While top line growth is important to our management team, we are ultimately focused on generating higher earnings for our shareholders. During the quarter, our growth in profits far exceeded our revenue growth for two reasons. First, we drove organic revenue growth through long term investments in marketing. Second, we continued to benefit from realization of cost savings related to our acquisition program and ongoing UNL-platform investment. With regard to the later, it is important to understand that during the past few years we have made seven acquisitions in the U.S. and UK, launched a start up and further built out our facilities based infrastructure in Mississippi and Louisiana.

We believe that many of the synergies related to the recent acquisitions, as well as the full cost benefit from the new infrastructure build out in the U.S., are just beginning to be reflected in our financial performance.

Hence, our EBITDA increased 108% to $593,000, up from $285,000 in Q3 last year and up 50% from Q2 2006. On a net income basis, we earned $210,917, or $0.019 per share, from a loss of $(208,915), or a loss of $(0.02) per share, in the same quarter of 2005.

Our balance sheet remains strong, with approximately $9.1 million in cash and accounts receivable and total shareholders’ equity of $19.3 million as of September 30, 2006.

I would like to spend a moment reviewing each of our geographical operations. XFONE USA revenues increased 150% vs. Q3 2005 to $3.8 million in the third quarter and made considerable progress with our business strategy of integrating our many acquisitions by centralizing our switch and network operations, unifying our customer billing and making improvements to our customer service call center. These changes have enabled XFONE USA to create uniformity and efficiencies in our processes while increasing productivity and enhancing our ability to respond more quickly and effectively to the needs of our customers.

Our Israel-based operation, XFONE 018, continues to deliver excellent results. We have gone from zero to $1.4 million in quarterly revenues in less than two years and have just broken through to positive EBITDA. In August, shortly after receiving approval to start experimental Voice over Broadband service in Israel, we were granted a license to operate as an Internet Service Provider. This supports our strategy to become a bundled provider for all our Israeli customers communication needs. This opportunity also provides us with the platform to enhance our competitive cost differentiation in this market.

Our UK operation also increased revenues by more than 20% over Q3 last year, contributing $4.5 million in quarterly revenues. Our wholly owned subsidiary, Swiftnet, experienced substantial growth in network traffic during this quarter. In August, Swiftnet gained 20,000 new customers, primarily through its “Text & Talk” service which enables mobile customers to make low-cost international calls by paying through a Premium Rate text message. XFONE is taking steps to increase network capacity in the UK in order to accommodate volume growth from this initiative. During the third quarter we also successfully completed the integration of our recent acquisition Equitalk, realizing the planned cost saving and margin improvement.

I am also delighted to report that as of July, our common stock is traded simultaneously on the American Stock Exchange (AMEX) and on the Tel Aviv Stock Exchange (TASE). We strongly believe that the dual listing will enhance the worldwide profile of XFONE by reaching a larger global investment audience.

In conclusion, as we move through the final quarter of 2006, we remain focused on growing revenues, increasing profitability and continuing to successfully integrate the synergies derived from our acquisitions. We are committed to building on XFONE’s success by providing our customers with industry leading, cost effective services and by delivering shareholder value.

Thank you for your continued support of XFONE.

Sincerely,

Guy Nissenson
President and Chief Executive Officer
XFONE, Inc.

For More Information, Please Contact:
U.S. IR Contact
John Nesbett/Jennifer Beloeau Institutional Marketing Services (IMS) Phone: 1.203.972.9200. E-mail: jnesbett@institutionalms.com
Xfone Contact
Niv Krikov Chief Financial Officer Phone:  + 972.39254446 (Israel) E-mail: E-mail: niv@xfone.com