- 15.0%(1) Increase in Net Income With an Increase in Operating Income     and EBITDA;    - Profitability Growth, Despite the Ongoing Economic Slowdown, Price     Erosions and Growing Competition;    - EBITDA(2) Up by 2.9%(3); EBITDA Margin of 39.6%    - Cellcom Israel Declares a Second Quarter Dividend of NIS 3.05   per Share (Totals Approx. NIS 300 Million)    Second Quarter 2009 Highlights (compared to the second quarter   2008(4)):    - Total Revenues from services increased 0.7% to NIS 1,420     million ($362 million)    - Revenues from content and value added services (including     SMS) increased 30.6%, represent 14.7% of services revenues    - Total Revenues totaled NIS 1,608 million ($410 million), a     0.5% increase    - EBITDA increased 2.9%(3) to NIS 637 million ($163 million);     EBITDA margin 39.6%    - Operating income increased 6.5%(5) to NIS 444 million ($113     million)    - Net income increased 15.0%(1) to NIS 277 million ($71 million)    - Free Cash Flow(2) increased 33.3% to NIS 400 million ($102     million)    - Subscriber base increased approx. 20,000 during the quarter,     mostly post-paid subscribers; reaching approx. 3.228 million at the     end of June 2009    - 3G subscribers reached approx. 877,000 at the end of June     2009, net addition of approx. 44,000 in the second quarter 2009    - The Company declared second quarter dividend of NIS 3.05 per     share    

Cellcom Israel Ltd. ("Cellcom Israel", the "Company"), announced today its financial results for the second quarter of 2009. Revenues for the second quarter 2009 totaled NIS 1,608 million ($410 million); EBITDA for the second quarter 2009 totaled NIS 637 million ($163 million), or 39.6% of revenues; and net income for the second quarter 2009 reached NIS 277 million ($71 million). Basic earnings per share for the second quarter 2009 reached NIS 2.82 ($0.72).

Commenting on the results, Amos Shapira, Chief Executive Officer said, "This quarter Cellcom Israel, Israel's largest and leading cellular operator, further strengthened its standing in the market, continuing to present growth in revenues, operating and net profit and cash flow, as well as steadily increasing and improving its subscriber base. These results are especially noteworthy as we are operating in a challenging competitive environment, highly regulated and turbulent macro-economic environment. This macro-economic environment mainly affected our roaming revenues, as inbound and outbound tourism continued to be impacted by the global economic slowdown. This effect of the decrease in roaming revenues was entirely offset by the rapidly growing demand for content and value added services, which increased by over 30% this quarter, as well as land line services in which we continue to present a significant growth almost without adding to the Company's costs due to the existing synergy to our core business. Moreover, our ongoing efficiency measures this quarter enabled us to further reduce operating expenses, as well as operating expense as a percent of revenues, enabling us to present growth in both operating and net income and cash flow.

This quarter we continued to execute on our strategy of focusing on our core competencies, mobile communications, addressing the growing needs of the always on, anywhere consumer; the consumer that is constantly seeking entertainment and information content, known as Infotainment. We continued with our policy to offer our subscribers a variety of handsets to fulfill their changing needs, while keeping a prudent purchase policy. In this framework, we have launched, in a primary launch in Israel, the "Android" by Samsung with Google's operating system and in the near future we will launch the iPhone by Apple. ".

Shapira added, commenting on the change in Chief Financial Officers: "I would like to take this opportunity to thank Tal Raz for his tremendous dedication and contribution to Cellcom Israel. Tal has been instrumental in bringing the Company to where it stands today, taking advantage of financial opportunities to restructure our debt in an optimal and most successful manner. Tal leaves us to take on the role of CEO of Clal Finance, another company in the IDB Group, and I wish him the best of success. I would like to also take the opportunity to welcome Yaacov Heen to the position of CFO. Yaacov, a highly experienced manager has grown through the Cellcom Israel ranks in the past 12 years, and is highly attuned and knowledgeable of the company. I wish Yaacov the best of success and believe you will have the opportunity to meet him in person in the near future."

Tal Raz, Chief Financial Officer, commented: "These strong quarterly results were achieved mainly due to the increased revenues from content and value added services as well as fixed line revenues, which totally offset the 3.1% erosion in ARPU we witnessed this quarter, compared to last year, which resulted mainly from lower roaming revenues. Moreover, our very tight rein on expenses further contributed to profitability as marketing, sales, general and administrative expenses, as a percent of revenues, decreased from 21.9% in second quarter last year to 21.3% in second quarter this year. In terms of cash generation, we continued to generate a very healthy Free Cash Flow, increasing 33% from last year to NIS 400 million, enabling us to once again distribute a dividend totaling approximately NIS 300 million, representing 108% of net income, to our shareholders."

   Main Financial and Performance Indicators(6):                               Q2/2009    Q2/2008  % Change  Q2/2009  Q2/2008                                        million NIS              million US$                                                               (convenience                                                               translation)    Total Services revenues      1,420        1,410     0.7%    362.3   359.8    Revenues from content and   value added services           209          160    30.6%     53.3    40.8    Handset and accessories   revenues                       188          190   (1.1%)     48.0    48.5    Total revenues               1,608        1,600     0.5%    410.3   408.3    Operating Profit, after   elimination of a one-time   effect in Q2/2008 *            444          417     6.5%    113.3   106.4     Net Income, after   elimination of a one-time   effect in Q2/2008 **           277          241    15.0%     70.7    61.5    Cash Flow from Operating   Activities, net of   Investing Activities           400          300    33.3%    102.1    76.6    EBITDA, after elimination   of a one-time effect in   Q2/2008 ***                    637          619     2.9%    162.5   157.9    EBITDA, as percent of   Revenues, after   elimination of a one-time   effect in Q2/2008 ****       39.6%        38.7%     2.3%    Subscribers end of period   (in thousands)               3,228        3,117     3.6%    Estimated Market Share(7)    34.7%        34.5%     0.6%    Monthly ARPU                 143.7        148.9   (3.5%)     36.7    38.0    Average Monthly MOU *****    330.4        331.8   (0.4%)     

* Without the elimination, operating income for the second quarter of 2008 totaled NIS 431 million ($110 million), representing an increase of 3.0% in the second quarter of 2009.

** Without the elimination, net income for the second quarter of 2008 totaled NIS 230 million ($59 million), representing an increase of 20.4% in the second quarter of 2009.

*** Without the elimination, EBITDA for the second quarter of 2008 totaled NIS 633 million ($162 million), representing an increase of 0.6% in the second quarter of 2009.

****Without the elimination, EBITDA as percent of revenues for the second quarter of 2008 was 39.6%, similar to the second quarter of 2009.

*****Following the regulatory requirement to change the basic airtime charging unit from twelve-second to one-second units commencing January 1, 2009, MOU for the second quarter of 2008 has been adjusted to the same per-one second unit basis to enable a comparison. MOU for the second quarter of 2008 based on the former charging units was 354.3 minutes.

Subscriber Acquisition and Retention Costs

Following the Company's earnings release for the first quarter of 2009, dated May 26, 2009, relating to the accounting treatment for subscriber acquisition and retention costs, management has decided to change its accounting policy to recognize certain subsidies provided to handsets which are sold with a service agreement containing guaranteed minimum future revenue, as additional costs that are eligible for capitalization. Under the Company's previous accounting policy, capitalized customer acquisition and retention costs included only deferred costs in respect of sales commissions related to the acquisition and retention of subscribers, provided the costs could be measured reliably and were directly attributable to obtaining a specific subscriber, and the Company recognized subsidies on handset sales as an expense in the period incurred. The change in policy has been retrospectively applied from January 1, 2007, and therefore, the comparable data for previous periods has been amended to reflect this change in accounting policy. The deferral and capitalization of such subsidies increased the Company's retained earnings, as of January 1, 2009 by approximately NIS 48 million ($12 million). The impact of the change in accounting policy on the EBITDA for the second quarter of 2009 totaled approximately NIS 16 million ($4 million), similar to the impact on the EBITDA for the second quarter last year. The impact on the Company's net income for the second quarter of 2009 totaled approximately NIS 4 million ($1 million), while net income for the second quarter last year did not change as a result of the change in the accounting policy.

Financial Review

Revenues for the second quarter of 2009 increased 0.5% totaling NIS 1,608 million ($410 million), compared to NIS 1,600 million ($408 million) in the second quarter last year. The increase in revenues is mainly attributed to a 0.7% increase in revenues from services, which reached NIS 1,420 million ($362 million) in the second quarter 2009 as compared to NIS 1,410 million ($360 million) in the second quarter last year. This increase was offset in part by a 1.1% decrease in handset and accessories' revenues, from NIS 190 million ($48 million) in the second quarter last year, to NIS 188 million ($48 million) in the second quarter 2009.

The higher service revenues resulted mainly from a 30.6% increase in content and value added services (including SMS) revenues in the second quarter 2009, compared to the second quarter last year. Revenues from content and value added services reached NIS 209 million ($53 million), or 14.7% of service revenues. Furthermore, the increase in landline services revenues during the quarter also contributed to the higher service revenues. These increases were partially offset by the ongoing airtime price erosion as well as a substantial decrease in revenues from roaming services following the significant reduction in incoming and outgoing tourism resulting from the global economic slowdown.

Cost of revenues for the second quarter of 2009 totaled NIS 819 million ($209 million), similar to the second quarter last year. Cost of revenues reflects the deferral of handsets subsidies, as described above under -"Subscriber Acquisition and Retention Costs" - which amounted to NIS 16 million ($4 million) in the second quarter of 2009, as well as in the second quarter last year. The amortization of such deferred handsets subsidies totaled NIS 21 million ($5 million) in the second quarter 2009 compared to NIS 16 million ($4 million) in the second quarter 2008. Cost of revenues also reflects a decrease in royalties to the Ministry of Communications due to the reduced royalties' rate in 2009, as well as lower depreciation expenses. These decreases were partially offset by an increase in cost of content and value-added services, due to increased usage, and in rent expenses, due to the one-time reversal of rent expenses in the amount of approximately NIS 14 million ($4 million) in the second quarter of 2008 following the clarification by the Israel Accounting Standards Board to the International Accounting Standard no. 39 ("Financial Instruments: Recognition and Measurement").

Gross profit for the second quarter of 2009 increased 1% reaching NIS 789 million ($201 million), compared to NIS 781 million ($199 million) in the second quarter of 2008. Gross profit margin for the second quarter 2009 increased to 49.1% from 48.8% in the second quarter last year.

Selling, Marketing, General and Administrative Expenses ("SG&A Expenses") for the second quarter of 2009 totaled NIS 343 million ($87 million), compared to NIS 350 million ($89 million) in the second quarter of 2008. The decrease in SG&A Expenses in the quarter is mainly due to a decrease in advertising expenses and in salaries and related expenses primarily resulted from a decrease in option related expenses. These decreases were partially offset by an increase in amortization of deferred sales commissions from NIS 8 million ($2 million) in second quarter last year to NIS 14 million ($4 million) in the second quarter this year, while deferred sales commissions slightly increased from approximately NIS 14 million ($4 million) in second quarter last year to approximately NIS 15 million ($4 million) in the second quarter this year. The decrease in SG&A Expenses was also offset in part by an increase in bad debts and doubtful accounts expenses, mainly following the number portability, which allows subscribers to switch between cellular operators prior to settling their outstanding debt. The increase in bad debts and doubtful accounts may also have been influenced by the global economic slowdown.

Operating income for the second quarter 2009 increased 6.5%, or 3.0% without elimination of the effect of the one-time reversal of rent expenses in the second quarter 2008 as mentioned above, reaching NIS 444 million ($113 million), compared to NIS 431 million ($110 million) in the second quarter last year.

EBITDA for the second quarter 2009 increased 2.9%, or 0.6% without elimination of the effect of the one-time reversal of rent expenses in the second quarter 2008 as mentioned above, reaching NIS 637 million ($163 million), compared to NIS 633 million ($162 million) in the second quarter of 2008. EBITDA as a percent of revenues, totaled 39.6% similar to the second quarter last year (without elimination of the above mentioned one-time effect).

Financing Expenses, net for the second quarter 2009 totaled NIS 67 million ($17 million), compared to NIS 109 million ($28 million) in the second quarter last year. The decrease resulted mainly from the 1.9% inflation in the second quarter this year, compared to 2.4% in the second quarter last year, which led to lower linkage expenses to the Israeli Consumer Price Index (CPI), associated with the Company's debentures. The decrease also resulted from the one-time reversal, in the second quarter last year, of financing income in the amount of approximately NIS 29 million related to embedded derivatives. These decreases were offset in part by an increase in interest expenses related to the Company's debentures, due to the increased debt level.

Net Income for the second quarter 2009 increased 15%, or 20.4% without elimination of the one-time effects in the second quarter 2008 as mentioned above, reaching NIS 277 million ($71 million), compared to NIS 230 million ($59 million) in the second quarter last year. Basic earnings per share for the second quarter 2009 totaled NIS 2.82 ($0.72), compared to NIS 2.35 ($0.60) in the second quarter 2008.

Operating Review

New Subscribers - at the end of June 2009 the Company had approximately 3.228 million subscribers. During the second quarter of 2009 the Company added approximately 20,000 net new subscribers, mostly post-paid.

In the second quarter of 2009, the Company added approximately 44,000 net new 3G subscribers to its 3G subscriber base, reaching approximately 877,000 3G subscribers at the end of June 2009, representing 27.2% of the Company's total subscriber base, an increase from the 26% 3G subscribers represented of total subscribers at the end of March 2009.

The Churn Rate in the second quarter 2009 declined to 4.6%, compared to 4.7% in the second quarter last year and 5.0% in the first quarter this year. The churn for those quarters primarily consists of lower contribution pre-paid subscribers and subscribers with collection problems.

Average monthly subscriber Minutes of Use ("MOU") in the second quarter 2009 totaled 330.4 minutes, compared to 331.8 minutes in the second quarter 2008, a decrease of 0.4%. Following the regulatory requirement to change the basic airtime charging units from twelve-second to one-second units commencing January 1, 2009, MOU for the second quarter 2008 has been adjusted to the same per-one second unit basis to enable a comparison. MOU for the second quarter of 2008 based on the former charging units was 354.3 minutes.

The monthly Average Revenue per User (ARPU) for the second quarter 2009 decreased 3.5% and totaled NIS 143.7 ($36.7), compared to NIS 148.9 ($38.0) in the second quarter last year. This decrease was, among others, the result of the lower roaming revenues recorded during the second quarter following the decline in tourism.