Partner Communications Company Ltd (PTNR) 2008 Q4 法說會逐字稿

Welcome to the Partner Communications Company fourth quarter 2008 results conference call.

(Operator Instructions)

I'd like to now turn the call over to Mr. Oded Degany, Vice President of Corporate Development, Strategy and IRO. Mr. Degany, would you like to begin?

Thank you, Shera. 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 year 2008 and the 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 and then Emanuel Avner, our CFO, will give a summary of our financial and operational results. 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 coordinator in Israel, [Hulit Carfid] on 972-54-4814151 and a copy of the release will be either e-mailed or faxed to you immediately. Before we begin, we would to draw your attention to the fact that our statements in the conference call may be forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995. Regarding such forward-looking statements, you should be aware that Partner's actual results may 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 23, 2009 as was as Partner's prior filings with the US Securities and Exchange Commission on the Form 20-F, F-1 and 6-K, as well as the [F-3 Share] Disbursement Statement, all of which are readily available. Please note that information in this conference call, related to projection or other forward-looking statements may be relied upon subject to the previous Safe Harbor statement at the date of this call.

For your information, this call is being broadcast simultaneously over the internet and can be accessed through our website, www.orange.co.il. At this time I would like to hand the call over to our CEO, David Avner. David?

Thank you, Oded, and hello to our listeners. Year 2008 was a record year for Partner. In this year, we have managed to achieve record financial and operational results. Our profitability metrics, the EBITDA, cash flow and net profit, grew by double digit growth rate, despite our investment in two new strategic initiatives. The improvement in the profitability was, among other things, a result of efficiency measures. In 2008, we provided our shareholders with over 10% cash yield, substantially above the industry average. Being able to continue to deliver attractive dividend yield to our shareholders is one of the major cornerstones of our strategy.

2008 was also characterized by the initial implementation of Partner's new strategic direction. The new strategic direction of the Company intends to ensure that we will remain inline with the major trends of the telecommunications and media arenas and that we will be able to continue to offer our customers with the state-of-the-art products and service portfolio. In a world dominated by transmedia, which means the ability to deliver any content on any platform, Partner needs to continually strengthen its presence in the content market. The combination of Partner's leadership in the mobile market and the synergetic new platforms in the customers' premises is the foundation of our vision. I believe that Partner's ability to support the data anywhere vision as well as to enrich our media offering, will enable us to continue to maintain our market leadership.

In the last quarter of 2008 we began to see the first signs of the global recession, even though our core business remains solid and resilient. We saw some impact on our revenues as a result of significant decrease in outbound and inbound tourism as well as the decrease in the volume of retail and business activities. Compared to the consistent high level growth in minutes of use in the previous year, we have recently identified some indications which are not yet significant for a possible halt in the growth of the minutes of use. This might be attributed to the impact of the recession on our business.

We are watchful towards potential changes and therefore invest efforts in adjusting our variable costs to the changing environment. Our tight control of expenses will assist us in coping with potential changes. That includes expenses such as CapEx and [market]. During the second half of 2008, we developed a scenario-based model, which enables us to promptly react to changes in the macroeconomic environment.

My personal preference was always based towards the facilitation of efficiency measures which combines cost cutting and increasing productivity rather than towards cost -- division cost cutting that might shift the Company from its strategic direction and unnecessarily harm the employee motivation. In summary, both the structure of the Company and the tight control on our variable costs enable us to continue and deliver an attractive dividend yield and, at the same time, build apart the platform to take advantage of the market opportunities.

2008 was a tremendous year for Partner and I believe that our solid financial and operational business will continue to bear fruit for the benefits of our shareholders, customers and employees. 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, Partner once scaled new highs 2008, both in terms of its operational performance and financial performance. To give a short summary business overview, service revenues grew by 4.6% year on year to ILS5.6 billion. This goal was driven by continual growth of the subscriber base and especially high quality post-paid subscribers and rising demand for our advanced content and data services.

Revenues from content and data services, including SMS, accounted for significant [15.3%] of total service revenues in 2008 compared to 12.7% in 2007. As ever, competitive and regulatory pressures continued to put downturn pressure on the growth in service revenues, [mainly] in part to the dilution in the average network revenue per minute of approximately 7.4% in 2008.

Operating efficiency continued to improve in 2008 with operating profits increasing by 15% in 2008 to ILS1.6 billion from ILS1.4 billion in 2007. This reflects a decrease in equipment revenues of 60%, reflecting in part the use of more competitive airtime rate plan tariffs that offer lower subsidies together with airtime usage rebates. In addition, gross profit from service revenues increased by 4.4%. EBITDA in 2008 reached ILS2.3 billion, increasing by 12.3% from 2007. The EBITDA service revenues margin was 40.5% compared to 37.7% in 2007. The total revenue EBITDA margin was 35.7%, up from 32.9% in 2007.

Net income was ILS1.1 billion in 2008, an increase of 11.9% from 2007. And excluding the effect of the tax provision translation of ILS21 million(Sic-see press release) in 2007, net income increased by 15.4% in 2008. For the fourth quarter of 2008, reported net income was ILS265 million, a decrease of 12.3% from the prior led quarter in 2007. However, excluding the effect of the tax provision translation in the fourth quarter of 2007 in the amount of ILS48 million, net income actually increased by 4.3% in Q4 2008. Please note that the press release from this morning contained an error on this point and we have released a further press release to correct the error.

Over the last year, Partners worked hard to improve our ability to generate free cash flow. This was demonstrated by the ILS1.3 billion of free cash flow generated over 2008, an increase of 43% from 2007. I am delighted that Partner returned approximately ILS1.2 billion on cash to shareholders in 2008, demonstrating our commitment to increasing shareholders value. The board has reaffirmed the existing dividend policy, continuing to target 80% payout ratio of annual net income.

Turning to the year ahead, as David explained, the current downturn has begun to affect certain areas of the business, roaming activities significantly down on the levels of 2008 and [with larger] provision for doubtful debts.

Furthermore, in the last few weeks we have seen some indications of a possible end to the growing average minutes per user. We do intend to mitigate the effect of the downturn as much as possible to efficiency and cost-cutting measures where appropriate. However, it is possible that the profit levels could be lower in 2009 compared with 2008 should downturn continue to deliver.

I do want to stress, however, that the core areas of the business are on solid foundations. Our balance sheet also remains strong. We have a tight control on the cost and our low leverage serves us well in these times.

We are confident that we are in a very good shape to cope with the challenges of the year ahead. Regarding future funding of Partner, we continue to invest in our new portfolio fixed line and ISP services in 2009 with a view to the services contributing to profitability from 2010. At the same time, the annual level of capital expenditure for 2009 is expected to remain below 10% of anticipated revenues.

One final word -- the Company will start to report its financial reports based on IFRS from Q1 2009. I hope to give presentation to analysts on the implications of IFRS following the Q1 2009 results. With that, I will now hand the conference back to Oded. Oded?

Thank you, Emanuel. You are now invited to ask your questions. Shera, please take the call.

Thank you. (Operator Instructions) The first question is from Tsahi Avraham of Clal Finance. Please go ahead.

Hi, everybody. Two questions. The first one is on the subsidy. On the last two quarters you [subsidized] a relatively small amount, certainly if you compared to 2007. Should we expect even lower subsidy in 2009?

Hello. It's Emanuel. I cannot -- I can't tell you right now in this stage what will be the level of subsidies in 2009. It depends on the tariff plans that we change from time to time, as we have changed in 2008, Actually, we shifted some of the tariff plans from a high subsidy to lower subsidies with rebates on usage. Right now I can't tell you what will be the tariff plans for the next year.

You can tell us if it's supposed to be closer to 2007 or 2008?

Right now we don't have any change in the tariff plans.

Okay. In the outlook for 2009, you talked about the possible halt in the growth of [MOU]. Under which circumstances do you see actual reduction of your MOU?

Can you repeat the question or the last part of the question, Tsahi?

You talked about halt in the growth. I'm talking about the -- on which circumstances to you see actual reduction?

That's a full -- let me be a bit cautious about the issue of MOU. What we said in the press release is that we identified not, I will say, not a significant -- it's still not significant health in the MOU growth. Okay? This is something which is based on the last few week's observation. And at this stage, we don't want to jump into conclusion. We prefer, at this stage, to say that it might be attributed to the impact of recession, but not more than -- still not significant..

So in the last few weeks, your MOU is being flat comparing year over year.

This is what we are saying based on a very short time interval, very short time interval. And what we say is that the growth is lower compared to what we -- it used to be in the past.

Okay. Thank you for this.

The next question is from Daniel Meron of RBC Capital Markets. Please go ahead.

Thank you. First of all, congrats on 2008. We all hope that 2009 will be at least as good. But turning to the macro and just following up on Tsahi's comments, can you qualify or quantify for us, when you're saying slower growth, to what extent you're looking at slow growth in MOU? Also, what are the changes that you're seeing in average revenue per user?

Hi, Daniel. Thank you. First of all, I want you know it's very important for us to say that it would be irresponsible from us to provide you with forecast or guidance. The situation is a unique phenomena and I don't think that anyone can conclude from the current macroeconomic situation about the future. So what we are doing internally is trying to monitor very carefully and very tightly the various business [climate is] and try to conclude what is the impact on the business. But provide you with forecast about the growth of 2009 will be irresponsible from our perspective.

Right. But so far from what you've seen, have you seen a change not just in the growth in [revenues], but also on average revenue per user? Have you seen change in the spending cycles, decline in data revenue, of any sort of [growth], actually, the growth of data revenue as well was just net use.

Daniel, it's Emanuel. I would like to a little elaborate on that. First of all, we are talking on signs in the last few weeks. Bear in mind that we share with you, the investor and analyst, what we see in the last few weeks, meaning in the first quarter of 2009. I think we are maybe one of the rare companies that reports on trends that we see recently. We do see decrease in roaming. We do see increase in bad debts and we said that we said a possible halt in minutes of use.

On the other end, we have a trend of increasing -- of increase of data and content and there are some other things that we monitor. We decided to share with you the issue of the minutes of use because we think this kind of information is very sensitive and might be required by you, so we share with you what we see. Although we said that it's not significant yet, I think that, at the end of the quarter, we will be more, let's say, on ground to tell you what we have seen. Right now it's only first signs.

Okay. That's fair. And then, just looking at the balance sheet, you had an increase in the financing in the short-term debt. Can you just tell us what kind of changes have occurred in your bond-holding, et cetera and then how do you plan to finance that?

Okay. Partner has right now about ILS2 billion of notes that has to be repaid by 12 installments -- 12 quarterly installments starting from June 30, 2009. So what you see in short-term loans are actually the current maturities of these notes. In 2009, we will have to start paying the notes in an amount of about ILS540 million. I assume that we have the means to pay these notes either from our internal cash flow or by raising a financing from banks or from the capital market. Right now I don't see any problem for Partner to raise money from banks and also from the capital market. Bear in mind that the yield on the notes of Partner are 2.5%, which is, I think, showed, of course, the strength of the balance sheet of Partner. I can tell you that right now we don't have any problem to raise money, either in the capital market or from banks.

Okay. Great. Thanks, I'll go back to the queue. Thank you. Good luck.

Thank you.

The next question is from Alex Kuznetsov of ING. Please go ahead.

Good afternoon. I have a couple of questions. Just to follow -- what was the reason for an 11% decline in quarters, [in] fourth quarter? It's quite impressive and should we assume that most of it is coming from reduction in handset [tested] or are there some important reasons for this cost reduction? And second, should we expect changes in [Ministry]? And if you should, who is the likely new Minister and what impact we should expect? Thank you.

Okay. Regarding the first question, I think that you know, in a very similar manner to Q3, we cannot identify a single perimeter that influenced the profitability of the Company. Part of it is, of course, subsidizing the handset. But we also further conducted a cross company cost cutting and efficiency processes. So it is the improvement and the result in Q3 and Q4 are mainly based on, I would say, more than one perimeter. Regarding the question about the Ministry of Communication, I don't know whether you have met the civil servant from the Minister of Communication, but there are very good and professional people there that actually provide us with confidence about the dialogue between the regular source and Partner.

But should we expect the new regulator -- [in the regulator] to be as -- pushing for competition as the current people in charge?

It's very, very difficult to answer. I don't know. What I can say is that our position -- some of the regulators, in most of the [issues] is very strong. I think that we knew in the past and we will know in the future how to cope with all type of new regulations.

I see. Thank you very much.

Thank you.

The next question is from Scott Malat of Goldman Sachs. Please go ahead.

Thank you. What [telecom] business subscribers -- I'm surprised that they held up in this type of environment -- would think that businesses would be some of the first to cut their number on lines. I'm just wondering if the dynamic is such that consumer subs are maybe moving over to better rates due to their employer discounts or is anything going on like that?

Hi, Scott. Well, first and foremost, regarding the breakdown between business and private customers, there are some transitions between those two sub-segments. And I recommend to take a look at the post-paid versus the prepaid because the information is much more reliable. Why do I say so? Because some business customers prefer to buy, for example, if they are part of the [flow], to buy private customer price [trends] and it's been vise versa. This is one thing.

The second thing is regarding maybe the sensitivity to the business segment. I don't -- I'm not familiar with any employee that laid off from the high tech industry and do not hold a cell phone. So I think that this is one of the trends of the risk litigation metric of the industry, meaning that if there are some pressures on the business segment, it can be mitigated by transition to the private segment.

Okay. Thanks. Just one follow-up on -- just on renewal rates. Can you just talk about the rate at which people are upgrading their handsets or just the percentage of existing customers getting new handsets in recent quarters? Anything about trends?

We don't disclose those numbers. All we can say is that, of course, as a result of the recession, the number is, of course, slower compared to 2007.

Okay. Thank you.

Let's not forget also the 2007 [what occurred] by the preparation and the launching of [mobility], which, of course, includes the number of activation and production in the market.

The next question is from [Tom Chadwick] of Bank of America. Please go ahead.

Thank you. Good afternoon. My question is regarding the dividend policy. There was some indication after the Q3 results that you might be looking at raising the payout ratio [itself] cost to be more in line with some of the other operators. And also in conjunction with the decision to not do the share buyback. Have you -- obviously, you've decided that you, having decided to keep the 80% payout ratio, is there anything that you can say about that decision-making process?

Well, I don't know of any indication that we intend to raise the payout ratio. All I can say is that the 80% payout ratio is a very attractive dividend and it's above the industry average. And it represents the willingness of the Company to share value with the shareholder. Now our board decided to adopt a conservative approach in the past and it proves itself in the present and hopefully in the future. We feel very, very strong -- our advantage is very strong. Our cash flow is very strong and we feel very, very confident toward the potential changes in the market. And at this stage there is no intention for changes.

Okay.

Does that answer your question, sir?

Yes, that's fine. Thank you.

The next question is from Richard Gussow of Deutsche Bank. Please go ahead.

Hi. Good afternoon, guys. In terms of subscriber acquisition, we have about 16,000 subs that you acquired in the fourth quarter, which is a fairly low number for you historically. I'm just curious if that's -- do you think that's the effect of the slowdown? Do you think it's the effect of, perhaps, timing of marketing campaigns or why do you think you had a relatively low subscriber acquisition?

Richard, let me give you an advice regarding the importance of the number of subscribers in such a saturated market. I think that, from our perspective, the most important thing is the part, is the share of our revenues and, of course, profit in the entire industry take. And you can see -- you can very easily see that the share of partners revenue is higher than its share in terms of the number of subscribers.

Number of subscribers is not an important parameter for us and I can tell that 10% of our insurance customers pay an [output] below ILS30. So I wouldn't refer to the number of subscribers as a very important indicator. From our perspective, the most important indicator is the output, of course, of profitability and our ability to continue in generous cash flow.

Okay. And in terms of your -- you mentioned you're seeing an increase in doubtful accounts. Is that mostly, do you think, is that from number portability where you're chasing after customers who've left a partner or is that from other areas as well?

It is partially from the number portability period, but, of course, there is an increase that is also related to the starting recession in the market.

Okay. And in terms of telephone HSPA, they just recently formally launched their new network. Curious -- it's maybe a bit early -- are you feeling anything, as of now do you see -- you've spoken about the potential of a price where -- which doesn't look like it's going to happen. How do you see this developing?

Well, at this stage, we don't see any pressure on our customers, I think, that has initially expected buyouts. They are concentrated in their customers. We also said that we think that, from their perspective, it is the right move to concentrate on the customers because their CDMA customers are in a very sensitive situation. And I can say that so far everything is as expected. And the thing is to share that also with you.

Okay. Thank you.

Thank you, Richard.

The next question is from Darren Shaw of UBS. Please go ahead.

Hi. Good afternoon, guys. I had a couple of questions. The first one is when you write about the drop in roaming and bad debts, is there any way you can kind of quantify that? Is it double digit? Is it in line with tourism -- a drop in tourism rates in Israel? And the second question is -- when you write that the should the downturn continue through 2009, profit levels could be lower than in 2008, is that -- do you mean that -- if the downturn gets worse of if the current sort of level recession stays as it currently is?

Well, we don't disclose the breakdown of our revenue based on [one thing or another]. But what I can say is that you can go directly and take a look at the numbers of the statistical bureau and conclude from the number that [there is], meaning that there is a reduction of [stake] in 20%, 30%, 40% of the incoming and outgoing tourists. So it is, of course, directly influenced as our roaming revenue. And I think that you can conclude by yourself what is the impact on our business.

And when you said in the last few weeks, it's -- the MOUs got a halt in growth, I think you said to an early question that you weren't going to disclose anything else, so we should just rule from that that everything else is going as per it was in the fourth quarter.

Generally speaking, the answer is yes. But you need to understand that we consistently [explore] the business and try to extrapolate and to conclude from a limited [knowledge] about the future. As I mentioned before, the current situation in the market is very unique and we feel that [to at least invest in] analyzing and trying to understand it was [thick] the impact on the business. What we feel and what we still think is that the business is very solid and resilient to [all] changes. But again, we didn't say and we will not say that the impact of recession is a zero impact. It has an impact on our business.

That's great. Thanks.

The next question is from William Kirby of Nevsky. Please go ahead.

Thank you. Yes, just on the cost side, yourself and marketing expense seem very light in Q4 '08 and I appreciate some of that is due to the [MMPS striking] out in 2007, but in the future, how do you think about that? Should we be monitoring it as a percentage of sales or should we have year-on-year growth in there? Thank you.

Actually, in Q4 2007, we had the number portability period and right now, I mean, if you look on the [SGNS] percentage of revenues, 2008 is similar to 2007. But you also take into account that, actually, in 2008, we started to build our new initiatives of the ISP and also the broadband. And our view of these services, that all that are -- is already included in our figures, in the figures of 2008.

I can't give you any guidance regarding the SG&A for 2009, but I can tell you that you should not foresee any significant change in that because the cost structure of the Company, basically, has not changed. But of course, we will, of course, we will do our utmost in order to adjust the variable cost and to do some efficiencies in the cost cutting in order to mitigate the effect of the recession or possible recession effect on Partner.

Okay. Thank you.

The next question is a follow-up question from Alex Kuznetsov of ING. Please go ahead.

Good afternoon once again. And thanks for the presentation. I just -- I have a follow-up question on your bad debt expense. Could you comment on what's going on with your bad expense, how much increase you anticipate and what is your general debt collection practice?

Okay. Regarding the bad debt expenses, actually we formulate the provisions according to history statistics of the debt of our customers. We monitor that and actually there is statistics on the duration of doubtful debt of our customers and this formula is calculated on a monthly basis. And recently, we saw that there is an increase in the number of customers that -- the bank withdrawal of these customers, actually, [hit] back and there is an increase in the bad debts.

So we do more pressure and actually we work more hard in order to collect the money from these customers. But statistically, since we work on statistical basis, a portion of the provision, we must provide more amounts in order to cover possible increase in bad debts. And as I said before, we do our utmost in order to collect the money. I assume that this effect is related to the starting or to the recession and this is very logical.

Can you quantify the impact in any way or probably can keep ...

The impact is not so material. I mean, if you look on the cost basis of Partner, when you talk about a few billion, here we talk about a few tens of millions. So the impact, in total, is not so material.

I see. I see. Is there any chance we can link increase in bad debt expense to, for example, unemployment rate? Is the 1% increase in unemployment result in X percentage increase in bad debt expense? Have you [answered that] ...

It is difficult, I mean, in this stage, to quantify debt. I assume that when the unemployment increase, we see more bad debt and it require us to increase the [staff] billing we're collecting the debts, to require us to pay more attention to that, to -- let's say, to use some technicalities and to be cautious about bad debt. And that's what we do right now.

Yes, I see. And then a slightly different question. You mentioned in your press release that there is an increase in percentage of [upscale] in your overall handset sales. Can we conclude that you are focusing on upscale market and you trying to increase your market share among subscribers [in time]?

Actually, it's -- all the time the intention of Partner is to recruit the high quality subscribers. As Oded said before, our subscriber base is about three million. Of course, we have some course or some segmentation of these customers. And Partner has all time tried to remove focus on high quality subscribers. And you can see that our ARPU compared to the ARPU of our competitors is higher. And we try all the time to maintain this [level].

Can you conclude that your -- the focus of your marketing effort is on the high end of the overall subscriber base rather than on low end?

This is our strategy all the time, but of course, we cannot ignore also the low ARPU customers as well. But we try, of course, to have more focus on the higher end of the customers.

Thank you very much.

Thank you.

The next question is from [David Kaprin] of [Barrsis Capital]. Please go ahead.

Hi. Good evening, everyone. I had a -- two quick questions. One of the question had to with provisions with -- I was hoping you could break down for us where you're seeing those provision numbers come from. I understand that they are relatively small, only in the tens of millions. But are they coming from the business market or are they coming from the residential or individual market? That's question number one. Question number two. You mentioned earlier on the call that you hoped that over the course of 2009 to mitigate some of the minutes of use loss and its impact on revenues through increasing data revenues. I was curious if you had in mind. Data revenues - were you're talking about your ISP or are you talking about data use on the cellular phones?

Okay. Regarding the bad debts, most of the increase of the bad debts is in the private segment. But of course, this phenomena exists also in the business segment. Regarding the issues of increase in data in content, what we have said before that we have seen in 2008 an increase in data in content. We assume that this trend would continue. This was not related to our ISP and the voiceover broadband initiative, though.

So in other words, you -- the presumption is that while voice minutes may be dropping, people will continue to use their handsets for data purposes or for the internet.

Well, I don't like to stress that. First of all, let me try to share with you the historical numbers. As you know, the LPN consistently declined in the last few years and we have managed to compensate the decline in voice by the increasing in MOU and also in content revenues. Now, I wouldn't jump to conclusion regarding the MOU. As Emanuel and we said before, those are initial indications and we need to wait at least a quarter in order to conclude something significant. In general, what we intend to do is, first of all, continue and promote our content revenue. We will continue and promote of the [ISBN], although those two new initials will be, I would say, more significant to our revenue in 2010 and 2011. And of course, in parallel, we'll invest efforts in trying to [have] more efficiency plans and maybe invest [more] in tightening our budget control.

Okay. Just a last question. You -- in terms of significance of the VOB and the ISP business in 2010 and 2011, does that mean we can eventually or should expect to see the revenues from those businesses broken up separately from the current breakdown of revenues in Partner's numbers?

We haven't decided about it yet. Let me just share with you the initial maybe rationale behind establishing those two initiatives. First and foremost is a very important [tune] or sort of a risk mitigation, so a potential bundle offering by other players in the market. The second thing, which is very important, is the ability to realize, by establishing a presence in the customer premise is to realize our vision regarding data anywhere, meaning the ability to provide our customers with cellular or data over cellular and data over WiFi at the customer premises.

And of course, the third reason -- and the reasons, by the way, are not prioritized -- the third reason is, of course, address the market which are, in our opinion, big enough -- and I'm talking mainly about the voiceover broadband -- in our opinion will become a mainstream product in the next few years. Okay? So in terms of size are significant enough. And hopefully we will be able to have some market share in the mid and the long-term. And the last reason is the decrease -- potentially decrease -- the churn of our mobile subscribers by providing those customers in traditional services and products.

Okay. Thanks very much.

Okay.

The next question is from [Josef Hasif] of [ION]. Please go ahead.

Hi. First question is about CapEx. Do you have any breakdown of how much of it is variable CapEx and how much is not? The second question is in case of profits do coming down in 2009, will that increase the probability of increasing payout ratios to offset this decline? And the third question is regarding telephone. Are you already starting to see the impact of having the new network on your -- on the pricing? Thanks.

Okay. First of all, regarding the CapEx, we cannot disclose the relation between variable and fixed CapEx, but as Oded said at the beginning of the call, CapEx is something that we can reduce if we want. This is one thing. The second thing is regarding -- the first question was referring [telephono]?

Yes.

As mentioned before, we still don't see a significant impact [with] the price plans which are very similar to our price plans and we don't -- we still don't see pressure in this area. Regarding your second question about the payout ratio, I want to mention this is a board decision. And at this stage what we can say is that the annual dividend policy is 80%. And it's the board decision or it's up to the board to increase this or to change it. So from our perspective, it's 80%, period.

Thank you.

(Operator Instructions) There are no further questions at this time. Before I ask Mr. Degany to go ahead with his closing statements, I would like to remind participants that a replay of this call is scheduled to begin in two hours. In the US, please call 1-888-269-0005. In Israel, please call 03-925-5936. Internationally, please call, 97-23-925-5936. Mr. Degany, would you like to make your concluding statement?

Thank you, Shera. This concludes our year 2008 and fourth quarter results conference call at Partner Communications. We appreciate your interest and please feel free to contact us at investor relations if you have any additional questions. Access to this 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 good day.

Thank you. This concludes the Partner Communications Company fourth quarter 2008 results conference call. Thank you for your participation. You may go ahead and disconnect.