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INVESTOR PRESENTATION

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Title: INVESTOR PRESENTATION


1
BezeqFourth Quarter Full Year 2007Investor
Presentation
INVESTOR PRESENTATION February 2007
First Nine Months Third Quarter 2007 Investor
Presentation December 2007
March 2007
2
Forward-Looking Statements Safe Harbor
  • This presentation contains general data and
    information as well as forward looking statements
    about Bezeq. Such statements, along with
    explanations and clarifications presented by
    Bezeqs representatives, include expressions of
    management's expectations about new and existing
    programs, opportunities, technology and market
    conditions. Although Bezeq believes its
    expectations are based on reasonable assumptions,
    these statements are subject to numerous risks
    and uncertainties. These statements should not
    be regarded as a representation that anticipated
    events will occur or that expected objectives
    will be achieved.

3
Overview of the Israeli telecom marketBezeq has
strength across the board
Israeli telecom market (2006)
Total NIS 27.3 bn
Source MOC

4
Relative spending in Israel on telecommunication
services is considerably higher than in Europe
Annual expenditure on telecom relative to number
of households, 2006 (Euro)
Annual expenditure on telecom as percent of GDP
,2006 ()
Average (w.o. Israel) 1,678 euro
Average (w.o. Israel) 2.6
Both as a percent of GDP and relative to number
of households, the Israeli telecom expenditure is
high
Source European Information Technology
Observatory 2007, WorldBank, states central
bureaus of statistics, CIA Analysis TASC
5
Corporate Profile
Bezeq is the leading telecommunications provider
in Israel providing fixed line, mobile, ISP,
broadband, international long distance, data and
multi-channel TV services.
6
Bezeq Group Profile
Businesses
Shareholders
Fixed Line Services Mobile Services
Multi-Channel TV ILD ISP Services Call
Center Services Internet Portal
Zeevi Communications Holdings 18
6
7
Growth Opportunities
  • The Bezeq Group is well positioned as the Company
    transitions from providing telephony and Internet
    infrastructure to become a leading supplier of
    advanced high speed Internet related products and
    services
  • Potential significant cost synergies by sharing
    services across the group
  • Potential for increased revenue synergies given
    changing regulatory landscape and new growth
    opportunities

8
Fixed Line Services
9
Fixed Line Voice and Broadband
  • Comprehensive voice and broadband solutions for
    consumer business customers
  • 1 service provider in voice telephony with 89
    market share (residential) and 94 (business)
  • 1 service provider in broadband with 62
    market share
  • 2.76 million access lines ( PSTN / ISDN)
  • 942,000 ADSL subscriber lines

10
Fixed Line
Broadband
Voice Telephony
Bezeqs DSL Subscriber Growth
Bezeq Access Lines (000s)
ARPU (NIS)
Subscribers (000s)
ARPU (NIS)
Subscribers (000s)
Voice Telephony Market Share Residential
Business
Broadband Market Share
Hot 38
Competitors 11
Bezeq estimate
Source MOC
11
Organizational Restructuring Strategy
  • Transition from geographical to customer
    focused organizational structure

PRIVATE SECTOR Personal voice services Home
networks Internet VAS
BUSINESS SECTOR Advanced voice and IT
services Hosted data centers and back up sites
Creating New
Creating a layer of new services
Preserving Existing
Growth from current portfolio of business and
consumer offerings
12
Employees
  • Retirement of 975 permanent employees between
    2007 and 2008
  • Potential additional retirement of 1,225
    permanent employees between 2009 and 2013

8,096
7,693
7,658
7,489
12
13
Cellular Services
14
Pelephone - Cellular Services
Market Share
Subscriber Growth ARPU
Subscribers (000s)
ARPU (NIS)
Bezeq estimate
15
Opportunities
Challenges
  • Extend 3G subscriber leadership
  • Drive higher ARPU from content services such as
    TV, mobile Internet and music applications
  • Example exclusive rights to sell major sports
    events
  • Focus on retention of existing subscribers via
    customer service, loyalty programs and marketing
    activities to improve customer satisfaction
  • Cellular phone number portability impacts
    consumer churn rates
  • Capital expenditures and staffing resources
    required to facilitate UMTS infrastructure
    deployment
  • Possible market entrance of Mobile Virtual
    Network Operators (MVNOs)

16
ILD, ISP Enterprise Services
17
Bezeq International ISP services
ISP Market Share(1)
ISP Subscriber Growth ARPU
ARPU (NIS)
Subscribers (000s)
ILD Market Share(2)
(1) Based on subscribers (2) Based on Q3 07
revenues
18
Growth Opportunities
Challenges
  • Increased competition resulting from
    consolidation of smaller competitors
  • Current need for VOB license
  • Global activities
  • ISP and data
  • Network end point (BezeqCall operations)
  • Integration
  • IPTV
  • Wi-Fi, Wi-Max

19
Multi-Channel TV Services
20
YES - Multi-Channel TV Services
Subscriber Growth ARPU
Market Share
ARPU (NIS)
Subscribers (000s)
Bezeq estimate
21
Opportunities
Challenges
  • Expansion of multi channel TV market to
    additional customer segments (Arab,
    Ultra-orthodox, Ethiopian, etc.)
  • Expansion of product basket to subscribers
    (Telephony, Internet access and infrastructure,
    yesmax, VOD, etc.)
  • Increase revenues from existing subscribers
    through expansion of content offering
  • (Additional channels and packages, movies,
    games, interactive, etc.)
  • Increase revenues from content through activities
    in other platforms (Internet, cellular, etc.)
  • Current regulatory restrictions prevent yes from
    bundling services to match consumer purchasing
    patterns
  • Limited exposure to VOD market
  • Mature market segment to be penetrated through
    value added and differentiated consumer services

22
Regulatory Environment
23
Regulatory Environment
  • Bezeq is seeking positive changes to the current
    regulatory policies in order to align it with
    existing regulatory policies in force in most
    countries
  • Bezeq is a declared monopoly in the field of
    domestic fixed line communications services
  • Some of the regulatory limitations on Bezeq
    include
  • Structural separation requirement
  • Prohibited bundling of services with subsidiary
    companies
  • Tariff supervision
  • Universal service obligation, and others
  • A professional committee (Grunau Commission) was
    recently established by the Ministry of
    Communications (MOC) to review the Israeli
    telecom market and submit its recommendations
    regarding the appropriate policy for the coming
    years in a wide variety of fields
  • Regulatory review of the MVNO industry with
    regards to the local Israeli market

24
Group Financial Overview
25
Financial Highlights Third Quarter
All data in NIS millions
25
26
Financial Highlights First Nine Months
All data in NIS millions
26
27
Key Financial Ratios Bezeq Group
Data as of Sept 30, 2007
  • Total Debt / EBITDA 1.92
  • Net Debt / EBITDA 1.26
  • Net Debt / Equity 1.07
  • Return on Equity 28.0
  • Return on Capital Employed 19.0
  • EBIT / (Total assets Current Liabilities)

27
28
Key Financial Ratios Bezeq Group
Net Debt / Equity
  • Q1 07 increase due to capital reduction
  • \
  • Bezeqs leverage is at the low end of its peer
    group

28
29
Group Revenues
12,232
11,925
9,115
9,280
NIS Millions
2.6
1.8
29
30
EBITDA
EBITDA EBITDA Margin Trends
EBITDA by Segment
NIS Millions
NIS Millions
First 9 Months 2007
3,146
219
254
7.1
1,025
8.1
32.5
1,648
100
32.9
31.9
33.9
32.8
52.3
  • Pro-forma EBITDA for 2005 and 2006, excludes
    the impact of one-time provisions for
    restructuring and employee option plans.

30
31
Cash Flow Trends Bezeq Group
9 Month Data
Full Year Data
NIS Millions
FY 2006
9M 2007
FY 2005
31
32
Total Dividends Paid
NIS Millions
  • Bezeq sees dividend yield as a key driver of
    shareholder return
  • 2007 increase mainly due to capital reduction

79
32
33
The Bezeq Investment Opportunity
  • The dominant Israeli telecom group with leading
    market positions in all telecom sectors
  • Significant earnings growth stemming from current
    restructuring and cost cutting initiatives
  • New sources of growth from broadband, content,
    hosting and IT services
  • Untapped group synergies and growth opportunities
  • Returning value to shareholders through dividends

34
Appendices
INVESTOR PRESENTATION February 2007
First Nine Months Third Quarter 2007 Investor
Presentation December 2007
35
Debt Summary
All data in NIS millions
35
36
Key Performance Indicators
36
37
Key Performance Indicators
37
38
Financial Highlights Fixed line
All data in NIS millions
38
39
Financial Highlights Pelephone
All data in NIS millions
39
40
Financial Highlights YES
All data in NIS millions
40
41
Financial Highlights Bezeq International
All data in NIS millions
41
42
Thank You
For additional information please visit our web
site www.bezeq.co.il
INVESTOR PRESENTATION February 2007
First Nine Months Third Quarter 2007 Investor
Presentation December 2007
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