<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                     _____

                                 F O R M 10-K

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
        OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 1996

                    OR

[ _ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
        OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period From _____ to _____
 
Commission File No. 0-19363
 
                 CELLULAR COMMUNICATIONS INTERNATIONAL,  INC.
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)
 
          Delaware                                              13-3221852
--------------------------------                            ------------------
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                             Identification No.)
 
110 East 59th Street, New York, New York                         10022
-----------------------------------------                   ------------------
(Address of principal executive offices)                       (Zip Code)

       Registrant's telephone number, including area code  (212) 906-8480
                                                           --------------
                                   _________

          Securities registered pursuant to Section 12(b) of the Act:

                                     NONE

          Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                     --------------------------------------
                               (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    [ X ]  Yes     [ _ ]  No

Indicate by check mark whether disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ _ ]
<PAGE>
 
The aggregate market value of the registrant's Common Stock held by non-
affiliates at March 24, 1997, valued by reference to the closing sale price for
the registrant's Common Stock on the Nasdaq Stock Market's National Market, was
approximately $276,042,000.

Number of shares of Common Stock
outstanding as at March 24, 1997: 10,712,241


                      DOCUMENTS INCORPORATED BY REFERENCE
                      -----------------------------------


              Document                  Part of 10-K in which
              --------                  ---------------------
                                             Incorporated
                                             ------------


Definitive proxy statement                             Part III
for the 1997 Annual Meeting
of the Stockholders of
Cellular Communications International, Inc.
<PAGE>
 
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                         Page
                                                                                         ----
<S>                                                                                      <C> 
PART I
------

Item 1         Business...........................................................        1

Item 2         Properties.........................................................        4

Item 3         Legal Proceedings..................................................        5

Item 4         Submission of Matters to a Vote of Stockholders....................        5

PART II
-------

Item 5         Market for the Registrant's Common Stock and Related Stockholder
               Matters............................................................        6

Item 6         Selected Financial Data............................................        7

Item 7         Management's Discussion and Analysis of  Results of Operations
               and Financial Condition............................................        8

Item 8         Financial Statements and Supplementary Data........................       11

Item 9         Changes in and Disagreements with Accountants on Accounting
               and Financial Disclosure...........................................       11


PART III
--------

Item 10        Directors and Executive Officers of the Registrant.................       12

Item 11        Executive Compensation.............................................       12

Item 12        Security Ownership of Certain Beneficial Owners and Management.....       12

Item 13        Certain Relationships and Related Transactions.....................       12

PART IV
-------

Item 14        Exhibits, Financial Statement Schedules, and Reports on Form 8-K...       12

Exhibit Index.....................................................................       13

Signatures........................................................................       14

Index to Financial Statements.....................................................       F-1, S-1
</TABLE>
<PAGE>
 
                                    PART I

ITEM 1.  BUSINESS.
----------------- 

GENERAL.

     Cellular Communications International, Inc. ("CCII" or the "Company") was
incorporated in Delaware on May 30, 1984 to own and operate cellular telephone
systems in various markets.  Prior to 1987, CCII filed applications with the
Federal Communications Commission to provide cellular telephone service in
various markets.  Beginning in 1989, CCII entered into joint ventures to obtain
licenses to own and operate mobile telephone networks in various foreign
countries.

     CCII's activities to date have focused on participating in strategic joint
ventures to acquire overseas cellular telephone systems.

     Currently, CCII's primary asset is its participation in Omnitel-Pronto
Italia ("OPI"), a strategic joint venture consortium that operates the second
Global System for Mobile Communications ("GSM") cellular telephone license in
Italy (including San Marino and Vatican City) (the "License").

OMNITEL AND OPI.

     In January, 1995, the award of Italy's second GSM cellular license to OPI
was made official with the publication of an announcement in the Italian public
register.  The publication of the award was the final step in the award process
which began in March 1994 when the original announcement of the selection of OPI
was made by the Italian government.  CCII holds a 10.267% indirect interest in
OPI through its 14.667% ownership interest in Omnitel-Sistemi Radiocellulari
Italiani S.p.A. ("Omnitel"), a strategic joint venture organized in May 1990 to
apply for the License. The principal other joint venturers in Omnitel are Ing.
C. Olivetti & C., S.p.A., Bell Atlantic International, Inc. and Telia (formerly
Swedish Telecom International, AB).

     In February 1994, Omnitel and Pronto Italia S.p.A. ("Pronto Italia")
entered into an agreement to jointly form OPI as their combined applicant for
the License. Pronto Italia is owned principally by AirTouch Communications, Inc.
and Mannesmann AG. Omnitel is a 70% shareholder of OPI and Pronto Italia is a
30% shareholder.

     Cellular Service in Italy.  The Italian cellular market has been one of the
     -------------------------                                                  
fastest growing cellular markets in Europe over the past several years, growing
from approximately 3.9 million subscribers in 1995 to approximately 6.4 million
in 1996.  OPI competes with Telecom Italia Mobile (which in 1995 was spun out to
shareholders of Telecom Italia, the public switched telephone network ("PSTN")),
for cellular users in Italy.  OPI and Telecom Italia Mobile both use the digital
GSM standard, but Telecom Italia Mobile also has nearly 3.8 million subscribers
using the older, analog standard.  OPI competes with Telecom Italia Mobile by
stressing the quality of its digital network (which was custom designed for the
GSM standard), the benefits of the GSM standard (pan European roaming, privacy
and security, and advanced features), and the quality of its customer service.

     OPI began offering commercial service in December 1995, and OPI has
reported that as of December 31, 1996 it had approximately 713,000 subscribers.
<PAGE>
 
     Performance Bond./1/  OPI has provided an approximate 219 billion lire
     ----------------                                                         
($129.6 million) performance bond to the Italian government linked to OPI's
meeting certain performance goals relating to territory coverage, investment,
employment and payment of license fees.  OPI has met all of the requirements of
this bond that have matured to date.  OPI must now (i) cover 98% of Italian
territory with its cellular network by May 1998, (ii) invest 1,552 billion lire
($918.7 million) by May 1998, (iii) employ 2,686 people by May 1998 and (iv) pay
an annual license fee of 3.5% of OPI's annual sales, net of amounts paid to
public landline telephone operators for their services. OPI is subject to
monetary penalties for failing to achieve such goals. There can be no assurance
that OPI will be able to achieve all of its performance bond goals. The maximum
liability of CCII under the performance bond would be approximately 22.5 billion
lire ($13.3 million), reflecting its proportionate interest in OPI.

     Arrangements with Telecom Italia and Telecom Italia Mobile.
     ---------------------------------------------------------- 

     Fees and Pricing with Telecom Italia.  Pursuant to the License, OPI has
connected its mobile cellular telephone network to the PSTN.  The rates charged
by Telecom Italia approximate 200 lire ($.12) per minute, which are among the
highest in Europe.  OPI has begun a process of negotiating these rates with the
Italian Ministry of Post and Telecommunications ("MPT"), but there can be no
assurance as to the outcome of this process.

     Roaming Agreements. OPI has entered into a mutual roaming agreement with
Telecom Italia Mobile to guarantee all subscribers roaming service throughout
areas covered by only one of the GSM cellular providers.  Pursuant to the terms
of the License after the initial two years of OPI's operations, subsequent
agreements on national roaming may not include the capital cities of the Italian
provinces.

     OPI has negotiated roaming agreements with other GSM operators throughout
Europe in order to provide customers with Pan-European roaming.

     Competition.  Competition within the Italian market is substantial. Telecom
     -----------
Italia Mobile, which operates the state owned cellular system, has for several
years through its predecessor SIP, S.p.A. ("SIP") operated a 450-MHz analog
cellular system in Italy, and during 1989 began to bring into service a 900-MHz
analog cellular system. The established market presence and recognition of
Telecom Italia Mobile has resulted in Telecom Italia Mobile being a significant
competitor.

     Telecom Italia Mobile has approximately 5.7 million subscribers as of
December 31, 1996.  Telecom Italia Mobile has certain advantages over OPI which
will continue for the foreseeable future, such as a larger installed customer
base and a wider coverage area.  Furthermore, because OPI did not provide
cellular service until December 1995, many potential high usage business
customers were already Telecom Italia Mobile cellular customers.  While OPI and
Telecom Italia Mobile are currently the only cellular telephone operators
licensed in Italy, it is anticipated that a third GSM license will be granted in
the future.  Moreover, OPI may also face significant potential competition from
other communications technologies that are being or may be developed or
perfected in the future.

     Risks of Italian Operations. Business conditions in Italy are generally
     ---------------------------                                            
viewed by those in the international business community as favorable.  CCII does
not perceive any material risk of nationalization of independent
telecommunications service providers in Italy.

     The Omnitel Agreement.  Reference is made to the description of the Omnitel
     ---------------------                                                      
joint venture agreement (the "Omnitel Agreement") that is attached as exhibit
10.1 to this Form 10-K.

     The Omnitel-Pronto Italia Agreement.  Omnitel and Pronto Italia have
     -----------------------------------          
entered into an agreement (the "OPI Agreement") that contains provisions
governing the relationship between the two parties, including, but not limited
to, provisions relating to the governance and financing of OPI.

__________________________
     /1/ Italian lire have been translated solely for the convenience of the
reader of this Form 10-K at an exchange rate of 1,689.30 lire = $1.00, the Noon
Buying Rate on March 24, 1997.

                                       2
<PAGE>
 
CUSTOMER DEPENDENCE AND SEASONALITY.

     CCII currently has no customers.  OPI is not dependent upon any single
customer for any material portion of its business. The cellular communications
industry is not generally characterized as having a material seasonal element.
The businesses of CCII and OPI are not expected to become seasonal in the
foreseeable future.

OTHER CONSIDERATIONS.

     CCII's ability to sell or transfer its ownership interest in Omnitel is
subject to limitations contained in the agreements between the relevant
shareholders.  The shareholders of Omnitel have pledged to the MPT pursuant to
the terms of the License to maintain certain levels of ownership in the
respective companies for a period of at least five years from the date of grant
of the License. Such restrictions effectively require 86% of the capital stock
of Omnitel to remain held by the present shareholders for at least five years
from the License grant. There can be no assurance that the MPT or the Italian
government will permit transfers of indirect ownership or that the MPT will not
suspend or terminate the License if such transfers occur.

     In addition, Omnitel currently has no publicly traded securities and there
can be no guarantee that there will in the future be either a public or private
market for the securities of Omnitel. As a result, CCII's ability to liquidate
any or all of its investment may be substantially limited.

     The Company or its affiliates generally will be subject to tax in the
foreign jurisdictions in which they operate.  In addition, such foreign
jurisdictions may impose withholding taxes on distributions (by way of interest,
dividends or otherwise) to the Company.  For example, under applicable treaties
currently in effect, dividends distributed by an Italian company to a United
States person would be subject to a withholding tax of 15%, if paid to a United
States company which has owned less than 25% of the voting stock of the company
paying the dividends for a 12-month period ending on the date the dividend is
declared.  In general, the Company's ability to claim a foreign tax credit
against its U.S. federal income tax expense for foreign taxes is subject to
various limitations.  These limitations and the inability of the Company to
offset losses in one foreign jurisdiction against income earned in another
foreign jurisdiction could result in a high effective tax rate on the Company's
earnings.

     Special U.S. tax rules apply to U.S. taxpayers that own stock in a "passive
foreign investment company" (a "PFIC").  In general, a non-U.S. corporation will
be treated as a PFIC if at least 75% of its income is "passive income" or if at
least 50% of its assets are held for the production of "passive income".  A non-
U.S. corporation that owns 25% or more of the stock of a non-U.S. subsidiary is
treated as receiving a proportionate share of the income of, and as owning a
proportionate share of the assets of, such subsidiary.


     Omnitel may be considered to be a PFIC. Generally, except to the extent the
Company makes an election to treat a PFIC in which it owns stock as a "qualified
electing fund" (a "QEF") in the first taxable year in which the Company owns the
PFIC's stock, (i) the Company would be required to allocate gain recognized upon
the disposition of stock in the PFIC and income recognized upon receiving
certain dividends ratably over the Company's holding period for the stock in the
PFIC, (ii) the amount allocated to each year other than the year of the
disposition or dividend payment would be taxable at the highest U.S. tax rate
applicable to corporations, and an interest charge for the deemed deferral
benefit would be imposed with respect to the tax attributable to each year, and
(iii) gain recognized upon disposition of PFIC shares would be taxable as
ordinary income.

    If the Company were to make the QEF election, as described above, the
Company would be required in each year that PFIC qualification tests are met to
include its pro rata share of the QEF's earnings as ordinary income and its pro
rata share of the QEF's net capital gain as long-term capital gain, whether or
not such amounts are actually distributed.  The Company has not made any QEF
election with respect to any non-U.S. corporations in which it holds stock,
including Omnitel.

                                       3
<PAGE>
 
     Applicable laws often limit foreign investors to minority equity positions.
CCII's minority voting position may preclude it from affirmatively controlling
the companies in which it has an interest even though CCII is involved in the
management of Omnitel and intends to participate in the future only in operating
companies in which it can participate in management.  Thus, CCII may be unable
to cause implementation of strategies it favors.

     The acquisition, development, ownership and operation of wireless
communications networks require substantial capital investment.  OPI will
require significant amounts of capital to construct its cellular networks and
for its research and development programs, operating expenses, expansion of its
marketing and distribution capabilities, license fees and royalties.  Adequate
funds for these purposes, whether through equity or debt financing,
collaborative or other arrangements with corporate partners or from other
sources, may not be available when needed (including due to a failure by CCII or
another shareholder to provide a required capital contribution) or available on
terms acceptable to OPI.  Insufficient funds could require OPI to delay, scale
back or eliminate certain of its planned activities.  OPI currently has a
syndicated loan facility of 1,800 billion lire ($1.1 billion) and a credit
agreement with Finnish Export Credit Ltd. in the amount of 306 billion lire
($181.1 million) for financing Nokia Telecommunications equipment.  As of
December 31, 1996, OPI has utilized 677 billion lire ($400.8 million) of the
syndicated loan facility and all of the Finnish Export Credit Ltd. credit.

     There can be no assurance that the laws or administrative practice relating
to taxation, foreign exchange or otherwise in Italy will not change, and any
such change could have a material adverse effect on the financial affairs of
OPI.  The value of CCII's indirect investment in OPI may also be affected by
changes in tax law and other laws and other political, economic, socioeconomic
or diplomatic developments in or affecting Italy.

     Omnitel and OPI will receive all of their revenues in Italian lire.
Currently there are no foreign exchange controls in Italy.  There can be no
assurance that foreign exchange control restrictions will not be introduced in
the future.

     Exchange rates for the lire may fluctuate in relation to the U.S. dollar,
and such fluctuations may have an adverse effect on CCII's earnings or assets
when translating lire into U.S. dollars.  Any weakening in the value of the lire
against the U.S. dollar could result in lower revenues and earnings for CCII
when translated into U.S. dollars.  In addition, as CCII's primary financing
will be in U.S. dollars and CCII's commitments to Omnitel and OPI are in lire, a
currency exchange rate risk exists.  While CCII may consider entering into
transactions to hedge the risk of exchange rate fluctuations, there can be no
assurance that CCII will engage in such transactions, or, if CCII decides to
engage in such transactions, that they will be successful and that shifts in the
currency exchange rates will not have a material adverse effect on CCII.

     Wireless communications operations are subject to governmental regulation,
including, among others, price controls and service requirements, which may
change from time to time, including due to changes in the political structure or
government representatives.  There can be no assurance that material and adverse
changes in the regulation of OPI will not occur in the future.

EMPLOYEES.

     CCII has 22 full and part time employees.

PATENTS, COPYRIGHTS AND LICENSES.

     Neither CCII, OPI nor Omnitel has any material patents or copyrights in
their businesses.  CCII does not believe patents or copyrights play a material
role in its business or any potential business of OPI or Omnitel.  OPI has a
license to provide cellular service from the appropriate governmental
authorities.

ITEM 2.  PROPERTIES.
------------------- 

    CCII leases office space, which is adequate to meet its needs at present
from one of its former affiliates, NTL Incorporated, and is charged for its
share of the rent by NTL.

                                       4
<PAGE>
 
ITEM 3.  LEGAL PROCEEDINGS.
-------------------------- 

     OPI is engaged in ordinary legal disputes and court proceedings that have
arisen in the course of its operations, none of which is expected to have a
material effect on its operations.  OPI and Telecom Italia Mobile have each
filed lawsuits in Italy against each other involving various competitive
matters.  The outcome of these lawsuits are not presently expected to have a
material effect on OPI's operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS.
-------------------------------------------------------- 

     There were no matters that were submitted to a vote of CCII's stockholders
during the quarter ended December 31, 1996.

                                       5
<PAGE>
 
                                  PART II
                                  -------

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
-------------------------------------------------------------
         STOCKHOLDER MATTERS.
         -------------------

CCII's Common Stock trades on the Nasdaq Stock Market's National Market under
the symbol "CCIL". The following table sets forth for the periods indicated the
high and low last sales prices as reported on the Nasdaq Stock Market's National
Market.

<TABLE>
<CAPTION>
                                                   LAST SALE PRICE        
                                                    HIGH     LOW          
                                                 --------------------     
               <S>                               <C>         <C>          
               1995                                                       
               ----                                                       
               First Quarter                        $50.50  $36.25        
               Second Quarter                        41.75   34.25        
               Third Quarter                         43.25   36.00        
               Fourth Quarter                        42.75   34.00        
                                                                          
               1996                                                       
               ----                                                       
               First Quarter                         40.25   31.25        
               Second Quarter                        37.00   31.75        
               Third Quarter                         35.75   24.75        
               Fourth Quarter                        34.00   25.50        
                                                                          
               1997                                                       
               ----                                                       
               First Quarter (through March 24)      32.75   26.75         
</TABLE>

     On March 24, 1997, the closing price for the Common Stock, as reported on
the Nasdaq Stock Market's National Market, was $28.00.  As of March 24, 1997,
there were approximately 359 record holders of the Common Stock.  This figure
does not reflect beneficial ownership of shares held in nominee names.

     CCII has never paid cash dividends on its Common Stock and does not intend
to pay cash dividends in the foreseeable future on shares of its Common Stock.

                                       6
<PAGE>
 
ITEM 6.  SELECTED FINANCIAL DATA.
---------------------------------

    The following table sets forth certain financial data for the years ended
December 31, 1996, 1995, 1994, 1993, and 1992.  This information should be read
in conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
                                                    YEAR ENDED DECEMBER 31,
                                      ------------------------------------------------------ 
                                          1996       1995       1994      1993      1992
                                      ------------------------------------------------------ 
                                                      (1)
<S>                                   <C>        <C>        <C>        <C>       <C> 
INCOME STATEMENT DATA:
Operating revenue                     $    -     $    -     $    -     $   -     $   -
Income (loss) before extraordinary
 item                                  (50,968)     6,815     (8,509)     (875)     (497)
Net income (loss)                      (50,968)     5,341     (8,509)     (875)     (497)
Income (loss) before extraordinary
 item per common share (2)               (4.85)       .57       (.84)     (.09)     (.05)
Net income (loss) per common 
share (2)                                (4.85)       .45       (.84)     (.09)     (.05)
Weighted average number of common
 shares (2)                             10,509     11,808     10,094     9,989     9,959
</TABLE> 

<TABLE> 
<CAPTION>  
                                                          DECEMBER 31,
                                      ------------------------------------------------------ 
                                          1996       1995       1994      1993      1992
                                      ------------------------------------------------------ 
                                                      (3)
<S>                                   <C>        <C>        <C>        <C>       <C>  
BALANCE SHEET DATA:
Working capital (deficiency)          $ 79,392   $ 75,840   $(24,575)  $11,417   $13,013
Total assets                           146,307    175,290     38,301    13,545    14,336
Bank loan payable                            -          -     29,980         -         -
Long-term debt                         172,052    149,869          -         -         -
Shareholders' (deficiency) equity      (28,561)    21,167      6,774    13,148    14,011
</TABLE>

(1)      1995 includes a gain on sale of investment in joint venture of
         $25,286,000, net of tax of $13,615,000 ($2.14 per common share) and a
         charge of $1,474,000, net of income tax benefit of $794,000, from early
         extinguishment of debt (($.12) per common share).

(2)      After giving retroactive effect to the 3-for-2 stock split by way of a
         stock dividend, which was paid on May 13, 1994.

(3)      In 1995, CCII issued $281,571,000 aggregate principal amount of 13-1/4%
         Senior Discount Notes due 2000 at a price to the public of 52.783% or
         $148,622,000.

CCII did not declare or pay any cash dividends during the years indicated.

                                       7
<PAGE>
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
-----------------------------------------------------------
         OPERATIONS AND FINANCIAL CONDITION.
         ----------------------------------

                             RESULTS OF OPERATIONS

Years Ended December 31, 1996 and 1995
--------------------------------------

     Equity in net loss of Omnitel increased to $29,850,000 from $14,636,000
because of the increase in the net loss of Omnitel.  The increase is due to an
increase in Omnitel's share of OPI's net loss to $201,622,000 from $98,428,000.
OPI's net loss increased to $284,557,000 from $138,168,000 as a result of the
increase in all costs due to the commencement of operations in December 1995.
OPI began depreciation and amortization of certain previously capitalized costs
in December 1995 upon the commencement of operations.

     General and administrative expenses decreased to $3,397,000 from $3,805,000
primarily because, as of December 1995, CCII no longer participates in an entity
that owns one of the two GSM cellular licenses for Delhi, India, and CCII
reduced its efforts to obtain new cellular licenses.

     Amortization of investments in joint ventures increased to $691,000 from
$537,000 as a result of the amortization of additional costs capitalized in
connection with the investment in Omnitel.

     Interest and other income increased to $5,125,000 from $1,963,000 primarily
because of an increase in funds available for investment.

     Interest expense increased to $23,330,000 from $7,230,000 primarily due to
the interest on the Senior Discount Notes.  Interest expense in 1995 does not
include interest of $5,571,000 which was capitalized during the year ended
December 31, 1995. The Company discontinued interest capitalization in December
1995 upon the commencement of OPI's operations.

     The fees to the Company's former parent company, Cellular Communications,
Inc. ("CCI"), in connection with the bank loan decreased to none from $101,000
as a result of the termination of the CCI guarantee in July 1995.  This expense
does not include fees to CCI of $1,220,000 which were capitalized during the
year ended December 31, 1995.

     The income tax benefit in 1996 of $1,200,000 is the result of net operating
loss carrybacks to 1995.

Years Ended December 31, 1995 and 1994
--------------------------------------

     Equity in net loss of Omnitel increased to $14,636,000 from $2,421,000
because of the increase in the net loss of Omnitel.   The increase is due to an
increase in Omnitel's share of OPI's net loss to $98,428,000 from $15,407,000.
OPI's net loss increased to $138,168,000 from $19,531,000 as a result of the
increase in all costs due to the construction of OPI's cellular network, the
creation of an organization to prepare for the provision of service to customers
and the commencement of operations in December 1995.  Depreciation and
amortization of certain previously capitalized costs began in December 1995 upon
the commencement of operations.

     General and administrative expenses increased to $3,805,000 from $3,394,000
primarily due to an increase in expenses related to CCII's participation in an
entity that owns one of the two GSM cellular licenses for Dehli, India and an
increase in payroll costs.  In December 1995, CCII waived and released its claim
to participate in this entity and will no longer incur costs associated with the
cellular business in Delhi.

     CCII capitalizes costs incurred in connection with potential new licenses
until a license is awarded or CCII determines it will not be successful in
obtaining a license.  In  1995 and 1994, investments in joint ventures of
$602,000 and $481,000, respectively, and deferred costs of $1,167,000 and
$376,000, respectively, were written-off in connection with unsuccessful efforts
to obtain licenses.

                                       8
<PAGE>
 
     Depreciation expenses increased to $28,000 from $9,000 due to the
depreciation of equipment acquired in 1995.

     Amortization of investments in joint ventures increased to $537,000 from
$96,000 as a result of the amortization of costs capitalized in connection with
the investment in Omnitel.

     Interest and other income increased to $1,963,000 from $211,000 primarily
because of an increase in funds available for investment from the proceeds of
the Senior Discount Notes.

     Interest expense increased to $7,230,000 from $1,848,000 primarily due to
the issuance of the Senior Discount Notes.  Interest expense does not include
interest of $5,571,000 and  $1,312,000 which was capitalized during the years
ended December 31, 1995 and 1994, respectively.  Interest expense in 1995
consists principally of Senior Discount Notes interest of $5,263,000,
amortization of deferred financing costs of $1,523,000 and amortization of debt
discount of $264,000.

     The fees to CCI in connection with the bank loan were $101,000 and $95,000
in 1995 and 1994, respectively.  This expense does not include fees to CCI of
$1,220,000 and $679,000 which were capitalized during the years ended December
31, 1995 and 1994, respectively.

     In December 1995, CCII waived and released its claim to participate in an
entity that owns one of the two GSM cellular licenses for Delhi, India in
exchange for $40,000,000 in cash.  CCII recorded a gain on this transaction of
$38,901,000.

     In connection with the repayment of debt, CCII recorded as an extraordinary
loss the write-off of $2,268,000 ($1,474,000 net of income tax benefit) of
unamortized deferred financing costs and debt discount.

                        LIQUIDITY AND CAPITAL RESOURCES

     The Company's capital requirements are primarily based upon the agreements
and requirements of the joint ventures in which it is now or may become a
participant.  The Company also requires capital to pay for corporate overhead
expenses, personnel costs and taxes, as well as capital to explore other
opportunities that may arise.  The Company has no material commitments for
capital expenditures, except as described below.

     As a result of the award of Italy's second GSM cellular license to OPI, OPI
requires capital to construct its cellular system and to fund its operations.
OPI has a syndicated bank loan facility for 1,800 billion lire ($1.1 billion)
and has received capital contributions of 1,450 billion lire ($858 million) from
its partners (1,015 billion lire ($601 million) from Omnitel and 435 billion
lire ($257 million) from Pronto Italia).  Omnitel funded its share of OPI
capital contributions plus its own capital needs through capital contributions
from its shareholders of 1,040 billion lire ($616 million).  The Company's total
cumulative contribution to Omnitel was approximately 152.5 billion lire ($96.8
million at the exchange rates in effect at the time of each contribution).

     OPI has provided an approximate 219 billion lire ($129.6 million)
performance bond that requires payments to the Italian government if OPI fails
to meet certain operational targets. There can be no assurance that OPI will be
able to achieve all of its performance bond goals. The Company's maximum
liability under the performance bond is approximately 22.5 billion lire ($13.3
million), reflecting its proportionate interest in OPI.

     OPI is anticipating an approximately 200 billion lire ($118 million)
increase in OPI's paid-in capital in 1997. Omnitel's shares of this increase is
70% of the OPI increase or 140 billion lire ($83 million) and CCII would be
required to make capital contributions to Omnitel of approximately 20.53 lire
($12.2 million) in order to fund the Company's 14.667% share of the capital
requirements of Omnitel. These additional capital contributions would require
capital calls by Omnitel which are expected to occur during 1997.  OPI will also
require additional debt financing in excess of the amount available from the
syndicated bank loan and the 1997 capital calls.  The Company currently expects
that OPI would obtain such additional financing from bank 

                                       9
<PAGE>
 
borrowings.

     The Company has not recently been successful in obtaining any new cellular
licenses since there is more competition for licenses and the costs of obtaining
them has increased.  This has occurred because more companies recognize the
potential value of obtaining cellular licenses and governments increasingly
realize they can extract some part of this value from license applicants. There
can be no assurance that the Company will be successful in obtaining new
cellular licenses or in developing other opportunities in the future.

     The information in the preceding paragraphs include projections; in
reviewing such information it should be kept in mind that actual results may
differ materially from those in such projections. These projections were based
on various factors and were derived utilizing numerous assumptions. Important
assumptions and factors that could cause actual results to differ materially
from those in these projections include OPI's ability to continue to design
network routes, install facilities, obtain and maintain any required
governmental licenses or approvals and finance construction and development, all
in a timely manner, at reasonable costs and on satisfactory terms and
conditions, as well as assumptions about customer acceptance, churn rates,
overall market penetration and competition from providers of alternative
services. Other factors and assumptions not identified above were also involved
in the derivation of these projections, and the failure of such other
assumptions to be realized as well as other factors may also cause actual
results to differ materially from those projected.  The Company assumes no
obligation to update these projections to reflect actual funding requirements,
capital expenditures and results, changes in assumptions or changes in other
factors affecting such projections.

     In August 1995, the Company issued $281,571,000 aggregate principal amount
of 13-1/4% Senior Discount Notes due 2000 (the "Notes") and 281,571 warrants to
purchase 317,049 shares of common stock. The Notes were issued at a price to the
public of 52.783% or $148,622,000.  The original issue discount accretes at a
rate of 13-1/4%, compounded semiannually, to an aggregate principal amount of
$281,571,000 by August 15, 2000.  The Notes are senior unsecured obligations of
the Company and rank senior in right of payment to all future subordinated
indebtedness of the Company.  The indenture governing the Notes contains
restrictions relating to, among other things: (i) the incurrence of additional
indebtedness, (ii) the issuance of preferred stock, (iii) dividends and other
payments and (iv) mergers, consolidations and sales of assets.

     The indenture required that $51,800,000 of the proceeds be placed in an
escrow account until it was needed to finance the Company's additional capital
contribution obligations to Omnitel, provided that Omnitel was not in default of
any obligation to fund capital contributions of OPI. The Company utilized the
entire escrow account balance plus interest to make its required capital
contributions to Omnitel in 1995 and 1996.

     Pursuant to the Notes Indenture, any net proceeds from an asset sale that
are not applied within 12 months after such asset sale to an investment in a
related business will be deemed excess proceeds. When the aggregate amount of
excess proceeds exceeds $5,000,000, the Company is required to make an offer to
purchase the maximum principal amount of Notes that may be purchased using the
excess proceeds, at an offer price in cash equal to 100% of the accreted value
of the Notes.  As a result of the Company's waiver and release of its claim to
participate in an entity that owns one of the two GSM cellular licenses for
Delhi, India in December 1995 in exchange for cash of approximately $40,000,000,
the Company had approximately $38,900,000 of excess proceeds in December 1996.
The Company made an offer to purchase Notes at the accreted value of $635.65 per
$1,000 Note.  In January 1997, upon the expiration of the offer, $70,000
principal amount of Notes were tendered and the Company paid approximately
$44,500.

     To the extent that the Company obtains financing in U.S. dollars and the
Company's future commitments to Omnitel are in Italian lire, it will encounter
currency exchange rate risks. Omnitel's revenues will be received in Italian
lire and currently there are no foreign exchange controls in Italy. There can be
no assurance that foreign exchange restrictions will not be introduced in the
future.

     The Company expects that cash on hand is sufficient to meet all obligations
of the Company at least through the next twelve months.

                                      10
<PAGE>
 
     The Company is primarily a holding company with limited business operations
of its own. The Company's assets consist primarily of cash, marketable
securities and its ownership interest in Omnitel.  The Company does not hold,
nor is it likely that the Company will hold, a majority interest in any
operating systems.  The Company's minority voting position in Omnitel currently
precludes it from controlling Omnitel or OPI, even though the Company is
involved in the management of Omnitel and intends to participate in the future
only in operating companies in which it can be involved in management. Thus, the
Company may be unable to cause the implementation of strategies that it favors
and, in the event of a disagreement between the Company and one or more of its
partners, the strategies adopted and actions taken by an affiliate company may
in some cases be contrary to the Company's preferred strategies and actions. In
addition, the Company may be unable to access the cash flow of affiliated
companies since (i) it does not have the requisite control to cause such
entities to pay dividends, (ii) substantially all of such entities are expected
to be parties to credit or other borrowing agreements that severely restrict or
prohibit the payment of dividends, and such entities are likely to continue to
be subject to such restrictions and prohibitions for the foreseeable future and
(iii) some countries tax payment and repatriation of dividends.  As a result,
the Company does not expect to receive significant cash through dividends or
other distributions from an affiliate in the foreseeable future.

     Because the Company does not currently have any cash flow and does not
expect any cash flow for the foreseeable future, its ability to repay the Notes
at maturity will be dependent on developing one or more sources of cash at or
prior to maturity. The Company may (i) seek to refinance all or a portion of the
Notes at maturity through sales of additional debt or equity securities of the
Company, (ii) if possible and subject to the appropriate consents and approvals
and certain other limitations set forth in the OPI Agreement and the Omnitel
Agreement, seek to sell all or a portion of its interest in Omnitel, (iii)
negotiate with its partners to permit any cash produced by OPI to be distributed
to equity holders rather than invested in the business and/or (iv) seek to
invest in companies that will make substantial cash distributions on or before
the maturity of the Notes. There can be no assurance that (i) there will be a
market for the debt or equity securities of the Company in the future, (ii) the
Company will be permitted to sell particular assets or be able to sell assets in
a timely manner or on commercially acceptable terms or in an amount that (giving
effect to the substantial corporate income taxes which could be due in the event
of such a sale) will be sufficient to repay the Notes when due, (iii) the
Company will be able to persuade its partners that cash generated by the
operations of its affiliated entities should be distributed to equity holders

(in fact, the Company expects that Omnitel and OPI will utilize all of their
respective cash flow for debt repayment or internal development opportunities
for the foreseeable future) or (iv) the Company will be able to locate and
invest in companies that will be mature enough to make substantial cash
distributions to investors prior to the maturity of the Notes.

     Cash used in operating activities was $2,282,000 and $3,858,000 in 1996 and
1995, respectively.  The decrease in cash used in operating activities is
because the Company no longer participates in the entity that owns one of the
two GSM cellular licenses for Delhi, India and the Company reduced its efforts
to obtain new cellular licenses.  Cash used in investing activities was
$15,112,000 in 1996 as a result of purchases of marketable securities, net of
proceeds from sales.


ITEM  8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
------------------------------------------------------

The financial statements are included herein commencing on page F-1.

ITEM  9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
----------------------------------------------------------
          ACCOUNTING AND FINANCIAL DISCLOSURE.
          -----------------------------------
Not applicable.

                                      11
<PAGE>
 
                                PART III
                                --------

ITEMS 10, 11, 12, AND 13.
-------------------------

     The information required by PART III (Items 10, 11, 12 and 13) is
incorporated by reference from the Company's definitive proxy statement
involving the election of directors which the Company expects to file, pursuant
to Regulation 14A, within 120 days following the end of its fiscal year.


                                PART IV
                                -------

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT
---------------------------------------
        SCHEDULES AND REPORTS ON FORM 8-K.
        --------------------------------- 

     (a) (1)             Financial Statements - See list of Financial Statements
                         on page F-1.

         (2)             Financial Statement Schedules - See list of Financial
                         Statements on page F-1.

         (3)             Exhibits - See Exhibit Index on page 13.

     (b)                 During the quarter ended December 31, 1996, there were
                         no Current Reports on Form 8-K filed by CCII.

     (c)                 Exhibits - The response to this portion of Item 14 is
                         submitted as a separate section of this report.

     (d)                 Financial Statement Schedules - See list of Financial
                         Statements on page F-1. See the Index to Financial
                         Statements of Omnitel Sistemi Radiocellulari Italiani
                         S.p.A. and Omnitel Pronto Italia S.p.A. on page S-1.

                                      12
<PAGE>
 
                                 EXHIBIT INDEX

Exhibit No.
-----------

  3.1       Restated Certificate of Incorporation (Incorporated by Reference to
            Exhibit 3.1, 1991 Form 10-K, File No. 0-19363).

  3.1(a)    Certificate of Designation of Series A Junior Participating
            Preferred Stock (Incorporated by Reference to Exhibit 3.1(a), 1991
            Form 10-K, File No. 0-19363).

  3.1(c)    Certificate of Designation of Series B Preferred Stock (Incorporated
            by reference to Exhibit 3.1(c), File No. 33-90980).

  3.2       Amended By-Laws (Incorporated by Reference to Exhibit 3.2, File No.
            33-38398).

  4.1       Specimen of Common Stock Certificate (Incorporated by Reference to
            Exhibit 4.1, 1991 Form 10-K, File No. 0-19363).

  4.2       Rights Agreement, dated as of December 19, 1990, between CCII and
            Continental Stock Transfer Trust Company as the Rights Agent
            (Incorporated by Reference to Exhibit 4.2, File No. 33-38398).

  4.3       Warrant dated July 25, 1994, between CCII and Cellular
            Communications, Inc. (Incorporated by Reference to Exhibit 4.3.,
            1994 Form 10-K, File No. 0-19363)

  4.4       Indenture dated as of August 22, 1995 between CCII and Chemical Bank
            as Trustee (Incorporated by Reference to Exhibit 4.2, File No.33-
            90980).

  10.1      Description of Omnitel Joint Venture Agreement.

  10.2      Compensation Plan Arrangement - Cellular Communications
            International, Inc. 1991 Stock Option Plan (amended and restated
            effective June 2, 1994). (Incorporated by Reference to Exhibit
            10.2., 1994 Form 10-K, File No. 0-19363)

  10.3      Compensation Plan Arrangement - Cellular Communications
            International, Inc. Non-Employee Directors Stock Option Plan
            (amended and restated effective June 2, 1994) (Incorporated by
            Reference to Exhibit 10.3., 1994 Form 10-K, File No. 0-19363)

  10.4      Warrant Agreement between the Company and CCII Funding, Inc.
            (Incorporated by reference to Exhibit 10.10, File No. 33-90980).

  11        Statement re Computation of Per Share Earnings

  23        Consent of Ernst & Young LLP.

  23.1      Consent of Coopers & Lybrand S.p.A.

  27        Financial Data Schedule.

                                      13
<PAGE>
 
                                  SIGNATURES

       Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.


                  CELLULAR COMMUNICATIONS INTERNATIONAL, INC.

Dated: March 27, 1997


                            By: /s/ William B. Ginsberg
                            -------------------------------------------
                            William B. Ginsberg
                            Chairman of the Board, President and Chief
                              Executive Officer

       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the 
Registrant in the capacities and on the date indicated.

Signature                      Title                                  Date
---------                      -----                                  ----
                                                                  
/s/William B. Ginsberg                                        
-------------------------                                     
William B. Ginsberg            President, Chairman of         
                               the Board, Chief Executive     
                               Officer and Director           
                               (Principal Executive           
                               Officer)                       
                                                              
                                                              
/s/ J. Barclay Knapp                                          
-------------------------                                     
J. Barclay Knapp               Executive Vice President       
                               and Director                   
                                                              
                                                              
 /s/ Gregg Gorelick                                           
-------------------------                                     
Gregg Gorelick                 Vice President-Controller         March 27, 1997
                               (Principal Accounting          
                               Officer)                 
                                                              
 /s/ Stanton N. Williams       Vice President and Chief       
-------------------------                                     
 Stanton N. Williams           Financial Officer              
                               (Principal Financial           
                               Officer)                       
                                                              
                                                              
 /s/ Sidney R. Knafel                                         
-------------------------                                     
Sidney R. Knafel               Director                       
                                                              
                                                              
 /s/ Ted H. McCourtney                                        
-------------------------                                     
Ted H. McCourtney              Director                       
                                                              

                                      14
<PAGE>
 
                                                            
/s/ Del Mintz                                               
-------------------------                                   
Del Mintz                      Director                     
                                                            
                                                            
 /s/ Alan J. Patricof                                       
-------------------------                                   
Alan J. Patricof               Director                     
                                                            
                                                            
/s/ Warren Potash                                           
-------------------------                                   
Warren Potash                  Director 

                                      15
<PAGE>
 
                       Form 10-K--Item 14(a)(1) and (2)

          Cellular Communications International, Inc. and Subsidiaries

                   Index to Consolidated Financial Statements


The following consolidated financial statements of Cellular Communications
International, Inc. and Subsidiaries are included in Item 8:

 
Report of Independent Auditors............................................  F-2
Consolidated Balance Sheets--December 31, 1996 and 1995...................  F-3
Consolidated Statements of Operations--Years Ended
 December 31, 1996, 1995 and 1994.........................................  F-4
Consolidated Statement of Shareholders' (Deficiency) Equity--Years Ended
 December 31, 1996, 1995 and 1994.........................................  F-5
Consolidated Statements of Cash Flows--Years Ended
 December 31, 1996, 1995 and 1994.........................................  F-6
Notes to Consolidated Financial Statements................................  F-8
 

All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.

                                      F-1
<PAGE>
 
                         Report of Independent Auditors



Shareholders and Board of Directors
Cellular Communications International, Inc.

We have audited the consolidated balance sheets of Cellular Communications
International, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' (deficiency) equity
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The financial statements of Omnitel Sistemi
Radiocellulari Italiani S.p.A. ("Omnitel") (a corporation in which the Company
has a 14.667% interest) have been audited by other auditors whose report has
been furnished to us; insofar as our opinion on the consolidated financial
statements relates to data included for Omnitel, it is based solely on their
report.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.

In our opinion, based on our audit and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Cellular
Communications International, Inc. and Subsidiaries at December 31, 1996 and
1995, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.



                                                            ERNST & YOUNG LLP
New York, New York
March 18, 1997

                                      F-2
<PAGE>
 
          Cellular Communications International, Inc. and Subsidiaries

                          Consolidated Balance Sheets


<TABLE>
<CAPTION>
                                                                                 DECEMBER 31                    
                                                                             1996            1995               
                                                                      -------------------------------           
<S>                                                                     <C>             <C>                     
ASSETS                                                                                                          
Current assets:                                                                                                 
 Cash and cash equivalents                                               $ 46,759,000    $ 62,965,000           
 Marketable securities                                                     34,404,000      17,068,000           
 Other                                                                      1,045,000          61,000           
                                                                      -------------------------------           
Total current assets                                                       82,208,000      80,094,000           
                                                                                                                
Cash held in escrow                                                                 -      43,616,000           
Investment in Omnitel                                                      58,363,000      44,726,000           
Equipment, net of accumulated depreciation of                              
 $50,000 (1996) and $43,000 (1995)                                             19,000          51,000           
Deferred financing costs, net of accumulated amortization  
 of $1,525,000 (1996) and $387,000 (1995)                                   5,717,000       6,803,000           
                                                                         ----------------------------           
                                                                         $146,307,000    $175,290,000           
                                                                         ============================           
                                                                                                                
                                                                                                                
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY
Current liabilities:                                                                                            
 Accounts payable                                                        $    156,000    $    202,000           
 Accrued expenses                                                             630,000         872,000           
 Taxes payable                                                              1,444,000       3,076,000           
 Due to Cellular Communications, Inc.                                               -          81,000           
 Due to NTL Incorporated                                                      586,000          23,000           
                                                                         ----------------------------            
Total current liabilities                                                   2,816,000       4,254,000           
                                                                                                                
Long-term debt, less unamortized discount of $4,881,000
 (1996) and $5,850,000 (1995)                                             172,052,000     149,869,000           
Commitments and contingent liabilities                                                                          
                                                                                                                
Shareholders' (deficiency) equity:                                                                              
 Series preferred stock--$.01 par value; authorized 2,500,000 
  shares, outstanding none                                                          -               -           
 Common stock--$.01 par value; authorized 25,000,000 
  shares; issued and outstanding                                                                                 
  10,708,000 (1996) and 10,344,000 (1995) shares                              107,000         103,000           
 Additional paid-in capital                                                28,737,000      27,501,000           
 (Deficit)                                                                (57,405,000)     (6,437,000)          
                                                                         ----------------------------           
                                                                          (28,561,000)     21,167,000           
                                                                         ----------------------------           
                                                                         $146,307,000    $175,290,000           
                                                                         ============================            
</TABLE>
See accompanying notes.

                                      F-3
<PAGE>
 
          Cellular Communications International, Inc. and Subsidiaries

                     Consolidated Statements of Operations

<TABLE>
<CAPTION>
 
                                                                           YEAR ENDED DECEMBER 31            
                                                                     1996           1995           1994                    
                                                              ---------------------------------------------                
<S>                                                             <C>             <C>            <C>                         
Equity in net loss of Omnitel                                    $ 29,850,000   $ 14,636,000    $ 2,421,000                
General and administrative expenses                                 3,397,000      3,805,000      3,394,000                
Write-off of investments in joint venture                                   -        602,000        481,000                
Write-off of deferred costs                                                 -      1,167,000        376,000                
Depreciation expense                                                   25,000         28,000          9,000                
Amortization of investments in joint ventures                         691,000        537,000         96,000                    
                                                                 ------------------------------------------
Operating (loss)                                                  (33,963,000)   (20,775,000)    (6,777,000) 
                                                                                
Other income (expense):                                                                                                    
 Interest and other income                                          5,125,000      1,963,000        211,000 
 Interest expense                                                 (23,330,000)    (7,230,000)    (1,848,000)               
 Cellular Communications, Inc. fees in           
  connection with the bank loan                                             -       (101,000)       (95,000)               
 Gain on sale of investment in joint venture                                -     38,901,000              -                   
                                                                 ------------------------------------------ 
Income (loss) before income taxes and                         
 extraordinary item                                               (52,168,000)    12,758,000     (8,509,000)

Income tax benefit (provision)                                      1,200,000     (5,943,000)             -
                                                                 ------------------------------------------
Income (loss) before extraordinary item                           (50,968,000)     6,815,000     (8,509,000)         
                                                           
Loss from early extinguishment of debt, net                                                                                       
 of income tax benefit of $794,000                                          -    (1,474,000)              -                
                                                                 ------------------------------------------
Net income (loss)                                                $(50,968,000)  $  5,341,000    $(8,509,000)               
                                                                 ==========================================                
Net income (loss) per common share:                        
 Income (loss) before extraordinary item                               $(4.85)          $.57          $(.84)
 Extraordinary item                                                         -           (.12)             -  
                                                                 ------------------------------------------  
Net income (loss)                                                      $(4.85)          $.45          $(.84) 
                                                                 ==========================================  
                                                                            
                                                                                                                           
Weighted average number of common                                                                                          
 shares used in computation of net                                                                                         
 income (loss) per share including                                                                                         
 common stock equivalents                                          10,509,000     11,808,000     10,094,000                
                                                                 ==========================================

</TABLE>                                                                 
                                                                            
See accompanying notes.                                                        

                                      F-4

<PAGE>
 
          Cellular Communications International, Inc. and Subsidiaries

          Consolidated Statement of Shareholders' (Deficiency) Equity

<TABLE>
<CAPTION>
 
 
                                                                  
                                              COMMON STOCK         ADDITIONAL
                                        -----------------------     PAID-IN  
                                            SHARES     AMOUNT       CAPITAL       (DEFICIT)
                                        -----------------------------------------------------
<S>                                       <C>         <C>        <C>            <C>
Balance at December 31, 1993               6,666,000   $ 66,000   $16,351,000    $ (3,269,000)
 Exercise of stock options                   177,000      2,000       323,000
 Issuance of warrants to Cellular
  Communications, Inc. in connection
  with the bank loan                                                1,810,000
 Stock split                               3,339,000     34,000       (34,000)
 Net (loss) for the year ended
 December 31, 1994                                                                 (8,509,000)
                                        -----------------------------------------------------
Balance at December 31, 1994              10,182,000    102,000    18,450,000     (11,778,000)
 Exercise of stock options                   162,000      1,000     1,024,000
 Issuance of warrants                                               6,182,000
 Costs incurred in connection with the
  issuance of warrants                                               (312,000)
 Income tax benefit from the exercise
  of stock options                                                  2,157,000
 Net income for the year ended 
  December 31, 1995                                                                 5,341,000
                                         -----------------------------------------------------
Balance at December 31, 1995              10,344,000    103,000    27,501,000      (6,437,000)
 Exercise of stock options                   364,000      4,000     1,238,000
 Costs incurred in connection with the
  1995 issuance of warrants                                            (2,000)
 Net (loss) for the year ended 
  December 31, 1996                                                               (50,968,000)
                                        -----------------------------------------------------
Balance at December 31, 1996              10,708,000   $107,000   $28,737,000    $(57,405,000)
                                        =====================================================
 
</TABLE>

See accompanying notes.

                                      F-5
<PAGE>
 
          Cellular Communications International, Inc. and Subsidiaries

                     Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
 
                                                                                  YEAR ENDED DECEMBER 31              
                                                                            1996           1995           1994        
                                                                     ---------------------------------------------    
<S>                                                                    <C>             <C>            <C>             
                                                                                                                      
OPERATING ACTIVITIES                                                                                                  
Net income (loss)                                                      $ (50,968,000)  $  5,341,000   $ (8,509,000)   
Adjustments to reconcile net income (loss) to net 
 cash  (used in) operating activities:                       
  Equity in net loss of Omnitel                                           29,850,000     14,636,000      2,421,000    
  Depreciation and amortization expense                                      716,000        565,000        105,000    
  Write-off of deferred costs and investments                                                                         
   in joint venture                                                                -      1,769,000        857,000    
  Loss from early extinguishment of debt                                           -      2,268,000              -    
  Loss on sale of property, plant and equipment                                7,000              -              -
  Gain on sale of investment in joint venture                                      -    (38,901,000)             -    
  Accretion of original issue discount                                    21,214,000      5,263,000              -    
  Accretion of interest on marketable securities                          (2,224,000)             -              -    
  Interest on cash held in escrow                                           (562,000)      (932,000)             -    
  Amortization of deferred financing costs                                         
   charged to interest expense                                             1,138,000      1,523,000      1,748,000    
  Amortization of debt discount                                              969,000        264,000              -    
  Changes in operating assets and liabilities:  
   Other current assets                                                     (984,000)      (338,000)       (58,000)   
   Accounts payable                                                          (46,000)        39,000         (4,000)   
   Accrued expenses                                                         (242,000)       468,000        164,000    
   Taxes payable                                                          (1,632,000)     5,166,000              -     
   Interest payable                                                                -        (58,000)         5,000    
   Due to Cellular Communications, Inc.                                      (81,000)      (954,000)       272,000    
   Due to NTL Incorporated                                                   563,000         23,000              -    
                                                                     ---------------------------------------------    
Net cash  (used in) operating activities                                  (2,282,000)    (3,858,000)    (2,999,000)   
                                                                     ---------------------------------------------    
                                                                                                                      
INVESTING ACTIVITIES                                                                                                  
Purchase of equipment                                                              -        (52,000)       (32,000)   
Purchase of marketable securities                                       (140,222,000)   (38,080,000)    (6,357,000)   
Proceeds from sale of marketable securities                              125,110,000     23,503,000      8,814,000    
Cash held in escrow                                                                -    (51,800,000)             -    
Proceeds from sale of investment in joint venture                                  -     40,097,000              -    
Additional investments in joint ventures                                           -    (19,779,000)   (29,213,000)   
Deferred costs incurred                                                            -       (981,000)      (280,000)   
                                                                     ---------------------------------------------    
Net cash  (used in) investing activities                                 (15,112,000)   (47,092,000)   (27,068,000)   
                                                                     ---------------------------------------------     
</TABLE>

                                      F-6
<PAGE>
 
          Cellular Communications International, Inc. and Subsidiaries

               Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
 
 
                                                                                 YEAR ENDED DECEMBER 31               
                                                                          1996            1995           1994         
                                                                    ---------------------------------------------     
<S>                                                                   <C>            <C>             <C>              
FINANCING ACTIVITIES                                                                                                  
Proceeds from warrants and borrowings, net of financing costs         $          -    $204,429,000    $27,279,000     
Principal payments                                                               -     (95,911,000)             -     
Payment of financing costs                                                 (54,000)              -              -     
Exercise of stock options                                                1,242,000       1,025,000        325,000     
                                                                    ---------------------------------------------     
Net cash provided by financing activities                                1,188,000     109,543,000     27,604,000     
                                                                    ---------------------------------------------     
                                                                                                                      
Increase (decrease) in cash and cash equivalents                       (16,206,000)     58,593,000     (2,463,000)    
Cash  and cash equivalents at beginning of year                         62,965,000       4,372,000      6,835,000     
                                                                    ---------------------------------------------     
Cash and cash equivalents at end of year                              $ 46,759,000    $ 62,965,000    $ 4,372,000     
                                                                    =============================================     
                                                                                                                      
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                                                      
Cash paid during the period for interest exclusive                                                                    
 of $3,411,000 (1995) capitalized                                     $          -    $  1,112,000    $    95,000     
Income taxes paid                                                        1,242,000               -              -     
                                                      
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES                                                                 
Cash held in escrow used for capital contributions                                                                     
 to Omnitel                                                           $ 44,178,000    $  9,116,000    $         -     
Interest expense capitalized as investment in                                                                         
 Omnitel                                                                         -       3,380,000              -     
                                                                                                                      
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES                                                                 
Warrants issued to Cellular Communications, Inc.                                                                       
 in connection with the bank loan                                     $          -    $          -    $ 1,810,000  
 
 
</TABLE>

See accompanying notes.

                                      F-7
<PAGE>
 
         Cellular Communications International, Inc. and Subsidiaries

                  Notes to Consolidated Financial Statements


1. ORGANIZATION

Cellular Communications International, Inc. ("CCII" or the "Company") was
incorporated on May 30, 1984 to own and operate telephone systems in various
markets. Prior to July 31, 1991, CCII was a wholly-owned subsidiary of Cellular
Communications, Inc. ("CCI"). On July 25, 1990, CCI entered into a Merger and
Joint Venture Agreement, as amended as of December 14, 1990 with AirTouch
Communications, Inc. ("AirTouch") whereby CCII was distributed to CCI's
shareholders on July 31, 1991 (the "Distribution"). CCII's principal line of
business is its participation in Omnitel, a joint venture that owns 70% of OPI,
the consortium that owns and operates a cellular telephone network in Italy, San
Marino and Vatican City.

2. SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of CCII and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

CASH EQUIVALENTS

Cash equivalents are short-term highly liquid investments purchased with a
maturity of three months or less. Cash equivalents were $46,418,000 and
$62,209,000 at December 31, 1996 and 1995, respectively. At December 31, 1996
and 1995, cash equivalents consisted of money market instruments.

MARKETABLE SECURITIES

Marketable securities are classified as available-for-sale, which are carried at
fair value. Unrealized holding gains and losses on securities, net of tax, are
carried as a separate component of shareholders' equity. The amortized cost of
debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in interest and other
income. Realized gains and losses and declines in value judged to be other than
temporary will be included in interest and other income. The cost of securities
sold or matured is based on the specific identification method. Interest on
securities is included in interest and other income.

                                      F-8
<PAGE>
 
         Cellular Communications International, Inc. and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

At December 31, 1996 and 1995, the cost and the aggregate fair market value of
marketable securities was $34,404,000 and $17,068,000, respectively.  Marketable
securities at December 31, 1996 and 1995 consists of U.S. Treasury securities,
obligations of U.S. government agencies and U.S. corporate debt securities.
During the years ended December 31, 1996 and 1995, there were no realized gains
or losses on sales of securities. Primarily all of the marketable securities as
of December 31, 1996 had a contractual maturity of less than one year.

INVESTMENTS IN JOINT VENTURES

Capital contributions and costs directly incurred in connection with investments
in joint ventures to acquire licenses are capitalized. Costs applicable to
unsuccessful joint ventures are charged to expense at such time as CCII
determines that the joint venture will be denied a license or the joint venture
decides not to pursue its license application. In 1995 and 1994, $602,000 and
$481,000, respectively, was written-off in connection with unsuccessful efforts
to obtain licenses.  Additional costs applicable to successful joint ventures,
once a license is awarded or operations commence, are charged to expense. For
joint ventures that are awarded a license, the difference between CCII's
investment in the joint venture and CCII's underlying equity in the joint
venture's net assets, which is primarily the capitalized costs directly incurred
by CCII in connection with the joint venture, are amortized over the life of the
license from the date of commencement of operations (OPI license--15 years).
Investments in joint ventures in which the Company exercises significant
influence but does not have control through majority ownership are accounted for
using the equity method of accounting.

CAPITALIZED INTEREST

Interest was capitalized as a component of the cost of the investment in Omnitel
through the start of OPI's operations in December 1995. Interest of $5,571,000
and $1,312,000 and fees to CCI in connection with the bank loan of $1,220,000
and $679,000 were capitalized in 1995 and 1994, respectively.

LONG-LIVED ASSETS

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires impairment losses to be recorded on long-lived assets when
indicators of impairment are present and the

                                      F-9
<PAGE>
 
         Cellular Communications International, Inc. and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

undiscounted cash flows are not sufficient to recover the assets' carrying
amount. The Company adopted SFAS No. 121 in 1995, which had no material effect
on the Company's financial statements.  The Company reviews its long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable.

EQUIPMENT

Equipment is stated at cost. Depreciation is computed by the straight-line
method over the estimated useful lives of the assets. Estimated useful lives
range from three to five years.

DEFERRED FINANCING COSTS

Deferred financing costs represent costs incurred for the issuance of debt and
are amortized over the term of the related debt.

DEFERRED COSTS

Costs incurred in connection with potential new licenses are capitalized. Costs
applicable to successful new licenses will be amortized over the estimated life
of the license from the date of commencement of operations. When CCII determines
that it will not be successful in obtaining a license, the related capitalized
costs are charged to expense. In  1995 and 1994,  $1,167,000 and $376,000,
respectively, was written off in connection with unsuccessful efforts to obtain
licenses.

NET INCOME (LOSS) PER SHARE

Net income (loss) per share is computed based on the weighted average number of
common shares outstanding during the periods presented, including common stock
equivalents in the net income per share computation. Common stock equivalents
are excluded from the net loss per share computations because they are
antidilutive.

RECLASSIFICATION

Certain of the prior year amounts have been reclassified to conform to the 1996
presentation.

                                      F-10
<PAGE>
 
         Cellular Communications International, Inc. and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STOCK-BASED COMPENSATION

The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 defines a fair value
based method of accounting for stock-based employee compensation plans
(including stock option plans). Under the fair value based method, compensation
cost is measured at the grant date based upon the value of the award and is
recognized over the service period. The Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its plans.

3. CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES

RISKS INHERENT IN FOREIGN INVESTMENT

There can be no assurance that the laws or administrative practice relating to
taxation, foreign exchange or other matters in Italy will not change. The value
of CCII's interest in Omnitel may also be affected by changes in tax and other
laws and other political, economic, socioeconomic or diplomatic developments in
or affecting Italy.

CURRENCY RISKS

To the extent that CCII obtains financing in U.S. dollars and CCII's commitments
to Omnitel are in Italian lire, it will encounter currency exchange rate risks.
Omnitel's revenues are received in Italian lire and currently there are no
foreign exchange controls in Italy. There can be no assurance that foreign
exchange restrictions will not be introduced in the future.

LICENSE CONDITIONS

OPI must comply with the standards of service, territorial coverage goals and
other conditions contained in its Italian cellular license. The failure to meet
these requirements could result in the loss of the license.

COMPETITION FOR CELLULAR LICENSES

CCII has not recently been successful in obtaining any new cellular licenses
since there is more competition for licenses and the costs of obtaining them has
increased.  There can be no assurance that CCII will be successful in obtaining
new cellular licenses or in developing other opportunities in the future.

                                      F-11
<PAGE>
 
         Cellular Communications International, Inc. and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


4. INVESTMENT IN OMNITEL

The investment in Omnitel consists of the following:


 
                                                DECEMBER 31
                                            1996           1995
                                      -----------------------------
Capital contributions                   $ 96,805,000   $ 52,627,000
Capitalized costs including interest       9,725,000      9,725,000
Equity in accumulated net loss           (46,907,000)   (17,057,000)
                                      -----------------------------
                                          59,623,000     45,295,000
Accumulated amortization                  (1,260,000)      (569,000)
                                      -----------------------------
                                        $ 58,363,000   $ 44,726,000
                                      =============================
 

In May 1990, CCII entered into a joint venture with Ing. C. Olivetti & C.,
S.p.A., Bell Atlantic International, Inc., Shearson Lehman Hutton Eurocell Inc.
and Swedish Telecom International AB, to build, own and operate a cellular
mobile telephone network and to offer mobile telephone services in Italy, San
Marino and Vatican City ("Omnitel"). In February 1994, Omnitel and Pronto Italia
S.p.A. ("Pronto") entered into an agreement to jointly form a new consortium
("OPI") as their combined applicant for the second GSM cellular license in
Italy. Omnitel is a 70% shareholder of OPI and Pronto a 30% shareholder. The
award of Italy's second GSM cellular license to OPI was made official with the
publication of an announcement in the January 31, 1995 issue of the Italian
public register. The publication of the award was the final step in the award
process which began in March 1994 when the original announcement of the
selection of OPI was made by the Italian government. CCII, through its 14.667%
ownership interest in Omnitel, holds a 10.267% interest in OPI.

The following financial information of Omnitel and OPI is prepared in accordance
with U.S. generally accepted accounting principles and is reflected in U.S.
dollars; the balance sheet information has been translated at the exchange rate
on the balance sheet date and the statement of operations information has been
translated at the average exchange rate for the period. The following
information of Omnitel and OPI as of and for the year ended December 31, 1995
has been reclassified.

                                      F-12
<PAGE>
 
         Cellular Communications International, Inc. and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


4. INVESTMENT IN OMNITEL (CONTINUED)


The following summarizes the assets, liabilities and stockholders' equity of
Omnitel:

 
 
                                                DECEMBER 31
                                            1996           1995
                                      ------------------------------
ASSETS
Current assets                           $  9,542,000   $  5,912,000
Investment in OPI                         341,842,000    236,635,000
                                      ------------------------------
                                         $351,384,000   $242,547,000
                                      ==============================
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities                      $  1,400,000   $  1,258,000
Stockholders' equity                      349,984,000    241,289,000
                                      ------------------------------
                                         $351,384,000   $242,547,000
                                      ==============================
 

The following summarizes the results of operations of Omnitel:
 
 
                                           YEAR ENDED DECEMBER 31
                                  1996             1995            1994
                           ------------------------------------------------

Revenues                      $           -   $           -   $           -
Costs and expenses                 (784,000)       (862,000)     (1,951,000)
Equity in net loss of OPI      (201,622,000)    (98,428,000)    (15,407,000)
                           ------------------------------------------------
Operating loss                 (202,406,000)    (99,290,000)    (17,358,000)
Interest income, net                543,000         859,000       1,842,000
                           ------------------------------------------------
Net loss                      $(201,863,000)   $(98,431,000)   $(15,516,000)
                           ================================================

                                      F-13
<PAGE>
 
         Cellular Communications International, Inc. and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


4. INVESTMENT IN OMNITEL (CONTINUED)

The following summarizes the assets, liabilities and stockholders' equity of
OPI:
 
 
                                                  DECEMBER 31
                                             1996             1995
                                      ----------------------------------
ASSETS
Current assets                           $  299,576,000   $  104,718,000
Property, plant and equipment, net          697,069,000      388,341,000
Intangible assets, net                      566,804,000      566,968,000
Deferred tax asset                          129,644,000                -
Other                                        14,925,000        2,829,000
                                      ----------------------------------
                                         $1,708,018,000   $1,062,856,000
                                      ==================================
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities                      $  559,905,000   $  402,264,000
Long term debt                              647,806,000      315,557,000
Other liabilities                            11,961,000        6,985,000
Stockholders' equity                        488,346,000      338,050,000
                                      ----------------------------------
                                         $1,708,018,000   $1,062,856,000
                                      ==================================
 

The following summarizes the results of operations of OPI:

 
 
                                              YEAR ENDED DECEMBER 31
                                       1996            1995           1994
                                ----------------------------------------------

Revenues                          $ 488,472,000   $  30,092,000   $          -
 
Costs and expenses                  707,098,000     150,550,000     28,036,000
Depreciation and amortization       131,888,000      22,020,000      1,088,000
                                ---------------------------------------------- 
                                    838,986,000     172,570,000     29,124,000
                                ---------------------------------------------- 
Operating loss                     (350,514,000)   (142,478,000)   (29,124,000)
Interest income (expense), net      (61,616,000)      4,310,000      9,593,000
Income tax benefit                  127,573,000               -              -
                                ----------------------------------------------
Net loss                          $(284,557,000)  $(138,168,000)  $(19,531,000)
                                ==============================================

In 1996, based on an evaluation of the business plan of OPI, expectation of 
future market conditions and operating performance, management of OPI determined
that a substantial portion of the valuation allowance on net deferred income tax
assets was not required.

                                      F-14
<PAGE>
 
         Cellular Communications International, Inc. and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


5. GAIN ON SALE OF INVESTMENT IN JOINT VENTURE

In March 1992, CCII entered into an agreement to create a joint venture called
Sterling Cellular Ltd. ("Sterling") for the purpose of developing new wireless
communication business opportunities in India. In 1993, Sterling was selected as
one of the two GSM cellular licensees for the city of Delhi, India and was
awarded the license in December 1994. In December 1995, CCII waived and released
its claim to participate in Sterling in exchange for approximately $40,000,000
in cash. CCII recorded a gain on this transaction of $38,901,000.

6. BANK LOAN PAYABLE AND CREDIT AGREEMENT

CCII obtained an $85,000,000 line of credit in April 1994. Amounts borrowed
under the line of credit accrued interest, at CCII's election, either at the
bank's prime rate or LIBOR plus .12%. The terms also included an unused
commitment fee of .14% per annum. This line of credit expired on July 26, 1994,
at which time CCII refinanced the $22,226,000 principal amount outstanding.

CCII obtained a $60,000,000 line of credit in July 1994. The terms of the line
of credit included interest, at CCII's election, either at the bank's prime rate
or LIBOR plus .75%. The terms also included an unused commitment fee of .25% per
annum and a one-time facility fee of $120,000. This line of credit expired, and
amounts borrowed plus unpaid interest and fees were paid on July 17, 1995.

On June 9, 1995, the Company entered into an agreement (the "Bridge Agreement")
with CCII Funding, Inc. ("DLJ Bridge"), an affiliate of Donaldson, Lufkin &
Jenrette Securities Corporation, which provided for the purchase of up to
$80,000,000 in the aggregate principal amount of senior unsecured notes (the
"Bridge Notes"). The Bridge Notes were scheduled to mature no later than June
12, 1996.  DLJ Bridge purchased $50,000,000 of Bridge Notes on July 17, 1995,
the proceeds of which were used to repay the bank loan and related fees to CCI
(see Note 8) of approximately $48,750,000 and to pay fees incurred in connection
with the Bridge Notes of approximately $1,250,000. The Company incurred costs of
$1,293,000 in connection with the Bridge Agreement.

7. LONG-TERM DEBT

In August 1995, the Company issued $281,571,000 aggregate principal amount of
13-1/4% Senior Discount Notes due 2000 (the "Notes") and 282,000 warrants to
purchase 317,000 shares of common stock. The Notes were issued at a price to the
public of 52.783% or $148,622,000. The Company incurred $7,554,000 in fees and
expenses in connection with the issuance of the Notes and warrants, of which
$7,242,000 is included in deferred financing costs and $312,000 reduced paid-in
capital.

                                      F-15
<PAGE>
 
         Cellular Communications International, Inc. and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


7. LONG-TERM DEBT (CONTINUED)

The original issue discount accretes at a rate of 13-1/4%, compounded
semiannually, to an aggregate principal amount of $281,571,000 by August 15,
2000. In 1996 and 1995, $21,214,000 and $7,097,000, respectively, of the
original issue discount was added to principal.  The fair value of the Notes
based on quoted market prices was $188,653,000 and $156,272,000 as of December
31, 1996 and 1995, respectively.

The warrants were valued at $21.96 each, resulting in deferred debt discount and
a corresponding addition to paid-in capital of $6,182,000. In 1996 and 1995,
$969,000 and $332,000, respectively, of the deferred discount was amortized.

The Notes are senior unsecured obligations of the Company and rank senior in
right of payment to all future subordinated indebtedness of the Company. The
indenture governing the Notes contains restrictions relating to, among other
things: (i) the incurrence of additional indebtedness, (ii) the issuance of
preferred stock, (iii) dividends and other payments and (iv) mergers,
consolidations and sales of assets.

The indenture required that $51,800,000 of the proceeds be placed in an escrow
account until it was needed to finance the Company's additional capital
contribution obligations to Omnitel. In 1996 and 1995, cash of $44,178,000 and
$9,116,000, respectively, was used for additional contributions to Omnitel.  The
remaining $420,000 in the escrow account was released to the Company in 1996.

Proceeds from the issuance of the Notes and warrants of $50,000,000 were used to
repay the Bridge Notes. In connection with the repayment of the Bridge Notes,
the Company recorded as an extraordinary loss the write-off of $2,268,000
($1,474,000 net of income tax benefit) consisting of unamortized deferred
financing costs and debt discount.

Pursuant to the  Notes indenture, any net proceeds from an asset sale that are
not applied within 12 months after such asset sale to an investment in a related
business will be deemed excess proceeds.  When the aggregate amount of excess
proceeds exceeds $5,000,000, the Company is required to make an offer to
purchase the maximum principal amount of Notes that may be purchased using the
excess proceeds, at an offer price in cash equal to 100% of the accreted value
of the Notes.  As a result of the Company's waiver and release of its claim to
participate in Sterling in December 1995 in exchange for cash of approximately
$40,000,000, the Company had approximately $38,900,000 of excess proceeds in
December 1996. The Company made an offer to purchase Notes at the accreted value
of $635.65 per $1,000 Note. In January 1997, upon the expiration of the offer,
$70,000 principal amount of Notes were tendered and the Company paid
approximately $44,500.

                                      F-16
<PAGE>
 
         Cellular Communications International, Inc. and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


8. RELATED PARTY TRANSACTIONS

CCI provided management, financial, legal and technical services to CCII.
Amounts charged to CCII consist of salaries directly attributable to CCII, and
indirect costs allocated utilizing direct labor hours as reported by the common
officers and employees of CCI and CCII. For the years ended December 31, 1996,
1995 and 1994, CCI charged CCII $232,000, $896,000 and $914,000, respectively,
which is included in general and administrative expenses. In August 1996, upon
the merger of CCI with AirTouch, NTL Incorporated ("NTL") (formerly
International CableTel Incorporated) commenced providing management, financial,
legal and technical services to CCII. Amounts charged to CCII consist of
salaries directly attributable to CCII, and indirect costs allocated utilizing
direct labor hours as reported by the common officers and employees of NTL and
CCII. In 1996, NTL charged CCII $351,000, which is included in general and
administrative expenses. It is not practicable to determine the amounts of these
expenses that would have been incurred had CCII operated as an unaffiliated
entity. However, in the opinion of management of CCII, the allocation method is
reasonable.

In January 1997, CCII and NTL agreed to a change in NTL's fee for the provision
of management, financial, legal and technical services to CCII.  NTL will charge
CCII for direct costs where identifiable and a fixed percentage of its corporate
overhead beginning January 1, 1997.

In connection with the Distribution, CCI was obligated to guarantee certain CCII
indebtedness through July 31, 1994 if requested by CCII. As a result, CCI had
guaranteed CCII's obligations under the $85,000,000 line of credit note. CCI
earned a guarantee fee based upon the amount of indebtedness guaranteed.  In
June 1994, CCII reached an agreement with CCI for an extension of CCI's
guarantee of up to $60,000,000 of CCII indebtedness until July 1995. This
agreement provided for the payment of a guarantee fee to CCI on the amount drawn
down under the guarantee, the reimbursement to CCI of a portion of the unused
commitment fee that CCI paid to its banks, and the issuance to CCI of common
stock warrants to purchase 133,000 shares of CCII common stock at fair market
value on the effective date of the agreement. The fees to CCI of $2,094,000 were
paid in July 1995. In July 1994, in exchange for CCII's payment of $2,400,000 to
AirTouch, AirTouch gave its required consent to this extension pursuant to the
CCI certificate of incorporation and as the sole holder of CCI's Class A
Preference Stock.

Pursuant to the above referenced agreement, CCII issued warrants to CCI to
purchase 133,000 shares of CCII common stock at an exercise price of $30.25 per
share in July 1994. The value of these warrants was determined to be $1,810,000
which is included in deferred financing costs.

                                      F-17
<PAGE>
 
         Cellular Communications International, Inc. and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


9. INCOME TAXES

The 1996 income tax benefit differs from the statutory rate because no deferred
tax benefit was recorded for the Company's net operating loss carryforwards and
deductible temporary differences. The 1996 income tax benefit primarily
represents the carryback of 1996 federal tax loss to 1995.

The 1995 income tax provision differs from the statutory rate principally
because no deferred tax benefit was recorded for the Company's deductible
temporary differences. The provision for income taxes in 1995 consists of
current federal income taxes.

In 1995, the Company recorded an income tax benefit to additional paid-in
capital of  $2,157,000 attributable to the exercise of stock options including a
portion of its income tax loss carryforward attributable to stock options.

The 1994 income tax provision differs from the statutory rate as no benefit has
been given for the losses.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
CCII's deferred tax assets and liabilities are as follows:

 
                                                  DECEMBER 31
                                              1996           1995
                                        ----------------------------
Deferred tax assets:
 Equity in net loss of Omnitel            $ 13,650,000   $ 3,714,000
 Net operating loss carryforward             5,978,000             -
 Other                                         122,000       140,000
                                        ---------------------------- 
Total deferred tax assets                   19,750,000     3,854,000
 Valuation allowance for deferred tax      
  assets                                   (19,750,000)   (3,854,000)   
                                        ----------------------------
Net deferred tax assets                              -             -
Deferred tax liabilities                             -             -
                                        ----------------------------
Net deferred taxes                        $          -   $         - 
                                        ============================


At December 31, 1996, the Company had a net operating loss carryforward of
approximately $17,000,000 for U.S. federal income tax purposes that expires in
2011.

10. SHAREHOLDERS' EQUITY

STOCK SPLIT

On April 21, 1994, the Company declared a 3-for-2 stock split by way of stock
dividend, which was paid on May 13, 1994. All common stock data in the
Consolidated Financial Statements give effect to the stock split.

                                      F-18
<PAGE>
 
         Cellular Communications International, Inc. and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


10. SHAREHOLDERS' EQUITY (CONTINUED)

SHAREHOLDER RIGHTS PLAN

On November 8, 1990, the Board of Directors adopted a Rights Agreement which
provides that one Right will be issued with each share of common stock. The
Rights are not exercisable until the occurrence of certain potential takeover
events and will expire on July 31, 2001 unless previously redeemed by CCII. When
exercisable, each Right entitles the owner to purchase from CCII one one-
hundredth of a share of Series A Junior Participating Preferred Stock ("Series A
Preferred Stock") at a purchase price of $88.

The Series A Preferred Stock will be entitled to a minimum preferential
quarterly dividend payment of $.01 per share and will be entitled to an
aggregate dividend of 100 times the dividend, if any, declared per share of
common stock.  In the event of liquidation, the holders of Series A Preferred
Stock will be entitled to a minimum preferential liquidation payment of $1 per
share and will be entitled to an aggregate payment of 100 times the payment made
per share of common stock.  Each share of Series A Preferred Stock will have 100
votes and will vote together with the common stock.  In the event of any merger,
consolidation or other transactions in which shares of common stock are changed
or exchanged, each share of Series A Preferred Stock will be entitled to receive
100 times the amount received per share of common stock. The rights are
protected by customary antidilution provisions.

There are 1,000,000 shares of Series A Preferred Stock designated from the
2,500,000 authorized shares of Series Preferred Stock.  No shares of  Series A
Preferred Stock are issued or outstanding.

WARRANTS

In August 1995, 282,000 warrants to purchase 317,000 shares of common stock at
$37.00 per share were issued in connection with the 13-1/4% Senior Discount
Notes.  The warrants expire in August 2003.  Warrants to purchase 133,000 shares
of common stock at $30.25 per share were issued to CCI in July 1994 in
connection with the bank loan.  These warrants expire in July 1999.

STOCK OPTIONS

There are 2,284,500 shares of common stock reserved for issuance under the 1991
Stock Option Plan (the "Plan").  The Plan provides that incentive stock options
be granted at fair market value of CCII's common stock on the date of grant, and
nonqualified stock options be granted at not less than 85% of the fair market
value of CCII's common stock on the date of grant.  Options are exercisable as
to 20% of the shares subject thereto on the date of grant and become exercisable
as to an additional 20% of the shares subject thereto on each January 1
thereafter, while the optionee remains an employee of CCII.   Options will
expire ten years after the date of the grant.

                                      F-19

<PAGE>
 
         Cellular Communications International, Inc. and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


10. SHAREHOLDERS' EQUITY (CONTINUED)

There are 150,000 shares of CCII common stock reserved for issuance to members
of the Board of Directors who are not CCII employees under the Non-Employee
Directors Stock Option Plan (the "Directors Plan").  The Directors Plan provides
that all options be granted at the fair market value of CCII's common stock on
the date of grant.  Options are exercisable as to 20% of the shares subject
thereto on the date of grant and become exercisable as to an additional 20% of
the shares subject thereto on each anniversary of the grant date, while the
optionee remains a director of CCII.   Options will expire ten years after the
date of the grant.  The Directors Plan provides for the automatic grant of
options to purchase 7,500 shares to each member of the Board of Directors who is
not an employee of CCII in 1997.

Pro forma information regarding net income (loss) and net income (loss) per
share is required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995: risk-free interest rates of 6.56% and 6.61%,
respectively, dividend yield of 0%, volatility factor of the expected market
price of the Company's common stock of .388 and a weighted-average expected life
of the option of 10 years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable.  In addition, option valuation models require the input of highly
subjective assumptions including the expected stock  price volatility.  Because
the Company's stock options have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its  stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period.  Following is
the Company's pro forma information:

                                           Year ended December 31
                                             1996          1995
                                         --------------------------

Pro forma net income (loss)              $(52,933,000)   $3,957,000
Pro forma net income (loss) per share          $(5.04)        $0.34

                                      F-20

<PAGE>
 
         Cellular Communications International, Inc. and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


10. SHAREHOLDERS' EQUITY (CONTINUED)

A summary of the Company's stock option activity and related information for the
years ended December 31, follows:



<TABLE>
<CAPTION>
 
                                        1996                                   1995                                 1994
                             ------------------------------------------------------------------------------------------------------
                                               Weighted-                              Weighted-                           Weighted-
                                                Average                                Average                             Average
                                Number         Exercise               Number          Exercise              Number        Exercise
                              of Options         Price              of Options          Price             of Options        Price
                             ------------------------------------------------------------------------------------------------------
                                                                                                                        
                                                                                                                        
<S>                            <C>                <C>               <C>                <C>                <C>               <C> 
Outstanding-beginning of                                                                                                            
 year                          1,888,000          $11.70            1,782,000          $   6.78           1,481,000         $  2.37 
Granted                          139,000           33.25              268,000             41.22             486,000           18.33
Exercised                       (364,000)           3.41             (162,000)             6.35            (183,000)           1.77
Forfeited                              0            0.00                    0              0.00              (2,000)           2.36
                             -----------                          -----------                           -----------
Outstanding-end of year        1,663,000          $15.32            1,888,000          $  11.70           1,782,000         $  6.78
                             ===========                          ===========                           ===========      
 
Exercisable at end of year     1,161,000          $ 9.99            1,281,000          $   6.09           1,107,000         $  3.90
                             ===========                          ===========                           ===========

</TABLE> 
 
Weighted-average fair value of options, calculated using the Black-Scholes
option pricing model, granted during 1996 and 1995 is $20.83 and $25.88,
respectively.
 
 
The following table summarizes the status of the stock options outstanding and
exercisable at December 31, 1996:
 
<TABLE> 
<CAPTION> 
                          Stock Options Outstanding                                      Stock Options Exercisable
------------------------------------------------------------------------------        ------------------------------
                                                                                                    
                                             Weighted-            Weighted-                               Weighted-
   Range of                                  Remaining             Average                                 Average 
   Exercise               Number            Contractual           Exercise                Number          Exercise 
   Prices               of Options            Life                 Price               of Options          Price    
--------------------------------------------------------------------------------------------------------------------
<S>                       <C>                <C>                   <C>                   <C>                  <C> 
$0.19 to $0.91            186,000            4.5 Years             $0.552                186,000              $0.552
$1.03 to $1.92            235,000            4.5 Years             $1.746                235,000              $1.746
$2.17 to $4.25            398,000            5.3 Years             $2.945                352,000              $2.926
$13.42 to $17.33          405,000            7.5 Years            $17.208                233,000             $17.203
$27.50 to $38.25          209,000            9.0 Years            $34.491                 63,000             $35.179
   $41.75                 230,000            8.5 Years            $41.750                 92,000             $41.750
--------------------------------------------------------------------------------------------------------------------
Total                   1,663,000                                                      1,161,000    
====================================================================================================================
</TABLE>

                                      F-21
<PAGE>
 
                             Form 10-K--Item 14(d)

                         Index to Financial Statements

                Omnitel Sistemi Radiocellulari Italiani S.p.A.

<TABLE> 
<S>                                                                                                                       <C> 
Report of Independent Accountants........................................................................................ S-2
Statement of Income - Years Ended December 31, 1996 and 1995............................................................. S-3
Balance Sheet - December 31, 1996 and 1995............................................................................... S-4
Statement of Cash Flows - Years Ended December 31, 1996 and 1995......................................................... S-6
Statement of Changes in Stockholders' Equity - Years Ended December 31, 1996 and 1995.................................... S-7
Notes to the Financial Statements........................................................................................ S-8

                                                    Omnitel Pronto Italia S.p.A

Report of Independent Accountants........................................................................................ S-18
Statement of Income - Years Ended December 31, 1996 and 1995............................................................. S-19
Balance Sheet - December 31, 1996 and 1995............................................................................... S-20
Statement of Cash Flows - Years Ended December 31, 1996 and 1995......................................................... S-22
Statement of Changes in Stockholders' Equity - Years Ended December 31, 1996 and 1995.................................... S-23
Notes to the Financial Statements........................................................................................ S-24
</TABLE> 

                                      S-1


<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Stockholders
of Omnitel Sistemi Radiocellulari Italiani S.p.A.



We have audited the accompanying balance sheets of Omnitel Sistemi
Radiocellulari Italiani S.p.A. ("the Company") as of December 31, 1996 and 1995,
and the related statements of income, stockholders' equity and cash flows for
each of the years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those  standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Omnitel Sistemi Radiocellulari
Italiani S.p.A. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the years then ended, in conformity
with accounting principles generally accepted in the United States of America.


                                                        COOPERS & LYBRAND S.p.A.



Turin, Italy
February 28, 1997

                                      S-2
<PAGE>
 
                 OMNITEL SISTEMI RADIOCELLULARI ITALIANI S.p.A.

                              Statements of Income
              (in millions of Italian Lira except per share data)


                                                                               
                                                      For the years ended   
                                                          December 31,
                                                   -------------------------
                                                         1996       1995

Income                                                       -         75
Operating expenses:
  - third parties                                       (1,210)    (1,455)
  - related parties                                          -        (24)
Equity in loss of Omnitel
   Pronto Italia S.p.A.                               (311,032)  (160,331)
                                                      --------   -------- 
Operating loss                                        (312,242)  (161,735)

Interest income, net                                       838      1,400
                                                      --------   --------
 
Net loss                                              (311,404)  (160,335)
                                                      --------   -------- 
Net loss per common share                                  471        337
                                                      ========   ========
 
Weighted average number of common
  shares outstanding                                       661        475
                                                      ========   ========
 
The accompanying notes are an integral part of these financal statements.


                                      S-3

<PAGE>
 
                 OMNITEL SISTEMI RADIOCELLULARI ITALIANI S.p.A.

                                 Balance sheets
                         (in millions of Italian Lira)



                                           December 31,            December 31,
         ASSETS                               1996                    1995
                                        -----------------        ---------------

Cash and cash equivalents (Note 3)             13,519                 8,632   
Receivables from related parties (Note 8)          90                    98
Other current assets                              876                   637
                                              -------               -------
                                                                           
                                                                           
Total current assets                           14,485                 9,367
                                              -------               -------
                                                                           
Investment in Omnitel Pronto Italia S.p.A.                                 
 (Note 4)                                     518,916               374,948
                                              -------               -------
                                                                           
Total non-current assets                      518,916               374,948
                                              -------               -------
                                                                           
  Total assets                                533,401               384,315
                                              =======               =======
 
The accompanying notes are an integral part of these financial statements.

                                      S-4
<PAGE>
 
 
                 OMNITEL SISTEMI RADIOCELLULARI ITALIANI S.p.A.

                                 Balance sheets
                         (in millions of Italian Lira)


 
LIABILITIES AND STOCKHOLDERS' EQUITY                 December 31,   December 31,
------------------------------------                     1996           1995
                                                     ------------   ------------
Accounts payable                                            141             54 
Due to related parties (Note 8)                             214             36 
Other current liabilities (Note 5)                        1,681          1,903 
                                                       --------       -------- 
                                                                               
Total current liabilities                                 2,036          1,993 
                                                       --------       -------- 
                                                                               
Deposit payable (Note 6)                                     90              - 
                                                       --------       -------- 
Total Liabilities                                         2,126          1,993 
                                                       --------       -------- 
                                          
Commitments and contingencies (Note 9)
 
Common stock (1996 757,500,000 and 1995 525,000,000
  shares, par  value Lit.1,000, authorized issued and
  outstanding)                                          757,500        525,000 
Additional paid in capital                              282,500         50,000 
Accumulated deficit                                    (508,725)      (192,678)
                                                       --------       -------- 
Total stockholders' equity (Note 10)                    531,275        382,322  
                                                       --------       -------- 
Total liabilities and stockholders' equity              533,401        384,315  
                                                       ========       ======== 
                                                          
The accompanying notes are an integral part of these financial statements.


                                      S-5

<PAGE>
 
                 OMNITEL SISTEMI RADIOCELLULARI ITALIANI S.p.A.

                            Statements of cash flows
                         (in millions of Italian Lira)
 
 
                                                           For the years ended
                                                                December 31,
                                                           --------------------
                                                             1996       1995

 
Cash flows from operating activities:
------------------------------------
Net loss                                                  (311,404)  (160,335)
Adjustment to reconcile net loss to net cash
 used in operating activities:
Equity in loss of Omnitel Pronto Italia S.p.A.             311,032    160,331
Change in operating assets and liabilities
(Increase) decrease in receivables from related parties          8     21,313
(Increase) decrease in other current assets                   (239)      (194)
Increase (decrease) in accounts payable                         87       (906)
Increase (decrease) in other current liabilities              (222)       477
Increase (decrease) in due to related parties                  178     (9,239)
                                                           --------   --------
 
   Net cash used in/provided by operating activities          (560)    11,447
                                                           ========   ========
 
Cash flows from investing activities:
------------------------------------
Investment in Omnitel Pronto Italia S.p.A.                (455,000)  (280,000)
Increase (decrease) in deposit payable                          90          -
                                                           --------   --------
 
   Net cash used in investing activities                  (454,910)  (280,000)
                                                           ========   ========
 
Cash flows from financing activities:
------------------------------------
Proceeds from issue of common stock                        465,000    275,000
Tax on issue of common stock                                (4,643)    (2,747)
                                                           --------   --------
 
   Net cash provided by financing activities               460,357    272,253
                                                           ========   ========
 
Increase (decrease) in cash and cash equivalents             4,887      3,700
Cash and cash equivalents at beginning of the year           8,632      4,932
                                                           --------   --------
 
   Cash and cash equivalents at the end of the year         13,519      8,632
                                                           ========   ========
Supplemental cash flow data:
Cash paid during the year for:
 Interest                                                        -          2
                                                           ========   ========
 Income taxes                                                    -          -
                                                           ========   ========

  The accompanying notes are an integral part of these financial statements.

                                      S-6
                                                                            
<PAGE>
 
                 OMNITEL SISTEMI RADIOCELLULARI ITALIANI S.p.A.

                 Statements of changes in Stockholders' equity
                         (in millions of Italian Lira)


<TABLE>
<CAPTION>
 
 
                                                 ADDITIONAL PAID  ACCUMULATED     TOTAL
                                   COMMON STOCK    IN CAPITAL       DEFICIT
                                   ------------  ---------------  ------------  --------
<S>                                <C>           <C>              <C>           <C>
Balance as of December 31, 1994         300,000                -      (29,596)   270,404

Issue of common stock
 
-  January 26, 1995                     175,000                -            -    175,000
 
-  September 29, 1995                    50,000           50,000            -    100,000

Tax on issue of common stock                  -                -       (2,747)    (2,747)

Net loss for the year                         -                -     (160,335)  (160,335)
                                        -------          -------     --------   --------

Balance as of December 31, 1995         525,000           50,000     (192,678)   382,322

Issue of common stock

-  January 30, 1996                      52,500           52,500            -    105,000

-  March 28, 1996                        52,500           52,500            -    105,000

-  July 5, 1996                          52,500           52,500            -    105,000

-  September 5, 1996                     40,000           40,000            -     80,000

-  September 30, 1996                    35,000           35,000            -     70,000

Tax on issue of common stock                  -                -       (4,643)    (4,643)

Net loss for the year                         -                -     (311,404)  (311,404)
                                        -------          -------     --------   --------

Balance as of December 31, 1996         757,500          282,500     (508,725)   531,275
                                        =======          =======     ========   ========
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                      S-7

<PAGE>
 
                 OMNITEL SISTEMI RADIOCELLULARI ITALIANI S.p.A.

                         Notes to financial statements
             (in millions of Italian Lira unless otherwise stated)



1.   DESCRIPTION AND OWNERSHIP OF THE BUSINESS

     Omnitel Sistemi Radiocellulari Italiani S.p.A. ("the Company" or "Omnitel
     S.R.I.") was established on June 19, 1990 with the objective of
     constructing and operating cellular mobile telephone networks.

     The Company owns a 70% interest in Omnitel Pronto Italia S.p.A. ("OPI") a
     start up company until December 6, 1995 that was awarded a fifteen year
     license to operate a mobile cellular system based on the GSM standard on
     the Italian territory effective from February 1, 1995. Revenue from
     operations commenced at the end of 1995 following the launch of a fully
     operational service on December 7, 1995.

     Although the Company owns 70% of the shares of OPI,  both  the statutes  of
     OPI and the stockholders' agreement between Omnitel Sistemi Radiocellulari
     Italiani S.p.A. and Pronto Italia S.p.A. stipulate significant restrictions
     on the Company's ability to control OPI.  Among the restrictions are the
     requirements that members of the Board of Directors designated by other
     stockholders approve any changes in the companies' corporate purpose,
     management, auditors, issuance or redemption of stock, payment of
     dividends, and annual budget. In addition, transactions not included in the
     annual budget and exceeding certain immaterial amounts regarding the
     purchase of assets, the assumption of debt, the subjection of the
     companies' assets to liens or pledges, the extension of guarantees to third
     parties, the acceptance of any terms and conditions necessary to obtain or
     renew a license, require approval by members of the Board of Directors
     designated by other stockholders. Consequently OPI is accounted for on an
     equity basis.

     OPI must comply with the standards of service, territorial coverage goals
     and other conditions contained in its Italian cellular concession. The
     failure to meet these requirements could result in the loss of the
     concession.

     The Company's stockholders are Ing. C. Olivetti S.p.A., Bell Atlantic
     International Inc., Cellular Communication International Inc., Telia
     International AB and Lehman Brothers Holding Inc.

     On December 23, 1996 Ing. C. Olivetti S.p.A. sold  62,567,265 of its common
     stock to Bell Atlantic International Inc., increasing the latters holding
     in the Company to 24.93%.

                                      S-8
<PAGE>
 
                OMNITEL SISTEMI RADIOCELLULARI ITALIANI S.p.A.

                         Notes to financial statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The following is a summary of the most significant accounting policies used
     by the Company to prepare the financial statements.

     2.1  BASIS OF PRESENTATION

          The preparation of financial statements in conformity with generally
          accepted accounting principles requires management to make estimates
          and assumptions that effect the amounts reported in the financial
          statements and accompanying notes. Actual results could differ from
          those estimates.

          In order to conform with accounting principles generally accepted in
          the United States of America ("US GAAP"), certain adjustments are
          reflected in the financial statements which are not recorded in the
          Italian books of account. These adjustments relate primarily to the
          recording of the loss on equity for the investment in OPI for US GAAP
          purposes (see Note 11.).

     2.2  CASH AND CASH EQUIVALENTS

          The Company considers all highly liquid monetary instruments with
          original maturities of three months or less to be cash equivalents.

          Short-term securities held under purchase and resale agreements are
          valued at cost plus the accrued difference between purchase and resale
          price matured as of the balance sheet date. The related income is
          classified as interest income.

     2.3  RECEIVABLES AND PAYABLES

          Receivables and payables are reflected at their stated value.
          Receivables are reduced to their expected realizable value by an
          allowance for doubtful accounts.

          Receivables and payables denominated in foreign currencies are stated
          using the year-end exchange rates. The resulting gains or losses are
          recorded in the Statement of Income.

                                      S-9
<PAGE>
 
                OMNITEL SISTEMI RADIOCELLULARI ITALIANI S.p.A.

                         Notes to financial statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued
 
     2.4  INCOME TAXES

          The Company is subject to income taxes in the Republic of Italy.

          The provision for current income taxes is based on an estimate of
          taxable income for the year.

          Deferred income tax balances reflect the impact of temporary
          differences between the carrying amount of assets and liabilities and
          their tax bases and are stated at enacted tax rates expected to be in
          effect when taxes are actually paid or recovered.

          Valuation allowances are established when necessary to reduce deferred
          tax assets to the amount expected to be realized. Income tax expense
          is the tax payable for the period and the change during the period in
          deferred tax assets and liabilities.

     2.5  NET LOSS PER COMMON SHARE

          Net loss per common share is calculated by dividing the net loss by
          the weighted average number of common stock shares outstanding.


3.   CASH AND CASH EQUIVALENTS
 
                                                December 31,       December 31,
                                                    1996               1995
                                                ------------       ------------
 
     Cash and cash equivalents consist of:
     - Cash and bank balances                          423              1,636
     - Italian state bonds                          13,096              6,996
                                                    ------              -----
     Total                                          13,519              8,632
                                                    ======              =====
 

     The Italian state bonds are subject to a purchase and resale agreement
     which provides that the Company resell them at a pre-determined price.

                                      S-10
<PAGE>
 
                OMNITEL SISTEMI RADIOCELLULARI ITALIANI S.p.A.

                         Notes to financial statements
                         (in millions of Italian Lira
                           unless otherwise stated)
                                  Continued 


4.   INVESTMENTS

     The movements in the investment account during 1996 were as follows:
<TABLE>
<CAPTION>
 
 
<S>                                                    <C>
     Balance as of December 31, 1995                    374,948
 
     Increase in common stock of OPI and Additional
     paid in capital (January 30, March 28, July 5,
     September 5 and September 30, 1996)                455,000
 
     Equity in loss of OPI for the year                (311,032)
                                                       --------
     Balance as of December 31, 1996                    518,916
                                                       ========
 
</TABLE>
     As of  December 31,  1996 and 1995 the Company held 735,000,000 and
     507,500,000 shares of OPI respectively representing 70% of its outstanding
     common stock.

     The following is a summary of the financial information of  OPI for the
     twelve months ended December 31, 1996 and 1995:

                                      S-11
<PAGE>
 
                OMNITEL SISTEMI RADIOCELLULARI ITALIANI S.p.A.

                         Notes to financial statements
                         (in millions of Italian Lira
                           unless otherwise stated)
                                  Continued 
<TABLE>
<CAPTION>
 
 
                                                    December 31,
                                                  1996        1995
                                               ----------  ----------
<S>                                            <C>         <C>
 
    Total operating revenues                     753,542      49,018
    Operating expenses                         1,090,804     245,234
    Depreciation and amortization                203,457      35,869
    Interest expenses (revenues), net             95,052      (7,021)
    Income tax expenses (revenues)              (196,800)          -
                                               ---------   ---------
     Net loss                                    438,971     225,064
                                               =========   =========
 
     Omnitel S.R.I. - 70% share of net loss      307,280     157,545
    - 70% share of tax on common
       stock subscriptions and other               3,752       2,786
                                               ---------   ---------
 
     Equity in loss of OPI for the year          311,032     160,331
                                               =========   =========
 
     Current assets                              454,756     165,924
     Non current assets                        2,138,015   1,518,171
                                               ---------   ---------
 
     Total assets                              2,592,771   1,684,095
                                               =========   =========
 
     Current liabilities                         849,936     637,388
     Non current liabilities                   1,001,526     511,067
                                               ---------   ---------
     Total liabilities                         1,851,462   1,148,455
                                               =========   =========
 
     Net assets                                  741,309     535,640
                                               =========   =========
 
     Omnitel S.R.I. 70% share of equity          518,916     374,948
                                               =========   =========
</TABLE>

                                      S-12
<PAGE>
 
                OMNITEL SISTEMI RADIOCELLULARI ITALIANI S.p.A.

                         Notes to financial statements
                         (in millions of Italian Lira
                           unless otherwise stated)
                                  Continued 
<TABLE>
<CAPTION>

5.    OTHER CURRENT LIABILITIES

     Other current liabilities consist of:
 
                                      December 31,
                                       1996   1995
                                      -----  -----
    <S>                               <C>    <C>
    - V.A.T.                              -    146
    - Tax on issue of common stock    1,500    990
    - Tax on stockholders' equity       138    680
    - Other                              43     87
                                      -----  -----
                                      1,681  1,903
                                      =====  =====
 
</TABLE>

                                      S-13
<PAGE>
 
                 OMNITEL SISTEMI RADIOCELLULARI ITALIANI S.p.A

                         Notes to financial statements
                         (in millions of Italian Lira
                           unless otherwise stated)
                                  Continued 


6.  DEPOSIT PAYABLE

     On September 18, 1996 the Company signed an agreement with a former
     employee of OPI and member of the Board of Directors of Omnitel S.R.I.
     giving him an option, for an amount totalling Lit. 90 million, to buy from
     Omnitel S.R.I. 262,500 shares of OPI for a price of Lit. 5,500 per share.
     The option will be exercisible during July 2000.

 
 
7.  INCOME TAXES

     No provision for current income taxes has been made as the Company is in a
     loss position.

     Significant components of the Company's deferred tax accounts are as
     follows:
<TABLE>
<CAPTION>
 
                            December 31,   December 31,
                                1996           1995
                            -------------  -------------

<S>                         <C>            <C>
     Deferred tax assets         268,386         85,296
     Valuation allowance        (268,386)       (85,296)
                                --------        -------
     Net deferred tax assets          -              -
                                ========        =======
</TABLE>

     The deferred tax asset of Lit. 268,386 million and Lit.85,296 million
     relates principally to the temporary differences arising  from the
     adjustment of the investment in  OPI  to  the  equity  method  at   the
     period end for financial reporting purposes but not for fiscal purposes.

     Full valuation allowance has been provided at December 31, 1996 and 1995
     since it is not possible as at either date to establish that it is more
     likely than not that the assets will be realized.

                                      S-14

<PAGE>
 
                 OMNITEL SISTEMI RADIOCELLULARI ITALIANI S.p.A

                         Notes to financial statements
                         (in millions of Italian Lira
                           unless otherwise stated)
                                  Continued 

 
8.   RELATED PARTY TRANSACTIONS

     The Company does not have its own personnel and utilized the resources of
     its stockholders, in particular Olivetti and its subsidiaries in the prior
     period.

     In the periods ended December 31, 1996 and 1995 transactions with related
     parties have been as follows:
<TABLE>
<CAPTION>
 
                                                                                     December 31,
                                                                                     1996    1995
                                                                                    ------  ------
<S>                                                                                 <C>     <C>
 
  Services rendered or reinvoicing of
   expenses (excluding VAT figures):
  - Olivetti Group                                                                      -      24
  - Telia International AB                                                              -      25
  - Cellular Communications
      International Inc.                                                                -      25
  - Bell Atlantic International Inc.                                                    -      25
 
Amounts due from or (to) as of December 31, 1996 and 1995 (amounts include VAT):
 
                                                                                      December 31,
                                                                                     1996     1995
                                                                                    ------   ------
 
Ing. C. Olivetti S.p.A.                                                              (203)     23
Cellular Communications International Inc.                                             30      25
Telia International AB                                                                 30      25
Bell Atlantic International Inc.                                                       30      25
Other                                                                                 (11)    (36)
 
</TABLE>

                                      S-15
<PAGE>
 
                OMNITEL SISTEMI RADIOCELLULARI ITALIANI S.p.A.

                         Notes to financial statements
                         (in millions of Italian Lira
                           unless otherwise stated)
                                   Continued


 
9.  COMMITMENTS AND CONTINGENCIES

     As required by the terms of OPI's cellular concession, the Banca
     Commerciale Italiana has issued a guarantee to the Italian Ministry of Post
     and Telecommunications as of December 31, 1996 and 1995 on behalf of OPI
     for Lit.219.4 billion. The Company has provided a counter guarantee to the
     Banca Commerciale Italiana as of December 31, 1996 and 1995 in the amount
     of Lit.153.6 billion.



10. STOCKHOLDERS' EQUITY

     On March 24, 1995, the Board of Directors approved, on the basis of
     authorization obtained from the stockholders a share capital increase up to
     Lit.757,500 million by means of the issue of new shares of Lit.1,000 par
     value with a share premium of Lit.1,000 each for a total paid up capital of
     Lit.1,040,000 million. The subscription and payment of these amounts was
     completed before December 31, 1996.



11.  RECONCILIATION TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ITALY
     ("ITALIAN GAAP")

     In order to conform with accounting principles generally accepted in the
     United States of America, certain adjustments are reflected in the
     financial statements which are not recorded in the Italian statutory
     financial statements.

                                      S-16
<PAGE>
 
                 OMNITEL SISTEMI RADIOCELLULARI ITALIANI S.p.A

                         Notes to financial statements
                         (in millions of Italian Lira
                           unless otherwise stated)
                                  Continued 

 
     As of December 31, 1996 and 1995 these adjustments which principally
     related to a different treatment of the investment in OPI, are summarized
     as follows:
<TABLE>
<CAPTION>
 
                                                     1996       1995
                                                  ----------  ---------
<S>                                               <C>         <C>
NET INCOME

Net loss for the years ended December 31, 1996
and 1995 as reported                               (311,404)  (160,335)
 
Tax on common stock subscriptions capitalized
as an intangible asset under Italian GAAP            (2,072)    (1,143)
Loss on investment in OPI                           311,032    160,331
                                                  ---------   --------
Net adjustments                                     308,960    159,188
                                                  ---------   --------
Net loss under Italian GAAP                          (2,444)    (1,147)
                                                  ---------   --------
STOCKHOLDERS' EQUITY

Stockholders' equity                                531,275    382,322
Tax on common stock subscriptions capitalized
 as an intangible asset under Italian GAAP            6,551      3,980
 
Loss on investment in OPI                           496,196    185,164
                                                  ---------   --------
Net adjustments                                     502,747    189,144
                                                  ---------   --------
Stockholders' equity under Italian GAAP           1,034,022    571,466
                                                  =========   ========
 
</TABLE>

                                      S-17
<PAGE>
 
                [LETTERHEAD OF COOPERS & LYBRAND APPEARS HERE]

                       REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders
of Omnitel Pronto Italia S.p.A.

We have audited the accompanying balance sheets of Omnitel Pronto Italia S.p.A.
as of December 31, 1996 and 1995 and the related statements of income,
stockholders' equity and cash flows for each of the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Omnitel Pronto Italia S.p.A. as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the each of the years then ended, in conformity with accounting
principles generally accepted in the United States of America.

                                                                              
                                                 COOPERS & LYBRAND S.p.A.

                                                 /s/ [SIGNATURE APPEARS HERE]

Turin, Italy
February 28, 1997

                                     S-18
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                              Statement of Income 
              (in millions of Italian Lira except per share data)
<TABLE> 
<CAPTION> 
                                                        For the year ended
                                                            December 31,
                                                   ------------------------------
                                                      1996                1995
<S>                                                 <C>                   <C> 
Operating revenues:                                                    
National service - outgoing                           241,254               1,322
                 - incoming                           173,740               1,438
International roaming                                  42,970                 352
Activations                                            36,995                  -
Hardware and accessories                              243,707              27,940
Other revenues                                         14,876              17,966
                                                     --------              ------ 
Total operating revenues                              753,542              49,018
                                                     ========              ======
Operating expenses:                                                              
Cost of sales and network                                                        
maintenance                                           667,739              69,566
Depreciation and amortization                         203,457              35,869
Advertising                                           113,368              20,962
Selling, general and                                                             
administrative                                        202,557             147,661
Provision for bad debt                                 99,197                 991
Taxes other than income taxes                           7,943               6,054
                                                    ---------             ------- 
Total operating expenses                            1,294,261             281,103
                                                    ---------             -------

Operating loss                                        540,719             232,085
                                                                                 
Interest expenses (income), net                        95,052              (7,021)
                                                     --------             ------- 

                                                                                 
Loss before income taxes                              635,771             225,064
Income tax expenses (benefit)                        (196,800)                 -
                                                     --------             ------- 
Net loss                                              438,971             225,064
                                                     ========             =======

Net loss per common share                                 479                 345
                                                         ====                ====
                                                                                 
Weighted average number of                                                       
common shares outstanding                                 917                 652
                                                         ====                ==== 
</TABLE> 


   The accompanying notes are an integral part of these Financial Statements

                                     S-19
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                                 Balance Sheet
              (in millions of Italian Lira except per share data)

<TABLE> 
<CAPTION> 
ASSETS                                           December 31, 1996             December 31, 1995
------                                           -----------------             -----------------

<S>                                              <C>                           <C> 
Cash and cash equivalents                               24,517                        12,991
Accounts receivable, net (Note 3)                      255,197                        44,028
Due from related parties (Note 4)                      103,273                        36,115
Other current assets (Note 5)                           35,331                        34,928
Inventories (Note 6)                                    36,438                        37,862
                                                     ----------                   -----------
                                                
Total current assets                                   454,756                       165,924
                                                     ----------                   -----------                         
                                                
Equipment and furniture                                 90,096                        60,852
Leasehold improvements                                  40,928                        30,114
Network                                              1,041,890                       479,234
Construction in progress                                34,906                        70,532
   Less:                                        
   ----
Accumulated depreciation                              (149,669)                      (25,405)
                                                     ----------                   -----------
                                                
Total property, plant and equipment,            
  net (Note 7)                                       1,058,151                       615,327
                                                     ----------                   -----------
                                                
Concession and accessory charges, net           
  (Note 8)                                             769,881                       828,855
Other intangibles assets,                       
  net (Note 8)                                          90,527                        69,506
Deferred Tax asset (Note 13)                           196,800                            -
Other assets (Note 9)                                   22,656                         4,483
                                                     ----------                   -----------
                                                
Total non-current assets                             2,138,015                     1,518,171
                                                     ---------                    -----------
                                                
        Total assets                                 2,592,771                     1,684,095
                                                    ===========                   ===========
</TABLE> 


   The accompanying notes are an integral part of these Financial Statements


                                     S-20
<PAGE>
 

 
                         Omnitel Pronto Italia S.p.A.

                                 Balance Sheet
              (in millions of Italian Lira except per share data)

<TABLE> 
<CAPTION> 

LIABILITIES AND STOCKHOLDERS' EQUITY                                  December 31,          December 31,
------------------------------------                                     1996                    1995
                                                                      ------------          ------------
<S>                                                                   <C>                   <C> 
Short term debt (Note 10)                                                  112,968               30,595
Trade payables                                                             546,629              495,572
Due to related parties (Note 4)                                             49,617               84,219
Other current liabilities and accrued                                                 
  liabilities (Note 11)                                                    140,722               27,002
                                                                         ---------            ---------
                                                                                      
Total current liabilities                                                  849,936              637,388
                                                                         ---------            ---------
                                                                                      
Long term debt (Note 10)                                                   983,369              500,000
                                                                                      
Accrual for severance pay (Note 12)                                         18,157               11,067
                                                                         ----------           ---------
                                                                                      
        Total liabilities                                                1,851,462            1,148,455
                                                                         ---------            ---------

Commitments and contingencies (Note 16)

Common stock (1996 n. 1,050,000,000 and
1995 n. 725,000,000, par value Lit. 1,000
authorized issued and outstanding)                                       1,050,000              725,000
Additional paid in capital                                                 400,000               75,000
Accumulated deficit                                                       (708,691)            (264,360)
                                                                         ----------           ---------

        Total stockholders' equity (Note 17)                               741,309              535,640
                                                                         ---------            ---------

        Total liabilities and stockholders' equity                       2,592,771            1,684,095
                                                                         =========            =========
</TABLE> 

   The accompanying notes are an integral part of these Financial Statements



                                     S-21
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                            Statement of Cash Flows
                         (in millions of Italian Lira)

<TABLE> 
<CAPTION> 

                                                                                For the year ended
                                                                                   December 31,
                                                                          ------------------------------ 
                                                                             1996                1995
<S>                                                                       <C>                 <C> 
Cash flows from operating activities:
------------------------------------
Net loss                                                                    (438,971)         (225,064)
Adjustments to reconcile net loss to net                                                 
cash used in operating activities                                                        
 . Depreciation and amortization                                              203,457            35,869
 . Provision for severance pay                                                  7,477             3,969
 . Provision for bad debt                                                      99,197               991
 . Increase to deferred tax asset                                            (196,800)               -
                                                                                         
Changes in assets and liabilities, exclusive of                                          
investing and financing activities:                                                      
 . (Increase) Decrease in accounts receivable                                (310,366)          (45,019)
 . (Increase) Decrease in amounts due from related                                        
  parties                                                                    (67,158)          (32,429)
 . (Increase) Decrease in other current                                                   
  assets                                                                        (403)          (23,578)
 . (Increase) Decrease in inventories                                           1,424           (37,862)
 . Increase (Decrease) in trade payables                                       51,057           119,766
 . Increase (Decrease) in amounts due to related parties                      (34,602)           (5,480)
 . Increase (Decrease) in other current                                                   
  liabilities and accrued liabilities                                        113,720            17,490
 . Increase (Decrease) in accrual for severance pay                              (387)            3,063
 . Write-off of property, plant and equipment                                   3,741                -
                                                                           ---------          --------
                                                                                         
        Net cash used in operating activities                               (568,614)         (188,284)
                                                                           =========          ========  
                                                                                         
Cash flows from investing activities:                                                    
-------------------------------------                                                    
Additions to property, plant and equipment                                  (571,127)         (585,417)
Additions to intangible assets                                               (40,942)          (81,763)
Additions to other assets                                                    (18,173)             (389)
Increase (Decrease) in trade payables                                             -            349,409
                                                                           ---------          --------
        Net cash used in investing activities                               (630,242)         (318,160)
                                                                           =========          ======== 
                                                                                         
Cash flows from financing activities:                                                    
-------------------------------------                                                    
Proceeds from issuance of common stock and additional                                    
paid in capital                                                              650,000           400,000
Proceeds from issuance of stock options                                        1,140                -
Tax on common stock subscriptions                                             (6,500)           (3,980)
Proceeds from loans                                                          983,369           100,000
Repayment of Bridge loan                                                    (500,000)     
Proceeds from short term loans and bank overdrafts                            82,373            30,515
Commission on syndicated loan and other charges                                   -            (39,231)
                                                                           ---------          --------
        Net cash provided by financing activities                          1,210,382           487,304
                                                                           =========          ========
                                                                                         
Increase (Decrease) in cash and cash equivalents                              11,526           (19,140)
Cash and cash equivalents at the                                                         
 beginning of year                                                            12,991            32,131
                                                                           ---------          --------
Cash and cash equivalents at the end of                                                  
 the period                                                                   24,517            12,991
                                                                           =========          ========
Supplemental cash flow data:                                                             
Cash paid for interest, net of Lit. 42,776                                               
capitalized in 1995.                                                          73,018               291
                                                                           =========          ========
Income taxes                                                                      -                 -
                                                                           =========          ========
</TABLE> 

   The accompanying notes are an integral part of these Financial Statements

                                     S-22
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                 Statement of Changes in Stockholders' Equity
             (in millions of Italian Lira unless otherwise stated)

<TABLE> 
<CAPTION> 

                                                                      Additional
                                                                       paid in          Accumulated
                                               Common stock            capital            deficit            Total
                                               ------------           -----------       -----------         -------- 

                                          Shares           Amount    
<S>                                       <C>             <C>         <C>               <C>                 <C> 
Balance as of January 1, 1994                0.2              200               -               160              360

Issue of common stock:
-   February 22, 1994                      199.8          199,800               -                 -          199,800
-   May 18, 1994                           200.0          200,000               -                 -          200,000

Tax on issue of common stock                  -                 -               -            (3,997)          (3,997)
Net loss for the period                       -                 -               -           (31,479)         (31,479)
                                          ------        ---------         -------          --------          ------- 
Balance as of December 31, 1994            400.0          400,000               -           (35,316)         364,684

Issue of common stock:
-  January 26, 1995                        250.0          250,000               -                 -          250,000
-  September 29, 1995                       75.0           75,000          75,000                 -          150,000
Tax on issue of common stock                  -                 -               -            (3,980)          (3,980)

Net loss for the period                       -                 -               -          (225,064)        (225,064)
                                          ------        ---------         -------          --------          ------- 
Balance as of December 31, 1995            725.0          725,000          75,000          (264,360)         535,640

Issue of common stock:
-  January 30, 1996                         75.0           75,000          75,000                  -         150,000
-  March 28, 1996                           75.0           75,000          75,000                  -         150,000
-  July 5, 1996                             75.0           75,000          75,000                  -         150,000
-  September 5, 1996                        50.0           50,000          50,000                  -         100,000
-  September 30, 1996                       50.0           50,000          50,000                  -         100,000

Tax on issue of common stock                   -                -               -             (6,500)         (6,500)
Net loss for the period                        -                -               -           (438,971)       (438,971)
Issuance pursuant to stock
option plans                                   -                -               -              1,140           1,140
                                         -------        ---------         -------           --------         -------
Balance as of December 31, 1996          1,050.0        1,050,000         400,000           (708,691)        741,309
                                         =======        =========         =======           ========         =======
</TABLE> 

   The accompanying notes are an integral part of these Financial Statements

                                     S-23

<PAGE>
 

                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)


1.      Description and ownership of the business

        The Company was established in 1985 as a subsidiary of the Olivetti
        Group. It remained substantially dormant until February 22, 1994 when it
        was acquired by Omnitel Sistemi Radiocellulari Italiani S.p.A. and
        Pronto Italia S.p.A. and changed its name to Omnitel Pronto Italia
        S.p.A.

        The Company's corporate purpose is to construct and operate a mobile
        cellular system in Italy based on the GSM standard (Group Special
        Mobile).

        During 1994 Omnitel Pronto Italia S.p.A. obtained a fifteen year license
        to operate the cellular mobile telephone network effective February 1,
        1995. In the course of 1995, the Company carried out an experimental
        service exercise between October 3, 1995 and December 6, 1995 and
        launched a full operational service from December 7, 1995.

        Activities carried out during 1996 were mainly related to the
        construction of the network and to the launch of operational service. In
        accordance with the clauses of the license, on March 13, 1996 the
        National roaming access was obtained from Telecom Italia Mobile S.p.A.,
        thus granting to the Company the same operational level as its
        competitor.

        As of December 31, 1996, the stockholders of Omnitel Pronto Italia
        S.p.A. were as follows:

        Omnitel Sistemi Radiocellulari Italiani  (Omnitel S.R.I.) S.p.A.   70%
        Pronto Italia (P.I.) S.p.A.                                        30%
                                                                         -----
        Total                                                             100%
                                                                          ====

        The Company currently purchases predominantly all of the hardware and
        software for the construction of the network from Nokia
        Telecommunications Italia, although alternative suppliers are readily
        available.

        In accordance with the Italian law, the Financial Statements must be
        approved by the annual stockholders' meeting. The present financial
        statements have not yet been approved by the above meeting.

        In the course of 1996, the Italian Government was empowered by the
        Parliament which propose to modify the fiscal tax rules related to local
        tax ("ILOR"). Temporary differences considered for the computation for
        deferred tax assets and liabilities do not consider potential changes to
        the existing tax rules, in accordance with Statement of Financial
        Accounting Standards No. 109 "Accounting for Income Taxes".

                                     S-24

<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued


2.      Summary of significant accounting policies

        The following is a summary of the most significant accounting policies
        used by the Company to prepare the financial statements.

        2.1    Basis of presentation and preparation of financial statements

                The financial statements are prepared under the historical cost
                convention and in accordance with applicable accounting
                principles. The preparation of the Company's financial
                statements in conformity with generally accepted accounting
                principles requires management to make estimates and assumptions
                that affect the reported amounts of assets and liabilities and
                the disclosure of contingent assets and liabilities at the date
                of the financial statements and the reported amounts of revenues
                and expenses during the reporting period. Actual results could
                differ from those estimates. The most significant areas which
                require the use of management's estimates relate to provision
                for bad debt and the estimate of depreciation of fixed assets.

                Prior to December 7, 1995, the Company was considered to be in a
                development stage in accordance with the requirements of
                Statement of Financial Accounting Standards No. 7 "Accounting
                and Reporting by Development stage Enterprises". The deficit
                accumulated during the development stage was Lit. 222,311
                million.

         2.2    Cash and cash equivalents

                The Company considers all highly liquid monetary instruments
                with original maturities of three months or less to be cash
                equivalents.

                Short-term securities held under purchase and resale agreements
                (Repos) are valued at cost plus the accrued difference between
                purchase and resale price matured as of the balance sheet date.
                The related income is classified as interest income.

                                     S-25

<PAGE>
 
                         Omnitel Pronto Italia S.p.A. 

                      Notes to the Financial Statements 
            (in millions of Italian Lira unless otherwise stated) 
                                   Continued


2.3    Receivables and payables

       Receivables and payables are reflected at their stated value. Receivables
       are reduced to their expected realizable value by an allowance for bad
       debt.

       Receivables and payables denominated in foreign currencies are stated
       using the year-end exchange rates. The resulting gains or losses are
       recorded in the statement of income.

2.4    Equipment and Leasehold Improvements

       Equipment and Leasehold Improvements are stated at cost. Depreciation and
       amortization are computed on a straight-line basis over the estimated
       useful lives (five to eight years) or lease life. Major replacements and
       improvements are capitalized, and maintenance and repairs which do not
       improve or extend the useful lives of the respective assets are charged
       to operations. The assets and related accumulated depreciation or
       amortization accounts are adjusted for assets retirement or disposal with
       the resulting gain or loss shown in operating expenses.

       Expenditure for maintenance, repairs and minor replacements are charged
       to current operations. Expenditure for major replacements and
       improvements are capitalized.

2.5    Assets under construction

       Assets under construction consist of the direct costs relating to the
       construction of the network. These include costs such as hardware,
       software, direct labour costs incurred in construction, as well as other
       costs relating to Network Planning and Implementation. All costs not
       directly related to the development and construction of the network have
       been charged to current operations. The depreciation of completed and
       operational sites started from the launch date of December 7, 1995.

2.6    Intangible assets

       The direct and indirect costs incurred to obtain the concession as well
       as the interest on the related bank loan up to inception of service were
       capitalized in 1995 and are amortized over the license period starting
       from the month in which the commercial telephone service began. All other
       intangible assets are amortized on a straight-line basis over their
       estimated useful lives.

                                     S-26

<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued


         2.7    Inventories

                Inventories, consisting principally of those related to the
                Company's product distribution business, are stated at the lower
                of cost (first-in, first-out method) or market.

         2.8    Income taxes

                The provision for current income taxes is based on the taxable
                income for the year.

                Deferred income tax balances reflect the impact of temporary
                differences between the carrying amount of assets and
                liabilities and their tax bases and are stated at enacted tax
                rates expected to be in effect when taxes are actually paid or
                recovered.

                Valuation allowances are established when necessary to reduce
                deferred tax assets to the amount expected to be realized.
                Income tax expense is the tax payable for the period and the
                change during the period in deferred tax assets and liabilities.

         2.9    Accrual for severance pay

                Under Italian law, deferred compensation accrues in favour of
                employees which they (or in the event of their death, their
                heirs) are entitled to collect upon termination of employment.
                The amount payable related to each year's service is calculated
                on the basis of the remuneration for that year and will be
                subject to annual revaluations based on increases in the Italian
                cost-of-living index (ISTAT). Provision for the effect of such
                revaluations is made as increases in the cost-of-living index
                are realized.

         2.10   Financial Instruments

                The company utilizes derivative financial instruments such as
                interest rate swap, interest rate collar and cap agreements to
                limit its exposure to changing interest rates but does not hold
                or issue such financial instruments for trading purposes.

                Premiums to obtain interest rate caps are deferred and applied
                over the period of the related commitment and are included in
                prepaid financial charges within other current assets. Net cash
                paid or received on interest rate swaps and interest rate collar
                and cap agreements are reflected as an increase or decrease of
                the interest expense during the period.

                                     S-27

<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued


         2.11   Commission on Syndicated loan facility

                Up-front costs such as commission incurred in respect of the
                Syndicated loan facility (see Note 8) have been capitalized and
                are being amortized on a straight-line basis over the period of
                the facility, which approximates the interest method.

         2.12   Revenue Recognition

                Operating revenues for communications services, which exclude
                value added tax and other sales tax, are recognized as services
                are rendered. Unbilled revenues resulting from cellular services
                provided from the billing cycle date to the end of each month
                are calculated and recorded.

                Operating revenues for the Company's product distribution
                business are recognized upon delivery of products to customers.

         2.13   Software costs

                Software costs are capitalized and amortized over five years.
                Software development costs are expensed as incurred.

         2.14   Advertising costs

                In accordance with SOP 93-7, advertising costs are charged to
                the statement of income in the period in which they are
                occurred.

         2.15   Accounting Pronouncements

                In March 1995, the Financial Accounting Standards Board issued
                Statement of Financial Accounting Standards No. 121, "Accounting
                for the Impairment of Long-Lived Assets and for Long-Lived
                Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 establishes the
                accounting standards for the impairment of long-lived assets
                acquired to be held and used, and for long-lived assets and
                certain intangible assets to be disposed of. During 1996, the
                statement became effective; management have applied the
                provisions of SFAS 121 and are satisfied that this has not had
                any impact on the financial statements.

                                     S-28

<PAGE>
 
                         Omnitel Pronto Italia S.p.A. 

                      Notes to the Financial Statements 
             (in millions of Italian Lira unless otherwise stated)
                                   Continued


         2.16   Stock option

                In October 1995, the Financial Accounting Standards Board issued
                Statement No. 123 "Accounting for Stock-Based Compensation".
                This Statement defines a fair value based method of accounting
                for stock-based employee compensation plans. Although all
                entities are encouraged to adopt this method of accounting for
                all employee stock compensation plans, SFAS 123 allows an entity
                to continue to measure compensation costs for its plans as
                prescribed by APB Opinion No. 25, "Accounting for Stock Issued
                to Employees". The company intends to follow the option that
                permits entities to apply APB Opinion No. 25.

         2.17   Net loss per common share

                Net loss per common share is computed by dividing the net loss
                as reported in the statements of income by the weighted average
                number of common shares outstanding during the period.

         2.18   Reclassification of statement of income

                Certain amounts in the 1995 financial statements have been
                reclassified to conform with the 1996 presentation. These
                reclassification have no effect on previously reported net loss
                or stockholders' equity.


3.       Accounts receivable, net

         Accounts receivable, net, consisted of the following (in millions of
         Italian Lira):
<TABLE> 
<CAPTION> 
                                               December 31,     December 31,
                                                   1996             1995
                                               ------------    ------------- 
         <S>                                   <C>             <C> 
         Subscribers - communication 
           services                                315,874            8,550
         Dealers - product distribution                       
           business                                 39,511           36,469
         Less:                                                
         Provision for bad debts                  (100,188)            (991)
                                               -----------          --------
                                                   255,197            44,028
                                                ===========          =======
</TABLE> 
                                     S-29

<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued



4.    Transactions with related parties

      As of December 31, 1996 and 1995 the analysis of related parties balances,
      including VAT, was as follows:

<TABLE> 
<CAPTION> 

                                               December 31, 1996                   December 31, 1995
                                        
                                        Receivables         Payables         Receivables           Payables
         <S>                            <C>                 <C>              <C>                   <C> 
         Omnitel S.R.I.                           -                                    -                  -
                                        
         P.I.                                     -                                    -            (1,700)
                                        
         Omnitel Gestioni                     1,776             (172)                  -                  -
                                        
         Olivetti group                       2,626          (43,677)                116           (71,524)
                                        
         AirTouch Int.l                           6           (1,873)                 88            (6,912)
                                        
         Bell Atlantic                           89           (2,600)                 23            (1,155)
                                        
         Telia International                      -             (346)                  -            (2,215)
                                        
         C.C.I.                                  28                 -                 23              (189)
                                        
         Lehman Brothers                          -             (453)                  -                  -
                                        
         Mannesmann                               -             (198)                  -              (362)
                                        
         Current accounts               
         with Olivetti group            
         companies                           98,748             (298)             35,865              (162)
                                             ------             -----             ------            -------
                                        
         Total                              103,273          (49,617)             36,115           (84,219)
                                            =======          ========             ======           ========
</TABLE> 

      Accounts with Olivetti group companies are regulated by written contract
      and mainly relate to the payment of payroll costs performed at group level
      and to V.A.T. balances, paid in accordance with Italian law at group
      level. The debit balance is due primarily to the V.A.T. position.

      On the basis of the contract, the VAT debit balance will be repaid
      beginning January 1, 1997.



                                     S-30
<PAGE>
 
                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)

                                   Continued

         The analysis of amounts charged to the Company by related parties, is
as follows:

<TABLE> 
<CAPTION> 

                                                               1996                                1995
                                                    --------------------------          -------------------------
                                                    Costs               Income           Costs             Income
            <S>                                     <C>                 <C>             <C>                 <C> 
            P.I.                                           -                 -            1,700                 -

            Omnitel Gestioni                           2,100             4,014                -                 -

            Olivetti group                            58,029             2,422           54,555                65

            AirTouch Intl.                             5,913                 6           12,259                13

            Bell Atlantic                              4,365                57            5,989                 -

            Telia International                          586                 -            2,313                 -

            C.C.I.                                         4                 -              486                 -

            Lehman Brothers                              453                 -                -                 -

            Mannesmann                                   265                 -              314                 -
                                                     -------             -----           ------            ------
            Total                                     71,715             6,499           77,616                78
                                                     =======             =====           ======            ======
</TABLE> 
         Related party expenses relate principally to the services of personnel
         rendered to the Company. In addition, the Company has a relationship
         with Ing. C. Olivetti & Co. S.p.A. who provide payroll services to the
         Company on an ongoing basis.

         The amounts debited by related parties in 1996 include Lit. 39,776
         million of network services, Lit. 20,740 million of general and
         administrative expenses, Lit. 10,746 million of cost of sales and
         network maintenance and Lit. 453 million of consultant fees. The
         revenues include local services outgoing for an amount of Lit. 1,572
         million, hardware sales for a total amount of Lit. 4,600 million, other
         revenues for a total amount of Lit. 327 million.

                                     S-31

<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)

                                   Continued

5.       Other current assets

         The balances as of December 31, 1996 and 1995 are analyzed as follows:

<TABLE> 
<CAPTION> 

                                                                      December 31,              December 31,
                                                                         1996                       1995
                                                                      ------------              -------------
         <S>                                                          <C>                       <C> 
         V.A.T. and withholding
         tax recoverable                                               14,855                     19,191
         Prepaid rents                                                 15,112                      5,378
         Prepaid financial charges                                      1,175                      1,296
         Advance to suppliers                                           3,241                      7,896
         Other                                                            948                      1,167
                                                                       ------                     ------
         Total                                                         35,331                     34,928
                                                                       ======                     ======
</TABLE> 
         Prepaid rents mainly relate to the contracts for the utilization of the
         fixed network of Telecom S.p.A. and to the sites utilized for the
         network.

         Prepaid financial charges included Lit. 996 million relating to the
         deferral of premium paid in order to obtain interest rate swaps (see
         Notes 2.10 and 15).

6.       Inventories

         Inventories, net of obsolescence reserve, consist of:

<TABLE> 
<CAPTION> 

                                                                      December 31,            December 31,
                                                                         1996                     1995
                                                                      ------------            ------------
         <S>                                                          <C>                     <C> 
         Cellular phones and accessories                                37,884                   36,640
         Cellular phones obsolescence reserve                           (5,448)                    (193)
         Sim cards                                                       4,002                    1,415
                                                                        ------                    -----
         Total                                                          36,438                   37,862
                                                                        ======                   ======
</TABLE> 


                                     S-32
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued



7.       Property, plant and equipment

         Property, plant and equipment as of December 31, 1996 and 1995 consist
         of the following:

<TABLE> 
<CAPTION> 

                                                          December            December
                                                          31, 1996            31, 1995            Estimated
                                                          at cost             at cost            useful lives
                                                         ---------           ---------           ------------
<S>                                                      <C>                 <C>                 <C> 
         Technical instruments and
         equipment                                          14,425              10,772              5 years
                                                          
         Office furniture and equipment                     41,751              30,609            5-8.33 years
                                                          
         Electrical equipment                               33,920              19,471             5.55 years
                                                          
         Leasehold improvements                             40,928              30,114           lease term or
                                                         ---------           ---------           life of assets,
                                                                                                 if shorter     

                                                           131,024              90,966
                                                         ---------           --------- 

         Network:
         - specific plant                                   29,093              10,239            6.67 years
                                                        
         - radio and transmission                       
         equipment                                         398,955             165,953            6.67 years
                                                        
         - computer and electronic                      
         equipment                                         202,820              99,321            5.55 years
                                                        
         - fixtures                                         35,031              10,994             10 years
                                                        
         - know-how                                        204,656             125,915           life of the
                                                                                                 concession
         - improvements to network                      
         properties                                        171,335              66,812           lease term or
                                                         ---------           ---------           life of assets,
                                                                                                 if shorter      
                                                         1,041,890             479,234                            
                                                         ---------           ---------  

         Total cost                                      1,172,914             570,200

         Less: Accumulated depreciation                   (149,669)            (25,405)
         ----                                            ---------           ---------  

                                                         1,023,245             544,795

         Assets under construction                          34,906              70,532
                                                         ---------           ---------  

                                                         1,058,151             615,327
                                                         =========           =========
</TABLE> 


                                     S-33
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued

8.       Intangible assets

         The balances for intangible assets as of December 31, 1996 and 1995 can
         be detailed as follows:

<TABLE> 
<CAPTION> 
                                                            December 31,         December 31,     Estimated   
                                                          1996 - at cost       1995 - at cost    Useful lives 
                                                          --------------       --------------    ------------ 
           <S>                                            <C>                  <C>               <C>          
           Concession and accessory charges                                                                   
           Concession fee                                      750,000              750,000                   
           Bid preparation costs incurred by:                                                                 
           -  Omnitel S.R.I. and P.I.                           27,784               27,784                   
           -  Other                                              8,799                8,799                   
           Interest and commission relating to the                                                            
             bridging loan and performance bond                 46,141               46,141                   
                                                               -------             --------                   
           Concession and accessory charges                    832,724              832,724         15 years  
                                                                                                              
           Less: Accumulated amortization                      (62,843)              (3,869)                  
                                                              --------            ---------                   
                                                                                                              
           Concession and accessory charges, net               769,881              828,855                   
                                                              ========            =========                   
                                                                                                              
                                                                                                              
           Other intangible assets                                                                            
                                                                                                              
           Cost of usage rights of software and others          79,573               38,631          5 years  
           Less accumulated amortization                       (23,763)              (7,854)                  
                                                              --------            ---------                   
           Cost of usage rights of software and others,                                                       
             net                                                55,810               30,777                   
                                                              --------            ---------                   
           Commission on syndicated loan and other                                                            
             charges                                            39,231               39,231         10 years  
           Less: Accumulated amortization                       (4,514)                (502)                  
                                                              --------            ---------                   
           Commission on syndicated loan and other                                                            
             charges, net                                       34,717               38,729         10 years  
                                                              --------            ---------                   
           Total other intangible assets, net                   90,527               69,506                   
                                                              ========            =========                   
                                                                                                              
           Total intangible assets                             860,408              898,361                   
                                                              ========            =========                    
</TABLE> 

         On November 30, 1994, the Company made a lump-sum payment (Lit.750,000
         million) for the concession by the Ministry for Post and
         Telecommunications for the installation and operation, on a non-
         exclusive basis, of the GSM service on the Italian territory. The
         concession was effective from February 1, 1995 and will have a duration
         of fifteen years.


                                     S-34
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued



9.       Other assets

         The balances as of December 31, 1996 and 1995 are analyzed as follows:

<TABLE> 
<CAPTION> 
                                                                            December 31,        December 31,
                                                                                1996                1995
                                                                            ------------        ------------
         <S>                                                                <C>                 <C> 
         Deposit paid to the Ministry for
           the release of the concession                                       3,000               3,000
         Special cash collateral                                              11,144                   -
         Investment in Omnitel Gestioni S.p.A.                                 3,200                 200
         Long term receivable and others                                       5,312               1,283
                                                                             -------              ------
         Total                                                                22,656               4,483
                                                                             =======              ======
</TABLE> 

         The deposit paid to the Ministry of Post and Telecommunications will
         remain in place throughout the duration of the concession and earns
         interest at the annual rate of 3.5%.

         Special cash collateral consists of remunerative pledged accounts
         issued for the purposes of securing the obligations of the Company
         towards the Principal Issuing Banks of the Syndicated loan facility
         (see Note 10.1).

         Omnitel Gestioni S.p.A. is a subsidiary that manages mobile phone
         retail shops. The shares of the Company are pledged in favour of the
         Agent Bank of the Syndicated loan facility, in accordance with the
         clauses of the facility contract.

         Long term receivables relate to display corners sold to the Company's
         dealers. Payment is received in instalments.


                                     S-35
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued



10.      Debt

         The amount due to banks and financial institutions as of December 31,
         1996 and 1995 can be further detailed as follows:

<TABLE> 
<CAPTION> 
                                                                December 31,                   December 31,
                                                                    1996                           1995
                                                                ------------                   ------------
         <S>                                                    <C>                            <C> 
         Short term debt:
         - Bank overdrafts                                         24,968                         20,595
         - Short term bank loan                                    88,000                         10,000
                                                                  -------                         ------
         Total short term debt                                    112,968                         30,595
                                                                  -------                         ------

         Long term debt:
         - Bridge loan                                                --                         500,000
         - Syndicated loan agreement                              677,369                            --
         - Finnish Export Credit loan                             306,000                            --
                                                                  -------                        -------
         Total long term loan                                     983,369                        500,000
                                                                  -------                        -------

         Total Debt                                             1,096,337                        530,595
                                                                =========                        =======
</TABLE> 

         The short term bank loan relates to a loan granted for a period not
         exceeding one month.

         The bridge loan jointly granted by three Italian banks (Banca di Roma,
         Banca Commerciale Italiana and Crediop) was repaid on February 13, 1996
         using the first drawdown of the Syndicated Loan Agreement. As the
         Company signed the Syndicated Loan facility on November 30, 1995 and
         the agreement provided for the first drawdown to be used to repay the
         above bank loan, this bridge loan was classified in 1995 as a long term
         liability as required by Statement of Financial Accounting Standards
         No. 6 "Classification of Short Term Obligations expected to be
         refinanced".

         10.1     Syndicated loan facility

                  On November 30, 1995 the Company signed a Syndicated loan
                  facility amounting to Lit.1,800 billion with a number of
                  financial institutions.


                                     S-36
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued


                  The facility consists of three tranches, being two tranches of
                  Lit.1,000 billion and Lit. 200 billion linked to LIBOR (London
                  Inter-Bank Offered Rate) and the third tranche of Lit. 600
                  billion linked to RIBOR (Rome Inter-Bank Offered Rate). The
                  interest rate of the facility is linked to the cash flows of
                  the Company. The rate was initially set at the interbank rate
                  plus 1.75%, subsequently falling to a minimum of 0.625% with
                  increasing operating cash flows.

                  This was reduced to 1.625% on December 7, 1995 due to the
                  Company achieving 40% territory coverage. Commitment fees are
                  due from the Company on the unutilized amount of the facility
                  at a rate of 0.5% per annum, payable quarterly in arrears.

                  The two LIBOR tranches consist of a facility for a maximum
                  amount of Lit. 1,000 billion available by way of term loan
                  advances and of a revolving short term advances facility for a
                  maximum amount of Lit. 200 billion. The two facilities are
                  available in predetermined freely available multicurrencies
                  subject to appropriate hedging. The total borrowed under these
                  two facilities as at December 31, 1996 amounts to Lit. 667,021
                  million and was completely drawn down in yen.

                  The RIBOR tranche, for a maximum amount of Lit. 600 billion,
                  is available by way of term loan advances in Italian Lira
                  and/or the issue of guarantees. The tranche has been utilised
                  for outstanding guarantees required by Finnish Export Credit
                  Ltd. (FEC) for a total amount of Lit. 334,305 million and by
                  Lit. 10,348 million for a term loan advance.

                  The facility has a duration of 10 years of which the first 4
                  years relate only to utilization. Repayment is at increasing
                  rates commencing from the end of the fifth year.

                  In accordance with the contract, the aggregate of advances
                  outstanding was limited to Lit. 1,400 billion for the period
                  ending December 31, 1996, stepping-up to Lit. 1,600 billion up
                  to June 1997 and Lit. 1,800 billion thereafter.

                  The facility includes several financial and operating
                  covenants such as dividend distribution restrictions, minimum
                  territory coverage, and restrictions over changes in direct
                  and indirect ownership of the Company. There are also
                  provisions for the use of several pledged cash collateral
                  accounts under the terms of the facility.


                                     S-37
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued



                  As a requirement of the above facility, the Company entered
                  into an insurance security agreement, whereby the Company
                  pledged all of its present and future rights arising from a
                  number of the Company's insurance policies. This pledge is in
                  favour of the financial institutions providing the facility.

         10.2     Nokia/Finnish Export Credit Ltd.

                  The Company signed an agreement with Nokia during 1994 for the
                  supply of basic telecommunications equipment for a minimum
                  expected purchase value of Lit. 360,000 million.

                  The contract included a financing agreement with Finnish
                  Export Credit Ltd (FEC), a wholly owned subsidiary of the
                  Finnish Government, for 85% of the amounts involved. On
                  December 31, 1995 the credit agreement with Finnish Credit
                  Export Ltd for a total value of Lit. 306,000 million was
                  signed.

                  The credit facility has been fully utilized in 1996. Interest
                  is payable at LIBOR plus 0.225% during the drawingdown period
                  and at a fixed rate of 9% thereafter. The facility is
                  repayable in equal semi-annual instalments over 5 years from
                  the completion date of October 1996. A portion of the loan
                  will be repayed in the course of 1997 (Lit. 61,200 million).
                  This loan is completely classified as a long term liability in
                  accordance with Statement of Financial Accounting Standards
                  No. 6 "Classification of Short Term Obligations expected to be
                  refinanced".

                  The credit facility is collateralized by a guarantee from the
                  Syndicated Loan Facility for Lit. 334,305 million (109.25% of
                  the credit line).

                  The agreement provides for the use of a pledged cash
                  collateral account, partially utilized in the course of 1996.

         10.3     Other

                  The Company has entered into interest rate swap agreements
                  (see Note 15) in order to manage its exposure to interest rate
                  fluctuations.

                  At December 31, 1996 the Company had short-term credit
                  facilities with several financial institutions totalling Lit.
                  228 billion of which Lit. 139 billion were unused.

                                     S-38
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued

            The Company's weighted average interest rates calculated as at
            December 31, 1996 and as of December 31, 1995 were 13.37% and 11.23%
            per annum respectively.

11.     Other current liabilities and accrued liabilities

        Other current liabilities are analyzed as follows:
<TABLE> 
<CAPTION> 
                                                                  December 31,                 December 31,
                                                                      1996                        1995
                                                              ------------------             ----------------
<S>                                                            <C>                           <C>   
         Tax withheld at source and
         annual tax on stockholder's equity                            4,556                       6,757
         Other tax payable                                            59,135                       2,025
         Bank interest and commission fees accrued                    14,888                       6,087
         Payable to social security institutions                      10,973                       6,735
         Accrued payroll                                              15,224                       5,182
         Advances from GSM subscribers                                25,600                          -
         Other                                                        10,346                         216
                                                                     -------                      ------
         Total                                                       140,722                      27,002
                                                                     =======                      ======
</TABLE> 

        Other tax payable includes Lit. 30,230 million relating to the
        government concession tax collected monthly from each customer, Lit.
        14,429 million of stamp duty on new contracts and Lit. 12,445 million
        relating to the annual concession charge computed on GSM service gross
        revenues (see Note 16.1).

                                     S-39
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued


12.      Accrual for severance pay

         Under Italian law, deferred compensation accrues in favour of employees
         which they (or in the event of their death, their heirs) are entitled
         to collect upon termination of employment. The amount payable related
         to each year's service is calculated on the basis of the remuneration
         for that year and will be subject to annual revaluations based on
         increases in the Italian cost-of-living index (ISTAT). Provision for
         the effect of such revaluations is made as increases in the
         cost-of-living index are realized. The balance consists of:
<TABLE> 
<CAPTION> 
                                                                          December 31,          December 31,
                                                                              1996                  1995
                                                                       -----------------      ----------------  
<S>                                                                    <C>                    <C> 
         Employee severance pay                                              17,860                 10,946
         Agents leaving indemnities                                             297                    121
                                                                            -------               --------
         Total                                                               18,157                 11,067
                                                                            =======               ========
</TABLE> 


13.      Income taxes

         A tax credit has been recorded in 1996. No provision for income taxes
         has been made for 1995.

         Based on the statutory results and the estimate of investment incentive
         deductions as of December 31, 1996 the Company has net operating loss
         carryforwards at that date of Lit. 1,366,000 million (1995: Lit.
         844,000 million) which expire in the years 1999 through 2001.
         Approximately Lit. 50,000 million (1995: Lit. 699,000 million) are the
         result of investment incentives granted in the form of deductions from
         taxable income.

         The enacted corporation tax rate for the Company in the years 1996 and
         1995 was 53.2% comprising local ("ILOR") tax at 16.2% and national
         ("IRPEG) tax at 37%. For IRPEG purposes only, net operating losses may
         be carried forward and applied against the taxable income of the
         following 5 years. No such loss carryforward facility exists for ILOR
         purposes.

         For 1996 and 1995, deferred tax assets and liabilities arising from
         temporary differences have been computed at the full rate of 53.2%; the
         asset represented by net operating loss carryforwards has been computed
         at the IRPEG rate of 37%.

                                     S-40
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)

                                   Continued

      Deferred tax balances as at December 31, 1996 and 1995 can be summarized
      as follows:

<TABLE> 
<CAPTION> 

                                                        December 31,                   December 31,
                                                           1996                            1995
                                                      ---------------                ---------------
      <S>                                             <C>                            <C> 
      Deferred tax assets                            
      Start up and other costs                       
      deductible in future periods                            120,079                         96,630
      Net operating loss carryforwards                        505,541                        275,630
                                                           ----------                     ----------
      Total gross deferred tax assets                         625,620                        372,260 
      
      Deferred tax liabilities                       
      Amortization of the government                 
      concession for fiscal purposes                 
      only                                                    (21,943)                       (25,630)
                                                           ----------                     ----------
      Net deferred tax assets                                 603,677                        346,630
      Less: Valuation allowance                              (406,877)                      (346,630)
                                                           ----------                     ----------
      Net carrying value amount                               196,800                              -
                                                           ==========                     ==========
</TABLE> 

      A valuation allowance was provided against the total deferred tax assets
      as of December 31, 1995 as the Company had not sufficient assurance that
      the assets would be realized.

      In 1996, based on an evaluation of the business plan, expectation of
      future market conditions and operating performance, management determined
      that a substantial portion of the valuation allowance was not required. A
      valuation allowance of Lit. 406,877 million has been maintained primarily
      for remaining tax loss carryforwards for which it is more likely than not
      that the deferred tax assets will not be realized.

14.   Statement of Income

      As specified in note 2.18, the 1995 statement of income amounts have been
      reclassified in order to permit a better comparability with the 1996
      amounts.



                                     S-41
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued


15.      Financial instruments

         The Company has entered into interest rate swap, cap and collar
         agreements to manage the impact of interest rate fluctuations.

         At December 31, 1996 and December 31, 1995, the Company was party to
         interest rate swap agreements, for hedging purposes, to exchange
         variable rate payments for fixed rate payments periodically over the
         life of the agreements. At the same dates, the Company was also party
         to a cap agreement, whereby the Company is protected in the event that
         interest rates rise over the relevant strike level. At December 31,
         1996 the Company was party to collar agreements under which the Company
         buys a cap in order to protect itself in the event interest rates
         increase and writes a floor, in order to reduce the cost of buying a
         cap.

         The Company recognizes gains and losses in relationship to the maturity
         dates of the underlying debt.

         At December 31, 1996 and 1995 the Company had outstanding interest rate
         swap agreements which converted variable rate debt to fixed rate debt
         with a weighted average interest rate of 11.69% while, at the same
         date, the three month market rate was 7.23%. The total notional
         principal amounted to Lit.150,000 million at the year end. The
         agreements all terminate on May 31, 2000.

         At December 31, 1996 and 1995 the Company had a cap agreement
         outstanding, with total notional principal amounting to Lit. 50,000
         million, at a strike rate of 12.50% which terminates on May 31, 2000.

         At December 31, 1996 the Company had two collar agreements outstanding,
         with total notional principal amounting to Lit. 100,000 million, at an
         average strike cap rate of 9.105% and at a beginning strike floor rate
         of 8.25% declining quarterly up to 7.5% starting from April 1997. The
         agreements will terminate on July 15, 1998. The floor strike rate for
         the quarter from October 15, 1996 to January 15, 1997 was 8%. As at
         December 31, 1996, the three month market rate was 7.19%.

                                     S-42
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued


16.      Commitments and contingencies

         16.1     Commitments deriving from the concession

                  Under the concession awarded for the GSM public mobile
                  telephone service, the Company undertakes to pay to the
                  Ministry an annual concession charge corresponding to 3.5% of
                  the GSM service gross revenues, net of all service charges
                  paid to the other public telephone network license holder. The
                  concession charge cannot be lower than a minimum annual
                  amount, established for each of the next three years of the
                  concession, as follows:

                  1997                                          25,400
                  1998                                          51,000
                  1999                                          77,100
                                                               -------
                  Total minimum payments                       153,500
                                                               =======

                  The Company must guarantee a minimum coverage of 70% of the
                  Italian territory and 90% of the population within 5 years
                  from the date of the concession. Failure to meet these
                  requirements could result in cancellation of the concession.

                  In addition under the Concession, the company has to fulfill
                  some obligations prescribed by the Performance Bond (see
                  16.2).

         16.2     Guarantees provided by financial institutions on behalf of the
                  Company

                  As of December 31, 1996 and 1995 the Company has an
                  undertaking of Lit.669,105 and Lit. 491,599 million
                  respectively for guarantees issued by financial and
                  ministerial institutions as analyzed below:
<TABLE> 
<CAPTION> 

                                              December 31,     December 31,
                                                  1996             1995
                                              ------------     ------------
                  <S>                         <C>              <C> 
                   FEC guarantee                 334,305          266,250
                   Performance bond              219,400          219,400
                   Other guarantees              115,400            5,949
                                                 -------          -------
                   Total                         669,105          491,599
                                                 =======          =======
</TABLE> 

                                     S-43
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued

                  As collateral for the loan obtained by Finnish Export Credit
                  Ltd, the Company obtained letters of credit from banks,
                  subsequently cancelled after the issuance of the guarantee
                  provided by the Syndicated Loan (see Notes 10.1 and 10.2).

                  The performance bond of Lit. 219,400 million was provided by
                  Banca Commerciale Italiana to the Ministry of Post and
                  Telecommunications as a guarantee for the fulfillment of the
                  obligations prescribed by the above mentioned concession,
                  including, but not limited to, employment levels, achievement
                  of minimum territorial coverage (at least 98% of the Italian
                  territory by May 1998) and minimum cumulative investments (at
                  least Lit.1,552 billion by May 1998). The performance bond
                  matures on June 30, 2000. Failure to achieve the objectives
                  specified in the performance bond could result in charges to
                  the Company.

                  Other guarantees mainly include (Lit. 106.6 billion) bank
                  guarantees granted to the V.A.T. office in order to obtain
                  V.A.T. repayments.

         16.3     Other commitments and contingencies

                  16.3.1 Nokia

                  The Company signed an agreement with Nokia in 1994 for the
                  supply of basic telecommunication equipment for a minimum
                  expected purchase value of Lit. 360 billion. Prior to 31
                  December, 1996, the Company fulfilled its purchase obligation
                  related to the original commitment . In the course of 1996,
                  amendments were signed to the original contract. One amendment
                  stated a commitment of Lit. 290 billion for the purchase of
                  further telecommunication equipment. At December 31, 1996 the
                  remaining purchase commitment outstanding in relation to this
                  amendment amounted to some Lit. 170 billion.

                                     S-44
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued


                  16.3.2  Rent and leasing commitments

                  The Company rents buildings utilized for operations and
                  network sites and leases vehicles assigned to certain
                  employees, with future minimum rentals as follows:
<TABLE> 
<CAPTION> 
                                                            Operating
                                                             leases  
                                                            ---------
                          <S>                               <C>       
                          Year ending in:                            
                                                                     
                          . 1997                               36,939
                          . 1998                               36,510
                          . 1999                               35,493
                          . 2000                               33,150
                          . 2001                               22,359
                          Thereafter                           30,248
                                                              -------
                          Total minimum lease payments        194,699
                                                              ======= 
</TABLE> 

17.      Stockholders' equity

         A stockholders' meeting held on January 30, 1995 authorized the Board
         of Directors to increase the Company's share capital up to a maximum of
         Lit.1,050 billion by means of the issue of a maximum of 400 million
         shares at a value of Lit.2,000 per share, consisting of Lit.1,000 par
         value plus Lit.1,000 share premium. This increase was approved by the
         Board of Directors at a meeting on March 24, 1995. The issue of these
         shares was at the discretion of the Board of Directors and was valid
         until December 31, 1996.

         The first tranche of these shares was issued in 1995 for a total amount
         of 75 million common shares.

         In the course of 1996 the Company issued a total amount of 325 million
         common stock shares with a par value of Lit. 1,000 each, and Lit. 1,000
         additional paid in capital. This increased the Company's issued common
         stock to Lit. 1,050,000 million and its additional paid in capital to
         Lit. 400,000 million. The proceeds from the issues of 1996, net of
         taxation, amounted Lit. 643,500 million.

         Under Italian tax legislation the company is liable to an annual tax of
         0.75% on the value of the stockholders' equity as reported under
         Italian GAAP, which is accounted for as a charge to the income
         statement.


                                     S-45

<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued

         In December 1996, the Company launched a stock option program in favour
         of some executives of Omnitel Pronto Italia. On the basis of the
         program the executives subscribed 3,324,000 warrants for a total amount
         of Lit. 1,140 million. The warrants which each carry the right to
         purchase one common stock unit will be exercisible on June 30, 2001.
         The price payable on exercise of the warrant is a total of Lit. 5,500
         per warrant of which Lit. 4,500 additional paid in capital. Early
         exercise of warrants is not permitted.

18.      Subsequent events

         National roaming agreement

         Access under the National roaming agreement is currently being disputed
         by Telecom Italia Mobile in connection with OPI's territorial coverage.
         The Ministry have confirmed that OPI have achieved the coverage
         necessary for obtaining access.

19.      Disclosures about Fair Values of Financial Instruments

         Statement of Financial Accounting Standards No. 107, "Disclosures about
         Fair Values of Financial Instruments" ("SFAS 107"), as amended by
         Statement of Financial Accounting Standards No. 119 "Disclosure about
         Derivative Financial Instruments and fair value of financial
         instruments" requires certain disclosures about the fair values of all
         financial instruments, including both assets and liabilities.

         The following methods and assumptions were used to estimate the fair
         value of each class of financial instrument for which it is practicable
         to estimate that value:

         Cash and cash equivalents, Accounts receivable, Trade payables, Amounts
         due to and from related parties

         The carrying amount approximates the fair value due to the short term
         maturity of these instruments. This includes the short term bank loans.

                                     S-46
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued


         Accrual for severance pay

         The accrual for severance pay required under Italian legislation
         equates to the present value of vested benefits to which the employee
         is immediately entitled on termination of their employment. Upon this
         basis, the carrying amount approximates to the fair value of this
         financial instrument.

         Interest rate swap agreements

         The fair value of interest rate swap agreements is the estimated amount
         that the Company would pay or receive to terminate the agreements at
         the balance sheet date, taking into account current interest rates.

         The estimated fair values of the Company's financial instruments are as
         follows (Lit./millions):
<TABLE> 
<CAPTION> 
                                               December 31, 1996                    December 31, 1995

                                          Carrying        Fair value          Carrying          Fair value
                                           value                                value
<S>                                       <C>             <C>                 <C>               <C> 
Cash and cash equivalents                    24,517           24,517              12,991            12,991
Accounts receivable                         255,197          255,197              44,028            44,028
Due from related parties                    103,273          103,273              36,115            36,115
Other current assets                         35,331           34,340              34,928            34,928
Debt                                      1,096,337        1,096,337             530,595           530,595
Trade payables                              546,629          546,629             495,572           495,572
Due to related parties                       49,617           49,617              84,219            84,219
Other current liabilities                   140,722          140,722              27,002            27,002
Accrual for severance pay                    18,157           18,157              11,067            11,067
Interest rate swaps                              -          (24,858)                  -            (8,784)
Collars                                          -           (2,030)                  -                 -
</TABLE> 

                                     S-47
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued


  20.    Reconciliation to Generally Accepted Accounting Principles in Italy
         ("Italian GAAP")

         In order to comply with the accounting principles generally accepted in
         the United States of America, certain adjustments are reflected in the
         financial statements which are not recorded in the Italian statutory
         financial statements.

         As of December 31, 1996 and 1995 these adjustments which principally
         related to the application of SFAS 109 and to a different treatment of
         costs sustained during the development stage respectively, are
         summarized as follows:
<TABLE> 
<CAPTION> 

NET LOSS                                                            1996             1995
<S>                                                               <C>              <C> 
Net loss for the years ended December 31, 1996 and         
1995 as reported                                                  (438,971)        (225,064)

Tax on common stock subscriptions capitalized as an        
intangible asset under Italian GAAP                                 (2,892)          (1,592)

Net book value of start-up costs capitalized under         
Italian GAAP                                                         3,938          130,863

Net book value of advertising costs capitalized under      
Italian GAAP                                                        38,786           15,821

Concession and accessory charges amortization                        6,926          (48,176)

Deferred income taxes: SFAS 109 application                       (196,800)                -
                                                                  ---------       ----------

Net adjustments                                                   (150,042)          96,916

Net loss under Italian GAAP                                       (589,013)        (128,148)
                                                                  =========        =========
</TABLE> 

                                     S-48
<PAGE>
 
                         Omnitel Pronto Italia S.p.A.

                       Notes to the Financial Statements
             (in millions of Italian Lira unless otherwise stated)
                                   Continued

<TABLE> 
<CAPTION> 
                                                           1996         1995
<S>                                                        <C>         <C> 
STOCKHOLDERS' EQUITY                                                
                                                                    
Stockholders' equity                                       741,309     535,640
                                                                    
Tax on common stock subscriptions capitalized as an                 
intangible asset under Italian GAAP                          9,180       5,573
                                                                    
Net book value of start-up costs capitalized under                  
                                                                    
Italian GAAP                                               163,281     159,343
                                                                    
Net book value of advertising costs capitalized under               
Italian GAAP                                                54,607      15,821
                                                                    
Concession and accessory charges amortization              (41,250)    (48,176)
                                                                    
Deferred income taxes: SFAS 109 application               (196,800)          -
                                                          ---------  ---------
                                                        
Net adjustments                                            (10,982)    132,561
                                                                       
Stockholders' equity under Italian GAAP                    730,327     668,201
                                                           ========    ========
</TABLE> 


                                     S-49