Mishnah/Seder Zeraim/Tractate Berakhot/Chapter 7/5
Two groups were eating in one house:
When some of them can see one another, they may combine for Zimmun;
If not, these say Zimmun themselves, and those say Zimmun themselves.
We do not bless over wine until water is added to it-- words of Rabbi Eliezer.
The Sages say, we bless.
some of them can see one another -- some in one group can see some of the other group
these say Zimmun themselves -- each group says Zimmun on its own.
we do not bless over wine -- that is, we do not say the specific blessing over wine, "creating fruit of the vine", but just the more general blessing "creating fruit of the tree" -- according to R. Eliezer.
until water is added to it -- the wine at that time was very concentrated, and it was meant to be drunk mixed with water. Therfore, R. Eliezer considers unmixed wine not the final beverage, and only that final beverage calls for the specific blessing over wine.