RURAL CELLULAR CORPORATION

Letter to Shareholders, Employees, Suppliers, Customers and Communities

It was a year of tremendous growth and expansion for Rural Cellular Corporation. In fact, 1997 was a defining year, as we moved well beyond our previous identity, establishing ourselves as a truly full-service wireless company.

We grew our cellular business to record levels, increased our footprint to 1.75 million POPs (population served), maintain a retention level above industry average and leveraged our core competencies into more sophisticated services with the establishment of a PCS (personal communications service) business unit. We recorded solid financial performance, including strong revenue growth and EBITDA (earnings before interest, taxes, depreciation and amortization-a standard measurement of performance in the cellular industry). This growth and positioning for the future was not without cost, however. The Company showed a net loss for the year.

Operating Results

Consolidated revenue for fiscal 1997 was a record $53.9 million, a 77% increase over 1996. EBITDA was $14.3 million, up 63% from the prior year's nearly $8.8 million. The 1997 net loss was $1.3 million or $.14 per share, compared with net earnings of $3.5 million or $.41 per share, in 1996. RCC's consolidated customer count for all business units totaled 111,000 for 1997.

Consolidated operating results include RCC Cellular (RCC Minnesota and RCC Maine, acquired in May 1997) and Wireless Alliance, LLC, a PCS joint venture owned 51% by RCC and 49% by Aerial Communications, Inc.

RCC Cellular revenues increased 54% in 1997 to $46.6 million, reflecting both the growth of RCC Minnesota and the acquisition of RCC Maine. RCC Cellular generated EBITDA of $19.9 million in 1997, up 110% from $9.5 million in 1996, and had a total customer base of nearly 94,000 at year's end. Prior to the acquisition of RCC Maine, RCC ended 1996 with 52,000 customers.

Wireless Alliance, LLC, reported losses due to the continuation of expenses stemming from highly successful cus- tomer enrollment programs for cellular service ending the year with over 17,000 customers. Wireless Alliance showed consistent revenue increases during the year, posting revenues of $7.3 million in 1997, compared to $220,000 during its start-up in November and December of 1996.

In addition, RCC's credit line was increased to $160 million, insuring the support of continued growth and integration of new services in the future.

Strong Results for All Units

Every business unit of RCC reported major operating success during 1997. Wireless Alliance established itself in the areas where it holds PCS licenses, but does not hold cellular licenses, by reselling cellular services. However, strong customer growth resulted in higher than anticipated sales expense for 1997. At year end Wireless Alliance reported a customer base of over 17,000. The business unit also incorporated the Sioux Falls, South Dakota markets, which means RCC now manages markets in five states.

Thanks to the strength of RCC Minnesota, RCC Cellular recorded solid earnings for 1997. The elim- ination of customers with histories of payment delinquencies affected RCC Cellular's overall growth only slightly. The unit's monthly retention was 98.5%, compared to 98.7% in 1996. Despite RCC Maine's lower rate of market penetration, RCC Cellular's market penetration was virtually un- changed from the prior year-7.6% in 1997 versus 7.5% in 1996. All in all, the unit continued to generate solid earnings and EBITDA for the Company.

In May 1997, the acquisition of RCC Maine increased the Company's base of operation by a half-million POPs. Their experienced management team and staff produced positive operating income and EBITDA for the year. Operating income was offset by the interest on debt financing incurred in connection with the acquisition.

Preparing for the Future

It is important to note that the year's acquisition and joint venture were strategic moves for continued growth and expansion. For example, the joint venture with Aerial makes us a full-service wireless communications provider, utilizing proven Global System for Mobile (GSM) technology. RCC will step across that threshold with rollouts of PCS throughout the Wireless Alliance service area in 1998. Dual mode phones that offer seamless integration of cellular and GSM technology will allow customers to use RCC service throughout Northern Minnesota without roaming or long distance charges.

The PCS joint venture relationship will give us the experience and expertise we need to introduce PCS to our market areas. The high tech digital TDMA (time division multiple access) technology being installed by RCC Minnesota and RCC Maine will facilitate this move to full service.

RCC has the discipline and internal structure to continue to be a market leader. Even our distribution system led by territory managers, consisting of authorized agents and a direct sales force rather than solely corporate stores, puts us in a unique position to provide on-site customer support and on-going customer and agent training. RCC Maine is implementing the same system, which will help grow its customer base and lower acquisition costs further in 1998.

Despite the near-term impact of such growth on profitability, we are focusing on gen- erating sustainable value for shareholders over the long term by providing important new wireless services and entering attractive new geographic markets.

Future Acquisitions

The positive impact of our aggressive growth initiatives is evident in the strong level of EBITDA generated in 1997. It is a fact that makes us confident about the Company's future in the wireless industry. Further, it encourages future acquisitions, including two acquisitions announced early in 1998.

Rural Cellular Corporation intends to acquire the cellular assets of Atlantic Cellular Company, L.P. and Western Maine Cellular, Inc., a wholly-owned subsidiary of Utilities, Inc. This will add a contiguous, multi-state service area of nearly 25,000 square miles in Vermont, New Hampshire, New York, Massachusetts, and Maine. It will mean 1.2 million additional POPs, and over 70,000 customers added to our base.

Both properties possess economic and demographic characteristics similar to our existing wireless markets. Atlantic Cellular has a clear competitive advantage in its cellular coverage and has a distribution and customer service system we believe is second to none in its service area. As a result it has recorded impressive customer and revenue growth and consistently strong levels of EBITDA. Western Maine in its early stages of development, offers significant potential for growth and provides the geographic contiguity between RCC Maine and Atlantic Cellular.

Focusing on Relationships

Retention is a mark of customer satisfaction and a statistic we take very seriously. Customers have a choice for their wireless service, and while competitors give away phones and airtime we strive to provide customer value that makes RCC the only smart choice. From call quality and clarity, to services and coverage, to ease of use and friendly service, our success will continue to be based on market orientation. Value comes from choosing your customers and focusing on operations that best serve those customers.

Our present focus is on expanding our markets or acquiring compatible markets, i.e., adjacent markets or companies with similar corporate cultures and a belief in customer satisfaction. RCC believes, however, that rather than indiscriminate acquisition of customers, it is the balance of penetration, retention, acquisition cost and average monthly revenue per customer that produce our positive results.

RCC is as eager to retain and satisfy our employees as we are our customers. There is a significant investment in the training and professional growth of our employees, and internal operations have been strengthened by adding strong employees to management.

Supplier relationships are as important as any other, and we are loyal to those suppliers who have helped us achieve our goals. Partnerships with suppliers help maximize the expertise and assistance they provide with their products and services.

Our customers and employees live in the communities we serve. RCC promotes volunteerism, and contributes airtime, phone usage, and monetary donations to schools and social programs throughout our service areas.

I'm proud to be the President and CEO of Rural Cellular Corporation, and I want to thank my fellow employees for their dedication, creativity and excellent performance. I also want to thank our customers, suppliers and shareholders for their ongoing support of our company, and their confidence in the correctness of our corporate culture. Be assured that RCC will continue to focus on you and your needs in the future.

Sincerely,

Richard P. Ekstrand
President and Chief Executive Officer

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