New Prince In Old Europe.

It's Monday morning and the chairman of Telecom Italia is in pain. He's broken a toe at his weekend ski lodge near St. Moritz, but now Marco Tronchetti Provera is back to business, his usual flurry of it, in Milan.

"You cannot complain," says Tronchetti, 58, gingerly slipping off his shoe to gain relief. "Being in a leading position is a privilege. Others can complain about you."

And they do, even if you are the reigning prince of Italian industry. (His company is number 81 in the Forbes Global 2000.) The week before, 200 brokerage analysts were at headquarters to demo Tel Italia's cell phone TV, but they were just as focused on the company's lackluster share price and whether it would be takeover bait in Europe's current merger mania. Any such talk is sure to send tremors through Tel Italia's 12,000 domestic suppliers.

Nothing comes without a hook in Italy, today's "sick man of Europe" with its gaping deficits, political turmoil and next to no growth. Tronchetti's visibility there is unrivaled--he also heads the Pirelli Group (whose tire flagship is, with Fiat, the only big Italian company to have survived since the 19th century) and Olivetti, once a typewriter standard. And his is a leadership unusually infused with Anglo-Saxon capitalism--that is, a willingness to tear down subpar business structures and invest in innovation.

Stepping into Tel Italia itself was extraordinary. Along with other European state telecoms, the company had floundered on high debt amassed by its first postprivatization owners in the 1990s. Using his Pirelli base, Tronchetti seized the opportunity, buying out the first private management and setting about streamlining.

This can be unpopular in a nation with some of the strictest job laws in Old Europe. But he was able to restructure his way to a turnaround at Pirelli in the 1990s, so why not try that at the phone company? Since swooping in five years ago, Tronchetti has cut 18,000 employees, lopped off $14 billion of debt and fought out of losing deals in South America and into a potentially winning position in Brazil, over fierce incumbent resistance. Still, the battle isn't won, as those stock analysts reminded him.

In an Italian corporate sector suffering from scandal (Parmalat) and protectionist ossification (the banks), Tronchetti the globalizer has inherited the mantle of Giovanni Agnelli, the late Fiat chairman whose four-decade reign coincided with Italy's postwar industrial heyday. Now it's a new silver-haired titan, a celebrity attached to an estimated net worth of $350 million, who graces the society pages with his Tunisian third wife, Afef Jnifen, a former model.

"I have long admired Tronchetti because I see his way of being a business leader is needed but cannot be found that frequently in Italy or in Europe today," says Mario Monti, former European Union competition czar and now president of one of Italy's few private universities, Bocconi. "Tronchetti has always been among the business leaders calling for European integration. He has a high degree of pragmatism; he calls for action rather than endless discussion."

Though Tronchetti comes from a prominent Milanese family and married into the Pirelli dynasty during his rise, he is more prone to cite his Bocconi M.B.A. and has little patience for peerages in business. "There is no right of succession," he says. At Tel Italia, where he spends 70% of his work time, he dives into testing the new Internet TV service. He preaches innovative risk. His goal: to persuade middle managers, national unions and politicians to adapt to keep Italian businesses competitive. "If the wind changes a few degrees, you have to tack," says the obsessive yachtsman.

Last year Tronchetti shifted course to merge Telecom Italia's wired and wireless businesses after running them separately to foster competition and innovation. Talking to suppliers and seeing competitors' offerings convinced him that Tel Italia needed to get advanced services to market faster. Set to launch in June, for example, is a technology that eventually will allow a seamless transfer from whatever's on a consumer's mobile (including video) to a Wi-Fi screen at home or office.

"Tronchetti is not perceived as a wild manager or person who cuts heads but as a person who is trying to increase the value of the company," says Italian private equity investor Roberto Meneguzzo, who recently purchased a company divested from Telecom Italia.

After earning his M.B.A in 1971 Tronchetti landed at P&O Group in London, where he watched the containerization changes in shipping. (P&O was sold to DP World in the recent deal so controversial in the U.S.) When he returned to Italy in 1972 he transformed his family's partnership in an export-import warehouse into Italy's first inland container terminal. Over 14 years he built the company, Sogemar, to where he could sell nearly all of it for $10 million.

That let him buy his brothers out of the family's stake in Pirelli & Co. In 1989 Tronchetti became one of five partners at the tires-and-finance entity (he'd married Cecilia Pirelli in 1978; they separated in 1989). He launched a real estate venture to revamp former Pirelli industrial campuses. As with his shipping company, he looked to the U.K. for a model and created the first listed realty funds in Italy. "The goal was to attract investment from abroad," because Italy lacked a sufficiently liquid capital market, he says.

Tronchetti pushed past tenured Pirelli executives to take charge of the troubled tiremaker in 1991. Suffering from a failed takeover of the U.S.' Firestone and Germany's Continental and a declining tire market, Pirelli offered him his first restructuring challenge at a multinational. He started by getting rid of the traditional convoluted holding structure. "I look at complexity as a way not to face priorities. Some shareholders objected. They liked the old ways of doing business because it was easier to play power games," says Tronchetti. After making the ownership more transparent, he pushed through factory closures, 12,000 layoffs and a division's sale. He invested in information systems--in 1995 Pirelli was the first Italian company to use SAP software throughout--and poured money into R&D.

Eventually Pirelli shed its commodity tire business to focus on premium lines. Also, it developed optical components, selling that business at the peak of the tech boom in 2000 to Corning for $3.6 billion. In partnership with the likes of MIT and Georgia Tech, Pirelli Labs is studying telecommunications technologies like broadband access and photonics, which can feed back into Tel Italia, and new materials for tires and environmental cleanup. "Intelligent dust" that can be used to measure air toxins is one such quest.

"Tronchetti was gutsy and bold. Very few people can ensure the shift of the business in a short amount of time," says Carlo Bronzini Vender of Sonenshine Partners in New York City, an adviser on two large U.S.-Italy transactions: the sale of Host Marriott Services to Autogrill (controlled by the Benetton family, part owners in Telecom Italia) and the sale of Lenscrafters to Luxottica. Tronchetti also has continued to add substantial valuations for Pirelli Group in real estate.

At Tel Italia the job slashes achieved the highest telco productivity in Europe. But a daunting task remained: to replace the declining fixed-line revenue with mobile and broadband services in one of Europe's most competitive markets. For all of Italy's sclerosis, it is a telecom battleground, with Britain's Vodafone and a venture owned by Hong Kong titan Li Ka-shing among the participants. The nation spends 15% more on phone services, as a percentage of GDP, than Western Europe as a whole and sports a 110% penetration rate for mobile services (many Italians have one personal and one work cell phone). Recently Fastweb won a government contract away from Telecom Italia with a 50% price cut. In both the wired and wireless businesses Tronchetti has to contend with price-cutting mandates by regulators. Still, he believes that services like video-over-mobile at 4 megabits per second and Internet TV service at speeds up to 20 megabits per second will get Telecom Italia out of its doldrums. Initial plans call for a residential rollout of Internet TV followed by hotels and other locations.

"On average Telecom Italia is a year ahead of the industry in terms of network investment and service offerings," says Robert Grindle, analyst at Dresdner Kleinwort Wasserstein.

Tel Italia gets 80% of its revenues domestically. In Germany and France the company offers broadband services; its Brazilian unit should get there, though the market is not yet as robust. Tronchetti even has his eye on reviving Olivetti, now a division of Tel Italia. As with Pirelli, he's been targeting the brand, aiming at inkjet printers. There, competition from Lexmark and Hewlett-Packard is fierce, as fierce as it is in telecom or tires. Tronchetti's mantra is consistent: "The only way to improve is to be innovative."