bezeq must provide its services to everyone on equal terms for each type of
service, regardless of location or unique cost. The license is not limited in
time; The Minister may change, revoke, and suspend the license; The license
and any part thereof may not be transferred, encumbered or foreclosed.
Regarding the addition of wholesale services to the Bezeq license, see
section 1.7.6. Regarding the deployment and universal service obligation in
connection with advanced infrastructure (fibers), see Section 2.7.2.
2.16.2.2
Rules of structural separation
For a description of the structural separation rules applicable to Bezeq, see
Section 1.7.3.
2.16.2.3
Rates
For a description of the main provisions regarding rates, see Section 2.16.1.
2.16.2.4
Marketing shared service baskets
For the provisions in the NIO license that allow Bezeq to apply to market
baskets of shared services subject to restrictions, see Section 1.7.3.2.
2.16.2.5
Operation of Bezeq’s networks and the level of its services
Bezeq must maintain and operate the network, and maintain its services at
all times, including in times of emergency, in a proper and regular manner,
in accordance with the technical requirements and the quality of service
requirements, and act to improve its services. The license includes an
appendix regarding the "level of service to the subscriber". Bezeq forwarded
proposals to the Ministry to amend the appendix while adapting it to the
customary reality and licenses of other operators, but as of the publication
of the report, the amendment has not yet been made. For the amendment
to the license regarding answering at the call centers, see Section 1.7.7.3.a.
2.16.2.6
Interconnectivity and use
Provisions have been made regarding the obligation of interconnectivity to
another public network and allowing the use of another licensee (including
wholesale service); There is also an obligation to provide infrastructure
services to the another licensee on reasonable and equal terms, and to
refrain from preferring a licensee who is an affiliated company.
2.16.2.7
Arrangements in the field of security
Provisions have been made regarding the operation of Bezeq’s network in
time of emergency, including an obligation to operate in a manner that will
prevent it from collapsing in an emergency.
Bezeq must perform Bezeq services and construction and maintenance
services for infrastructure and end equipment for defense forces in Israel
and abroad, as stipulated in its agreements with the defense forces. Bezeq
will also provide special services to the defense forces. Bezeq will work to
ensure that all purchases and installation of hardware in its Bezeq facilities,
with the exception of terminal equipment, will be made in full compliance
with the instructions given to Bezeq under Article 13 of the Communications
Law.
37 A copy of the NIO license is published on the Ministry of Communications' website at - www.moc.gov.il.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Bezeq must appoint a security officer and strictly comply with the security
provisions in the appendix to the license. For the provisions of the license
regarding preparation for cyber defense management, see Section 1.7.10.
2.16.2.8
Supervision and reporting
Bezeq has extensive
the Ministry of
reporting obligations
Communications. In addition, the Director General of the Ministry of
Communications (as defined in Bezeq’s license) was granted access rights to
the facilities and offices used by Bezeq and the seizure of documents. On
August 1, 2019, Bezeq's general license was amended so that the reporting
obligations were consolidated and reduced.
to
2.16.2.9
Miscellaneous matters
a. The NIO license includes restrictions on the acquisition, possession and
transfer of means of control in accordance with the provisions of the
Communications Order (see section 2.16.3), as well as restrictions on
"cross-ownership", the main principle of which is the prohibition on
cross-holding by entities that have an affiliation with another material
NIO38 as stated in the license, and restrictions on cross-holding by
entities with NIO licenses or general licenses in the same segment of
activity.
b. Bezeq provided the Director General of the Ministry of Communications
with a bank guarantee in the total amount of NIS 15 million to ensure
compliance with the terms of the license and to indemnify the State for
any damage caused to it due to their violation by Bezeq.
c. The Director General of the Ministry of Communications is authorized
to impose a financial sanction for violating the terms of the license (for
this matter, see also Section 1.7.7.5).
d. Bezeq may invest during a calendar year up to 25% of its annual income
in activities not intended for the provision of Bezeq services (when the
income of subsidiaries is not considered Bezeq's revenue for this
purpose).
e. License to provide services in the Judea and Samaria region - On
October 26, 2020, Bezeq received a general license for the provision of
landline interior Bezeq services in the Judea and Samaria area (before
that, the provision of the service was included in the provision of
Bezeq's general license). In accordance with what is stated in the
preamble to the license, this is a license in the form of a reference to
Bezeq's general license granted to it by the competent bodies in the
Ministry of Communications, while making the necessary adjustments
in the area, and it is nothing but an existing snapshot in the field of
infrastructure that is under the responsibility and ownership of Bezeq.
Accordingly, no material change is expected in Bezeq's conduct in Judea
and Samaria in relation to the existing situation prior to the granting of
the license (at the same time, it should be noted that the license in
principle allows Bezeq to streamline the service in the area through the
use of technicians from the entire Group, subject to the approval of an
appropriate procedure to be formulated by Bezeq and brought for
approval by the Communications Officer).
f. On May 16, 2022, Bezeq received a public appeal published by the
Ministry of Communications regarding the provision of communication
services to the business segment, within the framework of which the
Ministry calls on companies in the communication market that provide
communication services to the medium-large business segment, to
detail their activities in the field and the barriers agaist expanding this
activity. This is in order to promote regulation that will increase
competition in the field. In accordance with what was said in the voice
38 NIO with a market share of 25% or more.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
of the reader, the market of medium-large business customers is
characterized by a significant advantage for size, and significant barriers
to entry and expansion that limit even players who have been operating
in it for many years. Also, Bezeq's market shares in the segment and the
rate of change in them are an indication of a low level of competition in
the segment, which affects the prices and the level of services received
by businesses in Israel, and therefore, the Ministry is starting a process
of examining the state of competition and the barriers in the segment,
and is turning to receive the references of the players. On June 20,
2022, Bezeq submitted its response to the public appeal, according to
which the field of communications for large and medium-sized
businesses is a competitive market where there are no barriers to entry
and expansion and no market failures, and in these circumstances no
regulatory intervention is required.
For the wholesale market and wholesale service portfolios see Section
2.16.4.
the amendment of Bezeq’s
Regarding
the
determination of advanced network deployment obligations - see
Section 2.16.5
license regarding
2.16.3.
The Communication Order
Bezeq has been declared a provider of essential Bezeq services in accordance with the
Communication Order. By virtue of this declaration, Bezeq is obligated to provide certain
types of services and may not stop or reduce them, including basic telephone service,
infrastructure service, transmission service and data communication service, including
interconnectivity, and other services listed in the addendum to the Order.
in the Communication Order (regarding proposed
Main additional provisions
amendments to the Communication Order regarding the control of the Company, see
Section 1.1.4):
2.16.3.1
2.16.3.2
2.16.3.3
2.16.3.4
2.16.3.5
Restrictions on the transfer and purchase of means of control in Bezeq,
including a restriction on the possession of means of control of a certain
type at a rate of 5% or more without the prior written approval of the Prime
Minister and the Minister of Communications (“the Ministers").
The transfer or acquisition of control of Bezeq requires the approval of the
Ministers ("Control Permit"). The Control Permit will determine a minimum
holding rate in each of Bezeq's means of control by the Control Permit
holder, with the transfer of shares or the issuance of shares by a company,
as a result of which the controlling shareholder's holdings fall below the
minimum rate – is prohibited without the Minsiters’ prior approval, subject
to permissible exceptions (including public offering under a prospectus or
sale or private allotment to institutional investors)39. Regarding the
amendment to the Communication Order regarding the control permit, see
Section 1.1.4.
Holdings that have not been approved as aforesaid will be considered
"excess holdings". The Order stipulated that there would be no validity to
the exercise of a right by virtue of excess holdings, and also stipulated
provisions authorizing the Ministers and Bezeq to apply to the court for a
forced sale of excess holdings.
Bezeq was required to report to Ministers, upon request, on all information
on matters related to the provision of an essential service.
At least 75% of the members of Bezeq's Board of Directors will be citizens
of Israel and its residents with a security classification and security
suitability, as determined by the General Security Service. The Chairman of
the Board of Directors, the external directors, the CEO of Bezeq and other
Bezeq officials as specified in the Order will be citizens of Israel and its
39
For the minimum holding rate in Bezeq Group's control permit, see Section 8 of Chapter D of this periodic report..
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
2.16.3.6
2.16.3.7
2.16.3.8
residents and have a security classification according to the classification of
the position.
"Israeliness" requirements for the controlling shareholder in Bezeq: in the
case of an individual - he is an Israeli entity (as defined in the Order), in the
case of a corporation - it is incorporated in Israel, its business center in Israel
and an Israeli entity (as defined in the Order) holds at least 19% of any of
the means of control in it, or holds at least 19% of the voting rights at the
general meeting and the right to appoint directors in the controlling
shareholder and it has the right to appoint at least one-fifth of the number
of directors in Bezeq and Bezeq's subsidiaries, and no less than one director,
in each them, to be appointed by it, provided that the rate of his holdings in
Bezeq, both directly and indirectly, will not at any time be less than 3% of
any type of means of control in Bezeq.
On July 8, 2020, an amendment was published in the records to part of the
media regulations that stipulate the requirement of Israeliness so that it was
added the option to convert the Israeliness requirement into a provision
under Article 13 of the Communications Law, which will apply to the
relevant licensee alternative provisions to the Israeliness requirement.
The approval of the Ministers is required for the granting of rights in certain
Bezeq assets (switches, cable network, transmission network and databases
and information). In addition, the granting of rights by means of control of
Bezeq's subsidiaries, including the allotment of shares in excess of 25% by
the subsidiary, requires the approval of the ministers.
Certain Bezeq operations require the approval of the Minister of
Communications,
including voluntary dissolution, compromise or
settlement between Bezeq and its creditors, change or reorganization of
Bezeq's structure, merger and splitting of Bezeq.
2.16.4. Wholesale market
In recent years, Bezeq has been providing services under the "wholesale market" model,
in which it has imposed obligations on the owners of the lanlinde interior access
infrastructure
Israel (Bezeq and Hot) to sell wholesale services to other
communications operators.
in
The regulatory determinations in relation to the wholesale market as well as its
implementation and development during the reported period have an impact on a
significant part of the Group’s activity.
2.16.4.1
Policy document
Following the policy document, at the end of 2014, the Ministry of
Communications established service portfolios for the various services,
which determine the format of the provision of services by the
infrastructure owners. The maximum rates that Bezeq may charge for these
services were set by the Minister of Communications with the consent of
the Minister of Finance in the regulations for the use of that year. On June
26, 2017, the rates for Hot’s wholesale services were announced.
2.16.4.2
BSA service
Bezeq began providing the service on February 17, 2015. This service
enables infrastructure-less service providers to offer their customers a
unified Internet service which includes both an Internet connection service
and Bezeq's infrastructure service40. The service is provided both on the
40 It should be noted that in the first days of the service, the Ministry conducted a supervisory procedure at Bezeq that led to
the imposition of sanctions in the amount of NIS 8.5 million paid by Bezeq. After Bezeq's Board of Directors rejected the
applicant's motion to file a derivative claim in the matter against Bezeq's officers, and ruled that in the circumstances of the
case, Bezeq does not have a good cause of action against officers and other officials who served during the relevant periods,
and that conducting legal proceedings will not promote Bezeq's benefit. In February 2022, the applicant submitted a motion
for approval of a derivative claim against Bezeq's officers (all but one are former executives) in the amount of the financial
sanction plus interest and linkage differences.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Company's traditional network (copper) and on the fiber network. Since the
launch of the service, hundreds of thousands of customers have moved to
receive service through such service providers, in this regard, see Sections
1.5.4.1 and- 2.1.3.
The service portfolio, to which in February 2022 a "Fiber BSA service"
chapter was also added, imposes on the owners of the infrastructure,
including Bezeq, obligations of periodic publication in the automated
interface (API) and on their website about the deployment of an advanced
network (this obligation applies to the Company and IBC). In addition, the
owners of the infrastructure, including in the incentive areas, must publish
detailed statistical information in an internal interface between the
operators, which refers to a wide range of parameters. On June 20, 2021,
the Ministry added to the reporting obligations a detailed periodic
information requirement regarding access to and connection to optical
fibers, in accordance with uniform parameters and about the number of
subscribers to the service over optical fibers divided into statistical areas.
This obligation applies to providers who deploy fiber.
BSA service rates over the copper network
The usage regulations set the maximum rates for the service and they
were updated between 2017 and 2022 in accordance with the demand
forecast index according to formulas established by the Minister in his
notices to the usage regulations. For the years 2017 and 2018, the update
according to the demand forecast index was applied retroactively and also
included a graduated offset mechanism.
In the usage regulations, in an amendment dated February 15, 2022, it was
established the duty of a deployer in the incentive area (whose license an
or administrative order issued to an NIO established the obligation to
deploy an advanced network according to Article 14d(f) of the law) to
provide BSA service via fiber in the incentive areas. The maximum payment
deployed in the area Timretz may demand from another licensed provider
in favor of a managed broadband access service at a nationwide
connection level identical to that which Bezeq may demand, and does not
include installation and fault repair in the subscriber's home, for which a
deployer in the incentive area may charge a reasonable rate to be
determined and he will also be required to meet a margin reduction test.
The update for the 2022 report year increased the weighted BSA rates on
copper compared to the rate in 2021. The impact on the Company's
revenues as a result is immaterial. On December 21, 2022, the Ministry of
Communications announced that in 2023 the same methodology that was
used in the past regarding the demand forecast indicators for updating
Bezeq's BSA service rates on the copper network will be applied. This, as
was explained in the hearing that preceded the decision, among other
things because the Ministry of Communications is in the midst of work to
determine updated payments for wholesale use in accordance with the
regulations (for this matter, see Section 2.16.4.5). On December 26, 2022,
a notice was published on updating the demand forecast indicators
accordingly.
Rates for the BSA service on fiber infrastructure ("Fiber BSA")
In the usage regulations, the rates for the service were determined as
maximum rates for an accessibility service and data transmission at an
aggregate rate of up to 550 Mbps and above 550 Mbps and up to 1,100
Mbps. The rates are updated once a year, on January 1 starting in 2021, in
accordance with changes in the consumer price index. According to the
recommendation of the professional staff at the Ministry, which was the
basis for the decision regarding the rates, the aforementioned rates will be
valid for a period of three years and will then be replaced by a non-
temporary rate. Bezeq is entitled to demand a reasonable payment for the
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service of initial installation of internal wiring41 to the subscriber's
premises. In accordance with the Telecommunications Law, internal wiring
installed for the provision of Bezeq service on an advanced network will be
owned by the person whose premises the internal wiring is intended to
serve only.
For the agreement for the provision of the non-residential right of use
(IRU) service in the BSA fiber service (wholesale market) by the Company
to Partner and the subsequent reduction of the prices of individual lines in
the BSA fiber service, see Section 2.6.3.
2.16.4.3
Wholesale service - use of passive infrastructure
The "Use of Physical Infrastructure" service portfolio came into force on the
July 31, 2015 and accordingly allows Bezeq for infrastructure-less suppliers
to use Bezeq's available physical
infrastructure for the passage of
communication cables, as well as to use available dark fiber from Bezeq's
available optical cable, Maximum rates for this in the regulations of use.
Subsequently, the obligation to provide use of Bezeq's passive infrastructure
(with the exception of dark fiber and optical wavelength service) was
extended in relation to infrastructure owners - IBC and Hot. At the same
time, NIO licensees were required to allow other NIO licensees to use their
passive infrastructure42, and then a service portfolio was established for
"mutual use" of passive infrastructure, in which the obligation imposed in
infrastructure
the original service portfolio on an operator using
infrastructure to establish a passive infrastructure facility near Bezeq's
passive infrastructure facility was abolished.
The mutual service portfolio does not include provisions for the dark fiber
rental service and optical wavelength service, which remain in the original
service portfolio used only by holders of a unique general national interior
operator license.
Also, in accordance with the decision of the Minister of Communications
dated February 2022, holders of special broadband infrastructure licenses
were allowed to use Bezeq's passive infrastructure in the incentive areas.
Expanding the possibility to make use of Bezeq's passive infrastructures as
increase the extent of damage caused to Bezeq
mentioned may
infrastructures by operators and the difficulty of monitoring what is done to
them. On the other hand, use of Bezeq's passive infrastructure by
authorized providers will involve a payment to Bezeq (even if reduced, as
described in this section below).
For the determination of the Competition Authority in the matter of
infrastructure and for the appeal by Bezeq, see Section 2.16.8.5, and for the
motion for approval of a class action and two demands for the exercise of
rights before filing a derivative claim in this matter, see Section 2.18.1(h).
Service rates
The usage rates for Bezeq's passive infrastructure and dark fiber are also set
in the usage regulations. In accordance with the provision of Article 14 d(9)
of the Communications Law, the Minister, in the regulations published on
July 21, 2022, established a reduced rate for using the Company's passive
infrastructure (including dark fiber) in the incentive areas, and in the area
beyond the incentive area43, which is about a quarter of the rate in the
41 Internal cable is part of a Bezeq network that is installed on a person's premises and on shared premises and is intended to be
used by that person's premises only.
42 Except for the passive NIO infrastructure, which is held by the IEC and is required for its activities as a holder of an essential
service provider license.
43 An area that is not an incentive area and that is not one of the Company's deployment areas. The reduced payments for the
services in these areas will come into effect after establishing a regulation regarding the identification of use in these areas.
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Company's connection areas in the case of access service for infrastructure
and over a third for dark fiber service. As indicated in the Minister's decision
attached to the amendment of the regulations (together with an economic
expert) as part of a new pricing process for all wholesale rates planned for
2022, among other things, the determination of the abovementioend
regulated rates will also be examined. It was also determined that the
reduced rates will also apply in the deployment areas that the Company
chose at a later stage, for a year.
2.16.4.4
Wholesale telephony service
This service enables service providers who do not have the infrastructure to
offer their customers telephony service at wholesale rates through the
Bezeq network. Until August 2018, a temporary arrangement was in effect
which allowed Bezeq to provide the service in a resale format, i.e. - a format
in which the service provider purchases a line and call minutes from Bezeq
and receives a package of services (including technician services) from the
Company. This is in accordance with the decision of the Minister of
Communications' dated November 14, 2014 regarding the provision of a
wholesale telephony service in the format of the service file as of May 17,
2015. The petition included, among other things, allegations of lack of
applicability of the service in the format of the service portfolio and lack of
authority.
Starting from August 2018, Bezeq was obligated, according to the Ministry
of Communications' announcement, to provide the service in a "wholesale"
format, i.e., a service format in which the service is provided via Bezeq's
switch, but the call also passes through the service provider's switch, both
as a discrete service and as an additional service to the BSA service. As of
August 2018, Bezeq has been prepared to provide resale services at
wholesale rates (excluding technician services) - although in this service the
call does not pass through the service provider switch, and from the
beginning of 2019 Bezeq is prepared to provide a wholesale telephony
service solution through the service provider switch, and is based on both
Bezeq's previous subscription switch and an additional component external
to the switch, and from 2020 on the new switch that complies with the
requirements of the Ministry of Communications for the service format (for
more details see also Sections 2.1.8, 2.7.2 and 2.16.4). As it became clear
after discussions that took place, among other places, in the Ministry of
Communications, the service providers were not prepared to act according
to the format of the service portfolio. On May 27, 2020, Bezeq received a
letter from the Ministry of Communications according to which Bezeq's
position was accepted regarding the interpretation of the service package,
and determining that the services accompanying the telephony service
according to the service package will be provided through the service
provider’s switch, and the Company will not be obligated to offer the
accompanying services through the switch it operates (except in the case
that there is no possibility to provide them through the service provider's
switch.44
The wholesale telephony service with all the features described above had
no actual demand, and there were no customers, except for a few and for
tests.
2.16.4.5
Wholesale market services pricing procedure
On September 6, 2022, Bezeq received a letter from the Director General of
the Ministry of Communications, which includes a notice of the launch of a
pricing process for wholesale market services - an update and a request for
information (“the Notice"). The notice was accompanied by a request for
44 In the Ministry's letter, it was stated that the Ministry's decision does not express a position regarding the Company's
compliance with the provisions of the service file regarding the telephony service, and it does not prevent the Ministry from
taking regulatory and enforcement procedures on this issue.
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data from Axon Partners Group, which the Ministry chose to provide
consulting services for assistance in building a cost model from which
updated rates for the wholesale market will be derived. According to the
Notice, the work process will progress according to the following steps: (1)
Gathering information from licensees; (2) Building the economic model
based on a pricing methodology, formulating an up-to-date list of wholesale
services, and deriving maximum payments for wholesale services on the
basis of the model that will be published for the hearing (the hearing on the
cost model is expected, according to the notice, to be published in the first
quarter of 2023); (3) Decision at the hearing and amendment to the usage
regulations. Bezeq transmits data and information in accordance with the
requirement, and at this stage it is unable to evaluate the results of the
hearing The future and its consequences.
2.16.5.
Advanced network - fiber
2.16.5.1
On December 24, 2020, an amendment to the Communications Law was
published that regulates the deployment of an "advanced network". In
accordance with the amendment to the law, Bezeq may select, from all of
Israel, the statistical areas45 in which it wishes to deploy an advanced
network (not based on its metallic network) and provide Internet access
service thereon.
The Company does not have to deploy the advanced network throughout
all of Israel, but in all the statistical areas it has chosen, and this until no later
than March 14, 2027 (which is six years from the deadline set in the Bezeq
license).
After the obligation has been established in the Bezeq license to provide
service in its choice areas (the service areas) as stated, the Company may
deploy an advanced network that is not based on its metallic access network
and provide Bezeq service over it even not to the general public throughout
Israel, and landline Bezeq service provider other than the Company (such as
Hot) may deploy an advanced network (which is not based on his metallic
access network) and provide Bezeq service over it, even not to the general
public throughout Israel, and not even at least in a service area. The Minister
may set conditions for the deployment and provision of the service with
licenses or a general permit. The Minister may permit Bezeq licenses or the
license of another stationary Bezeq service provider to provide service over
their metallic access network that has been upgraded to an advanced
network, not to the general public throughout IIsrael and not at least in a
service area, if he sees that this contributes to competition and level of
service.
In the amendment to the law, incentives were established for deployment
in statistical areas that are not from the deployment areas chosen by the
Company ("Incentive Areas"), the main ones of which are a reduced
payment for the use of the Company's passive infrastructure in the Incentive
Areas, the opening of an incentive fund, managed by the Accountant
General at the Ministry of Finance in order to encourage deployment, to
which mandatory annual payments will be deposited by the liable entities,
including Bezeq, at a rate of 0.5% of the liable entities' annual revenue. The
Minister of Communications with the consent of the Minister of Finance and
the approval of the Economic Committee may change this rate.
The allocation of the incentive funds will be through tenders. In the
conditions of the tenders, the tenders committee may establish threshold
conditions for participating in the tender, including a condition according to
which a bidder must have a license.
45 "Statistical area" - a continuous area unit created from a geographic-statistical division, as ordered by the Minister according
to Article 14f of the Communications Law; the division into statistical areas is based on the CBS.
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The only benchmark for selecting tender winners will be the ratio between
the number of households in the Incentive Areas in the bids of the
contestants and between the amounts from the incentive fund that will be
allocated as part of the tenders. No weight will be given to the geographical
location of the Incentive Areas in the bids of the contestants or to the
characteristics of the households in the Incentive Areas.
In the license of a winner of a tender or by administrative order, an
obligation will be established to deploy an advanced network in a service
area that includes the Incentive Areas which it won, including an obligation
to provide an internet access service over the network to anyone in the area
license. Regarding the
within the time periods specified
determination of such an obligation in the Judea and Samaria region, the
provisions of the law in this matter applicable in the Judea and Samaria
region will apply.
in the
Bezeq and a corporation related to it are prohibited from participating in
the tender for the allocation of the incentive funds, or deploying an
advanced network and providing services over it in the Incentive Areas,
except after five years have passed from the date of the establishment of
the deployment obligation in the license of the winner of the tender.
The Minister may permit Bezeq, at its request, to deploy an advanced
network and provide services on top of it in Incentive Areas for which the
incentive funds have not yet been allocated, provided that the proportion
of households in the areas to be included in their application does not
exceed 10% of the households in the areas included in the statistical areas
chosen by the Company. The Company made use of this option and selected
151 additional statistical areas. For details, see Section 2.16.5.2.
The above limitations do not detract from the ability of the Company or a
related corporation to deploy an advanced network in the Timruts area in
order to provide Bezeq service to a business subscriber, or to provide service
to a business subscriber on an advanced network that has been deployed.
The amended law also stipulates that the ownership of the internal wiring
in an advanced network will belong to the subscriber whose premises are
used by the routing only. An authorized supplier may demand a reasonable
payment for its installation.
On June 15, 2021, Bezeq's license was amended and, among other things,
an appendix was added to it that includes the list of statistical areas selected
by Bezeq, which cover about 76% of Israel’s population and, in the
Company's estimation, about 80% of households. Milestones for completing
the deployment of the advanced network were also established in the
license as follows: Completion of deployment to buildings where the
cumulative proportion of households is 60% of the total number of
households in the service area (all statistical areas selected by the Company)
- no later than the end of two years from the determining date (March 14,
2021)46; 80% - no later than three years from the determining date; 95% -
no later than the end of five years from the determining date; Completion
of layout for all the buildings in the service area no later than the end of six
years from the determining date.
On October 3, 2022, the Minister of Communications approved Bezeq's
request to allow it to deploy an advanced network and provide Bezeq
service over in statistical areas additional to the areas specified in the
Company's license and to amend the Company's license accordingly. This is
a deployment in 151 additional areas, including about 60,000 households.
As detailed in the decision of the Minister of Communications, the rate of
households in the Company's deployment areas is 82.5% and this is an
2.16.5.2
46 The date when the Company began to provide a fee-based Internet access service on the advanced network .
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2.16.5.3
2.16.5.4
addition of about 2.3% to this rate, so that the updated rate of households
in the Company's deployment areas will be about 84.7%.
On October 13, 2021, the Ministry of Communications published a tender
"for extending a license to deploy an advanced network and to receive
financial grants to encourage the deployment of advanced landline
networks in areas lacking economic viability", i.e. in the Incentive Areas.
Further to this, on March 7, 2022, an announcement by the Ministry of
Communications was published on the website of the Ministry, which
includes the names of the areas in which telecommunications companies
that won a tender for an advanced network based on optical fibers will
deploy. According to the announcement, the winning areas make up about
60% of the Incentive Areas, and the companies that win the tender will be
given a period of one year and three months from the day their license is
amended to complete the deployment obligations and provide the services
in these areas. On February 1, 2023, the Ministry of
to anyone
Communications published a notice according to which the Inter-ministerial
Tenders Committee published the results of the second tender for the
deployment of the remaining Incentive Areas (published on October 26,
2022) in an outline that results in an obligation to fully deploy optical fibers.
It should be noted that the provision of service by winners in the incentive
areas may exacerbate the competition against the Company's services
provided in these areas over the traditional (copper) infrastructure.
In providing Internet access services provided via fiber optics to the
residential building (Fiber To The Home - FTTH) to private subscribers,
providers are not allowed to offer subscribers offers under different
conditions or at a different rate, depending on the proposed infrastructure
(self or wholesale). The type of infrastructure offered will be a reasonable
characteristic that justifies distinguishing one group of subscribers from
another in relation to Internet access services that are not provided via
optical fibers to the residential building. The type of infrastructure (own or
wholesale) will not be used as a feature that allows different rates to be
offered when it comes to internet service over fiber.
2.16.5.5
Fiber deployment in residential buildings
Regarding the deployment of fibers in new residential buildings, on June 8,
2021, an amendment to the Panning and Constuction Regulations (Permit
Application, Conditions and Fees) was published regarding the obligation to
lay optical fibers in new buildings. In addition, within the framework of the
Economic Plan Law (Amendments to Legislation for the Implementation of
the Economic Policy for the Budget Years 2021 and 2022) (5781-2021)
approved on November 4, 2021 (the "Arrangements Law"), the provisions
of the Communications Law regarding the conditions for laying an advanced
network in a shared residential building in the absence of the consent of the
majority of the apartment owners were also amended.
2.16.6.
Powers in respect of real estate
Pursuant to the provisions of Article 4 (f) of the Communications Law, the Minister of
Communications granted Bezeq real estate-related powers in accordance with the
provisions of Chapter F of the Law.
The law distinguishes between state-owned land, the Development Authority, the Jewish
National Fund, a local authority or a corporation established by law and held by one of
them, as well as a road ("public land") and other land ("private land"). With regard to
public land, Bezeq, and any person authorized thereby, may enter for the purpose of
performing works for laying and maintaining a network and providing Bezeq services,
provided that the laying of the network was done in accordance with the provisions of
the Planning and Construction Law. The amendment to the Communications Law and the
Planning and Construction Law abolished the obligation to obtain approval from the local
planning and construction committee, so that certain actions are not subject to a building
permit if they are carried out by a licensee who has been granted powers under Chapter
F of the Communications Law if they are made according to an approved plan.
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Laying ofnetwork on private land will be done in accordance with the provisions of the
Planning and Construction Law, and requires the consent of the landowner, the tenant
for generations or the protected tenant, as the case may be.
Pursuant to the provisions of the Bezeq Regulations (Installation, Operation and
Maintenance), 5745-1985, if Bezeq believes that the provision of a Bezeq service to the
applicant requires the installation of a Bezeq facility, in the applicant's premises (or in
common premises), Bezeq may require the applicant as a precondition for providing the
requested Bezeq service to assign a suitable place to Bezeq in the premises for the
installation of the facility, for Bezeq use only, and it may provide service through the
facility to other applicants as well.
According to the Planning and Construction Regulations (Application for a Permit, its
Terms and Fees), 5730-1970, an applicant for a permit for the construction of a residential
building, it is mandatory to install infrastructure for telephone, radio, television and
Internet services so that the customer can choose a provider of his choice. At the same
time, Bezeq’s license (as well as the Hot Telecom and DBS licenses) was amended so that
as long as Bezeq uses the internal threading (the part of the access network, installed in
a person's premises and common premises, and intended to serve that person's premises
only), it is obligated to provide a maintenance service for the internal threading installed
by said person, without giving it any property rights in the internal threading. Regarding
the draft amendment of these regulations for the purpose of imposing an obligation on
the laying of infrastructure in favor of fiber, see Section 2.16.5.
2.16.7.
Immunities and limitations of liability
The Minister of Communications granted Bezeq certain immunities from liability for
damages, listed in Chapter I of the Communications Law, in accordance with his authority
to grant immunities to a general licensee.
In addition, Article 13 of the Communications Law stipulates restrictions on criminal and
civil liability in fact made in the framework of the fulfillment of a provision for the
provision of services to the security forces by virtue of the article.
2.16.8.
Regulations and rules under the Communications Law
As of the date of publication of the periodic report, Bezeq is subject to regulations in two
other main areas: (1) cessation, delay or limitation of Bezeq operations and Bezeq
services; (2) Installation, operation and maintenance.
2.16.9.
Laws of Economic Competition
2.16.9.1
The Competition Commissioner (in this section - "the Commissioner")
declared Bezeq as having a monopoly in these areas:
a. Basic telephone services, provision of communication infrastructure
services, and transmission and transmission services of public
broadcasts47.
b. Providing fast-access services through subscriber access network48.
c. Providing fast access services to Internet providers through a central
Bezeq public network.
The declaration by the Commissioner of Bezeq as having a monopoly
constitutes prima facie evidence to all that is determined in it, in any legal
proceeding, including in criminal proceedings.
2.16.9.2
Bezeq has adopted an
internal enforcement procedure with rules,
guidelines and an internal reporting and control system, the purpose of
which is to ensure that Bezeq and its employees' activities are carried out in
accordance with the provisions of the Economic Competition Law.
2.16.9.3
In accordance with the conditions set forth in the approval of the
Competition Authority dated March 26, 2014 for the merger (as defined in
47 Announcement dated 30.7.1995.
48 On November 10, 2004, the Commissioner split his announcement of December 11, 2000 in the field of Internet access
infrastructure into two separate Announcements (Announcements B and C).
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
the Economic Competition Law) between Bezeq and DBS, the following
restrictions apply in relation to Bezeq and DBS:
a. Bezeq and any person related to it (in this section - "Bezeq") will not
impose any restriction on the consumption of landline Internet
infrastructure services resulting from the customer's cumulative
browsing volume, nor will they cause a restriction or block of the
customer's ability to use any service or application the Internet.
b. Bezeq will deduct from the payments of an Internet provider for its
connection to the Bezeq network sums for the provision of multi-
channel television services.
c. Bezeq will sell and provide Internet infrastructure services and
television services on equal terms to all Bezeq customers (sale of
Internet infrastructure services as part of a basket of services will not in
itself be considered for sale on unequal terms).
d. Bezeq and DBS will cancel all exclusivity arrangements regarding non-
original productions and will not be a party to such exclusivity
arrangements (except in relation to a third party who has a license to
broadcast at the time of the decision). In addition, for two years from
the date of approval of the merger (which have since passed), Bezeq
will not prevent any party (except those who have a broadcasting
license at the time of the decision) from acquiring rights in original
productions (does not apply to new productions).
For the full text of the decision of the Competition Authority, see Bezeq's
immediate report dated March 26, 2014.
On April 12, 2021, the Competition Authority published a decision of the
Competition Commissioner regarding the amendment of the terms of the
merger. According to the amendment, the Commissioner decided to allow
Bezeq's subsidiaries: Pelephone, Bezeq International and DBS (and not
Bezeq), to sell communication packages that include Internet infrastructure,
Internet provider and TV services without the obligation to sell the TV
services, at a separate price that will be uniform for package buyers and for
those who are not package buyers. In addition, the Commissioner decided
to allow greater flexibility with regard to the purchase of foreign content, so
that the condition stipulating the cancellation of exclusivity arrangements
between Bezeq and DBS regarding non-original TV content, and the
prohibition on being parties to such exclusivity arrangements will not apply
to foreign content purchase, excluding sports content, and thus allow for
greater flexibility when it comes to purchasing foreign content.
As part of the approval of the merger of Bezeq and Pelephone dated August
26, 2004 (as amended below), restrictive conditions were imposed, the
main of which is the prohibition of discrimination in favor of Pelephone in
the supply of a product in which Bezeq is a monopoly, prohibition of the
conditioning of the supply of certain products by one of the companies with
the purchase of products or services from the other and restrictions on
certain joint activities.
On March 7, 2018, Bezeq received a notice from the Competition Authority,
according to which the Competition Commissioner
is considering
determining in accordance with its authority under Article 43 (a) (5) of the
Economic Competition Law that Bezeq abused its position in violation of
Article 29A (a) and Article 29A (b) ( 3) of the Economic Competition Law, and
to impose financial sanctions on Bezeq and the former CEO of Bezeq for
alleged violation of the provisions of Article 29 of the law and of the
the
provisions of
announcement, the evidence in its possession indicates that Bezeq allegedly
used the market power it has as a result of its control of the passive
infrastructure and has placed barriers before new players seeking to use
Bezeq's passive infrastructure that will be used to compete with Bezeq in
providing communication services to consumers, in a way that could have
the aforementioned
sections. According
to
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2.16.9.4
2.16.9.5
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
deterred and even prevented them from setting up an self-landline
communications network or at least delayed them and limited the scope of
the network. According to the notice, Bezeq's actions raise concerns about
harm to the final consumer. The violations alleged against Bezeq are the
blocking of access to private areas and placing a demand for fiber cutting.
received a determination
Following a hearing held in the matter, in which Bezeq and the former CEO
of Bezeq presented arguments and evidence that there was no defect in
their moves and that they did not violate the Economic Competition Law,
on September 4, 2019, Bezeq
("the
Determination") from the Competition Commissioner regarding the abuse
of Bezeq's position in violation of the provisions of Article 29A of the
Economic Competition Law and the demand for payment under the
provisions of Article 50H of the law of NIS 30 million from Bezeq and NIS 0.5
million from the former Bezeq CEO. On May 7, 2020, Bezeq filed an appeal
on the Determination. The Competition Commissioner submitted a
response to the appeal, which was submitted to Bezeq on December 23,
2020. Bezeq's response to the Commissioner's response was submitted on
February 1, 2022. Regarding the motion for approval of a class action and
requirements for exhaustion of rights before filing a derivative claim, further
to this determination, see Section 2.18.1h.
2.16.10.
Telegraph Order
The government is addressing the existing shortage of radio frequencies for
public use in Israel (due in part to the allocation of many frequencies for
security uses), by limiting the number of licenses that can be used for
frequencies, and by providing incentives for the efficient use of frequencies.
The Telegraph Order regulates the use of the electromagnetic spectrum,
and applies, among other things, to Bezeq's use of radio frequencies, as part
of its infrastructure. Establishment and operation of a system that uses radio
frequencies is subject, under the Telegraph Order, to licensing, and the use
of radio frequencies is subject to the Commission and allocation of an
appropriate frequency. According to the Telegraph Order, license fees and
fees are imposed for the Frequencies Committee and their allocation.
2.16.11.
Establishment of communication facilities
The National Communications Outline Plans, National Outline Plan 36
(within the Green Line) and National Outline Plan 56 (in the Territories) are
intended to regulate the deployment and manner of construction of
communications facilities in such a way as to enable transmission and
reception of radio, television and wireless communications, while
preventing radiation and minimizing environmental and landscape damage,
and with a view to simplifying and streamlining the construction processes
of the facilities.
Bezeq has established and is setting up transmission facilities and wireless
communication facilities for the transmission services of its customers, and
also uses wireless communication facilities mainly for the purpose of
providing services to areas that are not connected to the fixed
communication infrastructure (remote areas or new localities).
2.16.11.1
National Outline Plan 36 - Communication facilities within the Green Line
NOP 36 was divided into two parts according to the classification of the
transmission facilities, made in accordance with the technical variables and
physical dimensions of the facilities, which ultimately affect the
determination of safety ranges for protection against radiation effects and
the degree of prominence of the facilities in the landscape. Part A of the
NPA, which has been approved by the Government and is in force, deals
with guidelines for the construction of small and micro broadcasting
facilities, while Part B, which was not approved by the Government and is
not in force, deals with guidelines for the construction of large broadcasting
facilities. As a result, there are currently no special guidelines regarding
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Bezeq's large transmission facilities, most of which were established by the
state before Bezeq was established.
Bezeq has issued building permits for most of the small transmission
facilities in accordance with National Outline Plan 36A. From time to time,
there is a need to add transmission facilities that require the issuance of
building permits in accordance with National Outline Plan 36A. Bezeq
believes that it is not obliged to obtain building permits for miniature
broadcasting facilities, due to the exemption granted in this matter in the
Planning and Construction Law and in the Communications Law with respect
to "wireless access facilities" (which include the miniature broadcasting
facilities).
2.16.11.2
National Outline Plan 56 - Communication facilities in the Territories
National Outline Plan 56 regulates the manner of construction and licensing
of communications facilities in the Territories. The plan includes transitional
provisions to facilities established in the permit and to existing facilities.
The plan includes a requirement to obtain a communications license and to
obtain the consent of the Commissioner of Government Property in the Civil
Administration.
Bezeq has regulated the licensing of vast majority of the facilities located in
the Territories and which are owned by Bezeq (there are a few additional
sites that have not been regulated). In addition, Bezeq also arranged with
the Communications Officer in the Civil Administration the licensing of the
facilities located in the premises of the customer in accordance with the
requirement that the Communications Officer sent to Bezeq in November
2016.
2.16.11.3
Radiation permits
Regarding radiation permits for communication and transmission facilities,
see Section 0.
Exemption from the permit to add antennas to legally existing transmission
facilities
Addition of an antenna to a legally existing transmission facility is exempt
from obtaining a permit subject to the existence of cumulative conditions
and exceptions specified in the Planning and Construction Regulations
(exemption from the permit).
2.16.12. Consumer legislation
Regarding consumer legislation applicable to Bezeq, see Section 1.7.7.4.
2.17. Material agreements
The following is a concise description of material agreements, not in the ordinary course of Bezeq's
business, that were signed during the period of the periodic report and / or that were in force during
the said period:
2.17.1.
The trust deeds in respect of debentures (Series 9, 10, 11, 12, 13, 14) issued by Bezeq.
For this matter, see details in Note 13 to the 2021 statements and in Section 4 of the Board of
Directors' Report.
2.17.2.
Real estate
2.17.2.1
Agreement on the transfer of assets between Bezeq and the state dated
January 31, 1984
An agreement between the state and Bezeq, according to which Bezeq was
granted the State’s rights
in assets available to the Ministry of
Communications for the provision of Bezeq services, and Bezeq replaced the
state with respect to the rights in the said assets and regarding the
obligations and duties relating to those rights on the eve of the agreement.
77
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
In addition, according to the said agreement, Bezeq was transferred the
rights, powers, obligations and duties of the State under the agreements, as
well as the agreements and transactions that were valid in the field of Bezeq
services on the eve of the beginning of the agreement.
2.17.2.2
Settlement agreement dated May 15, 2003 between Bezeq and the State
and the Israel Land Administration regarding the rights relating to the land.
See section 2.7.4.3.
2.17.2.3
Agreement between Bezeq and the Postal Authority (now the Israel Postal
Company) dated June 30, 2004
An agreement between Bezeq and the Postal Authority for the definition
and regulation of Bezeq and the Postal Authority in their joint assets. The
agreement specified the common assets and defined the share of each party
in them. It is stipulated that each of the parties will have exclusive rights in
part, except in the matter of rights in common property, building rights or
rights in respect of which it is expressly stated otherwise. The agreement
stipulates, among other things, a mechanism of the right of refusal if a party
wishes to make a sale transaction and a right of way in the matter of a lease
transaction. With respect to a number of additional assets it has been
determined that the sole rights holder in them, in its entirety, will be one
determined party.
2.17.3.
Labor agreements
2.17.3.1
Special collective agreement from December 2006
For this agreement and amendments thereto, see Section 2.9.4.
2.17.3.2
Early retirement agreements.
On April 24, 2014, Bezeq entered into an agreement with Menora
Mivtachim Insurance Ltd. ("Menora") to regulate pension payments for
early retirement of Bezeq employees, as well as the differences in old-age
and survivors' pension payments, to employees who retire from Bezeq
under a special collective agreement for retirement which was signed
between Bezeq, the employees’ representation and the Histadrut on
February 12, 2014. The insurance policy was approved by the Supervisor of
Insurance and it entered into force on March 31, 2016. Accordingly, as of
May 1, 2016, Menora is issuing policies to retiring employees, and benefit
payments and related payments are paid on the basis of these policies. The
term of the agreement (after being extended three times) is until the end of
2024.
2.17.3.3
IRU agreement between Bezeq and the partner
For the agreement for the provision of the indefeasible right-of-use (IRU)
service in the BSA fiber service (wholesale market) by Bezeq to Partner, see
Section 2.6.3.
78
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
2.18.
Legal Proceedings
Bezeq's reporting policy is based on qualitative considerations and quantitative considerations.
Bezeq decided that the quantitative materiality threshold in relation to events affecting the net profit
would be an effect of about 5% and more on Bezeq's average adjusted net profit (as defined in
Section 1.6) according to Bezeq's consolidated annual statements from the past three years (2020-
2022). Therefore, in the absence of relevant qualitative considerations, this section describes legal
proceedings to the extent of NIS 75 million or more49, before tax, as well as legal proceedings in
which the amount claimed is not specified in the statement of claim, unless it is a claim that does not
reach the aforementioned quantitative threshold (and all - unless Bezeq assesses additional aspects
or consequences of the procedure beyond its financial scope)50. With regard to class actions,
attention is drawn to the fact that the filing of class actions in Israel does not involve the payment of
a fee as a derivative of the amount of the claim. Thus, the claim amounts in such claims may be
significantly higher than the actual exposure volume in respect of those claims.
2.18.1.
Procedures are pending
Date
Sides
Court
a.
January
2015
Shareholder
vs. Bezeq and
former Bezeq
executives
District
(Tel Aviv
-
Economic
s
Departm
ent)
Type of
procedure
Motion for
approval of
a class
action
Claim
amount
(NIS
millions)
687
Details
Claim for compensation of shareholders for losses alleged to have been
caused by "Bezeq's failure to report to the Tel Aviv Stock Exchange and
concealment of material information from the investing public" regarding
two significant and material moves: "Reduction of reciprocal link fees"
and "Wholesale market reform".
On August 27, 2018, the decision of the Economic Department of the Tel
Aviv District Court was approved, approving the claim as a class action
("the Approval Decision").
On October 28, 2018, Bezeq and the defendants submitted to the
Economic Department of the Tel Aviv District Court a request for a
reconsideration of the approval decision in which the Court was
requested to revoke the approval decision and reject the application for
approval of a class action.
On December 1, 2019, a verdict was given at a rehearing held at the
Company's request regarding the decision to approve the claim as a class
action, and it was determined as follows:
1. In the matter of reducing the interconnectivity fee - the Court granted
the motion as far as claims concerning reports of reduction of the
interconnectivity fee were concerned, after concluding that the
plaintiff had not even ostensibly proved the existence of damage in
respect of the reduction of the interconnect fee, and therefore there
was no need to approve the class action on this ground.
2. In the matter of wholesale market reform - the Court denied the
motion in relation to the defendants' claims regarding the reports
about the wholesale market reform. In parallel, it reduced the
definition of the class of plaintiffs in relation to this cause.
On July 12, 2020, an amended statement of claim was filed, including
corrections, in accordance with the judgment in the rehearing. As part of
it, the total amount of the claim was also revised to a total of NIS 687
million. On November 14, 2022, following the mediation process
conducted in the case, the parties submitted for the Court's approval a
settlement agreement under which the plaintiffs will be paid by the
officers' insurance company and at no cost to Bezeq and the defendant
officers, a total amount of NIS 75 million (including attorney's fees). On
February 8, 2023, the Court issued a judgment approving the settlement
agreement. In view of the provisions of accounting standards, a provision
in the amount of the settlement amount was recorded in the Company's
financial statements for the first quarter of 2022 (during the negotiations
for a settlement in the case), and on the other hand, in view of the
existence of full insurance coverage, an indemnity asset in the amount of
49
In order to examine the compliance of the claim amounts with the said threshold, the amounts were linked to the consumer
price index. The amounts specified in this section are the original amounts (excluding linkage differences). With regard to
the aforesaid threshold, in the case of similar proceedings against several companies in the Group, the amount of the claim
may be examined cumulatively in respect of all the proceedings together. It is also clarified that if certain proceedings largely
concern common legal or factual issues, or it is known that such issues are examined or considered together, then for the
purpose of meeting the quantitative materiality threshold as stated in these sections, the amount involved in all those
proceedings together.
50 In view of the update of the materiality threshold, as of the date of approval of this periodic report, no legal proceedings are
described in the periodic report for 2020 that do not reach the current materiality threshold as follows: Section 2.18.1 (12)
(section number in the Periodic Report for 2020).
79
Claim
amount
(NIS
millions)
502
556 in the
motion
from
November
2015
and 258 in
the motion
from March
2018
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Date
Sides
Court
Type of
procedure
Details
b.
March
2015
Shareholder
vs. Bezeq
and former
Bezeq
executives
District
(Tel Aviv
-
Economic
s
Departm
ent)
Motion for
approval of
a claim as a
derivative
claim
together
with a
derivative
claim
statement
c.
November
2015
And March
2018
Customer
against
Bezeq
Central
District
Court
Two claims
together
with
motions
for
approval as
class
actions
the provision was recognized in the same report, with no effect on the
Company's results. With the issuance of the aforementioned judgment,
the recording of the provision and the aforementioned indemnity asset
will be canceled in the first quarter 2023 statements.
Motion against Bezeq, as well as against Mr. Shaul Elovich, former
controlling shareholder and chairman of the board of Bezeq against
directors of Bezeq at the relevant times who voted in favor of Bezeq's
engagement in the transaction that is the subject of the motion as
detailed below (“the Respondents").
The matter of the application, according to what is alleged in it, IS Bezeq's
decision, through the respondents, to enter into a transaction for the
purchase of full holdings and shareholder loans of Eurocom DBS (a
company under the indirect control of Bezeq's controlling shareholder) in
DBS for NIS 680 million in Cash and contingent consideration of up to an
additional NIS 370 million.
According to the applicant, the consideration was excessive, and the
Respondents' decisions to enter into the transaction caused Bezeq a great
deal of damage after they violated their duties of care and reliability to
Bezeq, and were negligent in their role. It was also alleged by the
applicant that Bezeq's controlling shareholder had breached its duty of
fairness, and that Bezeq had breached the duty of disclosure and
reporting regarding the trustee's commitment to Eurocom DBS's holdings
in DBS to sell the holdings beginning at the end of March 2015.
In light of the aforesaid, the petitioner requests that the Court approve
the filing of a derivative claim on behalf of Bezeq against the Respondents
for the claim for damage caused to us by Bezeq as a result of the
Respondents' decisions regarding the transaction in the amount of NIS
502 million.
on July 3, 2017, the Court approved the filing of an amended motion by
the applicant, which includes additional allegations relating, inter alia, to
the independence of the entities that advised Bezeq, alleged defects in
the work of the Audit Committee, the Board of Directors and the general
meeting, and alleged defects resulting from Eurocom being represented
by Bezeq directors.
In light of the Securities Authority's investigation, inter alia, regarding the
engagement that is the subject of this lawsuit and the position of the
Securities Authority that it was improper to delay the proceedings, the
Court decided to delay the proceedings in this case. On January 17, 2021,
the Attorney General announced his appearance in the proceedings
(regarding the delay of the proceedings and not the body of the
proceedings). Following the Attorney General's request, the procedure is
delayed at this stage until July 10, 2022, in light of the Securities
Authority's investigation and indictments filed later in it (see Section
1.1.7).
The motion from November 2015 - It is alleged that Bezeq abused its
monopolistic position, inter alia, by "preventing and blocking the
existence of competition in general and the existence of effective
competition in the communications market in Israel" and acted to delay
and thwart the wholesale market reform, thereby harming the Israeli
public and earning unreasonable profits as a result of the abuse of power
as a monopoly. According to the plaintiffs, the damage caused by Bezeq
to the communications market in Israel is reflected in Bezeq's excess and
unreasonable profitability, and they seek to claim damage in the amount
of NIS 800 million, which they claim is based on 10% of Bezeq's excess
operating profit due to abuse of monopolistic power. The plaintiffs set the
amount of the claim at NIS 556 million, after a reduction of the amount
claimed in another proceeding (which in the meantime ended in
departure).
In December 2017, the Court approved the attachment as evidence in the
case of an immediate report published by Bezeq on October 22, 2017, in
which Bezeq reported on a final inspection report by the Ministry of
Communications regarding the implementation of a wholesale telephony
service and an announcement of an intention to impose a financial
sanction. In December 2018, the Ministry of Communications imposed a
financial sanction in the amount of NIS 11 million on Bezeq.
On March 3, 2019, Bezeq informed the Court that in light of the expected
change of case in the case as soon as the request for approval is received,
it agrees to the Court's proposal to approve the motion to conduct the
class action without a reasoned decision by the Court and preserving all
its claims. It should be noted that in the same announcement, Bezeq
informed the Court that on February 25, 2019, it filed an administrative
petition against the decision of the Director General of the Ministry of
80
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Date
Sides
Court
Type of
procedure
Details
Claim
amount
(NIS
millions)
Communications from December 2018 described above. Subsequently,
on March 5, 2019, the Court approved the motion to conduct the class
action lawsuit and clarified that all the parties' claims are reserved for
them to discuss the lawsuit itself and that all evidence and investigations
heard in the motion for approval will form part of the evidence in the class
action lawsuit.
In view of conducting a criminal proceeding ("Case 4000") related to this
proceeding, on November 1, 2021, the Attorney General announced his
appearance in this proceeding. In the latest motion submitted by the
Attorney General, it was requested that the procedure be delayed until
July 20, 2023.
The motion from March 2018- a motion similar to the November 2015
motion submitted by the same applicants in relation to the period from
the date of filing the application from November 2015 to the end of 2017,
in view of the plaintiffs' claim In addition to the abuse of power by Bezeq,
there were also "acts of corruption and unlawful acts and foreign and
improper purposes of the Director General of the Ministry of
Communications". According to the plaintiffs, the damage caused by
Bezeq to the communications market in Israel is reflected in Bezeq's
excess and unreasonable profitability. On May 31, 2018, Bezeq submitted
a request to delay the procedure in light of the Securities Authority's
investigation and indictments filed subsequently, the Court approved a
motion on behalf of the Attorney General to continue the stay in the
proceedings in the case, at this stage, until July 20, 2023.
In September 2019, the applicants submitted a request for the submission
of a new motion for approval of a class action (a request filed against
Bezeq in September 2019 following the determination dated Septemebr
4, 2019 of the Competition Commissioner regarding the abuse of Bezeq's
status - see description below subsection H) to the Court where this
proceeding is conducted and to the deletion of that motion on the ground
that it was a similar late motion. In addition, on October 23, 2019, Bezeq
was submitted a request from the applicants for the motion for approval
to order the amendment of the motion for approval by adding
respondents (directors and officers from the relevant period, some of
whom still serve at Bezeq) and to attach additional evidence to the
motion for approval. On October 30, 2019, the Court announced that in
view of its decision to delay the proceedings in the case, it does not
consider it appropriate at this time to order the transfer of the request to
amend the motion for approval for Bezeq's response, and that upon
termination of the proceedings in the case, the applicants must petition
for appropriate instructions.
The interest in the requests in the 2015 transaction in which Bezeq
acquired from Eurocom DBS (a company controlled by Bezeq's controlling
shareholders at the time) the balance of DBS shares held by it (in this
section: "the Transaction"):
The first motion was submitted on behalf of everyone who purchased the
Bezeq shares from February 11, 2015 until June 19, 2017 (except for the
respondents and / or those on their behalf and / or related to them). The
motion alleges misleading and / or missing reporting in connection with
the Transaction, and that following an open investigation by the Securities
Authority regarding the Transaction, the public became aware of details
regarding the transaction and its implementation, which led to a decline
in Bezeq's share price. According to the applicant, the respondents acted
in violation of the provisions of the Securities Law and in violation of other
legal provisions, causing Bezeq's securities holders heavy financial
damages, amounting to hundreds of millions of NIS, if not more than that.
to
The second motion was submitted on behalf of three sub-groups - anyone
who purchased on the Tel Aviv Stock Exchange from May 21, 2015 to June
19, 2017 (1) the Bezeq shares, (2) the Company's shares and (3) the
Internet Gold shares. According
the applicant, a serious
misrepresentation of the investors who invested in the shares of the
aforementioned companies was made, which was revealed following the
opening of an open investigation into the Securities Authority on June 20,
2017, by increasing the increase in DBS' cash flow reported in Bezeq
According to the claim, artificially misleading the reasonable investor who
relied on DBS' cash flow data to estimate its value, which led to
overpricing of the above companies. The applicant also claims additional
damages caused to groups of Company and Internet Gold shareholders.
81
About 1,240
in the first
application
and-568 in
the second
application
d.
June 2017
Two
motions
for
approval of
class
actions
In the
District
Court
(Economi
c
Departm
ent) in
Tel Aviv
Bezeq
shareholders
Against
Bezeq,
Chairman of
the Board of
Bezeq and
former
members of
the Board of
Bezeq, as
well as
members of
the Eurocom
Group (the
first
application
also against
the former
CEO of
Bezeq and
the former
CEO and
CFO of DBS)
Claim
amount
(NIS
millions)
65
Minimum
threshold
219
Maximum
threshold
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Date
Sides
Court
Type of
procedure
Details
e.
June -
August
2017 and
June 2018
Tel Aviv
District
Court
Bezeq
shareholders
against
Bezeq and
DBS
f.
February
2018
Tel Aviv
District
Court -
Economic
Departm
ent
Bezeq
shareholders
against Bezeq
as a
formal
respondent,
as well as
against Bezeq
directors
at
times
relevant
to
the motion
and
against
Bezeq's
controlling
shareholders
at the times
to
relevant
the motion,
Shaul
Mr.
and
Elovich
Yosef
Mr.
(the
Elovich
"Respondent
s").
Various
motions
for
disclosure
of
documents
before
submitting
a motion
for
approval of
a
derivative
claim in
accordance
with Article
198A of
the
Companies
Law
Motion for
approval of
a
derivative
claim
Pursuant to a hearing arrangement approved earlier by the Court, the
petitioners have agreed in the above petitions on their joint management
and they are to file a consolidated petition on their behalf.
Following the request of the Attorney General (who announced in 2017
his appearance in the proceedings regarding the delay of the proceedings
and not the body of the proceedings), the proceedings are delayed at this
stage until July 20, 2022 in light of the Securities Authority investigation
and indictments filed further thereto (see section 1.1.7)
An amended and consolidated motion submitted following the Court's
decision of April 15, 2018 regarding the consolidation of four applications
filed in the same matter. The Court is requested to order Bezeq (and DBS,
as the case may be) to provide the applicants with certain documents in
connection with a stakeholder transaction between DBS and Space from
2013 as amended at the beginning of 2017 (in this section: "DBS-Space
Transaction")51. On January 17, 2021, the Attorney General announced
his appearance in the proceedings (regarding the delay of the proceedings
and not the body of the proceedings). Following the Attorney General's
request, the procedure is delayed at this stage until July 20, 2022, in light
of the Securities Authority's investigation and indictments filed later in it
(see section 1.1.6).
The matter of the motion, according to what is claimed in it, is Bezeq's
conclusion in an assessment agreement with the Tax Authority which was
signed on September 15, 2016 (“the Assessment Agreement") and
according to which Bezeq paid tax to the Tax Authority on financing
income from loans to DBS in the amount of NIS 462 million, while on the
other hand, it was agreed, among other things, that DBS' losses in respect
of financing expenses in respect of Bezeq's owner loans to DBS will be
fully recognized to Bezeq after the merger between Bezeq and DBS.
According to the applicants, as a result of the signing of the assessment
agreement, Bezeq paid a total of NIS 660 million. Of this total, NIS 462
million was paid to the Tax Authority and approximately NIS 198 million
was paid to Bezeq's controlling shareholders as a conditional
consideration stipulated in the agreement for the acquisition of full
holdings and shareholder loans of Eurocom DBS, a company under the
indirect control of the controlling owner of Bezeq, in DBS ("DBS
Transaction").
According to the petitioners, Bezeq's engagement in the assessment
agreement constituted an exceptional transaction of a public company in
which Bezeq's controlling shareholders have a personal interest, and was
carried out illegally because it was contrary to the Company’s benefit and
because the required legal approvals were not obtained.
According to the plaintiffs, the damage caused to Bezeq following the
conclusion of the Assessment Agreement ranges from a minimum
threshold of NIS 65 million (as long as all DBS losses in respect of financing
expenses are allowed to be offset by Bezeq).
According to the plaintiffs, the respondents who are directors violated,
inter alia, the duties of care and trust (and with regard to the respondents
controlling Bezeq, also the duty of fairness), and accordingly the plaintiffs
motion that the Court approve the filing of a derivative claim on behalf of
Bezeq and Yes, because it will oblige them to compensate Bezeq for the
said damages caused to it, according to them, as a result of the breach of
their obligations to Bezeq.
On January 17, 2021, the Attorney General announced his appearance in
the proceedings (regarding the delay of the proceedings and not the body
of the proceedings). Following the Attorney General's motion, the
procedure is delayed at this stage until July 20, 2023, in light of the
Securities Authority's investigation and indictments filed later there (see
51
It should be noted that on July 23, 2017, a motion was submitted to the District Court (Economic Department) in Tel Aviv
for approval of a class action in the amount of approx. NIS 37 million against Space, controlling shareholders and officers in
it as well as against Bezeq CEO and Bezeq Secretary at the relevant times to the claim in connection with the DBS-Space
Transaction. The proceedings in this motion are also delayed, at this stage, until July 20, 2022.
82
Claim
amount
(NIS
millions)
400
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Date
Sides
Court
Type of
procedure
Details
g.
June 2018
Shareholder
against
Bezeq, DBS,
Shaul
Mr.
Elovich, and
Mr. Or Elovich
Tel Aviv
District
Court
(Economi
c
Departm
ent)
Motion for
disclosure
and review
of
documents
under
Article
198A of
the
Companies
Law
h.
(1)
September
2019
Customers
against Bezeq
Tel Aviv
District
Court
Application
for
approval of
a class
action
(2) March
2020
Shareholders
against Bezeq
Haifa
District
Court
Consolidate
d request
for
disclosure
of
documents
prior to
request for
approval of
a derivative
claim
Section 1.1.6).
It is requested that the Court order Bezeq, DBS, the former controlling
shareholder in Bezeq, Mr. Shaul Elovich, and his son, Mr. Or Elovich
(hereinafter collectively "Elovich"), to submit to the applicant, as a
shareholder in Bezeq, various documents for examination Filing an
application for approval of a derivative claim in the name of Bezeq.
According to the applicant, the controlling shareholder of Bezeq, the
Company, and Elovich violated their fairness and fiduciary obligations to
Bezeq by selling 115 million Bezeq shares on February 2, 2016 by the
Company using Bezeq's company and Elovich’s insider information, and
at a value significantly higher than the true value of the shares. According
to the applicant, this sale provided the Company with illegitimate profits
in the amount of approximately NIS 313 million.. The insider information
that was allegedly used in the application is, among other things, that the
financial statements of DBS and Bezeq do not reflect Bezeq's de facto
financial position, but rather a "free cash flow" inflated for the purpose of
increasing the consideration as part of the transaction in which Bezeq
acquired the shares of Eurocom Communications in DBS (“the Yes
Transaction"). It should be noted that Bezeq is pending another motion
for approval of a derivative claim in the matter of the Yes Transaction (see
Section 2.18.1b). According to the applicant in the motion that is the
subject of this report, although his motion is based in part on the same
factual background, its matter is different from the existing procedures in
the matter. At the request of the Securities Authority, the procedure is
delayed, at this stage until July 20, 2022, in light of the Securities
Authority's investigation and the indictments filed thereafter (see Section
1.1.6). On January 17, 2021, the Attorney General announced his
appearance in the proceedings (regarding the delay of the proceedings
and not the body of the proceedings). At the request of the Securities
Authority, the procedure is suspended, at this stage until July 20, 2023, in
view of the investigation by the Securities Authority and the indictments
filed subsequently (see Section 1.1.7).
Motion submitted following the determination dated September 4, 2019
of the Competition Commissioner regarding the abuse of Bezeq's status
("the Determination") (for this matter, see Section 2.16.9.5) in which it
was alleged that Bezeq's acts and omissions as described in the
Determination (blocking the transition of Bezeq competitors from Bezeq's
infrastructure to the building access section, as well as refusing to thread
cables in the continuous method and conditioning the deployment in an
threading method) caused
inferior, expensive and problematic
substantial damage to consumers. The definition of the group in whose
name the class action will be conducted is anyone who purchased landline
communication services in Israel, in the period between July 2015 and
March 2018, whether or not he purchased these communication services
from Bezeq. Damage is claimed due to the loss from the decrease in the
rate for communications packages, which was prevented from the group
members due to Bezeq's alleged acts or omissions. Regarding a request
for the transfer of this motion and its cancellation due to the fact that it
is a similar late motion that was submitted by the applicants in another
motion for approval of a class action in March 2018 - see subsection C. On
June 25, 2020, the Court ruled that the parties will petition for the
provision of appropriate instructions in the proceedings upon termination
of the stay of proceedings in the same motion for approval of a class
action from March 2018. The parties will petition for appropriate
instructions.
Two motions (unified) for the disclosure of documents under Article 198A
of the Companies Law for the purpose of examining the submission of a
motion for approval of a derivative claim regarding the exercise of Bezeq's
rights against officers in connection with the Determination. It is alleged
that the findings and violations included in the Determination give Bezeq
cause of action against Bezeq's officers and that Bezeq is entitled to
compensation from the officers for the damages that were caused and
that will be caused to it. On June 23, 2020, Bezeq submitted a request to
delay the proceedings in the motions for disclosure, until the work of the
Claims Committee established for the purpose and the submission of its
recommendations to Bezeq's Board of Directors. On July 19, 2020, Bezeq
submitted its response to the motions. The Attorney General submitted a
notice of his appearance in the proceedings, and at the same time
submitted his position, according to which a decision to appeal the
deterrmination that the petitioners claim constitutes the damage caused
to Bezeq, may be a derivative proceeding as long as the above decision is
83
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Date
Sides
Court
Type of
procedure
Details
not final.
On April 4, 2021, the plaintiffs accepted the Court's proposal to delay the
proceedings until after the completion of the work of the Claims
Committee established by Bezeq and a decision on Bezeq's request to
delay the proceedings. Subsequently, on October 13, 2021, Bezeq's Board
of Directors decided to adopt the Claims Committee's recommendation
of October 7, 2021, according to which in the circumstances Bezeq does
not have a good cause of action against officers and other officials who
served during the relevant periods, and that conducting legal proceedings
will not promote Bezeq benefit. The Committee came to this conclusion
after examining the implications, benefits, damages, costs and gains
involved in conducting such legal proceedings, and came to the
conclusion that their conduct would harm Bezeq. Bezeq submitted a
notice to the Court.
A consolidated motion (filed in lieu of two similar motions in the same
matter that was deleted) against Bezeq, the Company, and 90 other
respondents, including past and present officers at Bezeq, the Company
and Bezeq International, as well as the auditor firm (the "Respondents").
The motion deals, as alleged in it, with damages caused to the applicants
and members of the represented groups (as detailed below) as a result of
acts and omissions of the respondents who violated the provisions of the
law, including that Bezeq and the Company included misleading details in
their reports. In accordance with the provisions of the law, in connection
with Bezeq’s and the Company’s report dated November 9, 2020,
according to which Bezeq International's books contain discrepancies in
the amounts of hundreds of millions of NIS.52 The definition of the groups
according to the application is: (a) Everyone who purchased Bezeq shares
as of March 9, 2003 (date of publication of the annual report for the year
2002) until November 9, 2020, and held them on November 9, 2020,
except for the respondents or those on their behalf and (b) anyone who
purchased the Company’s shares on the Tel Aviv Stock Exchange from
October 25, 2009 until November 9, 2020, and held them on November
9, 2020, except for the respondents or those on their behalf. In
accordance with the economic opinion attached to the motion, it was
alleged that following the publication of the immediate report dated
November 9, 2020 published by Bezeq and BCOM, the Company’s share
price decreased by 5.26%-5.40% (it should be noted that the motion also
claims, in accordance with another opinion attached to it, that compared
to Bezeq's benchmark indices, the damage to Bezeq's shareholders is
higher than the decrease in the value of the shares, and is about 7%), and
the Company’s share price decreased in the range of 9.07%-9.36%.
Accordingly, it was argued that the damage caused to the applicants is in
the amount obtained from doubling the amount of shares held by the
members of the groups as aforesaid at the rate of the aforesaid decrease
in the shares of Bezeq and the Company. The case is in mediation
proceedings.
It was alleged that Bezeq caused pecuniary and non-pecuniary damages
to the class members who paid an increased amount for a higher level of
browsing speed than they could actually use, for upgrading the modem
so that they could browse at this rate, as well as for harassment,
inconvenience, mental distress and impaired autonomy. According to the
motion, the class of plaintiffs must include anyone who used Bezeq's
Internet infrastructure in the seven years prior to the date of submission
of the motion for approval until the date of its approval of the class action,
and paid for a certain speed level, while the infrastructure in his home is
capable of providing speed that matches a lower speed level.
i.
January
2021
Bezeq
shareholders
v Bezeq et al.
Motion for
approval of
a class
action
Tel Aviv
District
Court -
Economic
Departm
ent
l
April 2021
Customer VS
Bezeq
Central
District
Court
Motion for
approval of
a
class
action
Claim
amount
(NIS
millions)
"Over NIS
2.5 million
(for the
purposes of
substantive
authority)"
*
The amount
of the class
action
be
cannot
estimated. It
was stated
that
these
are
damages
amounting
to
million,
which
within
jurisdiction
of the Court.
fall
the
NIS
2.18.2.
Legal proceedings completed during the period of the report or until the date of
52 As part of the preparation of the Company and Bezeq International Ltd. for the publication of their statements for the period
ending on September 30, 2020, it was found by Bezeq International that there are unexplained net asset balances in its
books (debtors minus creditors). Subsequently, the statements were restated.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
publication of the report
Date
Sides
Court
Type
procedure
of
Details
a.
November
2020
Jerusale
m District
Court
the
Shareholder
in
Company
against
the
Company and
Bezeq
International
b.
May 2021
Customers VS
Bezeq
Tel Aviv
District
Court
Motion for
discovery
and review
of
documents
before
filing
derivative
claim
Motion for
approval of
class
a
action
a
c.
August
2021
Customer VS
Bezeq
Tel Aviv
District
Court
Motion for
approval of
class
a
action
Motion for discovery and review of documents prior to filing a derivative
claim in which an order is requested directed to the respondents for
discovery and review of various documents regarding asset balances in
Bezeq International's books following the immediate report published by
the Company on November 9, 2020 - on March 25, 2022 the Court
approved an agreed motion by the applicants to withdraw from the
motion for discovery and review of documents by way of dismissing it.
A motion for approval of a class action lawsuit replacing a similar motion
from May 2020 was filed and ended (see section 2.18.2). It was alleged
that Bezeq misled customers who joined an online business advertising
service through B144 ("the Service") into thinking that the cost of the
service depends on actual use, up to a billing ceiling, while in fact Bezeq
charged its customers the amount of the billing ceiling even if in practice
a lower amount was used. On March 23, 2022, a judgment was issued
dismissing the motion for approval, while it was determined that the
applicants did not establish an evidentiary or factual foundation, even the
minimal one, that would show a cause of action in the case.
It was alleged that during the COVID crisis Bezeq charged its telephony
customers in excess of the amounts determined and approved by the
Ministry of Communications under arrangements established in view of
the increase in landline telephone use during the COVID crisis, which were
valid for two periods (March 1, 2020 to June 14, 2020 and September 21,
2020 to June 30, 2021) - On June 21, 2022, a judgment was issued
approving an agreed motion to withdraw from the motion for approval of
a class action lawsuit after it was clarified that Bezeq had fully credited its
overcharged customers to the extent of approximately NIS 2.5 million.
The judgment also includes payment of damages, fees and expenses in a
total amount of approximately NIS half million.
Claim
amount (NIS
millions)
*
Claim for an
unknown
amount
*
Total claim
amount not
specified
*
The
aggregate
amount of
damage was
estimated
at more
than NIS 2.5
million.
2.19. Targets and business strategy
2.19.1.
Forward-looking information
Bezeq's strategy review below includes forward-looking information within the meaning
thereof in the Securities Law, and involves assessments of future developments in the
economy in general regarding customer behavior and needs, the pace of adoption of new
services, technological changes, regulatory policy, competitors' marketing strategy, and
the effectiveness of strategic marketing. .
Bezeq's strategy and the business objectives derived from it are based on internal
research and analysis, secondary sources of information, especially research company
statements, publications regarding activities undertaken by similar communications
operators in Israel and around the world, and consulting work by which Bezeq is assisted.
However there is no assurance that the main strategy and activities described below will
be implemented in practice or in the manner described below. The circumstances that
may lead to the non-implementation of the strategy or even to its failure are due to the
general situation in the economy, frequent technological changes, regulatory constraints,
formulation of a sustainable business model for new services that Bezeq intends to
provide and adopting a superior marketing strategy from competitors. In addition,
changes in the composition of Bezeq's Board of Directors or ownership of Bezeq, which
will lead to a change in the composition of the Board of Directors, may lead to a change
in its strategy and business objectives.
2.19.2.
The essence of the strategy and intentions for the future
2.19.2.1
Vision and purpose
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Bezeq has set itself the target of being the leading communications
company in Israel, providing a wide range of communications services and
solutions, to private and business customers.
Bezeq works to maintain its competitive position and continue to be the
customer's first choice in telephony, Internet and IT, and for this purpose it
has set itself a number of targets:
a. Preservation of leadership in the aggravating competitive environment
(service leadership and strengthening perceived values - product
innovation, reliability, price perception), and within this framework,
leading the optical fiber market;
b. Encouraging the recruitment of new customers and strengthening a
sense of loyalty and closeness among existing customers;
c. Creating new sources of income through the launch of new and
innovative services and products;
d. Ongoing adaptation of
the organization
to
the competitive,
technological and operational excellence environment.
2.19.2.2
Means
To implement the said strategy and objectives, Bezeq operates a wide range
of advanced communication networks, which operate on a wide range of
infrastructures nationwide, and enable the provision of the most advanced
communication services in the world. Bezeq is working to upgrade and
develop the communications networks it operates, including the fiber
infrastructure through a wide fiber deployment. The Company strives to
constantly expand and improve the basket of products and services, and it
also offers and operates a service network, including technical and
commercial centers, and a wide range of service and installation technicians.
2.19.3. Major projects in planning or execution
Regarding the deployment of a fiber optic network by Bezeq, see section 2.7.2.
2.20. Discussion of risk factors
There are risk factors that arise from the macroeconomic environment, from the unique
characteristics of the industry in which Bezeq operates, and risk factors that tare unique to Bezeq,
which may have significant consequences for Bezeq and affect, among other things, Bezeq's status,
its results, its credit rating and its ability to repay its debt, all as specified below:
2.20.1.
Competition
Competition in the field of landline interior communications increasing in recent years,
both in the field of deploying independent networks (see Section 2.6), and in the field of
providing services using the wholesale market, through which telecommunication groups
and other telecommunications operators (those with a special or unified license and even
licensed providers) compete with Bezeq in the sale of unified Internet service packages
based on Bezeq infrastructure, at prices set by the regulator (see Section 1.7.4 and
Section 2.16.4). A large number of customers receive wholesale Internet services, which
are provided on the Bezeq network, when Bezeq does not have contact with those
customers. Increased competition in the field of interior communications causes the
abandonment of some of Bezeq's customers and leads to lower prices of some of Bezeq's
services and an increase in the costs of recruiting new customers and retaining existing
customers. The entities that compete with Bezeq at present, or may compete with it in
the future, enjoy greater business flexibility than Bezeq, including the ability to cooperate
with subsidiaries and affiliates and market shared service packages with them (see
Section 1.7.3 and Section 1.7.4). The ability of competitors to market service packages
with rate flexibility, in the face of Bezeq's limitations to do so as of this date, impairs
Bezeq's competitive ability.
2.20.2.
Governmental supervision and regulation
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Bezeq is subject to governmental supervision and regulation relating, inter alia, to
licensing activities, determining permitted areas of activity, determining rates,
operations, competition, payment of royalties and depositing funds to the incentive fund,
universal service obligation, the possibility of holding its shares, the relationship between
Bezeq and its subsidiaries and prohibiting cessation or restriction of its services (which
may oblige Bezeq to provide services even in non-economic circumstances) - for details,
see Section 2.16. The aforesaid supervision and regulation sometimes causes government
intervention, which in Bezeq's opinion burdens its business activities. In this context,
Bezeq is exposed to various sanctions by the Ministry of Communications, including the
imposition of financial sanctions (for this matter, see Section 1.7.7.5).
In addition, the Minister of Communications may revoke Bezeq's license, restrict it or
suspend it as appropriate, in accordance with the conditions set forth in the
Communications Law, and is authorized to change the terms of Bezeq's license, interfere
with existing rates and marketing proposals and issue instructions. Substantial changes in
the rules of regulation that apply in the field of communications in general, and to Bezeq
in particular, may oblige Bezeq to make changes to its strategic plans and impair its ability
to carry out long-term planning of its business activities. For possible changes following
the wholesale market reform, see section 2.16.4. For possible restrictions under the
Centralization Law on the renewal of licenses and the allocation of new licenses, see
Section 1.7.7.6.
2.20.3.
Rates supervision
Bezeq rates for a key part of its services (including rates for reciprocal linking and use of
Bezeq infrastructure and its network) are subject to government supervision and
intervention. The Minister of Communications has the authority to intervene in existing
rates and marketing proposals and to give it instructions (see Section 2.16.1). On average,
supervised Bezeq rates are eroding in real terms. Substantial changes in Bezeq's regulated
rates, if implemented, could have a material adverse effect on its business and its results.
Regarding the supervision of the supervised Bezeq rates and their updating, see sections
2.16.1 (Including regarding a hearing on the determination of maximum rates for Bezeq's
retail telephony services) and 2.16.4. In addition, the restrictions that apply to Bezeq in
marketing alternative payment baskets may make it difficult to provide an appropriate
competitive response to changes in the market, and they are significantly reflected in
Bezeq's competitors on the basis of its infrastructure in selling unified Internet service
packages through Bezeq's wholesale service. As part of the application of a wholesale
market, the Ministry of Communications updates the rates and terms for wholesale
services according to which Bezeq will sell its services to licensees. The update of the rates
leads to lower prices in a way that could adversely affect Bezeq's level of revenue and its
profitability (for the wholesale market, see section 2.16.4).
2.20.4.
Streamlining procedures and labor relations
Implementation of personnel and organization programs (including retirement plans and
organizational changes) involves coordination with employees and significant costs,
including early retirement compensation costs. Processes of implementing such plans
may cause unrest in the employment relationship and harm Bezeq's day-to-day
operations - see also Sections 2.9.3 and 2.17.2.
Also, as described in section 1.8, according to the report, Bezeq, like the other companies
in the Group, implements streamlining procedures, which include, among other things,
moving to new offices, organizational changes and reducing the workforce, while
managing significant infrastructure and other projects. Streamlining procedures, by
nature, carry with them the risks of loss of knowledge, turnover of employees, shift of
managerial focus, and so on.
2.20.5.
Restrictions regarding the relationship between Bezeq and companies in the Bezeq Group
Structural separation - Bezeq's NIO license prohibits preferring the main companies in the
Group over their competitors. A separation is required between the managements of
Bezeq and the said companies, as well as a separation in the business systems, finances
and marketing, assets and employees, which causes duplication, high overheads and also
makes it difficult to manage strategy at the Group level. Also, at this stage, Bezeq's ability
to offer shared service packages of Bezeq and the said companies is limited (see Section
1.7.3).
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Regarding the possibility that in the future the Group will be granted a permit for the
provision of non-detachable service packages and the elimination of structural separation
and for further possible changes following the wholesale market, see Sections 1.7.3 and
2.16.4.
2.20.6.
Legal Proceedings
Bezeq is a party to legal proceedings, including class actions, which may result in charges
in substantial amounts, most of which cannot be estimated, and therefore no provision
was made for most of them in Bezeq's financial statements. In addition, Bezeq's insurance
policies are limited to defined coverage limits and for certain reasons, and may not cover
claims for certain types of damages. In recent years, there has been a multiplicity of class
action lawsuits against large commercial companies. By their very nature, class actions
can reach large sums. In addition, since Bezeq provides communications infrastructure as
well as billing and collection services to other licensees, other class action lawsuits against
the said licensees may also involve Bezeq as a party in these proceedings. For a
description of the legal proceedings, see Section 2.18.
2.20.7.
Exposure to exchange rate fluctuations, inflation and interest rates
Bezeq measures exposure to changes in currency and inflation according to surplus or
lack of assets versus liabilities, as well as according to cash flow forecasts, according to
the type of linkage. Bezeq's exposure to changes in inflation is high and Bezeq's exposure
to changes in the exchange rate against the shekel is low. Bezeq is hedging some of its
exposure to inflation and foreign exchange. In addition, Bezeq has exposure to changes
in interest rates in relation to the credit it receives. For this matter, see also Note 30 to
the 2022 statements and Section 1.6 of the Board of Directors’ report. In view of the trend
of the increase in the inflation rate in 2022, Bezeq has updated the extent of the impact
of this risk factor.
2.20.8.
Electromagnetic radiation and licensing of transmission facilities
The issue of electromagnetic radiation emitted from transmission facilities is regulated
mainly in the Non-Ionizing Radiation Law (see Sections 2.15 and 2.16.11). Bezeq works
for the existence of construction and operation permits for its various transmission
facilities, but the difficulties encountered by Bezeq in this activity, including difficulties
arising from changing the policy of the relevant parties and changes in legislation and
regulations, may adversely affect the infrastructure of the said facilities, the regularity of
the provision of the services through them, and consequently also the Bezeq revenues
from these services. Bezeq's third party insurance policy does not currently cover
warranty for electromagnetic radiation.
2.20.9.
Frequent technological changes
The field of communications is characterized by frequent technological changes and the
shortening of the economic life of new technologies - see section 2.1.4. These trends
require investing a lot of resources in upgrading Bezeq's existing technologies, lowering
the barriers to entry for new competitors, increasing depreciation rates and in some cases
there may be a redundancy of Bezeq-owned technologies and networks. The introduction
of innovative technology that is not used by Bezeq or that Bezeq has refrained from using
may harm Bezeq's competitive position.
2.20.10. Dependence on macro factors and on levels of business activity in the economy
The stability of the financial markets and the resilience of the economies of the countries
of the world have been in recent years subject to high volatility. Bezeq estimates that as
the local economy slides into a period of recession and deterioration in business activity
due to external or internal events, including shocks in the global economy, political-
security uncertainty, etc., then its business results may be harmed, among other things,
as a result of Bezeq revenues (including investee revenues) or as a result of increased
Group financing costs.
2.20.11.
Failure of Bezeq systems and cyber risks
Bezeq provides its services through various systems, including, among others, exchanges,
data transmission and access transmission networks, cables, computer systems, physical
infrastructure and more ("the systems"). The systems are of critical importance in the
operation of Bezeq's business and they play a vital role in its ability to successfully carry
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
out its activities. Hacking, disruption, damage or collapse of systems can adversely affect
Bezeq's business. Some Bezeq systems have backup, but at the same time, in the event
of damage to some or all of the above systems, either due to various technical faults
(including in the event of termination of contact with a supplier who is dependent on
system support), or due to natural disasters (earthquakes, fire), whether due to damage
to physical infrastructure by communications providers using them or due to malicious
damage (including through Cyber attacks as detailed below), there may be significant
difficulties, and more than significant, in providing Bezeq services, including in the event
that Bezeq is unable to return the systems to capacity quickly.
Bezeq carries a risk of activity occurring that is intended to harm the use of a computer
or computer material stored on it ("cyber attack"). Such attacks can disrupt business,
theft of information / money, damage to reputation, and damage to systems, and from
there, also to material damage to the Company's activity.. As a leading communications
company that provides diverse communications services in various fields, it is a target for
cyber attacks and experiences cyber attacks, which are handled by it.
Bezeq is a body guided by the State Authority for Information Security and is committed
to meeting strict information security standards. The Company is subject to rules in this
matter even by virtue of its licenses. In this context, Bezeq implements a defense policy
that includes the most advanced security systems in the world operated in a configuration
that combines effective security with Bezeq's operational needs and security circuits to
protect Bezeq's infrastructure and systems designed to prevent and reduce the possibility
of Bezeq data being exploited by an external or an internal party maliciously or
inadvertently, as well as the possibility of an outsider taking over and managing network
components or abusing information about Bezeq's infrastructure and networks in any
way. In this framework, adequate resources are invested, including, among other things,
technological resources for the purchase of information security solutions and products
and resources for information security standards, and various actions are performed,
including checking alerts and logs in the systems, periodic risk survey, practice according
to an annual plan, as well as ongoing work in accordance with appropriate procedures.
Bezeq is certified for three ISO standards (ISO 27001, ISO 27017, ISO 27018) related to
information security (standards that define and test the principles of establishing,
managing and maintaining information security in the organization), and as part of
implementing the requirements of Bezeq standards ensures the availability, integrity,
reliability and confidentiality of the databases for which it is responsible.
The cyber risk management policy is approved by the Company's information security
steering committee with the participation of the Company's CEO and the Company's VP
of Technologies and Network. The person responsible for implementing the policy in the
company is the director of the Information and Cyber Security Department.
Bezeq monitors the implementation of its defense policy, which includes an examination
of Bezeq's level of effectiveness and readiness. In this context, Bezeq conducts tests and
assault drills with different frequency for different scenarios (including through external
companies that specialize in the field). Also, the Company's Board of Directors is involved
in and supervises the management of cyber risk in the Company within the framework of
handling the Company's overall risk management policy. In Bezeq's estimation, the risk
management policy in dealing with and reducing the cyber risk is effective.
Despite Bezeq's investments in measures to reduce such risks, Bezeq is unable to
guarantee that these measures will succeed in preventing damage and / or disruption
which may also be significant to systems and related information.
2.20.12.
Impairment of subsidiaries
In accordance with the accounting standards, Bezeq performs valuations for subsidiaries
for the purpose of examining the periodic impairment of goodwill and of assets in respect
of which signs of impairment have been identified. Considering the business situation of
the subsidiaries and the difference between the book value of Bezeq and their
recoverable amount as a cash-generating unit, a decrease in the value of the subsidiaries'
activity may lead to impairment loss (write-off) in Bezeq books. Also, a significant change
in circumstances that leads to a change in estimates can occur as a result of a high-
intensity discrete event and / or as a result of a sequence of small changes occurring over
time that have a significant cumulative effect in the long run and / or a change in
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
estimates (even at low rates). Valuations are based on assumptions as of the date of the
statements that may not materialize or materialize partially and different aspects have
different
long-term
intensities affecting the value of the unit measured when
assumptions may have a relatively large weight compared to short-term assumptions.For
this matter, see also Note 11 to the 2022 statements and Section 3.1 of the Board of
Directors' Report.
2.20.13. Pandemic
Disease outbreaks and epidemic events in general (such as the outbreak of COVID-19 in
2020) may have consequences for the Company's business activities, depending on the
extent of the spread and its severity and on the national and global measures that will be
taken as a result. These consequences may be manifested, among other things, in damage
to the Company's activities and its customer service system, as well as damage to the
supply chain. Events of this type are changing events that are out of the Company's
control, and their consequences are subject, among other things, to the decisions of
countries and authorities in Israel and around the world that may affect the Company
accordingly. For this matter see also Section 2.20.10.
2.20.14. Damage caused by nature, war, disaster
Damage to the Company's infrastructure and services as a result of natural disasters,
including earthquakes, as well as as a result of war or disaster, may adversely affect the
Company's business and results.
It should be noted that a significant part of Bezeq's operations (in a consolidated manner) is carried
out in its subsidiaries. The risk factors of these companies and the assessments of their managements
in relation to the risk factors are described in Sections 3.18, 4.14 and 5.18, and they are also relevant
to the Group's activities and results.
The following is a rating of the impact of the risk factors described above on Bezeq's operations, in
Bezeq's Management's assessment. It should be noted that Bezeq’s assessments below regarding
the degree of influence of the risk factor reflect the degree of influence of the risk factor in assuming
the materialization of the risk factor, and the aforesaid does not express an assessment or give
weight to the chances of such materialization. The order in which the risk factors appear above and
below is not necessarily according to the degree of risk:
Risk Factors Summary Table – Landline Interior Communications53
The extent of the impact of the risk factor
on Bezeq's operations
Medium
effect
High
effect
Low effect
Macro risks
Exposure to exchange rate fluctuations, inflation and interest
rates
Dependence on macro factors and levels of business activity
in the economy
Pandemic
Damage caused by nature, war, disaster
Industry risks
Growing competition
Governmental supervision and regulation
Rate supervision
Electromagnetic radiation / licensing of transmission facilities
Frequent technological changes
X
X
X
X
X
X
X
X54
X
53
It will be clarified that in the assessments of the Group companies regarding the effect of the risk factors in the summary
tables (in this section and in Sections 3.19 , 4.14 and 5.19), the probability of the risk factor materialization was not estimated,
but the effect of the risk factor on the relevant company if it materialized. It should be noted that some of the Group
companies make estimates regarding the probability of the occurrence of some of the risk factors mentioned in these
sections for their specific internal needs, but no orderly estimate was made at the Group level of all the risks listed in the
summary tables in these sections. Also, in general, the degree of influence of a risk factor on the Company's operations
depends in some cases also on the extent and duration of the materialization of the risk, so that it may differ from what is
indicated.
54 The extent of the impact of this risk factor on Bezeq's activity was classified as moderate, assuming that the event would be
limited in scope and time. Otherwise, the degree of impact may be great.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
The extent of the impact of the risk factor
on Bezeq's operations
Medium
effect
High
effect
Low effect
Special risks for Bezeq
X
X
Exposure to legal proceedings
Streamlining processes and labor relations
Restrictions regarding the relationship between Bezeq and
companies in the Bezeq Group
Failure of Company systems and cyber risks
Impairment of subsidiaries
The information contained in this section 2.20 and Bezeq's assessments regarding the impact of risk factors
on Bezeq's activities and business are forward-looking information as defined in the Securities Law. The
information and assessments are based on data published by the Ministry of Communications, Bezeq
assessments of the market situation and the structure of competition in it and regarding possible
developments in this market and in the Israeli economy. The actual results may differ materially from the
estimates given above if there is a change in one of the factors taken into account in these estimates.
X
X
X
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
3.
Pelephone - Mobile radio telephone (cellular telephony)
3.1.
General information about the field of activity
3.1.1.
Pelephone's field of activity
Pelephone provides cellular communication services and the sale and repair of end
equipment. Pelephone services are detailed in the section 3.2. Pelephone is a company
wholly owned by Bezeq.
3.1.2.
Legislative and regulatory restrictions unique to the field of activity
3.1.2.1
Communications Law and mobile radio telephone license
Pelephone's activities are subject to regulation and supervision by virtue of
the Communications Law and its regulations, by virtue of the Telegraph
Order, and by virtue of mobile radio telephone license owned by it. The
mobile radio telephone license sets conditions and rules that apply to
Pelephone's operations (for details, see section 3.14.2).
3.1.2.2
Rate supervision
Interconnectivity fees (rates for completing a call and completing short
message messages (SMS) charged by Pelephone from other communication
operators are fixed in interconnectivity regulations. The rest of the rates are
under a certain supervisory regime as regulated under the mobile radio
telephone license and the Communications Law (see sections 3.14.1 and
3.14.2).
3.1.2.3
Environmental law and planning and construction law
Establishment and operation of wireless communication infrastructure,
including cellular communications, is subject to the provisions of the Non-
Ionizing Radiation Law and the permits required thereunder by the Ministry
of Environmental Protection, as well as the provisions of planning and
construction law (see section 3.13.1).
3.1.3.
Changes in the scope of activity in the field
For financial data on the scope of Pelephone's activity, see sections 1.5.4.2 and 3.3.
Revenue from services
The cellular industry is characterized by fierce competition. Competition in the industry
led to a high transfer of subscriptions between the cellular operators while continuously
eroding the prices of the base packages along with a further increase in the browsing
volumes included in the packages, which in recent years have caused another significant
erosion of the average revenue per subscriber (see Section 3.6). The growth in the number
of postpaid subscribers (subscribers who receive service for a monthly payment) in the
past few years has partially compensated for the erosion of prices. In 2022, the downward
trend continued (similarly to the year 2021) in the volume of mobilizations between
companies has decreased compared to recent years. Also, a certain recovery was recorded
in revenue from roaming services, which returned to their normal volume, after the
decline that applied in 2020 due to the effects of the COVID-19 crisis on travel and stay
abroad (see Section 3.19.1.2). In addition, starting from the end of 2020, companies in the
market began to offer packages with a higher browsing volume that allow subscribers to
browse with 5G technology, and whose prices are higher than 4G packages.
Revenue from the sale of end equipment and electronics
The end equipment market is also characterized by fierce competition among cellular
operators and vis-à-vis many stores that sell end equipment in parallel imports. In 2022,
fierce competition continued in this field. In order to reduce the damage to revenue, which
was caused, among other things, due to the changes in the exchange rate, Pelephone is
increasing the range of equipment sold by it and also sells electronic equipment and
appliances other than cellular devices.
A signifant part of all end equipment is sold in installments. The decline in end equipment
sales over the years has led to a decrease in the balance of customers in parallel with a
decrease in the volume of payments to end equipment suppliers.
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3.1.4.
Market developments and changes in customer characteristics
The cellular market is characterized by low growth rates due to saturation in the
penetration rate55. The estimated penetration rate as of September 30, 2022 is
approximately 120%.
3.1.5.
Technological changes that have a material impact on the field of activity
The cellular communications market is dynamic, and is characterized by frequent
technological developments in all areas of activity in it (communications network
technology, end equipment and value-added services).
Technological developments, as well as the desire to expand the range of services offered
to the customer and their quality, require cellular operators to upgrade the technology
of cellular networks from time to time. The cellular networks in Israel currently operate
mainly in GSM technology, UMTS / and LTE technology, and during 2020 the use of NEW
RADIO technology in the NONSTAND ALONE architecture (5G) began. Also, Pelephone is
preparing to upgrade the 5G network core to the STAND ALONE architecture.
As of the date of the report, Pelephone's LTE network is deployed in most parts of Israel,
and Pelephone continues to expand its network to improve coverage through the use of
700 MHz frequencies and to improve performance through 2600 MHz frequencies, in
addition to launching 5G technology using 3500 MHz frequencies, which is carried out
according to a regular deployment plan.
In addition, Pelephone operates additional network features that include CARRIER
AGGREGATION and MASSIVE MIMO in 5G.
Pelephone offers technology-based services IMS56: Voice over WiFi as an improved
response to coverage inside buildings (without the need to use the cellular frequency), as
well as Voice over LTE which allows making voice calls on a 4G basis (using a data range).
These two capabilities improve the quality of the voice call and enable the freeing of 3G
frequency resources (traditionally used for calls) for the purpose of increasing additional
capacity used for the data services that are gaining momentum over the years. In
addition, the Voice over LTE service enables the continuation of a call with Voice over
WiFi, that is, a transparent transition of the call (without disconnection) from a Voice over
WiFi call (performed without using the cellular range), to a Voice over LTE call (performed
on the cellular network) , and vice versa.
Pelephone is constantly following and examining the new technologies in the market and
the need to upgrade the technology of its existing networks, in accordance with the state
of competition in the market and the economic viability of investing in such technologies.
Expanding the capacities and speeds of technologies from the LTE (4G) and NEW RADIO
(5G) as well as the development of future cellular generations are conditional on
frequency allocation. For details, see Section 3.8.2.
Using Embedded SIM (eSIM) technology - this is a technology that allows a mobile device
to be connected to the network using a non-removable built-in SIM card, unlike
traditional SIM cards that can be removed and exchanged between devices. The eSIM
technology allows greater flexibility and ease of use in the activation and management of
several lines on the device, a simpler and faster transition between operators without the
need for a new physical card, and higher accessibility to roaming packages of different
operators ("main line" solutions). In addition, the technology also allows coupling of
additional devices to the cellular line (secondary solution) such as watches and smart
bracelets. In light of market trends, it is assumed that eSIM solutions as part of the main
line offer will become more and more common.
Following the winning of the frequency tender, Pelephone began operating frequencies
55 Penetration rate - the ratio between the number of subscribers in the market and the total population in Israel (excluding
foreign and Palestinian employees, although they are included in the number of subscribers).
56 IMS - IP Multimedia Sub System - A system at the core of the network that is used, among other things, for switching calls
made over IP networks (for example: Voice over LTE, Voice over Wifi). These two services are provided in combination to provide
coverage within homes and to reduce traffic over the 3G network. The infrastructure will be used for additional services, such as
One Number, Rich Call Services and more.
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in the field of 700 MHz and 2600 MHz in 4G technology, and in addition operates 5G
technology at a frequency of 3500 MHz in some sites (see Section 3.8.2.4).
3.1.6.
Critical success factors
3.1.6.1
3.1.6.2
3.1.6.3
3.1.6.4
3.1.6.5
3.1.6.6
3.1.6.7
3.1.6.8
3.1.6.9
Nationwide deployment of a high-quality and advanced cellular network,
ongoing maintenance of the network at a high level and significant
investments on an ongoing basis in the cellular infrastructure, both for
quality coverage throughout Israel and to provide customers with advanced
services through advanced technological infrastructure (see also section
3.7.1).
Growth in the subscriber base.
Growth in the number of subscribers to 5G routes, with a larger browsing
volume.
Ability ot offer a competitive price level.
Wide and varied distribution channels.
A variety of service channels, including digital channels, that provide
efficient and quality support and service to a large variety of customers.
Adjusting the cost structure and implementing operational streamlining
that make it possible to cope with increased competition.
A brand that represents a quality, reliable and advanced network.
High quality and skilled personnel.
3.1.7.
The main barriers to entry and exit57
3.1.7.1
The main barriers to entry into the field of activity are:
a. Saturation in the penetration rate in the field (see section 3.1.4).
b. The need for a mobile radio telephone license for operators with
frequencies (MVNO operators may operate on the basis of a permit
only), the allocation of frequencies involved in high costs resulting,
among other things, from the fact that these resources are in short
supply (see section 3.8.2.1) and the subordination of the activity to
regulatory supervision (see section 3.14.2).
c. The need for significant financial means for making heavy and
continuous investments in infrastructure, which are affected by
frequent technological changes (see also section 3.7.1.3).
d. The difficulty in setting up radio sites due to regulatory restrictions and
public opposition.
3.1.7.2
The main barriers to exit from the field are:
a. Large investments that require a long return on investment.
b. The commitment to provide service to customers derives from the
terms of the radio telephone license license and the agreements in
accordance with the terms set forth in the license.
3.1.8.
The structure of competition in the field and changes that apply in it
3.1.8.1
General
The cellular communications market in Israel is characterized by fierce
competition, which is reflected in high subscriber turnover among operators
in the past few years, rates erosion and profitability erosion.
As of the date of this report, five operators with a radio telephone license
license are operating in the cellular communications market in Israel.
Cellcom, Partner, Hot Mobile and XFONE), and a number of MVNO
57 Some of the above entry and exit barriers apply in a partial and limited manner to virtual operators.
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operators with an radio telephone license in another network (virtual
operators).
3.1.8.2
Infrastructure sharing
Infrastructure sharing enables the consolidation of cellular operator sites in
a way that significantly reduces the cost of operating and maintaining radio
sites for each operator. To the best of Pelephone's knowledge, as of the date
of the report, infrastructure is shared in the market as described below:
a. Partner and Hot Mobile operate as part of an infrastructure sharing in
the radio segment within a shared corporation.
b. Cellcom (who holds Golan Telecom) and XFONE operate as part of
infrastructure sharing in the radio segment of the 4G network as part
of a joint corporation and the acquisition of other interior roaming
services.
3.1.8.3
Virtual operators MVNO
A number of MVNO licenses have been issued so far for vrtual operators.
Only a few MVNO license holders are active in the market.
For more details on the structure of competition in the field, see section 3.6.
3.1.8.4
Hearing on private networks
Further to the public appeal published by the Ministry of Communications
regarding private networks, on August 14, 2022, the Ministry of
Communications published a hearing in which the public's opinion was
requested on the Ministry's intention to allocate a frequency band in the 26
GHz range (as well as a narrow band in the 2100 MHz range), for use by
parties that are not cellular operators or general landline telephony service
operators, for the purpose of providing private network service (on a project
or local basis). Pelephone submitted its position to the hearing. The
implications of the issue will be clarified with the decision of the Ministry of
Communications at the hearing.
3.2.
Services and products
3.2.1.
Services
Below is a description of the services that Pelephone provides to the subscriber:
3.2.1.1
Package services that include:
a. Basic telephone services (VOICE) - basic call services, call completion
services as well as ancillary services such as - waiting call, "follow me",
voicemail, voice conference call, caller ID, and more.
b. Browsing and data communication services - Internet browsing
services using end equipment that is compatible with the use of 3G, 4G
and 5G technologies.
c. SMS delivery and receipt service and multimedia messages MMS -SMS
receiving and sending service (text messaging - SMS) and multimedia
messaging (video / voice / text).
Value Added Services - Pelephone offers its customers value-added services
and related services, such as data storage backup services (Pelephone
Coud), antivirus services, cyber protection services, and more.
Roaming services - Pelephone Provides its customers with roaming
coverage in about 190 countries around the world. In addition, Pelephone
also provides inbound roaming services to the customers of foreign
operators who stay in Israel.
Private cellular networks with LTE (Long Term Evolution) or 5G technology
- Pelephone offers business customers the installation and maintenance of
a private cellular network in the business customer's complex. A private
network provides the business customer with various benefits, including:
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3.2.1.3
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business continuity, bandwidth management between the customer's end
users, low latency, connection to IoT devices, contribution to securing the
customer's networks and systems, and more.
3.2.1.5
Maintenance and repair services for end equipment - Pelephone offers
repair service and extended warranty, for a monthly fee that entitles the
customer to repair service and extended warranty for the cellular device, or
for a one-time payment at the time of repair.
Pelephone provides some of these services also in the framework of hosting
agreements, to holders of an mobile radio telephone license in another
network that use the Pelephone network in order to provide service to their
customers.
3.2.1.6
Additional services
a.
IoT (Internet of Things) services - Pelephone offers its customers
advanced IoT solutions such as smart building networks with command
and control systems, and more.
b. PTT (Push to Talk) services - Pelephone offers its business customers
some of the most advanced PTT services in the world, which enable fast
and secure corporate communication at the push of a button.
3.2.2.
Products
Peripheral devices - Pelephone offers various types of mobile phones, PTT devices,
tablets, laptops, modems, smart watches, electrical products as well as supporting
accessories such as speakers, headphones and more.
3.3.
Segmentation of revenues from products and services
The following is data regarding Pelephone's revenues from products and services (in NIS millions):
Products and services
Revenue from services
Rate of Pelephon’s total revenue
Revenue from products (end equipment)
Rate of Pelephon’s total revenue
Total revenue
2202
1,791
74.7%
608
25.3%
2,399
1202
1,642
71.7%
647
28.3%
2,289
2020
1,591
72.8%
595
27.2%
2,186
3.4.
Customers
The following is data on the distribution of revenue from customers (in NIS millions):
Products and services
Revenue from private customers
Revenue from business customers (*)
Total revenue
(*) Revenue from customers in business tracks includes revenue from hosting agreements (agreements that allow
the provision of mobile telephony service through the Bezeq network of another authorized provider), which were
received mainly from Rami Levy.
2020
1,194
992
2,186
2021
1,361
928
2,289
2022
1,416
983
2,399
At the end of 2022, the number of Pelephone subscribers was approximately 2.7 million, including
approximately 2.2 million postpaid subscribers (subscribers who receive service for a monthly payment),
and approximately 0.3 million prepaid subscribers (advance payment for consumption of services).
Pelephone markets packages with an increased volume of use that are also adapted to the needs of 5G,
and as of the date of publication of the report, Pelephone has about 813k subscribers in such packages.
3.5. Marketing, distribution and service
Pelephone's distribution system includes about 250 points of sale where you can join Pelephone
services. The set of points of sale is diverse and includes stores and stalls operated by Pelephone,
retail chains that market Pelephone products and about 20 Service and sales centers located
throughout Israel that handle service, sales, device repair and customer retention. In addition,
Pelephone operates an internal and external network of telephone marketers. As a rule, the
remuneration to the marketers is paid as commissions from the sales.
Pelephone's service system for subscribers includes diverse digital channels including the Pelephone
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website hone, self-service app and call centers.
3.6.
Competition
3.6.1.
General
In recent years, the Ministry of Communications has taken regulatory moves designed to
increase competition in the cellular communications market. The large number of cellular
operators in the market led to a high level of competition in recent years, which is
reflected in the transition of subscribers between operators and in a reduction in cellular
package prices, which led to erosion in rates and profitability in both private and business
customers.
In order to compensate for the erosion of package prices, Pelephone employs a strategy
for growth in the number of subscribers alongside streamlining and costs structure
adjustment (see section 3.17).
The following is data, to the best of Pelephone's assessment, about the number of
subscribers of Pelephone and its competitors over the years 2021 and 2022 (thousands
of subscribers, approximately):
Pelephone
2,576
Cellcom
(including
Golan
Telecom)
(3)
3,246
Partner (3)
Hot Mobile
(2)
MVNO And
other
operators (1)
Total
subscribers in
the market
3,019
1,674
791
22.6%
28.8%
26.8%
14.8%
7.0%
2,675
3,455
3,048
1,763
826
22.8%
29.3%
25.9%
15%
7.0%
11,306
11,
767
As of
December
31, 2021
As of
September
30, 2022
Number of
subscribers
Market
Share
Number of
subscribers
Market
Share
(1) Most of the MVNOs and the other operators (which include, among others, XFONE) are private
companies that do not publish data regarding the number of their subscribers, and the said data is
based on an estimate of data on mobility between companies.
(2) Hot Mobile's Q3/2022 data is based on an estimate, according to data published in the reports of Altice,
the controlling shareholder of Hot, to the best of Pelephone's knowledge.
(3) The number of subscribers is correct as of September 30, 2022, based on Cellcom and Partner reports
to the public.
3.6.2.
Infrastructure sharing and granting network use right agreements
For details regarding the existing infrastructure sharing agreements in the market as of
the date of the report, see Section 3.1.8.2. As mentioned, infrastructure sharing enables
the consolidation of cellular operator sites in a way that significantly reduces the cost of
operating and maintaining radio sites for each operator.
Pelephone is not a party to the radio network sharing agreement, in accordance with the
implementation of the Ministry of Communications policy on network sharing dated April
17, 2014, so it does not enjoy the savings resulting from the shared use of the radio
network, but on the other hand it exclusively controls its cellular network, the
maintenance of its technological route and the volume of investments in it.
3.6.3.
Positive and negative factors that affect Pelephone's competitive position
3.6.3.1
Positive factors:
a. A cellular network with a broad and high-quality deployment.
b.
Its position as a fast and advanced cellular network, especially against
the background of the progress of the deployment of the 5G network.
c. A diverse and wide distribution system that operates through call
centers and through a large number of fromtal points of sale and is
operated by Pelephone, external marketers and through leading retail
chains.
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d. A wide range of services and a variety of customer service interfaces,
including digital channels, which enable the provision of a high level of
service to customers.
e. A solid capital structure and a positive cash flow.
3.6.3.2
Adverse factors:
a. As a subsidiary of Bezeq, Pelephone is subject to regulatory restrictions
on entering additional areas of activity and expanding the basket of
services to customers who do not apply to its competitors.
b. There are restrictions on joint activities with Bezeq, including the
marketing of joint service packages (see Section 1.7.3).
c. The costs of setting up, operating and maintaining cellular networks in
Pelephone are expected to be higher compared to competitors
operating through the sharing of radio segment infrastructure.
Regarding negative factors, see also Section 1.7.2.
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3.7.
Property, plant and equipment, real estate and facilities
Pelephone's property, plant and equipment include infrastructure equipment of the network core,
radio sites, electronic equipment, computers, vehicles, end equipment, office furniture and
equipment, and leased improvements.
3.7.2.
Infrastructure
3.7.2.1
Pelephone currently operates communication networks in three main
technologies, as follows:
a. 5G - the NEW RADIO technology that uses a very broadband spectrum
(100 MHz at Pelephone) and enables higher capacity and higher
browsing rates for the user. In the future, the technology will enable IoT
applications at significantly higher volumes than today and at a very
high level of performance.
b. 4G - LTE technology from the GSM standards family. The advantages of
the technology are high capacity for data communication and faster
download and upload rates than those that exist in 3G. All end devices
that support this technology also support 3G technology and there is a
smooth transition between the technologies.
c. 3G - technology in the UMTS method based on GSM standard. This
technology is very common in the world and enables subscriber
identification and service through a subscriber identification card (SIM)
As part
that can be transferred from one end device to another.
of a hearing held by the Ministry regarding the future closure of mobile
radio-telephone networks operating with old technologies, (2G and 3G
networks) an outline was established for the closure of these networks,
which is expected to lead to their closure on December 31, 2025 (or at
an earlier date at the request of each operator in relation to his network
and provided that it meets the established conditions). The outline
includes, among other things, milestones of stopping the import of
devices that do not support modern technologies, informing the public,
and stopping the connection of these devices to the network. It should
be noted that Pelephone's 2G network was closed by it in the past.
Pelephone is prepared in accordance with the above decision to close
its 3G network, according to the timetables established in the decision
As of the date of the report, Pelephone's network infrastructure is mainly
based on two switching farms connected to more than 2,500 sites.
3.7.2.2
Network investments
In recent years, Pelephone has invested in the deployment of a 4G and 5G
network, including the implementation of innovative technologies such as
Beam Forming, MASSIVE MIMO, QAM 256 and Carrier Aggregation in the
access network, and in IMS in the network core (see Section 3.1.5).
In this framework, starting in 2020, Pelephone is expanding the access
network (by operating additional frequencies in the 700, 2600 MHz range at
over a thousand sites, as well as in the 3500 MHz range at approximately
500 sites, by installing and operating antennas and reception transmission
equipment in the areas These frequencies on the various sites. It should be
noted that among these, in the 700 MHz range, the target for deployment
is nationwide.
Pelephone's activity outline for the deployment and implementation of
advanced data communication services in the 5G, is high in investment and
currently integrates with existing infrastructures and systems, when the
operation of these advanced services will be based on the 5G technology
which Pelephone will continue to deploy as mentioned, and later will be
based on a new network core dedicated to 5G ( See Section 3.8.2.4).
In addition, as part of its ongoing investments, in the next ten years
Pelephone will be required to invest in the establishment of new
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broadcasting sites, among other things, in order to comply with the
conditions of the mobile radio-telephone license.
Pelephone's estimates as aforesaid regarding the required investments are
forward-looking information within its meaning of the Securities Law, based
on Pelephone's forecasts and estimates, inter alia, regarding the rate of
network expansion and upgrade of the network. Accordingly, the
information may not fully or partially materialize or may materialize in a
different format than that which was assessed, insofar as the said forecasts
and assessments are not fulfilled or will be fulfilled in a different way than
expected.
3.7.3.
Areas used by Pelephone
Pelephone does not own real estate and it leases from others, including Bezeq, the areas
it uses for its activities. The following is a description of most of the areas used by
Pelephone:
3.7.3.1
3.7.3.2
3.7.3.3
3.7.3.4
3.7.3.5
The areas used by Pelephone to place communication sites and network
centers as stated in the section 3.7.1 are spread throughout Israel and
leased for different periods (in many cases for 5 years plus the option to
extend the agreement for another 5 years). For site licensing, see section
3.14.3.
Until December 31, 2019, a license agreement was in force between
Pelephone and ILA for the use of ILA real estate for the construction and
operation of communication sites, which regulated, among other things, the
license fee for such use for the period until December 31, 2019. On January
19, 2022, the decision of the Israel Lands Administration to extend the
period of the roof agreement from December 31, 2019 to December 30,
2024 was amended, with various changes.
Pelephone's headquarters are in Petah Tikva.
For service and sales activities, Pelephone rents about 50 service centers
and sales points spread throughout Israel.
Pelephone has additional lease agreements for warehouses (including a
central logistics center with a central laboratory for repairing customer
devices), offices, call centers and 2 switching farms used by it for its
operations.
3.8.
Intangible assets
3.8.1.
Licenses
For details regarding Pelephone's mobile radio telephone license and operating license in
Judea and Samaria, see section 3.14.2.
3.8.2.
Right to use frequencies
3.8.2.1
Shortage IN Radio frequencies
In Israel, there is a shortage of radio frequencies for public use (among other
things, due to the allocation of many frequencies for security uses). As a
result, the government limits the number of licenses that can be used in
frequencies.
3.8.2.2
Pelephone’s frequency inventory
Pelephone has the right to use frequencies by virtue of the mobile radio
telephone license and the Telegraph Order in the ranges of 850 MHz58 and
2100 MHz for operating the network in UMTS / HSPA technology, and in the
1800 MHz, 700 MHz and 2600 MHz range for network operation in the LTE
technology (see also section 3.1.5) and in the range of 3500 MHz for the
purpose of operating a network with 5G technology. During 2017,
Pelephone returned to the National Frequency Database 2 frequency bands
58 Pelephone has the option of requesting a 5-mega allocation in the 800 MHz range following the 850 MHz frequency evacuation project.
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with a width of 1 Mega each in the range of 850 MHz, and towards the end
of April 2017, it received a temporary allocation of a band in the range of
1800 MHz with a width of 5 Mega. This allocation is limited in use and is for
a fixed period.
The Ministry of Communications has temporarily reassigned this band to
Pelephone until December 31, 2024, under conditions and limitations, in
order to allow Pelephone to prepare for the expected change in changing
frequencies in the first Ghz range (see Section 3.8.2.3).
Pelephone intends to deploy the frequencies in the 800 MHz range that
were allocated to Pelephone instead of the 850 MHz frequencies (see
Section 3.8.2.3). Pelephone intends to use for the purpose of deepening the
deployment of the LTE technology network towards the end of 2023, and to
activate these frequencies during the year 2024.
3.8.2.3
Switching freqencies in the first Giga range
In July 2018, the Ministry of Communications informed Pelephone that it
intends to adjust cellular frequencies in Israel to European standards and
the area in which the State of Israel is located, so that Pelephone and
another cellular operator will be required to replace the 850 MHz
frequencies with other frequencies in the first GHz. In 2020, the Ministry of
Communications announced to Pelephone that it intended to implement an
outline for the replacement of 850 MHz frequencies in the use of Pelephone,
interference caused to
against the background of electromagnetic
neighboring countries due to non-compliance of cellular frequencies in
Israel with European standards and the stadards of the region. According to
the outline, Pelephone will receive frequencies in the range of 800 MHz
instead of 850 MHz, when in the first stage and for the purpose of treating
such interruptions, the amount of 850 MHz frequencies used by Pelephone
will be reduced to 5 MHz (instead of 10 MHz today) and this as of May 31,
2020. Pelephone forwarded to the Ministry of Communications, following
his request, its reference to a number of issues and on March 17.
On June 1, 2020, Pelephone returned to the Ministry of Communications
frequencies in the range of 850 MHz, with a width of 5 MHz, so that the
amount of 850 MHz frequencies owned by Pelephone decreased from 10
MHz to 5 MHz. On November 26, 2020, the Ministry of Communications
allowed Pelephone to reuse full 2X10 MHZs in the 850 range until March 31,
2021. On December 31, 2021, Pelephone stopped using one of the two 5
MHz-wide 850 channels and continued using a single 5 MHz channel On June
27, 2021, a decision was made by the Ministry of Communications regarding
an extension of the allocation of frequencies in 850 MHz and 2100 MHz
ranges that Pelephone holds, until December 31, 2030 (it is clarified that the
extension of the 850 MHz frequency is subject to description above,
regarding the exchange of frequencies in the first giga field).
3.8.2.4
Tender for advanced broadband services ("the Tender")
On August 12, 2020 Pelephone won the allocation of frequencies as a result
of its participation in the tender for mobile radio telephone services in
advanced 5G bandwidths. The following are the main points of the tender:
The Tender
includes provisions regarding the coverage and quality
requirements of the network that will be anchored as part of the
amendment of the mobile radio telephone licenses of the existing operators
(see amendment to Pelephone’s license below).
The Tender including the possibility of receiveing the following incentives:
a. Discounts in the frequency fees for the first four years, subject to the
approval of the Ministry of Communications and the Ministry of
Finance.
b. Receipt of a conditional grant for the deployment of 5G sites according
to the conditions specified in the Tender (such as meeting the scope of
deployment, schedules, deployment period and timing of deployment
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in relation to others and additional conditions set in the Tender). This
grant was received in 2022.
For details, see also Section 3.19.2.1. For details regarding exposure to
interference in the frequency ranges of Pelephone, see section 3.19.3.10.
The following are the conditions under which Pelephone won the allocation
of such frequencies:
a. Winning at 10 Mega in the 700 MHz range (for a period of 15 years); at
20 Mega in the 2600 MHz range (for a period of 10 years); And at 100
Mega in the field of 3500 MHz (for a period of 10 years). The license
period does not change as a result of the Tender and can be renewed
in accordance with the license provisions (hereinafter: "Frequency
Allocation"). It should be noted that the frequencies won by Pelephone
are used exclusively by Pelephone network, which gives it a competitive
advantage. It should also be noted that companies that do not own
existing networks did not win the Tender.
b. Pelephone winning the frequency allocation involved a total payment
of approximately NIS 88 million, which was made by Pelephone in
September 2022. In this context, it should be noted that the Tender
further stipulates that incentives may be obtained, as specified in
above, including receiving a conditional grant for the deployment of 5G
sites according to the conditions specified in the Tender, the amount of
which, for all the winners, can reach a total amount of NIS 200 million.
On October 27, 2021, a notice was received from the Ministry of
Communications that Pelephone is entitled to this grant in the amount
of NIS 74 million, and the grant was actually received in 2022. As part
of the update of the regulations under which the frequency fees are
paid, a reduction in the amounts of the fees for 2600 and 3500 MHz
frequencies was determined, as well as a conditional annual discount
from the total amount of the frequency fees to be paid by Pelephone in
the next four years (the discount depends on the Company's
compliance with graded annual engineering targets, which will be
examined by the Ministry of Communications every year).
On October 1, 2020, Pelephone's license was amended in accordance
with the winning results (shortly before, Pelephone was allocated the
frequencies at which it won as stated). With the amendment of the
license, Pelephone began operating the frequencies which it won in the
Tender at the broadcast sites upgraded by it.
Said Frequency Allocation enables supporting the increase in the
volume of browsing in the 4G and in the future offer services in the 5G
at significantly higher browsing rates than those existing today, and will
allow, among other things, expanding a variety of advanced cellular
uses, such as smart cities, IoT services, mission critical services with low
latency, private networks and more and all in order to provide a
competitive solution in the market. It will involve ongoing investments.
In this regard, see also Note 11 to the 2022 statements.
Further to the non-binding document of principles published by the
Ministry of Communications on August 14, 2022 regarding the
continuation of the tender for 5G mobile radio-telephone services for
the purpose of improving and consolidating the 5G capabilities and
solutions that exist in the cellular networks today, on December 7, 2022
the Ministry published the 5G tender documents in the area of the 26th
frequencies GHz, in which 25 bandwidths of 100 MHz are offered each
(a total of 2,500 MHz), for congestion between the existing cellular
operators (existing cellular networks), where each network is entitled
to win up to 1,200 MHz (out of the 2,500 ). The tender consists of a
stage of meeting the threshold conditions and a dynamic competition
stage (the date of which has not yet been determined). The minimum
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price per band will also be determined later. Pelephone is studying the
tender documents and its conditions and it and/or Bezeq is not in a
position to assess, at this stage, its consequences.
3.8.3.
Trademarks
Pelephone has a number of registered trademarks. The main one is the "Pelephone"
brand.
3.8.4.
Computer software, systems and databases
Pelephone uses software and computer systems, some based on licenses it has acquired
and some developed by Pelephone's information systems division. Many of these licenses
are limited in time and are renewed from time to time. The main systems used by
Pelephone are an ERP system by Oracle Applications and a customer billing and
management system by Amdocs.
Pelephone is also working to upgrade the CRM (customer management) to an advanced
Salesforce cloud platform together with Bezeq International and DBS. Pelephone is
dependent on the Salesforce system and services, due to their importance for the
purpose of managing relationships with its customers. System failures or the cessation of
services by this provider are likely to cause operational difficulty until the fault is rectified
or the system / provider is replaced, which may take a long time
3.9.
Human capital
3.9.2.
Organizational structure
The following is a diagram of Pelephone's organizational structure, as of the date of the
report:
Board of
Directors
CEO
HR and
Administratio
n Division
Finance
Division
Private
Customers
Division *
Information
Systems
Division
Engineering
Division
Business
Division
Marketing
Division
Legal
advice and
Regulation
Public
Relations
Internal
Auditor
As part of the implementation of the synergy processes with the Group's subsidiaries,
Pelephone's CEO, Mr. Ilan Siegel, also serves as CEO of DBS. In addition, some of the VPs
who serve on Pelephone also serve as VPs at DBS.
3.9.3.
Employee base and number of jobs
The following is a breakdown of the number of employees in Pelephone according to its
organizational structure:
Division
and
and
business
administration
Management
divisions
Private
divisions
Engineering and Information Systems
Divisions
Total
customer
103
Number of employees
31.12.202
2
194
31.12.202
1
192
1,128
382
1,704
1,190
386
1,768
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
The number of employees included in the table above includes employees employed part-
time. The total number of jobs59 at Pelephone as of December 31, 2021, was 1,529.
3.9.4.
Terms of employment
Most Pelephone employees are employed under a monthly agreement or an hourly
agreement, according to the professions and positions in which they are engaged. Most
of the service and sales staff are part-time shift workers and are employed on an hourly
basis. The other Pelephone employees are employed on a global basis. The main
difference between the monthly and hourly agreements and the global agreements lies
in the salary structure.
3.9.5.
Collective agreement
The labor relations at Pelephone are regulated in a collective agreement signed between
Pelephone and the new Histadrut - the Cellular, Internet and High-Tech Workers' Union
("the Histadrut") and the Pelephone Employees’ Committee. The agreement applies to
all Pelephone employees, with the exception of senior executives and certain employees
in pre-defined positions who are employed by personal agreements.
On November 13, 2019, a renewal of the existing collective agreement was signed
between the parties, which includes streamlining and synergy procedures, for a period of
up to June 30, 2022 (“the Agreement").
Under the Agreement, Pelephone may, among other things, terminate the employment
of 210 permanent employees during the term of the Agreement, some of them as part of
a voluntary retirement. Moreover, the Agreement allowed Pelephone to terminate the
employment of 190 additional non-permanent employees, in addition to not recruiting
employees instead of employees the employment oh whom will be terminated. The
Agreement also includes providing a one-time bonus to employees who will not be
included in the retirement plan.
On December 6, 2022, Pelephone signed the renewal of the existing collective agreement
between itself and the General Workers' Histadrut and its employee representative for
the period from December 6, 2022 to December 31, 2025 ("the Agreement" and "the
Agreement Period", respectively) under new conditions. According to the Agreement,
salary increases and bonuses will be given, ancillary conditions will be improved and the
labor disputes announced by the General Workers' Histadrut and the employees’
representatives will be settled (with the exception of one issue detailed in Section 3.9.5)
while maintaining industrial peace during the validity period of the agreement in the
matters regulated therein. The total estimated cost of the Pelephone agreement,
including the voluntary retirement of employees whose retirement has been approved,
is about NIS 71 million.
Pelephone's estimates regarding the cost of the Agreement are forward-looking
information, as defined in the Securities Law, based, among other things, on its
assumptions regarding the manner and scope of the retirement plan implementation and
additional conditions stipulated in the agreement. These estimates may not materialize,
or materialize in a different way than expected, depending, among other things, on the
manner and scope of the actual implementation of the agreement and the retirement
plan, taking into account Pelephone's needs and its ability to implement its plans and the
fulfillment of additional conditions stipulated in the Agreement.
For this matter see also Note 16 to the 2022 statements.
3.9.6.
Labor disputes
On January 31, 2018, Pelephone was notified by the Histadrut ("the Histadrut Notice") of
the declaration of a labor dispute in accordance with the Labor Disputes Settlement Law,
5717-1957. According to the Histadrut Notice, the issues in the dispute are the
employees’ requirements for consultation and negotiations regarding the sale of Bezeq's
controlling shares to the new owners and the regulation of their rights as a result.
59The calculation of the number of "jobs" in Pelephone is: the total monthly working hours divided by the monthly working hours
quota.
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On December 6, 2022, a collective agreement was signed that includes renewal of the
agreement period from the date of signing until December 31, 2025. As part of the
agreement, all open labor disputes were removed, with the exception of the issue of
appointing a representative to Pelephone’s Board of Directors on behalf of the
employees, which was stipulated in the agreement to be discussed later.
3.10. Suppliers
3.10.2.
End equipment suppliers
Pelephone purchases some of the end equipment and accessories from different
providers in Israel, and imports some independently. In addition, Pelephone purchases
end equipment and accessories by way of purchase consignation with the right to return
to the end equipment suppliers. Contracts with some suppliers are based on framework
agreements that regulate, inter alia, the supplier's technical support for the end
equipment provided thereby, the availability of spare parts and repairs and the supplier's
warranty for the products. In most cases, these agreements do not include an obligation
on Pelephone's part to make purchases, and they are executed on an ongoing basis
through a purchase order according to Pelephone's needs.
In the event of a termination of contract with a particular end equipment supplier,
Pelephone may increase the quantity purchased from other end equipment suppliers, or
purchase end equipment from a new end equipment supplier.
Pelephone’s essential suppliers are Apple, with whom there is an agreement that requires
defined procurement targets and is valid until March 2024, and Samsung, with which
Pelephone does not have an agreement that requires the purchase of a minimum annual
quantity and the purchases are made on the basis of orders made by Pelephone from
time to time.
Pelephone purchases rate from each of the suppliers Apple and Samsung in 2022 was
approx.13.3% and approx. 11.6% (respectively) of Pelephone’s total purchases from all of
Pelephone’s suppliers60. The distribution of peripheral equipment purchases among
suppliers is such that it does not create a material dependence on the supplier or model
of equipment.
It should be noted that a global chip shortage caused, among other things, a shortage and
difficulties in the supply of end equipment from Bezeq's main suppliers.
3.10.3.
Infrastructure providers
Cellular infrastructure equipment in the UMTS, LTE and the 5G networks are provided by
LM Ericcson Israel Ltd. ("Ericcson"). Ericcson is also a significant supplier of Pelephone in
the field of microwave transmission. Pelephone has multi-year agreements for
maintenance, support and software upgrades for the UMTS network, as well as an
agreement for the purchase of 4G (LTE) and 5G equipment with Ericsson, and in its
opinion it may be dependent on it in connection with network support and expansion. In
addition, the cellular network uses transmission, and Bezeq is a significant supplier of
Pelephone in this field.
Pelephone has a multi-year transmission agreement with Bezeq that includes use and
maintenance.
3.11. Working equity
Credit policy
Credit in device sales transactions - Pelephone gives most of its customers who purchase mobile
phones the option to spread the payments up to 36 equal payments. In order to reduce exposure
that may arise as a result of providing credit to its customers, Pelephone operates in accordance with
a credit policy that is reviewed from time to time. Pelephone also checks the financial strength of its
customers (in accordance with the parameters set by it).
60 All suppliers - All of Pelephone’s suppliers, including suppliers who are not suppliers of end equipment and electronic devices.
The rate of purchases from suppliers Apple and Samsung out of the total purchases of the Bezeq Group from all its suppliers is
approximately 7.2% and 5.8% (respectively).
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Monthly billing credit for cellular services - Pelephone customers are charged once a month with
billing cycles, performed on different dates throughout the month, for the consumption of last
month's cellular services.
Pelephone receives credit from most of its providers for a period ranging from 30 days to end of
month + 92 days.
The following are data regarding average suppliers' and customers' credit in 2022:
Credit volume
in NIS millions
Average credit
days
Customers for the sale of end equipment (*)
Customers for services (*)
Suppliers
(*) Net of loan-loss
505
200
245
259
35
44
3.12. Taxation
See Note 7 to the 2022 statements.
3.13.
Environmental risks and ways of managing them
3.13.2.
The provisions of the law concerning the environment and apply to the
activities of Pelephone
in
The broadcast sites used by Pelephone are "radiation sources"
accordance with the Non-Ionizing Radiation Law. The establishment and
operation of these sites, with the exception of sites listed in the appendix to
the law, requires the receipt of a radiation permit.
The law establishes a two-stage licensing mechanism for obtaining a permit
to operate a radiation source, according to which the applicant for a permit
must first obtain a permit to establish the radiation source ("Establishment
Permit"), valid for a period not exceeding three months, which can be
extended by the Commissioner by up to 9 months, followed by a permit to
operate a source of radiation ("Operating Permit"), which is valid for a
period of five years or as otherwise determined by the Minister of
Environmental Protection.
With regard to the Establishment Permit, the law stipulates the granting of
the permit by performing an assessment of the maximum levels of exposure
of people and the environment to the radiation expected from the radiation
source when it is activated, including in the event of a malfunction; And
taking the necessary measures to limit the levels of exposure of humans and
the environment to the radiation expected from the radiation source when
it is activated, including the use of technological means in use ("Limitation
Means").
With regard to the Operating Permit, the law stipulates the granting of the
permit by the taking of measures to limit and make measurements of the
levels of exposure of humans and the environment to the radiation
generated during the activation of the radiation source. The law also
conditions the granting of an Operating Permit by presenting a license in
accordance with the Communications Law, and in some cases, also by
presenting a permit under the Planning and Construction Law.
The law includes a penalty chapter which stipulates, inter alia, that the
construction or operation of a radiation source in violation of the terms of
the permit and the construction or operation of a radiation source without
a permit after receiving written notice from the Commissioner, are a
criminal offense.
It will be noted that regulating the maximum permissible levels of exposure
of human beings to radiation from a radiation source and the safety ranges
from transmission facilities to communications, including the restriction on
placing a radiation source on roof terraces, is still in the process of legislation
with the Knesset's Interior Committee on the Environment, as part of an
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amendment proposed to the regulations under the Non-Ionizing Radiation
Law, which was accompanied with disagreements between government
ministries.
In January 2009, the Commissioner for Radiation at the Ministry of
Environmental Protection issued guidelines regarding safety ranges and
maximum permitted levels of exposure regarding radiation from radio
frequencies, including cellular antennas.
It should also be noted that the Ministry of Environmental Protection
operates a system of continuous supervision and monitoring of the
broadcasting centers to check their compliance with the requirements of
the law.
Cellular services are provided through a mobile phone that emits non-
ionizing radiation (also known as electromagnetic radiation). The Consumer
Protection Regulations (Information on Non-Ionizing Radiation from a
Mobile Phone) 5762-2002 stipulate the maximum permissible level of
radiation of a cellphone measured by units SAR (Specific Absorption Rate)
and informing Pelephone's customers in this context. To the best of
Pelephone's knowledge, all the cellular devices it markets meet the required
SAR standards. See also section 3.19.2.5.
3.13.3.
Pelephone policy in environmental risk management
Pelephone conducts periodic radiation tests to ensure compliance with
permitted operating standards and international standards. These tests are
outsourced to companies licensed by the Ministry of Environmental
Protection. Pelephone has an
internal enforcement procedure for
supervising the implementation of the provisions of the Non-Ionizing
Radiation Law, according to which a senior administrative body has been
appointed as responsible for its implementation. The purpose of the
procedure is to implement the provisions of the law and to reduce the
possibility of violating it.
3.13.4.
Transparency to consumers
Pelephone is subject to relevant laws that stipulate advertising obligations and
information about the sources of radiation that it operates and about the radiation
emanating from the devices it provides. Pelephone publishes information on its website
regarding the level of SAR emitted from cell phones and the Ministry of Health's
recommendations for precautionary measures in the use of cell phones.
3.14. Restrictions and supervision of Pelephone’s operations
3.14.1.
Legislative restrictions
3.14.1.1
Communications Law
The provision of cellular services by Pelephone is subject to the provisions
of the Communications Law and its regulations. For details regarding the
mobile radio telephone
license granted to Pelephone under the
Communications Law, see section 3.14.2.
The law authorizes the Director General of the Ministry of Communications
to impose financial sanctions due to various violations of the provisions of
the law and of orders and provisions issued under it, as well as due to
violation of conditions in the license.
3.14.1.2
Wireless Telegraph Order
The Telegraph Order regulates the use of the electromagnetic spectrum,
and applies, among other things, to the use of radio frequencies made by
cell phones, as part of its infrastructure. Establishment of a system that uses
and operates radio frequencies is subject, under the Telegraph Order, to
licensing, and the use of radio frequencies is subject to the designation and
allocation of an appropriate frequency. According to the Telegraph Order,
license fees and fees are imposed for the designation of frequencies and
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
their allocation. The Order authorizes the Ministry of Communications to
impose financial sanctions due to various violations of its provisions.
For radio frequencies assigned to cell phones, see section 3.8.2.
3.14.1.3
The Non-Ionizing Radiation Law
With respect to facilities that emit electromagnetic radiation see section
3.13.
3.14.1.4
Consumer legislation and privacy protection and information security laws
As part of its activities, Pelephone is subject to the Consumer Protection
Law, which regulates a dealer's obligations to consumers, as well as the laws
of privacy protection and information security (see Section 1.7.7.4).
3.14.1.5
Change in interconnectivity fee rates (Call Completion Fee)
Interconnectivity rates are set by the regulator. For details see Section
1.7.7.1.
3.14.2.
Pelephone's mobile radio telephone license
3.14.2.1
General
Pelephone's mobile radio telephone license as well as the general license to
provide cellular services in the Judea and Samaria area are valid until
September 9, 2022 61.
The following are the main instructions from Pelephone's mobile radio
telephone license:
a.
In certain circumstances, the Minister may change the terms of the
license, restrict it or suspend it and, and in some cases even cancel it.
b. The license is not transferable and includes restrictions on the purchase
or transfer (including by way of lien) directly or indirectly of control or
of 10% or more of any means of control in Pelephone, including the lien
of such means of control, unless the Minister's prior consent is given.
c. Pelephone is obligated to provide an interconnectivity service on equal
terms to any other operator and must avoid any discrimination in
interconnectivity.
d. Pelephone must refrain from preference of providing infrastructure
services to a licensee who is an affiliated company (as defined in the
license) over another licensee.
e. The
license specifies the mobile radio telephone services that
Pelephone may provide and states that it is not allowed to provide
additional mobile radio telephone services that are not specified in the
license.
f. Pelephone may not sell, rent, or mortgage property from the properties
used to carry out the license without the consent of the Minister of
Communications, except for certain exceptions set forth in the license.
g.
In times of emergency, the person authorized by law has the authority
to give Pelephone various instructions regarding the manner of its
operation and / or the manner of providing the services (see section
3.19.2.9).
h. The license specifies the types of payments that Pelephone may charge
its subscribers for cellular services, and the reports it must give to the
Ministry of Communications. The license also stipulates the authority
of the Minister to intervene in rates, in some cases.
61 The wording of Pelephone’s mobile radio telephone license is published on the website of the Ministry of Communications at
www.moc.gov.il. The provisions of the mobile radio telephone license applies on the license in the Judea and Samaria area (with
certain changes)).
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
i.
j.
The license requires Pelephone to a minimum standard of service.
In order to secure Pelephone's obligations and in order to compensate
and compensate the State of Israel in the event that Pelephone's action
causes it damage, Pelephone provided a bank guarantees to the
Ministry of Communications, in the amount of NIS 69 million.
3.14.2.2
Ministry of Communications guidelines regarding license changes
The Ministry periodically updates Bezeq’s license on various issues, as part
of hearings held by it.
3.14.3.
Site construction licensing
Pelephone's cellular services are provided, among other things, through cellular sites that
are deployed throughout Israel in accordance with engineering needs. The constant need
to upgrade and improve the quality of cellular services requires the establishment of
cellular sites, configuration changes, and changes to existing antenna arrays.
Pelephone uses transmission sites of two main types and in two tracks: macro sites that
require a building permit from the Planning and Construction Committees (see reference
to National Outline Plan 36A below) and facilities exempt from a building permit under
the Communications Law and the planning and Construction Law ("Exemption
Provision"): Wireless access facilities ("Access Facilities") for which regulations were
published in 2018 regulating the self-licensing route based on compliance with the
provisions of National Outline Plan 36 and allowing self-licensing for the establishment of
certain transmission facilities. On January 1, 2022, a series of legislative amendments
entered into force within the Arrangements Law, which Define the cellular infrastructure
as a national infrastructure and create a self-licensing route for certain cellular antennas
and for making adjustments to the various transmission facilities, instead of establishing
new access facilities, as detailed below.
Pelephone's ability to maintain and preserve the quality of its cellular services, as well as
its coverage, is based in part on its ability to establish cellular sites and install
infrastructure equipment, including broadcasting sites. The difficulties encountered by
Pelephone in obtaining the necessary permits and approvals can adversely affect the
existing infrastructure, the network's performance as well as the establishment of
additional cellular sites required by the network. Difficulties in deployment also exist in
the Judea and Samaria area, for which a special legal system applies.
The inability to resolve these issues in a timely manner may even prevent the
achievement of service quality targets set forth in the mobile radio telephone license.
Pelephone, like the other cellular operators in Israel, established some of the cellular sites
throughout Israel on properties managed by the Israel Land Authority. This is, among
other things, in accordance with the roof contract from June 2013 that ended on
December 31, 2019. After lengthy negotiations on November 23, 2022 a new roof
contract was signed which will be valid until 31.12.2024 with various changes compared
to the roof agreement.
a. Building permits for the construction of a transmission facility for cellular
communications by virtue of National Outline Plan 36A:
Licensing of the construction of cellular transmission sites subject to building permits,
regulated by National Outline Plan 36A, which came into force in 2002.
The licensing procedure according to NPA 36A requires, inter alia, the receipt of
approvals as follows: A. Approval of establishment and operation by the Ministry of
Environmental Protection, as specified in section 3.13.1; B. Approval of the Civil
Aviation Administration, in some cases; C. IDF approval.
In addition, according to the law, a condition for granting a permit for the
establishment of a transmission facility for cellular communications is the submission
of a letter of indemnity to the local committee in respect of claims for compensation
for impairment. As of the date of this report, Pelephone has deposited approximately
650 indemnity letters with various local committees.
Despite NPA 36A in its existing format, Pelephone (and to the best of its knowledge,
also from its competitors) encounters difficulties in obtaining some of the necessary
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
approvals, especially the approvals of the planning and construction authorities.
b. Facilities exempt from building permits:
The second route in which Pelephone has deployed broadcast sites so far is the
Access Facilities route. The Access Facilities were subject to the receipt of individual
radiation permits but are exempt from obtaining a building permit provided that they
are established under the conditions set forth in the exemption directive (Article
266C (a) of the Planning and Construction Law (installation of a wireless access facility
for cellular method), 5778-2018 and the regulations. However, in view of the
amendment to the Planning and Construction Law set forth in the Arrangements Law
and the new self-licensing route according to it (see below), the route of the Access
Facilities became redundant.
As of the date of the report, Pelephone operates about 451 wireless access sites.
It should be noted that in spot enforcement proceedings, which are taken from time
to time, additional allegations arise regarding the manner in which the exemption is
used, including compliance with regulations. To the extent that there are Pelephone
facilities that do not meet the conditions set forth in the regulations, there is
exposure in respect thereof if the dismantling or adjusting of those facilities becomes
necessary.
As part of the Arrangements Law, which entered into force on January 1, 2022, an
amendment was received to the Planning and Construction Law, which includes the
removal of regulatory barriers regarding the establishment of sites. The main
amendment is the granting of an exemption from licensing procedures for placing
and using facilities up to 6m on the roof of a building, an exemption for replacing a
transmission facility, an exemption for adding an antenna to a transmission facility
established under the Planning and Building Law and an exemption for replacing
masts up to 18m high. The amendment to the Planning and Construction Law also
includes a new classification of "transmission facilities for communications using the
Thai method", as defined in Article 202B of the Planning and Construction Law, as
"national infrastructure", and a new classification of NAP 36A as "a detailed national
master plan for national infrastructure". The amendment to the Planning and
Building Law facilitates the replacement of antennas, the addition of an antenna to
existing sites, and the strengthening of masts. All, under the technical and practical
conditions set out in the amendment. These facilities will continue to meet all the
conditions of NAP 36 and spatial guidelines of the local committees, with the actual
meaning of the amendment being the possibility of a "self-licensing" route - that is,
performing a self-licensing and control procedure in the above cases, and submitting
documents to the Planning and Construction Committee retrospectively (after the
completion of the construction of the sites). Simultaneously with this amendment,
an amendment was also established to the definition of "wireless access facility" in
Article 27A of the Communications Law. As part of the aforesaid amendment, a
"transmission facility for communication in the cellular method as defined in Article
266C2 of the Planning and Building Law" was removed from the definition of a
"wireless access facility". This means that the wireless access facilities that were set
up with an exemption from a permit continue to exist, but it is no longer possible to
set up new mobile sites in the "access facilities" route, which is listed above).
As part of the report of the inter-ministerial committee that served as the
infrastructure for amendments to the Arrangements Law, it was also recommended
to update NPA 36A, which came into force about twenty years ago.
At this stage it is not possible to estimate the future consequences as a result of the
amendments.
On November 14, 2021, Pelephone signed a framework agreement to expand the
local collaboration in the establishment of passive infrastructure on joint mobile sites
together with Cellcom and PHI Networks (2015) Limited Partnership. In August 2022,
the Ministry of Communications approved the agreement. This agreement may help
establish joint mobile sites.
In conclusion: A few sites that were established years ago still lack the approvals of
the Civil Aviation Administration and the IDF, although the applications for approvals
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
have already been submitted. Also, some planning and construction committees
have administrative or other delays in issuing building permits to sites. Therefore,
Pelephone operates a number of broadcasting sites that have not yet been issued
building permits.
The establishment of a broadcasting site without obtaining a building permit is a
violation of the law and in some cases this has led to the issuance of demolition
orders or the filing of indictments or the filing of civil proceedings against Pelephone
and some of its officers.
As of the date of the report, Pelephone has in most cases been able to avoid
demolition or delay the execution of demolition orders within the framework of
arrangements reached with the planning and construction authorities, in order to try
to settle the missing license. These arrangements did not require a confession of guilt
and / or a conviction on the part of Pelephone officials. However, there is no certainty
that this situation will continue in the future, or that there will be no further cases in
which demolition orders will be issued and indictments will be filed for building
permits, including against officers.
Pelephone, like the other cellular operators in Israel, may be required to dismantle
transmission sites for which the necessary approvals and permits have not yet been
obtained in accordance with the deadlines set by law. Pelephone uses the license-
exempt facilities to provide coverage and capacity in crowded areas. If a legal
constraint is created for the simultaneous dismantling of the sites in a given
geographical area, there may be a deterioration in the service in that area, until the
establishment of alternative broadcasting sites.
3.14.4.
Economic Competition Law
In the terms of the merger of Pelephone and the Company, various restrictions are
anchored regarding cooperation between the companies (see Section 2.16.9.4).
3.15. Material agreements
3.15.1.
For agreements with Ericsson, see section 3.10.2.
3.15.2.
In July 2016, an agreement was signed between Pelephone and the Accountant General
of the Ministry of Finance, according to which Pelephone will provide cellular services to
state employees in an estimated 100,000 subscribers over three years. Under the
agreement, Pelephone provides devices to some Accountant General subscribers.
The State chose to exercise the extension options granted to it in the agreement, and the
agreement was extended until May 2, 2023.
3.15.3.
3.15.4.
Regarding an agreement with ILA (which expired and has not yet been renewed) see
section 3.7.2.2.
Regarding a collective agreement between Pelephone and the Histadrut and Pelephone’s
Employees’ Committee, see section 3.9.4.
3.16.
Legal Proceedings62
During the day-to-day business, lawsuits were filed against Pelephone, including motions for
approval of class actions.
3.16.2.
Pending legal proceedings
The following is a list of the claims in which the amount claimed is material and claims
that may have material consequences for Pelephone's operations:
62 For reporting policy and materiality thresholds, see section 2.18.
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Date
Parties
Instance
Proceeding
type
Details
a.
May
2012
Customer
vs.
Pelephon
e
District
(Tel Aviv)
Class action
lawsuit
b.
July
2014
c.
April
2017
d.
October
2017
e.
April 2019
Customer
vs.
Pelephon
e, three
other
cellular
compani
es and
additiona
l
responde
nts
Customer
vs.
Pelephon
e
Customer
vs.
Pelephon
e and
Partner
Customer
vs.
Pelephone
, Bezeq
Internatio
nal and 6
other
companies
District
(Tel Aviv)
Monetary
claim and a
motion to
recognize it
as a class
action
District
(Tel Aviv)
Central
District
Central
District
Monetary
claim and a
motion to be
recognized
as a class
action
Monetary
claim and a
motion to be
recognized
as a class
action
Monetary
claim and a
motion to be
recognized
as a
action
class
It is claimed that Pelephone does not inform customers
who wish to join its services with a device that was not
purchased from Pelephone, that as long as the device
does not support the 850 MHz frequency, they will enjoy
partial reception of one frequency and not two. In March
2014, the Court approved the lawsuit as a class action,
following Pelephone's announcement regarding
its
consent (for reasons of efficiency) to the management of
the lawsuit as a class action, while maintaining its claims.
The procedure is split into two stages (the stage of
clarifying liability and the stage of quantifying damages,
as necessary in stage two). On January 20, 2019, a
decision was given in the sale case under Pelephone's
responsibility for the claim in the lawsuit, on the grounds
of deception under the Consumer Protection Law and on
the grounds of lack of good faith in negotiations, in
relation to the period up to the date of the decision to
approve the claim as a class action (March 2014).
Depending on the decision and previous decision in the
case the next step in the hearing of the case will be on the
question of the alleged damage.
It was alleged that Pelephone, along with three other
cellular companies, signed up subscribers to content
services without their consent and illegally, thereby
creating a "platform" that led the Accutech Group to
charge tens of thousands of people for illegal content
services.
Amount of the
claim
(NIS millions)
About 124
About 100 in
relation to the
cellular
companies and
about 300
against all the
defendants
It is alleged that the defendant unilaterally and without
consent changed the terms of the agreement between
itself and the applicant, and others like it, by allowing
browsing to continue after exhausting the browsing
volume included in the package instead of stopping it,
contrary to Pelephone’s notice on the issue
It is alleged that the defendants are illegally using the
location data of their clients and thus violating the
contract agreements with them, the operating licenses
and various laws, including the Privacy Protection Law,
5741-1981.
About 80
About 850
the Communications Law.
It is claimed that the respondents do not inform their
customers as required about the possible dangers of
using the Internet and about the possibility of joining a
free content filtering service, contrary to the provisions
the
of
respondents provide a website and offensive content
filtering service that they claim is not effective enough.
According to the petitioners, the aforesaid constitutes,
inter alia, a violation of the provisions of the Consumer
Protection Law, a violation of debts under the Torts
Order, a breach of contract and unjust enrichment.
In addition,
The amount of
the lawsuit is
not specified,
but in the
motion it is
estimated at
tens of millions
of NIS
f.
January
2023
Haifa
District
Court
Monetary
claim and a
motion to be
recognized
as a
action
class
It is alleged that there is no price marking on products
sold by Pelephone, contrary to the provisions of the
Consumer Protection Law and the provisions of the
Consumer Protection Regulations (various rules for
publishing prices of properties and services), 5751-1991.
Over NIS 2.5
million.
Impossible to
accurately
estimate.
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3.16.3.
Legal proceedings concluded during the reporting period
Claim filed
Parties
Instance
a.
November
2013
Customer vs.
Pelephone
Tel Aviv
District
Court
b.
May 2015
Customer vs.
Pelephone
Tel Aviv
District
Court
c.
October
2016
Customer vs.
Pelephone
and Cellcom
Lod District
Court
d.
April 2018
Customer vs.
Pelephone
Tel Aviv
District
Court
e.
January
2020
Customer vs.
Pelephone
Tel Aviv
District
Court
Proceeding
type
A monetary
claim with a
motion for
approval as a
class action
A monetary
claim with a
motion for
approval as a
class action
A monetary
claim with a
motion for
approval as a
class action
A monetary
claim with a
motion for
approval as a
class action
A monetary
claim with a
motion for
approval as a
class action
Details
judgment was
It is claimed that Pelephone does not grant benefits
in the same way to all of its customers and thus
discriminates between customers that Pelephone
"prefers" according to the plaintiff, and other
customers, and this, according to him, is contrary to
Pelephone's license and the law. In December 2019,
a
issued dismissing the motion
without an order for expenses. An appeal filed
against the judgment (consolidated together with
the motion in Paragraph B) was dismissed on July 7,
2022.
It is claimed that Pelephone does not offer the
"Walla Mobile" plans to all of its existing and new
customers who apply to switch to another route, and
this in a way that violates the license provisions
requiring equal treatment, thus misleading
its
in the case were
customers. The proceedings
consolidated with another case in view of the
similarity between the proceedings. In December
2019, a judgment was issued dismissin the motion
without an order for expenses. An appeal filed
against the judgment was dismissed on July 7, 2022.
It is claimed that the defendants do not allow their
customers to use the full package abroad, through a
restrictive condition according to which the package
can be redeemed for a very short period (week to a
month only) when at the end of that period, the
balance of the unused package expires and no
refund is given for it. On April 5, 2020. A judgment
was issued dismissing the motion. The applicants'
appeal against the dismissal of the motion for
approval was dismissed on April 26, 2022.
It is claimed that Pelephone markets and sells to its
customers a repair service with a commitment for
unreasonable periods of time, without the possibility
in the agreement to cancel the transaction during
the commitment period and/or transfer the service
to another mobile device. On July 21, 2020, a
judgment was issued confirming the settlement
arrangement, the main of which are certain changes
in the repair service under the obligation and the
provision of benefits to its relevant customers in a
total amount of approximately NIS 640k.
It is claimed that Pelephone forces every customer
who purchases from it, through the website or in the
application on the cell phone, a communication
package abroad - which includes calls and/or surfing
the Internet, to give their consent to receive
advertisement messages from it. On November 27,
2022 a decision was issued striking out the motion.
Original claim
amount (NIS
millions)
Approx. 300
The amount of
the claim is not
specified, but
in the
application it is
estimated in
millions of NIS.
* Claim in
unknown
amount
The amount of
the claim is not
specified.
The amount of
the claim is not
specified.
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3.17. Targets and business strategy
Pelephone's strategic targets are continued growth in its customer base while promoting a variety
of packages and solutions to customers and promoting services based on the 5G network, continuing
to develop innovation and network technologies and providing excellent service and improvement
in the cost structure.
3.18. Expected development in the coming year
In 2023, a number of factors are expected to affect Pelephone's activity, the main ones being:
3.18.2.
Continuing competition and increasing the value to the customer
Pelephone expects that in 2023, the competition will focus on increasing the value and
volume of browsing to the customer.
3.18.3.
Cellular network innovation and products
In 2023, Pelephone is expected to continue to promote services and products that will
enable increased revenue and image advantage over competitors: private networks,
cyber and IoT services and continued focus on large device launches, at the same time as
the implementation of the deployment plan of the 5G network.
3.18.4.
Increasing service consumption by Pelephone subscribers
Pelephone expects that as a result of an increase in the volume of browsing offered to
the customer, and increasing the marketing of service packages based on the 5G network,
the trend of increasing the consumption of data communication volume on the network
will continue.
3.18.5.
Digital transformation
In 2023, Pelephone is expected to continue to develop and expand its digital service and
sales channels.
3.18.6.
5G network
In 2023, Pelephone is expected to continue the deployment of the 5G network, the
construction of an independent network core, and the marketing and sale of services
based on this technology.
Pelephone's assessments and expectations regarding developments in the coming year
presented in this section above are forward-looking information within its meaning in the
Securities Law. These assessments and expectations are based, among other things, on
the state of competition in the cellular field, the existing regulatory situation and the
manner in which the new regulatory changes are implemented. These assessments may
not materialize, or materialize in a materially different way than described above,
depending, inter alia, on the structure of competition in the market, changes in the
consumption habits of cellular customers, technological developments and regulation
begun in the field.
3.19. Discussion of risk factors
The following are risk factors arising from the macroeconomic environment, the unique
characteristics of the industry in which Pelephone operates, and risk factors unique to Pelephone.
3.19.1. Macroeconomic risk factors
3.19.1.1
3.19.1.2
Exposure to changes in exchange rates and inflation - Pelephone is exposed
to risks due to changes in exchange rates as most purchases of end
equipment, accessories, spare parts and infrastructure are made in US
dollars, while Pelephone's income is in shekels. Erosion of the shekel against
the dollar could hurt Pelephone's profitability if it is not possible to adjust
selling prices (mainly of end equipment) in the short term. Also, changes in
price indices may affect site rental costs.
Epidemic and supply chain - outbreaks of diseases and epidemic events in
general (such as the outbreak of COVID-19 in 2020) may have consequences
for Pelephone's business activities depending on the extent of the spread
and its severity, as well as the national and global measures that will be
taken as a result. These consequences may be reflected, among other
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
things, in damage to Pelephone's operations and its customer service
system, as well as in damage to the supply chain. Events of this type are
changing events that are not under Pelephone's control, and their
consequences are subject, among other things, to the decisions of states
and authorities in Israel and around the world that may affect the Company
accordingly.
3.19.1.3
Damage caused by nature, war, disaster - damage to the switching farms
and / or servers (including damage to a large number of sites, for example
from an earthquake) on which Pelephone concentrates its core activity, may
adversely affect Pelephone's business and its results.
3.19.2.
Industry risk factors
3.19.2.1
3.19.2.2
3.19.2.3
3.19.2.4
3.19.2.5
Infrastructure investments and technological changes - the cellular market
in Israel and around the world is characterized by significant capital
investments in the deployment of infrastructure. Frequent technological
changes in the field of infrastructure and end equipment, as well as the
difficult struggle over various market segments, impose high costs on the
companies operating in the market, which are forced to update their
infrastructure technologies from time to time.
Competition - the cellular market in Israel is characterized by saturation in
the penetration rate, fierce competition and a high number of operators,
and is also exposed to effects as a result of technological and regulatory
developments. The costs of setting up, maintaining and operating the
cellular network in relation to the number of subscribers are expected to be
higher in Pelephone in light of the fact that it does not operate in the
network sharing model. The end equipment market is also characterized by
fierce competition between cellular operators and in front of stores that sell
end equipment in parallel imports.
Customer credit – a significant portion of the sales of end equipment is done
by granting credit. The vast majority of this credit that is not covered by
collateral is at risk. It should be noted, however, that the credit is spread
among a large number of customers and Pelephone has efficient and
experienced collection mechanisms.
Regulatory developments - in the field of Pelephone's activities, there is a
trend of legislation and standards in connection with issues such as
increasing competition, setting rates, the environment, product warranty
and ways of repair thereof, regulating interconnectivity rates and more. The
regulatory intervention in the field of activity may materially affect the
structure of competition and the operating costs of Pelephone.
Electromagnetic radiation - Pelephone operates thousands of transmission
facilities and sells end equipment that emits electromagnetic radiation (see
section 3.13). Pelephone works to ensure that the levels of radiation
emitted from the transmission facilities and end equipment sold by it do not
exceed the permissible radiation levels according to the guidelines of the
Ministry of Environmental Protection (determined in accordance with
international standards). Although Pelephone operates in accordance with
the guidelines of the Ministry of Environmental Protection, if it turns out
that there are health risks or if there are deviations from the radiation
facilities at the transmission sites or end equipment, which has a health risk,
this may have an adverse effect due to reduced use of Pelephone services,
difficulty in renting sites, claims for compensation for bodily and property
damages to a considerable extent and attempts to implement indemnity
deeds deposited by planning institutions in connection with Article 197 of
the Planning and Construction Law. Pelephone's third party insurance
policies do not currently cover insurance for electromagnetic radiation.
3.19.2.6
Website licensing - construction and operation of cellular antennas, requires
building permits from the various planning and construction committees, a
procedure that requires, among other things, obtaining approvals from
government bodies and series bodies. For a list of the difficulties
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
3.19.2.7
3.19.2.8
encountered by Pelephone in setting up and licensing websites, see Section
3.14.3. These difficulties can impair the quality of the existing network and
even more so the deployment of a new network.
Serious faults in the information systems and engineering systems -
Pelephone provides its services through various infrastructure systems,
including, among others, switches, data transmission and access
transmission networks, cables, computer systems, physical infrastructure
and more (“the systems"). Pelephone businesses have a high dependence
on these systems. Some Pelephone systems have backup, but at the same
time, in the event of damage to some or all of the above systems, either due
to a large-scale technical malfunction, due to a natural disaster (such as an
earthquake, fire, etc.), or due to damage to physical infrastructure and due
to malicious damage (such as the introduction of viruses and cyber attacks
as detailed below), there may be significant difficulties in providing services,
including in the event that Pelephone is unable to return the systems to
service quickly.
Information security, customer data protection and cyber risks - as a leading
cellular company that provides service to millions of customers, Pelephone
is a target for cyber attacks, which aim to harm the use of information
systems or the information itself (“Cyber Attacks”). This type of assault
activity or intrusion event may cause business disruption, information /
money theft, damage to databases and subscribers' privacy, damage to
reputation, damage to systems and information leakage which may also be
caused by an internal party, maliciously or inadvertently
Pelephone is a body guided by the State Information Security Authority of
the Prime Minister's Office as well as by the Ministry of Communications,
and it is committed to complying with strict information security standards.
In this framework, Pelephone implements a protection policy that includes
the most advanced security systems in the world, which are installed using
the method of layers of protection and are operated in a configuration that
combines effective security with Pelephone's operational needs and
security circuits to protect Pelephone's infrastructure and systems, which
are designed to prevent and reduce the possibility of exploiting Pelephone’s
data by an external party or maliciously or inadvertently by an internal
entity, as well as the possibility of an external party taking over and
managing network components or abusing information about Pelephone's
infrastructure and networks in some way. In this framework, various actions
are performed,
in the systems,
implementing various information security products according to the threat
outline, periodic risk surveys and practice according to an annual plan.
including checking alerts and
logs
Pelephone complies with the standard of the Prime Minister's Office which
defines a level of protection against an attack by a hostile country related to
information security (standards that define a level of protection of the
Company's systems against information security threats) and within the
framework of implementing the requirements of the standards, Pelephone
ensures the availability, integrity, reliability and confidentiality of the
databases under its responsibility.
Pelephone supervises the implementation of its protection policy, which
includes testing its level of effectiveness and the Company's readiness. In
this framework, the company carries out tests and attack exercises with
different frequency for different scenarios (including through external
companies specializing in the field). Also, Pelephone's Board of Directors is
involved in and supervises the management of cyber risk at Pelephone, and
this is within the framework of dealing with Pelephone's overall risk
management policy. In the Company's estimation, its risk management
policy in dealing with and reducing the cyber risk is effective.
The cyber risk management policy and
responsibility of the Information Systems Division, Infrastructure Division.
implementation
is the
its
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
investments
Despite Pelephone's
the
aforementioned risks, it cannot guarantee that these measures will succeed
in preventing damage and/or interference that may also be significant in the
systems and information related to them.
in measures
reduce
to
3.19.2.9
3.19.2.10
Economic emergency - in times of emergency, certain provisions of the
legislation and provisions of the mobile radio telephone license allow
persons authorized under the law to take steps required to ensure state
security and / or public safety, including: charging Pelephone (as a mobile
radio telephone license holder) to give service to the security forces,
comandeering of engineering equipment and facilities of Pelephone, and
even taking control of Pelephone’s system.
Lack of frequencies - for details on the lack of frequencies, see section
3.8.2.1. In many cases, frequency allocation is carried out through tender
procedures, in a manner that may increase the costs of purchasing the
frequencies and place the cellular companies that do not receive the
allocation as part of the tender at risk of competitive inferiority.
3.19.3.
Risk factors unique to Pelephone
3.19.3.1
3.19.3.2
3.19.3.3
3.19.3.4
3.19.3.5
3.19.3.6
Property risks and liabilities - Pelephone is exposed to various property risks
and liabilities. Pelephone is assisted by an external insurance consultant
who is an expert in the field. Pelephone has insurance policies that cover
the risks that are acceptable to them, Pelephone is subject to the limitations
of the terms of the policies, such as: various property insurance, various
liability insurance, loss of profits, third-party liability insurance and officers'
insurance. However, Pelephone's insurance policies do not cover certain
types of risks, including certain malfunctions caused by negligence or human
error, radiation risks, terrorism and more.
Serious faults in the cellular network - Pelephone's cellular network is
spread throughout Israel through the network's core sites, antenna sites and
other systems. Pelephone’s sytems are completely dependent on these
systems, which are sometimes, temporarily, in a state of partial survival.
Malicious damage or malfunction on a large scale can adversely affect
Pelephone’s business and its results.
Epidemic malfunctions in devices - various exposures resulting from
Pelephone's liability as an importer due to manufacturer malfunctions in
devices that will not be supported by the manufacturers.
Legal proceedings - Pelephone is a party to legal proceedings, including class
actions, which may result in a charge of substantial amounts, which cannot
be estimated, and no provision has been made for some of them in
Pelephone’s financial statements. These class actions can reach large sums,
as a substantial portion of the state's residents are consumers of Pelephone,
and a claim relating to a small damage to a single consumer may become a
material claim to Pelephone if it is recognized as a class action applicable to
all or a significant portion of consumers.
Significant suppliers and customers - for agreements with significant
suppliers and customers, see sections 3.10 and 3.15. Some of Pelephone's
agreements, including with its key customers, are timed. There is no
certainty that these agreements will be renewed at the end of their term or
that options granted to customers to extend them will be exercised.
Labor relations - Pelephone has a collective agreement with the Histadrut
and the Employees’ committee, which effects most of its workers. The
collective agreement may reduce administrative flexibility and impose
additional costs on Pelephone (see section 3.9.4). In addition, the
implementation of personnel-related plans may cause unrest in labor
relations and harm to Pelephone's ongoing operations. Regarding labor
disputes at Pelephone, see Section 3.9.5.
3.19.3.7
Loss of knowledge and information - the changes that are taking place in the
labor market in Israel and around the world, along with organizational
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
3.19.3.8
3.19.3.9
changes, entail a risk of losing key employees, loss of knowledge as a result
of employee turnover, difficulty in recruiting employees, etc.
Impairment of Pelephone properties- in accordance with accounting
standards, Pelephone conducts a periodic examination of the impairment of
assets in respect of which indications of impairment have been identified.
For details on the risk factor relating to the recognition of impairment losses,
see Section 2.20.12.
Frequency ranges – Pelephone operates fequencies in the 700, 850, 1800,
2100, 2600 and 3500 MHz ranges. The frequencies are exposed to
interruptions that may affect the quality of service of the networks operated
by Pelephone. Among the other reasons that may cause interruptions, it
should be noted that the 850 range is also used for terrestrial television
broadcasts, so that television stations broadcasting in the Middle East in the
same range of frequencies cause interference on Pelephon’s UMTS / HSPA
network on 850 MHz. In addition, the Jordanian networks also use the same
frequency range of 2100 MHz that Pelephone uses and in light of the limited
cooperation between the operators in Jordan and Pelephone, this may have
a negative effect on Pelphone. In addition, Pelephone must avoid interfering
with satellite broadcasts made at several points in Israel at 3500MHz
frequencies, which limits the operation of 5G services around these points.
For details on the implications of switching frequencies in the first giga field,
see Section 3.8.2.3.
3.19.3.10 Maintaining a sufficient cash flow - Pelephone must maintain a sufficient
cash flow in order to meet its long-term business plan. The lack of sufficient
cash flow may adversely affect Pelephone's business and its ability to make
large-scale online investments, and may make it difficult for it to cope with
competitive threats in the field.
Below is a ranking of the impact of the risk factors described above on
Pelephone's activities as estimated by Pelephone's Management. It should
be noted that Pelephone's assessments below regarding the degree of
influence of the risk factor reflect the degree of influence of the risk factor
in assuming the materialization of the risk factor, and the aforesaid does not
express an assessment or give weight to such chances of materialization.
The order in which the risk factors appear above and below is not necessarily
according to the degree of risk.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Risk factors summary table - cellular telephony
The extent of the impact of the
risk factor on Pelephone's
operations as a whole
Medium
effect
High
effect
Small
effect
X
X
X
X
X
X
in
X
X
X
X
information systems and
Macro risks
Exposure to changes in exchange rates
Epidemic and supply chain
Damage due to force majeure, war, disaster
Industry risks
Infrastructure investments and technological changes
Competition
Customer credit
Regulatory developments
Electromagnetic radiation
Website licensing
Serious malfunctions
engineering systems
Information security, customer data protection and
cyber risks
Economic emergency
Lack of frequencies
Risk factors of Pelephone
Property risks and liabilities
Serious malfunctions in the cellular network
Epidemic malfunctions in devices
Legal proceedings
Substantial suppliers and customers
Labor relations
Loss of knowledge and information
Impairment of Pelephone's assets
Frequency ranges
Maintaining sufficient cash flow
The information contained in section 3.19 and Pelephone's assessments regarding the effect of the
risk factors on Pelephone's activities and business, are forward-looking information as defined in
the Securities Law. The information and assessments are based on data published by the Ministry
of Communications, Pelephone's assessments of the market situation and the structure of
competition in it and regarding possible developments in the Israeli market and economy. The
actual results may differ materially from the estimates given above if there is a change in one of
the factors taken into account in these estimates.
X
X
X
X
X
X
X
X
X
X
X
X
X
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
4.
Bezeq International - Internet, international communications and ICT solutions
4.1.
General
4.1.1.
The structure of the field of activity and changes that apply to it
Bezeq International operates in several key areas: Internet access services, international
data communication, international telephony; Communication and computing services
for businesses that include hosting in server farms and cloud services; and supply of
equipment, licensing and service contracts for businesses.
Regarding regulatory changes in the Internet services market for private customers,
which are expected to materially affect Bezeq International's activity in this market, see
Section 4.11.5.3.
4.1.2.
Legislative and regulatory restrictions that apply to Bezeq International
A significant part of Bezeq International's areas of activity are regulated mainly by the
Communications Law and regulations thereunder, and the terms of the license granted
to Bezeq International (see Section 4.11).
Regarding major developments in the regulation applicable to Bezeq International, see
section 4.11.5.
4.1.3.
Changes in the scope of activity in the field and its profitability
For data on changes in the scope of Bezeq International's operations and its profitability,
see Sections 1.5.4.3 and-4.3.
4.1.4.
Developments in the market and in customer characteristics
In the field of Internet services, the market is characterized by the transition of customers
from the retail market services (where the customer purchases the access service and the
infrastructure service from different providers) to unified packages (where the access
service and the infrastructure service are purchased from one provider) following
regulatory changes (see Section 4.11.5.3). In the international data communication
market, there has been an increase in demand for data communication services in Israel
and around the world. The increased use of information technologies requires an increase
in capacity. The positioning of the State of Israel as a communication and technology hub
increases the demand from global companies for data communication services to Israel.
Following the establishment of diplomatic relations with other countries in the Middle
East, a further increase in demand for communication services between the Middle East
and Europe is expected, some of which will go through Israel.
In the field of communication and computing services for businesses, in 2022 there was
an increase in demand for hosting services in server farms and public cloud services, as a
result of the trend of organizations to transfer their computing rooms and infrastructure
to server farms where there are 24/7 maintenance monitoring services and the high
power supplies required for the computing equipment, as well as as a result of the
transition to managed services (as a Service). The reasons for the increase in demand for
cloud services are, among others, the digital transformation, the entry of cloud
companies such as Microsoft, Google, Oracle, AWS into the Israeli market, as well as the
transition of government services to the cloud as part of the "Nimbus" project.
The field of equipment, licensing and service contracts for businesses is affected by the
economic situation in Israel and the world, as well as technological changes. In the
market, there is a trend of moving from the purchase of equipment to software products
and cloud-based services (such as SaaS, IaaS, PaaS, as well as reliance on public cloud
resources such as AWS, Azure, GCP), but it is expected that customers will adopt a model
that combines the purchase of equipment and cloud services ("Hybrid” model).
4.1.5.
Main entry and exit barriers
4.1.5.1
The main entry barriers to the markets in which Bezeq International
operates are making investments, among other things, in infrastructure, in
establishing service and support systems, etc. (also, some of the activities
require a license according to the Communications Law.
4.1.5.2
The main exit barriers from these markets arise from long-term and binding
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agreements with infrastructure providers and investments that require a
long time to return. In addition, some require providing service to customers
during the contract period, which is not short.
4.1.6.
Substitutes for Bezeq International products and the changes that apply thereto
In the international call market - The main alternative product is the use of VoIP
technology, which enables the transfer of international calls over the Internet to other
users of this technology, as well as to the users of the TDM networks, through the use of
software products (such as Skype, WhatsApp or Zoom) and in the services of
telecommunications providers abroad. These services have attractive rates of use
(including the absence of usage fees) and together with their availability, lead to a
continuous increase in the number of users, and as a result - to harm to Bezeq
International's revenues. At the same time, there are currently more than ten
international operators in Israel licensed by the Ministry of Communications to provide
international Bezeq services.
4.1.7.
The structure of competition in the Internet market and the changes that apply to it
In the field of Internet access services (ISP), diverse licenses have been provided so far to
provide access services to many companies. Following regulatory changes, the market is
moving to the provision of services in a unified format (packages that include access and
infrastructure services from one provider). This resulted in a significant reduction in the
number of Internet customers of Bezeq International and the structural change described
in Section 1.1.4, so that Bezeq International does not currently market Internet services
to customers in a private service..
For more details regarding competition in the field of activity, see Section 4.6.1.
4.1.8.
Critical success factors
4.1.8.1
4.1.8.2
4.1.8.3
4.1.8.4
4.1.8.5
4.1.8.6
Recruitment and employment of skilled personnel;
Streamlining and savings in expenses and personnel;
Ability to maintain a high level of service and customer satisfaction;
Technological innovation, identifying needs and trends in the market and
launching solutions to meet these needs;
Investments in the infrastructures required for the provision of services;
Maintaining normal working relationships with leading manufacturers and
suppliers.
4.2.
Products and services
The following is a list of Bezeq International's main products and services:
4.2.1.
Internet and data communication services
4.2.1.1
Internet services
In the field of Internet services, Bezeq International provides: Internet
access services (ISP) for private and business customers, including the
provision of required end equipment and support based on DSL,
transmissions or cables infrastructure, Internet access services are provided
by Bezeq International in the following configurations: (a) "Retail market"
services: Internet access service, without infrastructure services; (B)
"Wholesale Market" services: an integrated package that includes an
Internet access service together with the Internet infrastructure service of
the infrastructure companies included in the wholesale market reform; (C)
"Bundle" or "Reverse Bundle" packages: a combined package that includes
an Internet access service together with Bezeq's Internet infrastructure
service, provided by Bezeq International (in the case of a bundle) or by
Bezeq (in the case of a reverse bundle); And (d) packages that include Bezeq
International's Internet access services, Bezeq's infrastructure services and
DBS’s STING TV brand - a television services platform based on the Internet
(along with Internet access services; (e) symmetrical internet lines, intended
for the business segment; (f) Interior telephony services on broadband
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(Voice over Boardband).
Bezeq International provides the above-mentioned Internet services mainly
through a fully and exclusively owned underwater cable between Israel and
Italy (JONAH) launched in December 2011, and through underwater cables
owned by other companies, from which Bezeq International acquires
capacities (see details in Section 4.9). Among the largest ISP providers
operating in Israel, Bezeq International is the only one that owns an
underwater cable. The ownership of the underwater cable frees Bezeq
International from its dependence on infrastructure providers, and also
enables it to offer its customers better quality browsing performance.
It should be noted that due to the fact that Bezeq International is gradually
decreasing its activity in the private customer market (see Section 4.13) its
revenue from Internet services is expected to be substantially affected. Also,
some of the above services are not marketed to private customers (but are
provided to existing private customers).
4.2.1.2
International data communication services
Providing
customers, including global deployment, according to customer needs.
international data communication solutions for business
The services are provided through Bezeq International's underwater cable
and underwater cables of other companies, in which Bezeq International
has long-term use rights, as well as through business partnerships with
telecommunications providers which provide its customers with global
network services.
In addition to the abovementioned services, Bezeq International offers
holders of licenses to provide international Bezeq services and Internet
access licenses, international capacity (in the form of rent, or purchase of
indefeasible use rights), based on Bezeq International's underwater cable
and rights-of-use in continental Europe and other international networks.
4.2.2.
International telephony services
In the field of international telephony services, Bezeq International provides international
direct dialing services (IDD) for business and private customers, free dialing service
abroad for business customers, routing and terminal services for international calls
(hubbing) - transfer of international calls between foreign communication providers
(world- Olam and dialing card service that allows dialing from Israel to abroad and from
abroad to Israel.
4.2.3.
Communication and computing services for businesses
4.2.3.1
Hosting services
Bezeq International operates several server farm facilities, where server and
equipment hosting services (colocation) are offered, as well as ancillary
services such as backup and disaster recovery services, virtual servers,
protection services against DDoS attacks, and more.
4.2.3.2
Public cloud services
Bezeq International serves as a distributor of Microsoft, and by virtue of this,
it distributes the cloud products of this company, such as Office 365
products and Azure public cloud services. This activity includes both direct
sales to end customers (direct) and sales to sub-distributors (indirect). Part
of the activity is carried out through the subsidiary CloudEdge Ltd., which
offers implementation solutions and professional services in this field.
4.2.4.
Equipment, licensing and service contracts for businesses
Bezeq International serves as a non-exclusive marketer of global manufacturers, and by
virtue of this it provides integration services that include the sale, installation,
implementation and maintenance of hardware and software
in the field of
communication and telephony (such as physical telephone switchboards or cloud
exchanges, wireless Internet networks, communication networks for server rooms and
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user environments, and systems networking), computing infrastructures (such as servers,
licensing of various types of software, and more, among others in the areas of system,
storage, and more), and information security (such as firewalls, endpoint protection
solutions, application protection (WAF), file laundering, identification and monitoring
online events and more). In general, Bezeq International provides project management
services in the field of integration.
4.3.
Products and services evenue segmentation
The following are data regarding Bezeq International's revenues (in NIS million):
Internet services
Rate of total Bezeq International revenues
International communication
Rate of total Bezeq International revenues
VOICE and Business Communication services
(PBX, ICT, DATA)
Rate of total Bezeq International revenues
Equipment, licensing and service contracts for
businesses
Rate of total Bezeq International revenues
Total revenue
2022
637
51%
183
15%
185
15%
234
19%
1,239
2021
683
55%
177
14%
142
11%
235
19%
1,237
2020
710
57%
181
14%
131
10%
249
20%
1,271
4.4.
Customers
Bezeq International has no dependence on a single customer, and has no customer whose revenues
constitute 10% or more of its total revenues.
Below are data about the distributioin of revenue from private and business customers (NIS
millions)63:
Revenue from private customers
Revenue from business customers
Total revenue
2022
312
927
1,239
2021
372
865
1,237
2020
401
870
1,271
Regarding Bezeq International customers and their characteristics, the diverse consumption
characteristics for purchasing Internet packages among the public have led to a certain percentage
of customers purchasing as redundant ISP service from more than one ISP when in practice they use
the services of only one ISP. On September 10, 2020, the Ministry of Communications wrote a letter
to the carriers in which it raised concerns that some subscribers to Internet services or other services
such as email box, do not use them and are not even aware of it. The Ministry recommended in its
application to act to notify and stop charging subscribers who do not use these services, and also
requested periodic reports on the matter, over the next 6 months. It was also written that the
Ministry will consider in the future whether to set binding provisions in the matter, should and
initiated actions will not lead to a significant reduction in this matter. On November 8, 2020, another
letter was received from the Ministry of Communications, according to which the Ministry expects
that the next reporting point (set for December 17, 2020), the reported data will reflect the reduction
of the phenomenon in a significant manner, that a date should be provided at this time on how the
licensee acts to prevent the recurrence of the phenomenon, and, like its previous letter, that as long
as the phenomenon is not significantly reduced, the Ministry will take various actions, including
establishing binding provisions in this regard. In Bezeq International's assessment, the abolition of
the separation of infrastructure provider will lead to a significant reduction in the scope of the
phenomenon. Bezeq International makes proactive inquiries to customers who are found not to be
using the ISP service, in order to get their approval to disconnect or keep the subscription.
63 The data are after changing the classification of small customers (SOHO) from private customers to business customers carried
out in 2019.
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On motions for approval of class actions in this matter that were filed against Bezeq International,
see Section 4.12.
4.5. Marketing, distribution and service
Bezeq International operates sales channels for the business market that include a sales center and
business customer managers. Service centers and technical support are available to customers.
Bezeq International operates service and technical support centers for the private market. Bezeq
International maintains an array of field technicians for the purpose of responding to malfunctions
at customer sites that cannot be solved remotely.
4.6.
Competition
4.6.1.
ISP Services
4.6.1.1
The market is saturated with competitors, the main ones being Cellcom,
Partner, and Hot Net.
4.6.1.2
Bezeq International estimates its market share in the field of Internet
services as of December 31, 2022 at about 22%64.
The competition in 2022 is characterized by the transition of customers from
the retail market services (in which the access services and the
infrastructure services are purchased separately) to unified packages (in
which the access services and the infrastructure services are provided by
one provider).
4.6.1.3
The following are developments in 2022:
a. Continued trend of selling service baskets, especially against the
backgroundThe activity of a wholesale sales model (supplier +
infrastructure) in 2021.
b. Competitors' focus on promoting browsing services at high browsing
rates. Some of the competitors have launched browsing packages at a
particularly high browsing rate, among other things through fiber-optic
infrastructure deployed thereby.
c. a decrease in customers joining the retail market services was recorded,
and on the other hand there was an increase in joining "reverse bundle"
packages.
d. The trend of selling "Triple" packages by competitors, which include, in
Internet
addition to the television services, a provider and
infrastructure in a non-detachable basket of services continues.
4.6.2.
International telephony services
4.6.2.1
As of the end of 2022, about ten companies are operating in the market
(among them Bezeq International, Cellcom, Partner, Golan Telecom and Hot
Mobile).
Bezeq International estimates that its market share in the field of outgoing
calls from customers as of December 31, 2022 is approximately 21%65.
4.6.2.2
General characteristics of the competition in 2022:
In 2022, the number of call minutes made through international telephony
continued to decline, among other things, as a result of an increase in the
use of various applications for making calls, as well as due to the service
packages offered by cellular companies, which include international call
minutes. Business work habits that began following the COVID crisis are still
evident, including an increase in the use of services that allow calls and
64 Bezeq International's assessment of its market share in the field of Internet access services is based on an external telephone
survey conducted for Bezeq, and is not based on significant data held by Bezeq to date.
65 Based on publications from the Ministry of Communications regarding the number of minutes spent in the second quarter of
2021.
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meetings to be carried out online, while reducing the use of international
telephony services..
4.6.3.
International data communication services
In the field of international data communication services, the various communication
providers compete, such as Partner, Cellcom, Hot, as well as underwater cable owners
such as Tamares Telecom. Bezeq International, which owns the underwater cable, has a
competitive advantage over telecommunications providers that do not own an
international infrastructure. In the absence of public data on the market shares of the
competitors in this market, it is not possible to estimate the market share of Bezeq
International in this area.
4.6.4.
Communication and computing services for businesses
4.6.4.1
Hosting services
The field of hosting services is characterized by many competitors, including
Bynet, Partner, Med-1, GDC, and more. In 2022, there will be an increase in
the demand for hosting services in server farms, among other things as a
result of the trend in the business market to move to managed services (as
a service) and services in cloud environments, as well as in view of the
intention of huge companies operating in the field of public cloud services
to establish Points of Presence in Israel. In the absence of public data on the
market shares of competitors in this market, Bezeq International's market
share in this area cannot be estimated.
4.6.4.2
Public cloud services
In the field of cloud services, many companies compete in marketing and
implementing the services of different cloud companies. In recent years, the
demand for public cloud services offered by cloud companies such as
Amazon, Microsoft, Google and Oracle has been
increasing. Bezeq
International acts both as a marketer (sold directly to customers) and as a
distributor (sold through sub-marketers) of licensing Microsoft's cloud
services to customers in Israel, and implementing these service solutions for
customers. Following the purchase of Cloudedge Ltd. by Bezeq
International, Bezeq International acquired additional capabilities in this
field,
in providing professional services and
implementing cloud solutions in large business customers, which gives it a
competitive advantage in this field. In the absence of public data on the
market shares of competitors in this market, Bezeq International's market
share in this area cannot be estimated.
including knowledge
4.6.5.
Equipment, licensing and service contracts for businesses
The field of providing hardware and software solutions for businesses is characterized by
multiple competitors and fierce competition. Bezeq International faces many competitors
such as Bynet, One-Taldor Group, Malam Group, Cellcom, Partner, Matrix and more. Most
manufacturers are not marketed by Bezeq International exclusively. The fierce
competition in the field leads to price erosion. In the absence of public data on the market
shares of competitors in this market, Bezeq International's market share in this area
cannot be estimated.
4.6.6.
Unique characteristics
4.6.6.1
Positive factors affecting Bezeq International's competitive position:
A. A well-known and strong brand.
B. Technological innovation.
C. Professional, experienced and skilled personnel.
D. Presence in many businesses.
E. Ownership of an underwater cable that enables Bezeq International to
provide high-quality international Internet and data communication
services.
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F. Engaging in various fields that enable the provision of a service
envelope to business customers, such as communication services,
hosting and cloud services, and the supply of equipment and licensing
in the field of computing and communication.
4.6.6.2
Negative factors affecting Bezeq International's competitive position
International does not own
The fact that Bezeq
interior access
infrastructures is a competitive disadvantage in the market of internet
services and data communication for businesses compared to competitors
that control such infrastructures.
4.7.
Property, plant and equipment, real estate and facilities
Bezeq International's property, plant and equipment include switching and Internet equipment,
underwater cable, central equipment and routers for rent, office equipment, computers, software
licensing, and leased improvements.
Bezeq International has SoftSwitch switches from the Dialogic company. These switches are used to
route Bezeq International's VOICE movement. Value-added services, including calling cards, are
based on a smart (IN) system.
The CRM system (customer management) is based on Peoplesoft software. The software is not
supported by the manufacturer, but is maintained by Bezeq International. Bezeq International is
considering an upgrade to new CRM and ERP systems.
Bezeq International's technological infrastructures that support the voice, data and the Internet is
deployed on a number of sites, in Israel and abroad, among others, to ensure, when necessary, high
survivability for the provision of services.
Bezeq International has long-term lease agreements for the two main buildings where its offices are
located. Regarding one of the buildings, the lease period is until March 2029, with an option to
extend the lease period by five years. The lease period in the other building is until December 2023
(with two equal options for extension until 2027).
Bezeq International has a lease agreement for a building with a server farm. The lease period is until
August 2026, followed by two additional options for extension until 2036.
Bezeq International has additional lease agreements in connection with warehouses (including the
logistics center), and buildings in which call centers are used for its operations.
4.8.
Human capital
The following are details about the number of Bezeq employees International in years 2020 and
2021:
Administrative employees
Service and sales representatives
Total
31.12.202
2
31.12.202
1
676
273
949
758
363
1,121
The number of employees included in the table includes employees employed part-time. Total jobs66
Bezeq International as of December 31, 2022 was 927 compared to 1,047 as of December 31, 2021.
66 Total monthly working hours divided by the monthly working hours quota.
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Organizational structure
The following is a diagram of Bezeq International's organizational structure as of the date of the
report:
Board of Driectors
CEO
HR and
Administ
ration
Division
Finance
Division
**
Strategic
Customer
Sales
Division
Managed
Sales
Sales
Division
Technology
Division
Legal
Departme
nt
Internal
Audit*
voice
Division
DATA and
International
Infrastructure
Sales Division
Delivery and
Service
Division
Marketing
Division
Customer
s Division
(*) Internal Auditor is a Pelephone employee.
(**) CFO is a Pelephone employee.
As part of the implementation of the synergy processes with the subsidiary companies in the Group,
the CEO of Bezeq International will also serve as CEO of Pelephone and DBS until the end of 2022.
Also, most of the VPs serving at Pelephone also served as VPs at DBS and Bezeq International. On
January 1, 2023, Mr. Ron Galab began serving as CEO of Bezeq International.
Regarding streamlining processes and
Pelephone and DBS, see Section 1.8.
intra-organizational changes at Bezeq International,
On October 3, 2022, Bezeq International's Board of Directors approved the implementation of
agreements reached with the new general union and the employee representation of Bezeq
International (as part of conducting negotiations to regulate employee rights) regarding a plan for
the voluntary retirement of Bezeq International employees during the years 2022-2024 ("Voluntary
Retirement Plan").The estimated cost of the Voluntary Retirement Plan is approximately NIS 70
million, assuming full implementation of the Voluntary Retirement Plan. The implementation of the
Voluntary Retirement Plan is expected to allow Bezeq International to adjust its organizational
structure, the scope of manpower and costs to the changes taking place in the market following the
regulatory change in the field of Internet services (elimination of the separation between an
infrastructure provider and an ISP that allows Bezeq to provide a unified Internet service) which
causes the reduction of ISP activity at Bezeq International , this is in accordance with the alternative
outline as specified in Section 1.1.6. Following this, starting on November 13, 2022, Bezeq
International approves voluntary retirement for Bezeq International employees to the extent of the
estimated cost of the program (about NIS 70 million).
On December 6, 2022, Bezeq International signed the renewal of the existing collective agreement
between itself and the General Workers' Union and its workers' representation for the period from
December 6, 2022 to December 31, 2025 ("the Agreement" and "Agreement period", respectively).
According to the Agreement, salary increases and bonuses will be given, ancillary conditions will be
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improved, and the labor disputes announced by the General Workers' Histadrut and the employees’
representatives will be settled, while maintaining industrial peace during the validity period of the
agreements on the issues regulated therein, with the exception of the labor dispute regarding the
sale of control of the Company, for which the employees’ representation’s requirement remains to
appoint a director on its behalf, which will be discussed between the parties. The total estimated
additional cost of the agreement over the period of the Agreement, beyond the estimated voluntary
retirement cost of approximately NIS 70 million (as mentioned above), is approximately NIS 28
million.
Bezeq International's estimates in relation to the estimate of the cost of the Agreement are forward-
looking information, as defined in the Securities Law, based, among other things, on its assumptions
regarding the manner and scope of the retirement plan implementation and additional conditions
stipulated in the Agreement. These estimates may not materialize, or may materialize in a different
way than expected, depending, among other things, on the manner and scope of the actual
implementation of the agreement and the retirement plan, taking into account the needs of Bezeq
International and its ability to realize its plans and the fulfillment of additional conditions stipulated
in the Agreement.
For this matter see also Note 16 to the 2022 statements.
4.9.
Suppliers
4.9.1.
Foreign operators
Bezeq International has collaborations with about 200 foreign operators, as part of which
Bezeq International forwards and receives international telephone calls from these
operators (including calls leaving Israel, entering Israel, and calls between various
destinations outside Israel) to about 240 destinations worldwide.
4.9.2.
Capacity providers
Most of the interior capacity used by it for the purpose of providing its services is
purchased by Bezeq International from Bezeq.
Most of the international capacity that Bezeq International uses is transmitted through
the underwater cable it owns. As a backup, Bezeq International uses the capacity
purchased from Med Nautilus and Cyprus Telecommunications Authority (CYTA).
in an
As part of its engagement with Med Nautilus, Bezeq International acquired the
indefeasible right of use,
in the
communication capacity transmitted through the underwater cable system operated by
Med Nautilus between Israel and Europe, and continued capacity over the Company's
ground infrastructure to a number of communication nodes in Europe. The use periods
were extended until July 2030. For the said use rights, Bezeq International paid one-time
payments, close to the date of commencement of the use of the capacity.
indefinite and non-specific attribution,
As part of its engagement with CYTA, Bezeq International has acquired indefeasible right-
of-use, in an undefined part and with a non-specific attribution, in the communication
capacity transmitted through the underwater cable system operated by CYTA between
Cyprus and Europe. The period of use is at least until May 2022, with an option of
extending the period.
In addition, Bezeq International acquired indefeasible right-of-use of the non-residential
parts in an unspecified part and no specific attribution can be attributed to the
communication capacity transmitted through terrestrial infrastructure in Europe from
EXA Infrastructure (GTT Communications Inc.), for the purpose of bridging Bezeq
International's submarine cable to communications nodes in Europe. The period of use of
these infrastructures is at least until 2026, with the possibility of extending the period.
4.9.3.
Hosting service providers
Bezeq International acquires hosting services in long-term agreements with a number of
server farm facility operators, mainly for the purpose of providing hosting services to
business customers:
As part of an agreement signed in 2011, Bezeq International purchases Bezeq’s hosting
services at Bezeq's server farm facility. These services are mostly used to provide hosting
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services to business clients. The agreement is valid until 2024 for certain parts of the
facility, and for other parts until 2033.
As part of an agreement signed in 2019 with Edgar Investments and Development Ltd.,
Bezeq International acquires hosting services at this Bezeq server farm facility. The
agreement is valid until 2041, with an option to terminate early in 2034. These services
are used to provide hosting services to business customers.
As part of an agreement signed in 2021 with ServerPharm Israel Infrastructure Fund Bnei
Zion Limited Partnership, Bezeq International will purchase hosting services at a server
farm facility under construction by this partnership starting from 2023. The agreement is
valid until 2039, with options for extension until 2047. These services are expected to be
used to provide hosting services. For business customers.
4.9.4.
Microsoft
Bezeq International has an agreement with Microsoft by virtue of which it is entitled to
sell Microsoft's cloud products both to end customers and to indirect resellers. The
agreement is automatically extended, and each party may terminate it. Bezeq
International's activity in the field of the public cloud relies exclusively on Microsoft
products, therefore the termination of the agreement with Microsoft may significantly
harm this activity and even lead to its termination.
4.10. Taxation
See Note 7 to the 2022 statements.
4.11. Restrictions and supervision of Bezeq International's activities
4.11.1.
Restrictions by virtue of laws
According to the Communications Law, performing Bezeq operations and providing Bezeq
services, including international Bezeq services and Internet access services, require a
license from the Minister of Communications. The Minister is authorized to change
license terms, add to them or derogate from them, while considering, among other
things, government policy in the field of Bezeq, considerations in the public interest,
adjusting the licensee to provide services, the license contribution to competition in the
field of Bezeq and its level of service.
The law authorizes the Director General of the Ministry of Communications to impose
financial sanctions due to various violations of the provisions of the law and of orders and
provisions issued under it, as well as due to violation of conditions in the license.
4.11.2.
Licenses
Bezeq International has a unified general license for the provision of Bezeq services (the
"Unified License"), which is valid until February 4, 2036.
The following are the main instructions from the unified license:
a.
In certain circumstances, the Minister may change the terms of the license, add to
them or detract from them, and in some cases even revoke it.
b. The license is not transferable and includes restrictions on the purchase or transfer
(including by way of lien) directly or indirectly of control of 10% or more of any
means of control in Bezeq International, including the lien of such means of control,
unless prior consent of the Minister.
c. Bezeq International must provide an interconnectivity service on equal terms to any
other operator and must avoid any discrimination in performing interconnectivity.
d. Bezeq International must refrain from preferring the provision of infrastructure
services to a licensee who is an affiliated company (as defined in the license) over
another licensee.
e. Bezeq International may not sell, rent, or mortgage property from the properties
license without the consent of the Minister of
used to carry out the
Communications, except for certain exceptions set forth in the license.
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f.
In times of emergency, a person authorized to do so by law has the authority to give
Bezeq International various instructions regarding the manner in which it operates
and / or the manner in which the services are provided.
g. The license specifies the types of payments that Bezeq International may charge its
subscribers for Bezeq services, and the reports it must provide to the Ministry of
Communications. The license also stipulates the authority of the Minister to
intervene in rates, in some cases.
h. The license requires Bezeq International to have a minimum level of service.
In accordance with the requirement of the Ministry of Communications, Bezeq
International provided a bank guarantee, in the amount of NIS 2 million, to fulfill
the conditions of the unified license.
4.11.3.
Real estate authority - On July 9, 2014, the Minister of Communications granted Bezeq
International the powers related to real estate, which are listed in Chapter F of the
Communications Law, including entering the land for the purpose of laying a network and
maintaining it (see Section 2.16.5).
4.11.4.
Payments for interconnectivity
In the matter of interconnectivity fees paid to the NIO and the cellular operator, see
Section 1.7.4.1.
4.11.5. Major regulatory developments
4.11.5.1
4.11.5.2
4.11.5.3
For possible changes in the communications market that also affect Bezeq
International following the Competition Expansion Policy document, see
Section 2.16.4.2.
For decisions made in connection with the "wholesale market" which also
have implications for the field of activity, see Section 2.16.4.
Regarding the decision of the Ministry of Communications at the hearing
dated June 20, 2021 on the cancellation of the separation between the
broadband infrastructure service and the Internet access service (ISP), see
Section 1.7.3.3. The changes in the telecommunications market, caused as
a result of this decision, resulted in a substantial damage to its subscriber
base, and to the revenues of Bezeq International in the Internet segment.
The damage is expected to continue and deepen in 2023.
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4.12.
Legal proceedings67
During the day-to-day business, lawsuits were filed against Bezeq International, including motions
for approval of class actions.
4.12.1.
Pending and current legal proceedings
Date
Sides
Court
District
(Central)
Type of
procedure
Monetary
claim
together with
a motion to
recognize it as
a class action
Details
It is alleged, among other things, that Bezeq International
sells its customers Internet browsing speeds, even though
the infrastructure at their place of residence does not allow
them to reach this speed. In January 2021, the Court upheld
the claim as a class action.
Claim
amount
(NIS
millions)
Unspecifie
d
a.
March
2016
b.
April 2019
c.
October
2020
e. November
2020
Client
against
Bezeq
Internatio
nal and
other
communic
ations
companie
s
Client
against
Bezeq
Internatio
nal and
other
communic
ations
companie
s
Client
against
Bezeq
Internatio
nal
Client
against
Bezeq
Internatio
nal
District
(Central)
Monetary
claim
together with
a motion to
recognize it as
a class action
It is alleged that Bezeq International does not inform its
customers as required about the possible dangers of using
the Internet and about the possibility of joining a free
content filtering service, in violation of the provisions of the
Communications Law. In addition, Bezeq International
provides a website filtering service and offensive content
that the applicants claim is not sufficiently effective.
Unspecifie
d
District
(Central)
District
(Central)
Monetary
claim
together with
a motion to
recognize it as
a class action
Monetary
claim
together with
a motion to
recognize it as
a class action
It is alleged, among other things, that Bezeq International
charges its customers payments for services that it does not
provide to them, ostensibly knowing that the customer has
replaced the Internet provider and disconnected from
Bezeq
International. On November 5, 2020, Bezeq
International received another motion for approval of a
class action in the same matter.
It is alleged, among other things, that Bezeq International
charges fees for the provision of 'antivirus service' and
'backup service' without actually being provided, when
according to the claim it does not disclose to customers
when concluding the contract that they must initiate special
operations including installation of special software at the
time of the conclusion of the contract and not at the time
of the actual provision of the service.
Unspecifie
d
Unspecifie
d
4.12.2.
Legal proceedings completed during the reporting period
Regarding the withdrawal request for discovery and review of the documents before filing
a derivative claim filed against the Company and Bezeq International regarding asset
balances in Bezeq International's books - see Section 2.18.2a.
67 For reporting policy and materiality thresholds, see Section 0.
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4.13. Targets, business strategy and development prospects
In light of the elimination of the separation between infrastructure provider and Internet access
provider (ISP), Bezeq International intends to cease ISP activity in the private segment in a graded
manner, and focus on developing integration activities and services for the business segment, in
order to become a growth-focused ICT company. This is expected to allow managerial focus and
dedication of resources to integration activities and cloud services, which is growing due to the trend
of the business segment moving to a model of cloud services. Bezeq International will continue to
acquire capabilities and knowledge, both through the training of personnel and through the
acquisition of companies in complementary fields. Bezeq International will maintain collaborations
with partners in Israel and abroad in order to provide a full service envelope to its customers. Bezeq
International will offer its services to all business segments, including small, medium and large
businesses, the public and government segments and more. Bezeq International anticipates that the
main growth engines will be in the areas of hosting services, cloud services and information security
services. For further details see Sections 1.1.5 and 1.8. On this side, Bezeq International will work
towards streamlining and cost savings, with an emphasis on reducing manpower, by separating from
labor-intensive areas of activity and moving to efficient operating methods. These processes depend
in part on the cooperation of employee representatives.
The above is forward-looking information as defined in the Securities Law, based on Bezeq
International's estimates and assumptions. Bezeq International cannot assess whether the above
objectives may materialize or partially materialize and when. In addition, the targets may be affected
by changes and developments in the relevant markets, due to regulatory changes that may impair
Bezeq International's ability to meet existing or changing market requirements, as well as due to all
other risk factors listed below.
4.14. Discussion of risk factors
The following is a description of the risk factors arising from the macroeconomic environment, the
unique characteristics of the industry in which Bezeq International operates, and risk factors unique
to Bezeq International:
4.14.1.
Competition
For the effect of competition on Bezeq International's business, see Section 4.6 and
Section 4.13.
4.14.2.
Frequent technological changes and investments in infrastructure
Bezeq International's areas of activity are characterized by frequent technological
changes. The development of technologies that constitute attractive alternatives to some
of Bezeq International's products (such as Skype, WhatsApp or Zoom) may materially
impair Bezeq International's operations. Also, technological developments require
frequent investments in infrastructure. See Sections 4.1.5.2 and 4.1.6.
4.14.3.
Exposure to changes in exchange rates
Bezeq International is exposed to risks due to changes in exchange rates, especially in the
field of equipment sales and integration, as well as in international data services, since
most purchases of equipment and services in these areas are made in US dollars, while
Bezeq International's revenue is shekels. Erosion of the shekel against the dollar could
harm Bezeq International's profitability if it is not possible to adjust selling prices in the
short term..
4.14.4.
Governmental supervision and regulation
Regarding the applicability of the provisions of the law and the licensing policy and their
effect on Bezeq International, see Section 4.11. Certain changes in the regulations applied
to Bezeq International may have an adverse effect on its results and operations.
4.14.5.
Epidemic
Disease outbreaks and epidemic events in general (such as the outbreak of COVID-19 in
2020) may have consequences for Bezeq International's business activities depending on
the scope and severity of the spread as well as the national and global measures that will
be taken as a result. These consequences may be manifested, among other things, in
damage to Bezeq International's operations and its customer service system, as well as in
damage to the supply chain. Events of this type are changing events that are not under
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the control of Bezeq International, and their consequences are subject, among other
things, to the decisions of countries and authorities in Israel and around the world that
may affect Bezeq International accordingly.
4.14.6.
Serious malfunctions in information systems and engineering systems
Bezeq International provides its services through various infrastructure systems,
including, among others, switches, data transmission and access transmission networks,
cables, computer systems, physical infrastructure and more (“the Systems"). Bezeq
International's business has a high dependence on these Systems. Some Bezeq
International Systems have backup, but at the same time, in the event of damage to some
or all of the above Systems, either due to a large-scale technical malfunction, due to a
natural disaster (such as an earthquake, fire, etc.), or due to physical damage to
infrastructure and due to malicious damage (such as the introduction of viruses and cyber
attacks as detailed below), significant difficulties may be caused in the provision of
services, including in the event that Bezeq International is unable to quickly return the
Systems to normal.
4.14.7.
Information security, protection of customer data and cyber risks
Bezeq International is the target of cyber-attacks, the purpose of which is to harm the use
of the information systems or the information itself. This type of assault activity or
intrusion incident can cause business disruption, information / money theft, damage to
reputation, damage to systems and information leakage. Another risk is posed by the
leakage of information from within the organization by Bezeq International employees,
inadvertently or maliciously.
Bezeq International's cyber protection management strategy is built on three pillars:
information confidentiality, information integrity and information availability. Bezeq
International employs many measures, both technological and organizational, to deal
with the aforementioned risks.
Bezeq International allocates many resources to deal with cyber risks. Bezeq International
has an information security department that deals with information security and cyber
risk management. Bezeq International devotes significant budgets to the purchase of
systems and technological means to protect information. Detailed procedures have been
established that refer both to the routine handling of information and to the methods of
operation and the management of information security incidents. Bezeq International
information security training. Every month Bezeq
employees undergo periodic
International employees are sent messages, instructions and updates aimed at raising
awareness of cyber risks and proper handling of information.
Bezeq International supervises the implementation of its defense policy, which includes
testing its level of effectiveness and readiness. In this framework, it performs risk surveys,
penetration tests and periodic controls, both by the internal audit and by external
auditors hired by Bezeq International for this purpose. In addition, Bezeq International
periodically performs tests and attack exercises for various scenarios (including through
external companies specializing in the field). In Bezeq International's estimation, the
information security protection policy is effective.
Bezeq International is a body guided by the Information Security Authority. Also, Bezeq
International is obliged to implement information security requirements stipulated in the
unified general license granted to it by the Ministry of Communications. In addition,
Bezeq International is ISO27001 certified, which deals with information security.
The information security protection policy, protective measures, security incidents and
lessons learned are discussed by Bezeq International’s Management on a monthly basis,
and brought to the Bezeq International Board of Directors for review and approval. The
person responsible for the implementation of the policy at Bezeq International is the
director of the Information Security Department in the Technology Division.
Despite Bezeq International's investments in measures to reduce such risks, it cannot
guarantee that these measures will succeed in preventing damage and / or disruption to
the systems and information related to them.
4.14.8.
Damage caused by nature, war, disaster
Damage to the server farms on which Bezeq International concentrates its core activity
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may adversely affect Bezeq International's business and its results.
4.14.9.
Legal Proceedings
4.14.10. Bezeq International is a party to legal proceedings, including class actions, which may
result in charges in substantial amounts, which cannot be estimated, and no provision
was made for some of them in Bezeq International's financial statements. These class
actions can reach large sums, since a substantial part of Israel’s residents are Bezeq
International’s customers, and a claim relating to a small damage to an individual
consumer may become a material claim for Bezeq International if it is recognized as a
class action lawsuit against all consumers or a substantial part thereof. In addition, in
certain contracts, mainly in the government and public sector contracts, Bezeq
International sometimes enters into contracts for the provision of services subject to a
partial liability limit, or no liability limit at all. Given the sensitivity of the services provided
by Bezeq International to these customers, in the event that the customer is harmed in
such a contract, this may lead to legal proceedings in large amounts. For legal proceedings
to which Bezeq International is a party, see Section 4.12.
4.14.11.
Labor relations and streamlining procedures
Bezeq International has a collective agreement with the Histadrut and the Employees’
Committee in respect of most of its employees. The implementation of the collective
agreement may affect Bezeq International's day-to-day operations. In addition, the
implementation of manpower plans may cause unrest in labor relations and harm the
day-to-day operations of Bezeq International. As described in Section 1.8, Bezeq
International implements streamlining plans that involve, among other things, the sharing
of management resources, organizational changes and the reduction of the workforce, in
parallel with the management of significant
infrastructure and other projects.
Streamlining procedures, by their nature, involve the risks of loss of knowledge, turnover
of employees, shifting of managerial focus, etc. Bezeq International has a number of open
labor disputes. Regarding labor disputes at Bezeq International, see Section 4.8.
4.14.12.
Loss of knowledge and information
The changes that are taking place in the labor market in Israel and around the world, along
with organizational changes, entail a risk of losing key employees, loss of knowledge as a
result of employee turnover, difficulty in recruiting employees, etc.
4.14.13.
Impairment of Bezeq International's assets
Bezeq International conducts a periodic impairment test of assets in respect of which
identification signs of impairment have been identified in accordance with the accounting
standards. For details regarding the risk factor relating to the recording of impairment
losses, see Section 2.20.12. Changes in regulations in the Internet services market (see
Section 1.7.2.3) may lead to damage to Bezeq International's results and / or a decrease
in the value of its assets. Regarding the effect of the treatment of Bezeq International
customers who do not use ISP services on the value of Bezeq International's assets, see
Section 4.4.
4.14.14.
Impairment of Bezeq International's assets
Bezeq International conducts, in accordance with the accounting standards, a periodic
examination of the impairment of assets in respect of which indicators of impairment
have been identified. For details regarding the risk factor regarding the recognition of
impairment losses, see Section 2.20.12. Changes in the regulation of the Internet services
market (see section 1.7.2.4) may lead to damage to Bezeq International's results and / or
a decrease in the value of its assets. Regarding the effect of the treatment of Bezeq
International customers who do not use ISP services on the value of Bezeq International's
assets, see Section 4.4.
4.14.15. Cash flow
Bezeq International must maintain sufficient cash flow for it to meet its long-term
business plan. Cash flow may be affected in cases of planning gaps, change in the business
model and difficulties in collecting payments from customers or telecommunications
operators. The lack of sufficient cash flow may adversely affect Bezeq International's
business, and may make it difficult for it to deal with competitive threats in the field.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
The following is a rating of the impact of the risk factors described above on Bezeq
International's operations, in accordance with the assessment of Bezeq International's
Management. It should be noted that Bezeq International's assessments below regarding
the degree of influence of the risk factor reflect the degree of influence of the risk factor
in assuming the materialization of the risk factor, and the aforesaid does not express an
assessment or give weight to such chances of materialization. The order in which the risk
factors appear above and below is not necessarily according to the degree of risk68:
Risk factors summary table - international communications, Internet and network
endpoint services
The extent of the impact of the
risk factor on Bezeq
International's operations
Low
Medium
High
effect
effect
effect
X
X
X
X
X
X
X69
Macro risks
Exposure to changes in exchange rates
Epidemic
Damage caused by nature, war, disaster
Industry risks
Growing competition
Investments in infrastructure and technological
changes
Governmental supervision and regulation
Serious malfunctions in information systems and
engineering systems
Information security, customer data protection and
cyber risks
Special risks for Bezeq International
Legal proceedings
Labor relations and streamlining procedures
Loss of knowledge and information
Impairment of Bezeq International's assets
Cash flow
The information contained in this section 4.14 and Bezeq International's assessments regarding the impact
of risk factors on Bezeq International's activities and business, are forward-looking information as defined in
the Securities Law. The information and assessments are based on data published by the Ministry of
Communications, Bezeq International's assessments of the market situation and the structure of competition
in it and regarding possible developments in the Israeli market and economy. The actual results may differ
materially from the estimates given above if there is a change in one of the factors taken into account in
these estimates.
X
X
X
X
X
X
68 See Footnote 50.
69 The extent of the impact of this risk factor on Bezeq International's activities was classified as medium, assuming that the
incident would be limited in scope and time. Otherwise, the degree of impact may be large.
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5. DBS - multi-channel TV
DBS, also known by the trade name "Yes", is a subsidiary, wholly owned by Bezeq, which provides a service
of multi-channel television broadcasts via satellite and on the Internet (OTT), as well as Internet access
services.
5.1.
General information about the field of activity
5.1.1.
The structure of the field of activity and the changes that took place in it
5.1.1.1
In the field of subscriber television broadcasts, there are a number of factors
in a number of main categories:
a. Holders of a license to broadcast under the Communications Law, which
provides multi-channel television services - DBS, as well as Hot, which
provides cable television services, which has a monopoly declared
under the Economic Competition Law in the field of multi-channel
television ("the field of satellite and cable broadcasting"). For details
regarding the regulation applicable to the owners of such broadcasting
licenses, see Section 5.14. DBS and Hot provide both linear channel
broadcasts (also referred to in this chapter as "channels") and VOD
services (on regulation in the field of DBS’s VOD services, see Section
5.14.2).
b.
Internet content providers (in format OTT) - in Israel, there are a
number of local and international providers of audio-visual content via
the Internet, which can be viewed using various types of end devices
(including mobile devices). The main local providers operate in a format
that includes linear channels and on-demand content (including DTT
array content transmitted via the array or via the Internet), and the
main ones are DBS (through Yes+ and Sting TV services, for details, see
Sections 5.2.2.1, 5.2.2.2 and 5.2.2.1), Cellcom, Partner (Partner TV) and
Hot (Next and Play service). The main international providers operating
in Israel are Disney, Netflix, Apple and Amazon, which provide options
for watching VOD content (as of the date of the report, most of this
content is translated into Hebrew) without linear channels. To the best
of DBS' knowledge, most subscribers of international providers in Israel
also subscribe to the services of some of the local providers or holders
of broadcasting licenses. Most of the content providers via the Internet
market services at a lower scope and price level than those used in the
field of satellite and cable broadcasting.
There are collaborations between some of the local licensees and
suppliers and some of the international suppliers. DBS has several
collaborations as mentioned which
include, among others,
collaborations with Disney+ and Netflix, which include, among other
things, distribution of their services for a fee. For details about the
contract with Disney+, see the Company's immediate report dated May
22, 2022 included in this report by way of reference.
In accordance with the Broadcasting Distribution Law, a broadcasting
body, whose broadcasts are part of the "open broadcasts" (namely, TV
channels distributed through the digital stations), will give each
"registered content provider"70 consent to broadcast
linear
broadcasts on the Internet free of charge, but without detracting from
the copyrights of the authors and performers By law and subject to
certain conditions established by law, including obtaining a license from
the copyright holders and performers (including through the
broadcasting body). In February 2023, a transitional order that applied
its
70 "Registered content provider" is defined in the Broadcasting Distribution Law as a content provider registered in the registry;
"Content provider" is defined in the Broadcasting Distribution Law as one whose main activity is the transmission of a variety of
content to the public in Israel, provided that the content is broadcast on its own initiative, through an interface under its control,
and both that the content can be viewed in real time, simultaneously by the public, and that the content can be viewed at a time
and place of the viewer’s choice. DBS is a registered content provider.
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the commercial channels71 ended, which applied special
to
arrangements in relation to them, including granting a license for their
broadcasts on the Internet to any content provider registered in the
registry that requests it, at the best price and conditions given by the
relevant commercial channel to another content provider according to
a license that was in effect at the time the license was granted.
Everything is as detailed in the transition order. As of the date of this
report, DBS has agreements with the aforementioned commercial
channels, which also include on-demand services.
c. Entities offering content without the permission of the copyright
holders (pirated)
72
.
d. The DTT array
A digital distribution system for digital television (DTT), known as
"Idan+", through which certain channels are distributed to the public,
73. The system is operated as of the date of the report by
free of charge
the Second Authority.
The distribution of the channels is done in exchange for the payment of
a distribution fee, where the Minister of Communications and the
Minister of Finance may determine that the State will subsidize the
distribution fee that will apply to thematic channel broadcasters and a
dedicated channel.
As of the date of this report, the DTT constitutes a replacement product,
in part, for multi-channel TV broadcasts.
5.1.1.2
The multi-channel TV providers, including DBS, offer their services alongside
other communication services provided by them, including as part of
baskets that are “non-detachable" (such as a "bundle" package that includes
Internet and television services). For additional communication services
provided by communication groups, see Section 1.7.2. For the offer of
baskets of communication services by DBS and the restrictions thereon, see
Section 1.7.3.3.
In the year of the report, the high level of competition continued to prevail, mainly due
to the entry and establishment of local and international content providers via the
Internet, as mentioned, operating at a relatively low price level. The activity of these
factors via the Internet, is carried out without the need to establish a dedicated
infrastructure system as of the date of this report, even without regulatory supervision.
For more details about the competition in the field and changes that took place in it in
the year of the report, including the manner in which DBS operates - see Section 5.5. For
the question of arranging broadcasts with new broadcast technologies, see Section
5.14.2.
For changes in the number of DBS subscribers, see Section 5.6.1.
5.1.2.
Restrictions, legislation and special constraints in the field of activity
Activities of broadcasting license holders are subject to extensive legislation in the field
of communications, and in particular to the Communications Law, the licensing regime,
as well as supervision and policy decisions on behalf of the Ministry of Communications.
71 To the best of DBS's knowledge, commercial channels as mentioned are channels 12 (owned by Keshet Broadcasting Ltd.) and
13 (owned by Reshet Media Ltd.). For this matter see also Section 5.14.1.4
72 DBS is one of the shareholders of Zira Ltd., which works to prevent copyright infringement in video content on the Internet.
73 As of the date of this report, the television channels of the Broadcasting Corporation (Kan 11, Kan Educational and Channel
33), the commercial television channels ("Keshet" and "Reshet"), Channel 14, and the Knesset channel (Channel 99) and a number
of radio stations. The DTT operator must also distribute thematic channels (most of whose broadcasting hours are devoted to
the subject of the Broadcasting through Digital Broadcasting Stations Law, 5772-2012 (“the Broadcasting Law"), as well as the
broadcasts of a minor licensee and a designated minor licensee (as defined by the Second Authority Law) - if requested. The
Minister of Communications and the Minister of Finance may appoint a private operator for its operation, for whom the Council
may also grant a general license for broadcasts financed by subscription fees or commercials.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
The said activity is also under the constant supervision of the council, which sets policy,
establishes rules and supervises many areas of activity, including broadcast content, local
production obligations, broadcast ethics, consumer protection and the approval of
broadcast channels.
The provision of television services other than via satellite or cable within the meaning of
the Communications Law is not subject to supervision as stated above.
regarding
the adoption
Further to the report of the recommendations of the committee for the examination of
the overarching regulation in the field of broadcasting, headed by former MK Roi Folkman
("Folkman Committee") and the decision of the Minister of Communications from
September 2021
the committee's
recommendations subject to changes and adjustments, the Ministry of Communications
published in August 2022 a hearing for public comments on the matter draft bill on the
principles of regulation of the provision of audio-visual content to the public, 2022-2022
("Regulatory Hearing" and "Draft Bill" respectively). According to the Regulatory Hearing
and the explanatory notes to the Draft Bill, the Bill is intended to amend the legislation
based on the recommendations of the Folkman Committee and update the set of
obligations and rights applicable to all players operating in the audio-visual content
market in a number of ways, including:
in principle of
A. A new authority will be established in place of the Second Authority Council, whose
role will be to regulate the entire field of audio-visual content supply and which will
be authorized to issue instructions to prevent actions that may harm competition in
the field ("the Authority").
B. A limited and focused set of obligations will be applied to the significant players
operating in this market, including registration obligations, investment in local
productions, distribution of the contents of the Israel Broadcasting Corporation and
the Knesset channel, instructions in the fields of ethics and consumerism, where the
scope of the obligations will change according to the income level of the content
provider.
C. The existing restrictions on the economic models in the audio-visual content market
will be removed (while allowing some of the provisions regarding cross-costs). As far
as the traditional platforms are concerned, the obligations applicable to them for the
transfer of broadcast channels and the allocation of transmission channels will be
eliminated, as well as the prohibitions applicable to them regarding the transmission
of advertisements and maintenance of a news company will be eliminated. In
addition, the obligation to supply the broadcast channels to the traditional platforms
free of charge will be eliminated. For this matter, a transitional provision was
established according to which these changes will enter into force after three years
from the publication of the law (where after two years from the publication of the
law, the Authority Council may shorten this period).
D.
Individual arrangements will be established regarding the provision of news content
to the public.
E. Arrangements will be established regarding the supply of sports content to the
public, so that the supply of significant sports enterprises through a single content
provider will be avoided, and sports enterprises of high demand or of special
importance will be accessible to the public.
F. Obligations to invest in local productions will be established, which will apply, mutatis
mutandis, to all content providers, local and international, with a significant scope of
activity in Israel, as well as to Israeli channels that independently provide
advertisements to the public.
DBS submitted its reference to the Regulatory Hearing document. Since this is a hearing
that is uncertain whether it will mature into binding legislation and what its contents and
regulations will be, it is difficult at this stage to assess the extent of the impact of the
legislation and regulation that will be determined following the regulatory hearing (as
soon as it is adopted), on DBS's business.
5.1.3.
Changes in the scope of activity in the field and its profitability
For data on changes in the scope of DBS' activity and profitability, see Section 1.5.4.4.
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5.1.4.
The critical success factors in the field of activity and the changes that apply to them
5.1.4.1
5.1.4.2
5.1.4.3
5.1.4.4
5.1.4.5
5.1.4.6
5.1.4.7
5.1.4.8
5.1.4.9
5.1.4.10
Quality, differentiation and originality in the content of the broadcasts, in
their variety, branding and packaging.
Providing relevant value propositions to various target audiences.
Providing advanced on-demand services using advanced technologies (in
relation to broadcast technologies, in relation to end devices and in relation
to the user interface).
Providing TV services via the Internet.
Offering a "basket" of communication services that includes television
services and other services, such as Internet browsing services (see Section
5.15.2).
Collaborations with international content providers.
Accessibility of applications operated by international content providers.
Accessibility and connection to international content applications.
High level of customer service tailored to the type of service.
The strength of the brand and its identification with quality, innovation and
leadership, content and services for subscribers.
5.1.4.11
Attractiveness of the price.
5.1.5.
The main barriers to entry and exit in relation to the field of activity
5.1.5.1
5.1.5.2
The main barriers to entry into the field of activity are (a) for cable and
satellite broadcasts - the need to obtain licenses for cable and satellite
broadcasts and to comply with the relevant regulatory requirements; (B)
investments required from operators in the field, including the purchase and
production of content, as well as for cable and satellite broadcasts - the
establishment of a dedicated infrastructure; (C) The limited scope of the
Israeli market and its characteristics. The scope and level of barriers to entry
into Internet TV services are very low, especially for the international
providers for which Israel is another market for existing activity, and this is
reflected in an increase in the quantity and variety of services offered in this
format.
The main exit barriers are: (a) For broadcast license holders there is a
regulatory barrier - termination of activity under the broadcast license
entails the Minister of Communications' decision to cancel the license
before the end of the license period, including conditions (including the
licensee) to ensure broadcast continuity and services and to reduce the
harm to subscribers; (B) Long-term engagements with material suppliers.
5.1.6.
Substitutes for products in the field of activity and changes that apply to them
DBS sees the possibility of receiving many foreign channels using relatively cheap end
equipment as a substitute for its services in relation to certain segments. For additional
substitutes, see Section 5.15.
5.1.7.
The structure of competition in the field of activity and changes that apply to it
Competition in the field of television is characterized by a relatively large number of
players, most of whom operate at relatively low price levels (see section 5.1), and through
advanced web client interfaces in a way that has led to the intensification of competition
in the field. An increase in the number of subscribers in the current competitive situation
can be achieved mainly through the recruitment of subscribers from competitors, which
requires the investment of considerable resources in retaining existing subscribers and
recruiting new subscribers.
DBS does not have data on the number of subscribers of the international companies
operating in the field and on the number of viewers of the DTT system, and according to
DBS, most of them are, in addition, subscribers of the local television providers operating
in the field. According to DBS, the trend of increasing the total market share of all players
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(out of all households in Israel) is weakened due to the fact that the majority of the
remaining households are not potential audiences.
For more details on the competition in the field see Section 5.5.
5.2.
Products and services
DBS services through satellite include lienar channel broadcasts, in a variety of value propositions
that differ from each other in the scope of the content, the scope of the services included in them,
the interface through which they are offered and the price. The offer of OTT services is part of a
gradual trend of migration of DBS services from satellite TV services to OTT services. For the
migration process see Section 5.17.1.
In recent years, there has been a trend of increasing demand for 'discount' services, which are
characterized by a range of services and a lower price level than those customary in the field of
satellite and cable broadcasting. Accordingly, an increase in the proportion of customers subscribing
to STING TV services out of all DBS customers results in a decrease in the average revenue per
customer.
5.2.1.
DBS’s television services
5.2.1.1
Satellite broadcasts
Satellite DBS broadcasts include linear channel broadcasts, as well as radio,
music and interactive channels.
For the purpose of receiving DBS services via satellite, reception plates are
installed in the buildings, and decoders of different types with different
features are installed in the subscribers’ houses, which allow a variety of
services to be received depending on the converter's features.
In accordance with DBS’s broadcasting license and the council's decisions,
the broadcasting of the DBS via satellite includes a basic package of linear
channels that each subscriber is required to purchase (along with other
basic packages that DBS may offer), as well as other channels that the
subscriber can choose to purchase, either as packages or as discrete
channels.
DBS provides satellite subscriber services to its subscribers ("satellite
subscribers") VOD via the Internet (in the OTT format). The vast majority of
satellite subscribers subscribe to a content package that includes VOD and
the rest may purchase these services, when some of the content included in
the VOD service is provided in exchange for a separate payment.
Connecting satellite subscribers to VOD services requires, among other
things, the use of certain types of decoders. To the question of the
regulation of the field of DBS’s VOD services see Section 5.14.2.
Satellite TV services are offered in a wide package, which includes the vast
majority of linear channels and VOD services, which is purchased by most
satellite subscribers, and in packages with a smaller content scope (when
subscribers can purchase additional channels that are not included in any of
the packages they purchased).
5.2.2.
OTT Services
DBS offers a number of OTT services:
5.2.2.1
Yes+ services
DBS offers the Yes+ service, which includes linear TV channels, as well as on-
demand services, including VOD content in a number of offered packages,
the most common of which is similar to that offered in the broad package
offered to the satellite subscriber. The service also includes advanced
technological interface that includes advanced features that are not
available in the satellite interface. The service is provided via compatible
streamers, TV displays and additional end devices including mobile. The
service can be used on its own or in parallel with the satellite service.
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5.2.2.2
Sting TV services
DBS operates the "Sting TV” service, which includes linear TV channels as
well as on-demand services, including VOD content, and is intended for
customers who are not satellite subscribers. The service is offered in a
number of viewing packages that do not include the full range of content
offered as part of DBS' other services, and are characterized by relatively
low price levels. The service is provided via compatible streamers, TV
displays and additional end devices including mobile.
5.2.3.
Internet access services
In June 2022, DBS began providing Internet access services, focusing on selling combined
Internet and television packages to customers.74
5.3.
Customers
The vast majority of DBS subscribers are private customers. In general, DBS enters into a subscription
agreement with its subscribers, which regulates the subscribers' set of rights and obligations in their
relationship with DBS. With respect to the subscription agreement with the satellite subscribers, the
approval of the council is required, which was received.75
5.4. Marketing and distribution
5.4.1.
The marketing of DBS services is done through advertising in the various media. DBS' sales
activity to existing and new customers is carried out through the following main
distribution channels (some of which are operated by DBS employees and some by
external marketers):
5.4.1.1
Call centers.
5.4.1.2
Digital channels.
5.4.1.3
Field sales people, working to recruit new subscribers.
5.5.
Competition
5.5.1.
Competitors in the field
The field is characterized as of the date of the report by a number of competing groups
(see Section 5.1).
DBS's main competitors are Hot, which is a declared monopoly in the field of supply Multi-
channel TV broadcasting services76 and holds, to the bet of DBS’s knowledge, the largest
market share, as well as Cellcom, Partner and Netflix.
To the best of DBS's knowledge, during the year 2023, a cooperation venture between
Keshet Broadcasting Ltd., which operates, among other things, a commercial TV channel
transmitted as part of DBS Broadcasting ("Keshet"), and RGE Group Ltd. ("RGE") is
expected to establish and operate a multi-channel broadcasting platform, while acquiring
minority holdings in RGE from Keshet, and this after receiving an exemption from the
restrictive arrangement of the Competition Authority for the activity of the said venture,
as well as the approval of the Second Authority to Keshet, both for a period until
September 2025. According to DBS, the start of the project activity is expected to intensify
74 Initially, the services were provided according to a special license to access the Internet, and as of October 2022, the services
are provided according to a general permit in accordance with the provisions of the Telecommunications Regulations (Bezeq and
Broadcasting) (General Permit for the Provision of Bezeq Services), 5782-2022.
75 According to the broadcasting license, the approval of the Uniform Contracts Court is also required for the subscription
agreement (approval previously granted and expired). DBS has applied to the Council for amendments to the subscription
agreement and for the amendment of the license, as part of which DBS requested, inter alia, to revoke the license provision
requiring the approval of the Uniform Contracts Tribunal, in view of an amendment to legislation made in this regard. As of the
date of this report, the Council's position regarding DBS's requests has not yet been received.
76 To the best of DBS's knowledge, in 2021, Hot appealed to the Competition Commissioner to cancel its declaration as a
monopoly as stated.
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the competition in the field, in particular in view of the identity of the companies of the
project (for details about the Sports Channel Ltd. which is part of the RGE Group and
about Keshet, see Section 5.9.2).
Below is data on subscription numbers and market shares77 of DBS, to the best of its
knowledge, as of December 31, 2021 and 202278:
The year 2022
2021
Subscriptions
(thousands)
579
Market
Share
33%
Subscriptions
(thousands)
563
Market
Share
32%
5.5.2.
Competitive characteristics today
The competition in the field focuses on the variety and content of the broadcasts, the
price of the services, the quality of the service, and the offer of advanced end equipment
and advanced user interfaces, as well as the offer of additional services, including
broadcasts. HD, 4K and on-demand services, including VOD.
The competition is also characterized by the offer of additional communication services
alongside the offer of video content (for the offer of "service baskets" of the Hot, Cellcom
and Partner groups, see also Section 1.7.1, and for the offer of service baskets by DBS,
see also Section 1.7.2.3), in access and connection to international content providers and
by the increase in the number of competitors and their establishment (see Section 5.1).
5.5.3.
Positive and Negative Factors Affecting the Competitive Status of DBS
5.5.3.1
In the opinion of DBS’s Management, the main competitive advantages of
the DBS are:
a. The quality and variety of content that DBS broadcasts to its
subscribers.
b. Level, quality and availability of DBS' customer service system
c. Use of advanced technologies to provide advanced services and a good
user experience.
d. Cultivating and promoting the "Yes" brand as a preferred, well-liked
brand with a high level of loyalty.
e. Marketing several call formats, characterized by different price levels,
different content offerings, different broadcast methods, different
technological interfaces and different types of customer service format.
f. Collaborations with international content providers.
g. Selling integrated packages of TV and Internet services
5.5.3.2
DBS's competitive activity in the field of broadcasting suffers from
disadvantages or factors that adversely affect it, in a number of areas, the
main ones being:
a.
Infrastructure inferiority - DBS' satellite infrastructure does not allow
two-way communication, does not allow the provision of VOD services
and does not allow the transfer of telephony and Internet services, in
77 The market shares were calculated from all DBS, Hot, Partner and Cellcom subscribers as detailed below (and not from all
viewers and subscribers in the field in the absence of actual data about them). The assessment of DBS’ market shares in 2021
and 2022 is based on the number of DBS subscribers, of Cellcom and Partner (according to their reports on the number of
subscribers as of the end of the third quarter of 2022), as well as of Hot, which did not publish the number of subscribers for
several years, so the data in relation to Hot is according to DBS’s estimate, taking into account past trends and the existing data
in relation to the other players). However, there is no certainty that the data presented in relation to Hot are accurate, and
therefore it is possible, respectively, that the actual market shares are different from those estimated.
78 The number of subscribers is approximate, and the market share is in a circle. Subscriber - one household or a small business
customer. In the case of a business customer who owns more than a certain number of decoders (such as a hotel, kibbutz or
gym), the number of subscribers is adjusted. The number of non-small business customers is calculated as the total payment
received from all non-small business customers divided by the average income from a small business customer, which is
determined once per period.
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contrast to the infrastructures used by HOT, Cellcom and Partner, which
enable the provision of these services. In addition, the satellite
infrastructure is limited in relation to the Internet infrastructure in the
offer of advanced technological interfaces. For details about migration
to OTT services and OTT services see Sections 5.2.2 and 5.17.1.
b. Regulatory restrictions -
For restrictions regarding the marketing of a shared basket of services,
see Section 5.15.3.
For restrictions by virtue of the terms of the Commissioner for a merger
with Bezeq, see Section 2.16.9.3. These restrictions also apply to DBS
activities in the field of OTT.
For competitive inferiority resulting from the lack of regulatory
oversight of players who do not have broadcasting licenses, see Section
5.18.2.2.
c. Space segments - the use of space segments involves heavy fixed
expenses, depending on the receipt of the services by a third party (see
section 5.16), and involves a limitation with respect to the ability to
expand the supply of broadcasts (see Section 5.6).
5.5.4.
Main methods of dealing with competition
The following are the main methods of DBS to deal with the competition:
5.5.4.1
5.5.4.2
5.5.4.3
5.5.4.4
5.5.4.5
5.5.4.6
5.5.4.7
Content - DBS works to purchase, produce and broadcast quality, innovative
and diverse content, while creating differentiation, emphasizing branding
and achieving originality in relation to the content broadcast by it.
Pricing policy - offering a variety of services at different price levels.
Offering OTT services (see Section 5.2.2).
Service - DBS places emphasis on the customer service system.
Technology - DBS is investing in expanding its technological capabilities, with
an emphasis on providing innovative and advanced services.
Branding - DBS cultivates, promotes and differentiates the brand "Yes".
Collaborations with international content providers and accessibility of
content applications.
5.6.
Production capacity
The number of channels that DBS can transmit to satellite subscribers depends on the number of
space segments at its disposal, the content compression capabilities and the bandwidth required to
transmit each type of channel. As of the date of the report, DBS almost fully utilizes the space
segments it uses. The space segments are provided to DBS by Space (see Section 15.5). These
restrictions do not apply in relation to the OTT and VOD services whose transmission depends on
web browsing volumes.
5.7.
Property, plant and equipment, real estate and facilities
The following are the main components of DBS's property, plant and equipment:
5.7.1.
Real estate
DBS leases a number of real estate properties for its operations. DBS' headquarters, as
well as its main broadcasting center, are located in leased real estate in Kfar Saba, whose
lease period ends in 2024 (with options granted to DBS for the extension of the lease,
subject to the terms of the agreement, until 2034). The balance of the lease period of the
other properties that DBS leases ranges between about six months to about six years
(these periods are based on the exercise of options to extend lease periods granted to
DBS).
5.7.2.
Satellite end equipment
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DBS installs reception dishes and other end infrastructures in its subscription houses,
including decoders that enable the reception of the broadcasts, as well as smart cards
used to decode them. The decoders are rented to subscribers in exchange for fixed fees,
paid during the period of receipt of the services, or lent to subscribers.
5.7.3.
End equipment for OTT services
Yes+ and Sting TV services can be viewed via a variety of end devices, including streamers
and smart TVs of various models. DBS purchases streamers and leases them to its
subscribers.
5.7.4.
Broadcasting equipment and computer and communication systems
DBS has a main broadcasting center located in Kfar Saba, as well as a secondary
broadcasting center located in the Ella Valley, through which its broadcasts are
transmitted via satellite and OTT. The broadcast centers have reception and transmission
equipment, as well as computer and communication systems. The secondary
broadcasting center is partly operated on third-party premises, which provides DBS with
the services of operating the secondary broadcasting center and maintaining it in
accordance with the framework agreement valid until the end of 2023 (with the right to
extend for additional 5 years each time granted to DBS, which can be realized six months
before the end of the agreement period).
5.7.5.
Operating and encryption systems
DBS purchases from Cinemedia Group ("Cinemedia") development, implementation,
encryption, maintenance and warranty services related to the operating systems of the
satellite broadcasting system and also purchases similar services from Cinemedia in
relation to the OTT system, in accordance with the framework agreements between DBs.
SS and Cinemedia from January 2020. These services are provided in relation to various
DBS systems, end equipment, and viewing cards and other hardware components
required to receive these services, and DBS has also been granted relevant licenses for
the use of systems and end equipment.
The contract period with Cinmedia in relation to the satellite system is until February 2026
subject to the terms of the agreement, with the possibility of early termination by DBS in
the event of the cessation of satellite broadcasts as part of the migration. See Section
5.18.1.
For the services and products provided under this agreement, DBS pays monthly
payments, where the agreement stipulates a minimum monthly consideration for the
provision of services to the extent specified, and an additional consideration is possible,
the amount of which depends on the types of services provided to DBS, and on
development services that DBS may order under the agreement.
The engagement period in relation to OTT is until December 2024 (after which an
automatic renewal mechanism applies for periods of two years unless one of the parties
notifies otherwise in accordance with the dates set for this matter in the agreement). DBS
is granted the right to exit the agreement in relation to the OTT system, subject to prior
notice and payment of an "exit fee" (at a decreasing rate depending on the duration of
the agreement period).
DBS depends on the continuous supply of these services, both in relation to the satellite
system and in relation to OTT.
5.7.6.
Computerized customer management system
DBS uses software and computer systems to manage the contracts with its subscribers,
including its billing and collection system. In this context, DBS contracts for licenses,
development services and technical support with NetCracker Technology Solutions Ltd
and NetCracker Technology EMEA Limited (jointly: "NetCracker"), and DBS also uses
Salesforce software together with Pelephone and Bezeq International,, according to
Pelephone's contract with Salesforce (for details, see Section 3.8.4).
DBS is dependent on the NetCracker system and services and-Salesforce, due to their
importance for the management and monitoring of DBS 'acquisition of services and
content by its subscriber as well as for the purpose of charging and collecting from a
subscriber. System failures or discontinuation of services to DBS(Including depending on
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cell phone connection with Salesforce) Are expected to cause operational difficulty until
the matter is repaired or the system / supplier replaced, which may take a long time. As
of the date of this report, some of the components of the engagementWith NetCracker
is renewed annually and some are valid until the end of 2024. The contracting with
Salesforce is until the end of 2027.
5.8.
Intangible assets
5.8.1.
Licenses
DBS has the following main licenses:
5.8.1.1
5.8.1.2
5.8.1.3
Broadcasting license valid until February 2026 - this license is material to
DBS' satellite activity and constitutes the main regulatory permit for this
activity (for the terms of this license, see Section 5.1479).
License for satellite television broadcasts in the Judea and Samaria area
valid until February 2026, the provisions of which are similar to DBS’s
broadcasting license specified in Section 5.8.1.1. 80
License to perform uplink operations (transfer of broadcast-focused
broadcasts to the broadcast satellite and to carry out ancillary set-up and
operation operations), which are valid until January 2022.81 This license is
essential for DBS’s activity and constitutes the regulatory permit for the
transmission of transmission messages from the transmission center to the
transmission satellites and from them to the satellite subscribers' homes.
5.8.2.
Trademarks
DBS has registered trademarks, the main ones of which are intended to protect its trade
name (Yes) and the key brands it uses (Yes, Yes+, StingTV).
5.9.
Broadcasting rights
5.9.1.
DBS has broadcasting rights in video content of two types:
Content whose rights to broadcast are acquired from third parties, including discrete
content and channels. DBS works to adapt as much as possible broadcasting rights
acquired by it in a way that will allow broadcasting in the various media and formats in
which it operates.
Content that DBS invests in its production (in full or in part), and in addition to the right
to broadcast the content as part of its broadcasts, DBS usually has rights in the same
content, at the rates specified in the agreements with the producers. In most cases, DBS
is also entitled to grant rights to the use of rights and to participate in revenues arising
from additional uses of the content beyond their transmission on DBS.
Broadcasting and distribution of content by DBS, in the various media, involves the
payment of royalties to copyright holders and performers in musical works, sound
records, scripts and content directing, as well as in respect of sub-broadcasting, including
under the Copyright Law, 5768-2007 ("Copyright Law") and the Performers and
Broadcasters' Rights Law, 5744-1984. Such royalties are paid to a number of
organizations, which collect the royalties to which they are entitled through
comprehensive licenses (blanket licenses) for the intellectual property rights holders. The
payments under these licenses are sometimes based on a fixed payment and sometimes
on different pricing methods, with some organizations being required to pay additional
fees for the transfer of content in certain media or in certain formats, in amounts that
DBS estimates are not expected to be substantial.
This assessment of DBS is a forward-looking assessment, as defined in the Securities Law,
based on, among other things, DBS estimates, including in relation to the extent of the
79 In July 2021, DBS submitted an application for renewal of the broadcasting license, which is being examined.
80 In July 2021, an application was made to the Head of the Judea and Samaria Administration for the renewal of this license.
81 After an extension made in January 2022.
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use of the said content, and the positions of the various organizations, and in the event
of changes in any of them, this assessment may materialize differently.
5.9.2.
Dependence on content provider
In view of the large number of content providers from whom DBS acquires broadcasting
rights, DBS does not have a primary content provider and is not dependent on a single
content provider. However, in the field of Israeli sports broadcasting, as of the date of
this report, there is a dependence on the acquisition of the broadcasting rights of local
sports channels from Sports Channel Ltd. and Charlton Ltd., with whom there is a contract
for several years. This dependence stems from the fact that they are the exclusive
providers of Israeli sports broadcasts and in light of the existence of a high demand for
such services, from among a significant group of DBS customers. Remuneration under
these agreements is based on a fixed monthly payment in accordance with the number
of subscribers to DBS broadcasts (except for exceptions set forth in these agreements).
Also, in view of the high demand for the contents of the commercial channels (see
Footnote 71) among DBS customers, it is important to broadcast them as part of its
broadcasts.
5.10. Human capital
5.10.1.
Organizational structure
DBS’s Management consists of divisions, with each division headed by a VP, who serves
as a member of the DBS management.
Board of
Directors
CEO
Internal
Audit
Finance
Content
Business
Customers
Division
Private
Customers
Division
Public
Relations
Marketing
IT
Engineering
HR
Legal
advice
and
regulation
The CEO of DBS also serves as the CEO of Pelephone. In addition, most of the VPs who
serve at DBS also serve as VPs at Pelephone, so does the Internal Auditor, and a few in
Bezeq International.
5.10.2.
DBS employee base by divisions:
Administration
Customer Division
Total
Number of employees
31.12.2021
347
747
1,094
31.12.2022
351
714
1,065
The number of employees included in the table above includes employees employed part-
time. The total number of jobs in DBS as of December 31, 2021 was 999.
5.10.3.
Benefits and nature of employment agreements
The terms of employment in the DBS are regulated, among other things, in collective
agreements and in a collective arrangement, as detailed below, and apply to the majority
of the employee population (does not apply to some of the management levels and also
employees in special positions of trust). The representative organization of DBS’s
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employees is the Histadrut.
In addition, DBS employees are employed in accordance with personal employment
agreements on a monthly or hourly wage basis, with some employees also being entitled
to performance-based compensation. The employment agreements are usually for an
indefinite period and each party may terminate the contract with prior notice in
accordance with the personal agreement and the law, subject to the provisions of the
collective agreement, as applicable.
In August 2021, DBS engaged in a collective agreement with the Histadrut and the
Employees’ Committee, which included, among other things, amendments to previous
collective agreements and collective arrangement. The new collective agreement is valid
from January 1, 2022 until December 31, 2024. According to the new collective
agreement, among other things, salary increases and grants were provided, ancillary
conditions were improved, a retirement plan was agreed o, and it was agreed that the
parties would maintain industrial silence during the period of validity of the agreement in
all matters regulated therein.. The collective agreements applicable to DBS employees (as
amended above) regulate, inter alia, the periods after which a DBS employee will be
considered a permanent employee, mechanisms that involve the Employees’ Committee
in decision-making regarding employment and the termination of employment of
permanent employees, as well as annual wage increases and additional financial benefits
to be provided by DBS to employees, during the term of the agreement.
After ending on December 31, 2024, the collective agreement will be automatically
extended for a period of 12 months each time, if one of the parties does not notify, at
least 90 days before the end of the validity, of its desire to make changes.
5.10.4.
Employee remuneration plans
DBS usually provides its officers, as well as managers and some of its employees, with
bonuses on an annual basis based on meeting targets and evaluating performance, for
components of capital remuneration from Bezeq in relation to some of DBS's executives,
see Section 2.9.5.
5.11. Suppliers
5.11.1.
Rate of purchases from and form of engagement with main suppliers
DBS considers as a "main supplier", for the purposes of Section 23 of the First Schedule
to the Prospectus Details Regulations, a supplier from whom DBS's annual volume of
purchases exceeded 5% of the total annual volume of purchases of the Group, and the
volume of purchases from it of the total volume of purchases of the field of activity
exceeded 10%. During the year 2022, DBS did not have a main supplier as defined above.
5.11.2.
Dependence on suppliers
DBS believes that it may be dependent on the following suppliers:
Space, for details on the contract, see Section 5.15.
Cinmedia, for details on the contract, see Section 5.7.5.
NetCracker and Salesforce, for details on the connection see Section 5.7.6.
To purchase broadcasting rights from local sports channels, see Section 5.9.2.
5.12.
Financing
Most of the financing of DBS is carried out from its own sources, but it may need investments or
credit from the Company according to the needs of DBS.
DBS’s estimate as mentioned above is forward-looking information, as defined in the Securities Law.
There is no certainty that DBS will be required in the future for financing by Bezeq or that Bezeq will
provide financing for DBS's activities and on what dates, and this depends, among other things, on
the situation of DBS, on developments in its areas of activity and on the state of competition in these
areas and on the future financing needs of DBS.
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In March 2023, Bezeq approved a credit facility or investment in DBS capital in a total amount of up
to NIS 40 million, for a period of 15 months starting on January 1, 2023. This approval is instead of a
similar approval given in November 2022 (and not in addition to it).
5.13. Taxation
For more details, see Note 7 to the 2022 statements.
5.14. Restrictions and supervision of DBS
5.14.1.
Regulation of satellite broadcasts
DBS's activity as a holder of a regulated satellite broadcasting license in an extensive legal
system has applied to the field of satellite and cable broadcasting, which includes primary
legislation (and
in particular the Communications Law and regulations enacted
thereunder), secondary legislation (including communications rules), as well as, inter alia,
Council directives.
In addition, DBS's satellite activity is subject to the provisions of its licenses, primarily the
broadcasting license.
The law authorizes the Director General of the Ministry of Communications as well as the
Chairman of the Council to impose financial sanctions for various violations of the
provisions of the law and of orders and provisions issued under it, as well as for violation
of conditions in the broadcasting license.
5.14.1.1
Terms of service for a satellite broadcasting license holder, restrictions on
cross-ownerships
Satellite broadcasting license regulations set various restrictions on the
licensee, including, among other things, eligibility conditions in relation to
the holdings of the licensee and stakeholders, directly and indirectly, in
holders of cable broadcasting licenses, in holders of franchises under the
Second Authority Law82 and in newspapers with daily circulation, as well as
"Israeliness" requirements regarding officers in the DBS and "Israeli" holding
at a minimum rate of 26%, in accordance with the provisions set forth in the
regulations.
5.14.1.2
Rates supervision
The broadcasting license sets forth provisions regarding the types of
payments that the licensee may charge its subscribers for services provided
by virtue of the license, and these are determined in DBS’s Council-approved
price list. The vast majority of satellite subscribers subscribe to promotions,
offering DBS services, including various composition of content packages,
ancillary services as well as receiving and installing end equipment, at prices
lower than the list price.
DBS has a duty to notify the chairman of the Council of any change in the
price list immediately upon its publication and the chairman may in certain
cases prohibit the change of the price list. The chairman of the Council may
also interfere with promotions or discounts offered by DBS, if he finds that
they have the effect of misleading the public or discriminating between
subscribers.
By virtue of the Communications Law, the license can set maximum prices
at which a subscription can be charged. As of the date of this report, no such
prices have been set.
5.14.1.3
Obligation to invest in local productions
In accordance with the requirements of the broadcasting license and the
decisions of the Council, in each of the years 2022 and 2023, DBS must invest
an amount of not less than 8% of its revenues from the subscription fees of
82 As of the date of the report, the activities of these entities (both in the field of cable broadcasting and under the Second
Authority Law) are regulated through licenses and not franchises.
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satellite subscribers83 in local productions, when according to the rules of
the media and the decisions of the council, DBS must invest different rates
local
out of these
productions.
in different categories of
investment amounts
In December 2022, the Council decided to postpone for 2024 the entry into
force of its previous decision, according to which the rate of investment
obligation in local productions will exceed and stand at 9%. The Council also
determined that during 2023 and in accordance with developments, it will
hold another discussion to examine the current legislative situation and the
economic situation of licensees, including a hedging formula set out in the
council's previous decision and give instructions as it sees fit.
5.14.1.4
Duty to transfer channels
DBS is obligated to transmit the "mandatory channels" in satellite
broadcasts and everything as determined by the Minister and in the
broadcasting license.84
In addition, DBS is required to allow channel producers provided by law to
use its infrastructure to distribute broadcasts to its subscribers, for a fee
("transfer fee") to be determined in the agreement, and in the absence of
consent - for a fee to be determined by the Minister, after consulting the
Council. In addition, the Minister may require the transmission of small-
license broadcasts under the Second Authority Law (which did not have
dedicated licenses prior to the amendment to the law), taking into account
the satellite capacity of DBS. According to an amendment to the Second
Authority Law of 2018, holders of small and small designated licenses, who
had a dedicated license under the Communications Law, are exempt from
paying transfer fees to Hot to DBS, for a transition period, after being
extended as part of an amendment to the Second Authority Law from
February 2023, will end in August 2024.
5.14.1.5
Contents of the broadcasts and obligations in relation to the subscriber
The broadcasting license sets forth provisions relating to the content of DBS
broadcasts, including supervision by the Council in relation to channels
broadcast by DBS. The Communications Law prohibits broadcast licensees
from broadcasting commercials, subject to a number of exceptions.
In addition, the broadcasting license includes conditions regarding the terms
of service for subscribers, including the prohibition of discrimination
between them.
According to an amendment to the license from November 2022, DBS will
be entitled, as of February 28, 2025, not to connect new subscribers to the
satellite services according to the license, and accordingly to refuse requests
to enter into the subscription agreement, without discriminating between
those seeking to become subscribers.
For a preliminary data demand Council in connection with inactive
subscribers see Section 1.7.7.10.
5.14.1.6
Ownership of broadcast channels
According to the rules of communication, DBS, including entities affiliated
with it (as defined in the rules of communication), may own up to 30% of
the local channels broadcast as part of DBS broadcasts (compared to a limit
of 20% applicable to HOT). DBS is also restricted according to the
Communications Law, in owning a news broadcast producer.
83 Based on its revenues in the past year from satellite subscribers, including DBS's revenues from end equipment and its
installation. According to the position of the Council, according to which the actual investments are made, even though DBS
disagrees with it, these revenues also include revenues from VOD service to satellite subscribers.
84 According to the provisions of the Communications Law, DBS is exempt from payment to the commercial channels included
in the mandatory channels due to the transmission of their broadcasts with it.
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5.14.1.7
General provisions regarding the broadcasting license
The Minister and the Council have parallel authority to amend the
Broadcasting License. The Minister is authorized to revoke or suspend the
Broadcasting License on the grounds set forth in the Communications Law
and the Broadcasting License. The Communications and Broadcasting
License Law sets limits on the transfer, foreclosure and encumbrance of the
Broadcasting License and of assets from the license assets. The Broadcasting
License requires the approval of the Minister in relation to certain changes
in the maintenance of means of control in the DBS and imposes reporting
obligations regarding the holders of the means of control; Infringement of
competition is prohibited by way of an agreement, arrangement or
understanding with a third party regarding the provision of broadcasts and
services unless approved in advance and in writing by the Council; The
obligation to submit reports to the Ministry of Communications, as well as
conditions related to the supervision of the licensee's activities, were
established; The obligation to provide bank guarantees to the Ministry of
Communications to secure DBS's liabilities under the license has been
determined, in the amount (principal) of NIS 30 million (a total as of the date
of the report of approximately NIS 40 million).
5.14.2.
Regulation of OTT services
OTT services (such as those offered by DBS as well as other local providers and
international providers operating in Israel) are not subject to the current standard in
relation to multi-channel satellite television broadcasts or other arrangements under the
Communications Law. DBS also believes that the VOD services it provides via the Internet
to satellite subscribers (see Section 5.2.1) are not subject to such regulation. However,
from various decisions of the Council (see also Section 5.2.1), it seems that the Council
considers itself authorized to arrange the VOD services for DBS satellite subscribers.
For the processes of examining the regulation of OTT services, see Section 5.1.2.
To the extent that a regulation of content transfer via the Internet is implemented, it is
expected to impose restrictions on the provision of the said services by DBS, but this
regulation may reduce the existing gap in the regulation regimes between licensees and
broadcasters between other entities active in the OTT field.
The estimates concerning the results of the regulation of OTT services in this section
above are forward-looking information, as defined in the Securities Law, based, inter alia,
on the Regulatory Hearing document and the wording of the legislative initiatives. There
is no certainty that this issue will be regulated in legislation and regulation in general, and
in the manner proposed in particular. These assessments may not materialize, or
materialize in a materially different way than would be expected, inter alia, depending on
the results of the Regulatory Hearing and the actual implementation of the Minister's
decisions and in legislative amendments, if further regulation is formulated as a result
thereof.
5.14.3.
Offer of baskets of services
According to the broadcasting license, DBS may offer a shared basket of services,
including Bezeq service and DBS service, subject to obtaining approval from the Ministry
of Communications (in the absence of objection within the period specified in the license
will be considered as possible) and subject to conditions, the main ones are the
“detachability” obligation and the existence of a parallel basket marketed by a licensee
who is not affiliated with Bezeq (see Section 1.7.2.3). A shared basket of services
marketed by DBS, which includes Bezeq's Internet infrastructure service only, does not
require the approval of the Ministry of Communications and does not have detachability
obligation..
Regarding conditions published by the Commissioner in connection with the merger of
Bezeq and DBS and the amendment under consideration, see Section 2.16.9.3.
In the opinion of DBS, in view of the development of competition between the
communication groups and the growing importance of providing comprehensive
communication services (see Section 1.7.1), in particular in the competition between it
and HOT, Cellcom and Partner, which are not subject to these restrictions, insofar as the
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
restrictions remain in relation to Bezeq's collaborations with it (see Section 1.7.3.3), may
increase the adverse effect of these restrictions on DBS results.
5.15. Material agreements
The following is a concise description of the main points of the agreements that may be considered
material agreements that are not in the ordinary course of business of DBS, which were signed or
are valid during the reporting period:
Agreement for the lease of space segments85
According to an agreement with Space, since 2013, as amended (including amendment from January
2023), DBS has leased space segments in satellites from the "Amos" series ("the Space Agreement").
Comply with the provisions of the Space Agreement, DBS leases space segments on "Amos 3"
satellite (whose estimated end of useful life is at the beginning of 2026), as well as the "Amos 7"
satellite, in which Space has the right to lease space segments under an agreement between it and
the owner of the rights in this satellite, and in which space segments are leased to DBS until February
2025 (or until the end of his life, whichever is earlier).86
Period of the agreement - until the end of the life of the "Amos 3" satellite (subject to the exceptions
set forth in the agreement), but in any case the agreement will expire no later than February 202687.
The leased space segments - according to the Space Agreement (and subject to unavailability events),
until the end of the Amos 7 DBS lease period, DBS will lease 12 space segments from Space, in
accordance with the division between the relevant satellites stipulated in the Agreement according
to the different periods, and then DBS will lease 10 space segments in Amos 3. The Agreement also
regulates the provision of backup segments to space segments leased by Space during the term of
the Agreement, so that in the event of space segments not available on one of the satellites, Space
will place alternate segments on the other satellite so that the total number of segments is not less
than 10 segments, subject to the terms and conditions set forth in the Space Agreement.88
Cost - the average annual cost until the end of the lease in Amos 7 is approximately USD 25 million,
and thereafter approximately USD 18 million, subject to the discount and reimbursement
mechanisms set forth in the Space Agreement.
Early termination of the agreement - according to the Space Agreement, DBS may announce an early
termination without cause, of a Space Agreement subject to 12 months' prior notice and payment
of the lease in "Amos 7" plus payment of parts of the lease balance in the space segments in "Amos
3".
DBS has a substantial dependence on Space, as the sole owner and sole supplier of the space
segments used by DBS, which is also responsible for the operation of the space segments. Regarding
exposure to risks in the event of a failure in the activity of one of the satellites, the unavailability of
the space segments used by DBS and the lack of redundancy for the Amos 3 satellite from the end of
the Amos 7 lease, see Section 5.19.3.4.
5.16.
Legal Proceedings89
5.16.2.
Legal proceedings are pending
85 The assessments in this section regarding the activity and end of the useful lives of the satellites, the amount of segments
leased and those intended to be made available to DBS for various event controls (such as backup cases), and all implications are
forward-looking information, as defined in the Securities Law, which is based, among other things, on the information provided
by Space to DBS, and which in part is not even controlled by Space and depends on its engagements with third parties. Therefore,
these assessments may not materialize, or materialize in a materially different manner than expected, inter alia, depending on
the conditions associated with the start of satellite operation, the conditions required for their proper operation and availability,
the end of the existing satellite’s useful life, and external factors (including third parties and the rights in Amos Satellite 7) that
affect their activity and the activity of Space as well as the business position of Space.
86 See Bezeq's immediate report dated February 27, 2023.
87 In some cases, DBS may announce the continued use of the "Amos 3" satellite even after the end of its life.
88 In addition, according to the space agreement, it holds spare tubes on the "Amos 7" satellite, and must make every reasonable
effort to locate alternative satellite segments in other satellites under the terms and conditions set forth in the Agreement,
including maximum amounts and rates of Space’s participation in additional expenses.
89 For reporting policy and materiaityl threshold, see Section 0.
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Date
Sides
Court
Type of procedure
Details
Amount of
claim /
remedies
a.
Decem
ber
2020
b.
June
2017
c.
July -
August
2017
d.
June
2018
Bezeq
sharehol
ders vs.
Bezeq,
Chairma
n of the
Board of
Bezeq,
member
s of the
Board of
Bezeq, as
well as
member
s of the
Eurocom
Group
and vs.
the
(former)
CEO of
Bezeq
and CEO
(former)
and CFO
of DBS
Bezeq
shareh
olders
against
Bezeq
and
DBS
Bezeq
sharehol
ders
against
The
Compan
y, DBS
and the
former
controlli
ng
sharehol
ders of
Tel Aviv
District
Court
Tel Aviv
District
Court
(Econom
ic
Departm
ent)
Motion for
approval of class
actions
For details regarding an indictment filed in
December 2020 by the State Attorney's
Office (following an open
investigation
opened in June 2017), inter alia, against the
former CEO of DBS and its former CFO see
Section 1.1.6.
For details regarding a motion for approval
of a class action lawsuit filed against,
among other things, the former CEO of DBS
and its former CFO, in connection with a
2015 transaction in which Bezeq acquired
the remaining shares of the DBS shares
held thereby from Eurocom DBS, see
Section 2.18.1D.
Tel Aviv
District
Court
Motion for
disclosure of
documents before
submitting a motion
for approval of a
derivative claim in
accordance with
Article 198A of the
Companies Law
regarding a motion
For details
for
disclosure of documents before submitting
a motion for approval of a derivative claim
in accordance with Article 198A of the
Companies Law against Bezeq and DBS, for
disclosures of certain documents
in
connection with a 2013 DBS and Space
stakeholder transaction as amended in
2017 (Space Agreement) See Section 2.18.1
Subsection E.
Tel Aviv
District
Court
(Econo
mic
Depart
ment)
Request for
disclosure and
review of
documents under
section 198A of the
Companies Law
152
the
For details regarding a motion for disclosure
of documents prior to filing a motion for
approval of a derivative claim in accordance
with Article 198A of the Companies Law,
which were filed by shareholders against
Bezeq, DBS,
controlling
shareholder in Bezeq, Mr. Shaul Elovich, and
his son, Mr. Or Elovich for the delivery of
documents and information in connection
with the breach of the fiduciary, fairness
and
in
trust obligations of Elovich
connection with the sale of Bezeq shares on
February 2, 2016 by the Company, see
former
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Date
Sides
Court
Type of procedure
Details
Bezeq
section 2.18.1, subsection i.
Amount of
claim /
remedies
5.17. Targets and strategy
5.17.2.
DBS's targets are to maintain market share, while maintaining DBS's business and
competitive position in the field and Yes’s brand status as a leading communications and
television brand.
As of 2019, DBS has been implementing a migration plan from satellite broadcasts to the
Internet (OTT) in a long-term gradual procedure that is expected to be spread up to early
2026, in accordance with the decision of the Boards of Directors of DBS and Bezeq. The
said decisions were made in light of the trends in the television content market, which
include lowering entry barriers, entry of new players and establishing OTT broadcast
technologies, changing the value chain and changing consumption habits, along with the
differences between old satellite broadcast technology and OTT broadcast technology,
changing the value chain and changing consumption habits, along with the differences
between the old satellite transmission technology and the OTT transmission technology
on the benefits inherent in it (also paying attention to the aspects of equipment,
obligations and content rights). In accordance with the decision, DBS regularly monitors
market conditions, competition and the technological environment, and frequently
examines the applicability of the outline and the need, if any, to make changes to it, the
pace of implementation or the manner in which it is implemented, taking into account its
customer needs as well as regulatory amd other obligations of DBS.
Since this is the implementation of an outline for the transition in a multi-year gradual
procedure, with ongoing monitoring, there is no certainty, at this stage, regarding the
actual duration of the process and / or that the move as stated will be completed. As the
transition is completed, it is expected to lead to savings in DBS expenses and a better
adaptation to changing market conditions.
As of the date of approval of the statements, the rate of DBS subscribers using the
Services Yes+ and StingTV transmitted via the Internet (as stated in the Sections 5.2.2.1
and 5.2.2.2 above) is about 60%90 of all DBS subscribers. For this matter see also Section
1.5.4.4 (Note 3).
In order to achieve the aforementioned targets, along with actions to reduce expenses,
DBS invests considerable efforts in the areas of marketing and sales and in an appropriate
marketing strategy designed to further recruit existing subscribers and retain existing
subscribers; Continuous improvement in the subscriber service system; Upgrading
customer value propositions, creating differentiation and originality in the content of its
broadcasts; Offering a variety of products (both low cost and premium), increasing the
volume of content purchased by each subscriber and expanding the added value services
of DBS; Marketing of Internet access services, focusing on selling combined Internet and
TV packages to customers; Having collaborations with international content providers
and making content apps accessible, As well as investment in the development and
implementation of advanced technologies, advanced customer interfaces and new
services; These efforts include the pursuit of DBS to implement the outline of the
transition to OTT services.
DBS's objectives as stated above, including with respect to the transition outline
described above, are forward-looking information, as defined in the Securities Law,
based, inter alia, on DBS's Management's assumptions, estimates and forecasts regarding
the current trend
in the broadcasting market, regarding competition, business
developments, consumption habits, the technological environment, the regulatory
environment and the manner of regulation (both on DBS and other parties) both in the
satellite broadcasting market and in the Internet television broadcasting market (OTT)
and in the Internet access services market, also paying attention to the restrictions that
5.17.3.
5.17.4.
90 This rate also includes subscribers who also use satellite services.
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
apply and will apply to Bezeq, which affect DBS. However, the predictions of the DBS
Management, its preparations, objectives and the above outline may not materialize, or
materialize in a materially different manner, in view of changes in demand in the
aforementioned markets, in view of the intensification of competition in these fields, in
view of the entry of additional factors into them or into alternative fields, in view of
change in technologies and in consumption habits, in view of the pace of development of
the Internet browsing rates, in view of regulatory restrictions imposed or to be imposed
on DBS, or its collaborations with Bezeq and other parties in the fields, and in view of how
the fields will be regulated.
5.18. Discussion of risk factors
The following are the threats, weaknesses and other risk factors of DBS (“the Risks") arising from its
general environment, from the industry and from the unique characteristics of its activities.
5.18.1. Macro risks
5.18.1.1
5.18.1.2
5.18.1.3
5.18.1.4
Financial risks - DBS is exposed to various market risks such as; Exchange
rate, index and interest rate risks. The main market risk is the shekel-US
dollar exchange rate, in light of the fact that some significant portion of
DBS's expenses and investments are made in US dollars (mainly content,
logistics
satellite segments, purchase of end equipment and other
equipment). Therefore, sharp exchange rate changes have an effect on
DBS's business results.
Recession / economic slowdown / security situation - an economic
slowdown in the economy, an increase in unemployment rates and a
decrease in disposable income may lead to a decrease in the number of DBS
subscribers, a decrease in DBS revenues and damage to its business results.
Also, an ongoing deteriorating security situation in large areas of Israel,
which disrupts the daily lives of the residents, could lead to a deterioration
in the business results of DBS.
Epidemic - Disease outbreaks and epidemic events in general (such as the
outbreak of COVID-19 in 2020) may have consequences for DBS's business
activities depending on the extent of the spread and its severity as well as
the national and global measures that will be taken as a result. These
consequences may be manifested, among other things, in damage to DBS's
activities and its customer service system as well as in damage to the supply
chain. Events of this type are changing events that are not under the control
of DBS, and their consequences are subject, among other things, to the
decisions of countries and authorities in Israel and around the world that
may affect DBS accordingly. For this matter see also Section 5.18.1.2 and the
Company's reference in Sections 2.20.10 and 2.20.13.
5.18.1.5
Damage caused by nature, war, disaster - damage to DBS infrastructure and
services as a result of natural disasters, including earthquakes, as well as as
a result of war or disaster, may adversely affect its business and results.
5.18.2.
Industry risks
5.18.2.1
5.18.2.2
Dependence on licenses - DBS satellite TV broadcasts are provided in
accordance with the broadcasting license and through additional licenses,
and therefore depend on the existence of these licenses and their extension
from time to time. Violation of the provisions of the licenses, as well as the
provisions of the law by virtue of which the licenses were granted, may
result, subject to the conditions set forth in the licenses, to revoke, change,
suspend or not extend the licenses and consequently materially impair
DBS's ability to continue operating in the field.
Regulation - the provision of satellite television broadcasts is subject to the
obligations and limitations set forth in the legislation as well as to the
licensing regime, supervision and approvals by various regulatory bodies,
and may therefore be affected and limited in light of policy considerations
dictated by these bodies and their decisions (see Section 5.14). Regulatory
changes may affect DBS activity and may materially impair its financial
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
results. The OTT services including those of DBS are not monitored, as of the
date of the report (for the possibility of arranging these services, see Section
5.14.2). Continued activity of content providers (and the entry of additional
providers) via the Internet as stated in the Section 5.1.1 without the
application of regulatory rules to their activities and / or without
appropriate amendment of the regulatory rules applicable to broadcast
license holders, may materially impair the financial results of DBS. In
addition, DBS's activity, as a company that provides services to the public, is
subject, among other things, to legislation in the field of consumer
protection as well as to the laws of protection of privacy and information
security (see Section 1.7.7.4).
Fierce competition - the field is characterized by fierce competition with a
variety of different competitors (see Section 5.1.7), which are also expected
to increase in the future in the face of the entry of additional local and
international factors, as well as a change in consumer preferences, that
requires DBS to constantly and continuously invest in recruiting and
retaining customers and dealing with high transfer rates of subscribers
between companies, and may even require a change in DBS’s business
model . For the characteristics of competition, see Section 5.5.
DBS’s estimate, as stated in this paragraph above in relation to the
possibility of the entry of local and international factors, is forward-looking
information. This assessment is based on DBS's assessments of the state of
the industry and possible changes in it. This assessment may not materialize
or partially or otherwise materialize in view of the materialization or non-
materialization of plans by various factors to enter into the industry, the
manner in which they are actually implemented and the conditions of
competition that will prevail.
Technological developments
technological
improvements and the development of new technologies that will make
existing technology inferior, may require DBS to make large financial
investments in order to maintain its competitive position (see Section 5.1.1).
improvements
and
-
Alternative infrastructure for multi-channel broadcasts - the activity of the
DTT system, and in particular its expansion, as well as the deepening of the
intrusion of OTT operators, may harm the financial results of DBS (see
Section 5.1.1).
Unauthorized viewing - the field of broadcasts is exposed to the "pirated"
connection of viewers to the reception of the broadcasts, without paying a
subscription fee, and is also exposed to the public's access to content in
which the broadcaster has rights.
Exposure to legal proceedings - DBS is a party to legal proceedings, including
requests for approval of class actions, which may result in a charge of
material amounts which cannot be assessed, and for which no provision has
been made in its statements. These class actions can amount to large sums,
as a substantial portion of Israel’s residents are DBS subscribers, and a claim
relating to a small damage to a single subscriber may become a material
claim to DBS, if recognized as a class action applicable to all subscribers or
to a substantial portion thereof.
5.18.2.3
5.18.2.4
5.18.2.5
5.18.2.6
5.18.2.7
5.18.3.
Special risks to DBS
5.18.3.1
5.18.3.2
Limitations as a result of the ownership structure - DBS is limited in its
cooperation with Bezeq
in relation to the offer of a basket of
communications services in a manner that materially affects DBS's business
situation and its competitive capabilities (see Section 5.15.3).
Restrictions as a result of the eligibility conditions - "cross" holdings of
holders, directly or indirectly, in DBS, as well as a decrease in the holding
rate of Israeli citizens or residents in DBS, may lead to non-compliance with
the eligibility conditions of its broadcasting license (including in light of the
Israeliness requirement (see Section 5.14.1.1).
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
5.18.3.3
5.18.3.4
5.18.3.5
Maintaining a sufficient cash flow - DBS must maintain a sufficient cash flow
for the purpose of meeting its business plan. The lack of sufficient cash flow,
including through investment or financing from Bezeq, may adversely affect
DBS's business, as well as make it more difficult for it to deal with
competitive threats in view of technological developments and changes in
consumption habits in the field.
According to DBS’s estimate, it is expected to continue to accumulate
operating losses in the coming years and therefore without Bezeq’s support
it will not be able to meet its obligations and continue to operate as a going
concern. According to DBS, the sources of financing available to it, which
include, inter alia, the working equity deficit and the credit and Bezeq’s
investment framework in equity as stated in Section 5.12, will meet the
needs of DBS activity for the coming year.
DBS satellite transmissions are made using space segments of satellites
located at the same point in space. In the operation of one of the satellites,
damage to one of them or unavailability of space segments in any of the
satellites, including unavailability of a satellite intended to replace a satellite
that has ceased to transmit or provide services to DBS or termination of
segment leasing in any of the satellites may significantly disrupt and reduce
the volume of satellite broadcasts via satellite, unless an alternative is found
to the segments of space that are not available as aforesaid and also in view
of the lapse of time until the implementation of such an alternative.
However, the duplication of satellites through which transmissions are
made to subscribers as of the date of this report, also taking into account
the partial backup mechanisms set forth in the Space Agreements (the
quality and scope of which depend on the identity of the backed satellite),
significantly reduces the risk of damage, failure or unavailability, and
improve the survivability of the bulk of the broadcast. In the event of the
availability of such satellite, it will be possible, through space segments
available to DBS on the other satellite, to broadcast the channels broadcast
by DBS (all or almost all) (for the Space Agreement, including backup
mechanisms determined under it, see Section 5.15.1). However, according
to DBS, the said duplication of satellites is expected to end in the beginning
of 2025, and from that period onwards, DBS will operate with one satellite
- see Section 5.15.1. DBS does not have insurance for loss of revenue caused
by satellite failure.
Termination of the receipt of the satellite services, for any reason (including
due to the end of the agreement period), while a substantial part of DBS
subscribers are still satellite subscribers may result in substantial damage to
DBS revenues.
The progress of the process of switching to or accelerating transmission via
the Internet may reduce the vulnerabilities mentioned above involving the
failure, damage, unavailability or termination of satellite services.
DBS’s estimates as stated in this paragraph above is forward-looking
information. This assessment is based on the provision of space segments
implementation of space backup mechanisms and space
and the
assessments in relation to the useful life of satellites, the beginning of the
activity of new satellites, the end of the activity of existing satellites and the
exercise of contracts in relation to them, and possible termination of lease
of segments of space. This assessment may not materialize or be partially or
otherwise materialized if there is a change in the useful life of the satellites
and the exercise of their lease option or if space does not provide the BBC
with alternative segments in the event of unavailability or failure of the
space segments or satellites.
Dependence on the owner of the rights in the space segments - DBS has a
substantial dependence on Space, as the sole rights holder and the sole
supplier of the space segments used by DBS, which is also responsible for
the operation of the space segments. In relation to Amos 7, the supply of
the segments of space also depends on the third party who owns the
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Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
5.18.3.6
5.18.3.7
5.18.3.8
5.18.3.9
satellite and the body responsible for its operation, with whom Space has
contracted (see Section 5.15 and on the realization of its engagement with
Space in relation to this satellite until the end of the period determined in a
manner that will allow the continued leasing of the segments of space on
this satellite.
Dependence on software suppliers, equipment, content, infrastructure and
services - DBS has dependence on software vendors and equipment, as well
as on certain content vendors (see Sections 5.7.2 and 5.9.5) and receipt of
certain services, including broadcast encryption services (see Section 5.7.5).
Failure to receive the products and services provided by them may impair
the functioning of DBS and its results. In addition, inability to purchase
streamers or receiving support services from current provider, is expected
to involve a period of preparation that will be required to make the
alternative engagement and change their supply and support system.
limitation
Impairment of the activity of the broadcasting centers and the logistics
center - Impairment of the activity of the broadcasting center may cause a
significant
in the continuation of the broadcasts, but
decentralization of broadcasts to two broadcasting centers (in Kfar Saba and
the Ella Valley) partially reduces the risk of damaging one of them. In the
event of damage to one of the broadcasting centers, DBS will be able to
continue to broadcast from the other broadcasting center only part of its
channels as part of the satellite broadcasts, as well as all VOD broadcasts.
Each transmission center has the same satellite encryption system, and
therefore there is full backup for the encryption system in case of damage
to one of the transmission centers. In the event of a cessation of activity of
the Kfar Saba site, OTT services will not be possible at all, and in the event
of a cessation of activity of the secondary site only, the main activity of the
OTT services will be possible through the Kfar Saba site, including
broadcasting some channels and VOD service. Damage to the DBS logistics
center may also disrupt its operations, and in particular the installation and
maintenance of end equipment.
The assessment of DBS as stated in this paragraph is forward-looking
information. This assessment is based on the provision of the provider
services that operate the secondary broadcasting site in the event of an
injury to the broadcasting center in Kfar Saba. This assessment may not
materialize or partially or otherwise materialize if DBS is not allowed to
receive the services of the said provider in full and properly.
Failure of DBS’s computer systems - significant failure of DBS's major
computer systems could significantly impair DBS's operational capacity.
However, DBS has a remote backup site designed primarily for storing
information and providing an internal computing service limited to failures
in such a way that in the event of a failure of the DBS site's computer
systems in Kfar Saba, it will be possible to reactivate the central systems
through the backup site.
DBS's assessment in relation to the backup capability as stated in this
paragraph is forward-looking information. This estimate is based on the
functionality of the remote backup site. This assessment may not
materialize or partially or otherwise materialize if such functionality is not
possible.
Cyber risks - DBS is exposed to the risk of the occurrence of an activity
intended to harm the use of a computer or computer material stored on it
("cyber attack"). Such attacks can disrupt business, cause theft of
information / money, damage databases and subscriber privacy, damage to
reputation, damage to systems and information leakage, which may also be
caused by an intentional or inadvertent internal factor. As a leading
company in the field of subscriber television broadcasting, DBS is a target
for cyber attacks and experiences cyber attacks, which are handled by its
information security and cyber protection teams.
157
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
DBS has defined a policy for cyber risk management that establishes guiding
principles for cyber protection, which refer, among other things, to the
confidentiality of information, the reliability of information and the
availability of information in connection with the implementation of cyber
protection in the following aspects: organizational framework, cloud
computing, human resources and security, physical and logical cyber
protection in processes , in systems and infrastructures. The person
responsible for implementing the policy in DBS is the information security
manager.
DBS also implements standards for managing cyber risks and information
security, as well as a protection policy that includes layers of protection,
starting with managers and policies, and ending with physical layers of
defense systems against cyber attacks, which are operated
in a
configuration that combines effective security with the operational needs
of DBS, with the aim of protecting its infrastructure and systems and
reducing the possibility of illegal exploitation of its resources. In addition,
there are tools for attacking and detecting information security weaknesses
that operate automatically and help discover information security loopholes
and weaknesses. DBS has an annual work plan in connection with reducing
the exposure resulting from the cyber risk while carrying out control and
monitoring of actual implementation.
DBS also periodically performs information security surveys, risk surveys,
penetration tests, attack drills, as well as other actions for the purpose of
examining the effectiveness of the risk management policy in dealing with
and reducing cyber risk, as well as control over examining the way cyber
risks are managed through internal audits. In addition, DBS allocated
resources to manage cyber risks through the establishment of an
information security system consisting of professional employees in the
field.
DBS’s Board of Directors is involved in and supervises the management of
cyber risk at DBS within the framework of handling the overall risk
management policy of DBS..
Despite DBS's actions investments in measures to reduce such risks, DBS is
unable to guarantee that these measures will in practice succeed in
preventing a cyber attack and/or damage and / or disruption to the systems
and information related to them.
Technical limitation that prevents the offering of integrated services – DBS’s
satellite infrastructure suffers from technical limitations compared to Hot
infrastructure. The technical limitation prevents DBS from providing
telephony, Internet and various interactive services, including VOD, on its
satellite infrastructure, and therefore their supply depends on third parties.
Defects in the encryption system or its bypass – DBS’s broadcasts via
satellite and via the Internet, are based on the encryption of the broadcasts
transmitted by it, including the encoding of its satellite broadcasts using the
"smart cards" installed in the decoders in the satellite subscribers’ houses.
Defects in its encryption system or hacking or bypassing it may allow free
viewing of DBS broadcasts, thereby leading to a decrease in revenue, as well
as a breach of agreements between DBS and its content providers.
Lack of exclusivity in the field of frequencies - the field of frequencies used
by DBS to transfer satellite transmission from the transmission satellites to
the reception dishes installed in the subscribers' homes, and which has been
allocated under a license by the Ministry of Communications, is defined as
a frequency range that an Israeli entity that may make authorized use of in
the field of frequencies. If the holder of the main allotment uses the above-
mentioned frequencies, disruptions in the quality of the DBS broadcasts and
/ or the availability of the broadcasts to the subscriber may result in damage
to the financial results of DBS. As of the date of this report, to the best of
DBS's knowledge, no holder of the main allotment used the said frequencies
158
5.18.3.10
5.18.3.11
5.18.3.12
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
5.18.3.13
5.18.3.14
5.18.3.15
5.18.3.16
in a manner that caused actual and / or persistent interruptions in DBS’s
broadcasts.
Interference for transmissions - since DBS transmissions via satellite are
transmitted wirelessly from the transmission centers to the transmission
satellites and from there to the reception dishes in the subscribers' houses,
transmission of wireless signals, in the same frequency range, whether
originating in Israel and abroad, and extreme weather conditions of heavy
rain, hail or snow may cause disruptions in the quality and / or availability
of the broadcasts via the satellite provided by DBS to the subscriber and
material damage to its financial results. In relation to broadcasts via the
Internet, there may be disruptions in the quality and / or availability of the
broadcasts as a result of disruptions or unavailability of the Internet
infrastructure.
Labor relations - DBS is a party to a collective agreement with the Histadrut
and the Employees’ Committee, which may reduce its administrative
flexibility (see Section 5.10.3). In addition, In addition, disruptions in labor
relations at DBS, and possibly also at other Bezeq subsidiaries, could cause
damage to DBS's day-to-day operations.
Loss of knowledge and information - The changes that are taking place in
the labor market in Israel and around the world, along with organizational
changes, entail risks for the loss of key employees, loss of knowledge as a
result of employee turnover and difficulty in recruiting employees, etc.
Delay in improving internet browsing speeds - as BDS’s outline for the
transition to OTT broadcasting (see Section 5.17.1) is also based on an
improvement in Internet browsing speeds, nationwide, failure to improve
browsing speeds through the deployment of fiber optics or through the
implementation of another technological solution, by the Company or other
communications operators, can delay the implementation of the layout or
impair its implementation.
DBS assessments as to the browsing speeds required to enable OTT
broadcasts as designed in an outline in a way that enables the operation of
several converters in a customer's home is forward-looking information.
These estimates are based on the expected development in browsing
speeds, taking into account, among other things, the expected needs of
customers' homes and the expected mix of broadcasts. These assessments
may not materialize or materialize differently if there is a delay in improving
Internet browsing rates or a change in customer needs or DBS.
Below is a presentation of the risk factors according to their influence in the
opinion of the DBS’s Management. It should be noted that the following DBS
assessments regarding the extent of the risk factor's impact on DBS reflect
the extent of the risk factors’ impact in assuming the materialization of the
risk factor, and the aforesaid does not express any assessment or give any
weight to such prospects. In addition, the order in which the risk factors
appear above and below is not necessarily according to the risk inherent in
each risk factor or the probability of its occurrence.91:
91 See Footnote 51.
159
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Risk Factors Summary Table - Multi-Channel TV
Macro risk
Financial risks
Recession / economic slowdown / security situation
Pandemic
Damage caused by nature, war, disaster
Industry risk
Dependence on licenses
Changes in regulation
Fierce competition
Technological developments and changes
Alternative infrastructures
Unauthorized viewing
Exposure to legal proceedings
Unique risk
Limitations as a result of the ownership structure
Restrictions due to eligibility conditions
The need to maintain a sufficient cash flow
Satellite failure and damage
Dependence on the supplier of space segments
Dependence on software, content, equipment and
infrastructure vendors
Impairment of the activity of the broadcast centers
Failure of computer systems
Cyber failures
Technical limitation that prevents the offer of integrated
services
Encryption system failure
Lack of exclusivity in frequencies
Interference with transmissions
Work relations
Loss og knowledge and information
Delay in improving internet browsing rates
The degree of influence
Small
Medium
High
X
X92
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
The information contained in this section 5.18 and DBS's assessments regarding the impact of risk
factors on DBS's activities and business, are forward-looking information as defined in the
Securities Law. The information and assessments are based on data published by the regulatory
bodies, on DBS’s assessments of the market situation and its competitive structure, on possible
developments in the Israeli market and economy, and on the factors specified in this section
above. The actual results may differ materially from the estimates given above if there is a change
in one of the factors taken into account in these estimates.
92 The extent of the effect of this risk factor on DBS activity was classified as moderate, assuming that the event would be limited
in scope and time. Otherwise, the degree of impact may be large.
160
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
6.
The Company
6.1.
Financing
6.1.2.
The Company's debentures
For details about the debentures issued by the Company See Note 13 to the 2022
Consolidated Statements and Section 4 of the Board of Directors' Report.
6.1.3.
Credit rating
As of August 13, 2020, the Company's debentures are not rated in any rating. On the eve
of the termination of the rating, the rating of the Company's debentures (Series C) by
Midroog was Caa2.il, with a stable rating horizon.
6.2.
Legal proceedings
6.2.1.
6.2.2.
In June 2017, two motions for approval of a class action lawsuit, in the total amount of
NIS 1.8 billion, were filed against the Company, Bezeq, officers in the Group and
companies from the then controlling group in Bezeq regarding the purchase of DBS shares
by Bezeq from Eurocom. According to the decision of the Court, a consolidated motion is
expected to be filed in lieu of these two motions.The said procedure has been delayed at
the request of the Attorney General several times, when as of this date, the procedure
has been delayed till July 2023.
In November 2020, a claim was filed with the Tel Aviv District Court (Economic
Department) accompanied by a motion for approval as a class action by a private person
who claims to be a shareholder of Bezeq ("the Applicant") against the Company, Bezeq
and members of Bezeq’s Board of Directors ("the Respondents"). The matter of the
motion is the approval of a class action for compensation of the Applicant and the
members of the represented group for damages caused to them, according to the motion,
"due to Bezeq's failure to report and disclose to the Tel Aviv Stock Exchange (hereinafter:
"TASE") and the concealment of material information from investors, in connection with
a public report on "the Ministry of Communications' moves to eradicate the phenomenon
of dual subscribers in the field of ISP Internet services, on the extensive and substantial
scope of the phenomenon of dual subscribers in the Bezeq International subsidiary
(hereinafter: "Bezeq International") and their material negative impact on the business
of the subsidiary and Bezeq". The definition of the group according to the motion is
anyone who purchased the Bezeq shares from August 17, 2020 until October 30, 2020
and held the above shares or some of them on October 30, 2020, except for the
respondents and / or those on their behalf and / or entities related to them. In the
application, the damage caused to the group members as a result of the incidents that
are the subject of the lawsuit amounts to approximately NIS 55 million to NIS 65 million,
based on an expert opinion attached to the motion. In December 2021, the Company filed
a motion for in limine dismissal of the motion for approval against it, inter alia, because
the motion for approval does not specify claims against the Company and because for
most of the relevant period the Company was a dual company so the law applied to it is
US law, and because the motion is not supported by the opinion of an expert on foreign
law. In July 2021, the respondents filed a response claiming that the motion for approval
was unbased, inter alia, due to the fact that the information alleged in the motion for
approval that was required for publication did not meet the standards set by law for the
purpose of establishing a reporting obligation, accompanied by an arrangement
procedure and in combination with professional consultants and under the supervision
of the Board of Directors, and hence, the appropriate means to comply with the
provisions of the law were performed, and these findings contradict the applicant's
contention. After several hearings for responses and a pre-trial hearing in February, a
decision was made in which the parties were asked to update whether they wished to
hold a mediation, an additional preliminary hearing or to coordinate a hearing. The
parties have announced that they are working to coordinate deadlines for evidentiary
hearings. On July 19, 2022, the evidence hearing took place as aforementioned, and the
procedures for submitting summaries on behalf of the parties were determined, while
the applicant's summaries were submitted on November 30, 2022, and in accordance
with the Court's decision, the date for submitting the respondents' summaries was set for
March 30, 2023
In November 2020, a lawsuit was filed in the Tel Aviv District Court (Economic
161
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
Department) with motion for approval as a class action by a private individual ("the
Applicant") who claims is a shareholder of the Company who claims to hold the
Company's shares and Bezeq shares, against the Company, Bezeq and 72 other
respondents, which include past and present officers in the two companies ("the
Respondents"). The matter of the application is the approval of a class action for
compensation of the Applicant and the members of the represented groups for damages
caused to them, as alleged in the motion, as a result of the Respondents' actions and
omissions when they refrained from disclosing to the investing public seemingly material
information that they had to disclose in accordance with the provisions of the law, in
connection with the two companies' report dated November 9, 2020 according to which
Bezeq International books have unexplained net asset balances (deductible) of tens of
millions of NIS, whin a significant portion of them otiginate, apparently, in past periods of
more than 15 years. The definition of the groups according to the motion is: (a) Anyone
who purchased Bezeq shares from November 8, 2005 to November 9, 2020, except the
Respondents or those on their behalf and (b) Everyone who purchased the Company's
shares on the Tel Aviv Stock Exchange from November 8, 2007 to November 9, 2020,
except the Respondents or those on their behalf. The amount of the class action specified
in the statement of claim is "over NIS 2.5 million (for matters of substantive authority)"
when in accordance with the economic opinion that was attached to the motion, "the
estimate for the drop in the price of the security" in respect of the information included
in the immediate report dated November 9, 2020 is 5.26%-5.40% in relation to Bezeq and
9.07% - 9.36% in relation to the Company.
In July 2022, the applicant, Bezeq and the Company submitted a notice regarding a
motion for a mediation procedure and a motion for the approval of a negotiated
settlement, in which they announced that in the conversation that took place between
them, they agreed on holding a mediation process ("the Negotiated Settlement"). The
court approved the aforementioned settlement. As of the date of the report, the first
mediation meeting was scheduled for April 2023 and the parties will submit an updated
notice by May 2023
__________________________________
B Communications Ltd.
March 14, 2023
Date
Names and roles of the signatories:
Darren Glatt, Chairman of the Board of Directors
Tomer Raved, CEO
162
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
7. Appendix A - Glossary
A. Names are abbreviated according to the legislation that appear in the report
Consumer Protection
Law
Economic
Competition Law
- Consumer Protection Law, 5741-1981
- Economic Competition Law, 5748-1988
Companies Law
- Companies Act, 5769-1999
Non-Ionizing
Radiation Law
- The Non-Ionizing Radiation Law, 5776-2006
Centralization Law
- Law for the Promotion of Competition and the Reduction of Centralization, 5774-
2013
Second Authority Law
- Second Television and Radio Authority Law, 5755-1990
Planning and
Construction Law
- Planning and Construction Law, 5725-1965
Communications Law
- The Communications (Bezeq and Broadcasting) Law, 5742-1982
Securities Law
- Securities Law, 5728-1968
Rules of
communication
Rules of Communication (Holder of a Broadcasting License), 5747-1987
Telegraph Order
Wireless Telegraph Order [New Version], 5732-1972
Usage regulations
The media order
The Planning and
Construction
Regulations
(Exemption from the
Permit)
Prospectus Details
Regulations
Communications (Bezeq and Broadcasting) Regulations (Use of an NIO’s Public
Network), 5775-2014
Communications Order (Bezeq and Broadcasting) (determination of an essential
service provided by Bezeq, The Israel Telecommunications Company Ltd.), 5777-
1997
- Planning and Construction (works and buildings exempt from the permit), 5774-
2014
- Securities Regulations (Prospectus Details, Draft Prospectus Structure and Form),
5729-1969
Reciprocal linking
- Communications Regulations (Bezeq and Broadcasting) (Payments for Reciprocal
regulations
Satellite Broadcasting
License Regulations
Linking), 5764-2000
- Communications Regulations (Bezeq and Broadcasting) (Procedures and Conditions
for Licensing Satellite Broadcasting), 5758-1998
163
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
B. Technological terms and other key terms appearing in the report93
Internet Gold
Bezeq Online
Bezeq International
BAP
Golan telecom
2021 statements
Interconnectivity fee
DBS
Hot
Hot Telecom
Hot Mobile
Hot-Net
The Stock Exchange
The Histadrut
Council
The Second Authority
Walla
Space
Eurocom DBS
Eurocom
Communications
Switching
Mbps
NIO
Roaming
Network endpoint
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Internet Gold Gold Lines
Bezeq online Ltd.
Bezeq International Ltd
BAP Communications Solutions (Limited Partnership) which is controlled by
Bezeq International
Golan Telecom Ltd.
The Company's consolidated financial statements for the year ended
December 31, 2021
The interconnectivity fee (also called the call completion fee) is a payment
that one operator pays to another operator for a reciprocal link (see
definition below)
DBS Satellite Services (1998) Ltd.
Hot Communications Systems Ltd., and corporations under its control that
operate in the field of broadcasting (multi-channel television)
Hot Telecom Limited Partnership
Hot Mobile Ltd. (formerly MIRS Communications Ltd.) and corporations
under its control
Hot-Net Internet Services Ltd.
The Tel Aviv Stock Exchange Ltd.
The New General Workers' Union
Cable and Satellite Broadcasting Council
The Second Television and Radio Authority
Walla! Communications Ltd. and corporations under its control
Space Communications Ltd.
Eurocom DBS Ltd.
Eurocom Communications Ltd.
In the context of a communications network - a telephony system that
supports the connection of devices for transferring calls between different
end units
Megabits per second; Measurement unit for data transfer speed
National interior operator; A body that provides landline interior telephony
services under a general or unique NIO license
Roaming services allow a customer of one communication network to
receive services from another communication network other than his
"home network" (the network with the license he subscribes to), based on
roaming agreements between the home network and the host network
Network endpoint - an interface to which one is connected, on the one
hand a public Bezeq network and on the other hand end equipment or a
private network. Network endpoint services include the supply and
93 It should be noted that the definitions of the terms are provided for the convenience of the reader, and are not necessarily
identical to the definitions in the Communications Law or its regulations.
164
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
maintenance of equipment and services in the customer's premises
Cellcom
Pelephone
Fiber project
Partner
Interconnectivity
Mobile phone radio
Unified general
license / unified
license
NIO license
Mobile Radio license
Broadcasting license
ILA
Rami Levy
Bezeq services
Transmission services
Data communication
services
Reporting period
Bitstream Access
(BSA)
xDSL
DTT
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Cellcom Israel Ltd. and corporations under its control
Pelephone Communications Ltd.
The Company's plan for the deployment of ultra-broadband landline
infrastructure that includes a massive deployment of fiber optics across the
country on a large scale that will enable the offer of ultra-fast Internet
services.
Partner Communications Ltd. and corporations under its control
Interconnectivity enables the transmission of instant messages between
subscribers of different licensees, or the provision of services by one
licensee to the subscribers of another licensee; Interconnectivity is possible
through a connection between a public Bezeq network of one licensee (for
example - Bezeq) and a public network of another licensee (for example - a
cellular operator); See also " Interconnectivity Fee" Definition
Mobile radio telephone phone; Cellular telephony
A general license that is one of the following or a license that unites several
thereof:
(1) a unique general license;
(2) a general mobile radio telephone license in another network;
(3) a general license for the provision of Bezeq International services;
(4) a special license for the provision of network endpoint services;
(5) Special license for the provision of Internet services.
Unique general or general license for the provision of landline interior
Bezeq services
General license for the provision of mobile radio telephone services - in the
cellular method
License for satellite television broadcasts
Israel Lands Authority
Rami Levy Cellular Communications Ltd.
Performing Bezeq operations (transmission, transfer or reception of signs,
signals, writing, visual forms, sounds or information, using wire, wireless,
optical system or other electromagnetic systems) for others
Electromagnetic signal transmission or bit sequence
Network services for data transfer from point to point, data transfer
between computers and various communication networks and remote
business access services
Twelve months ended December 31, 2021
Managed broadband access that allows provider services to connect to the
infrastructure owner network and offer broadband services to subscribers
Digital Subscriber Line - technology that uses the copper wires of telephone
lines to transmit data at high rates by using frequencies higher than the
audible frequency and therefore allows simultaneous use of call and data
transmission
Digital Terrestrial Television- Wireless digital broadcasting of TV channels
via terrestrial relay stations
165
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
GSM
HD
HSPA
IBC
IP
IPVPN
ISP
LTE
MVNO
NGN
UMTS
VoB
VoC
VOD
VoIP
Wi-Fi
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Global System for Mobile Communications - International Standard for
Cellular Communication Networks ("2G")
High Definition TV - High definition (broadcast) TV broadcasts
High Speed Packet Access - Cellular technology that is a continuation of the
UMTS standard that enables data transfer at high speeds ("3.5G")
ABC Israel Broadband Company (2013) Ltd.
Internet Protocol. The use of this protocol enables convergence between
voice (data) and contractual (video) services over the same network
A virtual private network (Virtual Private Network) based on an Internet
Protocol (IP) which is established on the public network, and through which
it is possible to: (a) allow end users to connect to the corporate network
and perform remote access; And - (b) make a connection between the
branches of the organization (intranet)
Internet Service Provider - has a special license to provide Internet access
services (Internet Service Provider). The Internet access provider is the
body that allows the end user to connect to the IP / TCP protocol that
connects it to the global Internet network
Long Term Evolution - Fast WIFI mobile standard devices such as cell
phones
Mobile Virtual Network Operator - a virtual cellular operator, which uses
the existing communication infrastructure of the cellular operators without
the need for its own infrastructure
Next Generation Network - Bezeq's communications network based on IP
architecture
Universal Mobile Telecommunications System - an international standard
for cellular communications that is a development of the GSM standard
("3G")
Voice Over Broadband - Telephony services and related services in IP
technology using landline broadband access services
Voice over Cellular Broadband - Telephony services over a cellular data
communication channel ("Mobile VoB Services")
Video on Demand - TV services on demand by the subscriber
Voice over Internet Protocol - technology that enables the transmission of
voice messages (telephony service delivery) via IP protocol
Wireless Fidelity - Wireless access to the Internet in the local area
166
Chapter A (Description of the Corporation's Business) for the 2022 Periodic Report
8.
Appendix B - Financial Indices and Operational Performance Indices (Key Performance
Indicators)
General
The indices below, which are specified in the chapters of Bezeq’s periodic report, are financial indices that
are not defined or detailed in generally accepted accounting principles included in the financial statements.
The definition of the indices and / or how they are calculated may change from time to time, they do not
constitute a substitute for indices based on accepted accounting rules and they may not even be calculated
in the same way as parallel indices in other companies.
Details will be provided below in relation to the aforesaid indices, including in accordance with the update of
the decision of the Securities Authority 99-6 regarding the use of financial indices that are not based on
generally accepted accounting rules.
Financial indices
EBITDA
(Earnings Before Interest, Taxes, Depreciation and Amortization) EBITDA is defined as profit before financing
expenses (revenue), taxes, depreciation and amortization. The EBITDA index is an accepted index in the field
of the Company's activity which neutralizes aspects due to differences in the capital structure, various aspects
of taxation and the manner and period of the reduction of property, plant and equipment and intangible
assets. The Company's EBITDA is calculated as operating profit before depreciation, amortization and
impairment (ongoing losses from impairment of property, plant and equipment and intangible assets). As of
January 1, 2019, and for the purpose of adequately presenting economic activity, the Company presents
ongoing losses from impairment of property, plant and equipment and intangible assets in the DB and Walla
under depreciation and amortization, as well as ongoing losses from impairment of broadcasting rights under
operating expenses and general expenses (in the statement of income).
Free flow (Free Cash Flow - FCF)
The Company's free cash flow is calculated as cash arising from current activities less cash for the purchase /
sale of property, plant and equipment and intangible assets (net) and as of 2018, with the application of a
IFRS16 standard, payments for leases are also deducted. The free cash flow index is an accepted index in the
field of the company's activity in general and it represents the cash that the Company is able to produce after
the investment needed to maintain or expand its asset base.
Operational performance indices (Key Performance Indicators)
ARPU (Average Revenue Per User)
The ARPU reflects the average monthly income per line / subscriber / parent house and is calculated as the
monthly average distribution of the total relevant income for the period in the average number of active lines
/ subscribers / households in that period, as applicable. It will be clarified that the Group has four main areas
of activity that correspond to the corporate division between the Group companies and the definition of a
different active subscription between the areas of activity.
Churn rate
The churn rate reflects the Company's ability to retain its customer base and is calculated as the distribution
of the number of lines / subscribers / households that disconnected from the Company's services during the
period in the average number of active lines / subscribers / households in that period, as applicable. It will be
clarified that the Group has four main areas of activity that correspond to the corporate division between the
Group companies and the definition of a different active subscription between the areas of activity.
167
Chapter B
Report of the Board of Directors
on the State of Affairs of the Corporation
for the Year Ended December 31, 2022
Report of the Board of Directors on the State of Affairs of the Corporation for the Year
ended December 31, 2022
The Board of Directors of B Communications Ltd. (“the Company") is honored to submit the Board of Directors'
report on the State of the Company and consolidated for all Group Companies (the Company and the
Subsidiaries will be collectively referred to hereinafter as: "the Group"), for a period of a year ended December
31, 2022 (“the Report Date") in accordance with the Securities Regulations (Periodic and Immediate Reports),
5730-1970 ("the Reporting Regulations").
For the investigation by the Securities Authority and the Israel Police, see Note 1.3 to the Company’s
statements.
The auditors drew attention to this in their opinion on the statements.
The Group reports on four main operating segments in its statements, as follows:
1. Landline interior communication
2. Cellular communication
3.
Internet, international communications and network endpoint services and ICT solutions (hereinafter:
"Bezeq International Services")
4. Multichannel TV
For more information, see Note 28 to the Statements.
The following are the Group's consolidated results:
2022
2021
Increase/decrease
NIS millions
NIS millions
NIS millions
%
Net profit
EBITDA*
Adjusted EBITDA*
891
3,493
3,724
996
3,745
3,695
(105)
(252)
29
(10.5)
(6.7)
(0.8)
* Financial indices that are not based on generally accepted accounting principles, see below
The decrease in net profit mainly stemmed from a decrease in equity gains from the sale of real estate assets
and an increase in provision expenses for claims in the landline domestic communications sector as well as an
increase in expenses for the termination of employer-employee relations in early retirement voluntary
retirement and collective agreements in the Group. The decrease is conditioned by an increase in the profit of
the cellular communication sector as well as by a decrease in the Company's financing expenses.
For more information, see Chapter 1.2 below.
1
Report of the Board of Directors on the State of Affairs of the Corporation for the Year
ended December 31, 2022
* Financial indices that are not based on generally accepted accounting principles
As of the Report Date, the Group's Management is assisted by financial performance indices that are
not based on the generally accepted accounting rules for examining and presenting the Group's financial
performance. These indices do not constitute a substitute for the information contained in Bezeq’s
statements.
The following is a breakdown of the indices:
Index
Details of the method of calculation and the purposes of the index
EBITDA
(Earnings Before
Interest, Taxes,
Depreciation and
Amortization)
Adjusted EBITDA
Defined as profit before financing revenue (expenses), financing, taxes,
depreciation and amortization.
The EBITDA index is an accepted index in the Group’s field of activity
which neutralizes aspects due to differences in the capital structure,
various aspects of taxation and the manner and period of the
amortization of property, plant and equipment and intangible assets.
is calculated as operating profit before
The Group's EBITDA
depreciation, amortization and impairment (including ongoing losses
from impairment of property, plant and equipment and intangible assets
as described in Notes 3.10.2, 10.5, and 10.6 to the Statements).
Calculated as an EBITDA index net of the other operating expenses /
revenue item, net and one-off losses / profits from impairment /
increase in value and expenses in respect of the capital remuneration
plan.
The index allows comparisons of operational performance between
different periods while neutralizing one-off effects of exceptional
expenses / revenue.
It should be noted that the adjusted EBITDA index should not be
compared to indices with a similar name reported by other companies
due to a possible difference in the way the index is calculated.
2022
2021
NIS millions
Operating profit
Depreciation, amortization and impairment
EBITDA
Other operating expenses (revenue), net
Capital compensation expenses
Adjusted EBITDA
1,625
1,868
3,493
220
11
3,724
1,856
1,889
3,745
(77)
27
3,695
2
Report of the Board of Directors on the state of affairs of the corporation for the Year ended December 31, 2022
1.
Explanations by the Board of Directors on the state of the corporation's business, the results of its operations, shareholders' equity, cash
flows and other matters
1.1
Financial position - Assets
December
31, 2022
December
31, 2021
NIS millions
%
Increase (decrease)
NIS
millions
%
1,727
2,132
(405)
(19.0)
2,189
2,572
(383)
(14.9)
85
57
74
60
11
(3)
14.9
(5.0)
1,746
1,828
(82)
(4.5)
Explanation
For more information, see Chapter 1.4 below.
The decrease was mainly due to the moving forward of credit dates with the credit card companies, as
well as receipts postponed from 2021 due to the labor strikes in the cellular communications sector and
in the Bezeq International services sector.
6,542
6,312
230
3.6
The increase was mainly due to the landline interior communications segment, partly due to the progress
of the fiber network deployment project, see Note 9.4 to the Statements.
3,251
3,251
-
-
258
306
(48)
(15.7)
The decrease was mainly due to classification of long-term deposits in the Company as current.
-
24
(24)
(100)
See Note 7.5 to the Financial Statements
Cash and
current
investments
Current and
non-current
trade
receivables
Inventory
Broadcasting
rights
Right-of-use
assets
Property,
plant and
equipment
Intangible
assets
Deferred
expenses
and non-
current
investments
Deferred tax
assets
Total assets 15,855
16,559
(704)
(4.3)
3
Report of the Board of Directors on the state of affairs of the corporation for the Year ended December 31, 2022
1.1.
Financial position – Liabilities and equity
December
31, 2022
December
31, 2021
NIS millions
9,178
%
10,048
Increase (decrease)
NIS
millions
%
(870)
(8.7)
Debt to financial institutions and
debentures
Liabilities in respect of leases
1,908
1,977
(69)
(3.5)
Trade payables
1,598
1,755
(157)
(9.0)
Employee benefits
600
753
(153)
(20.3)
Provisions
Deferred tax liabilities
Other liabilities
Total liabilities
Non-controlling interests
Shareholders’ equity
Total equity
205
319
151
13,959
1,842
54
1,896
118
296
142
15,089
1,454
16
1,470
87
23
9
(1,130)
395
31
426
73.7
7.8
6.3
(7.5)
27.3
134.8
29.0
Total liabilities and equity
15,855
16,559
(704)
(4.3)
Explanation
The decrease in debt was due to repayment (including early repayment) of
debentures and repayment of loans in Bezeq and the Company, offsetting the
receipt of loans in the landline interior communications sector. For more
information, see Note 13 to the Statements.
The decrease was mainly due to payment for 5G frequencies in the cellular
communication segment in the current quarter. For more information, see Note 14
to the Statements
The decrease was mainly due to payments for employee retirement and an
increase in the discount rate of liabilities to employees in the landline interior
communications sector, offset by an increase in the provision for termination of
employee-employer relationship in early retirement and voluntary retirement in
the Group, see Note 16.5 to the Statements.
The increase was mainly due to an increase in provisions for claims in the landline
interior communications segment, see Notes 15 and 17 to the statements.
Equity as of December 31, 2022 constitutes approximately 11.9% of the total balance
sheet, compared to approximately 8.9% of the total balance sheet as of December 31,
2021. The increase was due to net profit offset by distribution of dividends to non-
controlling interests and the repurchase of shares in the Company.
4
Report of the Board of Directors on the state of affairs of the corporation for the Year ended December 31, 2022
1.2.
Enterprise results
1.2.1.
Key results
2022
2021
Increase (decrease)
NIS millions
NIS millions
%
Explanation
Revenue
8,986
8,821
165
Operating and
general expenses
3,396
3,265
131
1.9
4.0
The increase in revenue was mainly due to the landline interior communications segment and the
cellular communications segment, offset by a decrease in revenue of the "Other" segment.
The increase was due to all the Group's main segments, except for the cellular communication segment.
Salary
1,877
1,888
(11)
(0.6)
communications segment and the multichannel TV segment. For more information see Note 23 to the
Decrease in salary expenses in the "Other" segment, offset by an increase in the landline interior
Statements.
Depreciation,
amortization and
impairment
Other operating
expenses (income),
net
1,868
1,889
(21)
(1.1)
The decrease in Bezeq Group's expenses was offset by an increase in expenses in the landline interior
communications segment.
220
(77)
297
-
compared to a decrease in the said expenses in the corresponding year, as well as from an increase in
The change was due to a decrease in equity gains from the sale of real estate assets in the landline
interior communications segment as a result of an increase in expenses on provisions for legal claims
expenses due to termination of employee-employer relations in early retirement, voluntary retirement
and collective agreements in the Group, see Note 24 to the Statements.
Operating Profit
1,625
1,856
(231)
(12.5)
Financing expenses,
net
398
478
(80)
(16.7)
Company's debt which arose during the year 2021, for more information see Note 25 to the
The decrease in financing expenses was mainly due to a decrease in the costs of refinancing the
Statements.
Income tax
336
Profit in the year
891
382
996
(46)
(12.0)
(105)
(10.5)
The decrease in tax expenses on the income resulted from a decrease in the Group's profit before tax in
2022 relative to 2021.
5
Report of the Board of Directors on the state of affairs of the corporation for the Year ended
December 31, 2022
1.2.2.
Operating segments
a. The following are data regarding revenues and operating profit in accordance with the
Group's operating segments:
2022
2022
NIS
millions
of %
segment
revenue
NIS
millions
of %
segment
revenue
Revenue by operating segments
Interior landline communication
Cellular communication
Bezeq International services
Multi-channel TV
Others and adjustments
Total
4,306
2,399
1,239
1,277
(235)
8,986
47.9
26.7
13.8
14.2
(2.6)
100.00
4,182
2,289
1,237
1,270
(157)
821
8,
47.5
25.9
14
14.4
(1.8)
100.00
2022
2022
NIS millions
% of segment
revenue
NIS millions
% of segment
revenue
Profit (loss) by operating segments:
Interior landline communication
Cellular communication
Bezeq International services
Multi-channel TV *
Others and adjustments
Consolidated operating profit / percentage of Group
revenue
1,460
193
(30)
(48)
50
1,625
33.9
8.0
(2.4)
(3.8)
-
18.1
1,748
42
22
(41)
85
1,856
41.8
1.8
1.8
(3.2)
-
21.0
* The results of the multi-channel television segment are presented net of the overall impact of impairment recognized
starting from 2018, is in accordance with the way the Group's chief operating decision maker evaluates the segment's
performance and makes decisions regarding the allocation of resources to the segment. In addition, see Note 31.4 to the
Consolidated Financial Statements for a summary of selected data from the DBS’ statements.
6
Report of the Board of Directors on the state of affairs of the corporation for the Year ended December 31, 2022
1.2.2.
Activity segments (Cont.)
a.
Interior landline communications segment
2022
2021
Increase
(decrease)
NIS millions
%
Explanation
Internet - infrastructure
1,789
1,624 165
10.1
The increase is due to growth in the average revenue per retail subscription, mainly from services and installations for
customers on the fiber network and auxiliary end equipment and from the provision of Internet access services (ISP) starting
in April 2022, as well as an increase in wholesale Internet service rates and in the wholesale market activity scope.
Landline telephony
780
913
(133)
(14.5)
The decrease was due to a decrease in the average revenue per telephone line, mainly due to the reduction of telephony
rates by the Ministry of Communication starting from April 2022, and due to a decrease in the number of lines.
Transmission, data
communication and other
1,406
1,327 79
Cloud and digital services
331
318
13
Total revenue
4,306
4,182 124
5.9
4.1
3.0
The increase was mainly due to an increase in revenue from paid jobs and transmission services to businesses.
The increase was due, among other things, to virtual switchboard services and cloud services.
Operating and general
expenses
759
667
92
13.8
The increase was mainly due to an increase in the costs of subcontractors and materials due to the deployment of the fiber
network.
Salary
970
934
36
3.9
The increase was mainly due to the onboarding of employees mainly due to the fiber network deployment project and salary
updates, offsetting employee retirement.
Depreciation and
amortization
1,005
938
67
7.1
The increase was mainly due to an increase in subscriber equipment depreciation expenses and an increase in the balance of
investments in the fiber network deployment project.
Other operating expenses
(revenue), net
112
(105) 217
-
The change was due to the recording of high equity gains from the sale of real estate in the corresponding year as well as an
increase in provision expenses for claims compared to a decrease in said expenses in the corresponding year, see Note 8 to
the separate financial information.
Operating profit
1,460
1,748
(288)
(16.5)
Financing expenses, net
332
342
(10)
(2.9)
Taxes on revenue
Segment profit
279
849
343
(64)
(18.7)
1,063
(214)
(20.1)
The decrease in financing expenses, net, was mainly due to financing revenue in respect of employee benefits that were
recognized as a result of the increase in the discount rate, a decrease in interest expenses due to a decrease in debt, revenue
from hedging transactions on the dollar exchange rate, and in the quarter also due to early repayment costs that were
included in the corresponding year.
7
Report of the Board of Directors on the state of affairs of the corporation for the Year ended December 31, 2022
1.2.2.
Activity segments (Cont.)
b. Cellular communications segment
2022
2021
Increase (decrease)
NIS millions
%
Explanation
Services
1,791
1,642
149
9.1
The increase was mainly due to the recovery from the effects of the COVID crisis, which was reflected in the
increase in roaming revenues and from the continued growth in the number of subscribers, including
subscribers in 5G packages.
Sale of end equipment to
customers
608
647
(39)
(6.0)
The decrease in the period was mainly due to a decrease in wholesale sales.
Total revenue
2,399
2,289
110
4.8
Operating and general
expenses
1,327
1,346
(19)
(1.4)
Salary
Depreciation and
amortization
Other operating
expenses, net
Operating profit
314
532
33
193
Financing income, net
26
Income tax expenses
Segment profit
54
165
315
(1)
(0.3)
577
(45)
(7.8)
9
42
42
20
64
24
266.7
151
359.5
(16)
(38.1)
34
101
170.0
157.8
The decrease was mainly due to a decrease in the cost of selling end equipment in parallel with a decrease in
revenues, from the registration of the implementation of a cloud computing system in the corresponding
year, from a decrease in call completion fees, as well as a decrease in repair service costs. The decrease was
partially offset by an increase in roaming costs at the same time as an increase in revenue, as well as due to
an increase in loan-loss expenses.
The decrease was mainly due to a decrease in the ownership of cellular site right-of-use assets and assets
whose amortization period has ended, as well as an update of the estimate of site dismantling and disposal
assets.
The increase was due to the effects of the collective agreement regarding a bonus for employees and
expenses for employee retirement.
The decrease in net financing revenue was mainly due to an increase in exchange rate differential expenses
in light of the increase in the exchange rate, as well as financing expenses due to interest and linkage
differences, offsetting an increase in revenue from interest on loans given to the parent company.
8
Report of the Board of Directors on the state of affairs of the corporation for the Year ended December 31, 2022
1.2.2.
Activity segments (Cont.)
c. Bezeq International services
2022
2021
Increase
(decrease)
Explanation
NIS millions
%
Revenue
1,239
1,237
2
0.2
Operating, general and
impairment expenses
827
799
28
3.5
Salary
237
237
-
-
Increase in revenues from business services due to an increase in activity and the initial consolidation of CloudEdge’s
activity, as well as an increase in revenues from licensing equipment and service contracts, offset by a decrease in
revenue from Internet services due to a decrease in the number of subscribers following the reform in unified
Internet.
The increase was due to business services expenses, mainly due to the consolidation of CloudEdge’s activity and an
increase in cloud licensing expenses, as well as an increase in payments to mobile radio telephone operators due to
an increase in the volume of calls and rates. On the other hand, there was a decrease in local capacity expenses mainly
due to a decrease in Internet activity in the retail segment in parallel with a decrease in revenues.
Decrease in salary expenses resulting from a continuous decrease in the number of Company employees, was offset
by salary expenses due to the initial consolidation of CloudEdge, salary updates and the cessation of discount of sales
incentives.
Depreciation, amortization
and impairment
134
173
(39)
(22.5)
The decrease was due to a decrease in depreciation of assets (see Note 10.6 in the Statements) as well as a decrease
in depreciation expenses of a subscription acquisition asset due, among other things, to the cessation of discount as
aforementioned and a decrease in depreciation of other long-term assets.
Other operating expenses 71
6
65
1083.3
The increase was mainly due to the registration of a provision for voluntary retirement.
Operating profit (loss)
(30)
22
(52)
-
Financing expenses, net
1
Taxes on revenue expenses 1
Segment profit (loss)
(32)
2
12
8
(1)
(50.0)
The decrease was due to the fact that tax expenses for previous years were recorded in the corresponding year.
(11)
(91.7)
(40)
-
9
Report of the Board of Directors on the state of affairs of the corporation for the Year ended December 31, 2022
1.2.2.
Activity segments (Cont.)
d. Multi-channel TV *
2022
2021
Increase (decrease)
NIS millions
%
Explanation
Revenue
1,277
1,270
7
Operating and
general expenses
855
825
Salary
193
182
30
11
0.6
3.6
6.0
Depreciation and
amortization
274
292
(18)
(6.2)
The increase was mainly due to an increase in revenues from the sale of content to external
entities, offsetting the effect of the change in the mix of subscribers from premium to discount.
The increase was mainly due to an increase in the scope of content costs as well as an increase due
to internet activity (ISP).
The increase was mainly due to an increase in employment costs and the effects of the collective
agreement.
The decrease was mainly due to fully depreciated assets (mainly satellite decoders).
Other operating
expenses
3
Operating loss
(48)
Financing expenses
(income), net
Income tax
(6)
1
12
)41 (
1
1
Segment loss
(43)
)43 (
(9)
(7)
(7)
-
-
(75.0)
The decrease was mainly due to recording expenses for a new collective agreement in 2021.
The change was mainly due to the effect of dollar exchange rate hedging transactions.
(17.1)
-
-
-
* The results of the multi-channel television segment are presented net of the overall impact of impairment recognized starting from 2018, see “pro forma” income below. This is in
accordance with the way the Group's chief operating decision maker evaluates the segment's performance and makes decisions regarding the allocation of resources to the segment. For
more information, see Notes 10.5 and 28 to the Statements. In addition, see Note 31.4 to the Statements for a summary of selected data from the DBS’ statements.
10
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended December 31, 2022
1.2.2.
Activity segments (Cont.)
e. Multi-channel TV (Cont.) - Comparison between accounting profit and proforma profit
2022
2021
Accounting profit
Proforma profit
Accounting profit
Proforma profit
NIS millions
Revenue
1,277
1,277
1,270
1,270
General and operating expenses
867
Salary
Depreciation and amortization
Other operating expenses
Operating profit (loss)
Financing income, net
Income tax
Profit (loss) for the year
200
199
3
8
(6)
1
13
855
193
274
3
(48)
(6)
1
(43)
835
188
203
12
32
1
1
30
825
182
292
12
)41 (
1
1
)43 (
11
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended December 31, 2022
1.3. Main data from the Group's consolidated quarterly income statements (NIS millions)
Q1/2022
Q2/2022
Q3/2022
Q4/2022
2022
Explanation
Revenue
2,255
2,225
2,262
2,244
8,986
General and operating
expenses
Operating profit
Financing expenses, net
Profit after financing
expenses, net
1,798
1,764
1,798
2,001
7,361
457
104
353
461
99
362
464
97
367
243
98
1,625
398
145
1,227
Income tax
93
89
91
Profit for the period
260
273
276
63
82
336
891
The increase in Q4 was mainly due to expenses for termination of employee-
employer relations in early retirement, voluntary retirement and collective
agreements in the Group, see Note 16.5 to the Statements.
Q1 includes early repayment costs for Bezeq debentures (series 9) amounting to NIS
26 million.
The decrease in the fourth quarter is due to a low profit before taxes as a result of
expenses for the termination of employee-employer relations in early retirement and
collective agreements in the Group.
12
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended December 31, 2022
1.4.
Cash flow
2022
2021
Change
Explanation
NIS millions
%
Net cash flow from
operating activities
3,491
2,826
665
123.5
Net cash flow used for
Investing operations
Net cash flow used for
financing operations
(1,420)
(1,578)
158
90.0
(2,315)
(1,144)
(1,171)
(202.4)
Net increase (decrease)
in cash and cash
equivalents
(244)
104
(348)
-
The increase in net cash flow from current activities was due to changes in working equity, mainly due to
the moving forward of credit dates with the credit card companies, and due to the transition in collection
from customers from the fourth quarter of 2021 until the first quarter of 2022 due to employees’ sanctions
in the cellular communications segment and the Bezeq international services segment, as well as from a
decrease in Income Tax paid in the interior landline communication segment.
The decrease in the net cash flow used for investment activity was mainly due to an increase in the net
proceeds from the repayment of deposits in banks, offsetting a decrease in the proceeds from the sale of
property, plant and equipment in the landline interior communications segment.
The increase in the net cash flow used for financing activities was mainly due to the payment of a dividend
from Bezeq to non-controlling interests, from an increase in the repayment of debentures (inducing early
redemption), offsetting a decrease in the repayment of loans, from the self-purchase of the Company's
shares during 2022, and since the corresponding year included the issuance of Bezeq’s debentures (series
13 and 14).
Average volume in the reported year
Long-term liabilities (including current liabilities) to financial institutions and bondholders: approx. NIS 9,765 million.
Supplier credit: approx. NIS 961 million.
Short-term customer credit: approx. NIS 1,951 million.
Long-term customer credit: approx. NIS 278 million.
Working equity
The Group's consolidated working equity as of December 31, 2022 amounted to approximately NIS 1 million, compared with working equity of approximately NIS 565 million as of
December 31, 2021.
The Company's working equity (according to the "Solo” Statements) as of December 31, 2022 amounted to approximately NIS 69 million, compared with working equity of approximately
NIS 212 million as of December 31, 2021.
Bezeq (according to the "Solo" Statements) as of December 31, 2022, has a working equity in the amount of approx. NIS 62 million, compared with a working equity of NIS 161 million
as of December 31, 2021.
13
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended
December 31, 2022
1.5.
Disclosure regarding the Company's projected cash flow
The Company's Board of Directors reviewed the Company's consolidated financial statements and separate
(Solo) financial statements as of December 31, 2022, including sources for repayment of the Company's
liabilities, including the Company's debentures (Series C and F). In addition, the Company's Board of
Directors examined the warning signs set forth in Regulation 10(b)(14)(a) of the Securities Regulations
(Periodic and Immediate Reports), 5730-1970 and determined that despite the existence of a continuing
negative cash flow from current operations in the separate (Solo) financial statements of the Company, in
the opinion of the Company's Board of Directors, after receiving explanations for its opinion from the
Company's Management, the continuing negative cash flow from current activities in the Company's
separate (Solo) statements does not indicate a liquidity problem in the Company, and the Company has
sufficient financial resources to continue its operations and meet its obligations, inter alia, taking into
account the Corporation's cash balances in the solo statement.
1.6.
Exchange and early repayment of the Company's debentures
On January 10, 2022, the Company made an exchange of approximately 417 million of series C debentures
in exchange for approximately 432 million of series 6 debentures.
On June 30, 2022, the Company made a partial early repayment of approximately NIS 100 million on Series
C debentures (plus interest accrued until the repayment date).
1.7.
Self-purchase of the Company's shares
During the year 2022, the Company repurchased 7,603,514 of its shares for approximately NIS 121 million.
1.8.
Effects of the COVID19 outbreak
At the beginning of 2020, the "Corona" virus (COVID-19) broke out in the world and in Israel (the "Event").
Following the Event, many countries, including Israel, took various measures and restrictions in an
attempt to prevent the spread of the virus. During the year 2022, there was a significant decrease in the
outbreak of the virus and the effects of the Event, when the consequences of the Event on the Group's
activities in 2022 were manifested mainly in damage to Pelephone's revenues from roaming services
(damage that gradually decreased throughout the year until the date of publication of this report),
without significant negative effects in other areas of activity. As of the date of publication of the report,
there are no special effects of the event on all areas of the Group's activity.
For further information, see the analysis of the results of the activity of the cellular communications
segment in Chapter 1.2.2, Section C.
1.9.
Update on the effects of inflation and the increase in interest rates on the results of
the Group's activities
As stated in Note 30.5.1 to the Statements, changes in the inflation rate affect the Group's profitability
and future cash flows, mainly due to Bezeq’s index-linked liabilities. Bezeq implements a policy to reduce
and partially hedge the exposure to the price index and the dollar-shekel exchange rate through the
execution of forward transactions. See details regarding hedging transactions in Note 30.6 to the
Statements.
In 2022, the increase in the consumer price index increased Bezeq’s financing expenses to the extent of
approximately NIS 95 million (approximately NIS 72 million after hedging) compared to the corresponding
year. It should be noted that the net effect of the increase in interest rates in the economy on the Bezeq
Group's operating results was not material during the reporting period.
14
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended
December 31, 2022
In accordance with the scope of Bezeq’s index-linked debt as of December 31, 2022, every 1% increase in
the Consumer Price Index is expected to result in an increase in its financing expenses to the extent of
approximately NIS 25 million, this is before considering the effect of hedging transactions. In addition, a
1% change in the Bank of Israel interest rate is expected to cause an increase in Bezeq's financing
expenses to the extent of approximately NIS 7 million per year, and accordingly, is not expected to have a
material effect on Bezeq’s operating results.
The Company's debentures are in shekels and are therefore not affected by changes in the inflation rate
or interest rate increases.
2.
Corporate governance aspects
2.1.
Involvement of the Group members in the community and donations
The Company supports Bezeq's corporate responsibility policy and will continue to promote this policy in
all Group companies, and in addition, the Company discusses the Company's donation policy every year,
with a focus on health, education and community issues. In the year of the report, the Company donated
to the Ichilov Hospital, the Reut Rehabilitation Hospital and other non-profit organizations in amounts that
are not material to the Company.
According to the community contribution policy approved by Bezeq's Board of Directors, Bezeq
contributes to the community out of its deep commitment to the issue of social responsibility, through
financial donations, donations of services and communication infrastructure, and support for employee
volunteering in the community.
Bezeq focuses the main contribution on reducing the digital gap in Israel by donating communication
services to non-profit organizations and disadvantaged populations, supporting programs that promote
digital equality through training, providing skills and assistance, and harnessing additional partners. At the
same time, Bezeq works to create a social impact while providing a framework for initiative, meaningful
action and volunteering in the community.
In 2022, the Bezeq Group donated a total of approximately NIS 6.4 million, which includes a financial
donation of approximately NIS 1.8 million, donation of services and communication infrastructure to
associations and disadvantaged populations in the amount of approximately NIS 3 million, and a salary
donation in the amount of approximately NIS 1.6 million.
15
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended
December 31, 2022
2.2.
Disclosure regarding auditor's salary
The following are the fee expenses for the auditors of the main consolidated companies in the Group for
audit and audit-related services (NIS thousands):
Company
Auditor
B Communications
Ltd.
Somekh
Chaikin
Bezeq – the Israeli
Telecommunications
Corp. Ltd.
Pelephone
Communications
Ltd.
Bezeq International
Ltd.
Somekh
Chaikin
Somekh
Chaikin
Somekh
Chaikin
DBS Satellite Services
(1998) Ltd.
Somekh
Chaikin
Total
Details
Audit and audit-
related, including audit-
related tax services
Other services1
Audit and audit-
related, including audit-
related tax services
Other services1
Audit and audit-
related, including audit-
related tax services
Other services1
Audit and audit-
related, including audit-
related tax services
Other services1
Audit and audit-
related, including audit-
related tax services
Other services1
2022
2021
400
151
1,530
485
603
434
379
403
612
283
5,280
380
130
1,530
684
642
366
1,483
519
671
83
6,488
The accountants’ fees were discussed by the Boards of Directors’ committees for examining the
statements and approved by the Boards of Directors of the Company and of each of the Group companies.
The fees are determined with reference to the hours and the hourly rate of the previous year while
adjusting them to changes and events that occurred in the reporting year.
2.3.
Directors with accounting and financial expertise and independent directors
As of the date of the report, all seven directors serving in the Company have accounting and financial
expertise; For details about the directors with accounting and financial expertise serving in the Company
as of the date of the report, see Regulation 26 in the report of additional details on the Company (part D
of this periodic report) and also in Sections 2 and 9 of the corporate governance questionnaire.
2.4.
Additional corporate governance issues
The Company established a gatekeepers’ forum, with the participation of the Internal Auditor, the
auditing accountants and the external legal advisors, led by the Company's CFO. This forum convenes as
needed, in order to discuss general control and enforcement issues in the Company.
1 "Other services" provided to main companies in the Group in 2022 and 2021 included, among other things, consulting services on
tax and accounting issues that are not related to auditing and special approvals.
16
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended
December 31, 2022
2.5.
Disclosure regarding the internal auditor in a reporting corporation
Details
concentration
Name of
internal auditor
Ilan Chaikin
Date of
appointment
Compliance
with the
provisions of
the law
Employment
format
Method of
appointment
Organizational
supervisor of
the Internal
Auditor
Work plan
2008
The internal auditor complies with the conditions set forth in Article 3(a) and 8 of the Internal
Audit Law and the provisions of Article 146(b) of the Companies Law.
Hourly fee, according to the number of hours determined at the beginning of each year by the
Audit Committee.
The method of appointment and summary of the reasons for approving the appointment:
The appointment was approved by the Board of Directors in 2008, following the recommendation
of the Audit Committee.
Duties, powers and roles assigned to the auditor:
The authority and responsibility of the Company's Internal Auditor are fixed in the Company's
internal audit procedure approved by the Audit Committee. According to the procedure, the
Auditor's duties and powers are:
Checking the correctness of the Company's operations and the actions of its officers, checking the
reliability and integrity of the financial and operational information, examining the management of
funds and liabilities and examining the Company's computerized information systems and the
Company's information security system. The Internal Auditor is also responsible for examining
employee complaints in accordance with the arrangements established by an audit committee in
accordance with Article 117(6) of the Companies Law, 5759-1999.
His powers are to receive any information, explanation and document necessary to fulfill his duties,
right of access to any regular or computerized database of the Company, any database and any
automatic or non-automatic data processing work plan of the Company and its units, and receive
permission to enter any property of the Company. The Internal Auditor is also entitled to be invited
to all meetings of Management, the Board of Directors and its committees.
The organizational supervisor of the internal auditor is the CEO of the Company.
The work plan in 2022 was derived from the Company's multi-year work plan established for the
years 2021-2024.
The considerations in determining the internal audit work plan
The guiding principle in building the internal audit work plan is the inherent risk in the Company's
processes and activities. In order to assess these risks, the internal audit referred to the risk survey
conducted by it, as well as to other sources that influenced the risk assessment in these processes,
such as conversations with Management, findings of previous audits and other relevant activities.
The main considerations taken into account in building the work plan are:
Reasonable coverage of most areas of the Company's activity in accordance with the exposure to
material risks, taking into account existing controls in the Company's areas of activity and the
findings of previous audits.
17
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended
December 31, 2022
Parties involved in determining the work plan
The Internal Auditor, Management and the Audit Committee of the Board of Directors.
The party that receives the work plan and approves it
The Audit Committee of the Board of Directors, after the issue has been discussed with the
Company's CEO.
The Auditor's discretion to deviate from the work plan
The CEO of the Company or the Chairman of the Audit Committee may propose issues in matters
where the need arises to conduct an urgent inspection as well as recommend reducing or stopping
an inspection on a subject approved in the work plan. The Internal Auditor has the discretion to
deviate from the work plan.
Examination of material transactions
The Internal Auditor is present at the Board of Directors' discussions where material transactions
are approved and reviews the relevant material sent as part of these discussions.
The work plan of the Company’s Internal Auditor does not include an audit of material equity-held
investee corporations.
The internal auditor conducts meetings with the internal auditor and other control factors of
materially held corporations for the purpose of receiving periodic updates.
In accordance with the Internal Auditor’s notice, the audit work is conducted in accordance with the
internal audit standards accepted in Israel and around the world and in accordance with professional
guidelines in the field of internal audit, including international internal audit standards as well as in
accordance with the Internal Audit Law and the Companies Law.
The Internal Auditor was presented with documents and information as stated in Article 9 of the
Internal Audit Law and was given constant and unmediated access to the corporation's information
systems, including financial data.
The Internal Auditor submits written audit reports regularly during the reporting year to the
chairman of the Board of Directors, the CEO, the Chairman of the Audit Committee and the
members of the committee. The reports are submitted before the date of the committee hearing
(usually about three days before this date).
The Company's Audit Committee convened to discuss internal audit reports on the
implementation of the inspection procedure report by the Internal Auditor for Q4/2021 on March
22, 2022. In addition, an audit report on the implementation of the inspection procedure by the
Internal Auditor for Q2/2022 was presented on September 15, 2022, and an internal audit report
on debt management was presented on November 29, 2022.
The Board of Directors believes that the scope of the audit, the nature and continuity of the
Internal Auditor's activity, as well as the work plan, are reasonable under the circumstances of the
case and are capable of achieving the goals of the audit.
The Internal Auditor’s remuneration is determined each year according to the scope of the audit
hours, according to an hourly fee. In 2022, the number of hours invested in the audit by the Internal
Auditor was approximately 200 hours, noting that the said number of hours is sufficient for the
Internal Auditor to complete the audit work properly.
In 2022, the Internal Auditor was paid a remuneration in the amount of NIS 60,840 including VAT.
In the opinion of the Board of Directors, the scope of the Internal Auditor’s remuneration had no
effect on his professional judgment.
Reference of
the audit to
material equity-
held investee
corporations
Performing the
audit
Access to
information
Internal
Auditor’s report
Board of
Directors’
evaluation of
the Internal
Auditor's
activity
Remuneration
18
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended December 31, 2022
2. Disclosure in connection with the Corporation's financial reporting
3.1.
Disclosure regarding valuations
The following are details of highly material valuations and a substantial and a material valuation in accordance with Regulation 8B(i) of the Securities Regulations
(Periodic and Immediate Reports), 5730-1970.
A highly material valuation of Bezeq Fixed Lines as of December 31, 2022 is not attached to the report since it was the Company's opinion that under any reasonably
possible change in the key assumptions used to determine the recoverable value of the cash-generating unit, no highly matyerial impairment would have been
recognized.
Pelephone
Bezeq Fixed Line
DBS
Bezeq International
Material valuation as of December
31, 2022
Highly material valuation as of
December 31, 2022
See Section 3.1.3 below
Highly material valuation as of
December 31, 2022 – attached to
Bezeq’s Financial Statements as of
December 31, 2022
Highly material valuation as of
December 31, 2022 – attached to
Bezeq’s Financial Statements as of
December 31, 2022
See Sections 3.1.1 and 3.1.3 below
See Section 3.1.3 below
Identification of subject of
valuation
Pelephone’s value in use for the
purpose of testing goodwill in
accordance with International
Accounting Standard 36.
Bezeq’s value in use for the purpose
of testing goodwill impairment
attributed thereto in the Company's
statements in accordance with
International Accounting Standard 36.
Impairment examination of DBS
Satellite Services (1998) Ltd.
Impairment examination of Bezeq
International Ltd.
Timing of the valuation
December 31, 2022;
December 31, 2022;
December 31, 2022;
December 31, 2022;
The valuation was signed on March 5,
2023
The valuation was signed on March 6,
2023
The valuation was signed on March 9,
2023
The valuation was signed on March 9,
2023
Value of the subject of the
valuation close to the
date of the valuation
NIS 1,395 million book value of the
net operating assets of Pelephone
plus the balance of excess costs
created when Bezeq shares were
purchased by the Company.
NIS 10,550 million book value of the
net operating assets of Bezeq plus the
balance of excess costs created when
Bezeq shares were purchased by the
Company.
Book value before impairment as of
December 31, 2022 is negative in the
amount of approx. NIS 18 million.
Book value before impairment as of
December 31, 2022 is approximately
NIS 2 million.
19
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended December 31, 2022
Pelephone
Bezeq Fixed Line
DBS
Bezeq International
Material valuation as of December
31, 2022
Highly material valuation as of
December 31, 2022
See Section 3.1.3 below
Valuation model
Approx. NIS 2,533 million.
Approx. NIS 17,819 million.
The Company came to the conclusion
that there is no impairment that
requires a reduction in the unit’s
book value amount recorded in the
Company's books.
The Company came to the conclusion
that there is no impairment that
requires a reduction in the amount of
goodwill recorded in the Company's
books.
Highly material valuation as of
December 31, 2022 – attached to
Bezeq’s Financial Statements as of
December 31, 2022
Highly material valuation as of
December 31, 2022 – attached to
Bezeq’s Financial Statements as of
December 31, 2022
See Sections 3.1.1 and 3.1.3 below
See Section 3.1.3 below
DBS's total enterprise value is
negative in the amount of
approximately NIS 103 million. In light
of the negative enterprise value, the
net value of the assets and liabilities
of DBS was determined as the fair
value and zero, whichever is higher.
Accordingly, DBS’s recoverable
amount was determined, obtained as
a result of the position according to
the fair value, net of costs of sale, of
the balance sheet items according to
the requirements of IAS 36, is
negative in the amount of
approximately NIS 88 million.
DBS's total enterprise value is
negative in the amount of
approximately NIS 166 million. In light
of the negative enterprise value, the
net value of the assets and liabilities
of DBS was determined as the fair
value and zero, whichever is higher.
Accordingly, Bezeq International’s
recoverable amount was determined,
obtained as a result of the position
according to the fair value, net of
costs of sale, of the balance sheet
items according to the requirements
of IAS 36, is negative in the amount of
approximately NIS 22 million.
Based on the valuation, in 2022, the
Group recognized an impairment loss
of approximately NIS 275 million.
Based on the valuation, in 2022, the
Group recognized an impairment loss
of approximately NIS 104 million.
Identification and
characterization of the
valuator
The valuation was performed by Prof. Hadas Gelander, Partner, Director of Valuations and Economic Models in the Economic Department of Ernest Young
(Israel) Ltd. Prof. Gelander holds a bachelor's degree in accounting from the College of Management, Rishon LeZion; A master's degree in business
administration from the Hebrew University of Jerusalem; And a doctorate cum laude from Ben-Gurion University, Beer-Sheva, and is also a certified public
accountant in Israel. As part of her role, Prof. Gelander accompanies projects with leading companies in Israel and around the world, in various fields of
activity and industries such as technology, finance, pharmaceuticals, energy, infrastructure, real estate and industry. In addition, as part of her role
accompanying and advising companies in the areas of valuations for business (valuations and fair opinions) and accounting (allocation of acquisition costs,
valuation of intangible assets, valuation of options for employees, etc.) needs, she provided economic opinions as a court-appointed expert witness.
The valuator has no dependence on Bezeq or the Company.
Bezeq undertook to indemnify the valuator for damages in excess of three times her fee, unless she acted maliciously or through gross negligence.
20
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended December 31, 2022
Pelephone
Bezeq Fixed Line
DBS
Bezeq International
Material valuation as of December
31, 2022
Highly material valuation as of
December 31, 2022
See Section 3.1.3 below
Valuation model
The discounted cash flow (DCF)
method.
The discounted cash flow (DCF)
method.
Highly material valuation as of
December 31, 2022 – attached to
Bezeq’s Financial Statements as of
December 31, 2022
Highly material valuation as of
December 31, 2022 – attached to
Bezeq’s Financial Statements as of
December 31, 2022
See Sections 3.1.1 and 3.1.3 below
See Section 3.1.3 below
In the first stage - the value in use
was calculated using the DCF
method.
In the first stage - the value in use
was calculated using the DCF
method.
In the second stage - the fair value
of the net assets and liabilities of
DBS, minus sales costs, as of
December
2022, was
determined.
31,
In the second stage - the fair value
of Bezeq International’s net assets
and liabilities, minus sales costs, as
of December 31, 2022, was
determined.
Assumptions under which
the valuator made the
valuation
Discount rate - 10% (after tax).
Permanent growth rate - 1.5%
Discount rate - 8% (after tax).
Permanent growth rate - 1%
Discount rate - 10% (after tax).
Permanent growth rate - 1%
Discount rate – 10.3% (after tax).
Permanent growth rate - 3%
Percentage of the scrap value of
the total value which is estimated
to be 73.7%.
Percentage of the scrap value of the
total value which is estimated to be
74.8%.
The percentage of the scrap value
of the total value determined in
the valuation is not relevant.
The percentage of the scrap value
of the total value determined in the
valuation is not relevant.
In addition, assumptions were
made regarding the fair value
minus cost of sale of DBS’s assets.
In addition, assumptions were
made regarding the fair value
minus cost of sale of Bezeq
International’s assets.
(*) Pelephone's net operating assets do not include customer debt balances for the sale of end equipment in installments shown at current value.
21
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended
December 31, 2022
3.1.
Disclosure regarding valuations (Cont.)
3.1.1
3.1.2
Despite the negative operating value of DBS, Bezeq supports DBS by approving credit facilities
or investing in DBS capital (see Note 412.2.2 to the Statements). Bezeq's support as mentioned
in DBS stems, among other things, from the current and expected contribution of the multi-
channel TV activity to the overall activity of Bezeq Group.
In the consolidated financial statements of the Company as of December 31, 2022, the value of
the activity segment "Bezeq" the Israel Telecommunications Corp. Ltd., the activity segment
Pelephone Communications Ltd., the activity segment DBS Satellite Services (1998) Ltd. and the
activity segment Bezeq International Ltd. amounted to over 25% of its total assets. Accordingly,
the valuator is considered a highly substantial valuator according to Legal Staff Position 105-30
of the Securities Authority ("Staff Position"). For details about the valuator as required by the
Staff Position, see the valuations attached to Bezeq's Statements.
3.1.3
Information according to Regulation 10(b)(8) of the Securities Regulations (Periodic and
Immediate Reports), 5730-1970
A. Regarding Pelephone's valuation as of December 31, 2020, which was attached to Bezeq's
2020statements, the Group examined the actual data in 2022 regarding Pelephone's free
cash flows compared to the 2022 forecast that was included in the aforementioned
valuation and found that Pelephone's free cash flows, according to its 2022 statements, are
significantly higher than the forecast in the aforementioned valuation. The main difference
stems from the collection from customers in 2022 for the year 2021 as a result of
organizational sanctions in 2021, which caused a delay in the amounts and dates of
collection from customers and, in addition, from revenues from services that are higher than
the forecast and timing gaps in the flow of investments.
B. Regarding the valuation of DBS as of December 31, 2021, which was attached to Bezeq's
2021 statements, the Group examined the actual data in 2022 regarding the free cash flows
compared to the 2022 forecast that was included in the aforementioned valuation and
found that DBS's free cash flows, according to its 2022 statements, are lower than the
forecast in the aforementioned valuation. The gap is due to the timing of content payments,
higher than forecast operating expenses (salary and content) offsetting higher revenues
compared to forecast (number of subscribers, and higher than forecast mix of premium
subscribers). For more information, see Appendix H in the DBS valuation as of December 31,
2022 attached to Bezeq's statements.
C. Regarding the valuation of Bezeq International as of December 31, 2021, which was
attached to Bezeq's 2021 statements, the Group examined the actual data in 2022 regarding
the free cash flows of Bezeq International compared to the 2022 forecast that was included
in the aforementioned valuation and found that the free cash flows of Bezeq International,
according to its 2022 statements, are higher than the forecast in the aforementioned
valuation. The gap is due to a decrease in investments and a decrease in revenue-dependent
operating and general expenses. For more information, see Appendix G in the valuation of
Bezeq International as of December 31, 2022 attached to Bezeq's statements).
3.1.4
For more information, see Note 10 to the Statements.
22
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended
December 31, 2022
3.2.
Due to the materiality of the lawsuits filed against the Group, which cannot be estimated or for which the
exposure cannot yet be calculated, the auditor CPAs drew attention to this in their opinion on the
Statements.
3.3. Material events during and after the reporting period
Regarding material events during and after the reporting period - see Note 32 to the Condensed
Consolidated Financial Statements.
23
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended
December 31, 2022
4.
Details related to a series of liability certificates
The following are data about the Company's debentures in circulation, as of December 31, 2022:
Series C debentures
Series F debentures
A
B
Issue date (without extensions)
September 15, 2016
July 6, 2021
Total nominal value at the date of
issuance (par value)
NIS 1,882,265,000
NIS 393,973,000
C The nominal value (par value) as of the
NIS 496,746,480
NIS 1,471,766,642
date of the report
D The amount of interest accrued as of
NIS 4,562,477
NIS 1,624,293
the date of the report
E Fair value as included in the Statements NIS 481,021,775
NIS 1,429,896,334
F Stock market value
G
Interest type
NIS 490,288,776
Fixed at 3.85%
NIS 1,354,466,841
Fixed at 3.65%
H Principal payment dates
On November 30, 2024
On November 30, 2026
I
Interest payment dates
J
Linkage
On May 31 and November 30 of
each year, starting on May 31,
2020 until November 30, 2024.
Non-linked
On May 31 and November 30 of
each year, starting on November
30, 2021 until November 30, 2026.
Non-linked
K Total liability in relation to total
Material
Material
Company liabilities
L Trustee details
Trust company - Reznik Paz Nevo Trusts Ltd.
Name of person in charge at the trust company - CPA Michal Avtalion
E-mail michal@rpn.co.il, Tel.: 03-6389200, fax: 03-6389222
Address - 14 Yad Harutzim St., Tel Aviv.
M Rating
The debentures are not rated
N
Compliance with the terms of the trust
deeds
O Liens
P
Q
Financial clauses/restrictions applicable
to the Company for the purpose of
securing the value of the guaranty and
the rights of the holders to act to
exercise the lien granted in their favor
Restriction that applies to the Company
in connection with the creation of
additional liens on its assets or in
connection with its authority to issue
additional debentures
The Company issued to the trustees of the debentures of series C, F
certificates regarding its compliance with the terms of the trust bonds
for the year 2022.
First degree unlimited amount lien pari passu on 728,373,713 ordinary
Bezeq shares of NIS 1 each held directly by the Company and on the
rights attached to these shares.
The Company has committed that during two consecutive quarters the
LTV will not exceed (1) a rate of 80% until November 30, 2023 and (2)
75% starting from December 2023 until the final repayment date of the
debentures.
For details about the restrictions that apply to the Company in
connection with the expansion of the series, see Section 3.2.2 of the
trust deeds (series C, F) of the Company.
For details about the limitations that apply to the Company in
connection with the creation of additional liens, see Section 6.1.3 (c)
of the trust deed (series C) of the Company.
24
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended
December 31, 2022
Financial clauses of the Company's debentures
In accordance with the Company's commitment in debenture series C and F to comply with the LTV clause, the LTV
ratio as of December 31, 2022 was 41.4%.
The Company's net debt balance as of December 31, 2022 is approximately NIS 1,812 million and consists of a debt
balance principal and accrued interest as of the balance sheet date in respect of its debentures in the amount of NIS
1,975 million, net of cash balances in the amount of NIS 103 million.
5. Miscellaneous
For information regarding the balance of liabilities of the reporting corporation in its financial statements as
of December 31, 2022, see the form to be reported by the Company on the MAGNA system on March 14,
2023.
Darren Glatt
Chairman of the Board of Directors
Tomer Raved
CEO
Date of signing: March 14, 2023.
25
Consolidated Statements as of December 31, 2022
Chapter C
Consolidated Financial Statements
for Year Ended December 31, 2022
Page
4
8
10
10
11
12
14
Table of contents
Auditors' reports
Statements
Consolidated Statements of Financial Position
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Cash Flows Statements
Notes to the Consolidated Statements
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
General
Basis of preparation of the statements
Main points of the accounting policy
Cash and cash equivalents
Investments
Trade receivables
Income taxes
Leases
PP&E
Intangible assets
Deferred expenses and non-current investments
Investees
Debentures, loans and credit
Trade payables
Provisions
Employee benefits
Contingent liabilities
Contracts
Collateral, liens and guaranties
Equity
Income
General and operating expenses
Salaries
Other operating expenses (income), net
Financing expenses (income), net
Share-based compensation
Profit per share
28
29
30
31
32
Segmental reporting
Transactions with interested parties and related parties
Financial instruments
Summary of selected data from the statements of Bezeq the Israel Telecommunications Corp.
Ltd., Pelephone Communications Ltd., Bezeq International Ltd. and DBS Satellite Services (1998)
Ltd.
Material events during and after the reporting period
Somekh Chaikin
KPMG Millennium Tower
17 HaArbaa Street P.O.B. 609
Tel Aviv 6100601
03 684 8000
Auditors' report to the shareholders of B Communications Ltd.
We reviewed the attached consolidated statements of the financial position of B Communications Ltd.
(hereinafter – “the Company") as of December 31, 2022 and 2021 and the consolidated statements of income,
comprehensive income, changes in equity and cash flows for each of the three years in the period ended on
December 31, 2022. These statements are the responsibility of the Company's Board of Directors and
Management. Our responsibility is to express an opinion on these statements based on our audit.
We conducted our audit in accordance with auditing standards accepted in Israel, including standards set forth
in the Accountants Regulations (Accountant’s Mode of Operation), 5733-1973. According to these standards, we
are required to plan and perform the audit in order to obtain a reasonable degree of assurance that the separate
financial information is not materially misrepresented. An audit includes a sample examination of evidence
supporting the amounts and details included in the statements. An audit also includes an examination of the
accounting rules applied in preparing the statements and of the significant estimates made by the Company's
Board of Directors and Management, as well as an assessment of the adequacy of the presentation of the
statements. We believe that our audit provides an adequate basis for our opinion.
In our opinion, the above consolidated financial statements adequately reflect, in all material respects, the
financial position of the Company and its consolidated companies as of December 31, 2022 and 2021, as well as
the results of their operations, their changes in equity and their cash flows for each of the three years in the
period ending on December 31, 2022, in accordance with International Financial Reporting Standards (IFRS) and
the provisions of the Securities Regulations (Annual Financial Statements), 5770-2010.
Without limiting our above opinion, we draw attention to what is stated in Note 1 which refers to Note 1.3 to
the consolidated statements, regarding the investigation by the Securities Authority and the Israel Police of a
suspicion of committing offenses under the Securities Law and the Penal Code concerning, inter alia, transactions
related to the former controlling shareholder and the notice of the Tel Aviv District Attorney's Office (Taxation
and Economy) regarding the consideration of prosecuting the Company and holding a hearing for suspicions of
the offense of bribery and the offense of reporting with the aim of misleading a reasonable investor, and what
is stated in this note regarding the filing of indictments against the former controlling shareholder in the
Company in various offenses, among other things, for offenses of bribery and causing misleading detail in
immediate reporting, and regarding the filing of an indictment against the former controlling shareholder of the
Company and former senior officers of Bezeq Group, which attributes to the defendants fraudulent receipt and
reporting offenses under the Securities Law. Also, following the opening of the aforementioned investigation, a
number of civil legal proceedings were opened against the Company, former officers of the Company as well as
companies from the group that previously controlled the Company, including motions for the approval of class
actions. As stated in the above note, at this stage the Company is unable to assess the effects of the
investigations, their findings and results on the Company as well as on the statements and estimates used in the
preparation of these reports, if any.
In addition, without limiting our above opinion, we draw attention to what is stated in Note 17 to the Company’s
consolidated statements regarding claims filed against Group companies, which cannot be estimated or for which
the exposure cannot yet be calculated.
Key audit matters
Key matters in the audit listed below are the matters that were communicated, or were required to be
communicated, to the Company's Board of Directors and which, according to our professional judgment, were
most significant in the audit of the consolidated statements for the current period. These matters include, among
others, any matter which: (1) Relates, or may relate, to material sections or disclosures in the statements, and
(2) Our judgment regarding it was particularly challenging, subjective or complex. These matters are answered
4
Somekh Chaikin
KPMG Millennium Tower
17 HaArbaa Street P.O.B. 609
Tel Aviv 6100601
03 684 8000
as part of our audit and formation of our opinion on the consolidated statements as a whole. The communication
of these matters below does not change our opinion on the consolidated statements as a whole, and we do not
use it to give a separate opinion on these matters or on the sections or disclosures to which they refer.
Measuring the impairment of cash-generating units of DBS Ltd. and Bezeq International Ltd.
Why was the matter determined as a key matter in the audit
As described in Notes 3.10.2, 10.2, 10.5 and 10.6 to the consolidated statements, as of December 31, 2022, the
recoverable amount of the cash generating units DBS Ltd. and Bezeq International Ltd. (hereinafter: the "Units")
is negative in the amount of NIS (88) and (22) million, respectively, and the total loss from the impairment of
these units for the year that ended on December 31, 2022 amounts to NIS 378 million. In accordance with
International Accounting Standard 36 ("IAS36"), the recoverable amount is the higher of the value in use of a
cash-generating unit, which is measured by the Company's future cash flow forecast measurement method
(DCF), and the fair value minus selling costs. Allocation of the impairment of the Company's assets is carried out
in accordance with the fair value minus sales costs of each of the unit's assets. The impairment audit of the units
required us to exercise discretion, when examining the reasonableness of the assumptions and estimates used
by Management and external experts on its behalf, for the purpose of measuring the recoverable amount and
allocating the impairment. Accordingly, we identified the measurement of the impairment of the units as a key
matter in the audit.
Audit procedures carried out in response to the key matter in the audit
The main procedures we carried out in connection with this key matter as part of our audit included, among
others: checking the completeness and accuracy of the databases used to calculate the fair value minus the
exercise costs of the Company's assets, checking the reasonableness of the significant assumptions and estimates
used in building the forecasted cash flows by comparing them to historical results, multi-year plans and updated
market data. We also checked the adequacy of the information presented in Notes 3.10.2, 10.2, 10.5 and 10.6
to the consolidated statements, made inquiries of the relevant parties in the Company involved in the process
and checked the planning, implementation and operational effectiveness of certain internal controls related to
the assessment of the recoverable amount of the units.
For the purpose of carrying out the procedures, we used experts with skill and knowledge in fair value valuations
in order to assist in assessing the adequacy of the evaluation method, assessing the reasonableness of the
discount rate and the growth rate, as well as in performing arithmetic tests for calculating the use value of the
units and fair value minus sales costs of the units' assets.
We also audited, in accordance with Audit Standard (Israel) 911 of the Institute of Certified Public Accountants
in Israel "Audit of Components of Internal Control over Financial Reporting", components of internal control over
the financial reporting of the Company as of December 31, 2022, and our report dated March 14, 2023 included
an unreserved opinion on the effective existence of those components.
Somekh Chaikin
Certified Public Accountants
March 14, 2023
Somekh Chaikin, Israeli partnership and a member of the KPMG network of independent firms
incorporated u n d e r t h e Swiss entity K P M G I n t e r n a t i o n a l C o o p e r a t i v e ( " K P M G I n t e r n a t i o n a l " )
Somekh Chaikin
KPMG Millennium Tower
17 HaArbaa Street P.O.B. 609
Tel Aviv 6100601
03 684 8000
The auditors' report to the shareholders of B Communications Ltd. regarding an audit of components of
internal control over financial reporting in accordance with Article 9b (c) of the Securities Regulations (Periodic
and Immediate Reporting), 5730-1970
We audited components of internal control over financial reporting of B Communications Ltd. and subsidiaries
(hereafter collectively - "the Company") as of December 31, 2022. These control components were determined
as explained in the next paragraph. The Company's Board of Directors and Management are responsible for
maintaining effective internal control over financial reporting and evaluating the effectiveness of components of
internal control over financial reporting attached to the periodic report as of the aforementioned date. Our
responsibility is to express an opinion on components of internal control over the Company's financial reporting
based on our audit.
Components of internal control over financial reporting that were audited were determined in accordance with
Audit Standard (Israel) 911 of the Institute of Certified Public Accountants in Israel "Audit of Components of
Internal Control Over Financial Reporting" (hereinafter - "Audit Standard (Israel) 911"). These components are:
(1) Controls at the organization level, including controls on the process of preparing and closing financial
reporting;
(2) Controls over cash process and debt management;
We conducted our audit in accordance with Auditing Standard (Israel) 911. According to this standard, we are
required to plan and perform the audit with the aim of identifying the audited control elements and obtaining a
reasonable degree of assurance as to whether these control elements have been effectively implemented in all
material respects. Our audit included gaining an understanding of internal control over financial reporting,
identifying the audited control components, assessing the risk of a material weakness in the audited control
components, as well as examining and evaluating the effectiveness of the planning and operation of those control
components based on the assessed risk. Our audit, regarding those control elements, also included the
performance of such other procedures as we deemed necessary according to the circumstances. Our audit
referred only to the audited control components, as opposed to internal control over all the essential processes
in connection with the financial reporting, and therefore our opinion refers to the audited control components
only. Also, our audit did not refer to mutual effects between the audited and non-audited control components
and therefore, our opinion does not take into account such possible effects. We believe that our audit provides
an adequate basis for our opinion in the context described above.
Due to inherent limitations, internal control over financial reporting in general, as well as its components in
particular, may not prevent or detect a misstatement. Also, drawing conclusions about the future based on any
current assessment of effectiveness is exposed to the risk that controls will become inappropriate due to changes
in circumstances or that the extent to which the policies or procedures exist will change for the worse.
In our opinion, the Company effectively maintained, in all material respects, the audited control components as
of December 31, 2022.
As described in the report regarding the effectiveness of the internal control over the financial reporting and
disclosure, as of December 31, 2022, of B Communications Ltd. (hereinafter – “the Corporation"), regarding the
investigations of the Securities Authority and the Israel Police, as specified in Section 1.1.7 of the chapter
describing the corporation's business in this report, to the Corporation does not have complete information
regarding these investigations, their design, the materials and evidence available to the law authorities in the
matter. Accordingly, the Corporation is unable to assess the effects, findings and results of the investigations on
the Company, as well as on the statements and the estimates used in their preparation, if any.
Somekh Chaikin
KPMG Millennium Tower
17 HaArbaa Street P.O.B. 609
Tel Aviv 6100601
03 684 8000
We also audited, in accordance with generally accepted auditing standards in Israel, the consolidated financial
statements of the company for December 31, 2022 and 2021 and for each of the three years in the period ending
on December 31, 2022 and our report, dated March 14, 2023, included an unlimited opinion on those
statements, based on our audit and the reports of the other auditors, as well as references to what is stated in
Note 1.3 regarding the investigation of the Securities Authority and the Israel Police into suspicions of committing
offenses under the Securities Law and the Penal Code concerning, among other things, transactions related to
the former controlling shareholder and the notice of the Tel Aviv District Attorney's Office (Taxation and
Economy) regarding the consideration of prosecuting the Company and holding a hearing for suspicions of the
offense of bribery and the offense of reporting with the aim of misleading a reasonable investor, as well as what
is stated in this note regarding the filing of an indictment against the former controlling shareholder of the
Company, for various offenses, among others the offenses of bribery and causing a misleading detail in an
immediate report, and regarding the filing of an indictment against the former controlling shareholder of the
Company and former senior officers of Bezeq Group, which attributes to the defendants fraudulent receipt and
reporting offenses under the Securities Law. Also, following the opening of the aforementioned investigation, a
number of civil legal proceedings were opened against the Company, former officers of the Company as well as
companies from the group that previously controlled the Company, including motions for the approval of class
actions. As stated in the above note, at this stage the Company is unable to assess the effects of the
investigations, their findings and results on the Company as well as on the statements and estimates used in the
preparation of these statements, if any, and drawing attention to what is stated in Note 17 regarding claims filed
against the Group and for which it is not possible to estimate or calculate the exposure at this stage.
Somekh Chaikin
Certified Public Accountants
March 14, 2023
Somekh Chaikin, Israeli partnership and a member of the KPMG network of independent firms
incorporated u n d e r t h e Swiss entity K P M G I n t e r n a t i o n a l C o o p e r a t i v e ( " K P M G I n t e r n a t i o n a l " )
Consolidated Statements as of December 31, 2022
Consolidated statements of financial position as of December 31
Assets
Note
NIS millions
NIS millions
2022
2021
Cash and cash equivalents
Investments
Trade receivables
Other receivables
Inventory
Total current assets
Trade and other receivables
Broadcasting rights – net of rights exercised
Right-of-use assets
PP&E
Intangible assets
Deferred expenses and investments *
Deferred tax assets
Total non-current assets
4,3.3
5,3.3
,6
3.3
,6
3.3
3.9
,6
3.3
3.4
,8
3.7
,9
3.5
754
973
1,440
289
85
3,541
460
57
1,746
6,542
,10
3.6
3,251
11
258
,7
3.16
-
998
1,134
1,859
280
74
4,345
433
60
1,828
6,312
3,251
306
24
12,314
12,214
Total assets
15,855
16,559
* Including investment in long term bank deposits.
8
Consolidated Statements as of December 31, 2022
Consolidated statements of financial position as of December 31 (Cont.)
Liabilities and assets
Note
NIS millions
NIS millions
2022
2021
Debentures, loans and credit
Current maturities of lease liabilities
Trade payables
Employee benefits
Provisions
Total current liabilities
Loans and debentures
Lease liabilities
Employee benefits
Derivatives and other liabilities
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Equity attributed to:
Shareholders of the Company
Non-controlling interests
Total equity
,13
3.3
,8
3.7
14
,16
3.11
,15
3.12
,13
3.3
,8
3.7
,16
3.11
,7
3.16
,15
3.12
20
921
456
1,598
399
168
3,542
8,257
1,452
201
151
319
37
980
466
1,755
510
69
3,780
9,068
1,511
243
142
296
49
10,417
11,309
13,959
15,089
54
1,842
1,896
16
1,454
1,470
Total liabilities and equity
15,855
16,559
Darren Glatt
Chairman of the Board of Directors
Tomer Raved
CEO
Itzik Tadmor
CFO
Date of approval of the financial statements: March 14, 2023
The notes attached to the consolidated statements form an integral part thereof.
Consolidated Statements as of December 31, 2022
Consolidated income statements for the year ended December 31
Income
Operating expenses:
2022
2021
2020
Note
NIS millions
NIS millions
NIS millions
,21
3.13
8,986
8,821
8,723
General and operating expenses
Salaries
22
23
Depreciation, amortization and impairment
8,9,10,11
Impairment losses
Other operating expenses (income), net
10
24
Total operating expenses
Operating profit
Financing expenses (income)
,25
3.15
Financing expenses
Financing income
Financing expenses, net
Profit before income tax
Income tax expenses
Net profit for the year
Net profit attributable to:
Shareholders of the Company
Non-controlling interests
Net profit for the year
Profit per share (NIS)
Basic
Diluted
,7
3.16
27
3,396
1,877
1,868
-
220
7,361
1,625
530
(
)132
398
1,227
336
891
158
733
891
1.42
1.41
3,265
1,888
1,889
-
)77(
6,965
1,856
533
)55(
478
1,378
382
996
129
867
996
1.11
1.11
3,182
1,894
1,858
8
73
7,015
1,708
525
)51(
474
1,234
334
900
157
743
900
1.35
1.35
Consolidated statements of comprehensive income
2022
2021
2020
NIS millions
NIS millions
NIS millions
Net profit for the year
Reassessment of defined benefit plan, net of tax
Additional other comprehensive income (loss) from hedging,
net of tax
Total comprehensive income for the period
Attributable to:
Shareholders of the company
Non-controlling interests
Total comprehensive income for the period
891
56
)6 (
941
171
770
941
996
)1(
37
1,032
139
893
1,032
900
)9(
)5(
886
154
732
886
The notes attached to the consolidated statements form an integral part thereof.
Consolidated Statements as of December 31, 2022
Consolidated statements of changes in equity
Share
capital
Shares
premium
Treasury
shares
Other
funds
NIS
millions
NIS
millions
NIS
millions
NIS
millions
Deficit
balance
NIS
millions
Non-
controlling
interests
Total
NIS millions
NIS millions
Total
NIS
millions
Balance as of January 1, 2020
12
1,495
(*)
(38)
(1,710)
(241)
(197)
(438)
Profit for the year 2020
Other comprehensive loss for the
year, net of tax
Total comprehensive income for the
year 2020
Transactions imputed directly to
equity
Transaction with non-controlling
interests
Net compensation in respect of the
Horev claim
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance as of December 31, 2020
12
1,495
(*)
Profit for the year 2021
Other comprehensive income for the
year, net of tax
Total comprehensive income for the
year 2021
Transactions imputed directly to
equity
Share-based
Note 26)
compensation
(See
Buyback of shares (see Note 20)
-
-
-
-
-
-
-
-
-
-
Balance as of December 31, 2021
12
1,495
Profit for the year 2022
Other comprehensive income (loss)
for the year, net of tax
Total comprehensive income (loss)
for the year 2022
Transactions imputed directly to
equity
Share-based
Note 26)
compensation
(See
Business consolidation
Dividend
non-
distributed
controlling interests (see Note 12.6)
to
Transaction with non-controlling
interests
Buyback of shares (see Note 20)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance as of December 31, 2022
12
1,495
(*) Represents an amount of less than NIS 1 million.
-
-
-
-
)16(
)16(
-
-
-
-
-
-
-
(
121
)
(
137
)
-
)1(
)1(
-
-
)39(
-
10
10
-
-
)29(
-
)2 (
)2 (
1
-
-
-
-
157
)2(
157
)3(
155
154
)39(
)39(
19
19
(
1,575
)
107(
)
129
-
129
10
129
139
743
)11(
732
)1(
-
534
867
26
893
-
-
(
1,446
)
158
-
)16(
16
159
27
-
1,454
733
900
)14(
886
)40(
19
427
996
36
1,032
27
)16(
1,470
891
15
13
37
50
173
171
770
941
-
-
-
)13 (
-
-
-
-
11
1
12
1
(
392
)
(
392
)
)13 (
(
121
)
)2 (
-
)15 (
(
121
)
)30 (
(
1,286
)
54
1,842
1,896
The notes attached to the consolidated statements form an integral part thereof.
11
Consolidated Statements as of December 31, 2022
Consolidated cash flow statements for the year ended December 31
2022
2021
2020
Note
NIS millions
NIS millions
NIS millions
Cash flows from current operations
Profit for the year
Adjustments:
891
996
Depreciation, amortization and impairment
8,9,10,11
1,868
1,889
Loss from impairment of assets
Cancellation of loss from impairment of assets
Capital gains, net
Financing expenses, net
Share-based compensation
Income tax expenses
Change in trade and other receivables
Change in inventory
Change in trade and other payables
Change in provisions
Change in employee benefits
Change in other liabilities
Income Tax paid, net
10
10
24
25
26
7
6
14
15
16
Net cash derived from operating activities
Cash flows for investing activities
Purchase of PP&E
Investment in intangible assets and deferred expenses
9
10,11
Payment in respect of frequencies
Government grant in respect of frequencies
Investment transactions, net
Proceeds from the sale of PP&E
Proceeds from the sale of “Walla”, net
Miscellaneous
Net cash used for investing activities
Cash flows for financing activities
Issuance of debentures and receipt of loans
Purchase of non-controlling interests
Repayment of debentures and loans
Lease principal and interest payments
Buyback of Company shares
Interest paid
Dividend distributed to non-controlling interests
Early repayment fees
Payment for completed hedging transactions
Miscellaneous
Net cash used for financing operations
Net increase in cash and cash equivalents
Cash and cash equivalents as of January 1
Cash and cash equivalents at the end of the year
-
-
)8 (
445
12
336
342
)21 (
)54 (
24
)91 (
18
(
271
)
3,491
(
1,353
)
(
346
)
)88 (
74
223
40
-
30
-
-
175(
)
498
27
382
229(
)
)19(
)41(
)47(
)65(
)5(
385(
)
2,826
(
1,328
)
363(
)
-
-
164(
)
278
-
)1(
900
1,858
266
258(
)
)40(
507
-
334
56
13
17
)8(
192(
)
)1(
243(
)
3,209
(
1,133
)
366(
)
-
-
222
148
44
18
(
1,420
)
(
1,578
)
(
1,067
)
13
12
13
8
20
13
12
13
400
)15 (
(
1,416
)
(
420
)
(
121
)
(
307
)
(
392
)
)26 (
)18 (
-
(
2,315
)
(244)
998
754
1,730
-
(
2,072
)
387(
)
)16(
333(
)
-
)34(
)30(
)2(
718
)40(
(
1,828
)
391(
)
-
392(
)
-
)65(
(57)
(7)
(
1,144
)
(
2,062
)
104
894
998
80
814
894
The notes attached to the consolidated statements form an integral part thereof.
Notes to the Consolidated Statements as of December 31, 2022
1. General
1.1.
The reporting entity
1.1.1.
B Communications Ltd. (hereinafter - “the Company") is a company
incorporated in Israel and its registered office is at 144 Menachem Begin Rd.,
Tel Aviv. The Company is a public company traded on the Tel Aviv Stock
Exchange. The consolidated statements of the Company as of December 31,
2022 include those of the Company and its subsidiaries (hereinafter - "the
Group").
On April 14, 2010, the Company acquired 30.44% of the shares of Bezeq, the
largest telecommunications group in Israel, and became the controlling
shareholder of Bezeq. Bezeq's shares are listed for trading on the Tel Aviv
Stock Exchange.
As of December 31, 2022, the Company owns approximately 26.81% of
Bezeq’s issued share capital.
1.2.
Control of the Company
On December 2, 2019, Searchlight Capital Partners, through its subsidiary, Searchlight II
BZQ (hereinafter - "Searchlight"), and the Forer family which controls TNR Investments
Ltd. (hereinafter - "the Forer Family"), completed the purchase of the control of the
Company, so that Searchlight owned 60.18% and the Forer Family owned 11.39% of the
Company's ordinary and issued shares.
As of December 31, 2022, Searchlight and the Forer Family own 65.26% and 12.35%,
respectively, of the Company's net ordinary and issued shares. The proportion of the
holdings of Searchlight and the Forer Family increased following a buyback of the
Company's shares carried out during the years 2021 and 2022 (see Note 20).
1.3.
Investigations by the Israel Securities Authority and the Israel Police
1.3.1.
During the years 2017 and 2018, the Israel Securities Authority and the Israel
Police conducted investigations into suspicions of committing offenses under
the Securities Law and the Penal Law, 5733-1977 ("Penal Law"), concerning
transactions related to the former controlling shareholder of Bezeq and
former Chairman of the Bezeq Board of directors, Mr. Shaul Elovich
("Elovich") regarding the purchase of shares in DBS Satellite Services 1998 Ltd.
("DBS") and the provision of satellite communication services to DBS, the
conduct of the Ministry of Communications with Bezeq (the "DBS Case") as
well as suspicions of the exercise of powers by the Prime Minister, Mr.
Binyamin Netanyahu, to promote issues concerning the business and
economic interests of Elovich and Bezeq Group. ("Case 4000"). Following the
investigations, indictments were filed and notices were received as follows:
1.3.1.1. On January 28, 2020, an indictment was filed with the Jerusalem
District Court against Elovich for various offenses, among others,
the offenses of bribery and causing a misleading detail in an
immediate report in connection with suspicions of the exercise of
powers by the Prime Minister, Mr. Binyamin Netanyahu, to
promote issues concerning the business and economic interests of
Elovich and Bezeq Group.
13
Notes to Consolidated Statements as of December 31, 2022
1.3.1.2. On December 23, 2020, Bezeq received a notice from the Tel Aviv
District Attorney's Office (Taxation and Economics) regarding the
consideration to prosecute Bezeq and a summons to a hearing in
Case 4000 ("the Notice"), according to which:
A.
B.
C.
D.
E.
After examining the evidence presented to him, the Attorney
General is considering filing an indictment against Bezeq for
suspected bribery offenses (an offense under Article 291 of the
Penal Law together with Article 23 of the Penal Law), and the
offense of reporting with the aim of misleading a reasonable
investor (an offense under Article 53(a)(4) of the Securities Law
together with Article 23 of the Penal Law).
Per the announcement, according to the suspicion, Bezeq's criminal
responsibility for the bribery offense stems from the actions and
criminal thinking of Elovich, who was its organ during the period
relevant to the suspicions.
Also, per the announcement, according to the suspicion, Bezeq's
criminal responsibility for the reporting offense stems from the
actions and criminal thinking of Elovich, who was its organ during
the period relevant to the suspicions, and from the actions and
criminal thinking of Stella Handler (the former CEO of Bezeq), who
was an organ of Bezeq during the relevant period (see Note
1.3.1.3b). According to the claim in this context, Bezeq reported on
the Ministry of
the Director General of
a
Communications which allegedly included a misrepresentation (of
which Elovich and Stella Handler were aware), and only after the
intervention of senior officials in the State Attorney’s Office, the
letter was corrected and the correction was reported by Bezeq to
the public.
letter
from
It should be noted that Walla (a former subsidiary of Bezeq) also
received a similar notification according to which, after examining
the evidence presented to him, the Attorney General is considering
filing an indictment against Walla for suspicions of bribery (an
offense under Article 291 of the Penal Code together with Article
23 of the Penal Code) when, according to the suspicion, Walla's
criminal responsibility for the offense of bribery stems from the
actions and criminal thinking of Elovich, who was its organ during
the period relevant to the suspicions.
Following this, on July 8, 2021, Bezeq and Walla submitted a written
claim to the hearing. On August 12, 2021, the companies will be
heard before the Deputy State Attorney (Criminal Enforcement)
and before the team of attorneys handling the case. As of the date
of publication of the report, the Attorney General's Office and the
Attorney General has not yet decided on the filing of an indictment
following the claims raised in the hearing, and the companies have
not been given an expected date for receiving the decision.
1.3.1.3. On December 23, 2020, to the best of Bezeq's knowledge, a notice
was published by the Attorney General's Office, according to which,
among other things, the Taxation and Economic Attorney's Office
filed with the economic department of the Tel Aviv District Court,
on the same day, an indictment against Elovich, as well as against
former senior officials of Bezeq Group and DBS, Or Elovich, Amikam
Notes to Consolidated Statements as of December 31, 2022
A.
B.
C.
Shurer, Linor Yochelman, Ron Ayalon and Mickey Neiman in the
DBS Case. According to the notice:
The indictment attributes to the defendants the offenses of
obtaining by fraud under aggravated circumstances, fraud and
breach of trust in a corporation, and reporting offenses according
to the Securities Law, and refers to two cases: fraud in relation to
the payment of consideration for the purchase of DBS shares by
Bezeq, and fraud in relation to the conduct of the independent
committees that were established in Bezeq for the purpose of
examining Bezeq transactions in which Elovich was personally
interested.
The Taxation and Economic Attorney's Office entered into an
arrangement for a conditional termination of proceedings under
the terms of the Securities Law with Stella Handler, in the
framework of which Stella Handler admitted the facts according to
which she was involved in the inclusion of a misleading detail in
Bezeq’s reports. In accordance with what is specified in the
settlement, the DBS case was closed in the case of Stella Handler.
The investigation files of other suspects investigated in the cases
mentioned above were closed, including against the Bezeq’s
former VP of Regulation, as well as against Or Elovich and Amikam
Shurer (in relation to both of them - except in regards to the DBS
case as indicated at the beginning of this section).
1.3.1.4. On July 20, 2022, the decision of the Economic Department of the
Tel Aviv-Yafo District Court was published on the request of some
of the defendants to drop charges in the case ("the Decision"). In
accordance with the Decision, the second and third charges in the
indictment (fraud in relation to the conduct of the independent
committees in the "Bezeq-Yes" transaction and the "Yes-Space"
transaction) were dropped against all the defendants in the
following charges: the former controlling shareholder of Bezeq, Mr.
Shaul Elovich, former officers in Bezeq - Mr. Or Elovich, Mr. Amikam
Shurer and Mrs. Linor Yochelman, as well as against the companies
accused of the same charges - companies from the "Eurocom"
group. It was also determined in the Decision, among other things,
that it is not possible to accept the claim put forward by Mr. Shaul
Elovich, that the indictment does not reveal guilt in connection with
the first charge (fraudulent obtainment of advances at the expense
of the second contingent consideration
in the "Bezeq-Yes"
transaction). It was also emphasized in the Decision, that it does
not in any way affect the civil aspect, and the pending proceedings
in this context. Bezeq is studying the decision and its consequences.
On September 6, 2022, an announcement was published by the
Ministry of Justice according to which the Criminal Department of
the Attorney General's Office filed an appeal against the Decision
on the same day.
1.3.1.5. As far as DBS is concerned, which on November 20, 2017 received
a "suspect notification letter" according to which the investigation
case in which it was questioned as a suspect was forwarded to the
Attorney General's Office for consideration - in accordance with the
notice of the Attorney General's Office received at DBS, after the
Securities Authority case, in which it was questioned as a suspect,
Notes to Consolidated Statements as of December 31, 2022
1.3.2.
1.3.3.
was examined by the Attorney General's Office, it was decided on
January 11, 2021 to dismiss the case against it, without filing an
indictment.
It should be noted that following the opening of the aforementioned
investigations, a number of civil legal proceedings were opened against Bezeq
and DBS, Bezeq officers during the relevant period, as well as companies from
the Group that formerly controlled Bezeq, including motions for approval of
class actions and motions for discovery of documents before submitting a
motion for approval of a derivative claim. For details regarding these
procedures, see Note 17.
Bezeq does not yet have complete information regarding the investigations,
their content, the materials and evidence in the possession of the law
authorities in the matter (although in January 2021 Bezeq received the core
of the investigation material in connection with Case 4000 and this as part of
the hearing on this matter as detailed in section 1.3.1.2 above). Accordingly,
Bezeq is still unable to assess the effects of the investigations, their findings,
and their results on Bezeq, as well as on the statements and the estimates
used in the preparation of these reports, if any.
1.4.
Epidemic - outbreak of COVID-19
At the beginning of 2020, the "Corona" virus (COVID-19) broke out in the world and in
Israel (the "Event"). Following the Event, many countries, including Israel, took various
measures and restrictions in an attempt to prevent the spread of the virus. During the
year 2022, there was a significant decrease in the outbreak of the virus and the effects
of the Event, when the consequences of the Event on the Group's activities in 2022 were
manifested mainly in damage to Pelephone's incomes from roaming services (damage
that gradually decreased throughout the year until the date of publication of this report),
without significant negative effects in other areas of activity. As of the date of publication
of the report, there are no special effects of the event on all areas of the Group's activity.
1.5.
Definitions
In these statements:
The Company
The Group
Bezeq
Consolidated
companies
Included
companies
Investees
Related party
Interested party
B Communications Ltd
the Company and its consolidated companies
"Bezeq" The Israel Telecommunications Corp. Ltd
Companies whose reports are fully consolidated, directly or
indirectly, with the Company's reports as specified in Note 12.
Companies, the Group's investment in which is included, directly
or indirectly, in the statements based on the balance sheet value.
Consolidated companies or included companies.
As defined in International Accounting Standard 24 regarding
related parties.
As defined in Paragraph (1) of the definition of "interested party"
in a corporation in Article 1 of the Securities Law, 5748-1968.
Notes to Consolidated Statements as of December 31, 2022
2.
Basis of preparation of the statements
2.1.
Declaration of compliance with international financial reporting standards
The consolidated financial statements were prepared by the group in accordance with
international financial reporting standards (hereinafter: "IFRS") and in accordance with
the securities regulations (annual financial statements), 2010.
The consolidated financial statements were approved by the board of directors on March
14, 2023.
2.2.
Activity currency and presentation currency
The consolidated financial statements are presented in new shekels, which are the
group's operating currency, and are rounded to the nearest million. The shekel is the
currency that represents the main economic environment in which the group operates.
2.3.
Basis of measurement
The consolidated statements were prepared on the historical cost basis with the
exception of the following items:
* Derivative financial instruments, measured at fair value through income
* Inventory measured as the lower of cost or net exercise value
* Deferred tax assets and liabilities
* Provisions
* Assets and liabilities in respect of employee benefits
For more information regarding the measurement method of these assets and liabilities,
see Note 3 regarding the key points of the accounting policy.
2.4.
Operating cycle period
The operating cycle of the Group does not exceed one year. Therefore, current assets
and current liabilities include items that are intended and expected to be realized within
a year from the date of the financial statements.
2.5.
Format for analyzing expenses recognized in the profit and loss statement
Costs and expenses in the income statement are presented and analyzed according to a
classification method based on the nature of the expenses. The aforementioned
classification is suitable for understanding the business of the Group, which deals in a
wide variety of services provided through a shared infrastructure. All costs and expenses
are used to provide the services.
2.6.
Use of estimates and discretion
When preparing the consolidated statements
international
accounting standards (IFRS), Management is required to exercise discretion and be
assisted by estimates, estimates and assumptions that affect the implementation of
accounting policies and the reported amounts of assets and liabilities, income and
expenses. Actual results may differ from estimates.
in accordance with
The estimates and assumptions are reviewed on an ongoing basis. Changes in accounting
estimates are recognized in the period in which the estimates were updated and in any
future period affected.
Notes to Consolidated Statements as of December 31, 2022
The following is information regarding significant estimates and judgments, for which a
change in estimates and assumptions has the potential to have a material impact on the
statements of the next fiscal year:
Key assumptions
Assuming the expected cash flows
from the cash generating units
Possible implications
Recognition of an impairment
loss or cancellation of an
impairment loss
Reference
Note 10
the
Subject
Measuring
recoverable
amounts of cash
generating units
Duration of PP&E,
intangible assets,
and other
long-
term assets
Determining
lease period
the
Uncertain
positions
tax
and
Provisions
contingent
liabilities,
including levies
the useful
Assumptions regarding
duration of groups of PP&E, intangible
assets and other assets
of
options
exercise
For the purpose of determining the
lease period, the Group takes into
account the period during which the
lease cannot be canceled, including
extension options with reasonable
and/or
likelihood
cancellation
without
reasonable likelihood of exercise
The degree of uncertainty regarding
the acceptance of the Group's tax
positions (uncertain tax positions) and
the risk that the tax and interest
expenses will be higher or lower than
the
the
statements. This, based on an analysis
of
including
interpretations of tax laws and the
Group's past experience
Assessing the chances of claims against
the Group companies and measuring
the potential liabilities related to the
claims
expenses
included
factors,
several
in
Bezeq estimates of the payment to the
authorities for levies on real estate in
the "Sakia" complex
Employee benefits Actuarial assumptions such as discount
rate, future wage increase rate and
departure rate
Deferred taxes
Effective
over Bezeq
control
Assumption regarding the expectation
of exercising the tax benefit in the
future, including an assumption that it
is more likely than not that transferred
losses accumulated in DBS for tax
purposes will not be used
The possibility of appointing most of
the members of the Board of Directors
of Bezeq, as a result of the Company's
permit to control Bezeq, the control
over the composition and distribution
of the other shareholders in Bezeq and
the restrictions applicable to these
the
shareholders
Communications Law
under
Notes
9,10,11
Note 8
assets,
Change in the value of PP&E,
intangible
and
additional assets, as well as
depreciation
and
amortization expenses
Increase or decrease in the
measurement of a right-of-
use asset and lease liability
in depreciation and
and
in
expenses
financing
subsequent periods
Recognition or cancellation of
income tax expenses
Note 7
a
Cancellation or creation of a
claim,
provision
for
of
recognition
income/expenses
and
recognition of income for said
change, respectively
Change in share capital gains
gain from the sale of real
estate in the "Sakia" complex
Increase or decrease
in
liabilities
employee
for
benefits and commitment to
early retirement
Recognition of a deferred tax
asset and impact on income
tax expenses
Note 6.6
Note 16
Note 7
Consolidation of Bezeq's
statements or treatment of
investment in Bezeq using the
equity method
Notes 12.4,
12.5
Notes to Consolidated Statements as of December 31, 2022
2.7.
Fair value determination
In order to prepare the statements, the Group is required to determine the fair value of
certain assets and liabilities. Additional information regarding the assumptions used in
determining the fair values is provided in Note 30.7 on fair value.
3. Main points of the accounting policy
The accounting policy rules detailed below have been consistently applied to all periods presented
in these consolidated reports by the Group entities.
In this note, where the Group chose accounting alternatives, which were allowed by accounting
standards and/or accounting policies on a subject where there is no explicit instruction in
accounting standards, the said disclosure is presented in bold. There is no reason to attribute
excessive importance to the aforementioned emphasis compared to the rest of the accounting
policies that have not been emphasized.
3.1.
Consolidation of the statements
3.1.1.
Subsidiaries
Subsidiaries are entities controlled by the Company. The statements of
subsidiaries are included in the consolidated statements from the day control
is obtained until the day control is lost.
Control exists when the group is exposed, or has rights, to variable returns
from its involvement in the acquiree and has the ability to influence these
returns through its power of influence in the acquiree. When examining
control, actual rights held by the group and by others are taken into account.
3.1.2.
Non-controlling interests
Non-controlling interests are the equity in a subsidiary that cannot be
attributed, directly or indirectly, to the parent company and include
additional elements such as: a share-based compensation that will be settled
in equity instruments of subsidiaries.
3.1.3.
3.1.4.
income and other comprehensive
Allocation of
shareholders
Income and any other component of comprehensive income is attributed to
the Company's owners and non-controlling interests. The total income and
other comprehensive income is attributed to the owners of the Company and
the non-controlling interests even if as a result the balance of the non-
controlling rights will be negative.
income among the
Transactions with non-controlling interests while retaining control
Transactions with non-controlling interests while retaining control are
treated as equity transactions. Any difference between the consideration
paid or received and the change in non-controlling interests is credited to the
Company's owner's share of equity directly to surplus. The amount by which
the non-controlling interests are adjusted is calculated as follows: by the
increase in the holding rate, according to the relative portion purchased from
the balance of the non-controlling interests in the consolidated statements
on the eve of the transaction. Also, when there are changes in the holding
rate in a subsidiary, while retaining control, the Company reallocates the
cumulative amounts recognized in other comprehensive income between the
owners of the Company and the non-controlling interests.
Notes to Consolidated Statements as of December 31, 2022
3.1.5.
Transactions cancelled as part of consolidation
Mutual balances in the Group and income and expenses arising from inter-
company transactions were canceled within the framework of the
consolidated statements.
3.1.6.
Contingent consideration for business consolidations
After the date of purchase, the Group recognizes the changes in the fair value
of contingent consideration recognized as part of business consolidations,
classified as a financial liability, in the income statement as part of the
Financing Expenses section.
3.2.
Foreign currency transactions
Foreign currency transactions are translated into the Group's functional currency
according to the exchange rate in effect on the dates of the transactions. Financial assets
and liabilities denominated in a foreign currency at the reporting date are translated into
the activity currency according to the exchange rate in effect at that time.
3.3.
Financial Instruments
3.3.1.
Non-derivative financial assets
Non-derivative financial assets mainly include investments in deposits,
marketable securities, customers and other receivables, and cash and cash
equivalents.
The Group initially recognizes financial assets at the time when the Group
becomes a party to the contractual provisions of the instrument, meaning the
time when the Group committed to buy or sell the asset.
A financial asset is first measured at fair value plus transaction costs that can
be directly attributed to the purchase or issuance of the financial asset.
Customers that do not include a significant financing component are
measured for the first time according to the transaction price.
Financial assets are deducted when the Group's contractual rights to the cash
flows arising from the financial asset expire, or when the Group transfers the
rights to receive the cash flows arising from the financial asset in a transaction
in which all the risks and benefits from ownership of the financial asset are
effectively transferred.
Classification of financial assets into groups and the accounting treatment of
each group
At the time of initial recognition, financial assets are classified into one of the
following measurement categories: amortized cost; or fair value through
income.
A financial asset is measured at amortized cost if it meets the two cumulative
conditions below and is not intended to be measured at fair value through
income:
A. Held as part of a business model that aims to hold assets to back the
contractual cash flows; also
B. The contractual terms of the financial asset provide entitlement at
specified times to cash flows that are only principal and interest
payments for the principal amount that has not yet been repaid.
Notes to Consolidated Statements as of December 31, 2022
All financial assets in the Group that are not classified for amortized cost
measurement are measured at fair value through income.
The Group classifies financial assets as follows:
Cash and cash equivalents
Cash includes immediately usable cash balances and deposits on demand.
The cash value includes short-term investments (where the duration between
the original deposit date and the redemption date is up to 3 months), with a
high level of liquidity, which can be easily converted into known amounts of
cash and which are exposed to an insignificant risk of changes in value.
Customers, debtors and deposits
The Group has customer balances, other receivables and deposits held as part
of a business model aimed at collecting the contractual cash flows. The
contractual cash flows for these financial assets include only principal and
interest payments which reflect a return for the time value of money and
credit risk. Accordingly, these financial assets are measured at amortized cost.
Subsequent measurement and profits and losses
Financial assets at a amortized cost are measured using the effective interest
method and deducting impairment losses. Interest income, gains or losses
from exchange rate differences and depreciation are recognized in income.
Any profit or loss resulting from a deduction is also recognized in income.
Financial assets at fair value through profit and loss are measured in
subsequent periods at fair value. Net gains and losses, including interest
income or dividends, are recognized in profit and loss.
3.3.2.
Non-derivative financial liabilities
Non-derivative financial obligations include: debentures issued by the Group,
loans and credit from banks and other credit providers, suppliers and other
beneficiaries.
The Group initially recognizes debt instruments issued at the time of their
formation. The other financial obligations are recognized at the time the
transaction is concluded. Financial liabilities are initially recognized at fair
value less any attributable transaction costs. After initial recognition, financial
liabilities are measured at amortized cost in accordance with the effective
interest method.
Financial obligations are deducted when the Group's liability, as specified in
the agreement, expires or when it has been settled or cancelled.
Changing the terms of debt instruments
The exchange of debt instruments, with substantially different terms,
between existing borrower and lender, is treated as the settlement of the
original financial liability and the recognition of a new financial liability at fair
value. The difference between the reduced cost of the original financial
liability and the fair value of the new financial liability is recognized in profit
and loss in the financing income or expenses section.
Notes to Consolidated Statements as of December 31, 2022
The terms are materially different if the discounted present value of the cash
flows under the new terms, including any fees paid, minus any fees received
and discounted using the original effective interest rate, differs by at least ten
percent from the discounted present value of the remaining cash flows of the
original financial liability.
In addition to the aforementioned quantitative test, the Group examines,
among other things, whether there have been changes in various economic
parameters inherent in the exchanged debt instruments.
In the event of a change in the terms (or exchange) of a non-material fixed
interest debt instrument, the new cash flows are discounted at the original
effective interest rate, with the difference between the current value of the
financial liability with the new terms and the current value of the original
financial liability recognized in income in the "Financing expenses (income)"
section.
The Group has chosen an accounting policy, according to which when a
is
portfolio of
repaid/exchanged,
from
deduction/exchange will be carried out using the FIFO method.
identical characteristics
or
liabilities with
calculation
financial
profit
loss
the
of
3.3.3.
Index-linked assets and liabilities that are not measured according to fair
value
The value of index-linked financial assets and liabilities, which are not
measured according to fair value, is estimated each period according to the
actual increase/decrease rate of the index.
3.3.4.
Offsetting financial instruments
A financial asset and a financial liability are offset and the amounts are
presented on a net basis in the statement of financial position when the
Group currently has an enforceable legal right to offset the recognized
amounts as well as an intention to dispose of the asset and liability on a net
basis or exercise the asset and settle the liability at the same time.
3.3.5.
Hedging
A. Accounting hedging
The Group holds derivative financial instruments for cash flow hedging
purposes in respect of risks of future changes in the consumer price index in
connection with the debentures issued by the Group.
At the time of creating the hedging relationship, the Group documents its risk
management objective and strategy for performing the hedging. The group
also documents the economic relationship between the hedged item and the
hedging instrument, including whether the changes in the cash flows of the
hedged item and the hedging instrument are expected to offset each other.
Derivatives are initially recognized at fair value. Attributable transaction costs
are charged to profit and loss as incurred. After initial recognition, the
derivatives are measured at fair value, with the effective part of the changes
in the fair value of the derivative being credited to a hedge fund as part of
other comprehensive income. The effective part of the changes in the fair
value of a derivative, which is credited to other comprehensive income, is
Notes to Consolidated Statements as of December 31, 2022
limited to the cumulative change in the fair value of the hedged item
(according to current value) from the date the hedge was created. The part
that is not effective, the change in fair value is credited to income
immediately.
B. Financial hedging
In addition, the group owns derivative financial instruments for cash flow
hedging purposes for foreign currency risks. Hedge accounting is not applied
in respect of these instruments. Derivative instruments as mentioned are
recognized at fair value; The changes in the fair value are immediately
credited to the profit and loss statement, as income or financing expenses.
3.4.
Broadcasting rights
The broadcast rights are presented according to cost, minus rights exercised and
impairment losses.
Costs of broadcast rights purchased to broadcast content include the amounts paid to
the rights providers plus direct costs incurred for the purposes of adjusting the broadcast
rights, as well as costs of original productions. The broadcasting rights are amortized on
a straight line according to the term of the rights agreement or the economic life,
whichever is shorter.
Examining the impairment of broadcast rights is done as part of the cash-generating unit
to which the broadcast rights are associated (see also Note 10).
The net change in broadcast rights is presented as adjustments to profit as part of current
activities within the statement of cash flows.
3.5.
PP&E
3.5.1.
Recognition and measurement
The Group chose to measure PP&E items at cost minus accumulated
depreciation and impairment losses.
Cost includes costs directly attributable to the purchase of the property. The
cost of self-constructed assets includes the cost of materials, direct labor and
financing costs, any additional cost that can be directly attributed to bringing
the asset to the location and condition necessary for it to be able to operate
in the manner intended by Management, as well as an estimate of the costs
of dismantling and removing the items and restoring the site where the item
is located in cases where the Group is obligated to clear and restore the site.
The cost of purchased software, which is an integral part of the operation of
the related equipment, is recognized as part of the cost of this equipment.
Spare parts, auxiliary equipment and backup equipment are classified as fixed
assets when they meet the definition of PP&E in accordance with IAS 16,
otherwise they are classified as inventory.
When significant PP&E parts have different durations, they are treated as
separate items (significant components) of the PP&E.
Profit or loss from deducting a PP&E item is determined by comparing the
proceeds from deducting the asset with its book value. Profit or loss from the
Notes to Consolidated Statements as of December 31, 2022
sale of PP&E is included in the other income or other expenses, as the case
may be, in the income statement.
3.5.2.
Subsequent costs
The cost of replacing part of a PP&E item and subsequent costs are recognized
as part of the book value of that item, if it is expected that the future
economic benefit inherent in the new part will flow to the Group and if its
cost can be reliably measured. Current maintenance costs of PP&E are
imputed to income as incurred.
3.5.3.
Depreciation
Depreciation is imputed to the income statement according to the straight-
line method over the estimated useful life of each part of the PP&E items,
since this method reflects the predicted consumption pattern of the future
economic benefits inherent in the asset in the best way.
An asset is amortized when it is available for use, that is, when it has reached
the location and condition necessary for it to be able to operate in the manner
intended by Management.
Improvements in leased buildings are generally amortized over the lease term
(which includes the period of the extension options held by the Group which
in its assessment are reasonably certain to be exercised) or the useful
duration of the leasehold improvements, whichever is shorter.
The estimated useful duration for the current period is as follows:
international network equipment
Landline and
(switching, transmission and power)
Landline network
Multi-channel TV equipment and infrastructure
Subscriber equipment and installations
Vehicles
Office and general equipment
Electronic equipment, computers and
communication systems
Cellular network
Passive radio equipment at cellular network sites
Structures
Underwater cable
internal
Years
2-10
9-33
1-7
3-8
6-7
5-14
3-7
4-10
Until December 31, 2042
25
10-25
The estimates regarding the depreciation method, the useful life and the
residual value are re-examined at least every reporting year and adjusted
when necessary.
3.6.
Intangible assets
3.6.1.
Goodwill
Goodwill created as a result of the acquisition of subsidiaries is included in
the intangible assets section. After initial recognition, goodwill is measured at
cost minus accumulated impairment losses. Goodwill is examined for
impairment at least once a year. See also note 10.
Notes to Consolidated Statements as of December 31, 2022
3.6.2.
Software development costs
Software development costs are recognized as an intangible asset only if: the
development costs can be reliably measured; the software is technically and
commercially applicable; A future economic benefit is expected from the
development, and the Group has the intention and sufficient resources to
complete the development and use the software. The costs recognized as an
intangible asset include the cost of materials, direct labor and overhead
expenses that can be attributed directly to prepare the asset for its intended
use. Other development costs are imputed to income as incurred.
Discounted development costs are measured at cost minus accumulated
depreciation and impairment losses.
3.6.3.
Software
Software that is an integral part of hardware which cannot operate without
the software installed on it, is classified as PP&E. On the other hand, licenses
to standalone software that add additional functionality to the hardware are
classified as intangible assets.
3.6.4.
Rights in frequencies
Frequency rights refer to the frequencies assigned to Pelephone for cellular
activity, following its winning in dedicated tenders held by the Ministry of
Communications. Depreciation for the property is imputed to income
according to the "straight line" method and is reduced over the frequency
allocation period, which begins at the time of their use. 3G frequencies
(UMTS/HSEA) are amortized until the end of 2030, 4G frequencies (LTE) and
5g frequencies will be amortized until September 2032.
Reduction of frequency rights
amortization section of the income statement.
is
imputed to the depreciation and
3.6.5.
Other intangible assets
Other intangible assets purchased by the Group, with a defined duration, are
measured at cost minus accumulated depreciation and impairment losses.
3.6.6.
Subsequent costs
Subsequent costs are recognized as an intangible asset only when they
increase the future economic benefit inherent in the asset for which they
were incurred. The other costs, including those related to reputation or self-
developed brands, are imputed to income as incurred.
3.6.7.
Amortization
Depreciation of intangible assets is credited to the income statement
according to the straight-line method, over the estimated useful duration of
the intangible assets from the date the assets are available for use. Goodwill
is not systematically amortized, but is examined at least once a year for
impairment.
The estimated useful duration for the current period is:
Notes to Consolidated Statements as of December 31, 2022
Property type
Amortization period
Frequency usage rights
3G frequencies - until December 2030
4G and 5G frequencies - until August 2032
Computer software and licenses to
use the software
1-7 years, depending on the license period or
over the estimated duration of use of the
software
The estimates regarding the depreciation and useful duration method are re-
examined at least every reporting year and adjusted when necessary.
3.7.
Leases
3.7.1.
Determining whether the arrangement contains a lease
At the time the lease is entered into, the Group determines whether the
arrangement is a lease or contains a lease, while examining whether the
arrangement transfers a right to control the use of an identified asset for a
period of time in exchange for payment. When assessing whether the
arrangement transfers the right to control the use of an identified asset, the
Group assesses throughout the lease term whether it has the following two
rights:
(a) The right to in-fact obtain all the economic benefits from the use of the
identified asset; also
(b) The right to direct the use of the identified property.
For lease contracts that include non-lease components, such as services or
maintenance related to a lease component, the Group has chosen to treat
the contract as a single lease component, without separating the
components.
3.7.2.
Leased assets and lease liabilities
Contracts that give the Group control over the use of an identified asset for a
period of time for consideration are treated as leases. At the time of initial
recognition, the Group recognizes a liability in the amount of the present
value of the future minimum lease payments (these payments do not include
variable lease payments that do not depend on the index, a change in any
interest rate, or a change in the exchange rate), and at the same time the
Group recognizes the right-of-use asset in the amount of the liability,
adjusted for lease payments that were paid in advance or accrued, plus direct
costs incurred in the lease.
Since the interest rate inherent in the lease cannot be easily determined, the
Group's additional interest rate is used (the interest rate that the Group
would have been required to pay in order to borrow for a similar period and
with similar collateral the amounts necessary to obtain an asset of similar
value to a right-of-use asset in a similar economic environment).
After initial recognition, the asset is treated according to the cost model, and
is amortized over the lease term or the asset's useful duration (whichever is
earlier).
Notes to Consolidated Statements as of December 31, 2022
3.7.3.
Lease period
The lease period is defined as a period during which the lease cannot be
canceled, and includes the periods for which there is an option to extend or
cancel the lease if it is reasonably certain that the group will exercise the
options to extend the lease and not exercise the option to cancel the lease.
3.7.4.
Variable lease payments
Lease payments that are linked to the Consumer Price Index are initially
measured by using the existing index at the start of the lease, and are
included in the measurement of the lease liability. When there is a change in
the cash flow of future lease payments resulting from the change in the index,
the balance of the obligation is updated against the right-of-use asset.
3.7.5.
Depreciation of a right-of-use asset
After the start date of the lease, the right-of-use asset is measured using the
cost method, minus accumulated depreciation and minus accumulated losses
from impairments and is adjusted for remeasurements of the liability for the
lease. Depreciation is calculated on a straight-line basis over the useful
duration or the contractual lease period, whichever is earlier, as follows:
Property type
Weighted average of the period of the agreements as
of December 31, 2022 (years)
Cellular communication sites
Structures
Vehicles
6.1
14.4
1.8
3.7.6.
Subleases
In leases where Bezeq Group subleases the base asset, the Bezeq Group
examines the classification of the sublease as a financing or operating lease
in relation to the right of use received in the main lease. Bezeq Group
examined subleases that existed at the time of the first application in
accordance with the balance of their contractual terms as of that date.
3.8.
Capacity usage rights
Transactions for the purchase of the indefeasible right of use (“IRU”) in underwater cable
capacities were treated as service receipt transactions. The amount of the expense paid
in advance is amortized as part of depreciation expenses, on a straight line according to
the period specified in the agreement, including the extension option that the Company
expects to exercise, and no more than the estimated useful duration of such capacities.
The payment for the right to use the capacities is presented in cash flow from investing
activities.
Capacities that can be identified and are used exclusively by the group, were presented
in the PP&E section. The asset is amortized on a straight line according to the period
specified in the agreement and no more than the estimated useful duration of such
capacities. Capacity usage rights are presented net of accumulated impairment losses.
Notes to Consolidated Statements as of December 31, 2022
3.9.
Inventory
The inventory cost includes the costs of purchasing the inventory and bringing it to its
current location and condition.
Inventory is measured as the lower of cost and net realizable value. The group chose to
determine the inventory cost according to the weighted moving average method.
Inventory includes end equipment and related accessories intended for sale and service
as well as spare parts used for repairs as part of the repair service provided to customers.
Inventories of end equipment, accessories, and spare parts whose consumption is slow
are presented minus provision for impairment.
3.10.
Impairment
3.10.1.
Non-derivative financial assets
The Group chose to measure the provision for predicted credit losses for
trade receivables in an amount equal to the contractual credit losses
throughout the duration of the instrument.
Predicted credit losses throughout the duration of the instrument are
predicted credit losses resulting from all possible fault events throughout the
duration of the financial instrument.
Predicted credit losses are a probability-weighted estimate of credit losses.
Credit losses are measured according to the present value of the difference
between the cash flows that the Group is entitled to according to the contract
and the cash flows that the Group expects to receive and are discounted
according to the effective interest rate of the financial asset.
Examination of expected credit losses for trade receivable balances in
substantial amounts is done on the basis of each individual asset. For the rest
of the financial assets, expected credit losses are examined collectively,
according to groups with similar credit risk characteristics, also considering
past experience.
The provision for expected credit losses is presented as a deduction from the
customers’ gross book value.
Regarding the deposits in banks for which the credit risk has not increased
significantly since the date of initial recognition, the Group measures the
provision for predicted credit losses in an amount equal to the predicted
credit losses due to a fault event in a 12-month period.
When assessing whether the credit risk of a financial asset has increased
significantly since the date of initial recognition and the assessment of
forecasted credit losses, the Group takes into account reasonable and
is relevant and obtainable without
substantiated
excessive cost or effort. Said information includes quantitative and qualitative
information, as well as analysis based on the Group's past experience, and it
includes forward-looking information.
information, which
3.10.2.
Non-financial assets (see also Note 10)
Notes to Consolidated Statements as of December 31, 2022
Impairment Timing Examination
The book value of the Group's non-financial assets, other than inventory and
deferred tax assets, is reviewed at each reporting date to determine whether
there are any indicators of impairment. If there are indicators as mentioned,
an estimate of the recoverable amount of the property is calculated.
The Group performs once a year, on a fixed date, an assessment of the
recoverable amount of cash-generating units that include balance of
goodwill, or more frequently, if there are indicators of impairment.
Determination of cash generating units
For the purpose of examining impairment, the assets are grouped together
into the smallest group of assets that generates cash flows from ongoing use,
which are essentially independent of other assets and groups ("cash
generating unit").
Recoverable amount measurement
The recoverable amount of an asset or of a cash generating unit is the value
in use or the fair value less selling costs, whichever is higher. In determining
the value in use, the Group discounts the predicted future cash flows
according to the discount rate which reflects the market's assessments
regarding the time value of money and the specific risks related to the asset
or cash generating unit (for which the future cash flows were not adjusted).
Allocation of goodwill to cash generating units
For the purpose of examining the impairment of goodwill, cash-generating
units to which goodwill has been allocated are grouped so that the level at
which the impairment is examined reflects the lowest level at which the
goodwill is subject to monitoring for the purpose of internal reporting, but in
any case is not greater than the activity segment. Goodwill acquired as part
of business combinations is allocated for the purpose of examining
impairment to cash-generating units that are expected to yield benefits from
the synergy of the combination.
Recognition of an impairment loss
An impairment loss of a cash-generating unit is recognized when the cash-
generating unit's book value, including goodwill, as far as relevant, exceeds
its recoverable amount and is imputed to income. An impairment loss
recognized for a cash-generating unit is allocated first to amortize the book
value of goodwill attributed to the unit, and then to amortize the book value
of the other assets in the cash-generating unit. For the purpose of allocating
the loss from impairment, the value of the assets is not reduced below their
fair value minus realization costs, their value in use (if determinable), or zero,
whichever is higher.
Loss from impairment of assets that is created as a result of a one-time
update of forecasts for the coming years is classified in the income
statement under the section "Impairment loss". On the other hand, loss
from impairment of assets resulting from the ongoing adjustment of non-
current assets of the group companies to their fair value minus exercise
costs (created in light of the prospect of continued negative cash flow and
negative operating value of those companies) is classified in the income
Notes to Consolidated Statements as of December 31, 2022
statement under the same sections in which the current expenses were
classified for these assets. The aforementioned classification is more in line
with the presentation method based on the essence of the expense and is
also more suitable for understanding the Group's business.
Accordingly, in the income statement, the continuous decrease in the value
of broadcasting rights is shown as part of "General and operating expenses"
while the continuous decrease in the value of items of PP&E, intangible assets
and capacity usage rights is presented as part of the "Depreciation,
amortization and impairment" expenses.
Cancellation of impairment loss
Loss from goodwill impairment cannot be cancelled. As for other assets for
which impairment losses were recognized in previous periods, it is checked
on each reporting date whether there are indicators that these losses have
decreased or no longer exist. An impairment loss is canceled if there is a
change in the estimates used to determine the recoverable amount, only to
the extent that the book value of the asset, after the cancellation of the
impairment loss, does not exceed the book value minus depreciation or
amortization, which would have been determined if no impairment loss had
been recognized.
3.11.
Employee benefits
3.11.1.
Post-employment benefits
The Group has several post-employment benefit plans. The plans are usually
funded by deposits to insurance companies and are classified as defined
deposit plans as well as defined benefit plans.
Defined deposit plans
A defined deposit plan is a post-employment plan whereby the Group pays
fixed payments to a separate entity without having any legal or implied
obligation to pay additional payments.
The Group's obligations to deposit in a defined deposit plan are imputed as
an expense to income in the periods during which the employees provided
the services.
Defined benefit plans
The Group's net liability, which refers to a defined benefit plan for post-
employment benefits, is calculated for each plan separately by estimating the
future amount of the benefit that the employee will receive in exchange for
his services in the current period and in previous periods. This benefit is
presented according to current value minus the fair value of the plan's assets.
The calculations are made every year by a qualified actuary. The discount rate
is determined according to the yield at the time of reporting on high-quality
corporate debentures, whose currency is the same as the currency in which
the benefit is paid or linked thereto, and whose maturity date is similar to the
terms of the Group's liability.
The net interest costs for a defined benefit plan are calculated by multiplying
the net liability by the discount rate used to measure the liability for a defined
benefit, as determined at the beginning of the annual reporting period.
Notes to Consolidated Statements as of December 31, 2022
The Group chose to present the interest costs that were credited to profit
and loss, as part of the Financing expenses section.
losses and
Remeasurement of the net defined benefit liability includes actuarial profits
interest).
return on plan assets
and
Remeasurements are imputed immediately, through other comprehensive
income, directly to surplus.
(excluding
the
When there is an improvement or reduction in the benefits that the Group
provides to employees, part of the increased or reduced benefits that refers
to the past services of the employees is immediately recognized as income
when the amendment or reduction of the plan occurs.
3.11.2.
Other long-term employee benefits
The Group's liability for long-term employee benefits (such as an obligation
for accrued vacation and sick days), which do not refer to post-employment
benefit plans, is for the amount of the future benefit due to employees for
services granted in the current period and in previous periods. The amount of
these benefits is presented at its current value. The discount rate is
determined according to the yield at the time of reporting on high-quality
linked corporate debentures whose currency is the shekel, and whose
repayment date is similar to the terms of the Group's commitment. Actuarial
changes are imputed to the income statement in the period in which they
were created. The actuarial changes resulting from a change in the discount
rate are imputed to the Financing expenses/income section, while the other
differences are imputed to Salaries expenses.
3.11.3.
Early retirement and severance benefits
Severance benefits are recognized as an expense when the Group has made
a clear commitment, with no actual possibility of cancellation, to dismiss
employees before they reach the accepted retirement date according to a
detailed formal plan. Benefits given to employees in voluntary retirement are
imputed as an expense when the Group offered the employees a plan
encouraging voluntary retirement and the employees accepted the offer, or
when the Company can no longer go back on its offer.
The expenses for early retirement and dismissal that were imputed to
income are presented in the Other operating expenses (income) Section. The
actuarial changes resulting from a change in the discount rate of long-term
benefits for early retirement and dismissal are credited to the financing
expenses section, while the other actuarial changes are imputed to Other
operating expenses (income).
3.11.4.
Short-term benefits
Liabilities for short-term employee benefits are measured on a non-
discounted basis, and the expense is imputed when the related service is
provided. A liability for short-term employee benefits for a cash bonus is
recognized at the amount expected to be paid, when the Group has a current
legal or implied obligation to pay the said amount for service provided by the
employee in the past, and the obligation can be reliably estimated.
The classification of employee benefits, for measurement purposes, as short-
term benefits or as other long-term benefits is determined according to the
forecast of when the benefits will be fully settled.
Notes to Consolidated Statements as of December 31, 2022
Classification of employee benefits as current or non-current benefits for the
purpose of presenting them in the statement of financial position is carried
out according to the date on which the liability is due.
3.11.5.
Share-based compensation transactions
The fair value at the time the employees were granted warrants for the
purchase of the company's shares was credited as a salaries expense at the
same time as the increase in capital over the period in which the employees
became entitled to the warrants. The company presents the increase in
capital as part of the rights that do not confer control.
For share-based compensation grants conditioned on performance
conditions that constitute market conditions, the group takes these
conditions into account in estimating the fair value of the equity instruments
granted, and therefore the group recognizes the expense for these grants
regardless of the existence of these conditions.
The amount imputed as an expense is adjusted to reflect the number of share
options that are expected to become vested.
3.12.
Provisions
A provision is recognized when the Group has a current, legal or implied obligation, as a
result of an event that occurred in the past, which can be reliably measured, and when
it is expected that an inflow of economic benefits will be required to settle the obligation.
3.12.1.
Lawsuits
The handling of pending lawsuits is in accordance with IAS37 and its
accompanying provisions. According to the provisions, the claims are
classified according to groups with similar characteristics, according to the
areas of probability of the realization of the risk exposures as detailed below:
A. Expected - probability above 50%.
B. Possible - probability more than unlikely and less than or equal to 50%.
C. Unlikely - probability less than or equal to 5%.
With respect to claims for which the Group has aa legal or implied obligation
as a result of an event that occurred in the past and whose realization is likely
to be expected, provisions are included in the statements which, in the
opinion of the Group Management that is based, among other things, on its
legal advisors handling those claims, are adequate under the circumstances
of each case and this despite the fact that the said claims are denied by the
Group companies. In addition, there are a limited number of legal
proceedings, most of which were received recently, the chances of which
cannot be assessed at this stage, and for that reason no provision was made
for them.
In Note 17, details were given regarding the amount of the additional
exposure due to pending claims which are likely to be realized.
3.12.2.
Costs of dismantling and removing sites
The provision for the obligation to dismantle and remove sites is recognized
for lease agreements in which Pelephone has an obligation to return the
leased property to its original condition at the end of the lease period, after
Notes to Consolidated Statements as of December 31, 2022
dismantling and removing the site, as well as restoring the premises when
necessary. The provision is measured by discounting the future cash flows at
a risk-free discount rate that reflects the duration until the expected end of
the contract by virtue of which Pelephone was required to dismantle the site.
The book value of the provision is adjusted each period to reflect the passage
of time that is recognized as financing expenses.
3.12.3.
Onerous contracts
When the Group anticipates that the unavoidable costs of a contract will
exceed the economic benefits expected to be received from the contract, a
provision for onerous contracts is recognized. The provision is measured
according to the present value of the projected cost of canceling the contract
or the present value of the unavoidable costs (net of incomes) to maintain
the contract, whichever is lower. Unavoidable costs are costs that the Group
cannot avoid because it is bound by the contract.
3.13.
Incomes
3.13.1.
The Group recognizes income when the customer obtains control over the
promised goods or service. The income is measured according to the amount
of consideration to which the Group expects to be entitled in return for the
transfer of goods or services promised to the customer, apart from amounts
collected for the benefit of third parties.
The model for recognizing income from contracts with customers includes
five steps for analyzing transactions in order to determine the timing and
amount of income recognition:
Identification of the contract with the customer
Identification of separate performance obligations in the contract
A.
B.
C. Determining the transaction price
D. Allocation of transaction price to separate performance obligations
E. Recognition of income upon fulfillment of performance obligations
3.13.2.
Contract identification
The Group handles a contract with a customer only when all of the following
conditions are met:
1. The parties to the contract have approved the contract (in writing, orally,
or in accordance with other customary business practices) and are
obligated to fulfill the obligations attributed to them
2. The Group can identify the rights of each party regarding the products or
services that will be transferred
3. The Group can identify the terms of payment for the goods or services
that will be transferred
4. The contract has a commercial nature (i.e., the risk, timing, and amount
of the entity's future cash flows are expected to change as a result of the
contract), and
It is expected that the Group will collect the consideration to which it is
entitled for the goods or services that will be transferred to the customer
5.
3.13.3.
Performance obligation identification
The Group evaluates the goods or services promised under a contract with a
customer at the time of entering into the contract, and recognizes as an
Notes to Consolidated Statements as of December 31, 2022
obligation to fulfill any promise to deliver to the customer one of the
following two:
(1) Goods or a service (or package of goods or services) that are separate; or
(2) A series of separate goods or services that are essentially the same and
have the same pattern of transfer to the customer.
3.13.4.
Option to purchase additional goods or services
An option that gives the customer the right to purchase additional goods or
services constitutes a separate performance obligation in the contract only if
the option provides a substantial right to the customer that he would not
have received had he not entered into the original contract.
3.13.5.
Transaction price determination
The transaction price is the amount of consideration to which the Group
expects to be entitled in exchange for the transfer of goods or services
promised to the customer, apart from amounts collected in favor of third
parties. When determining the transaction price, the Group takes into
account the effects of all of the following: variable consideration, the
existence of a significant financing component in the contract, non-cash
consideration and consideration payable to the customer.
3.13.6.
Existence of a significant financing component
For the purpose of measuring the transaction price, Bezeq Group adjusts the
amount of the promised return due to the effects of the time value of money
if the timing of the payments agreed between the parties provides the
customer or the Group with a significant financing benefit. In these cases the
contract contains a significant financing component. In assessing whether a
contract contains a significant financing component, Bezeq Group examines,
among other things, the expected duration between the time when the Bezeq
Group delivers the promised goods or services to the customer and the time
when the customer pays for these goods or services, as well as the difference,
if any, between the amount of the promised consideration and the cash sale
price of the promised goods or services.
When there is a significant financing component in the contract, Bezeq Group
recognizes the consideration amount using the discount rate that will be
reflected in a separate financing transaction between itself and the
customer at the time of engagement. The financing component is recognized
as interest income or expenses during the period calculated according to the
effective interest method.
In cases where the gap between the date of receipt of payment and the date
of delivery of the goods or service to the customer is a year or less, Bezeq
Group applies the practical relief stipulated in the standard and does not
separate a significant financing component.
3.13.7.
Performance obligation fulfilment
Income is recognized when the Group fulfills a performance obligation by
transferring control of goods or a service promised to a customer.
Notes to Consolidated Statements as of December 31, 2022
Measuring progress of performance obligation fulfilment
The Group recognizes income over time by measuring progress toward
fulfillment in full of the performance obligation in a manner that reflects the
Group's performance in transferring control of the promised goods or
services to the customer.
3.13.8.
Contract costs
Additional costs of obtaining a contract with a customer, such as sales
commissions paid to resellers and salespeople employed by the Group for
sales and upgrades, are recognized as an asset when it is expected that the
Group will recover these costs. Costs to obtain a contract that would have
been incurred regardless of whether the contract was obtained are
recognized as an expense when incurred, unless the customer can be charged
for these costs.
Costs discounted as an asset are amortized to the income statement on a
systematic basis according to the expected duration of the subscribers and
according to their expected average churn rate according to the type of
subscriber and the service received thereby (mainly in the range between 1
and 4 years).
In each reporting period, the Group examines whether the book value of the
asset recognized as mentioned above exceeds the remaining amount of the
consideration that the Bezeq Group expects to receive in exchange for the
goods or services to which the asset refers, minus the costs directly related
to the provision of such goods or services that were not recognized as
expenses, and, if necessary, recognizes a loss from impairment in income.
3.13.9.
Principal supplier or agent
When another party is involved in the provision of goods or services to the
customer, the Group examines whether the essence of its promise is a
performance obligation to provide the goods or services defined by itself,
meaning that the Group is a principal supplier and therefore recognizes
income in the gross amount of the consideration, or acts for another party to
provide these goods or services, meaning the Group is an agent and therefore
recognizes income in the amount of the net commission.
The Group is a primary supplier when it controls the promised goods or
service before transferring them to the customer. Indicators that the Group
controls the goods or services before they are transferred to the customer
include, among others, the following: the Group is primarily responsible for
fulfilling the promises in the contract; The Group has inventory risk before the
goods or service have been delivered to the customer; And, the Group has
discretion in setting prices for the goods or services.
3.14.
Government grants
A government grant in respect of a frequency tender is initially recognized at fair value
when there is reasonable assurance that it will be accepted and that the Group will meet
the conditions that entitle their receipt. Government grants received for the purpose of
purchasing an asset are presented as deferred income in the statement of financial
position unfrozen to the income statement throughout the useful duration of the asset.
The income unfreezing is recognized in the Other operating income section of the
income statement.
Notes to Consolidated Statements as of December 31, 2022
3.15.
Financing income and expenses
Financing income mainly includes interest income accrued using the effective interest
method for the sale of terminal equipment in installments, interest income from capital
and changes in the fair value of financial assets presented at fair value through profit and
loss.
Financing expenses mainly include interest expenses and linkage on loans received and
bonds issued, expenses for early repayment of the debt as well as financing expenses for
employee benefits.
In cash flow statements, interest received is presented under cash flows from investing
activities. The Group chose to present the interest and linkage differences paid for loans
and debentures as part of cash flows used for financing activities.
3.16.
Income tax expenses
Income tax expenses include current and deferred taxes. Income tax expenses are
imputed to the income statement or to other comprehensive income if they arise from
items that are recognized in other comprehensive income.
Current taxes
The current tax is the amount of tax expected to be paid on the taxable income for the
year, when it is calculated according to the applicable tax rates according to the laws
enacted or enacted de-facto at the time of the report. Current taxes also include changes
in tax payments referring to previous years.
Offsetting current tax assets and liabilities
The Group offsets current tax assets and liabilities if there is an enforceable legal right to
offset current tax assets and liabilities, and there is an intention to settle current tax
assets and liabilities on a net basis, or if the current tax assets and liabilities are settled
at the same time.
Uncertain tax positions
The provision for uncertain tax positions, including additional tax and interest expenses,
is recognized when it is more likely than not that the group will require its financial
resources to settle the obligation.
Deferred taxes
The recognition of deferred taxes refers to temporary differences between the book
value of assets and liabilities for financial reporting purposes and their value for tax
purposes. The Group does not recognize deferred taxes for the following temporary
differences:
Initial recognition of goodwill
1.
2. Differences arising from investment in subsidiaries and affiliated companies, if it is
not expected that they will be reversed in the foreseeable future and if the Group
controls the date of reversal of the difference.
Deferred taxes are measured according to the tax rates expected to apply to the
temporary differences at the time they will materialize, based on the laws that have been
enacted or whose legislation has been completed de-facto as of the reporting date.
Notes to Consolidated Statements as of December 31, 2022
A deferred tax asset is recognized in the books for transferred losses, tax benefits and
deductible temporary differences, when it is expected that in the future there will be
taxable income against which they can be utilized. The deferred tax assets are reviewed
at each reporting date, and if it is not expected that the related tax benefits will
materialize, they are amortized (see also Note 7).
Deferred tax assets that have not been recognized are revalued at each reporting date
and recognized if the expectation has changed so that it is expected that in the future
there will be taxable income against which it will be possible to utilize them.
Offsetting deferred tax assets and liabilities
The Group offsets deferred tax assets and liabilities if there is an enforceable legal right
to offset current tax assets and liabilities, and they are attributed to the same taxable
income taxed by the same tax authority in the same taxable company, which intends to
settle current tax assets and liabilities on a net basis, or if the current tax assets and
liabilities are settled at the same time.
Presentation of tax expenses as part of a cash flow statement
Cash flows arising from income taxes are classified in the cash flow statement as cash
flows from operating activities, unless they can be specifically identified with investing
activities and financing activities.
3.17.
Profit per share
The Group presents basic and diluted profit per share data regarding its ordinary share
capital. Basic profit per share is calculated by dividing the profit or loss attributable to
the Company's ordinary shareholders by the weighted average number of ordinary
shares outstanding during the year.
Diluted profit per share is determined by adjusting the profit or loss attributable to the
Company's ordinary shareholders and adjusting the weighted average of the ordinary
shares in circulation for the effects of all potential dilutive ordinary shares, including
warrants granted to employees.
3.18.
Dividend
A liability relating to a dividend proposed or announced after the date of the statements
is recognized only in the period in which the announcement was made (approval of the
general meeting). In cash flow statements, a dividend paid is presented as a financing
activity.
3.19. New standards implemented during the reported period:
Amendment to IAS 37 "Provisions, Contingent Liabilities and Contingent Assets"
regarding onerous contracts (hereinafter: "the Amendment")
As of January 1, 2022, the Group implemented the amendment to IAS 37 regarding
onerous contracts. According to the amendment, in examining whether a contract is
onerous, the costs for maintaining a contract that must be taken into account are costs
that relate directly to the contract, which include the following costs:
Notes to Consolidated Statements as of December 31, 2022
A. Additional costs; And
B. Allocation of other costs directly related to the performance of a contract (such as
depreciation expenses of PP&E used both for the fulfillment of the contract under
consideration and for other additional contracts).
The implementation of the amendment had no effect on the Group's statements.
3.20. New standards not yet adopted:
3.20.1.
Amendment to IAS 1 "Presentation of Financial Statements: Classification of
Liabilities as Current or Non-Current" and subsequent amendment: Non-
current liabilities with financial benchmarks
The amendment, together with the subsequent amendment to IAS 1,
replaces certain classification requirements of liabilities as current or non-
current. The amendment will enter into force in reporting periods starting on
January 1, 2024. Early application is possible. The amendment and the
including the
subsequent amendment will be applied retroactively,
amendment of comparison numbers. The Group
is examining the
consequences of implementing the amendment.
3.20.2.
Amendment to the IAS 1 standard - Presentation of Financial Statements:
"Disclosure of Accounting Policies"
In accordance with the amendment, companies are required to disclose their
material accounting policies after the requirement to present their material
accounting policies has passed. According to the amendment, information
about the accounting policy is material if, when taken into account together
with other information provided in the financial statements, it can reasonably
be expected that it will influence decisions that the users of the statements
make based on those statements.
The amendment to IAS 1 also clarifies that information about the accounting
policy may be material if, without it, the users of the statements would be
prevented from understanding other material information in the statements.
In addition, the amendment clarifies that there is no need to disclose
information about accounting policies that are not material. The amendment
will be implemented for reporting periods beginning on January 1, 2023, with
the possibility of early implementation. The Group is examining the
consequences of the amendment on the statements without the intention of
early implementation.
4.
Cash and cash equivalents
Cash and cash equivalents balance as of December 31, 2022 mainly includes deposits in banks for
a period of up to 90 days as well as balances in current accounts.
Notes to Consolidated Statements as of December 31, 2022
5.
Investments
Shekel deposits in banks (1)
Investment in securities
Derivatives
Foreign currency deposits in banks (2)
(1) Deposits in shekels in banks, due until December 2023.
(2) Deposits in US dollars in banks, due until March 2023.
6.
Trade and other receivables
6.1.
Composition of trade and other receivables:
Customers*
Open debts and checks regarding it
Credit cards
Income receivable
Long-term customer current maturities
Relate parties and interested parties
Other receivables and current tax assets*
Current tax assets
Other receivables
Expenses in advance
Frequency grant to receive (see note 10.1)
Long-term customers and other receivables*
Customers – open debts
Long-term receivables and authorities (mainly for real estate
sales)**
December
2022
31,
December
2022
31,
NIS millions
787
159
15
12
973
NIS millions
1,015
99
0
20
1,134
December
2022
31,
December
2022
31,
NIS millions
NIS millions
673
191
242
333
1
849
473
238
297
2
1,440
1,859
28
224
37
-
289
305
155
460
56
114
36
74
280
256
177
433
* Customer balances are presented net of the provision for predicted credit losses.
** See Note 6.6.
2,189
2,572
6.2.
The discount interest rates for long-term customers are in accordance with the credit
risk estimate of the customers. The interest rates used by the Group for discount in 2022
are 4.93%-2.36% (in 2021: 4.38%-2.49%).
Notes to Consolidated Statements as of December 31, 2022
6.3.
Expected exercise dates of long-term customers and receivables:
Expected repayment dates
2024
2025
2026
onwards
December 31, 2022
NIS millions
242
84
134
460
6.4.
Aging of customer debts as of the reporting date:
December 31, 2022
December 31, 2022
Gross customer
balance
Provision
for
predicted credit
losses
Gross customer
balance
Provision
for
predicted credit
losses
NIS millions
NIS millions
NIS millions
NIS millions
1,621
141
15
32
1,809
)7 (
(24)
(7)
(26)
(64)
1,922
175
56
30
2,183
(4)
(21)
(20)
(23)
(68)
Not in arrears
Arrears up to 1 year
Arrears 1-2 years
Arears over 2 years
6.5.
The transactions in the provision for predicted credit losses during the year is as follows:
Balance as of January 1
Loss recognized from impairment
Loan-loss
Balance as of December 31
2022
2021
NIS millions
NIS millions
68
29
)33 (
64
80
6
(18)
68
6.6.
The balance of long-term receivables and authorities include a balance of receivables in
the amount of NIS 106 million for the permit fees and the improvement levy that Bezeq
paid to the Israel Land Authority and the Or Yehuda Local Authority for the sale of the
Sakia complex in 2019. In addition, Bezeq provided guarantees in the amount of
approximately NIS 126 million in accordance with the requirements of the Israel Lands
Authority and the Or Yehuda local authority to pay the balance of the permit fees and
the improvement levy.
In its 2019 statements, Bezeq recognized share capital gains from the sale of the Sakia
complex in the amount of NIS 403 million before tax. The recognition of the share capital
gains is based on Bezeq's estimates of the final amount to be paid to the authorities. It
should be noted that to the extent that Bezeq's Management estimates do not
materialize, the final share capital gains before tax will range from approximately NIS
250 million to approximately NIS 450 million.
A legal proceeding is underway between the parties from 2021.
Notes to Consolidated Statements as of December 31, 2022
7.
Income tax
7.1.
Corporate tax rate
The current taxes for the reporting periods and deferred tax balances as of December
31, 2022 are calculated in accordance with the tax rate relevant to the Group, which is
23%.
7.2.
Final tax assessments
7.2.1.
The Company has final tax assessments up to and including 2018.
7.2.2. Bezeq has final tax assessments up to and including 2018.
On September 15, 2016, at the same time as the signing of an assessment agreement
that ended the dispute between Bezeq and the assessor regarding financing income in
respect of the owner's loans to DBS, the Tax Authority gave permission for tax purposes
to perform a merger of DBS with and into Bezeq, in accordance with the provisions of
Article 103b to the Income Tax Ordinance. According to the approval, DBS losses at the
time of the merger were offset against the profits of Bezeq (the absorbing Company), an
amount will not be allowed to be offset if it exceeds approximately 12.5% (spread over
8 years) of the total losses of the transferring company and the absorbing company or
50% of the absorbing company's taxable income in that tax year before offsetting the
loss from previous years, whichever is lower.
The approval is given in accordance with the applicable tax laws at the time it is given.
Without deducting from the amount of losses stipulated in the assessment agreement,
if there is a change in the applicable tax laws, the Tax Authority will re-examine the
taxation decision according to the tax laws that will apply at the time of the merger.
However, it was clarified that the approval is valid until December 31, 2019. The Tax
Authority will extend the validity of the approval by an additional year, every year,
subject to a declaration by Bezeq and DBS that there has been no material change in
their business and in the conditions of the taxation decision, and subject to the
interpretation given to the tax laws, provided that said interpretation has been published
in writing. A change in the tax laws that does not require a change in the approval will
not cause a change in it. The validity of the taxation decision has been extended several
times since then.
On December 11, 2022, Bezeq received a letter from the Tax Authority extending, at the
request of Bezeq, the validity of the taxation decision for one more year, i.e. until
December 31, 2023. It should be noted that the Tax Authority's letter included a
statement similar to the one included in its letter from the previous year according to
the fact that in light of the fact that there have been no substantial developments
regarding the cancellation of the structural separation between Bezeq and DBS from the
date of the taxation decision to the date of this extension, and in light of the long time
that has passed since the date of the taxation decision, and after examining all Bezeq’s
claims on the subject, the Tax Authority will consider not extending the validity of the
taxation decision beyond December 31, 2023, as long as there are no material
developments in 2023 in regards to the cancellation of the structural separation between
Bezeq and DBS.
The balance of DBS losses for tax purposes, as of December 31, 2022, amounts to
approximately NIS 5.3 billion. See Note 7.6 below regarding deferred taxes that were not
recognized for transferrable losses.
Notes to Consolidated Statements as of December 31, 2022
7.2.3.
Pelephone has final tax assessments up to and including the year 2018.
7.2.4.
Bezeq International has final tax assessments up to and including the year
2019.
7.2.5.
DBS has final tax assessments up to and including the year 2016.
7.2.6.
Bezeq Online has final tax assessments up to and including the year 2017.
7.3.
Income tax expenses
Current tax expenses
Expenses for the current year
Adjustments for previous years
Total current tax expenses
Deferred tax expenses
Creating and reversing other temporary differences
Exercise (creation) of deferred taxes for losses for tax
purposes from the sale of a subsidiary
Total deferred tax expenses
Income tax expenses
Year ended December 31
2022
2021
2020
NIS millions
NIS millions
NIS millions
293
-
293
43
-
43
336
289
14
303
42
37
79
382
273
50
323
48
(37)
11
334
7.4.
Adjustment between the theoretical tax on the profit before income taxes and the tax
expenses
Year ended December 31
2022
2022
2022
NIS millions
NIS millions
NIS millions
Profit (loss) before income taxes
Statutory tax rate
Income taxes according to the statutory tax rate
Impairment of assets for which no deferred tax assets were
created
Expenses that are not recognized for tax and other
purposes, as well as losses for which deferred taxes were
not incurred, net
Creation of deferred taxes for losses for tax purposes from
the sale of a subsidiary
Write-off of tax provision for previous years
Write-off of a tax asset due to failure to observe future
profits
Income tax expenses
1,
227
23%
282
-
54
-
-
-
336
1,378
23%
317
-
65
-
-
-
382
1,234
23%
284
47
16
)37(
)7(
31
334
Notes to Consolidated Statements as of December 31, 2022
7.5.
Recognized deferred tax assets and liabilities and the changes therein
Deferred tax
for
assets
employee
benefit plans
NIS millions
Deferred tax
liabilities for
and
PP&E
intangible
assets
NIS millions
Tax asset for
a loss for tax
purposes
from the sale
of
a
subsidiary
NIS millions
Other
deferred
taxes
NIS millions
Total
NIS millions
261
(
)538
37
58
(
)182
)11(
1
251
)23 (
)6 (
222
)9(
-
(
)547
11
-
(
)536
)37(
-
-
-
-
-
)22(
)12(
24
)31 (
2
)5 (
)79(
)11(
(
)272
)43 (
)4 (
(
)319
to
imputed
Balance as of January 1,
2021
Changes
income:
Creation and reversal of
temporary differences
Changes imputed to other
comprehensive income
Balance as of December 31,
2021
Changes
income:
Creation and reversal of
temporary differences
Changes imputed to other
comprehensive income
Balance as of December 31,
2022
imputed
to
Book value
Deferred tax assets
Deferred tax liabilities
Balance as of
December 31
2022
NIS millions
-
)319
(
(
)319
December 31
2021
NIS millions
24
(
)296
(
)272
7.6.
Unrecognized deferred tax assets and liabilities
Bezeq received approval from the Tax Authority to utilize losses carried forward for tax
purposes when merging with DBS. The approval is conditioned, among other things, on
receiving approval from the Ministry of Communications to cancel the structural
separation between the two companies. The validity of the approval requires that it be
extended by the Tax Authority for an additional year every year until the actual merger,
as described in Note 7.2.1 above.
As of the date of the statements, no deferred taxes were recognized in respect of the
losses of DBS transferred for tax purposes in the amount of approximately NIS 5.2 billion,
and no deferred taxes were recognized in respect of a loss from the impairment of assets
in DBS and Bezeq International (see Note 10), since their exercise is not expected
according to the Group's estimate as of the date of the statements.
In addition, in the calculation of the deferred taxes, the taxes that would apply in the
event of the exercise of the investment in subsidiaries were not recognized, since the
Group intends and has the ability to hold these investments. Also, no deferred taxes
were recognized for the distribution of profits in these subsidiaries since the inter-
company dividends are not subject to tax. Also, the Company does not create deferred
taxes for its transferred losses.
Notes to Consolidated Statements as of December 31, 2022
8.
Leases
As part of the lease agreements, the Group mainly leases cellular communication sites, buildings
(including offices, warehouses, communication rooms and sales points), and vehicles.
8.1.
Right-of-use assets
Cost
Balance as of January 1, 2021
Additions*
Subtractions
canceled agreements
for
terminated or
terminated or
Balance as of December 31, 2021
Additions*
Subtractions
for
Balance as of December 31, 2022
Amortizations and impairment losses
Balance as of January 1, 2021
Amortization for the year
Subtractions
canceled agreements
terminated or
for
for
Changes in agreements and others
Impairment loss
Balance as of December 31, 2021
Amortization for the year
Subtractions
canceled agreements
Changes in agreements and others
Impairment loss
Balance as of December 31, 2021
Book value
As of January 1, 2021
terminated or
As of December 31, 2021
As of December 31, 2022
Communicat
ion sites
Structures
Vehicles
Total
NIS millions
NIS millions
NIS millions
NIS millions
1,190
155
(83)
1,262
111
)85 (
1,288
415
168
(68)
(5)
-
510
156
)73 (
)8 (
-
585
775
752
703
1,095
149
(50)
1,194
90
)17 (
1,267
218
106
(27)
1
-
298
111
)15 (
)1 (
-
393
877
896
874
325
126
(120)
331
107
)46 (
392
173
118
(118)
(23)
1
151
129
)44 (
)11 (
)2 (
223
152
180
169
2,610
430
(253)
2,787
308
)148
(
2,947
806
392
(213)
(27)
1
959
396
(
)132
)20 (
)2 (
1,201
1,804
1,828
1,746
* Additions for new agreements and changes to existing agreements.
Notes to Consolidated Statements as of December 31, 2022
8.2.
Lease liabilities
Communication
sites
Structures
Vehicles
Total
NIS millions
NIS millions
NIS millions
NIS millions
Balance as of January 1, 2021
Additions*
833
162
Subtractions
Financing expenses for lease obligations 17
(14)
Lease payments
Balance as of December 31, 2021
Additions*
Subtractions
Financing expenses for lease obligations 17
Lease payments
Balance as of December 31, 2022
118
(16)
784
(169)
(164)
834
Book value as of December 31, 2021
Current maturities of lease liabilities
Long-term lease liabilities
Balance as of December 31, 2021
Book value as of December 31, 2022
Current maturities of lease liabilities
Long-term lease liabilities
250
584
834
225
559
895
145
(24)
21
(102)
935
93
(2)
24
(124)
926
113
822
935
110
816
Total balance as of December 31, 2021
* Additions for new agreements and changes to existing agreements.
784
926
179
150
(2)
2
(121)
208
115
-
2
(127)
198
103
105
208
121
77
198
1,907
457
(40)
40
(387)
1,977
326
(18)
43
(420)
1,908
466
1,511
1,977
456
1,452
1,908
8.3.
Analysis of due dates for the Group's lease obligations (including principal and interest
to be paid)
Expected repayment dates
Up to 1 year
1-5 years
Over 5 years
Total
December 31, 2021
NIS millions
496
880
785
2,161
Notes to Consolidated Statements as of December 31, 2022
8.4.
Options for ending or extending a lease
In most of its leases, the Group assumed that it was reasonably certain that the extension
option contained in the agreements would be used, and therefore there were no
material obligations for leases that were not presented in the statements. Most lease
agreements include an option to cancel the agreement with advance notice and/or
payment of a fine as stipulated in the agreements. The Group assumed that it was
reasonably certain that the cancellation options would not be exercised.
8.5.
Information regarding material lease agreements that have not yet been included in
the measurement of the lease assets and liabilities
IIF Bnei Zion Limited Partnership
On October 7, 2021, a hosting services agreement was signed between Bezeq
International and ServerFarm
(hereinafter:
"ServerFarm"), according to which ServerFarm will provide Bezeq International with
hosting services in a server farm facility established by it. The server farm is expected to
be used to provide hosting services to business customers. The delivery date is divided
into two phases, the first phase is expected to be delivered in March 2023, and the
second phase is expected to be delivered in March 2024. The term of the agreement is
15 years, and there are options for extension until 2047. The nominal cost of the
agreement (without the option period) is approximately NIS 227 million.
Notes to Consolidated Statements as of December 31, 2022
9.
PP&E
Cost
Balance as of January 1,
2021
Additions
Subtractions
Transfer from assets held
for sale
Balance as of December
31, 2021
Additions
Subtractions
Balance as of December
31, 2022
Depreciation and
impairment losses
Balance as of January 1,
2021
Depreciation for the year
Subtractions
Impairment (cancellation
of impairment)
Transfer from assets held
for sale
Balance as of December
31, 2021
Depreciation for the year
Subtractions
Impairment (cancellation
of impairment) (see Note
10)
Balance as of December
31, 2022
Book value
Cables and landline
Landline and
and international
international network
network
Equipment and
infrastructure
for multi-
Office equipment,
Land and
equipment (switching,
communication
Cellular
channel
Subscriber
computers and
structures
transmission, power)
infrastructure
network
television
equipment
vehicles
Total
NIS millions
1,311
76
(126)
2,876
248
(185)
11,945
426
(29)
3,275
136
(2)
1,593
115
(301)
1,868
332
(336)
21
-
-
-
-
-
1,282
43
(11)
2,939
229
(429)
12,342
433
(22)
3,409
145
(2)
1,407
126
(200)
1,864
327
(380)
813
71
(66)
-
818
79
(316)
23,681
1,404
(1,045)
21
24,061
1,382
(1,360)
1,314
2,739
12,753
3,552
1,333
1,811
581
24,083
1,007
22
(39)
13
20
1,023
26
(3)
1,611
229
(185)
9
-
1,664
222
(429)
13
5
1,059
1,462
9,145
182
(29)
(1)
-
9,297
200
(22)
(5)
9,470
2,800
3,045
3,283
2,594
177
(1)
-
-
2,770
162
(1)
1,490
45
(301)
77
-
1,311
50
(
192
)
1,086
278
(317)
8
-
1,055
307
(373)
-
60
19
2,931
1,229
1,008
681
639
621
103
96
104
782
809
803
617
60
(65)
17
-
629
60
(320)
13
382
196
189
199
17,550
993
(937)
123
20
17,749
1,027
(1,340)
105
17,541
6,131
6,312
6,542
As of January 1, 2021
304
As of December 31, 2021
259
As of December 31, 2022
255
1,265
1,275
1,277
Notes to Consolidated Statements as of December 31, 2022
9.1.
9.2.
9.3.
9.4.
The residual value of the Group's copper cables is determined based on a valuation at
the end of each quarter. The value of the remainder stands at a total of approximately
NIS 234 million as of December 31, 2022 and approximately NIS 237 million as of
December 31, 2021.
The Group companies examined the duration of the PP&E within the framework of
depreciation committees in order to determine the estimated duration of their
equipment. Following the findings of the depreciation committees, immaterial changes
were made to the estimated duration of certain assets. The aforementioned change had
no material effect on the Group's depreciation expenses.
Most of the real estate assets used by Bezeq are under a discounted lease from the Israel
Lands Authority starting in 1993 for a period of 49 years, with an option to extend for
another 49 years. The lease rights are amortized over the lease term.
On September 14, 2020, Bezeq's Board of Directors approved the launch of a plan to
deploy the fiber network. Following the decision of the Board of Directors, Bezeq began
deploying fiber to buildings, including the deployment of vertical equipment in buildings,
and on March 14, 2021 announced the launch of services to its customers over the fiber
network. It should be noted that the connection of customers will be done gradually.
On May 25, 2021, Bezeq's Board of Directors approved Bezeq's fiber deployment plan
and its submission to the Ministry of Communications in accordance with the
Communications Law. As part of the plan, Bezeq is expected to deploy and operate an
ultra-fast fiber network that will cover approximately 76% of the Israel’s population
(according to Bezeq, approximately 80% of households).
On May 31, 2021, Bezeq submitted to the Ministry of Communications the list of
statistical areas in which it chose to deploy as stated, and on June 15, 2021, Bezeq
received an amendment to the Bezeq license regarding the determination of advanced
network deployment obligations ("the amendment to the license").
On October 3, 2022, the Minister of Communications approved Bezeq's request to allow
it to deploy an advanced network and provide Bezeq service over it in statistical areas
additional to the areas specified in the Bezeq license, and to amend the Bezeq license
accordingly. This is a deployment in 151 additional areas, which include about 60,000
households. As detailed in the decision of the Minister of Communications, the rate of
households in Bezeq's deployment areas is 82.5%, and this is an addition of
approximately 2.3% to this rate, so that the updated rate of households in Bezeq's
deployment areas will be approximately 84.7%.
The amendment to the license includes, among other things, the milestones for
completing the network deployment within six years from the determined date (March
14, 2021). For this matter, see also Note 18.7 regarding the Group companies’ obligation
to pay to the incentive fund.
9.5.
In accordance with the Communications (Bezeq and Broadcasting) Decree (establishing
an essential service provided by "Bezeq" the Israel Communications Company Ltd.),
1997-1997, the approval of the Prime Minister and the Minister of Communications is
required for the transfer of rights in certain assets of Bezeq (among others, switches,
cable network, transmission network and databases and information).
9.6.
Regarding liens in connection with loans and credit, see Note 13. Regarding additional
liens, see Note 19.
9.7.
For contracts for the purchase of PP&E, see Note 18.
Notes to Consolidated Statements as of December 31, 2022
10.
Intangible assets
Right
to
use
Computer
cellular
software
and
communication
Customer
and
Goodwill
licenses
frequencies
brand relations
Others
Total
NIS millions
NIS millions
NIS millions
NIS millions
NIS millions
NIS millions
and
Cost
Balance as of January 1,
2021
Purchases or additions
from self-development
Subtractions
Balance as of December 31,
2021
Purchases or additions
from self-development
Subtractions
Balance as of December 31,
2022
Amortizations
impairment losses
Balance as of January 1,
2021
Depreciation for the year
Subtractions
Impairment
(see Notes
10.2, 10.4 and 10.5 below)
Balance as of December 31,
2021
Depreciation for the year
Subtractions
Impairment
(see Notes
10.2, 10.4 and 10.5 below)
Balance as of December 31,
2022
Carrying amount
3,069
2,582
566
7,479
-
-
237
)40(
-
-
-
-
3,069
2,779
566
7,479
9*
-
229
(
152
)
-
-
-
-
3,078
2,856
566
7,479
1,510
-
-
-
1,510
-
-
-
2,229
141
)40(
91
2,421
137
(
152
)
87
1,510
2,493
331
22
-
-
353
21
-
-
374
235
213
192
6,358
-
-
-
6,358
-
-
-
6,358
1,121
1,121
1,121
As of January 1, 2021
1,559
As of December 31, 2021
1,559
As of December 31, 2022
1,568
353
358
363
* See Note 12.3.3.
81
-
-
81
7
-
88
81
-
-
-
81
-
-
-
81
-
-
7
13,777
237
)40(
13,974
245
(
152
)
14,067
10,509
163
)40(
91
10,723
158
(
152
)
87
10,816
3,268
3,251
3,251
Notes to Consolidated Statements as of December 31, 2022
10.1.
Right to use cellular communication frequencies
In 2020, Pelephone won a cluster of frequencies as part of the tender for mobile radio
telephone services with advanced bandwidths, at a total cost of NIS 88.2 million. The
payment was made in September 2022. In September 2020, upon receiving the
frequencies, Pelephone began to operate the frequencies. In addition, according to the
tender rules, Pelephone won a 5G network deployment grant in the amount of NIS 74
million. The aforementioned grant was received in November 2022.
10.2.
Impairment examination of cash generating units
10.2.1.
For the purpose of testing for impairment, the goodwill was attributed to the
Group's activity segments as follows:
Landline interior communication (Bezeq) (see Note 10.4)
Bezeq international services (see Note 12.3.3)
December
2022
31,
December
2021
31,
NIS millions
1,559
9
1,568
NIS millions
1,559
-
1,559
10.2.2.
The composition of the impairment loss recognized by the Group during the
years 2020-2022:
In 2020, a loss (loss cancellation) recognized from the impairment of
Pelephone’s and Bezeq International's assets resulting from a one-time
update of forecasts for the coming years was classified in the income
statement under the "Impairment loss" section. A loss from impairment of
assets that resulted from the continuous adjustment of non-current assets
(of DBS in 2020-2022 and Bezeq International in 2021-2022), to their fair
value minus selling costs, was classified in the income statement under the
same sections in which the current expenses were classified in respect of
these assets, as detailed in Notes 10.5 and 10.6 below.
2022
2021
2020
NIS millions
NIS millions
NIS millions
Impairment loss in the Bezeq International
services sector (see Note 10.6 below)
Cancellation of an impairment loss in respect
of Walla
Cancellation of impairment loss in the cellular
communications segment (see Note 10.3)
-
-
-
-
-
-
-
-
279
(14)
(257)
8
10.3.
Impairment examination of the cellular communications segment (Pelephone)
Due to the existence of an asset with an indefinite duration (a brand), the Company
examined the recoverable amount of the cellular communication cash-generating unit
as of December 31, 2021.
The value in use of a cellular communication cash-generating unit as of December 31,
2022 was calculated using the method of discounting future cash flows (DCF), based on
the forecast of cash flows from the activity for a period of five years from the end of the
current period, and with the addition of scrap value (representative year). The cash flow
Notes to Consolidated Statements as of December 31, 2022
forecast is based, among other things, on Pelephone's performance in recent years and
estimates regarding the expected trends in the cellular market in the coming years (level
of competition, level of prices, regulation and technological developments).
A central assumption underlying the forecast is that the prevailing competition in the
market will continue with high intensity in the short term, and that a stabilization and a
certain increase in the price level will occur in the medium-long term. The income
forecast is based on assumptions regarding the status of Pelephone subscribers, the
average income per subscriber and the volume of end equipment sales. The forecast of
expenses and investments is based, among other things, on assumptions regarding the
status of Pelephone employees and the salaries expenses derived from them, while the
rest of the operating expenses and the level of investments have been adjusted to the
projected scope of Pelephone's activities.
The nominal cost of equity used in the valuation is 10% after tax (before tax 12.4%). In
2021 the discount rate is 9% after tax (before tax 11.1%). Also, a permanent growth rate
of 1.5% was assumed (in 2021 - 1.5%).
The valuation is sensitive to changes in the permanent growth rate and the discount rate.
Also, the valuation is sensitive to the net flow in the representative year in general, and
to the assessment of the ARPU (average income per subscriber) level and the status of
the subscribers at the end of the forecast range (and in the terminal year) in particular
(a change of NIS 1 in ARPU throughout the forecast years results in a change in enterprise
value in the amount of about NIS 318 million, a change of 100k subscribers throughout
the years of the forecast (and in the terminal year) results in a change in the enterprise
value in the amount of about NIS 498 million).
The valuation was conducted by an external valuator. Based on the valuation as
explained above, Pelephone's recoverable amount amounted to approximately NIS
2,533 million, compared to the book value in the Company's books of approximately NIS
1,395 million. Therefore, the Company was not required to perform amortization for the
impairment of the cellular communication cash-generating unit.
10.4.
Impairment examination of landline interior communication goodwill (Bezeq)
The balance of goodwill attributed to the landline interior communication cash-
generating unit is NIS 1,559 million. Therefore, the Company examined the recoverable
amount of the landline interior communication cash-generating unit as of December 31,
2022.
The value in use for the Bezeq Group of the landline interior communication cash-
generating unit is calculated using the discounting future cash flows (DCF) method, based
on the forecast of cash flows from the activity for a period of five years from the end of
the current period, and with the addition of scrap value (representative year).
The cash flow forecast is based, among other things, on the Company's performance in
recent years and assessments regarding the expected trends in the landline market in
the coming years (level of competition, retail and wholesale price levels, regulatory
aspects and technological developments).
The main assumptions underlying the forecast are: a decrease in incomes from
telephony (a result of a decrease in the number of lines, erosion in the consumption of
call minutes per line, as well as the effect of the decision of the Ministry of
Communications regarding the determination of maximum rates for the Company's
retail telephony services), growth in incomes from Internet (supported by the growth of
the market, the establishment of Internet services through the fiber network, and the
elimination of the separation between broadband infrastructure service and Internet
Notes to Consolidated Statements as of December 31, 2022
access service), erosion in incomes from data communication and transmission (due to
an expected decrease in transmission incomes from ISP companies and despite an
expected consistent growth in incomes from data communication services), and
moderate growth in cloud and digital incomes. The operating, sales, marketing and
investment expenses were adjusted to the scope of the sector's activity and included
assumptions regarding the status of the company's employees and the wage and
retirement expenses derived from them and assumptions regarding the rate of
deployment of the fiber infrastructure.
The nominal cost of equity used in the valuation is 8% after tax (before tax 10.5%). In
2021 the discount rate is 7% after tax (before tax 8.3%). Also, a permanent growth rate
of 1% was assumed (in 2021 - 1%).
The valuation was conducted by an external valuer. Based on the valuation as explained
above, Bezeq's enterprise value amounted to approximately NIS 17,819 million,
compared to the value in the company's books in the amount of NIS 10,550 million.
therefore the Group was not required to make a reduction for the decrease in value of a
cash-generating unit of the landline interior communications segment.
10.5.
Impairment of the multi-channel TV segment (DBS)
At the end of 2022, DBS updated its forecasts for the following years, paying attention
to the trends and changes in its operation environment. The value in use for Bezeq Group
of the multi-channel TV cash-generating unit as of December 31, 2022 was calculated
using the method of discounting future cash flows (DCF), based on the DBS cash flow
forecast up to and including the year 2027, and with the addition of scrap value
(representative year). The nominal capital cost used in the valuation is 10% (after and
before tax) (in 2021 - 8.5%). Also, a permanent growth rate of 1% was assumed (in 2021
- 1%).
The cash flow forecast was based, among other things, on DBS's performance in recent
years and assessments regarding the expected trends in the television market for the
coming years, including the development of technology, consumer preferences,
competitors and the level of competition, the level of prices and regulatory obligations.
A central assumption underlying the forecast is that the relevant future technology will
be interactive and two-way, and that the satellite product will be replaced by an IP
product (television broadcasts via the Internet) over time due to the technological gap
between satellite and IP and the customer experience and the lower operating and
maintenance costs of IP. As a result, the multi-year forecast reflects a planned outline of
a gradual migration process (from satellite transmission to distribution of broadcasts
based on the Internet network) and accordingly, a gradual replacement of the satellite
converters with IP converters, the upgrading of the transmission infrastructure, the
construction of a support system for customer service, and the adjustment of the
content contracts for OTT (Over The Top) transmissions. As stated above, the forecast
period reflects the period of transition from satellite transmission to the distribution of
broadcasts based on the Internet until the satellite is completely removed. These
circumstances, along with an expectation of a high level of competition throughout the
entire forecast period and a relatively rigid expense structure, led to an expectation of
operating losses and negative cash flows in some of the forecast years.
On June 30, 2022, DBS launched the ISP activity, an activity focused on offering
integrated TV and fiber internet packages to its customers. Accordingly, throughout the
years of the forecast, a positive contribution to incomes from the sale of combined TV
and Internet packages is expected.
Notes to Consolidated Statements as of December 31, 2022
Based on the valuation, which was performed by an external valuator, as of December
31, 2022, the value of DBS's activities is negative and lower than the book value as well
as the fair value of its assets and liabilities, net.
In light of the negative value of the activity as determined in the valuation as of
12.31.2022, DBS has reduced its assets up to the net fair value of these assets.
Therefore, in 2022, the group recognized an impairment loss in the amount of
approximately NIS 275 million. The impairment loss was attributed to PP&E, broadcast
rights, intangible assets, advance expenses and rights-of-use of leased assets, as detailed
below, and is included in the Depreciation, amortization and impairment expenses item,
as well as in the General and operating expenses section of the income statement.
The following are details regarding the value of DBS activities and the fair value of the
assets and liabilities, net, as determined by an external valuator and recognized
impairment losses:
DBS
enterprise
value (according to
the DCF method)
Fair value of DBS
assets
and
liabilities, net
Book value of DBS
and
assets
liabilities,
net
before recognition
of impairment
Impairment
loss
NIS millions
NIS millions
NIS millions
NIS millions
(103)
(88)
(18)
(70)
149(
)
)81(
(20)
152(
)
115(
)
(36)
282(
)
125(
)
(60)
(271)
(109)
)61(
)79(
)65(
(
275
)
(288)
As of December 31, 2022
and for the period of
three months that ended
on that date
As of September 30,
2022 and for the period
of three months that
ended on that date
(unaudited)
As of June 30, 2022 and
for the period of three
months that ended on
that date (unaudited)
As of March 31, 2022
and for the period of
three months that ended
on that date (unaudited)
Total impairment
recognized in 2022
As of December 31, 2021
and for the year that
ended on that date
Notes to Consolidated Statements as of December 31, 2022
The following is a breakdown of the allocation of impairment loss to DBS assets:
2022
2021
2020
NIS millions
NIS millions
NIS millions
Broadcast rights - minus used rights *
149
PP&E **
Intangible assets **
Other receivables (advance expenses) *
Rights-of-use of leased properties **
76
45
3
2
Total impairment recognized in the year
275
146
91
48
4
)1(
288
170
112
29
13
-
324
* The expense was presented as part of General and operating expenses
** The expense was presented as part of depreciation, amortization and impairment
expenses
It should be noted that the valuation of DBS's value in use is sensitive to the net cash
flow in the representative year in general, and to the assessment of the ARPU level
(average income per subscriber) and the status of subscribers at the end of the forecast
range in particular. A change of NIS 1 in ARPU throughout the years of the forecast (and
the terminal year) results in a change in the enterprise value in the amount of
approximately NIS 79 million, and a change of 5k subscribers throughout the years of the
forecast (and in the terminal year) results in a change in the enterprise value in the
amount of approximately NIS 115 million.
The following is information regarding the manner in which the Group determined the
fair value (at level 3) of DBS’s assets in which the impairment occurred as detailed above:
Broadcast rights - the fair value of the broadcast rights is calculated taking into account
legal restrictions on their sale and based on the stage of their production, probability of
sale, and expected rate of return on investment.
PP&E - the fair value of the PP&E items that can be sold to a market participant (mainly
converters) was based on the estimate of the amount for which they can be sold on the
day of the valuation and after deducting the costs that will be required to carry out the
sale.
Intangible assets - No substantial fair value was assigned to DBS’s intangible assets, since
most of the software and licenses of DBS were uniquely adapted to DBS and therefore
have no substantial value in a transaction between a willing buyer and a willing seller.
Rights of use in leased assets - the fair value of right-of-use assets is affected by the ability
to lease the asset subject to the lease to a third party, the lease fees for the asset in the
market and the exit fines in the lease contract.
Other receivables (advance expenses) - no substantial fair value was attributed to the
advance expenses of DBS for the maintenance of its systems, since most of the
maintenance agreements were uniquely adapted to DBS and therefore have no
substantial value in a transaction between a willing buyer and a willing seller.
Notes to Consolidated Statements as of December 31, 2022
10.6.
Impairment of the Bezeq International services segment (Internet, international
communication, network endpoint, and ICT solutions)
At the end of 2022, Bezeq International updated its forecasts for the following years,
paying attention to the trends and changes in its operating environment. The value-in-
use for Bezeq Group of the Bezeq international services cash-generating unit, calculated
as of December 31, 2022 using the method of discounting future cash flows (DCF), based
on the forecast of cash flows from operations for a period of five years from the end of
2021, and with the addition of scrap value (representative year). The nominal cost of
equity used in the valuation is 10.3% (after and before tax) (8.5% in 2021). Also, a
permanent growth rate of 3% was assumed (1% in 2021).
The cash flow forecast was based, among other things, on Bezeq International's
performance in recent years and assessments regarding the expected trends in the
markets in which it operates in the coming years (the level of competition, the level of
prices, regulation and technological developments).
The income forecast is based on assumptions according to which Bezeq International's
Internet subscriber base, as well as its incomes from these subscribers, will be
significantly affected as a result of the impact of the Ministry of Communications'
decision on the cancellation of the separation between broadband infrastructure service
and Internet access service (ISP), as detailed in Note 12.3 below, including assumptions
regarding subscribers who do not use ISP services, assumptions regarding Bezeq
international activity in the international communication market and assessments
regarding its development in the field of communication services for businesses which
includes public cloud activity, and assumptions regarding the field of international
communication activity.
Operating, sales, marketing and investment expenses were adjusted to the scope of the
segment’s activity, including assumptions regarding the extent of the decrease in the
number of Bezeq International employees and the salaries expenses derived from them,
as well as assumptions regarding the development of traffic costs in the Internet
segment (retail and wholesale rates and the development of the field of Internet
television broadcasting in general, and the expected migration of DBS from TV
broadcasts via satellite to TV broadcasts via the Internet in particular).
These assumptions, and especially the expected significant changes
in Bezeq
International's Internet activity, were expressed in the expectation of operating losses
and negative cash flows in the coming years. The nominal cost of capital used in the
valuation is 10.3% (after tax) (in 2021 - 8.5%). Also, a permanent growth rate of 3% was
assumed (in 2021 - 1%).
Below are details regarding the value of Bezeq International's activities and the fair value
of the assets and liabilities, net, as determined by an external valuator and recognized
impairment losses:
Notes to Consolidated Statements as of December 31, 2022
Bezeq International
enterprise
value
(according to the
DCF method)
Fair value of Bezeq
International assets
and liabilities, net
Book value of Bezeq
International assets
and liabilities, net
before recognition
of impairment
Impairment
loss
NIS millions
NIS millions
NIS millions
NIS millions
As of December 31,
2022 and for the period
of three months that
ended on that date
As of September 30,
2022 and for the period
of three months that
ended on that date
(unaudited)
As of June 30, 2022 and
for the period of three
months that ended on
that date (unaudited)
As of March 31, 2022
and for the period of
three months that
ended on that date
(unaudited)
Total impairment
recognized in 2022
As of December 31,
2021 and for the year
that ended on that date
(166)
(22)
(684)
(692)
44
(2)
2
69
19
(174)
(15)
19
(196)
(70)
(24)
(25)
(21)
(34)
(104)
(122)
The valuation is sensitive to the net flow in the representative year in general, and to the
intensity of changes in the field of internet activity in particular (subscribers, ARPU, and
traffic costs).
The valuation was conducted by an external valuator. Based on the valuation as
explained above, Bezeq International's activity value as of December 31, 2022 amounted
to a negative amount of approximately NIS 166 million (as of December 31, 2021 a total
negative activity value of NIS 196 million). In light of the negative enterprise value, the
value of Bezeq International's non-current assets as of December 31, 2022 was
determined to be the fair values minus exercise costs or zero, whichever is higher. The
fair value of Bezeq International's assets minus exercise costs as of December 31, 2022
is negative in the amount of approximately NIS 22 million. Accordingly, the Group
recognized in 2022 an impairment loss in the amount of approximately NIS 104 million.
Below is a breakdown of the allocation of the total loss from the impairment in Bezeq
International's assets:
PP&E and intangible assets
Short- and long-term advance expenses
Long-term
capacities
Rights-of-use of leased vehicle assets
Total impairment recognized in the year
expenses
advance
for
2022
NIS millions
**71
*21
**12
**-
104
2021
NIS millions
**75
*28
**17
**2
122
2020
NIS millions
148
18
110
3
***279
* The expense was presented as part of General and operating expenses
Notes to Consolidated Statements as of December 31, 2022
** The expense was presented as part of depreciation, amortization and impairment expenses
*** Presented as part of the "Impairment loss" item of the 2020 income statement
The following is information regarding the manner in which the group determined the
fair value (at level 3) of the assets minus realization costs:
PP&E - the fair value of the PP&E items that can be sold to a market participant was
based on the cost approach in which the cost of replacing with new equipment is taken
into account, minus the costs of physical wear and tear and technological obsolescence,
minus the costs that will be required to carry out the sale.
Intangible assets - no substantial fair value was attributed to intangible assets, since most
of Bezeq International's software and licenses were uniquely adapted to Bezeq
International, and therefore have no substantial value in a transaction between a willing
buyer and a willing seller.
International capacity - in light of the nature of the signed agreements, which do not
allow these rights to be assigned except to a subsidiary or a sister company of Bezeq
International, which are not considered a market participant (third party) for the purpose
of calculating fair value according to international accounting standard IFRS 13, these
rights have no fair value.
Short-term and long-term advance expenses - no substantial fair value was attributed to
the upfront expenses for the maintenance of Bezeq International's systems, since most
of the maintenance agreements were uniquely adapted to Bezeq International, and
therefore have no substantial value in a transaction between a willing buyer and a willing
seller.
Rights-of-use of leased assets - the fair value of right-of-use assets is affected by the
ability to lease the asset subject to the lease to a third party, the lease fees for the asset
in the market and the exit fines in the lease contract.
Notes to Consolidated Statements as of December 31, 2022
11. Deferred expenses and non-current investments
December 31,
2022
December 31,
2021
NIS millions
NIS millions
Subscriber acquisition asset, net (see Note 11.1 below)
Investment in long-term bank deposits
Deferred expenses (see Note 11.2 below)
Bank deposit used to provide loans to Bezeq employees (see Note
11.3 below)
Derivative instruments
Investments in investees treated according to the balance sheet
value method
156
27
13
33
29
-
258
151
80
18
36
16
5
306
11.1.
The following is a breakdown of subscriber acquisition assets:
Subscriber acquisition
assets
NIS millions
Cost
Balance as of January 1, 2021
Additions
Subtractions
Balance as of December 31, 2021
Additions
Subtractions
Balance as of December 31, 2022
Depreciation and impairment losses
Balance as of January 1, 2021
Depreciation
Subtractions
Balance as of December 31, 2021
Depreciation
Subtractions
Balance as of December 31, 2022
Book value
As of January 1, 2021
As of December 31, 2021
As of December 31, 2022
477
131
(129)
479
127
(234)
372
312
145
(129)
328
122
(234)
216
165
151
156
11.2.
The balance of deferred expenses as of December 31, 2022 is presented minus an
impairment loss. See Note 10.6 regarding the impairment of assets in Bezeq
International.
11.3.
Bank deposit for providing loans to Bezeq employees without a repayment date.
Notes to Consolidated Statements as of December 31, 2022
12.
Investees
12.1.
Consolidated companies
12.1.1.
The place of incorporation of the companies directly held by the Company is
Israel. The following is a breakdown of the companies consolidated by the
company and the company's rights in the share capital of the consolidated
companies as of December 31, 2022:
Bezeq the Israel Telecommunications Corp. Ltd.
26.81%
Companies consolidated by Bezeq:
Pelephone Communications Ltd
Bezeq International Ltd. (see Note 12.3 below)
DBS Satellite Services (1998) Ltd. (see Note 12.2 below)
Bezeq Online Ltd.
100%
100%
100%
100%
12.1.2.
As of October 11, 2021, all Bezeq shares held by the Company are directly
held by the Company, after on that day all Bezeq shares held by B
Communications (SP2) Ltd. (a company fully owned and controlled by B
Communications) were transferred to the direct holding of the company (SP1)
Ltd. which is fully owned and controlled by the Company). After the transfer
of Bezeq shares to the Company, the companies B Communications (SP2) Ltd.
and B Communications (SP1) Ltd. were closed.
12.1.3.
Structural change in Bezeq's subsidiaries
Following on from previous decisions made by Bezeq and its subsidiaries,
Bezeq International and DBS ("Bezeq's subsidiaries"), regarding a plan for a
structural change in the framework of which the private activity of Bezeq
International was supposed to merge with and into DBS, and the ICT activity
of Bezeq International to spin off into a new company wholly owned by Bezeq
("the merger/spin-off plan"), on March 16, 2022, the Bezeq Board of Directors
decided, following the decisions made that day by the boards of Bezeq's
subsidiaries, to cancel the merger/spin-off plan and to approve an alternative
outline, according to which activity will be reduced Bezeq International's ISP
in the private segment following the cancellation of the separation between
broadband infrastructure service and Internet access service (ISP), and ISP
activity will be established in DBS for the purpose of selling "triple" packages
to customers ("the Alternative Outline"), while aiming to achieve, as much as
possible, the strategic, business and economic purposes that underpinned
the decision to promote the structural change, which were, among other
things, adapting the activity to the structure of the industry and the changing
regulation, focusing on increasing incomes and growth, and increasing
operational synergy and efficiency.
According to this alternative outline, Bezeq expects that the business
objectives that were the basis of the spin-off/merger plan will be achieved, as
DBS is expected to become a "triple" sales arm that combines fiber and
television, and at the end of the move, Bezeq International will become a
growth-oriented ICT company. Also, in this Alternative Outline lies the
potential for a significant reduction in Bezeq International's expenses and
investments in the ISP field at the same time as an accelerated reduction in
this activity.
Notes to Consolidated Statements as of December 31, 2022
The subsidiary Bezeq International started implementing the Alternative
Outline, and the subsidiary DBS started selling integrated ("triple") packages
that include Bezeq fiber and television. In addition, an agreement was formed
regarding the voluntary retirement of employees, which would allow a
reduction in expenses.
12.2.
DBS Satellite Services (1998) Ltd
12.2.1.
DBS is a wholly owned (100%) subsidiary of Bezeq. Bezeq consolidates the
statements of DBS as of March 23, 2015.
Bezeq has an assessment agreement and taxation decision with the Tax
Authority regarding financing income, owner loans, DBS losses and merger
(see also Note 7.2)..
12.2.2.
As of December 31, 2022, DBS has accumulated a loss balance of NIS 8,237
million since its establishment, a deficit in equity of NIS 32 million, and a
working equity deficit of NIS 199 million. Also, as of December 31 2022, DBS
has off-balance sheet commitments
in the cumulative amount of
approximately NIS 834 million for the purchase of space segments, content,
fixed assets and other assets up to and including the year 2026 (see Note 18).
Based on the valuation conducted as of December 31, 2022, the total value
of DBS's activity is a negative value in the amount of approximately NIS 103
million (compared to a negative activity value of NIS 271 million as of
December 31, 2021) (see Note 10.5), which results, among other things, from
DBS forecasts to continue accumulating operating losses in 2023 and beyond.
In March 2023, Bezeq’s Board of Directors approved a credit facility or
investment in DBS equity in the amount of NIS 40 million, for a period of 15
months, starting on January 1, 2023 and ending on March 31, 2024, instead
of previous commitments, the last of which was given in November 2022. It
should be noted that during the year 2022, DBS did not make any use of the
credit facilities provided by Bezeq.
DBS’s Management estimates that the funding sources at its disposal, which
include, among other things, the continuation of the existing policy of a
working equity deficit and the credit framework and investments in equity
from Bezeq will satisfy the needs of DBS operations until December 31, 2023.
12.2.3.
See Note 10.5 regarding the impairment of assets recognized by DBS as part
of the statements as of December 31, 2022.
12.3.
Bezeq International Ltd.
12.3.1.
Eliminating the separation between a broadband infrastructure service and
an Internet access service (ISP):
On June 20, 2021, a decision was made by the Minister of Communications
regarding the cancellation of the separation between a broadband
infrastructure service and an Internet access service (ISP), including in relation
to private customers. According to the decision, starting from the determined
date, the restriction on infrastructure owners offering Internet access service
to private customers will be lifted. Also, it is no longer possible to sell services
in a split format, but customers who receive service in a split/semi-split
configuration will be able to continue to consume Internet services in this
way. It should be noted that the cancellation of the aforementioned
Notes to Consolidated Statements as of December 31, 2022
separation is expected to reduce the phenomenon of subscribers who do not
use ISP services, as was also stated in the publication of the Ministry of
Communications.
The move, which is expected to damage Bezeq International's results, was
taken into account in the cash flow forecast which was used to examine the
impairment as described in Note 10.6 above.
12.3.2.
See Note 10.6 below regarding the impairment of assets recognized by Bezeq
International within the statements for December 31, 2022.
12.3.3.
In February 2022, Bezeq International acquired 77% of the shares of
CloudEdge Ltd., which specializes in providing public cloud computing
solutions for Microsoft products. The goodwill created by the purchase was
fully allocated to CloudEdge operations.
12.3.4.
See Note 16.5.4 regarding the voluntary retirement plan at Bezeq
International which was approved by Bezeq International's Board of
Directors.
12.4.
The Company's control over Bezeq
The Company holds the control permit in Bezeq and controls Bezeq based on two facts:
1) The Company holds significantly more voting rights than any other shareholder while
the rest of Bezeq's holdings are very dispersed. 2) Israeli law and regulation require
obtaining government approval for any entity that wishes to increase its holding to over
5% in Bezeq or wishes to take actions together with another shareholder for the purpose
of appointing a director in Bezeq or in order to influence the making of current
operational decisions in Bezeq. Through these limitations and through the Company's
representatives on Bezeq's Board of Directors, the regulatory regime guarantees that no
individual or entity will interfere in the control of Bezeq, except for the holder of the
control permit.
12.5.
Purchase of additional Bezeq shares by the Company
On December 28, 2022, the Company purchased 2,530,000 ordinary shares of the Bezeq
subsidiary. The Company purchased shares as mentioned in exchange for payment of a
total amount of approximately NIS 15 million and at an average price of NIS 5.95 per
share. After the aforementioned purchase, the Company owns 26.81% of the issued
share capital and voting rights in the subsidiary.
12.6.
Dividend distribution by Bezeq
12.6.1.
Bezeq’s dividend distribution policy
On March 13, 2023, Bezeq’s Board of Directors decided to update Bezeq's
dividend policy so that Bezeq will distribute every six months 60% of the semi-
annual profit (after tax) according to its consolidated statements starting with
the next distribution (for the second half of 2022), this in view of the
improvement trend in the business results, and the continued decrease in the
scope of its debt, and in accordance with its forecasts regarding its business
results for the coming years.
Also, Bezeq will strive to update its dividend policy to the distribution of 70%
of the semi-annual profit (after tax) according to its consolidated financial
statements, subject to maintaining its credit rating in the AA group.
Notes to Consolidated Statements as of December 31, 2022
its own merits
The approval of Bezeq's dividend policy does not oblige Bezeq to distribute a
dividend to Bezeq's shareholders, and each specific distribution will be
examined on
in accordance with the conditions of
implementation of the dividend distribution policy as stated above. In
addition, the approval of the aforementioned policy does not prevent Bezeq’s
Board of Directors from periodically reviewing the dividend distribution policy
for Bezeq shareholders, taking into account, among other things, the
provisions of the law, Bezeq's business situation, its plans, and its equity
structure, and while maintaining a balance between ensuring Bezeq's
financial strength and stability, including its debt level and credit rating, and
continuing to unlock value to Bezeq's shareholders through regular dividend
distribution.
Bezeq's Board of Directors considers it important to maintain the balance
between ensuring Bezeq's financial strength and stability, while maintaining
a rating in Bezeq's current rating group [AA] over time, and continuing to
unlock value to its shareholders through regular dividend distribution.
Bezeq's Board of Directors was presented, among other things, with analysis
and results of professional work, Bezeq's and Bezeq Group's forecasts, as well
as sensitivity analyzes for unexpected adverse events in Bezeq's and Bezeq
Group's business. After the Bezeq Board of Directors examined all of the
above, the Board of Directors determined that this decision reflects the
correct balance between these needs as described above.
12.6.2.
Dividends distribution
A. On April 28, 2022, the general assembly of Bezeq's shareholders
approved (following the recommendation of Bezeq’s Board of Directors
of March 22, 2022) the distribution of a cash dividend to Bezeq's
shareholders in the total amount of NIS 240 million (which, as of the day
determining the distribution, is NIS 0.0867823 per share). The dividend
was paid on May 16, 2022. The Company's share of the aforementioned
dividend is approximately NIS 64 million.
B. On September 14, 2022, the general assembly of Bezeq's shareholders
(following the recommendation of Bezeq’s Board of Directors of August
9, 2022) approved the distribution of a cash dividend to Bezeq's
shareholders in a total amount of NIS 294 million (which, as of the day
determining the distribution, is 0. NIS 1063081 per share). The dividend
was paid on October 3, 2022. The Company's share of the
aforementioned dividend is approximately NIS 78 million.
C. On March 13, 2023, Bezeq's Board of Directors decided to recommend
to the general assembly of Bezeq shareholders to distribute a cash
dividend to Bezeq shareholders in a total basket of NIS 246 million. As of
the date of approval of the financial statements, the aforementioned
dividend has not yet been approved by the Bezeq general assembly. The
Company’s share in the aforementioned dividend (subject to the
is
approval of the general assembly of Bezeq's shareholders)
approximately NIS 66 million
Notes to Consolidated Statements as of December 31, 2022
12.7. Non-controlling interests
The following table shows data regarding the investees in the Group, including
adjustments to fair value made on the day of purchase with the exception of goodwill,
the non-controlling interests are material to the Group:
December 31
Percentage
of
ownership
held by the
non-
controlling
interests
%
Non-
current
assets
Current
liabilities
Non-
current
liabilities
Net assets
Current
assets
NIS millions
Book
value
of
the non-
controlling
interests
2022
2021
73.19
73.28
3,464
4,138
10,988
10,837
3,534
3,773
8,512
9,323
2,406
1,878
1,842
1,454
Year ended December 31
Income
NIS millions
Net profit
Other profit
(loss)
Comprehen
sive income
Profit
attributed
to
non-
controlling
interests
Comprehen
sive income
attributed
to
non-
controlling
interests
2022
2021
2020
8,
986
8,821
8,723
1,000
1,182
1,008
50
36
)12(
1,050
1,218
996
733
867
742
770
893
734
Year
ended
December
31
Cash
rom
flow
financing
activities
(without
to
-non
ontrolling
c
interests)
dividend
Dividend
to
-non
ontrolling
c
interests
Total
decrease)
cash
increase
in
cash
equivalent
millions
NIS
and
Cash
rom
flow
current
operations
Cash
rom
flow
investing
activities
2022
2021
2020
3,503
2,839
3,220
(
1,585
)
(
1,646
)
(
)839
(
1,758
)
(
1,060
)
(
1,941
)
392
(
)232
-
-
133
440
Notes to Consolidated Statements as of December 31, 2022
13. Debentures, loans and credit
13.1.
Composition
Current liabilities
Current debenture liabilities
Current loan liabilities
Non-current liabilities
Debentures
Loans
Total debentures, loans and credit
13.2.
Terms of Debentures and loans
December
2022
31,
December
2021
31,
NIS millions
NIS millions
835
86
921
6,121
2,136
8,257
9,178
897
83
980
7,245
1,823
9,068
10,048
December 31, 2022
Book balance
NIS millions
Par value
NIS millions
December 31, 2021
Book balance
NIS millions
Par value
NIS millions
Bank loans at Bezeq:
Unlinked loans, bearing fixed interest
Unlinked loans, bearing variable interest
Total banks loans at Bezeq
Loans from financial institutions at Bezeq:
Unlinked loans, bearing fixed interest
Total financial institutions loans of Bezeq
707
698
1,405
817
817
706
700
1,406
817
817
712
300
1,012
894
894
711
300
1,011
894
894
Total loans in Bezeq
2,222
2,223
1,906
1,905
Public debentures of the Company:
Series C – unlinked, bearing fixed interest
Series F – unlinked, bearing fixed interest
Total public debentures of the Company
Public debentures of Bezeq:
Series 6 - linked to the consumer price
index, bearing fixed interest *
Series 7 - unlinked, bearing variable interest
Series 9 - unlinked, bearing fixed interest
Series 10 - linked to the consumer price
index, bearing fixed interest
Series 11 - unlinked, bearing fixed interest
Series 12 - linked to the consumer price
index, bearing fixed interest
Series 13 - unlinked, bearing fixed interest
Series 14 - linked to the consumer price
index, bearing fixed interest
Total public debentures of Bezeq
Total debentures
Total loans and debentures
480
1,425
1,905
-
-
1,616
861
838
1,330
198
208
5,051
6,956
9,178
497
1,472
1,969
-
-
1,597
794
835
1,269
200
200
4,895
6,864
9,087
951
1,035
1,986
540
36
2,176
912
839
1,257
198
198
6,156
1,010
1,040
2,050
500
36
2,145
882
835
1,269
200
200
6,067
8,142
8,117
10,048
10,022
Interest rate range
3.2%
4.3% -
Prime+ 0.11% -
Prime+0.53%
3.22%
4%-
3.85%
3.65%
3.7%
Short-term
loan
for 1 year + 1.4%
3.65%
2.2%
3.2%
1.7%
2.79%
0.58%
Notes to Consolidated Statements as of December 31, 2022
* On January 23, 2022, Bezeq Series 9 debentures were partially redeemed in the amount of
approximately NIS 370 million par value. Also, on December 1, 2022, Bezeq Series 6 and Series 7
debentures were paid in final redemption.
13.3.
Debentures issued by the Company
On July 6, 2021, the Company held a tender for the purchase of Series F debentures, in
which approximately NIS 394 million were issued to institutional entities and the public
for approximately NIS 394 million from Series F. The annual interest rate (unlinked) set
in the tender is 3.65%. The interest for the series F debentures will be paid in two semi-
annual payments, on May 31 and November 30 of each year, starting from November
2021 until November 2026. The debenture principal will be repaid in one payment on
November 30, 2026. The proceeds of the net issuance of the series F debentures were
used by the Company to make early repayments of its existing debentures as of that date
as detailed below.
On July 19, 2021, the Company made a full early repayment of the Series D Debentures
principal (plus accrued interest up to the maturity date) and a full early repayment of the
Series E debenture principal (plus accrued interest up to the maturity date and an early
repayment penalty as defined in the trust deed of the series E debentures). In addition,
the Company made a partial early repayment of approximately NIS 226 million on the
series C debentures (plus accrued interest up to the maturity date). After making the
early repayments, series D and E were repaid in full and delisted from trading on the
Securities Exchange in Tel Aviv.
On December 7, 2021, the Company issued to institutional entities and the public
approximately NIS 485 million in series F debentures for approximately NIS 488 million
in series F debentures. The proceeds of the net issuance of the F debentures were used
by the Company to make a partial early repayment of approx. NIS 471 million in respect
of its existing Series C debentures as of that date (in addition to accrued interest up to
the maturity date and an early repayment penalty as defined in the trust deed of the
Series C debentures).
On December 9, 2021, the Company held a private offering of approximately 161 million
series F debentures for approximately NIS 161 million. The proceeds of the net issuance
of the series F debentures were used by the Company to make a partial early repayment
of approximately NIS 157 million on its existing Series C debentures as of that date (in
addition to accrued interest up to the maturity date and an early repayment penalty as
defined in the trust deed of the Series C debentures).
On January 10, 2022, the Company exchanged about 417 million par value Series C
debentures in exchange for about 432 million par value Series F debentures.
On June 30, 2022, the Company made a partial early repayment of about 100 million par
value Series C debentures plus accrued interest up to the vesting date (the payment to
bondholders was paid on July 1, 2022).
In accordance with the terms of debentures series C and F, the company undertook to
deposit semi-annual interest for the various bond series in an escrow account for the
benefit of the bondholders. As of December 31, 2022, approximately NIS 36 million are
deposited in the trust accounts for the benefit of the holders of Series 3 and 6
debentures.
As of December 31, 2022, the remaining par value of the Series C debentures is NIS 497
million and the remaining face value of the Series V debentures is NIS 1,472 million.
Notes to Consolidated Statements as of December 31, 2022
Below are the financial standards to which the Company committed in connection with
the debenture series:
A. Debt-to-asset ratio (LTV):
The debt-to-asset ratio will be calculated for the first time 24 months after the date
of the Searchlight-Forer transaction (December 2, 2019) and will not exceed the
following thresholds for two consecutive quarters:
The ratio will not cross the 80% threshold until November 30, 2023 and also
The ratio will not cross the 75% threshold from December 1, 2023 until the last
payment of the debenture principal.
As of December 31, 2022, the Company meets the debt-to-asset ratio.
B. Restrictions on dividend distribution:
The Company undertook not to distribute a dividend to its shareholders and/or to
buy back its shares and/or make any other distribution as defined in the Israeli
Companies Law, 5759-1999, unless all the conditions detailed below are met:
1. The Company is not in violation of any of the financial standards.
2. There is no ground for immediate payment when the decision to carry out the
distribution is made, and no such ground exists as a result of this distribution.
3. The debt-to-asset ratio after the distribution shall not exceed 65% for Series C
debentures and will not exceed 70% for Series V debentures.
C. Lien on Bezeq shares:
For Series C and F there is a Pari-Passu first-class lien on 728,373,713 Bezeq shares
held by the Company.
D. Control of Bezeq:
The Company has committed to directly and/or indirectly hold at least 25% of the
issued and paid-up share capital of Bezeq, unless regulatory approval is received in
the form of a permit/authorization allowing to decrease the above-mentioned
holdings.
E. Control of the Company
Searchlight and the Forer Family have committed to refrain from transferring control
of the Company (directly or indirectly) to another entity that has not received all the
required regulatory approvals in advance, should such approvals be required, at the
relevant time.
13.4.
Loans and debentures issued by Bezeq
The following is a breakdown of the conditions that Bezeq has committed to in relation
to the loans received and the debentures issued:
13.4.1.
In relation to Bezeq's total debt, accepted grounds for immediate repayment
of the debentures and loans were included, including events of default,
failure to pay, liquidation or receivership procedures, etc. A right to
Notes to Consolidated Statements as of December 31, 2022
13.4.2.
13.4.3.
13.4.4.
13.4.5.
13.4.6.
immediate repayment was also established in the event that a third-party
lender demanded the immediate repayment of Bezeq’s debts towards him as
a result of a default in an amount that exceeds the stipulated amount.
In addition, Bezeq has committed not to create additional liens on its assets
unless the bondholders' consent is obtained in advance, in a special
resolution, allowing Bezeq to create the lien in favor of the third party, or
Bezeq will simultaneously create liens in favor of all lenders (negative lien).
The lien includes exceptions, among other things, regarding the lien of assets
that will be purchased or expanded by Bezeq, if the obligations for which the
lien is secured were created for the purpose of purchasing or expanding said
assets and regarding symbolic liens.
institutions whose balance as of December 31, 2022
In relation to Bezeq's public debentures, to loans from banks whose balance
as of December 31, 2022 is approximately NIS 1.4 billion, and to loans from
financial
is
approximately NIS 0.8 billion, Bezeq has committed that in the event that it
commits to a party any obligation in connection with compliance with
financial standards, Bezeq will also obligate the aforementioned lenders with
the same obligation (subject to certain exceptions).
In relation to Bezeq's public debentures, as well as in relation to loans from
financial institutions in the amount of approximately NIS 0.8 billion, a reason
for
the
telecommunications segment ceases to be the Group's main field of activity.
repayment was
the event
immediate
included
that
in
In relation to Bezeq's public debentures, and in relation to loans from
financial institutions in the amount of approximately NIS 0.8 billion, Bezeq has
committed to the lenders to act so that, as far as it is within its control, such
debentures will be monitored by Bezeq's rating from level one at least, as
long as there are debentures in circulation from such series or loan balance,
respectively.
In relation to debentures from Series 9-14, as well as in relation to loans from
financial institutions in the amount of approximately NIS 0.8 billion, grounds
for immediate repayment was included in the event of a change in control, as
a result of which the controlling shareholders of Bezeq (as defined in the said
agreements) would cease to have control over it and transfer control to party
C (“the Transferee"), with the exception of: (1) transfer of control to the
Transferee who received permission to control Bezeq in accordance with the
provisions of the Communications Law and/or the Communications Order, or
(2) transfer of control in which the Transferee holds control together with the
controlling shareholders of Bezeq and on the condition that the proportion of
the holdings of the controlling shareholders of Bezeq in Bezeq shares is not
less than 50.01% of the total Bezeq shares held by the controlling
shareholders who hold together, or (3) a change of control that will be
approved by the meeting of bondholders / lenders.
13.4.7.
In addition to Series 9-14 debentures, and in relation to loans from financial
institutions amounting to approximately NIS 0.8 billion, grounds for
immediate repayment of the debentures were included in the event that a
"going concern" note is recorded in Bezeq's statements for a period of two
consecutive quarters, in the event of a deterioration substantial in Bezeq's
business compared to its situation at the time of issuance, and there is a
tangible concern that Bezeq will not be able to repay the debentures/loans
when due (as stated in Article 35T1(a)(1) of the Securities Law).
Notes to Consolidated Statements as of December 31, 2022
As of December 31, 2022 and the date of approval of the statements, Bezeq met all of
its obligations as stated, there were no grounds for setting up credit for immediate
repayment and no financial benchmarks were established as detailed above.
13.5.
Transactions in liabilities arising from financing activities
Debentures
(including
accrued
interest)
NIS millions
Loans (including
accrued
interest)
NIS millions
Balance as of January 1, 2021
8,185
2,117
Changes as a result of cash flows from financing activities
Proceeds from issuing debentures and receiving loans, minus
transaction costs
Repayment of debentures and loans
Interests paid
Total net cash used for financing activities
Financing expenses imputed to the income statement
Balance as of December 31, 2021
Changes as a result of cash flows from financing activities
Proceeds from issuing debentures and receiving loans, minus
transaction costs
Repayment of debentures and loans
Interests paid
1,430
(
1,572
)
(
)265
(
)407
387
8,165
-
(
1,333
)
(
)240
Total net cash generated from (used for) financing activities
(
1,573
)
Financing expenses imputed to the income statement
Balance as of December 31, 2022
384
6,976
300
(
)500
)68(
(
)268
63
1,912
400
)83 (
)67 (
250
69
2,231
Total
NIS millions
10,302
1,730
(
2,072
)
(
)333
(
)675
450
10,077
400
(
1,416
)
(
)307
(
1,323
)
453
9,207
Notes to Consolidated Statements as of December 31, 2022
14. Trade payables
December 31 , 2022
December 31 , 2021
NIS millions
NIS millions
Suppliers
Open debts and expenses payable*
Total suppliers
903
903
Liabilities to employees and other liabilities for wages and
salaries
Deferred income
Liability to pay for frequencies**
Institutions
Derivate instruments
Accrued interest
Current tax liabilities
Others
Total current payables including derivatives
367
171
-
92
1
29
12
23
695
Total and current trade payables
Deferred income due to a government grant**
Deferred income
Others
Total non-current payables
1,598
53
76
22
151
Total current and non-current trade payables
1,749
955
955
352
158
87
110
35
29
5
24
800
1,755
65
69
8
142
1,897
* Of which the balance of suppliers who are related parties and interested parties as of December 31, 2022 is NIS
2 million (as of December 31, 2021 - NIS 4 million).
** See Notes 10.1 and 3.14 regarding frequency tender and government grant.
15. Provisions
Customer lawsuits
NIS millions
Additional lawsuits
NIS millions
Dismantling
and
removing cellular
sites and liability
NIS millions
Total
NIS millions
Balance as of January 1, 2022
Provisions created
Provisions exercised
Provisions cancelled
Balance as of December 31, 2022
Presented in the statement on the
financial position as follows:
Current provisions
Non-current provisions
64
43
)20 (
-
87
87
-
87
For details regarding lawsuits, see Note 17.
-
82
)7 (
-
75
75
-
75
54
3
-
)14 (
43
6
37
43
118
128
)27 (
)14 (
205
168
37
205
Notes to Consolidated Statements as of December 31, 2022
16. Employee benefits
Employee benefits include severance benefits, post-employment benefits, other long-term
benefits, and short-term benefits. See also Note 26 regarding share-based compensation.
16.1.
Composition of the liabilities for employee benefits
2022
2021
Note
NIS millions
NIS millions
Current liabilities for:
Vacation
Sickness
for early
Provision for early retirement plan at Bezeq
Provision
transferred from working for the State at Bezeq
Provision for streamlining and early retirement plan at
Pelephone, Bezeq International, and DBS
retirement of employees
16.4
16.5.1
16.5.2
108
114
93
10
16.5.3-16.5.5
67
Current maturity of benefits for retirees
16.3.3
Total current liabilities for employee benefits
Non-current liabilities for:
Liabilities for benefits to retirees
Severance pay, net (see composition below)
Early notice and pension
Provision for streamlining and early retirement plan at
Pelephone, Bezeq International, and DBS
16.3.3
16.3.1
16.3.2
16.5.3
Total non-current liabilities for employee benefits
Total liabilities for employee benefits
The following is the composition of the liability for
severance pay:
Liability for severance pay
Fair value of plan assets
16.2.
Defined deposit plans
7
399
107
52
28
14
201
600
201
(149)
52
126
150
98
100
29
7
510
139
60
33
11
243
753
223
(163)
60
Lability for benefits for employees of retirement age for their period of service in the
Company and the consolidated companies and for the employees to whom Article 14 of
the Severance Compensation Law, 5723-1963 ("Severance Compensation Law") applies,
fully covered by current payments to pension funds and insurance companies.
Deposits recognized as an expense for a
defined deposit plan
211
218
221
2022
2021
2020
NIS millions
NIS millions
NIS millions
For some of the employees, the Group has an obligation to complete severance
compensation beyond the amount accumulated in the severance fund in the name of
the employees (see Section 16.3.1 below).
Notes to Consolidated Statements as of December 31, 2022
16.3.
Defined benefit plans
Liabilities regarding defined benefit plans in the Group include the following liabilities:
16.3.1.
16.3.2.
16.3.3.
The liability for severance pay for the balance of the liability that is not
covered by deposits and/or insurance policies in accordance with the existing
employment agreements and the Law on Severance Pay. In respect of this
part of the liability, there is a reserve deposited in the name of Bezeq Group
companies in pension funds and insurance companies. The reserves in
pension funds and insurance companies include linkage differences and
accrued interest. Withdrawal of the reserves is conditional upon compliance
with the provisions detailed in the Severance Compensation Law.
A liability according to the personal employment agreements of senior
employees in the Bezeq Group to pay a benefit for early notice upon
termination of the employee-employer relationship. In addition, Bezeq has a
liability towards a number of senior employees who are entitled to early
retirement conditions (pension and retirement grants) that do not depend on
the existing retirement agreements for all employees.
Bezeq retirees receive benefits, apart from the pension payments, the main
ones being a holiday present (adjacent to the exchange rate of the dollar),
financing the maintenance of the pensioners' clubs and social activities.
Bezeq's liability for these costs accrues during the work period. Bezeq
includes in its statements the liabilities for the expected costs in the post-
employment period.
16.4.
Provision for sickness
The statements included a provision for redemption and exercise of sick days. The right
to accrue sick days was taken into account for all employees of the Group, and the right
to redeem sick days only for eligible employees in accordance with the conditions
stipulated in the employment agreements. The provision was calculated on the basis of
an actuarial calculation that includes the assumption of a positive accumulation of days
for most employees and exercise of days using the "last in first out" (LIFO) method.
16.5.
Benefits for early retirement and dismissal
16.5.1.
In accordance with the collective agreement between Bezeq and the workers'
organization and the new General Workers' Union of December 2006 and in
accordance with amendment number 6 to the agreement of December 2020,
Bezeq was entitled, at its discretion, to terminate the work of up to 50
permanent and veteran employees in each of the years 2026 - 2021. The right
of Bezeq is cumulative over the years and this is in addition to the retirement
quota of approximately 300 permanent employees remaining from the
previous agreement, whose employment Bezeq can terminate at the end of
the current agreement period.
Bezeq recognizes the expense for early retirement when Bezeq has made a
clear commitment, with no actual possibility of cancellation, to dismiss
employees before they reach the accepted retirement date, according to a
defined plan. The collective agreement gives Bezeq the right to dismiss
employees but does not create a clear commitment for Bezeq without a real
possibility of cancellation. Therefore, the expenses for early retirement are
recognized in Bezeq's books at the time the plan is approved.
Notes to Consolidated Statements as of December 31, 2022
On December 28, 2022, Bezeq's Board of Directors approved, as part of the
implementation of Bezeq's
retirement of
approximately 80 permanent and veteran employees on an early retirement
track at a total cost of up to approximately NIS 95 million. In light of the above,
Bezeq recorded in its statements for Q4/2022 an expense of approximately
NIS 92 million.
streamlining plan,
the
16.5.2.
16.5.3.
On December 16, 2018, an early retirement plan was approved, until the end
of 2021, for all Bezeq employees who were transferred to the company from
the Ministry of Communications (94 employees). The balance of the provision
for the liability to retire the aforementioned employees as of December 31,
2022 is NIS 10 million and is due in 2023.
Labor relations at Pelephone are regulated by a collective agreement signed
between Pelephone and the New General Workers' Histadrut - the Union of
Cellular, Internet and High-Tech Workers (“the Histadrut") and the Pelephone
Employees’ Committee. The agreement applies to all Pelephone employees,
with the exception of senior managers and certain employees in pre-defined
positions
On December 6, 2022, Pelephone signed a renewal of the existing collective
agreement, which includes the provision of salary increases and bonuses,
improvement of ancillary conditions, voluntary retirement and the
settlement of labor disputes announced by the General Workers' Union and
the employees’ representatives, while maintaining industrial peace during
the period of validity of the agreement in the matters regulated therein, for
the period starting From December 6, 2022 to December 31, 2025 ("the
Agreement").
As part of the agreement, all open labor disputes were removed, with the
exception of the issue of appointing a representative on the Pelephone Board
of Directors on behalf of the employees, regarding which it was stipulated in
the agreement that it will be discussed later.
In December 2022, the Group recognized one-time expenses totaling
approximately NIS 32 million, these expenses include expenses for employee
retirement as well as one-time signing bonuses.
16.5.4.
On October 3, 2022, Bezeq International's Board of Directors approved the
implementation of the agreements reached with the Histadrut and Bezeq
International's employee representatives (in the framework of conducting
negotiations to regulate the rights of employees) regarding a plan for the
voluntary retirement of Bezeq International employees during the years
2022-2024 (hereinafter "Voluntary Retirement Plan").
Following the approval of the Voluntary Retirement Plan, on December 6,
2022, Bezeq International's Management, the Histadrut and the Employees’
Committee signed a new collective agreement for Bezeq International until
the end of 2025.
In the agreement signed, Bezeq International’s Management and Employees’
Committee reached an understanding regarding the voluntary retirement
processes and the granting of appropriate conditions to the retiring
employees, including a 180% retirement bonus. In addition, it was agreed
upon salary increases at a rate of 9% during the period of the agreement (3%
each year), a commitment to conduct negotiations regarding the requirement
of the employee representatives to appoint an employee representative on
Notes to Consolidated Statements as of December 31, 2022
the Company's Board of Directors, increased participation in meals, the
provision of a signing bonus and other rights. Estimated cost of the Voluntary
Retirement Plan and the estimated cost of the agreement with the
Employees’ Committee amount to approximately NIS 70 million and NIS 28
million, respectively. Of these amounts, the Group recorded expenses in its
2022 statements in the amount of approximately NIS 70 million.
16.5.5.
DBS is bound by a collective agreement between itself and the National
Workers' Histadrut and the employees’ committees at Bezeq. The balance of
the provision for early retirement for this agreement as of December 31, 2022
is approximately NIS 14 million.
16.6.
Actuarial assumptions
The main actuarial assumptions regarding defined benefit plans as of the reporting date
are:
16.6.1.
16.6.2.
The mortality rates as well as future decreases in mortality rates are based on
the rates published in the Pension Circular 2022-9-18 of the Capital Market
Authority.
The departure rates were determined based on the past experience of Bezeq
and the consolidated companies while distinguishing between the different
employee populations and according to the years of seniority. Departure
rates include a distinction between departures that grant entitlement to full
severance pay and departures that do not grant full severance pay.
16.6.3.
The (nominal) discount rate is based on the yield of high-quality linked
corporate debentures with a duration similar to that of the gross liability.
The following are the main discount rates:
Severance pay
Retiree benefits
31,
December
2022
Average
discount rate
31,
December
2021
Average
discount rate
5.2%
5.2%
3%
3.3%
16.6.4.
Assumptions regarding salary updates for the purpose of calculating the
liabilities were made on the basis of Management's estimates while
distinguishing between the groups of employees. The main assumptions (in
nominal terms) regarding salary updates of main employee groups are:
Veteran
Bezeq employees
permanent
New permanent Bezeq
employees
Non-permanent Bezeq
employees
Employees
Pelephone,
International and DBS
of
Bezeq
Annual salary increase assumption
The calculation was based on individual assumptions regarding
the expected salary increase for the years 2023 to 2026, resulting
from the collective agreement signed in August 2015 and
December 2020.
Average update of 5.8% for young employees gradually decreases
to 2.7% at age 66.
6.4% for young employees gradually decreases to 0.1%, 2% (in
real terms) for senior workers.
The rates of salary increases were determined based on the
collective agreements that were signed. The average annual salary
increase rate is between 1% and 3%.
Notes to Consolidated Statements as of December 31, 2022
16.6.5. Detailed weighted average duration of liabilities for key post-employment benefits:
Severance pay
Retiree benefits
16.7.
Sensitivity analysis for main actuarial assumptions
December
2022
31,
December
2021
31,
Years
11
14
Years
12
16
The following is the analysis of the possible impact of the changes in main actuarial
assumptions on employee benefit liabilities. The calculation is made in relation to each
discount separately, assuming that the other discounts remain unchanged.
December 31, 2022 December 31, 2021
NIS millions
NIS millions
Discount rate - 0.5% addition
Future salary increase rate - 0.5% addition
Employee turnover rate - 5% addition
Mortality rate assumption - 5% increase
(20)
22
5
(2)
(32)
33
(14)
(3)
17. Contingent liabilities
In the course of the current business, lawsuits have been filed against the Group companies or
various lawsuits are pending against it (hereinafter in this section: "lawsuits").
In the opinion of the managements of the Group companies, which is based, among other things,
on legal opinions regarding the possibility of legal claims, adequate provisions were included in
the statements (as detailed in Note 15), where provisions were required, to cover the exposure
as a result of the aforementioned lawsuits.
In the opinion of the managements of the Group companies, the amount of additional exposure
(beyond the aforementioned provisions), as of December 31, 2022, due to lawsuits filed against
the Group companies on various issues and the probability of their materialization is not
expected, amounted to a total of about NIS 2.5 billion. In addition, there is additional exposure in
the amount of approximately NIS 2.5 billion for claims whose chances cannot yet be assessed at
this stage.
Also, motions were submitted against the Group companies to recognize the lawsuits as class
actions that did not specify an exact claim amount in the lawsuit, in respect of which the Group
has additional exposure beyond the above.
The additional exposure amounts in this note are nominal.
For updates regarding changes after the date of the report, see Section 17.3 below.
The following is a description of the contingent liabilities of the Group in effect as of December
31, 2022, classified according to groups with similar characteristics:
Notes to Consolidated Statements as of December 31, 2022
The
exposure
amount
for claims
whose
chances
cannot yet
be
assessed
Provision
balance
Additional
exposure
amount
Lawsuits group
Lawsuits essence
NIS millions
Customer lawsuits Mainly motions for approval of class actions (and
actions on their behalf) concerning allegations of
unlawful collection of funds and damage to the
provision of services provided by the Group
companies.
87
1,809
671
Enterprise
company claims
and
Lawsuits in which liability of the Group
companies is claimed in connection with
their operation and/or investments.
75 (1)
685 (1)
1,808 (2)
Miscellaneous
Other lawsuits, including tort claims (with
the exception of claims for which there is no
dispute regarding the existence of insurance
coverage), real estate, infrastructure, etc.
75 (1)
685 (1)
1,808 (2)
Total lawsuits against the Company and the consolidated companies (3)
162
2,520
2,483
(1) Against the balance of the provision, an indemnity asset was recognized in the full amount of
the provision in view of the existence of insurance coverage. The asset was presented under
the "other receivables" item in the statement of financial position as of December 31, 2022,
in accordance with the provisions of accounting standard IAS 37 "Provisions, Contingent
Liabilities and Contingent Assets". The additional exposure was estimated at approximately
NIS 612 million. After the date of the statements, the lawsuit ended as mentioned.
(2) The total includes two motions for approval of a class action with a total amount of
approximately NIS 1.8 billion filed in June 2017 against the Company, Bezeq, officers of the
Bezeq Group, as well as companies from the group formerly controlling the Company and
Bezeq, regarding the transaction for the purchase of DBS shares by Bezeq from Eurocom DBS
Ltd. According to the Court's decision, it is expected that a consolidated motion will be
submitted to replace these two motions. The procedure is delayed due to the criminal
procedure that is ongoing following the investigation by the Securities Authority (as described
in Note 1.3) and at the request of the Attorney General at this stage, until July 20, 2023.
(3) In addition, see also Note 6.6.
After the date of the statements, a motion was submitted against the Bezeq Group companies for
the approval of a class action without a financial assessment, as well as claims totaling NIS 40
million. As of the date of approval of the statements, it is not yet possible to assess the chances
of the aforementioned claims. Also, see Note 17.1 (1) above.
Notes to Consolidated Statements as of December 31, 2022
18. Contracts
18.1.
DBS is bound by agreements for the purchase of space segments (as detailed in Note
18.2 below), content and copyrights, until the end of 2026. The amounts of future
contracts as of December 31, 2022 are as follows:
Year ended December 31
2023
2024
2025
2026
Space segments
NIS millions
88
88
67
11
254
Content
copyrights
NIS millions
223
105
21
-
349
and
Total
NIS millions
311
193
88
11
603
18.2.
According to an agreement with Space Communications Ltd. (hereafter - "Space") from
2013, as amended (including an amendment from January 2023), DBS leases space
segments in "Amos" series satellites (hereafter - "Space Agreement").
In accordance with the provisions of the Space Agreement, DBS leases space segments
in the "Amos 3" satellites (the estimated end of its life is at the beginning of 2026), as
well as in the "Amos 7" satellite, in which Space has the right to lease space segments
according to an agreement between itself and the owner of the rights to this satellite,
and which is leased to DBS until February 2025 (or until the end of its life, whichever
comes first), when the lease in "Amos 7" starting in September 2024 is conditional on
receiving the approval of the Ministry of Communications by Space.
Leased space segments - according to the Space Agreement, and subject to unavailability
events, until the end of the "Amos 7" lease period, DBS will lease 12 space segments
from Space, in accordance with the distribution between the relevant satellites
established in the agreement according to the different periods, and then DBS will lease
ten space segments from "Amos" 3". The agreement also regulates the provision of back-
up sections for the leased space segments during the period of the agreement, under
the conditions and limitations stipulated therein.
Early termination of the agreement - according to the Space Agreement, Bezeq is entitled
to announce an early termination of the Space Agreement without cause, subject to a
12-month advance notice and payment for the lease in "Amos 7" plus partial payment of
the balance of the lease in the space segments in "Amos 3".
18.3.
The cellular infrastructure equipment in the UMTS/HSPA and LTE and 5G networks is
manufactured by LM Ericsson Israel Ltd. ("Ericsson"), which serves as Pelephone's
supplier for the deployment of the 4G (LTE) and 5G radio network. Also, Ericsson is a
substantial provider of Pelephone in the field of microwave transmission. Pelephone has
multi-year agreements for maintenance, support and software upgrades for the
UMTS/HSPA network, as well as an agreement for the purchase of 4G (LTE) and 5G
equipment with Ericsson, and in its opinion, it may depend on it in connection with
network support and expansion. As of December 31, 2022, Bezeq has contracted with
Ericsson for the purchase of end equipment and the receipt of aforementioned services
for a total amount of approximately NIS 7 million.
18.4.
In April 2021, Pelephone's new engagement agreement with International Distribution
Apple ("Apple") for the purchase and distribution of iPhones entered into force,
according to which Pelephone committed to purchase a minimum annual quantity of
devices for three more years at the prices that will be in effect with the manufacturer at
the time of the actual purchases.
Notes to Consolidated Statements as of December 31, 2022
18.5.
18.6.
18.7.
For the purpose of its activities, Bezeq International usually acquires unlimited capacity
usage rights (IRU) from service providers. During the Q1/2021, Bezeq International
signed an agreement to extend the capacity usage periods until July 2030 with the
provider. In respect of the rights of use, Bezeq International pays payments that are
spread over annual payments throughout the period of use of the capacities. The
remaining engagement according to the agreement as of December 31, 2022 is USD 5.9
million (in 2021 - USD 10.1 million).
The Bezeq Group companies have contracts for December 31, 2022 for the purchase of
end equipment, PP&E, intangible assets and other assets in the amount of approximately
NIS 403 million.
Law, with
the amendment of
Further to what was stated in Note 9.4 above regarding the deployment of an optical
fiber network by Bezeq, in accordance with the provisions of Article 14C of the
Communications
the
telecommunications companies including Bezeq and its subsidiaries Pelephone, DBS and
Bezeq International are obligated to pay a rate of 0.5% of their annual income during the
deployment period to the incentive fund. The incentive fund is managed by the
Accountant General at the Ministry of Finance, for the benefit of encouraging the
deployment of fiber while participating in the commission in statistical areas that are not
included in the deployment areas chosen by Bezeq. The Minister of Communications
with the consent of the Minister of Finance and the approval of the Economic Committee
can change this rate.
the Bezeq
license,
18.8.
For information regarding contracts with related parties, see Note 29.
19. Collateral, liens and guaranties
Bezeq Group's policy is to provide tender and performance guaranties and guarantees according
to law. In addition, Bezeq provides, as needed, bank guarantees for bank obligations of
consolidated companies.
19.1.
Bezeq Group companies provided guaranties to the Ministry of Communications in
connection with guaranteeing the terms of their licenses in a total amount of
approximately NIS 131 million (of which approximately NIS 58 million are linked to the
Consumer Price Index).
19.2.
Bezeq Group companies provided bank guarantees to third parties in the total amount
of approximately 218 million NIS (including a guarantee in the amount of approximately
120 million NIS for the Sakia complex. For details, see note 6.6).
19.3.
Limitations on the creation of liens on the assets of Bezeq Group companies:
19.3.1.
In accordance with the Bezeq’s license, the license and any part of it cannot
be transferred, pledged or foreclosed. Transfer, pledge or foreclosure of
property from the license assets that were not expressly permitted in the
license require the approval of the Minister who may, in special cases, permit
the transfer of a license due to structural changes, if he is convinced that all
the conditions that were met by the transferor are met by the owner of the
transferred license. Also, to the extent that a third party is granted rights in
the assets used for the purpose of providing Bezeq’s services, Bezeq must
ensure that a situation does not arise in which the exercise of the rights in
said asset may harm the performance of Bezeq’s obligations according to the
license.
Notes to Consolidated Statements as of December 31, 2022
19.3.2.
In accordance with Pelephone's mobile radio telephone license, Pelephone is
not allowed to sell, lease, or mortgage any of the assets used for the
execution of the license ("the license assets"), unless the consent of the
Minister of Communications has been given, after he has assumed that the
exercise of the rights by the third party will not cause harm to the provision
of services according to the license, except:
A. A lien on any of the license's assets in favor of a bank operating legally in
Israel, in order to obtain bank credit, provided that it has notified the
Ministry of Communications of the lien it intends to register, according
to which the lien agreement includes a clause guaranteeing that in any
case the exercise of the rights by the bank will not cause any harm to the
provision of services under the license.
B. Sale of equipment items when performing an upgrade procedure,
including sale of equipment using the trade in method.
C. Sale, lease, encumbrance or transfer of the license assets to a cellular
radio infrastructure licensee of which Pelephone is a customer.
In accordance with Bezeq International’s license, it is not allowed to sell, rent
or mortgage any of the assets necessary to guarantee the licensee's services,
unless the Minister of Communications has given his consent to this after he
has assumed that the exercise of the rights by the third party will not cause
damage to the provision of the services according to the
license.
Notwithstanding the foregoing, Bezeq International may pledge any of the
license assets in favor of a bank operating legally in Israel, in order to obtain
bank credit, provided that it gives advance notice of the pledge it intends to
make, and the pledge agreement includes a clause guaranteeing that the
exercise of the rights by the bank will not cause harm to the provision of
services under the license.
In relation to the DBS broadcasting license, the Communications Law and the
license provisions establish limitations in relation to the transfer, foreclosure
and pledge of the license and license assets. The broadcasting license requires
obtaining the approval of the Minister in relation to certain changes in the
maintenance of means of control in DBS and imposes reporting obligations
regarding the holders of the means of control; There are also certain
limitations
license to perform uplink operations
(transmission of transmissions from the DBS transmission center to the
transmission satellite and performing related setup and operation
operations).
in relation to the
19.3.3.
19.3.4.
19.4.
As for the conditions the Group has committed to in connection with loans and credit,
see Note 13.
Notes to Consolidated Statements as of December 31, 2022
20. Equity
20.1.
Share capital
Ordinary shares NIS 0.1 par value each
Ordinary shares
December 31, 2022 December 31, 2021
Registered share capital
300,000,000
300,000,000
Issued and paid up share capital
116,335,793
116,335,793
Treasury shares
(
9,080,317
)
(
1,476,803
)
Issued and paid up share capital, net
107,255,476
114,858,990
20.1.1.
20.1.2.
20.1.3.
On March 31, 2021, the Company's general assembly approved the increase
in the Company's registered share capital, so that after the registered equity
increases as stated, the Company's registered equity will be NIS 30,000,000,
divided into 300,000 ordinary shares of NIS 0.1 each, and an amendment of
the Company’s Bylaws was approved accordingly.
On November 30, 2021, the Company's Board of Directors approved a self-
purchase of its shares up to NIS 30 million. As part of the said purchase plan,
the Company acquired in 2021 a total of 1,457,573 of its shares and in 2022
a total of 820,360 of its shares for NIS 30 million.
On March 23, 2022, the Company's Board of Directors approved another self-
purchase of the Company's shares up to NIS 20 million. As part of the said
purchase plan, the Company acquired a total of 1,349,829 of its shares for NIS
20 million.
20.1.4.
On May 24, 2022, the Company's Board of Directors approved another self-
purchase of the Company's shares of NIS 30 million.
20.1.5.
On May 31, the Company purchased a total of 730,000 of its shares for about
NIS 10 million in a transaction made off the stock exchange.
20.1.6.
On August 9, 2022, the Company's Board of Directors approved a self-
purchase plan of the Company's shares up to NIS 25 million.
20.1.7.
On November 15, 2022, the Company's Board of Directors approved a self-
purchase plan of the Company's shares up to NIS 25 million.
20.1.8.
As of December 31, December 2022, Searchlight and the Forer family about
65.26% and 12.35%, respectively, of the Company's issued and paid-up share
capital.
Notes to Consolidated Statements as of December 31, 2022
21.
Incomes
Year ended December 31
2021
2022
NIS millions
NIS millions
2020
NIS millions
Landline domestic communication - Bezeq Fixed Lines
Internet - infrastructure
Landline telephony
Data transmission and communication
Cloud and digital services
other services
Cellular communication - Pelephone
Cellular services and end equipment
Sale of end equipment
Multi-channel TV - DBS
Internet services (ISP), international communication
and network endpoint and ICT services - Bezeq
International
Others
1,729
762
897
331
261
3,980
1,755
604
2,359
1,277
1,183
187
8,986
21.1.
Contract with the seller's customer over time
1,562
891
844
318
230
3,845
1,606
643
2,249
1,270
1,186
271
8,821
1,537
981
785
288
222
3,813
1,550
577
2,127
1,286
1,217
280
8,723
On December 21, 2022, Bezeq signed a
long-term agreement with Partner
Communications Ltd. ("Partner") for the provision of non-permanent right of use (IRU)
service in the BSA fiber service (wholesale market) by Bezeq to Partner. In accordance
with the agreement, Partner was granted a right of use a non-transferable and
irrevocable right to provide service to its customers on 120,000 unspecified Bezeq fiber
optic lines at a rate of 1 gigabyte download per line, for a period of 15 years starting on
January 1, 2023 (the beginning of the right to use the lines will be done in phases for a
period of up to five years).
The consideration for the provision of the service, which includes one-time payments
and annual payments, is expected to reach a total amount of approximately NIS one
billion (approximately NIS 574 million for one-time payments, annual maintenance fees
at the rate of 4% of the one-time payments for the lines for which the right of use will be
granted until that year, and with the addition of interest and/or linkage differences
according to the terms of the agreement), with most of the consideration amount
expected to be paid during the first 9 years of the agreement. In light of these conditions,
a material financing component was identified in the terms of the agreement.
The agreement includes the option to increase the number of lines by up to 48 thousand
additional lines under the same conditions, to upgrade rates as well as to extend the
agreement period in two five-year option periods each with less lines than in the first
agreement period. Increasing the content of the aforementioned agreement will result
in a corresponding increase in the total financial scope of the agreement. The agreement
also includes a price protection mechanism for Partner in a way that weighs the price of
the regulatory line, starting from the sixth year of the agreement. In light of these
conditions, a material financing component was identified in the terms of the
agreement.
Notes to Consolidated Statements as of December 31, 2022
22. General and operating expenses
Year ended December 31
2021
2022
NIS millions
NIS millions
2020
NIS millions
to
communication
Connectivity
operators in Israel and abroad
and payments
End equipment and materials
Content costs
Marketing and general
Structure and site maintenance
Services and maintenance by subcontractors
Vehicle maintenance*
743
782
567
539
247
454
64
717
803
553
546
238
348
60
776
747
589
471
246
303
50
3,182
* General and operating expenses are presented minus expenses charged in 2022 to investments in PP&E
and intangible assets in the amount of NIS 51 million (approximately NIS 49 million in 2021 and
approximately NIS 38 million in 2020).
3,396
3,265
23. Salaries
Total salaries and related expenses
Share-based compensation
Minus salaries credited to investments in PP&E and intangible
assets
2,395
21
(
)530
1,87
7
24. Other operating expenses (income), net
Year ended December 31
2022
NIS millions
2022
NIS millions
2,416
27
(
)555
1,888
2020
NIS millions
2,442
-
(
)548
1,894
Year ended December 31
2022
2022
2020
NIS millions
NIS millions
NIS millions
Capital gain (mainly from the sale of real estate)
Receipts from settlement agreement
Expenses for termination of employee-employer relations in
early retirement at Bezeq (see Note 16.5.1)
Provision for the grant for signing a collective agreement at
Bezeq (see Note 16.5.1)
Expenses due to the termination of employer-employee
relations with early retirement and a streamlining agreement
at Pelephone, Bezeq International and DBS (see Notes 16.5.3
and 16.5.4)
Provision (cancellation of provision) for claims
Other income
Profit from the sale of an investee (see Note 12.4)
Other operating expenses (income), net
)8 (
-
78
-
102
55
)7 (
-
220
(175)
(5)
95
-
37
(23)
(6)
-
(77)
)18(
)9(
64
40
9
11
)2(
)22(
73
Notes to Consolidated Statements as of December 31, 2022
25. Financing expenses (income), net
Year ended December 31
2022
2022
2020
NIS millions
NIS millions
NIS millions
Interest expenses for financial liabilities
Financing expenses for employee benefits
Costs due to early repayment of loans and debentures (see
Note 13)
Linkage and exchange rate differentials
Financing expenses for lease obligations
Other financing expenses
Change in fair value of financial assets measured at fair value
through income
Total financing expenses
Income due to credit grossing in sales
Financing income for employee benefits *
Total financing income
Change in fair value of financial assets measured at fair value
through income
Total financing income
309
-
26
125
43
19
8
530
20
40
49
23
132
395
7
34
49
40
8
-
533
28
-
16
11
55
382
8
65
23
30
6
11
525
30
-
15
6
51
474
Financing expenses, net
* Financing incomes recognized as a result of updating the discount rate according to which the liabilities
for employee benefits are calculated as of December 31, 2022.
398
478
26. Share-based compensation
26.1.
Terms of the Bezeq Group option plan
During the year 2021, Bezeq allocated 64 million options to officers, executives and
senior employees in Bezeq and Bezeq's subsidiaries. The options were allocated to each
offeree in three grants, each grant at the rate of one third of the total options allocated
to the offeree. Each grant will become vested in four annual phases where a different
exercise price is determined for each grant. The exercise of each option is subject to the
fact that, after the vesting date of the option, the exercise price condition for the option
has been met (the average of the closing prices of a Bezeq share in the period of at least
30 consecutive trading days on the stock exchange preceding the test date is equal to or
higher than the price that is a condition for exercise).
During the year 2022, Bezeq allocated approximately 7 million additional options to
officers, executives and senior employees at Bezeq and Bezeq's subsidiaries. The options
were granted in 2 grants, each grant half of the total number of options for that offering.
Each grant will mature in four annual tranches where a different exercise price is
determined for each grant.
Notes to Consolidated Statements as of December 31, 2022
26.2.
Transfers the in number of options in Bezeq Group
Balance in circulation at the beginning of the period
Options granted during the year
Options forfeited during the year due to the departure of the bidders
Balance in circulation at the end of the period
Exercisable at the end of the period (subject to compliance with the share
exercise price conditions)
Options
2022
Millions
60
Options
2021
Millions
-
7
)10 (
57
28*
62
(2)
60
15
* As of the date of approval of the financial statements, approximately 15 million
options met the share price conditions and are exercisable.
26.3.
Details regarding the measurement of the fair value of a share-based compensation
plan in Bezeq Group
The fair value of the options granted during 2021 in Bezeq Group, which was estimated
by an external valuator while applying the Monte Carlo model, is about NIS 46 million,
according to the vesting period and the conditions of exercise as detailed above.
The fair value of the options granted during 2022 in Bezeq Group, which was estimated
by an external valuator while applying the Monte Carlo model, is about NIS 13 million,
according to the vesting period and the conditions of exercise as detailed above.
26.4.
Salaries expenses recognized by Bezeq Group for share-based compensation
Salaries expenses
Year ended December 31
2022
2022
2020
NIS millions
11
NIS millions
27
NIS millions
-
26.5. Options granted to company officers
During the year 2022, the Company allocated 3,350,000 options exercisable into
3,350,000 ordinary shares of the Company to Company officers. The vesting period of
the options granted to the Company's officers is 3 years.
Salaries expenses recognized by the Company for share-based compensation:
Salaries expenses
Year ended December 31
2022
2022
2020
NIS thousands
520
NIS thousands
280
NIS thousands
280
Notes to Consolidated Statements as of December 31, 2022
27. Profit per share
The calculation of the basic and diluted profit per share was based on the profit attributed to the
ordinary shareholders and according to the weighted average number of ordinary shares included
in the calculation as follows:
the
Net profit
Company's shareholders (NIS millions)
attributable
to
Weighted average of ordinary shares
Balance as of January 1 (millions)
Effect of buyback of shares
Basic weighted average of ordinary
shares as of December 31 (millions)
Effect of share-based compensation
Diluted weighted average of ordinary
shares as of December 31 (millions)
Basic profit per share (NIS)
Diluted profit per share (NIS)
2022
2021
2020
158
115
)4 (
111
1
112
1.42
1.41
129
116
-
116
-
116
1.11
1.11
157
116
-
116
-
116
1.35
1.35
Notes to Consolidated Statements as of December 31, 2022
28. Segmental reporting
28.1.
The Group operates in four different segments in the communications industry, in such
a way that each company in the Group operates in a separate business segment. Each
Company provides services in the segment in which it operates using the PP&E and
infrastructures it owns (see also Note 21). The infrastructure of each company is used to
provide its services. Some of the Group companies use infrastructure owned by other
Group companies.
The main reporting format, according to business segments, is based on the
administrative and internal reporting structure of the Group.
The business segments of Bezeq Group are as follows:
1. "Bezeq"
Israel Telecommunications Corp. Ltd. –
the
landline
interior
communications;
2. Pelephone Communications Ltd. - cellular communications;
3. Bezeq International Ltd. - Internet, international communication and network
endpoint services, and ICT solutions (information and communication systems)
(hereinafter - "Bezeq International Services Sector");
4. DBS Satellite Services (1998) Ltd. - multi-channel TV.
The rest of the Group companies are presented in the "Others" section. Other activities
include call center services for customers (Bezeq Online) and content services in the field
of Internet (in 2020). These activities are not reported as reportable segments since they
do not meet the quantitative thresholds in the reported years.
Inter-segment pricing is determined according to the price established in transactions in
the normal course of business.
Results, assets and liabilities of a segment include items that can be directly allocated to
the segment, as well as those that can be reasonably allocated.
The results of the multi-channel TV segment are presented excluding the total effect of
asset impairment described in Note 10.5. This is in accordance with the manner in which
the Group's main operational decision-maker evaluates the performance of the
segments and makes decisions regarding the allocation of resources to said sectors.
The capital expenditure of a segment is the total cost incurred during the period for the
purchase of PP&E and intangible assets.
Notes to Consolidated Statements as of December 31, 2022
28.2.
Activity segments
Year ended December 31, 2022
Landline
interior
communication
Cellular
communication
Bezeq
International
services
Multichannel
TV
Others
Adjustments
Consolidated
NIS millions
NIS millions
NIS millions
NIS millions
NIS millions
NIS millions
NIS millions
Income from externals
Inter-segmental income
Total income
Depreciation,
impairments
reductions
and
3,980
326
4,306
1,005
Segment results - operating profit (loss).
1,460
Financial expenses
Financial income
Total financing expenses (income), net
424
)92 (
332
Segment profit (loss) before income taxes
1,128
Income taxes
Segment results - net profit (loss).
Segment assets
Goodwill
Segment liabilities
Investments in PP&E, intangible assets
and deferred expenses
279
849
9,02
0
-
10,465
1,156
2,359
40
2,399
532
193
42
)68 (
)26 (
219
54
165
4,080
-
1,563
289
1,18
3
56
1,239
134
)30 (
9
)8 (
1
)31 (
1
)32 (
751
9
570
122
1,277
-
1,277
274
)48 (
8
)14 (
)6 (
)42 (
1
)43 (
1,249
-
469
189
718
6
193
4
6
-
-
-
6
1
5
90
-
32
10
-
(
)428
(
)428
)81 (
44
47
50
97
)53 (
-
)53 (
(
)903
1,559
860
-
8,986
-
8,986
1,868
1,625
530
(
)132
398
1,227
336
891
14,287
1,568
13,959
1,766
* The results of the multi-channel TV segment are presented net of the overall impact of impairment
recognized as of 2018. This is in accordance with how the Group's chief operating decision maker
evaluates the segment's performance and makes decisions regarding the allocation of resources to the
segment. In addition, see Note 31.4 regarding a summary of selected data from DBS's statements.
Notes to Consolidated Statements as of December 31, 2022
28.2.
Activity segments (Cont.)
Year ended December 31, 2021
Landline
interior
communication
Cellular
communication
Bezeq
International
services
Multichannel
TV
Others
Adjustments
Consolidated
NIS millions
NIS millions
NIS millions
NIS millions
NIS millions
NIS millions
NIS millions
Income from externals
Inter-segmental income
Total income
Depreciation,
reductions
and
impairments
3,845
337
4,182
938
Segment results - operating profit (loss).
1,748
Financial expenses
Financial income
Total financing expenses (income), net
Segment profit (loss) after financing
expenses, net
Share in profits (losses) of affiliates
357
)15 (
342
1,406
-
Segment profit (loss) before income taxes
1,406
Income taxes
Segment results - net profit (loss).
343
1,063
2,249
40
2,289
577
42
23
)65 (
)42 (
84
-
84
20
64
Investment in affiliates
9,245
4,452
Segment assets
Goodwill
Segment liabilities
-
-
-
-
11,415
1,753
Investments in PP&E, intangible assets
and deferred expenses
1,197
289
1,186
51
1,237
173
22
5
)3(
2
20
-
20
12
8
778
5
-
566
111
1,270
-
1,270
292
)41 (
4
)3(
1
)42 (
-
)42 (
1
)43 (
271
6
277
4
27
-
-
-
27
-
27
6
21
1,293
100
-
-
474
188
-
-
37
5
-
(
)434
(
)434
)95 (
58
144
31
175
(
)117
-
(
)117
-
(
)117
(
)874
-
1,560
844
8,821
-
8,821
1,889
1,856
533
)55 (
478
1,378
-
1,378
382
996
14,994
5
1,560
15,089
-
1,790
* The results of the multi-channel TV segment are presented net of the overall impact of impairment recognized
as of 2018. This is in accordance with how the Group's chief operating decision maker evaluates the segment's
performance and makes decisions regarding the allocation of resources to the segment. In addition, see Note
31.4 regarding a summary of selected data from DBS's statements.
Notes to Consolidated Statements as of December 31, 2022
28.2.
Activity segments (Cont.)
Year ended December 31, 2020
Landline
interior
communication
Cellular
communication
Bezeq
International
services
Multichannel
TV
Others
Adjustments
Consolidated
NIS millions
NIS millions
NIS millions
NIS millions
NIS millions
NIS millions
NIS millions
Income from externals
Inter-segmental income
Total income
Depreciation,
reductions
and
impairments
3,813
346
4,159
877
Segment results - operating profit (loss).
1,705
Financial expenses
Financial income
Total financing expenses (income), net
Segment profit (loss) after financing
expenses, net
Share in profits (losses) of affiliates
419
)16 (
403
1,302
-
Segment profit (loss) before income taxes
1,302
Income taxes
Segment results - net profit (loss).
262
1,040
2,127
59
2,186
599
)84 (
18
)66 (
)48 (
)36 (
-
)36 (
)11 (
)25 (
Investment in affiliates
8,471
4,371
Segment assets
Goodwill
Segment liabilities
-
-
-
-
11,764
1,742
Investments in PP&E, intangible assets
and deferred expenses
975
437
1,217
54
1,271
149
(
)241
5
)3(
2
(
)243
-
(
)243
32
(
)275
781
4
-
580
123
1,286
1
1,287
310
)42 (
15
)2(
13
)55 (
-
)55 (
2
)57 (
1,365
-
-
505
165
280
6
286
14
44
1
-
1
43
-
43
4
39
96
-
-
42
12
-
(
)466
(
)466
)91 (
326
67
36
103
223
-
223
45
178
(
)694
-
1,559
893
8,723
-
8,723
1,858
1,708
525
)51 (
474
1,234
-
1,234
334
900
14,390
4
1,559
15,526
-
1,712
* The results of the multi-channel TV segment are presented net of the overall impact of impairment recognized
as of 2018. This is in accordance with how the Group's chief operating decision maker evaluates the segment's
performance and makes decisions regarding the allocation of resources to the segment. In addition, see Note
31.4 regarding a summary of selected data from DBS's statements.
Notes to Consolidated Statements as of December 31, 2022
28.3.
Adjustments for reporting segments of incomes, income, assets and liabilities
Year ended December 31
2022
2022
2020
NIS millions
NIS millions
NIS millions
Income
Income from reporting segments
Income from other segments
Cancellation of incomes from inter-segmental sales
Consolidated income
Operating profit
Operating profit for reporting segments
Financing expenses, net
Loss (loss write-off) from impairment of assets (see Note
10.2)
Adjustments for the multi-channel TV segment
Reducing cost overruns
Profit (loss) for activities classified in the Other and
other adjustments category
9,221
193
)842 (
8,
986
1,575
(
)398
-
56
-
)6 (
8,978
277
(
)434
8,821
1,771
(
)478
-
72
-
13
8,903
286
(
)466
8,723
1,338
(
)475
286
81
)22(
26
Consolidated operating profit
1,227
1,378
1,234
December
2022
31,
December
2021
31,
NIS millions
NIS millions
Assets
Assets of reporting segments
Assets associated with activities classified in the Other category
Goodwill not attributable to an activity segment
Minus loss from asset impairment (see note 10), inter-segment assets and
other adjustments
Assets and cost overruns that are not attributed to a reporting segment
Consolidated assets
Liabilities
Liabilities of reporting segments
Liabilities associated with activities classified in the Other category
Minus inter-segmental liabilities
Liabilities related to non-reporting segments
Consolidated liabilities
15,
109
90
1,559
(
2,128
)
1,225
15,855
13,
067
32
(
1,
)311
2,171
13,959
15,773
100
1,559
(
2,280
)
1,407
16,559
14,208
37
(
1,407
)
2,251
15,089
Notes to Consolidated Statements as of December 31, 2022
29. Transactions with interested parties and related parties
29.1.
Identity of interested parties and related parties
The Company's interested parties and related parties as defined in the Securities Law
and International Accounting Standard 24 regarding related parties are mainly
Searchlight and TNR, their related parties affiliates, directors and key management
personnel from the Company or Searchlight and TNR.
It should be noted that the transactions described below with interested parties and
related parties do not include reference to what is stated in Note 1.3 regarding
investigations by the Israel Securities Authority and the Israel Police or to their possible
consequences.
29.2.
Balances with interested parties and related parties
Trade receivables - affiliate
Related parties, net
Right-of-use assets
Current lease liability maturities
Non-current lease liabilities
As of December 31
2022
2021
NIS millions
NIS millions
-
)1 (
2
)1 (
)2 (
1
)2(
2
)1(
)2(
29.3.
Transactions with interested parties and related parties
Income
From related parties
From affiliates
Expenses
To related parties
To affiliates
PP&E
To related parties
Year ended December 31
2022
2021
2020
NIS millions
NIS millions
NIS millions
4
-
24
-
1
10
1
33
-
-
12
2
28
2
-
29.3.1.
Negligibility procedure of Bezeq Group
Bezeq's Audit Committee decided to adopt guidelines, standards and rules for
the classification of a transaction by Bezeq or its consolidated company with
officers in Bezeq or in which an officer of Bezeq has a personal interest
(hereinafter - "transaction with an officer") and a transaction with a
controlling shareholder of Bezeq or in which the controlling shareholder has
a personal interest (hereinafter - "transaction with a controlling owner") as a
negligible transaction.
The standards established in the procedure, as updated from time to time in
accordance with its instructions, may be used by Bezeq, among other things,
to classify a transaction as a negligible transaction as stipulated in Regulation
41(a3) of the Securities Regulations (Annual Financial Statements), 5770-
Notes to Consolidated Statements as of December 31, 2022
2010, and as a tool for examining the negligible nature of additional business
relationships, such as: the existence of business relationships with a
candidate for office as an external director or an independent director
Negligible as stated in the Companies Regulations (matters not constituting
an affiliation), 5767-2006 and as stated in Article 240(f) of the Companies
Law, 5759-1999 (“the Companies Law").
Bezeq and its consolidated companies enter into transactions from time to
time with Bezeq officers and those who control it, including transactions of
the types and characteristics as detailed below:
1. Sale of communication services and products by Bezeq Group companies
including: various basic communication services (infrastructure,
-
telephony, transmission and PRI) and hosting in server farms; provision
of cellular services and value-added services and sale and upgrade of
cellular end equipment; Internet access services, international telephony
services, hosting services and data communication services; TV services.
2. Real estate lease, management and purchase agreements, including,
among others: lease of areas used for communication facilities and
warehouses.
3. Receiving consulting and training services for Bezeq Group companies or
their employees.
4. Purchase of goods and services used by Bezeq Group companies in their
activities, such as purchase of fuel and energy products, repair services,
financial/banking services and more.
In the absence of special qualitative considerations arising from all the
circumstances of the matter, a transaction will be considered a negligible
transaction to the extent that all of the following parameters are met:
A. The transaction is not an unusual transaction (that is, a transaction made
in the normal course of business, under market conditions and which
may not materially affect Bezeq's profitability, its assets or liabilities, all
in accordance with Bezeq's procedures).
B. The scope of the contract specified in it in Bezeq (solo, and not on a
consolidated basis) (or in any of the subsidiaries) will not exceed NIS 10
million.
C. Bezeq is not required to report the transaction in an immediate report in
accordance with Regulation 36 or Regulation 37a of the periodic report
regulations or according to any other law.
D. The transaction does not include tenure and employment conditions (as
defined in the Companies Law) of an interested party or a relative
thereof, or does not constitute a contract as stated in the last part of
Article 270(4) of the Companies Law (contract of a public company with
its controlling shareholder or a relative thereof, directly or indirectly,
including through a company under his control, regarding his receipt of
services from the Company, and also if he is its officer - regarding the
conditions of his tenure and employment, and if he is a Bezeq employee
and is not its officer - regarding his employment in Bezeq).
Notes to Consolidated Statements as of December 31, 2022
As a general rule, each transaction will be examined separately for the
purpose of examining its compliance with the conditions for classification
as a negligible transaction as detailed above. Notwithstanding the above,
separate transactions that are part of the same contract or continuous
transactions or very similar transactions that are carried out frequently
and repeatedly or with the same entity and with corporations under its
control or transactions between which there is a dependency or
condition, will be examined as one transaction on an annual basis for the
purpose of their examination.
The Audit Committee may, from time to time and at its discretion, change
the above parameters for classifying a negligible transaction.
In addition, the standards established by the Audit Committee and the
Company's Board of Directors refer to the conditions under which a
transaction will be considered an unusual transaction, as well as
conditions under which a contribution by the Company or a subsidiary
will not be considered an unusual transaction.
Transactions listed in Article 270 (4) of the Companies Law that are not
considered negligible transactions
In the years 2020-2022 there were no such transactions.
For the transactions listed in Article 270(4) of the Companies Law
concerning insurance and obligation to indemnify directors and officers
of the Company, see Note 29.6 below.
29.4.
Benefits for key managerial personnel in the Group
Benefits for the employment of key management personnel in the Group in 2020-2022
include:
Year ended December 31
2022
NIS thousands
2021
NIS thousands
2020
NIS thousands
Number of key management personnel *
Salaries **
Grant ***
Management fees for the former Chairman
of the Bezeq Board of Directors
Share-based compensation
6
9,872
7,262
-
6,197
23,331
5
8,163
7,780
-
13,530
30,713
6
8,246
4,995
1,919
280
15,440
* Key management personnel in the Group in the reporting year include the Chairman of the
Company's Board of Directors, the Company's CEO, as well as the Chairman of Bezeq’s Board of
Directors, the former CEO of Bezeq, the current CEO of Bezeq as well as the current CEO of
Pelephone, Bezeq International and DBS.
** In 2022, the changes in other provisions (included in the total salaries) mainly include provisions for
advance notice to the current CEO of Pelephone, Bezeq International and DBS in the amount of
approximately NIS 0.7 million.
In 2021, the changes in other provisions at Bezeq (included in the total salaries) mainly include
provisions for vacation and sickness in the amount of approximately NIS 0.2 million.
Notes to Consolidated Statements as of December 31, 2022
In 2020, the changes in other allowances at Bezeq (included in the total salaries) mainly include an
allowance for early notice and for a non-competition period for the Chairman of Bezeq’s Board of
Directors in the amount of approximately NIS 0.9 million.
*** The amount includes an annual discretionary grant approved by Bezeq's general asembly on April
28, 2022 for the year 2021.
For information on share-based compensation, see Note 26.
29.5.
Benefits for directors of the company
Year ended December 31
2022
2021
2020
NIS thousands
NIS thousands
NIS thousands
Remuneration for the members of the Board of
Directors *
Number of directors receiving remuneration **
645
6
635
6
712
6
* The directors’ remuneration of the Company's CEO, who also served as a director of the Company until
November 29, 2021, as well as the remuneration of the Chairman of the Company's Board of Directors, are
presented in Section 29.4 above due to their being key management personnel.
** In 2021, a new director was appointed on behalf of the controlling shareholder of the Company, as well as a
retired external director, a new external director was appointed by the general assembly on January 24, 2022.
29.6. Additional benefits for directors and officers in the Company
Date of the approval of
the general assembly
the
(after
receiving
approval
the
Company's Board of
Directors),
unless
otherwise specified
of
April 30, 2020
April 30, 2020
November 29, 2022
of
the
Approval
Company's Board
of
Directors in accordance
with Regulation 1b1 of
the
Facilitation
Regulations
Nature of transaction
Transaction amount
of
the
Certificate
Company's
engagement in a run-off insurance
liability of
policy to cover the
directors and officers of
the
Company.
to
the
Amendment
letter of
commitment to indemnification and
exemption for the directors and
officers of the Company regarding
the maximum
of
indemnification.
amount
of
the
Company's
Certificate
engagement in an insurance policy
to cover the liability of directors and
officers in the Company and its
subsidiaries, in accordance with the
Company's remuneration policy for
the period until December 1, 2023.
Liability limit of up to 10 million dollars
per claim and in total for the entire
insurance year, plus reasonable legal
expenses. The total annual premium is
about USD 300k. The amount of the
deductible for the Company is up to USD
250k per case.
Up to 25% of the Company's equity
latest
according to the Company's
reports published before the actual
indemnity was granted or a total of USD
15 million, whichever is higher.
in total
Liability limit of up to USD 20 million per
claim and
for the entire
insurance year plus reasonable legal
expenses. The total annual premium is
approximately USD 494k. The amount of
the deductible for the company is up to
USD 150k in the case of claims outside
the US and Canada, up to USD 250k in
the case of claims in the US In Canada
and up to USD 250k per case for
securities claims in Israel.
Notes to Consolidated Statements as of December 31, 2022
30. Financial instruments
30.1.
General
The Group is exposed to the following risks arising from the use of financial instruments:
A. Credit risk
B. Liquidity risk
C. Market risk (including currency risk, interest rate risk and inflation / Consumer Price
Index risks).
In this note, quantitative and qualitative information is given regarding the Group's
exposure to each of the above risks, an explanation of how the risks are managed and
the measurement processes.
30.2.
Framework for financial risk management
The comprehensive responsibility for establishing the group's financial risk management
framework and overseeing it rests with the board of directors. The purpose of financial
risk management in the group is to define and monitor the various risks on an ongoing
basis and to determine the level of risk exposure that must be met and the possible
effects resulting from this exposure
in accordance with the assessments and
expectations of the board of directors.
The Group's policy is to manage, according to rules established by the Board of Directors,
the exposure resulting from fluctuations in foreign exchange rates, changes in interest
rates and changes in the Consumer Price Index.
30.3.
Credit risk
Management maintains ongoing monitoring of the Group's exposure to credit risks. Cash
and investments in deposits and securities are deposited in highly rated b banks.
Trade and other receivables
The Group's Management regularly monitors customer debts and the financial
statements include provisions for loan-loss that adequately reflect, according to
Management's assessment, the loss grossing in debts whose collection doubtful. In
addition, there is a wide spread of customer balances.
Investments in financial assets
To the extent that investments are made in securities, they are made in liquid,
marketable and low-risk securities. Transactions involving derivatives are conducted
with entities with a high credit rating.
As of the reporting date, there is no significant concentration of credit risks.
30.4.
Liquidity risk
The Group's policy for managing its liquidity is to ensure, as far as possible, sufficient
liquidity to fulfill its existing and expected obligations when they come due, in a normal
business scenario and under extreme conditions, without causing it unwanted losses or
damage to its goodwill. The cash balances held by the Group are mainly managed in
liquid investment channels, subject to the needs of financing current activities and debt
service. The Group regularly examines the existing and expected cash needs in the
foreseeable range, even in the scenario of an unexpected deterioration in its business.
These forecasts take into account, among other things, debt collection and circulation
Notes to Consolidated Statements as of December 31, 2022
from banking and non-banking sources. According to the conclusions, an active activity
is carried out to minimize the risk.
Regarding the terms of bonds issued by the group companies and loans received, see
Note 13 above.
The Group has contractual obligations for purchases, PP&E, end equipment, and other
current services. For more information regarding the contracts, see Note 18 on
contracts.
The following are the contractual repayment dates of financial obligations that have
actually been received up to December 31, 2022, including estimated interest payments
(based on consumer price index data and interest known as of December 31, 2022):
As of December 31, 2022
Contractual
cash flow
Book value
NIS millions
H1/2023
H2/2023
2024
2027
2025
to
2028
onwards
Non-derivative financial liabilities
Trade payables
Loans
Debentures
1,432
2,222
6,956
1,432
2,651
7,755
1,421
89
87
11
68
921
10,611
11,838
1,597
1,000
-
313
1,496
1,809
-
1,196
3,446
4,642
-
985
1,805
2,790
As of December 31, 2021
Contractual
2024 to
2027
Book value
cash flow
H1/2022
H2/2022
2023
2026
onwards
NIS millions
Non-derivative financial liabilities
Trade payables
Loans
Debentures
1,566
1,906
8,142
1,566
2,194
9,158
1,542
85
105
24
50
997
11,614
12,918
1,732
1,071
-
141
1,135
1,276
-
1,042
4,705
5,747
-
876
2,216
3,092
Financial
respect
of
instruments
liabilities
in
derivative
35
35
6
29
-
-
-
30.5. Market risks
The purpose of market risk management is to manage and monitor the exposure to
market risks within acceptable parameters to prevent significant exposures to market
risks that will affect the Group's results, its obligations and its cash flow.
As part of the Group's exposure management policy, it was decided to determine a mix
of debt exposure to interest and linkage as well as to reduce exposure to foreign
exchange. Accordingly, during its normal business, the Group performs full or partial
hedging operations and takes into account the effects of the exposure in its
considerations in determining the type of loans it takes and in managing its investment
portfolio .
Notes to Consolidated Statements as of December 31, 2022
30.5.1.
Risk of exposure to Consumer Price Index (inflation) and foreign currency
Consumer Price Index risk (inflation)
Changes in the Consumer Price Index rate affect the Group's profitability and
its future cash flows, mainly due to its index-linked obligations. As part of the
implementation of a policy to reduce index exposure, the Group executes
trades against the index. The hedging transactions are executed against the
settlement schedules of the hedged debt. The Company applies hedge
accounting to these forward contracts.
A significant portion of cash balances is invested in shekel deposits that are
exposed to changes in real value as a result of changes in the Consumer Price
Index.
Foreign currency risk
The Group is exposed to foreign currency risks mainly due to payments for
the purchase of end equipment and PP&E denominated or linked in part to
the dollar and the euro. In addition, the Group provides services to customers
and receives services from suppliers around the world in foreign currency,
mainly in dollars. The Group's policy is to reduce as much as possible purchase
agreements in foreign currency, as well as to partially hedge the dollar
exposure through forward contracts against the dollar and management of
dollar deposits.
Notes to Consolidated Statements as of December 31, 2022
The following is a statement on the financial situation according to linkage bases as of December 31,
2022:
As of December 31, 2022
Linked to
price
index
NIS
millions
Unlinked
NIS
millions
Foreign
currency
or
linked
to foreign
currency
(mainly
dollars)
NIS
millions
Non-
monetary
balances
NIS
millions
Total
balances
NIS
millions
733
911
1,395
174
-
3,213
314
-
-
-
-
60
374
3,587
635
17
1,217
396
168
2,433
6,127
87
164
-
-
37
6,415
8,848
-
40
-
75
-
115
140
-
-
-
-
29
169
284
286
439
16
-
-
741
2,130
1,362
-
-
-
-
3,492
4,233
21
22
45
-
-
88
6
-
-
-
-
-
6
94
-
-
193
3
-
196
-
3
37
-
-
-
40
236
-
-
-
40
85
125
-
57
1,746
6,542
3,251
169
11,765
11,890
-
-
172
-
-
172
-
-
-
151
319
-
470
642
754
973
1,440
289
85
3,541
460
57
1,746
6,542
3,251
258
12,314
15,855
921
456
1,598
399
168
3,542
8,257
1,452
201
151
319
37
10,417
13,959
(
5,261
)
(
3,949
)
(
)142
11,248
1,896
(
1,004
)
635
369
-
-
Current assets
Cash and cash equivalents
investments
customers
Other receivables
Inventory
Total current assets
Non-current assets
Trade receivables
Broadcast rights - minus rights used
Right-of-use assets
PP&E
Intangible assets
Deferred expenses and non-current
investments
Total non-current assets
Total assets
Current liabilities
Debentures, loans and credit
Current maturities of lease liabilities
Trade payables
Employee benefits
Provisions
Total current liabilities
Non-current liabilities
Loans and debentures
Lease liabilities
Employee benefits
Derivatives and other liabilities
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Total disclosure in the statement of
financial position
The scope of
index and foreign
currency risk hedging transactions is
as follows:
Forward contracts (see Note 30.6)
Notes to Consolidated Statements as of December 31, 2022
The following is a statement on the financial situation according to linkage bases as of December 31,
2021:
As of December 31, 2021
Linked to
price
index
NIS
millions
Unlinked
NIS
millions
Foreign
currency
or
linked
to foreign
currency
(mainly
dollars)
NIS
millions
Non-
monetary
balances
NIS
millions
Total
balances
NIS
millions
Current assets
Cash and cash equivalents
investments
customers
Other receivables
Inventory
Total current assets
Non-current assets
Trade receivables
Broadcast rights - minus rights used
Right-of-use assets
PP&E
Intangible assets
Deferred
investments
expenses
Deferred tax expenses
Total non-current assets
Total assets
Current liabilities
and
non-current
Debentures, loans and credit
Current maturities of lease liabilities
Trade payables
Employee benefits
Provisions
Total current liabilities
Non-current liabilities
Loans and debentures
Lease liabilities
Employee benefits
Derivatives and other liabilities
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
967
1,078
1,833
131
-
4,009
254
-
-
-
-
117
-
371
4,380
359
6
1,317
507
69
-
35
15
112
-
162
179
-
-
-
-
16
-
195
357
621
460
44
-
-
31
21
11
-
-
63
-
-
-
-
-
-
-
-
63
-
-
240
3
-
-
-
-
37
74
111
-
60
1,828
6,312
3,251
173
24
11,648
11,759
-
-
154
-
-
2,258
1,125
243
154
6,773
23
199
-
-
49
7,044
9,302
2,295
1,488
-
-
-
-
3,783
4,908
-
-
44
-
-
-
44
287
-
-
-
142
296
-
438
592
998
1,134
1,859
280
74
4,345
433
60
1,828
6,312
3,251
306
24
12,214
16,559
980
466
1,755
510
69
3,780
9,068
1,511
243
142
296
49
11,309
15,089
Total disclosure in the statement of financial
position
The scope of index and foreign currency risk
hedging transactions is as follows:
Forward contracts (see Note 30.6)
(
4,922
)
(
4,551
)
224(
)
11,167
1,470
(
1,096
)
880
216
-
-
Notes to Consolidated Statements as of December 31, 2022
30.5.2.
Data regarding the Consumer Price Index:
In 2022, the known Consumer Price Index increased by 5.3% (in 2021 an
increase of 2.4% and in 2020 a decrease of 0.6%).
30.5.3.
Sensitivity analyzes in relation to the change in the Consumer Price Index to
the change in the dollar exchange rate
An increase/decrease of 1% in the Consumer Price Index at the time of the
report would not have materially affected the net profit and equity.
An increase/decrease of 10% in the dollar exchange rate at the time of the
report would not have materially affected the profit and equity.
30.5.4.
Interest rate risk
As of December 31, 2022, the exposure to interest rate risk due to a
commitment for debt instruments bearing variable interest is low.
A.
Interest type
The following is a breakdown of the type of interest of the Group's
interest-bearing financial instruments.
Fixed interest instruments
Financial
customers)
Financial liabilities (loans and debentures)
deposits
(mainly
assets
Variable interest instruments
Financial assets (loans and debentures)
Book value
2022
2021
NIS millions
NIS millions
and
1,6
73
(
8,544
)
(
6,871
)
(
)698
1,964
(
9,712
)
(
7,748
)
(
)336
B. Fair value sensitivity analysis regarding fixed interest instruments
The Group’s fixed interest assets and liabilities are not measured at fair
value through income. Therefore, a change in interest rates on the
reporting date will not have any effect on income.
C. Cash flow sensitivity analysis regarding instruments with variable interest
rates
A 1% increase/decrease in interest rates at the reporting date would
have had a negligible effect on profit and equity.
Notes to Consolidated Statements as of December 31, 2022
30.6.
Hedging
30.6.1.
Cash flow hedge accounting
Bezeq entered into forward contracts, as detailed in the table below, for the
purpose of reducing exposure to changes in the Consumer Price Index for
index-linked debentures. These transactions hedge a specific cash flow of a
part of the debentures and are recognized in accounting as a cash flow hedge.
The expiration date of these transactions corresponds to the disposal
schedules of the bonds they were intended to protect. The fair value of the
forward contracts is determined by using observable market data (level 2 in
the fair value hierarchy).
Nominal
value
Fair value
Equity
principal
balance
Hedged item
Repayment dates
Transactio
ns
NIS millions NIS millions NIS millions
As of December 31,
2022
Debentures Series 10 12.2023
Debentures Series 12 6.2026
to
12.2025
to
6.2030
As of December 31,
2021
Debentures Series 6 12.2022
Debentures Series 10 12.2022
to
12.2025
Debentures Series 12 6.2026
to
6.2030
30.6.2.
Economic hedging
3
6
9
1
4
5
10
225
310
535
330
300
250
880
9
22
31
)29(
3
13
)13(
6
14
20
4
9
16
29
A. Bezeq is engaged in forward contracts in order to reduce exposure to
changes in the dollar exchange rate. The net fair value of these
transactions as of December 31, 2022 is an asset of approximately NIS 8
million (in 2021 - a liability of approximately NIS 4 million).
B. DBS is involved in forward contracts in order to reduce exposure to
changes in the dollar exchange rate. The net fair value of these
transactions as of December 31, 2022 is a liability of approximately NIS 4
million (as of December 31, 2022 - a liability of approximately NIS 2
million).
Notes to Consolidated Statements as of December 31, 2022
30.7.
Financial instruments measured at fair value
30.7.1.
The table below presents an analysis of the financial instruments measured
at fair value:
December
2022
31,
December
2021
31,
NIS millions
NIS millions
Level 1 - Investment in marketable securities measured at
fair value through income (see Note 30.7.2)
Level 2 – Forward contracts (see Note 30.7.3)
8
42
99
)19(
30.7.2.
30.7.3.
The fair value of tradable securities is determined with reference to their
quoted suggested sale price at the close of trading, as of the reporting date
(level 1).
The fair value of forward contracts on the Consumer Price Index or foreign
currency is based on discounting the difference between the price stated in
the forward contract and the price of the current forward contract for the
remaining period of the contract until redemption, using an appropriate
interest rate (level 2) . The evaluation is carried out under the assumption
that a market participant takes into account the credit risks of the parties in
the pricing of such contracts.
30.8.
Financial instruments measured at fair value for disclosure purposes only
The table below details the differences between the book value and the fair value of
financial liabilities.
The fair value of public debentures is determined according to their quoted purchase
price at the close of trading, as of the reporting date (level 1).
The fair value of non-traded loans and debentures is measured on the basis of the
present value of the future cash flows for the principal and interest component,
discounted according to the market interest rate appropriate for similar obligations plus
the required adjustments for risk premium and non-tradability as of the date of the
statements (level 2).
As of December 31, 2022
Book value
(including
accrued
interest)
Fair value
Discount
rate
(weighted
average)
Book
value
Fair
value
As of December 31, 2021
Discount
rate
(weighted
average)
%
NIS millions
%
NIS millions
from
banks
Loans
institutional bodies (unlinked)
Public
(index-
debentures
linked)
and
Public debentures (unlinked)
1,530
1,462
5.14
1,612
1,713
1.93
2,402
4,569
8,501
2,373
4,386
8,221
1.82
4.95
2,913
5,215
9,740
3,249
5,543
10,505
(
1.25
)
1.76
Notes to Consolidated Statements as of December 31, 2022
30.9. Offsetting financial assets and financial liabilities
The Group has agreements with various communication companies for the supply and
receipt of communication services. According to some agreements, each party has the
right to offset the amounts that each party owes. The table below shows the book value
of offset balances as presented in the statement of financial position:
Gross balance of trade and other receivables
Offset amounts
Balance of trade receivables presented in the statement of financial
position
Gross supplier balance
Offset amounts
Balance of suppliers presented in the statement of financial position
December 31,
2022
December 31,
2021
NIS millions
NIS millions
96
(84)
12
98
(84)
14
97
(87)
10
104
(87)
17
Notes to Consolidated Statements as of December 31, 2022
31. Summary of selected data from the statements of Bezeq the Israel
Telecommunications Corp. Ltd., Pelephone Communications Ltd., Bezeq
International Ltd. and DBS Satellite Services (1998) Ltd.
31.1.
Bezeq the Israel Telecommunications Corp. Ltd.
Data from the statement of financial position:
December
31,
December
31,
2022
2021
NIS millions
NIS millions
2,086
10,002
12,088
2,148
8,317
10,465
1,623
12,088
2,554
9,957
12,511
2,393
9,022
11,415
1,096
12,511
Current property
Non-current property
Total property
Current liabilities
Non-current liabilities
Total liabilities
Equity
Total liabilities and equity
Data from the statement of income:
Year ended December 31
2022
2021
2020
NIS millions
NIS millions
NIS millions
Income
Operating expenses
Salaries
Depreciation and amortization
General and operating expenses
Other operating expenses (income), net
Total Operating expenses
Operating profit
Financing expenses (income)
Financing expenses
Financing income
Financing expenses, net
Profit after financing expenses, net
Share in profits (losses) of investees,
net
Profit before income taxes
Income taxes
Profit for the year
4,306
970
1,005
759
112
2,846
1,460
424
)92 (
332
1,128
151
1,279
279
1,000
4,182
4,159
934
938
667
(105)
2,434
1,748
357
)15(
342
1,406
120
1,526
343
1,183
919
877
590
68
2,454
1,705
419
(16)
403
1,302
(244)
1,058
262
796
Notes to Consolidated Statements as of December 31, 2022
31.2.
Pelephone Communications Ltd.
Data from the statement of financial position:
December
31,
December
31,
2022
2021
NIS millions
NIS millions
865
3,215
4,080
684
879
1,563
2,517
4,080
1,121
3,331
4,452
837
916
1,753
2,699
4,452
Current property
Non-current property
Total property
Current liabilities
Non-current liabilities
Total liabilities
Equity
Total liabilities and equity
Data from the statement of income:
Year ended December 31
2022
2021
2020
NIS millions
NIS millions
NIS millions
Income
Income from services
Income from sale of end equipment
Total income from services and sales
Operating expenses
General and operating expenses
Salaries
Depreciation and amortization
Total operating expenses
Other operating expenses. net
Operating profit (loss)
Financing expenses (income)
Financing expenses
Financing income
Financing income, net
Profit (loss) before income taxes
Income tax expenses (income)
Profit (loss) for the year
1,791
608
2,399
1,327
314
532
2,173
33
193
42
(68)
(26)
219
54
165
1,642
647
2,289
1,346
315
577
2,238
9
42
23
(65)
(42)
84
20
64
1,591
595
2,186
1,329
324
599
2,252
18
(84)
18
(66)
(48)
(36)
(11)
(25)
Notes to Consolidated Statements as of December 31, 2022
31.3.
Bezeq International Ltd.
Data from the statement of financial position:
Current property
Non-current property
Total property
Current liabilities
Non-current liabilities
Total liabilities
Equity
Total liabilities and equity
December
31,
December
31,
2022
2021
NIS millions
NIS millions
396
364
760
431
139
570
190
760
472
311
783
409
157
566
217
783
Data from the statement of income:
Income
Operating expenses
Operating, general and depreciation expenses
Salaries
Depreciation, amortization and impairments
Other operating expenses, net
Total operating expenses
Operating profit (loss).
Financing expenses (income)
Financing expenses
Financing income
Financing expenses, net
Profit (loss) before income taxes
Income tax
Profit (loss) for the year
Year ended December 31
2022
2021
2020
NIS millions
NIS millions
NIS millions
1,239
1,237
1,271
827
237
134
71
799
237
173
6
1,269
1,215
(30)
9
(8)
1
(31)
1
(32)
22
5
(3)
2
20
12
8
802
248
149
313
1,512
(241)
5
(3)
2
(243)
32
(275)
Notes to Consolidated Statements as of December 31, 2022
31.4.
DBS Satellite Services (1998) Ltd.
Data from the statement of financial position:
December
31,
December
31,
2022
2021
NIS millions
NIS millions
196
241
437
395
74
469
)32 (
437
196
230
426
394
80
474
(48)
426
Current property
Non-current property
Total property
Current liabilities
Non-current liabilities
Total liabilities
Equity
Total liabilities and equity
Data from the statement of income:
Year ended December 31
2022
2021
2020
NIS millions
NIS millions
NIS millions
Income
Operating expenses
1,277
1,270
Operating, general and depreciation expenses
Salaries
Depreciation, amortization and impairments
Other operating expenses (income), net
Total operating expenses
867
200
199
3
835
188
203
12
1,269
1,238
Operating profit
Financing expenses (income)
Financing expenses
Financing income
Financing expenses, net
Profit before income taxes
Income tax
Profit for the year
8
8
(14)
(6)
14
1
13
32
4
(3)
1
31
1
30
1,287
857
203
203
(15)
1,248
39
15
(2)
13
26
2
24
Notes to Consolidated Statements as of December 31, 2022
32. Material events during and after the reporting period
32.1.
In December 2022, Bezeq signed an agreement to provide an indefeasible right of use
service in the BSA fiber service to Partner. See Note 21.1 above.
32.2.
See Note 12.6 above regarding the decision of Bezeq’s Board of Directors dated March
13, 2023 regarding the update of Bezeq's dividend distribution policy and the resolution
of the Bezeq Board of Directors to recommend to the Bezeq general assembly on the
distribution of a dividend.
Separate Financial Information for the Year Ended
December 31, 2022
Separate Financial Information as of December 31, 2022
Table of Contents
Auditors' report
Separate Financial Information
Statement of Financial Position
Income Statement
Cash Flow Statement
Notes to Separate Financial Information
Page
2
3
4
5
6
Somekh Chaikin
KPMG Millennium Tower
17 HaArbaa Street P.O.B. 609
Tel Aviv 6100601
03 684 8000
To
Shareholders of B Communications Ltd.
Dear Sir / Madame,
Re: Special report of the auditors on separate financial information under Regulation 9C of the Securities Regulations
(Periodic and Immediate Reports), 5730-1970
We audited the separate financial information presented in accordance with Regulation 38D of the Securities Regulations
(Periodic and Immediate Reports), 5730-1970 of B. Communications Ltd. (hereinafter – “the Company") as of December 31,
2022 and 2021 and for each of the three years the last of which ended on December 31, 2022. The separate financial
information is within the responsibility of the Company's Board of Directors and Management. It is our responsibility to
provide an opinion on the separate financial information for said based on our review.
We conducted our audit in accordance with auditing standards accepted in Israel. According to these standards, we are
required to plan and perform the audit in order to obtain a reasonable degree of assurance that the separate financial
information is not materially misrepresented. An audit includes a sample examination of evidence supporting the amounts
and details included in the separate financial information. An audit also includes an examination of the accounting rules
applied in preparing the separate financial information and of the significant estimates made by the Company's Board of
Directors and Management, as well as an assessment of the adequacy of the presentation of the separate financial
information. We believe that our audit and the other auditors' reports provide an adequate basis for our opinion.
In our opinion, based on our audit, the separate financial information has been prepared, in all material respects, in
accordance with the provisions of Regulation 9C of the Securities Regulations (Periodic and Immediate Reports), 5730-1970.
Without limiting our above opinion, we draw attention to what is stated in Note 1 which refers to Note 1.3 to the consolidated
statements, regarding the investigation by the Securities Authority and the Israel Police of a suspicion of committing offenses
under the Securities Law and the Penal Code concerning, inter alia, transactions related to the former controlling shareholder
and the notice of the Tel Aviv District Attorney's Office (Taxation and Economy) regarding the consideration of prosecuting
the Company and holding a hearing for suspicions of the offense of bribery and the offense of reporting with the aim of
misleading a reasonable investor, and what is stated in this note regarding the filing of indictments against the former
controlling shareholder in the Company in various offenses, among other things, for offenses of bribery and causing
misleading detail in immediate reporting, and regarding the filing of an indictment against the former controlling shareholder
of the Company and former senior officers of Bezeq Group, which attributes to the defendants fraudulent receipt and
reporting offenses under the Securities Law. Also, following the opening of the aforementioned investigation, a number of
civil legal proceedings were opened against the Company, former officers of the Company as well as companies from the
group that previously controlled the Company, including motions for the approval of class actions. As stated in the above
note, at this stage the Company is unable to assess the effects of the investigations, their findings and results on the Company
as well as on the statements and estimates used in the preparation of these reports, if any.
In addition, without limiting our above opinion, we draw attention to what is stated in Note 17 to the Company’s consolidated
statements regarding claims filed against Group companies, which cannot be estimated or for which the exposure
cannot yet be calculated.
Somekh Chaikin
Certified Public Accountants
March 14, 2023
Somekh Chaikin, Israeli partnership and a member of the KPMG network of independent firms incorporated u n d e r
t h e Swiss entity K P M G I n t e r n a t i o n a l C o o p e r a t i v e ( " K P M G I n t e r n a t i o n a l " )
2
Separate Financial Information as of December 31, 2022
Separate Statement of Financial Position as of December 31,
Assets
Cash and cash equivalents
Short-term investments and deposits
Other receivables
Total current assets
Long-term deposits
Investment in equity-accounted investee
Total non-current assets
Total assets
Liabilities
Other payables
Total current liabilities
Debentures
Total non-current liabilities
Total liabilities
Shareholders' equity
2022
2021
Note
NIS millions
NIS millions
3
4
5
6
8
13
63
1
77
27
1,864
1,891
25
180
14
219
79
1,724
1,803
1,968
2,022
9
9
1,905
1,905
7
7
1,999
1,999
1,914
2,006
54
16
Total liabilities and shareholders' equity
1,968
2,022
Darren Glatt
Chairman of the Board of Directors
Tomer Raved
CEO
Itzik Tadmor
CFO
Date of approval of the financial statements: March 14, 2023
The notes attached to the financial information constitute an integral part thereof.
3
Separate Financial Information as of December 31, 2022
Income Statement for the year ended December 31
2022
2021
2020
Note
NIS millions
NIS millions
NIS millions
Operating expenses
Salaries
General and operating expenses
Total operating expenses
Operating loss
Financing expenses (income)
9
Financing expenses
Financing income
Financing expenses, net
Loss after financing expenses, net
Share in profit of equity-accounted investee
Profit before tax
Income tax
Net profit for the year
5
7
12
)12 (
106
)9 (
97
(
)109
267
158
-
158
Comprehensive income for the year ended December 31
5
8
13
)13(
184
)10(
174
(
)187
316
129
-
129
3
8
11
)11(
110
)6(
104
(
)115
265
150
7
157
2022
2021
2020
NIS millions
NIS millions
NIS millions
Net profit for the year
Other comprehensive income (loss), net of tax
Total comprehensive income for the year
158
13
171
129
10
139
157
)3(
154
The notes attached to the financial information constitute an integral part thereof.
4
Separate Financial Information as of December 31, 2022
Cash Flows Statement
2022
2021
2020
NIS millions
NIS millions
NIS millions
Cash flows from current activity
Net profit for the year
Adjustments to profit:
Share in profit of equity-accounted investee
Financing expenses, net
Share-based compensation
Change in trade payables
Change in other receivables
Net cash used for current activities
Cash flows from investing activities
Change in deposits and investments, net
Investment in an affiliate
Dividend received from subsidiary
Interest and dividend received in cash
Net cash generated from (used for) investing
activities
Cash flows from financing activities
Issuance of debentures
Repayment of debentures
Buyback of shares
Interest paid
Early repayment fees
Net compensation for the Horev claim
Net cash used for financing activities
Decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
158
(
)267
96
1
2
3
)9 (
163
)15 (
143
2
293
-
(
)100
(
)121
)75 (
-
-
(
)296
)12 (
25
13
129
157
(
)316
174
-
-
10
)3(
66
-
-
1
67
1,035
(
1,015
)
)16(
)79(
)19(
-
)94(
(30)
55
25
(
)265
106
-
)7(
)1(
)10(
(
)229
)40(
-
2
(
)267
-
-
-
)78(
-
)3(
)81(
(
)358
413
55
The notes attached to the financial information constitute an integral part thereof
5
Notes to Separate Financial Information as of December 31, 2022
1. General
The following are financial data from the Group's consolidated statements as of December 31, 2022
(hereinafter - "Consolidated Statements"), which are published as part of the periodic reports, attributed
to the company itself (hereinafter - "Separate Financial Information"), presented in accordance with
Regulation 9C (hereinafter - "the Regulation" ) and the tenth schedule (hereinafter – “the Tenth Schedule")
to the Securities Regulations (Periodic and Immediate Reporting),5730-1970 regarding the separate
financial information of the corporation.
The separate financial information should be read together with the Consolidated Statements.
In this separate financial information -
"The Company" - "B Communications Ltd."
"Included Company", "consolidated company", "the Group", "Investee", "related party": as these terms
are defined in the Group’s 2022 Consolidated Statements.
Regarding the investigation by the Securities Authority and the Police, see Note 1.3 to the Consolidated
Statements.
2. Explanation of the main accounting policies applied in the separate
financial information
The accounting policy rules detailed in the Consolidated Statements were consistently applied to all
periods presented in the separate financial information by the Company, including the manner in which
the financial data was classified within the Consolidated Statements with the changes required by the
following:
2.1. Presentation of financial data
The data on the financial position, income, comprehensive income, and cash flows include
information contained in the Consolidated Statements and attributed to the Company itself. The
investment balances and the results of the operations of investees are handled according to the
balance sheet value method. Cash flows in respect of current activity, investment activity, and
financing activity in respect of transactions with investees are shown separately on the net, within
the relevant activity according to the essence of the transaction.
2.2. New standards not yet adopted
Regarding new standards that have not yet been adopted, see Note 3.20 to the Consolidated
Statements.
6
Notes to Separate Financial Information as of December 31, 2022
3. Short-term investments and deposits
December
2022
31,
December
2021
31,
NIS millions
8
55
63
NIS millions
99
81
180
Investments in marketable securities
Short-term deposits (1)
(1) The deposits are due until May 2023.
4. Consolidated companies
Consolidated companies directly held by the Company:
Company rights in equity
Investment
consolidated
in
company (according to balance
sheet value method) as of
December 31,
2022
%
December 31,
2022
December 31,
2022
December 31,
2021
%
NIS millions
NIS millions
Bezeq
26.81%
26.72%
1,864
1,864
1,724
1,724
4.1.
4.2.
As of October 11, 2021, all Bezeq shares held by the Company are directly held by the Company,
after on that day all Bezeq shares held by B Communications (SP2) Ltd. (a company fully owned
and controlled by B Communications) were transferred to the direct holding of B
Communications (SP1) Ltd. which is fully owned and controlled by the Company). After the
transfer of Bezeq shares to the Company, the companies B Communications (SP2) Ltd. and B
Communications (SP1) Ltd. were closed.
On December 28, 2022, the Company purchased 2,530,000 ordinary shares of the subsidiary
Bezeq. The Company purchased shares as mentioned in exchange for payment of a total amount
of approximately NIS 15 million and at an average price of NIS 5.95 per share. After the
aforementioned purchase, the Company held 26.81% of the issued share capital and voting rights
in the subsidiary (before the acquisition, the Company's holding rate was 26.72%).
4.3.
Bezeq’s dividend distribution policy
On March 13, 2023, Bezeq’s Board of Directors decided to update Bezeq's dividend policy so that
Bezeq will distribute every six months 60% of the semi-annual profit (after tax), according to its
consolidated statements, starting with the next distribution (for the second half of 2022), this is
in view of the improvement trend in the business results, and the continued decrease in the scope
of its debt, and in accordance with its forecasts regarding its business results for the coming years.
In addition, Bezeq will strive to update its dividend policy to the distribution of 70% of the semi-
annual profit (after tax) according to its consolidated financial statements, subject to maintaining
its credit rating in the AA group.
7
Notes to Separate Financial Information as of December 31, 2022
The approval of Bezeq's dividend policy does not oblige Bezeq to distribute a dividend to Bezeq's
shareholders, and each specific distribution will be examined individually in accordance with the
conditions of implementation of the dividend distribution policy as stated above. In addition, the
approval of the aforementioned policy does not prevent Bezeq’s Board of Directors from
periodically reviewing the dividend distribution policy to Bezeq shareholders, taking into account,
among other things, the provisions of the law, Bezeq's business situation and its plans and its
equity structure, and while maintaining a balance between ensuring Bezeq's financial strength
and stability, including its debt level and credit rating, and continuing to bring value to Bezeq's
shareholders through regular dividend distribution.
Bezeq's Board of Directors considers it important to maintain the balance between ensuring
Bezeq's financial strength and stability, while maintaining a rating in Bezeq's current rating group
[AA] over time, and continuing to unlock value to its shareholders through regular dividend
distribution.
Bezeq's Board of Directors was presented, among other things, with analysis and results of
professional work, Bezeq's and Bezeq Group's forecasts, as well as sensitivity analyzes for
unexpected adverse events in Bezeq's and Bezeq Group's businesses. After Bezeq’s Board of
Directors examined all of the above, the Board of Directors determined that this decision reflects
the correct balance between these needs as described above.
4.4.
Dividend distribution by Bezeq
A. On April 28, 2022, the general assembly of Bezeq's shareholders approved (following the
recommendation of the Bezeq’s Board of Directors of March 22, 2022) the distribution of a
cash dividend to Bezeq's shareholders in the total amount of NIS 240 million (which, as of
the day determining the distribution, constitutes NIS 0.0867823 per share). The dividend was
paid on May 16, 2022. The Company's share of the aforementioned dividend is
approximately NIS 64 million.
B. On September 14, 2022, the general assembly of Bezeq's shareholders (following the
recommendation of the Bezeq Board of Directors of August 9, 2022) approved the
distribution of a cash dividend to Bezeq's shareholders in a total amount of 294 million NIS
(which, as of the day determining the distribution, is 0.1063081 NIS per share). The dividend
was paid on October 3, 2022. The Company's share of the aforementioned dividend is
approximately NIS 78 million.
C. On March 13, 2023, Bezeq's Board of Directors decided to recommend to the general
assembly of Bezeq shareholders to distribute a cash dividend to Bezeq shareholders in a total
basket of NIS 246 million. As of the date of approval of the financial statements, the
aforementioned dividend has not yet been approved by the Bezeq general assembly. The
Company’s share in the aforementioned dividend (subject to the approval of the general
assembly of Bezeq's shareholders) is approximately NIS 66 million.
5. Trade payables
Other payables
Interest payable
December 31, 2022
December 31, 2021
NIS millions
NIS millions
3
6
9
1
6
7
8
Notes to Separate Financial Information as of December 31, 2022
Debentures
December 31, 2022
December 31, 2021
Carrying
amount
NIS millions
Par value
NIS millions
Carrying
amount
NIS millions
Par value
NIS millions
Debentures issued to the public:
Series C
Series F
Total debentures
479
1,425
1,905
497
1,472
1,969
951
1,035
1,986
1,010
1,040
2,050
5.1.
5.2.
5.3.
5.4.
5.5.
5.6.
5.7.
5.8.
On July 6, 2021, the Company held a tender for the purchase of Series F debentures, in which
approximately NIS 394 million par value were issued to institutional entities and the public for
approximately NIS 394 million in Series F. The annual interest rate (non-linked) set in the tender
is 3.65%. The interest for the series F debentures will be paid in two semi-annual payments on
May 31 and November 30 of each year, starting from November 2021 until November 2026. The
debenture principal will be repaid in one payment on November 30, 2026. The proceeds of the
net issuance of the series F debentures were used by the Company to make early repayments of
its existing debentures as of that date as detailed below.
On July 19, 2021, the Company made a full early repayment of the Series D debenture principal
(plus accrued interest up to the maturity date) and a full early repayment of the Series E
debenture principal (plus accrued interest up to the maturity date and an early repayment
penalty as defined in the trust deed of the series E debentures). In addition, the Company made
a partial early repayment of approximately NIS 226 million par value on the series C debentures
(plus accrued interest until the maturity date). After making the early repayments, series D and
E were repaid in full and delisted from trading on the Tel Aviv securities exchange.
On December 7, 2021, the Company issued to institutional entities and the public approximately
NIS 485 million in series F debentures for approximately NIS 488 million par value in series F
debentures. The proceeds of the net issuance of the series F debentures were used by the
Company to make a partial early repayment of approx. NIS 471 million par value in respect of its
existing Series C debentures at that date (in addition to accrued interest up to the maturity date
and an early repayment penalty as defined in the trust deed of the Series C debentures).
On December 9, 2021, the Company held a private offering of approximately NIS 161 million par
value in series F debentures for approximately NIS 161 million. The proceeds of the net issuance
of the series F debentures were used by the Company to make a partial early repayment of
approximately NIS 157 million par value in its existing Series C debentures as of that date (in
addition to accrued interest up to the maturity date and an early repayment penalty as defined
in the trust deed of the Series C debentures).
On January 10, 2022, the Company made an exchange of approximately NIS 417 million par value
in series C debentures in exchange for approximately NIS 432 million par value in series F
debentures.
On June 30, 2022, the Company made a partial early repayment of approximately NIS 100 million
par value in Series C debentures (plus accrued interest up to the maturity date).
During the third quarter of 2022, B Communications 2 Limited Partnership transferred to the
Company the balance of the Company's Series C debentures, which were held by it in the amount
of approximately NIS 10 million. After the debentures were transferred to the Company, the said
debentures were withdrawn from the Stock Exchange clearinghouse and delisted from the
trading cycle.
For more details, see Note 13 to the Consolidated Statements.
9
Notes to Separate Financial Information as of December 31, 2022
6. Contingent liabilities
6.1.
In June 2017, two motions for approval of a class action totaling NIS 1.8 billion were filed against
the Company, Bezeq, Group officers, as well as companies from the former controlling group of
the Company and Bezeq regarding the DBS shares transaction by Bezeq from Eurocom. In
accordance with a Court decision, a consolidated motion is expected to replace these two
motions. 17.2 In the company's united financial statements. According to the Company's legal
adviser, at this preliminary stage, the chance of approval of the motion cannot be estimated.
6.2.
See also Note 17 to the Company's Consolidated Financial Statements.
7. Shareholders’ equity
Ordinary shares of NIS 0.1 par value
Ordinary shares
December 31, 2022 December 31, 2021
Registered share capital
Issued and paid-up share capital
Treasury shares
Issued and paid-up share capital, net
300,000,000
116,335,793
(
9,080,317
)
107,255,476
300,000,000
116,335,793
(
1,476,803
)
114,858,990
7.1.
7.2.
7.3.
7.4.
7.5.
7.6.
7.7.
7.8.
On March 31, 2021, the Company's general assembly approved the increase in the Company's
registered share capital, so that after the registered equity increases as stated, the Company's
registered equity will be NIS 30,000,000, divided into 300,000 ordinary shares of NIS 0.1 each,
and an amendment of the Company’s Bylaws was approved accordingly.
On November 30, 2021, the Company's Board of Directors approved a self-purchase of its shares
up to NIS 30 million. As part of the said purchase plan, the Company acquired in 2021 a total of
1,457,573 of its shares and in 2022 a total of 820,360 of its shares for NIS 30 million.
On March 23, 2022, the Company's Board of Directors approved another self-purchase of the
Company's shares up to NIS 20 million. As part of the said purchase plan, the Company acquired
a total of 1,349,829 of its shares for NIS 20 million.
On May 24, 2022, the Company's Board of Directors approved another self-purchase of the
Company's shares of NIS 30 million.
On May 31, the Company purchased a total of 730,000 of its shares for about NIS 10 million in a
transaction made off the stock exchange.
On August 9, 2022, the Company's Board of Directors approved a self-purchase plan of the
Company's shares up to NIS 25 million.
On November 15, 2022, the Company's Board of Directors approved a self-purchase plan of the
Company's shares up to NIS 25 million.
As of December 31, 2022, Searchlight and the Forer family held 65.26% and 12.35%, respectively,
of the Company's issued and paid-up share capital.
10
Notes to Separate Financial Information as of December 31, 2022
8. Financing expenses
Year
ended
Year
ended
Year
ended
December 31
December 31
December 31
2022
2021
2020
NIS millions
NIS millions
NIS millions
165
-
19
184
10
-
10
174
110
-
-
110
6
-
6
104
Interest expenses
Change in fair value of financial assets
measured at fair value through income
Early repayment fees
Total financing expenses
98
8
-
106
Profits from investments in marketable
securities and bank deposits
Income from debenture exchange
Total financing income
Financing expenses. Net
9.
Income Tax
2
7
9
97
The Company has final tax assessments until 2018.
10. Share-based compensation
During the year 2022, the Company allocated 3,350,000 options exercisable into 3,350,000 ordinary
Company shares to Company officers. The vesting period of the options granted to the Company's officers
is 3 years.
Salaries expenses recognized by the Company for share-based compensation:
Year ended December 31
2022
2021
2020
NIS thousands NIS thousands NIS thousands
Salaries expenses
520
280
280
11
Notes to Separate Financial Information as of December 31, 2022
11. Liquidity risk
The following are the forecasted repayment dates of financial liabilities, including interest payment
estimate (based on the interest data know as of December 31, 2022):
December 31, 2022
Carrying
amount
Contractual
cash flow
NIS millions
Q1/2023
Q2/2023
2024
2025-
2026
financial
Non-derivative
commitments
Trade and other payables
Debentures
Total
9
1,905
1,914
9
2,216
2,225
9
31
40
-
36
36
-
570
570
-
1,579
1,579
12. Events during and after the reporting period
12.1.
Regarding the investigation by the Securities Authority and the police, see Note 1.3 to the
Consolidated Financial Statements.
12.2.
For information on the topic of the epidemic - the outbreak of COVID-19, see Note 1.4 to the
Consolidated Financial Statements.
12.3.
Regarding the impairment loss in respect of the companies Bezeq International and DBS, the
goodwill impairment test at Bezeq Landline and the asset impairment test at Pelephone, see Note
10 to the Consolidated Statements.
12.4.
See Note 12.1.2 to the Consolidated Financial Statements regarding structural change in
subsidiaries.
12.5.
For information regarding the retirement of employees in the Bezeq Group, see Note 16.5 to the
Consolidated Financial Statements.
12.6.
For information regarding the decision of the Bezeq Board of Directors dated March 13, 2023
regarding the update of Bezeq's dividend distribution policy and the decision of the Bezeq Board
of Directors to recommend to the Bezeq General Meeting on the distribution of a dividend, see
Note 12.6 to the Consolidated Financial Statements.
12.7.
For information regarding material events during and after the reporting period, see Note 32 to
the Consolidated Financial Statements.
12
Chapter D (Additional details on the corporation) for the periodic report for 2022
Chapter IV
Additional Details about the Corporation
and Corporate Governance Questionnaire
for the Period ended December 31, 2022
- 1-
Chapter D (Additional details on the corporation) for the periodic report for 2022
Regulation 10a: Condensed statements of consolidated quarterly income for each of
the quarters in the reported year
See Section 1.3 of the Board of Directors’ report attached in the second part of this
report.
Regulation 10c: Use of proceeds from securities
During the reporting period, security proceeds were not used. For details about the
issuance of debentures (series 6) of the Company against debentures (series C) of the
Company, as part of an exchange purchase offer, see Regulation 20 below.
Regulation 11: List of investments in subsidiaries as of the date of the statement of
the financial position
Company
Name
Name of
holder
Share
type
Number of
shares held
Total par
value
Rate of
holding
of the
issued
capital
and
voting
rights
Rate of
holding of
the right
to appoint
directors
Value in the
Company's
separate
financial
statement
(NIS
millions)
The
Company
Ordinary
NIS 1 par
value
Bezeq the
Israel
Telecommunic
ation
Corporation
Ltd. ("Bezeq")
741,483,713
741,483,713 26.80%
26.80%
1,864
Regulation 12: Changes in investments in subsidiaries during the reported period
On December 28, 2022, the Company purchased 2,350,000 ordinary shares of Bezeq,
in transactions during trading on the stock exchange, in exchange for payment of a
total amount of approximately NIS 15 million and at an average price of NIS 5.95 per
Bezeq share..
Regulation 13: Revenue of subsidiaries and revenue of the corporation therefrom as
of the date of the statement of financial position (NIS millions)
Company name
Profit for the period Comprehensive
Dividend Management
Bezeq
1,000
profit for the
period
1,050
534
fee
-
Interest
received
-
Regulation 20: Trading on the stock exchange
To the best of the Company's knowledge, during the reporting period, there was no
cessation of trading in the Company's securities listed for trading.
- 2-
Chapter D (Additional details on the corporation) for the periodic report for 2022
In January 2022, the Company published a shelf offer report in the form of a full
exchange purchase offer, in which the Company approached the holders of the
Company's debentures (series C) with an offer to purchase up to NIS 1,023,652,972
par value of the debentures (series C) (which constituted approx. - 100% of the total
par value of the debentures (series C) in circulation as of the date of the shelf offer
report), in exchange for the Company's debentures (series F). The exchange purchase
offer was accepted by holders of NIS 417,016,080 par value debentures (series C),
which accounted for approximately 40.7% of the total debentures (series C) in
circulation as of the date of the shelf offer report. In accordance with the response of
the holders of the debentures (series C) as stated, the Company allocated a total of
NIS 431,611,642 par value debentures (series F). The exchange of the debentures
(series C) of the Company, which have a short interest rate In relation to the
Company's debentures (series F), allows the Company greater flexibility in managing
its free cash flow. For the avoidance of doubt, the exchange purchase offer did not
result from a debt arrangement due to financial difficulties, as this term is defined in
the Securities Regulations (Periodic and Immediate Reporting), 5730-1970 For more
details, see immediate reports published by the Company on January 5, 2022 and
January 16, 2022 (Ref:: 2022-01-002824 and 2022-01-007119, respectively), which are
included in this report by way of reference.
Regulation 21: Remuneration for related parties and senior officers
The following is a breakdown of the remuneration paid by the Company, or paid by
the companies under its control (including commitments to provide remuneration),
during the year 2022: (1) to each of the five holders of the highest remunerations
among the senior office holders in the Company or in the companies under its control,
and which were given to them in connection with their office in the Company or in a
company under its control , whether the payments were made by the Company or by
a company under its control or whether by another; and (2) rewards for the three
senior officers with the highest remunerations in the Company itself, which were given
to them in connection with their office in the Company.
- 3-
Chapter D (Additional details on the corporation) for the periodic report for 2022
Details of remunerated persons
Remuneration (NIS thousands)
Total
(NIS
thousands)
Section
below
Name
Position
Sex
Job
volume
Tomer Raved
Itzik Tadmor
Ilan Chaikin
Gil Sharon
Ran Guron
Directors
CEO
CFO
Internal
auditor
Bezeq
Chariman
Bezeq CEO
Director
Male
Male
Male
Male
Full-time
Full-time
Full-time
Full-time
Male
-
Full-time
Full-time
Holding
rate in
the
corporati
on equity
-
-
-
-
-
-
Salary1 Bonus2
1,456
695
61
1,172
198
-
2,712
2,0414
2,711
720
2,591
-
Share-
based
payment
510
10
-
2,427
1,820
-
Other
Total
3433
-
-
-
-
-
3,481
903
61
7,180
7,122
720
A
B
C
D
E
F
The group did not pay any of the office bearers listed in the table above payments for the year 2022
which were not listed in the aforementioned table and which were not recognized in the statements
for the reporting year.
The following is a breakdown of the terms of engagement with the stakeholders and officers listed in
the table above:
a. Tomer Raved
Mr. Raved has served as the Company's CEO since January 2020, and also served as a director in
the Company from January 2020 to November 2021, and as a director in Bezeq starting in May
2020. According to the employment agreement with him, which was approved at the Company's
general assembly on February 13, 2020, Mr. Raved is entitled to an annual salary according to the
cost of an employee from an employer of NIS 1.4 million including social and related benefits as
accepted by the company and in accordance with the company's compensation policy (recovery
1 Regarding senior executives at Bezeq, wage amounts include the cost of wages (employer cost) and the ancillary
wage components, including benefits and social conditions, such as coverage of telephone expenses, a personal
vehicle of the type customary in the Group (cost of leasing or depreciation expenses and reimbursement of
expenses instead of using a company vehicle), study fund (for some of the managers), deposit in a pension fund and
deposits due to termination of employee-employer relationship (for employees subject to Article 14 of the
Compensation Law), reimbursement of expenses and quota of vacation days, sick and annual convalescence as
customary, expenses for holiday gift to employee (grossing amount), fees for membership in professional
organizations paid for the employee (outside the employee's occupation) and also, to the extent that a loan was
made to the employee - the value of the grossing benefit in the interest that the loan bears.
2 Regarding senior executives at Bezeq , the bonus amounts listed in the table are as recognized in the 2022
statements and include a performance-dependant bonus as well as special bonuses (for details regarding each of
the officers see details in sections D-E after the table below), all in accordance with Bezeq’s remuneration policy.
The performance-dependent bonus that appears in the table is for the year 2022 (but not yet paid to senior
executives as of the date of the report) and includes a contingent portion that will be paid in practice to the
aforementioned Bezeq officers according to the distribution described in the notes to the table. During 2022,
bonuses were paid to the above officers for 2021, the amount of which [including a contingent portion not paid in
practice in 2022, but paid in practice in 2023 (if any) is included in the corresponding table in Bezeq’s annual
statements for 2021 (as published on March 23, 2022).
3 This amount reflects a grant given to Mr. Tomer Raved, the Company's CEO for the year 2020 and for the year
2021.
4 The amount of Mr. Sharon's grant component included in the table, includes an annual discretionary grant
approved by Bezeq's general meeting on April 28, 2022 to the Chairman of the Board of Directors for the year
2021. For more details, see the general meeting summons report dated March 23, 2022, as amended on April 14
2022, which is hereby incorporated by reference. Since the grant was approved after the approval of the 2021
statements, it is included in the 2022 statements, and accordingly, included in the table above.
- 4-
Chapter D (Additional details on the corporation) for the periodic report for 2022
fees, training fund, pension, sick pay, vacation days, mobile phone, business expenses and national
insurance, excluding car expenses).
In addition, in respect of his office as a director in Bezeq, Mr. Raved is entitled to an annual
remuneration and a participation fee in the amount determined by an external expert in
accordance with the Remuneration Regulations, as they will be from time to time and in accordance
with Bezeq’s classification at the relevant time.
In addition, Mr. Raved is entitled to be included in the liability insurance for directors and officers
and for indemnification as is customary in the Company, as are all other officers in the Company.
As of the date of the report, Mr. Raved was granted 5,927,362 unlisted options, exercisable into
the Company's shares, which as of the date of publication fo this report, amount to approximately
2.23% of the issued and paid-up share equity of the Company, fully diluted. It should be noted that
out of the total options held by Mr. Raved, a total of 2,677,362 unlisted options were allocated as
part of a previous allocation ("the Previous Allocation"), and Mr. Raved signed an irrevocable
commitment according to which he undertakes not to exercise the options allocated to him as part
of the Previous Allocation. For more details about the terms of the remaining options, see the
meeting notice published by the Company on June 22, 2022 (Ref.: 2022-01-077395), which is
included in this report by way of reference ("the Option Allocation Notice").
The employment agreement with Mr. Raved can be terminated by the Company with up to 6
months notice. Mr. Raved may terminate his employment at any time with 30 days notice.
b.
Itzik Tadmor
As of January 2019, Mr. Tadmor is employed as the Company's CFO. Mr. Tadmor served as the
Company's Principal Financial Officer from May 2015 until January 2019. According to the
employment agreement with him, Mr. Tadmor is entitled to a gross monthly salary of NIS 46
thousand and social and ancillary benefits as customary (vacation days, executive insurance, study
fund, etc.). In accordance with the employment agreement with him, if he continues to work for
the Company until December 2023, he will be entitled to a retention bonus. Mr. Tadmor is also
entitled to liability insurance for directors and officers and indemnification as is customary in the
Company, as are all other officers in the Company. The employment agreement with Mr. Tadmor
can be terminated by the Company with 3 months notice. Mr. Tadmor may terminate his
employment at any time with 3 months notice.
In July 2022, Mr. Tadmor was granted 100,000 unlisted options exercisable into the company's
shares, which, as of the publication date of this report, constitute approximately 0.09% of the
company's fully diluted issued and paid-up share equity. For more details about the terms of the
granted options, see the call for the allocation of options, as defined above.
c.
Ilan Chaikin
Ilan Chaikin is employed as the internal auditor of the Company. Mr. Chaikin is entitled to a fee at
a rate of NIS 240 per hour plus VAT. During 2022, Mr. Chaikin’s fee amounted to approximately NIS
60k. For further details, see Section 2.5 of the Company's Board of Directors' report as of December
31, 2022, in Chapter B of the periodic report.
d. Gil Sharon
Employed as a director and Chairman of the Bezeq Board of Directors, as well as as the Chairman
of the Bezeq Boards of Directors of all subsidiaries in Bezeq Group as of August 27, 2020, within the
framework of a personal employment agreement dated December 10, 2020 as updated on May 17,
2022 (in this section: "the Employment Agreement"), and as part of this, he provides the services
as follows: (1) Navigating Bezeq and outlining its strategic operation, while implementing the
strategy determined by Bezeq's Board of Directors; (2) Promoting Bezeq and its development and
- 5-
Chapter D (Additional details on the corporation) for the periodic report for 2022
(3) Performing, among other things, the duties assigned to him in accordance with the powers of
the Chairman of the Board of Directors and his duties, in accordance with the provisions of any law,
including Bezeq's Bylaws and procedures, as will be updated from time to time. His total monthly
salary (gross) amounts to a total of about NIS 170k. The contract is for an unlimited period, with
the right for each party to bring it to an end at any time and for any reason with a notice of 3 months
in advance by any of the parties. Also, 12,000,000 options were granted to Mr. Gil Sharon. For
additional details regarding the terms of office and employment of Mr. Gil Sharon as Chairman of
the Bezeq Board of Directors, see the general assembly convening report as published on December
12, 2020, which is hereby referenced, and for additional details regarding the terms of said options,
see the corrective report regarding the outline for granting options to employees and the material
private offer report dated May 9, 2022. The fair value of the options at the time of their grant
(calculated according to the Monte Carlo model) is approximately NIS 9.3 million.
Mr. Sharon's bonus targets for 20225 as Chairman of the Board of Directors were determined in
advance by the Bezeq Board of Directors in December 2021 and included: Group-adjusted EBITDA6
target weighing 50% in the bonus calculation; Group-adjusted net profit target weighing 25%; and
a Group-adjusted free cash flow (FCF) target weighing 25%. The compliance rate of the Chairman
of the Board of Directors in the set of bonus targets for 2022 was 120.25%. The threshold condition
for receiving the bonus was that the Group-adjusted EBITDA results for 2022 (NIS 3,404.8 million)
did not decrease by more than 40% of the Group-adjusted EBITDA results In 2021 (NIS 3,319.1
million) - this condition has been met. The ceiling of the performance-dependent grant to the
Chairman of the Board of Directors is limited in accordance with the provisions of Bezeq's
remuneration policy at up to 75% of the annual base salary (9 salaries). Accordingly, the bonus that
will be awarded to the Chairman of the Board of Directors for the year 2022 is 75% of the annual
salary. It should be noted that, for the purpose of calculating the achievement of the targets for
the year 2022, the event of reducing the telephony rates that was not included in the Bezeq budget
for the year 2022 was not taken into account, in accordance with the remuneration policy and in
accordance with the approval of the Board of Directors from December 2021. Mr. Gil Sharon will
be entitled to 40% of the remuneration for meeting the Group-adjusted EBITDA target in 2022 only
in 2024 (after the date of approval of the financial statements for 2023) and only if the minimum
Group-adjusted EBITDA target established in relation to the 2023 budget year is achieved .
It should be noted that after the year of the report, Bezeq's Board of Directors approved on March
13, 2023, after the approval of Bezeq's Remuneration Committee on March 1, 2023, payment of a
special grant in the amount of 3 monthly salaries to Mr. Gil Sharon for the year 2022 (in this section:
"the Grant"), And this is subject to the approval of the annual general meeting of Bezeq's
shareholders, which is to be held on April 20, 2023. For more details about the grant as well as
about a proposed amendment to Bezeq's remuneration policy, see the general assembly convening
report which is published together with this report and is hereby incorporated by reference
("Annual General Assembly Convening Report").
e. Ran Guron
Mr. Guron was employed as the CEO of the three material subsidiaries of the Bezeq Group:
Pelephone, Bezeq International and DBS (hereafter in this section, jointly: "the Subsidiaries") until
June 18, 2022, and as of June 19, 2022 he is employed as CEO Bezeq, as part of a personal
5 In accordance with the amendment of the remuneration policy and the terms of office and employment of the
Chairman of the Board of Directors, as approved by the general assembly on April 28, 2022 (for more details, see
the general assembly convening report of March 23, 2022, as amended on April 14, 2022, which is hereby
incorporated by way of reference).
6 See Footnote 6 above.
- 6-
Chapter D (Additional details on the corporation) for the periodic report for 2022
employment agreement dated May 8, 2022 (in this section: "the Employment Agreement"). As of
January 1, 2019, the total (gross) monthly salary of Mr. Guron amounts to approximately NIS 153k
, linked to the Consumer Price Index. The contract is for an unlimited period, with the right of either
party to terminate it at any time with 6 months in advance by any of the parties. Also, 12,000,000
options were granted to Mr. Gil Sharon. For additional details regarding the terms of office and
employment of Mr. Gil Sharon as Chairman of the Bezeq Board of Directors, see the general
assembly convening report as published on December 12, 2020, which is hereby referenced, and
for additional details regarding the terms of said options, see the corrective report regarding the
outline for granting options to employees and the material private offer report dated May 9, 2022.
The fair value of the options at the time of their grant (calculated according to the Monte Carlo
model) is approximately NIS 9.3 million.
Mr. Guron's bonus targets for 2022 in his position as CEO of the subsidiaries were determined in
advance by the Bezeq Board of Directors in December 2021, after approval by the Bezeq
Remuneration Committee, and included: an aggregate adjusted EBITDA7 target for the subsidiaries
that weighs 60% in the bonus calculation; Adjusted EBITDA target less aggregate CAPEX for the
subsidiaries (CAPEX in flow terms) which weighs 10%; Adjusted EBITDA target by company - a
combined target 8 with a weight of 15%; The evaluation target for the Chairman of the Board of
Directors to address the essential weakness in Bezeq International, which weighs 5%; and the
manager evaluation target, which weighs 10%. The threshold condition for receiving the bonus was
that the results of the aggregate adjusted EBITDA for the subsidiaries for the year 2022 (NIS 883
million), did not fall by more than 40% of the aggregate adjusted EBITDA results for the subsidiaries
in 2021 (NIS 799 million) - this condition has been met.
Mr. Guron's bonus targets for 2022 in his role as Bezeq CEO were set in advance by the Bezeq Board
of Directors, for the previous Bezeq CEO, in December 2021, and were applied to Mr. Guron at the
time of approval of the terms of his office and employment by the Bezeq Board of Directors in May
2022, and included: Adjusted EBITDA9 target for Bezeq (solo) whose weight is 50% in the bonus
calculation; Bezeq's after-tax profit target (Solo) is coordinated with a weight of 20%; Adjusted free
flow target (FCF) for Bezeq (Solo) that has a weight of 20%; and a manager evaluation goal that
weighs 10%. The threshold condition for receiving the bonus was that the adjusted EBITDA results
for 2022 (NIS 2,534.8 million) did not decrease by more than 40% of the adjusted EBITDA results
for 2021 (NIS 2,512.1 million) - this condition was met.
The Bezeq CEO's rate of compliance with the set of bonus targets for 2022 for his office as Bezeq
CEO was approximately 109.5%, and his rate of compliance with the set of bonus targets for 2022
for his office as CEO of the subsidiaries was approximately 121.4%. Accordingly, the bonus that will
be awarded to the CEO To Bezeq both for meeting the targets as the CEO of the subsidiaries and
as the CEO of Bezeq for the year 2022 is calculated in proportion to his term of office in 2022 in
each of the subsidiaries and amounts to approximately 115% of the annual salary. It should be
noted that, for the purpose of calculating the achievement of targets for the year 2022, the event
of the reduction of telephony rates in Bezeq, which was not included in the Bezeq budget for 2022,
was not taken into account, in accordance with the remuneration policy and in accordance with
the approval of the Board of Directors dated December 2021, as well as the thickening of the
investment budget that was updated in accordance with the decision of the Board of Directors
adopted during the year 2022 to increase the Company's fiber deployment target for this year. Mr.
Ran Guron will be entitled to 40% of the remuneration for meeting the adjusted EBITDA target for
Bezeq (solo) in 2022 only in 2024 (after the date of approval of the 2023 statements) and only if
the minimum adjusted EBITDA target for Bezeq (solo) determined in relation to for the budget year
7 Adjusted EBITDA for the purposes of determining the remuneration - calculated as EBITDA minus other
operating expenses/revenue (net), losses/gains from impairment/increase in value (including losses from
continuous depreciation), the effects of the application of the international financial reporting standard IFRS16
"Leases" and expenses for share-based payments.
8 Pelephone 56%, DBS 29%, Bezeq International 15%.
9 Adjusted free flow (FCF) - calculated as cash generated from current operations, minus cash for the
purchase/sale of property, plant and equipment and intangible assets (net), and minus leasing payments
- 7-
Chapter D (Additional details on the corporation) for the periodic report for 2022
2023. It should be noted that Bezeq's Remuneration Committee, at its meeting on March 1, 2023,
decided to release to Mr. Ran Guron, in accordance with the Company's remuneration policy, the
conditional remuneration from the performance-contingent grant for serving as CEO of the
subsidiaries in 2022, together with the payment of the bonus for the entire year 2022. On March
1, 2023, March 9, 2023 and March 13, 2023, the Remuneration Committee, the Boards of Directors
of Bezeq's Subsidiaries and the Bezeq Board of Directors, respectively, approved a retirement
bonus for the CEO of Bezeq, in the amount of 3 monthly salaries, for the end of his office in his
position for approximately 6.5 years as CEO of the subsidiaries, while as part of his office, the CEO
of Bezeq (in his capacity as CEO of the subsidiaries) brought the subsidiaries to good results despite
increasing competition in all areas of activity of the Subsidiaries, onerous regulation and the
challenging period of the Corona crisis. In his capacity as CEO of the Subsidiaries, the Company’s
CEO completed complex projects and led significant organizational changes and processes
f. Directors
Each director (including the Chairman of the Board of Directors) is entitled to an annual
remuneration and a participation remuneration for each meeting, in the maximum amount, in
accordance with the Company’s classification under to the Remuneration Regulations. Directors
with financial accounting expertise, as this term is defined in the Companies Regulations (Terms
and Tests for a Director with Accounting and Financial Expertise and for a Director with Professional
Competence), 5765-2005 are entitled to external expert director annual remuneration, as stated
in the Remuneration Regulations. In addition, the directors are entitled to be included in the
arrangement for liability insurance of directors and officers and indemnification as is customary in
the Company, as are all other officers in the Company. In 2022, remuneration was paid to the
directors of the Company in accordance with the Remuneration Regulations in the amount of NIS
720k.
Regulation 21a: The controlling shareholder in the corporation
On December 2, 2019, a debt settlement was completed between the Company and its bondholders,
under which Searchlight II BZQ LP and a corporation controlled by the Forer family (TNR Investments
Ltd.) acquired control of the Company (and consequently, Bezeq). The company owns Bezeq Directly.
In this regard, see also Bezeq's immediate report dated December 2, 2019 regarding the Company's
announcement of the completion of the said transaction, as well as Bezeq's immediate reports dated
January 2, 2020 regarding holdings of stakeholders and those who became stakeholders in the
corporation.
As of the date of completion of the debt settlement as aforesaid, the controlling owners of the Company
are Searchlight II BZQ L.P, a limited partnership incorporated in the Cayman Islands ("Searchlight") and
TNR. Investments Ltd. ("TNR"), a private company incorporated in Israel. The final general partner of
Searchlight is Searchlight Capital Partners II GP, LLC, a limited liability company incorporated in the State
of Delaware, which is held by a number of individuals including Eric Zinterhofer, Erol Uzumeri and Oliver
Harmaann, with the latter being among the only ones to receive the Company's control permit from
the Ministry of Communications. TNR is fully owned and controlled by Mr. David Forer (50%) and Mrs.
Michal Forer (50%). Searchlight and TNR are considered controlling shareholders in the Company by
virtue of a control permit dated November 11, 2019 and by virtue of a voting agreement between them
which confers on them a cumulative holding, as of the date of this report, of approximately 72% of the
voting rights in the Company.
To the best of the Company's knowledge, the shareholders' agreement between Searchlight and TNR
includes, among other things, a provision according to which as long as the holdings of an "Israeli entity"
in Bezeq's controlling shareholder are required, Searchlight will grant TNR power of attorney in respect
of the amount of shares that will allow TNR to vote at the general meetings of the Company, an amount
of shares equal to: (a) the amount of shares held by TNR on the effective date of the meeting, or (b) the
amount of shares reflecting 19% of the issued capital and voting rights in the Company on the effective
date of the meeting, whichever is highest. To the best of the Company's knowledge, the shareholders'
agreement includes additional provisions, including a commitment by Searchlight to refrain from voting
for the approval of certain issues without the consent of TNR.
- 8-
Chapter D (Additional details on the corporation) for the periodic report for 2022
For details regarding the control permit, see Section 1.1.4 in Chapter A of the periodic report.
Regulation 22: Transactions with the controlling shareholder
For details, to the best of the Company's knowledge, regarding any transaction with the controlling
shareholder in the Company, or such that the controlling shareholder in the Company has a personal
interest in the approval thereof, which the Company, the companies controlled thereby or related
thereto entered into in the reporting year or after to the end of the reporting year and until the date of
submission of this report, or it is still valid at the date of the report, as well as for details regarding
Bezeq’s neglibility procedure, see Note 29 to the statements.
Regulation 24: Holdings of related parties and senior executives
For details regarding the status of the holdings of interested parties in the Company, see an immediate
report dated January 5, 2023 (Ref.: 2023-01-002602), which is included in this report by way of
reference.
Regulation 24a: Registered capital, issued capital and convertible securities
For details regarding the registered equity, the issued equity and the convertible securities of the
Company, see immediate report dated July 11, 2022 (Ref.: 2022-01-087361) included in this report by
way of reference.
Regulation 24b: Register of shareholders
For the Company's shareholder register, see immediate report dated July 11, 2022 (Ref.: 2022-01-
087361), included in this report by way of reference.
Regulation 25a: Registered address of the corporation
Address: 144 Menachem Begin St., Tel Aviv
Phone: 03-6796101 Fax: 03-6796111
Email: tomer@bcomm.co.il
- 9-
Chapter D (Additional details on the corporation) for the periodic report for 2022
Regulation 26: The directors of the corporation
Last name and
first name
ID number
Date of birth
Address
for the
service of court
documents
Citizenship
Education
Darren Glatt,
Phil Bacal
Ran Forer
Efrat Duvdevani
Ajit V. Pai
Efrat Makov
Stephen Joseph
Chairman
549871770
(foreign
HP037044
(foreign
066522772
23824873
536841734
023044365
551988678
(foreign
passport)
passport)
(Foreign passport)
passport)
November 18, 1975
September 13, 1985
September 2, 1984
JUNE 10, 1968
January 10, 1973
June 17, 1968
April 10, 1980
144 Menachem Begin
144 Menachem Begin
2 Haysur St., Ramat
48 Hanasi Ben Zvi St.,
144 Menachem Begin
118 HaTamar Road,
144 Menachem Begin
Road, Tel Aviv (at B.
Road, Tel Aviv (at B.
Hasharon
Herzliya
Road, Tel Aviv (at B.
Moshav Ben Shemen,
Road, Tel Aviv (at B.
Communications)
Communications)
Communications)
73115
Communications)
American
Canadian
Israeli
Israeli
American
Israeli
British
BACCY,
George
MBA Richard
Ivey
Degree
in Law,
IDC
Degree
in
BA,
Social
Studies,
B.A. In Economics and
BSc
in Business and
Washington
School of Business at
Herzliya,
B.A.
in
International Relations
Harvard University;
Accounting from Tel
Financial
Economics
University
MBA,
the University of
Management,
IDC
and
English,
The
Harvard
Business
Western Ontario.
Herzliya,LL.M.
Hebrew
University;
J.D
Law
Studies,
University of Chicago
School
Commercial Law (cum
Degree in Public Policy
Law School
Aviv University.
from Leeds University,
KPMG.
laude),
Tel
Aviv
- Management and
University,
M.Sc.
Finance,
Tel
Aviv
General Management,
University
Stanford University,
Semester
in Law at
- 10-
Chapter D (Additional details on the corporation) for the periodic report for 2022
Occupation
for
the past five years
Partner
in
the
Partner in Searchlight
VP
of
Business
CEO of
the Peres
Partner in Searchlight
Jewelry
Designer
CFO
and
VP
of
Searchlight
Capital
Capital
Partners.
Development at the
Center for Peace and
Capital Partners.
(Independent
Operations at Ocean
Partners and head of
Director
in Roots,
Neopharm
Group,
Innovation.
Chairman of the FCC
Business).
Outdoor Group
(LSE:
Berkeley University
FCC Commissioner
Director
in
the
OOUT). Outdoor media
following companies:
and
advertising
company.
BioLight Life Sciences
Ltd
(2011-2020);
Anchiano Therapeutics
Ltd
(2018-2020);
Kamada Ltd
(2018-
2019);
iSPAC 1 Ltd
(2021-present); Allot
Ltd
(2021-present);
Ceragon Ltd
(2022-
present).
investments
in
Care Advantage
Business Development
infrastructure,
Deputy
Director,
Manager at Celgene
communications,
Bezeq
Corporation.
media
and
technology. Director
in Bezeq, All Points
Broadband
(Chairman),
MediaMath
(Chairman), Adams
Outdoor Advertising.
Previously, he was
also a director at the
following companies:
Rackspace, Charter
Communication,
Ocean
Outdoor,
160over90,
MediaMath, Charter
Communications,
- 11-
Chapter D (Additional details on the corporation) for the periodic report for 2022
as
a
Serves
director in other
corporations
PatientPoint,
Veritable Maritime
Bezeq, All Points
Broadband,
MediaMath,Ada
ms Outdoor
Advertising
Roots Corporation,
Care Advantage
Bezeq, LessTests
Future Initiatives,
Special Olympics.
- 12-
Outdoor
Outdoor
Scp Acquisition Topco
Limited,
Scp Acquisition Midco
Limited,
Scp Acquisition Bidco
Limited,
Ocean Topo Limited,
Ocean Bidco Limited,
Ocean Outdoor UK
Limited,
Signature
Limited,
Mediaco
Limited,
Forrest Outdoor Media
Limited,
Forrest
(Holdings) Limited,
Forrest Media Limited,
DKTD Media B.V,
Ngage Media B.V,
Interbest B.v,
Global
Stockholm AB,
Gudfar& son AB,
Visual Art & Global
Agencies Sweden AB,
Agencies
Media
Chapter D (Additional details on the corporation) for the periodic report for 2022
accounting
financial
Has
and
expertise
Is the director an
employee of the
corporation, of its
subsidiary, of its
affiliated
company or of a
stakeholder
therein
Yes
Yes
Yes
Yes
Yes
Yes
Yes, see details of
Yes, see details of
Yes, the director
No
Yes, see details of
No
occupation in the last
occupation in the last
serves as VP of
occupation in the last
five years.
five years.
Business Development
five years.
Visual Art International
Holding AB,
Visual Art Sweden AB,
Visual
Art
Holding AB,
Visual Art Denmark City
Reklame A/S,
Sweden
Visual Art Norway AS.
Yes
No
of the Neopharm
Group, whose
controlling
shareholders, David
and Michal Forer, are
also controlling
shareholders of TNR
Investments Ltd.,
which owns the joint
controlling interest in
the Company.
- 13-
Chapter D (Additional details on the corporation) for the periodic report for 2022
Is the director a
family member of
another
stakeholder in the
corporation
Membership in a
committee
or
committees of the
Board of Directors
Is this member of
of
the
Board
Directors
an
outside director
No
No
Yes, the director
No
No
No
No
serves as VP of
Business Development
and officer in
Neopharm Group, of
which his parents,
David and Michal
Forer, are the
controlling
shareholders and TNR
Investments Ltd.,
which owns the joint
controlling interest in
the Company.
No
No
No
The Committee for
No
The Committee for the
The Committee for the
No
No
No
the Examination of
Financial Statements;
The Audit Committee;
Remuneration
Committee;
Yes
Examination
of
Examination
of
Financial Statements;
Financial
Statements;
The Audit Committee;
The Audit Committee;
Remuneration
Remuneration
Committee;
Committee;
No
Yes
No
- 14-
Chapter D (Additional details on the corporation) for the periodic report for 2022
No
No
Yes
No
Yes
Yes
Does
the
No
Company see the
director
as
an
independent
director
- 15-
Chapter D (Additional details on the corporation) for the periodic report for 2022
Regulation 26 A: Senior officers
Name of senior officer
Itzik Tadmor
Dudu Mizrahi
Ilan Chaikin
Chief Financial
Officer
CEO of the
Company
Internal Auditor
February 14,
1981
BA in Accounting
and Economics
from Tel Aviv
University.
MBA in Business
Administration
from Tel Aviv
University.
CFO of B
Communications
Ltd. and Internet
Gold Lines - Gold
Ltd.
November 21,
1954
Bachelor's degree
in Economics and
Accounting, Tel
Aviv University.
April 18, 1985
Double major in
Law and
Economics from
the Tel Aviv
University; MBA -
Stern School of
Business
The Company's
CEO and director
in Bezeq.
Managing partner
at CPA Chaikin
Cohen Rubin & Co.
Director and Vice
President of the
Telecom and
Technology Group
at RBC Investment
Bank in New York.
No
No
No
Role in the Company,
subsidiary, affiliate or
related party
Date of birth
Education
Main occupations in the last
5 years and a list of the
corporations in which he
serves as a director
Is he a related party in the
Company or a family
member of another senior
official or of another related
party in the Company
Regulation 27: Independent authorized signatory
The Company's CEO, Mr. Tomer Raved, is an independent signatory authorized by the Company, as this
is term defined in the law.
Without derogating from the above, for the purpose of making money transfers in any amount from
the Company's accounts in banks, the signatures of Mr. Tomer Raved, the Company's CEO, and Mr. Itzik
Tadmor, the Company's CFO, are required.
Regulation 27: The accountant of the corporation
Somekh Chaikin, CPA
Address: 17 HaArbaa St.,, KPMG Millennium Tower, Tel Aviv 6473917
Tel: 03-6848000
Regulation 28: Amendment of the Company's Articles of Association
In the reporting year, no changes were made to the company's Articles of Association.
- 16-
Chapter D (Additional details on the corporation) for the periodic report for 2022
Regulation 29 (a): The recommendations and decisions of the directors before the general meeting
and their decisions that do not require the approval of a general meeting in matters specified in
Regulation 29(a)
A. On March 23, 2022, the Company's Board of Directors approved a self-purchase plan of the
Company's shares in the amount of up to NIS 20 million, which will begin on March 27, 2022 and
end at: (1) purchase in the amount of 20 million NIS; or (2) the end of the trading day on May 12,
2022, whichever is earlier. As of the date of the report, in accordance with the aforementioned
purchase plan, the Company purchased shares in a total amount of approximately NIS 20 million.
For more details, see the Company's report dated March 24, 2022 (Ref.: 2022-01-029175), included
in this report by way of reference.
B. On May 24, 2022, the Company's Board of Directors approved a self-purchase plan of the
Company's shares in the amount of up to NIS 30 million, which will begin on May 26, 2022 and end:
(1) purchase in the amount NIS of 30 million; or (2) the end of the trading day on August 4, 2022,
whichever is earlier. As of the date of the report, in accordance with the aforementioned purchase
plan, the Company purchased shares in a total amount of approximately NIS 30 million. For more
details, see the Company's report dated May 24, 2022 (Ref.: 2022-01-063631), included in this
report by way of reference.
C. On June 8, 2022, the Company's Board of Directors approved a partial early redemption of the
Company's deben tures (series C), as detailed in an immediate report dated June 12, 2022 (Ref.:
2022-01-072097), which is included in this report by reference.
D. On August 9, 2022, the Company's Board of Directors approved a self-purchase plan of the
Company's shares in the amount of up to NIS 25 million, which will begin on August 11, 2022 and
end: (1) purchase in the amount of NIS 25 million; or (2) the end of the trading day on November
1, 2022, whichever is earlier. As of the date of the report, in accordance with the aforementioned
purchase plan, the Company purchased shares in a total amount of approximately NIS 25 million.
For more details, see the Company's report dated August 10, 2022 (Ref.: 2022-01-101353),
included in this report by way of reference.
E. On November 15, 2022, the Company's Board of Directors approved a self-purchase plan of the
Company's shares in the amount of up to NIS 25 million, which will begin on November 17, 2022
and end at: (1) purchase in the amount of NIS 25 million; or (2) the end of the trading day on March
1, 2023, whichever is earlier. As of the date of the report, in accordance with the aforementioned
purchase plan, the Company purchased shares in a total amount of approximately NIS 25 million.
For more details, see the Company's report dated November 16, 2022 (Ref.: 2022-01-110256),
which is included in this report by way of reference.
Regulation 29 (b): Resolutions of the general assembly that were not adopted in accordance with the
recommendations of the directors in the matters listed in Sub-regulation (a) above
During the reporting year, resolutions were not adopted at the Company's general assembly that were
not in accordance with the recommendations of the Board of Directors in the matters detailed in
Regulation 29(a).
Regulation 29 (c): Resolutions of a special general assembly
a. Approval of the initial appointment of Mrs. Efrat Duvdevani, as an external director of the Company
for a first term of three years, and provision of letters of commitment for indemnification and a
letter of exemption from liability for Mrs. Dovdevani (January 24, 2022). For more details, see
immediate reports published by the Company on December 22, 2021 and January 24, 2022 (Ref.:
2021-01-112810 and 2022-01-010014, respectively), which are included in this report by way of
reference;
- 17-
Chapter D (Additional details on the corporation) for the periodic report for 2022
b. Approval of the adoption of a new remuneration policy for the Company (April 27, 2022). For more
details, see immediate reports published by the Company on March 24, 2022 and April 27, 2022
(Ref.: 2022-01-029214 and 2022-01-051748, respectively), which are included in this report by way
of reference;
c. Approval of the allocation of 100,000 unregistered options to Mr. Itzik Tadmor, the Company's CFO,
as part of the terms of his office and employment and as an exception to the Company's
remuneration policy and disapproval of the allocation of 2,677,362 unregistered options to Mr.
Tomer Raved, the company's CEO (June 29, 2022). , that on May 19, 2022 and May 24, 2022, the
remuneration committee and the Company's Board of Directors, respectively, approved the
allocation of the aforementioned options to Mr. Raved, in accordance with the provisions of Article
272(c1)(1)(c) of the Companies Law. For more details, see immediate reports published by the
Company on June 22, 2022, June 29, 2022 and July 7, 2022 (Ref.: 2022-01-077395, 2022-01-081253
and 2022-01-086419, respectively), which are included in the report It's on the way of reference;
d. Approval of the re-appointment of Mrs. Efrat Makov, as an external director of the Company for a
second term of three years (October 18, 2022). For more details, see immediate reports published
by the Company on September 13, 2022 and October 18, 2022 (Ref.: 2022-01-094674 and 2022-
01-103272, respectively), which are included in this report by way of reference.
Regulation 29A (4): Exemption, insurance or obligation to indemnify officers
For details regarding exemption, insurance or indemnification obligation for officers, See Note 29.6 to
the statements.
March 14, 2023
Date
_______________________________
B Communications Ltd.
Name and role of signatories:
Tomer Raved, CEO
Darren Glatt, Chairman of the Board of Directors
- 18-
CORPORATE GOVERNANCE QUESTIONNAIRE 1
BOARD OF DIRECTORS INDEPENDENCE
1.
In each reporting year, two or more external directors served in the corporation.
This question can be answered "Correct" if the period of time in which two external directors did not
serve does not exceed 90 days, as stated in Article 363A (b) (10) of the Companies Law, but any answer
(Correct / Incorrect) must state the period of time (days) in which the corporation did not have two or
more external directors in the reporting year (including a term of office approved retrospectively, while
separating between the various external directors):
Director A: 0.
Director B: 0.
The number of external directors serving in the corporation as of the date of publication of this
questionnaire: 2.
Correct
√
Incorrect
1 Published as part of legislative proposals to improve the statements on March 16, 2014.
1
2.
3.
4.
The rate2 of independent directors3 serving in the corporation as of the publication of this
questionnaire: 3/7.
The rate of independent directors determined In the Articles of Association4 of the corporation5:
______.
Irrelevant (not provided for in the Articles of Association).
In the reporting year, an examination was conducted with the external directors (and the independent
directors) and it was found that in the reporting year they complied with the provision of Article 240 (b)
and (f) of the Companies Law regarding the lack of affiliation of the external (and independent)
directors serving in the corporation and they meet the conditions required for serving as an external (or
independent) director.
All directors who served in the corporation during the reporting year are not subordinated6 to the CEO,
directly or indirectly (except for a director who is an employee representative, if the corporation has
employee representation).
If you answered "Incorrect" (namely, the director is subordinated to the CEO as mentioned) – indicate
the rate of directors that do not meet the aforesaid limitation: _____.
_____
_____
√
√
2In this questionnaire, "rate" - a certain number out of the total. For example 3/8.
3 Including "external directors" as defined in the Companies Law.
4 For the purposes of this question - "Articles of Association" including according to a specific legal provision applicable to the corporation (for example in a banking corporation - the
directives of the Supervisor of Banks).
5 A bond company is not required to answer this section.
6 For the purposes of this question - the very office of a director of a holding corporation controlled by the corporation will not be considered "subordinate", on the other hand, the office of a
director of a corporation serving as an officer (other than a director) and / or an employee of the corporation controlled by the corporation will be considered "subordinate".
2
5.
6.
√
√
All the directors who announced the existence of a personal interest in approving a transaction on the
agenda of the meeting, did not attend the discussion and did not participate in such vote (except for
discussion and / or voting in the circumstances under Article 278 (b) of the Companies Law):
If Your answer is "Incorrect"-
Was it for the purpose of presenting a particular subject thereby in accordance with the provisions of
Article 278 (a):
Yes No (mark x in the appropriate box).
Indicate the rate of meetings at which such directors were present at the discussion and / or
participated in the vote, except in the circumstances as stated in paragraph a: _____.
The controlling shareholder (including his relative and / or someone on his behalf), who is not a director
or other senior officer in the corporation, was not present at the board meetings held in the reporting
year.
If your answer is "incorrect" (i.e., a controlling shareholder and / or relative and / or someone on his
behalf who is not a board member and / or a senior official in the corporation was present at such
board meetings) - indicate the following details regarding the presence of any additional person at
board meetings:
Identity: _____.
Position in the corporation (if any): _____.
3
Details of the affiliation to the controlling shareholder (if the person present is not the controlling
shareholder himself): _____.
Was it for the purpose of presenting a certain subject thereby: Yes No (mark x in the appropriate box)
The rate of presence7 thereof in meetings of the Board of Directors that took place in the reporting year
for the purpose of presenting a certain subject thereby: _____, Other presence: _____
Irrelevant (there is no controlling shareholder in the corporation).
QUALIFICATIONS AND SKILLS OF THE DIRECTORS
7.
There are no provisions in the corporation's articles of association that restrict the possibility of
immediately terminating the office of all directors in the corporation, who are not external directors (in
this matter - determination by a simple majority is not considered a restriction)8.
If Your answer is "incorrect" (namely, there is a restriction as mentioned) indicate -
Correct
√
Incorrect
7 While separating between the controlling shareholder, his relative and / or someone on his behalf.
8 A bond company is not required to comply with this section.
4
A.
The period of time stipulated in the articles of association for the term of office of a director:
B.
C.
The required majority set forth in the articles of association for the termination of office of the
directors:
A statutory quorum set forth in the articles of association at the general meeting for the purpose
for the termination of office of the directors:
D.
The majority required to amend these provisions in the articles of association:
8.
The corporation prepared a training program for new directors, in the field of the corporation's business
and in the field of law applicable to the corporation and the directors, and also arranged a follow-up
program for the training of incumbent directors, adapted, among other things, to the director's position
in the corporation.
√
If your answer is "correct" - indicate whether the program was implemented in the reporting year:
Yes No (there is to mark x In the box Appropriate)
9.
A.
The corporation has a required minimum number of directors on the Board of Directors who must
have accounting and financial expertise.
√
If your answer is "correct" – indicate the minimum number determined:
5
B.
Number of directors who served in the corporation during the reporting year
_________
_________
With accounting and financial expertise9: 7.
With Professional qualifications10: 0.
In the event of changes in the number of directors as stated in the reporting year, indicate the
lowest number (except in a time period of 60 days of change) of directors of any type who served
in the reporting year.
10.
A.
Throughout the reporting year, the Board of Directors included members of both sexes.
√
If your answer is "incorrect" – indicate the period of time (days) in which the aforesaid did not
exist: _____.
This question can be answered "correct" if the period of time in which directors of both sexes did
not serve does not exceed 60 days, however in any answer (correct / incorrect), indicate the
period of time (days) in which directors of both sexes did not serve: _____.
9 After the evaluation of the Board of Directors, in accordance with the provisions of the Companies Regulations (conditions and tests for a director with accounting and financial expertise
and for a director with professional Qualification), 5765-2005.
10 See Footnote 9.
6
B.
The number of directors of any sex serving on the corporation's Board of Directors as of the date
of publication of this questionnaire:
_____
_____
Men: 5, women: 2.
BOARD MEETINGS (AND CONVENING A GENERAL MEETING)
11.
A.
Number of board meetings held during each quarter of the reporting year:
First quarter (2022): 4
Second quarter: 4
Third quarter: 4
Fourth quarter: 3
Correct
Incorrect
_____
_____
B.
Next to each of the names of the directors who served in the corporation during the reporting year,
indicate the rate11 of participation in the meetings of the Board of Directors (in this paragraph - including
the meetings of the committees of the Board of Directors of which he is a member, and as indicated
_____
_____
7
See H.S. 2.
11
below) that took place during the reporting year (and with reference to term of office): See note at the
end of the questionnaire.
(Add lines according to the number of directors).
Director’s name
Rate of his
participation in
the meetings
of the Board of
Directors
Rate of
his
participa
tion in
meeting
s of the
Audit
Committ
ee 12
Rate of his participation
in meetings of the
Committee for
Examining the financial
statements 13
Rate of his
participation in
meetings of the
Remuneration
Committee14
Rate of his
participation in
meetings of other
Board of Directors
committees in which
he is a member
(indicate the name of
the committee)
Darren Glatt
100%
Phil Bacal
100%
12 Regarding the company director in this committee.
13 Regarding the company director in this committee.
14 Regarding the company director in this committee.
8
Ran Forer
93%
Stephen Joseph
93%
100%
100%
100%
Michael Clare
100%
100%
100%
100%
Efrat Makov
100%
100%
100%
100%
Ajit Pai
100%
12.
In the reporting year, the Board of Directors held at least one discussion regarding the management of
the corporation's business by the CEO and his subordinates, without their presence, and they were given
an opportunity to express their position.
√
9
SEPARATION BETWEEN THE FUNCTIONS OF THE CEO AND THE CHAIRMAN OF THE BOARD
13.
Throughout the reporting year, a chairman of the board served in the corporation.
This question can be answered "correct" if the period of time in which a chairman of the
board did not serve in the corporation does not exceed 60 days as stated in Article 363A (2)
of the Companies Law, but in any answer (correct / incorrect), indicate the period (days) in
which a chairman of the board did not serve in the corporation as aforesaid: [__].
Correct
√
Incorrect
14.
Throughout the reporting year, a CEO served in the corporation.
√
This question can be answered "correct" if the period of time in which a CEO did not serve in
the corporation does not exceed 60 days as stated in Article 363A (2) of the Companies Law,
but in any answer (correct / incorrect), indicate the period (days) in which a CEO did not
serve in the corporation as aforesaid: [__].
15.
In a corporation in which the chairman of the board also serves as the CEO of the corporation
and / or exercises his powers, the duplication of office is approved in accordance with the
provisions of Article 121 (c) of the Companies Law15.
Irrelevant (if there is no such dual office in the corporation).
15 In a bond company - approval in accordance with Article 121 (d) of the Companies Law.
10
16.
The CEO Is not a relative of the chairman of the Board of Directors.
If your answer is "incorrect" (i.e., the CEO is a relative of the chairman of the board)-
A.
B.
Indicate the family relation between the parties: _____.
The office was approved in accordance with Article 121 (c) of the Companies Law16:
Yes
No
(mark x in the appropriate box)
17.
A controlling shareholder or his relative does not serve as CEO or senior executive officer in
the corporation, except as a director.
Irrelevant (the corporation has no controlling shareholder).
_____
_____
√
_____
_____
√
16 In a bond company - approval in accordance with Article 121 (d) of the Companies Law.
11
AUDIT COMMITTEE
18.
In the reporting year, on the Audit Committee did not serve -
Correct
_____
Incorrect
_____
A.
A controlling shareholder or his relative.
Irrelevant (the corporation has no controlling shareholder).
B.
Chairman of the Board of Directors.
C.
A director employed by the corporation or by the controlling shareholder of the
corporation or by a corporation under his control.
D.
A director who regularly provides services to the corporation or controlling
shareholder of the corporation or corporation under its control.
E.
A director whose main livelihood depends on the controlling shareholder.
Irrelevant (the corporation has no controlling shareholder).
√
√
√
√
√
√
19.
A person who is not allowed to be a member of the Audit Committee, including a controlling
shareholder or his relative, was not present at the reporting year at the meetings of the Audit
Committee, except in accordance with the provisions of Article 115 (e) of the Companies Law.
12
20.
A legal quorum for discussion and decision-making at all Audit Committee meetings held in
the reporting year was a majority of committee members, with the majority present being
independent directors and at least one of them being an external director.
If your answer is "incorrect" - indicate the rate of meetings in which the said requirement was
not met: _____.
21.
In the year of the report, the Audit Committee held at least one meeting in the presence of the
internal auditor and the auditor and without the presence of officers of the corporation who are not
members of the committee, regarding deficiencies in the business management of the corporation.
22.
All meetings of the Audit Committee attended by those who are not allowed to be members of the
committee, were with the approval of the committee chairman and / or at the request of the
committee (regarding the legal advisor and the corporation secretary who is not a controlling
shareholder or his relative).
23.
In the reporting year, arrangements were established by the Audit Committee regarding the manner in
which the corporation's employees' complaints were handled in connection with deficiencies in the
conduct of its business and regarding the protection to be given to the employees who complained as
aforesaid.
√
√
√
√
13
24.
The Audit Committee (and / or the Committee for the Examination of the Financial Statements) was of
the opinion that the scope of the auditor's work and his fees in relation to the financial statements in
the reporting year were adequate for carrying out proper audit and review work.
√
FUNCTIONS OF THE COMMITTEE FOR EXAMINING THE FINANCIAL STATEMENTS (HEREINAFTER - THE COMMITTEE) IN ITS
PRELIMINARY WORK FOR THE APPROVAL OF THE FINANCIAL STATEMENTS
25.
A.
Indicate the period of time (in days) determined by the Board of Directors as a reasonable
time to submit the Committee's recommendations prior to the discussion of the Board of
Directors for approval of the financial statements: 3 days when approving the periodic
statements and 2 days when approving the quarterly statements.
Correct
_____
Incorrect
_____
The number of days that have actually elapsed between the date of the transfer of the
_____
_____
B.
recommendations to the Board of Directors and the date of the Board of Directors’ discussion:
First quarter statements (year 2022): 5 days.
Second quarter statements: 5 days.
Third quarter statements: 2 days.
14
Annual statements: 1 days.
C.
The number of days that have elapsed between the date of submission of the draft financial
statements to the directors and the date of the discussion of the Board of Directors of the
approval of the financial statements:
First quarter statements (year 2020): 5 days.
Second quarter statement: 8 days.
Third quarter statements: 8 days.
Annual statements: 5 days.
26.
The corporation's auditor attended all meetings of the Committee and the Board of Directors, at which
the corporation's financial statements relating to the periods included in the reporting year were
√
discussed.
If your answer is "incorrect", indicate the participation rate: ______
27.
In the Committee, all the conditions listed below were met throughout the reporting year until the
publication of the annual statements:
_____
_____
A.
The number of its members was not less than three (at the time of the discussion in the
√
Committee and the approval of the statements as aforesaid ).
15
B.
C.
D.
E.
F.
G.
It complied with all the conditions set out in Article 115 (b) and (c) of the Companies Law
(regarding the office of members of the Audit Committee).
The chairman of the Committee is an external director.
All its members are directors and most of its members are independent directors.
All its members have the ability to read and understand financial statements and at least one
of the independent directors has accounting and financial expertise.
Committee members gave a statement prior to their appointments.
The legal quorum for discussion and decision-making in the Committee was the majority of its
members, provided that the majority of those present were independent directors, including
at least one external director. .
√
√
√
√
√
√
If your answer is "incorrect" regarding one or more of the subsections of this question, indicate in relation
to which statements (periodic / quarterly) the said condition was not met and the condition that was not
_____
_____
met.
16
REMUNERATION COMMITTEE
Correct
Incorrect
28.
The committee consisted of, in the reporting year, at least three members and the external
directors constituted a majority (at the time of the committee's deliberations).
Irrelevant (No discussion took place).
29.
The terms of office and employment of all members of the Remuneration Committee in the
reporting year are
in accordance with the Companies Regulations (Rules regarding
Remuneration and Expenses for an External Director), 5769-2000.
√
√
30.
In the reporting year, on the Remuneration Committee did not serve -
_____
_____
A.
The controlling shareholder or his relative
Irrelevant (the corporation has no controlling shareholder).
B.
Chairman of the Board of Directors.
√
√
17
C.
A director employed by the corporation or by the controlling shareholder of the
corporation or by a corporation under his control.
D.
A director who regularly provides services to the corporation or to the controlling
shareholder of the corporation or to a corporation under his control.
E.
A director whose main livelihood depends on the controlling shareholder.
Irrelevant (the corporation has no controlling shareholder).
The controlling shareholder or his relative were not present in the reporting year at the
meetings of the Remuneration Committee, unless the chairman of the committee determined
that either of them was required to present a particular subject.
The Remuneration Committee and the Board of Directors did not exercise their authority under Articles
267A (c), 272 (c) (3) and 272 (c1) (1) (c) to approve a transaction or remuneration policy, despite the
opposition of the general meeting.
If your answer is "incorrect" indicate -
Type of transaction approved as stated: ______
The number of times their authority was used in the reporting year: ______
√
√
√
√
√
31.
32.
18
INTERNAL AUDITOR
Correct
Incorrect
33.
The Chairman of the Board of Directors or the CEO of the corporation is the organizational supervisor of
the internal auditor of the corporation.
34.
The Chairman of the Board of Directors or the Audit Committee approved the work plan in the reporting
year.
In addition, indicate the audit topics that the Internal Auditor dealt with in the reporting year:
Implementation of the supervision procedure by the internal auditor and debt management.
(mark x in the appropriate box).
√
√
35.
Scope of employment of the internal auditor in the corporation in the reporting year (in hours17): 200
_____
_____
hours.
In the reporting year, a discussion took place (in the Audit Committee or on the Board of Directors) of
√
the Internal Auditor's findings.
17 Including working hours invested in investee corporations and audits outside Israel, and as appropriate, both by the Company's internal auditor and by the internal auditors of the
Company's subsidiaries.
19
36.
The internal auditor is not a stakeholder in the corporation, a relative of such, an auditor or anyone on
his behalf, nor does he maintain material business relationships with the corporation, its controlling
shareholder, or a relative or corporations under their control.
√
STAKEHOLDER TRANSACTIONS
Correct
Incorrect
√
37.
The controlling shareholder or his relative (including a company under his control) is not employed by
the corporation or provides it with management services.
If your answer is "incorrect" (namely, the controlling shareholder or his relative is employed by the
corporation or provides it with management services) indicate -
- Number of relatives (including the controlling shareholder) employed by the corporation (including
companies under their control and / or through management companies):
- Have the employment agreements and / or the management services as aforesaid been approved
by the organs established by law:
Yes
No
20
(mark x in the appropriate box)
Irrelevant (In a corporation nothing husband control). _____.
38.
To the best of the corporation's knowledge, the controlling shareholder has no other business in the
√
corporation's field of activity (in one or more fields). See note at the end of the questionnaire.
If your answer is "incorrect" - indicate whether an arrangement has been established to delimit
activities between the corporation and its controlling shareholder.
Yes No
(there is to mark x In the box Appropriate)
No relevant (the corporation has no controlling shareholder).
21
Closing notes to the questionnaire:
1. Meetings of the Board of Directors (and convening a general assembly)
Section 11B - It should be noted that in the column on the participation rate in meetings of additional board committees, the reference
is to permanent board committees only and does not include non-permanent committees established on an ad hoc basis for certain
issues. It should be noted that in the number of meetings of the Board of Directors and its committees, the meetings held during the
reporting year were taken into account, with reference to the term of office of each of the directors on the board and in each of the
committees, as the case may be.
2. Stakeholder transactions
Section 38 - Searchlight Group, which owns the company, has holdings in many communications companies around the world (mainly in
the United States). As stated in section 1.8 of Chapter A of this report, Bezeq Group's strategy as of this date is to focus on the local
market in Israel only.
Chairman of the Board of Directors: ___________
Chairman of the Audit Committee: ___________
Chairman of the Committee for Examining the Financial Statements: ___________
22
Chapter E
Report on the Effectiveness of Internal Control
over Financial Reporting and Disclosure
for the Year ended December 31, 2022
- 1-
(1) Report on the internal control over financial reporting and disclosure:
Annual report on the effectiveness of internal control over financial reporting
and disclosure pursuant to Regulation 9b(a) a of the Securities Regulations
(Periodic and Immediate Reports), 5730-1970:
Management, under the supervision of the Board of Directors of B Communications
Ltd. (hereinafter - "the Corporation" or "the Company"), is responsible for
determining and maintaining adequate internal control over the financial reporting
and disclosure in the Corporation.
For this purpose, the members of Management are:
1. Tomer Raved, CEO;
2.
Itzik Tadmor, CFO;
In addition to the said members of Management, serving in the Company are:
1. Ilan Chaikin, Internal Auditor;
2. Lital Aharoni, Controller;
Internal control over financial reporting and disclosure includes controls and
procedures existing in the Corporation, designed by or under the supervision of the
CFO and CEO in the field of finance, or by the person actually performing the said
functions, supervised by the Corporation's Board of Directors, which are intended
to provide a reasonable degree of assurance regarding the reliability of the financial
reporting and the preparation of the reports in accordance with the provisions of the
law, and to ensure that information that the Corporation is required to disclose in
reports it publishes under the provisions is collected, processed, summarized and
reported on the date and in the format as prescribed by law.
- 2-
Internal control includes, inter alia, controls and procedures designed to ensure that
information the disclosure of which by the Corporation is required, is accumulated
and transmitted to the Corporation's Management, including the CEO and senior
executives in the field of finance or to those actually performing the said functions,
in order to enable decisions with regard to the disclosure requirement to be made
at the appropriate time.
Due to its structural limitations, internal control over financial reporting and
disclosure is not intended to provide absolute assurance that misrepresentation or
omission of information in the statements will be avoided or discovered.
Management, under the supervision of the Board of Directors, performed an
examination and evaluation of the internal control over financial reporting and
disclosure in the corporation and its effectiveness;
The assessment of the effectiveness of the internal control over the financial
reporting and disclosure carried out by Management under the supervision of the
Board of Directors included:
1. Mapping and identifying the relevant business units, accounts and processes
that the Corporation considers very essential for financial reporting and
disclosure;
2. Examining and updating the reporting and disclosure risks;
3. Updating the documentation of the controls that respond to the risks that have
been identified, as well as the documentation of new controls;
4. Testing and evaluating the effectiveness of the aforementioned controls;
5. Overall assessment of the effectiveness of internal control.
- 3-
The model for assessing the effectiveness of internal control over financial reporting
and disclosure was based on the following components:
1. Controls at the organization level (Entity Level Controls), including controls on
the process of editing and closing the reports and general controls of information
systems (ITGC);
2. Controls over cash and debt management process;
3. The process of editing and closing the reports;
Based on the evaluation of the effectiveness performed by Management under the
supervision of the board of directors as detailed above, the Board of Directors and
the Corporation's Management came to the conclusion that the internal control over
the financial reporting and disclosure in the Corporation as of December 31, 2022
is effective.
****
Regarding the investigations by the Israel Securities Authority and the Israel Police,
as detailed in Section 1.1.7 of the chapter describing the Corporation's business in
this periodic report, the Corporation does not have complete information regarding
these investigations, plans, materials and evidence in the possession of the law
authorities in this case. (Although in January 2021, Bezeq received the core of the
investigation material in connection with Case 4000 following Bezeq’s summons for
a hearing on this matter, as detailed in Section 1.1.7.2 of the chapter describing the
corporation's business). Accordingly, the Corporation is still unable to assess the
effects of the investigations, findings and results on the Corporation, as well as the
financial statements and estimates used in the preparation of these reports, if any.
- 4-
(1) Executive statements:
(a) Statement of the CEO pursuant to Regulation 9b(d)(1) of the Securities
Regulations (Periodic and Immediate Reports), 5730-1970:
I, Tomer Raved, declare that:
(1) I examined the annual report of B Communications Ltd. (hereinafter – the
“Corporation”) for year 2022 (hereinafter - "the Statements");
(2) To my knowledge, the Statements do not include any misrepresentation of a
material fact and do not lack a presentation of a material fact necessary so that
the presentations included in them, in light of the circumstances in which those
representations were included, will not be misleading with respect to the
reporting period;
(3) To my knowledge, the financial statements and other financial information
contained in the Statements adequately reflect, in all material respects, the
financial position, results of operations and cash flows of the Corporation for
the dates and periods to which the statements relate;
(4) I revealed to the Corporation's Auditor, the Board of Directors, the Audit
Committee and the committee for examining the Corporation's financial
statements, based on my most recent assessment of the internal control over
financial reporting and disclosure:
(A) Any significant deficiencies and material vulnerabilities
in
the
determination or exercise of internal control over the financial reporting
and disclosure that are likely to adversely affect the Corporation's ability
to collect, process, summarize or report financial information in a manner
that casts doubt on the financial reporting reliability and preparation of
financial statements; and-
(B) Any fraud, whether material or immaterial, involving the CEO or his
subordinates directly or involving other employees who have a significant
role in the internal control over financial reporting and disclosure;
- 5-
(5) I, alone or with others in the Corporation:
(A) Have established controls and procedures, or have verified the
determination and existence of controls and procedures under my
supervision, designed to ensure that material information relating to the
Corporation, including its subsidiaries as defined in the Securities
Regulations (Annual Financial Statements), 5770-2010, is brought to my
attention by others in the Corporation and its subsidiaries, in particular
during the preparation period of the Reports; -
(B) Have established controls and procedures, or verified the determination
and existence of controls and procedures under my supervision,
designed to reasonably ensure the reliability of the financial reporting and
the preparation of the financial statements in accordance with the
provisions of the law, including in accordance with generally accepted
accounting principles;
(C)
I evaluated the effectiveness of the internal control over financial reporting
and disclosure, and presented in this report the conclusions of the Board
of Directors and Management regarding the effectiveness of the
aforementioned internal control as of the date of the Statements.
Nothing in the foregoing shall derogate from my liability or the liability of any other
person, under any law.
Date: March 14, 2023
_______________________
Tomer Raved, CEO
- 6-
(b) Statement of the most senior officer in the field of finance pursuant to
Regulation 9b(d)(2) of the Securities Regulations (Periodic and Immediate
Reports), 5730-1970:
I, Itzik Tadmor, declare that:
(1) I examined the statements and the other financial information contained in the
statements of B Communications Ltd. (hereinafter – “the Corporation") for the
year 2022 (hereinafter – “the Statements");
(2) To the best of my knowledge, the Statements and the other financial information
contained in the Statements do not include any misrepresentation of a material
fact and do not lack a presentation of a material fact necessary so that the
presentations included in them, in light of the circumstances in which those
representations were included, will not be misleading with respect to the
reporting period;
(3) To the best of my knowledge, the Statements and the other financial information
contained in the Statements adequately reflect, in all material respects, the
financial position, results of operations and cash flows of the corporation for the
dates and periods to which the Statements relate;
(4) I revealed to the Corporation's Auditor, the Board of Directors, the Audit
Committee and the committee for examining the Corporation's financial
statements, based on my most recent assessment of the internal control over
financial reporting and disclosure:
(A) Any significant deficiencies and material vulnerabitlies
in
the
determination or exercise of internal control over financial reporting and
disclosure as it relates to Statements and other financial information
contained in the Statements that are likely to adversely affect a
Corporation's ability to collect, process, summarize or report financial
information In such a way as to cast doubt on the reliability of the financial
reporting and the preparation of the financial statements in accordance
with the provisions of the law; And –
- 7-
(B) Any fraud, whether material or immaterial, involving the CEO or his
subordinates directly or involving other employees who have a significant
role in the internal control over financial reporting and disclosure;
(5)
I, alone or with others in the Corporation:
(A) Have established controls and procedures, or have verified the
determination and existence of controls and procedures under my
supervision, designed to ensure that material information relating to the
Corporation, including its subsidiaries as defined in the Securities
Regulations (Annual Financial Statements), 5770-2010, is brought to my
attention by others in the Corporation and its subsidiaries, in particular
during the preparation period of the Statements; And -
(B) Have established controls and procedures, or verified the determination
and existence of controls and procedures under my supervision,
designed to reasonably ensure the reliability of the financial reporting and
the preparation of the financial statements in accordance with the
provisions of the law, including in accordance with generally accepted
accounting principles; And -
(C)
I evaluated the effectiveness of the internal control over financial reporting
and disclosure, insofar as it relates to the Statements and the other
financial information contained in the Statements as of the date of the
Statements; My conclusions regarding my evaluation as mentioned were
brought before the Board of Directors and Management and are included
in this Report.
Nothing in the foregoing shall derogate from my liability or the liability of any other
person, under any law.
Date: March 14, 2023
_______________________
Itzik Tadmor, CFO
- 8-