Summary form only given. This paper describes an improved lossless data compression scheme. The proposed scheme contains three innovations: first, an efficient algorithm is introduced to decide when and how to switch from transparent mode to compressed mode, second, a temporary buffer is introduced at the encoder, and third, an approach to decide when to discard the entire dictionary is advanced. According to the developed method the changes are only at the transmitter and any V.42bis-compatible receiver can be used as a decoder. Therefore devices using V.42bis can use the proposed method after a firmware upgrade. To make a decision when to switch modes, we introduce two look-ahead buffers, B/sub C/ and B/sub T/, for each mode of operation of the encoder. Regardless of which mode the encoder is in, the output of both modes of operation is written to the corresponding look-ahead buffer. The simulation results demonstrate that the proposed method achieves higher compression ratios in most cases. Another goal of the work presented in this paper is to analyze what is the improvement obtained after the dictionary is reset and when is a good time to discard the dictionary. Our results for different file types show that consistently the compression ratio before dictionary reset is 0.87 and after dictionary reset is 1.07, an increase of 22.6 %. It is noted that V.44 is a newer compression standard, based on a different compression algorithm. While our results do not apply directly to V.44, they may be used after appropriate modifications.