B Communications Ltd.
2023 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 2023
(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 2023 Periodic Report
Chapter A
Description of the Corporation's Business
2023 Periodic Report
ב
Chapter A (Description of the Corporation's Business) for the 2023 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 ...................................................................... 20
1.7. General environment and the influence of external factors on the group's activities
............................................................................................................................ 21
1.8.
Bezeq Group business strategy .......................................................................... 32
1.9.
Entry into the field of electricity supply ............................................................. 34
1.10. Corporate responsibility (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.
PP&E 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 telephone (cellular telephony)
99
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Chapter A (Description of the Corporation's Business) for the 2023 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.
PP&E 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 and international communications services and ICT
solutions
128
4.1. General .............................................................................................................. 128
4.2.
Products and services ....................................................................................... 129
4.3.
Revenue ............................................................................................................ 130
4.4.
Customers ......................................................................................................... 124
4.5. Marketing, distribution, and service................................................................. 124
4.6.
Competition ...................................................................................................... 124
4.7.
PP&E and facilities ............................................................................................ 127
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.
Yes - Multi-channel TV
145
ד
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
5.1. General information about the field of activity ................................................ 137
5.2.
Products and services ....................................................................................... 140
5.3.
Customers ......................................................................................................... 150
5.4. Marketing and distribution ............................................................................... 151
5.5.
Competition ...................................................................................................... 151
5.6.
Production capacity .......................................................................................... 153
5.7.
PP&E, real estate and facilities ......................................................................... 153
5.8.
Intangible assets ............................................................................................... 154
5.9.
Broadcasting rights ........................................................................................... 155
5.10. Human capital ................................................................................................... 156
5.11. Suppliers ........................................................................................................... 157
5.12. Financing ........................................................................................................... 158
5.13. Taxation ............................................................................................................ 158
5.14. Restrictions and supervision of Yes .................................................................. 158
5.15. Material agreements ........................................................................................ 161
5.16. Legal proceedings ............................................................................................. 162
5.17. Targets and strategy ......................................................................................... 164
5.18. 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
1.1.1.
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.
1.1.2.
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 27.19% 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 רוקמ !האיגש
.אצמנ אל הינפהה below.
1.1.3.
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
services
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).
communication
telephony),
telephone
(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 12, 2023):
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
CThe
ompany
(*)
27.19%
Bezeq Israel Telecommunications Corporation Ltd.
Bezeq
Online
100%
Yes
)*(*
Bezeq
International
Pelephone
100%
100%
100%
Regarding the Company and the control of Bezeq - see Sections 1.1.1, 1.1.2 and אל הינפהה רוקמ !האיגש
(*)
.אצמנ in this chapter.
(**) On April 23, 2023, the name of Yes was changed from DBS Satellite Services (1998) Ltd. to Yes Television and
Communications Services Ltd.
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
Investments Ltd.) purchased control of the Company (and
Forer family (TNR
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 78.78% 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 assemblies 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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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
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
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, the intended amendment in the Communications Order applicable to Bezeq
has been approved by the Government on March 5, 2023.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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
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 assembly 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:
The Company shall report to the Ministers as defined in the
42 a.
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
42 b.
the
report
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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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
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 19, 2023, an amendment to the Communications Order (Bezeq and
Broadcasting) (Determining an essential service provided by "Bezeq", the Israel
Telecommunications Corporation Ltd.), (Amendment), 5783-2023 ("Amendment to the
Order") was published in the records and entered into force, which allows a 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 have control. The
Amendment to the Order includes 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.
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, Yes, And Bezeq Online) were transferred to the Board of
Directors.
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 Yes (in this Section: “the subsidiaries") regarding a structural
change plan in which Bezeq International's private activities were to merge with and into
Yes, and the spin-off of Bezeq International’s ICT activities into a new company wholly
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 2023 Periodic Report
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 Yes 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, Yes 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, instead of the provisions of the said
license, the provisions of a general permit apply on Yes’s ISP activity.
Buyback plan of the Company's shares
For details about the buyback plan of the Company's shares, which was approved by the
Company's Board of Directors on August 8, 2023, see Regulation 29(a) of the additional
details report chapter in 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 Law, 5737-1977 ("Penal Law"), in respect
of transactions related to the previous controlling shareholder in the Company and
former Chairman of Bezeq's Board of Directors, Shaul Elovich ("Elovtich") regarding the
purchase of Yes shares5 and the provision of satellite communication services to Yes (“the
Yes Case”), the Ministry of Communications' dealings with Bezeq, as well as the suspicions
of the 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 ("Case 4000") -
1.1.7.1
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.
Further to the notice of the Tel Aviv District Attorney's Office (Taxation and
Economy) dated December 23, 2020 regarding their consideration of the
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 2023 Periodic Report
prosecution of Bezeq and its summons to a hearing in Case 4000 regarding
suspicions of the offense of bribery (an offense under Article 291 of the
Penal Law, 5737-1977 ("Penal Law"), along 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) along with
Section 23 of the Penal Law, on February 1, 2024, an agreement was signed
between the State of Israel (through the Tel Aviv District Attorney's Office
(Taxation and Economy)) and Bezeq for a conditional termination of
proceedings under the conditions in accordance with Point B of Chapter 91
of the Securities Law ("the Settlement").
In accordance with the Settlement, the State of Israel will not file an
indictment in Bezeq's case in connection with any of the suspicions
investigated in the investigation file, and this is subject to the suspect
fulfilling its obligations according to the settlement as follows: (1) payment
of an amount in the amount of NIS 800 thousand; (2) refraining from all A
statement that is knowingly inconsistent with or contradicts the Settlement
and the facts that Bezeq admitted as part of the Settlement.
As part of the Settlement, the State of Israel also informed Bezeq that it had
decided to close the investigation file regarding the Walla company (a
company that was fully owned by Bezeq at the times relevant to the
suspicions and received a similar notice regarding the consideration of filing
an indictment against it for suspicions of the offense of bribery).
As part of the Settlement, Bezeq admitted the facts detailed in the
settlement and these are:
A.
In the relevant period, between the years 2012 and 2016, Shaul Elovich
("Elovich") was the controlling shareholder of the Bezeq Group. Walla,
which during the relevant period was a wholly owned subsidiary of Bezeq,
operated the "Walla NEWS!" website.
B. Elovich and other Bezeq representatives worked with the Director General
of the Ministry of Communications Shlomo Filber to promote the issue of
cancelling the structural separation in the Bezeq Group.
C. On December 22, 2016, Shlomo Filber ("Filber") sent Bezeq a letter titled
"Cancellation of the structural separation obligation in the Bezeq Group",
which was drafted by him in coordination with Bezeq representatives, with
the knowledge of Elovich and the CEO of Bezeq at that time, Stella Handler
("Handler")6. The letter included a misleading detail, according to which the
fact regarding the obligation to hold a hearing prior to the cancellation of
the corporate separation in Bezeq was omitted, and a misleading
representation was made, according to which both the cancellation of the
corporate separation and the cancellation of the structural separation are
in an advanced stage and have a higher feasibility than in actuality.
D. On December 23, 2016, Bezeq reported in an immediate report to the public
about the transmission of the letter and its contents. This report included
the misleading detail contained in the Ministry of Communications letter.
Elovich and Handler knew that the
letter from the Ministry of
Communications contained the misleading detail and that it would be
reported to the public. The next day, the Ministry of Communications
published a clarification according to which the cancellation of the
corporate separation will be done after a hearing procedure and
subsequently Bezeq published a report clarifying this part of the previous
report.
6 It should be noted that, as part of the Settlement, the Company stated that it currently has no knowledge of Elovich's and Handler's real-time awareness
of any specific detail.
7
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
1.1.7.2
It should be noted that, as appears from the settlement, the suspicions against
Bezeq stem from the actions and/or omissions of Elovich and Handler, who were
involved in the execution of the acts described in the settlement and who no
longer serve at Bezeq.
For this matter, see also the company's immediate report from February 1, 2024,
which is included in this report by way of reference.
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 Yes, Or Elovich, Amikam Shorer, Linor Yochelman , Ron Eilon and Mickey
Neiman in the Yes 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 Yes 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 Yes 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 Yes 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 July 13, 2023, the
judgment of the Supreme Court was given in the appeal filed by the State
against the aforementioned decision, according to which the State's appeal
regarding all respondents (except Eurocom Holdings (1979) Ltd.) was
accepted and the case was returned to the District Court for further
evidentiary investigation.
1.1.7.3
Bezeq does not yet have complete information regarding the investigations
(mainly regarding the Yes Case), 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
8
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
Case 4000, although on February 1, 2024, an agreement was signed
between the State of Israel and Bezeq to terminate proceedings conditional
).
on the conditions as detailed in Section
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 2023 statements.
.אצמנ אל הינפהה רוקמ
!האיגש
1.1.7.4
1.1.7.5
It should be noted that following the opening of the said investigations, a
number of civil legal proceedings were opened against Bezeq, Yes, Bezeq's
officers in the relevant period, and companies from Bezeq’s former
controlling group, including motions for approval of class actions/derivative
claims and motions for disclosure of documents before filing a motion for
approval of a derivative claim. For details regarding these procedures see
Section2.18 2.18.
Regarding Yes, 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 Yes, 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 the Company’s consolidated financial
statements (see also Note 28 to the 2023 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 Section3 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.
Yes - 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). Yes’s 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.
9
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
1.3.
Investments in Bezeq’s equity and transactions in its shares
The following is a breakdown of purchases of Bezeq shares in the last two years by the Company:
Date
Shares
Total
consideration
(NIS millions)
Average price
per share (NIS)
28.12.2022
2,530,000
Approx. 15
3.4.2023
2,100,000
Approx. 10
28.5.2023
1,417,995
Approx. 6.8
30.5.2023
2,090,000
Approx. 10
28.6.2023
1,100,000
Approx. 5
29.6.2023
1,100,000
Approx. 5
31.1.2024
3,120,000
Approx. 15
5.95
4.75
4.77
4.79
4.54
4.57
4.82
Further to the amendment to the Communications Order (as specified in Section 1.1.4), which
allows, among other things, an Israeli institutional investor to increase his holding to up to 7.5%
by means of a certain type of control in the Company without the need for the approval of the
Ministers, in the months of September-October 2023, the entities include Clal Holdings Insurance
Business Ltd., Harel Investments in Insurance and Financial Services and Ltd., and Migdal Holdings
Insurance and Finances Ltd. reported to Bezeq that they became related parties after their
holdings increased beyond 5% of Bezeq's shares.
With the exception of the above, in the reporting year no investments were made in Bezeq’s
equity, and the Group is not aware of any other material transactions made by a related party in
Bezeq shares off the stock exchange.
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 two years (2022-
2023), 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, 2024, the Bezeq Board of Directors decided to update Bezeq's dividend
distribution policy, so that Bezeq will distribute every six months 70% of the semi-annual
profit (after tax) according to Bezeq's consolidated statements, starting with the
distribution for the second half of 2022, which 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 increase the dividend in the future, 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,
10
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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, among
other things, with 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 - For details regarding the dividends
distribution carried out by Bezeq in 2022-2023, see Note 20 to the 2023
statements. Bezeq’s balance of distributable profits as of the date of the
report are about NIS 1,257 million (the said balance consists of surpluses
accumulated in the last two years in Bezeq after deducting the dividend
amounts paid in the past two years by Bezeq to itsa shareholders).
Regarding the recommendation of the Bezeq Board of Directors dated
March 12, 2024 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 2023, see Note 12.7 to the consolidated statements for 2023.
1.5.
Financial information regarding the areas of activity of Bezeq Group
All data in sections 0 to 1.5.4 are stated in NIS millions.
1.5.1.
2023
11
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
Lnadline
interior
communica
tion
Cellular
communicat
ion (mobile
radio
telephone)
Bezeq
Internatio
nal
services
Multi-
channel TV
(3)
Other
Consolidate
d
Consolidati
on
adjustment
s (2)
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
4,157
255
2,309
39
1,139
73
1,308
1
190
2
-
(370)
9,103
-
4,412
2,348
1,212
1,309
192
(370)
9,103
656
734
744
385
165
2,305
1,418
429
928
28
2,961
2,913
2,152
2,053
1,173
984
1,313
1,293
193
190
(468)
(109)
7,324
7,324
48
99
189
20
3
(359)
-
2,961
1,451
2,152
196
1,173
39
1,313
(4)
193
(1)
(468)
98
7,324
1,779
9,311
2,832
1,000
1,231
9,189
1,448
779
445
88
30
(584)
13,878
(211)
11,681
(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 2023 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 2023 Periodic Report
1.5.2.
2022
Lnadline
interior
communica
tion
Cellular
communicat
ion (mobile
radio
telephone)
Bezeq
Internatio
nal
services
Multi-
channel TV
(3)
Other
Consolidate
d
Consolidati
on
adjustment
s (2)
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.
13
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
1.5.3.
2021
Lnadline
interior
communica
tion
Cellular
communicat
ion (mobile
radio
telephone)
Bezeq
Internatio
nal
services
Multi-
channel TV
(3)
Other
Consolidate
d
Consolidati
on
adjustment
s (2)
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 2023 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 sections0 to אל הינפהה רוקמ !האיגש
.אצמנ 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 2022 and 2023.
14
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
1.5.4.1
Bezeq Fixed Lines (Bezeq’s activity as NIO)
Financial data ( NIS millions)
2023
2022 Q4/
2023
Q3/
2023
Q2/
2023
Q1/
2023
Q4/
2022
Q3/
2022
Q2/
2022
Q1/
2022
Revenue
Operating profit
4,412
4,306
1,08
7
1,451
1,460
320
Depreciation and amortization
1,019
1,005
260
1,084 1,130 1,111 1,057 1,086 1,067 1,096
310
258
418
256
403
245
293
266
388
252
393
248
386
239
Operating profit before depreciation
and amortization (EBITDA) (1)
2,470
2,465
580
568
674
648
559
640
641
625
Net profit
901
849
199
Cash flow from operating activities
2,380
2,230
584
192
586
261
602
249
608
153
628
235
427
243
541
218
634
Payments for investments in property,
plant and equipment and intangible
assets and other investments
Receipts from the sale of property,
plant and equipment and intangible
assets
Lease payments
Free cash flow (2)
Operating data
1,122
1,135
290
239
281
312
277
294
279
285
33
36
3
-
1
29
9
8
5
14
158
138
46
37
35
40
35
34
33
36
1,133
993
251
310
287
285
325
107
234
327
Number of active telephone subscriber
lines at the end of the period
(thousands) (3)
1,442
1,503
1,44
2
1,454 1,473 1,488 1,503 1,522 1,542 1,563
Average monthly revenue per
telephony subscriber (NIS) (ARPL) (4)
37
42
33
34
39
41
40
41
41
47
Outgoing usage minutes (millions)
2,692
2,949
652
Incoming usage minutes (millions)
3,473
3,938
829
677
874
658
852
705
918
682
921
740
986
726
801
951
1,080
Telephony subscriber churn rate (6)
10.2% 10.9% 2.3%
2.8%
2.6%
2.5%
2.5%
2.8%
2.6%
3.0%
Total number of Internet subscribers at
the end of the period (thousands) (7)
1,495
1,504
1,49
5
1,500 1,505 1,505 1,504 1,505 1,511 1,519
Of which are subscribers connected to
the fiber network at the end of the
period - wholesale (thousands) (10)
565
267
565
506
424
351
267
212
160
124
Of which are Internet lines at the end
of the period - in retail (thousands) (7)
1,028
1,032
1,02
8
1,029 1,028 1,031 1,032 1,024 1,021 1,024
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)
(8)
Average monthly revenue per Internet
subscriber (NIS) - retail (ARPU) (9)
Fiber optic network deployment at the
end of the period (thousands,
households available for connection)
(10)
367
198
367
335
289
246
198
157
118
93
467
472
467
471
477
474
472
481
490
495
198
69
198
171
135
105
69
55
42
31
123
114
125
124
122
120
117
116
113
110
2,070
1,526
2,07
0
15
1,970 1,835 1,689 1,526 1,442 1,308 1,193
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
Average packet rate for internet
subscription - retail (Mbps) (5)
Number of Be routers used by the
Company's customers (thousands)
Number of home internet network
range enhancers of the Be Spot and Be
Mesh types (thousands)
341
220
341
315
278
250
220
192
164
151
831
764
831
819
801
786
764
733
708
688
442
416
442
438
430
425
416
402
386
374
(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
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 Yes 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
2023 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 PP&E, and starting in 2018, with the
implementation of IFRS 16, payments for leases are also deducted. Bezeq presents free cash flow as an additional measure to
evaluate the business results and cash flows since, in Bezeq's opinion, free cash flow is an important liquidity measure that
reflects the cash that the Company derives from its current operations after investing cash in infrastructure and PP&E and
other intangible assets. For this matter, see Section 8 of the chapter describing the corporation's business in the periodic
report for 2023.
(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 2023 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 2023 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) In the fourth quarter of 2023, there was a certain decrease in the rate of connecting retail subscribers to the Company's fiber
network due to a slowdown in contractor activity due to a temporary dispute with the employees’ representatives and due to
the Iron Swords War (see Section 1.7.9).
(9) 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 2023 periodic report. Starting with the
second quarter of 2022, the figure also includes revenue from Internet access service (ISP).
(10) As of the publication date of the report, fiber optic network deployment - about 2.16 million households are available for
connection, of which about 619K subscribers are connected to the fiber network (of which 394K retail and 222K wholesale).
16
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
1.5.4.2
Pelephone
Financial data ( NIS millions)
2023
2022
Q4/
2023
Q3/
2023
Q2/
2023
Q1/
2023
Q4/
2022
Q3/
2022
Q2/
2022
Q1/
2022
Revenue from services
Of which is revenue from
interconnect (6)
Revenue from service net of
interconnect interconnectivity (6)
Revenue from the sale of end
equipment
1,756
1,791
409
450
452
445
441
467
446
437
371
427
79
79
102
111
102
106
106
113
1,385
1,364
330
371
350
334
339
361
340
324
592
608
153
135
133
171
151
141
153
163
Total revenue
2,348
2,399
562
585
585
616
592
608
599
600
Total revenue net of interconnect
(6)
Operating profit
Depreciation and amortization
Operating profit before
depreciation and amortization
(EBITDA) (1)
Net profit
Cash flow from operating activities
Payments for investments in
property, plant and equipment,
intangible assets and other
investments, net
Lease payments
Free cash flow (1)
Operating data
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)
Of which are subscribers in 5G plans
(thousands) (2)
Average monthly revenue per
subscriber (NIS) (ARPU) (3) (5)
Average monthly revenue per
subscriber net of interconnect (NIS)
(ARPU) (6)
Subscriber churn rate (Churn Rate)
(4)
1,977
1,972
483
506
483
505
490
502
493
487
196
549
193
532
37
59
49
138
143
135
151
133
17
60
52
64
135
139
136
122
745
725
175
202
184
184
152
199
188
186
159
713
165
874
26
48
240
242
41
98
44
13
50
46
56
133
149
203
244
278
310
295
90
81
82
57
0
157
66
72
270
133
228
351
94
56
57
49
104
(33 )
70
6
62
87
58
(12 )
47
61
131
145
2,202
2,149
2,202 2,187 2,166 2,159 2,149 2,137 2,122 2,093
416
431
416
431
427
426
431
538
514
490
2,618
2,580
2,618 2,618 2,593 2,585 2,580 2,675 2,636 2,583
1,034
784
1,034
961
898
834
784
738
677
605
56
57
52
57
58
57
57
58
57
57
44
43
42
47
45
43
44
45
43
42
24.5%
24.1%
5.9%
6.0%
5.9%
6.7%
6.1%
5.7%
5.5%
6.8%
(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
17
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
systems), the average revenue from which is significantly lower than the rest of the subscribers. As of the publication date of
the report, Pelephone has approximately 1.075 million subscribers to 5G plans.
(3) The average monthly revenue per subscriber (postpaid and prepaid). The index is calculated by dividing the average monthly
consolidated total revenue including 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 2023 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 2023 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.
1.5.4.3
Bezeq International
Financial data ( NIS millions)
2023
2022
Q4/
2023
Q3/
2023
Q2/
2023
Q1/
2023
Q4/
2022
Q3/
2022
Q2/
2022
Q1/
2022
Revenue
1,212
1,239
304
303
293
312
319
311
302
307
Operating profit (loss)
39
(30 )
(11 )
137
134
45
20
29
16
33
14
30
(60 )
35
17
32
17
29
(4 )
38
Depreciation and amortization (NIS
millions)
Operating profit (loss) before
depreciation and amortization (EBITDA)
(1)
Net profit (loss)
Cash flow from operating activities
Payments for investments in property,
plant and equipment and intangible
assets and other investments, net (2)
Lease payments
Free cash flow (1)
Operating data
176
104
34
49
49
44
(25 )
49
46
34
29
157
(32 )
(14 )
210
45
17
36
13
57
13
19
(58 )
56
16
5
15
37
(5 )
112
93
38
26
93
36
81
37
26
20
10
17
23
27
26
10
(2 )
9
1
9
28
10
(1 )
9
30
9
(27 )
9
1
9
77
Subscriber churn rate (3)
45.6%
46.5%
9.0%
11.0
%
10.0
%
14.7
%
15.0
%
12.4
%
12.9
%
7.3%
(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) 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 2023.
18
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
1.5.4.4
Yes
Financial data ( NIS millions)
2023
2022
Q4/
2023
Q3/
2023
Q2/
2023
Q1/
2023
Q4/
2022
Q3/
2022
Q2/
2022
Q1/
2022
Revenue
Operating profit (loss)
Depreciation, amortization, and
ongoing impairment
Operating profit before depreciation,
amortization and ongoing impairment
(EBITDA) (1)
Net profit (loss)
Cash flow from operating activities
Payments for investments in property,
plant and equipment and intangible
assets and other investments, net
Lease payments
Free cash flow (1)
Operating data
Number of TV subscribers (thousands)
(2)
Of which are IP subscribers (3)
1,309
1,277
316
328
336
329
330
315
316
316
94
8
166
199
33
29
35
41
26
46
0
0
0
50
57
46
(2 )
46
10
50
260
207
62
76
72
50
57
46
44
60
102
215
13
186
27
26
40
66
30
31
5
92
1
56
0
9
2
43
10
78
179
178
30
59
60
30
44
39
49
46
25
11
25
(17 )
6
(10 )
7
0
6
(35 )
6
56
7
5
6
6
(36 )
(12 )
6
26
574
579
574
576
579
580
579
575
567
564
392
329
392
377
364
348
329
307
280
253
Of which are STING subscribers
120
104
120
116
111
108
104
101
94
89
Average monthly revenue per
subscriber (ARPU) (NIS) (4)
Subscriber churn rate (5)
Number of subscribers connected to
the fiber network (thousands) (6)
182
183
175
182
185
185
181
182
184
186
13.8%
12.8%
3.1%
3.9%
3.3%
3.5%
3.0%
3.2%
2.9%
3.7%
37
7
37
29
21
14
7
2
(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) TV 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 or a gym), the number of subscribers is adjusted. The number of non-small
business customers is usually calculated by dividing the total payment received from all non-small business customers by
the average revenue per small business customer, which is determined once per period.
(3) The number of Yes subscribers using Yes+ and STING 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 2023). As of the date of publication of
the report, is about 408K customers, which constitute approximately 71% of all the TV subscribers of Yes. The number of IP
subscirbers and aforementioned rate also include subscribers who use satellite services in parallel.
(4) The average monthly revenue per TV subscriber is calculated by dividing the total Yes 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 2023 periodic report.
(5) The number of DBS subscribers who churned from Yes 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 2023
periodic report.
(6) The number of subscribers connected to the fiber network as of the date of publication of the report is about 44K.
19
Chapter A (Description of the Corporation's Business) for the 2023 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 2024 based on the information currently known
to the Bezeq Group:
a. Adjusted net profit7 for shareholders is expected to be NIS 1.25 billion.
b. Adjusted EBITDA8 It is expected to be NIS 3.8 billion.
c. CAPEX9 It is expected to be NIS 1.9-1.8 billion.
Bezeq will report, as required, deviations of ±10% or more from the data specified in the
forecasts above.
d. The scope of the Company's fiber network deployment - reaching approximately 2.5
million households.
e. Financial stability - maintaining high credit rating in the AA group.
1.6.2.
Medium-term ambitions
a. Adjusted EBITDA - average growth per year in terms of CAGR of about 1.5%-2%, with
an adjusted EBITDA rate from revenues in the range of 42%-44%.
b. CAPEX - decrease to the range of 16%-18% in relation to CAPEX/Sales.
c. Adj. EBITDA minus CAPEX - improvement of approximately NIS 400-500 million.
d. Free cash flow10 – average annual growth (in CAGR terms) of approximately 7%-9%.
e. Use of the Company's fiber network - reaching infrastructure take-up of about 40%.
f. Dividend policy - Bezeq will strive to increase the dividend in the future, subject to
maintaining Bezeq's credit rating in the AA group.
g. Financial stability - maintaining high credit rating in the AA group
h. ARPU - retail internet subscription - over NIS 140, cellular subscriber - NIS 45-50 (net
of interconnect) and TV subscriber - approximately NIS 160.
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 2024 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
2023. Also, the forecast can change depending on the duration, intensity, and scope of
the Iron Swords War.
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,
7 Adjusted net profit and adjusted EBITDA – net of the other operating expenses / revenue, net item, non-recurring losses / gains
from impairment / appreciation, and expenses of the equity compensation plan. It should be noted that the adjusted EBITDA
and the adjusted net profit for 2023 were approximately NIS 3.817 billion and approximately NIS 1.328 billion, respectively.
8 See Footnote 10.
9 CAPEX - Payments (gross) for investment in property, plant and equipment and intangible assets. The investments as part of
the forecast for 2024 include a one-off increase for the benefit of two projects - the establishment of a group server farm and
upgrading the capabilities of the core networks. It should be noted that the CAPEX for 2023 was approximately NIS 1.708 billion.
10 For a definition of free cash flow, see Section 7.2.2.
20
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
ambitions, by nature, do not purport to be predictions and should not be read 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 0, 3.19, 4.14 and 5.18), 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, either independently 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 includes 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
wholesale service (See Section 2.16.4.2) also allows operators who do not own
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.
21
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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, Bezeq, as an infrastructure owner, and later also Hot, is allowed to
provide private service subscribers Internet access service themselves, 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 1.7.4).
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 Section1.7.11).
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.
license stipulates that Bezeq must maintain structural
Bezeq's NIO
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
Cancellation of structural separation
Bezeq’s position is that it should be cancelled. It should be noted that
following the report of an interdepartmental team for the examination of
the updating of the structural separation obligations in the Bezeq and Hot
its
groups, which was established by the State and submitted
recommendations to the Minister of Communications
in 2020, the
separation that existed between the infrastructure service and the ISP
service was cancelled (for the aforementioned elimination of separation,
see Section 1.7.5.1) Bezeq continues to work with the Ministry of
Communications for the complete cancellation of the structural separation
obligation applied to it, and in this framework it reached agreements with
12 Pelephone, Bezeq International, DBS and Bezeq Online.
22
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
the employees’ representatives regarding the promotion of the treatment
of the cancellation of structural separation as detailed in Section 2.9.6.
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
Yes in accordance with the decision of April 12, 2021 of the Commissioner
of Competition, Yes 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 Yes - in recent years, the Ministry rejected
various requests from Bezeq to provide its Internet services together with
the television services of the subsidiary Yes (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 Section5.14.2.
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
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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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. 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.
"Bezeq service" is defined in an amendment to the law 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 Yes, except in
relation to the ISP service provided by Yes. 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 to examine the justifications for determining different arrangements within the
licenses. Regarding the obligation to disconnect dormant subscribers stipulated in the
regulations, see Section 1.7.7.7.
On March 29, 2023, a decision was made by the Ministry of Communications (following
the hearing on November 22, 2022) allowing all authorized providers to use the passive
infrastructure reciprocally, including the Company's physical infrastructure not only in the
incentive areas, and this subject to compliance with security instructions, in accordance
with the instructions as amended in the appendix relevant to the case the service and the
instruction of the General Manager.
Also, as of the date of publication of the report, a decision was not yet made on the
hearing "Update the Wholesale Market Regulations and the Service Files - Adaptation to
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 2023 Periodic Report
the New Regulation" that the Ministry published on December 8, 2023, 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.
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.
Regarding the use of passive infrastructures in a wholesale service, see Section 2.16.4.
1.7.5.
Key developments during the report period (including years preceding the report period)
1.7.5.1
Unified Internet service
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
allowed to market a basket ("bundle") that includes a private Internet
infrastructure service with Bezeq International's or another licensee's
access service.
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, Yes 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,
including through eliminating the need for licenses (except for exceptions)
and moving to the provision of communication services (including but not
limited to broadband 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.
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:
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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 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 section2.16.4.
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
interconnectivity
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
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 revenue 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
(in view of historical linking mechanisms, the actual rates as determined by
regulations are higher):
(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).
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
(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 Yes) 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
contract14. Cellular operators (including Pelephone) - are not allowed to
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").
1.7.7.3
Call centers
In the licenses of Bezeq, Pelephone, Bezeq International, and Yes,
instructions were set regarding the obligation to route calls in certain
matters to a professional human answer, response times, as well as
instructions regarding call center manning hours, recording and
documentation of calls, and reporting obligations, and this is further to the
amendment to the Consumer Protection Law that deals, among other
things, with the time of waiting for a human answer.
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.
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.
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 2023 Periodic Report
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.
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. On April
2, 2023, a judgment was issued in the appeal filed by Bezeq on the
imposition of the sanction confirming the agreement of the parties that the
amount of the financial sanction will be a reduced amount of approximately
NIS 3.4 million, and accordingly the Consumer Protection Authority returned
to Bezeq a total of approximately NIS 3.7 million (including linkage and
interest differences).
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
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 recommended 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
10.6 to the 2023 statements. On January 14, 2021, a preliminary request
was also sent to Yes by the Cable and Satellite Broadcasting Council
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
regarding "Demand for information about "dormant" subscribers as well as
about services that subscribers pay for and do not use". In March 2021, Yes
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 Yes (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 2023 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
assets15, 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 sections2.16.3.7, 3.14.2 and5.14.1.7.
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 2023
statements.
1.7.9.
State of War - "Iron Swords
As of October 7, 2023, the State of Israel is in a state of war in the Gaza Strip, as well as in
a state of limited hostilities in the northern border area. The state of war creates various
effects on the Bezeq Group companies, which are reflected on the one hand in an increase
in demand for some services, in Internet traffic and in the use of landline telephony, and
on the other hand in a decrease in roaming activity, a decrease in the sale of cellular
devices, and the removal/freezing of business lines in areas that are affected by the war.
Also, with the outbreak of the war, due to the recruitment of employees to reserve
service and a decrease in contractor activity, there was a slowdown in deployment and
installation activity in the Bezeq network. Also, a number of regulatory moves were made
as part of the State of Israel's handling of the state of war, including a law to postpone
payment dates for those entitled and to ease phone call charges, including calls related
to distance learning. It should be noted that some of the Group companies took their own
initiative to ease the charges towards localities in the Gaza Envelope and on the northern
border.
The Bezeq Group companies, which provide, among other things, essential
communication services to private, business, and institutional customers, including the
state institutions, the security forces, and the health system, are prepared accordingly
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 2023 Periodic Report
and respond to the various needs, including fault solving, increasing vigilance and
preparedness in cyber systems, and assisting the community in various ways. Also, the
Group companies regularly examine and follow closely the developments related to the
war.
At this stage, the effects of the war and its consequences as described above do not have
a material impact on the activities of the Company and Bezeq Group and their business
results. Also, the liquidity and financial situation of the Company and Bezeq Group allows
them to function well during the war. The scope and duration of the war and its
consequences on the state of the Israeli economy, as well as on Bezeq Group companies,
are unobservable and difficult to predict, and they depend, among other things, on the
manner and scope of the development of the war and the possibility of the economy
slipping into recession as a result. In this context, attention is also drawn to the relevant
risk factors detailed in Chapter A (Description of the Corporation's Business) of the
periodic report for the year 2023 (Sections 2.20.11, 2.20.15, 3.19.2.9, 4.14.8, 5.18.1.2,
5.18.1.4).
Some of the information contained in this section is forward-looking information, as
defined in the Securities Law, based on estimates, assumptions, and expectations of the
Company and Bezeq Group which may not materialize, or materialize in a materially
different way than anticipated, depending, among other things, on the manner and scope
of the development of the war and the state of the economy as a whole.
1.7.10.
Cyber defense management
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 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 2.20.12, 3.19.2.8, 4.14.7 and 5.18.3.9.
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 5.14.
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, including upgrading browsing speeds using
fiber, and the transition to a unified Internet package will constitute a growth engine
in Bezeq Fixed Lines.
B. Reduction of Bezeq
Internet activity, and
International's private segment
transforming the ISP activity in Yes into a "triple" sales arm that combines fiber and
television.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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 (such as entering the field of
electricity supply as detailed in Section 1.9). 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
through expanding the digital transformation, streamlining the cost base, improving
market response times and flexibility for changes, and striving to cancel structural
separation. For this purpose, concrete multiyear plans have been determined for
implementation in the group companies, which include, among other things, targets for
reducing expenses and investments.
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.
1.8.4.
ESG
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.
1.8.5.
Streamlining moves and promoting the assimilation of synergies between subsidiaries
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
Bezeq’s subsidiaries Pelephone, Bezeq International and Yes (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
in a similar
streamlining and synergy procedures; Maintaining managements
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 Sections0, 0, 4.13 and 0.
In respect of decisions by Bezeq’s Board of Directors and Yes’s Board of Directors
regarding an outline for a gradual transition from satellite broadcasts to transmission via
the Internet (OTT) see Section5.18
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 0,3.19, 4.14 and 5.18.
1.9.
Entry into the field of electricity supply
1.9.1.
Bezeq's entry into the field of electricity supply
On January 25, 2024, Bezeq's Board of Directors approved its entry into the field of
electricity supply and its engagement with Powergen Ltd. ("Powergen")16, a company
wholly owned by Generation Capital Ltd. which coordinates the fund's energy activities,
In the non-binding memorandum of understanding regarding strategic cooperation and
the establishment of a joint venture in the field of electricity supply ("the MOU"). The
signing of the aforementioned memorandum of understanding is in accordance with
Bezeq's strategy, which includes finding opportunities for expansion in areas that are
tangential and complementary to the Group's activities, and entering areas of activity
with high growth from the Company's core areas while diversifying the portfolio and
reducing dependence on regulatory risks (for this matter, see Section 1.8.2.3).
1.9.2.
Background regarding the reform of the electricity sector in Israel
As part of the reform in the electricity sector in Israel, it was determined in 2018 that the
supply segment relating to the purchase of electricity and its sale to consumers, including
determining the price for the consumer, generating bills, etc., will be gradually opened to
competition. While the distribution activity, at least at the regional level, is almost entirely
controlled by the Israel Electric Company Ltd. ("IEC") and can anyway be done by only one
distributor (a natural monopoly), the supply activity can be open to competition. The
supply segment was open to competition for large consumers and starting in 2021 it will
gradually open up to competition for domestic consumers as well. Competition in the
supply segment allows consumers to contract with a private supplier and continue to
purchase electricity from IEC. According to the decisions of the Electricity Authority, it is
now possible to transfer customers who have a smart meter installed (a continuous meter
that allows remote reading of data) from IEC to suppliers who do not possess production
means, thus opening up to market competition on a very significant scale, as IEC is
prevented from offering discounts to customers until it loses 40% market share in low
voltage. According to the consulting firm BDO Consulting, the market share that may pass
16 Powergen Ltd. (formerly Generation Energy Ltd.) coordinates the energy activities of Generation Capital Ltd., corporations under
its control possess electricity production facilities on a significant scale, and it also engages directly and through corporations
under its control in initiating projects for the establishment and operation of electricity production and storage facilities.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
to IEC’s competitors until the year 2030 is estimated at about NIS 10 billion.
1.9.3.
Main points of the MOU
1.9.3.1
1.9.3.2
1.9.3.3
1.9.3.4
1.9.3.5
1.9.3.6
The MOU regulates the principles of cooperation between Bezeq and
Powergen in the field of electricity supply to household customers and small
and medium-sized business customers ("Activity Field").
For the purpose of the cooperation, a company jointly owned by Bezeq (50%)
and Powergen (50%) (“the Venture") will be established, which will hold a
supply license to suppliers who do not possess production means, by virtue of
the regulation published by IEC.
Bezeq, through the services it will provide to the Venture, will be responsible
for marketing, sales, acquisition, and customer retention, as well as for
providing account management services to customers, including collection
services and contact with the customer. Powergen will be responsible for
providing voltage for the benefit of the Venture, both through electricity
production and storage facilities that belong to the corporations held by it,
and through continuing to initiate, operate, and finance projects for the
establishment and operation of electricity production and storage facilities, by
itself or through corporations under its control. It is hereby clarified that the
investments in these projects will be made, directly or indirectly, by Powergen
Group only, and Bezeq Group or the Venture are not expected to make
substantial investments in connection with the Venture’s activities. In the first
period of the Venture’s activity, Powergen will also provide electricity trade
and optimization services to the Venture, under certain conditions as reflected
in the memorandum of understanding.
Powergen will offer the Venture the electricity it produces, directly and
indirectly, and the Venture will purchase the electricity from it (under certain
conditions), as long as it is required, within the framework of long-term
engagements with commitments to purchase the electricity through various
price-setting mechanisms. As part of contracts with Powergen renewable
energy facilities, the eligibility for "green" electricity production, including the
eligibility for issuing green certificates, will belong to the Venture.
Upon the establishment of the Venture, the parties will provide it, in equal
parts, the amount required to finance its activities in the first year (it will be
clarified that this is an immaterial amount in relation to the Bezeq Group).
Each party between Bezeq and Powergen will appoint half of the members of
the Venture’s Board of Directors. The Chairman of the Venture’s Board of
Directors will be the CEO of Bezeq. All decisions of the Venture’s Board of
Directors will be made jointly, but the directors appointed by Bezeq will have
an excess vote in the Venture’s Board of Directors, mainly on issues such as
decisions concerning transactions with Powergen Group, the marketing
strategy and its implementation.
1.9.3.7
Following the signing of the MOU, the parties work to enter into a detailed
agreement based on the principles detailed in the MOU.
The launch of the Venture is expected in the second quarter of 2024. In accordance with the business
plan included in the MOU, the project aims to reach a market share of approximately 400,000
household electricity customers and tens of thousands of business customers by the end of 2030.
Bezeq's entry into the field of electricity supply and the entry into force of the MOU require an
amendment of the objectives section of Bezeq's Memorandum of Association. On March 3, 2024, the
general assembly of Bezeq's shareholders approved an amendment to the aforementioned
Memorandum of Association.17
Bezeq examines the expected accounting treatment for the Venture in its financial statements.
According to what appears at this stage, the treatment will be carried out according to the balance
17 It is clarified that in accordance with the Companies Ordinance, the approved amendment to Bezeq's Memorandum of Association
regarding Bezeq's targets, will enter into force within 21 days from the date of the decision at the asembly, subject to and in
accordance with the provisions of Article 25 of the Companies Ordinance.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
sheet value method, and Bezeq's share of the Venture’s profits (losses) will be recorded as part of
Bezeq's current business activity and presented as part of Bezeq's operating profit and EBITDA.
Some of the information contained in this immediate report includes forward-looking information,
within its meaning in the Securities Law, 1968-5778 and is based, among other things, on estimates
regarding future developments regarding the electricity sector, the behavior and needs of electricity
customers, regulatory policy, competitors' marketing strategy, etc. These estimates may not
materialize, or materialize in a materially different way than projected, among other things, depending
on the variables mentioned above.
1.10. Corporate responsibility (ESG)
On February 24, 2022, Bezeq's Board of Directors approved the expansion of its activity in the field
of corporate responsibility (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
- "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.
The Board of Directors also approved, on and around the same date, corporate responsibility policy
documents on various topics. In February 2023, the application of the aforementioned ESG targets
was also approved in the subsidiaries Pelephone, Bezeq International and Yes. In March 2023, Bezeq
joined the gender equality initiative of the UN Women's Organization (WEPs).
In addition, during 2023, 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, and starting in 2022, Bezeq submits a report to the international
organization CDP, which is engaged in managing a professional system for reporting, documenting,
and rating the nature of the environmental impact management of various entities.
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Chapter A (Description of the Corporation's Business) for the 2023 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 Section2.16.4).
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 section1.7.3 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
section2.16.3.
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 section2.16.9).
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.אצמנ אל הינפהה רוקמ !האיגש), 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 2022 and 2023, 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 period18:
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 2023, the
number of wholesale Internet subscribers on the Company’s network was
approximately 467K subscribers, constituting approximately 31% 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).
Bezeq also provides a wholesale service that allows competitors to use
Bezeq's passive infrastructure.
Regarding the wholesale services, see Section 2.16.4.
18
For details of the data as well as subscrber definitions and average revenue, see the notes to the table in Section 1.5.4.1.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
2.1.3.2
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, as well as an increase in the number of calls
over the Internet (See Section 2.1.4). In 2023, there was a decrease of about
4% in the number of Bezeq subscribers compared to 2022.
Diagram - Rate of households without a landline telephone line19
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 2023, Bezeq estimates that
the following changes compared to 2022 will apply: an increase of
approximately 1% in the number of landline Internet subscribers in Israel
and a decrease of approximately 1% in the total number of Bezeq’s Internet
subscribers (decrease in both retail and 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). Bezeq also provides speed at a rate of up to 200 megabytes
on its copper network
19 The data were taken from the publications of the Central Bureau of Statistics (Household expenditure survey for 2021 dated
December 31, 2023. In relation to the data for the years 2022-2023 - in accordance with Bezeq’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 2023 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 2.6.6).
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 section1.7.1. 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 allow other operators to provide services
similar to those provided by Bezeq at even 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 2023 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 section3.1.5), since they will also be able to
provide ultra-fast internet at the customer's home.
In the business segment, the entry of large global cloud service providers
into the Israeli market such as AWS, MICROSOFT, GOOGLE may threaten
certain services of the Company such as VCLOUD, DR. On the other hand,
cooperation with them is an opportunity for Bezeq's growth and entry into
new fields.
2.1.5.
The development of SD WAN20 technology and its increasing use in the business sector,
which includes the integration of the technology in the Company's communication
networks, is an opportunity to enrich the business services offered by Bezeq and increase
its revenues. 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.אצמנ אל הינפהה רוקמ !האיגש.
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 sections2.7.2 and אל הינפהה רוקמ !האיגש
.אצמנ), 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 .אצמנ אל הינפהה רוקמ !האיגש); 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
20 SD-WAN is a solution from the software defined networking family - implementing a network on smart software over uniform
hardware. In SD-WAN, intelligent central software manages endpoint routers at customer sites and enables uniform
communication and information security for the organization with easy and convenient central management.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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
Section2.6.5), 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
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, Bezeq and Hot Telecom. In respect of the fiber
network, Bezeq is obliged to provide service according to choice areas - see Section
2.7.2.3): Bezeq, and Hot Telecom. IBC is also obliged to deploy the fiber network, so that
at the end of 5 years from March 7, 211, 1.7 million households in Israel will be accessible
to its network21. 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 (regarding Cellcom and Hot
joining IBC, see Section 2.6.3).
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
also aoperates in the unified Internet service, which includes both infrastructure (fiber or
copper) and a private 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 Bezeq’s
passive infrastructure in the incentive areas for this purpose.
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 Bezeq 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 over
Bezeq’s fiber network (See also the IRU agreement between Bezeq and the Partner in
Section 2.6.3).
The field of landline telephony is in competition, and Bezeq's competitors, some of them
within communication groups (see Section 1.7.1), are Hot Telecom, as well as VoB service
21 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.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
providers operating under licenses without universal service obligation For several years
now, without their own self-access infrastructure, as well as the cellular companies. 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. 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
and offering a complete communication solution to the customer.
Competition in the
industry depends on various factors such as: technological
developments, 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, including with subsidiarie.
For a description of the development of competition, see Sections1.7 and2.6.
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 center, 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
section2.16.4.4.
2.2.3.
Internet access infrastructure services and ISP
Bezeq provides broadband internet services over the fiber network in statistical areas
subject to milestones in its license over the copper infrastructure using xDSL technology,
as well as wirelessly using VBAND technology. Bezeq's fiber infrastructure allows for
signiciantlyhigher speeds than the traditional copper network, and accordingly, thereis
an increase in the average package rate. In addition to switching customers to Bezeq's
fiber network, Bezeq is also working to upgrade customers' browsing speeds over the
fiber network. Also, as of April 3, 2022, Bezeq markets and provides a unified internet
service, infrastructure, and private Internet access (for this matter, see Section 1.7.5.1).
For details regarding changes in the number of Bezeq Internet subscribers in the average
monthly revenue per Internet subscriber and in the average package speed, see Section
1.5.4. For details regarding Bezeq's market share in this field, see Section רוקמ !האיגש
.אצמנ אל הינפהה.
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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
upgrade. The average package speed of Bezeq's Internet subscribers.22
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,
see Section 2.6.2.1.
Diagram - Changes in the package speeds of Bezeq Internet subscribers in the years 2013-2023
(Mbps, as of the end of each year)*:
Up
to 15
* 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
Section2.6.6).
2.2.5.
Cloud and digital services
This category includes, among others, virtual server services, cyber services, 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.
2.2.6.
Other services
2.2.6.1
Additional services for communications operators
Bezeq provides services to other communications operators, including:
International operators; Hot; Network endpoint
cellular operators;
22 Including revenue from service providers in wholesale service..
41
0%50%100% ד 1516 4041 100101 200201 2500
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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 section1.7.4.
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 section2.15.
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. Further to Bezeq entering into an MOU with Powergen
Ltd. regarding cooperation and the establishment of a joint venture in the
field of electricity supply (see Section 1.9) subject to all laws, the license for
electricity supply held by Bezeq will be converted to the benefit of the joint
corporation.
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 (including
products not in the field of communications).
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 2021-2023 (NIS millions):
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
42
2023
1,947
44.13%
2022
1,789
41.55%
2021
1,624
38.83%
650
14.73%
780
18.11%
913
21.83%
1,163
1,132
1,087
26.36%
26.29%
26.0%
349
7.91%
331
7.69%
318
7.6%
303
274
240
6.87%
6.36%
5.74%
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
Total revenues from the field of landline interior
communications
4,412
4,306
4,182
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 48%) and business customers (approximately 52%)23.
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
2023
2,114
2,298
4,412
2022
2,099
2,207
4,306
2021
2,071
2,111
4,182
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) market the Company’s Internet infrastructure as part of a unified
Internet service based on Bezeq's BSA wholesale service. Note that 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.
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 market Bezeq's internet
infrastructure on the one hand, and on the other hand to compete with Bezeq using its
services and physical infrastructure, at regulated maximum prices not determined by
Bezeq.
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 2023 its market share in the Internet infrastructure
market (retail and wholesale customers) was about 55% (unchanged compared to 2022).
Also, according to Bezeq, its market share in terms of retail customers as of the end of
2023 is about 38%24. Also, the proportion of the Company's unified internet customers
out of its retail customers by the end of 2023 is about 74%.
Since March 2021, Bezeq ha been marketing an Internet infrastructure service to
customers over an advanced network - the fiber network deployed by it, and competes
with this service against Partner (who also deployed its own fiber network and also
entered into an IRU agreement with Bezeq), Cellcom, and Hot. Authorized providers are
Including revenue from wholesale service providers.
23
24 Bezeq’s assessment of its market share in the field of Internet infrastructure services for the end of 2023 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 2023 Periodic Report
also allowed to deploy a broadband Internet infrastructure, including through the use of
Bezeq’s passive infrastructure, and provide services through it.
As of April 2022, Bezeq also operates 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 an almost traditional Internet infrastructure, deployed almost nationwide,
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).
Competition from IBC
IBC's license enables the provision of services mainly to license holders. IBC is obliged to
the deployment so that at the end of 5 years from March 7, 2021, 1.7 million households
in Israel will be accessible to its network (according to a report on the IBC website, as of
the end of 2023, over 1.5 million households are already accessible to its network). IBC is
owned by the IEC (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 signing of an
agreement with IBC 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.
As far as Partner is concerned - in accordance with its announcement, starting from the
fourth quarter of 2023, it began to offer its customers internet services over IBC's fiber
optic network as part of the wholesale market.
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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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.25 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 Bezeq’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, it should
be noted that as of the date of the report, Partner insists on exercising the right of use to
the extent of approximately 80%). 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 6 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 6 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.
Further to the above agreement and the contacts with the Ministry of Communications
Bezeq agreed to 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 7226 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
25 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.
26 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
79.4 and NIS 88.3, respectively, plus VAT .
45
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
for anyone interested in it. On December 25, 2023, Bezeq informed the Ministry of its
decision not to link the said price to the index in 2024 and to leave it at the
aforementioned NIS 72. Accordingly, the Ministry does not object to the agreement.
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 few years, 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 gradually, they were also allowed to use Bezeq’s
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, 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 Section2.1.3.2). Bezeq estimates that in 2024 the
entire telephony market continued to erode at a similar rate to 2023. For this matter, see
also Section2.4. Since not all competitors in the field are reporting corporations and their
data is not public, it is not possible to detail the market shares of the competitors in the
field.
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
46
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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 Section2.16.4.
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
main reasons for the decrease in the average traffic per line, and the high
rate of removal of telephone lines (see section2.1.3).
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 Section0)27, inter alia, in order to compete with Bezeq in this field.
Operating in this field are also infrastructure owners IBC and Hot. These infrastructure
owners may use Bezeq's physical infrastructure. In this matter see Sections 0 and2.6.7.
IBC’s is allowed to provide IPVPN services and broadband data communication lines.
2.6.7.
Additional competing infrastructures28
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.
27 Unified license owners eligible to provide NIO services are also eligible to receive wholesale service for the use Bezeq’s physical infrastructure.
28 Beyond Hot and IBC infrastructure.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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:
Bezeq is working to introduce the high-speed Internet service and to increase the number
of its customers in this field (see also Sections 2.2.3 and2.7.2). 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 2.6.5).
2.6.8.1
2.6.8.2
2.6.8.3
2.6.8.4
2.6.8.5
As of 2018, Bezeq has been marketing its Be router (in version upgrades over
the years). 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. Bezeq
also markets products to improve the reception range of the Be spot
(including a fiber-optimized version) and Be mesh home Internet networks.
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.
In May 2023, Bezeq, together with the global company "Nokia", conducted
an experiment in which the ability to provide rates of up to 25 gigabytes
with advanced technologies was demonstrated, and
it
announced a future road map for the development of rates and services that
includes the launch of multi-gig rates of up to 10 gigabytes and WiFi7 in 2024
and up to 25 gigabytes in 2027, advanced WiFi standards and upgrading
Bezeq's Be router.
in parallel,
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).
is
launching new communication services and value-added
Bezeq
applications (such as BIZFIBER, integration services, etc.), as well as product
and service packages and shared baskets (similar to certain baskets
marketed by its competitors, although subject to a detachability limit - see
Section 1.7.3.1), in order to expand the scope of the use of subscriber lines,
to respond to customer needs, and to strengthen the image of technological
innovation. Bezeq invests in the improvement and modernization of its
infrastructure, to enable the provision of advanced services and products to
its subscribers.
Bezeq has launched a number of business services under a branding called
"Bezeq Business Pro" which includes security services, business networking,
integration, and expansion of the Metro service into a comprehensive
package called Metro PRO and a HYPER CONNECT service that enables a
stable and secure connection to global and local public cloud providers.
Also, Bezeq is working to upgrade the transmission lines to high rates.
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.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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
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:
a. Limited rate flexibility
Bezeq is limited in its ability to offer differential rates on its main
services.
For the hearing on the prevention of "margins reduction" in the
wholesale market, see Section 2.16.4.2.
b. Structural separation obligation and limitations in the marketing of joint
service packages of Bezeq and Group companies;
For this matter, see Section1.7.3.
c. The universal service and fiber deployment obligation
Bezeq has an obligation to provide service at a uniform price to the
general public in Israel (universal service), except in relation to
advanced network (fiber). 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 revenue 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 section2.16.4).
d. 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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
between the exchanges takes place), data communication networks and 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 and
operator relationship management using a Class 4 switch. All switches are
backed up and survivable in different farms, as well as all telephony
components.
2.7.2.2
Data transfer network and transmission
Bezeq's fiber infrastructure for private customers began to be deployed in
2020 and enables ultra-broadband rates. As of the publication date of the
report, this network has been deployed to approximately 2.16 million
households nationwide that are available for commercial connection, of
which approximately 619K subscribers have been connected (of which 397K
are retail and 222K are wholesale).
This infrastructure is based on GPON technology and currently allows
bandwidths of up to 2.5Gbs in the downlink channel.
For the amendment of the Bezeq license and the selection of the fiber
network deployment areas by it, see Section 2.16.5.
In parallel with this infrastructure, the NGN network based on fiber optic
infrastructures for street cabinets (FTTC) also operates, and on an access
network based on all copper cables from the street cabinets to the terminal
point of the network with the subscriber (mentioned in the description of
the telephony network above. See section 2.7.2.1). Over this network it is
currently possible to provide bandwidths of up to 200 Mbs downlink
depending on the quality of the copper infrastructure.
This data transmission network is used by the Internet providers in Israel as
a dual access network in a wholesale model, based on both xDSL technology
over copper infrastructure and GPON technology over fiber infrastructure
to the customers' homes. All access infrastructures are linked at a national
level through an advanced MPLS network to all providers in Israel and for
Bezeq's own use. The MPLS network enables the implementation of reliable
and efficient national connectivity for various uses, at a national level.
Bezeq has two parallel MPLS networks from different equipment
manufacturers for backup and survivability in different implementations.
These networks provide, in addition to the Internet service, IP Layer 3
transmission services, cellular backhaul connection services as a service for
a cellular bundle, as well as metro transmission services (Ethernet Layer 2
connectivity) with a high level of performance and great flexibility. The
services are provided over Bezeq's infrastructure using new and advanced
communication systems that allow the transfer of large volumes of traffic
between sites for a variety of applications. Also, the services include
advanced options of full Bezeq management or independent management,
which allow the business customer better control over the management of
the corporate communication network.
Since receiving the license to operate as an ISP (see Section 2.2.3), Bezeq
has added an ISP Internet provider infrastructure, backed up and survivable
on two sites. This infrastructure includes an IP network, a customer
connection system, a valid IPv4 address sharing system in the CGNAT model
(address translation and sharing) with full support for IPv6 as well. The
network is currently being deployed in 3 more sites in Europe to enable the
use of content from the global Internet in a flexible and efficient manner.
Most of the end equipment (equipment installed by the subscriber such as
routers) is owned by Bezeq and is rented by the customer. The following is
a description of the development of a number of households available for a
50
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
commercial connection in Bezeq's fiber network as well as the total number
of subscribers in Bezeq's fiber network:
Households abvailable for econenction
(Homes Passed, thousands)
2.7.2.3
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. 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.
2.7.2.4
Millimeter waves
Millimeter wave technology makes it possible to transfer wirelessly a
significantly larger bandwidth than the technologies that were available in
the past. The technology can be used both point-to-point and point-to-
multipoint and is a solution for the final segment, that is, the connection to
the subscriber's endpoint. Through the use of this technology, it is possible
to connect (to the access of the Ministry of Communications after approval)
extensive areas relatively quickly and at lower costs compared to the
deployment of a wired infrastructure.
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 2023 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.
836
Built-up
area (sqm.
thousands)
Approx. 83
Approx.
301
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.
330
Approx. 31
Approx. 65
Approx.
703
Irrelevant
Approx. 27
(based on
an estimate)
Notes
From this, approx.. 297 field assets in the area
approx. 817K sqm. of plots, approx. 72K 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
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Chapter A (Description of the Corporation's Business) for the 2023 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
properties to Ila. Another property will be returned to Ila during the year
2024 after the completion of the vacating procedure, after Bezeq has
received a replacement 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.
At the same time, Bezeq submitted an appraisal contention on the Demand.
53
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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 2023 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. An
appeal filed by Bezeq with the District Court was dismissed on October 17,
2023. 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 aforementioned interim decision
54
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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 section2.16.2). 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,
2023:
Board of
Directors
CEO
Group Secretary and
Internal Compliance
Office
Internal
Auditor
Corporate
Communication,
Responsibility,
Governmnet
Relations
Legal
Advisor
Management
(without directors)
)34(
Economu and
regulation
Division
Finance
Division
Marketing
and
Innovation
Division
Operation
s and
Logistics
Division
Human
Resources
Division
Technolog
y and
Network
Division
Business
Division
Private
Division
(
1619
)
(
779
)
(
2462
)
Staff divisions)
)853(
55
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
2.9.2.
Number of Bezeq employees and employment frameworks
The number of employees at Bezeq as of December 31, 2023 was 5,432 employees
(compared to 5,598 employees at the end of 2022). About 93% of Bezeq employees are
employed under collective agreements (of which approximately 57% 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 Section2.9.4.
2.9.3.
Early retirement plans for employees
During 2023, 83 permanent Bezeq employees retired in accordance with the retirement
plan in Bezeq.
On December 13, 2023, 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 50 veteran permanent employees during 2024 through the early
retirement track at a total cost of approximately NIS 55 million. In light of the aforesaid,
Bezeq recorded an expense accordingly in its statements for the fourth quarter of 2023.
For this matter see also Note 16.5 to the 2023 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 Directors29 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 assembly). 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).
29 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.
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Chapter A (Description of the Corporation's Business) for the 2023 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 in effect as of the date of publication of the
report and as arranged as part of the 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.
Further to the move to amend the Communications Order regarding the possession of
means of control in Bezeq (see Section 1.1.2) and to the negotiations conducted between
Bezeq and the employees’ organization to amend the Bezeq collective bargaining
agreement following that, on September 18, 2023, an amendment (No. 7) (“the
Amendment") to the agreement was signed, and this after Its approval by Bezeq's
authorized institutions, including the approval of the general assembly of Bezeq's
shareholders on September 14, 2023.
The following are the main points of the amendment:
1. Maintaining Bezeq's financial resilience, including, maintaining the status of a public
company, Bezeq's current credit/debt rating, and a percentage of holdings in
Pelephone that will not be less than 50.01%.
2. Making a dividend distribution to Bezeq's shareholders subject to the law and while
maintaining Bezeq's current credit/debt rating, while regarding a distribution that
does not meet the profit test only - the consent of the employees’ organization will
also be required.
3. Payment of a special bonus to Bezeq employees in the amount of NIS 75 million,
most of which is conditional on the dates and conditions set forth in the amendment
depending on the change in the percentage of holdings of the current control permit
holders in Bezeq (or the expiration/cancellation/transfer of the control permit) ("the
Conditions").
4.
5.
If the Conditions are met, Bezeq will pay a monthly supplement of NIS 2,400 linked
to the Consumer Price Index, and the Company will pay management fees to the
pension fund for veteran permanent retirees who have retired or will retire from the
Company as of July 1, 2023.
If the Conditions are met and in the absence of a controlling interest in Bezeq, the
employees’ organization has the right to appoint an additional (second)
representative from among the employees, if the number of Board of Directors
members exceeds eleven (11) (including external directors and a director from
among the employees).
6. The validity of the amendment is from July 1, 2023 until December 31, 2025, when
in relation to some of the arrangements a later validity is determined as detailed in
the Amendment. The Amendment exhausts all the claims of the parties and the
parties will maintain industrial peace in the matters regulated therein during its
period of validity, and in any matter related to changes in the holdings of the present
control permit holders even after the expiration of its period of validity.
Nothing in this section and in the fact of signing of the Amendment is sufficient to testify
that Bezeq has any information regarding a possible change of control.
2.9.5.
Officers and employees of Bezeq's senior management
As of the date of publication of the periodic report, Bezeq has 8 directors, of which three
are external directors, one independent director (who is not an external director) and 4
directors who are not independent directors (including one director from among the
employees). In addition, Bezeq has 11 senior management members.
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.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
For details regarding compensation for officers, see Section 7 of Chapter D of this periodic
report and Note 29 of the 2023 statements.
On December 10, 2020, Bezeq’s Board of Directors approved an equity compensation
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, May 9, 2022 and December 27, 2023) 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 compensation policy for a period of three (3) years, effective as
of January 1, 2022, which includes, among other things, clarifications regarding the return
of compensation given on the basis of erroneous financial information, an adjustment
that allows the awarding of performance-dependent variable compensation 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 compensation policy, see the
immediate report on assembly convening dated March 23, 2022, which is included in this
report by way of reference.
Also, on April 20, 2023, the general assembly of Bezeq's shareholders approved, among
other things, various amendments to Bezeq's compensation policy, so that the
compensation policy which includes such amendments will be in effect for a period of
three years from the date of the approval. The amendments include, among other things,
the application of the compensation 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
more details on the updated compensation policy, see Bezeq's immediate report
(amendment) on the convening of the meeting dated April 4, 2023 included in this report
by way of reference.
For the capital compensation plan - see Note 26 to the 2023 statements.
On November 1, 2023, Mr. Gil Sharon, who serves as Chairman of the Bezeq Board of
Directors, announced his desire to embark on a new path and end his tenure as director
and Chairman of the Board of Directors of Bezeq (and Bezeq's subsidiaries) within three
months, at a date to be agreed between the parties and with an orderly transfer of duties.
Following this, in December 2023, the Bezeq Board of Directors decided to approve the
appointment of the director Mr. Tomer Raved to serve as the Chairman of the Board of
Directors of Bezeq and its subsidiaries, starting on January 1, 2024. The terms of office of
Mr. Raved were approved by the general assembly of Bezeq's shareholders on February
5, 2024. For this matter, see the report convening a special general assembly of Bezeq's
shareholders dated December 28, 2023 and the meeting results report dated February 5,
2024, which are included in this report by way of reference.
On February 25, 2024, the CEO of Bezeq, Mr. Guron, announced his desire to end his
tenure, and he is expected to end his term of office on March 31, 2024. In March 2024,
the Company's Board of Directors decided to appoint Mr. Nir David, VP of the Company's
Business Division, as the Company's CEO, and he is expected to begin his term on April 1,
2024.
2.9.6.
Agreements with the employees’ representatives regarding the promotion of treatment
for the cancellation of structural separation
As part of Bezeq's activity to cancel the obligation of structural separation between it and
its subsidiaries (see Section 1.7.3) and in order to promote its activity on an issue that is
of utmost importance to Bezeq Group, Bezeq has turned to its employees’ representation
office ("Employees’ Representation") with a request for its commitment to assisting and
promoting the successful completion of the move, at this stage in regards to the activity
to cancel the structural separation between Bezeq and "Yes". Following this, on March 3,
2024, the Employees’ Representation,
in coordination with the Yes employees’
representation, announced its agreement to Bezeq's request to agree to the move while
reaching agreements between the parties that include sharing and updating the
Employees’ Representation about Bezeq's activities on the subject, including:
58
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
2.9.6.1
Notification and consultation with the Employees’ Representation before
any step that constitutes a structural change within the process.
2.9.6.2
Regulating the consequences of the steps in the process on Bezeq and Yes
employees in a collective agreement (or another agreed upon way), while
any step with such consequences will not be carried out unilaterally before
it is settled in a reasonable and fair manner between the parties, while such
negotiations will also include requirements for settling economic exchanges
in favor of the employees.
2.9.6.3
Applying the arrangement with the required changes to any similar move
that Bezeq will take in the future in relation to other subsidiaries.
Bezeq believes that the involvement of the Employees’ Representation of the Company
and Yes will add to and contribute to its efforts to cancel the structural separation
between the two companies.
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 10% of the Bezeq’s total annual purchases.
During 2023, 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.
DELL
VMware
Hits Telecom Ltd.
F5 Networks, Inc
Field
Metro transmission and NGN network access systems
GPON equipment for the deployment of fiber by the
Company.
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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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 2023 statements, and
also see Sections 3 and 4 of Chapter D of the periodic report.
Funding
2.13.
2.13.1.
The average and effective interest rate on Bezeq’s loans
As of December 31, 2023, 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)
799
700
3,070
2,504
Currency or
linkage
type
NIS
unlinked
NIS
unlinked
NIS
unlinked
CPI-linked
NIS
Average
interest
rate
3.62%
6.71%
Type of interest
rate and
change
mechanism
Fixed
Variable on
the basis of
the short-
term loan
interest rate
per year **
Fixed
3.06%
3.30%
Fixed
1.40%
1.44%
Effective
interest rate
Interest rate
range in
2021
3.54%
6.85%
3.20%
-
.95%4
-
5.78%
6.78%
2.79%
-
.00%4
0.58%
-
.20%2
* In January 2024, debenture series 11 and 13 were expanded in the amount of NIS one billion par value
(approximately NIS 892 million).
** Prime interest rate – 5.75% (as of February 2023)
For more details about Bezeq loans, see Note 13 to the 2023 statements.
2.13.2.
Credti receipt limitations
2.13.2.1
Limitations included in Bezeq loans
See Note 14 to the 2023 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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
As of December 31, 2023, Bezeq's reportable credit, in accordance with legal position
104-15 of the Securities Authority (reportable credit incident) is Bezeq's debentures
series 9, 11, 12, and as of January 11, 2024, also debentures series 13, all as specified Note
13 to the 2023 statements and in Section 4 of the Board of Directors’ report.
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 and thereafter
On March 26, 2023, Bezeq completed a public offering of debentures (series 13 and 14)
by way of expanding series traded on the stock exchange, according to a shelf offer report
dated March 22, 2023, which was published according to a shelf prospectus published on
April 7, 2020, as extended by the Securities Authority until April 7, 2023. In this
framework, NIS 230,040,000 par value debentures (series 13) were issued to the public
for a total of approximately NIS 182 million, and NIS 278,363,000 par value debentures
(series 14) for a total of approximately NIS 238 million. For more details on the subject,
see Bezeq's shelf offer report dated March 22, 2023 and Bezeq's immediate report dated
March 26, 2023 regarding the results of the offering included in this report by way of
reference.
On May 9, 2023, Bezeq published a new shelf prospectus (dated May 10, 2023) (“the
Prospectus").
On January 11, 2024, Bezeq completed a public offering of debentures (series 11 and 13)
by way of expanding series traded on the stock exchange, according to a shelf offer report
dated January 10, 2024, which was published according to a shelf prospectus published
on May 9, 2023. In this framework, NIS 567,877,000 par value debentures (series 11) were
issued to the public for a total of NIS 539 million, and NIS 432,123,000 par value
debentures (series 13) for a total of NIS 353 million. For more details on the subject, see
Bezeq's shelf offer report dated January 10, 2024 and Bezeq's immediate report dated
January 11, 2024 regarding the results of the offering included in this report by way of
reference. For the matter mentioned in this section, see also section 4 of the board of
directors' report and note 13 of the 2023 reports.
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.
2.13.6.
Credit rating
Bezeq's debentures are rated by Standard and Poors Maalot Ltd. at a ilAA-/Positive rating,
and by Midroog Ltd. at a Aa3.il rating with a positive rating horizon.
For details regarding the history of Bezeq ratings in the last two years, see Bezeq's
immediate reports dated May 10, 2022, May 5, 2023 and September 1, 2024 (Standard
and Force Maalot Ltd.), as well as from May 10, 2022, May 15, 2023 and September 1,
2024 (Midrog 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 (2024) and the sources
of borrowing
During 2024, Bezeq is expected to repay a total of NIS 1.35 billion for the principal and
the interest on its loans, including debentures. Most of Bezeq's borrowing needs for 2024
have already been realized as detailed in Section 2.13.4.
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).
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
2.13.8.
Liens and collateral
For information regarding Bezeq's liens and collateral, see Note 19 to the 2023
statements.
2.14. Taxation
For information on taxation, including losses carried forward for tax purposes in Yes, see Note 7 to
the 2023 statements.
On December 10, 2023, 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 Yes 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, 2024. 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 Yes 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, 2024, as long as there are no significant
developments in 2024 regarding the abolition of the structural separation between Bezeq and Yes.
According to Bezeq's position, which was transferred to the Yax Authority, 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.
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 facilities30 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 section2.16.11.
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
30The 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 2023 Periodic Report
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 2.16.11.
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
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
Starting 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 reduced.
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
eliminated31. Also, Bezeq may market telephony service packages that
include a telephone line and call minutes, at rates that will be determined
31 At the same time, until July 1, 2023, with regard to existing subscribers in these baskets, the maximum payment will be the
maximum payment of subscribers who, on the eve of the entry into force of the amendment, paid for a cluster of services
according to an alternative payment basket, according to the conditions established in that alternative payment basket or
according to the payment regulations as drafted after the amendment, whgichever is lower.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
2.16.1.2
2.16.1.3
2.16.1.4
by it in accordance with Article 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.
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.
Determining rates according to Article 15 of the Communications Law - a
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 March 27, 2023, a decision was published on a hearing 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.32 According to the decision, the margin reduction test will
take place on a retail product based on Bezeq's advanced network in the
deployment areas, and may be extended by the Ministry to additional
companies. Licensed providers who will deploy advanced networks in the
incentive areas will be subject to the margin reduction format established
in the decision of the Minister of Communications on the subject of
‘Determining an obligation and maximum payment for managed ultra-
broadband access service over the fiber network of the winners of the
incentive fund tenders’. The decision details the method of calculating the
prices underlying the test and states that the retail margin component will
be calculated as an addition of 25% to the wholesale costs, or alternatively
- as a reduction of 20% from the effective retail price to the end customer
plus a reduction of component G (representing the cost of international
transmission). The test will 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
32 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.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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. During this year the Minister may consider a
permanent update of the reduced rate in the regulations.
2.16.1.5
It should be noted that Bezeq also operated, prior to the decision in the
hearing, a self-examination for not reducing margins in the BSA service. For
wholesale rates and new pricing for all wholesale rates see Section 2.16.4.
2.16.2.
Bezeq's NIO license
Bezeq operates, among other things, under the NIO license33. 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
section1.7.4. Regarding the deployment and universal service obligation in
connection with advanced infrastructure (fibers), see Section2.7.2.
2.16.2.2
Rules of structural separation
For a description of the structural separation rules applicable to Bezeq, see
Section1.7.3.
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 1.7.3.3.
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 provisions in
the license regarding response at the call centers, see Section 1.7.7.3.
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.
33 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 2023 Periodic Report
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.
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.
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
NIO34 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 revenue
in activities not intended for the provision of Bezeq services (when the
revenue 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.
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
34 NIO with a market share of 25% or more.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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
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.
Main additional provisions in the Communication Order:
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 (7.5% or more regarding an Israeli institutional
investor) 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, having consulted with the Minister of Defense ("Control Permit").
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
residents and have a security classification according to the classification of
the position.
2.16.3.6
"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
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the means of control in it, or holds at least 19% of the voting rights at the
general assembly 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.
In the amendment to the Communications Orer (see Section 1.1.4) an
option was added for the controlling shareholder to replace the Israeliness
requirement if the Company was given an instruction by the Prime Minister
according to Article 13 of the Law, at the request of the General Security
Service, and the General Security Service confirmed that it includes
alternative requirements 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.
2.16.3.7
2.16.3.8
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
Israel (Bezeq and Hot) to sell wholesale services to other
infrastructure
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
Service portfolio
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 service35. The service is provided both on the
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"
35 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 2023 Periodic Report
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 2023 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. On December 31, 2023, an
amendment to the usage regulations was published within which the
aforementioned update mechanism was canceled, and it was determined
that the rates for 2024 will be updated in accordance with the change in
the index published in November 2023 compared to the index published in
November 2022. Bezeq informed the service providers of not increasing
the rates according to the index, and this also in relation to the rest of the
wholesale market rates.
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
service of initial installation of internal wiring36 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.
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 incentive zones may demand from another licensed
provider for a managed broadband access service at a nationwide
connection level is 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.
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
36 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.
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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 infrastructure37, and then a service portfolio was established for
"mutual use" of passive infrastructure, in which the obligation imposed in
the original service portfolio on an operator using
infrastructure
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 March 2023, it is possible for all authorized providers to use the
passive
physical
infrastructures, not only in the incentive areas, subject to compliance with
security regulations.
infrastructures
reciprocally,
including
Bezeq's
Expanding the possibility to make use of Bezeq's passive infrastructures as
mentioned may
increase the extent of damage caused to Bezeq
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
for the ruling on the appeal by Bezeq, see
infrastructure and
Section2.16.9.5, 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.
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 area38, which is about a quarter of the rate in the
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 (alongside an economic
opinion) as part of a new pricing process for all wholesale rates planned for
2022 (and for this matter see Section 2.16.4.2), among other things, the
determination of the abovementioend regulated rates will also be
examined.
37 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.
38 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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2.16.4.4
Wholesale telephony service
This service allows service providers who do not own infrastructure to offer
their customers telephony service at wholesale rates over the Company's
network.
The wholesale telephony service in all configuraitons over the years 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
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
future hearing and its consequences. In accordance with the hearing
published on December 21, 2023 regarding the amendment of the usage
regulations (replacing the mechanism for updating BSA prices on Bezeq's
copper network), it was stated that the Ministry of Communications is in the
process of updating all of the wholesale rates on the landline network. As a
result of the long time that has passed since the construction of the Frontier
model and the significant changes that have taken place in the market,
including the entry of additional players
into the communications
infrastructure market and the large-scale deployment of fiber optic
infrastructure to the customer's home, the Company decided that an
update was needed to the way the maximum payments are determined in
the wholesale market. The publication of a model for hearing in preparation
for amending the regulations was delayed for various reasons, and it is
expected to be published for hearing, according to Bezeq’s estimate, at the
end of the first quarter of 2024 or in the second quarter of 2024.
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 areas 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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
licenses or a general permit. The Minister may permit, in Bezeq’s licenses or
in the licenses of another landline 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. On July 31,
2023, the Communications Order (Bezeq and Broadcasting) (Incentive Fund
Annual Payment Rate) (Provisional Order), 5783-2023 was published,
according to which, following the examination carried out by the Ministry of
Communications, it was determined within the framework of a provisional
order that in 2023 the payment rate of the entities liable to the incentive
fund will be at a rate of 0% instead of 0.5%. Further to the provisional order,
there will be a decrease of approximately NIS 40 million in the Group's
expenses in 2023 compared to 2022.
The allocation of the incentive funds is done 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.
The only benchmark for selecting tender winners is 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.
In the license of a winner of a tender or by administrative order, an
obligation is 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
within the time periods specified
license. Regarding the
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 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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
2.16.5.2
2.16.5.3
2.16.5.4
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)39; 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 will be 82.5%, which is an
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%.
The Tenders Committee, established according to Article 14d of the
Communications Law, published two tenders for the incentive areas, on
October 31, 2021 and on February 1, 2023. According to the Ministry (as
reflected in the explanatory notes to the draft order above), the winners of
these tenders won a vast majority of the incentive areas, and as of July 2023,
there is an obligation to deploy and provide Internet access service over an
advanced network on approximately 99.5% of households. The Ministry
stated that it anticipates that some of the winners of the first tender will
request to return some of the winning bids in their won areas where they
did not deploy. The Tenders Committee and the Ministry are considering
incentivizing the rapid return of areas where the data and information
indicate that the winners do not intend to deploy an advanced network in
such a way that a tender could be held for them as early as 2024. On August
14, 2023, the Minister of Communications approved Bezeq's request of June
in accordance with the provisions of Article 14e of the
4, 2023,
Telecommunications Law, to require it to deploy an advanced network and
provide Internet access service over it in all incentive areas remaining after
the first and second incentive tenders except in the Kfar Aqab area, which
is, among other things, in light of the Company's compliance with its license
conditions. The Bezeq
(Bezeq’s
deployment obligation in approximately 85% of households).
license was amended accordingly
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
39 The date when the Company began to provide a fee-based Internet access service on the advanced network .
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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), 5730-1970 was published, regarding the
In addition, the
obligation to
Communications Law established conditions regarding the laying of an
advanced network in a shared residential building, even in the absence of
the consent of the majority of the apartment owners were also amended.
in new buildings.
lay optical fibers
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.
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 Yes 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 אל הינפהה רוקמ !האיגש
.אצמנ.
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.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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:
2.16.9.2
2.16.9.3
a. Basic telephone services, provision of communication infrastructure
services, and transmission and transmission services of public
broadcasts40.
b. Providing fast-access services through subscriber access network41.
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.
internal enforcement procedure with rules,
Bezeq has adopted an
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.
In accordance with the conditions set forth in the approval of the
Competition Authority dated March 26, 2014 for the merger (as defined in
the Economic Competition Law) between Bezeq and Yes, the following
restrictions apply in relation to Bezeq and Yes:
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 Yes 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 Yes (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
40 Announcement dated 30.7.1995.
41 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 2023 Periodic Report
2.16.9.4
2.16.9.5
that the condition stipulating the cancellation of exclusivity arrangements
between Bezeq and Yes 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.
the aforementioned
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
provisions of
the
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
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.
sections. According
to
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 October 24, 2023, the Competition
Court rejected an appeal filed by Bezeq on the Determination. It should be
noted that the full amount of the sanctions was paid by Bezeq in 2019.
Regarding the request for approval of a class action and requirements for
exhausting rights before submitting a derivative action further to this
Determination, see Section 2.18.1f.
2.16.10.
Telegraph Order
The Government is dealing with the existing shortage of radio frequencies
to provide a variety of advanced communication services to the Israeli public
(among other things, due to the allocation of many frequencies for security
and other public uses), by allocating them in tenders and limiting the
number of licenses that can be used, as well as by establishing conditions
and criteria to ensure 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 allocation of an appropriate frequency
in accordance with the Committee’s policy. According to the Telegraph
Order, license fees and fees are imposed for the Frequencies Committee and
their allocation.
76
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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
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 settled 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.
2.16.11.3
Radiation permits
Regarding radiation permits for communication and transmission facilities,
see Section2.15 2.15.
Exemption from the permit to add antennas to legally existing transmission
facilities
Addition of an antenna to a legally existing transmission facility is exempt
77
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
from obtaining a permit subject to the existence of cumulative conditions
and exceptions specified in the Planning and Construction Regulations
(Works and Buildings Exempted from the Permit), 5774-2014.
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 2023 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.
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 section2.7.4.3.
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
78
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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.
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 (2021-
2023). Therefore, in the absence of relevant qualitative considerations, this section describes legal
proceedings to the extent of NIS 80 million or more42, 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)43. 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.
March
2015
Shareholder
vs. Bezeq
and former
Bezeq
executives
District
(Tel Aviv
-
Economic
s
Departm
ent)
Type of
procedure
Motion for
approval of
a claim as a
derivative
claim
together
with a
derivative
claim
statement
Claim
amount
(NIS
millions)
502
Details
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 motion deals with, according to what is alleged in it, 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 Yes 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 Yes 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
42
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.
43 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)
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 2023 Periodic Report
Date
Sides
Court
Type of
procedure
Details
b.
s
November
s
2015
And March
s
2018
Customer
against
Bezeq
Central
District
Court
Two claims
together
with
motions
for
approval as
class
actions
it
in
filed
later
indictments
investigation and
the work of the Audit Committee, the Board of Directors and the general
assembly, 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 20, 2024, in light of the Securities
Authority's
(see
Section.אצמנ אל הינפהה רוקמ !האיגש).
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
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. Further to another request by the State regarding the stay
of the procedure, the discussion of the procedure has been delayed at
this stage until March 1, 2024. The applicants submitted a request for the
continuation of the preliminary proceedings in the case and the request
is under discussion.
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 until February 15, 2024 and also approved his
request to submit an update notice until Mach 17, 2024.
In September 2019, the applicants submitted a request for the filing of a
80
Claim
amount
(NIS
millions)
About 1,240
in the first
application
and-568 in
the second
application
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
Date
Sides
Court
Type of
procedure
Details
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 (F) 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 requests deal with the 2015 transaction in which Bezeq acquired from
Eurocom DBS (a company controlled by Bezeq's controlling shareholders
at the time) the balance of Yes 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-classes - 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 Yes’s cash flow reported in Bezeq
According to the claim, artificially misleading the reasonable investor who
relied on Yes’s 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.
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, 2024 in light of the Securities Authority investigation
and indictments filed further thereto (see Section אל הינפהה רוקמ !האיגש
.אצמנ)
On May 23, 2023, the applicants in the consolidated procedure, together
with the Company and Shaul and Or Elovich ("Elovich") submitted a
motion for the approval of a compromise settlement in the consolidated
procedure, where the Company agreed to pay a sum equal to USD 4.35
million (USD 5.5 million dollars including attorney’s fee, compensation,
and other expenses) as compensation for exhausting the claims against
itself and against Elovich (in their capacity as officers/controlling
shareholders of the Company). In the motion, it was emphasized that the
waiver made does not detract from the claims regarding Elovich regarding
Bezeq. On January 8, 2024, a hearing was held on the motion, in which
the Court ordered the parties to the settlement agreement to submit an
amended motion for approval of the agreement as well as an amended
agreement, taking into account the issues discussed in that hearing.
An amended and consolidated motion submitted following the Court's
decision of April 15, 2018 regarding the consolidation of four applications
81
c.
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)
d.
June -
August
Bezeq
shareholders
Tel Aviv
District
Various
motions
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
Type of
procedure
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
Date
Sides
Court
2017 and
June 2018
against
Bezeq and
DBS
Court
e.
February
2018
Tel Aviv
District
Court -
Economic
Departm
ent
Bezeq
shareholders
against Bezeq
as a
formal
respondent,
as well as
against Bezeq
at
directors
times
relevant
to
the motion
and
against
Bezeq's
controlling
shareholders
at the times
relevant
to
the motion,
Shaul
Mr.
and
Elovich
Yosef
Mr.
Elovich
(the
"Respondent
s").
f.
(1)
September
2019
Customers
against Bezeq
Tel Aviv
District
Court
Application
for
approval of
a class
action
Details
Claim
amount
(NIS
millions)
filed in the same matter. The Court is requested to order Bezeq (and Yes,
as the case may be) to provide the applicants with certain documents in
connection with a stakeholder transaction between Yes and Space from
2013 as amended at the beginning of 2017 (in this section: "Yes-Space
Transaction")44. 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, 2024, in light
of the Securities Authority's investigation and indictments filed later in it
(see section.אצמנ אל הינפהה רוקמ !האיגש).
65
Minimum
threshold
219
Maximum
threshold
400
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
revenue from loans to Yes 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 Yes will be fully
recognized to Bezeq after the merger between Bezeq and Yes.
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 Yes ("Yes
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 Yes 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
Section.אצמנ אל הינפהה רוקמ !האיגש).
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
inferior, expensive and problematic
threading method) caused
substantial damage to consumers. The definition of the group in whose
name the class action will be conducted is anyone who purchased landline
44
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
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
Date
Sides
Court
Type of
procedure
Details
Claim
amount
(NIS
millions)
(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
g.
January
2021
Bezeq
shareholders
v Bezeq et al.
Motion for
approval of
a class
action
Tel Aviv
District
Court -
Economic
Departm
ent
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 B. 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
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.
On June 4, 2023, the judgment of the Haifa District Court was issued, in
which it partially granted the motions, and ordered the disclosure and
review of the Claims Committee's report appendices only, and not the
transcripts of the Committee's hearing minutes.
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.45 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
"Over NIS
2.5 million
(for the
purposes of
substantive
authority)"
45 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 2023 Periodic Report
Date
Sides
Court
Type of
procedure
Details
Claim
amount
(NIS
millions)
l
April 2021
Customer VS
Bezeq
Central
District
Court
Motion for
approval of
a
class
action
J
June 2023
Customers VS
the Company
Tel Aviv
District
Court
Motion for
approval of
a
class
action
K
September
2023
Customers VS
the Company
Lod
(Central)
District
Court
Motion for
approval of
a
class
action
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.
It is claimed that Bezeq does not act in accordance with the law when
giving notice of the end of fixed-term transactions, in that it does not send
a separate notice of the expected end of the benefit period within the
fixed-term transaction, and only notifies the customer through the
monthly invoice and a text message. These are two motions where the
Court approved the motion of the applicants to consolidate them into one
motion that will be heard in the Tel Aviv District Court. Similar requests
were also submitted against Pelephone (see update to Section 3.16.1) and
Yes (see update to Section 5.16.1).
It is claimed that (1) Bezeq made a misleading representation regarding
the price of the Internet package, since it did not present, in addition to
the cost of the Internet package, the monthly charge of NIS 19.90 for the
router. The claim refers to those who were subscribers to a package that
included the Company's infrastructure and another Internet provider and
then purchased a new package, where the Company provides the
provider and infrastructure services (starting in April 2022) and continued
to be charged for the router they rented from Bezeq, without the
Company making it clear to them that the price displayed does not include
the router; (2) Bezeq provides customers with an antivirus service for a
monthly fee of NIS 14.90 by default and without receiving express
in a settlement
in violation of commitments approved
consent,
agreement as part of a previous class action against the Company.
NIS
*
The amount
of the class
action
cannot
be
estimated. It
was stated
that
these
are
damages
amounting
to
million,
which
within
jurisdiction
of the Court.
The amount
of the class
action
is
over NIS 2.5
million, but
it cannot be
accurately
estimated.
fall
the
be
The amount
of the class
action
cannot
accurately
estimated
is
and
estimated at
over NIS 2.5
million
1.18.2.
Legal proceedings completed during the period of the report or until the date of
publication of the report
Date
Sides
Court
Type
procedure
of
Details
Claim
amount (NIS
millions)
a.
January
2015
Shareholder
against Bezeq
former
and
officers
in
Bezeq
District
(Tel Aviv -
Economic
Departm
ent)
Motion for
approval of
class
a
action
A claim for compensation of shareholders for losses which were claimed
to have been caused due to "Bezeq's reporting failures to the stock
exchange and the concealment of material information from the investing
public" regarding the "reduction of interconnect fees" and the "reform of
the wholesale market".
On August 27, 2018, the decision of the Economic Department of the Tel
Aviv District Court was issued approving the claim as a class action ("the
Approval Decision").
On December 1, 2019, a ruling was issued at a rehearing held at the
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
request of Bezeq and the defendant officers in the Economic Department
of the Tel Aviv District Court regarding the decision to approve the claim
as a class action and it was determined as follows:
1. Regarding the reduction of the interrconnect fees - the Court
accepted the motion insofar as it concerns the claims concerning the
reports regarding the reduction of the interrconnect fees, after
concluding that the plaintiff did not even prima facie prove the
existence of damage in connection with the reason for the reduction
of the mutual connection fees, and therefore therefore it would be
inappropriate to approve the class action on this ground.
2. Regarding the wholesale market reform - the Court dismissed the
motion in relation to the defendants' claims regarding the reports
about the wholesale market reform. At the same time, reduce the
definition of the group of plaintiffs in relation to this cause.
On July 12, 2020, an amended statement of claim was filed, including
corrections in accordance with the ruling in the rehearing, in which the
total amount of the claim was also corrected to a total of NIS 687 million.
On February 8, 2023, the Court issued a ruling approving a settlement
agreement reached between the parties following a mediation process in
which the plaintiffs were paid, by the officers' insurance company and at
no cost to the Company and the defendant officers, a total sum of NIS 75
million (including compensation and attorney fees). In view of the
provisions of the accounting standard, a provision was recorded in
Bezeq's financial statements for the first quarter of 2022 (during
negotiations for a settlement in the case) in the amount of the settlement
amount, and on the other hand, in view of the existence of full insurance
coverage, an indemnity asset in the amount of the provision was
recognized in the same report, without impact on Bezeq's results. Upon
the issuance of the aforementioned ruling, the registration of the
provision and the aforementioned indemnification asset were canceled
in the reports for the first quarter of 2023.
It is requested that the Court order Bezeq, Yes, as well as the former
controlling owner of the Company, Mr. Shaul Elovich, and his son, Mr. Or
Elovich (hereinafter, collectively: "Elovich"), to hand over to the applicant,
as a shareholder in Bezeq, various documents for the consideration of
submitting an application for approval of a derivative claim on behalf of
the Company. According to the applicant, the Company and Elovich
violated their fair and fiduciary duties towards Bezeq, in that the sale of
115 million Bezeq shares on February 2, 2016 by the Company was carried
out while the Company and Elovich used Bezeq's insider information, and
at a value significantly higher than the real value of the shares. According
to the applicant, this sale brought the Company improper profits in the
amount of approximately NIS 313 million.
According to the claim in the motion, the insider information which, was
used as mentioned is, among other things, that the financial statements
of Yes and Bezeq do not reflect the de facto financial situation of Bezeq,
but "free cash flow" that is inflated for the purpose of increasing the
consideration in the context of the transaction in which Bezeq purchased
the shares of Eurocom Communications in Yes (“the Yes Transaction").
On September 19, 2023, a judgment was issued striking out the motion
on the grounds that it was submitted over five years ago, and no hearing
was held due to the delay in the proceedings in the case. It was also stated
in the judgment that the striking out does not constitute a limitation of its
underlying grounds, and no claim in this regard will be heard regarding
the period from the date of the judgment until it is filed as a new claim, if
any.
b.
August
2021
Shareholder
against
Yes,
Bezeq,
Shaul
Mr.
Elovich, and
Mr. Or Elovich
The
District
Court
(Economi
c
Departm
ent)
Tel Aviv
in
to
Motion
disclose
and review
documents
according
to Article
198a of the
Companies
Law
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.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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
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. Being the leading fiber company in the number of connected retail lines
in the Israeli communications market;
c. Encouraging the recruitment of new customers and strengthening a
sense of loyalty and closeness among existing customers;
d. Creating new sources of revenue through the launch of new and
innovative services and products and entry into fields that are
tangential and complementary to the Company's activity, such as the
field of electricity supply (see Section 1.9);
e. 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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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 Section1.7.4 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
Section1.7.3 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
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 Section2.16. 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 Section1.7.7.5).
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 section2.16.4. For possible restrictions under the
Centralization Law on the renewal of licenses and the allocation of new licenses, see
Section1.7.7.6.
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 Section2.16.1). 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
sections2.16.1 and2.16.4. 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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
operations - see also Sections2.9.3 and 2.17.3.
Also, as described in section1.7.11, according to the report, Bezeq, like the other
companies in the Group, implements streamlining procedures, which include, among
other things, 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).
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 2023 statements and Section 1.6 of the Board of Directors’ report.
2.20.8.
Bezeq’s debt and debt repayment capability
Bezeq is required to maintain a sufficient cash flow in order to meet its obligations and
its long-term business plans. The lack of sufficient cash flow may have a negative impact
on Bezeq's business, including the inability to meet its obligations, damage to its ability
to repay debt, make investments and deal with competitive threats. For more details on
the financing of Bezeq’s activity, see Section 2.13.
2.20.9.
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.
2.20.10.
Frequent technological changes
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
The field of communications is characterized by frequent technological changes and the
shortening of the economic life of new technologies - see section2.1.4. 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.
2.20.11. 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.
2.20.12.
Failure in Bezeq’s 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, server farms, 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 out its activities. Hacking, disruption, damage or collapse of the
Systems, including as a result of power outages, 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, information
retrieval (including not as a result of a cyber incident), and from there, also to material
damage to Bezeq’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 Bezeq’s VP of Technologies and
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
Network. The person responsible for implementing the policy in Bezeq 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, Bezeq’s Board of Directors is involved in and
supervises the management of cyber risk in Bezeq within the framework of handling
Bezeq’s overall risk management policy and receiving ongoing updates. 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.
2.20.13.
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
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
long-term
intensities affecting the value of the unit measured when
different
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.
2.20.14. 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.
2.20.15. 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, as well as damage to the
supply chain, may adversely affect the Company's business and results.
2.20.16. Damage to electricity supply
Damage to the supply of electricity to the Company's facilities for various reasons (some
of which are described in Section 2.20.15) may adversely affect the Company's business
and damage the Company's ability to provide services. Some of the Company's systems
have power backup, but at the same time, in the event of a prolonged damage to some
or all of the systems, significant and even more difficulties may be caused in the provision
of the Company's services, including in the event that the Company will not be able to
return the systems to service quickly.
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 3.19, 4.14 and 5.18, and they are also relevant
to the Group's activities and results.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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 Communications46
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
Debt and debt repayment capability
Dependence on macro factors and levels of business activity
in the economy
Pandemic
Damage caused by nature, war, disaster
Damage to electricity supply
Industry risks
Growing competition
Governmental supervision and regulation
Rate supervision
Electromagnetic radiation / licensing of transmission facilities
Frequent technological changes
Special risks for Bezeq
X
X
X
X
X
X
X
X47
X
X
X
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
46
It is hereby 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 5.18), the probability of the risk factor materialization was not estimated
fully, 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. 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.
47 The extent of the impact of this risk factor on Bezeq's activity was classified as low, assuming that the event would be limited
in scope and time. Otherwise, the degree of impact may be greater.
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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 section3.2. 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 section3.14.2).
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 3.13.2).
3.1.3.
Changes in the scope of activity in the field
For financial data on the scope of Pelephone's activity, see sections רוקמ !האיגש
.אצמנ אל הינפהה 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 Section3.6). 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 2023, the downward
trend continued (similarly to the years 2021-2022) in the volume of mobilizations between
companies has decreased. Also, the recovery in revenue from roaming services continued
in 2023, as it returned to its 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 plans. During the fourth quarter of 2023, there was a
significant decrease in revenues from roaming services following the "Iron Swords" war.
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 2023,
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.
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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.
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 rate48. The estimated penetration rate as of September 30, 2023 is
approximately 117%.
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
in the process of upgrading 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 IMS49: 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 Section3.8.2.
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
48 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).
49 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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bracelets. On February 11, 2024, Pelephone launched the option to connect to its services
using an eSIM as a main line (at this stage it does not include national prepaid services for
the subscriber). Shortly after, other cellular operators launched eSIM in their networks as
well. Regarding Pelephone's acquisition of the company "Roamability", which specializes
in providing solutions in the global roaming services market, see Section 3.2.1.2.
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
3.7.2).
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 exit50
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 section3.7.2.2).
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.
50 Some of the above entry and exit barriers apply in a partial and limited manner to virtual operators.
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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
operators with an radio telephone license/permit 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
On July 16, 2023, following a hearing on the subject, the Ministry published
a policy document outlining the rules for the allocation of a frequency band
in the 26 GHz range (as well as a narrow band in the 2100 MHz range) for
use by parties other than cellular operators or interior operators, for the
purpose of operating private networks on a local basis (area polygon) for
each project. The implementation of the policy will require regulatory
adjustments in the relevant legislation and is not expected to significantly
affect Bezeq or Pelephone business.
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. Regarding roaming services, as well as
regarding the development of the use of eSIM technology in these services
- as part of Pelephone's activity and its preparation for global trends in the
roaming services market, which include, among other things, a more
extensive use of eSIM technology in these services, on October 18, 2023,
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3.2.1.2
3.2.1.3
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3.2.1.4
Pelephone’s Board of Directors approved the acquisition of full ownership
in the company "Roamability", which specializes in the supply of solutions
in the global roaming services market, including wholesale, and including
providing a platform for the management and sale of these services.
Accordingly, Pelephone acquired 100% of the control and ownership rights
in the company (an American company and an Israeli company) in exchange
for an amount that is immaterial at the group level.
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:
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 total revenue
Revenue from interconnect
Rate of Pelephon’s total revenue
Revenue from products (end equipment)
Rate of Pelephon’s total revenue
Total revenue
2023
1,385
59%
371
15.8%
592
25.2%
2,348
2022
1,364
56.09%
427
17.8%
608
25.3%
2,399
220 1
1,204
52.86%
438
19.1%
647
28.3%
2,289
3.4.
Customers
The following is data on the distribution of revenue from customers (in NIS millions):
Products and services
Revenue from private customers net of interconnect
Revenue from private customers
Revenue from business customers (*)net of interconnect
Revenue from business customers (*)
Total revenue net of interconnect
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
2022
1,193
1,416
779
983
1,972
2,399
2021
1,131
1,361
720
928
1,851
2,289
2023
1,180
1,375
797
973
1,977
2,348
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received mainly from Rami Levy.
At the end of 2023, the number of Pelephone subscribers was approximately 2.6 million, including
approximately 2.2 million postpaid subscribers (subscribers who receive service for a monthly payment),
and approximately 0.4 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 1.075 million subscribers in such
packages.
The following is a breakdown of Pelephone's subscribers with 5G packages:
Pelephone's 5G package subscriber base (thousands)
3.5. Marketing, distribution and service
Pelephone's distribution system includes about 210 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
compensation to the marketers is paid as commissions from the sales.
Pelephone's service system for subscribers includes diverse digital channels including the Pelephone
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 section0).
The following are data, to the best of Pelephone's assessment, about the number of
subscribers of Pelephone and its competitors over the years 2022 and 2023 (thousands
of subscribers, approximately):
Partner (3)
Hot Mobile
(2)
MVNO And
other
operators (1)
Total
subscribers in
the market
Pelephone
Cellcom
(including
Golan
Telecom)
(3)
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As of
December
31, 2022
As of
September
30, 2023
Number of
subscribers
Market
Share
Number of
subscribers
Market
Share
2,580
3,452
2,744
1,760
826
22.7%
30.4%
24.2%
15.5%
7.3%
2,618
3,523
2,655
1,837
860
22.8%
30.7%
23.1%
16%
7.5%
11,362
11,493
(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 Q3/2023 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, 2023, 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.
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.51
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 1,500 sites, as well as in the 3500 MHz range at approximately 900
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
51 On June 6, 2023, an updated decision was made by the Minister stating that a license holder will be allowed to continue providing
service over the 2G network for the purpose of M2M (machine to machine communication) only until December 31, 2028, subject
to receiving the Manager's approval. Also, the licensee will be entitled to contact the Manager with another request to extend
the service period with 2G technology for M2M purposes only, until December 31, 2030.
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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, throughout the period of the
license, Pelephone will be required to invest in the establishment of new
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
The areas used by Pelephone to place communication sites and network
centers as stated in the section 3.7.2 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.אצמנ אל הינפהה רוקמ !האיגש.
During the year 2023, an agreement was signed according to which Bezeq will carry out a
significant renovation in a facility called "Bezeq Ayalon" to which Pelephone's core facility
in Ramla will be transferred. With the completion of the expected renovation at the end
of 2024, Pelephone will begin a phased process of vacating the core facility in Ramla that
will last until the end of 2025. The agreement also regulates the lease relationship
between Bezeq and Pelephone.
3.7.3.2
3.7.3.3
3.7.3.4
Pelephone's headquarters are in Petah Tikva.
For service and sales activities, Pelephone rents about 40 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 MHz52 and
52 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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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 section3.1.5) 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
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).
The deployment of 800 MHz frequencies that was planned for 2023 was
postponed to 2024 and the activation of these frequencies is expected
during 2025.
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,
against the background of electromagnetic
interference caused to
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.
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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
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 section3.19.3.9.
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 2023 statements.
On July 17, 2023, Pelephone received a winning notice in the ongoing
tender for 5G mobile mobile radio telephone services in the 26 GHz
frequency range for the purpose of improving and consolidating the 5G
capabilities and solutions existing in the cellular networks (“the
Tender"). As part of the Tender, 25 competition bands of 100 MHz each
(a total of 2,500 MHz), for competition between the existing cellular
operators (existing cellular networks), where each network was entitled
to win up to 1,200 MH (out of the 2,500).
Pelephone won a cluster of frequencies in this area as follows:
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A. Winning 800 MHz in the 26 GHz section (for a period of 10 years),
when the license period as a cellular operator does not change as
a result of the Tender and can be renewed in accordance with the
license instructions ("frequency allocation").
B. The frequency allocation will be carried out after the extension of
the license and against the payment of license fees in the amount
of NIS 4.16 million. Following the war of iron swords, the Ministry
of Communications postponed the payment date and announced
that it must be made no later than July 1, 2024.
The extension of the license in accordance with the winning result is
subject to the approval of the Minister of Communications as stipulated
in the Tender conditions.
The aforementioned frequency allocation will allow Pelephone, among
other things, to expand the range of advanced uses of the cellular
network with 5G technology, with an emphasis on private networks and
advanced services that require a particularly high browsing speed, such
as hospital complexes. The cost of integrating this frequency range into
5G technology will be ongoing, and is not expected to be substantial.
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 Yes. 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
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3.9.
Human capital
3.9.1.
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
Administr
ation
Division
Finance
Division
Private
Custome
rs
Division
*
Informati
on
Systems
Division
Engineer
ing
Division
Busines
s
Division
Marketin
g
Division
Legal
advice
and
Regulati
on
Public
Relation
s
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 Yes. In addition, some of the VPs
who serve on Pelephone also serve as VPs at Yes.
3.9.2.
Employee base and number of jobs
The following is a breakdown of the number of employees in Pelephone according to its
organizational structure:
Division
Management and administration divisions
Private and business customer divisions
Engineering and
Divisions
Total
Information
Systems
Number of employees
31.12.2023
197
1,113
374
31.12.2022
194
1,123
382
1,684
1,704
The number of employees included in the table above includes employees employed part-
time. The total number of jobs53 at Pelephone as of December 31, 2023, was 1,486.
3.9.3.
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.
53The 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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3.9.4.
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 2023 statements.
3.9.5.
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.
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 cleared. It was clarified that the economic
demands due to the labor dispute of January 31, 2018 have been exhausted, but the
demand of the Employees’ Representation to appoint a representative on its behalf on
the Pelephone Board of Directors has not been exhausted, and it was stipulated in the
agreement that it will be discussed later (starting in June 2024).
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3.10. Suppliers
3.10.1.
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 material suppliers are Apple, with whom there is an agreement that requires
defined procurement targets and is valid until March 2024 (the extension of the
agreement between the parties by another year is currently being signed), 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 2023 was
approx. 14.5% and approx. 10.5% (respectively) of Pelephone’s total purchases from all
of Pelephone’s suppliers54. 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.
Due to the state of war, there was a delay in the maritime supply route in relation to
engineering goods and end equipment.
3.10.2.
Infrastructure providers
The infrastructure equipment for the cellular networks (5G, LTE, UMTS, as well as the
equipment for the microwave transmission field) is provided by the company LM Ericsson
Israel Ltd. ("Ericsson"). Pelephone has multiyear agreements for supply, maintenance,
support, and software upgrades for the entire network, and also for the 5G network core
with Ericsson, and in its opinion it may depend on it in connection with network support
and expansion. In addition, the cellular network uses transmission, and Bezeq is a material
supplier to 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).
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 2023:
54 All suppliers - All of Pelephone’s suppliers, including suppliers who are not suppliers of end equipment and electronic devices.
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Credit volume
in NIS millions
Average credit
days
Customers for the sale of end equipment (*)
Customers for services (*)
Suppliers
(*) Net of loan-loss
479
137
238
252
24
47
3.12. Taxation
See Note 7 to the 2023 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.
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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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 section3.19.2.5.
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 section3.14.2.
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
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.
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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, 202255.
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.
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
55 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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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 3.13.2; 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
660 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
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 420 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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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.
3.14.4.
Establishment of sites by parties other than cellular operators
On July 17, 2023, the Ministry of Communications published a decision (and an
amendment to the cellular operator's license), regarding allowing entities that do not
have a cellular license to establish and lease cellular radio centers (communication sites)
and lease them to cellular operators. The sites will be operated and maintained by the
cellular operators (operation and maintenance will be allowed by said parties as
subcontractors of the cellular operators). The implementation of the decision requires
legislative changes and the establishment of regulatory rules regarding the manner of
implementation and its limitations. In Pelephone's estimation as of the date of
publication of the report and before the establishment of regulatory rules on the subject,
the decision is not expected to have a material impact on Pelephone's business.
3.14.5.
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 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.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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.
3.14.6.
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 02.16.9).
3.15. Material agreements
3.15.1.
For agreements with Ericsson, see section 0.
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 that was estimated at 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 16, 2024. On February 21, 2024, the Accountant
General published a new tender for the supply of cellular communication services and
end equipment.
3.15.3.
Regarding a collective agreement between Pelephone and the Histadrut and Pelephone’s
Employees’ Committee, see section 3.9.4.
3.16.
Legal Proceedings56
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:
Date
Parties
Instanc
e
Proceeding
type
Details
a. 7
May
2012
.
Customer
vs.
Pelephon
e
District
(Tel
Aviv)
Class action
lawsuit
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,
its
following Pelephone's announcement regarding
Amount of the
claim
(NIS millions)
About 124
56 For reporting policy and materiality thresholds, see section 2.18.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
Date
Parties
Instanc
e
Proceeding
type
Details
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.
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.
It should be noted that in December 2023, another claim
was filed that includes the same grounds as this claim and
by the same representatives, according to them for
precautionary reasons.
Two similar motions for the approval of a class action in
which it is claimed that Pelephone does not act in
accordance with the law with regard to providing notices
of the termination of fixed-period transactions. On
September 11, 2023, a consolidated motion was
subsequently filed for approval by the Court.
In the consolidated motion, it was stated that similar
motions for approval of class actions were also submitted
against the Company (see Section 2.18.1) and Yes (see
update to Section 5.16.1).
Two similar motions for the approval of a class action in
which it is claimed that Pelephone does not act in
accordance with the law with regard to providing notices
of the termination of transactions for a fixed period. On
September 11, 2023, a consolidated motion was
subsequently submitted for approval by the Court.
In the consolidated motion, it was stated that similar
motions for approval of class actions were also
submitted against Bezeq (see Section 2.18.1) and Yes
(see update to Section 5.16.1).
In the motion, it is claimed that within the framework of
the numbers blocked for dialing by the subscribers of the
Kosher Floor (as part of the characteristics of the Kosher
route), Pelephone and the other respondents illegally
blocked numbers
113
b.
July 2014 Customer
vs.
Pelephon
e, three
other
cellular
companie
s and
additional
responde
nts
Customer
vs.
Pelephon
e and
Partner
c.
October
2017
d.
April 2019 Customer
vs.
Pelephon
e, Bezeq
Internatio
nal and, 6
other
companie
s
District
(Tel
Aviv)
Monetary
claim and a
motion to
recognize it
as a class
action
Central
Distric
ut
Court
Monetary
claim and a
motion to be
recognized
as a class
action
Central
District
Monetary
claim and a
motion to be
recognized
as a class
action
e.
June 2023
Customer
vs.
Pelephone
Central
District
Consolidated
motion
motion
approve
class action
to
a
f.
December
2023
Haifa
District
Court
Monetary
claim and a
motion to be
recognized
as a
action
class
Amount of the
claim
(NIS millions)
About 100 in
relation to the
cellular
companies and
about 300
against all the
defendants
About 850
The amount of
the claim is not
stated, but in
the motion it is
estimated at
tens of millions
of NIS
Over NIS 2.5
million.
Impossible to
accurately
estimate.
Over NIS 3
million.
Impossible to
accurately
estimate
until all data
is received
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
3.16.3.
Legal proceedings concluded during the reporting period
Claim filed
Parties
Instance
a.
April 2017
Customer vs.
Pelephone
Tel Aviv
District
Court
Proceeding
type
A monetary
claim and a
motion for
approval as a
class action
b.
January
2023
Haifa
District
Court
A monetary
claim with a
motion for
approval as a
class action
Details
the
terms of
It is claimed that the defendant unilaterally and
without consent changed
the
agreement between itself and the applicant, and
others like her, by allowing continued browsing after
exhausting the volume of browsing included in the
package instead of stopping it, despite Pelephone's
notification on the matter.
On April 28, 2023, a ruling was issued confirming the
settlement arrangement between the parties, the
main of which is the provision of benefits and
compensation with a total value of approximately
NIS 18 million.
It is claimed 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
Original claim
amount (NIS
millions)
Approx. 80
Over NIS 2.5
million.
Impossible to
accurately
estimate.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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 2024, the competition will focus on increasing the value and
volume of browsing to the customer.
3.18.3.
Cellular network innovation and products
In 2024, Pelephone is expected to continue to promote services and products that will
enable increased revenue or an image advantage over competitors: eSIM, 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 2024, Pelephone is expected to continue to develop and expand its digital service and
sales channels.
3.18.6.
5G network
In 2024, 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 revenue 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 2023 Periodic Report
3.19.1.3
3.19.1.4
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.
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.
Damage to electricity supply - Damage to the electricity supply to Pelephone
facilities for various reasons (some of which are described in Section Error!
The source of the reference was not found.) may have a negative effect on
Pelephone's business and damage Pelephone's ability to provide services.
Some of Pelephone's systems have power backup, but at the same time, in
the event of prolonged damage to some or all of the systems, there may be
significant difficulties and beyond that in the provision of Pelephone
services, including in the event that Pelephone cannot return the systems
to service quickly.
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,
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
3.19.2.6
3.19.2.7
3.19.2.8
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.
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
encountered by Pelephone in setting up and licensing websites, see
Section.אצמנ אל הינפהה רוקמ !האיגש. 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.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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
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
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.
3.19.3.5
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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
3.19.3.6
3.19.3.7
3.19.3.8
3.19.3.9
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.
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.
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 Section2.20.13.
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.
Risk factors summary table - cellular telephony
The extent of the impact of the
risk factor on Pelephone's
operations as a whole
Medium
effect
Small
effect
High
effect
Macro risks
Exposure to changes in exchange rates
Epidemic and supply chain
Damage due to force majeure, war, disaster
Damage to electricity supply
Industry risks
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X
X
X
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X
X
X
X
X
in
X
X
X
X
information systems and
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
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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, cloud services, cyber protection; 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 Sections1.5.4.3 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 is no change 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
leads to 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 cloud, hosting, and computing services for businesses, in 2023, the increase
in demand for hosting services in server farms and public cloud services continued, 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). There are various factors that affect demand
for cloud services, such as 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 integration solutions 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 Teams, 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 were damaged, and they are expected to
continue to decrease materially. 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. In addition, Bezeq International has partnerships with the companies
Microsoft and Cisco, within which Bezeq International provides NIO and international
operator services to the customers of the aforementioned companies.
4.2.3.
Cloud, hosting, 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
employs 81 employees as of December 31, 2023), which offers
implementation solutions and professional services in this field. Bezeq
International was recently certified as a partner of the company AWS, and
by virtue of this certification, it began selling licensing for this company's
cloud products, as well as related professional services.
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4.2.4.
Cyber protection services
Bezeq International provides the business sector with various services for protection
information security. The services offered by Bezeq
against cyber threats and
International include, among others: a SIEM-SOC service that monitors events and
indications of cyber attacks on the customer's systems; protection services against
distributed denial of service (DDoS) attacks; and protection of end positions. The services
are provided through cloud-based cyber protection solutions from various manufacturers
such as Trend Micro and Cisco.
4.2.5.
Integration solutions
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
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 telephony services
Rate of total Bezeq International revenues
Cloud, hosting, and computing services for
businesses
Rate of total Bezeq International revenues
Integration solutions
Rate of total Bezeq International revenues
Total revenue
2023
538
44%
185
15%
224
19%
265
22%
1,212
2022
637
51%
183
15%
185
15%
234
19%
1,239
2021
683
55%
177
14%
142
11%
235
19%
1,237
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)57:
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
57 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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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.
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
4.6.1.2
4.6.1.3
Bezeq International competes in providing ISP services to customers from
the business segment, and does not conduct competitive or marketing
activities in connection with the provision of ISP services to the household
segment.
The market is saturated with competitors, the main ones being Cellcom,
Partner, and Hot Net.
There are also smaller competitors in the market that mainly address the
business segment, such as Gilat Telecom and ITC. In the absence of public
data on the market shares of the competitors in the business Internet
market, it is impossible to assess Bezeq International in this area.
The competition in 2023 is mainly characterized as competition on prices.
The ISP service for the business segment is seen as a commodity product,
i.e. a uniform off-the-shelf product in which the identity of the provider is
not important, and many customers attach decisive weight to the price. This
naturally leads to price erosion
4.6.2.
International telephony services
4.6.2.1
As of the end of 2023, 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, 2023 is approximately 21%58.
4.6.2.2
General characteristics of the competition in 2023:
In 2023, 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. In many organizations, the increase in the use of services that allow
58 Based on publications from the Ministry of Communications regarding the number of minutes spent in the fourth quarter of
2023.
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calls and meetings to be carried out online continues, 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.
Cloud, hosting, and computing services for businesses
4.6.4.1
Hosting services
The field of hosting services is characterized by many competitors, including
Bynet, Edgeconnex, Med-1, and more. In 2023, there is 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 the purchase of solutions that will ensure
recovery from a disaster. 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
increasing. Bezeq
Amazon, Microsoft, Google and Oracle has been
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 addition, in 2023 Bezeq International
began operating as a partner of the AWS company, which allows it to offer
its customers the cloud products of this company as well. 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.
Cyber protection services
The field of cyber protection is characterized by many competitors and different and
varied solutions. The demand for cyber protection services is on the rise due to the
increased risk of cyber threats. In the absence of public data on the market shares of the
competitors in this market, it is impossible to estimate the market share of Bezeq
International in this field.
4.6.6.
Integration solutions
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.
4.6.7.
Unique characteristics
4.6.7.1
Positive factors affecting Bezeq International's competitive position:
B. A well-known and strong brand.
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C. Technological innovation.
D. 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.
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.
4.6.7.2
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.
PP&E, 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. In January 2024, Bezeq
International signed an agreement with Oracle, according to which new CRM and ERP systems will
be installed on Oracle's cloud platform, for the purpose of replacing the old systems. The
construction of the new systems is expected to be completed in 2025.
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 2024
(with an option for extension by another year).
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).
4.8.
Human capital
The following are details about the number of Bezeq employees International in years 2022 and
2023:
Administrative employees
Service and sales representatives
Total
31.12.2023
31.12.2022
597
105
702
676
273
949
The number of employees included in the table includes employees employed part-time. Total jobs59
Bezeq International as of December 31, 2023 was 679 compared to 927 as of December 31, 2022.
Organizational structure
59 Total monthly working hours divided by the monthly working hours quota.
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The following is a diagram of Bezeq International's organizational structure as of the date of the
report:
Board of
Directors
CEO
Internal
Audit*
Human
Respurces
Finance
Solutions
for
Businesses
Global
Businesses
Technologi
es
Legal
Advice and
Regulation
Technical
Service and
Delivedy
)*(
The Internal Auditor is a Pelephone employee.
Regarding streamlining processes and
Pelephone and Yes, 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
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.
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For this matter see also Note 16 to the 2023 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 260 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
(formerly Med Nautilus) and Cyprus
from Telecom
Telecommunications Authority (CYTA).
Italia Sparkel
in an
indefinite and non-specific attribution,
As part of its engagement with Telecom Italia Sparkel, Bezeq International acquired the
indefeasible right of use,
in the
communication capacity transmitted through the underwater cable system operated by
Telecom Italia Sparkel between Israel and Europe, and continued capacity over the
Company's ground infrastructure to a number of communication nodes in Europe. Some
of the use periods were extended until July 2030, and some until May 2032. For the said
use rights, Bezeq International paid one-time payments, close to the date of
commencement of the use of the capacity.
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 was extended until May 2030.
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
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 ServerFarm Israel Infrastructure Fund Bnei
Zion Limited Partnership, Bezeq International purchases hosting services at a server farm
owned by this partnership starting from 2023. The agreement is valid until 2039, with
options for extension until 2047. These services are 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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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.
4.9.5.
Main supplier
Bezeq is a main supplier of Bezeq International and provides it with services as detailed
in this section above. The rate of purchases of Bezeq International from Bezeq in 2023
was about 20%.
4.10. Taxation
See Note 7 to the 2023 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.
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.
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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 2.16.6).
4.11.4.
Payments for interconnectivity
In the matter of interconnectivity fees paid to the NIO and the cellular operator, see
Section 1.7.7.1.
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 .אצמנ אל הינפהה רוקמ !האיגש.
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 2024.
4.12.
Legal proceedings60
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
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)
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
International. On November 5, 2020, Bezeq
Bezeq
International received another motion for approval of a
class action in the same matter.
Unspecifie
d
60 For reporting policy and materiality thresholds, see Section 2.18.
131
a.
March
2016
b.
April 2019
c.
October
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
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
e. November
2020
District
(Central)
Client
against
Bezeq
Internatio
nal
Monetary
claim
together with
a motion to
recognize it as
a class action
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
4.12.2.
Legal proceedings completed during the reporting period
None.
4.13. Targets, business strategy and development prospects
In light of the cancellation 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 activity, cloud services, and cyber protection services 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 Teams, 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
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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
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. Regarding information systems, it should be noted that the
information systems currently used by Bezeq International are outdated and not
supported by the manufacturer (see Section 4.7), which poses a risk of faults in these
systems.
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
employees undergo periodic
information security training. Every month Bezeq
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
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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,
or damage to the submarine cable, may adversely affect Bezeq International's business
and its results.
4.14.8.1 Damage to electricity supply - Damage to the electricity supply to Bezeq International
facilities for various reasons (some of which are described in Section Error! The source of
the reference was not found.) may have a negative effect on Bezeq International’s
business and damage Pelephone's ability to provide services. Some of Bezeq
International’s systems have power backup, but at the same time, in the event of
prolonged damage to some or all of the systems, there may be significant difficulties and
beyond that in the provision of Bezeq International services, including in the event that
Bezeq International cannot return the systems to service quickly.
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 Section4.12.
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 Section1.7.11, 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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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.
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 risk61:
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
Medium
effect
Low
effect
High
effect
Macro risks
Exposure to changes in exchange rates
Epidemic
Damage caused by nature, war, disaster
Damage to electricity supply
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
X
X
X
X
X
X
X
X
X
X62
X
X
61 See Footnote 46.
62 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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Impairment of Bezeq International's assets
Cash flow
X
X
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.
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5.
Yes - multi-channel TV
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 broadcasting license pursuant to the Communications Law,
which provide multi-channel television services - (both linear channel
broadcasting and on-demand viewing services63) Yes as well as Hot64
("the field of satellite and cable broadcasting"). This, alongside the
provision of multi-channel television services via the Internet (see sub-
paragraph B). For details about the regulation applicable to the
ownership of broadcasting licenses as such, see Section 5.14.
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). The main ones
are Yes (through Yes+ and STING services, for details, see Sections
5.2.2.1, 5.2.2.2 and 5.2.2.1), Cellcom, Partner, Hot, and freeTV
(regarding the commencement of operations of freeTV, see Section
5.5.1). The main international providers operating in Israel are Disney,
Netflix, Apple, and Amazon, which provide options for watching VOD
content without linear channels. To the best of Yes’s knowledge, most
subscribers of international providers in Israel also subscribe to the
services of some of the local providers. 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. Yes 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 Idan+ system), will give each
"registered content provider"65 consent to broadcast
linear
broadcasts on the Internet free of charge, in accordance with and
subject to the provisions of the law66. As of the date of this report, Yes
its
63 For the question of the regulation of Yes's VOD services, see Section 5.14.2.
64 Which provides cable television services, which is the owner of a declared monopoly according to the Economic Competition Law
in the field of multi-channel television broadcasting.
65 "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.
66 In February 2023, a provisional order that applied to the commercial channels ended, which applied special arrangements in relation
to them, including granting a license for their broadcasts on the Internet to any registered content provider 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. All is as detailed in the provisional order.
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has agreements with the aforementioned broadcasters, which also
include on-demand viewing services.
c. The DTT array
A digital distribution system for digital television (DTT), known as
"Idan+", through which certain channels are distributed to the public,
67. 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.
d. Parties that offer content without the permission of the rights holders
(piracy)68
The multi-channel TV providers, including Yes, 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 Yes and the restrictions thereon, see
Section 1.7.3.3.
5.1.1.2
In the year of the report, the fierce competition continued to prevail, mainly due to the
entry of freeTV and the activity of local and international content providers via the
Internet, as mentioned, operating at a relatively low price level. The activity 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 Yes 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 Yes subscribers, see Section 5.5.1.
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.
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.
In July 2023, the Ministry of Communications published a memorandum of the
Communications (Broadcasting) Law, 2023-2023, which includes the text of a bill ("the
67 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.
68 Yes is one of the shareholders of Zira Ltd., which works to prevent copyright infringement in video content on the Internet.
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Memorandum" and "the Bill", respectively69). According to what is stated in the Bill and
the explanatory notes to the Bill, the Bill was based on the recommendations of various
committees over the years (the most recent of which was the Folkman Committee) and
to update the set of duties and rights applicable to all players operating in the visual and
audio content market in a number of ways, including the following:
A. A new authority will be established in place of the Cable and Satellite Broadcasting
Council and the Council of the Second Authority for Television and Radio, whose role
will be to regulate the entire field of viewing and audio content provision in a way
that will be indifferent to the manner and technology in which the content is
distributed, it Will be responsable for the competition in the field of cisual and audio
content provision, and it will be authorized to issue provisions that prevent actions
that may harm competition in the field.
B. A limited and focused set of duties will be applied to the significant players operating
in this market, including registration duties (and for this purpose it was proposed to
establish three different registries - for content providers, Israeli channels, and news
providers), investment in local productions (see subsection 6 below), distribution of
content from the Israeli Broadcasting Corporation and the Knesset Channel,
obligations in the fields of sports and consumerism, where the extent of the
obligations will change according to the revenue level of the content provider.
C. The existing restrictions on the economic models in the content market for visual and
audio content will be removed (while allowing some of the provisions regarding
cross-costs). As far as the holders of broadcasting licenses (including Yes) are
concerned - the prohibitions applicable to them regarding the broadcasting of
advertisements and the production of news content will be lifted. In addition, a
transitional provision was established according to which TV broadcasting licensees
as defined in the Second Authority Law, to whom the transfer arrangements set forth
in the Communications Law and the Broadcasting Distribution Law apply, will be
required to allow the continued transfer of the channels to registered licensed
providers in accordance with what is stated in the said laws and the mandated
changes, and this for the period stipulated in the Memorandum.
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.
Yes submitted its response to the Memorandum. As of the date of this report, to the best
of Yes's knowledge, no legislative procedures have been promoted in connection with the
Memorandum. Since this is a legislative memorandum, at this stage it is not known which
of the provisions of the Memorandum, if any, will be enshrined as binding legislation, and
what the content and regulations of such legislation will be, and therefore, it is difficult
at this stage to assess the extent of the impact of the legislation and regulations that will
be established following the Memorandum on Yes's business (if any).
5.1.3.
Changes in the scope of activity in the field and its profitability
For data on changes in the scope of Yes’s activity and profitability, see Section !האיגש
.אצמנ אל הינפהה רוקמ.
5.1.4.
The critical success factors in the field of activity and the changes that apply to them
5.1.4.1
Quality, differentiation and originality in the content of the broadcasts, in
their variety, branding and packaging.
69 The Memorandum was published following 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 dated September 2021 regarding the adoption in principle of the Committee's recommendations
subject to changes and adjustments and the hearing published on the subject regarding the Draft Law of Principles of Regulation
of the Provision of Audio-Visual Content to the Public, 5782-2022 ("the Hearing").
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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
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
5.14.2).
Collaborations with international content providers and providing access to
applications operated thereby.
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.
5.1.4.9
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
Yes sees the possibility of receiving many foreign channels using relatively cheap end
equipment as a substitute for its services in relation to certain segments.
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.
Yes 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
Yes, most of them are, in addition, subscribers of the local television providers operating
in the field. According to Yes, the trend of increasing the total market share of all players
(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
Yes’s 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,
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the interface through which they are offered and the price. The offer of OTT services is part of a
gradual trend of migration of Yes’s services from satellite TV services to OTT services. For the
migration process see Section5.17.3.
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.
Yes’s television services
5.2.1.1
Satellite broadcasts
Satellite Yes broadcasts include linear channel broadcasts, as well as radio,
music and interactive channels.
For the purpose of receiving Yes 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 Yes’s broadcasting license and the council's decisions,
the broadcasting of the Yes via satellite includes a basic package of linear
channels that each subscriber is required to purchase (along with other
basic packages that Yes 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 Yes’s VOD services see Section5.14.2.
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
Yes offers a number of OTT services:
5.2.2.1
Yes+ services
Yes 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 devices.
The service can be used on its own or in parallel with the satellite service.
5.2.2.2
STING+ services
Yes operates the "STING+” 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 Yes’s 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 devices.
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The following is the Yes’s susbscriebr base distributed by satellite subscribers and IP subscribers70
Subscriber base (thousands)
Satellite subscribers
IP subscribers
5.2.3.
Internet access services
Yes provides Internet access services, focusing on selling combined Internet and
television packages to customers.71 These services are provided through services received
by Yes from Gilat Telecom Ltd.
The following is a breakdown of Yes’s fiber subscriber base:
Subscriber base (thousands)
5.3.
Customers
The vast majority of Yes’s subscribers are private customers. In general, Yes enters into a subscription
agreement with its subscribers, which regulates the subscribers' set of rights and obligations in their
relationship with Yes. With respect to the subscription agreement with the satellite subscribers, the
approval of the council is required, which was received.72
70 The number of IP subscribers also includes subscribers who also use the satellite services in parallel (see also Section 1.5.4.4).
71 The services are provided according to a general permit in accordance with the provisions of a general permit.
72 According to the broadcasting license, the approval of the Uniform Contracts Court is also required for the subscription
agreement (approval previously granted and expired). Yes has applied to the Council for amendments to the subscription
agreement and for the amendment of the license, as part of which Yes requested, inter alia, to revoke the license provision
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5.4. Marketing and distribution
5.4.1.
The marketing of Yes’s services is done through advertising in the various media. Yes’s
sales activity to existing and new customers is carried out through the following main
distribution channels (some of which are operated by Yes employees and some by
external marketers):
5.4.1.1
5.4.1.2
5.4.1.3
Call centers.
Digital channels.
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).
Yes' main competitors are Hot, Cellcom, Partner, freeTV, and Netflix.
In April 2023, freeTV, a multi-channel broadcasting platform via the Internet, commenced
its operations, owned by Keshet Broadcasting Ltd., which operates, among other things,
a commercial TV channel transmitted as part of Yes Broadcasting ("Keshet") and the RGE
Group Ltd. ("RGE"). For details about the Sports Channel Ltd., which is part of the RGE
Group, see Section 5.9.2. In the year of the report, the activity of the venture intensified
the competition in the field.
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
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 shares73 of Yes, to the best of its
knowledge, as of December 31, 2022 and 202374:
2023
2022
Subscriptions
(thousands)
574
Market
Share
33%
Subscriptions
(thousands)
579
Market
Share
33%
5.5.2.
Current competition characteristics
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.
73 The market shares were calculated from all Yes, Hot, Partner, Cellcom, and freeTV 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 Yes’s market shares in 2021
and 2022 is based on the number of Yes, Cellcom, and Partner subscribers (according to their reports on the number of
subscribers as of the end of the third quarter of 2022), as well as of Hot and freeTV, which do not publish the number of their
subscribers, so the data in relation to them is according to Yes’s estimate. However, there is no certainty that the data presented
in relation to Hot and freeTV are accurate, and therefore it is possible, respectively, that the actual market shares are different
from those estimated.
74 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 revenue per small business customer, which is
determined once per period.
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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 TV 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 Yes, see
also Section 1.7.3.3), 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 yes
5.5.3.1
In the opinion of Yes’s Management, the main competitive advantages of
the Yes are:
a. The quality and variety of content that Yes broadcasts to its subscribers.
b. Level, quality and availability of Yes’s 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
Yes’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 – Yes’s 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
contrast to the use of the Internet which enables 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 5.14.2.
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 Yes
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 5.15), 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 Yes to deal with the competition:
5.5.4.1
Content - Yes 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.
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5.5.4.2
5.5.4.3
5.5.4.4
5.5.4.5
5.5.4.6
5.5.4.7
Pricing policy - offering a variety of services at different price levels.
Offering OTT services (see Section5.2.2).
Service - Yes places emphasis on the customer service system.
Technology - Yes is investing in expanding its technological capabilities, with
an emphasis on providing innovative and advanced services.
Branding - Yes 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 Yes 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, Yes almost fully utilizes the space
segments it uses. The space segments are provided to Yes 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.
PP&E, real estate and facilities
The following are the main components of Yes’s PP&E:
5.7.1.
Real estate
DBS leases a number of real estate properties for its operations. Yes’s 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 Yes 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 Yes 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
Yes 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. Yes purchases streamers and leases them to its
subscribers.
5.7.4.
Broadcasting equipment and computer and communication systems
Yes 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 202875.
5.7.5.
Operating and encryption systems
Yes 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 Yes
and Cinemedia from January 2020. These services are provided in relation to various Yes
75 This is in accordance with the exercise of the right stipulated in the agreement, a provision according to which Yes is granted
the right to extend for five additional years at a time, and its validity. The validity of this provision is under discussion between
the parties, including in relation to the extension period until 2028.
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systems, end equipment, and viewing cards and other hardware components required to
receive these services, and Yes 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 Yes 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, Yes 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 Yes, and on
development services that Yes 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). Yes
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).
Yes 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
Yes 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 Yes also uses
Salesforce software together with Pelephone and Bezeq International,, according to
Pelephone's contract with Salesforce (for details, see Section 3.8.4).
Yes is dependent on the NetCracker system and services and-Salesforce, due to their
importance for Yes's management and monitoring of purchase of services and content by
its subscribers, as well as for the purpose of charging and collecting from its subscribers.
System failures or discontinuation of services to Yes (Including depending on Pelephone’s
engagement 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
Yes’s satellite activity and constitutes the main regulatory permit for this
activity (for the terms of this license, see Section 5.1476).
License for satellite television broadcasts in the Judea and Samaria area
valid until February 2026, the provisions of which are similar to Yes’s
broadcasting license specified in Section 5.8.1.1.77
License to perform uplink operations (transfer of broadcast-focused
broadcasts to the broadcast satellite and to carry out ancillary set-up and
76 The expiration date of the aforementioned license was determined further to Yes's request to adjust, as much as possible,
the expiration date to the estimated date of completing the transition process (migration) of Yes from broadcasting via
satellite to broadcasting via the Internet network. The license gives Yes the right to notify the Ministry of the extension of
the license in two periods of one year each time, under the conditions stipulated in the license.
77 In July 2021, an application was made to the Head of the Judea and Samaria Administration for the renewal of this license.
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operation operations), which are valid until January 2022.78 This license is
essential for Yes’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
Yes has registered trademarks79, the main ones of which are intended to protect its trade
name (Yes) and the key brands it uses (Yes, Yes+, STING+).
5.9.
Broadcasting rights
5.9.1.
Yes has broadcasting rights in content of two types:
Content whose rights to broadcast are acquired from third parties, including discrete
content and channels. Yes 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 Yes invests in its production (in full or in part), and in addition to the right to
broadcast the content as part of its broadcasts, Yes usually has rights in the same content,
at the rates specified in the agreements with the producers. In most cases, Yes 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 broadcasting by Yes.
Broadcasting and distribution of content by Yes, 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 Yes is a forward-looking assessment, as defined in the Securities Law,
based on, among other things, Yes estimates, including in relation to the extent of the 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 Yes acquires broadcasting
rights, Yes 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 Yes customers. Compensation under
these agreements is based on a fixed monthly payment in accordance with the number
of subscribers to Yes 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 Yes customers, it is important to broadcast them as part of its
broadcasts.
5.10. Human capital
5.10.1.
Organizational structure
Yes’s Management consists of divisions, with each division headed by a VP, who serves as
78 After an extension made in January 2022.
79 The trademark STING+ has not yet been registered and is in the process of registration.
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a member of Yes’s Management.
Board of
Directors
CEO
Interna
l Audit
Finan
ce
Conte
nt
Business
Custome
rs
Division
Private
Custom
ers
Division
Public
Relati
ons
Marke
ting
IT
Engin
eering
HR
Legal
advice
and
regulation
The CEO of Yes also serves as the CEO of Pelephone. In addition, most of the VPs who
serve at Yes also serve as VPs at Pelephone, so does the Internal Auditor (who also serves
in Bezeq International).
5.10.2.
Yes employee base by divisions:
Administration
Customer Division
Total
Number of employees
31.12.2022
351
714
1,065
31.12.2023
366
726
1,092
The number of employees included in the table above includes employees employed part-
time. The total number of jobs80 in Yes as of December 31, 2023 was 1,018.
5.10.3.
Benefits and nature of employment agreements
The terms of employment in the Yes 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 Yes’s
employees is the Histadrut.
In addition, Yes 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, Yes 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
until December 31, 2024. According to it, 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 Yes employees (as amended above) regulate, inter alia, the periods after
which a Yes 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
80 Calculated as the total monthly working hours divided by the standard monthly working hours.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
and additional financial benefits to be provided by Yes 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 compensation plans
Yes 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 equity compensation from Bezeq in relation to some of Yes’s executives,
see Section 2.9.5.
5.11. Suppliers
5.11.1.
Rate of purchases from main suppliers and the form of engagement with them
Yes considers as a "main supplier", for the purposes of Section 23 of the First Schedule to
the Prospectus Details Regulations, a supplier from whom Yes’s annual volume of
purchases exceeded 10% of the total annual volume of purchases of the Group. During
the year 2023, Yes did not have a main supplier as defined above.
5.11.2.
Dependence on suppliers
Yes believes that it may be dependent on the following suppliers:
Gilat Telecom, for details on the engagement, see Section 5.2.2.
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 Yes is carried out from its own sources, but it may need investments or
credit from the Company according to Yes’s needs.
In March 2023, Bezeq approved a credit facility or investment in Yes’s equity in a total amount of up
to NIS 40 million, for a period of 15 months starting on January 1, 2024. This approval is instead of a
similar approval given in November 2023 (and not in addition to it).
Yes’s estimate as mentioned above is forward-looking information, as defined in the Securities Law.
There is no certainty that in the future Yes will require financing from Bezeq or that Bezeq will provide
financing for Yes’s activities in excess of the above, and on what dates, and this depends, among
other things, on the situation of Yes, on developments in its areas of activity and on the state of
competition in these areas and on Yes’s future financing needs.
5.13. Taxation
For more details, see Note 7 to the 2023 statements.
5.14. Restrictions and supervision of Yes
5.14.1.
Regulation of satellite broadcasts
Yes’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
in particular the Communications Law and regulations enacted
legislation (and
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.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
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 Law81 and in newspapers with daily circulation, as well as
"Israeliness" requirements regarding officers in the Yes 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 Yes’s Council-approved
price list. The vast majority of satellite subscribers subscribe to promotions,
offering Yes services, including various composition of content packages,
ancillary services as well as receiving and installing end equipment, at prices
lower than the list price.
Yes 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 Yes, 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, Yes must invest
an amount of not less than 8% of its revenues from the subscription fees of
satellite subscribers82 in local productions, when according to the rules of
the media and the decisions of the council, Yes must invest different rates
out of these
local
productions.
in different categories of
investment amounts
In January 2024, the Council decided to postpone for 2025 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 2024 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.
Regarding the obligation to invest in local productions - see also Section
5.16.10.
5.14.1.4
Duty to transfer channels
81 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.
82 Based on its revenues in the past year from satellite subscribers, including Yes’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 Yes
disagrees with it, these revenues also include revenues from VOD service to satellite subscribers.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
Yes is obligated to transmit the "mandatory channels" in satellite broadcasts
and everything as determined by the Minister and in the broadcasting
license.83
In addition, Yes 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 Yes. According to the Second Authority Law, 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
Yes, 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 Yes. 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 Yes’s broadcasting license, Yes 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 1.7.7.7.
5.14.1.6
Ownership of broadcast channels
According to the rules of communication, Yes, 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 Yes broadcasts (compared to a limit
of 20% applicable to HOT). Yes is also restricted according to the
Communications Law, in owning a news broadcast producer.
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 Yes 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
83 According to the provisions of the Communications Law, Yes is exempt from payment to the commercial channels included in
the mandatory channels due to the transmission of their broadcasts over its satellite broadcasts. For the transmission of the
commercial channels as part of the OTT services, see Section 5.1.1.1.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
Communications to secure Yes’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 Yes 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. Yes also believes that the VOD services it provides via the Internet
to satellite subscribers (see Section5.2.1) 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 Yes 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 Yes, 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
Yes markets integrated packages of TV and Internet services provided by it. Additionally,
according to the broadcasting license, Yes may offer a shared basket of services, including
Bezeq service and Yes 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 Yes, 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 Yes and the amendment under consideration, see Section 2.16.9.3.
In the opinion of Yes, 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
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 Yes 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 Yes, which were signed or are
valid during the reporting period:
Agreement for the lease of space segments84
84 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 Yes 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 Yes, and which in part is not even controlled by Space and depends on its engagements with third parties. Therefore,
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
According to an agreement with Space, since 2013, as amended (including amendment from January
2023), Yes has leased space segments in satellites from the "Amos" series ("the Space Agreement").
Comply with the provisions of the Space Agreement, Yes 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).85
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 202686.
The leased space segments - according to the Space Agreement (and subject to unavailability events),
until the end of the Amos 7 Yes lease period, Yes 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 Yes 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.87
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, Yes 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".
Yes has a substantial dependence on Space, as the sole owner and sole supplier of the space
segments used by Yes, 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 Yes and the lack of redundancy for the Amos 3 satellite from the end of
the Amos 7 lease, see Section5.18.3.4.
5.16.
Legal Proceedings88
5.16.1.
Pending and contingent legal proceedings
Date
Sides
Court
Type of procedure
Details
Amount of
claim /
remedies
a.
Decem
ber
2020
Tel Aviv
District
Court
b.
June
2017
Bezeq
sharehol
ders vs.
Bezeq,
Chairma
n of the
Tel Aviv
District
Court
(Econom
ic
Departm
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 Yes and its former CFO see
Section.אצמנ אל הינפהה רוקמ !האיגש.
For details regarding a motion for approval
of a class action lawsuit filed against,
among other things, the former CEO of Yes
and its former CFO, in connection with a
2015 transaction in which Bezeq acquired
the remaining shares of the Yes shares held
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.
85 See Bezeq's immediate report dated February 27, 2023.
86 In some cases, Yes may announce the continued use of the "Amos 3" satellite even after the end of its life.
87 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.
88 For reporting policy and materiaityl threshold, see Section 2.18.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
Date
Sides
Court
Type of procedure
Details
Amount of
claim /
remedies
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 Yes
Bezeq
shareh
olders
against
Bezeq
and Yes
c.
July -
August
2017
ent)
thereby from Eurocom DBS, see Section
2.18.1c.
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 Yes, for
disclosures of certain documents
in
connection with a 2013 Yes and Space
stakeholder transaction as amended in
2017 (Space Agreement) See Section 2.18.1
Subsection D.
d.
June
2023
Custome
rs vs. Yes
Motion for approval
of a class action
Central
District
Court-
Lod
e.
Augus
t 2023
Custome
rs vs. Yes
Motion for approval
of a class action
f.
Augus
t 2023
Custome
rs vs. Yes
Motion for approval
of a class action
154
through
The point of the claim is that Yes does not
act in accordance with the law with regard
to giving notice of the end of fixed-period
transactions in that it does not send a
separate and independent notice of the end
the benefit period, beyond
date of
informing
the
the customer
monthly invoice and by sending a text
message.
It should be noted that similar motions on
the same subject (failure to provide notice
as required on the termination of a fixed-
period transaction) were filed against the
Company
and
(see
Pelephone (see Section 3.16.1).
The claim alleges that Yes violates the
including Article
law,
provisions of the
18b(a1)(3) of the Consumer Protection Law,
the provisions of
license, and the
its
provisions of the Consumer Protection
Regulations
Telephone
(Provision of
Service), 5772-2012, regarding the required
waiting time for receiving a response from a
representative from the beginning of the
call.
Motion for approval of a class action
Section 2.18.1)
Over NIS
2.5 million
Over NIS
2.5 million
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
Date
Sides
Court
Type of procedure
Details
Amount of
claim /
remedies
Appeal to HCJ
g.
Januar
y 2024
Organiza
tions of
creators,
perform
ers,
producer
s,
screenwr
iters,
and
editors
vs. the
Council,
the
Chairma
n of the
council,
Yes and
Hot
Further to the petition submitted in April
2023, which was struck out in July 2023,
while preserving the claims of the parties,
the petition was refiled, in the framework of
which the Court was asked to order the
Council and the Chairman of the Council to
respond and justify why they would not
order Hot and Yes to include their revenue
from additional services provided by them,
which are not multi-channel television
cable
services
communication,
telephony
services, Internet access services, and multi-
channel television services over the Internet
(OTT) for the purpose of calculating their
local
annual
investment obligations
productions
the
Communications Law.
satellite or
according
including
through
to
in
5.16.2.
Legal proceedings that ended during the reporting period
Date
of
filing
claim
a.
June
2018
Sides
Court
Type of procedure
Details
Original
claim
amount
(NIS millions)
Sharehol
ders of
the
Compan
y vs. the
Compan
y, Yes,
and the
former
controlli
ng
sharehol
ders of
the
Compan
y
Motion for
disclosure and
perusal of
documents in
accordance with
Article 198A of the
Companies Law
High
Court of
Justice
Tel Aviv
District
Court
(Econom
ic
Departm
ent)
submittifilingng a motion
For details regarding the striking out of the
motion for the disclosure of documents
before
for
approval of a derivative claim in accordance
with Article 198a of the Companies Law,
which were filed by Bezeq shareholders
against Bezeq, Yes, the former controlling
shareholder of the Company, Mr. Shaul
Elovich, and his son, Mr. Or Elovich ("the
Elovich "), for the delivery of documents and
information in connection with the violation
of the fiduciary, fairness and fiduciary duties
of Elovich in connection with the sale of
Bezeq shares on February 2, 2016 by the
Company, see Section 2.18.2.
5.17. Targets and strategy
5.17.1.
Yes’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, Yes 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 Yes 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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
5.17.2.
5.17.3.
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 Yes.
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 Yes’s expenses and a better
adaptation to changing market conditions.
As of the date of approval of the statements, the rate of Yes subscribers using the Services
Yes+ and STING+ transmitted via the Internet (as stated in the Sections5.2.2.1 and
.אצמנ אל הינפהה רוקמ !האיגש above) is about 71%89 of all Yes 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 Yes; 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 Yes 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 Yes’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 Yes 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
apply and will apply to Bezeq, which affect Yes. However, the predictions of the Yes
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 Yes (“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
Financial risks - Yes 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,
satellite segments, purchase of end equipment and other
logistics
equipment). Therefore, sharp exchange rate changes have an effect on
DBS's business results.
5.18.1.2
Recession / economic slowdown / security situation - an economic
slowdown in the economy, an increase in unemployment rates and a
89 This rate also includes subscribers who also use satellite services.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
5.18.1.3
5.18.1.4
5.18.1.5
decrease in disposable revenue may lead to a decrease in the number of Yes
subscribers, a decrease in Yes’s 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 Yes.
Epidemic - Disease outbreaks and epidemic events in general (such as the
outbreak of COVID-19 in 2020) may have consequences for Yes’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 Yes’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 Yes, and their consequences are subject, among other things, to the
decisions of countries and authorities in Israel and around the world that
may affect Yes accordingly. For this matter see also Section 5.18.1.2 and the
Company's reference in Sections 2.20.11 and 2.20.14.
Damage caused by nature, war, disaster - damage to Yes 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.
Damage to electricity supply - Damage to the electricity supply to Yes’s
facilities for various reasons (some of which are described in Section Error!
The source of the reference was not found.) may have a negative effect on
Yes’s business and damage Yes’s ability to provide services. Some of Yes’s
systems have power backup, but at the same time, in the event of prolonged
damage to some or all of the systems, there may be significant difficulties
and beyond that in the provision of Yes services, including in the event that
Yes cannot return the systems to service quickly.
5.18.2.
Industry risks
5.18.2.1
5.18.2.2
5.18.2.3
Dependence on licenses – Yes’s 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 Yes’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 Yes’s activity and may materially impair its financial
results. The OTT services including those of Yes 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 Section5.1.1 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 Yes. In
addition, Yes’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 Section1.7.7.4 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 Yes to constantly and continuously invest in recruiting and retaining
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customers and dealing with high transfer rates of subscribers between
companies, and may even require a change in Yes’s business model . For the
characteristics of competition, see Section5.5.
local and
international factors,
Yes’s estimate, as stated in this paragraph above in relation to the possibility
of the entry of
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.
5.18.2.4
5.18.2.5
5.18.2.6
5.18.2.7
Technological developments
technological
improvements and the development of new technologies that will make
existing technology inferior, may require Yes to make large financial
investments in order to maintain its competitive position (see Section5.1.1).
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 Yes (see
Section5.1.1).
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 - Yes 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 Yes subscribers, and a claim
relating to a small damage to a single subscriber may become a material
claim to Yes, if recognized as a class action applicable to all subscribers or to
a substantial portion thereof.
5.18.3.
Special risks to DBS
5.18.3.1
5.18.3.2
5.18.3.3
Limitations as a result of the ownership structure - Yes is limited in its
cooperation with Bezeq
in relation to the offer of a basket of
communications services in a manner that materially affects Yes’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 Yes, as well as a decrease in the holding rate
of Israeli citizens or residents in Yes, 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).
Maintaining a sufficient cash flow - Yes 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 Yes’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 Yes, 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 הינפהה רוקמ !האיגש
.אצמנ אל, will meet the needs of Yes activity for the coming year.
5.18.3.4
Yes satellite transmissions are made using space segments of satellites
located at the same point in space. In the operation of one of the satellites,
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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 Yes 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 Yes on the other satellite, to broadcast the channels broadcast
by Yes (all or almost all) (for the Space Agreement, including backup
mechanisms determined under it, see Section 5.15.1). However, according
to Yes, the said duplication of satellites is expected to end in the beginning
of 2025, and from that period onwards, Yes will operate with one satellite -
see Section 5.15.1. Yes 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 Yes
subscribers are still satellite subscribers may result in substantial damage to
Yes 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 Yes 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 - Yes has a
substantial dependence on Space, as the sole rights holder and the sole
supplier of the space segments used by Yes, 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 satellite
and the body responsible for its operation, with whom Space has contracted
(see Section5.15 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 - Yes has dependence on software vendors and equipment, as well
as on certain content vendors (see Sections 5.7.2 and 5.7.5) 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 Yes 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.
5.18.3.5
5.18.3.6
5.18.3.7
Impairment of the activity of the broadcasting centers and the logistics
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5.18.3.8
5.18.3.9
limitation
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, Yes will be able to
continue to broadcast from the other broadcasting center; As far as satellite
broadcasts are concerned, some of its linear channels as well as the VOD
service, and as far as OTT services are concerned - some of its linear
channels, while it can continue to broadcast only the VOD service in the
event that the activity of the secondary site is stopped. Each broadcasting
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
broadcasting centers. Damage to the Yes logistics center may also disrupt
its operations, and in particular the installation and maintenance of end
equipment.
The assessment of Yes 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 Yes 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 Yes’s operational capacity.
However, Yes 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 Yes site's computer systems
in Kfar Saba, it will be possible to reactivate the central systems through the
backup site.
Yes’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 - Yes 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, Yes is a target for
cyber attacks and experiences cyber attacks, which are handled by its
information security and cyber protection teams.
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 Yes is the information security
manager.
Yes 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 Yes, 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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
that operate automatically and help discover information security loopholes
and weaknesses. Yes 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.
Yes 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, Yes allocated
resources to manage cyber risks through the establishment of an
information security system consisting of professional employees in the
field.
Yes’s Board of Directors is involved in and supervises the management of
cyber risk at Yes within the framework of handling the overall risk
management policy of Yes.
Despite Yes’s actions investments in measures to reduce such risks, Yes 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 – Yes’s
satellite infrastructure suffers from technical limitations compared to Hot
infrastructure as well as to the Internet infrastructure. The technical
limitation prevents Yes 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 – Yes’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 Yes 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 Yes broadcasts and
/ or the availability of the broadcasts to the subscriber may result in damage
to the financial results of Yes. As of the date of this report, to the best of
Yes’s knowledge, no holder of the main allotment used the said frequencies
in a manner that caused actual and / or persistent interruptions in Yes’s
broadcasts.
Interference for transmissions - since Yes 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 Yes 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.
5.18.3.10
5.18.3.11
5.18.3.12
5.18.3.13
5.18.3.14
Labor relations - Yes 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
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5.18.3.15
5.18.3.16
relations at Yes, and possibly also at other Bezeq subsidiaries, could cause
damage to Yes’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 Yes’s outline for the
transition to OTT broadcasting (see Section0) 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 Yes.
Below is a presentation of the risk factors according to their influence in the
opinion of the Yes’s Management. It should be noted that the following DBS
assessments regarding the extent of the risk factor's impact on Yes 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.90:
Risk Factors Summary Table - Multi-Channel TV
Macro risk
Financial risks
Recession / economic slowdown / security situation
Pandemic
Damage caused by nature, war, disaster
Damage to electricity supply
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
The degree of influence
Small
Medium
High
X
X91
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
90 See Footnote 51.
91 The extent of the effect of this risk factor on Yes’s activity was classified as moderate, assuming that the event would be limited
in scope and time. Otherwise, the degree of impact may be large.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
The degree of influence
Small
Medium
High
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
X
X
X
X
X
X
X
X
X
X
The information contained in this section 5.18 and Yes’s assessments regarding the impact of risk
factors on Yes’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 Yes’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.
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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 consolidated
statements and Section 4 to the Board of Directors' report.
6.1.3.
Credit rating
On June 19, 2023, Midroog Ltd. established an A3.il rating with a stable horizon for the
Company's debentures (series C) and (series F) that were in circulation as of that date, as
well as a stable horizon for additional debentures (series F) to be issued by the Company
in the amount of up to NIS 550 million by way of series expansion.
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 Yes shares
by Bezeq from Eurocom. On May 23, 2023, the Company signed a settlement agreement
(“the Settlement Agreement") in connection with the 2 motions mentioned above, and
according to it, without admitting any of the claimed fraud, including the existence of
misleading details in the reports or statements of Bezeq and/or the Company, the
responsibility of any of the respondents to the alleged misleading details, the alleged
damages or the entitlement of the members of the classes to the claimed remedies, the
Company agreed to pay as follows: (a) to the members of Class A defined in the
settlement agreement as "everyone who purchased Bezeq shares in the period between
February 11, 2015 and June 19, 2017, with the exception of the respondents or anyone
on their behalf" - a total amount in shekels equal to 1,500,000 US dollars; (b) to members
of Class B defined in the settlement agreement as "everyone who purchased shares of
the Company on the Tel Aviv Stock Exchange Ltd. starting on May 21, 2015 at 13:00 until
June 19, 2017 (inclusive)" - a total amount in shekels equal to 2,850,000 US dollars.
In addition, as part of the Settlement Agreement, the parties recommended that the
Company pay compensation to the applicants, their attorney fees, and additional costs in
connection with the execution of the Settlement Agreement. The total amount that the
Company
including the
compensation amounts for the classes as detailed above, amounts to a total in NIS equal
to USD 5,500,000. The aforementioned settlement amount does not include the offset of
the insurance company's participation by virtue of officers' insurance.
is expected to pay under the Settlement Agreement,
On August 23, 2023, the Attorney General submitted his reference to the Settlement
Agreement according to which there is no objection from his side to the Settlement
Agreement, along with several comments on the merits of the matter. On August 31,
2023, Bezeq and some of the respondents submitted a motion to the Court to schedule a
hearing on the Settlement Agreement. Following a number of interim motions that were
submitted, on January 8, 2024, a discussion regarding the Settlement Agreement was
held, in which a number of comments on the substance of the matter were received from
the Attorney General, and in accordance with the Court's decision, the parties must make
a number of Changes to the Settlement Agreement and its submission, including the
addition of an opinion, without the Settlement Agreement being changed by the Court
until March 17, 2024.
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
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
6.2.3.
(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.
On November 30, 2022, the applicant's summaries were submitted, and in accordance
with the Court's decision, on March 29, 2023, the respondents' summaries were
submitted, and on April 24, 2023, response summaries were submitted on behalf of the
applicant.
In November 2020, a lawsuit was filed in the Tel Aviv District Court (Economic
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 aforesaid settlement, and accordingly, the parties began holding
mediation proceedings, and according to the Court’s decision, they must act to exhaust
the procedure within 3 months and submit an update on the matter by April 2, 2024.
__________________________________
B Communications Ltd.
March 12, 2023
Date
Names and roles of the signatories:
Darren Glatt, Chairman of the Board of Directors
Tomer Raved, CEO
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
7. Appendix A - Glossary
A. Abbreviated names for pieces of 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
General Permit
Regulations
Usage regulations
Communications Regulations (Bezeq and Broadcasting) (General Permit for the
Provision of Bezeq Services), 5782-2022
Communications (Bezeq and Broadcasting) Regulations (Use of an NIO’s Public
Network), 5775-2014
The Communications
Order
-
Communications Order (Bezeq and Broadcasting) (determination of an essential
service provided by Bezeq, The Israel Telecommunications Company Ltd.), 5777-
1997
Prospectus Details
Regulations
- 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
B. Technological terms and other key terms appearing in the report92
Statistical area
Internet Gold
Bezeq Online
Bezeq International
Golan telecom
-
-
-
-
-
A continuous area unit created from a geographic-statistical division, as
ordered by the Minister of Communications according to Aarticle 14f of the
Communications Law; The division into statistical areas is based on the CBS.
Internet Gold Gold Lines
Bezeq online Ltd.
Bezeq International Ltd
Golan Telecom Ltd.
92 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.
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Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
2023 statements
-
Interconnectivity fee
-
Yes
Hot
Hot Telecom
Hot Mobile
The Histadrut
Council
The Second Authority
Walla
Space
Eurocom DBS
Eurocom
Communications
Switching
Mbps
NIO
Roaming
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Network endpoint
-
The Company's consolidated financial statements for the year ended
December 31, 2023
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)
Yes Television and Communications Services 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
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
maintenance of equipment and services in the customer's premises
Authorized provider
Bezeq license holder or registered in the registry maintained according to
Article 4A1 of the Communications Law
Cellcom
Pelephone
Partner
Interconnectivity
Mobile radio
-
-
-
-
-
Cellcom Israel Ltd. and corporations under its control
Pelephone Communications Ltd.
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
167
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
telephone
NIO license
Mobile Radio license
Broadcasting license
ILA
Rami Levy
Advanced network
-
-
-
-
-
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.
A network based on optical fibers that reach a network endpoint in an end
user's apartment, or an equivalent network in terms of the level of service
that can be provided over it according to standards ordered by the Minister
and published on the website of the Ministry of Communications; For this
purpose, "apartment" - a room or cabin, or a set of rooms or cabins
intended to be used as a complete and separate unit for living, business, or
any other need, including a detached apartment
Traditional network
Non-advanced Bezeq network
Bezeq services
-
A service that is one of the following, provided to the general public or a
part of it through the Bezeq network:
Internet access
service
Data transfer
services
Telephone service
On-demand viewing
services
Reporting period
Bitstream Access
(BSA)
xDSL
DTT
GSM
HD
-
-
-
-
-
-
-
(1) Telephony service;
(2) Internet access service;
(3) Data transfer service;
(4) Another service listed in the First Schedule
A service that can be provided to subscribers for consideration, in money
or money equivalents, that allows them to link to the endpoints of the
Internet network that are accessible to the general public
Network services for data transfer from point to point, data transfer
between computers and various communication networks and remote
business access services
A service that allows the transfer or reception of a Bezeq message based
on a number according to the numbering plan
Services that allow viewing content when it is not broadcast, including
VOD, Catch Up (viewing content that has been broadcast, until a certain
period of time has passed since the time of its original broadcast), Start
Over (the possibility to go back and watch content from the beginning),
recording and saving content in the cloud
Twelve months ended December 31, 2023
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
Global System for Mobile Communications - International Standard for
Cellular Communication Networks ("2G")
High Definition TV - High definition (broadcast) TV broadcasts
168
Chapter A (Description of the Corporation's Business) for the 2023 Periodic Report
HSPA
IBC
ICT
IP
IPVPN
ISP
LTE
MVNO
NGN
UMTS
VoB
VOD
VoIP
Wi-Fi
-
-
-
-
-
-
-
-
-
-
-
-
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.
Business integration service (Information and communications technology)
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
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
169
Chapter A (Description of the Corporation's Business) for the 2023 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 revenue per line / subscriber / parent house and is calculated as the
monthly average distribution of the total relevant revenue 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.
170
Chapter B
Report of the Board of Directors
On the State of Affairs of the Corporation
For the Year Ended December 31, 2023
Report of the Board of Directors on the State of Affairs of the Corporation for the Year
ended December 31, 2023
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, 2023 (“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 and international communications services and ICT solutions (hereinafter: "Bezeq International
Services")
4. Multichannel TV
On April 23, 2023, the name of DBS Satellite Services (1998) Ltd. was changed to Yes Television and
Communication Services Ltd. (hereinafter: "Yes").
The following are the Group's consolidated results:
2023
2022
Increase/decrease
NIS millions
NIS millions
NIS millions
%
Net profit
EBITDA*
Adjusted EBITDA*
1,054
3,616
3,806
Adjusted net profit*
1,212
891
3,493
3,724
1,087
163
123
82
125
18.3
3.5
2.2
11.5
* Financial indices that are not based on generally accepted accounting principles, see below.
The net profit was affected, among other things, by a decrease in other operating expenses and the cancellation
of the expenses on the fiber deployment incentive fund in the Group, an increase in the net profit of Yes, as
well as a decrease in financing expenses in the landline national interior communications segment, offsetting
an increase in salary 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, 2023
* 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
Adjusted
profit
net
Defined as profit before financing income (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. The Group's EBITDA is calculated as
operating profit before depreciation, amortization, and impairment (including
ongoing losses from impairment of property, plant and equipment and
intangible assets as described in Notes 3.7, 10.5, and 10.6 to the Statements).
Calculated as an EBITDA index net of the other operating expenses / income
item, net, and one-off losses / profits from impairment / increase in value and
expenses in respect of the equity compensation plan.
The index allows comparisons of operational performance between different
periods while neutralizing the effects of exceptional expenses / income of a
one-off nature.
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.
Defined as net profit neutralizing other operating expenses/income, net after
tax and one-off losses/gains from depreciation/appreciation after tax, and
expenses for the equity compensation plan. The index allows performance
comparisons between different periods while neutralizing the effects of
unusual expenses/income of a one-off nature.
The following is a breakdown of the calculation of the indices:
Operating profit
Depreciation, amortization, and impairment
EBITDA
Other operating expenses, net
Equity compensation plan expenses
Adjusted EBITDA
Net profit
Other operating expenses, net after tax
Equity compensation plan expenses
Adjusted EBITDA
2023
2022
NIS millions
1,625
1,868
3,493
220
11
3,724
2023
2022
NIS millions
891
185
11
1,087
2
1,749
1,867
3,616
180
10
3,806
1,054
148
10
1,212
Report of the Board of Directors on the state of affairs of the corporation for the Year ended December 31, 2023
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, 2023
December
31, 2022
Increase (decrease)
NIS millions
%
NIS millions
%
1,892
1,727
165
9.6
2,089
2,189
)100(
)4.6(
Explanation
For more information, see Chapter 1.4 below.
The decrease was mainly due to the cancellation of an insurance indemnity balance for a provision for a
claim in the landline national interior communications segment.
82
85
)3(
124
1,746
6,542
286
3,251
29
)3.5(
7.1
4.4
0.9
The increase was due to the Bezeq International services segment, mainly from the cost of additional
contracts that came into force as well as from an increase in the consumer price index, offsetting a
decrease mainly in the cellular communication segment due to current depreciation expenses.
The increase was due to the Bezeq International services segment, mainly from the cost of additional
contracts that came into force as well as from an increase in the consumer price index, offsetting a
decrease mainly in the cellular communication segment due to current depreciation expenses.
The increase was mainly due to the landline national interior communications segment, among other
things due to the progress of the fiber network deployment project.
Cash and
current
investments
Current and
non-current
trade
receivables
Inventory
1,870
6,828
Right-of-use
assets
Property,
plant and
equipment
Intangible
assets
Deferred
expenses
and non-
current
investments
Total assets 16,353
3,280
312
315
)3(
)1.0(
15,855
498
3.1
3
Report of the Board of Directors on the state of affairs of the corporation for the Year ended December 31, 2023
1.1.
Financial position – Liabilities and equity
Debt to financial institutions and
bondholders
December
31, 2023
NIS millions
December
31, 2022
%
Increase (decrease)
NIS millions
%
8,903
9,178
(275)
(3.0)
Liabilities in respect of leases
Trade payables
Employee benefits
2,041
1,908
133
7.0
1,758
1,598
160
10.0
583
600
(17)
(2.8)
Provisions
Deferred tax liabilities
Other liabilities
Total liabilities
Non-controlling interests
Total equity deficit attributed to the
Company's shareholders
Total equity
140
322
160
205
319
151
13,907
2,257
13,959
1,842
189
54
(65)
3
9
(52)
415
135
(31.7)
0.9
6.0
(0.4)
22.5
249.3
2,446
1,896
550
29.0
Total liabilities and equity
16,353
15,855
498
3.1
Explanation
The decrease in debt resulted from the repayment of debentures and loans,
offsetting the expansion of series 13 and 14 debentures and the receipt of loans in
the landline national interior communications segment. For more information, see
Note 13 to the Statements.
The increase was due to the Bezeq International services segment, mainly from the
cost of additional contracts that came into effect as well as from an increase in the
consumer price index, offsetting a decrease mainly in the cellular communication
sector due to payments during the year.
The increase was mainly due to the landline national interior communications. For
more information, see Note 14 to the Statements.
The decrease was due to payments for the retirement of employees, offsetting the
increase in provisions for the termination of employee-employer relations through
early retirement and voluntary retirement in the Group, and due to the recording
of a one-off provision for the amount of the special bonus that will be paid to Bezeq
employees as part of the amendment of the collective agreement, see Note 16 to
the Statements.
The decrease was mainly due to the cancellation of the provision for a claim offset
interior
insurance
by
communications.
landline national
indemnification
field of
in the
Shareholders’ equity constitutes approximately 14.9% of the total balance sheet,
compared to approximately 11.9% of the total balance sheet on December 31,
2022. The increase was due to 2023profits, offsetting the distribution of dividends
per share and the buyback 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, 2023
1.2.
Enterprise results
1.2.1.
Key results
2023
2022
Increase (decrease)
NIS millions
NIS millions
%
Explanation
Revenues
9,103
8,986
117
1.3
Operating and general
expenses
3,381
3,396
(15)
(0.4)
Salary
1,926
1,877
49
2.6
Depreciation, amortization
and impairment
1,867
1,868
(1)
(0.1)
Other operating expenses,
net
180
220
(40)
Operating Profit
1,749
1,625
124
Financing expenses, net
Taxes on revenue
Profit in the year
349
346
1,054
398
(49)
336
891
10
163
(18.2
)
7.6
(12.3
)
3.0
18.3
The increase was due to growth in the landline national interior communications and multi-channel
television segments, offsetting a decrease in revenues from the cellular communications segment and the
Bezeq International services segment.
It should be noted that the expenses were affected, among other things, by a decrease in expenses for the
fiber deployment incentive fund due to a temporary order, in which it was determined that in 2023 the rate
of payment of the entities liable to the incentive fund will be 0% instead of 0.5%, for further details see
Chapter 1.2.2 below.
The increase was mainly due to the landline national interior communications segment, offsetting a
decrease mainly in the international Bezeq services segment. For more information, see Note 23 to the
Statements.
The decrease was due to a decrease in expenses for the termination of employee-employer relations
through early retirement and voluntary retirement and collective agreements in the Group, as well as a
decrease in expenses for provision for claims, offsetting the recording of a one-off provision in the amount
of NIS 75 million for the special grant that will be paid to employees of the landline national interior
communications segment as part of the amendment of the collective agreement, see Note 24 to the
Statements.
The decrease was mainly due to the landline national interior communications segment. For more
information, see Note 25 to the Statements.
5
Report of the Board of Directors on the state of affairs of the corporation for the Year ended
December 31, 2023
1.2.2.
Operating segments
a. The following are data regarding revenues and operating profit in accordance with the
Group's operating segments:
2023
2022
NIS
millions
of %
segment
revenue
NIS
millions
of %
segment
revenue
Revenues by operating segments
Interior landline communication
Cellular communication
Bezeq International services
Multi-channel TV
Others and adjustments
Total
4,412
2,348
1,212
1,309
(178)
9,103
48.5
25.8
13.3
14.4
(2.0)
100.0
4,306
2,399
1,239
1,277
(235)
8,986
47.9
26.7
13.8
14.2
(2.6)
100.0
2023
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 (proforma) *
Others and adjustments
Consolidated operating profit / percentage of Group
revenues
1,451
196
39
(4)
67
1,749
32.9
8.3
3.2
(0.3)
-
19.2
1,460
193
(30)
(48)
50
1,625
33.9
8.0
(2.4)
(3.8)
-
18.1
* 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 Yes’ statements.
6
Report of the Board of Directors on the state of affairs of the corporation for the Year ended December 31, 2023
1.2.2.
Activity segments (Cont.)
b. Interior landline communications segment
2023
2022
Increase
(decrease)
NIS millions
%
Explanation
Internet - infrastructure 1,947 1,789
158 8.8
The increase was mainly due to an increase in the average revenue per retail subscription, which was mainly due to an increase in the number of subscribers
connected to the fiber network, complementary end equipment, and the provision of Internet access services (ISP) starting in April 2022. In addition, there was an
increase in the scope of wholesale market activity in the field of fiber and in the use of Bezeq infrastructures.
Landline telephony
650
780
(130) (16.7)
The decrease was due to a decrease in the average revenue per telephone line due to the reduction of telephony rates by the Ministry of Communications starting
in April 2022 and a further reduction starting in July 2023, a decrease in interconnection rates starting from June 15, 2023, and a decrease in the volume of traffic.
There was also a decrease in the number of lines.
Transmission, data
communication and
other
Cloud and digital
services
1,466 1,406
60
4.3
The increase was due to data transmission and communication services for businesses and an increase in paid jobs. The increase was largely offset by a decrease in
transmission revenues to Internet Service Providers (ISPs) due to the switch of subscribers to Bezeq due to the Unified Internet reform.
349
331
18
5.4
The increase was due, among other things, to virtual switchboard services and cloud services.
Total revenues
4,412 4,306
106 2.5
Operating and general
expenses
769
759
10
1.3
The increase was mainly due to an increase in the expenses on subcontractors and materials, mainly for the deployment of the fiber network and paid works,
offsetting a decrease in expenses on the fiber deployment incentive fund due to a temporary order, in which it was determined that in 2023 the payment rate of
the entities liable to the incentive fund will be at a rate of 0% instead of 0.5% as well as a decrease in interconnection payments to communication operators,
mainly due to a reduction in rates as of June 15, 2023.
Salary
1,028 970
58
6.0
The increase was due to salary updates (including the minimum wage), hiring employees, as well as a one-off grant for permanent employees following the wage
agreement in the public segment, mainly offsetting employee retirement.
Depreciation and
amortization
Other operating
expenses, net
1,019 1,005
14
1.4
145
112
33
29.5
The increase was due to the recording of a one-off provision in the amount of NIS 75 million for the amount of the special grant that will be paid to Bezeq
employees as part of the amendment to the collective agreement, as well as a decrease in capital gains from the sale of real estate. The increase was partially offset
by a decrease in provision expenses for claims and provision expenses for early retirement.
Operating profit
1,451 1,460
(9)
(0.6)
Financing expenses, net 256
332
(76)
(22.9)
The decrease in net financing expenses was mainly due to an increase in financing income from investments, a decrease in linkage differences for debentures
mainly due to a lower index increase, as well as due to early repayment costs of debentures which were recognized in the corresponding year. This is done by
offsetting financing expenses on employee benefits against financing income that was recognized in 2022, see Note 25 to the Statements.
Taxes on revenue
294
279
Segment profit
901
849
15
52
5.4
6.1
7
Report of the Board of Directors on the state of affairs of the corporation for the Year ended December 31, 2023
1.2.2.
Activity segments (Cont.)
c. Cellular communications segment
2023
2022
Increase (decrease)
NIS millions
%
Explanation
Revenue from services
net of interconnect *
1,385
1,364
21
1.5
The increase was mainly due to continued growth in the number of subscribers, including subscribers to 5G
plans. This increase was partially offset by a decrease in revenues from a project with the Ministry of
Education recorded in 2022, as well as a decrease in revenues from hosting services.
Interconnect revenues *
371
427
(56)
(13.1)
The decrease was mainly due to the reduction of interconnect rates in June 2023.
Sale of end equipment to
customers
592
608
(16)
(2.6)
The decrease was mainly due to a decrease in the number of devices sold.
Total revenues
2,348
2,399
(51)
(2.1)
Operating and general
expenses
1,278
1,327
(49)
(3.7)
Salary
323
314
9
2.9
The decrease was mainly due to a decrease in expenses attributed to interconnect revenues (parallel to the
decrease in revenues) as well as a decrease in expenses for the fiber deployment incentive fund.
The decrease was partially offset by an increase in loan-loss expenses as well as an increase in network
expenses, among other things due to an increase in the index and electricity rates.
The increase was mainly due to the effects of the collective agreement that was signed in December 2022,
offsetting an increase in salary for investment as well as a decrease in the number of employees.
Depreciation and
amortization
Other operating
expenses, net
549
532
17
3.2
The increase was mainly due to the updating of the estimate of the cost of right-of-use assets carried out in
2022 for past periods. This increase was partly offset by assets whose depreciation period ended.
2
33
(31)
(93.9)
The decrease was due to the effects of the collective agreement regarding a bonus for employees and
expenses for employee retirement in 2022.
Operating profit
196
193
3
1.6
Financing income, net
13
26
(13)
(50.0)
Taxes on revenue
Segment profit
50
159
54
165
(4)
(6)
(7.4)
(3.6)
The decrease was mainly due to a decrease in interest revenue from loans given to the parent company and
repaid. This decrease was partially offset by a decrease in exchange rate differential expenses in light of the
increase in the exchange rate as well as an increase in interest revenue from deposits.
* Revenue from interconnectivity (hereinafter: "interconnect") - as part of the reform to change the interconnect RAETS regime (hereafter: "the Reform"), which began gradually from June 2023
to June 2025, interconnect revenues from mobile radio telephone operators and NIO operators to whom the reform applies are presented separately.\
8
Report of the Board of Directors on the state of affairs of the corporation for the Year ended December 31, 2023
1.2.2.
Activity segments (Cont.)
d. Bezeq International services
2023
2022
Increase
(decrease)
Explanation
NIS millions
%
Revenues
1,212
1,239
(27)
(2.2)
Operating, general and
impairment expenses
800
827
(27)
(3.3)
The decrease was largely due to a decrease in revenue from internet services (ISP), mainly due to a decrease in the
number of subscribers following the unified internet reform that began in April 2022. This decrease was largely offset
by an increase in Bezeq's business activity as a whole, mainly from the consolidation of the subsidiary CloudEdge in
the second quarter of last year and an increase in this activity, an increase in revenues from equipment, licensing and
service contracts, data services, and server farm activity.
The decrease was mainly due to a decrease in expenses for the use of Internet infrastructure in view of a decrease in
activity in this field, as well as a decrease in marketing and general expenses. This decrease was partially offset mainly
by an increase in expenses due to the consolidation of the subsidiary CloudEdge in the second quarter of last year
and an increase in this activity, an increase in expenses for the sale of equipment, licensing and service contracts and
data services.
Salary
216
237
(21)
(8.9)
The decrease was mainly due to a continuous decrease in the number of Bezeq International employees, which was
partially offset by an increase in the salary of the subsidiary CloudEdge.
Depreciation,
amortization, and
impairment
137
134
3
2.2
The increase was due to an increase in current depreciation for PP&E and impairments of right-of-use assets, which
was offset by a decrease in asset depreciation.
Other operating expenses 20
71
(51)
(71.8)
The decrease was mainly due to the registration of the provision for voluntary retirement last year, offsetting
expenses for updating the provision for voluntary retirement, and updating the provision for claims.
Operating profit (loss)
Financing expenses, net
Income taxes
Segment profit (loss)
39
10
-
29
(30)
69
-
1
1
(32)
9
(1)
61
900.0
The increase was mainly due to an increase in financing expenses for leasing building.
(100)
-
9
Report of the Board of Directors on the state of affairs of the corporation for the Year ended December 31, 2023
1.2.2.
Activity segments (Cont.)
e. Multi-channel TV (proforma) *
2023
2022
Increase (decrease)
NIS millions
%
Revenues
1,309
1,277
32
2.5
886
855
31
3.6
Explanation
The increase was mainly due to an increase in revenues from combined television and fiber
packages as well as revenues from new content packages, mainly from collaborations with
international content providers, offsetting the change in the mix of subscribers from premium to
discount as well as a decrease in revenues from the sale of content to external entities.
The increase was mainly due to an increase in costs for fiber activity as well as an increase in costs
for collaborations with international content providers, as well as from an increase in satellite
segment expenses mainly as a result of a change in the dollar exchange rate. On the other hand,
there was a decrease in expenses for the fiber deployment incentive fund and a decrease in
marketing and general expenses.
Operating and
general expenses
Salary
Depreciation and
amortization
Other operating
expenses
Operating loss
Financing
expenses, net
Taxes on revenue
Segment profit
(loss)
186
244
(3)
(4)
(9)
1
4
193
274
3
(48)
(6)
1
(43)
(7)
(3.6)
The decrease was mainly due to the updating of salary discounts.
(30)
(10.9)
The decrease was mainly due to assets that were fully depreciated and a change in the estimated
life expectancy of assets.
(6)
44
(3)
-
47
The change was mainly due to a loss due to the effect of asset impairments in 2022 as well as an
update of the provision for employee retirement.
-
91.7
(50.0)
The increase was mainly due to an increase in interest revenue from deposits.
-
-
* The results of the multi-channel television segment are presented net of the overall impact of impairment recognized starting from 2018, see “proforma” 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 Yes’ statements.
10
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended December 31, 2023
1.2.2.
Activity segments (Cont.)
e. Multi-channel TV (Cont.) - Comparison between accounting income and proforma income
2023
2022
Accounting profit
Pro forma profit
Accounting profit
Pro forma profit
NIS millions
Revenues
1,309
1,309
1,277
1,277
Operating and general expenses
861
Salary
Depreciation and amortization
Other operating expenses (income),
net
Operating profit (loss)
Financing income, net
Taxes on revenue
Profit (loss) for the year
193
166
(5)
94
(9)
1
102
886
186
244
(3)
(4)
(9)
1
4
867
200
199
3
8
(6)
1
13
855
193
274
3
(48)
(6)
1
(43)
11
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended December 31, 2023
1.3.
Main data from the Group's consolidated quarterly income statements (NIS millions)
Q1/2023
Q2/2023
Q3/2023
Q4/2023
2023
Explanation
Revenues
2,308
2,299
2,265
2,231
9,103
Operating expenses
1,842
1,815
1,843
1,854
7,354
Operating profit
Financing expenses, net
Profit after financing
expenses, net
Taxes on revenue
Profit for the period
466
88
378
92
286
484
98
386
100
286
422
77
345
74
271
377
86
291
80
211
1,749
349
1,400
346
1,054
The decrease in revenues in the fourth quarter includes a decrease in revenues from
roaming services in the cellular communication segment in light of the effect of the
war. For more information see Chapter 1.8 below.
It should be noted that the expenses of the third quarter include the recording of a
one-off provision in the amount of NIS 75 million for the special grant that will be
paid to Bezeq employees as part of the amendment of the collective agreement
(see Note 16.1.1 to the Statements) as well as a decrease in expenses on the fiber
deployment incentive fund due to a temporary order, in which It was determined
that in 2023 the rate of payment of the entities liable to the incentive fund will be
at a rate of 0% instead of 0.5%.
The fourth quarter includes expenses for termination of employee-employer
relations in early retirement and voluntary retirement, see Note 16.5 to the
Statements.
12
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended December 31, 2023
1.4.
Cash flow
2023
2022
Change
Explanation
NIS millions
% of total revenue
NIS
millions
Net cash flow derived
from operating
activities
Net cash flow used for
Investing operations
Net cash flow used for
financing operations
Net decrease in cash
and cash equivalents
Effect of changes in
foreign currency
exchange rate
3,442
3,491
(49)
(1.4)
(1,835)
(1,420)
(415)
(29.2)
(1,715)
(2,315)
600
25.9
(108)
(244)
136
55.7
(2)
-
)2(
-
The decrease in the net cash flow from current activity was mainly due to the advance of the crediting dates
with the credit card companies in 2022 and a shift in collection from customers from the fourth quarter of
2021 to the first quarter of 2022 due to the labor strikes in the cellular communications segment and in the
Bezeq International services segment in 2021. The decrease was largely offset by the increase in net profit as
well as an increase in the cash flow from current activity in the landline national interior communication
segment is mainly due to changes in working capital in employee benefits.
The increase in the net cash flow used for investment activity was mainly due to a net increase in investment
in deposits in banks and other financial investments in the landline national interior communication segment
and in the Company.
The decrease in the net cash flow used for financing activity was mainly due to a decrease in the repayment of
debentures as well as the expansion of debentures (series 13 and 14) in 2023, offsetting a decrease in receiving
loans, an increase in the dividend paid and an increase in principal and interest payments for leases.
13
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended December 31, 2023
Average volume in the reported year
Long-term liabilities (including current liabilities) to financial institutions and bondholders: approx. NIS 9,497 million.
Supplier credit: approx. NIS 962 million.
Short-term customer credit: approx. NIS 502 million.
Long-term customer credit: approx. NIS 295 million.
Working equity
The Group's consolidated working equity deficit as of December 31, 2023 amounted to approximately NIS 91 million, compared with a working equity deficit of approximately NIS 1
million as of December 31, 2022.
The Company's working equity (according to the "Solo” Statements) as of December 31, 2023 amounted to approximately NIS 99 million, compared with working equity of approximately
NIS 68 million as of December 31, 2022.
Bezeq (according to the "Solo" Statements) as of December 31, 2023, has a working equity deficit in the amount of approx. NIS 162 million, compared with a working equity deficit of
NIS 62 million as of December 31, 2022.
The increase in the deficit in the consolidated working equity was mainly due to an increase in the current maturities of the financial debt and trade payables of Bezeq Group.
14
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended
December 31, 2023
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, 2023, including sources for repayment of the Company's
liabilities, including the Company's debentures (Series C). 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 stated that despite the existence of a continuous negative cash flow
from current operations in the Company's separate (solo) financial statements and a deficit in working
equity in the Company's consolidated statements, in the assessment of the Company's Board of Directors,
after receiving explanations for its opinion from the Company's Management, there is no reasonable
concern that the Company and the Group will not meet their existing and expected obligations when they
are due to be met. The Company and the Group have the ability to meet the existing and expected cash
needs in the foreseeable future, even in the scenario of an unexpected deterioration in their business,
through the cash balances in their possession, through the creation of cash from operations, through
sources of (net) liquidity from subsidiaries, and through the borrowing and refinancing of significant
amounts of debt from banking and non-banking sources.
The above information includes forward-looking information based on the Company's estimates regarding
liquidity. The actual data may differ substantially from the above estimate in case of a change in one of the
factors considered in these estimates.
1.6.
Buyback of the Company's shares
During the year 2023, the Company repurchased 1,593,213 of its shares for approximately NIS 123 million.
1.7.
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 2023, the increase in the consumer price index was reflected in the recording of financing expenses in
respect of the Group's financial debt amounting to approximately NIS 88 million (approximately NIS 79
million after hedging), a decrease of approximately NIS 65 million (approximately NIS 41 million after
hedging) compared to the corresponding year. It should be noted that the effect of the increase in the
consumer price index on the results of the Group's activities was not material. Also, it should be noted
that the net effect of the increase in interest rates in the economy in the said year on the results of the
Group's activities was immaterial.
In accordance with the scope of Bezeq’s index-linked debt as of December 31, 2023, 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,
depending on the scope of the Bezeq’s existing variable interest rate debt, a change of 1% 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 an increase in interest rate.
15
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended
December 31, 2023
1.8.
State of War - "Iron Swords"
As of October 7, 2023, the State of Israel is in a state of war in the Gaza Strip, as well as in a state of
limited hostilities in the northern border area. The state of war creates various effects on the Bezeq Group
companies, which are reflected on the one hand in an increase in demand for some services, in Internet
traffic and in the use of landline telephony, and on the other hand in a decrease in roaming activity, a
decrease in the sale of cellular devices, and the removal/freezing of business lines in areas that are
affected by the war. Also, with the outbreak of the war, due to the recruitment of employees to reserve
service and a decrease in contractor activity, there was a slowdown in deployment and installation activity
in the Bezeq network. Also, a number of regulatory moves were made as part of the State of Israel's
handling of the state of war, including a law to postpone payment dates for those entitled and to ease
phone call charges, including calls related to distance learning. It should be noted that some of the Group
companies took their own initiative to ease the charges towards localities in the Gaza Envelope and on the
northern border.
The Bezeq Group companies, which provide, among other things, essential communication services to
private, business, and institutional customers, including the state institutions, the security forces, and the
health system, are prepared accordingly and respond to the various needs, including fault solving,
increasing vigilance and preparedness in cyber systems, and assisting the community in various ways.
Also, the Group companies regularly examine and follow closely the developments related to the war.
At this stage, the effects of the war and its consequences as described above do not have a material
impact on the activities of the Company and Bezeq Group and their business results. Also, the liquidity and
financial situation of the Company and Bezeq Group allows them to function well during the war. The
scope and duration of the war and its consequences on the state of the Israeli economy, as well as on
Bezeq Group companies, are unobservable and difficult to predict, and they depend, among other things,
on the manner and scope of the development of the war and the possibility of the economy slipping into
recession as a result. In this context, attention is also drawn to the relevant risk factors detailed in Chapter
A (Description of the Corporation's Business) of the periodic report for the year 2023 (Sections 2.20.11,
2.20.15, 3.19.2.9, 4.14.8, 5.18.1.2, 5.18.1.4).
Some of the information contained in this section is forward-looking information, as defined in the
Securities Law, based on estimates, assumptions, and expectations of the Company and Bezeq Group
which may not materialize, or materialize in a materially different way than anticipated, depending,
among other things, on the manner and scope of the development of the war and the state of the
economy as a whole.
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. The Company's donation policy focuses 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.
In 2023, the Bezeq Group donated a total of about NIS 11.4 million, which includes a financial donation of
about NIS 4.2 million, donation of services and communication infrastructure to associations, evacuees,
and disadvantaged populations in the amount of about NIS 5.1 million, and a salary donation for the
volunteering of employees, the employment of at-risk youth, and the volunteering of the children of
employees in the community in the amount of approximately NIS 2.2 million.
16
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended
December 31, 2023
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 the employees’
and their children’s 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 addition, as part of the "Iron Swords" War that began in the fourth quarter, the Group mobilized to help
the affected populations through a variety of initiatives, projects, donations, and volunteer work.
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
Somekh
Chaikin
Somekh
Chaikin
Somekh
Chaikin
Somekh
Chaikin
Bezeq – the Israeli
Telecommunications
Corp. Ltd.
Pelephone
Communications
Ltd.
Bezeq International
Ltd.
Yes TV and
Communications
Services Ltd. (Yes)
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
2023
2022
432
66
1,607
403
674
659
357
112
643
283
5,236
400
151
1,530
485
603
434
379
403
612
283
5,280
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 volume of hours and the derived hourly rate.
1 "Other services" provided to main companies in the Group in 2023 and 2022 included, among other things, consulting services on
tax and accounting issues that are not related to auditing and special approvals.
17
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended
December 31, 2023
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
auditors, 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.
18
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended
December 31, 2023
2.5.
Disclosure regarding the internal auditor in a reporting corporation
Details
concentration
Name of
internal auditor
Ilan Chaikin
Date of entry
into office
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 2023 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 in building the work plan are:
Reasonable coverage of most areas of the Company's activity in accordance with the exposure to
material risks, considering existing controls in the Company's areas of activity and the findings of
previous audits.
Parties involved in determining the work plan
19
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended
December 31, 2023
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.
2.5.
Disclosure regarding internal auditor in a reporting corporation (Cont.)
Details concentration
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
Compensation
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 audit procedure by the Internal Auditor for the second half of 2022
on March 14, 2023. In addition, an audit report on the implementation of the audit
procedure by the Internal Auditor for the first half of 2023 was presented on November 9,
2023 and an internal audit report on investment management was presented on January 8,
2024.
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 compensation 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 2023, the Internal Auditor was paid compensation in the amount of NIS 56K including VAT.
In the opinion of the Board of Directors, the scope of the Internal Auditor’s compensation
had no effect on his professional judgment.
20
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended December 31, 2023
3.
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, 2023 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 material impairment would have been
recognized.
Pelephone
Bezeq
Highly material valuation is
attached to the Statements as of
December 31, 2023
Highly material valuation is attached
to the Statements as of December 31,
2023
Yes Television and Communication
Services Ltd. ("Yes")
A very substantial valuation as of
December 31, 2023
Attached to Bezeq's financial
statements for December 31, 2023.
See Sections 3.1.1 and 3.1.3 below
Bezeq International
Material valuation as of December
31, 2022 -
See Section 3.1.1 below
Identification of subject of
valuation
Pelephone’s value in use for the
purpose of examining the
impairment of assets 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.
Examination of impairment of the
assets of Yes as of December 31, 2023
Examination of impairment of the
assets of Bezeq International Ltd. as
of December 31, 2023
Timing of the valuation
December 31, 2023;
December 31, 2023;
December 31, 2023;
December 31, 2022;
The valuation was signed on
March 4, 2024.
The valuation was signed on March 4,
2024.
The valuation was signed on March 4,
2024.
The valuation was signed on March 4,
2024.
Value of the subject of the
valuation close to the
date of the valuation, if
the accepted accounting
rules, including
depreciation and
NIS 1,400 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 10,760 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, 2023 is in the amount of
approx. NIS 16 million.
Book value before impairment as of
December 31, 2023 is approximately
NIS 7 million.
21
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended December 31, 2023
Pelephone
Bezeq
Highly material valuation is
attached to the Statements as of
December 31, 2023
Highly material valuation is attached
to the Statements as of December 31,
2023
Yes Television and Communication
Services Ltd. ("Yes")
A very substantial valuation as of
December 31, 2023
Attached to Bezeq's financial
statements for December 31, 2023.
See Sections 3.1.1 and 3.1.3 below
Bezeq International
Material valuation as of December
31, 2022 -
See Section 3.1.1 below
amortization, did not
require a change in its
value in accordance with
the valuation
Value of the subject of the
valuation determined
according to the valuation
Approx. NIS 2,343 million.
Approx. NIS 16,577 million.
The Company concluded that
there is no impairment that
requires a reduction in the unit’s
book value amount recorded in
the Company's books.
The Company concluded that there is
no impairment that requires a
reduction in the amount of goodwill
recorded in the Company's books.
Yes’s enterprise value, according to the
cash flow discounting method, is
higher than the fair value of Yes assets
and liabilities, net, and therefore
determined as the basis for
determining Yes's recoverable amount.
The value in use of Yes's assets, using
the revenue discount method (value in
use), has a negative value of
approximately NIS 24 million. Note that
the fair value minus sales costs of Yes's
assets for that date amounted to a
negative value of approximately NIS 60
million. Therefore, and in accordance
with the provisions of IAS36, the
recoverable amount of Yes’s assets was
determined as the value in use or the
fair value minus selling costs,
whichever is higher, i.e., a negative
value of NIS 24 million.
Yes's total enterprise value is negative
in the amount of approximately NIS
194 million. In light of the negative
enterprise value, the net value of the
assets and liabilities of Yes was
determined as the fair value or zero,
whichever is higher. Accordingly,
Bezeq International’s recoverable
amount was determined, obtained
according to fair value minus sales
costs of the balance sheet items
according to IAS 36 requirements, in a
negative amount of about NIS 23
million.
Based on the valuation, in 2023, the
Group recognized an impairment loss
of approximately NIS 87 million.
22
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended December 31, 2023
Pelephone
Bezeq
Highly material valuation is
attached to the Statements as of
December 31, 2023
Highly material valuation is attached
to the Statements as of December 31,
2023
Yes Television and Communication
Services Ltd. ("Yes")
A very substantial valuation as of
December 31, 2023
Attached to Bezeq's financial
statements for December 31, 2023.
See Sections 3.1.1 and 3.1.3 below
Bezeq International
Material valuation as of December
31, 2022 -
See Section 3.1.1 below
Based on the valuation, in 2023, the
Group recognized an impairment loss
of approximately NIS 204 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, Be’er-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.
Valuation model
The valuator has no dependence on the Company or Bezeq. Bezeq undertook to indemnify the valuator for damages in excess of three times her fee
unless she acted maliciously or through gross negligence.
The discounted cash flow (DCF)
method.
The discounted cash flow (DCF)
method.
The discounted cash flow (DCF)
method.
In the first stage – value in use was
calculated using the discounted
cash flow (DCF) method.
In the second stage - the fair value
of Bezeq International’s net assets
and liabilities, minus sales costs, as
of December 31, 2023, was
determined.
23
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended December 31, 2023
Pelephone
Bezeq
Highly material valuation is
attached to the Statements as of
December 31, 2023
Highly material valuation is attached
to the Statements as of December 31,
2023
Yes Television and Communication
Services Ltd. ("Yes")
A very substantial valuation as of
December 31, 2023
Attached to Bezeq's financial
statements for December 31, 2023.
See Sections 3.1.1 and 3.1.3 below
Bezeq International
Material valuation as of December
31, 2022 -
See Section 3.1.1 below
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 - 11% (after tax).
Permanent growth rate - 1%
Discount rate – 11.5% (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 irrelevant.
The percentage of the scrap value
of the total value determined in the
valuation is irrelevant.
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 presented at current value.
24
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended
December 31, 2023
3.1.
Disclosure regarding valuations (Cont.)
3.1.1
3.1.2
Despite the negative operating value of Yes, Bezeq supports YES by approving credit facilities or
investing in Yes’ capital (see Note 412.2.2 to the Statements). Bezeq's aforementioned support
in Yes 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, 2023, the value of
the activity segment "Bezeq" the Israel Telecommunications Corp. Ltd., the activity segment
Pelephone Communications Ltd., the activity segment Yes TV and Communications Services Ltd.
(Yes) and the Bezeq International Ltd. activity segment amounted to over 25% of its total assets.
Accordingly, the valuator is considered a highly material 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 valuation 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 Yes’ valuation as of December 31, 2022, which was attached to Bezeq's 2022
statements, the Group examined the actual data in 2023 regarding free cash flows
compared to the 2023 forecast that was included in the aforementioned valuation and
found that the free cash flows of Yes, according to its 2023 statements, are significantly
higher than the forecast in the aforementioned valuation. The gap was mainly due to timing
differences in working equity. For more information, see Appendix G in the attached
valuation of Yes as of December 31, 2023.
B. Regarding the valuation of Bezeq International as of December 31, 2022, which was
attached to the 2022 statements, the Company examined the actual data in 2023 regarding
the free cash flows of Bezeq International compared to the 2023 forecast that was included
in the aforementioned valuation and found that the free cash flows of Bezeq International,
according to its 2023 statements, are higher than the forecast in the aforementioned
valuation. The gap resulted mainly from higher revenues due to a lower than forecast ISP
customer churn rate and a decrease in revenue-dependent operating expenses.
3.1.4
For more information, see Note 10 to the Statements.
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 after the reporting period
On January 25, 2024, Bezeq's Board of Directors approved Bezeq's entry into the field of electricity supply
and Bezeq's engagement with PowerGen Ltd., a company wholly owned by Generation Capital Ltd., which
coordinates the fund’s energy activities, in a non-binding memorandum of understanding regarding
strategic cooperation and the establishment of a joint venture in the field of electricity supply ("the MOU").
The signing of the aforementioned MOU is in accordance with Bezeq's strategy, which includes finding
opportunities for expansion in areas that are tangential and complementary to Bezeq Group's activities, and
entry into areas of activity with high growth from Bezeq’s core areas while diversifying the portfolio and
reducing dependence on regulatory risks.
Regarding additional material events after the date of the Statements - see Notes 32 to the Statements.
25
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended
December 31, 2023
4.
Details related to a series of liability certificates
4.1.
The following are data about the Company's debentures in circulation, as of December 31, 2022:
Series F debentures
A
B
Issue date (without extensions)
July 6, 2021
Total nominal value at the date of
issuance (par value)
NIS 393,973,000
C The nominal value (par value) as of the
NIS 2,009,766,642
date of the report
D The amount of interest accrued as of
NIS 6,230,277
the date of the report
E Fair value as included in the Statements NIS 1,946,327,424
F Stock market value
G
Interest type
NIS 1,930,782,813
Fixed at 3.65%
H Principal payment dates
On November 30, 2026
I
Interest payment dates
On May 31 and November 30 of each year, starting on November 30,
2021 until November 30, 2026.
J
Linkage
K Total liability in relation to total
Company liabilities
Non-linked
Material
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
A3.il rating by Midroog
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 F
certificates regarding its compliance with the terms of the debentures
for the year 2023.
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
debentures (series F) of the Company.
26
Report of the Board of Directors on the State of Affairs of the Corporation for the Year ended
December 31, 2023
4.2.
4.3.
4.4.
4.5.
On June 19, 2023, Midroog established an A3.il rating with a stable horizon for the Company's Series C and
Series F debentures that were in circulation as of that date. In addition, Midroog established an A3.il rating
with a stable horizon for additional debentures to be issued by the Company from series F in the amount of
up to NIS 550 million by way of series expansion (see immediate report Ref. 2023-01-057163).
On June 22, 2023, the Company issued to institutional bodies and the public approximately NIS 538 million
in Series F debentures for approximately NIS 500 million.
On July 20, 2023, the Company made a full and final early repayment of NIS 497 million on Series C
debentures plus accrued interest until their maturity date.
On January 11, 2024, Bezeq completed a public offering of debentures (series 11 and 13), by way of
expanding the series traded on the stock exchange, according to a shelf offer report dated January 10, 2024,
which was published according to a shelf prospectus published on May 9, 2023. In this framework, NIS
567,877,000 par value debentures (series 11) were issued to the public for a total of NIS 539 million and NIS
432,123,000 par value debentures (series 13) for a total of NIS 353 million.
Financial clauses of the Company's debentures
In accordance with the Company's commitment in debenture series F to comply with the LTV clause, the LTV ratio
as of December 31, 2023 was 50.8%.
The Company's net debt balance as of December 31, 2023 is approximately NIS 1,884 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
2,016 million, net of cash balances and investments in the amount of NIS 132 million.
5.
Miscellaneous
For information regarding the balance of liabilities of the reporting corporation in its financial statements as
of December 31, 2023, see the form to be reported by the Company on the MAGNA system on March 13,
2024.
Darren Glatt
Chairman of the Board of Directors
Tomer Raved
CEO
Date of signing: March 12, 2024.
27
Chapter C
Consolidated Financial Statements
for Year Ended December 31, 2023
Page
4
8
10
10
11
12
14
Consolidated Statements as of December 31, 2023
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
Material 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
Revenues
General and operating expenses
Salaries
Other operating expenses (income), net
Financing expenses, net
Share-based compensation
Profit per share
Consolidated Statements as of December 31, 2023
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 Yes TV and Communications
Services Ltd. (Yes)
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, 2023 and 2022 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, 2023. 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, 2023 and 2022, 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, 2023, 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 1.3 in 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 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
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.
4
Somekh Chaikin
KPMG Millennium Tower
17 HaArbaa Street P.O.B. 609
Tel Aviv 6100601
03 684 8000
Measuring the impairment of cash-generating units of Yes Ltd. and Bezeq International Ltd.
Why was the matter determined as a key audit matter
As described in Notes 3.7, 10.2, 10.5 and 10.6 to the consolidated statements, as of December 31, 2023, the
recoverable amount of the cash generating units Yes Ltd. and Bezeq International Ltd. (hereinafter: the "Units")
is negative in the amount of NIS (24) and (23) million, respectively, and the total loss from the impairment of
these units for the year that ended on December 31, 2023 amounts to NIS 291 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 3.7, 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, 2023, and our report dated March 12, 2024 included
an unreserved opinion on the effective existence of those components.
Somekh Chaikin
Certified Public Accountants
March 12, 2024
Somekh Chaikin, Israeli partnership and a member of the KPMG network of independent firms
incorporated under the Swiss entity KPMG International Cooperative ("KPMG International")
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, 2023. 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, 2023.
As described in the report regarding the effectiveness of the internal control over the financial reporting and
disclosure, as of December 31, 2023, 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, 2023 and 2022 and for each of the three years in the period ending
on December 31, 2023 and our report, dated March 12, 2024, 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 12, 2024
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, 2023
Consolidated statements of financial position as of December 31
Assets
Note
NIS millions
NIS millions
2023
2022
Cash and cash equivalents
Investments
Trade receivables
Other receivables
Inventory
Total current assets
Trade and other receivables
Right-of-use assets
Property plant & equipment
Intangible assets
Deferred expenses and non-current investments
4,3.3
5,3.3
3.3 ,6
3.3 ,6
644
1,248
1,477
166
82
3,617
3.3 ,6
446
3.6 ,8
3.4 ,9
1,870
6,828
3.5 ,10
3,280
11
312
754
973
1,440
289
85
3,541
460
1,746
6,542
3,251
315
Total non-current assets
12,736
12,314
Total assets
16,353
15,855
8
Consolidated Statements as of December 31, 2023
Consolidated statements of financial position as of December 31 (Cont.)
Liabilities and equity
Note
NIS millions
NIS millions
2023
2022
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
3.3 ,13
3.6 ,8
14
3.8 ,16
3.9 ,15
3.3 ,13
3.6 ,8
3.8 ,16
,7
3.12
3.9 ,15
20
12.8
1,074
433
1,758
332
111
3,708
7,829
1,608
251
160
322
29
921
456
1,598
399
168
3,542
8,257
1,452
201
151
319
37
10,199
10,417
13,907
13,959
189
2,257
2,446
54
1,842
1,896
Total liabilities and equity
16,353
15,855
Darren Glatt
Chairman of the Board of Directors
Tomer Raved
CEO
Itzik Tadmor
CFO
Date of approval of the financial statements: March 12, 2024
The notes attached to the consolidated statements form an integral part thereof.
Consolidated Statements as of December 31, 2023
Consolidated income statements for the year ended December 31
2023
2022
2021
Note
NIS millions
NIS millions
NIS millions
,21
3.10
9,103
8,986
8,821
Revenues
Operating expenses
General and operating expenses
Salaries
22
23
Depreciation, amortization and impairment
8,9,10,11
Other operating expenses (income), net
24
Total operating expenses
Operating profit
Financing expenses (income)
,25
3.11
Financing expenses
Financing income
Financing expenses, net
Profit before income taxes
Income taxes expenses
Net profit for the year
Net profit attributable to shareholders of the
Company
Net profit attributable to non-controlling
interests
Net profit for the year
Profit per share (NIS)
Basic
Diluted
,7
3.12
27
3,3
81
1,926
1,867
180
7,35
4
1,74
9
851
)
(169
934
1,400
346
1,054
187
867
1,054
1.75
1.74
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
Consolidated statements of comprehensive income for the year ended December 31
2023
2022
2021
NIS millions
NIS millions
NIS millions
Net profit for the year
Reassessment of defined benefit plan, net of tax – will not be
transferred to income
Additional other comprehensive income (loss) from hedging,
net of tax – will be transferred to income
Total comprehensive income for the period
Attributable to:
Shareholders of the company
Non-controlling interests
Total comprehensive income for the period
1,054
18
(6 )
1,066
190
876
1,066
891
56
(6)
941
171
770
941
996
(1)
37
1,032
139
893
1,032
The notes attached to the consolidated statements form an integral part thereof.
Consolidated Statements as of December 31, 2023
Consolidated statements of changes in equity for the year ended December 31
Share
capital
Shares
premium
Treasury
shares
Other
funds
NIS
millions
NIS
millions
NIS
millions
NIS
millions
Deficit
balance
NIS
millions
Total
NIS
millions
Non-
controlling
interests
NIS millions
Balance as of January 1, 2021
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 compensation (See Note 26)
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 compensation (See Note 26)
Business consolidation
Dividend distributed to non-controlling
interests (see Note 12.7)
Transaction
interests (See Note 12.6)
with
non-controlling
Buyback of shares (see Note 20)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance as of December 31, 2022
12
1,495
Profit for the year 2023
Other comprehensive income (loss) for
the year, net of tax
Total comprehensive profit (loss) for the
year 2023
Transactions imputed directly to equity
Share-based compensation (See Note 26)
Dividend distributed to non-controlling
interests (see Note 12.7)
Transaction
interests (See Note 12.6)
with
non-controlling
Buyback of shares (see Note 20)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(16)
(16)
-
-
-
-
-
-
-
)
121
(
)
137
(
-
-
-
-
-
-
(23 )
(39)
-
10
10
-
-
(29)
-
(2)
(2)
1
-
-
-
-
-
(2 )
(2 )
-
-
-
-
Total
NIS
millions
427
996
36
)
1,575
(
107)
(
129
-
129
10
534
867
26
129
139
893
1,032
-
-
)
1,446
(
-
(16)
16
27
-
27
(16)
1,454
1,470
158
158
733
891
15
13
37
50
173
171
770
941
-
-
-
1
-
-
(13)
-
(13)
)
(121
(30 )
)
1,286
(
54
187
187
11
1
12
1
)
(392
)
(392
(2)
-
1,842
867
(15)
)
(121
1,896
1,054
5
3
9
12
192
190
876
1,066
-
-
(32 )
-
-
-
(32 )
(23 )
189
10
10
)
(466
)
(466
(5 )
-
(37 )
(23 )
2,257
2,446
Balance as of December 31, 2023
12
1,495
)
160
(
(32 )
)
1,126
(
(*) Represents an amount lower than NIS 1 million.
The notes attached to the consolidated statements form an integral part thereof.
11
Consolidated Statements as of December 31, 2023
Consolidated statements of cash flows for the year ended December 31
Cash flows from current activities
Profit for the year
Adjustments:
Depreciation, amortization and impairment
Capital gains, net
Financing expenses, net
Share-based compensation
Income taxes 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 taxes paid, net
Net cash derived from operating activities
Cash flows for investing activities
Purchase of PP&E
Investment in intangible assets and deferred expenses
Investment transactions, net
Payment in respect of frequencies
Government grant in respect of frequencies
Proceeds from the sale of PP&E
Purchase of a subsidiary minus cash purchased
Interest received from bank deposits
Miscellaneous
Net cash used for investing activities
Cash flows for financing activities
Issuance of debentures and receipt of loans
Repayment of debentures and loans
Purchase of non-controlling interests
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 activities
Net increase (decrease) in cash and cash equivalents
Effect of changes in foreign currency exchange rate
Cash and cash equivalents as of January 1
Cash and cash equivalents at the end of the year
Note
2023
NIS millions
2022
NIS millions
2021
NIS millions
1,054
891
996
8,9,10,11 1,867
24
(2 )
25
26
7
6
14
15
16
9
10,11
13
13
12
8
20
13
12
13
364
10
346
(10 )
(15 )
59
18
(3 )
23
)
(269
3,442
)
1,333
(
)
(375
)
(245
-
-
39
(14 )
72
21
)
1,835
(
1,015
)
1,409
(
(37 )
)
(484
(23 )
)
(312
)
(466
-
4
(3 )
)
1,715
(
)
(108
(2 )
754
644
1,868
1,889
(8)
445
12
336
342
(21)
(54)
24
(91)
18
)
(271
3,491
)
1,353
(
)
(346
223
(88)
74
40
(9)
23
16
)
(175
498
27
382
)
(229
(19)
(41)
(47)
(65)
(5)
)
(385
2,826
)
1,328
(
)
(363
)
(164
-
-
278
-
8
(9)
)
1,420
(
)
1,578
(
400
)
1,416
(
(15)
)
(420
)
(121
)
(307
)
(392
(26)
(18)
-
)
2,315
(
)
(244
-
998
754
1,730
)
2,072
(
-
)
(387
(16)
)
(333
-
(34)
(30)
)2(
)
1,144
(
104
-
894
998
The notes attached to the consolidated statements form an integral part thereof.
Notes to the Consolidated Statements as of December 31, 2023
1. General
1.1.
The reporting entity
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, 2023 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, 2023, the Company owned approximately 27.08% of Bezeq’s issued
shareholder capital. As of the date of publication of the statements, the Company owns
approximately 27.19% of the issued shareholder capital of Bezeq (see note 12.6).
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, 2023, Searchlight and the Forer Family own 66.24% and 12.54%,
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 2023 (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 the
Company and former Chairman of the Bezeq Board of Directors, Mr. Shaul
Elovich ("Elovich") regarding the purchase of shares
in Yes TV and
Communications Services Ltd. ("Yes") and the provision of satellite
communication services
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:
the conduct of
to Yes,
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, 2023
1.3.
Investigations by the Israel Securities Authority and the Israel Police (Cont.)
1.3.1.2.
Further to a notice from the Tel Aviv District Attorney's Office
(Taxation and Economics) dated December 23, 2020 regarding
the consideration to prosecute Bezeq and a summons to a
hearing in Case 4000, according to which:
In respect of the suspected bribery offenses (an offense under
Article 291 of the Penal Law, 5733-1973 along 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, along with Article 23 of the Penal
Law, on February 1, 2024, an agreement was signed between
the State of Israel (through the Tel Aviv District Attorney's Office
(Taxation and Economy)) and Bezeq
for a conditional
termination of proceedings under the conditions in accordance
with Point B of Chapter 91 of the Securities Law ("the
Settlement").
In accordance with the Settlement, the State of Israel will not
file an indictment in Bezeq's case in connection with any of the
suspicions investigated in the investigation file, and this is
subject to the suspect fulfilling its obligations according to the
settlement as follows: (1) payment of an amount in the amount
of NIS 800 thousand; (2) refraining from all A statement that is
knowingly inconsistent with or contradicts the Settlement and
the facts that Bezeq admitted as part of the Settlement
(“Walla”).
As part of the Settlement, the State of Israel also informed
Bezeq that it had decided to close the investigation file
regarding the company Walla! Communications Ltd. (a company
that was fully owned by Bezeq at the times relevant to the
suspicions and received a similar notice regarding the
consideration of filing an indictment against it for suspicions of
the offense of bribery).
As part of the Settlement, Bezeq admitted the facts detailed in
the settlement and these are:
A.
In the relevant period, between the years 2012 and 2016, Shaul
Elovich ("Elovich") was the controlling shareholder of the Bezeq
Group. Walla, which during the relevant period was a wholly
owned subsidiary of Bezeq, operated the "Walla NEWS!"
website.
B. Elovich and other Bezeq representatives worked with the
Director General of the Ministry of Communications Shlomo
issue of cancelling the structural
Filber to promote the
separation in the Bezeq Group.
C. On December 22, 2016, Shlomo Filber ("Filber") sent Bezeq a
letter titled "Cancellation of the structural separation obligation
in the Bezeq Group", which was drafted by him in coordination
with Bezeq representatives, with the knowledge of Elovich and
the CEO of Bezeq at that time, Stella Handler ("Handler"). The
Notes to Consolidated Statements as of December 31, 2023
letter included a misleading detail, according to which the fact
regarding the obligation to hold a hearing prior to the
cancellation of the corporate separation in Bezeq was omitted,
and a misleading representation was made, according to which
both the cancellation of the corporate separation and the
cancellation of the structural separation are in an advanced
stage and have a higher feasibility than in actuality.
D. On December 23, 2016, Bezeq reported in an immediate report
to the public about the transmission of the letter and its
contents. This report included the misleading detail contained
in the Ministry of Communications letter. Elovich and Handler
knew that the letter from the Ministry of Communications
contained the misleading detail and that it would be reported
to the public. The next day, the Ministry of Communications
published a clarification according to which the cancellation of
the corporate separation will be done after a hearing procedure
and subsequently Bezeq published a report clarifying this part
of the previous report.
It should be noted that, as appears from the settlement, the
suspicions against Bezeq stem from the actions and/or omissions of
Elovich and Handler, who were involved in the execution of the acts
described in the settlement and who no longer serve at Bezeq.
1.3.1.3.
On December 23, 2021, 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 Yes, Or Elovich, Amikam Shurer, Linor
Yochelman, Ron Ayalon, and Mickey Neiman in the Yes Case.
According to the notice:
A. 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
YES 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.
B. 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 Yes case was closed in the case of Stella Handler.
Notes to Consolidated Statements as of December 31, 2023
1.3.
Investigations by the Israel Securities Authority and the Israel Police (Cont.)
1.3.1.4.
1.3.1.5.
1.3.1.6.
C. 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 Yes case as indicated at the beginning 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 ("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.
On July 13, 2023, the judgment of the Supreme Court was given
in the appeal filed by the State against the aforementioned
decision, according to which the State's appeal regarding all the
respondents (with the exception of Eurocom Holdings (1979)
Ltd.) was accepted and the case was returned to the District
Court for further evidentiary investigation
As far as YES 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 Yes, after the Securities Authority case, in which it
was questioned as a suspect, 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.
1.3.2.
It should be noted that following the launching of the aforementioned
investigations, a number of civil legal proceedings were opened against Bezeq
and Yes, 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.
1.3.3.
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
Notes to Consolidated Statements as of December 31, 2023
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.
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.
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 Company’s Board of
Directors on March 12, 2024.
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 and investments in securities 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 material accounting policy.
Notes to Consolidated Statements as of December 31, 2023
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
international
When preparing the consolidated statements
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, revenue, 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.
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
Provisions
contingent
liabilities,
including levies
and
Assessing the chances of claims against
the Group companies and measuring
the potential liabilities related to the
claims
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 control
over Bezeq
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 Yes 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
a
Cancellation or creation of a
claim,
provision
for
recognition
of
and
income/expenses
recognition of profit or loss
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
taxes expenses
Notes 15,17
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,
12.6
Notes to Consolidated Statements as of December 31, 2023
Subject
Key assumptions
over the composition and distribution
of the other shareholders in Bezeq and
the restrictions applicable to these
shareholders
the
Communications Law
under
2.7.
Fair value determination
Possible implications
Reference
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. Material 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.
Allocation of profit or loss and other comprehensive income among the
shareholders
Profit or loss and any other component of comprehensive income is
attributed to the Company's owners and non-controlling interests. The total
profit or loss 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.
Notes to Consolidated Statements as of December 31, 2023
3.1.4.
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.
3.2.
Foreign currency transactions
From time to time, the Group enters into transactions with suppliers abroad, mainly in
dollar and euro currencies. 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.
At the time of initial recognition, financial assets are classified into one of the
following measurement categories: amortized cost; or fair value through
income.
The Group's debt instruments held as part of a business model aimed at
collecting contractual cash flows in accordance with IFRS 9 mainly include
short-term and long-term customers (see Note 6).
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.
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.
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.
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:
Notes to Consolidated Statements as of December 31, 2023
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.
Financial assets at fair value through profit and loss are measured in
subsequent periods at fair value. Net gains and losses, including interest or
dividends revenue, are recognized in income.
3.3.2.
Derivative financial instruments including hedge accounting
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 income 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 limited to
the cumulative change in the fair value of the hedged item (according to
current value) from the date the hedge was created.
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. In cases as mentioned, the Group performs
economic hedging, and derivative instruments as mentioned are recognized
at fair value; The changes in the fair value are immediately credited to the
income statement, as financing income or expenses.
3.3.3.
Non-derivative financial instruments
Non-derivative financial liabilities include: debentures issued by the Group,
loans and credit from banking corporations and other credit providers (see
Note 13), suppliers and other beneficiaries (see Note 14).
After initial recognition, financial liabilities are measured at amortized cost in
accordance with the effective interest method.
Financial liabilities are deducted when the Group's liability, as specified in the
agreement, expires or when it is discharged or cancelled.
The value of index-linked financial liabilities, which are not measured
according to fair value, is estimated in each period according to the actual
increase/decrease rate of the index.
Notes to Consolidated Statements as of December 31, 2023
3.3.
PP&E
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, contactor costs, and
discounted 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.
Most spare parts, auxiliary equipment, and backup equipment are classified as fixed
assets when they meet the definition of PP&E, since their useful duration is over a year
in accordance with IAS 16.
When significant PP&E parts have different durations, they are treated as separate items
(significant components) of the PP&E.
Profit or loss from the sale of PP&E is included in the other income or other expenses,
as the case may be, in the income statement.
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.
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.
international network equipment (switching,
Asset
Landline and
transmission and power)
Landline network
Multi-channel TV equipment and infrastructure
Subscriber equipment and installations
Vehicles
Office and general equipment
Electronic equipment, computers and internal communication
systems
Cellular network
Passive radio equipment at cellular network sites
Structures
Underwater cable
Years
-220
10-40
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.
3.4.
Intangible assets and goodwill
3.4.1.
The Group's intangible assets mainly include software and computer licenses
and rights to use cellular communication frequencies (see Note 10).
Notes to Consolidated Statements as of December 31, 2023
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
imputed to the
depreciation and amortization item in the income statement 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.
is
Amortization 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.
The estimated useful duration for the current period is:
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.
3.4.2.
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 that is not currently amortized.
Goodwill is examined for impairment at least once a year. See also Note 10.
3.6.
Leases
The Group's lease agreements, the Group mainly leases cellular communication sites,
buildings, and vehicles.
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.
Since the interest rate inherent in the lease cannot be easily determined, the Group's
additional interest rate is used.
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).
3.6.1.
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.
Notes to Consolidated Statements as of December 31, 2023
3.6.2.
Variable lease payments
Most of the Group’s leasing agreements include lease payments that are
linked to the Consumer Price Index. These payments 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.
3.6.3.
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, 2023 (years)
Cellular communication sites
Structures
Vehicles
6.3
16.3
1.8
3.7.
Impairment of non-financial assets
The Company performs an impairment test for its cash generating units once a year (see
Note 10), or if there are indicators of impairment.
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
Notes to Consolidated Statements as of December 31, 2023
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
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.
3.7.
Impairment of non-financial assets (Cont.)
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.
3.8.
Employee benefits
3.8.1.
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 vesting 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, 2023
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.
3.8.1.
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.
3.8.2.
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 Bezeq 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).
3.9.
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.
3.9.1.
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:
Notes to Consolidated Statements as of December 31, 2023
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 a legal 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.
The Group recognizes an indemnity asset only if it is practically certain that
the indemnity would be received if the Company eliminates the liability. The
amount recognized for the indemnity does not exceed the amount of the
provision.
3.10. Revenues
Revenues in the Group are divided according to the activity segments (Note 21) as
follows:
•
Landline national interior communication - mainly internet services, telephony,
transmission and data communication, and others.
• Cellular communication- cellular services and sale of end equipment.
• Multi-channel television
•
Internet services (ISP, international communication, and ICT services)
3.10.1.
The Group recognizes revenue when the customer obtains control over the
promised goods or service. Revenue 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.
When there is a significant financing component in the contract, the Bezeq
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 revenue 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, the Group
applies the practical relief stipulated in the standard and does not separate
a significant financing component.
Measuring progress of performance obligation fulfilment
In most types of revenue, the Group recognizes revenue over time by
measuring progress toward fulfillment in full of the performance obligation
Notes to Consolidated Statements as of December 31, 2023
in a manner that reflects the Group's performance in transferring control of
the promised goods or services to the customer.
3.10.2.
Contract costs
There are agreements in the group that include supplemental 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.
These costs are recognized as an asset when it is expected that the Group will
recover these costs.
3.10. Revenues (Cont.)
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 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.
3.11.
Financing income and expenses
Financing income mainly includes interest revenue accrued using the effective interest
method for the sale of terminal equipment in installments, interest revenue 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.
3.12.
Income taxes expenses
Income taxes expenses include current and deferred taxes. Income taxes 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 revenue 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.
Notes to Consolidated Statements as of December 31, 2023
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.
3.12.
Income taxes expenses (Cont.)
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.
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 revenue 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 revenue 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
revenue 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.
Notes to Consolidated Statements as of December 31, 2023
3.13. 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 assembly). In cash flow statements, a dividend paid is presented as a financing
activity.
3.14. New standards adopted during the reporting period:
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 policy 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
In addition, the
understanding other material
amendment clarifies that there is no need to disclose information about accounting
policies that are immaterial.
in the statements.
information
4.
Cash and cash equivalents
Cash and cash equivalents balance as of December 31, 2023 mainly includes deposits in banks for
a period of up to 90 days as well as balances in current accounts.
5.
Investments
December
2023
31,
December
2022
31,
NIS millions
484
759
5
-
1,248
NIS millions
789*
159
15
10*
973
Shekel deposits in banks (1)
Investment in securities at fair value through income
Derivatives
Foreign currency deposits in banks (2)
* Reclassified
(1) Deposits in shekels in banks, due until December 2024.
(2) Deposits in US dollars in banks, due until March 2024.
Notes to Consolidated Statements as of December 31, 2023
6.
Trade and other receivables
6.1.
Composition of trade and other receivables:
Customers*
Open debts and checks regarding it
Credit cards
Revenue 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
Long-term customers and other receivables*
Customers – open debts
Long-term receivables and authorities (mainly for real estate
sales)**
December
2023
31,
December
2022
31,
NIS millions
NIS millions
474
178
225
329
1
673
191
242
333
1
1,47
7
1,440
16
83
67
166
275
171
446
2,089
28
224
37
289
305
155
460
2,189
* Customer balances are presented net of the provision for predicted credit losses.
** See Note 6.6.
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 2023
are 5.51%-6.29% (in 2022: 2.36%-4.93%).
6.3.
Expected exercise dates of long-term customers and receivables:
Expected repayment dates
2025
2026
2027 onwards
December 31, 2023
NIS millions
206
69
171
446
Notes to Consolidated Statements as of December 31, 2023
6.4.
Aging of customer debts as of the reporting date:
December 31, 2023
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
Not in arrears
Arrears up to 1 year
Arrears 1-2 years
Arears over 2 years
1,560
188
35
39
1,822
(4 )
)24(
)18(
)24(
)70(
1,621
141
15
32
1,809
(7)
(24)
(7)
(26)
(64)
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
2023
2022
NIS millions
NIS millions
64
25
(19 )
70
68
29
(33)
64
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 index-linked guarantees in the
amount of approximately NIS 131 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. On October 17, 2023, a judgment was issued rejecting
the administrative appeal filed by Bezeq against the decision of the Appeals Committee.
The Appeals Committee transferred the procedure to a decisive appraiser to determine
the amount of the improvement levy, and ILA is liable to indemnify Bezeq in full for the
amount of the levy. Accordingly, Bezeq recorded in the financial statements a liability of
NIS 45 million for the additional estimated payment for the improvement levy, and at
the same time, Bezeq recognized an indemnifying property in the same amount.
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, 2023
7.
Income taxes
7.1.
Corporate tax rate
The current taxes for the reporting periods and deferred tax balances as of December
31, 2023 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 Yes, the Tax Authority gave permission for tax purposes
to perform a merger of Yes with and into Bezeq, in accordance with the provisions of
Article 103b to the Income Tax Ordinance. According to the approval, Yes 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 revenue 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 Yes 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 10, 2023, 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 Yes 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, 2024, as long as there are no material
developments in 2024 in regards to the cancellation of the structural separation between
Bezeq and Yes.
Bezeq's position submitted to the Tax Authority is that it is entitled to an extension of
the Tax Authority's approval in accordance with the terms of the taxation decision, and
in any case, 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 in lieu of the aforementioned taxation decision. It should also be
Notes to Consolidated Statements as of December 31, 2023
noted that Bezeq continues to work with the various regulatory bodies to eliminate the
structural separation.
The balance of Yes losses for tax purposes, as of December 31, 2023, amounts to
approximately NIS 5.2 billion. See Note 7.6 below regarding deferred taxes that were not
recognized for transferrable losses.
7.2.3.
7.2.4.
Pelephone has final tax assessments up to and including the year 2018.
Bezeq International has final tax assessments up to and including the year
2019.
7.2.5.
Yes 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 2018.
7.3.
Income taxes 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
Creation of deferred taxes for losses for tax purposes from
the sale of a subsidiary
Total deferred tax expenses
Income taxes expenses
Year ended December 31
2023
2022
2021
NIS millions
NIS millions
NIS millions
337
1
338
8
-
8
346
293
-
293
43
-
43
336
289
14
303
42
37
79
382
7.4.
Adjustment between the theoretical tax on the profit before income taxes and
the tax expenses
Profit before income taxes
Statutory tax rate
Income taxes according to the statutory tax rate
Expenses that are not recognized for tax and other
purposes, as well as losses for which deferred taxes were
not incurred, net
Income taxes expenses
Year ended December 31
2022
2022
2022
NIS millions
NIS millions
NIS millions
1,400
23%
322
24
346
1,227
23%
282
54
336
1,378
23%
317
65
382
Notes to Consolidated Statements as of December 31, 2023
7.5.
Recognized deferred tax assets and liabilities and the changes therein
tax
for
Deferred
assets
employee
benefit plans
NIS millions
Deferred
tax
liabilities for PP&E
and
intangible
assets
NIS millions
deferred
Other
taxes
NIS millions
Total
NIS millions
251
)
(547
24
)
(272
(23)
(6)
222
10
5
237
11
-
)
(536
(6 )
-
)
(542
(31)
2
(5 )
(12 )
-
(17 )
(43)
(4)
)
(319
(8 )
5
)
(322
to
imputed
Balance as of January 1,
2022
Changes
income:
Creation and reversal of
temporary differences
Changes imputed to other
comprehensive income
Balance as of December 31,
2022
Changes
income:
Creation and reversal of
temporary differences
Changes imputed to other
comprehensive income
Balance as of December 31,
2023
imputed
to
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 Yes. 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 Yes 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 Yes 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, 2023
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, 2022
Additions*
Subtractions
canceled agreements
for
terminated or
Balance as of December 31, 2022
Additions*
Subtractions
canceled agreements
for
terminated or
Balance as of December 31, 2023
Amortizations and impairment losses
Balance as of January 1, 2022
Amortization for the year
Subtractions
canceled agreements
terminated or
for
for
Changes in agreements and others
Impairment loss
Balance as of December 31, 2022
Amortization for the year
Subtractions
canceled agreements
Changes in agreements and others
Impairment loss
Balance as of December 31, 2023
Book value
As of January 1, 2022
terminated or
As of December 31, 2022
As of December 31, 2023
Communicat
ion sites
Structures
Vehicles
Total
NIS millions
NIS millions
NIS millions
NIS millions
1,262
111
(85)
1,288
131
(91 )
1,328
510
156
(73)
(8)
-
585
177
(81 )
(8 )
-
673
752
703
655
1,194
90
(17)
1,267
299
(16 )
1,550
298
111
(15)
(1)
-
393
118
(8 )
(9 )
-
494
896
874
1,056
331
107
(46)
392
105
(107
)
390
151
129
(44)
(11)
(2)
223
134
(104
)
(23 )
1
231
180
169
159
2,787
308
(148
)
2,947
535
(214
)
3,268
959
396
)
(132
(20)
(2)
1,201
429
(193
)
(40 )
1
1,398
1,828
1,746
1,870
* Additions for new agreements, linkage differences, and changes to existing agreements.
Notes to Consolidated Statements as of December 31, 2023
8.2.
Lease liabilities
Communication
sites
Structures
Vehicles
Total
NIS millions
NIS millions
NIS millions
NIS millions
Balance as of January 1, 2022
Additions*
Subtractions
834
118
)16(
Financing expenses for lease obligations 17
Lease payments
)169(
Balance as of December 31, 2022
Additions*
784
138
Subtractions
Financing expenses for lease obligations 21
)10(
Lease payments
Balance as of December 31, 2023
)206(
727
Book value as of December 31, 2022
Current maturities of lease liabilities
Long-term lease liabilities
Balance as of December 31, 2022
Book value as of December 31, 2023
Current maturities of lease liabilities
225
559
784
209
935
93
)2(
24
)124(
926
307
)8(
36
)134(
1,127
110
816
926
115
Long-term lease liabilities
518
Total balance as of December 31, 2023 727
* Additions for new agreements and changes to existing agreements.
1,012
1,127
208
115
-
2
)127(
198
130
)3(
6
)144(
187
121
77
198
109
78
187
1,977
326
)18(
43
)420(
1,908
575
)21(
63
)484(
2,041
456
1,452
1,908
433
1,608
2,041
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, 2023
NIS millions
487
960
1,083
2,530
Notes to Consolidated Statements as of December 31, 2023
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 was delivered in Q2/2023, and the second phase was
expected to be delivered in March 2024. The term of the agreement is 15 years, and
there are options for extension until 2047.
Following the hosting services agreement with Serverfarm that Bezeq International
signed in October 2021, Bezeq International received during the second quarter as
mentioned its share of the Bnei Zion server farm property. Bezeq International handles
the hosting services agreement as a lease agreement for which Bezeq recorded in its
financial statements an asset and a liability in the amount of NIS 197 million.
After the balance sheet date, in January 2024, Bezeq International signed an amendment
to the hosting services agreement according to which, as of January 2024, the scope of
the lease will be reduced by half of the area and the scope of the electricity supply to
which Bezeq International committed in the original agreement. The effect of the
amendment to the hosting agreement, which was treated as a leasing amendment, is
the amortization of an asset and liability for a lease in the amount of NIS 97 and 104
million, respectively, and the recording of a profit from a lease amendment in the
amount of NIS 7 million.
Notes to Consolidated Statements as of December 31, 2023
9.
PP&E
Landline
and
international
network
equipment
(switching,
Cables
landline
and
and
international
network
Equipment
and
infrastruct
ure
for
multi-
Office
equipment,
Land
and
transmission,
communication
Cellular
channel
Subscriber
computers
structures
NIS millions
power)
infrastructure
network
television
equipment
and vehicles
Total
1,282
43
)11(
1,314
49
)3(
2,939
229
)429(
2,739
212
)160(
12,342
433
)22(
12,753
422
)22(
3,409
145
)2(
3,552
186
)3(
1,407
126
)200(
1,333
121
)113(
1,864
327
)380(
1,811
318
)334(
1,360
2,791
13,153
3,735
1,341
1,795
818
79
)316(
581
92
)79(
594
24,061
1,382
)1,360(
24,083
1,400
)714(
24,769
1,023
1,664
9,297
2,770
1,311
1,055
629
17,749
222
)429(
200
)22(
162
)1(
50
)192(
307
)373(
60
)320(
1,027
)1,340(
5
(5)
-
60
19
1,059
1,462
9,470
2,931
1,229
1,008
32
)2(
16
221
)160(
187
)22(
159
)7(
37
)
(110
328
)320(
6
)2(
-
49
1
1,105
1,529
9,633
3,083
1,205
1,017
259
1,275
3,045
639
96
809
13
382
55
)77(
9
369
189
105
17,541
1,019
)698(
79
17,941
6,312
for
and
Cost
Balance as of January 1,
2022
Additions
Subtractions
Balance as of December
31, 2022
Additions
Subtractions
Balance as of December
31, 2023
Depreciation
impairment losses
Balance as of January 1,
2022
Amortization
year
Subtractions
Impairment
(cancellation
impairment)
Balance as of December
31, 2022
Amortization
year
Subtractions
Impairment
(cancellation
impairment)
Balance as of December
31, 2023
Book value
As of January 1, 2022
the
the
for
of
of
26
)3(
13
As of December 31,
2022
As of December 31,
2023
255
1,277
3,283
621
104
803
199
6,542
255
1,262
3,520
652
136
778
225
6,828
9.1.
9.2.
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 amounts to approximately NIS 246
million as of December 31, 2023, and approximately NIS 234 million as of December 31,
2022.
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.
Notes to Consolidated Statements as of December 31, 2023
9.3. 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.
9.4.
9.5.
9.6.
9.7.
9.8.
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 was 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.
On August 14, 2023, the Minister of Communications approved Bezeq's request from
June 4, 2023, in accordance with the provisions of Article 14e of the Communications
Law, to impose on it an obligation to deploy an advanced network and provide an
internet access service over it, in all incentive areas remaining after the first and second
incentive tenders except in the Kfar Aqab area, and this Among other things, in light of
Bezeq’s compliance with its license conditions. The Bezeq license was amended
accordingly (Bezeq’s obligation to deploy in approximately 85% of households).
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).
Regarding liens in connection with loans and credit, see Note 13. Regarding additional
liens, see Note 19.
For contracts for the purchase of PP&E, see Note 18.
In 2023, the Bezeq Group wrote off PP&E that were fully depreciated and are not used
by Bezeq Group in the amount of approximately NIS 675 million.
Notes to Consolidated Statements as of December 31, 2023
10.
Intangible assets
Cost
Balance as of January 1,
2022
Purchases or additions
from self-development
Subtractions
Balance as of December 31,
2022
Purchases or additions
from self-development
Subtractions
Balance as of December 31,
2023
Amortizations
impairment losses
Balance as of January 1,
2022
Amortization for the year
Subtractions
Impairment
Balance as of December 31,
2022
Amortization for the year
Subtractions
Impairment (see below)
Balance as of December 31,
2023
Carrying amount
and
Computer
software and
licenses
NIS millions
Goodwill
NIS millions
Right to use
cellular
communicati
on
frequencies
NIS millions
brand
Customer
and
relations
NIS millions
Others
NIS millions
Total
NIS millions
3,069
2,779
566
7,479
9
-
229
)
(152
-
-
-
)
(790
3,078
2,856
566
6,689
-
-
242
(62 )
4
-
-
-
81
7
-
88
28*
-
13,974
245
)
(942
13,277
274
(62 )
3,078
3,036
570
6,689
116
13,489
1,510
-
-
-
1,510
-
-
-
2,421
137
(152
)
87
2,493
147
(62 )
77
1,510
2,655
353
21
-
-
374
21
-
-
395
213
192
175
6,358
-
(790
)
-
5,568
-
-
-
5,568
1,121
1,121
1,121
81
-
-
-
81
-
-
-
81
-
7
35
10,723
158
(942
)
87
10,026
168
(62 )
77
10,209
3,251
3,251
3,280
As of January 1, 2022
1,559
As of December 31, 2022
1,568
As of December 31, 2023
1,568
358
363
381
* See Note 12.4.1.
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.
Notes to Consolidated Statements as of December 31, 2023
10.2. Examination of impairment of cash generating units
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)
Other (see Note 12.4.1 and Note 12.3.3)
December
2023
31,
December
2022
31,
NIS millions
1,559
9
1,568
NIS millions
1,559
9
1,568
10.3. Examination of
impairment of the cellular communications segment
(Pelephone)
Due to the existence of an asset with an indefinite duration (brand), which is attributed
to the cellular communication cash-generating unit, the Company examined the
recoverable amount of the cellular communication cash-generating unit as of December
31, 2023.
The value in use of the cellular communication cash-generating unit as of December 31,
2023 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
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 revenue
forecast is based on assumptions regarding the status of Pelephone subscribers, the
average revenue per subscriber and the volume of end equipment sales. The operating
expenses and the level of investments have been adjusted to the projected scope of
Pelephone's activities.
The nominal discount rate used in the valuation is 11.25% after tax (14% before tax). In
2022 the discount rate was 10% after tax (12.4% before tax). Also, a permanent growth
rate of 1.5% was assumed (in 2022 - 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 revenue 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 268 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 469 million).
The valuation was conducted by an external valuator. Based on the valuation as
explained above, Pelephone's enterprise value amounted to approximately NIS 2,343
million, compared to the value in the Company's books of NIS 1,400 million. Therefore,
the Company was not required to carry out an amortization in respect of the impairment
of the cellular communication cash-generating unit.
Notes to Consolidated Statements as of December 31, 2023
10.4. Examination of impairment of landline interior communication goodwill
(Bezeq)
The balance of goodwill attributed to the landline interior communication cash-
generating unit in the Company’s books is NIS 1,559 million. Therefore, the Company
examined the recoverable amount of the landline interior communication cash-
generating unit as of December 31, 2023.
The value in use 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 Bezeq’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 revenue 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 Bezeq’s retail telephony services), growth in
revenue 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 access service), erosion in
revenue from data communication and transmission (due to an expected decrease in
transmission revenue from ISP companies and despite an expected consistent growth in
revenue from data communication services), and moderate growth in cloud and digital
revenue. The operating, sales, marketing and investment expenses were adjusted to the
scope of the sector's activity and included assumptions regarding the status of Bezeq’s
employees and the wage and retirement expenses derived from them and assumptions
regarding the rate of deployment of the fiber infrastructure.
The nominal discount rate used in the valuation is 9% after tax (before tax 11.4%). In
2022 the discount rate was 8% after tax (before tax 10.5%). Also, a permanent growth
rate of 1% was assumed (in 2022 - 1%).
The valuation was conducted by an external valuer. Based on the valuation as explained
above, Bezeq's enterprise value amounted to approximately NIS 16,467 million,
compared to the value in the Company's books in the amount of NIS 10,760 million.
therefore the Company 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 (Yes)
At the end of 2023, Yes updated its forecasts for the following years, paying attention to
the trends and changes in its operation environment. The value in use of the multi-
channel TV cash-generating unit as of December 31, 2023 was calculated using the
method of discounting future cash flows (DCF), based on the Yes cash flow forecast up
to and including the year 2028, and with the addition of scrap value (representative
year). The nominal discount rate used in the valuation is 11% after tax (12.5% before tax)
(in 2022 - 10% before and after tax). Likewise, a permanent growth rate of 1% was
assumed (in 2022 - 1%).
Notes to Consolidated Statements as of December 31, 2023
The cash flow forecast was based, among other things, on Yes’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 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) accordingly. In addition, a
gradual replacement of the satellite converters with IP converters was also assumed. As
stated above, the forecast period reflects the period of transition from satellite
transmission to the distribution of broadcasts based on the Internet until fully leaving
the satellite.
Also, the forecast includes a deepening of Yes’s activity in the sale of combined television
and internet packages. 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. It should be noted that the actual implementation of the outline is
and will be carried out while constantly examining the conditions of the market, the
competition, and the technological environment and making the necessary adjustments
as a result.
As of December 31, 2023, the Yes’s enterprise value under the cash flow discounting
approach is higher than the fair value of Yes’s assets and liabilities, net, and is therefore
determined as the basis for determining Yes's recoverable amount.
It should be noted that the assessment of the value in use is sensitive to the net cash
flow in the representative year in general, and to the assessment of the ARPU (average
revenue per subscriber) level and the subscriber base 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 enterprise value in the amount of approximately NIS
60 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 80 million).
Notes to Consolidated Statements as of December 31, 2023
10.5.
Impairment of the multi-channel TV segment (Yes) (Cont.)
The following are details regarding the value of Yes’s activities and the fair value of the
assets and liabilities, net as determined by an external valuator, and recognized
impairment losses:
enterprise
Yes
(according
value
to
DCF
the
method)
Fair value of Yes
assets
and
liabilities, net
Book value of Yes
and
assets
liabilities,
net
before
recognition
impairment
of
Impairment
loss
NIS millions
NIS millions
NIS millions
NIS millions
)24(
)60(
16
)40(
)
(131
(51)
)14(
(37)
)
(129
(85)
)27(
(58)
)
(159
)
(145
)76(
)103(
)88(
(69)
)
(204
)275(
for
As of December 31,
the
2023 and
period
three
of
months that ended on
that date
for
As of September 30,
2023 and
the
three
of
period
months that ended on
that date (unaudited)
As of June 30, 2023
and for the period of
three months
that
ended on that date
(unaudited)
As of March 31, 2023
and for the period of
three months
that
ended on that date
(unaudited)
Total
recognized in 2023
impairment
As of December 31,
2022 and for the year
that ended on that
date
As of December 31, 2023, Yes’s enterprise value under the cash flow discounting
approach is higher than the fair value of Yes’s assets and liabilities, net, and is therefore
determined as the basis for determining Yes’s recoverable amount.
It should be noted that the valuation of Yes’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
revenue 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 60 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 75 million).
Notes to Consolidated Statements as of December 31, 2023
10.5 Impairment of the multi-channel TV segment (Yes) (Cont.)
Below is a breakdown of the allocation of impairment loss to Yes’s assets:
2023
2022
2021
NIS millions
NIS millions
NIS millions
Broadcast rights - minus used rights *
103
PP&E **
Intangible assets **
Other receivables (advance expenses) *
Rights-of-use of leased properties **
62
37
(1 )
3
Total impairment recognized in the year
204
149
76
45
3
2
275
146
91
48
4
(1)
288
* The expense was presented as part of General and operating expenses
** The expense was presented as part of depreciation, amortization, and impairment
expenses.
The following is information regarding the manner in which the Group determined the
fair value (at level 3) of the 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.
10.5.
Impairment of the multi-channel TV segment (Yes)
Intangible assets - No substantial fair value was assigned to YES’s intangible assets, since
most of the software and licenses of Yes were uniquely adapted to Yes 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 Yes for the maintenance of its systems, since most of the
maintenance agreements were uniquely adapted to Yes 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, 2023
10.6.
Impairment of the Internet and international communication services and ICT
solutions segment (Bezeq International)
At the end of 2023, 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, 2023 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
2023, and with the addition of scrap value (representative year). The nominal discount
rate used in the valuation is 11.5% (after and before tax) (10.3% in 2022). Also, a
permanent growth rate of 3% was assumed (3% in 2022).
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 revenue forecast is based on assumptions according to which Bezeq International's
Internet subscriber base, as well as its revenue 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 Yes 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%).
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 enterprise value as of December 31, 2023
amounted to a negative amount of approximately NIS 194 million (as of December 31,
2022 a total negative enterprise value of NIS 166 million). In light of the negative
enterprise value, the value of Bezeq International's non-current assets as of December
31, 2023 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, 2023 is negative in the amount of approximately NIS 23 million. Accordingly, the
Group recognized in 2023 an impairment loss in the amount of approximately NIS 87
million.
Notes to Consolidated Statements as of December 31, 2023
10.6.
Impairment of the Internet, international communication, network endpoint,
and ICT solutions services segment (Bezeq International) (Cont.)
The following are details regarding Bezeq International's enterprise value and the fair
value of the assets and liabilities, net as determined by an external valuator, and
recognized impairment losses:
Bezeq
International
enterprise value
(according to the
DCF method)
value
Fair
Bezeq
International
assets
liabilities, net
of
and
Book value of
Bezeq
International
assets
liabilities,
before
recognition
impairment
and
net
of
Impairment
loss
As of December 31,
for the
2023 and
period
three
of
months that ended
on that date
for
As of September 30,
the
2023 and
period
three
of
months that ended
on
date
that
(unaudited)
As of June 30, 2023
and for the period of
three months
that
ended on that date
(unaudited)
As of March 31, 2023
and for the period of
three months
that
ended on that date
(unaudited)
Total
recognized in 2023
impairment
As of December 31,
2022 and for the year
that ended on that
date
NIS millions
NIS millions
NIS millions
NIS millions
)194(
)23(
7
)30(
)162(
)4(
11
)15(
)162(
)27(
)6(
)21(
)162(
)5(
16
)166(
)22(
)21(
)87(
)104(
The following 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 *
Rights-of-use of leased vehicle assets **
Long-term advance expenses for capacities **
Total impairment recognized in the year
2023
NIS millions
57
17
1
12
87
2022
NIS millions
71
21
-
12
104
2021
NIS millions
75
28
2
17
122
* The expense was presented as part of General and operating expenses.
Notes to Consolidated Statements as of December 31, 2023
** The expense was presented as part of depreciation, amortization and impairment expenses.
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 Bezeq International 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, 2023
10. Deferred expenses and non-current investments
December 31,
2023
December 31,
2022
NIS millions
NIS millions
Subscriber acquisition asset, net (see Note 11.1 below)
166
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
Broadcasting rights
8
15
32
31
60
312
156
27
13
33
29
57
315
11.1. The following is a breakdown of subscriber acquisition assets:
Cost
Balance as of January 1, 2022
Additions
Subtractions
Balance as of December 31, 2022
Additions
Subtractions
Balance as of December 31, 2023
Depreciation and impairment losses
Balance as of January 1, 2022
Depreciation
Subtractions
Balance as of December 31, 2022
Depreciation
Subtractions
Balance as of December 31, 2023
Book value
As of January 1, 2022
As of December 31, 2022
As of December 31, 2023
Subscriber
acquisition assets
NIS millions
479
127
)234(
372
132
)153(
351
328
122
)234(
216
122
)153(
185
151
156
166
11.2.
The balance of deferred expenses 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, 2023
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, 2023:
Bezeq the Israel Telecommunications Corp. Ltd.
Companies consolidated by Bezeq:
Pelephone Communications Ltd
Yes TV and Communications Services Ltd. (Yes) (see Note 12.2 below)
Bezeq International Ltd. (see Note 12.3 below)
Bezeq Online Ltd.
12.1.2.
As of October 11, 2022, 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 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 Yes, and the ICT activity of Bezeq
International to spin off into a new company wholly owned by Bezeq ("the
merger/spin-off plan"), the Bezeq Board of Directors and the boards of Bezeq
International and Yes decided, on March 16, 2022, 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 Yes 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, including, among other things, adapting the activity to the structure
of the industry and the changing regulation, focusing on increasing revenue
and growth, and increasing operational synergy and streamlining.
According to the alternative outline, Bezeq expects that the business
objectives that were the basis of the spin-off/merger plan will be achieved, as
Yes 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, the 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.
In June 2022, Yes received, following its request to the Ministry of
Communications, a special license for Internet access services (ISP) and it
began providing such services while focusing on selling combined Internet
and TV plans to customers.
Notes to Consolidated Statements as of December 31, 2023
12.2.
Yes TV and Communications Services Ltd. (Yes)
12.2.1.
Yes is a wholly owned (100%) subsidiary of Bezeq. Bezeq consolidates the
statements of Yes as of March 23, 2015.
Bezeq has an assessment agreement and taxation decision with the Tax
Authority regarding financing income, owner loans, Yes losses and merger
(see also Note 7.2).
12.2.2.
As of December 31, 2023, Yes has accumulated a loss balance of NIS 8,134
million since its establishment, shareholder’s equity balance of NIS 73 million,
and a working equity deficit of NIS 150 million. Also, as of December 31 2023,
Yes has off-balance sheet commitments in the cumulative amount of
approximately NIS 938 million for the purchase of space segments, content,
fixed assets and other assets up to and including the year 2027 (see Note 18).
Based on the valuation conducted as of December 31, 2023, Yes’s total
enterprise value is a negative value in the amount of approximately NIS 24
million (compared to a negative enterprise value of NIS 103 million as of
December 31, 2022) (see Note 10.5), which results, among other things, from
Yes’s forecasts to continue accumulating operating losses in 2024 and
beyond.
In March 2024, Bezeq’s Board of Directors approved a credit facility or
investment in Yes’s equity in the amount of NIS 40 million, for a period of 15
months, starting on January 1, 2024 and ending on March 31, 2025, instead
of previous commitments, the last of which was given in November 2023. It
should be noted that during the year 2023, Yes did not make any use of the
credit facilities provided by Bezeq.
Yes’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 Yes’s operations until December 31, 2024.
12.2.3.
See Note 10.5 regarding the impairment of assets recognized by Yes as part
of the statements as of December 31, 2023.
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
separation has reduced the number of subscribers who do not use ISP
services, and it is expected to bring about further reduction in next years.
Notes to Consolidated Statements as of December 31, 2023
12.3.2.
12.3.3.
The move, which is expected to continue 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.
See Note 10.6 below regarding the impairment of assets recognized by Bezeq
International within the statements for December 31, 2023.
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. Pelephone Ltd.
As part of Pelephone's activities and preparation for global trends in the roaming services
market, which include, among other things, a more widespread use of eSIM technology
in these services, on October 18, 2023, Pelephone’s Board of Directors approved the
acquisition of full ownership in the company "Roamability", which specializes in
providing solutions in the global roaming services market, including wholesale, and
including the provision of a platform for managing and selling these services. Pelephone
has completed the purchase of 100% of the control and ownership rights in Roamability
(an American company and an Israeli company) in exchange for an amount that is
immaterial at the Bezeq Group level. As of the date of publication of the consolidated
financial statements, the surplus cost allocation (PPA) work has not yet been completed.
12.5. 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 Israeli institutional entity that wishes to increase
its holding to over 7.5% 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.
12.6. Purchase of additional Bezeq shares by the Company
12.6.1.
12.6.2.
12.6.3.
On December 28, 2022, the Company purchased 2,530,000 ordinary shares
of the Bezeq subsidiary in a total amount of about NIS 15 million and at an
average price of NIS 5.95 per share.
During the second quarter of 2023, the Company purchased 7,807,995
ordinary shares of the Bezeq subsidiary for a total amount of approximately
NIS 37 million and at an average price of NIS 4.71 per share.
On January 31, 2024, after the balance sheet date, the Company purchased
3,120,000 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 4.82 per share.
Notes to Consolidated Statements as of December 31, 2023
After the aforementioned purchase and as of the date of the Statements, the
Company owns 27.19% of the issued share capital and voting rights in Bezeq.
12.7. Dividend distribution by Bezeq
12.7.1.
Bezeq’s dividend distribution policy
On March 12, 2024, Bezeq’s Board of Directors decided to update Bezeq's
dividend policy so that Bezeq will distribute every six months 70% of the semi-
annual profit (after tax) according to its consolidated statements starting with
the next distribution (for the second half of 2023), 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 increase its dividend policy in the future, subject to
maintaining its credit rating in the AA group.
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 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.
12.7.2.
Dividends distribution
A. On April 20, 2023, the general assembly of Bezeq's shareholders
approved (following the recommendation of Bezeq’s Board of Directors
of March 13, 2023) the distribution of a cash dividend to Bezeq's
shareholders in the total amount of NIS 246 million (which, as of the day
determining the distribution, is NIS 0.088922 per share). The dividend
was paid on May 11, 2023. The Company's share of the aforementioned
dividend is approximately NIS 66 million.
B. On September 14, 2023, the general assembly of Bezeq's shareholders
(following the recommendation of Bezeq’s Board of Directors of August
8, 2023) approved the distribution of a cash dividend to Bezeq's
shareholders in a total amount of NIS 392 million (which, as of the day
Notes to Consolidated Statements as of December 31, 2023
determining the distribution, is NIS 0.1416805 per share). The dividend
was paid on October 11, 2023. The Company's share of the
aforementioned dividend is approximately NIS 106 million.
C. On March 12, 2024, Bezeq's Board of Directors decided to recommend
to the general assembly of Bezeq's shareholders to distribute a cash
dividend to Bezeq's shareholders in the total amount of NIS 374 million.
As of the date of approval of the statements, the aforementioned
dividend had not yet been approved by Bezeq's general assembly. The
expected share of the Company in the aforementioned dividend (if
approved by Bezeq’s general assembly) is about NIS 102 million.
Notes to Consolidated Statements as of December 31, 2023
12.8. 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
2023
72.92
73.19
3,489
3,464
11,429
10,988
3,678
3,534
8,260
8,512
2,980
2,406
2,257
1,842
Year ended December 31
Revenues
NIS millions
Net profit
Other
comprehen
sive income
Comprehen
sive income
Profit
attributed
to
non-
controlling
interests
Comprehen
sive income
attributed
to
non-
controlling
interests
2023
2022
2021
9,103
8,986
8,821
1,189
1,000
1,182
12
50
36
1,201
1,050
1,218
867
733
867
876
770
893
Year ended December 31
Cash flow from
financing
activities
(without
dividend to
non-controlling
interests)
NIS millions
Dividend
to non-
controlli
ng
interests
Total
increase
(decrease) in
cash and
cash
equivalent
Cash flow
from
current
operations
Cash flow
from
investing
activities
2023
2022
2021
3,440
3,503
2,839
)
1,835
(
)
1,585
(
)
1,646
(
)
1,715
(
)
1,758
(
)
1,060
(
)
(466
)
(392
-
)
(576
)
(232
133
Notes to Consolidated Statements as of December 31, 2023
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
2023
31,
December
2022
31,
NIS millions
NIS millions
842
232
1,074
5,823
2,006
7,829
8,903
835
86
921
6,121
2,136
8,257
9,178
December 31, 2023
Book balance
NIS millions
Par value
NIS millions
December 31, 2022
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
799
699
1,498
740
740
799
700
1,499
740
740
707
698
1,405
817
817
706
700
1,406
817
817
Total loans in Bezeq
2,238
2,239
2,222
2,223
Interest rate range
-
3.2%
4.95%
Prime+ 0.11% -
Prime+0.53%
3.22%
4%-
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 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
-
1,940
1,940
1,073
593
839
1,378
380
462
4,725
6,665
8,903
-
2,010
2,010
1,065
529
835
1,269
430
478
4,606
6,616
8,855
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
3.85%
3.65%
3.65%
2.2%
3.2%
1.7%
2.79%
0.58%
Notes to Consolidated Statements as of December 31, 2023
13.2.1.
On January 11, 2024, Bezeq completed a public offering of debentures (series
11 and 13) by way of expanding series traded on the stock exchange,
according to a shelf offer report dated January 10, 2024, which was published
according to a shelf prospectus published on May 9, 2023. In this framework,
NIS 567,877,000 par value debentures (series 11) were issued to the public
for a total of NIS 539 million and NIS 432,123,000 par value debentures (series
13) for a total of NIS 353 million.
13.3. Debentures issued by the Company
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.
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 removed from the stock exchange
clearinghouse and deleted from the trading cycle.
On June 22, 2023, the Company issued to institutional entities and the public
approximately NIS 538 million in series F debentures for approximately NIS 500 million
net (after issuance expenses). The net proceeds of the issuance of the series F
debentures were used by the Company for early full and final repayment of the balance
of Series C debentures (plus accrued interest until vesting) on July 20, 2023.
In accordance with the terms of debentures series C and F, the Company undertook to
deposit semi-annual interest for the various debenture series in an escrow account for
the benefit of the bondholders. As of December 31, 2023, approximately NIS 36 million
are deposited in the trust accounts for the benefit of the holders of Series C debentures.
As of December 31, 2023, the remaining par value of the series C debentures is NIS 497
million and the remaining par value of the series F debentures is NIS 2,010 million.
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 will not cross
the 75% threshold from December 1, 2023 until the date of the last debenture
principal payment.
As of December 31, 2023, 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:
Notes to Consolidated Statements as of December 31, 2023
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 70% for series F
debentures.
C. Lien on Bezeq shares:
Series F debentures have a 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.
13.3.
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:
13.3.1.
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
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, 2023
In relation to Bezeq's public debentures, to loans from banks whose balance
as of December 31, 2023 is approximately NIS 1.5 billion, and to loans from
financial
is
approximately NIS 0.7 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 0.7 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
13.3.2.
13.3.3.
Notes to Consolidated Statements as of December 31, 2023
13.3.4.
13.3.5.
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 0.7 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.
13.3.6.
In addition to Series 9-14 debentures, and in relation to loans from financial
institutions amounting to approximately NIS 0.7 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).
As of December 31, 2023 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.
Notes to Consolidated Statements as of December 31, 2023
13.4. Transactions in liabilities arising from financing activities
Debentures
(including
accrued
interest)
NIS millions
Loans (including
accrued
interest)
NIS millions
Balance as of January 1, 2022
8,165
1,912
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 derived from (used for) financing activities
Financing expenses imputed to the income statement
Balance as of December 31, 2022
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, 2023
-
)
1,333
(
)
(240
)
1,573
(
384
6,976
915
)
1,326
(
)
(219
)
(630
336
6,682
400
(83)
(67)
250
69
2,231
100
(83 )
(93 )
(76 )
98
2,253
Total
NIS millions
10,077
400
)
1,416
(
)
(307
)
1,323
(
453
9,207
1,015
)
1,409
(
)
(312
)
(706
434
8,935
Notes to Consolidated Statements as of December 31, 2023
14. Trade payables
December 31 , 2023 December 31 , 2022
NIS millions
NIS millions
Suppliers
Open debts and expenses payable *
Total suppliers
894
894
Liabilities to employees and other liabilities for wages and salaries 373
Deferred revenue
224
Institutions
95
4
Derivate instruments
Accrued interest
32
Current tax liabilities
72
64
Others
864
Total current payables including derivatives
Total and current trade payables
Deferred revenue due to a government grant **
Deferred revenue
Derivatives
Others
Total non-current payables
1,757
47
92
3
18
160
903
903
367
171
92
1
29
12
23
695
1,598
53
76
-
22
151
Total current and non-current trade payables
1,917
1,749
* Of which the balance of suppliers who are related parties and interested parties as of December 31, 2023 is NIS
1 million (as of December 31, 2022 - NIS 2 million).
** See Note 10.1.
15. Provisions
Customer lawsuits
NIS millions
Additional lawsuits
NIS millions
and
Dismantling
removing cellular
sites and liability
NIS millions
Total
NIS millions
Balance as of January 1, 2023
Provisions created
Provisions exercised
Provisions cancelled
Balance as of December 31, 2023
Presented in the statement on the
financial position as follows:
Current provisions
Non-current provisions
Total
87
14
(16 )
(1 )
84
84
-
84
For details regarding lawsuits, see Note 17.
75
21
-
(75 )
21
21
-
21
43
2
-
(10 )
35
6
29
35
205
37
(16 )
(86 )
140
111
29
140
Notes to Consolidated Statements as of December 31, 2023
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
2023
2022
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 Yes
retirement of employees
16.4
16.5.1
109
112
66
16.5.2
-
16.5.3-16.5.5
38
Current maturity of benefits for retirees
16.3.3
Total current liabilities for employee benefits
Non-current liabilities for:
Provision for amendment of employee agreement
16.1.1
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 Yes
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
7
332
70
102
50
29
-
251
583
200
)105(
50
108
114
93
10
67
7
399
-
107
52
28
14
201
600
201
(149)
52
16.1.1.
On August 6, 2023 and on August 8, 2023, the Audit Committee of the Bezeq
Board of Directors and the Bezeq Board of Directors (respectively) approved
an amendment to the collective agreement between Bezeq and the
Employees Organization and the Histadrut (“the Amendment"). The
Amendment states, among other things, that a special bonus will be paid to
Bezeq employees in the amount of NIS 75 million, for past services, most of
which is conditional on the dates and conditions stipulated in the agreement
depending on the change in the percentage of holdings of the current control
permit holders in Bezeq (or the expiration/cancellation/transfer of the
control permit) ("the Conditions"). The Amendment to the agreement was
approved by the general assembly of Bezeq's shareholders on September 14,
2023. As a result of the signing and approval of the Amendment to the
agreement, Bezeq recorded a one-off provision of NIS 75 million for the full
amount of the special grant. During the month of December 2023, Bezeq paid
approximately NIS 5 million as part of the agreement.
Notes to Consolidated Statements as of December 31, 2023
16.2. Defined deposit plans
Lability for benefits for employees of retirement age for their period of service in Bezeq
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
220
211
218
2023
2022
2021
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 Note 16.3.1 below).
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 sick leave
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.
Notes to Consolidated Statements as of December 31, 2023
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 2021,
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.
On December 13, 2023, Bezeq's Board of Directors approved, as part of the
retirement of
implementation of Bezeq's
approximately 50 permanent and veteran employees on an early retirement
track at a total cost of up to approximately NIS 55 million. In light of the above,
Bezeq recorded in its statements for Q4/2023 an expense of approximately
NIS 55 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.
Notes to Consolidated Statements as of December 31, 2023
In 2023, the Group recognized expenses in the amount of approximately NIS
7 million in respect of retirement expenses.
16.5.4.
Labor relations at Bezeq International are regulated by a collective agreement
signed between Bezeq International and the New General Workers' Union
("Histadrut") and the Workers' Committee at Bezeq International. The
agreement applies to all Bezeq International employees, with the exception
of senior managers and certain employees in pre-defined positions.
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
the Company's Board of Directors, increased participation in meals, the
provision of a signing bonus and additional rights. In 2023 and 2022, the
Group recorded voluntary retirement expenses of approximately NIS 12
million and approximately NIS 62 million, respectively.
16.5.5.
Yes 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, 2023
is approximately NIS 3 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 2023-9-18 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:
Notes to Consolidated Statements as of December 31, 2023
Severance pay
Retiree benefits
31,
December
2023
Average
discount rate
31,
December
2022
Average
discount rate
5.9%
5.6%
5.2%
5.2%
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 permanent
Bezeq employees
New permanent Bezeq
employees
Non-permanent Bezeq
employees
Employees of
Pelephone, Bezeq
International and Yes
Annual salary increase assumption
The calculation was based on individual assumptions regarding
the expected salary increase for the years 2024 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 4%.
16.6.5.
Detailed weighted average duration of liabilities for key post-employment
benefits:
Severance pay
Retiree benefits
December
2023
31,
December
2022
31,
Years
11
13
Years
11
14
16.6
Sensitivity analysis for main actuarial assumptions
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, 2023 December 31, 2022
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
)18(
20
14
)2(
(20)
22
5
(2)
Notes to Consolidated Statements as of December 31, 2023
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, 2023, 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 1.8 billion. In addition, there is additional exposure in
the amount of approximately NIS 2.6 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.
17.1.
The following is a description of the contingent liabilities of the Group in effect as of
December 31, 2023, classified according to groups with similar characteristics:
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.
Lawsuits in which liability of the Group
companies is claimed in connection with
their operation and/or investments.
Mainly individual claims filed by employees
and
the Group
former employees of
concerning various payments.
Enterprise and
company claims
Claims by
employees and
former employees
of the group
companies
Miscellaneous
Other lawsuits, including tort claims (with
the exception of claims for which there is no
dispute regarding the existence of insurance
coverage),
infrastructure,
suppliers, etc.
estate,
real
Total lawsuits against the Company and the consolidated companies )3(
84
1,701
787
)2( 20
68
)1( 1,808
-
2
-
1
105
23
1,794
4
2,599
Notes to Consolidated Statements as of December 31, 2023
(1) Including 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 Yes’s 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, 2024.
(2) On May 23, 2023, the Company signed a settlement agreement in the amount of
approximately USD 5.5 million in respect of two motions for the approval of class actions filed
in June 2017, among other things, against the Company, Bezeq, officers in the Bezeq Group,
as well as companies from the then controlling group of the company and Bezeq regarding
the purchase transaction of Yes shares By Bezeq from Eurocom DBS Ltd. The settlement
amount does not include offsetting the insurance company's participation by virtue of the
officers' insurance.
At this stage, the settlement agreement has been submitted to the District Court in Tel Aviv
(Economic Department) for approval, and it is uncertain that it will be approved. To the
extent that the settlement agreement is approved, this will end the involvement of the
Company and Shaul Elovich (only in his capacity as controlling shareholder and former
Chairman of the Company's Board of Directors) and Or Elovich (in his capacity as a former
director in the Company only) in the motions for approval.
The provision in the Company's books for the aforementioned settlement minus the
expected receipt from the insurance company in the amount of approximately NIS 19 million
was credited to other expenses in the income statement in the second quarter of 2023.
(3) In addition, see Note 6.6.
18. Contracts
18.1.
Yes is bound by agreements for the purchase of space segments (as detailed in Note 18.2
below), content and copyrights, until the end of 2027 onwards. The amounts of future
contracts as of December 31, 2023 are as follows:
Space segments
Content and copyrights
Total
Year ended December 31
2024
2025
2026
2027
NIS millions
91
69
11
-
171
NIS millions
225
124
87
88
524
NIS millions
316
193
98
88
695
18.2. According to an agreement with Space Communications Ltd. (hereafter - "Space") from
2013, as amended (including an amendment from January 2023), Yes leases space
segments in "Amos" series satellites (hereafter - "Space Agreement").
In accordance with the provisions of the Space Agreement, Yes 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 Yes until February 2025 (or until the end of its life, whichever is
earlier).
Notes to Consolidated Statements as of December 31, 2023
Leased space segments - according to the Space Agreement, and subject to unavailability
events, until the end of the "Amos 7" lease period, Yes 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 Yes 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".
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, 2023, Pelephone 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.
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. As of the reporting date, Pelephone is in the process of
extending the contract agreement for another year until March 31, 2025.
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. During the
first quarter of 2023, Bezeq International signed a new agreement for the purchase of
capacity usage rights service for a period of 10 years with the supplier. 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 11.7 million (in 2021 - USD 5.9 million).
The Bezeq Group companies have contracts for December 31, 2023 for the purchase of
end equipment, PP&E, intangible assets and other assets in the amount of approximately
NIS 448 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, Yes, and
Bezeq International are obligated to pay a rate of 0.5% of their annual revenue 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
the Bezeq
license,
18.3.
18.4.
18.5.
18.6.
18.7.
Notes to Consolidated Statements as of December 31, 2023
can change this rate. On July 31, 2023, the Communications Order (Bezeq and
Broadcasting) (Rate of Annual Payment to the Incentive Fund) (Provisional Order), 5783-
2023 was published, according to which, following the examination carried out by the
Ministry of Communications, it was determined within the framework of a provisional
order, that in 2023 the payment rate of the entities liable to the incentive fund will be at
a rate of 0% instead of 0.5%. Further to the provisional order, there will be a decrease of
approximately NIS 40 million in the Group's expenses in 2023 compared to 2022.
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 132 million (of which approximately NIS 59 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 NIS 220 million (including a guarantee in the amount of approximately
NIS 131 million 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.
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, unless the consent of the Minister of
Communications has been given under the terms determined by him, 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, as long as the
licensee is obligated to provide these services under the provisions of 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.
Notes to Consolidated Statements as of December 31, 2023
19.3.3.
19.3.4.
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 Yes’s 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 Yes 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 Yes transmission center to the
transmission satellite and performing related setup and operation
operations).
in relation to the
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, 2023
20. Equity
20.1. Shareholders’ equity
Ordinary shares NIS 0.1 par value each
Ordinary shares
December 31, 2023 December 31, 2022
Registered share capital
Issued and paid up share capital
Treasury shares
300,000,000
300,000,000
116,335,793
116,335,793
)
10,673,530
(
)
9,080,317
(
Issued and paid up share capital, net
105,662,263
107,255,476
20.1.1.
20.1.2.
20.1.3.
During the year 2022, the Company purchased a total of 7,603,514 of its
shares as part of buyback plans for a total amount of approximately NIS 121
million.
On August 8, 2023, the Company's Board of Directors approved a buyback
plan of the Company's shares up to NIS 30 million. As part of the
aforementioned buyback plan, the company purchased 1,593,213 of its
shares for approximately NIS 23 million.
On March 12, 2024, the Company's Board of Directors approved an additional
purchase plan of the Company's shares in the amount of up to NIS 25 million,
which will begin on March 17, 2024 and end: (1) upon purchase in the amount
of 25 million NIS; or (2) on June 30, 2024, whichever is earlier.
20.1.4.
As of December 31, December 2023, Searchlight and the Forer family about
66.24% and 12.54%, respectively, of the Company's issued and paid-up share
capital.
Notes to Consolidated Statements as of December 31, 2023
21. Revenues
Landline national interior communication - Bezeq Fixed Lines
Year ended December 31
2022
2023
NIS millions
NIS millions
2021
NIS millions
Internet - infrastructure
Data transmission and communication
Landline telephony
Cloud and digital services
other services
Cellular communication - Pelephone
Cellular services and end equipment
Sale of end equipment
Multi-channel TV - Yes
Internet services (ISP) and international communication
services and ICT solutions - Bezeq International
Others
1,907
974
632
349
295
4,157
1,724
585
2,309
1,308
1,139
190
9,103
1,729
897
762
331
261
3,980
1,755
604
2,359
1,277
1,183
187
8,986
1,562
844
891
318
230
3,845
1,606
643
2,249
1,270
1,186
271
8,821
21.1. Contract with customer recognized over time
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). It should be noted that
as of the reporting date, Partner insists on exercising the right of use to the extent of
approximately 80%.
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 practice, Partner has already implemented the first 4
tranches in 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, 2023
22. General and operating expenses
Year ended December 31
2022
2023
NIS millions
NIS millions
2021
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*
762
825
530
439
257
504
64
743
782
567
539
247
454
64
717
803
553
546
238
348
60
3,381
3,396
3,265
* General and operating expenses are presented minus expenses charged in 2023 to investments in PP&E
and intangible assets in the amount of NIS 51 million (approximately NIS 51 million in 2022 and
approximately NIS 49 million in 2021).
23. Salaries
Total salaries and related expenses
Share-based compensation
Minus salaries credited to investments in PP&E and intangible
assets
24. Other operating expenses (income), net
Year ended December 31
2023
NIS millions
2022
NIS millions
2,468
10
)
(552
1,926
2,395
12
)
(530
1,877
2021
NIS millions
2,416
27
)
(555
1,888
Year ended December 31
2023
2022
2021
NIS millions
NIS millions
NIS millions
Capital gains (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)
Expenses due to the termination of employer-employee
relations with early retirement and a streamlining agreement
at Pelephone, Bezeq International and YES (see Notes 16.5.3
and 16.5.4)
Provision (cancellation of provision) for claims
One-off provision - amendment of collective agreement with
the employees (see Note 16.1.1)
Other income
Other operating expenses (income), net
(2 )
-
57
17
44
75
(11 )
180
(8)
-
78
102
55
-
(7)
220
)
(175
(5)
95
37
(23)
-
(6)
(77)
Notes to Consolidated Statements as of December 31, 2023
25. Financing expenses, net
Year ended December 31
2023
2022
2021
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 *
Other financing income
Change in fair value of financial assets measured at fair value
through income
Total financing income
344
10
-
92
63
9
-
518
22
-
121
26
169
309
-
26
125
43
19
8
530
20
40
49
23
132
395
7
34
49
40
8
-
533
28
-
16
11
55
478
Financing expenses, net
* Financing income 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
349
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 become vested in four annual tranches where a different exercise price
is determined for each grant.
During the year 2023, Bezeq allocated approximately 3 million additional options to
officers, managers, and senior employees in Bezeq and its subsidiaries. The options were
granted in 4 grants. Each grant will become vested in four annual tranches where a
different exercise price is determined for each grant.
Notes to Consolidated Statements as of December 31, 2023
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 realized
Options forfeited during the year due to the departure of the bidders
Balance in circulation at the end of the period
Options
2023
Millions
57
Options
2022
Millions
60
3
(5 )
(3 )
52
7
-
(10)
57
28
Exercisable at the end of the period (subject to compliance with the share
exercise price conditions)
15*
* As of the date of approval of the financial statements, approximately 14 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.
The fair value of the options granted during the year 2023, which was estimated by an
external appraiser applying the Monte Carlo model, is approximately NIS 3 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
Salary expenses
Year ended December 31
2023
2022
2021
NIS millions
10
NIS millions
11
NIS millions
27
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:
Salary expenses
Year ended December 31
2023
2022
2021
NIS thousands
400
NIS thousands
520
NIS thousands
280
Notes to Consolidated Statements as of December 31, 2023
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)
2023
2022
2021
187
107
(1 )
106
-
106
1.75
1.74
158
115
(4)
111
1
112
1.42
1.41
129
116
-
116
-
116
1.11
1.11
Notes to Consolidated Statements as of December 31, 2023
28. Segment 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 and international communication services and
ICT solutions (information and communication systems) (hereinafter - "Bezeq
International Services Sector");
4. Yes TV and Communications Services Ltd. (Yes) - 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). 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 (proforma). 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, intangible assets, and deferred expenses.
Notes to Consolidated Statements as of December 31, 2023
28.2. Operating segments
Year ended December 31, 2023
Landline
interior
communication
Cellular
communication
NIS millions
4,157
255
4,412
NIS millions
2,309
39
2,348
Bezeq
International
services
NIS millions
1,139
73
1,212
Multichannel
TV
NIS millions
1,308
1
1,309
1,019
549
137
244
1,451
370
(114)
256
1,195
294
901
9,311
-
9,189
1,155
196
35
(48)
(13)
209
50
159
2,832
-
1,448
365
39
17
(7)
10
29
-
29
991
9
779
100
(4 )
8
(17)
(9)
5
1
4
1,231
-
445
192
Others
Adjustments
Consolidated
NIS millions
190
2
192
NIS millions
-
(370
)
)
(370
NIS millions
9,103
-
9,103
6
(1 )
-
-
-
(1)
1
(2)
88
-
30
5
(88 )
1,867
68
88
17
105
(37)
-
(37)
332
1,559
2,016
-
1,749
518
)
(169
349
1,400
346
1,054
14,785
1,568
13,907
1,817
Revenues from externals
Inter-segmental revenues
Total revenues
Depreciation,
impairments
reductions
and
Segment results - operating profit
(loss)
Financing expenses
Financing income
Total financing expenses (income),
net
Segment profit (loss) before income
taxes
Income taxes
Segment results - net profit (loss)
Segment assets
Goodwill
Segment liabilities
Investments
assets and deferred expenses
in PP&E,
intangible
* 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 Yes’s statements.
Notes to Consolidated Statements as of December 31, 2023
28.2. Operating segments (Cont.)
Year ended December 31, 2022
Landline
interior
communication
Cellular
communication
NIS millions
3,980
632
4,30
6
NIS millions
2,359
40
2,399
Bezeq
International
services
NIS millions
1,18
3
56
1,239
Multichannel
TV
NIS millions
1,277
-
1,277
1,005
532
134
274
1,460
424
(92)
332
1,128
279
849
9,02
0
-
10,465
193
42
(68)
(26)
219
54
165
4,080
-
1,563
1,156
289
(30)
9
(8)
1
(31)
1
(32)
751
9
570
122
(48)
8
(14)
(6)
(42)
1
(43)
1,249
-
469
189
Others
Adjustments
Consolidated
NIS millions
718
6
193
NIS millions
-
)
(428
)
(428
NIS millions
8,986
-
8,986
4
6
-
-
-
6
1
5
90
-
32
10
(81)
1,868
44
47
50
97
(53)
-
(53)
(903
)
1,559
860
-
1,625
530
)
(132
398
1,227
336
891
14,287
1,568
13,959
1,766
Revenues from externals
Inter-segmental revenues
Total revenues
Depreciation,
impairments
reductions
and
Segment results - operating profit
(loss)
Financing expenses
Financing income
Total financing expenses (income),
net
Segment profit (loss) after financing
expenses, net
Income taxes
Segment results - net profit (loss)
Segment assets
Goodwill
Segment liabilities
Investments
assets and deferred expenses
in PP&E,
intangible
* 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 Yes’s statements.
Notes to Consolidated Statements as of December 31, 2023
28.2. Operating segments (Cont.)
Year ended December 31, 2021
Landline
interior
communication
Cellular
communication
NIS millions
3,845
337
4,182
NIS millions
2,249
40
2,289
Bezeq
International
services
NIS millions
1,186
51
1,237
Multichannel
TV
NIS millions
1,270
-
1,270
938
577
173
292
1,748
357
(15)
342
1,406
343
1,063
9,245
-
-
11,415
42
23
(65)
(42)
84
20
64
4,452
-
-
1,753
1,197
289
22
5
(3)
2
20
12
8
778
5
-
566
111
(41)
4
(3)
1
(42)
1
(43)
1,293
-
-
474
188
Others
Adjustments
Consolidated
NIS millions
271
6
277
NIS millions
-
)
(434
)
(434
NIS millions
8,821
-
8,821
4
27
-
-
-
27
6
21
100
-
-
37
5
(95)
1,889
58
144
31
175
(117
)
-
)
(117
(874
)
-
1,560
844
-
1,856
533
(55)
478
1,378
382
996
14,994
5
1,560
15,089
1,790
Revenues from externals
Inter-segmental revenues
Total revenues
Depreciation,
impairments
reductions
and
Segment results - operating profit
(loss)
Financing expenses
Financing income
Total financing expenses (income),
net
Segment profit (loss) after financing
expenses, net
Income taxes
Segment results - net profit (loss)
Investment in affiliates
Segment assets
Goodwill
Segment liabilities
Investments
assets and deferred expenses
in PP&E,
intangible
* 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 Yes’s statements.
Notes to Consolidated Statements as of December 31, 2023
28.3. Adjustments for reporting segments of revenue, income, assets and liabilities
Year ended December 31
2023
2022
2021
NIS millions
NIS millions
NIS millions
Revenues
Revenues from reporting segments
Revenues from other segments
Cancellation of revenues from inter-segmental sales
Consolidated revenues
Operating profit
Operating profit for reporting segments
Financing expenses, net
9,281
192
)
(370
9,103
1,682
)
(349
Adjustments for the multi-channel TV segment
Profit (loss) for activities classified in the Other and
other adjustments category
98
(31 )
Consolidated operating profit
1,400
9,221
193
)
(428
8,986
1,575
)
(398
56
(6)
1,227
8,978
277
)
(434
8,821
1,771
)
(478
72
13
1,378
December
2023
31,
December
2022
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
14,374
88
1,559
)
(925
1,257
16,353
11,861
30
(210)
2,226
13,907
15,109
90
1,559
)
2,128
(
1,225
15,855
13,067
32
)
1,311
(
2,171
13,959
Notes to Consolidated Statements as of December 31, 2023
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
Related parties, net
Right-of-use assets
Current lease liability maturities
Non-current lease liabilities
As of December 31
2023
2022
NIS millions
NIS millions
-
2
(1 )
(1 )
(1)
2
(1)
(2)
29.3. Transactions with interested parties and related parties
Revenue
From related parties
From affiliates
Expenses
To related parties
To affiliates
PP&E
To related parties
Year ended December 31
2023
2022
2021
NIS millions
NIS millions
NIS millions
8
-
27
1
8
4
-
24
1
4
10
1
33
-
10
29.3.1.
Classification of transactions with officers and controlling shareholders in the
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, 2023
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, 2023
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
There were no such transactions during the reporting period.
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 2021-2023
include:
Year ended December 31
2023
NIS thousands
2022
NIS thousands
2021
NIS thousands
Number of key management personnel *
Salaries **
Grant ***
Share-based compensation
6
10,147
6,910
5,619
22,676
6
9,872
***
7,262
6,197
23,331
5
9,403
7,780
13,530
30,713
* Key management personnel in the Group in the reporting year include the Chairman of the
Company's Board of Directors, the Company's CEO, the former Chairman of Bezeq’s Board of
Directors, the CEO of Bezeq, the CEO of Pelephone, and the CEO of Pelephone and Yes, as well as
the CEO of Bezeq International.
** In 2023, the changes in other provisions (included in the total salaries) mainly include a decrease
in provisions for advance notice to the Bezeq CEO in the amount of approximately NIS 1.1 million,
offsetting an increase in the provision for advance notice to the former Chairman of the Bezeq
Board of Directors in the amount of approximately NIS 0.2 million.
In 2022, the changes in other provisions (included in the total salary) mainly include provisions for
advance notice to the CEO of Pelephone, Bezeq International, and Yes in the amount of
approximately NIS 0.7 million.
Notes to Consolidated Statements as of December 31, 2023
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.
*** The amount includes an annual discretionary grant approved by Bezeq's general assembly 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
2023
2022
2021
NIS thousands
NIS thousands
NIS thousands
Compensation for the members of the Board of
Directors *
Number of directors receiving compensation ** 6
805
645
6
635
6
* The directors’ compensation of the Company's CEO, who also served as a director of the Company until
November 29, 2021, as well as the compensation of the Chairman of the Company's Board of Directors, are
presented in Note 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
unless
Directors),
otherwise specified
of
April 30, 2020
April 30, 2020
November 28, 2023
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
Certificate
Company's
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 compensation policy for
the period until December 1, 2024.
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
according to the Company's
latest
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
for the entire
claim and
insurance year plus reasonable legal
expenses. The total annual premium is
approximately USD
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.
421,825.
Notes to Consolidated Statements as of December 31, 2023
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 banking and
non-banking corporations, and there are also investments in short-term loans and
financial funds.
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
Notes to Consolidated Statements as of December 31, 2023
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
from banking and non-banking sources. According to the conclusions, proactive activity
is carried out to minimize the risk.
Regarding the terms of debentures issued and loans received by the Group companies,
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, 2023, including estimated interest payments
(based on consumer price index data and interest known as of December 31, 2023):
As of December 31, 2023
Book value
Predicted
cash flow
H1/2024
6202
to
5202
8202
9202
onwards
H2/2024
NIS millions
Non-derivative financial liabilities
Trade payables
Loans
Securities
1,540
2,238
6,666
1,540
2,680
7,500
10,445
11,720
1,529
254
80
1,863
11
58
922
991
-
366
992
1,358
-
1,271
3,571
4,842
-
731
1,935
2,666
Financial
respect
of
instruments
liabilities
in
derivative
3
3
-
-
-
3
-
As of December 31, 2022
Predicted
2025
to
2028
Book value
cash flow
H1/2023
H2/2023
2024
2027
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
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, 2023
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, 2023
The following is a statement on the financial situation according to linkage bases as of December 31,
2023:
As of December 31, 2023
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
593
1,199
1,430
53
1
3,276
275
-
-
-
8
283
3,559
779
11
1,269
329
91
2,479
5,620
30
214
-
-
29
5,893
8,372
-
44
-
39
-
83
171
-
-
-
31
202
285
295
422
77
-
-
794
2,209
1,575
-
-
-
-
3,784
4,578
51
5
47
9
-
112
-
-
-
-
-
-
112
-
-
192
3
20
215
-
3
37
3
-
-
43
258
-
-
-
65
81
146
-
1,870
6,828
3,280
273
12,251
12,397
-
-
220
-
-
220
-
-
-
157
322
-
479
699
644
1,248
1,477
616
82
3,617
446
1,870
6,828
3,280
312
12,736
16,353
1,074
433
1,758
332
111
3,708
7,829
1,608
251
160
322
29
10,199
13,907
)
4,813
(
)
4,293
(
)
(146
11,698
2,446
)
1,197
(
700
497
-
-
Current assets
Cash and cash equivalents
investments
Trade receivables
Other receivables
Inventory
Total current assets
Non-current assets
Trade receivables
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
index and foreign
The scope of
currency risk hedging transactions is
as follows:
Forward contracts (see Note 30.6)
Notes to Consolidated Statements as of December 31, 2023
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
286
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
-
1,746
6,542
3,251
226
11,765
11,890
921
-
-
172
-
-
172
-
-
-
151
319
-
470
642
754
973
1,440
289
85
3,541
460
1,746
6,542
3,251
315
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
Trade receivables
Other receivables
Inventory
Total current assets
Non-current assets
Trade receivables
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
635
Total disclosure in the statement of
financial position
index and foreign
The scope of
currency risk hedging transactions is
as follows:
Forward contracts (see Note 30.6)
Notes to Consolidated Statements as of December 31, 2023
30.5.2.
Data regarding the Consumer Price Index:
In 2023, the known Consumer Price Index increased by 3.3% (in 2022 an
increase of 5.3% and in 2021 a decrease of 2.4%).
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, 2023, 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
Book value
2023
2022
NIS millions
NIS millions
and
1,389
)
8,274
(
)
6,885
(
1,673
)
8,544
(
)
6,871
(
Variable interest instruments
Financial assets (loans and debentures)
)
(699
)
(698
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, 2023
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,
2023
Debentures Series 10 12.2023
Debentures Series 12 6.2026
to
12.2025
to
6.2030
As of December 31,
2022
Debentures Series 10 12.2023 to
12.2025
Debentures Series 12 6.2026
to
6.2030
30.6.2.
Economic hedging
2
10
12
3
6
9
150
550
700
225
310
535
8
20
28
9
22
31
3
8
11
6
14
20
A. Bezeq is involved in forward transactions in order to reduce exposure to
changes in the dollar exchange rate. The net fair value of these
transactions as of December 31, 2023 is an asset of approximately NIS 1
million (in 2022 - an asset of approximately NIS 8 million).
B. Yes is involved in forward transactions in order to reduce their exposure
to changes in the dollar exchange rate. The net fair value of these
transactions as of 12.31.2023 is a liability of approximately NIS 1 million
(as of December 31, 2022 an asset of approximately NIS 4 million).
Notes to Consolidated Statements as of December 31, 2023
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
2023
31,
December
2022
31,
NIS millions
NIS millions
Level 1 - Investment in marketable securities measured at
fair value through income
Level 2 – Forward contracts (see Note 30.7.2)
* Reclassified.
759
25
159*
42
30.7.2.
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, 2023
Book value
(including
accrued
interest)
Fair value
Discount
rate
(weighted
average)
Book
value
Fair
value
As of December 31, 2022
Discount
rate
(weighted
average)
%
NIS millions
%
NIS millions
from
banks
Loans
institutional bodies (unlinked)
Public
(index-
debentures
linked)
and
1,546
1,500
4.31
1,530
1,462
5.14
2,436
2,387
2.15
2,402
2,373
1.82
Public debentures (unlinked)
4,238
4,148
4.82
4,569
4,386
4.95
8,220
8,035
8,501
8,221
Notes to Consolidated Statements as of December 31, 2023
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:
December 31,
2023
December 31,
2022
NIS millions
NIS millions
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
68
)65(
3
73
65
Balance of suppliers presented in the statement of financial position
8
96
)84(
12
98
)84(
14
Notes to Consolidated Statements as of December 31, 2023
31. Summary of selected data from the statements of Bezeq the Israel
Telecommunications Corp. Ltd., Pelephone Communications Ltd., Bezeq
International Ltd. and Yes TV and Communications Services Ltd.
31.1. Bezeq the Israel Telecommunications Corp. 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
Data from the statement of income:
Revenues
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 of investees, net
Profit before income taxes
Income taxes
Profit for the year
December
31,
December
31,
2023
2022
NIS millions
NIS millions
2,155
9,226
11,381
2,317
6,868
9,185
2,196
11,381
2,086
10,002
12,088
2,148
8,317
10,465
1,623
12,088
Year ended December 31
2023
2022
2021
NIS millions
NIS millions
NIS millions
4,412
4,306
4,182
1,028
1,019
769
145
2,961
1,451
370
)
(114
256
1,195
288
1,483
294
1,189
970
1,005
759
112
2,846
1,460
424
(92)
332
1,128
151
1,279
279
1,000
934
938
667
(105)
2,434
1,748
357
(15)
342
1,406
120
1,526
343
1,183
Notes to Consolidated Statements as of December 31, 2023
31.2.
Pelephone Communications 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
Data from the statement of income:
Revenues
Revenues from services
Revenues from sale of end equipment
Total revenues from services and sales
Operating expenses
General and operating expenses
Salaries
Depreciation and amortization
Total operating expenses
Other operating expenses, net
Operating profit
Financing expenses (income)
Financing expenses
Financing income
Financing income, net
Profit before income taxes
Income taxes
Profit for the year
December
31,
December
31,
2023
2022
NIS millions
NIS millions
722
2,110
2,832
659
789
1,448
1,384
2,832
865
3,215
4,080
684
879
1,563
2,517
4,080
Year ended December 31
2023
2022
2021
NIS millions
NIS millions
NIS millions
1,756
592
2,348
1,278
323
549
2,150
2
196
35
)48(
)13(
209
50
159
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
Notes to Consolidated Statements as of December 31, 2023
31.3.
Bezeq International Ltd.
Data from the statement of financial position:
December
31,
December
31,
2023
2022
NIS millions
NIS millions
406
594
1,000
391
388
779
221
1,000
396
364
760
431
139
570
190
760
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:
Revenue
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 taxes
Profit (loss) for the year
Year ended December 31
2023
2022
2021
NIS millions
NIS millions
NIS millions
1,212
1,239
1,237
800
216
137
20
827
237
134
71
799
237
173
6
1,173
1,269
1,215
39
17
)7(
10
29
-
29
(30)
9
)8(
1
(31)
1
(32)
22
5
(3)
2
20
12
8
Notes to Consolidated Statements as of December 31, 2023
31.4. Yes TV and Communications Services Ltd. (Yes)
Data from the statement of financial position:
December
31,
December
31,
2023
2022
NIS millions
NIS millions
235
283
518
385
60
445
73
518
196
241
437
395
74
469
)32(
437
Year ended December 31
2023
2022
2021
NIS millions
NIS millions
NIS millions
1,309
1,277
1,270
Current property
Non-current property
Total property
Current liabilities
Non-current liabilities
Total liabilities
Equity (deficit in equity)
Total liabilities and equity (deficit in equity)
Data from the statement of income:
Revenues
Operating expenses
Operating, general and depreciation expenses
Salaries
Depreciation, amortization and impairments
Other operating expenses (income), net
Total operating expenses
861
193
166
(5)
867
200
199
3
835
188
203
12
1,215
1,269
1,238
Operating profit
Financing expenses (income)
Financing expenses
Financing income
Financing expenses (income), net
Profit before income taxes
Income taxes
Profit for the year
94
8
)17(
)9(
103
1
102
8
8
)14(
)6(
14
1
13
32
4
)3(
1
31
1
30
Notes to Consolidated Statements as of December 31, 2023
32. Material events during and after the reporting period
32.1.
Regarding additional purchase of Bezeq subsidiary shares by the Company after the
balance sheet date, see Note 12.6.
32.2. On January 25, 2024, Bezeq's Board of Directors approved Bezeq's entry into the field
of electricity supply and Bezeq's engagement with PowerGen Ltd. ("PowerGen"), a
company wholly owned by Generation Capital Ltd., which coordinates the fund’s energy
in a non-binding memorandum of understanding regarding strategic
activities,
cooperation and the establishment of a joint venture in the field of electricity supply
("the MOU").
32.3.
See Note 12.7 above regarding the decision of Bezeq’s Board of Directors dated March
13, 2023 regarding 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.
32.4.
Regarding the approval of another plan for the buyback of the Company's shares from
March 12, 2024, see Note 20.1.3.
Separate Financial Information for the Year Ended
December 31, 2023
Separate Financial Information as of December 31, 2023
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,
2023 and 2022 and for each of the three years the last of which ended on December 31, 2023. 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 transfer of the investigation file to the District Attorney's Office, 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 a 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 the Bezeq Group, which attributes to the defendants
obtainment by fraud, 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, 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 12, 2024
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, 2023
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
Payables and credit balances
Provisions
Total current liabilities
Debentures
Total non-current liabilities
2023
2022
Note
NIS millions
NIS millions
3
4
5
6
7
81
43
3
127
8
2,022
2,030
2,157
8
20
28
1,940
1,940
13
63
1
77
27
1,864
1,891
1,968
9
-
9
1,905
1,905
Total liabilities
1,968
1,914
Shareholders' equity
8
189
54
Total liabilities and shareholders' equity
2,157
1,968
Darren Glatt
Chairman of the Board of Directors
Tomer Raved
CEO
Itzik Tadmor
CFO
Date of approval of the financial statements: March 12, 2024
The notes attached to the financial information constitute an integral part thereof.
3
Separate Financial Information as of December 31, 2023
Income Statement for the year ended December 31
2023
2022
2021
Note
NIS millions
NIS millions
NIS millions
Operating expenses
Salaries
General and operating expenses
Other expenses
Total operating expenses
Operating loss
Financing expenses (income)
Financing expenses
Financing income
Financing expenses, net
6
9
Loss after financing expenses, net
in net profit of equity-accounted
Share
investee
Net profit for the year
Comprehensive income for the year ended December 31
4
7
19
30
(30 )
110
(5 )
105
)
135
(
322
187
5
7
-
12
(12)
106
(9)
97
5
8
-
13
(13)
184
(10)
174
)
(109
)
(187
267
158
316
129
2023
2022
2021
NIS millions
NIS millions
NIS millions
Net profit for the year
Other comprehensive income, net of tax
Total comprehensive income for the year
187
3
190
158
13
171
129
10
139
The notes attached to the financial information constitute an integral part thereof.
4
Separate Financial Information as of December 31, 2023
Cash Flows Statement for the year ended December 31
2023
2022
2021
NIS millions
NIS millions
NIS millions
Cash flows from current activity
Net profit for the year
Adjustments to profit:
Share in profits of equity-accounted investee, net
Financing expenses, net
Share-based compensation
Change in trade payables
Change in other receivables
Change in provisions
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 derived from investing activities
Cash flows from financing activities
Issuance of debentures
Repayment of debentures
Buyback of shares
Interest paid
Early repayment fees
Net cash used for financing activities
Increase (decrease) in cash and cash equivalents
Effect of changes in foreign currency exchange rate
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
(*) Amount lower than NIS 1 million.
187
(322)
106
*
(1)
(3)
20
(13)
40
(37)
172
4
179
500
(497)
(23)
(76)
-
(96)
70
(2)
13
81
158
(267)
49
1
2
3
-
(9)
163
(15)
143
2
293
-
(100)
(121)
(75)
-
(296)
(12)
-
25
13
129
(316)
174
-
-
10
-
(3)
66
-
-
1
67
1,035
(511,0)
(16)
(79)
(19)
(49)
(30)
-
55
25
The notes attached to the financial information constitute an integral part thereof
5
Notes to Separate Financial Information as of December 31, 2023
1. General
The following are financial data from the Group's consolidated statements as of December 31, 2023
(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 2023 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, revenue, comprehensive profit, 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.
2.2. New standards implemented during the period of the report
Regarding new standards implemented during the reporting period, see Note 3.14 to the
Consolidated Statements.
6
Notes to Separate Financial Information as of December 31, 2023
3. Short-term investments and deposits
Investments in marketable securities
Short-term deposits (1)
* Reclassified
(1) The deposits are due until December 2024.
December 31, 2023
December 31, 2022
NIS millions
14
29
43
NIS millions
8
55*
63
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,
2023
%
December 31,
2022
December 31,
2023
December 31,
2022
%
NIS millions
NIS millions
Bezeq
%08.72
26.81%
2,02
2
2,02
2
1,864
1,864
4.1.
Investment in Bezeq
A. On December 28, 2022, the Company purchased 2,530,000 ordinary shares of the subsidiary
Bezeq in 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 Bezeq.
B. During the second quarter of 2023, the Company purchased 7,807,995 ordinary shares of
the subsidiary Bezeq for a total amount of approximately NIS 37 million and at an average
price of NIS 4.71 per share. After the aforementioned purchase, the Company held 27.08%
of the issued share capital and voting rights in Bezeq.
C. On January 31, 2024, after the balance sheet date, the Company purchased 3,120,000
ordinary shares of the subsidiary Bezeq in exchange for payment of a total amount of
approximately NIS 15 million and at an average price of NIS 4.82 per share. After the
aforementioned purchase and as of the date of the financial statements, the Company holds
27.19% of the issued share equity and voting rights in Bezeq.
4.1. Bezeq’s dividend distribution policy
On March 12, 2024, Bezeq’s Board of Directors decided to update Bezeq's dividend policy so that
Bezeq will distribute every six months 70% of the semi-annual profit (after tax), according to its
consolidated statements, starting with the next distribution (for the second half of 2023), 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.
7
Notes to Separate Financial Information as of December 31, 2023
4. Consolidated companies (Cont.)
Also, Bezeq will strive to increase its dividend policy in the future, subject to maintaining its 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 taking into account the
expected cash flow, Bezeq's needs and obligations, Bezeq's cash balances, 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, as stipulated in Bezeq regulations.
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 maximize value for
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 maximize value for its shareholders through regular dividend
distribution.
Bezeq's Board of Directors was presented, among other things, with Bezeq's and Bezeq Group's
forecasts, as well as sensitivity analyses 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.
4.1. Dividend distribution by Bezeq
A. On April 20, 2023, the general assembly of Bezeq's shareholders (following the
recommendation of the Bezeq’s Board of Directors of March 13, 2023) approved the
distribution of a cash dividend to Bezeq's shareholders in the total amount of NIS 246 million
(which, as of the day determining the distribution, constitutes NIS 0.088922 per share). The
dividend was paid on May 16, 2022. The Company's share of the aforementioned dividend is
approximately NIS 66 million.
B. On September 14, 2022, the general assembly of Bezeq's shareholders (following the
recommendation of the Bezeq Board of Directors of August 8, 2023) approved the
distribution of a cash dividend to Bezeq's shareholders in a total amount of NIS 392 million
(which, as of the day determining the distribution, is 0.1416805 NIS per share). The dividend
was paid on October 11, 2023. The Company's share of the aforementioned dividend is
approximately NIS 106 million.
C. On March 12, 2023, the Bezeq Board of Directors recommended to the general assembly of
Bezeq's shareholders to distribute a cash dividend to Bezeq's shareholders in a total amount
of NIS 374 million. As of the date of approval of the Statements, the aforementioned dividend
has not yet been approved by Bezeq's general assembly. The Company's expected share of
the aforementioned dividend (if approved by Bezeq’s general assembly) is approximately NIS
102 million.
8
Notes to Separate Financial Information as of December 31, 2023
5. Trade payables
Trade and other payables
Interest payable
6. Contingent liabilities
December 31, 2023
December 31, 2022
NIS millions
NIS millions
2
6
8
3
6
9
On May 23, 2023, the Company signed a settlement agreement in the amount of approximately USD 5.5
million in respect of two motions for the approval of class actions filed in June 2017, among other things,
against the Company, Bezeq, officers in the Bezeq Group, as well as companies from the then controlling
group of the company and Bezeq regarding the purchase transaction of Yes shares By Bezeq from Eurocom
DBS Ltd. The settlement amount does not include offsetting the insurance company's participation by
virtue of the officers' insurance.
At this stage, the settlement agreement has been submitted to the District Court in Tel Aviv (Economic
Department) for approval, and it is uncertain that it will be approved. To the extent that the settlement
agreement is approved, this will end the involvement of the Company and Shaul Elovich (only in his
capacity as controlling shareholder and former Chairman of the Company's Board of Directors) and Or
Elovich (in his capacity as a former director in the Company only) in the motions for approval.
The provision in the Company's books for the aforementioned settlement minus the expected receipt from
the insurance company in the amount of approximately NIS 19 million was credited to other expenses in
the income statement in the second quarter of 2023.
See also Note 17 in the Company's consolidated financial statements.
7. Debentures
December 31, 2023
December 31, 2022
Carrying amount
NIS millions
Par value
NIS millions
Carrying amount
NIS millions
Par value
NIS millions
Debentures issued to the public:
Debentures Series C
Debentures Series F
Total debentures
-
1,940
1,940
-
2,010
2,010
480
1,425
1,905
497
1,472
1,969
7.1.
7.2.
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).
9
Notes to Separate Financial Information as of December 31, 2023
7.3.
7.4.
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.
On June 22, 2023, the Company issued to institutional entities and the public approximately NIS
538 million in series F debentures for a net of approximately NIS 500 million (after issuance
expenses). The net proceeds of the issuance of the series F debentures were used by the
Company for early full and final repayment of the balance of series C debentures (plus accrued
interest up to the maturity date) on July 20, 2023.
7.5.
For more details, see Note 13 to the Consolidated Statements.
8. Shareholders’ equity
Ordinary shares of NIS 0.1 par value
Registered share capital
Issued and paid-up share capital
Treasury shares
Issued and paid-up share capital, net
Ordinary shares
December 31, 2023 December 31, 2022
300,000,000
300,000,000
116,335,793
)
10,673,530
(
105,662,263
116,335,793
)
9,080,317
(
107,255,476
8.1.
8.2.
8.3.
During the year 2022, the Company purchased a total of 7,603,514 of its shares as part of buyback
plans for a total amount of approximately NIS 121 million.
On August 8, 2023, the Company's Board of Directors approved a buyback plan of the Company's
shares up to NIS 30 million. As part of the aforementioned buyback plan, the Company purchased
1,593,213 of its shares for approximately NIS 23 million.
On March 12, 2024, the Company's Board of Directors approved an additional buyback plan of
the Company's shares in the amount of up to NIS 25 million, which will begin on March 13, 2024
and end: (1) upon purchase in the amount of NIS 25 million; or (2) on June 30, 2024, whichever
is earlier.
8.4.
As of December 31, 2023, Searchlight and the Forer family held 66.24% and 12.54%, respectively,
of the Company's issued and paid-up share capital.
10
Notes to Separate Financial Information as of December 31, 2023
9. Financing expenses
Year
ended
Year
ended
Year
ended
December 31
December 31
December 31
2023
2022
2021
NIS millions
NIS millions
NIS millions
98
-
8
-
106
2
-
7
9
97
165
-
-
19
184
3
7
-
10
174
Interest expenses
Exchange rate differences
Change in fair value of financial assets
measured at fair value through income
Early repayment fees
Total financing expenses
108
2
-
110
Profits from investments in marketable
securities and bank deposits
Change in fair value of financial assets
measured at fair value through income
Income from debenture exchange
Total financing income
Financing expenses. Net
10. Income tax
4
1
-
5
105
The Company has final tax assessments until 2018.
11. 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
2023
2022
2021
NIS thousands NIS thousands NIS thousands
Salaries expenses
400
520
280
11
Notes to Separate Financial Information as of December 31, 2023
12. 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, 2023):
December 31, 2023
Carrying
amount
Contractual
cash flow
Q1/2024
Q2/2024
2025
2026
NIS millions
Non-derivative financial commitments
Trade and other payables
Debentures
Total
8
1,94
0
1,94
8
8
2,223
2,231
8
31
39
-
36
36
-
73
73
-
2,083
2,083
13. Events during and after the reporting period
13.1.
13.2.
13.3.
13.4.
13.5.
Regarding the additional purchase of shares of the subsidiary Bezeq by the Company after the
balance sheet date, see Note 4.1.
Regarding the investigation by the Securities Authority and the police, see Note 1.3 to the
Consolidated Statements.
For information regarding the decision of the Bezeq Board of Directors dated March 12, 2024
regarding the update of Bezeq's dividend distribution policy and the decision of the Bezeq Board
of Directors to recommend to the Bezeq general assembly on the distribution of a dividend, see
Note 4.3.
Regarding the approval of another plan for the buyback of the Company's shares from March 12,
2024, see Note 8.3.
For information regarding material events during and after the reporting period, see Note 32 to
the Consolidated Statements.
12
Chapter D (Additional Details on the Corporation) for the Periodic Report for the Year 2023
Chapter D
Additional Details about the Corporation
and Corporate Governance Questionnaire
for the Period ended December 31, 2023
- 1-
Chapter D (Additional Details on the Corporation) for the Periodic Report for the Year 2023
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
According to the Company's shelf prospectus dated January 7, 20211, on June 22, 2023
(Ref.: 2023-01-007660), the Company published a shelf offer report for the issuance
and registration of up to NIS 621,520,000 par value debentures (series 6), by way of
expansion of a traded series that was issued for the first time according to a shelf offer
report dated July 5, 2021. The total (gross) expected proceeds from the
aforementioned offer is in the amount of approximately NIS 504 million, and the
Company intends to use the proceeds from the issue for partial or full early repayment
of the debentures (series C) of the Company. On June 22, 2023, the Company
announced that upon the completion of the issuance of the Company’s debentures
(series 6) as mentioned above, the Company will make a full early redemption of the
debentures (series 3) and that the redemption will be carried out on July 20, 2023
(Ref.: 2023- 01-058786). For more details about the expansion of the Company's
debentures (series 6) and early redemption of the Company's debentures (series 3),
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
ations
Corporation
Ltd. ("Bezeq")
752,411,708
752,411,708 27.19%
27.19%
2,022
1 Which was extended until January 7, 2024, as published in the Company's immediate report dated
February 13, 2023, (Ref.: 2023-01-016701), which is included in this report by way of reference.
- 2-
Chapter D (Additional Details on the Corporation) for the Periodic Report for the Year 2023
Regulation 12: Changes in investments in subsidiaries during the reported period
A. On April 3, 2023, the Company purchased 2,100,000 ordinary shares of NIS 1 par
value of Bezeq, in transactions during trading on the stock exchange, in exchange
for payment of a total amount of approximately NIS 10 million and at an average
price of NIS 4.75 per Bezeq share.
B. On May 28, 2023, the Company purchased 1,417,995 ordinary shares of NIS 1 par
value of Bezeq, as part of stock exchange trading transactions, in exchange for
payment of a total amount of approximately NIS 6.8 million and at an average price
of 4.77 per Bezeq share.
C. On May 30, 2023, the Company purchased 2,090,000 ordinary shares of NIS 1 par
value of Bezeq, as part of stock exchange trading transactions, in exchange for
payment of a total amount of approximately NIS 10 million and at an average price
of 4.79 per Bezeq share.
D. On June 28, 2023, the Company purchased 1,100,000 ordinary shares of NIS 1 par
value of Bezeq, as part of stock exchange trading transactions, in exchange for
payment of a total amount of about NIS 5 million and at an average price of 4.542
per Bezeq share.
E. On January 31, 2024, the Company purchased 3,120,000 ordinary shares of NIS 1
par value of Bezeq, as part of stock exchange trading transactions, in exchange for
payment of a total amount of approximately NIS 15 million and at an average price
of 4.82 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)
Profit for the period Comprehensive
Company name
Dividend Management
Bezeq
1,189
profit for the
period
1,201
638
fee
-
Interest
revenue
-
Regulation 20: Trading on the stock exchange
On June 22, 2023, the Company issued 538,000,000 par value debentures (series 6),
according to a shelf offer report, in exchange for NIS 503,568,000. The proceeds of the
net issuance of the debentures (series 6) were used by the Company for full early
redemption of debentures (series C), as detailed below.
On July 20, 2023, the company made a full early redemption of the bonds (series C).
For more details, see immediate reports published by the company on June 22, 2023
and July 20, 2023 (Refs.: 2023-01-058351 and 2023-01-068611, respectively), which
are included in this report by way of reference.
- 3-
Chapter D (Additional Details on the Corporation) for the Periodic Report for the Year 2023
Regulation 21: Compensation for related parties and senior officers
The following is a breakdown of the compensation paid by the Company, or paid by
the companies under its control (including commitments to provide compensation),
during the year 2023: (1) to each of the five holders of the highest compensation
among the senior officers 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 compensation in the Company itself, which were given
to them in connection with their office in the Company.
Details of compensation persons
Compensation (NIS thousands)
Total
(NIS
thousands)
Section
below
Name
Position
Sex
Job
volume
Tomer Raved
Itzik Tadmor
Ilan Chaikin
Gil Sharon5
Ran Guron6
Directors
CEO4
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
-
-
-
-
-
-
Salary2
Bonus3
Share-
based
payment
Other
Total
1,454
708
56
410
264
-
384
16
-
2,421
2,228
765
2,639
908
2,099
-
879
-
381
-
-
-
-
-
2,629
987
56
3,884
5,617
908
A
B
C
D
E
F
2 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.
3 Regarding senior executives at Bezeq , the bonus amounts listed in the table are as recognized in the 2023
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 compensation policy.
The performance-dependent bonus that appears in the table is for the year 2023 (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 2023,
bonuses were paid to the above officers for 2022, the amount of which [including a contingent portion not paid in
practice in 2022, but paid in practice in 2024 (if any) is included in the corresponding table in Bezeq’s annual
statements for 2021 (as published on March 23, 2022).
4 As of January 1, 2024, he also serves as the Chairman of Bezeq's Board of Directors. For more details, see
immediate report published by the Company (Ref.: 2023-01-110518).
5 Ceased to serve as chairman of Bezeq's Board of Directors as of January 1, 2024. For more details, see
immediate report published by Bezeq (Ref.: 2024-01-000288).
6 His term is expected to end on March 31, 2024, or at another date agreed between him and Bezeq. For more
details, see immediate report published by the Company (Ref.: 2024-01-016624).
- 4-
Chapter D (Additional Details on the Corporation) for the Periodic Report for the Year 2023
The group did not pay any of the office bearers listed in the table above payments for the year 2023
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, as a director in Bezeq starting in May 2020,
and as of January 1, 2024, Mr. Raved serves as Chairman of Bezeq’s Board of Directors. According
to the employment agreement with Mr. Raved, which was approved at the Company's general
assembly on February 13, 2020, Mr. Raved is entitled to a monthly salary as well as social and
ancillary benefits as accepted by the Company and in accordance with the Company's
compensation policy (recovery fees, training fund, pension, sick pay, vacation days, mobile phone,
business expenses and national insurance, excluding vehicle expenses).
In addition, Mr. Raved is entitled to an annual bonus of up to 12 salaries subject to meeting the
targets, where according to the Company's approved compensation policy, a rate of 65% of the
aforementioned annual bonus will be paid subject to meeting the target of improving the debt-to-
asset ratio (LTV) of at least 5% compared to last year; rate of 10% of the annual bonus will be paid
subject to meeting budget targets set by the Company's Board of Directors and 25% of the annual
bonus will be paid at the discretion of the Company's Board of Directors. In this regard, it should
be noted that following Mr. Raved's appointment as Chairman of Bezeq’s Board of Directors, on
March 12, 2024, Mr. Raved announced to the Company that he is waiving the grant rate conditional
on the debt-to-asset ratio improvement target for 2023 and as long as he also serves as Chairman
of the Bezeq Board of Directors.
In addition, in respect of his office as a director in Bezeq, Mr. Raved is entitled to an annual
compensation and a participation fee in the amount determined by an external expert in
accordance with the Compensation 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. According to the employment
agreement with him, in addition to his monthly salary, Mr. Tadmor is entitled to social and ancillary
benefits as customary (vacation days, executive insurance, study fund, etc.). In accordance with the
employment agreement with him, he is entitled to a retention grant for his work in the Company
until December 2023. Starting in 2024, Mr. Tadmor will be entitled to a grant of up to 6 salaries
conditional on meeting the targets to be set.
- 5-
Chapter D (Additional Details on the Corporation) for the Periodic Report for the Year 2023
Also, Mr. Tadmor is entitled to be included in the directors' and officers' liability insurance
arrangement and indemnity as is customary in the company, like the other officers in the company.
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.
The employment agreement with Mr. Tadmor can be terminated at any time with 3 months notice
by either party.
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 2023, Mr. Chaikin’s fee amounted to approximately NIS
56K. For further details, see Section 2.5 of the Company's Board of Directors' report as of December
31, 2023, in Chapter B of the periodic report.
d. Gil Sharon
Gil Sharon served as 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 and until
December 31, 20237. The employment agreement with Mr. Gil Sharon, dated December 10, 2020,
was for an unlimited period with the right of either party to terminate it at any time and for any
reason, with 3 months' advance notice by any of the parties.
For his office, Mr. Gil Sharon was entitled to the main conditions mentioned in the "general terms
of employment for officers" above; entitled to a monthly salary (gross) in the amount of
approximately NIS 170K (linked to the Consumer Price Index, starting on January 1, 2023)8; as well
as a possibility of eligibility for an annual performance-dependent cash grant (starting in 2022).9
On January 18, 2021, Bezeq's general assembly approved to grant 12,000,000 options to Mr. Gil
Sharon. For additional details regarding the terms of office and employment of Mr. Gil Sharon as
Chairman of the Company’s Board of Directors, see the Bezeq 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 amended 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. On January 31, 2024, upon the termination of Mr. Sharon's employment
relationship, and in accordance with Bezeq's capital compensation plan, 3,000,000 options of the
total number of options as mentioned expired.
Mr. Sharon's annual performance-dependent grant targets for 202310 as Chairman of the Bezeq
7 The advance notice period of the Chairman of the Board of Directors is from November 1, 2023, and ended, in
accordance with his employment agreement, at the end of three months from that date, that is, from January 31,
2024.
8 For details about the approval of the shareholders’ assembly to link the salary of the Chairman of the Board of
Directors to the consumer price index, see the Bezeq general assembly convening report dated June 22, 2023,
which is hereby included by way of reference.
9 For details about the addition of the annual performance-based cash bonus component to the Chairman of the
Bezeq Board of Directors, see the Bezeq general assembly summons report dated March 14, 2022, as well as the
revised report dated April 14, 2022, which are hereby included by way of reference.
10 In accordance with the amendment of the compensation policy and the terms of office and employment of the
Chairman of the Bezeq Board of Directors, as approved by the Bezeq general assembly on April 28, 2022 (for
- 6-
Chapter D (Additional Details on the Corporation) for the Periodic Report for the Year 2023
Board of Directors were determined in advance as part of the compensation policy for officers
approved by the general assembly and by the Bezeq Board of Directors in December 2022 and
included: Group-adjusted EBITDA11 target weighing 50% in the grant 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 grant targets for 2023
amounted to approxmately 118%. The threshold condition for eligibility to the annual
performance-dependent grant was that the Group-adjusted EBITDA results (neutralizing the effects
of IFRS16) for 2023 (NIS 3,441.5 million) did not decrease by more than 40% of the Group-adjusted
EBITDA results (neutralizing the effects of IFRS16) in 2022 (NIS 3,404.8 million) – this condition has
been met.
The ceiling of the performance-dependent grant to the Chairman of the Bezeq Board of Directors
is limited in accordance with the provisions of Bezeq's compensation policy at up to 75% of the
annual base salary (9 salaries). Accordingly, the grant that was approved for the Chairman of the
Bezeq Board of Directors for the year 2023 is 75% of the annual salary. For the purpose of
calculating the achievement of targets for the year 2023, in accordance with Bezeq's compensation
policy, the Compensation Committee and Bezeq's Board of Directors approved the exclusion of the
following events from the calculation of performance for the purpose of the grant: the update of
the collective wage in the economy, the decision of the Board of Directors to increase the
investment budget for the establishment of a joint server farm for the Company and Pelephone
and to increase the fiber deployment target of Bezeq for this year, the awarding of a "reserve grant"
to the Group's employees who were recruited for reserve service during the war, and also, the
effects of the "Iron Swords" war on the results of 2023.
In accordance with the terms of employment, Mr. Sharon is entitled to a non-compete period for
two months after the end of the employee-employer relationship. For this period, Mr. Gil Sharon
was awarded a non-compete grant in the amount of two monthly salaries (gross), including social
conditions. During this period, Mr. Sharon will not compete with Bezeq’s activity that exists at that
time or with its businesses (including the businesses of the Company's subsidiaries or affiliates),
and will refrain from founding, managing, operating, or having control over any entity whose main
activity is similar to or competes with Bezeq's activities at the time of termination of the contract.
On February 5, 2024, the Bezeq general assembly approved an appreciation grant in the amount of
three monthly salaries (gross) to Mr. Gil Sharon, as a token of appreciation and gratitude for his
performance and contribution to Bezeq. For more details about the grant, see the Bezeq general
meeting summons report dated December 28, 2023, as well as a revised report dated February 1,
2024, which are hereby included by way of reference.
more details, see the general assembly convening report of March 23, 2022, as amended on April 14, 2022, which
is hereby included by way of reference).
11 Adjusted EBITDA for the purposes of determining compensation - calculated as EBITDA neutralizing other
operating expenses/revenue (net), losses/gains from depreciation/appreciation (including losses from continuous
impairment), the effects of implementing the international financial reporting standard IFRS16 "Leases", and
neutralizing expenses for payments in respect of an equity compensation plan.
- 7-
Chapter D (Additional Details on the Corporation) for the Periodic Report for the Year 2023
e. Ran Guron
Mr. Guron serves as CEO of Bezeq as of June 19, 2022. Mr. Ran Guron's employment agreement,
dated May 8, 2022, is for an unlimited period, with either party eligible to terminate it at any time
with six months' advance notice. February 25, 2024, Mr. Guron announced the end of his term as
CEO of Bezeq. The end date of his term is expected to be on March 31, 2024, or at another date
agreed between the parties12.
In respect of his term in office, Mr. Guron is entitled to the main terms as stated in the "General
Terms of Employment for Officers" above; Entitled to a monthly salary of approximately NIS 153K
(adjacent to the Consumer Price Index); For more details about the terms of office and employment
of Mr. Ran Guron as CEO of Bezeq, see the Bezeq general assembly convening report dated August
10, 2022, which is hereby included by way of reference.
On December 10, 2020, during his office as CEO of the subsidiaries - Pelephone, Yes, and Bezeq
International, the Bezeq Board of Directors, and each of the Boards of Directors of the
aforementioned subsidiaries, approved the allocation of 9,000,000 options to Mr. Guron. The
aforementioned options were granted on January 18, 2021, after Bezeq's general assembly’s
approval to increase Bezeq’s registered shareholders’ equity. For more details about the terms of
the options, see Bezeq’s amended report regarding the outline for granting options employees and
the material private offer report dated May 9, 2022. The fair value of the options at the time they
were granted (calculated according to the Monte Carlo model) is about NIS 6.9 million. On August
25, 2024, with the termination of Mr. Guron's employment relationship, and in accordance with
Bezeq's equity compensation plan, 782,877 options of the total number of options as mentioned
will expire.
The goals of the annual performance-based bonus of Mr. Gouraon for 2023 as CEO of Bezeq were
determined in advance by the Company’s Board of Directors in December 2022 and included: an
adjusted EBITDA target for the Company (solo) that weighs 50% in the calculation of the grant;
Adjusted profit after tax target for the Company (Solo) that weighs 20%; Adjusted free flow target
(FCF)13 for the Company (solo) that weighs 20%; and a manager evaluation target that weighs 10%.
The threshold condition for receiving the grant was that the adjusted EBITDA results for 2023 (NIS
2,501.9 million) did not decrease by more than 40% from the adjusted EBITDA results for 2022 (NIS
2,474.8 million) - this condition was met.
Bezeq’s CEO's compliance rate with the annual performance-dependent grant targets for the year
2023 was 108%. Accordingly, the rate of the Bezeq CEO's annual grant for the year 2023 is
approximately 108% of his annual salary. For the purpose of calculating the achievement of targets
for the year 2023, in accordance with Bezeq's compensation policy, the Compensation Committee
and Bezeq's Board of Directors approved the exclusion of the following events from the calculation
of performance for the purpose of the grant: a collective wage agreement in the economy, which
was not included in the Company's budget for 2023, the Board of Directors' decision to increase
the investment budget for the establishment of a joint server farm for Bezeq and Pelephone and
increasing Bezeq's fiber deployment target for this year, awarding a "reserve grant" to Bezeq
employees who were drafted into reserve service during the war.
12 The advance notice period of the CEO of the Company is from February 25, 2024 and will end, in accordance
with his employment agreement, at the end of 6 months from this date, that is, on August 25, 2024.
13 Adjusted free cash flow (FCF) - calculated as cash generated from current operations, deducting cash for the
purchase/sale of PP&E and intangible assets (net), and deducting payments for leases.
- 8-
Chapter D (Additional Details on the Corporation) for the Periodic Report for the Year 2023
Retirement arrangements: On March 3, 2024 and on March 12, 2024, the Compensation
Committee and the Bezeq Board of Directors, respectively, decided to grant Mr. Guron a
retirement grant in the amount of 3 gross monthly salaries for his great contribution to Bezeq
Group during his 18 years of office in the Group in various senior positions. Also, the Compensation
Committee and Bezeq's Board of Directors decided to approve, in accordance with Bezeq's
compensation policy, the release of the conditional parts of the performance-dependent grant for
the year 2023 to Mr. Guron.
f. Directors
Each director (including the Chairman of the Board of Directors) is entitled to an annual
compensation and a participation compensation for each meeting, in the maximum amount, in
accordance with the Company’s classification under to the Compensation 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 compensation, as stated
in the Compensation 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 2023, compensation was paid to the
directors of the Company in accordance with the Compensation 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 78.78% 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.
For details regarding the control permit, see Section 1.1.4 in Chapter A of the periodic report.
- 9-
Chapter D (Additional Details on the Corporation) for the Periodic Report for the Year 2023
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 October 5, 2023 (Ref.: 2023-01-092227), 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 December 13, 2023 (Ref.: 2023-01-113020) included in this
report by way of reference.
Regulation 24b: Register of shareholders
For the Company's shareholder register, see immediate report dated December 13, 2023 (Ref.: 2023-
01-113020) 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
- 10-
Chapter D (Additional Details on the Corporation) for the Periodic Report for the Year 2023
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, Chairman
Phil Bacal
Ran Forer
Efrat Duvdevani
Ajit V. Pai
Efrat Makov
Stephen Joseph
549871770
(foreign
HP037044
(foreign
066522772
238248730
536841734
023044365
551988678 (foreign passport)
passport)
passport)
(Foreign 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.,
Arlington, Old Dominion
118 HaTamar Road, Moshav
144 Menachem Begin Road,
Road, Tel Aviv
(at B.
Road, Tel Aviv
(at B.
Hasharon, 4703006
Herzliya, 4639948
Drive, 4868, 22207
Ben Shemen, 73115
Tel
Aviv
(at
B.
Communications)
Communications)
Communications)
American
Canadian
Israeli
Israeli
American
Israeli
British
BACCY,
George
MBA Richard Ivey School of
Degree in Law, IDC Herzliya,
Degree
in
International
B.A., Social Studies, Harvard
B.A.
In Economics and
BSc in Business and Financial
Washington
University
Business at the University
B.A.
in Management, IDC
Relations and English, The
University;
Accounting from Tel Aviv
Economics
from
Leeds
MBA, Harvard Business
of Western Ontario.
Herzliya,LL.M. Commercial
Hebrew University; Degree
J.D Law Studies, University
University.
Israeli
CPA
University, KPMG.
School
Law (cum laude), Tel Aviv
in
Public
Policy
-
of Chicago Law School
license
(1993), American
University, M.Sc. General
Management and Finance,
CPA license (New York State)
Management,
Stanford
Tel Aviv University
(1995).
University, Semester in Law
at Berkeley University
Occupation
past five years
for
the
Partner in the Searchlight
CEO of bullet
Trade
VP of Business Development
CEO of the Peres Center for
Partner
in
Searchlight
Jewelry
Designer
CFO and VP of Operations at
Capital Partners and head
Services,
Partner
in
at the Neopharm Group,
Peace and Innovation.
Capital Partners.
(Independent Business).
Ocean Outdoor Group (LSE:
of
investments
in
Searchlight
Capital
Business
Development
Chairman of the FCC
Director
in the following
OOUT).
infrastructure,
Partners.
Manager
at
Celgene
companies:
- 11-
Chapter D (Additional Details on the Corporation) for the Periodic Report for the Year 2023
Corporation.
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).
communications, media
and technology. Director in
the following companies:
Bezeq, Mainstream Fiber
Network
(Chairman),
Wecom Fiber (Chairman),
All
Points
Broadband
(Chairman),
Adams
Outdoor
Advertising.
Formerly, also a director in
the following companies:
Rackspace, MediaMath,
Ocean
Outdoor,
160over90,
Charter
Communications,
PatientPoint,
Veritable
Maritime, Core Media.
Serves as a director in
other corporations
Bezeq, Mainstream Fiber
Roots Corporation, Care
Bezeq, ADO Group, Advisory
All Points Broadband,
Network, Webcom Fiber,
Advantage, Bullet Trade
Board of
the
Tel-Aviv
Mainstream Fiber Networks,
All
Points
Broadband,
Services, TouchTunes
University
Alumni
Adams
Outdoor
Organization
Advertising
Wecom Fiber,
Ziply Fiber,
America’s Public Television
Stations, EdgeQ
Atoll Holdco Ltd,
Scp
Acquisition
Topco
Limited,
Scp
Acquisition Midco
Limited,
Scp Acquisition Bidco Limited,
Ocean Topo Limited,
Ocean Bidco Limited,
- 12-
Chapter D (Additional Details on the Corporation) for the Periodic Report for the Year 2023
Ocean Outdoor UK Limited,
Signature Outdoor Limited,
Mediaco Outdoor Limited,
Forrest
Outdoor Media
Limited,
Ocean
Brands
Limited
Forrest Media
(Holdings)
Limited,
Forrest Media Limited,
DKTD Media B.V,
Ngage Media B.V,
Interbest B.v,
Global Agencies Stockholm
AB,
Gudfar& son AB,
Visual Art & Global Agencies
Sweden AB,
Visual
Art
International
Holding AB,
Visual Art Sweden AB,
Visual Art Sweden Holding AB,
Visual Art Denmark City
Reklame A/S,
Visual Art Norway AS. Visual
Art USA
Inc, Visual Art
Germany GmbH, Visual Art
Finland Oy
- 13-
Chapter D (Additional Details on the Corporation) for the Periodic Report for the Year 2023
Has accounting and
financial expertise
Yes
Yes
Yes
Yes
Yes
Yes
the director an
Is
the
of
employee
its
corporation, of
subsidiary,
its
of
affiliated company or
of
stakeholder
a
therein
Yes, see details of
Yes, see details of
Yes, the director serves as
No
Yes,
see
details
of
No
occupation in the last five
occupation in the last five
VP of Business
occupation in the last five
years.
years.
Development of the
years.
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.
Yes
No
Is the director a family
member of another
the
stakeholder
corporation
in
No
No
Yes, the director serves as
No
No
No
No
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.
- 14-
Chapter D (Additional Details on the Corporation) for the Periodic Report for the Year 2023
in
Membership
committee
committees of
Board of Directors
a
or
the
No
Is this member of the
Board of Directors an
outside director
Does the Company see
the director as an
independent director
No
No
No
No
The Committee for the
No
The Committee
for
the
The Committee
for
the
Examination of Financial
Statements; The Audit
Examination of Financial
Examination
of
Financial
Statements;
The
Audit
Statements;
The
Audit
Committee; Compensation
Committee; Compensation
Committee;
Compensation
Committee;
Committee;
Committee;
No
No
No
No
Yes
Yes
No
No
Yes
Yes
No
Yes
- 15-
Chapter D (Additional Details on the Corporation) for the Periodic Report for the Year 2023
Regulation 26 A: Senior officers
Name of senior officer
Itzik Tadmor
Dudu Mizrahi
Ilan Chaikin
Role in the Company,
subsidiary, affiliate or
related party
Chief Financial
Officer
Date of birth
Education
Main occupations in the last
5 years and a list of the
corporations in which he
serves as a director
February 14,
1981
BA in Accounting
and Economics,
Tel Aviv
University.
MBA in Business
Administration,
Tel Aviv
University.
CFO of B
Communications
Ltd.
Internal Auditor
November 21,
1954
Bachelor's degree
in Economics and
Accounting, Tel
Aviv University.
Managing partner
at CPA Chaikin
Cohen Rubin & Co.
CEO of the
Company and
Chairman of the
Board of Directors
of Bezeq
April 18, 1985
Double major in
Law and
Economics from
the Tel Aviv
University; MBA -
Stern School of
Business
The Company's
CEO and Chairman
of the Board of
Directors of Bezeq
Director and Vice
President of the
Telecom and
Technology Group
at RBC Investment
Bank in New York.
No
No
No
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
- 16-
Chapter D (Additional Details on the Corporation) for the Periodic Report for the Year 2023
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.
Regulation 29 (a): The recommendations and resolutions of the directors before the general
meeting, and their resolutions that do not require the approval of a general meeting in matters
specified in Regulation 29(a)
A. On June 20, 2023, the Company's Board of Directors approved a full early redemption, at the
company's initiative, of the remaining debentures (series C) of the Company, subject to the
completion of the issuance of additional debentures (series F) of the Company according to the
shelf offer report. On June 22, 2023, the Company announced the existence of the precondition
for full early redemption of the Company's debentures (series C), and accordingly, that the
redemption will take place on July 20, 2023. For details, see the Company's reports of June 21, 2023
and of June 22, 2023 (Refs.: 2023-01-058162 and 2023-01-058786).
B. On August 8, 2023, the Company's Board of Directors approved a buyback plan of the Company's
shares in the amount of up to NIS 30 million, which will begin on August 13, 2023 and end upon:
(1) purchase in the amount of NIS 30 million; or (2) the end of the trading day on November 1,
2023, whichever is earlier. In accordance with the aforementioned buyback plan, the Company
purchased shares for a total amount of approximately NIS 23 million. For more details, see the
Company's report dated August 9, 2023 (Ref.: 2023-01-073822) , 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
During the reporting period, no resolutions were made at a special general assembly of the Company's
shareholders.
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 12, 2024
Date
_______________________________
B Communications Ltd.
Name and role of signatories:
Tomer Raved, CEO
Darren Glatt, Chairman of the Board of Directors
- 17-
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 debenture 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: _____.
1.
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 of Directors 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 of Directors 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 debenture 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:
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 plan was implemented in the reporting year: Yes
No (Mark x in the appropriate box)
√
A
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:
8.
9.
5
B.
Number of directors who served in the corporation during the reporting year
_________
_________
With accounting and financial expertise9: 47.
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 (2023): 3
Second quarter: 6
Third quarter: 4
Fourth quarter: 5
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
Compensation
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
94%
Phil Bacal
89%
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
100%
Stephen Joseph
83%
100%
75%
100%
Michael Clare
83%
100%
100%
100%
Efrat Makov
100%
100%
100%
100%
Ajit Pai
67%
12.
1.
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
Correct
√
Incorrect
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: [__].
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 debenture 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.
The 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 2023): 1 day.
Second quarter statements: 5 days.
Third quarter statements: 5 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 2023): 5 days.
Second quarter statement: 5 days.
Third quarter statements: 5 days.
Annual statements: 4 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
COMPENSATION 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 Compensation Committee in the
reporting year are
in accordance with the Companies Regulations (Rules regarding
Compensation and Expenses for an External Director), 5769-2000.
√
√
30.
In the reporting year, on the Compensation 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 Compensation Committee unless the chairman of the Committee determined
that either of them was required to present a particular subject.
The Compensation 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 compensation policy, despite the
opposition of the general assembly.
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 by 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.
√
INTERESTED PARTY 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 considered, 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, 2023
- 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.
2.
Tomer Raved, CEO.
Itzik Tadmor, CFO.
In addition to the said members of Management, serving in the Company are:
1.
Ilan Chaikin, Internal Auditor.
2. Lital Aharoni, Comptroller.
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, are 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);
2. The process of editing and closing the reports;
3. General controls of information systems (ITGC);
4. Controls over cash and debt management process;
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 concluded that the internal control over the financial reporting
and disclosure in the Corporation as of December 31, 2023 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 the
investigations (mainly regarding transactions related to the previous controlling
shareholder of the Company and Bezeq and the former chairman of the Bezeq Board of
Directors, Mr. Shaul Elovich, regarding the purchase of Yes shares and the provision of
satellite communication services to Yes), their content, materials, and the 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, and although on February
1, 2024, an agreement was signed between the State of Israel and Bezeq for the conditional
cessation of proceedings). 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 2023 (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 12, 2024
_______________________
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
2023 (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 -
(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;
- 7-
(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 12, 2024
_______________________
Itzik Tadmor, Chief Financial Officer
- 8-