CelluLand to Receive $2 Million to Expand Its Network of Stores

San Diego County Business Editor

CelluLand, the San Diego-based cellular phone chain, is set to receive $2 million in venture capital to finance a nationwide expansion of the company's franchised retail outlets.

InterVen Partners of Los Angeles and Portland, Ore., and Morgan Roberts & Co. of La Jolla combined to make the investment. With 21 outlets, CelluLand is believed to be the largest independent franchiser of cellular phone stores in the country. Another nine CelluLand franchise agreements have been signed and will soon open, CelluLand officials said.

Plans 'Hundreds' of Outlets

InterVen partner Ken Deemer said the funds will be used to improve the chain's inventory and central purchasing, in addition to expanding the franchise network. Deemer expects CelluLand outlets to total in the "hundreds" after the next five years.

"The cellular phone industry is a great growth industry that still lacks a recognized, name-brand retail outlet," said Blaine Roberts, president of Morgan Roberts. "CelluLand is currently in a position to be a nationally recognized name in cellular mobile communications, which will eventually include facsimile transmission and security applications in addition to communications."

Founded in 1985, CelluLand also said that Marvin A. Davis has been named president of the chain, replacing co-founder Kenneth Willig, who will remain with the company as a consultant. Davis, formerly with the Grisanti, Galef & Goldress management consulting firm, is serving as president temporarily and will be replaced at some point, Deemer said Monday.

CelluLand will report a loss of about $550,000 on revenue of $7.2 million for the fiscal year ending this month, a source close to the company said. About $2.5 million of the revenue will come from the chain's one company-owned store on Miramar Road. All other CelluLand stores are franchises.

There are 25,000 to 27,000 cellular-phone users in San Diego County, said Scott Hoganson, area vice president of PacTel Cellular, a subsidiary of Pacific Telesis that is one of two cellular telecommunications carriers in the county. PacTel Cellular and U. S. West each account for half of the county's cellular users.

Provides Customers

Hoganson said about a third of PacTel's cellular customers have come through CelluLand sales, by far the largest retail component.

According to CelluLand franchisee and co-founder Mike Finley, about 70% of CelluLand's sales consist of car phones, sold at an average price of $1,000. CelluLand also sells transportable and portable phones costing $1,200 to $2,000 each.

A typical cellular phone user in the county pays a $35 fixed monthly fee to the carrier, plus $.40 per minute spent on the phone, said CelluLand vice president Ken Sully. A cellular-phone user's average monthly bill is about $100 aa month, not counting the cost of the phones, he said.

Retailers such as CelluLand are typically paid a flat agency fee by carriers of up to $200 for each new customer as well as a small percentage of the customer's monthly bill.

CelluLand's competitive edge lies in the fact that it has set up a series of financially favorable agency agreements with carriers across the country, Deemer said. Terms of those agreements are favorable because CelluLand's "deactivation" rate, or percentage of customers who drop their cellular phone service, is only 1.5% a month, contrasted with the 2.5%-per-month industry norm.

CelluLand has been able to keep its deactivation rate low because of good service and customer support, Deemer said.

About $1.7 million of the funds will be from InterVen, making it a 45% owner of CelluLand. InterVen, a venture fund capitalized at $50 million in 1985, also owns stock in two other San Diego companies: Sunward Technologies, a manufacturer of magnetic heads for computer disk drives, and Cymer Laser Technologies, a maker of lasers for semiconductor lithography.

Morgan Roberts, a local securities broker-dealer and venture capital firm, will hold about 19% of CelluLand stock after the funding is completed. Morgan Roberts has also made investments in Mail Boxes Etc., a locally based franchiser of more than 700 retail postal service centers.

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