zk1212089.htm

October 3, 2012

VIA EDGAR

Mr. Larry Spirgel

Assistant Director

Division of Corporation Finance

U.S. Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

Re:

B Communications Ltd.

Form 20-F for Fiscal Year Ended December 31, 2011

Filed April 30, 2012

File No. 001-33773

Dear Mr. Spirgel:

We are submitting this letter in response to the written comments of the Staff of the Securities and Exchange Commission (the “Commission”) with respect to the annual report on Form 20-F for the fiscal year ended December 31, 2011 of B Communications Ltd. (the “ Company”).

The paragraphs below are numbered to correspond to the Staff’s comments as set forth in your letter dated September 21, 2012. We have repeated your comments in italics and boldface and set forth our response in plain type below each comment.

Item 5. Operating and Financial review and Prospects, Page 71

Results of Operations, page 74

We note your statement that the, "following three tables provide summary financial information regarding the operating results of the individual operating segments of the Bezeq Group and on a consolidated basis during the years ended December 31, 2011, 2010 and 2009". However, it appears certain line items in the table on page 75 do not reconcile to either the consolidated statements of income or to your Note 6 - Segment Reporting. These line items are consolidated "total cost, profit from operating activities to owners of the Company, total assets attributable of operations, and total liabilities attributable to segment of operations". Please reconcile them in detail to either your audited financial statements or your reportable segments as shown in Note 6 - Segment Reporting.

In addition, your results of operations discussion should provide an analysis that corresponds to your tabular presentation of significant components of revenue and expenses included in your audited financial statements and segment footnote. Please provide us with your proposed future disclosure.

The tables refer only to the operating results of the Bezeq Group as indicated on page 74 ("regarding the operating results of the individual operating segments of the Bezeq Group and on a consolidated basis"). These operating results do not include the operating results of the Company. In addition, these operating results also do not include the effects of adjustments with respect to the Purchase Price Allocation ("PPA") resulting from the Bezeq acquisition and other adjustments with respect to the consolidation of the financial statements. We believe that it is important to include these tables so that readers can understand the operations of our principal asset.

In order to clarify our disclosure in future filings we will replace the three tables with the tables presented in Note 6.A "Operating Segments" on page F-47 of our consolidated financial statements.

In addition, and with respect to the second part of your comment, we believe that our Company has provided extensive disclosure in its results of operations discussion, including an analysis that corresponds to the tabular presentation of significant components of revenue and expenses of the Company.

Year Ended December 31, 2010 Compared with Year Ended December 31, 2011, page 78

We note your disclosure on page 80 regarding loss attributable to the owners and income attributed to non-controlling interests. Based on this disclosure it is not clear to us how you allocate net income to owners and non-controlling interests. Please disclose in detail how you allocated net income for the year ended December 31, 2011 and 2010 to owners of the company and to non-controlling interests. Explain why the owners of the company recognized losses for both years, while non-controlling interest holders recognized a profit for both years.

Our Company holds the controlling interest of approximately 31% of Bezeq. Accordingly, the non-controlling interests hold approximately 69% of Bezeq’s ordinary shares. Please refer to our past response to question 5 of the Staff’s comment letter dated September 2, 2010, where we addressed the accounting for our controlling interest in Bezeq.

The owners of our Company recognized net losses for the years ended December 31, 2011 and 2010 based on the results of operations of the Company as a whole, which include the effect of the finance expenses incurred on the Company’s indebtedness following the Bezeq acquisition, while holders of the non-controlling interest recognized a profit in both years since the non-controlling interests in Bezeq participated to a greater extent in the net income generated by Bezeq in both 2011 and 2010.

Income attributable to non-controlling interests in our Company’s consolidated financial statements consists almost entirely of the non-controlling interests’ share (approximately 69%) in Bezeq’s net income adjusted for depreciation and amortization of intangible assets that resulted from the Bezeq PPA that totaled NIS 339 million at December 31, 2011 and NIS 463 million at December 31, 2010.

Net income (loss) attributable to owners of the Company in our consolidated financial statements consists of net operating results captured at two ownership levels: (i) owners’ share (approximately 31%) in Bezeq's net income, adjusted for depreciation and amortization of intangible assets that resulted from the Bezeq PPA, that totaled NIS 156 million at December 31, 2011 and NIS 201 million at December 31, 2010; and (ii) 100% of the Company's net loss on a standalone basis (non-consolidated) that resulted primarily from finance expenses and totaled NIS 375 million at December 31, 2011 and NIS 341 million at December 31, 2010.

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B. Liquidity, page 85

You disclose on page 88 your ability to meet your liquidity needs for the next 12 months. In addition to your short term liquidity discussion, please disclose in detail your long-term plans and ability to fund your working capital, capital expenditures, debt service and other funding requirements. Provide us your proposed disclosure.

Below is our proposed disclosure, which in future filings will be updated to reflect more current information:

We expect to have sufficient funds to meet our long term working capital needs, capital expenditures, debt service and other funding requirements, both on a consolidated level (including Bezeq) and with respect to our Company’s own debt service (not including Bezeq).

For this long-term analysis the Company took into account the following:

The working capital and debt aspects of our Bezeq subsidiary:

Our base asset, Bezeq, is a strong and well capitalized company. Its cash flow from operating activities totaled NIS 2 billion in the first six months of 2012, an increase of 38% compared to the first six months of 2011, and an increase of 14% compared to the last six months of 2011.

Analysis of our Company’s working capital and debt repayment over the long term:

We expect to have sufficient funds to service our indebtedness (excluding Bezeq) from our current cash, cash equivalents and current investments, as well from future dividends from Bezeq, whose dividend policy is to distribute all of the net profits attributable to its shareholders as dividends. It is important to note that Bezeq previously announced the distribution of a special dividend of NIS 3 billion, of which NIS 1 billion was paid in 2011. In May 2012, Bezeq distributed an additional NIS 500 million as part of this special dividend (of which we received NIS 155 million). An additional distribution of NIS 500 million will be made in October 2012, of which amount we will receive NIS 155 million.

In 2012, we expect to receive dividends from Bezeq totaling NIS 953 million, of which NIS 489 million was received in May 2012 and the remainder, will be received in October 2012. We expect to make total debt repayments of NIS 632 million in 2012, consisting of NIS 512 million of payments to banks and financial institutions, NIS 108 million in debenture installments and NIS 12 million to others. In addition, in May 2012, we made an early repayment of NIS 106.5 million of our bank debt, thus reducing our bank debt and future interest expenses.

In 2013, we expect to receive dividends from Bezeq totaling NIS 850 million and to make debt repayments of NIS 620 million, thereby creating a cash surplus of NIS 230 million. We expect that our total accumulated cash surplus at December 31, 2013 will be approximately NIS 445 million.

In 2014, we expect that our dividends from Bezeq will be sufficient to serve our current debt payments totaling NIS 600 million, of which approximately NIS 500 million is due to banks and institutions and approximately NIS 100 million is due to our debenture holders.

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Beyond 2014, we expect to have sufficient funds to serve our expected indebtedness.

Our Company’s current liquid balances:

As of December 31 2011, our cash and cash equivalents totaled NIS 354 million and as of June 30, 2012 these balances totaled NIS 400 million. In addition, we own 30 million Bezeq ordinary shares that are free from any encumbrances. These shares can, if necessary, be used as collateral to refinance old debt or be sold for cash.

Notes to the Consolidated Financial Statements, page F-13

Note 6 - Segment Reporting, page F-44

Adjustments for segment reporting of revenue, profit or loss, and assets and assets and liabilities page F-49

We note that in your profit or loss reconciliation, the line item "other adjustment" was (NIS) 1.8 Billion, or 234% of consolidated profit before income taxes. In accordance with paragraph 28 of IFRS 8, please identify and describe all material reconciling items. Also, identify and describe all material reconciling items for "other adjustment" in the assets and liabilities reconciliation. Provide us with your proposed disclosure.

In accordance with paragraph 28 of IFRS 8 we identified the PPA adjustments as a material reconciling item. These adjustments were not allocated to the reporting segments because they are not being reviewed by our Company's Chief Operating Decision Maker in order to make decisions about resources to be allocated to the segments and assess their performance as required by paragraph 5(b) of IFRS 8. The following is our proposed future disclosure:

Note 6 - Segment Reporting

B.	Adjustments for segment reporting of revenue, profit or loss, assets and liabilities

	Year ended December 31,
							Convenience translation into U.S. dollars (Note 2D)
	2010			2011			2011
	NIS			NIS			US$

Profit or loss
Operating income for reporting segments		2,868			3,591			940
Elimination of expenses from a segment classified
as an associate		(119	)		(295	)		(77	)
Financing expenses, net		(287	)		(498	)		(130	)
Share in the losses of equity-accounted investees		(235	)		(216	)		(57	)
Profit for operations classified in other categories		13			3			1
Depreciation and amortization of intangible assets resulting from the Bezeq PPA adjustments		(1,477	)		(1,786	)		(467	)
Other adjustments		(55	)		(26	)		(8	)
Consolidated profit before income tax		708			773			202

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	Year ended December 31,
							Convenience translation into U.S. dollars (Note 2D)
	2010			2011			2011
	NIS			NIS			US$

Assets
Assets from reporting segments		13,525			17,156			4,490
Assets attributable to operations in other categories		432			458			120
Goodwill not attributable to segment assets		2,686			2,686			703
Investment in an equity-accounted investee (mainly loans) reported as a segment		1,084			1,057			277
Cancellation of assets for a segment classified as an associate		(1,243	)		(1,282	)		(336	)
Inter-segment assets		(593	)		(1,091	)		(286	)
Intangible assets resulting from the Bezeq PPA, net		7,338			5,561			1,456
Assets attributable to a non-reporting segment		805			364			95

Consolidated assets		24,034			24,909			6,519

				Year ended December 31,
							Convenience translation into U.S. dollars (Note 2D)
	2010			2011			2011
	NIS			NIS			US$

Liabilities
Liabilities from reporting segments		14,863			21,155			5,537
Liabilities attributable to operations in other categories		241			272			71
Cancellation of liabilities for a segment classified as an associate		(4,665	)		(4,932	)		(1,291	)
Inter-segment liabilities		(1,571	)		(1,889	)		(494	)
Intangible liabilities resulting from the Bezeq PPA, net		1,671			1,488			389
Liabilities attributable to a non-reporting segment		5,152			4,401			1,152
Other adjustments		-			(589	)		(154	)

Consolidated liabilities		15,691			19,906			5,210

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In connection with responding to the Staff’s comments, the undersigned, DoronTurgeman, acknowledges on behalf of B Communications Ltd. that:

The Company is responsible for the adequacy and accuracy of the disclosure in the filing;

Staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and

The Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.

If you have any further questions, please do not hesitate to contact me at (+972) 3 924 0000 or our counsel, Mr. Steven Glusband of Carter Ledyard & Milburn LLP at (212) 238-8605.

Very truly yours,

Doron Turgeman,

Chief Executive Officer

cc: Steven J. Glusband (by email)

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