SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    --------

                                    FORM 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, 1997

                                       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)

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


           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)
<PAGE>


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.[ ]

The  aggregate   market  value  of  the   registrant's   Common  Stock  held  by
non-affiliates  at March 20, 1998, valued by reference to the closing sale price
for the registrant's  Common Stock on the Nasdaq Stock Market's National Market,
was approximately $609,730,000.

Number of shares of Common Stock  outstanding  as at March 20, 1998:  11,024,868
(16,537,302  as  adjusted  for the  three-for-two  stock  split  by way of stock
dividend, to be paid on April 14, 1998)

                       DOCUMENTS INCORPORATED BY REFERENCE

                Document                               Part of 10-K in which
                                                            Incorporated

Definitive proxy statement for the                            Part III
1998 Annual Meeting of the Stockholders
of Cellular Communications International, Inc.

         "SAFE-HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
                              REFORM ACT OF 1995:

All statements  other than  statements of historical fact contained in this Form
10-K,   including  without  limitation  certain  statements  in  Business,   and
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations concerning the company's financial position and liquidity, results of
operations and other matters,  are forward-looking  statements.  Forward-looking
statements  in this  Form  10-K  generally  are  accompanied  by  words  such as
"anticipate," "believe," "estimate" or "expect" or similar statements.  Although
the Registrant believes that the expectations  reflected in such forward-looking
statements are reasonable, no assurance can be given that such expectations will
prove  correct.  Factors  that  could  cause  the  company's  results  to differ
materially from the results discussed in such forward-looking statements include
but are not  limited to 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.  All  forward-looking
statements  in this Form 10-K are expressly  qualified in their  entirety by the
cautionary statements in this paragraph.

In this  Report on Form 10-K,  references  to "lire" or "lira" are to the lawful
currency of Italy and references to "U.S. dollars," "dollars," or "$" are to the
lawful currency of the United States.  Solely for the convenience of the reader,
this Report on Form 10-K  contains  translations  of certain  lire  amounts into
U.S. dollars. These translations should not be construed as representations that
the lire amounts actually represent such U.S. dollar  amounts or could have been
or could be or will be converted into  U.S. dollars  at the rate indicated or at
any other  rate.  Unless  otherwise  indicated,  the  translations  of lire into
U.S. dollars  have been made at 1,805.00 lire per U.S.  dollar,  the noon buying
rate in The  City of New York  for  cable  transfers  in lire as  certified  for
customs  purposes  by the  Federal  Reserve  Bank of New York (the "Noon  Buying
Rate") on March 20, 1998.

<PAGE>


                                TABLE OF CONTENTS

                                                                            Page
PART I
------

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

Item 2  Properties .......................................................    21

Item 3  Legal Proceedings ................................................    21

Item 4  Submission of Matters to a Vote of Stockholders ..................    21

PART II
-------

Item 5  Market for the Registrant's Common Stock and
        Related Stockholder Matters ......................................    22

Item 6  Selected Financial Data ..........................................    23

Item 7  Management's Discussion and Analysis of Results
        of Operations and Financial Condition ............................    24

Item 7A Quantitative and Qualitative Disclosures About Market Risk .......    28

Item 8  Financial Statements and Supplementary Data ......................    28

Item 9  Changes in and Disagreements with Accountants on
        Accounting and Financial Disclosure ..............................    28

PART III
--------

Items 10, 11, 12 and 13 ..................................................    28

PART IV
-------

Item 14 Exhibits, Financial Statement Schedules, and Reports
        on Form 8-K ......................................................    28

Exhibit Index ............................................................    29

Signatures ...............................................................    31

Index to Financial Statements ............................................   F-1

<PAGE>

                                     PART I

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

GENERAL

     Cellular Communications  International,  Inc. ("CCII" or the "Company") was
incorporated in Delaware in 1984 to own and operate cellular  telephone  systems
in various  markets.  Beginning in 1988, the Company entered into joint ventures
to pursue  opportunities in wireless  communications  businesses  outside of the
United States. The Company currently holds a 14.667% interest in Omnitel Sistemi
Radiocellulari  Italiani  S.p.A.  ("Omnitel"),  a strategic  joint venture which
holds a 70%  interest in and directs the  management  of  Omnitel-Pronto  Italia
("OPI"),  a strategic  joint  venture which has been awarded one of two national
cellular  telephone  licenses  for Italy using the GSM  technology,  the digital
technology for cellular telephone systems that all European Union countries have
agreed to adopt as a common  standard.  The Company through its 14.667% interest
in Omnitel, holds an approximate 10.267% interest in OPI.

     In March 1994,  the Italian  Government  announced that OPI was selected by
the Italian  Government as the licensee of Italy's second GSM cellular telephone
license (the "License"). The other joint venturers in Omnitel are OliMan Holding
B.V.  ("OliMan"),  a joint venture currently owned 75% by Ing. C. Olivetti & C.,
S.p.A.  ("Olivetti")  and 25% by Mannesmann  A.G., Bell Atlantic  International,
Inc. ("Bell Atlantic") and Telia International AB ("Telia")  (collectively,  the
"Omnitel Corporate Partners"). Pronto Italia, which holds a 30% interest in OPI,
consists of AirTouch, Mannesmann and several smaller partners (together with the
Omnitel Corporate Partners, the "Corporate  Partners").  To date, several of the
Corporate Partners have separately participated in the design,  construction and
operation  of GSM  cellular  networks  in over 10  countries  and have built GSM
networks which now serve several million subscribers.

     The  Company   believes   that  OPI's  launch  as  Italy's   second  mobile
telecommunications  operator  has been one of the most  successful  in  wireless
history. Since the start-up of its GSM system in December 1995, OPI has not only
achieved  comparable  coverage  with  its much  larger  and  longer  established
competitor,  but has attracted over 2.5 million subscribers.  As of December 31,
1997, the Company believes that OPI had  approximately 30% of the GSM market and
21% of the total cellular market in Italy,  with its cellular  network  covering
over 95% of the Italian  population.  In the quarter  ending June 30, 1997,  OPI
generated positive EBITDA for the first time.

     The Company continues to review telecommunications  opportunities in Europe
from time to time.

OMNITEL AND OPI

     GENERAL.  In February  1994,  Omnitel  and Pronto  Italia  entered  into an
agreement to jointly  form OPI as their  combined  applicant  for the second GSM
license in Italy. The License is for a period of 15 years,  ending January 2010.
OPI and Telecom  Italia  Mobile  ("TIM") are  currently  the only  licensed  GSM
cellular network operators in Italy. A third mobile communications  license will


<PAGE>

reportedly be awarded by May 1998,  although it has not yet been decided whether
the license will be exclusively  DCS-1800 or whether it may include some GSM-900
spectrum.

     OPI has entered  into a license  agreement  with the  Ministry of Posts and
Telecommunications  (now known as the  Ministry of  Communications)  (the "MOC")
which  defines the rights and  obligations  of OPI relating to the License.  The
License grants OPI access to 10.8 MHz, corresponding to 27 two-way 200 KHz radio
channels,  and authorizes OPI to provide digital cellular  telephone  service as
well as other  related  value added  services,  such as voice mail,  weather and
sports reports. OPI subsequently  received 14 more two-way 200 KHz channels (5.6
MHz of spectrum). Pursuant to the License, OPI was required to activate cellular
telephone  service to cover at least 40% of Italian  territory  and all  Italian
regional  capitals  within 18 months of the  License  grant,  and 70% of Italian
territory  and 90% of the  Italian  population  within five years of the License
grant. The License also sets forth service quality standards,  such as requiring
that OPI's failure rate for attempted calls over its network be 5% or less, that
OPI route its international traffic through the switching centers of the Italian
PSTN (prior to January 1, 1998) and that OPI pay established  fees for local and
international wireline service.

     OPI paid a fee of 750 billion lire  (approximately  $415.5  million) to the
Italian government  following the grant of the License,  although in response to
EU pressure to encourage a fair and competitive  communications  market, OPI has
since   received   60   billion   lire  from  TIM.   See   "Business--Government
Regulation--European  Union  Telecommunications Law." Throughout the term of the
License, OPI is required to pay a royalty fee to the Italian government equal to
3.5% of OPI's annual  sales,  net of amounts paid to public  wireline  telephone
operators for their services.  OPI agreed to pay royalties to the MOC in amounts
that are not less than 1.7  billion  lire for 1995 ($0.9  million);  8.2 billion
lire for 1996 ($4.5  million);  25.4 billion lire for 1997 ($14.1  million);  51
billion  lire for 1998 ($28.3  million)  and 77.1  billion  lire for 1999 ($42.7
million),  subject  in each  year to  reduction  only  due to any  proportionate
reduction  of the  royalty  percentage  to less  than  3.5%,  and has made  such
payments for 1995 and 1996.

     As  a  result  of  the  License   award,   the  Company  has  made  capital
contributions  of 152.5  billion  lire (an  aggregate  of $96.8  million  at the
exchange rates in effect at the time of each  contribution)  to Omnitel in order
to fund the Company's  10.267% share of the capital  requirements  of OPI. It is
expected  that no  further  capital  contributions  will be  required  under the
currently approved business plan, except for the subordinated credit facility of
70 billion lire that the Omnitel board of directors  agreed to make available to
OPI under certain circumstances.

     MARKET  OVERVIEW.  Italy is the largest and fastest growing cellular market
in Europe with 11.7 million  subscribers at year end 1997. The number of Italian
cellular subscribers has grown rapidly since a predecessor to TIM commenced full
900 MHz analog cellular  service in 1990. TIM commenced  limited  operation of a
GSM system late in 1992 and launched  full  marketing of its GSM system in April
1995, with OPI following in December 1995.

     The growth in demand for cellular telecommunications,  spurred by declining
cellular telephone  equipment and service prices, an increased  awareness of the
benefits of cellular  communications,  distribution  through widespread channels
and expanded network  coverage and capacity,  has been accompanied by transition
to  digital  systems  and  development  of  advanced


                                       2
<PAGE>


wireless   communications   technologies.   Complementing   such   technological
developments,  the Italian  telecommunications market has undergone a process of
deregulation  and  liberalization  and has  become an  increasingly  competitive
market.  OPI has  capitalized  on this rapid growth and developed and executed a
business  plan that  resulted  in one of the most rapid  wireless  start-ups  in
history.  In developing its market plan, OPI viewed current market conditions in
Italy as characterized by mediocre calling quality, relatively high access costs
and poor customer  service.  OPI's business plan  successfully  addressed  these
major weaknesses.

     The Company  believes Italy  represents an attractive  environment  for the
provision of wireless communications services due to the following factors:

     -    Italy's population of 58 million, concentrated in over 13 metropolitan
          areas, is the fourth largest in Europe;

     -    Italy has the third largest  economy in Europe in terms of GDP, behind
          only Germany and France, while ahead of the U.K.;

     -    Italy's  favorable  demographic  characteristics  which  include a per
          capita income of over $18,000;

     -    The Italian  economy is  characterized  by large  numbers of small and
          medium size businesses  which,  in the United States,  have been heavy
          users of cellular services;

     -    Cellular  service  currently  being provided in Italy has been rapidly
          accepted by both business and residential customers; and

     -    Favorable EU and Italian  regulations and oversight resulting from the
          EU  mandate to  encourage  a fair and  competitive  telecommunications
          market.

     The  Company  believes  OPI is  well-positioned  versus  TIM  in  providing
wireless communications services due to the following factors:

     -    The  Corporate  Partners'  experience  in the  management  of cellular
          systems;

     -    The quality of OPI's  network,  which has been  designed  for handheld
          telephone coverage; and

     -    OPI's business  strategy,  a core part of which is to provide superior
          levels of customer service.

ITALIAN TELECOMMUNICATIONS INDUSTRY

     OVERVIEW.  Until recent years,  most  telecommunications  services in Italy
were  provided  by  the  previously  government-owned  Telecom  Italia  and  its
predecessors.  Telecom Italia,  privatized in October 1997,  continues to be the
dominant provider of fixed telephony  services in Italy. TIM,  approximately 60%
owned by Telecom Italia, manages and operates the cellular phone service as


                                       3
<PAGE>


well as the paging and public radio mobile  communications  formerly operated by
Telecom Italia.

     ITALIAN CELLULAR  TELEPHONE  INDUSTRY.  The cellular  telephone industry in
Italy initially developed at a slower pace than other European cellular markets.
However,  Italy was the  fastest  growing  market  in Europe in 1997 and  mobile
telephone  penetration in Italy has now surpassed the European  average,  having
exceeded the penetration levels in the United Kingdom, France and Germany. As of
December 31, 1997,  the Italian  penetration  rate for cellular  telephones  was
approximately  20.6%,  with  approximately  11.7 million  subscribers.  Of these
subscribers,  approximately  3.4 million used  analog-based  cellular phones and
approximately  8.3 million used GSM phones.  The sole cellular operator in Italy
for five years prior to OPI entry into the market in December  1995 was TIM. OPI
launched  commercial services in December 1995. As of December 31, 1997, OPI had
approximately  2.5 million  subscribers,  representing 21% of the total cellular
market. Italy again added the most cellular subscribers in Europe in 1997.

     The  following  table  indicates the growth in the number of analog and GSM
cellular subscribers in Italy from 1992 to 1997.

                                TIM                     OPI
   YEAR            ------------------------------    ----------
ENDED DEC. 31,     ANALOG (EST.)       GSM (EST.)       GSM             TOTAL

   1992               780,800                0               0         780,800
   1993             1,200,800            6,200               0       1,207,000
   1994             2,164,400           75,300               0       2,239,700
   1995             3,396,000          467,000          54,000       3,917,000
   1996             3,795,300        1,910,000         713,000       6,418,300
   1997             3,400,000        5,800,000       2,460,000      11,660,000

     LOCAL TELEPHONE SERVICE.  Telecom Italia is currently the dominant provider
of local  telephone  service in Italy.  Local  telephone  service  provides  the
subscriber  with a base dial tone and  interconnections  between  local and long
distance service.

BUSINESS STRATEGY

     OPI's principal objective is to continue to capitalize on the opportunities
it believes are available in the growing and evolving  cellular market in Italy.
To establish itself as a leading  provider of high quality cellular  services in
Italy, OPI is pursuing the following business strategy:

     OFFER SERVICES TAILORED TO SPECIFIC  MARKETS.  OPI offers services tailored
to the  specific  needs  of  several  segments  in the  voice  services  market,
including  personal  users,  small  and  medium-sized   businesses,   and  large
corporations.  The products  offered to each segment  contain  various  options,
services  and prices that are  designed to meet the  specific  needs  identified
within  each  segment.  By more  effectively  tailoring  the package of services
offered to customers'  actual  needs,  OPI believes  that  customers  perceive a
higher value being  delivered in relation to the cost,  are more inclined to use
cellular services and have higher levels of product satisfaction.

     CONSTRUCT A HIGH CAPACITY,  FLEXIBLE NETWORK.  By building a high capacity,
technologically  advanced  cellular  network,  OPI commenced  operations with an
infrastructure  that


                                       4
<PAGE>


was  capable  of  handling  rapid  growth  in  activations   and  could  readily
accommodate  the  implementation  of new  voice and data  products  as they were
developed.  In designing  the network,  OPI  utilized  its  Corporate  Partners'
significant  experience in designing and building cellular networks to construct
a network that can provide  efficient and  dependable  service with a minimum of
interruptions.  The OPI network was built to take  advantage of current  digital
technology and to provide high quality service.  Compared to analog systems, GSM
systems  provide  users  with  improved  sound  quality  and  enhanced  security
features, as well as Pan-European roaming.

     BUILD  CUSTOMER  LOYALTY  THROUGH  SUPERIOR  CUSTOMER  SERVICE.  OPI offers
subscribers  access to 24-hour,  seven days a week  customer  service  providing
information  regarding  territorial  coverage,  distribution  channels,  product
features and technical  troubleshooting.  By employing the "best practices" used
by OPI's Corporate  Partners in their businesses,  OPI has raised the quality of
customer service offered to the highest levels found elsewhere in Europe and the
United States and has differentiated itself from the competition and generated a
high degree of customer loyalty.

     INTEGRATION OF TELECOMMUNICATIONS SERVICES. OPI's business plan anticipates
the gradual integration in Italy of the wireless and wireline telecommunications
markets.  OPI has  introduced new pricing plans for its GSM service that provide
competitive rates with those provided by TIM. In addition,  OPI anticipates that
this  convergence  will also  result in some  integration  of the  wireless  and
wireline telecommunications networks that provide services to customers.

SERVICES OFFERED BY OPI

     VOICE  SERVICES.  OPI offers  various  tariff  plans and  service  packages
targeting  individual  market  segments and tailored to address  different usage
patterns.  Each package includes certain standard functions and offers a variety
of optional services.  In addition,  OPI may offer installment payment plans for
purchasing  cellular  telephones  for  business  customers.  OPI is  continually
developing  a wider  range of value added  service  features,  which  management
believes  will  stimulate  subscriber  usage and provide  additional  sources of
revenue.   Services  currently  offered  to  subscribers  include  international
roaming,  voice  mail,  call  waiting,  call  on  hold,  call  forwarding,   and
short-messaging services.

     Subscribers  are charged,  depending  upon the plan, a one-time  connection
fee, a monthly  basic  charge and  traffic  fees per  minute.  The rates OPI may
charge for cellular services are not subject to government tariffs  establishing
minimum or maximum prices.

     In October 1997, OPI introduced  "Rete  Aziendale  Mobile" (RAM), a virtual
private network service using its intelligent  network platform,  allowing it to
offer corporate users special low rates for calls within  predefined closed user
groups, as well as quick four digit dialing within these groups (as on a PBX).

     TELEPHONE EQUIPMENT AND TERMINALS.  OPI and its distribution channels offer
customers  GSM  cellular  telephones  with a broad range of  optional  features.
Business  customers may purchase GSM  telephones  through OPI on an  installment
plan.


                                       5
<PAGE>

MARKETING STRATEGY

     OPI's  marketing  strategies  are  designed  to build upon its  competitive
strengths in order to increase  OPI's market share and revenues by expanding its
subscriber  base,  maximizing  usage and revenue per  subscriber  and minimizing
churn. OPI's marketing  objective  continues to be to create demand for cellular
voice and data transmission services and to attract subscribers by targeting the
needs of various market segments and providing superior service and reliability,
rather than competing  principally on the basis of price.  OPI generates  demand
through innovative pricing and features, distribution, advertising and marketing
of cellular telephone service and by introducing significant improvements in the
quality of customer service and the cellular telephone network.

     DISTRIBUTION.  OPI's objective is to maintain a cost-effective distribution
network that  maximizes its ability to distribute  products and services to each
of the voice and data market segments it has identified.  OPI uses both indirect
channels (such as existing  third-party sales or distributorship  organizations)
and direct  channels  (such as large  account  direct sales  teams,  proprietary
stores under franchising agreements and cellular "promoters" who are independent
agents affiliated with OPI).

     OPI has arrangements  with over 2,000  independent  dealers who target both
small  businesses and the personal  market  segment.  OPI's large accounts teams
target the top companies in Italy and contact the potential high usage customers
within  these   organizations.   OPI's  cellular   promoters   target  small  to
medium-sized  businesses and, in certain  circumstances,  larger  organizations.
Cellular promoters include individuals and organizations that are already active
in marketing  business  communications  products.  Finally  OPI's  network of 42
franchised stores serves both business and retail/consumer markets.

     ADVERTISING.  OPI uses a combination of direct marketing, trade advertising
and  retail  advertising,  along  with  promotional  campaigns  aimed  at  OPI's
distributors,  to promote OPI's  services.  OPI  advertises  in  newspapers  and
periodicals as well as on television and maintains  retail points of presence in
important shopping areas and in airports.  Through its advertising  efforts, OPI
seeks  to  promote  a  recognizable  image  of OPI's  services  with  consumers,
emphasizing  OPI's  proximity  to the  customer in every  aspect of the services
provided and  demonstrating  the  opportunities and advantages that GSM cellular
service can offer in both their business and personal lives.

CUSTOMER SERVICE

     The Company  believes that superior  customer service is vital to achieving
its objective of becoming a leading  cellular  telephone  and data  transmission
service  provider in Italy.  OPI attracts  and retains  customers by providing a
high level of service in the key areas of customer  assistance and  maintenance,
billing and fraud prevention. OPI's customer service operations utilize state of
the art  technology  and are operated by well  trained  staff.  OPI  continually
expands  the  capacity  of its  customer  service  operations  to keep pace with
subscriber growth.

     CUSTOMER ASSISTANCE AND MAINTENANCE.  OPI provides a full range of customer
services from the point of sale onward,  including  customer inquiry  helplines,
regional  service  centers and


                                       6
<PAGE>


on-line   assistance  to  customers   with  respect  to  billing  and  technical
difficulties,  service  inquiries,  the use and  repair of  equipment  and other
aspects of OPI's network operations. OPI provides its customers with a universal
number to permit  dialing from any location in Italy to call a customer  service
center that  provides  24-hour  service.  This  provides  customers  with quick,
"one-stop" service and a single contact point for help in solving their cellular
telephone and data transmission problems.

     BILLING.  OPI provides its  subscription  customers with easy to read bills
that are sent out  bi-monthly.  For customers who require  detailed  bills,  OPI
offers several billing options.

     PREPAID  SERVICES.  The majority of OPI's  subscribers do not receive bills
because they are prepaid  subscribers.  These subscribers  purchase "airtime" in
advance in the form of cards with unique  codes.  These  codes,  when input into
OPI's customer friendly  user-interface,  increase a subscriber's balance, which
is then  continuously  displayed on the  telephone's  LCD screen.  In 1997,  OPI
introduced  the  first   rechargeable   GSM  card  that  can  be  used  to  make
international calls from Italy and can be used abroad.

CELLULAR TELEPHONE TECHNOLOGY

     GSM AND  DCS-1800.  GSM is a  digital  technology  for  cellular  telephone
systems that all European Union ("EU") countries (and many countries outside the
EU) have  agreed to adopt as a common  standard.  Commercial  launch in  several
European  countries  commenced  in  1992  and by  the  end of  1997  there  were
approximately  41.2  million GSM (900 MHz)  subscribers  in Western  Europe,  an
increase of 100% over 20.6 million  subscribers  at the end of 1996.  Because of
the  popularity  of  the  GSM  standard  and  the  recent  rapid  growth  in GSM
subscribers,  the Company  believes that GSM telephones will continue to decline
rapidly in price.  The GSM system is designed to allow  subscribers to use their
cellular  telephones and  automatically  receive calls throughout Europe and, in
theory, wherever GSM technology has been adopted. Over 100 countries,  including
virtually all countries in Western  Europe,  have issued or propose to issue GSM
licenses. The GSM standard has also been adapted to the 1,800 MHz range and many
European  countries  have  issued or will  issue one or more of these  so-called
"DCS-1800"  licenses.  DCS-1800,  because of its technical  characteristics,  is
better suited for an urban setting.

     Because of the digital  nature of the  technology,  GSM  technology  offers
significantly increased capacity, better voice quality and improved privacy than
existing  analog  systems.  In  addition,  GSM data is contained on a subscriber
identity module card ("SIM Card" or "Smart Card") which can be transferred  from
one  cellular   telephone  to  another.   This  feature  greatly  increases  the
possibilities  for  distributing  GSM services by  eliminating  the need for all
distribution  points to stock  telephones.  GSM also  provides for such advanced
value-added  features as short messaging service (which provides an alphanumeric
display of short  messages),  caller ID (which  displays the calling number) and
other data  services.  An example of the  innovative  usage of these features to
increase  penetration  has been  OPI's use of the  short  messaging  service  to
provide its prepaid subscribers with a real time account balance.

     GSM has also been designed to offer various technical  solutions to prevent
fraud and misuse, such as authentication, together with anonymity and encryption
(the transformation of


                                       7
<PAGE>


information  from a readily  recognizable  system of  coding  to an  encoded  or
enciphered system of coding, or vice versa) of the signal so that  conversations
cannot be easily intercepted.

     OPERATING  CHARACTERISTICS.  The cellular  telephone  industry is typically
characterized  by high fixed costs and low variable costs.  Until  technological
limitations  on total capacity are  approached,  additional  cellular  telephone
system  capacity can normally be added in  increments  that closely match demand
and at less than the proportionate  cost of the initial  capacity.  The industry
has also recently experienced decreasing equipment prices. The amount of profit,
if any, under such circumstances is dependent on, among other things, prices and
variable marketing costs, which in turn are affected by the amount and extent of
competition.

NETWORK DESIGN, CONSTRUCTION AND PERFORMANCE

     Quality  and  geographic  coverage  of the  network  are key factors in the
distribution of cellular telephone service. OPI has constructed a high capacity,
technologically  advanced cellular network. The irregular topography,  including
many tunnels and mountains,  near some of Italy's most important cities requires
OPI to implement special network designs to avoid interruptions of calls.

     NETWORK  DESIGN.  The  basic  element  of OPI's  GSM  network  are its base
stations,  the interface between the user's telephone and the network.  The base
stations  house radio  transmission  and reception  equipment and perform signal
processing  activities when interfacing  with the signal.  Each base station has
substantial  fixed costs which  include the cost of  purchasing or leasing land,
constructing the facility, installing adequate power supply, installing adequate
security  systems  and  constructing  and  maintaining  the  equipment,  towers,
cabling,  antennae  or  other  related  equipment.  As  of  December  31,  1997,
approximately  2,400 base stations had been  installed.  OPI plans to install an
additional 1,300 base stations in 1998.

     Cellular  traffic is collected from a number of base stations and routed to
a Base Station Controller  ("BSC").  The BSCs allocate radio channels among base
stations,  manage intra-BSC  handoffs among the base stations and interface with
the Mobile  Switching  Centers  ("MSC").  The MSCs will  provide the  connection
between OPI's GSM network and Telecom  Italia's fixed network.  MSCs are located
near Telecom  Italia's  switching  centers to reduce the costs of accessing  the
PSTN.  Interconnection  of the various  elements of OPI's  network has generally
been  accomplished  using  lines  leased from  Telecom  Italia.  However,  where
appropriate  and cost  effective,  OPI intends to develop  its own  transmission
capabilities or utilize third party links.

     In 1997, OPI installed an Intelligent  Network  Platform,  which allows for
the rapid  creation and  implementation  of advanced  network  features (such as
closed user group four digit dialing).

     BASE  STATION  CONSTRUCTION.  The process of  obtaining  appropriate  sites
requires  that OPI  personnel  coordinate,  among  other  things,  site-specific
requirements  for  engineering  and  design,  leasing  of  the  required  space,
obtaining all necessary  governmental permits,  construction of the facility and
equipment  installation.  OPI has  utilized  software  systems  developed by its
Corporate  Partners  to assess  the  feasibility  of  various  new sites so that
network  design and site  development  are  coordinated  to the  maximum  extent
possible.


                                       8
<PAGE>


     PERFORMANCE  OBJECTIVES.  The network is designed to perform with less than
2%  of  calls  interrupted  during  peak  periods,  including  less  than  1% of
interruptions  in the connection  between MSCs and the fixed  network,  and with
system availability of 99.94% during daytime hours. OPI selects appropriate cell
sites and  alternative  cell  sites so as to reduce  voice  alteration  and call
interruption  resulting from signal  attenuation or interference  due to Italy's
irregular topography.

     OPI awarded Nokia  Telecommunications  ("Nokia") a contract for the initial
and secondary phases of construction of its GSM network.

     ROAMING  AGREEMENTS.  Roaming  allows  OPI's  customers to receive and make
international,  local and long distance calls while traveling  outside of Italy.
OPI has  negotiated  roaming  agreements  with over 70 operators in more than 50
countries, enabling subscribers to make and receive calls abroad.

     PERFORMANCE  BOND. OPI has provided an approximate 219 billion lire ($121.3
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. Specifically,  OPI was required to (i) cover 50% of
Italian  territory  with its  cellular  network by May 1996 and 98% by May 1998,
(ii) invest 969 billion lire ($536.8 million) by May 1996 and 1,552 billion lire
($859.8  million) by May 1998,  (iii)  employ 1,163 people by May 1996 and 2,686
people by May 1998,  (iv) pay  royalties to the MOC in amounts that are not less
than 1.7 billion lire for 1995 ($0.9  million);  8.2 billion lire for 1996 ($4.5
million);  25.4 billion lire for 1997 ($14.1 million);  51 billion lire for 1998
($28.3 million) and 77.1 billion lire for 1999 ($42.7 million),  subject in each
year  to  reduction  only  due to any  proportionate  reduction  of the  royalty
percentage to less than 3.5% and (v) maintain the declared stockholding majority
of OPI until February 1, 2000. OPI is subject to monetary  penalties for failing
to achieve  such  goals.  Performance  goals  have been  achieved  to date,  and
although no assurance can be given, the Company believes the future  performance
goals are achievable. The maximum liability of the Company under the performance
bond would be approximately  22.5 billion lire ($12.5  million),  reflecting its
proportionate  interest  in OPI.  In  addition,  the  failure of OPI to meet the
standards of service (meaning proper use of frequencies, meeting coverage goals,
maintaining  and  interconnecting  the networks,  and prompt  payment of license
fees) prescribed in the License and the performance bond could result in loss of
the License and have a material adverse effect on OPI and the Company.

ARRANGEMENTS WITH TELECOM ITALIA

     FEES AND PRICING WITH TELECOM ITALIA. Pursuant to the License, OPI connects
its mobile  cellular  telephone  network to the PSTN.  Although  Telecom  Italia
grants OPI discounts on two Mbps leased lines,  OPI is negotiating  costs for 34
and 155 Mbps leased  lines,  which will  further  reduce  OPI's  interconnection
expense.  Telecom Italia charges equivalent access fees and provides  equivalent
access  to and  pricing  of  leased  lines to each of OPI and TIM.  Following  a
reduction  in  1997,  OPI's  access  charges  when  interconnecting  to the PSTN
(originally  set at 200 lire per minute for all calls) are  currently set at 200
lire per minute for inbound calls and 80 lire per minute for outbound calls.


                                       9
<PAGE>


OPI'S CORPORATE PARTNERS

     The  Corporate  Partners  are on the leading  edge of  cellular  technology
worldwide. Certain Corporate Partners are involved in standardizing and revising
technological specifications of cellular systems in their respective markets and
also possess expertise in other  international  technological  areas such as the
European   Telecommunications   Standards   Institute,   the  Universal   Mobile
Telecommunications  System and the International  Telecommunications  Union. The
Corporate  Partners include OliMan (75% owned by Olivetti and 25% by Mannesman),
Bell  Atlantic,  AirTouch,  Mannesmann  and  Telia.  Olivetti  is one of Italy's
largest  companies  and  has  been  involved  in  the  private  voice  and  data
communications  network  industry  for  over ten  years.  Bell  Atlantic  Mobile
operates in more than fifteen U.S. states making it one of the largest suppliers
of  cellular  services  in the United  States.  AirTouch  is one of the  world's
largest  wireless  telecommunications  operators.  Mannesmann is a subsidiary of
Mannesmann AG, one of Germany's ten largest  industrial  conglomerates and owner
of the largest interest in Germany's D2 Private GSM system.  Telia was a pioneer
in European cellular communications and an initiator of the GSM system. Telia is
at present  participating  in the  development of cellular  systems in almost 20
different countries, either directly or in collaboration with national telephone
operators.  None of the Corporate  Partners has any obligations  with respect to
the Notes or (except as  otherwise  set forth  herein)  to provide  services  or
financial support to OPI.

COMPETITION

     OPI competes with wireline telephone service offered by Telecom Italia, and
the  cellular  telephone  service  offered by TIM,  as well as with at least one
additional  wireless  license to be granted in 1998 and at least  partially with
Telecom  Italia's  recently  launched  low  mobility  DECT  service.  TIM  has a
significant  advantage over OPI in the Italian cellular  telephone market,  with
approximately  9.2 million analog and GSM subscribers as of January 1, 1998. TIM
has certain  advantages  over OPI such as a larger customer base, more operating
spectrum  and the use of the  Telecom  Italia  name.  Many high  usage  business
customers  were  already  TIM  cellular  customers  by late 1995 and  remain TIM
subscribers.  Moreover, OPI may also face significant potential competition from
other  communications  technologies  that  are  being  or  may be  developed  or
perfected in the future.

GOVERNMENT REGULATION

     OVERVIEW.  The legal framework for the regulation of the telecommunications
sector in Italy has been extensively  revised in recent years. This revision has
included the  liberalization of substantially all  telecommunications  services,
the  formation  of the  Communications  Authority,  the  independent  agency  to
regulate the communications  industry,  the implementation of the Framework Law,
and the adoption of the Telecommunications Regulations by the Italian Government
pursuant to Law No. 650 of December 23, 1996 ("Law 650") and Law No. 189 of July
1,  1997  ("Law  189")  to   implement  a  number  of  EU   directives   in  the
telecommunications  sector.  Effective  August 1, 1997,  the former  Ministry of
Posts and Telecommunications changed its name to the Ministry of Communications.
The Telecommunications Regulations became effective on October 7, 1997.


                                       10
<PAGE>


     The  Framework  Law in general  aims at (i)  ensuring  the  improvement  of
competition and efficiency in the  telecommunications  sector; (ii) establishing
adequate quality standards; (iii) ensuring access to telecommunications services
in a homogeneous  manner throughout Italy; (iv) defining a clear and transparent
tariff  system  based on the  "price  cap"  method  which  will apply to Telecom
Italia's fixed public voice  telephony  services for up to two years from August
1, 1997 and (v) protecting consumers' and users' interests.

     The  Telecommunications  Regulations contain provisions  concerning (i) the
granting  of  general   authorizations   or   individual   licenses  to  provide
telecommunications  services;  (ii)  universal  service  obligations  and  their
financing;  (iii)  access  contributions;  (iv) special  obligations  imposed on
operators  having  significant  market  power,  including the  determination  of
interconnection charges using principles of cost orientation;  (v) numbering and
number  portability;  (vi) rights of way; and (vii) the  essential  requirements
that must be complied with in the provision of services and when interconnecting
between public  telecommunications  networks.  The  Communications  Authority is
expected to establish  detailed  regulations  governing  the  telecommunications
sector and will monitor their application,  while the Ministry of Communications
will retain the responsibility for defining  telecommunications policy in Italy,
and will have the power and authority to grant authorizations and licenses.

     The  activities of OPI and TIM are also subject to the terms and conditions
of their public operating concessions (the "Public Concessions").

     Other significant telecommunications measures include Law No. 58 of January
29, 1992 ("Law 58"), implementing regulations and the Ministry of Communications
decrees principally  promulgated with respect to tariffs, and Regulation No. 197
of May 8, 1997, concerning telephone service and subscriptions contracts.

     THE COMMUNICATIONS  AUTHORITY. The Communications Authority will consist of
a President appointed by the Italian Government through a Presidential decree, a
Committee  for  Infrastructures  and  Networks,  a Committee  for  Products  and
Services and the Council.  Each of the  Committees'  members will be selected by
the Italian  Parliament (four by the Senate and four by the Chamber of Deputies)
and appointed  through a  Presidential  decree.  Each of the  Committees and the
Council will be  responsible  for  establishing  regulations  for their specific
areas.

     The Committee for  Infrastructures  and Networks will be  responsible  for,
among other things,  guidelines for  allocating  radio  frequencies  relating to
telecommunications  services;  defining  objective and transparent  criteria for
establishing   tariffs  for  interconnection  and  network  access;   regulating
relationships among  telecommunications  companies;  settling disputes regarding
interconnection;  and defining the scope of the universal service obligation and
the operators  subject to it, together with criteria for calculating and sharing
its costs.

     The  Committee  for Products and Services will be  responsible  for,  among
other things,  issuing  guidelines for regulating product quality and conformity
with EU directives  governing the  relationship  between  companies  controlling
fixed or  mobile  telecommunications  networks  and  telecommunications  service
providers.


                                       11
<PAGE>


     The  Council  will  be  responsible  for,  among  other  things,   adopting
regulations    establishing    criteria    for   issuing    licenses   for   the
telecommunications  sector and for TV and radio activities  (including cable and
satellite broadcasting) pursuant to Presidential Decree No. 318/97.

     The Communications Authority will have investigative powers, as well as the
authority  to  impose  sanctions  on  operators  who do not  comply  with  their
directives and resolutions.  In addition,  the Communications  Authority will be
entitled to propose to the  Ministry of  Communications  the  revocation  and/or
suspension of general  authorizations  and  individual  licenses in the event of
repeated violations by the holder.

     PUBLIC  CONCESSIONS.  The Public Concessions of OPI and TIM are embodied in
conventions  setting out their  obligations  relating to the provision of public
services (the "Conventions").  Pursuant to these Public Concessions, OPI and TIM
were each granted  non-exclusive  rights for the installation and operation of a
mobile  telecommunications  network  for  the  provision  of  telecommunications
services. The Public Concessions will expire in 2010. OPI and TIM are subject to
parallel rules and  regulations  concerning  the provision of GSM services.  The
services must be rendered in accordance  with the terms and conditions set forth
in  the  Conventions,  which  address,  among  other  matters,  radio  frequency
allocation, commencement of operations, price controls and service requirements.
TIM's GSM service  commenced  operations in April 1995. OPI's service  commenced
operations on December 7, 1995.

     Specifically, the GSM concessions require each of OPI and TIM:

     -    to  cover  70%  of  the  Italian  national  territory  and  90% of the
          population within five years and to provide service in major towns and
          cities in each of the 20 regions of Italy;

     -    to meet certain technical requirements concerning the provision of GSM
          cellular services to end users;

     -    to sign  interconnection  agreements with Telecom Italia, as the owner
          of the fixed public network, which were entered into in April 1995;

     -    to pay access  charges to Telecom  Italia for the use of the connected
          wireline  telephone  network  at an  average  of 200 lire  per  minute
          (reduced  to 140 lire per minute for all calls as of June 6, 1997 and,
          as of August 1, 1997,  200 lire per minute for calls  incoming  to the
          mobile network from the fixed network and 80 lire per minute for calls
          incoming to the fixed network from the mobile network); and

     -    to deliver to the MOC, upon  request,  data and  information  on their
          business  operations,  as well as  copies of their  audited  financial
          statements and to observe certain criteria of accounting separation in
          relation to the GSM services performed.

     The duration of the GSM concessions is 15 years,  commencing on February 1,
1995.


                                       12
<PAGE>


     As set forth by the Conventions, each licensee's corporate purpose shall be
exclusively  the research,  design,  realization  and  operation of  radiomobile
networks and related services,  including rental and sale of telephone software,
equipment  and  appliances,  provided  that  such  ancillary  activities  do not
interfere  with the  provision  of GSM service and the sound  management  of the
licensee.  Each of the  licensees  is required  by the  relevant  Convention  to
maintain its registered office, and technical and administrative headquarters in
Italy.

     The OPI  Convention  further  provides  that at least  60% of the OPI share
capital as declared at the time the  license  was granted be  maintained  in its
entirety by the relevant  shareholders  for at least five years as from the date
of granting of the License.

     The Conventions  expressly state that the licenses cannot be transferred or
assigned,  in whole or in part,  for any reason  whatsoever,  unless the MOC has
granted  its prior  consent.  Moreover,  upon  occurrence  of  certain  material
breaches by the licensees, the MOC may revoke the licenses.

     The settlement of any controversy  arising from the construction,  validity
and performance of the Conventions,  to the extent an amicable settlement cannot
be reached  within 30 days from the date on which one of the parties has invited
the other to negotiate,  shall be remitted to the exclusive  jurisdiction  of an
arbitration  tribunal consisting of five members, two of whom shall be appointed
by the MOC,  two of whom shall be  appointed  by the  relevant  licensee and the
remaining  member  shall be  appointed  by the State  Council.  The  arbitration
tribunal  shall  sit in Rome and shall  decide  at law on the  basis of  Italian
substantive and procedural laws.

     The OPI  Convention  calls for the  issuance by OPI of a  performance  bond
linked to OPI's meeting certain  performance and investment  goals. OPI would be
subject to monetary penalties for falling to achieve such goals.

     OPI and TIM have  licenses to provide  mobile  telecommunications  services
using the  advanced  DCS-1800  digital  technology,  subject to the MOC granting
access rights to the required  frequencies  for the provision of such  services.
Pursuant to Law 189,  the MOC is expected to grant such  frequencies  to the GSM
operators during 1998 and to license a third operator to provide such service in
1998. At least two consortia,  Picienne  Italia S.p.A.  (the joint venture among
Mediaset S.p.A., British  Telecommunications,  Italgas S.p.A., ENI S.p.A., Banca
Nazionale del Lavoro S.p.A.  and Telenor) and Wind  Telecomunicazioni  S.p.A. (a
consortium  including  Deutsche  Telekom A.G.,  France Telecom and ENEL S.p.A.),
have separately indicated their intention to bid for the third DCS-1800 license.

     The  Telecommunications  Regulations  provide  that by  January 1, 1999 the
existing Public  Concessions will have to be modified in conformity with the new
regulatory framework.

     TARIFF AND PRICING POLICY. GSM prices are established  autonomously by each
of OPI and TIM, taking into account,  among other factors,  structure and levels
of prices/tariffs for interchangeable services (analog mobile services and basic
telephony  services)  and the policies of the main European  operators,  subject
only to the  obligation  to give  the MOC or the  Communications  Authority,  as
applicable,  30 days' notice of changes in prices.  The  licensees may


                                       13
<PAGE>


not apply  discriminatory  contractual  conditions to the various end consumers,
except that the right to apply special  conditions  to particular  categories of
customers may be granted by the MOC.

     EUROPEAN UNION  TELECOMMUNICATIONS LAW. Italy is a member of the EU and, as
such,  is  required  to  implement  the  directives  issued by the EU.  Although
directives must be incorporated into domestic legislation to be fully effective,
a directive or certain  provisions of a directive may take effect  automatically
in a  member  state (a  "Member  State")  on the  prescribed  deadline  if it is
sufficiently  clear and  specific,  even if it is not  formally  adopted by such
member  State  by the  prescribed  deadline.  If a  directive  is  not  formally
implemented  by the  prescribed  deadline,  the  only  remedy  available  for an
interested party is to seek damages against the Member State.  Italy is also the
addressee of various EU resolutions,  recommendations and communications,  which
are not legally binding, although politically important.

     In June 1990, the European Commission adopted a Directive on Competition in
the Markets for  Telecommunications  Services  ("EU  Directive  90/388"),  which
opened to competition  telecommunications services other than fixed public voice
telephony   services.   In  particular,   EU  Directive   90/388   required  the
liberalization of circuit and packet switched data  transmission,  in accordance
with  regulations  promulgated  by  each  national  regulatory  authority.  When
initially  issued, EU Directive 90/388 did not apply to radio mobile services or
to satellite services. As discussed below, subsequent amendments to EU Directive
90/388  extended  its terms to cover  such  services.  EU  Directive  90/388 was
formally implemented in Italy by Decree 103.

     On January 16, 1996,  the European  Commission  adopted EU Directive  96/2,
liberalizing  mobile  telecommunications  services  within  the EU (the  "Mobile
Telecommunications  Directive").  The  most  important  elements  of the  Mobile
Telecommunications Directive implemented by Law 189 are the following:

     -    Mobile telecommunications  operators are authorized to construct their
          own infrastructure for the mobile network or to utilize infrastructure
          owned by third parties.

     -    Direct interconnection among mobile networks is to be guaranteed.

     -    The number of licenses for mobile telecommunications  systems may only
          be limited on the basis of essential requirements and in case adequate
          frequencies are not available.

     -    The conditions for granting licenses for access to frequencies and for
          interconnection  to  the  fixed  public  telephony  network  shall  be
          regulated with transparency, proportionality and non-discrimination.

     The EU competition rules have the force of law in the Member States and are
therefore applicable to OPI's operations in the  telecommunications  market. The
main principles of the EU competition  rules are stipulated in Article 85 of the
EC Treaty. Article 85 prohibits collusive behavior between competitors which may
effect  trade  between  Member  States and which  restricts,  or is  intended to
restrict,  competition  within the EU.  These rules are enforced by the European


                                       14
<PAGE>


Commission in cooperation with the national competition  authorities,  including
the  Italian  Antitrust  Authority.   In  addition,  the  national  courts  have
jurisdiction to litigate violations of EU competition law.

     In a decision  dated  October 4, 1995,  the European  Commission  antitrust
bureau  found that the fact that OPI was  required to pay the 750  billion  lire
($415.3  million) license fee was unfair and  discriminatory  and undermined the
capability  of OPI to  effectively  compete with Telecom  Italia,  which was not
asked for any money  contribution  in  connection to the granting of its license
from the MOC. As a result,  the  European  Commission  antitrust  bureau's  1995
decision  stipulated  that TIM must  compensate  OPI in the amount of 60 billion
lire. In October 1997,  following a letter by Mr. Karel Van Miert,  the chief of
the European  Commission  antitrust  bureau,  to the Italian  Telecommunications
Minister  expressing  concern  over the delay in  implementing  the  package  of
corrective measures regarding mobile telephony in Italy, TIM made a compensation
payment to OPI of approximately 60 billion lire.  However,  TIM is disputing the
basis for such payments and has recently  filed an action seeking to have the 60
billion compensation payment nullified.

THE OMNITEL AGREEMENT

     The Company, OliMan, Bell Atlantic and Telia have entered into an agreement
(the "Omnitel  Agreement"),  that contains provisions governing the relationship
between  them,  including,  but  not  limited  to,  provisions  relating  to the
governance and financing of Omnitel.

     CAPITALIZATION.  Any new capital calls must be unanimously agreed to by the
Omnitel  board  of  directors.  Unless  a  coventurer  otherwise  consents,  its
financial  liability  with respect to a capital call or any other  commitment to
provide  funds to Omnitel  shall be limited to its pro rata  ownership  interest
therein.

     MANAGEMENT  OF OMNITEL.  The Omnitel  board of  directors  consists of nine
members,  with one member  designated  by each of the  Company  and  Telia,  two
members  designated  by Bell Atlantic and five members  initially  designated by
OliMan,  with OliMan  designating  the chairman of the board of  directors.  The
presence and  unanimous  affirmative  vote of at least two of the members of the
board of  directors  designated  by OliMan  and of all the other  members of the
Board is required for any actions,  decisions or determinations  relating to the
following, among others:

     (i)  the  formation of any  subsidiary  company or entering  into any joint
          venture or other similar arrangement;

    (ii)  the issuance or redemption of any shares, bonds or other securities of
          Omnitel;

   (iii)  the  acquisition  of shares of or any interest in any  corporation  or
          the creation of any  partnership,  consortium or other legal entity of
          which Omnitel is or will be a partner, member or similar participant;

    (iv)  the  adoption  or  amendment  of  Omnitel's  annual  budget  or future
          business plan;


                                       15
<PAGE>


     (v)  any  merger,  consolidation  or  amalgamation  with or into any  other
          company  or   corporation  or  the  sale  or  disposition  of  certain
          franchises or licenses;

    (vi)  the  engagement in certain  businesses  outside the scope of Omnitel's
          "object";

   (vii)  the  declaration  or payment of  dividends  or the making of any other
          distribution to shareholders;

  (viii)  the voluntary liquidation, dissolution or termination of Omnitel;

    (ix)  the amendment of Omnitel's by-laws;

     (x)  the  initial  appointment  of  the  independent  auditors,  and of the
          outside counsel to Omnitel; and

    (xi)  the  increase  or  decrease  of the number of  members of the  Omnitel
          Board.

     The presence of at least two members of the Board  designated by OliMan and
at least all but one of the other members of the Board and the affirmative  vote
of at least two of the  members of the Board  designated  by OliMan and at least
all but one of the other  members  of the Board are  required  for any  actions,
decisions,   or  determinations   of  the  Omnitel  Board  (including,   without
limitation,  a  determination  to  present  such  matters  or  proposals  to the
shareholders of Omnitel) relating to any of the following matters or proposals:

          (i)  except as  specifically  provided  for in the  annual  budget and
     future  business plan, the lease,  acquisition or disposition of any assets
     in a transaction or in a series of related  transactions  having a value in
     excess of 300 million lire ($166,000);

          (ii) the appointment,  granting of powers, dismissal and determination
     of the remuneration of the Chairman, the Managing Director or the principal
     executive officers of Omnitel;

          (iii)  any  change in the  independent  auditors,  and of the  outside
     counsel to Omnitel;

          (iv)  subjection of the property or assets of Omnitel to any mortgage,
     lien, pledge, claim or judgment except in the ordinary course of business;

          (v) the  extension  of loans or  guarantees  to or on  behalf of third
     parties except in the ordinary  course of business in amounts not to exceed
     in the aggregate 300 million lire  ($166,000) or  individually  100 million
     lire ($55,000) annually,

          (vi) the incurring of  indebtedness  for borrowed  money except in the
     ordinary  course of business in amounts not to exceed in the  aggregate 1.0
     billion  lire  ($554,000),  or  individually  500 million  lire  ($277,000)
     annually;


                                       16
<PAGE>


          (vii) enter into, amend or terminate any transaction with any venturer
     or  affiliate  of any  venturer  in Which  the  value of the  goods  and/or
     services  to be  purchased,  sold  or  leased  (including  compensation  or
     reimbursement for employees made available to the venturer) would exceed 25
     million  lire   ($14,000)  in  a   transaction   or  a  series  of  related
     transactions; and

          (viii) the acceptance of any terms and conditions  necessary to obtain
     and/or renew a license.

     For any actions, decisions or determinations of the Board which require the
unanimous  decision of the Board,  the Omnitel  venturers,  as  shareholders  of
Omnitel, agreed to vote in conformance with the Board's determination whenever a
resolution of the  Shareholders'  Meeting is also  required.  The venturers also
agreed,  as  shareholders  of  Omnitel,  not to vote in support of any action or
decision  which requires a unanimous or  supermajority  decision of the Board as
described  above,  unless the Board has first considered such action or decision
and the required affirmative vote of the members of the Board for such action or
decision has been obtained.

     The  By-laws of Omnitel  require  only the  affirmative  vote of 75% of the
members of the Board of  Directors  to approve  the actions  described  above as
unanimous  actions.  If such an  action  were  approved  by 75% of the  Board of
Directors,  but not  consented  to by the  Company as  required  by the  Omnitel
Agreement,  the  Company  might not be able to obtain  injunctive  relief  under
Italian law.

     CERTAIN  TRANSFER OF OMNITEL STOCK. A co-venturer  may, without the consent
of the other co-venturers,  transfer its Omnitel stock to its affiliates,  other
co-venturers  or the affiliates of other  co-venturers.  A co-venturer  may not,
however, sell, assign, transfer, pledge, encumber or otherwise dispose of any of
its  Omnitel  stock to a party  who is not an  affiliate,  a  co-venturer  or an
affiliate  of a  co-venturer,  without  prior  written  consent of all the other
co-venturers.  All  transfers of Omnitel stock other than to  affiliates,  other
co-venturers or affiliates of other co-venturers are subject to a right of first
refusal by the other  co-venturers.  If more than one co-venturer  exercises the
right of first refusal, each of the co-venturers may purchase a pro rata portion
of such  Omnitel  stock  (based  upon the total  number  of shares  owned by all
co-venturers  exercising  the  right of first  refusal).  Such  rights  of first
refusal may be exercised at the price indicated by the transferring  co-venturer
in a notice that must be sent by the  transferring  co-venturer to the remaining
co-venturers  prior to effecting a transfer  that gives rise to a right of first
refusal.

     CHANGE IN CONTROL OF A CO-VENTURER;  RIGHTS OF FIRST REFUSAL.  If more than
50 percent of the shares of voting  securities  of a  co-venturer  (the "Selling
Co-Venturer")  are  transferred  to a third  party (or  parties)  that is not an
affiliate of the Selling  Co-Venturer  (an "Omnitel  Change in  Control"),  each
co-venturer  (a "Buying  Co-Venturer")  shall have the  non-assignable  right to
purchase all or a pro rata portion  (based upon the total number of shares owned
by co-venturers  exercising such right to purchase) of the Selling Co-Venturer's
shares of Omnitel stock at a price indicated by the Selling Co-Venturer.  In the
event a  Buying  Co-Venturer  objects  to the  price so  indicated,  it shall be
settled by  arbitration.  The  acquisition of control of any parent company of a
co-venturer  which owns or operates  substantial other businesses or entities in
addition  to the  venture  is not  deemed to  constitute  an  Omnitel  Change in
Control.


                                       17
<PAGE>


     REQUIRED  SALE  UPON  DEFAULT  IN  REQUIRED  CAPITAL  CONTRIBUTION.   If  a
co-venturer  willfully fails to make required capital  contributions,  the other
co-venturers shall have the non-assignable option to purchase such co-venturer's
Omnitel stock for a cash price equal to the paid-in-capital  represented by such
stock.

     ADDITIONAL REQUIRED SALES. The following may also give rise to the granting
of a non-assignable  option to purchase  co-venturer's Omnitel stock at the cash
price equal to the paid-in-capital represented by such stock: (i) the failure by
a co-venturer to perform any material  obligation  under the Omnitel  Agreement;
(ii) the filing of a bankruptcy  petition by a  co-venturer,  or (iii) a willful
violation  or breach by a  co-venturer  of any of the  covenants  in the Omnitel
Agreement.  If the non-assignable option to purchase a defaulting  co-venturer's
Omnitel  stock  were  triggered  and the  defaulting  party  refused to sell its
Omnitel  stock,  thereby  breaching  the  relevant  provisions  of  the  Omnitel
Agreement,  under  Italian law, the Company may face  difficulty in becoming the
record  owner of the  Omnitel  stock and could thus be forced to bring an action
for damages against the co-venturer refusing to comply with such provisions.

     COVENANT NOT TO COMPETE.  The  co-venturers  have agreed that, at all times
during which they own Omnitel stock and for two years  following the disposition
to an unaffiliated third party thereof,  they will not engage in the business of
building,  owning or operating a cellular mobile telephone  network or providing
mobile telecommunications services (a "Competing Business") in Italy without the
consent of Olivetti  and at least all but one of the other  co-venturers,  which
consent  is  not  to  be  unreasonably  withheld;   provided,  however,  that  a
co-venturer  may own  less  than  10  percent  of a  Competing  Business  if the
co-venturer  is not  represented  on the  board  and has no  active  role in the
management  of the  Competing  Business.  Each  of the  co-venturers  and  their
affiliates may, however,  engage in or possess an interest in any other business
in Italy or any Competing Business outside of Italy.

THE OPI AGREEMENT

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

     CAPITALIZATION.  Each of Omnitel and Pronto Italia had originally committed
to  contribute,  pro rata to its  holdings,  to the capital of OPI an  aggregate
total not exceeding  l,000 billion lire ($554 million) (the  "Mandatory  Capital
Calls"). Such amount has been subsequently increased to 1,450 billion lire ($803
million). In the event that the capital requirements of OPI exceed the Mandatory
Capital  Calls,  Omnitel and Pronto  Italia are  entitled to  subscribe  to such
additional capital calls but are not obligated to do so.

     SHARE TRANSFERS. Omnitel and Pronto Italia have agreed for a period of five
years  from the award of the  License to be bound by the  restrictions  on share
transfers as required by the License  terms.  Each of Omnitel and Pronto  Italia
has  undertaken  not to  transfer  any of the shares it holds at any time in OPI
except to another party to the OPI Agreement. To the extent that under the terms
of the License or any  applicable law or regulation the sale of OPI shares is or
becomes  permitted only in part, the obligation not to transfer OPI shares shall
terminate  in the first  instance  in respect of the shares of Pronto  Italia in
OPI,  and shall  expire in respect of the


                                       18
<PAGE>


shares held by Omnitel  only when the amount of shares  that can be  transferred
exceeds  30% of the  capital  of OPI.  Prior to the  grant of the  License,  the
shareholders  of Omnitel  have  offered  in a letter to the MOC to  collectively
maintain at least 86% of the share ownership of Omnitel for the first five years
of the License.

     MANAGEMENT  OF OPI. The OPI board of directors  includes the  non-executive
Chairman  designated by Pronto Italia, the Managing Director and Chief Financial
Officer designated by Omnitel and the Chief Technical Officer designated jointly
by Bell  Atlantic  and  AirTouch  or in the  event  of  their  failure  to reach
agreement in such designation by OliMan. A decision of a Special Majority (which
requires  the  favorable  vote of at least  one  director  designated  by Pronto
Italia) of the Board of Directors is required for the following  matters,  among
others:   (i)  certain   agreements  between  OPI  and  any  subsidiary  of  its
shareholders  or any company in which any  shareholder  has a direct or indirect
voting  interest  of 25% or more;  (ii)  adoption  by OPI of annual  budgets and
business  plans and material  amendments  thereto;  (iii)  investments by OPI in
assets  in excess  in the  aggregate  of 5 billion  lire  ($2.8  million);  (iv)
incurrence by OPI of indebtedness  (excluding  ordinary bank loans)  exceeding 5
billion  lire ($2.8  million);  (v)  granting of loans  exceeding 5 billion lire
($2.8 million) to any single party; and (vi)  recommendations  in respect of the
distribution of dividends.

     COVENANTS  NOT TO COMPETE.  Omnitel and Pronto  Italia have agreed that, at
all times the OPI  Agreement  remains in effect and for two years  following the
termination  thereof or until any party ceases to be a party whenever such event
may occur,  they nor any company directly or indirectly  controlled by either of
them, or any company which directly or indirectly  controls either of them, will
not  involve  themselves  or  itself,  as the case may be,  in any way,  through
participation  in  excess  of 15%,  or of 5% as  regards  quoted  companies,  in
wireless  activities  in Italy  (other than the supply of goods and  services to
cellular  telephone  systems)  regarding  cellular  telephony systems which fall
within  the  "object"  of OPI.  Each of  Omnitel  and  Pronto  Italia  and their
shareholders  may,  however,  engage in any activity  (with the exception of PCN
services)  to which the parties  decide not to extend  OPI's  mission,  if their
engaging in such activity will not distract  resources and  commitment  from the
mission of OPI.

OTHER CONSIDERATIONS

     RISKS INHERENT IN FOREIGN INVESTMENT

     The Company has invested  substantially all of its resources outside of the
United  States  and  intends  to  continue  to  review  possible   international
investments in the future.  Risks inherent in foreign operations include loss of
revenue,  property  and  equipment  from  expropriation,  nationalization,  war,
insurrection,  terrorism and other political risks,  risks of increases in taxes
and governmental  royalties and fees and involuntary  renegotiation of contracts
with  foreign  governments.  Only a portion  of such risks may be  insured.  The
Company  currently does not have political risk insurance in Italy.  The Company
is also  exposed to risks of change in foreign and  domestic  laws and  policies
that govern operations of foreign-based companies.

     There can be no assurance that the laws or administrative practice relating
to taxation, foreign exchange or other matters in Italy will not change, and any
such change could have a material


                                       19
<PAGE>


adverse effect on the financial affairs of OPI or the Company.  The value of the
Company's  interest in OPI may also be affected by changes in tax and other laws
and other political,  economic,  socioeconomic or diplomatic  developments in or
affecting Italy.

     PASSIVE FOREIGN INVESTMENT COMPANY

     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 percent of its income is "passive income" or
if at least 50 percent of its assets  are held for the  production  of  "passive
income." A non-U.S.  corporation  that owns 25 percent 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.

     It is possible that Omnitel is 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.  The Company  acquired  shares in Omnitel in 1990. The regular
deadline for making a QEF election for 1990 was in 1991. In December  1997,  new
temporary regulations were issued by the Treasury Department,  pursuant to which
the Company  intends to seek a ruling from the  Internal  Revenue  Service  that
would  allow the Company to  retroactively  make the QEF  election as  described
above.  No assurance can be given that the Internal  Revenue  Service will grant
such ruling request. If the Company cannot make the QEF election  retroactively,
on a sale of its  Omnitel  shares  or the  receipt  of  certain  dividends  from
Omnitel,  the  Company  would be  subject to U.S.  federal  income tax and to an
interest  charge on that tax over its  holding  period  commencing  in 1990,  as
described above.

     If the Company  were to make the QEF  election,  as  described  above,  the
Company would be required in each year that the 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 Omnitel.

EMPLOYEES

     CCII has 15 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


                                       20
<PAGE>


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.

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 adverse effect on its operations.  OPI and TIM have each filed lawsuits
in Italy against each other involving various competitive  matters. In addition,
in a currently  pending  matter,  TIM has claimed  that OPI had not  satisfied a
requirement that its network cover at least 40% of the Italian  territory at the
time of the launch of its  commercial  services  in December  1995,  and OPI has
counterclaimed seeking damages for TIM's delay in permitting national roaming.

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, 1997.





                                       21
<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 (before giving  retroactive effect to the three-for-two
stock split by way of stock dividend in April 1998).

                                                     LAST SALE PRICE
                                                 HIGH                LOW
                                          --------------------------------------
      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                              32.75               26.75
      Second Quarter                             34.25               24.13
      Third Quarter                              41.50               32.50
      Fourth Quarter                             47.50               39.13

      1998
      ----
      First Quarter (through March 20)           59.75               45.88


     On March 20, 1998,  the closing price for the Common Stock,  as reported on
the Nasdaq Stock Market's  National  Market,  was $59.75.  As of March 20, 1998,
there were  approximately  320 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.


                                       22
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA.
-------------------------------

     The following  table sets forth certain  financial data for the years ended
December 31, 1997, 1996, 1995, 1994 and 1993. 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,
                                                --------------------------------------------------------------------
                                                   1997            1996           1995 (1)       1994          1993
                                                --------------------------------------------------------------------
<S>                                             <C>             <C>             <C>           <C>           <C>
INCOME STATEMENT DATA:
Operating revenue                               $       -       $       -       $      -      $      -      $      -
Income (loss) before extraordinary item           (31,349)        (50,968)         6,815        (8,509)         (875)
Net income (loss)                                 (31,349)        (50,968)         5,341        (8,509)         (875)
Income (loss) before extraordinary item
   per common share: (2)
       Basic                                        (1.94)          (3.23)           .45          (.56)         (.06)
       Diluted                                      (1.94)          (3.23)           .38          (.56)         (.06)
Net income (loss) per common share: (2)
       Basic                                        (1.94)          (3.23)           .35          (.56)         (.06)
       Diluted                                      (1.94)          (3.23)           .30          (.56)         (.06)
Denominator for income (loss) per share
   calculation:
       Basic                                       16,177          15,764         15,346         15,141       14,984
       Diluted                                     16,177          15,764         17,713         15,141       14,984
</TABLE>
<TABLE>
<CAPTION>

                                                                               DECEMBER 31,
                                                --------------------------------------------------------------------
                                                  1997              1996          1995 (3)       1994          1993
                                                --------------------------------------------------------------------
<S>                                             <C>             <C>             <C>           <C>           <C>
BALANCE SHEET DATA:
Working capital (deficiency)                    $  81,992       $  79,392       $  75,840     $ (24,575)    $ 11,417
Total assets                                      140,714         146,307         175,290        38,301       13,545
Bank loan payable                                       -               -               -        29,980            -
Long-term debt                                    197,327         172,052         149,869             -            -
Shareholders' (deficiency) equity                 (58,769)        (28,561)         21,167         6,774       13,148

</TABLE>

(1)  1995 includes a gain on sale of investment in joint venture of $25,286,000,
     net of tax  of  $13,615,000  ($1.43  per  common  share)  and a  charge  of
     $1,474,000,   net  of  income   tax   benefit  of   $794,000,   from  early
     extinguishment of debt (($.08) 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 and the 3-for-2 stock split
     by way of stock dividend, to be paid on April 14, 1998.
(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.


                                       23
<PAGE>

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

                             RESULTS OF OPERATIONS

Years Ended December 31, 1997 and 1996
--------------------------------------

     Equity in net loss of Omnitel  decreased  to  $5,521,000  from  $29,850,000
because of the  decrease  in the net loss of Omnitel.  The  decrease is due to a
change in Omnitel's  share of OPI's net loss to $37,071,000  from  $201,622,000.
OPI's net loss decreased to $54,004,000 from  $284,557,000 as a result of a 144%
increase in operating  revenues  with only a 42% increase in operating  expenses
(percentage changes are calculated based on the results of operations in Italian
lire).

     General and administrative expenses decreased to $2,997,000 from $3,397,000
primarily because CCII reduced its efforts to obtain new licenses.

     Interest  income and other,  net  decreased to $4,500,000  from  $5,125,000
primarily because of a decrease in funds available for investment.

     Interest  expense  increased  to  $26,625,000  from  $23,330,000  due to an
increase in the  accretion  of original  issue  discount on the Senior  Discount
Notes.

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

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 participated 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.


                                       24
<PAGE>

     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 zero 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 applying net
operating loss carrybacks to 1995.

                         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,  interest 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. The Company expects that cash,
cash  equivalents  and marketable  securities on hand will be sufficient to meet
all obligations of the Company at least through the next twelve months.  Italian
lire  have  been  translated  solely  for the  convenience  of the  reader at an
exchange  rate of 1,805.00 lire per U.S.  dollar,  the Noon Buying Rate on March
20, 1998.

     As a result of the award of Italy's second GSM cellular license to OPI, OPI
required  capital to construct its cellular  system and to fund its  operations.
OPI has received capital contributions of 1,450 billion lire ($803 million) from
its partners - 1,015  billion lire ($562  million)  from Omnitel and 435 billion
lire ($241 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  ($576  million).   The  Company's  total
cumulative  contribution to Omnitel is  approximately  152.5 billion lire ($96.8
million at the exchange  rates in effect at the time of each  contribution).  In
addition,  OPI  originally  arranged a syndicated  bank loan  facility for 1,800
billion  lire ($997  million).  On August 29,  1997,  OPI signed an Amended  and
Restated Facility Agreement which, among other things,  provides for an increase
in the facility of 1,000 billion lire ($554  million) from 1,800 billion lire to
2,800  billion  lire ($1.6  billion).  OPI also has a number of other credit and
subordinated debt facilities  totaling  approximately  1,000 billion lire. As of
December 31,  1997,  OPI had  approximately  1,600  billion lire ($886  million)
available under its facilities.

     On October 2, 1997,  the Board of Directors of Omnitel  approved a proposal
to make available to OPI a subordinated  credit facility of 70 billion lire ($39
million)  as soon as OPI's  indebtedness  amounts  to 2,200  billion  lire ($1.2
billion) or in the event of default by OPI under the facility.

     OPI has provided an approximate 219 billion lire ($121 million) performance
bond that  requires  payments  to the  Italian  government  if OPI fails to meet
certain operational targets.  There


                                       25
<PAGE>


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 ($12  million),  reflecting  its  proportionate
interest in OPI.

     The Company has not 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 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.

     In August 1995, the Company issued $281,571,000  aggregate principal amount
at  maturity of 13-1/4%  Senior  Discount  Notes due 2000 (the "Old  Notes") and
422,356  warrants to purchase 475,573 shares of common stock. The Old 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  $281,501,000  by August 15, 2000 (after  reduction for the
repurchase of $70,000 principal amount of Old Notes in January 1997.)

     In March 1998, the Company issued ECU 235,000,000  ($258,030,000) aggregate
principal  amount  of 9-1/2%  Senior  Discount  Notes  due 2005 and  $75,000,000
aggregate  principal amount of 6% Convertible  Subordinated  Notes due 2005. The
Senior  Discount  Notes  were  issued at a price to the public of 62.455% or ECU
146,769,000 ($161,152,000). The Company received net proceeds of ECU 142,366,000
($156,318,000)  and  $72,563,000,  after  discounts  and  commissions,  from the
issuance of the Senior  Discount Notes and the Convertible  Subordinated  Notes,
respectively.

     In  February  1998,  the Company  offered to  purchase  for cash all of the
outstanding  Old Notes at the  accreted  value of $869.12  per $1,000  principal
amount. In March 1998, upon the expiration of the offer,  $232,469,000 principal
amount  of  Old  Notes  were   tendered  and  the  Company  paid   approximately
$202,043,000  using  the  proceeds  from  the  Senior  Discount  Notes  and  the
Convertible   Subordinated  Notes.  In  March  1998,  the  Company  recorded  an
extraordinary  loss  from  the  early  extinguishment  of debt of  approximately
$40,000,000 as a result of this transaction.

     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.  OPI'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.

     The Company is primarily a holding company with limited business operations
of its own. The Company's assets consist primarily of cash, cash equivalents and
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


                                       26
<PAGE>


Company  and one or more of its  partners,  the  strategies  adopted and actions
taken by an  affiliated  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
remaining Old Notes, the Senior Discount Notes and the Convertible  Subordinated
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 provided by operating  activities was $34,000 in 1997 and cash used in
operating  activities was $2,282,000 in 1996.  This change is primarily due to a
decrease in income  taxes paid to zero in 1997 from  $1,242,000  in 1996 and the
collection of a federal income tax refund of $868,000 in 1997.  Cash provided by
investing  activities was $11,366,000 in 1997 as a result of proceeds from sales
of marketable securities,  net of purchases.  Redemption of Old Notes of $44,000
in 1997 is the result of the Company's  offer to  repurchase  up to  $38,900,000
accreted  value of the Old Notes using the excess  proceeds  from the waiver and
release of the Company's  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.


                                       27
<PAGE>


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------

     CCII is required to provide these  disclosures in its Annual Report on Form
10-K for the year ending December 31, 1998.

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.

                                    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 29.

  (b)     During the quarter  ended  December  31,  1997,  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.


                                       28
<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)

  4.4(a)  First  Supplemental  Indenture,  dated as of  February  23,  1998,  to
          Indenture dated as of August 22, 1995

  10.1    Description  of  Omnitel  Joint  Venture  Agreement  (Incorporated  by
          reference to Exhibit 10.1, 1996 Form 10-K, File No. 0-19363)

  10.2    Compensation Plan Agreements,  as amended and restated  effective June
          3, 1997

  10.3    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

  27.1    Financial Data Schedule, for the year ended December 31, 1997


                                       29
<PAGE>



  27.2    Restated Financial Data Schedule,  for the quarter ended September 30,
          1997

  27.3    Restated Financial Data Schedule, for the quarter ended June 30, 1997

  27.4    Restated Financial Data Schedule, for the quarter ended March 31, 1997

  27.5    Restated Financial Data Schedule, for the year ended December 31, 1996

  27.6    Restated Financial Data Schedule,  for the quarter ended September 30,
          1996

  27.7    Restated Financial Data Schedule, for the quarter ended June 30, 1996

  27.8    Restated Financial Data Schedule, for the quarter ended March 31, 1996


                                       30
<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 30, 1998
                                           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.
<TABLE>
<CAPTION>


Signature                         Title                                          Date
---------                         -----                                          ----
<S>                               <C>                                            <C>
/s/William B. Ginsberg            President, Chairman of the                  |
--------------------------        Board, Chief Executive Officer              |
William B. Ginsberg               and Director (Principal Executive           |
                                  Officer)                                    |
                                                                              |
                                                                              |
/s/ J. Barclay Knapp              Executive Vice President                    |
--------------------------        and Director                                |
J. Barclay Knapp                                                              |
                                                                              |
                                                                              |
/s/ Gregg Gorelick                Vice President-Controller                   |
--------------------------        (Principal Accounting Officer)              |  March 30, 1998
Gregg Gorelick                                                                |
                                                                              |
                                                                              |
/s/ Stanton N. Williams           Vice President and Chief Financial          |
--------------------------        Officer (Principal Financial Officer)       |
Stanton N. Williams                                                           |
                                                                              |
                                                                              |
/s/ Sidney R. Knafel              Director                                    |
--------------------------                                                    |
Sidney R. Knafel                                                              |


                                       31
<PAGE>


/s/ Del Mintz                     Director                                    |
--------------------------                                                    |
Del Mintz                                                                     |
                                                                              |
                                                                              |
/s/ Alan J. Patricof              Director                                    |  March 30, 1998
--------------------------                                                    |
Alan J. Patricof                                                              |
                                                                              |
                                                                              |
/s/ Warren Potash                 Director                                    |
--------------------------                                                    |
Warren Potash                                                                 |
</TABLE>



                                       32
<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, 1997 and 1996..................   F-4
Consolidated Statements of Operations - Years Ended
   December 31, 1997, 1996 and 1995.......................................   F-5
Consolidated Statement of Shareholders' (Deficiency) - Years Ended
   December 31, 1997, 1996 and 1995.......................................   F-6
Consolidated Statements of Cash Flows - Years Ended
   December 31, 1997, 1996 and 1995.......................................   F-7
Notes to Consolidated Financial Statements................................   F-9



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, 1997 and 1996, and the
related consolidated  statements of operations,  shareholders'  (deficiency) and
cash flows for each of the three years in the period  ended  December  31, 1997.
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, 1997 and
1996, and the consolidated  results of their operations and their cash flows for
each of the three years in the period ended  December 31,  1997,  in  conformity
with generally accepted accounting principles.


                                                         ERNST & YOUNG LLP


New York, New York
March 25, 1998



                                      F-2
<PAGE>


                       REPORT OF INDEPENDENT ACCOUNTANTS




To the 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, 1997 and 1996
and the related  statements of income,  stockholders'  equity and cash flows for
each of the three years in the period ended December 31, 1997.  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,  1997 and 1996,  and the  results  of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 1997 in conformity with accounting principles generally accepted in
the United States of America.


                                                COOPERS & LYBRAND S.p.A.




Milan, Italy
March 25, 1998



                                      F-3
<PAGE>


          Cellular Communications International, Inc. and Subsidiaries
                           Consolidated Balance Sheets
<TABLE>
<CAPTION>

                                                                         DECEMBER 31
                                                                    1997             1996
                                                               -----------------------------
<S>                                                            <C>             <C>
ASSETS
Current assets:
   Cash and cash equivalents                                   $  59,256,000   $  46,759,000
   Marketable securities                                          24,871,000      34,404,000
   Other                                                              21,000       1,045,000
                                                               -----------------------------
Total current assets                                              84,148,000      82,208,000

Investment in Omnitel                                             52,151,000      58,363,000
Equipment, net of accumulated depreciation of
   $40,000 (1997) and $50,000 (1996)                                   1,000          19,000
Deferred financing costs, net of accumulated amortization
   of $2,828,000 (1997) and $1,525,000 (1996)                      4,414,000       5,717,000
                                                               -----------------------------
                                                               $ 140,714,000   $ 146,307,000
                                                               =============================


LIABILITIES AND SHAREHOLDERS' (DEFICIENCY)
Current liabilities:
   Accounts payable                                                  126,000   $     156,000
   Accrued expenses                                                  509,000         630,000
   Taxes payable                                                   1,452,000       1,444,000
   Due to NTL Incorporated                                            69,000         586,000
                                                               -----------------------------
Total current liabilities                                          2,156,000       2,816,000

Long-term debt, less unamortized discount of $3,768,000
   (1997) and $4,881,000 (1996)                                  197,327,000     172,052,000
Commitments and contingent liabilities

Shareholders' (deficiency):
   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 16,359,000 (1997)
     and 10,708,000 (1996) shares                                    164,000         107,000
   Additional paid-in capital                                     29,821,000      28,737,000
   (Deficit)                                                     (88,754,000)    (57,405,000)
                                                               -----------------------------
                                                                 (58,769,000)    (28,561,000)
                                                               -----------------------------
                                                               $ 140,714,000   $ 146,307,000
                                                               =============================

</TABLE>
See accompanying notes.


                                      F-4
<PAGE>

          Cellular Communications International, Inc. and Subsidiaries
                      Consolidated Statements of Operations
<TABLE>
<CAPTION>

                                                                             YEAR ENDED DECEMBER 31
                                                                  1997                1996                1995
                                                            -----------------------------------------------------
<S>                                                         <C>                 <C>                 <C>
Equity in net loss of Omnitel                               $   5,521,000       $  29,850,000       $  14,636,000
General and administrative expenses                             2,997,000           3,397,000           3,805,000
Write-off of investments in joint venture                               -                   -             602,000
Write-off of deferred costs                                             -                   -           1,167,000
Depreciation expense                                               15,000              25,000              28,000
Amortization of investments in joint ventures                     691,000             691,000             537,000
                                                            -----------------------------------------------------
Operating (loss)                                               (9,224,000)        (33,963,000)        (20,775,000)

Other income (expense):
   Interest income and other, net                               4,500,000           5,125,000           1,963,000
   Interest expense                                           (26,625,000)        (23,330,000)         (7,230,000)
   Cellular Communications, Inc. fees in connection
     with the bank loan                                                 -                   -            (101,000)
   Gain on sale of investment in joint venture                          -                   -          38,901,000
                                                            -----------------------------------------------------
Income (loss) before income taxes and extraordinary item      (31,349,000)        (52,168,000)         12,758,000
Income tax benefit (provision)                                          -           1,200,000          (5,943,000)
                                                            -----------------------------------------------------
Income (loss) before extraordinary item                       (31,349,000)        (50,968,000)          6,815,000
Loss from early extinguishment of debt, net of income
   tax benefit of $794,000                                              -                   -          (1,474,000)
                                                            -----------------------------------------------------
Net income (loss)                                           $ (31,349,000)      $ (50,968,000)      $   5,341,000
                                                            =====================================================

Net income (loss) per common share:
   Income (loss) before extraordinary item                         $(1.94)            $ (3.23)            $   .45
   Extraordinary item                                                   -                   -                (.10)
                                                            -----------------------------------------------------
Net income (loss)                                                  $(1.94)            $ (3.23)            $   .35
                                                            =====================================================

Net income (loss) per common share - assuming dilution:
   Income (loss) before extraordinary item                         $(1.94)            $ (3.23)            $   .38
   Extraordinary item                                                   -                   -                (.08)
                                                            -----------------------------------------------------
Net income (loss)                                                  $(1.94)            $ (3.23)            $   .30
                                                            =====================================================

</TABLE>

See accompanying notes.


                                      F-5
<PAGE>

          Cellular Communications International, Inc. and Subsidiaries
              Consolidated Statement of Shareholders' (Deficiency)

<TABLE>
<CAPTION>

                                                                   COMMON STOCK              ADDITIONAL
                                                           ---------------------------       PAID-IN
                                                             SHARES           AMOUNT         CAPITAL          (DEFICIT)
                                                           ----------------------------------------------------------------
<S>                                                        <C>              <C>              <C>              <C>
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)
   Exercise of stock options                                  198,000           2,000           1,139,000
   Stock split                                              5,453,000          55,000             (55,000)
   Net (loss) for the year ended December 31, 1997                                                              (31,349,000)
                                                           ----------------------------------------------------------------
Balance at December 31, 1997                               16,359,000       $ 164,000        $ 29,821,000     $ (88,754,000)
                                                           ================================================================

</TABLE>


See accompanying notes.


                                      F-6
<PAGE>


          Cellular Communications International, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED DECEMBER 31
                                                                      1997                 1996               1995
                                                                -----------------------------------------------------
<S>                                                             <C>                 <C>                 <C>
OPERATING ACTIVITIES
Net income (loss)                                               $  (31,349,000)     $  (50,968,000)     $   5,341,000
Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:
     Equity in net loss of Omnitel                                   5,521,000          29,850,000         14,636,000
     Depreciation and amortization expense                             706,000             716,000            565,000
     Write-off of deferred costs and investments
       in joint venture                                                      -                   -          1,769,000
     Loss from early extinguishment of debt                                  -                   -          2,268,000
     Loss on disposal of equipment                                       3,000               7,000                  -
     Gain on sale of investment in joint venture                             -                   -        (38,901,000)
     Accretion of original issue discount                           24,206,000          21,214,000          5,263,000
     Accretion of interest on marketable securities                 (1,833,000)         (2,224,000)                 -
     Interest on cash held in escrow                                         -            (562,000)          (932,000)
     Amortization of deferred financing costs charged to
       interest expense                                              1,303,000           1,138,000          1,523,000
     Amortization of debt discount                                   1,113,000             969,000            264,000
     Changes in operating assets and liabilities:
       Other current assets                                          1,024,000            (984,000)          (338,000)
       Accounts payable                                                (30,000)            (46,000)            39,000
       Accrued expenses                                               (121,000)           (242,000)           468,000
       Taxes payable                                                     8,000          (1,632,000)         5,166,000
       Interest payable                                                      -                   -            (58,000)
       Due to Cellular Communications, Inc.                                  -             (81,000)          (954,000)
       Due to NTL Incorporated                                        (517,000)            563,000             23,000
                                                                -----------------------------------------------------
Net cash provided by (used in) operating activities                     34,000          (2,282,000)        (3,858,000)
                                                                -----------------------------------------------------

INVESTING ACTIVITIES
Purchase of equipment                                                        -                   -            (52,000)
Purchase of marketable securities                                 (122,155,000)       (140,222,000)       (38,080,000)
Proceeds from sale of marketable securities                        133,521,000         125,110,000         23,503,000
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)
Deferred costs incurred                                                      -                   -           (981,000)
                                                                -----------------------------------------------------
Net cash provided by (used in) investing activities                 11,366,000         (15,112,000)       (47,092,000)
                                                                -----------------------------------------------------
</TABLE>


                                      F-7
<PAGE>

          Cellular Communications International, Inc. and Subsidiaries
                Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>

                                                                                 YEAR ENDED DECEMBER 31
                                                                      1997                 1996               1995
                                                                -----------------------------------------------------
<S>                                                             <C>                 <C>                 <C>
FINANCING ACTIVITIES
Proceeds from warrants and borrowings, net of
  financing  costs                                              $            -      $            -      $ 204,429,000

Redemption of Senior Discount Notes                                    (44,000)                  -                  -
Principal payments                                                           -                   -        (95,911,000)
Payment of financing costs                                                   -             (54,000)                 -
Exercise of stock options                                            1,141,000           1,242,000          1,025,000
                                                                ------------------------------------------------------------
Net cash provided by financing activities                            1,097,000           1,188,000        109,543,000
                                                                ------------------------------------------------------------
Increase (decrease) in cash and cash equivalents                    12,497,000         (16,206,000)        58,593,000
Cash  and cash equivalents at beginning of year                     46,759,000          62,965,000          4,372,000
                                                                ------------------------------------------------------------
Cash and cash equivalents at end of year                        $   59,256,000      $   46,759,000      $  62,965,000
                                                                ============================================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest exclusive
   of $3,411,000 (1995) capitalized                             $            -      $            -      $   1,112,000
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

</TABLE>

See accompanying notes.


                                      F-8
<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 Sistemi  Radiocellulari  Italiani S.p.A
("Omnitel"),  a joint  venture  that owns 70% of Omnitel  Pronto  Italia  S.p.A.
("OPI"),  the consortium that owns and operates one of the two national cellular
telephone  licenses  for Italy  using  Global  System for Mobile  Communications
("GSM")  technology,  the digital technology for cellular telephone systems that
European Union countries have agreed to adopt as a common standard.

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  $58,908,000  and
$46,418,000  at December 31, 1997 and 1996,  respectively.  At December 31, 1997
and 1996, 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'  (deficiency).  The amortized
cost of debt  securities is adjusted for  amortization of premiums and accretion
of discounts  to maturity.  Such  amortization  is included in interest  income.
Realized  gains  and  losses  and  declines  in value  judged  to be other  than
temporary will be included in interest  income.  The cost of securities  sold or
matured is based on the specific  identification method.  Interest on securities
is included in interest income.


                                      F-9
<PAGE>


          Cellular Communications International, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Marketable  securities  at December  31,  1997  consist of U.S.  corporate  debt
securities.  Marketable securities at December 31, 1996 consist of U.S. Treasury
securities,  obligations  of U.S.  government  agencies and U.S.  corporate debt
securities.  During the years ended  December  31, 1997 and 1996,  there were no
realized  gains  or  losses  on  sales  of  securities.  All of  the  marketable
securities as of December 31, 1997 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.  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 its  participation  in 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. The Company reviews its investments in joint ventures for impairment
whenever  events or changes in  circumstances  indicate that the carrying amount
may not be recoverable.

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 fees to CCI in connection with the bank loan of $1,220,000 were  capitalized
in 1995.

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.  Long-lived  assets are reviewed for  impairment
whenever  events or changes in  circumstances  indicate that the carrying amount
may not be recoverable.

DEFERRED FINANCING COSTS

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


                                      F-10
<PAGE>


          Cellular Communications International, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

NET INCOME (LOSS) PER SHARE

In February  1997, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 128,  "Earnings  Per
Share."  SFAS No. 128  replaced  the  calculation  of primary and fully  diluted
earnings  per share with basic and diluted  earnings per share.  Unlike  primary
earnings per share,  basic earnings per share  excludes any dilutive  effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the  previously  reported  fully  diluted  earnings  per  share.  All
earnings  per share  amounts  for all  periods  have been  presented,  and where
appropriate, restated to conform to the SFAS No. 128 requirements.

STOCK-BASED COMPENSATION

The  Company  has  adopted  the  disclosure-only  provisions  of SFAS  No.  123,
"Accounting for Stock-Based  Compensation."  The Company applies APB Opinion No.
25,  "Accounting for Stock Issued to Employees" and related  interpretations  in
accounting for its plans.

3. RECENT ACCOUNTING PRONOUNCEMENTS

COMPREHENSIVE INCOME

In June 1997, the FASB issued SFAS No. 130,  "Reporting  Comprehensive  Income".
SFAS No. 130 requires  that all items that are required to be  recognized  under
accounting  standards as  components  of  comprehensive  income be reported in a
financial  statement  that is  displayed  with  the  same  prominence  as  other
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December  15,  1997.  The Company  will adopt SFAS No. 130 in the first  interim
period for its fiscal year ending December 31, 1998.

SEGMENT REPORTING

In June 1997,  the FASB issued SFAS No. 131,  "Disclosures  about Segments of an
Enterprise and Related Information".  SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and


                                      F-11
<PAGE>


          Cellular Communications International, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


3. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

SEGMENT REPORTING (CONTINUED)

requires that those  enterprises  report  selected  information  about operating
segments  in  interim  financial   reports  issued  to  shareholders.   It  also
establishes  standards  for related  disclosures  about  products and  services,
geographic  areas, and major customers.  SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997. The Company will adopt
SFAS No. 131 for its fiscal year ending December 31, 1998.

4. 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 or Omnitel's  interest in OPI 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 and  Omnitel's  commitments  to OPI are in Italian  lire,  a currency
exchange  rate risk  exists.  OPI'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-12
<PAGE>


          Cellular Communications International, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


5. INVESTMENT IN OMNITEL

The investment in Omnitel consists of the following:

                                                     DECEMBER 31
                                               1997              1996
                                          -------------------------------

Capital contributions                     $ 96,805,000      $  96,805,000
Capitalized costs including interest         9,725,000          9,725,000
Equity in accumulated net loss             (52,428,000)       (46,907,000)
                                          -------------------------------
                                            54,102,000         59,623,000
Accumulated amortization                    (1,951,000)        (1,260,000)
                                          -------------------------------
                                          $ 52,151,000      $  58,363,000
                                          ===============================

In March 1994,  the OPI  consortium  in which  Omnitel  holds a 70% interest was
selected as the second GSM cellular  telephone  licensee in Italy. CCII, through
its 14.667% ownership interest in Omnitel, holds an indirect 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  summarizes the assets,  liabilities and  stockholders'  equity of
Omnitel:

                                                          DECEMBER 31
                                                    1997              1996
                                               --------------------------------
ASSETS
Current assets                                 $   7,137,000      $   9,542,000
Investment in OPI                                257,971,000        341,842,000
                                               --------------------------------
                                               $ 265,108,000      $ 351,384,000
                                               ================================


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities                            $     677,000      $   1,341,000
Other liabilities                                     51,000             59,000
Stockholders' equity                             264,380,000        349,984,000
                                               --------------------------------
                                               $ 265,108,000      $ 351,384,000
                                               ================================


                                      F-13
<PAGE>


          Cellular Communications International, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


5. INVESTMENT IN OMNITEL (CONTINUED)

The following summarizes the results of operations of Omnitel:


                                           YEAR ENDED DECEMBER 31
                                    1997             1996               1995
                               ------------------------------------------------
Revenues                       $          -     $           -      $          -

Costs and expenses               (1,038,000)         (784,000)         (862,000)
Equity in net loss of OPI       (37,071,000)     (201,622,000)      (98,428,000)
                               ------------------------------------------------
Operating loss                  (38,109,000)     (202,406,000)      (99,290,000)
Interest income, net                460,000           543,000           859,000
                               ------------------------------------------------
Net loss                       $(37,649,000)    $(201,863,000)     $(98,431,000)
                               ================================================

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

                                                           DECEMBER 31
                                                     1997               1996
                                              ----------------------------------
ASSETS
Current assets                                $   522,188,000    $   299,576,000
Property, plant and equipment, net                782,129,000        697,069,000
Intangible assets, net                            472,918,000        566,804,000
Deferred tax asset                                 32,088,000        129,644,000
Other                                              37,158,000         14,925,000
                                              ----------------------------------
                                              $ 1,846,481,000    $ 1,708,018,000
                                              ==================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities                           $   605,919,000    $   559,905,000
Long term debt                                    855,134,000        647,806,000
Other liabilities                                  16,898,000         11,961,000
Stockholders' equity                              368,530,000        488,346,000
                                              ----------------------------------
                                              $ 1,846,481,000    $ 1,708,018,000
                                              ==================================



                                      F-14
<PAGE>


          Cellular Communications International, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


5. INVESTMENT IN OMNITEL (CONTINUED)

The following summarizes the results of operations of OPI:
<TABLE>
<CAPTION>

                                                           YEAR ENDED DECEMBER 31
                                                1997                 1996                 1995
                                            --------------------------------------------------------
<S>                                         <C>                   <C>                 <C>
Revenues                                    $ 1,077,665,000       $  488,472,000      $   30,092,000

Costs and expenses                              901,144,000          707,098,000         150,550,000
Depreciation and amortization                   179,241,000          131,888,000          22,020,000
                                            --------------------------------------------------------
                                              1,080,385,000          838,986,000         172,570,000
                                            --------------------------------------------------------
Operating loss                                   (2,720,000)        (350,514,000)       (142,478,000)
Interest income (expense), net                  (59,446,000)         (61,616,000)          4,310,000
Income tax benefit                                8,162,000          127,573,000                   -
                                            --------------------------------------------------------
Net loss                                    $   (54,004,000)      $ (284,557,000)     $ (138,168,000)
                                            ========================================================
</TABLE>

OPI  recorded  an  income  tax  benefit  in 1997 and  1996,  as  management  has
determined  that it is more likely than not that a portion of OPI's deferred tax
assets will be realized.

6. 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.



                                      F-15
<PAGE>


          Cellular Communications International, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


7. NET INCOME (LOSS) PER COMMON SHARE

The following  table sets forth the  computation of basic and diluted net income
(loss) per share:
<TABLE>
<CAPTION>

                                                                           YEAR ENDED DECEMBER 31
                                                               1997                 1996                 1995
                                                       -----------------------------------------------------------
<S>                                                    <C>                 <C>                  <C>
Numerator:
Income (loss) before extraordinary item                $ (31,349,000)      $  (50,968,000)      $   6,815,000
Extraordinary item                                                 -                    -          (1,474,000)
                                                       -----------------------------------------------------------
Net income (loss)                                      $ (31,349,000)      $  (50,968,000)      $   5,341,000
                                                       -----------------------------------------------------------

Denominator for basic net income (loss) per
    common share                                          16,177,000           15,764,000          15,346,000
                                                       -----------------------------------------------------------
Effective of dilutive securities:
    Warrants                                                       -                    -             377,000
    Stock options                                                  -                    -           1,990,000
                                                       -----------------------------------------------------------
Denominator for diluted net income (loss)
    per common share                                      16,177,000           15,764,000          17,713,000
                                                       -----------------------------------------------------------

Basic net income (loss) per common share:
    Income (loss) before extraordinary item            $       (1.94)      $        (3.23)      $         .45
    Extraordinary item                                             -                    -                (.10)
                                                       -----------------------------------------------------------
    Net income (loss)                                  $       (1.94)      $        (3.23)      $         .35
                                                       ===========================================================

Diluted net income (loss) per common share:
    Income (loss) before extraordinary item            $       (1.94)      $        (3.23)      $         .38
    Extraordinary item                                             -                    -                (.08)
                                                       ---------------------------------------------------------
    Net income (loss)                                  $       (1.94)      $        (3.23)      $         .30
                                                       ==========================================================
</TABLE>

Stock  options and warrants are excluded  from the  calculation  of net loss per
common share as their effect would be antidilutive.


                                      F-16
<PAGE>


          Cellular Communications International, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


8. BANK LOAN PAYABLE AND CREDIT AGREEMENT

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 an affiliate of Donaldson,  Lufkin & Jenrette Securities  Corporation ("DLJ
Bridge"),  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 10) 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.

9. 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 423,000  warrants to
purchase 476,000 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.

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.

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  1997,  1996  and  1995,  $24,206,000,   $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 the  quoted  market  price  was  $228,073,000  and
$188,653,000 as of December 31, 1997 and 1996, respectively.

The warrants were valued at $14.64 each, resulting in deferred debt discount and
a  corresponding  addition to paid-in  capital of $6,182,000.  In 1997, 1996 and
1995, $1,113,000, $969,000 and $332,000,  respectively, of the deferred discount
was amortized.


                                      F-17
<PAGE>


          Cellular Communications International, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


9. LONG-TERM DEBT (CONTINUED)

In  February  1998,  the  Company  offered  to  purchase  for  cash  all  of the
outstanding  Notes at the accreted value of $869.12 per $1,000 principal amount.
In March 1998, upon the expiration of the offer,  $232,469,000  principal amount
of Notes were tendered and the Company paid approximately $202,043,000. In March
1998, the Company recorded an extraordinary  loss from the early  extinguishment
of debt of approximately $40,000,000 as a result of this transaction.

The Notes  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.

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 $44,000.

In March  1998,  the Company  issued ECU  235,000,000  ($258,030,000)  aggregate
principal  amount  of 9-1/2%  Senior  Discount  Notes  due 2005 and  $75,000,000
aggregate  principal amount of 6% Convertible  Subordinated  Notes due 2005. The
Senior  Discount  Notes  were  issued at a price to the public of 62.455% or ECU
146,769,000 ($161,152,000). The Company received net proceeds of ECU 142,366,000
($156,318,000)  and  $72,563,000,  after  discounts  and  commissions,  from the
issuance of the Senior  Discount Notes and the Convertible  Subordinated  Notes,
respectively.  The Company used most of the proceeds to repurchase approximately
82% of its 13-1/4% Senior Discount Notes.

The original issue  discount of the Senior  Discount Notes accretes at a rate of
9-1/2%  compounded  semiannually,  to  an  aggregate  principal  amount  of  ECU
235,000,000  ($258,030,000) by April 1, 2003. Interest will thereafter accrue at
9-1/2% per annum, payable semiannually  beginning on October 1, 2003. The Senior
Discount  Notes are  unsecured  obligations  of the Company and are  effectively
subordinated to all existing and future  indebtedness  and other  liabilities of
the Company and the Company's  subsidiaries.  The Senior  Discount  Notes may be
redeemed at the Company's  option,  in whole or in part, at any time on or after
April 1, 2002 at a redemption price of 104.75% that declines annually to 100% in
2005,



                                      F-18
<PAGE>


          Cellular Communications International, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


9. LONG-TERM DEBT (CONTINUED)

plus  accrued  and unpaid  interest  to the date of  redemption.  The  Indenture
governing the Senior  Discount  Notes contains  restrictions  relating to, among
other things:  (i)  incurrence of  additional  indebtedness  and the issuance of
preferred stock, (ii) dividend and other payment restrictions and (iii) mergers,
consolidations and sales of assets.

Interest payments on the Convertible Subordinated Notes begin on October 1, 1998
and  interest  is  payable  every  six  months   thereafter.   The   Convertible
Subordinated  Notes mature on April 1, 2005. The Convertible  Subordinated Notes
are  unsecured  obligations  convertible  into  shares of common  stock prior to
maturity at a conversion price of $39.95 per share, subject to adjustment. There
are  approximately  1,878,000  shares of common stock reserved for issuance upon
conversion of the Convertible  Subordinated Notes. The Convertible  Subordinated
Notes are  redeemable,  in whole or in part, at the option of the Company at any
time on or after April 4, 2001 at a redemption  price of 103.429%  that declines
annually to 100% in 2005, in each case together with accrued and unpaid interest
to the redemption date.

10. 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
and 1995,  CCI  charged  CCII  $232,000  and  $896,000,  respectively,  which is
included in general and administrative expenses. In August 1996, upon the merger
of CCI with AirTouch,  NTL Incorporated ("NTL") 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.

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 charges CCII
for direct costs where  identifiable  and a fixed  percentage  of its  corporate
overhead.  In 1997, NTL charged CCII $871,000,  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.


                                      F-19
<PAGE>


          Cellular Communications International, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


10. RELATED PARTY TRANSACTIONS (CONTINUED)

In connection with the Distribution, CCI was obligated to guarantee certain CCII
indebtedness  through  July 31, 1994 if requested  by CCII.  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  200,000  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.

11. INCOME TAXES

The 1997 and 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.

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
                                                   1997             1996
                                             -------------------------------
Deferred tax assets:
   Equity in net loss of Omnitel             $  15,920,000     $  13,650,000
   Net operating loss carryforward              15,586,000         5,978,000
   Other                                           390,000           122,000
                                             -------------------------------
Total deferred tax assets                       31,896,000        19,750,000
   Valuation allowance for deferred
     tax assets                                (31,896,000)      (19,750,000)
                                             -------------------------------
Net deferred tax assets                                  -                 -
Deferred tax liabilities                                 -                 -
                                             -------------------------------
Net deferred taxes                           $           -     $           -
                                             ===============================

At December 31,  1997,  the Company had a net  operating  loss  carryforward  of
approximately  $44,500,000 for U.S.  federal income tax purposes that expires as
follows: $25,100,000 in 2012 and $19,400,000 in 2011.


                                      F-20
<PAGE>


          Cellular Communications International, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


12. SHAREHOLDERS' (DEFICIENCY)

STOCK SPLIT

On March 19, 1998,  the Company  declared a 3-for-2  stock split by way of stock
dividend,  to be  paid  on  April  14,  1998.  All  common  stock  data  in  the
Consolidated Financial Statements gives retroactive effect to the stock split.

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 $59.

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,  423,000  warrants to purchase 476,000 shares of common stock at
$24.67 per share were  issued in  connection  with the 13-1/4%  Senior  Discount
Notes.  The warrants expire in August 2003.  Warrants to purchase 200,000 shares
of  common  stock  at  $20.17  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 3,592,000  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


                                      F-21
<PAGE>


          Cellular Communications International, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


12. SHAREHOLDERS' (DEFICIENCY) (CONTINUED)

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.

There are 225,000  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.

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 1997, 1996 and 1995:  risk-free  interest rates of 5.89%,  6.56%
and 6.61%, respectively, dividend yield of 0%, volatility factor of the expected
market price of the Company's common stock of .363, .388 and .388, respectively,
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:
<TABLE>
<CAPTION>

                                                       1997              1996            1995
                                                 -----------------------------------------------
<S>                                              <C>               <C>               <C>
Pro forma net income (loss)                      $ (33,784,000)    $ (52,933,000)    $ 3,957,000
Pro forma net income (loss) per share:
   Basic                                                $(2.09)         $  (3.36)           $.26
   Diluted                                              $(2.09)         $  (3.36)           $.22
</TABLE>


                                      F-22
<PAGE>


          Cellular Communications International, Inc. and Subsidiaries
             Notes to Consolidated Financial Statements (continued)


12. SHAREHOLDERS' DEFICIENCY (CONTINUED)

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

                                              1997                        1996                        1995
                                  -----------------------------------------------------------------------------------
                                                  WEIGHTED-                    WEIGHTED-                   WEIGHTED-
                                                  AVERAGE                      AVERAGE                     AVERAGE
                                   NUMBER OF      EXERCISE       NUMBER OF     EXERCISE     NUMBER OF      EXERCISE
                                    OPTIONS       PRICE           OPTIONS      PRICE         OPTIONS       PRICE
                                  -----------------------------------------------------------------------------------
<S>                               <C>             <C>           <C>            <C>          <C>            <C>
Outstanding-beginning of year     2,494,000       $10.21        2,831,000      $ 7.80       2,672,000      $ 4.52
Granted                             215,000        18.46          209,000       22.17         401,000       27.48
Exercised                          (297,000)        3.83         (546,000)       2.28        (242,000)       4.23
Forfeited                           (16,000)       27.60                0        0.00               0        0.00
                                  =========                     =========                   =========
Outstanding-end of year           2,396,000       $11.63        2,494,000      $10.21       2,831,000      $ 7.80
                                  =========                     =========                   =========

Exercisable at end of year        1,807,000       $ 8.84        1,741,000      $ 6.66       1,921,000      $ 4.06
                                  =========                     =========                   =========
</TABLE>

Weighted-average  fair  value of  options,  calculated  using the  Black-Scholes
option pricing model,  granted during 1997, 1996 and 1995 is $10.95,  $13.89 and
$17.25, respectively.

The following table  summarizes the status of the stock options  outstanding and
exercisable at December 31, 1997:


<TABLE>
<CAPTION>
                              STOCK OPTIONS OUTSTANDING                  STOCK OPTIONS EXERCISABLE
--------------------------------------------------------------------------------------------------
                                          WEIGHTED-       WEIGHTED-                     WEIGHTED-
                                          REMAINING       AVERAGE                       AVERAGE
     RANGE OF             NUMBER OF       CONTRACTUAL     EXERCISE         NUMBER OF    EXERCISE
  EXERCISE PRICES         OPTIONS         LIFE            PRICE            OPTIONS      PRICE
--------------------------------------------------------------------------------------------------
<S>                       <C>             <C>             <C>              <C>          <C>
   $0.13 to $0.61           272,000       3.6 Years       $ 0.363            272,000    $ 0.363
   $0.69 to $1.28           335,000       3.6 Years       $ 1.163            335,000    $ 1.163
   $1.45 to $2.83           384,000       4.3 Years       $ 2.027            384,000    $ 2.027
  $8.95 to $11.55           549,000       6.2 Years       $11.463            420,000    $11.459
  $17.67 to $25.50          527,000       8.5 Years       $21.152            198,000    $22.239
       $27.83               329,000       7.4 Years       $27.833            198,000    $27.833
--------------------------------------------------------------------------------------------------
       Total              2,396,000                                        1,807,000
==================================================================================================
</TABLE>


                                      F-23