Vanguard Cellular Systems Inc. reported the first profitable year in the company’s 11-year history last week, although the victory was accompanied by a fourth-quarter net loss due to investments in two subsidiaries.

Net income for 1996 was $6.4 million, or 16 cents per share, compared with a net loss of $7 million, or 17 cents loss per share, reported in 1995. Fourth quarter net loss was $3.8 million, or 9 cents per share, compared with a net loss of $1.8 million, or 4 cents per share, for the fourth quarter 1995.

The Greensboro, N.C.-based company operates five metropolitan cellular clusters along the Eastern seaboard. Vanguard did not participate in the licensing of 1900 MHz spectrum.

Vanguard attributes the net loss to its holdings in two separate subsidiaries: International Wireless Communications Holdings Inc. and InterAct Systems Inc.

San Mateo, Calif.-based IWC is involved in wireless projects in Latin America and other developing regions. Vanguard owns 25 percent of IWC. Vanguard said that as of Dec. 31, it had recognized losses equal to its investment in IWC, and “expects that it will not have to recognize additional net losses attributable to this investment.”

However, Vanguard expects additional proportionate losses of about $5.5 million during the first two quarters of 1997 relating to the company’s 26 percent ownership in InterAct. InterAct addresses the coupon business and builds multimedia sales terminals for retail stores.

On the cellular front, Vanguard’s total year-end subscriber count was 513,000. The company said 52,000 new subscribers were added during the fourth quarter, which included the holiday shopping season; Vanguard added 41,000 subscribers during the same period in 1995.

“Our subscriber base grew by 35 percent and we now provide service to over half a million customers in 29 markets,” said Vanguard Chairman Haynes Griffin. “This expansion of our market share was accomplished with only a modest decline in local service revenue per subscriber.”

Net service revenue per subscriber in 1996 was $48, down 6 percent from $51 in 1995; the 1995 figure was a 15 percent decrease from the $60 per subscriber of net service revenue in 1994.

Service revenues in 1996 were $282.7 million, up 30 percent from $217.4 million in 1995. Operating cash flow grew 51 percent to $102.6 million, compared with $68 million reported in 1995, on a margin of 36 percent of service revenue, compared to 31 percent of service revenue in 1995.

“We also saw our cost of services decline in the fourth quarter to 10 percent of service revenues, a substantial improvement from the fourth quarter of 1995 when cost of services equaled 15 percent of service revenue,” Griffin said.

The improvement is attributed to Vanguard’s anti-fraud program, which was launched last year. Vanguard uses the PhonePrint system by Corsair Communications Inc.

Vanguard expects to begin this year converting its analog cellular networks to digital Time Division Multiple Access technology. The digital network will allow Vanguard to offer add-on services such as caller ID, short messaging and voice activated dialing.

Vanguard is a member of the Cellular One Group partnership, which a year ago expanded the scope of the Cellular One brand to include paging, local and long-distance service.

“We are beginning to provide paging and data transmission services in many of our markets,” said Vanguard President Stephen Leeolou, “all under the Cellular One brand name, which will offer incremental revenue and help us attract new customers.”

Vanguard has signed a roaming agreement with AT&T Wireless Services Inc. that allows AT&T and Vanguard TDMA cellular customers to roam between networks. AT&T is aggressively marketing dual-mode phones to its customers, which will allow subscribers to transmit on either an analog or TDMA digital network.

Vanguard also holds 9 percent of Geotek Communications Inc. and is a minority partner in a consortium that controls two cellular licenses in India.


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