Partner Communications Company Ltd (PTNR) 2007 Q4 法說會逐字稿

Welcome to the Partner Communications Company fourth-quarter 2007 results conference call. All participants are at present in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded February 6, 2008.

I would now like to turn the call over to Mr. Oded Degany, Vice President of Corporate Development and Strategy and IRO. Mr. Degany, please go ahead.

Thank you, Julie. Good afternoon to those of you in Europe, the Middle East and Asia and good morning to our listeners in North America. Thank you for joining us for this conference call to discuss Partner Communications 2007 annual and fourth-quarter results.

Today we are joining the conference call from Tel Aviv where we have just recently concluded our Board meeting. With me on the call today are David Avner, our CEO, and Emanuel Avner, our CFO. Our CEO, David Avner, is going to make several statements followed by a summary of our financial and operational results by Emanuel Avner, our CFO. We shall then open the floor to Q&A.

At this time if you don't have a copy of today's release, please contact our investor relations manager in Israel, Deborah Margalit on 972-54-481-5952. I repeat 972-54-481-5952 and a copy of the release will be either e-mailed or faxed to you immediately.

Before we begin, I would like to draw your attention to the fact that all statements in this conference call may be forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. In connection with such forward-looking statements, you should be aware that Partner's actual results might vary materially from those projected in the forward-looking statements.

Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are contained in Partner's press release dated February 6, 2008, as well as Partner's (inaudible) filing with U.S. Securities and Exchange Commission on the Form 20-F, S-1 and 6-K as well as the S3 shelf registration statement all of which are readily available. Please note that the information in this conference call related to projections or other forward-looking statements may be relied upon subject to the previous Safe Harbor statements as of the date of this call.

For your information, this conference call is being broadcast simultaneously over the Internet and can be accessed through our Website at www.orange.co.il.

At this time, I would like to hand the call to our CEO, David Avner. David?

Thank you, Oded. 2007 was a record year for Partner, a year in which we managed to exceed our financial and operational objectives. The growth in subscriber revenue and profitability was achieved despite the tough competition and complex regulatory environment. As of year end, 633,000 third-generation subscribers accounting for 22% of our 2.9 million subscriber base have joined our third-generation network. It could present an increase of around 130% compared to the end of 2006.

During 2007, we added 192,000 new high-quality subscribers, the vast majority of whom are postpaid subscribers. The number reflects Partner's ability to realize our marketing strategy which focuses on a postpaid residential and business segment. This year we continued to invest in third-generation content and applications. We provide our subscribers with a wide variety of applications and services including ICQ, Messenger, more than 90 live TV channels, an advanced music platform and more.

We also recently launched our new web and mobile targeted advertising platform. The fruits of Partner's early investment in the 3.5 network -- 3.5 generation network are reflected in the constant growth of content and data services revenue which have reached NIS 679 million in 2007 and we believe are the highest data revenue in the Israeli cellular market. We see the domain of media and content as an important strategic growth driver for Partner and we intend to continue investing in our HSDPA network and our highly visited websites in order to further improve our customers' experience.

The last quarter included the first month of number portability. The number portability among other (inaudible) decision increases the switching barriers with between cellular operators. As we expected, our SG&A expenses increased during the last quarter as a result of our marketing and customer service efforts on number portability. The results of these efforts are reflected in 65,000 net adds we achieved in the last quarter.

As of the ended January, 6000 postpaid new subscribers (inaudible) to Partner's network bringing the number (inaudible) for the original operator. We see this process as an opportunity for us to leverage our key assets including superb customer service, advanced network and data services.

The assets billed by the company in recent years which made us a leading cellular company in Israel has continued to strengthen. This year again the Orange brand was selected as the strongest brand in the Israeli communication market. I am confident that we will be able to leverage this strength in order to implement our plan to provide a wide area of communication services to our customers in the future.

Our strategic growth for 2008 include focusing on our cost structure as reflected for example in the transaction -- in the transaction with Ericsson establishing a noncellular service platform and continuing to broaden our media and content services portfolio. Partner is a great company with very special employees and I would like to take this opportunity to think Partner's family for making 2007 the success it has been.

With that said, I would now like to hand the call over to Emanuel Avner, our CFO. Emanuel, please.

Thank you, David. As David said, 2007 was an excellent year for Partner both financially and operationally. On the revenue side of the books, service revenues increased by 6% year-on-year to NIS 5.3 billion from NIS 5 billion in 2006. This reflects the number of factors including one, the 192,000 net additional subscribers, most of whom were postpaid subscribers. Two, higher monthly minutes per use -- a higher monthly minute of use per user which rose from 311 minutes in 2006 to 336 minutes in 2007. And finally, to an annual increase in content and data revenues of 33.5% including Messaging revenues.

Of course the service revenue growth was partially offset by service dilution from competitive pressures and a 10% reduction in interconnect [duration]. Equipment revenues increased substantially in 2007 by NIS 206 million, including an increase of NIS 103 million for Q4 alone. This primarily reflects a greater amount of sales to both new and upgrading subscribers in the run up to and during the first month of number portability in December 2007.

Turning to profitability, gross profit for 2007 was NIS 2 billion, an increase of 17.6% from 2006. This reflects both a 14.7% increase in the gross profit from services and a 6.8% decrease in the gross loss on equipment. For Q4 2007, the gross loss on equipment decreased by 34.3% despite the higher number of handset sales. This mainly reflects the fact that we increased the use of more competitive airtime rate tariffs that offer lower subsidies and also reflect a decrease in the average cost of handsets sold.

EBITDA for the year was NIS 2 billion, an increase of 8.9% from 2006. The EBITDA margin in service revenue terms increased from 36.8% in 2006 to 37.8% in 2007. However, in the total revenue terms, the EBITDA margin was unchanged at the 33% reflecting a NIS 206 million increase in equipment revenues in 2007.

For the fourth quarter of 2007, EBITDA increased by 8.6% compared with the last quarter of 2006. The EBITDA service revenue margin was 36.8% in Q4 2007, up from 36% in Q4 2006. As a percentage of total revenues, the EBITDA margin was 30.8% in Q4 2007, down from 31.9% in Q4 2006. In a similar manner to the annual comparison, the quarterly decrease in the total revenue margin reflects a NIS 103 million increase in equipment revenue due to sales activities related to the introduction of number portability in December.

Now I'll turn to our guidance for 2008. Firstly subscribers. We were delighted that we were able to add 65,000 high-quality subscribers in the fourth quarter during which number portability was introduced. And this increase is confidence in our expectation that we will continue to grow our subscriber base compared with 2007 despite the highly penetrated and competitive environment, although at a lower rate than in 2007.

Bearing in mind that we start 2008 with additional high-quality subscribers in an amount of 192,000 subscribers, our guidance for the revenue is that total revenues will continue to grow in 2008 though at a lower pace than in 2007.

Finally profitability. Assuming no further adverse material regulatory decisions, we expect further annual EBITDA growth in 2008, again at a lower rate than in 2007. Regarding our dividend policy, our very strong results this year make evidence we believe Partner's continued ability to grow cash flow year-on-year. Our dividend yield is impressive and we will have distributed approximately NIS 752 million worth of dividends for 2007 reflecting the increasing dividend policy of an 80% annual net income payout ratio.

For the year ahead, our strong results and solid financial structure has enabled the Board to reaffirm the existing general dividend policy. In addition, the Board has approved an annual share buyback plan for 2008 in an amount of up to NIS 600 million, subject to appropriate market conditions. Once exercised, we believe this would offer an additional means of return to our shareholders.

With that, I will now hand the conference back to Oded. Oded?

Thank you very much, Emanuel. You are now invited to ask your question. Julie, please

Thank you. (OPERATOR INSTRUCTIONS) Tsahi Avraham, Clal Finance.

Good afternoon. Could you give us any indication about the CapEx you expect in 2008?

Hi, Tsahi. Thank you very much for your question. CapEx is not part of our guidance policy, however, we said in the past and we feel comfortable with a below 10% CapEx to revenue ratio. As we mentioned before, the future investment in our network are mainly related to software upgrades. We intend to upgrade our current HSDPA network into HSUPA next year and to improve the bandwidth to our customers. But it will not be reflected in (inaudible) a substantial change in our CapEx investment.

Do you have any plans regarding the ISP?

We commenced our noncellular activity in 2006 by acquiring MED1, and we have already started to provide transmission and PRI services mainly to large enterprises. We also said and we adhere to the statement that we intend to approach additional potential noncellular markets but due to commercial confidentiality reasons, we prefer at this stage not to disclose our plans. But we will definitely be a player in those markets in the future.

Okay, thank you.

William Kirby, Nevsky Capital.

Thank you. I have two questions. Firstly, how sustainable do you think the improvement in equipment margins is? Are you going to be able to keep offering these with relatively low subsidies compared to previous quarters? And secondly on your marketing spend, I appreciate you spent a lot in Q4 because of MNP but what -- how do you think future marketing spend will relate to what we saw in '07 which seemed slightly higher than 2006? Thank you.

Okay, it's Emanuel here. Regarding the equipment margin, as you said, we had a reduction in the losses in the fourth quarter in an amount of -- the losses were in an amount of NIS 40 million compared with a loss of NIS 66 million in the third quarter. This was a result of a first, more transactions that we executed in Q4 but also in new tariff plans which were with higher prices for the handsets but with rebate that we give to the customers to the subscribers in the rate plan.

We -- I cannot assure you that we will keep on with these tariff plans. It is according to the company's decisions from time to time so we cannot guarantee that we will keep with the same tariff plans. It can be [changed along] 2008.

This is one thing and regarding the selling and marketing expenses, we did have an increase in these expenses in the fourth quarter due to the number portability and due to higher number of transactions of upgrades and activations. And we do not give any guidance regarding specifically the selling and marketing cost in 2008, but I think it's a fair to believe that the level of activity somehow will decrease.

Okay, thank you. I'm sorry, will that decrease from 2007 numbers or just from the fourth quarter?

Decrease sorry?

Will that decrease from the amount of sales and marketing we saw in 2007 or just from the final quarter?

I think that the final quarter was in light of the number portability and this was a little bit exaggerated up and I think we should not be in that level when we speak on the long-term basis.

Okay, great. Thank you.

Alexander Balakhnin, Goldman Sachs.

Hi, this is Alexander Balakhnin from Goldman Sachs. I have a question on your share buyback. Can you just clarify what will be the timing of the share buyback? What are your criteria for the price you will be buying at? (inaudible) you have slightly more light on that? Thank you.

It's Emanuel here. The Board of Directors decided on a share buyback in an amount of up to NIS 600 million. This is in addition to 80% payout ratio of dividends. This is in order to also give an answer to preferences of investors that would like to have buy back not only dividends because of the tax positions of each investor.

Now the execution of the buyback will be according to the Safe Harbor, the American Safe Harbor according to the U.S. Exchange Act and I can't give you any more details regarding the method of execution, it will -- only saying that I believe it will be done in the open market and according to the conditions of the practice in the market. Of course when the market is volatile like we see recently, we might have some opportunities to buy the shares in appropriate market prices.

And just a quick follow up on that. Do you think that if this share buyback program completed you can start another share buyback for the next year? Can you comment on that?

I can tell you only that the Board of Directors decided on a share buyback plan for 2008 in that amount. I cannot guarantee any further buyback plans in the future.

Thank you.

David Kaplan, Lehman Brothers.

Can you hear me? I had a question (technical difficulty) subscriber numbers in the first half of the year and the second half the year, was it pretty (technical difficulty) first and second quarters were in line with one another and certain fourth quarters looked in line with one another. And I was wondering if you can talk a little bit about what the impact you think was to the increase or the growth in those numbers? And what you think might be sustainable for 2008?

David, regarding the number of net adds in a second half compared to the first half, we think that number portability did not start on December 2. We think that it started a few months before and it was reflected in the number of net adds in Q3 and also in Q4. Regarding 2008, as part of our guidance policy, we also provided guidance regarding the number of subscribers and we said that it will grow next year but in lower growth rates compared to 2007.

Okay. Well, what do you think the reasons are that the growth rates will be lower in 2007?

It's not a secret that we are dealing here with a saturated market and we think that number portability provided a (inaudible) momentum to gain additional customers but we don't think that the growth will demonstrate it in 2007 is sustainable forever. And this is the reason that we decided to say what we said in the guidance policy.

David, you should bear in mind that the increase in number of subscribers was 7.2% over the subscriber base of 2006. And this is in a country where the population growth is about 1.7%. And this of course was an increase from the increase we had in 2006 which was 5.5%. So we cannot guarantee that this pace will -- we can keep holding also in 2008.

Right. (technical difficulty)

Mr. Kaplan, if you could please speak. We can't hear you that well.

I'm sorry, can you hear me better now?

Yes.

In number portability, it might have something to do with it, but I think that if you look at your -- if you look at the competitors' results, at least from the third quarter and we will have to wait another month to see what they say vis-a-vis the fourth quarter, but they also had increase in subscriber adds. So from a number portability perspective and from a contributing GDP growth and population growth -- GDP growth of over 5% and population growth of 1.2%, you see everybody is growing their subscriber number.

So I would think or I would like to try and examine perhaps that there is a reason that other than local number portability that would have led to an increase in subscriber numbers.

David, regarding the increase in the number of subscribers, let me remind you our strategic decision in 2006 to concentrate in the business in the postpaid segment. And you know, we are the only company that provides you with a breakdown between the various types of subscribers including private subscribers, business and previous subscribers. We said and this is the same with this quarter, the vast majority of new subscribers to Partner network are postpaid subscribers. Okay?

The increase in the number or the net increase in the number of previous subscribers in Q4 was close to zero. So most of the new -- of the net adds are [fewer] postpaid subscribers. This is something maybe that indicates about the quality of reporting and can provide you with glimpse about the success of the company and realizing its strategic decision.

Not only that, I also appreciate what you wrote in the report that you're going to try and change the way you count the prepaid subscribers (technical difficulty) and better reflect what the new subscriber number is.

Just one last now if we can just move sort of very quickly to ARPU. ARPU numbers were more strong and (technical difficulty) particular segment or area of the business that (inaudible) those strong ARPU numbers, or was it just the trend in 2007 and the strong economic -- strong underlying macroeconomics?

You know, there are few factors that influence the ARPU. Let me just mention three of the important ones. The first one is related to the constant decrease in the tariff rates. The decrease in 2007 was around 11%, and the (inaudible) that compensate on this decrease comes from two sources. One is an increase in the MOU, in the minutes of use, and the second one is an increase -- a substantial increase, an additional strategic target for us, and this is the content revenue. Okay, so those two factors, the MOU and the data and content revenue compensate on the decrease in the tariff.

Okay. Do you think that MOU numbers can continue to grow? Or is it already amongst the highest (technical difficulty)?

David, you can look only on the minutes of use that are generated and the U.S., and I think if you look on that, there is more room to increase them.

Okay, terrific. All right, thank you very much.

Alex Wright of UBS.

Yes, a couple of specific questions on the financials first. You mentioned the impact on G&A costs of the retirement bonuses. Could you just clarify whether those were all recorded in the fourth quarter or were they spread across some of the previous quarters as well? And then just looking at the financial income or loss, you obviously recorded some net financial income in the fourth quarter, and you mentioned that is impacted by currency fluctuations.

Could you just explain a little more of the detail behind the recent net financial gain? And then on the buyback as well, there was a question earlier on regarding the buyback. I would just like to follow up on that really and just get your updated source on targeted gearing levels beyond the buyback that you announced. Thank you.

Alex, it's Emanuel. Regarding the G&A expenses and the onetime expenses that we had, we did have onetime expenses of the severance pay to the former CEO of Partner, Mr. Amikam Cohen, in an amount of approximately NIS 15 million. This was announced already in the third quarter. In addition to that we had also some expenses regarding some departing vice president in the company. All of these expenses were recorded in the fourth quarter.

Regarding the financial income in the fourth quarter, you should bear in mind that the financial expenses or income in Partner are tied strongly first to the consumer price (technical difficulty) exchange (technical difficulty) and through the fluctuation of the foreign currency. First the CPI, or customer price index, increased nearly zero in the fourth quarter.

This of course led to lower financial expenses, but on the other end, the decrease of the dollar rate contributed also to a decrease in the financial expenses and therefore the result was financial income of about NIS 7 million in the fourth quarter. This compares with financial expenses of NIS 74 million in the third quarter where the CPI increased in that quarter 2.5%

Thanks, Emanuel. Can I just follow up on the points on the currency reason. Correct me if I'm wrong, but I thought that pretty much all of the debt was in shekel denominated CPI. So I'm just wondering where the currency (multiple speakers) comes in there?

Okay, let me elaborate on that. We are -- we report according to the U.S. GAAP and according to that, when you order either equipment or in our case, handsets, that the payment is done in foreign currency, in our case in dollars. The foreign currency changes from the order date to the payment date are recorded as financial expenses or income. Therefore it in our case most of our CapEx and most of our handset procurement is done linked to the dollar rate ands when the dollar rate is going down, we enjoy of course the income that is in our financial expenses.

Okay, so it's on the payables rather than the financial debt?

Yes, it's not on financial debt. It's on payables, [two items].

Okay, thank you.

If you can repeat please your question regarding the buyback?

Yes. Actually before going onto that, I just had a follow-up question on the first question. You mentioned that some of the severance payments were made in the fourth quarter. And 15 million approximately in the third quarter. Could you give a total figure for the fourth quarter?

Sorry, sorry. The NIS 15 million was announced in the third quarter but was paid and recorded in the fourth quarter.

Okay.

Okay. It was announced in the third quarter but paid and booked in the fourth quarter.

Okay. And the total amount, is it a lot more than that or just --?

More than that, yes. The total amount including the severance pay to the former VP that left the company was more than that.

Can you give an indication of roughly how much more just so that we can figure out the underlying D&A expenses?

If few more million. We have not disclosed that so I can say a few more million.

Okay, thank you. Okay and on the buyback, I was just wondering obviously you have given us announcements, you are going to try to buy back and that will probably lead to an increase in your gearing target. You talked about potential gearing targets in the past of somewhere in the range of 1.5 to 2 times net to EBITDA I think. Would you still consider that as the longer-term level that you are aiming towards or --?

I'm sorry to disappoint you but an amount of NIS 600 million will not change materially our gearing level of the company. We would like mainly to finance the buyback from internal resources of the company meaning from the internal cash flow plus reduction in working capital. And maybe we will have to borrow some money but this will be a very small amount. This is because of we still have some tax barriers in this issue because when you pay dividends, it might be that the financial expenses of new borrowings will not be deductible. So therefore we try to do this buyback from internal resources of the company mainly. But in any case, it will not change the gearing level of the company. It is not material to that.

Okay, so can you comment any further at this stage on your longer-term intentions to the gearing level whether --?

Right now we don't have any decision regarding this issue besides this buyback issue.

Okay, thank you very much.

Stephen Pettyfer, Merrill Lynch.

Thanks. Three questions from me and apologies if there are many follow ons. But just to go back to the issue of pricing stripping out the data contribution, in Q4 there was a notable decline which I guess has a lot to do with number portability. And I just would be interested in your comments on the outlook for pricing sort of generally going into 2008 particularly with the interconnect cut and how much you think you can recoup from what seemed to be a fairly aggressive situation in Q4?

Secondly, just to go back again, and apologies, but to go back into the question on G&A. You made an intriguing comment in your statement there that it was also was -- the significant rise was driven partially by increase of provisions for doubtful debt. And I wondered if you could just comment or give any more color on if that is just a one-off or if there's anything driving that?

And then finally, just looking at your 3G customers and the acceleration you've seen consistently in the numbers there, I just wonder again, is that partially -- is that acceleration we saw in Q4 partially driven by number portability? And how do you see that relating to your data revenues? Thanks.

Okay, Stephen, I will start with your question with your second question because I have not understood the first one. So but we will come back to that. Regarding the G&A, we did have an increase in the provisions for doubtful debt, it compares to 2006 and let me describe the reason. First of all in 2006 in the third quarter, we had the war in Israel. Then we announced in our press release that because of the war we stopped the collection of receivables and therefore we wrote an increase in our provision for doubtful debt.

In the fourth quarter, we realized that this provision was too high and therefore the provision for the fourth quarter in 2006 was nearly zero. Now when you look on the provision of the fourth quarter in 2007, this was a high provision first of all due to a higher number of transactions of sales offenses in 36 installments. And second, the tariff plans that we offered this time to our subscribers was payment of 36 installments in the monthly bill rather than in the credit card in advance. So therefore we had to provide for higher provisions for doubtful debt in the fourth quarter of 2007. And in light of zero amount in 2006, in the fourth quarter, this was a substantial increase.

So regarding the number portability and adding 65,000 subscribers in Q4, as Oded said before, the number portability started not in the beginning of December but some months before then. All the market actually started to warm up and we had new offerings and new tariff plans to subscribers and very good deals in our case and also in the case of our competitors and we gained 65,000 subscribers in the fourth quarter, very high-quality subscribers, like it was said before. And most of them or I think 99% of them were postpaid subscribers and we gained also 6000 subscribers through the number portability till the end of January.

We realized that since we had good offers and since the market warmed up because of the number portability, there was a lot of enthusiasm from customers to move to Partner but most of them elected to have a new number with prefix of 054 which is the prefix of Partner that there are most of the market is proud of. So they elected to have a new number instead of porting the old number of telephone or cellphone to our company.

So the result is of course higher number of subscribers. It moved to Partner but most of them elected to have a new number rather than the old number.

So if you can move back to your first question and you repeat it so we will be able to --

Yes, sorry just to be -- thanks for the color on the last point. But just be clear on my question, it was actually to do with your 3G customers I was interested in. You've seen a very impressive acceleration, every quarter you add more than the previous quarter in terms of 3G customers. And I was wondering if the 150,000 or so net adds of 3G customers, if that number you think is reflecting number portability to any degree or if it is just an acceleration of the 3G product?

Stephen, we had a very good offering in the fourth quarter in light of the number portability and of course we pushed more the third-generation handsets and therefore we gained more subscribers for the third-generation network. I cannot guarantee that this will be the case in the next quarter. But in any case, of course in two years, we believe that most or all of our postpaid subscribers will move to the 3G network, this is obvious.

Okay and just on from that, can you give us any color as to the relationship between your 3G customers and your data content revenues?

All or most of our 3G subscribers pay about NIS 20 a month as a kind of mandatory subscription for access to the Internet. On top of that, they download music, video clips and use -- and we have also 90 TV channels that they can watch and they can also buy subscription for the TV channels in a monthly subscription of NIS 30. And of course there is a very nice correlation between the number of 3G subscribers and the data and content revenues of the company. And this is of course one of the growth engine of the company and one of the targets of the company is to increase the 3G base.

Okay, think you. And just back to my original question, the first question rather, it was on voice pricing. Just looking at your voice revenue per minute, the sharp decline in Q4 and assuming that has a lot to do with number portability, I just wondered if you could comment on your feeling about pricing going into 2008?

In the fourth quarter, we had some offerings but some also -- I would not let's say I would not count only on one quarter when you forecast the 2008 figures because you know the end of the year you do most of the work more precisely. So I would not count especially on that. But in any case, we had a decrease in the rate per minute and this is evident if you calculate for yourself you will see that the annual decrease was 7.4% and as Oded said before, the outgoing minute tariff went down by 11% in 2007 and this is of course a factor.

One more point to mention regarding the fourth quarter revenues, let's not forget that the fourth quarter historically is influenced by seasonality. It is historically weaker compared to the third quarter.

And are you optimistic you can raise prices to compensate for interconnect rate cuts?

We do not disclose our new or any -- of our pricing policy. It is part of the degree of freedom that we have but it is something that we don't disclose.

I think in any case generally (inaudible), we are optimistic.

Okay, thanks very much.

Istvan Mate-Toth, Credit Suisse.

Good afternoon. I wondered if you could disclose the number of your HSDPA customers currently? And where do you expect the mobile (inaudible) market to go in 2008? Do you think there will be a major pick up? What do you see from your competitor in that regard?

Can you repeat the second part of your question?

What do you think will happen to the mobile (inaudible) of customers in 2008? Will 2008 be a major pickup or do you think still the growth in this will be roughly the same what you have seen so far?

Okay, regarding your first question, today you know we offer nine handsets or 3.5 HSDPA handsets. We not disclose the breakdown of 3G subscribers based on HSDPA versus 3G. However, it is very natural that as time goes by more and more customers will have handsets that support HSDPA. [Likewise] next year, we intend to upgrade the network into HSUPA and support the 7.2 megabit per second downstream.

Regarding the trend of the mobile business, I think that you can see from the numbers and the current trend will continue, the increase in the data and content revenue, we invest a lot of effort and resources in reaching our offering. And we think that this is one of her major growth drivers. I also think that in 2008 and 2009, once we upgrade the network to HSUPA, the customer's experience will substantially improve and we will see the reflection of the improvement in the consumption of data. That's it.

Would it be possible to give us a feeling what the HSUPA coverage will be in terms of population by the end of '08 and end of '09?

All I can say is that currently we cover about 80% of the most populated area in Israel and we continue to invest in this area because we see it as part of our strategy. So definitely it will increase in 2008.

Okay, think you.

Alex Wright, UBS.

Yes, hello again. Just two follow-up questions, please. Given that this is the last year of the currently planned interconnection reductions, can you talk at all about what you think the Minister of Communications [answers] on interconnection rates beyond this year? And what process there might be for further changes going forward?

And my second question is on the SMS revenue which seems not only to have grown quite strongly in 2007, but also it looks as though the growth rate has accelerated from the level we saw in 2006. Can you just explain what drove that and what you think the prospects are for SMS revenues going forward? Thank you.

Okay, regarding your first question, the interconnect prices in Israel are among the lowest prices in the world. So we don't expect or at least the Minister of Communications has not announced yet about the future of increasing the interconnect. This is the last one and at this stage we don't have any additional information about this. This is the answer to the first question.

Regarding SMS, we see consistent growth. I think that the trend is very similar to the trend in Europe. It's a very efficient way of communicating between people. Some of the growth is related to campaigns, to participation in TV shows and many other applications. Let's not forget that many enterprises use the SMS tool as a very efficient one to deliver information and to communicate to their customers. So I don't see any reason why it will not continue to grow.

Okay, great. Thank you very much.

Igor Semenov, ING.

Yes, hi, thanks. I have a question on your establishing the platform for your noncellular activities. I just wanted to get a bit more color on that. If you could explain the rationale behind that, whether it is more to do with some sort of extensive visions, maybe something to do with efficiencies? Or you see pockets of growth or new sources of growth in noncellular world? If you could talk about that, please? Thank you.

Okay, I think that first of all, let's look at the facts. We know today that the cellular market accounts for 60% or approximately 60% of the entire communication market. So almost by definition we will continue to be a cellular-centric company. But in addition to that, we intend to invest in developing interesting applications which will combine the mobile end and the fixed line feature. We did not decide to approach all the noncellular market. We will decide what are the lucrative markets in terms of growth, in terms of size, in terms of fit to our core business.

And I think that it can serve the stickiness of Partner customers. It can provide us with additional revenues but not materially. We don't expect that the noncellular revenues in the foreseeable future will be material.

And how does this -- what sort of impact will it have on your CapEx and margins?

Okay, first of all, one of the things that we intend to preserve is the value of Partner as a value company that provide its investor with an attractive dividend yield. The platform is there. The platform at Partner is a great company with a very efficient customer service and advanced network and we think that those platforms are (inaudible) so our new initiative. We adhere to what we said before regarding the ratio of CapEx to revenue. We said we feel comfortable with the less than 10% CapEx to revenue ratio.

Okay, thank you very much.

There are no further questions at this time. Before I ask Mr. Degany to go ahead with his closing statement, I'd like to remind participants that a replay of this call is scheduled to begin in two hours. In the U.S., please call 1-888-254-7270. In Israel, please call 03-9255-927. Internationally, please call 9723-9255-927. Mr. Degany, would you like to make concluding statements?

Thank you all. This concludes our 2007 annual and fourth-quarter results conference call of Partner Communications. We appreciate your interest and please fill free to contact us at investor relations if you have any additional questions. Access to the call and to other valuable information on Partner is available to our Website at www.orange.co.il. Thank you very much and have a lovely day.

Thank you. This concludes the Partner Communications Company's fourth-quarter 2007 results conference call. Thank you for your participation. You may go ahead and disconnect.