The first months following the granting of the license were intense for Omnitel. Not only from a regulatory and industrial, technological and commercial point of view. But also stock. Cell phones are starting to seem like a very, very attractive investment to many. It is no coincidence that among the members of the Omnitel-Pronto Italia consortium there is great attention to the moves of the other shareholders. Carlo Peretti, president of Pronto Italia, is struck by the rumors about the possibility of listing Omnitel-Pronto Italia. At the same time De Benedetti shows concern for the proposals of Mannesmann and AirTouch to the Italian shareholders. De Benedetti, recalling the contractual obligations of the concession and the political climate also determined by the presence of a post-fascist party in the Berlusconi government particularly sensitive to the issue of nationality of equity, wrote to Peretti on 22 November 1994: «I feel it is my duty to draw your attention to the negative implications that an imbalance in the foreign composition of Pronto Italia's shareholders would have on Omnitel-Pronto Italia». There will be no listings, even if months later – in the second half of 1995 – Olivetti will set up a new company under Community law to which it will confer the shares of Omnitel. The shareholder agreements and commitments entered into by Olivetti and the other Omnitel shareholders (Bell Atlantic, Cellular Communications International, Telia International and Lehman Brothers), so as to preserve the balance and ownership of the concession, in a business in which many want to participate.
The physiognomy of success and the value created by telephony
Times are very tight in setting up Omnitel. On March 28, 1994 Omnitel won the tender. On 30 November 1994, an agreement was stipulated between Omnitel and the Ministry of Posts and Telecommunications. In January 1995, an extraordinary shareholders' meeting was held which approved the capital increase from 650 to 1.450 billion lire. In February 1995, the network began to be created and the first assistance centers were opened in Milan and Rome. In July, the company's internal pre-operational service starts. In October a roaming agreement is stipulated with Tim. On 2 October 1995, the experimental service dedicated to 10.000 customers who act as "guinea pigs" for the service starts. In November 1995, project financing with 43 banks, mostly foreign, was expanded to 1.800 billion lire.
On 7 December 1995, Omnitel - with approximately 2.000 employees - achieved network coverage of 40% of the national territory. This is an essential step of the agreement established with the government. That day the monopoly is broken. Omnitel can start offering its services to the public. To do this, national roaming was activated on 13 February 1996: where there is no coverage guaranteed by the Omnitel network, Omnitel - its customer - has the right to "switch" to the network of Tim, Telecom Italia Mobile which has become a company independent from Telecom Italia with a demerger operation in 1995.
Tim shows hesitation in granting roaming, citing Omnitel's failure to cover the minimum area envisaged. The procrastination mechanism doesn't work. The Ministry of Posts gives the go-ahead: «Nulla osta for it to be ensured - wrote the General Secretariat of the Ministry of Posts and Telecommunications on 12 March 1996 to Caio, CEO of Omnitel, and above all to Vito Gamberale, CEO of Tim - with the note effective 13 March next, from these companies the related function". The ministry definitively fixes the prices, which are a real dispute between the companies:
The fee for outgoing roaming due to the operator of the network visited by the operator of the network to which they belong is fixed, for the six months following the date of issue of this resolution, at 632 lire per minute regardless of the day, time slot and type of subscription . The above cost includes the cost of access to the fixed network and the cost of interconnection between national mobile networks (GSM and Tacs). No fee is due for incoming roaming, except for the fee for access to the fixed network and for the interconnection between national mobile networks (GSM and Tacs) due in the various cases of traffic.
And, again: "Each operator is obliged not to apply any surcharge to users to traffic made through the use of the national roaming functionality".
Therefore, a market is created that did not exist before and competition - thanks to the intervention of the public hand - is transformed from a theoretical concept into a reality practice. In that 1996, there is ferment on capital structures. The composition of the shareholder structure, however, stabilised. Omnitel controls 70% of Omnitel-Pronto Italia, the formal holder of the GSM concession. 30% of Omnitel-Pronto Italia is owned by Pronto Italia. Omnitel's shareholding is in turn made up of 59% by Olivetti, 16,6% by Bell Atlantic, 14,7% by Cellular Communications International, 9,7% by Telia International. Pronto Italia's shareholders are made up of AirTouch (39%), Mannesmann (15%), Banca di Roma (13,5%) and, for 32,5%, other shareholders.
On 31 December 1996 coverage of 60% of the national territory and 85% of the population was achieved, thanks to 900 base radio stations installed in one year. Therefore, the logistic-industrial effort has reached its completion. In January 1997 Omnitel offers its first rechargeable prepaid card. From that moment, the consolidation of the company proceeded at a very significant pace. On 28 April 1997, Omnitel reaches its first million customers. In July 1997, project financing will rise to 2.800 billion lire. In 1998 – after less than three years of commercial activity – the turnover will be 4.500 billion lire, with a net profit of 780 billion lire and 5.553 employees (2.800 hired during the year).
Omnitel's industrial growth and income performance appear to be very significant. And they show, in the screeching asymmetry of historical phenomena, the contradiction of an industrial group which capitulates to information technology, but which at the same time incubates and feels the first stirrings of a creature which, in the following years, will prove to be fast and powerful. Many, even then, realize it. But how much is Omnitel worth? There is a document sent by Lehman Brothers on March 8, 1995 to De Benedetti and for information to his son Rodolfo, in which the "normal value" for Omnitel is determined on the basis of the offer made - to acquire their shares - by AirTouch to the Italian members of Pronto Italia.
The Italian market – reads the document – could assign Omnitel a normal value of around 40 dollars, to be multiplied by the population. Applying this value to the investment in Omnitel held by Olivetti, the 51% would be valued at around 1.370 billion lire, from which it is necessary to deduct proportionally: the debt in Omnitel Pronto Italia Spa, owned by the Olivetti investment (130 billion lire) and the book value at which the Omnitel investment is recorded in the Olivetti consolidated financial statements (242 billion lire). This would result in a capital gain of 1.000 billion lire.
This is an evaluation made in early 1995. And it is formulated by observing a transaction that should take place between shareholders. However, the situation in the autumn of 1996 was different: for strategic and financial reasons. First of all because, in that passage, the hypothesis of a structured alliance between Olivetti and France Télécom was shelved, which should have involved both the parent company and the diversification of telephony. And, then, because we start talking about real money. The strategic step is well explained in a letter dated 11 October 1996 from the vice president Giorgio Garuzzo – collaborator of De Benedetti during his one hundred days in corso Marconi, long-time manager of Fiat and became vice president of Olivetti – to Antonio Tesone, the historic lawyer of Olivetti appointed president in place of De Benedetti:
The negotiation began with a visit by Carlo De Benedetti and myself to Mannesmann on 18 March 1996 and continued with another five meetings with Klaus Esser in Düsseldorf and Ivrea, the last of which was also attended by Rodolfo De Benedetti, and countless telephone and letters. For a few months, between May and August, we deliberately delayed the negotiations, to favor a possible intervention by France Télécom. Only when we formally resumed our freedom with the French, at the end of August, did the negotiating phases with the Germans close.
Therefore, in the game of foreign alliances, in the end the side that remains is the German one. Mannesmann is part of the historical nucleus of Pronto Italia, the consortium which allied with Omnitel to find the right critical mass to obtain the licence. In the historic core of Pronto Italia, Mannesmann has 15%. Given that Pronto Italia is worth 30% of Omnitel-Pronto Italia, the Germans have 4,5% in the latter. At stake is 8,26% of Omnitel shares: these are the former historical shares of Lehman Brothers, which are now held by Olivetti: a package which – within the overall Omnitel-Pronto Italia perimeter – weighs 5,78%. The interesting element is the agreement on the financial value recognized by the Germans to these shares. «The value of the former Lehman shares – writes Garuzzo – is set at 432,7 billion lire». Therefore, a real overall assessment of Omnitel-Pronto Italia is given: «432,7 billion for 5,78% giving around 7.500 billion». After a year of operation, not in an abstract exercise by the analysts but in a tough market negotiation, in the end mobile telephony (of which Olivetti, having 51% of Omnitel and 35,7% of Omnitel-Pronto Italia, is the inspirer and still the controlling shareholder) is valued at 7.500 billion lire. The agreement should become operational on November 8, 1996: that operation, by bringing 432,7 billion lire into the coffers of Ivrea and guaranteeing a capital gain of just over 300 billion lire to Olivetti's balance sheets, will in any case allow the group to retain the absolute majority (50,74%) of Omnitel Sistemi Radiocellulari and the relative majority (35,7%) of Omnitel-Pronto Italia34. In the end, it will not be Mannesmann who takes over these shares: it will be the Americans of Bell Atlantic who exercise a right of first refusal, at a slightly lower price, which with their entry enhance the company by 7.143 billion lire. A few months earlier, two other transactions between shareholders had taken place with much lower valuations of Omnitel: in September 1995 between Olivetti and Lehman Brothers the value attributed to cellular telephony had been 5.136 billion lire; in January 1996 between Banca di Roma and AirTouch of 4.927 billion. The value of telephone diversification exploded in 1997, when Mannesmann's Germans stepped forward. Until then, the hypotheses of alliances had been more oriented on the French side.
In fact – Carlo De Benedetti would have recounted – I had worked for a long time on the hypothesis of France Télécom. Unfortunately, the structure of a state company is such that it does not allow quick decisions. On July 4, 1997, the president of France Télécom, Michel Bon, invited me to Paris. On that occasion he confirmed to me that he wanted to complete the alliance we had signed years earlier for Infostrada, the Olivetti company involved in fixed telephony. But I repeated to him that he was wasting the opportunity of his life by not extending the understanding with Olivetti, according to the scheme that we subsequently proposed to Mannesmann. His reaction was positive. He told me that I had convinced him, that he would talk about it over the weekend (I remember it was a Friday) with the president of Deutsche Telekom, Ron Sommer, and that he would call me the following Monday. His silence, which lasted until after the announcement of the Mannesmann agreement on 5 September 1997, convinced me that we could no longer wait for France Télécom's indecisions. So in July we began negotiations with Mannesmann, which were led by Roberto Colaninno, my sons Rodolfo and Marco, and the banker Magnoni of Lehman. The agreement was concluded on 26 August35.
Mannesmann, who had been blown away by Bell Atlantic the year before, immediately bought 49,9% of Olivetti's telephone business and guaranteed 25% of a new Olivetti capital increase.
The entry of Mannesmann – said De Benedetti – has allowed Olivetti to collect 2.400 billion lire in two tranches, thus eliminating its debt. Furthermore, Olivetti initially retained the majority of the new Dutch holding company Oliman. Olivetti has become a real public company and has entered into a European alliance between non-monopolistic telecommunications companies36.
Technically speaking, on 15 December 1997 the Germans bought 1.150% of the Dutch Olivetti Mobile Telephony Services Holding (Omts), later renamed Oliman, for 25 billion lire; the contract calls for them to purchase another 24,9% by March 2000 at a price of 1.250 billion lire. This second step - which makes it possible to rise to 49,9% - was made in two tranches in September 1988 and February 1999 with the payment of 641 and 647 billion lire. In the end, the exact figure is 2.438 billion lire.
Meanwhile, the Dutch company Olivetti confers 50,7% of Omnitel Sistemi Radiocellulari (the company controls 70% of Omnitel) and 66,7% of Infostrada. 2.400 billion will arrive in Ivrea. Omts-Oliman was valued at 4.700 trillion.
