10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-14157

TELEPHONE AND DATA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

Delaware	36-2669023
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
30 North LaSalle Street, Chicago, Illinois	60602
(Address of principal executive offices)	(Zip code)
Registrant's Telephone Number:    (312) 630-1900
Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Shares, $.01 par value	American Stock Exchange
8.5% TDS-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust	American Stock Exchange
8.04% TDS-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust	American Stock Exchange
7.60% Series A Notes due 2041	New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:    None

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  X   No   

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  X 

        Indicated by checkmark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes  X   No   

        As of February 28, 2003, the aggregate market values of the registrant's Common Shares, Series A Common Shares and Preferred Shares held by non-affiliates were approximately $2.1 billion, $12.3 million and $9.2 million, respectively. For purposes hereof, it was assumed that each director, executive officer and holder of 10% or more of the voting power of the Company is an affiliate. The closing price of the Common Shares on February 28, 2003, was $40.07, as reported by the American Stock Exchange. Because no market exists for the Series A Common Shares and Preferred Shares, the registrant has assumed for purposes hereof that (i) each Series A Common Share has a market value equal to one Common Share because the Series A Common Shares were initially issued by the registrant in exchange for Common Shares on a one-for-one basis and are convertible on a share-for-share basis into Common Shares, (ii) each nonconvertible Preferred Share has a market value of $100 because each of such shares had a stated value of $100 when issued, and (iii) each convertible Preferred Share has a value of $40.07 times the number of Common Shares into which it was convertible on February 28, 2003.

        The number of shares outstanding of each of the registrant's classes of common stock, as of February 28, 2003, is 52,086,604 Common Shares, $.01 par value, and 6,608,604 Series A Common Shares, $.01 par value.

DOCUMENTS INCORPORATED BY REFERENCE

        Those sections or portions of the registrant's 2002 Annual Report to Shareholders and of the registrant's Notice of Annual Meeting of Shareholders and Proxy Statement for its Annual Meeting of Shareholders to be held May 8, 2003, described in the cross reference sheet and table of contents attached hereto are incorporated by reference into Part II and III of this report.

CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS

		Page Number or Reference(1)
Item 1.	Business	3
Item 2.	Properties	42
Item 3.	Legal Proceedings	42
Item 4.	Submission of Matters to a Vote of Security Holders	42
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters	43	(2)
Item 6.	Selected Financial Data	43	(3)
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A")	43	(4)
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	43	(4)
Item 8.	Financial Statements and Supplementary Data	43	(5)
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	44
Item 10.	Directors and Executive Officers of the Registrant	45	(6)
Item 11.	Executive Compensation	45	(7)
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	45	(8)
Item 13.	Certain Relationships and Related Transactions	45	(9)
Item 14.	Controls and Procedures	45
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	46

(1)

Parenthetical references are to information incorporated by reference from the registrant's Exhibit 13, which includes portions of its Annual Report to Shareholders for the year ended December 31, 2002 ("Annual Report") and from the registrant's Notice of Annual Meeting of Shareholders and Proxy Statement for its Annual Meeting of Shareholders to be held on May 8, 2003 ("Proxy Statement").

(2)

Annual Report sections entitled "TDS Stock and Dividend Information" and "Market Price per Common Share by Quarter."

(3)

Annual Report section entitled "Selected Consolidated Financial Data."

(4)

Annual Report section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition."

(5)

Annual Report sections entitled "Consolidated Statements of Operations," "Consolidated Statements of Cash Flows," "Consolidated Balance Sheets," "Consolidated Statements of Common Stockholders' Equity," "Notes to Consolidated Financial Statements," "Consolidated Quarterly Information (Unaudited)," "Report of Independent Accountants," and "Copy of Previously Issued Report of Independent Accountants."

(6)

Proxy Statement sections entitled "Election of Directors" and "Executive Officers."

(7)

Proxy Statement section entitled "Executive Compensation," except for the information specified in Item 402(a)(8) of Regulation S-K under the Securities Exchange Act of 1934, as amended.

(8)

Proxy Statement sections entitled "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" and "Securities Authorized for Issuance under Equity Compensation Plans."

(9)

Proxy Statement section entitled "Certain Relationships and Related Transactions."

2

Telephone and Data Systems, Inc.
30 NORTH LASALLE STREET, CHICAGO, ILLINOIS 60602
TELEPHONE (312) 630-1900

PART I

Item 1.    Business

        Telephone and Data Systems, Inc. ("TDS"), is a diversified telecommunications service company with wireless telephone and wireline telephone operations. At December 31, 2002, TDS served approximately 5.1 million customer units in 35 states, including 4,103,000 wireless telephones and 1,002,600 telephone equivalent access lines. U.S. Cellular provided 73.2% of TDS's consolidated revenues and 72.8% of consolidated operating income in 2002. TDS Telecom provided 26.8% of consolidated revenues and 27.2% of consolidated operating income in 2002. TDS's business strategy is to expand its existing operations through internal growth and acquisitions and to explore and develop other telecommunications businesses that management believes will utilize TDS expertise in customer focused telecommunications services.

        TDS conducts substantially all of its wireless operations through United States Cellular Corporation ("U.S. Cellular"). At December 31, 2002, TDS owned 82.2% of the combined total of the outstanding Common Shares and Series A Common Shares of U.S. Cellular and controlled 96.0% of the combined voting power of both classes of common stock. U.S. Cellular is traded on the American Stock Exchange under the symbol "USM". At December 31, 2002, U.S. Cellular provided wireless telephone service to 4,103,000 customers through 149 majority-owned and managed ("consolidated") wireless systems serving approximately 18% of the geography and approximately 13% of the population of the United States. Since 1985, when U.S. Cellular began providing cellular service in Knoxville, Tennessee and Tulsa, Oklahoma, U.S. Cellular has expanded its wireless networks and customer service operations to cover eight market areas in 25 states as of December 31, 2002. U.S. Cellular owns wireless licenses covering territories in two additional states and has the rights to commence service in those license areas in the future. The wireless licenses that U.S. Cellular currently manages cover a total population of more than one million in each market area.

        TDS conducts substantially all of its wireline telephone operations through its wholly owned subsidiary, TDS Telecommunications Corporation ("TDS Telecom"). At December 31, 2002, TDS Telecom operated 111 Incumbent Local Exchange Carrier ("ILEC") telephone companies serving 711,200 equivalent access lines in 28 states. TDS Telecom is expanding by offering additional lines of telecommunications products and services to existing customers and through the selective acquisition of local exchange telephone companies serving rural and suburban areas. TDS Telecom has acquired 11 telephone companies since the beginning of 1998. These acquisitions added 89,300 equivalent access lines during this five-year period, while internal growth added 99,400 equivalent access lines. TDS Telecom also began offering services as a Competitive Local Exchange Carrier ("CLEC") in 1998 in certain mid-sized cities which are geographically proximate to existing TDS Telecom ILEC markets. At December 31, 2002, TDS Telecom's CLECs served 291,400 equivalent access lines in five states.

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        TDS was incorporated in 1968 and changed its corporate domicile from Iowa to Delaware in 1998. TDS executive offices are located at 30 North LaSalle Street, Chicago, Illinois 60602. Its telephone number is 312-630-1900.

        Unless the context indicates otherwise references to:

•

"TDS" or the "Company" refer to Telephone and Data Systems, Inc., and its subsidiaries;



•

"USM" or "U.S. Cellular" refer to United States Cellular Corporation and its subsidiaries;



•

"TDS Telecom" refer to TDS Telecommunications Corporation and its subsidiaries;



•

"ILEC" refer to incumbent local exchange carriers;



•

"CLEC refer to competitive local exchange carriers;



•

"MSA" refer to the Metropolitan Statistical Area, as designated by the U.S. Office of Management and Budget and used by the Federal Communications Commission ("FCC") in designating metropolitan cellular market areas;



•

"RSA" refer to the Rural Service Area, as used by the FCC in designating non-MSA cellular market areas;



•

"MTA" refer to Metropolitan Trading Areas, used by the FCC in dividing the United States into PCS market areas for licenses in Blocks A and B;



•

"BTA" refer to Basic Trading Areas, used by the FCC in dividing the United States into PCS market areas for licenses in Blocks C through F;



•

"PCS" refer to personal communications services,



•

cellular, PCS, or wireless "markets" or "systems" refer to MSAs, RSAs, MTAs, BTAs, or any combination thereof; and



•

"population equivalents" mean the population of a market, based on 2002 Claritas estimates, multiplied by the percentage interests that TDS owns or has the right to acquire in an entity licensed or designated to receive a license ("licensee") from the FCC to operate a cellular or PCS system in such market.

Available Information

        TDS's website is http://www.teldta.com. Anyone may access, free of charge, through the Investor Relations portion of the website the TDS annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practical after such material is electronically filed with the Securities and Exchange Commission.

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY STATEMENT

        This Annual Report on Form 10-K, including exhibits, contains statements that are not based on historical fact, including the words "believes," "anticipates," "intends," "expects," and similar words. These statements constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward-looking statements. Such factors include, but are not limited to:

•

Increases in the level of competition in the markets in which TDS operates could adversely affect TDS's revenues or increase its costs to compete.

4

•

Advances or changes in telecommunications technology could render certain technologies used by TDS obsolete. Competitors may have a lower fixed investment per customer because of technology changes.



•

Changes in telecommunications regulatory environment could adversely affect TDS's financial condition or results of operations or could prevent TDS businesses which depend on access to competitors' facilities from obtaining such access on reasonable terms.



•

Changes in the supply or demand of the market for wireless licenses or telephone companies, increased competition, adverse developments in the TDS businesses or the industries in which TDS is involved and/or other factors could result in an impairment of the value of TDS's license costs, goodwill and/or physical assets, which may require TDS to record a writedown in the value of such assets.



•

Competition, construction delays, customer churn and other challenges in executing TDS's expansion and development of its CLEC business could result in higher than planned losses, additional financing requirements and/or the writedown of the CLEC assets if TDS is unable to successfully implement its plans in this business development.



•

Conversions of LYONs, early redemptions of debt or repurchases of debt, changes in estimates or other factors or developments, could cause the amounts reported under Contractual Obligations in TDS's MD&A incorporated by reference herein to be different from the amounts presented.



•

Changes in circumstances relating to and/or in the assumptions underlying the accounting estimates described under Critical Accounting Policies in TDS's MD&A incorporated by reference herein could have a material effect on the Company's financial condition, changes in financial condition and results of operations.



•

Settlements, judgments, restraints on its current or future manner of doing business and/or legal costs resulting from pending or future litigation that is Company specific or that apply to the industry in general could have an adverse effect on TDS's financial condition, results of operations or ability to do business.



•

Costs, integration problems or other factors associated with acquisitions/divestitures of properties and/or licenses could have an adverse effect on TDS's financial condition or results of operations.



•

Changes in prices, the number of wireless customers, average revenue per unit, penetration rates, churn rates, roaming rates and the mix of products and services offered in wireless markets could have an adverse effect on TDS's wireless business operations.



•

Changes in roaming partners, rates, and the ability to provide voice and data services on other carriers' networks could have an adverse effect on TDS's wireless business operations.



•

Changes in competitive factors with national carriers could result in product and cost disadvantages could have an adverse effect on TDS's wireless business operations.



•

Changes in prices, in the number of ILEC and CLEC customers, churn rates, access minutes of use trends, and mix of products and services offered in ILEC and CLEC markets could have an adverse effect on such TDS business segments.



•

Continued migration of customers from wireline to wireless services could have an adverse effect on TDS's wireline businesses.



•

Continued uncertainty of access to capital for telecommunications companies, further deterioration in the capital markets, other changes in market conditions or other factors could limit or restrict the availability of financing on terms and prices acceptable to TDS, which could require TDS to reduce its construction, development and acquisition programs.



•

Changes in TDS's credit ratings could limit or restrict the availability of financing on terms and prices acceptable to TDS, which could require TDS to reduce its construction, development and acquisition programs.

5

•

Changes in circumstances or other events, relating to the acquisition of Chicago 20MHz, including integration costs or problems or other factors associated with such acquisition could have an adverse effect on TDS's financial condition or results of operations.



•

The continuation of the economic downturn and continued bankruptcies in the telecommunications industry could result in higher bad debts and slower business activity, which could have an adverse effect on TDS's businesses.



•

War, conflicts, hostilities and/or terrorist attacks could have an adverse effect on TDS's businesses.



•

Changes in TDS's accounting policies, estimates or assumptions could have an adverse effect on our financial condition or results of operations.



•

Changes in general economic and business conditions, both nationally and in the market areas in which TDS operates, could have an adverse effect on TDS's businesses.

        TDS undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. Readers should evaluate any statements in light of these important factors.

U.S. Cellular Operations

        TDS's wireless operations are conducted through U.S. Cellular and its subsidiaries. U.S. Cellular believes that it is the eighth largest wireless company in the United States, based on internally prepared calculations of the aggregate number of customers in its consolidated markets compared to the number of customers disclosed by other wireless companies in their publicly released information. U.S. Cellular's business development strategy is to operate controlling interests in wireless licenses in areas adjacent to or in proximity to its other wireless licenses, thereby building contiguous operating market areas. U.S. Cellular anticipates that grouping its operations into market areas will continue to provide it certain economies in its capital and operating costs. As the number of opportunities for outright acquisitions has decreased in recent years, and as U.S. Cellular's regions have grown, U.S. Cellular's focus has broadened to include exchanges and divestitures of managed and investment interests which are considered less essential to its operating strategy.

        U.S. Cellular's ownership interests in wireless licenses include interests in licenses covering 175 cellular MSAs or RSAs and 35 PCS BTAs. Of those interests, U.S. Cellular owns controlling interests in licenses covering 143 MSAs or RSAs and all 35 PCS BTAs. U.S. Cellular's interests in licenses covering six PCS BTAs are owned exclusively through joint ventures ("JVs") in which U.S. Cellular owns a limited partner interest; U.S. Cellular is considered to have the controlling financial interest for financial reporting purposes in these PCS BTAs.

        U.S. Cellular manages the operations of all but two of the cellular licenses in which it owns a controlling interest; U.S. Cellular has contracted with another wireless operator to manage the operations of the other two markets. U.S. Cellular also manages the operations of four additional cellular licenses in which it does not own a controlling interest, through an agreement with the controlling interest holder or holders. U.S. Cellular manages or has the rights to manage the operations of 29 of the 35 PCS BTAs in which it owns licenses. As of year-end 2002, six of these BTAs were operational; marketing activities had not yet begun in the other 29 BTAs. In the six PCS BTAs in which U.S. Cellular owns a limited partner interest, the general partner has the authority to select the manager of these operations. None of these six PCS BTAs were operational at year-end 2002.

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        The following table summarizes the status of U.S. Cellular's interests in wireless markets at December 31, 2002.

	Total	Cellular	PCS
Included in Consolidated Operations (1)	178	143	35
Accounted for Using Equity Method (2)	26	26	—
Accounted for Using Cost Method (3)	6	6	—
Total Markets	210	175	35

(1)

U.S. Cellular owns a controlling interest in each of the 143 cellular markets and 35 PCS markets. U.S. Cellular owns a limited partner interest in six PCS markets, and includes the operations of these markets in its consolidated results because U.S. Cellular is considered to have the controlling financial interest for financial reporting purposes. Six PCS markets were operational at year-end 2002 and the customer activity for these markets is included in U.S. Cellular's consolidated results in 2002.

(2)

Represents cellular markets in which U.S. Cellular owns a noncontrolling interest and which are accounted for using the equity method. U.S. Cellular's investments in these markets are included in investment in unconsolidated entities on its balance sheet and its proportionate share of the net income of these markets is included in investment income on its statement of operations.

(3)

Represents cellular markets in which U.S. Cellular owns a noncontrolling interest and which are accounted for using the cost method. U.S. Cellular's investments in these markets are included in investment in unconsolidated entities on its balance sheet.

        Some of the territory covered by the PCS BTA licenses U.S. Cellular operates overlaps with territory covered by the cellular licenses it operates. In other cases, U.S. Cellular owns a controlling interest in one license and a limited partner interest in another license, which covers the same PCS BTA. For the purpose of tracking population counts, when U.S. Cellular acquires a licensed area that overlaps a licensed area it already owns, it does not duplicate the number of population equivalents for any overlapping licensed area. Only non-overlapping, incremental population equivalents are added to the reported amount of total population equivalents in the case of an acquisition of a licensed area that overlaps a previously owned licensed area. The incremental population equivalents that are added in such event are referred to throughout this Form 10-K as "incremental" population measurements. Amounts reported in this Form 10-K as "total market population" and "population equivalents" do not duplicate any population equivalents in the case of any overlapping licensed areas U.S. Cellular owns.

        U.S. Cellular's wireless interests represent 42.0 million incremental population equivalents as of December 31, 2002. Overall, 95% of U.S. Cellular's incremental population equivalents are in consolidated markets and 5% are in markets in which U.S. Cellular holds an investment interest.

        U.S. Cellular is a limited partner in a JV which was a successful bidder for 17 PCS licenses in 13 markets in the January 2001 FCC spectrum auction ("Auction 35"). The JV has acquired five of such licenses in four markets, which are included in the 35 PCS BTAs discussed above. With respect to the remaining licenses, such licenses had been reauctioned by the FCC after defaults by winning bidders in a prior auction and were made subject by the FCC to the final outcome of certain legal proceedings initiated by the prior winning bidders. During 2002, the FCC allowed all successful bidders to opt out of any pending applications to purchase licenses resulting from Auction 35. The FCC approved the dismissal of the JV's pending applications and all amounts deposited with the FCC have been returned to the JV.

        Wireless systems in U.S. Cellular's 149 operational consolidated markets served 4,103,000 customers at December 31, 2002, and contained 3,914 cell sites. The average penetration rate in U.S. Cellular's operational consolidated markets was 11.22% at December 31, 2002, and the churn rate in these markets averaged 2.1% per month for the twelve months ended December 31, 2002.

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Wireless Telephone Operations

        The Wireless Telephone Industry.    Wireless telephone technology provides high-quality, high-capacity communications services to hand-held portable and in-vehicle wireless telephones. Wireless telephone systems are designed for maximum mobility of the customer. Access is provided through system interconnections to local, regional, national and world-wide telecommunications networks. Wireless telephone systems also offer a full range of ancillary services such as conference calling, call-waiting, call-forwarding, voice mail, facsimile and data transmission; those systems which have digital radio capabilities may offer additional features such as caller ID, short messaging services and certain data transmission services.

        Wireless telephone systems divide each service area into smaller geographic areas or "cells." Each cell is served by radio transmitters and receivers which operate on discrete radio frequencies licensed by the FCC. All of the cells in a system are connected to a computer-controlled Mobile Telephone Switching Office ("MTSO"). The MTSO is connected to the conventional ("landline") telephone network and potentially other MTSOs. Each conversation on a wireless phone involves a transmission over a specific set of radio frequencies from the wireless phone to a transmitter/receiver at a cell site. The transmission is forwarded from the cell site to the MTSO and from there may be forwarded to the landline telephone network or to another wireless phone to complete the call. As the wireless telephone moves from one cell to another, the MTSO determines radio signal strength and transfers ("hands off") the call from one cell to the next. This hand-off is not noticeable to either party on the phone call.

        The FCC currently grants two licenses to provide cellular telephone service in each cellular licensed area. Multiple licenses have been granted in each PCS licensed area, and PCS licensed areas (BTAs and MTAs) overlap with cellular licensed areas. As a result, PCS license holders can and do compete with cellular license holders for customers. Competition for customers also includes competing communications technologies, such as:

•

conventional landline telephone,



•

Specialized Mobile Radio ("SMR") systems,



•

mobile satellite communications systems, and



•

radio paging.

        PCS licensees have initiated service in nearly all areas of the United States, including substantially all of U.S. Cellular's licensed areas, and U.S. Cellular expects other wireless operators to continue deployment of PCS in all of its operating regions throughout 2003. Additionally, technologies such as Enhanced Specialized Mobile Radio ("ESMR") and mobile satellite communication systems are proving to be competitive with wireless service in many of U.S. Cellular's markets.

        The services available to wireless customers and the sources of revenue available to wireless system operators are similar to those provided by conventional landline telephone companies. Customers may be charged a separate fee for system access, airtime, long-distance calls and ancillary services. Wireless system operators also provide service to customers of other operators' wireless systems while the customers are temporarily located within the operators' service areas. Customers using service away from their home system are called "roamers." Roaming is available because technical standards require that analog wireless telephones be compatible in all market areas in the United States. Additionally, because U.S. Cellular has deployed digital radio technologies in substantially all of its service areas, its customers with digital or dual-mode (both analog and digital capabilities) or tri-mode (analog plus digital capabilities at both the cellular and PCS radio frequencies) wireless telephones can roam in other companies' service areas which have a compatible digital technology in place. Likewise, U.S. Cellular can provide roaming service to other companies' customers who have compatible digital wireless telephones. In all cases, the system that provides the service to roamers will generate usage revenue, at rates that have been negotiated between the serving carrier and the customer's carrier.

        There have been a number of technical developments in the wireless industry since its inception. Currently, while substantially all companies' MTSOs process information digitally, on certain cellular

8

systems the radio transmission uses analog technology. All PCS systems utilize digital radio transmission. Several years ago, certain digital transmission techniques were approved for implementation by the wireless industry. Time Division Multiple Access ("TDMA") technology was selected as one industry standard by the wireless industry and has been deployed by many wireless operators, including U.S. Cellular's operations in a substantial portion of its markets. Another digital technology, Code Division Multiple Access ("CDMA"), is also being deployed by U.S. Cellular in its remaining markets. In 2002, U.S. Cellular began its plans to deploy CDMA 1XRTT technology, which allows for higher speed data transmission, throughout all of its markets, over a three-year period ending in 2004. As of December 31, 2002, U.S. Cellular had deployed CDMA 1XRTT technology in a substantial portion of its Midwest market area, where it had previously deployed TDMA technology, as part of its technology conversion plans.

        U.S. Cellular will continue to deploy the TDMA technology currently in place for the next few years. Migration of U.S. Cellular's customers to CDMA handsets in these markets is expected to take a few years; in addition, continuing to deploy its current TDMA technology will enable U.S. Cellular to use both CDMA and TDMA to serve roaming customers in these markets.

        Digital radio technology offers several advantages, including the following:

•

greater privacy,



•

less transmission noise,



•

data transmission capabilities,



•

greater system capacity, and



•

potentially lower incremental costs to accommodate additional system usage.

        The conversion from analog to digital radio technology is continuing on an industry-wide basis; however, this process is expected to continue for a few more years. Wireless operators in the United States have deployed TDMA, CDMA and a third digital technology, Global System for Mobile Communication ("GSM"), in the licensed areas where they have begun operations.

        U.S. Cellular's Operations.    From its inception in 1983 until 1993, U.S. Cellular was principally in a start-up phase. Until 1993, U.S. Cellular's activities had been concentrated significantly on the acquisition of interests in cellular licenses and on the construction and initial operation of wireless systems. The development of a wireless system is capital-intensive and requires substantial investment prior to and subsequent to initial operation. U.S. Cellular experienced operating losses and net losses from its inception until 1993. In the years since 1993, U.S. Cellular has produced operating income and net income, except in 2002 when higher operating expenses and losses on investments resulted in a net loss for the year.

        Management anticipates further growth in wireless units in service and revenues as U.S. Cellular continues to expand through internal growth and as the PCS licenses acquired in 2001 and 2002 become fully integrated into its operations. Expenses associated with this expansion may reduce the rate of growth in cash flows from operating activities and operating income during the period of additional growth. In addition, U.S. Cellular anticipates that the seasonality of revenue streams and operating expenses may cause its cash flows from operating activities and operating income to vary from quarter to quarter.

        While U.S. Cellular has produced operating income and net income since 1993 (except the net loss in 2002), changes in any of several factors may reduce U.S. Cellular's growth in operating income and net income over the next few years. These factors include:

•

the growth rate in the customer base;



•

the usage and pricing of wireless services;



•

the cost to begin or integrate operations of newly acquired licensed areas;



•

the percentage of customers who disconnect service ("churn rate");



•

the cost of providing wireless services, including the cost of attracting and retaining customers;

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•

the migration to a single digital equipment platform, which will require substantial capital expenditures;



•

continued competition from other wireless licensees and other telecommunication technologies; and



•

continuing technological advances which may provide additional competitive alternatives to wireless service.

        U.S. Cellular is building a substantial presence in selected geographic areas throughout the United States where it can efficiently integrate and manage wireless telephone systems. Its wireless interests include eight operating market areas. See "U.S. Cellular's Wireless Interests."

        U.S. Cellular has acquired its wireless interests through the wireline application process for MSAs and RSAs, including settlements and exchanges with other applicants, and through acquisitions, including acquisitions from TDS and third parties.

Wireless Systems Development

        Acquisitions, Divestitures and Exchanges.    U.S. Cellular assesses its wireless holdings on an ongoing basis in order to maximize the benefits derived from grouping its markets geographically. U.S. Cellular also reviews attractive opportunities for the acquisition of additional wireless spectrum. Over the past few years, U.S. Cellular has completed exchanges of minority interests or controlling interests in its less strategic markets for controlling interests in markets which better complement its operating market areas. U.S. Cellular has also completed outright sales of other less strategic markets, and has purchased controlling interests in markets which enhance its operating market areas. In 2001, U.S. Cellular began acquiring interests in PCS markets. These markets are either adjacent to U.S. Cellular's current operations, thus expanding its current operating market areas, or are in territories in which U.S. Cellular currently operates, and will add spectrum capacity to those operations. As a result of its acquisition activities, currently 95% of U.S. Cellular's interests are in markets where it is the operator or expects to manage.

        U.S. Cellular may continue to make opportunistic acquisitions or exchanges in markets that further strengthen its operating market areas and in other attractive markets. U.S. Cellular also seeks to acquire minority interests in markets where it already owns the majority interest and/or operates the market. There can be no assurance that U.S. Cellular, or TDS for the benefit of U.S. Cellular, will be able to negotiate additional acquisitions or exchanges on terms acceptable to it or that regulatory approvals, where required, will be received. U.S. Cellular plans to retain minority interests in certain wireless markets which it believes will earn a favorable return on investment. Other minority interests may be exchanged for interests in markets which enhance U.S. Cellular's operations or may be sold for cash or other consideration. U.S. Cellular also continues to evaluate the disposition of certain controlling interests in wireless licenses which are not essential to its corporate development strategy.

        Acquisition of Chicago 20MHz.    On August 7, 2002, U.S. Cellular completed the acquisition of all the assets and certain liabilities of Chicago 20MHz, LLC ("Chicago 20MHz") from PrimeCo Wireless Communications LLC ("PrimeCo"). The purchase price was approximately $618 million, including working capital and other adjustments. Chicago 20MHz operated the PrimeCo wireless system in the Chicago Major Trading Area ("MTA"), and is the holder of certain FCC licenses, including a 20 megahertz ("MHz") PCS license in the Chicago MTA (excluding Kenosha County, Wisconsin) covering a total population of 13.2 million.

        U.S. Cellular financed the Chicago 20MHz purchase using $175 million from U.S. Cellular's 9% Series A Notes due 2032 issued to PrimeCo, $105 million from an intercompany note with TDS and the remaining amount from U.S. Cellular's $500 million revolving credit facility with a series of banks. Net of cash acquired in the transaction and bonds issued to the sellers of Chicago 20MHz, U.S. Cellular used cash totaling $431.9 million for the acquisition of Chicago 20MHz.

        Other Acquisitions.    Additionally in 2002, U.S. Cellular, through JVs, acquired majority interests in 10 MHz licenses in three PCS markets. The interests U.S. Cellular acquired are 100% owned by the joint

10

ventures, and U.S. Cellular is considered to have the controlling financial interest in these joint ventures for financial reporting purposes. U.S. Cellular also acquired the remaining minority interests in three other PCS markets in which it previously owned an interest, resulting in 100% ownership in those markets. The aggregate amount paid by U.S. Cellular to acquire the interests in these transactions, which represented 1.4 million population equivalents (684,000 incremental population equivalents), was $21.1 million.

        Pending Transaction—Subsequent Event.    On March 10, 2003, U.S. Cellular announced that it had entered into a definitive agreement with AT&T Wireless ("AWE") to exchange wireless properties. U.S. Cellular will receive 10 and 20 MHz PCS licenses in 13 states, representing 12.2 million incremental population equivalents contiguous to existing properties and 4.4 million population equivalents that overlap existing properties in the Midwest and Northeast. U.S. Cellular will also receive approximately $31 million in cash and minority interests in six markets it currently controls. U.S. Cellular will transfer wireless assets and approximately 141,000 customers in 10 markets, representing 1.5 million population equivalents, in Florida and Georgia to AWE. Total U.S. Cellular revenue in 2002 of $107 million and operating income, excluding shared services costs, of $25 million was attributable to these markets. The transaction is subject to regulatory approvals. The closing of the transfer of the U.S. Cellular properties and the assignment to U.S. Cellular of most of the PCS licenses is expected to occur in the third quarter of 2003. The assignment and development of certain licenses will be deferred by U.S. Cellular until later periods. The acquisition of licenses in the exchange will be accounted for as a purchase by U.S. Cellular and the transfer of the properties by U.S. Cellular will be accounted for as a sale. The buildout of the licenses could require substantial capital investment by U.S. Cellular over the next several years. U.S. Cellular is currently working on a buildout and financing plan for these markets.

        The following table summarizes the recorded value of the assets and liabilities of the 10 markets that U.S. Cellular will be transferring.

		December 31, 2002
		(Dollars in millions)
Current assets		$	16.8
Net property, plant and equipment			86.0
Licenses			53.1
Goodwill			78.2
Other			.6
	Total assets		234.7
Current liabilities			(13.4	)
Net assets to be transferred		$	221.3

        U.S. Cellular is currently evaluating the fair value of the assets involved in this transaction. No determination of gain or loss related to this transaction has been made. As a result of signing the definitive agreement for this transaction, U.S. Cellular will reclassify the net assets of the markets to be transferred as assets held for sale and will report their operations as discontinued operations in the first quarter of 2003.

        U.S. Cellular has an effective shelf registration statement for its Common Shares and Preferred Stock under the Securities Act of 1933 for issuance specifically in connection with acquisitions.

Wireless Interests and Operating Market Areas

        U.S. Cellular operates its adjacent wireless systems under an organization structure in which it groups its markets into geographic market areas to offer customers large local service areas which primarily utilize U.S. Cellular's network. Customers may make outgoing calls and receive incoming calls within each market area without special roaming arrangements. In addition to benefits to customers, its operating strategy also has provided to U.S. Cellular certain economies in its capital and operating costs. These economies are made possible through increased sharing of facilities, personnel and other costs and enable U.S. Cellular to maintain a relatively low per customer cost of service. The extent to

11

which U.S. Cellular benefits from these revenue enhancements and economies of operation is dependent on market conditions, population size of each market area and network engineering considerations.

        U.S. Cellular may continue to make opportunistic acquisitions and exchanges which will complement its established operating market area. From time to time, U.S. Cellular may also consider exchanging or selling its interests in markets which do not fit well with its long-term strategies.

        U.S. Cellular owned interests in wireless telephone systems in 175 cellular markets and 35 PCS markets at December 31, 2002, representing 42.0 million incremental population equivalents. The following table summarizes the changes in U.S. Cellular's incremental population equivalents in recent years.

		December 31,
		2002	2001	2000	1999	1998
		(Thousands of population equivalents)(1)
Included in Consolidated Operations (2)
	Cellular	25,589	25,546	25,133	25,172	24,911
	PCS	14,378	2,903	—	—	—
To Be Included in Consolidated Operations (3)
	Cellular	—	—	133	—	—
	PCS	—	655	—	—	—
Total Markets To Be Included in Consolidated Operations
	Cellular	25,589	25,546	25,266	25,172	24,911
	PCS	14,378	3,558	—	—	—
Accounted for Using Equity Method (cellular only) (4)		2,005	2,077	2,348	2,333	2,601
Accounted for Using Cost Method (cellular only) (5)		73	76	45	45	46
Total
	Cellular	27,667	27,699	27,659	27,550	27,558
	PCS	14,378	3,558	—	—	—
	Total wireless population equivalents	42,045	31,257	27,659	27,550	27,558

(1)

Based on 2002 Claritas estimates for all years.

(2)

Includes incremental population equivalents in markets in which U.S. Cellular owns a controlling interest at the end of each respective year, and in 2002 and 2001 also includes incremental population equivalents in PCS markets in which U.S. Cellular owns a noncontrolling limited partner interest but U.S. Cellular is considered to have the controlling financial interest for financial reporting purposes.

(3)

In 2001, includes incremental population equivalents in markets in which U.S. Cellular has the right to acquire noncontrolling limited partner interests in PCS markets in which U.S. Cellular will be considered to have the controlling financial interest for financial reporting purposes. In 2000, includes population equivalents in a market in which U.S. Cellular had the right, pursuant to agreements pending at the end of the year, to acquire a controlling interest.

(4)

Includes population equivalents in markets in which U.S. Cellular owns noncontrolling interests at the end of each respective year, and which are accounted for using the equity method.

(5)

Includes population equivalents in markets in which U.S. Cellular owns noncontrolling interests at the end of each respective year, and which are accounted for using the cost method.

        The following section details U.S. Cellular's wireless interests, including those it owned or had the right to acquire as of December 31, 2002. The table presented therein lists the cellular and PCS markets that U.S. Cellular manages or has the right to manage grouped according to operating market area. U.S. Cellular's operating structure shows the areas in which U.S. Cellular is currently focusing its development efforts. These market areas have been devised with a long-term goal of allowing delivery of wireless service to areas of economic interest and along corridors of economic activity. The number of incremental population equivalents represented by U.S. Cellular's wireless interests may have no direct relationship to the number of potential wireless customers or the revenues that may be realized from the operation of the related wireless systems.

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U.S. CELLULAR'S WIRELESS INTERESTS

        The table below sets forth certain information with respect to the interests in wireless markets which U.S. Cellular owned or had the right to acquire pursuant to definitive agreements as of December 31, 2002. Some of the territory covered by the PCS BTA licenses U.S. Cellular owns overlaps with territory covered by the cellular licenses it owns. In other cases, U.S. Cellular owns a controlling interest in one license and a limited partner interest in another license, which covers the same PCS BTA. For the purpose of tracking amounts in the "Incremental Current and Acquirable Population Equivalents" column in the table below, when U.S. Cellular acquires a licensed area that overlaps a licensed area it already owns, it does not duplicate the number of population equivalents for any overlapping licensed area. Only non-overlapping, incremental population equivalents are added to the amounts in the "Incremental Current and Acquirable Population Equivalents" column in the table below, in the case of an acquisition of a licensed area that overlaps a previously owned licensed area.

Market Area			Incremental Current and Acquirable Population Equivalents(1)
Markets Currently Managed or Which May Be Managed by U.S. Cellular:
MIDWEST MARKET AREA:
	Chicago MTA		12,037,000
	Wisconsin/Minnesota		4,647,000
	Iowa		2,519,000
	Western Illinois		1,429,000
	Nebraska/Missouri/Iowa		1,207,000
	Missouri		971,000
	Central Illinois/Indiana		203,000
		Total Midwest Market Area	23,013,000
MID-ATLANTIC MARKET AREA:
	Eastern North Carolina/South Carolina		2,787,000
	Virginia/North Carolina		1,449,000
	West Virginia/Maryland/Pennsylvania/Ohio		1,437,000
		Total Mid-Atlantic Market Area	5,673,000
NORTHWEST MARKET AREA:
	Washington/Oregon/Idaho		1,539,000
	Oregon/California		1,098,000
		Total Northwest Market Area	2,637,000
FLORIDA/GEORGIA MARKET AREA:			2,301,000
TEXAS/OKLAHOMA/MISSOURI/KANSAS MARKET AREA:			1,747,000
MAINE/NEW HAMPSHIRE/VERMONT MARKET AREA:			1,723,000
EASTERN TENNESSEE/WESTERN NORTH CAROLINA MARKET AREA:			1,447,000
SOUTHERN TEXAS MARKET AREA:			1,347,000
OTHER MARKETS (2)			280,000
Total Managed Markets			40,168,000
Markets Managed by Others			1,877,000
Total Population Equivalents			42,045,000

(1)

Population Equivalents are based on 2002 Claritas estimates. "Incremental Current and Acquirable Population Equivalents" represents the population equivalents related to the portion of the PCS licensed areas owned or to be acquired that is not already served by a cellular licensed area in which U.S. Cellular owns an interest in and manages.

(2)

U.S. Cellular owns controlling interest in two markets, but the markets are managed by a third party pursuant to a management agreement.

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        System Design and Construction.    U.S. Cellular designs and constructs its systems in a manner it believes will permit it to provide high-quality service to substantially all types of wireless telephones, based on market and engineering studies which relate to specific markets. Such engineering studies are performed by U.S. Cellular personnel or independent engineering firms. U.S. Cellular's switching equipment is digital, which improves transmission quality and is capable of interconnecting in a manner which reduces costs of operation. Both analog and digital radio transmissions are made between cell sites and the wireless telephones. During 2002, approximately 85% of this traffic utilized digital radio transmissions. Network reliability is given careful consideration and extensive redundancy is employed in many aspects of U.S. Cellular's network design, though not all of U.S. Cellular's MTSOs and cell sites have backup power capabilities, nor does all of its Wide Area Network ("WAN"). Route diversity, ring topology and extensive use of emergency standby power are also utilized to enhance network reliability and minimize service disruption from any particular network failure.

        In accordance with its strategy of building and strengthening its operating market areas, U.S. Cellular has selected high-capacity digital wireless switching systems that are capable of serving multiple markets through a single MTSO. U.S. Cellular's wireless systems are designed to facilitate the installation of equipment which will permit microwave interconnection between the MTSO and the cell site. U.S. Cellular has implemented such microwave interconnection in many of the wireless systems it operates. In other areas, U.S. Cellular's systems rely upon landline telephone connections to link cell sites with the MTSO. Although the installation of microwave network interconnection equipment requires a greater initial capital investment, a microwave network enables a system operator to avoid the current and future charges associated with leasing telephone lines from the landline telephone company. In addition, microwave facilities can be used to connect separate wireless systems to allow shared switching, which reduces the aggregate cost of the equipment necessary to operate multiple systems. Microwave facilities can also be used to carry long-distance calls, which reduces the costs of interconnecting to the landline network.

        U.S. Cellular has continued to expand its WAN to accommodate various business functions, including:

•

order processing



•

over the air provisioning



•

automatic call delivery



•

intersystem handoff



•

credit validation



•

fraud prevention



•

call data record collection



•

network management



•

long-distance traffic and



•

interconnectivity of all of U.S. Cellular's MTSOs and cell sites.

        In addition, the WAN accommodates virtually all internal data communications between various U.S. Cellular office locations and U.S. Cellular's retail locations to process customer activations. The WAN is deployed in U.S. Cellular's six customer service centers ("Customer Care Centers") for all customer service functions using U.S. Cellular's main billing and information system. U.S. Cellular is in the process of evaluating the customer service and other communications systems acquired in the Chicago 20MHz transaction and is developing plans to integrate all of its systems as soon as is practicable.

        Management believes that currently available technologies will allow sufficient capacity on U.S. Cellular's networks to meet anticipated demand over the next few years.

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Costs of System Construction and Financing

        Construction of wireless systems is capital-intensive, requiring substantial investment for land and improvements, buildings, towers, MTSOs, cell site equipment, microwave equipment, engineering and installation. U.S. Cellular, consistent with FCC control requirements, uses primarily its own personnel to engineer each wireless system it owns and operates, and engages contractors to construct and maintain the facilities.

        The costs (exclusive of the costs to acquire licenses) to develop the systems in which U.S. Cellular owns an interest have historically been financed through capital contributions or through certain vendor financing. In recent years, U.S. Cellular has met these funding requirements with cash generated by operations, proceeds from debt and equity offerings and proceeds from the sales of wireless interests. U.S. Cellular anticipates meeting its future funding requirements with cash generated by operations and borrowings under its revolving credit facilities.

Marketing

        U.S. Cellular's marketing plan is centered around increasing penetration of its markets, increasing customer awareness of U.S. Cellular's brand of wireless service and reducing churn. U.S. Cellular increases customer awareness through the use of traditional media such as TV, radio, and print advertising. Recently, U.S. Cellular has increased its use of other media such as the Internet, direct marketing and telemarketing. U.S. Cellular has achieved its current level of penetration of its markets through a combination of promotional advertising and broad distribution. U.S. Cellular supports a multi-faceted distribution program, including direct sales, agents and retail sales and service centers in the vast majority of its markets, plus the Internet and telesales for customers who wish to contact U.S. Cellular through those media. U.S. Cellular maintains relatively low customer churn by executing a vision centered around customer satisfaction, development of processes that are more customer-friendly, extensive training of frontline sales and support associates and the implementation of retention programs. The marketing plan stresses the value of U.S. Cellular's service offerings and incorporates combinations of rate plans and wireless telephone equipment which are designed to meet the needs of defined customer segments and their usage patterns.

        U.S. Cellular-owned and managed locations are designed to market wireless service to the consumer and small business segments in a familiar setting. U.S. Cellular has expanded its e-commerce site to enable customers to purchase a broad range of accessories online, and this site is continually evolving to address customers' current needs. U.S. Cellular anticipates that as customers become increasingly comfortable with e-commerce, the Internet will become a more robust marketing channel for sales of rate plans as well as accessories. Traffic on its Web site is continually increasing as customers use the site for gathering information, purchasing handsets and accessories, signing up for service and finding the locations of U.S. Cellular's stores and agents.

        U.S. Cellular believes operating decisions should be made close to the customer. It manages its operating market areas with a local staff, including sales, marketing, network operations, engineering and finance personnel. U.S. Cellular operates six regional Customer Care Centers whose personnel are responsible for customer service and certain other functions. Direct sales consultants market wireless service to business customers. Retail sales associates work out of approximately 500 U.S. Cellular-owned retail stores and kiosks and market wireless service primarily to the consumer and small business segments. U.S. Cellular maintains an ongoing training program to improve the effectiveness of sales consultants and retail associates by focusing their efforts on obtaining customers and maximizing the sale of high-use packages. These packages enable customers to buy packages of minutes for a fixed monthly rate.

        U.S. Cellular continues to expand its relationships with agents, dealers and non-U.S. Cellular retailers to obtain customers, and at year-end 2002 had contracts with approximately 900 of these businesses aggregating approximately 1,800 locations. Agents and dealers are independent business people who obtain customers for U.S. Cellular on a commission basis. U.S. Cellular has provided additional support and training to its exclusive agents to increase customer satisfaction for customers they serve. U.S. Cellular's agents are generally in the business of selling wireless telephones, wireless service packages and other related products. U.S. Cellular's dealers include car stereo companies,

15

major appliance dealers, office supply dealers and mass merchants including national companies such as Wal-Mart, Staples, Best Buy and American TV. Additionally, in support of its overall Internet initiatives, U.S. Cellular has recruited agents who provide services exclusively through the Internet. No single agent, dealer or other non-U.S. Cellular retailer accounted for 10% or more of U.S. Cellular's operating revenues during the past three years.

        U.S. Cellular uses a variety of direct mail, billboard, radio, television and newspaper advertising to stimulate interest by prospective customers in purchasing U.S. Cellular's wireless service and to establish familiarity with U.S. Cellular's name. U.S. Cellular operates under a unified brand name and logo, U.S. Cellular^SM, across all its markets, and uses the tag line, "We Connect With You"^SM.

        U.S. Cellular continues to actively advertise its digital service offerings through both television and radio advertising, resulting in a significant increase in the number of customers on digital rate plans during 2002, and as of year-end 2002 over 80% of U.S. Cellular's customers were using digital services. Advertising is directed at gaining customers, improving customers' awareness of the U.S. Cellular^SM brand, increasing existing customers' usage of U.S. Cellular's services and increasing the public awareness and understanding of the wireless services offered by U.S. Cellular. U.S. Cellular attempts to select the advertising and promotion media that are most appealing to the targeted groups of potential customers in each local market. U.S. Cellular supplements its advertising with a focused public relations program. This program combines nationally supported activities and unique local activities, events, and sponsorships to enhance public awareness of U.S. Cellular. These programs are aimed at supporting the communities in which U.S. Cellular serves. The programs range from loaning phones to public service operations in emergencies, to assisting victims of domestic abuse through U.S. Cellular's Stop Abuse From Existing programs, to supporting safe driving programs.

        In late 2002, after acquiring the Chicago license from PrimeCo, U.S. Cellular launched its U.S. Cellular brand in the Chicago market. U.S. Cellular developed a new series of locally focused TV and radio commercials, featuring actress Joan Cusack, to convey its customer satisfaction strategy to a new marketplace. In conjunction with the brand launch, U.S. Cellular created a one-time price plan promotion while opening new retail and agent locations, rebranding the former PrimeCo locations and designating a customer service team to work with current and potential customers in the Chicago market to familiarize them with U.S. Cellular's brand of customer service. Initial reactions to the brand launch have been favorable, generating a high volume of traffic in U.S. Cellular's Chicago area locations. Also, in January 2003, U.S. Cellular signed a naming rights contract with the Chicago White Sox baseball team to rename their ballpark U.S. Cellular Field.

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        The following table summarizes, by operating market area, the total population, U.S. Cellular's customer units and penetration for U.S. Cellular's majority-owned markets that were operational and had begun marketing activities as of December 31, 2002.

Operating Market Areas	Population(1)	Customers	Penetration
Midwest Market Area	19,627,000	2,039,000	10.39	%
Mid-Atlantic Market Area	5,310,000	591,000	11.13	%
Northwest Market Area	2,639,000	370,000	14.02	%
Florida/Georgia Market Area	1,806,000	167,000	9.25	%
Texas/Oklahoma/Missouri/Kansas Market Area	2,250,000	324,000	14.40	%
Maine/New Hampshire/Vermont Market Area	1,751,000	293,000	16.73	%
Eastern Tennessee/Western North Carolina Market Area	1,377,000	177,000	12.85	%
Southern Texas Market Area	1,326,000	78,000	5.88	%
Other Markets	482,000	64,000	13.28	%
	36,568,000	4,103,000	11.22	%

(1)

Represents 100% of the population of the licensed areas that were operational and in which U.S. Cellular had begun marketing activities and has a controlling financial interest for financial reporting purposes, based on 2001 Claritas population estimates. "Population" in this context includes only the areas covering such markets and is only used for the purpose of calculating market penetration and is not related to "population equivalents" as previously defined.

Customers and System Usage

        U.S. Cellular provides service to a broad range of customers from a wide spectrum of demographic segments. U.S. Cellular uses a segmentation model to classify businesses and consumers into logical groupings for developing new products and services, direct marketing campaigns, and retention efforts. Business users typically include a large proportion of individuals who work outside of their offices such as people in the construction, real estate, wholesale and retail distribution businesses and professionals. Increasingly, U.S. Cellular is providing wireless service to consumers and to customers who use their wireless telephones for mixed business and personal use as well as for security purposes. A major portion of U.S. Cellular's recent customer growth is from these users.

        U.S. Cellular's wireless systems are used most extensively during normal business hours. On average, the retail customers in U.S. Cellular's consolidated markets used their wireless systems approximately 304 minutes per unit each month and generated retail service revenue of approximately $38 per month during 2002, compared to 216 minutes and $36 per month in 2001. Revenue generated by roamers using U.S. Cellular's systems ("inbound roaming"), together with local retail, toll and other revenues, brought U.S. Cellular's total average monthly service revenue per customer unit in consolidated markets to $47 during 2002. Average monthly service revenue per customer unit increased approximately 2% during 2002. This increase was primarily due to an increase in the number of minutes used by both retail customers and roamers, partially offset by decreases in average revenue per minute of use from both retail customers and roamers. Competitive pressures, continued penetration of the consumer market and U.S. Cellular's increasing use of pricing and other incentive programs to stimulate overall usage resulted in a decrease in average retail service revenue per minute of use in 2002. The decrease in inbound roaming revenue per minute was primarily due to the general downward trend in per minute prices for roaming negotiated between U.S. Cellular and other wireless operators. U.S. Cellular anticipates that average monthly retail service revenue per customer unit will remain relatively constant in the near future, while total monthly service revenue per customer is expected to decline slightly in the future. However, this effect is anticipated to be more than offset by increases in U.S Cellular's customer base; therefore, U.S. Cellular anticipates that total revenues will continue to grow for the next few years.

        U.S. Cellular's main sources of revenue are from its own customers and from inbound roaming customers. The interconnectivity of wireless service enables a customer to place or receive a call in a

17

wireless service area away from the customer's home service area. U.S. Cellular has entered into roaming agreements with operators of other wireless systems covering virtually all systems in the United States, Canada and Mexico, including most major PCS operators. Roaming agreements offer customers the opportunity to roam on these systems. These reciprocal agreements automatically pre-register the customers of U.S. Cellular's systems in the other carriers' systems. Also, a customer of a participating system roaming (i.e., traveling) in a U.S. Cellular market where this arrangement is in effect is able to make and receive calls on U.S. Cellular's system. The charge for this service is negotiated as part of the roaming agreement between U.S. Cellular and the roaming customer's carrier. The charge is billed by U.S. Cellular to the customer's home system, which then bills the customer. In some instances, based on competitive factors, many carriers, including U.S. Cellular, may charge lower amounts to their customers than the amounts actually charged to the carriers by other wireless carriers for roaming.

        The following table summarizes certain information about customers and market penetration in U.S. Cellular's consolidated operations.

			Year Ended or At December 31,
			2002			2001			2000			1999			1998
			(Dollars in thousands)
Majority-owned and managed markets:
	Wireless markets in operation (1)			149			142			139			139			138
	Total population of markets in service (000s)			36,568			25,670			24,912			24,861			24,370
	Customer Units:
		at beginning of period (2)		3,461,000			3,061,000			2,602,000			2,183,000			1,710,000
		acquired (divested) during period (3)		332,000			46,000			(24,000	)		15,000			19,000
		additions during period (2)		1,244,000			1,095,000			1,154,000			1,000,000			896,000
		disconnects during period (2)		934,000			741,000			671,000			596,000			442,000
		at end of period (2)		4,103,000			3,461,000			3,061,000			2,602,000			2,183,000
	Market penetration at end of period (4)			11.22	%		13.48	%		12.29	%		10.47	%		8.96	%
Consolidated revenues			$	2,184,478		$	1,894,830		$	1,716,640		$	1,576,429		$	1,315,535
Depreciation expense				311,993			237,346			205,916			184,830			167,150
Amortization expense				39,161			63,312			59,782			45,142			39,629
Operating Income				281,166			317,212			292,313			255,842			176,075
Capital expenditures				730,645			503,334			305,417			277,450			320,417
Business segment assets			$	4,699,132		$	3,759,157		$	3,446,852		$	3,365,733		$	3,039,427

(1)

Represents the number of cellular or PCS licensed areas in which U.S. Cellular owned a controlling financial interest and which was operational at the end of each respective period. The revenues and expenses of these licensed areas are included in U.S. Cellular's consolidated revenues and expenses for each period.

(2)

Represents the approximate number of revenue-generating wireless telephones served by U.S. Cellular in the licensed areas referred to in footnote (1). The revenue generated by such wireless telephones is included in consolidated revenues.

(3)

Represents the approximate number of revenue-generating wireless telephones added to or subtracted from U.S. Cellular's customer base during the period due to acquisitions or divestitures of wireless licenses.

(4)

Computed by dividing the number of customer units at the end of the period by the total population of markets in service as estimated by Claritas (1997-2001) for the years 1998-2002, respectively.

Products and Services

        Wireless Telephones and Installation.    U.S. Cellular offers a full range of wireless telephones for use by its customers, including both analog and digital handsets. Features offered in some of the wireless telephones include hands-free calling, repeat dialing and others. U.S. Cellular's digital service offerings include additional features such as caller ID, short messaging services and data transmission, and a majority of new customers are selecting dual-mode or tri-mode wireless telephones, which can be used on analog and digital networks, to fully utilize these features. Dual-mode and tri-mode wireless telephones also enable customers to enjoy virtually seamless roaming regardless of their travel patterns. New customers are selecting from a variety of wireless telephones. These units are stylish, compact, fully featured and attractively priced. They appeal to newer segments of the customer population, especially a younger demographic group which has become a fast-growing portion of the wireless user population.

        U.S. Cellular negotiates volume discounts with its wireless telephone suppliers. U.S. Cellular significantly increased its purchasing power in 2002 by implementing a new distribution software system that

18

enables U.S. Cellular to sell and distribute handsets to its agents. U.S. Cellular discounts wireless telephones sold to customers to meet competition or to stimulate sales by reducing the cost of becoming a wireless customer. In most instances, where permitted by law, customers are generally required to sign a service contract with U.S. Cellular. U.S. Cellular also works with wireless equipment manufacturers in promoting specific equipment in its local advertising.

        U.S. Cellular has established service facilities in many of its local markets to ensure quality service of the wireless telephones it sells. These facilities allow U.S. Cellular to improve its service by promptly assisting customers who experience equipment problems. Additionally, U.S. Cellular employs a repair facility in Tulsa, Oklahoma, to handle more complex service and repair issues.

        Wireless Services.    U.S. Cellular's customers are able to choose from a variety of packaged pricing plans which are designed to fit different calling patterns and customer needs. The ability to help a customer find the right technology and the right pricing plan is central to U.S. Cellular's brand positioning. U.S. Cellular generally offers local, regional and national consumer plans that can be tailored to a customer's needs by the addition of features or feature packages. Many consumer plans enable small work groups or families to share the plan minutes enabling the customer to get more value for their money. Business plans are offered to companies to meet their unique needs. U.S. Cellular's national rate plan, SpanAmerica^SM, prices all calls, regardless of where they are made or received, as local calls with no long distance or roaming charges. Additionally, U.S. Cellular is continually reviewing its prepaid offerings, including its traditional TalkTracker® offering and the prepaid services offered in the Chicago market, to streamline them and make them more compatible with the lifestyles of the customers who want to buy this product.

        U.S. Cellular's customer bills typically show separate charges for custom-calling features, airtime in excess of the packaged amount, and toll calls. Custom-calling features provided by U.S. Cellular include wide-area call delivery, call forwarding, voice mail, call waiting, three-way calling and no-answer transfer.

Regulation

        Regulatory Environment.    The operations of U.S. Cellular are subject to FCC and state regulation. The wireless telephone licenses held by U.S. Cellular are granted by the FCC for the use of radio frequencies in the 850 megahertz (MHz) band ("cellular" licenses), and in the 1900 MHz band ("PCS" licenses), and are an important component of the overall value of the assets of U.S. Cellular. The construction, operation and transfer of wireless systems in the United States are regulated to varying degrees by the FCC pursuant to the Communications Act of 1934 ("Communications Act"). In 1996, Congress enacted the Telecommunications Act of 1996 ("Telecommunications Act"), which amended the Communications Act. The Telecommunications Act mandated significant changes in telecommunications rules and policies to promote competition, ensure the availability of telecommunications services to all parts of the United States and to streamline regulation of the telecommunications industry to remove regulatory burdens, as competition develops. The FCC has promulgated regulations governing construction and operation of wireless systems, licensing (including renewal of licenses) and technical standards for the provision of wireless telephone service under the Communications Act, and is implementing the legislative objectives of the Telecommunications Act, as discussed below.

        Licensing.    For cellular telephone licensing purposes, the FCC has divided the United States into separate geographic markets (MSAs and RSAs). In each market, the allocated cellular frequencies are divided into two equal blocks. During the application process, in the early 1980's, the FCC reserved one block of frequencies for non-wireline applicants and another block for wireline applicants.

        Since January 1, 2002, an entity which controls one cellular system in an MSA has been able to control the competing cellular system in that MSA. The FCC determined that wireless competition in MSAs among cellular, PCS and certain SMR carriers, such as Nextel, which interconnect with the public switched telephone network, was sufficient to permit relaxation of the former prohibition on MSA cross-ownership. However, the FCC has retained the rule which prohibits any entity which controls a cellular system in an RSA from owning an interest exceeding five percent in another cellular system in the same RSA, though that rule may be waived in appropriate circumstances.

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        The FCC has also allocated a total of 140 MHz for broadband PCS, 20 MHz to unlicensed operations and 120 MHz to licensed operations, consisting of two 30 MHz blocks in each of 51 Major Trading Areas ("MTAs") and one 30 MHz block and three 10 MHz blocks in each of 493 Basic Trading Areas ("BTAs"). Subject to some conditions, the FCC permits licensees to split their licenses and assign a portion, on either geographic or frequency basis, or both, to a third party.

        Between January 1, 2002 and January 1, 2003, no entity was allowed to have a controlling interest in more than 55 MHz of cellular, PCS, or "covered" SMR spectrum in a given MTA or BTA. Cellular systems have 25 MHz of spectrum, and PCS systems may have 10, 15, or 30 MHz of spectrum. As of January 1, 2003, this "spectrum cap" has been eliminated, and the FCC will determine whether acquisition of wireless licenses are in the public interest on a case-by-case basis under criteria which have not yet been specified.

        The completion of acquisitions involving the transfer of control of a wireless system requires prior FCC approval. Acquisitions of minority interests generally do not require FCC approval. Whenever FCC approval is required, any interested party may file a petition to dismiss or deny the application for approval of the proposed transfer.

        The FCC must be notified each time an additional cell is constructed which enlarges the service area of a given market. The FCC's rules also generally require persons or entities holding wireless construction permits or licenses to coordinate their proposed frequency usage with neighboring wireless licensees in order to avoid electrical interference between adjacent systems. The coordination process has become more complex as neighboring systems have begun to employ differing digital technologies. The height and power of base stations in the wireless system are regulated by FCC rules, as are the types of signals emitted by these stations. The FCC also regulates tower construction in accordance with its regulations, which carry out its responsibilities under the National Environmental Policy Act and Historic Preservation Act. In addition to regulation by the FCC, wireless systems are subject to certain Federal Aviation Administration ("FAA") regulations with respect to the siting, construction, painting and lighting of wireless transmitter towers and antennas as well as local zoning requirements.

        Beginning in 1996, the FCC has also imposed a requirement that all wireless licensees register and obtain FCC registration numbers for all of their antenna towers, which require prior FAA clearance. All new towers must be registered at the time of construction and existing towers were required to be registered by May 1998 on a staggered state-by-state basis. U.S. Cellular believes that it is in compliance with the FCC's tower registration requirements.

        Beginning in October 1997, wireless systems, which previously were "categorically excluded" from having to evaluate their facilities to ensure their compliance with federal "radio frequency" radiation requirements, were made subject to those requirements. As a result, all wireless towers of less than 10 meters in height, building mounted antennas and wireless telephones must comply with radio frequency radiation guidelines. Since October 1997, all new wireless facilities have had to be in compliance when they are brought into service. Since September 1, 2000, all existing facilities have had to be brought into compliance. U.S. Cellular believes that its facilities are in compliance with these requirements.

        Pursuant to 1993 amendments to the Communications Act, cellular and PCS services are classified as Commercial Mobile Radio Service ("CMRS"), in that they are services offered to the public, for a fee, which is interconnected to the public switched telephone network. The FCC has determined that it will forebear from requiring such carriers to comply with a number of statutory provisions otherwise applicable to common carriers, such as the filing of tariffs.

        All CMRS wireless licensees must satisfy specified coverage requirements. Cellular licensees were required, during the five years following the initial grant of the respective license, to construct their systems to provide service (at a specified signal strength) to the territory encompassed by their service area. Failure to provide such coverage resulted in reduction of the relevant license area by the FCC. All 30 megahertz block PCS licensees must construct facilities that provide coverage to one-third of the population of the service area within five years of the initial license grants and to two-thirds of the population within ten years. All other licensees and certain 10 and 15 megahertz block licensees must

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construct facilities that provide coverage to one-fourth of the population of the licensed area or "make a showing of substantial service in their license area" within five years of the original license grants. Licensees that fail to meet the coverage requirements may be subject to forfeiture of the license.

        Cellular and PCS licenses are granted for ten-year periods. The FCC has established standards for conducting comparative renewal proceedings between a cellular licensee seeking renewal of its license and challengers filing competing applications. The FCC has: (i) established criteria for comparing the renewal applicant to challengers, including the standards under which a renewal expectancy will be granted to the applicant seeking license renewal; (ii) established basic qualifications standards for challengers; and (iii) provided procedures for preventing possible abuses in the comparative renewal process. The FCC has concluded that it will award a renewal expectancy if the licensee has (i) provided "substantial" performance, which is defined as "sound, favorable and substantially above a level of mediocre service just minimally justifying renewal," and (ii) complied with FCC rules, policies and the Communications Act. If renewal expectancy is awarded to an existing licensee, its license is renewed and competing applications are not considered. All of U.S. Cellular's licenses which it applied to have renewed between 1994 and 2002 were renewed.

        All of U.S. Cellular's approximately 1,100 FCC licenses for the microwave radio stations it uses to link its cell sites with each other and with its MTSOs had to be renewed in 2001. All of those licenses were renewed for ten year terms. All newly obtained microwave licenses receive ten year terms as well.

        U.S. Cellular conducts and plans to conduct its operations in accordance with all relevant FCC rules and regulations and anticipates being able to qualify for a renewal expectancy in its upcoming renewal filings. Accordingly, U.S. Cellular believes that current regulations will have no significant effect on the renewal of its licenses. However, changes in the regulation of wireless operators or their activities and of other mobile service providers could have a material adverse effect on U.S. Cellular's operations.

        Recent Events.    There are certain regulatory proceedings currently pending before the FCC which are of particular importance to the wireless industry. In one proceeding, the FCC has imposed new "enhanced 911" regulations on wireless carriers. The rules require wireless carriers to provide increasingly detailed information about the location of wireless 911 callers in two phases. The obligation of a wireless carrier to provide this information is triggered by a qualifying request from state or local agencies that handle 911 calls in the markets served by the wireless carrier. In phase one, which has been required since April 1998, wireless carriers are required to identify the location of the cell site from which a wireless call has been made and the wireless 911 caller's phone number. U.S. Cellular has timely provided this information in compliance with the FCC's rules in most but not all of its markets.

        In 2001, U.S. Cellular filed a request for a waiver of phase two of the FCC's E-911 rules that required wireless carriers to provide more precise lattitude and longitude location information about wireless 911 callers by October 1, 2001. In July 2002, the FCC released an order that delayed until March 1, 2003, the deadline by which certain medium-sized wireless carriers, including U.S. Cellular, were required to provide more precise phase two location information in response to qualifying requests from state or local 911 agencies. U.S. Cellular is in compliance with the revised phase two enhanced 911 requirements in most of its markets. However, there is no guarantee that U.S. Cellular will not be subject to sanctions, including monetary forfeitures, for failure to comply with the FCC's phase one or phase two requirements in all its markets.

        The FCC has adopted a limited expansion of the obligation of cellular carriers to serve the roaming subscribers of broadband PCS providers, among others, even though the subscribers involved have no pre-existing service relationship with that carrier. Under these policies, broadband PCS providers may offer their subscribers handsets which are capable of operating over broadband PCS and cellular networks so that when their subscribers are out of range of broadband PCS networks, they will be able to obtain non-automatic access to cellular networks. The FCC expects that implementation of these roaming capabilities will promote competition between broadband PCS and cellular service providers.

        Currently pending before the FCC is a proposal to require all CMRS carriers to provide "automatic" roaming capabilities to customers of other systems, presumably with FCC regulation of rates and other terms and conditions. U.S. Cellular, along with most wireless carriers, has opposed this proposal as presently unnecessary, though U.S. Cellular has urged the FCC to scrutinize the roaming practices of large national carriers.

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        The FCC has adopted requirements which will make it possible for subscribers to retain, subject to certain geographic and other limitations, their existing telephone numbers when they switch from one service provider to another. This number portability will include switching between Local Exchange Carriers ("LECs") and other wireline providers, between wireless service providers and between LEC/wireline and wireless providers. LECs, in the 100 largest MSAs, had implementation deadlines by the end of 1998 at those switches which received specific requests for number portability. The FCC has extended the compliance date for cellular, broadband PCS, and certain other wireless providers to November 2003.

        Cellular and broadband PCS providers also had to be capable, by November 2002, of receiving from the numbering authorities telephone numbers in "blocks" of 1,000, rather than 10,000, as has been the case previously. This action is intended to conserve telephone numbers, and extend the life of the current numbering system.

        U.S. Cellular is now in compliance with the FCC's thousands block number "pooling" requirements and is working to comply with the FCC's number portability requirements. Both requirements are complex and will require extensive capital investment. A substantial portion of this investment has been made as of December 31, 2002.

        In another proceeding, the FCC in 1996 adopted rules regarding the method by which wireless carriers and LECs shall compensate each other for interconnecting wireless and local exchange facilities. The FCC rules provided for symmetrical and reciprocal compensation between LECs and wireless carriers, and also prescribed interim interconnection proxy rates, which are much lower than the rates formerly paid by wireless carriers to LECs. Symmetrical and reciprocal compensation means wireless carriers and LECs must pay each other at the same rate. Interconnection rate issues will be decided by the states. Wireless carriers are now paying and in the future can be expected to pay lower rates to LECs than they previously paid. This result was favorable to the wireless industry and somewhat unfavorable to LECs.

        The FCC is currently considering a proposal to eliminate reciprocal compensation between wireless carriers and LECs and to move toward a so-called "bill and keep" system. If adopted, this change in the rules would also be favorable to wireless carriers, as wireless customers currently make more calls to wireline customers than vice versa.

        The primary purpose and effect of the new law is to open all telecommunications markets to competition. The Telecommunications Act makes most direct or indirect state and local barriers to competition unlawful. It directs the FCC to preempt all inconsistent state and local laws and regulations, after notice and comment proceedings. It also enables electric and other utilities to engage in telecommunications service through qualifying subsidiaries.

        Only narrow powers over competitive entry are left to state and local authorities. Each state retains the power to impose competitively neutral requirements that are consistent with the Telecommunications Act's universal service provisions and necessary for universal services, public safety and welfare, continued service quality and consumer rights. While a state may not impose requirements that effectively function as barriers to entry, it retains limited authority to regulate certain competitive practices in rural telephone company service areas.

        The Telecommunications Act establishes principles and a process for implementing a modified "universal service" policy. This policy seeks nationwide, affordable service and access to advanced telecommunications and information services. It calls for reasonably comparable urban and rural rates and services. The Telecommunications Act also requires universal service to schools, libraries and rural health facilities at discounted rates. Wireless carriers must provide such discounted rates to such organizations in accordance with federal regulations. The FCC has implemented the mandate of the Telecommunications Act to create a new universal service support mechanism "to ensure that all Americans have access to telecommunications services." The Telecommunications Act requires all interstate telecommunications providers, including wireless service providers, to "make an equitable and non-discriminatory contribution" to support the cost of providing universal service, unless their contribution would be de minimis. At present, the provision of landline telephone service in high cost

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areas is subsidized by support payments from the "universal service" fund, to which, as noted above, all carriers with interstate and international revenues must contribute. Such payments, based on a percentage of the total "billed revenue" of carriers for a given previous period of time, began in 1998.

        Beginning in February 2003, such payments will be based on estimates of future revenues. Carriers are free to pass such charges on to their customers. Wireless carriers are also eligible to receive universal service support payments in certain circumstances under the new system if they provide specified services in "high cost" areas. U.S. Cellular has sought designation as an "eligible telecommunications carrier" qualified to receive universal service support in certain states, has been designated as such a carrier in the states of Washington, Iowa, and Wisconsin and has received payments for services provided to high cost areas within the state of Washington.

        Under a 1994 federal law, the Communications Assistance to Law Enforcement Act ("CALEA"), all telecommunications carriers, including U.S. Cellular and other wireless licensees, have been required to implement certain equipment changes necessary to assist law enforcement authorities in achieving an enhanced ability to conduct electronic surveillance of those suspected of criminal activity. U.S. Cellular is now substantially in compliance with CALEA requirements. U.S. Cellular has, however, sought from the FCC an extension of time until July 1, 2003 to comply with certain CALEA requirements in its newly acquired PCS system in the Chicago MTA.

        The FCC has recently taken action in proceedings: (1) to ensure that the customers of wireless providers, among other carriers, will receive complete, accurate, and understandable bills; (2) to establish safeguards to protect against unauthorized access to customer information; (3) to require improved access to telecommunications facilities by persons with disabilities; and (4) to set national policy for the allocation by state public utilities commissions of telephone numbers to wireline and wireless carriers.

        The FCC also has a pending proceeding to implement requirements for wireless providers to set interstate interexchange rates in each state at levels no higher than the rates charged to subscribers in any other state. U.S. Cellular will monitor that proceeding and comply with new federal requirements as they become applicable.

        The FCC has pending two proceedings which may have a considerable impact on wireless carriers. In the first proceeding, the FCC is considering whether CMRS carriers may obtain the use of certain facilities from wireline carriers (for example, for telephone lines linking cell sites), at the unbundled network element ("UNE") prices, now charged to CLECs, which are lower than those charged to CMRS carriers. If the FCC determines that CMRS carriers may obtain the use of wireline facilities at UNE prices, that result would be favorable to wireless carriers. Currently, U.S. Cellular predominantly employs microwave facilities, and not leased wireline facilities, to link its cell sites.

        In the second proceeding, the FCC adopted an order in January 2003, pursuant to which the Mobile Satellite Service ("MSS") will permit its licensees to offer terrestrial wireless service in competition with CMRS carriers, provided the MSS licensees also offer satellite telephone service, which will involve building their proposed satellite networks. Assuming the MSS licensees do build their satellite networks and thus obtain "ancillary terrestrial authority," the increased competition could be unfavorable to existing CMRS carriers.

        As noted above, as of January 1, 2003, the FCC's "spectrum cap" has been repealed, with the exception that no one entity may control the two cellular licensees in a single RSA. With that exception, the FCC's rules impose no barrier to wireless acquisition in the same market or nationally. The FCC will now review wireless acquisitions on a case-by-case basis to determine whether they serve the public interest.

        PCS technology is similar in many respects to cellular technology. Where it has become commercially available, this technology is capable of offering increased capacity for wireless two-way and one-way voice, data and multimedia communications services and has resulted in increased competition with U.S. Cellular's operations in virtually all of its markets. The ability of these PCS licensees to complement or compete with existing cellular licensees will be affected by future FCC rule-makings. These and other future technological and regulatory developments in the wireless telecommunications

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industry and the enhancement of current technologies will likely create new products and services that are competitive with the services currently offered by U.S. Cellular. There can be no assurance that U.S. Cellular will not be adversely affected by such technological and regulatory developments.

        In January 2000, the FCC took an action which may have an impact on both cellular and PCS licensees. Pursuant to a congressional directive, the FCC adopted service rules for licensing the commercial use of 30 MHz of spectrum in the 747-762 MHz and 777-792 MHz spectrum bands. Subsequently, the FCC adopted service rules for the 688-746 MHz band, a portion of which was auctioned in 2002. The majority of the spectrum in these bands is being auctioned in large regional service areas, although there is a portion available which covers individual MSA and RSA markets. The FCC conducted an auction for the MSA and RSA licensed spectrum and certain other portions of the 688-746 MHz spectrum which ended in September of 2002. Additional auctions to license the 688-792 MHz spectrum are anticipated in 2003 and 2004.

        There is also pending before the FCC a proceeding to develop licensing rules for additional spectrum in the 1700 MHz and 2100 MHz for third-generation wireless use. Third-generation wireless is intended to provide high-speed data services, as well as full-motion video and other advanced wireless services. The FCC has projected that this spectrum will be auctioned in 2004.

        In June of 2002 the FCC created a Spectrum Policy Task Force and commenced proceedings to review and make recommendations on broad categories of possible spectrum policy change. The allocation of additional spectrum for unlicensed services, which has been strongly promoted by various manufacturers of 802.11b devices and Wi-Fi service providers, has emerged from that review process as a potentially significant shift in FCC spectrum policy affecting wireless competition between carriers who paid for spectrum and those who plan to implement networks using unlicensed free spectrum. The FCC commenced proceedings in December 2002 to allocate additional spectrum in the television broadcast bands as well as the 3650-3700 MHz band for unlicensed services and is expected to propose a significant expansion of unlicensed spectrum uses above 5 gigahertz in 2003.

        State and Local Regulation.    U.S. Cellular is also subject to state and local regulation in some instances. In 1981, the FCC preempted the states from exercising jurisdiction in the areas of licensing, technical standards and market structure. In 1993, Congress preempted states from regulating the entry of wireless systems into service and the rates charged by wireless systems to customers. The siting and construction of the wireless facilities, including transmitter towers, antennas and equipment shelters are still subject to state or local zoning and land use regulations. However, in 1996, Congress amended the Communications Act to provide that states could not discriminate against wireless carriers in tower zoning proceedings and had to decide on zoning requests with reasonable speed. In addition, states may still regulate other terms and conditions of wireless service.

        In 2000, the FCC ruled that the preemption provisions of the Communications Act do not preclude the states from acting under state tort, contract, and consumer protection laws to regulate the practices of CMRS carriers, even if such activities might have an incidental effect on wireless rates. This ruling has led to more state regulation of CMRS carriers, particularly from the standpoint of consumer protection.

        The FCC is required to forbear from applying any statutory or regulatory provision that is not necessary to keep telecommunications rates and terms reasonable or to protect consumers. A state may not apply a statutory or regulatory provision that the FCC decides to forbear from applying. In addition, the FCC must review its telecommunications regulations every two years and change any that are no longer necessary. Further, the FCC is empowered under certain circumstances to preempt state regulatory authorities if a state is obstructing the Communications Act's basic purposes.

        U.S. Cellular and its subsidiaries have been and intend to remain active participants in proceedings before the FCC and state regulatory authorities. Proceedings with respect to the foregoing policy issues before the FCC and state regulatory authorities could have a significant impact on the competitive market structure among wireless providers and the relationships between wireless providers and other carriers. U.S. Cellular is unable to predict the scope, pace or financial impact of policy changes which could be adopted in these proceedings.

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        The FCC has adopted rules specifying standards and the methods to be used in evaluating radio frequency emissions from radio equipment, including network equipment and handsets used in connection with commercial mobile radio service. These rules were upheld on appeal by the U.S. Court of Appeals for the Second Circuit. The U.S. Supreme Court declined to review the Second Circuit's ruling. U.S. Cellular's network facilities and the handsets it sells to customers comply with these standards.

        Media reports have suggested that radio frequency emissions from handsets, wireless data devices and cell sites may raise various health concerns, including cancer, and may interfere with various electronic medical devices, including hearing aids and pacemakers. Although some studies have suggested that radio frequency emissions may cause certain biological effects, most of the expert reviews conducted to date have concluded that the evidence does not support a finding of adverse health effects but that further research is appropriate. Research and studies are ongoing. These concerns over radio frequency emissions may discourage the use of handsets and wireless data devices and may result in significant restrictions on the location and operation of cell sites, all of which could have a material adverse effect on U.S. Cellular's results of operations. Several class action and single-plaintiff lawsuits have been filed against several other wireless service operators and several wireless phone manufacturers, asserting product liability, breach of warranty and other claims relating to radio frequency transmissions to and from handsets and wireless data devices. The lawsuits seek substantial monetary damages as well as injunctive relief. One important case in which the plaintiff alleged that his brain tumor had been caused by his cellular telephone use, Newman v. Verizon et al, was dismissed in the U.S. District Court in Maryland, in October 2002. There can be no assurance, however, that other lawsuits will not have a material adverse effect on the wireless industry, including U.S. Cellular.

Competition

        In markets where it owns and operates cellular licenses, U.S. Cellular's principal competitors for wireless telephone service in each market are the licensees of the second cellular system in that market and the PCS and ESMR licensees. Since each of these competitors operates its system using spectrum licensed by the FCC and has comparable technology and facilities, competition for customers between these systems in each market is principally on the basis of quality of service, price, size of area covered, services offered and responsiveness of customer service. The competing entities in many of the markets in which U.S. Cellular has an interest have financial resources which are substantially greater than those of U.S. Cellular and its partners in such markets.

        The FCC's rules require all operational wireless systems to provide, on a nondiscriminatory basis, wireless service to resellers which purchase blocks of mobile telephone numbers from an operational system and then resell them to the public.

        U.S. Cellular expects wireless operators to continue deployment of PCS in all of U.S. Cellular's licensed areas throughout 2003. In recent years, ESMR providers have initiated service in many of U.S. Cellular's markets. Although less directly a substitute for other wireless services, wireless data services and paging services may be adequate for those who do not need full two-way voice service. Similar technological advances or regulatory changes in the future may make available other alternatives to wireless service, thereby creating additional sources of competition.

        Continuing technological advances in the communications field make it difficult to predict the extent of additional future competition for wireless systems. For example, the FCC has allocated radio channels to mobile satellite systems in which transmissions from mobile units to satellites would augment or replace transmissions to cell sites. Such systems are designed primarily to serve the communications needs of remote locations and mobile satellite systems could provide viable competition for land-based cellular systems in such areas. Some initial deployments have been made and service is now being provided in certain areas. It is also possible that the FCC may in the future assign additional frequencies to cellular telephone service or ESMR service to provide for more competitors in each market.

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TDS Telecom Operations

Overview

        TDS's telephone operations are conducted through TDS Telecom and its subsidiaries. TDS Telecom is a wholly owned business unit of TDS. TDS Telecom's corporate headquarters are located in Madison, Wisconsin. TDS Telecom is a holding company which, through its affiliates, provides high-quality telecommunication services, including full-service local exchange service, long-distance telephone service, and Internet access, to rural and suburban communities. TDS Telecom has 111 telephone company subsidiaries that are considered Incumbent Local Exchange Carriers ("ILECs"). An ILEC is an independent local telephone company that formerly had the exclusive right and responsibility to provide local transmission and switching services in its designated service territory. TDS Telecom served approximately 711,200 equivalent access lines in 28 states through its ILEC subsidiaries at December 31, 2002. TDS Telecom also provides telecommunications services as a Competitive Local Exchange Carrier ("CLEC") through its subsidiaries—TDS Metrocom and USLink.

        The table below sets forth, as of December 31, 2002, the eight largest states of TDS Telecom's ILEC operations based on the number of equivalent access lines and the total number of equivalent access lines operated by all of the ILEC subsidiaries of TDS Telecom.

State		Number of Equivalent Access Lines at December 31, 2002	% of Total
Wisconsin		158,321	22.3	%
Tennessee		110,145	15.5
Georgia		51,187	7.2
New Hampshire		38,184	5.4
Minnesota		36,710	5.2
Indiana		34,087	4.8
Alabama		28,786	4.0
Maine		28,713	4.0
	Total for 8 Largest States	486,133	68.4
Other States		225,067	31.6
	Total	711,200	100.0	%

        Each TDS Telecom ILEC provides consumers and businesses with landline local telephone service through its switching and intra-city network. Long-distance or toll service is provided through connections with long-distance carriers, primarily AT&T and the Regional Bell Operating Companies ("RBOCs"), which purchase network access from the TDS Telecom ILECs. In 2000, TDS Telecom set up a long distance unit to resell long distance service in its ILEC markets and served 197,500 long distance customers at December 31, 2002, an increase from 125,300 at December 31, 2001.

        In 1998, TDS Telecom affiliates began providing telecommunications services as a CLEC in the greater Madison and Appleton areas of Wisconsin under the TDS Metrocom brand name and in Minnesota markets including Minneapolis/St. Paul under the USLink brand name. CLEC is a term that depicts companies that enter the operating areas of traditional telephone companies to offer local exchange and other telephone services. In 2001, TDS Metrocom began providing service in Lake County, Illinois and southern Michigan. TDS Telecom served approximately 291,400 equivalent access lines through its CLEC subsidiaries at December 31, 2002.

        Future growth in telephone operations is expected to be derived from providing service to new or presently underserved customers, expanding service in the areas currently served by TDS Telecom and others, upgrading existing customers to higher grades of service and increasing penetration of services. Additionally, growth is expected from additional services made possible by advances in technology, and the acquisition or development of additional ILEC and CLEC operations.

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        TDS Telecom is committed to offering its customers a full complement of telecommunications services and bundles those services in customer friendly packages to provide a single source for its customers' telecommunication needs. TDS Telecom intends to provide its customers with expanded communications products and services covering their local, long distance and data needs.

        The following table summarizes certain information regarding TDS Telecom's telephone and Internet operations:

		Year Ended or At December 31,
		2002			2001			2000			1999			1998
		(Dollars in thousands)
ILEC Equivalent Access lines (1)			711,200			678,300			619,600			583,300			555,000
	% Residential		74.9%			74.8%			75.8%			76.3%			77.0%
	% Business (nonresidential)		25.1%			25.2%			24.2%			23.7%			23.0%
CLEC Equivalent Access lines (2)			291,400			192,100			112,100			65,900			34,100
Internet Customers:
	ILEC		117,600			117,500			72,100			63,600			42,300
	CLEC		24,700			13,700			11,200			9,400			5,800
Consolidated:
	Total Revenues	$	800,888		$	693,712		$	610,216		$	545,917		$	488,104
	Depreciation and amortization expense		159,291			149,361			133,445			123,350			111,402
	Operating income		105,189			118,943			127,753			114,551			94,412
	Construction expenditures		168,405			196,816			150,602			122,181			143,125
	Business segment assets	$	2,105,108		$	1,741,324		$	1,365,803		$	1,306,730		$	1,270,602
ILEC:
	Total Revenues	$	626,787		$	576,817		$	528,981		$	492,530		$	461,360
	Depreciation and amortization expense		130,232			131,787			124,389			117,443			108,173
	Operating income		167,914			161,916			142,708			124,093			103,875
	Construction expenditures		116,486			99,866			93,401			99,154			119,697
	Business segment assets	$	1,858,923		$	1,527,758		$	1,245,260		$	1,243,068		$	1,227,479
CLEC:
	Total Revenues	$	176,602		$	118,812		$	84,720		$	55,173		$	29,743
	Depreciation and amortization expense		29,059			17,574			9,056			5,907			3,229
	Operating income (loss)		(62,725	)		(42,973	)		(14,955	)		(9,542	)		(9,463	)
	Construction expenditures		51,919			96,950			57,201			23,027			23,428
	Business segment assets		246,185			213,566			120,543			63,662			43,123
Intra-company Revenue Elimination		$	(2,501	)	$	(1,917	)	$	(3,485	)	$	(1,786	)	$	(2,999	)

(1)

The historical statistics for the ILECs, which had been based on access lines, have been adjusted to an equivalent number of access lines. The change to equivalent access line reporting was made to account for an increasing use of data lines. An "access line" is a single or multi-party circuit between the customer's establishment and the central switching office. Access line equivalents are derived by converting high capacity data lines to the estimated capacity of one switched access line.

(2)

The statistics for CLECs have in the past been and continue to be reported using equivalent access lines.

Business Strategy

        TDS Telecom has historically produced revenue growth in its ILEC markets by providing its customers with state-of-the-art telecommunications solutions, maintaining a high quality of on-going service and selectively acquiring local telephone companies. Management believes that TDS Telecom has a number of advantages as an ILEC, including a modern network substantially upgraded to provide a variety of Advanced Calling Services ("ACS"), a strong local presence, an established brand name and

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economies of scale not available to smaller independent operators. However, the competitive environment in the telecommunications industry has changed significantly as a result of technological advances, increasing customer requirements and regulatory changes, including the Telecommunications Act of 1996 ("the Telecommunications Act"). In response to this challenging competitive environment, TDS Telecom's business plan is designed to leverage TDS Telecom's strength as an ILEC into a full-service telecommunications company that includes CLEC operations. The business plan provides for TDS Telecom to meet these challenges in three areas:

•

Growing and protecting TDS Telecom's core ILEC business;



•

Leveraging its strengths into attractive new markets (CLEC); and



•

Developing, deploying, and marketing high-growth new services with an emphasis on data.

        The ILEC industry has begun to see a decline in long distance minutes of use and the use of second lines by customers. Many CLECs have failed and declared bankruptcy. Both ILECs and CLECs are faced with significant challenges from changes in regulation, technology and competition and from other factors affecting the telecommunications industry. While the TDS Telecom carriers have not suffered as much as many other providers from the recent telecommunications industry business challenges, the industry decline in long distance minutes of use and use of second lines by customers, the economic downturn, growing competition from wireless providers and potential losses of revenues or increases in expenses due to changes in regulation, technology and competition could have a material adverse effect on the financial condition, results of operations and cash flows of TDS Telecom.

ILEC Segment

        TDS Telecom's goal is to be a leading integrated communications provider in its ILEC markets. As of December 31, 2002, TDS Telecom was the 7th largest non-Bell local exchange telephone company in the United States based upon a survey by United States Telecommunications Association. This ranking was based on the number of telephone access lines served. Virtually all of TDS Telecom's access lines are served by digital switching technology, which, in conjunction with other technologies, allows TDS Telecom to offer additional premium services to its customers. These services include call forwarding, conference calling, caller identification (with and without name identification), selective call ringing and call waiting.

        As operating companies of one of the major independent local exchange holding companies in the United States, TDS Telecom's ILECs provide both local telephone service and access to the long distance network for customers in their respective service areas. The ILECs also provide directory advertising through a contract with another company, and billing and collection services to interexchange carriers ("IXCs"). IXCs are telephone companies that are allowed to provide long-distance telephone service between local exchange areas. TDS Telecom provides centralized administrative and support services to field operations from its corporate offices in Madison, Wisconsin.

Succeeding in the Core ILEC Business

        TDS Telecom is focused on achieving three central strategic objectives: growth, market leadership, and profitability. Management believes that this strategy encompasses many components including the customers within the market, market strategy, federal financing, federal support revenues, acquisition plans, competitors, and construction and development. These facets of the business are all impacted by regulations imposed by the FCC, as discussed below. Each component identified is discussed in detail below.

Retail and Wholesale Markets

        TDS Telecom's ILEC retail presence includes 118 sales and service offices in 28 states. These offices serve both residential and business customers. Approximately 75% of TDS Telecom's retail equivalent access lines serve residential customers and approximately 25% serve business customers. Retail customers are composed primarily of residential customers, businesses, government and institutional telecommunications users.

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        The retail customer base is a mix of rural and suburban customers, with significant concentrations in the Upper Midwest and in the Southeast. Approximately 77% of TDS Telecom's residential customers live in rural areas, while the other 23% are located in suburban settings. TDS Telecom's promotional and sales strategy for the retail customer consists of two major initiatives: building brand equity by creating awareness of the TDS Telecom brand name and using direct marketing to sell specific products and product groupings. The nature of TDS Telecom's markets has historically made direct marketing more effective than mass media such as radio and television. In addressing its consumer markets, TDS Telecom has made extensive and aggressive use of direct mail. It has been more selective, though still active, in the use of telemarketing as a means of generating awareness, qualified leads, and actual sales. Newspaper is used as well. Uniform branding has made the use of mass media more attractive, and TDS Telecom has increasingly incorporated these elements into its media mix.

        Most business customers could be described as small to medium sized businesses or small office/home office type customers. TDS Telecom focuses its marketing on information-intensive industries such as financial services, health services, realty, hotels and motels, education and government. TDS Telecom uses its direct sales force, targeted mailings, and telemarketing to sell products and services to the commercial markets, which are segmented into tiers based on size and strategic importance. Different sales and distribution channels are employed for each segment. Account executives focus on the most profitable customers by staying in contact with them on a regular basis. TDS Telecom employs a strong performance based compensation plan for its account executives targeted at profitable revenue and customer satisfaction results.

        In nearly all of its markets, TDS Telecom offers the complete family of custom calling services including call waiting, call forwarding, three-way calling, and speed dialing. TDS Telecom's advanced calling services family of products is centered around Caller ID service. In 2002 and 2001, the ACS family of services were available to 98% of the lines in service. Penetration of Caller ID increased from 28% to 31% of lines equipped.

        TDS Telecom's wholesale presence involves a diverse customer base. Wholesale services have traditionally provided a majority of TDS Telecom's revenues. TDS Telecom receives much of its ILEC revenue from the sale of traditional wholesale services, such as access service charges and billing and collections services to the IXCs. As a result, TDS Telecom continues to provide a high level of service to traditional IXC wholesale customers such as AT&T, MCI, Sprint and the RBOCs. Recent and proposed regulatory changes discussed below affect the sources of TDS Telecom's ILEC revenues.

Market Strategy

        TDS Telecom has three primary goals to support its grow and protect strategy. The goals are to build customer loyalty, grow revenues and control costs. Management of TDS Telecom believes it can achieve these goals by offering a continually updated flow of new products and services. This will be achieved by:

•

Creating value-added packages and bundles,



•

Building brand equity in the TDS Telecom brand name, and



•

Providing superior customer service to its retail customers.

        Value Added Product Bundles and Packages.    Management of TDS Telecom believes that its consumer and business customers have a strong preference to purchase all of their telecommunications services from a single provider. TDS Telecom believes that by offering a full complement of telecommunications services and bundling those services in customer-friendly packages, it can build customer loyalty and reduce customer churn. TDS Telecom enhanced its product offerings in 2002 with the launch of product/service bundles and expansion of its Digital Subscriber Line ("DSL") markets. Additionally, TDS Telecom continued to expand its presence in the data market with virtual private networks and Internet co-location products. A virtual private network provides connectivity between two points using the public Internet as the transport mechanism. Co-location provides customer web server

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hosting at a TDS facility, providing rack space, Internet bandwidth, and environmental facilities. TDS Telecom continued to grow its long distance venture and is now the number two long distance provider in its franchise territory.

        Brand Equity.    TDS Telecom continued to build on the branding process started in 1996. This included the launch of a new logo and brand look/feel. TDS Telecom continued to increase its Internet web presence. TDS Telecom's web site offers product and service information, company information, product/service ordering capability, e-service options, and account management. TDS Telecom also moved its branded Internet "portal' in-house. This change enables more control over this very important customer-facing web element. TDS Telecom sites, including both the company core sites and the portal site, receive over 3.7 million page views per month. TDS Telecom continues to leverage its sales and marketing messages through cost-effective public relations activities and messages. Management of TDS Telecom believes that branding will increase the loyalty of its customers and reduce expenses through more cost-effective marketing.

        Customer Service.    TDS Telecom distinguishes itself by the way customer service is offered to its retail customers. TDS Telecom is a large national company with a local sales and service office in the majority of its markets. This combination provides TDS Telecom's retail customers with the economies of scale and product offers generally associated with large companies. It also provides the high levels of personal customer service generally associated with small companies. TDS Telecom's professional service representatives and field representatives both live and work in the communities served. TDS Telecom believes that its strength in two key areas—product/price and customer service—provides a fundamental competitive advantage for TDS Telecom.

        TDS Telecom continued leveraging its Virtual Business Office ("VBO") initiative in 2002. This initiative enables multiple local sales and service offices to function as a single office. TDS Telecom continues to provide superior 24 hours-per-day, 7 days-per-week customer service. TDS Telecom continued to standardize training and procedures throughout 2002 to increase customer service levels without increasing costs. Customer surveys show that customer satisfaction with transactions in the VBO environment continues to be as good or better than satisfaction with transactions in the prior environment.

        The wholesale market focus is on access revenues. TDS Telecom's operating telephone subsidiaries receive access revenue as compensation for carrying interstate and intrastate long-distance traffic on their networks. Access charges, billing and collection services and other primarily traditional wholesale offerings generated $343 million, or approximately 55%, of TDS Telecom's ILEC revenue for the year ended December 31, 2002. The interstate and intrastate access rates charged include the cost of providing service plus a fair rate of return. If the FCC adopts further changes in access charge regulations that reduce the revenues from interstate access charges, TDS Telecom may attempt to replace lost access revenues through other charges or universal service support payments. However, there can be no assurance that TDS Telecom will be able to replace lost revenues. If TDS Telecom is unable to replace lost revenues, this could have a material adverse effect on its financial condition, results of operations and cash flows.

        Where applicable and subject to state regulatory approval, TDS Telecom's ILEC subsidiaries utilize intrastate access tariffs and participate in intrastate revenue pools. However, many intrastate toll revenue pooling arrangements, formerly a source of substantial revenues to TDS Telecom's ILECs, have been replaced with access-charge-based arrangements. In these cases, access charges are typically set to generate revenue flows similar to those realized in the pooling process. To the extent that state-ordered access charge revisions reduce revenues, TDS Telecom may seek adjustments in other rates. Some states also utilize a state high cost fund or state subscriber line charge ("SLC") to offset access charge reductions. There can be no assurance that TDS Telecom will be able to obtain favorable adjustments in other rates to replace lost revenues. If TDS Telecom is unable to replace lost access charge revenues with increased revenues in other areas, this could have a material adverse effect on its financial condition, results of operations and cash flows.

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Federal Financing

        TDS Telecom's primary sources of long-term financing for additions to telephone plant and equipment have been the Rural Utilities Service ("RUS"), the Rural Telephone Bank ("RTB") and the Federal Financing Bank ("FFB"), agencies of the United States of America. The RUS has made primarily 35-year loans to telephone companies since 1949, at interest rates of 2% and 5%, for the purpose of improving telephone service in rural areas. Currently, the RUS is authorized to issue hardship loans at a 5% interest rate and other loans at an interest rate approximating the government's rate for instruments of comparable maturity. The RTB, established in 1971, makes loans at interest rates based on its average cost of money (6.05% for its fiscal year ended September 30, 2002), and in some cases makes loans concurrently with RUS loans. In addition, the RUS guarantees loans made to telephone companies by the FFB at the federal cost of money. All such loans have a maturity date based on the life of the assets being financed.

        Substantially all of TDS Telecom's telephone plant is pledged under, or is otherwise subject to, mortgages securing obligations of the operating telephone companies to the RUS, RTB and FFB. The amount of dividends on common stock that may be paid by the operating telephone companies is limited by certain financial requirements set forth in the mortgages. In any calendar year, companies with greater than 40% net worth to total assets can distribute the entire amount above 40%. The majority of TDS Telecom's telephone subsidiaries exceed this percentage. Approximately $778.8 million may be paid as dividends from the operating subsidiaries to TDS Telecom as of December 31, 2002.

        At December 31, 2002, TDS Telecom's operating telephone companies had unadvanced loan commitments under the RUS, RTB and FFB loan programs aggregating approximately $105.8 million, at a weighted average annual interest rate of 5.30%, to finance specific construction activities in 2002 and future years. These loan commitments are generally issued for five-year periods and may be extended under certain circumstances. TDS Telecom's operating telephone companies may make further applications for additional loans from the RUS, RTB and FFB as their needs arise. There is no assurance that these applications will be accepted or what the terms or interest rates of any future loan commitments will be or that Congress will continue making the annual appropriations to fund these programs.

Federal Support Revenues

        To promote universal service, the FCC has developed a number of federal universal support mechanisms, including support for high cost rural providers and Lifeline/Linkup support, to keep telephone rates affordable for both high-cost rural areas and low-income customers. Most of TDS Telecom's ILEC subsidiaries utilize the federal support mechanisms, since they provide telephone service in rural areas and offer service to low-income customers. The FCC has used a staggered approach to reform these federal universal support mechanisms, with rural and non-rural companies being addressed separately. Non-rural companies began using the FCC's forward-looking cost proxy model to determine universal service support on January 1, 2000, while rural companies continue to operate under interim decisions prolonging the status quo of embedded cost until the FCC's next reexamination of its high cost support mechanism for non-price cap carriers. There is no assurance that future FCC decisions will maintain current levels of support, which may mean that the TDS ILECs may need to seek to recover more of their costs from their end-user providers, or current cost measurement methods. If TDS Telecom is unable to recover lost support through other sources, this could have a material adverse effect on its financial condition, results of operations and cash flows.

        Historically, telephone company acquisition and investment decisions have assumed the ability to recover the cost and a reasonable rate of return through local service, access, and support revenues. As universal service and access are reformed, these revenue streams are becoming less certain. Potential declining access rates and revisions to universal service support may lead to higher local rates and/or declining earnings while changes in the universal service funding system could affect TDS Telecom's acquisition and investment strategy.

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Telephone Acquisitions—ILEC

        TDS and TDS Telecom may continue to make opportunistic acquisitions of operating telephone companies. Since January 1, 1998, TDS has acquired eleven telephone companies and an additional minority interest in one telephone company serving a total of 89,300 net equivalent access lines for an aggregate consideration totaling $385.1 million, all of which were transferred to TDS Telecom. The consideration paid by TDS consisted of $376.4 million in cash and notes, and 200,000 TDS Common Shares.

        Telephone holding companies and others actively compete for the acquisition of telephone companies and such acquisitions are subject to the consent or approval of regulatory agencies in most states and, in some cases, to federal waivers that may affect the form of regulation or amount of interstate cost recovery of acquired telephone exchanges. The TDS acquisition strategy is to focus on geographic clustering of telephone companies to achieve cost economies and to complement TDS Telecom's growth strategy. While management believes that it will be successful in making additional acquisitions, there can be no assurance that TDS or TDS Telecom will be able to negotiate additional acquisitions on terms acceptable to them or that regulatory approvals, where required, will be received.

        It has been TDS Telecom's practice to preserve, insofar as possible, the local management of each telephone company it acquires. TDS Telecom provides the telephone subsidiaries with centralized purchasing and general management and other services, at cost plus a reasonable rate of return on invested capital. These services afford the subsidiaries expertise in finance, accounting and treasury services; marketing; customer service; traffic; network management; engineering and construction; customer billing; rate administration; credit and collection; and the development of administrative and procedural practices.

ILEC Markets Competition

        The Telecommunications Act of 1996 initiated a process of transformation in the telecommunications industry. Public policy has for some time embraced the dual objectives of universal service and competition for long distance services and, to a more limited extent, permitted some local service competition, for example, from wireless providers. The Telecommunications Act, however, established local competition as a national telecommunications policy. The Telecommunications Act requires non-exempt ILECs to provide "reasonable and non-discriminatory" interconnection services and access to unbundled network elements to any CLEC that seeks to enter the ILEC's market. The Telecommunications Act also allows CLECs to collocate network equipment in ILEC central offices and prevents ILECs and CLECs from unduly restricting each other from the use of facilities or information that enable competition. However, all of the TDS Telecom ILECs (except Mid-Plains), as rural telephone companies, currently remain exempt from the most burdensome market-opening requirements under a provision discussed in the ILEC Regulation section below. The exemption rules, coupled with the economics of competing in lower population density markets and the high service quality TDS Telecom provides, have delayed wireline CLEC competitive entry in TDS Telecom's ILEC markets. TDS Telecom has experienced some reductions in the rate of access line growth and reductions in access minutes, due in part to the economy and in part to competitors such as cable providers who are offering high-speed Internet service via cable modems and wireless carriers who are offering nationwide calling plans. TDS Telecom continues to actively deploy its own high-speed Internet product offering, DSL, in its markets to meet its customer's broadband needs.

        TDS Telecom expects competition in the telecommunications industry to continue to develop in the coming years, especially in the larger urban areas and from wireless services, some of which are becoming qualified for subsidies in rural areas based on the costs of the incumbent local carrier serving the market and receiving high cost support. Many CLEC business models have been tried, but only a few models have proved successful in establishing long-term viable positions in the industry. TDS Telecom's strategy for retaining its ILEC customer base is to build customer loyalty by 1) providing superior service quality and customer care, 2) capitalizing on its local presence in the communities it serves, and 3) offering a suite of products and services bundled in response to customer preferences. There can be no assurance that TDS Telecom's strategy will be successful.

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ILEC Markets Construction & Development

        In 2002, TDS Telecom continued its program of enhancing and expanding its service-providing network. TDS Telecom intends to meet competition by providing its customers with high-quality telecommunications services and building its network to take full advantage of advanced telecommunications technologies such as:

•

Signaling System 7 ("SS7"), a high-speed data network with dedicated access points that provides for various call set-up, call routing and enhanced calling features (98.2% of TDS Telecom ILEC customers are served with SS7 functionality),



•

CLASS Features, enhanced calling features available to subscribers, including Calling Line Identification,



•

V.90 modems pools to provide dial-up Internet access,



•

Fiber optic fed Digital Serving Areas ("DSAs"), a defined geographic area within an exchange that is served by a digital loop carrier system. The digital loop carrier system extends the line-side hardware of the central switch to the defined geographic area. Having this capability allows the expansion of services (such as higher data rates) to a greater number of customers residing at a distance from the Central Office Switching equipment, and



•

DSL, a technology that provides a high-speed data access channel between the customer's personal computer and the equipment located at the central office. This technology is supported on ordinary copper telephone lines using a digital modem at the customer premise and a similar modem located at the central office or DSA.

        During 2002, TDS Telecom launched DSL service in 9 markets and added 3 markets through acquisition, bringing total markets served to 35. While DSL technology has distance limitations and not all subscribers will have access to high-speed Internet services, current generation DSL technology allows for deployment of high-speed Internet service in DSAs with suitably equipped line concentrators.

        As TDS Telecom upgrades and expands its network, it is also standardizing equipment and processes to increase efficiency and has centralized the monitoring and management of its network to reduce costs and improve service reliability. This network standardization has assisted TDS Telecom in implementing its 24-hours-a-day/7-days-per-week Network Management Center. The Network Management Center continuously monitors the network in an effort to proactively identify and correct network faults prior to any customer impact.

        TDS Telecom's expected ILEC capital spending in 2003 is approximately $130 million compared to actual capital expenditures of $116.5 million in 2002 and $99.9 million in 2001. Financing for the 2003 capital additions will be primarily provided by internally generated funds.

ILEC Regulation

        TDS Telecom subsidiaries are primarily incumbent local exchange carriers ("ILEC"), the traditional regulated local telephone companies in their communities. TDS Telecom's ILEC subsidiaries are regulated by federal and state regulatory agencies, and TDS Telecom seeks to maintain positive relationships with these regulators. Rates, including local rates, intrastate toll rates and intrastate access charges, are subject to state commission approval in most states. The regulators also establish and oversee implementation of the provisions of the federal telecommunications laws, including interconnection requirements, promotion of competition, and the deployment of advanced services. TDS Telecom will continue to pursue desired changes in rate structures and regulation to attempt to maintain affordable rates and reasonable earnings. TDS Telecom has also elected alternative forms of regulation in several states and will continue to evaluate whether to pursue alternative regulation in its remaining states.

        All TDS Telecom subsidiaries in Alabama, Arkansas, Florida, Georgia, Michigan, Minnesota, Pennsylvania, most of Wisconsin and a few of the Indiana companies are now operating under an alternative form of regulation. In addition, alternative regulation for the remaining TDS Telecom subsidiaries in Indiana and for one subsidiary in New Hampshire may be implemented in 2003. The remaining states are currently under evaluation with the intent to pursue alternative regulation in those states in 2003

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where it is found to be beneficial. For those states where alternative regulation is elected, TDS Telecom will need to ensure compliance within the constraints imposed, while taking advantage of the opportunities afforded under alternative regulation.

        While subsidiaries in those states under alternative regulation will not face as much regulatory scrutiny of their earnings, the subsidiaries in the remaining states will continue to file rate cases and face earnings reviews by the state regulatory commissions. Over the next several years, TDS Telecom will continue to manage these planned traditional rate cases, as well as responding to an increasing number of commission-initiated earnings reviews. Furthermore, other regulatory issues will need to be addressed, such as responding to the financial impacts of universal service and access reform and changes to industry settlements.

        For the TDS Telecom ILECs, state regulators generally approve rate adjustments, service areas, service standards, and accounting methods, and limit the return on capital based upon allowable levels. In some states, construction plans, borrowing, depreciation rates, affiliated charge transactions and certain other financial transactions are also subject to regulatory approval. States traditionally designated a single ILEC as the universal service provider in a local market and then regulated the entry of additional competing providers into the same local market. The Telecommunications Act of 1996, however, has largely pre-empted state authority over market entry. While a state may not impose requirements that effectively function as barriers to entry, and the FCC must pre-empt challenged state requirements if they impose such barriers to entry, a state still retains narrowly limited authority to regulate certain competitive practices in rural telephone company service areas. The boundary between state and federal jurisdiction is set by a joint state and federal cost allocation process. The FCC's 2001 interim jurisdictional separations freezing cost allocations costs between interstate and intrastate operations remains in effect to temper the impact of growth in Internet minutes, which are deemed local for separations purposes.

        Most of the TDS Telecom ILECs participate in both the National Exchange Carrier Association ("NECA") interstate common line and traffic sensitive access charge tariffs. TDS Telecom's operating companies also participate in the access revenue pools administered by the FCC-supervised NECA, which collects and distributes the revenues from interstate access charges. The FCC retains minimal regulatory oversight over interstate toll rates and other issues relating to interstate telephone service, but continues to regulate and has made recent changes to reform interstate access.

        On November 8, 2001, the FCC issued an order that reformed access for rate-of-return regulated ILECs including the TDS Telecom ILECs. The changes reduced per minute access charges paid by long distance carriers and raised business and residential subscriber line charges. The FCC removed "implicit support" from access charges to a new universal service fund and preserved the current 11.25% interstate rate of return. The FCC is now looking into incentive-type regulation for rate of return carriers.

        The FCC's re-examination of all currently regulated forms of intercarrier compensation remains undetermined. Additional controversies have arisen about what compensation wireless carriers and Internet telephony providers such as AT&T should pay for the long distance traffic ILECs terminate for wireless carriers' customers. Disputes about intercarrier compensation also continue over what calls are long distance and local under a variety of network configurations and service area boundaries. The FCC's tentative decision, if adopted and implemented, would replace existing intercarrier payments, including access charges for long distance traffic and reciprocal compensation for the transport and termination of local traffic, with a "bill and keep" plan that requires a carrier's end user customers to pay all costs of originating and terminating interstate long distance calls. While there was no action taken during 2002, the FCC is expected to reopen this proceeding in 2003. The TDS ILECs rely on access revenues as an important source of revenues. Unless these revenues can be recovered through a new universal service mechanism, or be reflected in higher rates to the local end user, or other methods of cost recovery can be created, the loss of revenues could be significant. TDS Telecom will continue to advocate continuation of access charges or sufficient substitutes for the lost revenues before the FCC. However, there can be no assurance that access charges will be continued or that sufficient substitutes for the lost revenues will be provided. If access charges are reduced without sufficient substitutes for the lost revenues, this could have a material adverse effect on TDS Telecom's financial condition, results of operations and cash flows.

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        On May 23, 2001, the FCC modified its existing universal service support mechanism for rural local telephone companies by adopting an interim embedded cost mechanism for a five-year period. The FCC specifically "re-based" the capped high-cost loop support fund for rural telephone companies, but retained an indexed cap on the fund. The FCC also created a "rural growth factor" that allows the high-cost loop support fund to grow based on annual changes in inflation and the total number of rural working loops, and created new state certification requirements for receiving universal service support. Furthermore, the FCC allowed companies to disaggregate and target high-cost universal service support below the study area so support can be more closely associated with the cost of providing service in different parts of an ILEC's service area. TDS Telecom filed disaggregation plans with Universal Service Administrative Company ("USAC") on May 14, 2002 for each of its study areas, with the majority electing not to disaggregate below the study area level.

        All forms of federal support available to ILECs are now "portable" to any local competitor that qualifies for support as an Eligible Telecommunications Carrier (ETC). Portable per-line support is currently based on the incumbent's per line support and could make it more attractive to enter as a competitor in high-cost TDS Telecom ILEC service areas. The FCC, along with a Federal-State Joint Board, is reviewing the methods for calculating high-cost universal service support in study areas in which an ETC is providing service. In addition, they will review whether second lines should be supported and will look at whether creating smaller entry areas to stimulate competitors to seek subsidies is good public policy, especially given the increased growth in the total level of universal service support ultimately funded by interstate customers.

        The FCC has also adopted interim changes for the method of obtaining the funding used for federal universal service payments, while the FCC continues to consider whether to substitute end user connections for the current contribution mechanism based on interstate retail revenues. End user based contributions would require the TDS Telecom ILECs to contribute more towards universal service funding and recover higher surcharges from their end user customers. Despite interim adjustments to make the funding more sustainable, the FCC believes that more changes are necessary to stabilize the fund. Total federal funding has doubled since 1998, raising concerns that it will soon reach politically unacceptable levels. There can be no assurance that more federal funding will become available.

        The law requires all telecommunications carriers to interconnect with other carriers. ILECs and CLECs are required to permit resale and to provide number portability, dialing parity, access to rights-of-way and to pay reciprocal compensation. Unless exempted or granted a suspension or modification from these requirements, ILECs must also negotiate interconnection terms in good faith, not discriminate, unbundle their network and service components, offer their retail services at wholesale rates to their competitors, and allow other carriers to place equipment necessary for interconnection or access on their premises. The FCC also requires ILECs' rates for interconnection and network components to be based on "forward-looking economic costs."

        All TDS Telecom ILECs (except Mid-Plains) are exempt as "rural telephone companies" until they receive a bona fide request for interconnection and the state commission lifts the exemption. In the state of Tennessee, TDS Telecom has received an interconnection request from a CLEC in four markets for the purpose of transport and termination of local calling area traffic, and local number portability. TDS Telecom and the CLEC are negotiating an interconnection agreement. Both parties have filed a joint motion with the Tennessee Regulatory Authority to suspend the rural exemption proceeding as part of the CLEC's original interconnection request. In the state of Georgia, TDS Telecom has received an interconnection request from a CLEC in two markets.

        The FCC and various statutes also require carriers to comply with what may be costly duties, such as providing means for the FCC to monitor telephone lines and otherwise assisting in investigations, letting subscribers change to competitors' services without changing their telephone numbers, taking actions to preserve the available pool of telephone numbers, making telecommunications accessible for those with disabilities and other obligations. TDS Telecom is seeking to comply with these requirements where applicable or to qualify for exemptions or obtain desired suspensions or modifications where appropriate. At the same time TDS is seeking policies that provide a fair opportunity to recover the costs of complying. There can be no assurance that TDS Telecom will be successful in such efforts.

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        The FCC continues to oversee disputes over how to encourage nationwide advanced broadband infrastructure development. TDS opposes deregulatory policies desired by some carriers because of adverse side effects on high-cost, rate-of-return and NECA pool member carriers. Any mandate for nationwide deployment at this time would require extensive additional investment. State commissions have also been seeking to mandate the deployment of advanced services and enhancements to the infrastructure (e.g., higher modem speeds, DSL), which will result in additional costs to condition the loops to provide the service. A court of appeals sent back the FCC's unbundled element determinations and vacated its line sharing rules. The FCC has proceedings to consider issues surrounding ILEC broadband deployment, deregulation of wireline provision of Internet access, universal service contribution requirements for cable modem providers and how to classify bundled broadband and information service offerings for regulatory purposes.

        The federal telecommunications law preserves interstate toll rate averaging and imposes a nationwide policy that interstate and intrastate long-distance rates of all long-distance carriers should not be higher in rural areas than in urban areas they serve. In 1999, AT&T and several regional Bell operating companies began limiting and/or discontinuing their long distance services in TDS Telecom service areas. In response, TDS Telecom began to provide its own long distance service to its customers during 2000 and intends to continue to do so in the future.

        TDS Telecom continues to participate in state and federal regulatory and legislative processes to urge that any telecommunications reform measures treat rural areas fairly and continue to provide sufficient contributions to high-cost rural service areas to keep TDS Telecom ILECs' rates affordable and allow for the continued development of rural infrastructure. The ongoing changes in public policy due to numerous court proceedings and the introduction of competition may adversely affect the earnings of the operating subsidiaries, and TDS Telecom is not able to predict the impact of these changes.

CLEC Segment

Leverage Strengths Into CLEC Markets

        The second component of TDS Telecom's business strategy includes leveraging its existing strengths into CLEC markets. This strategy encompasses many components including the customers within the market, market strategy, competitors, and construction and development. Additionally, planning for ongoing CLEC operations must consider the regulatory environment in which they operate. Each of these components will be discussed in detail below.

        TDS Telecom's CLEC strategy maintains a geographic focus and is designed to leverage TDS Telecom's existing management and infrastructure to complement TDS Telecom's ILEC clustering strategy. TDS Telecom has followed a strategy of controlled entry into certain targeted mid-size communities, regionally proximate to existing TDS Telecom facilities and service areas, with facilities-based entry as a CLEC. Management of TDS Telecom believes in carefully selecting these markets to reduce the likelihood of facing significant competition and to be confident that it can offer a significantly improved service level over that of the incumbent local exchange carrier. Because it can utilize the infrastructure (e.g. billing systems, network control center, operating systems, financial systems and control accounting, technology planners, etc.) built for the TDS Telecom ILEC business, management believes that the TDS Telecom CLECs can be profitable in markets that may not support stand alone start-ups. Additionally, TDS Telecom believes that its CLECs can become profitable faster than stand alone start-ups at the higher end of its targeted range (over 200,000 population). TDS Telecom intends to be the leading alternative provider for customers' wired telecommunications needs in its CLEC markets.

        TDS Metrocom, based in Madison, Wisconsin, became operational in January 1998. TDS Metrocom is a facilities-based, full-service alternative to Ameritech/SBC, providing both voice and data services to commercial and consumer accounts, as well as wholesale services to IXCs and other carriers. TDS Metrocom also operates in the greater Fox Valley area, suburban Milwaukee, Racine, Kenosha, Janesville and Beloit Wisconsin markets. In early 2001, TDS Metrocom began facility-based services in Rockford and the Lake County northern suburbs of Chicago, Illinois. In mid-2001, TDS Metrocom extended its facility-based services to the greater Grand Rapids area, Kalamazoo, Battle Creek, Holland,

36

Grand Haven, Lansing, Jackson, Ann Arbor and the western suburbs of Detroit, Michigan markets. As of December 31, 2002, TDS Metrocom has provisioned and installed 220,200 lines that were 100% on-switch.

        USLink, a regional CLEC based in Pequot Lakes Minnesota, has 71,200 equivalent access lines as of December 31, 2002. The line provisioning methods used are on-switch facility-based, unbundled network element platform (UNE-P) and resale, with on-switch representing 21% of the lines at December 31, 2002. USLink's switch hub site in Monticello, Minnesota will have remote collocations in Minneapolis/St. Paul (13 collocations), Rochester, Duluth, St. Cloud and Brainerd, as well as two collocations in Fargo, North Dakota. The future strategy for USLink is to become more of a facility-based CLEC with more collocations planned each year, thus moving away from UNE-P and resale.

        USLink, a former long distance only company has over 12,000 dial-up Internet accounts as of December 31, 2002. For 2003 there will be an increased focus on growing dedicated Internet revenues. USLink has succeeded in securing a completely redundant structure to its robust fiber network throughout its region. The company has become a more aggressive sales and marketing company that now has some large customers to use as referrals, which will aid in growing its business in the Minneapolis/St. Paul area. USLink has been proactive on the regulatory front, helping to win regulatory proceedings at the state level that will enhance the economics of doing business in its chosen states. Going forward, USLink will continue its growth strategy of gaining market share in target markets before moving on to new markets.

        TDS Telecom's combined CLEC strategy is currently focused on markets in Wisconsin, Minnesota, Illinois, Michigan and North Dakota. TDS continues to evaluate facilities-based markets for additional opportunities while continuing to develop and sell deeper into existing markets.

CLEC Telephone Markets

        The Telecommunications Act facilitates entry by TDS Telecom into new markets by requiring non-exempted carriers, including the RBOCs, to provide reasonable and non-discriminatory interconnection services and access to unbundled network elements to any CLEC that seeks to enter the markets in which such RBOCs already offer services. TDS Telecom, through its wholly owned subsidiaries, TDS Metrocom and USLink, has targeted certain mid-size, geographically clustered communities, for facilities-based entry as a CLEC. TDS Telecom believes that the size of many of the target markets will sustain a limited number of facilities-based competitors in addition to the RBOC. While additional competitors may enter such markets as resellers, TDS Telecom believes only facility-based CLECs will be significantly profitable over the long term because ownership of facilities may provide a long-run cost advantage, discourage further providers from entry and enable an alternative wholesale strategy for growth. To this end, TDS Telecom is building switching and other network facilities in its targeted CLEC markets. TDS Telecom plans to follow a "clustering" approach to building its CLECs which will allow it to seek regional long distance traffic, share service and repair resources and realize marketing efficiencies. As in its ILEC markets, TDS Telecom intends to become an Integrated Communications Provider ("ICP") in its chosen CLEC markets by providing local, long distance, Internet and other services through its own facilities and via resale.

CLEC Market Strategy

        The CLEC strategy places primary emphasis on small and medium-sized commercial customers and residential customers. Medium-sized commercial prospects are characterized by above-average access line to employee ratios, heavier utilization of data services and a focus on using telecommunications for business improvement. The recent downturn in the economy has increased customers' interest in cost reduction. Commercial accounts are looking for increased telephony capabilities at reduced costs and tend to be currently underserved by the ILECs and the major IXCs in the TDS CLECs' target markets. TDS Telecom pursues an application sales strategy for its primary target markets. This commercial consultative sales approach builds on customer preference for integrated communication services and the customer's perception that some of the quality of the product is in personalized service. Applications sales techniques create real user value, providing greater customer cost savings while not having to rely on price alone to remain competitive within the marketplace.

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        TDS Telecom's CLECs are intent on gaining additional market share within established CLEC markets. The Strategic Accounts Sales Team has been established to appeal to the large commercial accounts segment. The Strategic Sales Group leverages governmental, institutional and any profitable wholesale Competitive Access Provider revenue opportunities that exist across all CLEC markets. Alternative sales channels have been developed to include agent programs (similar to U.S. Cellular) and affinity plans designed to leverage and partner with well known "local" companies at the individual market level.

        The consumer sales strategy focuses on bundling to create demand for the mass market. Traditionally RBOCs have used unbundled features or limited bundles to keep prices high for customers. In contrast, TDS Metrocom seeks to take the features that customers value and combine them with calling plans attractive to a majority of customers. With this offer, TDS Metrocom also offers DSL to provide the customer a suitable package that is competitive with Ameritech/SBC and the cable providers entering the voice market. For the consumer market segment, TDS Metrocom has built its customer acquisition strategy around direct response programs. This channel allows TDS Metrocom to get its message and offer to the customer in a timely and thorough manner. Given that switching phone service can be a big decision for a household, this approach has allowed TDS Metrocom to grow rapidly in an increasing competitive market. From a forward looking perspective, it is looking beyond its existing channels to find new ways to sell. Web marketing, door-to-door sales, and telemarketing are being evaluated and tested to penetrate markets further. As these channels become more viable, they will be more important in the overall development of TDS Metrocom's consumer business.

        While the CLECs are positioning themselves as high-quality telecommunication providers, they are experiencing price competition from the RBOCs and other CLECs as they attempt to retain or gain customers. The CLEC operations continue to seek and maintain an efficient cost structure to ensure that they can match price-based initiatives from competitors. The RBOCs are constrained in the short term by the existing regulatory environment; as a result, TDS Telecom believes that its CLECs continue to be more flexible in responding to customer needs. To effectively compete in the competitive arena, TDS Telecom is continuing new product development to provide high quality, leading-edge services to its customers that can be leveraged by both the ILEC and CLEC markets. As discussed in the next section, the TDS Telecom CLECs are also actively opposing regulatory changes adopted or proposed by the FCC that could reduce their revenues, limit their expansion plans, or decrease their access to RBOC-owned facilities and services they use to provide their services.

        TDS Telecom believes the targeted CLEC markets present a significant opportunity to market data services, as the major carriers serving these locations have typically under-invested in these markets despite the potential demand. Switched data communications represents one of the fastest growing segments of the telecommunication services market. Computer proliferation, connectivity via local and wide area networks, the Internet and the emergence of multimedia applications are expected to drive demand. TDS Telecom's CLEC initiative adds local capacity in its selected cities designed to accommodate this demand.

CLEC Markets Competition

        Through its subsidiaries, TDS Metrocom and USLink, TDS Telecom competes as a CLEC in a number of markets in the upper Midwest. In all of these markets, the CLECs face competition from the incumbent RBOC (Ameritech/SBC or Qwest) and often from one or more CLECs.

        TDS Telecom's CLECs compete with the RBOCs on the basis of price, reliability, state-of-the-art technology, product offerings, route diversity, ease of ordering and customer service. However, Ameritech/SBC and Qwest have long-standing relationships with their customers and are well established in their respective markets. Although the RBOCs generally are subject to greater pricing and regulatory constraints than CLECs, RBOCs are achieving increased pricing flexibility for their services and have implemented long-term contracts with high cancellation penalties for retention purposes. The RBOCs have also begun aggressive "Winback" programs that have been somewhat effective in regaining lines lost to CLECs. Competition for private line, special access and local exchange services is based primarily on quality, capacity and reliability of network facilities; customer service; response to customer needs; service features; and price. It is not based on any proprietary technology. As a result of the

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technology used in its networks, TDS Telecom may have cost and service quality advantages over some currently available RBOC networks. In addition, TDS Telecom believes that, in general, its CLECs will provide more attention and responsiveness to their customers than its RBOC competitors will.

        TDS Telecom also faces competition from other CLECs in all of the cities where it has CLEC operations. Although CLECs are in a retrenching mode, competition is also coming from entities in a number of related industries. These entities include long distance carriers, Internet Service Providers ("ISPs"), cable TV companies, utilities, municipalities, wireless carriers, and private networks built by large end users. TDS Telecom's CLECs competitive positioning against these carriers is based on regional focus, application oriented results-driven sales teams, personal customer care, simple and compelling offers, and consistent execution of processes—especially the back office provisioning processes required to offer competitive local service.

CLEC Markets Construction and Development Program

        In 2002, TDS Telecom continued its program of expanding and improving its CLEC service-providing network. During 2002, TDS Metrocom completed 200 miles of fiber construction to connect the existing co-locations to the network. USLink continued to add capacity to their switches to accommodate expansion, built a fiber ring around Minneapolis/St. Paul and improved redundancy on its network.

        TDS Telecom's expected capital spending in 2003 is approximately $40 million for CLEC markets, compared to actual capital expenditures of $51.9 million in 2002 and $96.9 million in 2001. Financing for capital additions will be provided by TDS Telecom internally generated funds and short-term borrowing.

CLEC Markets Regulation

        A number of state and federal regulatory proposals, policies and regulations are important to TDS Telecom's CLEC operations. Proceedings have begun in each of the SBC/Ameritech states related to their request for authority to enter the long distance market pursuant to Section 271 of the Telecommunications Act of 1996. TDS Metrocom has and will continue to actively participate in proceedings that address access to SBC/Ameritech operation support systems and facilities. TDS Metrocom is also working with other interested parties in various efforts to establish remedy plans that include monetary payments for unacceptable behavior and that increase the enforcement authority of state commissions related to substandard performance. Similar proceedings are also occurring in the Qwest states in which USLink operates. It is likely that both SBC/Ameritech and Qwest will file applications with the FCC for long distance entry at some point in 2003.

        Other state proceedings that may affect TDS Metrocom and USLink include investigations into the cost of unbundled network elements ("UNEs") and the creation of new quality of service rules for all carriers. Specifically, Ameritech/SBC has filed requests for increased UNE rates in many of its states that TDS Telecom will vigorously oppose. There can be no assurance that TDS Telecom will be successful in its opposition of such requests or that the outcome of proceedings will not have a material adverse effect on TDS Telecom's CLEC operations.

        The FCC adopted an important decision February 20, 2003, that frees the RBOCs from obligations to make their high speed network components used to access the Internet available at low prices to their competitors, including new high speed optical fiber lines and shared use of the high speed portion of DSL-capable lines using traditional copper lines. Most important to the TDS Telecom CLECs, the decision preserves many requirements for the RBOCs to make their existing copper lines and telephone networks available at generally low, state-set wholesale prices, and leaves many decisions about whether competitors still need access to RBOC network elements in particular places—including switching—to state regulators. The decision appears to limit competitors' access to part fiber, part copper loops to voice service. The loss of some access options is unfavorable for TDS Telecom CLECs. Completion of a written decision is not expected until March, leaving uncertainties about the precise terms, and both judicial review and renewed RBOC legislative efforts are likely. Also in 2003, issues related to intercarrier compensation will likely become more prominent. These pending issues include whether to eliminate access charges and adopt a bill and keep compensation regime and how to interpret and administer the statutory requirements and scope of reciprocal compensation. TDS Telecom will continue to advocate changes in the CLEC access charge system because the

39

FCC-imposed rate caps do not adequately compensate CLECs operating in smaller markets and providing service to residential customers. Additionally, increased enforcement of current rules and rates will be sought by TDS Telecom. Pending proposals for additional reform of federal universal service funding could further increase CLECs' required contributions towards the programs.

        The FCC exercises jurisdiction over all interstate communications services. The FCC exercises regulatory jurisdiction over all facilities of, and services offered by, communications common carriers to the extent those facilities are used to provide, originate or terminate interstate communications. The FCC has established different levels of regulation for "dominant" carriers and "nondominant" carriers. For domestic interstate communications services, only the ILEC's are classified as dominant carriers. All other carriers are classified as non-dominant. The FCC regulates many of the rates, charges and services of dominant carriers to a greater degree than those of nondominant carriers. As nondominant carriers, CLECs may install and operate facilities for domestic interstate communications without prior FCC authorization. CLECs are not required to maintain tariffs for domestic interstate long distance services. However, CLECs are required to submit certain periodic reports to the FCC and to pay regulatory fees.

        CLECs are also subject to regulation by state public service commissions. Certain state public service commissions require CLECs to obtain operating authority prior to initiating intrastate services. Certain states also require the filing of tariffs or price lists and/or customer-specific contracts. TDS Telecom CLECs are not currently subject to rate-of-return or price regulation. However, CLECs are subject to state-specific quality of service, universal service, periodic reporting and other regulatory requirements, although the extent of these requirements is generally less than those applicable to ILECs. In addition, local governments may require CLECs to obtain licenses or franchises regulating the use of public rights-of-way necessary to install and operate its networks.

Data and Messaging Services

        The third component of TDS Telecom's business strategy is to develop high-growth services, particularly in the data and messaging arenas. Data communications is one of the fastest growing segments of the telecommunications services industry. In light of the growth of Internet use and rapid introduction of new telecommunications technology, TDS Telecom intends to offer a suite of data products in all of its markets, thereby positioning itself as a full-service data networking service provider. TDS Telecom currently provides Internet access to its ILEC and CLEC customers. At December 31, 2002, TDS Telecom's ILEC and CLEC subsidiaries provided Internet services to approximately 117,600 and 24,700 customers, respectively.

        TDS Telecom continued to grow its line of business in the data communications market in 2002. TDS Telecom invested in its Internet line of business by upgrading its web hosting environment and product line, expanded its DSL offerings to new CLEC and ILEC markets, and grew its ISP customer base. TDS Telecom plans to continue to develop this business.

        TDS Telecom has successfully deployed DSL technology in selected ILEC and CLEC markets. TDS Telecom believes that penetration of broadband access will eventually exceed growth of dial-up and that DSL technology will continue to be a key technology for the provision of broadband Internet access. TDS Telecom will continue to deploy DSL as an important element of high-speed Internet access, remote LAN connectivity, and Virtual Private Network ("VPN") services; and as a complementary product to existing web hosting, messaging, and collocation services.

        TDS Telecom is using a Unified Communications platform on a trial basis with the goal of expanding the capabilities of its existing e-mail and voice mail offerings. Initial deployments are anticipated in 2003 with further expansion following if the service is successful in the first set of markets.

        Most of TDS Telecom's data services are in the early stages of development and the expansion of operations is not certain. Continued investment will be dependent on market demand and foreseeable growth prospects.

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Investments

        TDS, U.S. Cellular and TDS Telecom hold various investments in publicly traded companies the majority of which were the result of sales or trades of non-strategic assets. Minority positions are held in Deutsche Telekom AG, Vodafone plc, Rural Cellular Corporation and VeriSign, Inc.

        These assets are classified for financial reporting purposes as available-for-sale securities. The market value of these investments aggregated $1,944.9 million at December 31, 2002 and $2,700.2 million at December 31, 2001. As of December 31, 2002, the net unrealized holding gain, net of tax, included in accumulated other comprehensive income (loss) totaled $243.4 million. In 2002, TDS recognized, in the statement of operations, losses of $1,045.0 million, net of tax and minority interest, related to investments in marketable securities as a result of management's determination that unrealized losses with respect to the investments were "other than temporary." Management continues to review the valuation of the investments on a periodic basis. If management determines in the future that an unrealized loss is other than temporary, the loss will be recognized and recorded in the statement of operations.

        The Company has entered into a number of variable prepaid forward contracts ("forward contracts") related to the marketable equity securities that it holds. The risk management objective of the forward contracts is to hedge the value of the marketable equity securities from losses due to decreases in the market prices of the securities ("downside limit") while retaining a share of gains from increases in the market prices of such securities ("upside potential"). The downside risk is hedged at or above the accounting cost basis thereby eliminating the other than temporary risk on these contracted securities.

        Under the terms of the forward contracts, the Company will continue to own the contracted shares and will receive dividends paid on such contracted shares, if any. The forward contracts mature from May 2007 to August 2008 and, at the Company's option, may be settled in shares of the respective security or in cash, pursuant to formulas that "collar" the price of the shares. The collars effectively limit the Company's downside risk and upside potential on the contracted shares. The collars could be adjusted for any changes in dividends on the contracted shares. The forward contracts may be settled in shares of the respective marketable equity security or in cash upon expiration of the forward contract. If the Company elects to settle in shares, it will be required to deliver the number of shares of the contracted security determined pursuant to the formula. If shares are delivered in the settlement of the forward contract, the Company would incur a current tax liability at the time of delivery based on the difference between the tax basis of the marketable equity securities delivered and the net amount realized through maturity. If the Company elects to settle in cash it will be required to pay an amount in cash equal to the fair market value of the number of shares determined pursuant to the formula.

        Deferred taxes have been provided for the difference between the financial reporting basis and the income tax basis of the marketable equity securities and are included in deferred tax liabilities on the balance sheet. As of December 31, 2002, such deferred tax liabilities totaled $739.0 million.

        The following table summarizes certain facts surrounding the contracted securities as of December 31, 2002.

		Collar(1)
Security	Shares	Downside Limit (Floor)		Upside Potential (Ceiling)		Loan Amount (000s)
VeriSign	2,361,333	$	8.82	$	11.46	$	20,819
Vodafone (2)	12,945,915	$	15.07-$16.07	$	20.92-$23.66		201,038
Deutsche Telekom	131,461,861	$	10.74-$12.41	$	12.88-$16.33		1,532,257
						$	1,754,114
Unamortized debt discount (3)							(97,498	)
						$	1,656,616

(1)

The per share amounts represent the range of floor and ceiling prices of all the securities monetized.

(2)

U.S. Cellular owns 10.2 million and TDS Telecom owns 2.7 million Vodafone ADR's.

(3)

Certain forward contracts are structured on zero coupon obligations. The debt discount is being amortized over the lives of the contracts.

Employees

        TDS enjoys satisfactory employee relations. As of December 31, 2002, approximately 11,100 persons were employed by TDS, 180 of whom are represented by unions.

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Item 2.    Properties

        The property of TDS consists principally of switching and cell site equipment related to wireless telephone operations; and telephone lines, central office equipment, telephone instruments and related equipment, and land and buildings related to land-line telephone operations. As of December 31, 2002, TDS's property, plant and equipment, net of accumulated depreciation, totaled approximately $3,196.2 million, $2,148.4 million at U.S. Cellular and $1,047.8 million at TDS Telecom.

        The plant and equipment of TDS is maintained in good operating condition and is suitable and adequate for TDS's business operations. The properties of the operating telephone subsidiaries are subject to the lien of the mortgages securing the funded debt of such companies. TDS leases most of its offices and transmitter sites used in its wireless business and owns substantially all of its central office buildings, local administrative buildings, warehouses, and storage facilities used in its wireline telephone operations. All of TDS's cell and transmitter sites and telephone lines are located either on private or public property. Locations on private land are by virtue of easements or other arrangements.

Item 3.    Legal Proceedings

        TDS is involved in a number of legal proceedings before the FCC and various state and federal courts. Management does not believe that any such proceeding or all such proceedings in the aggregate should have a material adverse impact on the financial position or results of operations of TDS.

Item 4.    Submission of Matters to a Vote of Security Holders

        No matter was submitted to a vote of security holders during the fourth quarter of 2002.

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PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters

        Incorporated by reference from Exhibit 13, Annual Report sections entitled "TDS Stock and Dividend Information" and "Market Price per Common Share by Quarter."

Item 6.    Selected Financial Data

        Incorporated by reference from Exhibit 13, Annual Report section entitled "Selected Consolidated Financial Data," except for ratios of earnings to fixed charges, which are incorporated herein by reference from Exhibit 12 to this Annual Report on Form 10-K.

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        Incorporated by reference from Exhibit 13, Annual Report section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition."

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

        Incorporated by reference from Exhibit 13, Annual Report section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition" under the caption "Market Risk."

Item 8.    Financial Statements and Supplementary Data

        Incorporated by reference from Exhibit 13, Annual Report sections entitled "Consolidated Statements of Operations," "Consolidated Statements of Cash Flows," "Consolidated Balance Sheets," "Consolidated Statements of Common Stockholders' Equity," "Notes to Consolidated Financial Statements," "Consolidated Quarterly Information (Unaudited)," "Report of Independent Accountants", and "Copy of Previously Issued Report of Independent Accountants".

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Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        This information was "previously reported" within the meaning of Rule 12b-2 under the Securities Exchange Act of 1934, as amended, in the Company's Form 8-K dated May 23, 2002. The following repeats the disclosure set forth in Item 4 of such Form 8-K.

        On May 23, 2002, Telephone and Data Systems, Inc. ("TDS") dismissed Arthur Andersen LLP ("Andersen") as TDS's independent auditors, and engaged PricewaterhouseCoopers LLP ("PwC") to serve as its new independent auditors for 2002. The change in auditors will become effective May 23, 2002. This action was taken by the TDS Board of Directors based on the recommendation of TDS's audit committee. TDS also approved the same change of auditors for its subsidiary, United States Cellular Corporation ("U.S. Cellular"), pursuant to the terms of an Intercompany Agreement between TDS and U.S. Cellular.

        Andersen's reports on TDS's consolidated financial statements for each of the years ended December 31, 2001 and December 31, 2000 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.

        During the years ended December 31, 2001 and 2000 and the interim period between December 31, 2001 and the date of this Form 8-K, there were no disagreements between TDS and Andersen on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to Andersen's satisfaction, would have caused Andersen to make reference to the subject matter of the disagreement in connection with their report for such years; and there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

        TDS provided Andersen with a copy of the foregoing disclosures. Attached as Exhibit 16.1 is a copy of Andersen's letter, dated May 23, 2002, stating its agreement with the foregoing disclosures.

        During TDS's two most recent fiscal years and through the date of this Report on Form 8-K, TDS did not consult PwC with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on TDS's consolidated financial statements, or any other matters or reportable events listed in item 304(a)(2)(i) and (ii) of Regulation S-K.

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PART III

Item 10.    Directors and Executive Officers of the Registrant

        Incorporated by reference from Proxy Statement sections entitled "Election of Directors" and "Executive Officers."

Item 11.    Executive Compensation

        Incorporated by reference from Proxy Statement section entitled "Executive Compensation" except for the information specified in Item 402(a)(8) of Regulation S-K under the Securities Exchange Act of 1934, as amended.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

        Incorporated by reference from Proxy Statement sections entitled "Security Ownership of Management," "Principal Shareholders," and "Securities Authorized for Issuance under Equity Compensation Plans."

Item 13.    Certain Relationships and Related Transactions

        Incorporated by reference from Proxy Statement section entitled "Certain Relationships and Related Transactions."

Item 14.    Controls and Procedures

        (a)    Evaluation of Disclosure Controls and Procedures.    Based on their evaluation as of a date within 90 days of the filing date of this Annual Report on Form 10-K, the principal executive officer and principal financial officer of TDS have concluded that TDS' disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by TDS in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

        (b)    Changes in internal controls.    There were no significant changes in TDS' internal controls or in other factors that could significantly affect those controls subsequent to the date of their most recent evaluation.

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PART IV

Item 15.    Exhibits, Financial Statement Schedules and Reports on Form 8-K

        The following documents are filed as a part of this report:

(a)    (1) Financial Statements

Consolidated Statements of Operations	Annual Report*
Consolidated Statements of Cash Flows	Annual Report*
Consolidated Balance Sheets	Annual Report*
Consolidated Statements of Common Stockholders' Equity	Annual Report*
Notes to Consolidated Financial Statements	Annual Report*
Consolidated Quarterly Information (Unaudited)	Annual Report*
Report of Independent Accountants for 2002— PricewaterhouseCoopers LLP	Annual Report*
Copy of Previously Issued Report of Independent Accountants for years prior to 2002—Arthur Andersen LLP	Annual Report*

*

Incorporated by reference from Exhibit 13.

(2)

Schedules

		Location
Report of Independent Accountants on Financial Statement Schedules for 2002—PricewaterhouseCoopers LLP		page S-1
Copy of Previously Issued Report of Independent Accountants on Financial Statement Schedules for years prior to 2002—Arthur Andersen LLP		page S-2
I.	Condensed Financial Information of Registrant-Balance Sheets as of December 31, 2002 and 2001, and Statements of Operations and Statements of Cash Flows for each of the Three Years in the Period Ended December 31, 2002	page S-3
II.	Valuation and Qualifying Accounts for each of the Three Years in the Period Ended December 31, 2002	page S-8

        All other schedules have been omitted because they are not applicable or not required because the required information is shown in the financial statements or notes thereto.

(3)

Exhibits

        The exhibits set forth in the accompanying Index to Exhibits are filed as a part of this Report. The following is a list of each management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 15(c) of this Report.

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Exhibit Number	Description
10.1	Salary Continuation Agreement for LeRoy T. Carlson dated May 20, 1977, as amended May 22, 1981 and May 25, 1984 is hereby incorporated by reference to TDS's Registration Statement on Form S-2, No. 2-92307.
10.2(a)	Supplemental Benefit Agreement for LeRoy T. Carlson dated March 21, 1980, as amended March 20, 1981 is hereby incorporated by reference to an exhibit to TDS's Registration Statement on Form S-7, No. 2-74615.
10.2(b)	Memorandum of Amendment to Supplemental Benefit Agreement dated May 28, 1991 is hereby incorporated by reference to Exhibit 10.2(b) to TDS's Annual Report Form 10-K for the year ended December 31, 1991.
10.3	Telephone and Data Systems, Inc. 1994 Long-Term Incentive Plan is hereby incorporated by reference to Exhibit 99.1 to TDS's Registration Statement on Form S-8 (Registration No. 33-57257).
10.4(a)	Telephone and Data Systems, Inc. 1998 Long-Term Incentive Plan is hereby incorporated by reference to Exhibit D to TDS's Proxy Statement/Prospectus dated March 24, 1998, which was part of TDS's Registration Statement on Form S-4 (Registration No. 333-42535).
10.4(b)	Amendment No. 1 to Telephone and Data Systems, Inc. 1998 Long-Term Incentive Plan, is hereby incorporated by reference to Exhibit 10.6(b) to TDS's Annual Report on Form 10-K for the year ended December 31, 1999.
10.4(c)	Amendment No. 2 to Telephone and Data Systems, Inc. 1998 Long-Term Incentive Plan.
10.5	Amended and Restated Supplemental Executive Retirement Plan of TDS is hereby incorporated by reference to Exhibit 10.7 to TDS's Annual Report on Form 10-K for the year ended December 31, 1998.
10.6	Description of Terms of offer letter between United States Cellular Corporation and John E. Rooney dated March 28, 2000 is hereby incorporated by reference to Exhibit 10 to United States Cellular Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
10.7	Stock Option and Stock Appreciation Rights Plan, is hereby incorporated by reference to Exhibit B to United States Cellular Corporation's definitive Notice of Annual Meeting and Proxy Statement dated April 15, 1991, as filed with the Commission on April 16, 1991.
10.8	Summary of 2002 Bonus Program for the Executive Vice Presidents of United States Cellular Corporation is hereby incorporated by reference to Exhibit 10.9 to United States Cellular Corporation's Annual Report on Form 10-K for the year ended December 31, 2002.
10.9	United States Cellular Corporation 1998 Long-Term Incentive Plan is hereby incorporated by reference to Exhibit 99.4 to United States Cellular Corporation's Registration Statement on Form S-8 (Registration No. 333-57063).
10.10	Telephone and Data Systems, Inc. 2003 Employee Stock Purchase Plan is hereby incorporated by reference to Exhibit 99.1 of TDS's Registration Statement on Form S-8 (Registration No. 333-103540)
10.11	Telephone and Data Systems, Inc. Compensation Plan for Non-Employee Directors is hereby incorporated by reference to Exhibit 99.1 of TDS's Registration Statement on Form S-8 (Registration No. 333-103541).

47

10.12	Executive Deferred Compensation Agreement for James Barr III dated January 1, 1998, is hereby incorporated by reference to Exhibit 10.15 to TDS's Annual Report on Form 10-K for the year ended December 31, 1997.
10.13	Form of TDS Telecommunications Corporation Phantom Stock Option Incentive Agreement between TDS Telecommunications Corporation and James Barr III is hereby incorporated by reference to Exhibit 10.16 to TDS's Annual Report on Form 10-K for the year ended December 31, 1997.

(b)

Reports on Form 8-K filed during the quarter ended December 31, 2002.

        None

48

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES

        To the Stockholders and Board of Directors of Telephone and Data Systems, Inc.:

        Our audit of the consolidated financial statements referred to in our report dated February 3, 2003, except as to Note 24, as to which the date is March 10, 2003, appearing in the 2002 Annual Report to Shareholders of Telephone and Data Systems, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedules for the year ended December 31, 2002 listed in Item 15(a)(2) of this Form 10-K. In our opinion, the financial statement schedules for the year ended December 31, 2002 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. The financial statement schedules of Telephone and Data Systems, Inc. for the years ended December 31, 2001 and 2000, were audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on those financial statement schedules in their report dated January 25, 2002.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois
February 3, 2003, except as to Note 24,
as to which the date is March 10, 2003

S-1

THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. THIS REPORT APPLIES TO SCHEDULES I AND II FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000. THESE INDEPENDENT ACCOUNTANTS HAVE CEASED OPERATIONS, AND HAVE NOT REISSUED THEIR REPORT IN CONJUNCTION WITH THIS ANNUAL REPORT. THEIR REPORT IS INCLUDED IN THE ANNUAL REPORT AS PERMITTED BY RULE 2-02(e) OF REGULATION S-X OF THE SECURITIES AND EXCHANGE COMMISSION.

COPY OF PREVIOUSLY ISSUED REPORT OF INDEPENDENT
ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES

        To the Stockholders and Board of Directors of Telephone and Data Systems, Inc.:

        We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in Telephone and Data Systems, Inc. and Subsidiaries Annual Report and incorporated by reference in this Form 10-K, and have issued our report thereon dated January 25, 2002. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The financial statement schedules listed in Item 14(a)(2)* are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. These financial statement schedules have been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.

Arthur Andersen LLP

Chicago, Illinois
January 25, 2002

*

This reference refers to Item 14(a)(2) of the Annual Report for the year ended December 31, 2001.

S-2

SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT

Telephone and Data Systems, Inc. (Parent)

Balance Sheets

Assets

			December 31,
			2002		2001
			(Dollars in thousands)
CURRENT ASSETS
	Cash and cash equivalents		$	3,106	$	668
	Notes receivable from affiliates (Note B)			360,575		235,862
	Accounts Receivable
		Due from subsidiaries		7,074		6,345
		Other		2,699		650
	Federal income tax receivable			40,000		—
	Prepaid income taxes			—		17,737
	Other current assets			9,193		5,854
				422,647		267,116
INVESTMENT IN SUBSIDIARIES				4,501,781		4,761,334
OTHER INVESTMENTS
	Notes receivable from affiliates (Note B)			105,000		—
	Notes receivable			—		52,666
	Minority interests and other investments			32,404		31,663
				137,404		84,329
PROPERTY AND EQUIPMENT
	Property and Equipment, net of accumulated depreciation			18,246		17,738
OTHER ASSETS AND DEFERRED CHARGES
	Debt issuance expenses			27,479		27,105
	Other			1,548		1,296
				29,027		28,401
			$	5,109,105	$	5,158,918

        The Notes to Consolidated Financial Statements, included in the Annual Report, are an integral part of these statements.

S-3

SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT

Telephone and Data Systems, Inc. (Parent)

Balance Sheets

Liabilities and Stockholders' Equity

			December 31,
			2002			2001
			(Dollars in thousands)
CURRENT LIABILITIES
	Current portion of long-term debt		$	103		$	51,103
	Advances from affiliates (Note C)			793,892			343,469
	Notes payable to affiliates			917			1,287
	Accounts payable
		Due to subsidiaries—income taxes		43,703			22,442
		Due to subsidiaries		3,177			272
		Other		18,596			20,545
	Accrued interest			20,271			15,738
	Accrued compensation			9,778			9,680
	Other			7,131			7,080
				897,568			471,616
DEFERRED LIABILITIES AND CREDITS
	Post retirement benefits obligation other than pensions			946			899
	Deferred Income Taxes			1,924			11,727
	Long-term deferred compensation			7,513			5,613
	Insurance reserves			6,238			7,072
	Other			2,285			2,464
				18,906			27,775
LONG-TERM DEBT, excluding current portion (Note D)				823,774			823,881
LONG-TERM DEBT, due to affiliates (Note E)				309,280			309,280
				1,133,054			1,133,161
PREFERRED SHARES				6,954			7,442
COMMON STOCKHOLDERS' EQUITY
	Common Shares, par value $.01 per share, respectively; authorized 100,000,000 shares; issued and outstanding 55,875,000 and 55,659,000 shares, respectively			559			557
	Series A Common Shares, par value $.01 per share, respectively; authorized 25,000,000 shares; issued and outstanding 6,602,000 and 6,778,000 shares, respectively			66			68
	Capital in excess of par value			1,832,807			1,826,840
	Treasury Shares, at cost, 3,799,000 and 3,868,000 shares, respectively			(404,169	)		(406,894	)
	Accumulated other comprehensive income from subsidiaries			191,704			(352,120	)
	Retained earnings			1,431,656			2,450,473
				3,052,623			3,518,924
			$	5,109,105		$	5,158,918

        The Notes to Consolidated Financial Statements, included in the Annual Report, are an integral part of these statements.

S-4

SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT

Telephone and Data Systems, Inc. (Parent)

Statements of Operations

		Year Ended December 31,
		2002			2001			2000
		(Dollars in thousands)
Operating revenues		$	71,617		$	68,859		$	65,540
Cost of sales and operating expenses			71,037			68,594			64,471
	Net operations		580			265			1,069
Other income
	Interest income received from affiliates		16,568			24,318			26,992
	(Loss) Gain on investments		(55,862	)		487			(11,000	)
	Other, net		(3,260	)		(2,868	)		(8,337	)
			(42,554	)		21,937			7,655
Income before interest and income taxes			(41,974	)		22,202			8,724
Interest expense			101,062			93,334			100,930
Income tax credit			(35,748	)		(29,044	)		(75,786	)
Corporate operations			(107,288	)		(42,088	)		(16,420	)
Equity in net income (loss) of subsidiaries and other investments			(877,083	)		(131,875	)		127,635
Net income (loss) from continuing operations			(984,371	)		(173,963	)		111,215
Discontinued operations, net of tax			—			(24,092	)		2,125,787
Net income (loss)		$	(984,371	)	$	(198,055	)	$	2,237,002

        The Notes to Consolidated Financial Statements, included in the Annual Report, are an integral part of these statements.

S-5

Note A:	Certain amounts reported in prior years have been reclassified to conform to current period presentations.
Note B:	The Parent has notes receivable from the TDS Telecom and subsidiaries totaling $360.6 million at December 31, 2002 and $235.9 million at December 31, 2001. TDS has an 8.1% $105.0 million long-term note receivable from U.S. Cellular due August 7, 2008.
Note C:	Subsidiaries advance excess cash to TDS Corporate for investment. Corporate can use these advances for general corporate purposes. Subsidiaries' advances are payable upon demand and bear interest each month at the 30-day Dealer Commercial Paper High-Grade Unsecured Notes Rate as reported in the Wall Street Journal, plus 1/4%. If such rate shall not be reported in The Wall Street Journal, such rate for such day shall be determined by TDS in its discretion to select an alternate published source. TDSI Corporate, Telephone Companies, and U.S. Cellular had advanced $568.7 million, $224.5 million, and $0.7 million cash, respectively, to TDS Corporate at December 31, 2002. Telephone Companies had advanced $343.5 million cash to TDS Corporate at December 31, 2001.
Note D:	The annual requirements for principal payments on long-term debt are $103,000 in 2003, $200.0 million in 2006 and $623.8 million after 2006.
Note E:	TDS Capital I, a subsidiary trust of TDS ("Capital I"), has outstanding 6,000,000 8.5% Company-Obligated Mandatorily Redeemable Preferred Securities. The sole asset of TDS Capital I is $154.6 million principal amount of TDS's 8.5% Subordinated Debentures due December 31, 2037.
	TDS Capital II, a subsidiary trust of TDS ("Capital II"), has outstanding 6,000,000 8.04% Company-Obligated Mandatorily Redeemable Preferred Securities. The sole asset of TDS Capital II is $154.6 million principal amount of TDS's 8.04% Subordinated Debentures due March 31, 2038.
	Payments due on the obligations of TDS Capital I and II under preferred securities issued by TDS Capital I and II are fully and unconditionally guaranteed by TDS to the extent each trust has funds available therefor. However, TDS's obligations are subordinate and junior in right of payment to certain other indebtedness of TDS. TDS has the right to defer payments of interest on the Subordinated Debentures by extending the interest payment period, at any time, for up to 20 consecutive quarters. If interest payments on the Subordinated Debentures are so deferred, distributions on the preferred securities will also be deferred. During any deferral, distributions will continue to accrue with interest thereon. In addition, during any such deferral, TDS may not declare or pay any dividend or other distribution on, or redeem or purchase, any of its common stock.
	The 8.04% and 8.5% Subordinated Debentures are redeemable by TDS, in whole or in part, from time to time, on or after November 18, 2002, and March 31, 2003, respectively, or, in whole but not in part, at any time in the event of certain income tax circumstances. If the Subordinated Debentures are redeemed, TDS Capital I and II must redeem Preferred Securities on a pro rata basis having an aggregate liquidation amount equal to the aggregate principal amount of the Subordinated Debentures so redeemed. In the event of the dissolution, winding up or termination of TDS Capital I and II, the holders of preferred securities will be entitled to receive, for each preferred security, a liquidation amount of $25 plus accrued and unpaid distributions thereon to the date of payment, unless, in connection with the dissolution, winding up or termination, Subordinated Debentures are distributed to the holders of the Preferred Securities.

S-6

SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT

Telephone and Data Systems, Inc. (Parent)

Statements of Cash Flows

			Year Ended December 31,
			2002			2001			2000
			(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income (loss) from continuing operations		$	(984,371	)	$	(173,963	)	$	111,215
	Add (Deduct) adjustments to reconcile net income to net cash provided by operating activities
		Depreciation and amortization		6,013			6,901			8,285
		Loss (Gain) on investments		55,862			(487	)		11,000
		Deferred taxes		(730	)		127,035			(13,652	)
		Equity in net income of subsidiaries and other investments		877,083			131,875			(127,635	)
		Other noncash expense		1,219			(15,448	)		(20,376	)
		Change in accounts receivable		(42,778	)		10,525			15,376
		Change in accounts payable		23,929			26,376			(21,397	)
		Change in accrued taxes		6,799			6,409			43,015
		Change in other assets and liabilities		3,074			8,110			1,354
				(53,900	)		127,333			7,185
CASH FLOWS FROM INVESTING ACTIVITIES
	Acquisitions, net of cash acquired			(81,604	)		(212,447	)		(94,355	)
	Capital expenditures			(7,765	)		(7,449	)		(7,047	)
	Proceeds from sale of investments			—			487			—
	Investments in subsidiaries			1,529			670			11,845
	Change in Notes Receivable			(2,179	)		(8,525	)		(55,141	)
	Other investments			(774	)		(823	)		(823	)
				(90,793	)		(228,087	)		(145,521	)
CASH FLOWS FROM FINANCING ACTIVITIES
	Long-term debt borrowings			—			484,250			—
	Repayment of long-term debt			(51,106	)		(65,613	)		(1,653	)
	Change in notes payable			—			(444,000	)		444,000
	Change in notes payable to affiliates			450,052			(26,986	)		10,384
	Change in notes receivable from affiliates			(225,749	)		(137,310	)		(2,742	)
	Common stock issued			5,871			8,624			10,304
	Redemption of preferred shares			(367	)		(135	)		(769	)
	Dividends from subsidiaries			4,467			356,861			6,790
	Dividends paid			(34,445	)		(32,141	)		(30,472	)
	Repurchase of Common Shares			—			(39,441	)		(290,069	)
	Other Financing Activities			(1,592	)		(3,635	)		—
				147,131			100,474			145,773
CASH FLOWS FROM DISCONTINUED OPERATIONS				—			—			(39,728	)
NET DECREASE (INCREASE) IN CASH AND CASH EQUIVALENTS				2,438			(280	)		(32,291	)
CASH AND CASH EQUIVALENTS
	Beginning of period			668			948			33,239
	End of period		$	3,106		$	668		$	948

        The Notes to Consolidated Financial Statements, included in the Annual Report, are an integral part of these statements.

S-7

TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

		(Dollars in thousands)
Description		Balance at Beginning of Period			Charged to Costs and Expenses			Charged to Other Accounts		Deductions		Balance at End of Period
Column A		Column B			Column C-1			Column C-2		Column D		Column E
For the Year Ended December 31, 2002
Deducted from deferred state tax asset:
	For unrealized net operating losses	$	(35,927	)	$	(18,889	)	$	—	$	—	$	(54,816	)
Deducted from accounts receivable:
	For doubtful accounts		(13,657	)		(84,897	)		—		73,927		(24,627	)
For the Year Ended December 31, 2001
Deducted from deferred state tax asset:
	For unrealized net operating losses		(26,509	)		(9,418	)		—		—		(35,927	)
Deducted from accounts receivable:
	For doubtful accounts		(13,664	)		(28,530	)		—		28,537		(13,657	)
For the Year Ended December 31, 2000
Deducted from deferred state tax asset:
	For unrealized net operating losses		(25,079	)		(1,430	)		—		—		(26,509	)
Deducted from accounts receivable:
	For doubtful accounts	$	(10,525	)	$	(27,794	)	$	—	$	24,655	$	(13,664	)

S-8

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TELEPHONE AND DATA SYSTEMS, INC.
By:	/s/  LEROY T. CARLSON, JR.
	LeRoy T. Carlson, Jr. President, (Chief Executive Officer)
By:	/s/  SANDRA L. HELTON
	Sandra L. Helton Executive Vice President (Chief Financial Officer)
By:	/s/  D. MICHAEL JACK
	D. Michael Jack Vice President and Controller (Principal Accounting Officer)

Dated March 20, 2003

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/  LEROY T. CARLSON, JR. LeRoy T. Carlson, Jr.	Director	March 20, 2003
/s/  LEROY T. CARLSON LeRoy T. Carlson	Director	March 20, 2003
/s/  SANDRA L. HELTON Sandra L. Helton	Director	March 20, 2003
/s/  JAMES BARR III James Barr III	Director	March 20, 2003
/s/  WALTER C.D. CARLSON Walter C.D. Carlson	Director	March 20, 2003
/s/  LETITIA G.C. CARLSON Letitia G.C. Carlson	Director	March 20, 2003
/s/  HERBERT S. WANDER Herbert S. Wander	Director	March 20, 2003
/s/  DONALD C. NEBERGALL Donald C. Nebergall	Director	March 20, 2003
/s/  GEORGE W. OFF George W. Off	Director	March 20, 2003
/s/  MARTIN L. SOLOMON Martin L. Solomon	Director	March 20, 2003
/s/  KEVIN A. MUNDT Kevin A. Mundt	Director	March 20, 2003
/s/  MICHAEL D. BILLS Michael D. Bills	Director	March 20, 2003

Certification of Chief Executive Officer

I, LeRoy T. Carlson, Jr., certify that:

1.

I have reviewed this annual report on Form 10-K of Telephone and Data Systems, Inc.;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)

Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c)

Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 20, 2003

/s/  LEROY T. CARLSON, JR. LeRoy T. Carlson, Jr.
President and Chief Executive Officer

Certification of Chief Financial Officer

I, Sandra L. Helton, certify that:

1.

I have reviewed this annual report on Form 10-K of Telephone and Data Systems, Inc.;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)

Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c)

Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 20, 2003

/s/  SANDRA L. HELTON Sandra L. Helton
Executive Vice President and Chief Financial Officer

INDEX TO EXHIBITS

	Exhibit No.Description of Document
2.1	Purchase and Sale Agreement dated May 9, 2002 between U.S. Cellular and PrimeCo Wireless Communications, LLC. is hereby incorporated by reference to Exhibit 2 to United States Cellular Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002.
2.2	Exchange Agreement dated March 7, 2003 between United States Cellular Corporation and AT&T Wireless Services, Inc. is hereby incorporated by reference to Exhibit 2.2 to United States Cellular Corporation's Annual Report on Form 10-K for the year ended December 31, 2002.
3.1	Restated Certificate of Incorporation, as amended, are hereby incorporated by reference to Exhibit 3.1 to TDS's Report on Form 8-A/A filed on July 10, 1998.
3.2	Restated By-laws, as amended, are hereby incorporated by reference to Exhibit 3.2 to TDS's Annual Report on Form 10-K for the year ended December 31, 2001.
4.1	Restated Certificate of Incorporation, as amended, are hereby incorporated by reference to Exhibit 3.1 to TDS's Report on Form 8-A/A filed on July 10, 1998.
4.2	Restated By-laws as amended, are hereby incorporated by reference to Exhibit 3.2 to TDS's Annual Report on Form 10-K for the year ended December 31, 2001.
4.3(a)	The Indenture between TDS and BNY Midwest Trust Company of New York as successor Trustee to Harris Trust and Savings Bank, dated February 1, 1991, under which TDS's Medium-Term Notes are issuable, is hereby incorporated by reference to TDS's Current Report on Form 8-K filed on February 19, 1991.
4.3(b)	Form of First Supplemental Indenture with BNY Midwest Trust Company of New York as successor Trustee to Harris Trust and Savings Bank is hereby incorporated by reference to Exhibit 4.1(b) of Post Effective Amendment No. 1 to Form S-3 (Registration No. 33-68456).
4.4(a)	The Amended and Restated Declaration of Trust, dated November 18, 1997, by and among TDS, as Sponsor, the Trust, The First National Bank of Chicago, as Property Trustee, First Chicago Delaware, Inc., as Delaware Trustee and the Regular Trustees named therein, is hereby incorporated by reference to Exhibit 4.1 to TDS's Current Report on Form 8-K filed on December 2, 1997, dated November 18, 1997.
4.4(b)	The Amended and Restated Declaration of Trust, dated February 10, 1998, by and among TDS, as Sponsor, the Trust, The First National Bank of Chicago, as Property Trustee, First Chicago Delaware, Inc., as Delaware Trustee and the Regular Trustees named therein, is hereby incorporated by reference to Exhibit 4.1 to TDS's Current Report on Form 8-K filed on April 28, 1998, dated February 10, 1998.
4.4(c)	Form of First Supplemental Indenture to Amended and Restated Declaration of Trust relating to assumption of TDS Delaware is hereby incorporated by reference to Exhibit 4.7 of Post Effective Amendment No. 1 to Form S-3 (Registration No. 333-38355).
4.5(a)	The Subordinated Indenture, dated October 15, 1997, by and between TDS and the First National Bank of Chicago, as Trustee under which the Trust Originated Preferred Securities are issuable, is hereby incorporated by reference to Exhibit 4.3 to TDS's Current Report on Form 8-K filed on December 2, 1997, dated November 18, 1997.
4.5(b)	The Supplemental Indenture dated November 18, 1997, by and between TDS and the First National Bank of Chicago, as Trustee under which the Trust Originated Preferred Securities are issuable, is hereby incorporated by reference to Exhibit 4.4 to TDS's Current Report on Form 8-K filed on December 2, 1997, dated November 18, 1997.
4.5(c)	The Second Supplemental Indenture, dated as of February 10, 1998, by and among TDS and The First National Bank of Chicago, as Debt Trustees, is hereby incorporated by reference to Exhibit 4.3 to TDS's Current Report on Form 8-K filed on April 28, 1998, dated February 10, 1998.

4.5(d)	Form of Third Supplemental Indenture to Subordinated Indenture relating to assumption by TDS Delaware is hereby incorporated by reference to Exhibit 4.9 of Post Effective Amendment No. 1 to Form S-3 (Registration No. 333-38355).
4.6(a)	The Preferred Securities Guarantee Agreement, dated as of November 18, 1997, by and among TDS and The First National Bank of Chicago, as Guarantee Trustee for the benefit of the holders of Trust Preferred Securities of the Trust, is hereby incorporated by reference to Exhibit 4.2 to TDS's Current Report on Form 8-K filed on December 2, 1997, dated November 18, 1997.
4.6(b)	The Preferred Securities Guarantee Agreement, dated as of February 10, 1998, by and among TDS and The First National Bank of Chicago, as Guarantee Trustee for the benefit of the holders of Trust Preferred Securities of the Trust, is hereby incorporated by reference to Exhibit 4.2 to TDS's Current Report on Form 8-K filed on April 28, 1998, dated February 10, 1998.
4.6(c)	Form of First Supplemental Indenture to Preferred Securities Guarantee Agreement relating to assumption by TDS Delaware is hereby incorporated by reference to Exhibit 4.8 of Post Effective Amendment No. 1 to Form S-3 (Registration No. 333-38355).
4.7(a)	The Indenture between TDS and BNY Midwest Trust Company, dated November 1, 2001, under which TDS's 7.60% Series A Notes are issuable, is hereby incorporated by reference to Exhibit 4 to TDS's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
4.7(b)	The First Supplemental Indenture dated November 28, 2001, between TDS and BNY Midwest Trust Company, establishing TDS's 7.60% Series A Notes, is hereby incorporated by reference to Exhibit 1 to TDS's Report on Form 8-A, filed on November 29, 2001.
4.7(c)	Second Supplemental Indenture dated May 31, 2002, by and between Telephone and Data Systems, Inc. and BNY Midwest Trust Company, making changes to the First Supplemental Indenture, is hereby incorporated by reference to Exhibit 4.8 to TDS's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
4.8	Revolving Credit Agreement, dated January 24, 2002, among TDS and Fleet National Bank, as administrative agent, LaSalle Bank National Association, First Union National Bank, and the Bank of Tokyo—Mitsubishi, Ltd., Chicago Branch as documentation agents, TD Securities (USA) Inc., Fleet Securities, Inc., and TDS Securities (USA) Inc. as arrangers, is hereby incorporated by reference to Exhibit 4.9 to TDS's Annual Report on Form 10-K for the year ended December 31, 2001.
4.9(a)	Revolving Credit Agreement dated August 19, 1997, among United States Cellular Corporation, BankBoston N.A. and Toronto Dominion (Texas), Inc., as agents, is hereby incorporated by reference to Exhibit 4 to United States Cellular Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
4.9(b)	Amendment No. 1 dated September 25, 1997, to the Revolving Credit Agreement dated August 19, 1997, is hereby incorporated by reference to Exhibit 4 to United States Cellular Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
4.10(a)	Revolving Credit Agreement dated as of June 26, 2002 among United States Cellular Corporation, the lenders named therein, Toronto Dominion (Texas), Inc., Wachovia Bank, N.A., Citibank, N.A. and LaSalle Bank N.A., is hereby incorporated by reference to Exhibit 4.1 to United States Cellular Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
4.10(b)	Notice to Increase in Total Commitment under the Revolving Credit Agreement dated as of June 26, 2002, is hereby incorporated by reference to Exhibit 4.2 to United States Cellular Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

4.11	Indenture, dated June 1, 1995, between U.S. Cellular and BNY Midwest Trust Company of New York as successor Trustee to Harris Trust and Savings Bank, relating to the LYONs including Form of Certificate for Liquid Yield Option Note, is hereby incorporated by reference to United State Cellular Corporation's Form 8-K dated June 16, 1995.
4.12	Indenture, dated July 31, 1997 between U.S. Cellular and the First National Bank of Chicago, as Trustee, relating to United State Cellular Corporations 7 1/4% Notes due 2007, is hereby incorporated by reference to Exhibit 4 to United State Cellular Corporation's Form 8-K dated August 26, 1997.
4.13(a)	Indenture dated June 1, 2002 between U.S. Cellular and BNY Midwest Trust Company of New York, is hereby incorporated by reference to Exhibit 4.1 to Form S-3 (File No. 333-98921)
4.13(b)	First Supplemental Indenture of United States Cellular Corporation dated August 7, 2002 relating to its 9% Series A Notes due 2032, is hereby incorporated by reference to Exhibit 4.3 to United States Cellular Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
4.13(c)	Second Supplemental Indenture of U.S. Cellular dated October 31, 2002, relating to its 8.75% Senior Notes due 2032, is hereby incorporated by reference to Exhibit 4.1 to United States Cellular Corporation's Current Report on Form 8-K dated October 31, 2002, filed November 1, 2002.
4.14	Note Purchase Agreement between United States Cellular Corporation and PrimeCo Wireless Communications LLC, is hereby incorporated by reference to Exhibit 4.4 to United States Cellular Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
4.15	Registration Rights Agreement between United States Cellular Corporation and PrimeCo Wireless Communications LLC, is hereby incorporated by reference to Exhibit 4.5 to United States Cellular Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
4.16	Note Purchase Agreement between United States Cellular Corporation and Telephone and Data Systems, Inc., is hereby incorporated by reference to Exhibit 4.6 to United States Cellular Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
4.17	Subordination Agreement dated as of June 26, 2002 among Telephone and Data Systems, Inc., United States Cellular Corporation and Toronto Dominion (Texas), Inc. is hereby incorporated by reference to Exhibit 4.7 to United States Cellular Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
9.1(a)	Voting Trust Agreement, dated as of June 30, 1989, is hereby incorporated by reference to an exhibit to Post-Effective Amendment No. 3 to TDS's Registration Statement on Form S-1, No. 33-12943.
9.1(b)	Amendment dated as of May 9, 1991 to the Voting Trust Agreement dated as of June 30, 1989, is hereby incorporated by reference to Exhibit 9.2 to TDS's Annual Report on Form 10-K for the year ended December 31, 1991.
9.1(c)	Amendment dated as of November 20, 1992, to the Voting Trust Agreement dated as of June 30, 1989, as amended, is hereby incorporated by reference to Exhibit 9.1(c) to TDS's Annual Report on Form 10-K for the year ended December 31, 1992.
9.1(d)	Amendment dated as of May 22, 1998, to the Voting Trust Agreement dated as of June 30, 1989, as amended, is hereby incorporated by reference to Exhibit 99.3 to TDS's Current Report on Form 8-K filed on June 5, 1998.
10.1	Salary Continuation Agreement for LeRoy T. Carlson dated May 20, 1977, as amended May 22, 1981 and May 25, 1984 is hereby incorporated by reference to TDS's Registration Statement on Form S-2, No. 2-92307.

10.2(a)	Supplemental Benefit Agreement for LeRoy T. Carlson dated March 21, 1980, as amended March 20, 1981, is hereby incorporated by reference to an exhibit to TDS's Registration Statement on Form S-7, No. 2-74615.
10.2(b)	Memorandum of Amendment to Supplemental Benefit Agreement dated as of May 28, 1991, is hereby incorporated by reference to Exhibit 10.2(b) to TDS's Annual Report on Form 10-K for the year ended December 31, 1991.
10.3	Telephone and Data Systems, Inc. 1994 Long-Term Incentive Plan is hereby incorporated by reference to Exhibit 99.1 to TDS's Registration Statement on Form S-8 (Registration No. 33-57257).
10.4(a)	Telephone and Data Systems, Inc. 1998 Long-Term Incentive Plan is hereby incorporated by reference to Exhibit D to TDS's Proxy Statement/Prospectus dated March 24, 1998 which was part of TDS's Registration Statement on Form S-4 (Registration No. 333-42535).
10.4(b)	Amendment No. 1 to Telephone and Data Systems, Inc. 1998 Long-Term Incentive Plan, is hereby incorporated by reference to Exhibit 10.6(b) to TDS's Annual Report on Form 10-K for the year ended December 31, 1999.
10.4(c)	Amendment No. 2 to Telephone and Data Systems, Inc. 1998 Long-Term Incentive Plan.
10.5	Amended and Restated Supplemental Executive Retirement Plan is hereby incorporated by reference to Exhibit 10.7 to TDS's Annual Report on Form 10-K for the year ended December 31, 1998.
10.6	Description of terms of offer letter between United States Cellular Corporation and John E. Rooney dated March 28, 2000, is hereby incorporated by reference to Exhibit 10 to United States Cellular Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
10.7	Stock Option and Stock Appreciation Rights Plan, is hereby incorporated by reference to Exhibit B to United States Cellular Corporation's definitive Notice of Annual Meeting and Proxy Statement dated April 15, 1991, as filed with the Commission on April 16, 1991.
10.8	Summary of 2002 Bonus Program for the Executive Vice Presidents of United States Cellular Corporation is hereby incorporated by reference to Exhibit 10.9 to United States Cellular Corporation's Annual Report on Form 10-K for the year ended December 31, 2002.
10.9	United States Cellular Corporation 1998 Long-Term Incentive Plan is hereby incorporated by reference to Exhibit 99.4 to United States Cellular Corporation's Registration Statement on Form S-8 (Registration No. 333-57063).
10.10	Telephone and Data Systems, Inc. 2003 Employee Stock Purchase Plan is hereby incorporated by reference to Exhibit 99.1 of TDS's Registration Statement on Form S-8 (Registration No. 333-103540).
10.11	Telephone and Data Systems, Inc. Compensation Plan for Non-Employee Directors is hereby incorporated by reference to Exhibit 99.1 of TDS's Registration Statement on Form S-8 (Registration No. 333-103541).
10.12	Executive Deferred Compensation Agreement for James Barr III dated January 1, 1998 is hereby incorporated by reference to Exhibit 10.15 to TDS's Annual Report on Form 10-K for the year ended December 31, 1997.
10.13	Form of TDS Telecommunications Corporation Phantom Stock Option Incentive Agreement between TDS Telecommunications Corporation and James Barr III is hereby incorporated by reference to Exhibit 10.16 to TDS's Annual Report on Form 10-K for the year ended December 31, 1997.
10.14	Amended and Restated CDMA Master Supply Agreement between United States Cellular Corporation and Nortel Networks Inc., is hereby incorporated by reference to Exhibit 10.1 to United States Cellular Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

10.15	Guarantee dated as of July 29, 2002, by Telephone and Data Systems, Inc. in favor of Credit Suisse First Boston International relating to monetization of Deutsche Telekom ordinary shares is hereby incorporated by reference to Exhibit 10.1 to TDS's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
10.16	Guarantee dated as of July 31, 2002, by Telephone and Data Systems, Inc. in favor of Credit Suisse First Boston International relating to monetization of Deutsche Telekom ordinary shares is hereby incorporated by reference to Exhibit 10.2 to TDS's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
10.17	Guaranty dated as of August 19, 2002, by Telephone and Data Systems, Inc. in favor of Citibank N.A. relating to monetization of Deutsche Telekom ordinary shares is hereby incorporated by reference to Exhibit 10.3 to TDS's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
10.18	Guarantee dated as of August 22, 2002, by Telephone and Data Systems, Inc. in favor of Credit Suisse First Boston International relating to monetization of Deutsche Telekom ordinary shares is hereby incorporated by reference to Exhibit 10.4 to TDS's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
10.19	Guaranty, dated August 21, 2002, by Telephone and Data Systems, Inc. in favor of The Toronto-Dominion Bank relating to monetization of Deutsche Telekom ordinary shares.
10.20	Guarantee, dated October 21, 2002, by Telephone and Data Systems, Inc. in favor of JPMorgan Chase Bank relating to monetization of Vodafone Group American Depository Receipts.
10.21	Guaranty, dated October 22, 2002, by Telephone and Data Systems, Inc. in favor of Societe Generale relating to monetization of Deutsche Telekom ordinary shares.
10.22	Guarantee, dated November 6, 2002, by Telephone and Data Systems, Inc. in favor of JPMorgan Chase Bank relating to monetization of Deutsche Telekom ordinary shares.
10.23	Guarantee, dated November 12, 2002, by Telephone and Data Systems, Inc. in favor of JPMorgan Chase Bank relating to monetization of Deutsche Telekom ordinary shares.
10.24	Guaranty, dated December 5, 2002, by Telephone and Data Systems, Inc. in favor of West LB AG relating to monetization of Deutsche Telekom ordinary shares.
10.25	Guarantee Agreement, dated as of May 14, 2002, by United States Cellular Corporation in favor of Citibank N.A. relating to monetization of Vodafone Group American Depository Receipts is hereby incorporated by reference to Exhibit 10.1 to United States Cellular Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
10.26	Guarantee Agreement, dated as of May 10, 2002, by United States Cellular Corporation in favor of Credit Suisse First Boston International relating to monetization of Vodafone Group American Depository Receipts is hereby incorporated by reference to Exhibit 10.2 to United States Cellular Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
10.27	Guarantee Agreement, dated as of May 15, 2002, by United States Cellular Corporation in favor of Toronto Dominion (New York) Inc. relating to monetization of Vodafone Group American Depository Receipts is hereby incorporated by reference to Exhibit 10.4 to United States Cellular Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
10.28	Guarantee Agreement, dated as of May 15, 2002, by United States Cellular Corporation in favor of Wachovia Bank, National Association relating to monetization of Vodafone Group American Depository Receipts is hereby incorporated by reference to Exhibit 10.3 to United States Cellular Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
11	Statement regarding computation of earnings per share (included in Footnote 3 to financial statements in Exhibit 13).
12	Statements regarding computation of ratios.

13	Incorporated portions of 2002 Annual Report to Security Holders.
16.1	Letter from Arthur Andersen LLP to the Securities and Exchange Commission, dated May 23, 2002, is incorporated herein by reference to Exhibit 16.1 to the Current Form on Form 8-K, dated May 23, 2002.
18	Letter from PricewaterhouseCoopers LLP regarding change in accounting principle.
21	List of Subsidiaries of TDS.
23.1	Consent of independent public accountants.
23.2	Notice Regarding Consent of Arthur Andersen LLP.
99.1	Chief Executive Officer certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.
99.2	Chief Financial Officer certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

Telephone and Data Systems, Inc.

30 North LaSalle Street
Chicago, Illinois 60602
312/630-1900

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CROSS REFERENCE SHEET AND TABLE OF CONTENTS
PART I

Item 1. Business

Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

PART III

Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Controls and Procedures

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
COPY OF PREVIOUSLY ISSUED REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT Telephone and Data Systems, Inc. (Parent) Balance Sheets
Assets
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT Telephone and Data Systems, Inc. (Parent) Balance Sheets
Liabilities and Stockholders' Equity
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT Telephone and Data Systems, Inc. (Parent) Statements of Operations
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT Telephone and Data Systems, Inc. (Parent) Statements of Cash Flows
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
SIGNATURES
Certification of Chief Executive Officer
Certification of Chief Financial Officer
INDEX TO EXHIBITS

EX-10.4(C)

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Exhibit 10.4(c)

SECOND AMENDMENT
TO THE
TELEPHONE AND DATA SYSTEMS, INC.
1998 LONG-TERM INCENTIVE PLAN

WHEREAS, Telephone and Data Systems, Inc. (the "Corporation") has adopted the Telephone and Data Systems, Inc. 1998 Long-Term Incentive Plan (the "Plan") for the benefit of certain key executives and management personnel;

WHEREAS, pursuant to Section 8.2 of the Plan, the Board may amend the Plan as it deems advisable; and

WHEREAS, the Board desires to amend the Plan in certain respects.

NOW, THEREFORE, BE IT RESOLVED, that pursuant to the power of amendment contained in Section 8.2 of the Plan, the Plan hereby is amended in the following respects, effective May 23, 2002:

        1.    The first sentence of Section 4.3(b) of the Plan hereby is amended (i) by the insertion of the parenthetical "(as defined in the Telephone and Data Systems, Inc. Pension Plan)" after the first occurrence of the word "retirement" as it occurs therein, (ii) by the replacement of the number "65" as it appears therein with the number "62," and (iii) by the replacement of the phrase "90 days" as it appears therein with the phrase "12 months."

        2.    The last sentence of Section 4.3(b) of the Plan hereby is amended by the replacement of the phrase "180 days after the effective date of such award recipient's retirement or resignation" with the phrase "on the later of (i) the last day of such period and (ii) 90 days after the date of the award recipient's death."

        3.    The first sentence of Section 4.3(e) of the Plan hereby is amended by the insertion of the parenthetical "(as defined in the Telephone and Data Systems, Inc. Pension Plan)" after the word "retirement" as it occurs therein, and by the replacement of the number "65" as it appears therein with the number "62."

IN WITNESS WHEREOF, the undersigned has executed this amendment as of this    day of May, 2002.

TELEPHONE AND DATA SYSTEMS, INC.
By:	/s/  LEROY T. CARLSON, JR. LeRoy T. Carlson, Jr. President

SIGNATURE PAGE TO SECOND AMENDMENT TO TELEPHONE AND DATA
SYSTEMS, INC. 1998 LONG-TERM INCENTIVE PLAN

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Exhibit 10.4(c)

EX-10.19

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Exhibit 10.19

GUARANTY

        This Guaranty, dated as of August 21, 2002 is made by Telephone and Data Systems, Inc. (the "Guarantor"), in favor of The Toronto-Dominion Bank (the "Counterparty").

        1.    Guaranty.    (a) In order to induce the Counterparty to enter into a Confirmation, dated August 21, 2002 (Reference number: 892626-883688) with respect to a prepaid variable equity forward transaction in respect of 11,000,000 shares of Deutsche Telekom AG (the "Agreement", which term shall include the Agreement as the same may be amended, modified or altered from time to time), with the Guarantor's wholly-owned subsidiary TDSI Corporation, a Delaware corporation ("Primary Obligor"), which Agreement supplements, forms a part of and is subject to an ISDA Master Agreement, dated as of August 21, 2002, between Counterparty and Primary Obligor, the Guarantor absolutely and unconditionally guarantees to the Counterparty, its successors and permitted assigns, the prompt payment of the Guaranteed Obligations, as defined below. Except as expressly provided herein, such guarantee shall be without regard to any counterclaim, set-off, deduction or defense of any kind which Primary Obligor or the Guarantor may have or assert against Counterparty, and without abatement, suspension, deferment or diminution on account of any event or condition whatsoever. "Guaranteed Obligations" shall mean all amounts payable by the Primary Obligor under the Agreement, whether due or to become due, secured or unsecured, joint or several together with any and all costs and expenses incurred by Counterparty in enforcing Counterparty's rights under this Guaranty, after applying any right of Primary Obligor to set-off, net or withhold payment as provided in the Agreement.

        (b)  Guarantor agrees that the Counterparty may resort to Guarantor for payment of any of the Guaranteed Obligations, whether or not Counterparty shall have realized against or applied, or attempted (except as provided below) to realize against or apply, any property provided by an entity as collateral security or other credit support for the Guaranteed Obligations (such property and credit support collectively, "Security") or proceeded or attempted to proceed against Primary Obligor or any other entity principally or secondarily obligated with respect to the Guaranteed Obligations. Notwithstanding the foregoing, the Counterparty agrees that it will not make a demand or claim under this Guaranty in respect of any Secured Portion (defined below) of the Guaranteed Obligations unless the Counterparty has first used commercially reasonable efforts, for at least three Business Days, to realize against or apply property held as Collateral (as defined in the Agreement) under the Agreement in satisfaction of the Guaranteed Obligations. "Secured Portion" means, at any time, a portion of the Guaranteed Obligations consisting of the obligation to deliver cash or property with a value, as determined by the Calculation Agent (as defined in the Agreement), equal to the value, as determined by the Calculation Agent in a consistent manner, of the Collateral then pledged to the Counterparty under the Agreement; provided that if no Collateral is then pledged to Counterparty or Counterparty ceases to have a valid, first priority, perfected security interest in the Collateral other than as a result of actions of the Counterparty, there shall be no Secured Portion of the Guaranteed Obligations.

        2.    Nature of Guaranty.    This Guaranty is a guarantee of payment and not of collection. Any amounts or deliveries that would be owed or due by Primary Obligor to the Counterparty under the Agreement but are unenforceable or not allowable against Primary Obligor for any reason, including because Primary Obligor is the subject of a bankruptcy, liquidation, reorganization or similar case or proceeding, shall nonetheless be deemed owed or due for the purposes of this Guaranty. The Counterparty shall not be obligated, as a condition precedent to performance by the Guarantor hereunder, to file any claim relating to the Guaranteed Obligations in the event that Primary Obligor becomes subject to a bankruptcy, liquidation, reorganization or similar case or proceeding, and the failure of the Counterparty to file a claim shall not affect the Guarantor's obligations hereunder. This

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Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment to the Counterparty by Primary Obligor on account of any Guaranteed Obligation is returned to Primary Obligor or is rescinded upon the insolvency, bankruptcy, liquidation or reorganization of Primary Obligor or otherwise, all as though such payment has not been made.

        3.    Guaranty Absolute.    The liability of Guarantor under this Guaranty shall be irrevocable, absolute and unconditional irrespective of, and Guarantor hereby irrevocably waives, any defenses it may or hereafter have (other than those defenses expressly provided for in this Guaranty) in any way relating to any or all of the following: (a) any lack of validity or enforceability of the Agreement or this Guaranty; (b) the entry into additional transactions, any indulgences, concession, waiver or consent given to the Primary Obligor or any other changes in the amount of time, manner or place of payment of, or in any other term of any or all of the Guaranteed Obligations or any amendment, modification or alteration of the Agreement; (c) any taking, exchange, release, non-perfection, realization or application of or on any security (other than the requirement that the Counterparty use commercially reasonable efforts to realize against or apply the Collateral to the Guaranteed Obligations as described in Paragraph 1 of this Guaranty); (d) any change, restructuring or termination in or of the structure or existence of the Primary Obligor; or (e) any other circumstances (including without limitation any statute of limitations) that might otherwise constitute a defense available to, or a discharge of, Guarantor or the Primary Obligor.

        4.    Waivers and Acknowledgments.    The Guarantor waives demands, promptness, diligence and all notices that may be required by law or to perfect the Counterparty's rights hereunder, except notice to the Guarantor of a default by Primary Obligor under the Agreement. No failure, delay or single or partial exercise by the Counterparty of its rights or remedies hereunder shall operate as a waiver of such rights or remedies. All rights and remedies hereunder or allowed by law shall be cumulative and exercisable from time to time.

        5.    Representations and Warranties.    The Guarantor hereby represents and warrants that:

        (a)  the Guarantor is duly organized, validly existing and in good standing under the laws of Delaware;

        (b)  the Guarantor has the requisite corporate power and authority to issue this Guaranty and to perform its obligations hereunder, and has duly authorized, executed and delivered this Guaranty;

        (c)  the Guarantor is not required to obtain any authorization, consent, approval, exemption or license from, or to file any registration with, any governmental authority as a condition to the validity of, or to the execution, delivery or performance of, this Guaranty;

        (d)  as of the date of this Guaranty, there is no action, suit or proceeding pending or threatened against the Guarantor before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could affect, in a materially adverse manner, the ability of the Guarantor to perform any of its obligations under, or which in any manner questions the validity of, this Guaranty;

        (e)  the execution, delivery and performance of this Guaranty by the Guarantor does not contravene or constitute a default under any statute, regulation or rule of any governmental authority or under any provision of the Guarantor's certificate of incorporation or by-laws or any contractual restriction binding on the Guarantor;

        (f)    this Guaranty constitutes the legal, valid and binding obligation of the Guarantor enforceable in accordance with its terms, subject to the effect of any bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally, and to general

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principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); and

        (g)  the obligations of the Guarantor under this Guaranty shall rank pari passu with other unsecured obligations of the Guarantor.

        6.    Subrogation.    Upon payment by Guarantor of any sums to Counterparty under this Guaranty, all rights of Guarantor against Primary Obligor arising as a result thereof by way of right of subrogation or otherwise shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full of the Guaranteed Obligations.

        7.    Termination.    The Guarantor hereby waives any right to terminate or revoke this Guaranty and acknowledges that its obligations under this Guaranty are continuing in nature.

        8.    Notices.    Any notice or communication required or permitted to be made hereunder shall be made in the same manner and with the same effect, unless otherwise specifically provided herein, as set forth in the Agreement, except that for purposes of notices under this Guaranty, Counterparty shall be deemed to have met its burden of proving receipt by Guarantor of any facsimile transmission by the production of a transmission report generated by Counterparty's facsimile machine. The address and other contact information for Primary Obligor as set forth in the Agreement shall be the address and contact information for the Guarantor.

        9.    GOVERNING LAW; JURISDICTION.    This Guaranty shall be governed by and construed in accordance with the laws of the State of New York (without regard to the principles of conflicts of laws thereof). The Guarantor hereby irrevocably consents to, for the purposes of any proceeding arising out of this Guaranty, the exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the borough of Manhattan in New York City.

        10.    Waiver of Immunity.    To the extent that the Guarantor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to the Guarantor or the Guarantor's property, the Guarantor hereby irrevocably waives such immunity in respect of the Guarantor's obligations under this Guaranty.

        11.    Waiver of Jury Trial.    The Guarantor hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Guaranty or the negotiation, administration or enforcement hereof.

        12.    Miscellaneous.    Each reference herein to the Guarantor, Counterparty or Primary Obligor shall be deemed to include their respective successors and assigns. The provisions hereof shall inure in favor of each such successor or assign. This Guaranty (i) shall supersede any prior or contemporaneous representations, statements or agreements, oral or written, made by or between the parties with regard to the subject matter hereof, (ii) may be amended only by a written instrument executed by the Guarantor and Counterparty and (iii) may not be assigned by either party without the prior written consent of the other party.

        In Witness Whereof, the undersigned has executed this Guaranty as of the date first above written.

TELEPHONE AND DATA SYSTEMS, INC.
By:	/s/  LEROY T. CARLSON, JR. Name: LeRoy T. Carlson, Jr. Title: President and Chief Executive Officer
	and
By:	/s/  SANDRA L. HELTON Name: Sandra L. Helton Title: Executive Vice President and Chief Financial Officer

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Exhibit 10.19

EX-10.20

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Exhibit 10.20

GUARANTEE

        GUARANTEE dated as of this 21^st day of October, 2002, by TELEPHONE AND DATA SYSTEMS, INC., a Delaware corporation (with its successors, "Guarantor"), for the benefit of JPMORGAN CHASE BANK (with its successors and assigns, "Beneficiary").

        WHEREAS, TDSI Telecommunications Corporation, a Delaware corporation (with its successors, "Obligor"), is a 100%-owned subsidiary of Guarantor; and

        WHEREAS, Obligor has entered into the Stock Purchase Agreement dated as of the date hereof, between Obligor and Beneficiary (the "Stock Purchase Agreement") pursuant to which Obligor and Beneficiary have agreed to sell and purchase certain American Depositary Shares (evidenced by American Depositary Receipts), each representing 10 ordinary shares (the "Ordinary Shares"), nominal value $0.10 per share, of Vodafone Group Public Limited Company, an English public limited company (the "Issuer"), or security entitlements in respect thereof (the "ADSs"), at the time and on the terms set forth therein; and

        WHEREAS, pursuant to the Pledge Agreement dated as of the date hereof among Obligor, Beneficiary and JPMorgan Chase Bank, as Collateral Agent (the "Pledge Agreement"), Obligor has granted to Beneficiary, as of the date hereof, a security interest in certain ADSs to secure the obligations of Obligor under the Stock Purchase Agreement;

        NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor agrees as follows:

ARTICLE 1
Guarantee

        Section 1.01.    Guarantee.    (a) Guarantor hereby absolutely, irrevocably and unconditionally guarantees the full and punctual payment when due of any and all obligations of Obligor (the "Obligations") under the Stock Purchase Agreement and the Pledge Agreement, each as may be further modified, amended or supplemented from time to time (collectively, the "Agreements"). Upon failure by the Obligor to pay punctually any Obligation, the Guarantor shall forthwith on demand pay the amount not so paid at the place and in the manner specified in the instrument evidencing such Obligation. Guarantor's obligations under this Guarantee shall be subject to Obligor's defenses and rights to set-off, counterclaim or withhold payment as provided in the Agreements. Guarantor agrees to pay on demand any and all fees, funding and other costs and expenses (including reasonable attorney's fees and expenses) incurred by Beneficiary in connection with enforcing any rights or collecting any amounts or deliveries under the Agreements. Any amounts or deliveries that would be owed or due by Obligor to Beneficiary under the Agreements but are unenforceable or not allowable against Obligor because Obligor is the subject of a bankruptcy, liquidation, reorganization or similar case or proceeding, shall nonetheless be deemed owed or due for the purposes of this Article 1. Beneficiary shall not be obligated to file any claim relating to the Obligations in the event Obligor becomes subject to a bankruptcy, liquidation, reorganization or similar case or proceeding, and the failure by Beneficiary to so file shall not affect Guarantor's obligations hereunder.

        (b)  This Article 1 is a guarantee of payment when due and not of collection. Guarantor agrees that Beneficiary may resort to Guarantor for payment of any of the Obligations, whether or not Beneficiary shall have realized against or applied, or attempted (except as provided below) to realize against or apply, any property provided by an entity as collateral security or other credit support for the Obligations (such property and credit support collectively, "Security") or proceeded or attempted to proceed against Obligor or any other entity principally or secondarily obligated with respect to the Obligations.

        (c)  Guarantor's obligations under this Article 1 shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by Beneficiary upon or as a result of the insolvency, bankruptcy, liquidation or reorganization of Obligor or otherwise, all as though such payment has not been made.

        (d)  Notwithstanding the foregoing, Beneficiary agrees that it will not make a demand or claim under this Guarantee in respect of any Secured Portion of the Obligations unless Beneficiary has first used commercially reasonable efforts, for at least five Business Days, to realize against or apply property held as Collateral (as defined in the Pledge Agreement) under the Pledge Agreement in satisfaction of the Obligations. "Secured Portion" means, at any time, a portion of the Obligations consisting of the obligation to deliver cash or property with a value, as determined by the Calculation Agent (as defined in the Stock Purchase Agreement), equal to the value, as determined by the Calculation Agent in a consistent manner, of the Collateral then pledged to the Beneficiary under the Pledge Agreement.

        Section 1.02.    Guarantee Absolute.    Guarantor guarantees that the Obligations will be paid strictly in accordance with the provisions of the Agreements (and, to the extent applicable, this Article 1), regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such provisions or the rights of Beneficiary with respect thereto. The liability of Guarantor under this Article 1 shall be irrevocable, absolute and unconditional irrespective of, and Guarantor hereby irrevocably waives, any defenses it may now or hereafter have (including any defense based on the failure to provide notice to or obtain the consent of Guarantor) in any way relating to, any or all of the following:

        (a)  any lack of validity or enforceability of the Agreements;

        (b)  the entry into additional transactions, any indulgence, concession, waiver or consent given to Obligor, or any other changes in the amount of, time, manner or place of payment of, or in any other term of any or all of the Obligations;

        (c)  any taking, exchange, release, non-perfection, realization or application of or on any Security;

        (d)  any change, restructuring or termination in or of the structure or existence of Obligor; or

        (e)  any other circumstances (including, without limitation, any statute of limitations) that might otherwise constitute a defense available to, or a discharge of, Guarantor or Obligor.

        Section 1.03.    Waivers and Acknowledgments.    (a) Guarantor hereby waives promptness, diligence, demand for performance, notice of acceptance, presentment, protest, non-performance, default, acceleration, early termination, protest or dishonor, any other notice with respect to any of the Obligations and this Article 1, and, except as provided in Section 1.01(d), any requirement that Beneficiary protect, secure, perfect or insure any Security or exhaust any right or take any action against Guarantor or any other entity or any Security.

        (b)  Guarantor hereby waives any right to revoke this guarantee, and acknowledges that its obligations under this Article 1 are continuing in nature and apply to all Obligations, whether existing now or in the future.

        (c)  Guarantor hereby waives (i) any defense arising by reason of any claim or defense based upon an election of remedies by Beneficiary that in any manner impairs, reduces, releases or otherwise adversely affects Guarantor's subrogation, reimbursement, exoneration, contribution or indemnification rights or other rights to proceed against Obligor, any other guarantor, any other entity or any Security, and (ii) except as provided in Section 1.01(a), any defense based on any right of set-off or counterclaim against or in respect of Guarantor's obligations under this Article 1.

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        Section 1.04.    Subrogation.    Guarantor will not exercise any rights that it may now have or hereafter acquire against Obligor or any other guarantor that arise from the existence, payment, performance or enforcement of Guarantor's obligations under this Article 1, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of Beneficiary against Obligor, any other guarantor or any security, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from Obligor or any other guarantor, directly or indirectly, in cash or other property, by set-off or in any other manner, payment or security on account of such claim, remedy or right, unless and until all of the Obligations shall have been finally and irrevocably satisfied in full. If any amount shall be paid to Guarantor in violation of the preceding sentence at any time prior to the final and irrevocable payment or performance in full of all of the Obligations, such amount shall be held in trust for the benefit of Beneficiary and shall forthwith be paid to Beneficiary to be (at the election of Beneficiary) credited and applied to the Obligations, whether matured or unmatured, in accordance with the terms of the Agreements, and/or to be held as collateral security for any Obligations thereafter arising.

ARTICLE 2
Representations and Warranties

        Section 2.01.    Representatives and Warranties.    Guarantor represents and warrants to Beneficiary that:

        (a)  The representations and warranties made by Obligor under the Agreements are true and correct.

        (b)  Guarantor is a corporation duly organized and existing in good standing under the laws of its jurisdiction of incorporation and has the requisite corporate power to own its properties and to carry on its business as now being conducted.

        (c)  The execution and delivery of this Guarantee and the performance by Guarantor of its obligations hereunder do not violate or conflict with any provision of the certificate of incorporation or bylaws of Guarantor, any law applicable to Guarantor, any order or judgment of any court or other agency of government applicable to Guarantor or any of Guarantor's assets or any contractual restriction binding on or affecting Guarantor or any of Guarantor's assets.

        (d)  All government and other consents that are required to have been obtained by Guarantor with respect to this Guarantee have been obtained and are in full force and effect and all conditions of any such consents have been complied with. Guarantor has complied and will comply with all applicable disclosure or reporting requirements in respect of the transactions contemplated by the Agreements, including without limitation any requirements imposed by Section 13 or Section 16 of the Securities Exchange Act of 1934, as amended, or the rules and regulations thereunder.

        (e)  Guarantor has the requisite corporate power and authority to enter into and perform this Guarantee. The execution, delivery and performance by Guarantor of this Guarantee have been duly authorized by all necessary corporate action. This Guarantee has been duly executed and delivered by Guarantor. Guarantor's obligations under this Guarantee constitute Guarantor's legal, valid and binding obligations enforceable in accordance with its terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)).

        (f)    No Acceleration Event (as such term is defined in the Stock Purchase Agreement) or event that, with the giving of notice or the lapse of time or both, would constitute an Acceleration Event has

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occurred and is continuing and no such event would occur as a result of Guarantor' s entering into or performing Guarantor's obligations under this Guarantee.

        (g)  There is not pending or, to Guarantor's knowledge, threatened against Guarantor or any of its affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator (including without limitation any bankruptcy, insolvency or similar proceeding) that is likely to affect the legality, validity or enforceability against Guarantor of this Guarantee or Guarantor's legal right to perform its obligations under this Guarantee.

        (h)  Guarantor is not, nor has Guarantor been, at any time in the preceding three months, an "affiliate", within the meaning of Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), of the Issuer. Guarantor is not, on the date of this Agreement, in possession of any material non-public information regarding the Issuer.

        (i)    Guarantor is not and, after giving effect to the transactions contemplated hereby, will not be an "investment company" as such term is defined in the Investment Company Act of 1940, as amended.

        (j)    Guarantor is acting for its own account, and has made its own independent decision to enter into this Guarantee and as to whether this Guarantee is appropriate or proper for Guarantor based upon its own judgment and upon advice of such advisors as Guarantor deems necessary. Guarantor acknowledges and agrees that Guarantor is not relying, and has not relied, upon any communication (written or oral) of Beneficiary or any affiliate, employee or agent of Beneficiary with respect to the legal, accounting, tax or other implications of this Guarantee and that each of Obligor and Guarantor has conducted its own analyses of the legal, accounting, tax and other implications hereof and thereof; it being understood that information and explanations related to the terms and conditions of this Guarantee shall not be considered investment advice or a recommendation to enter into this Guarantee. Guarantor is entering into this Guarantee with a full understanding of all of the terms and risks hereof (economic and otherwise) and is capable of evaluating and understanding (on Guarantor's own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks. Guarantor is also capable of assuming (financially and otherwise), and assumes, those risks. Guarantor acknowledges that neither Beneficiary nor any affiliate, employee or agent of Beneficiary is acting as a fiduciary for or an advisor to Guarantor in respect of this Guarantee.

ARTICLE 3
Covenants

        Section 3.01.    Taxes.    Guarantor shall pay any and all documentary, stamp, transfer or similar taxes and charges that may be payable in respect of the entry into this Guarantee. Guarantor further agrees to make all payments in respect of this Guarantee free and clear of, and without withholding or deduction for or on account of, any present or future taxes, duties, fines, penalties, assessments or other governmental charges of whatsoever nature (or interest on any taxes, duties, fines, penalties, assessments or other governmental charges of whatsoever nature) ("Tax") imposed, levied, collected, withheld or assessed by, within or on behalf of the United States or any political subdivision or governmental authority thereof or therein having power to tax or any jurisdiction from or through which payment pursuant to this Guarantee is made by Guarantor, or any political subdivision or governmental authority thereof or therein having power to tax, other than a Tax that would not be imposed in respect of a payment under this Guarantee but for a present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and Beneficiary or a person related to Beneficiary (including, without limitation, a connection arising from Beneficiary or such related person being or having been a citizen or resident of such jurisdiction, or being or having been organized, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection

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arising solely from Beneficiary or such related person having executed, delivered, performed its obligation or received a payment under, or enforced, this Guarantee). In the event such withholding or deduction is imposed, Guarantor agrees to indemnify Beneficiary for the full amount of such withholding or deduction, as well as any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, provided that Beneficiary has provided to Guarantor a duly executed and completed Internal Revenue Service Form W-9 (i) upon execution of this Guarantee, with such form to be updated at the beginning of each succeeding three calendar year period beginning after the execution of this Guarantee, or as otherwise required under then applicable Treasury Regulations; (ii) promptly upon reasonable demand by Guarantor; and (iii) promptly upon learning that any form previously provided has become obsolete or incorrect.

        Section 3.02.    Actions That Could Cause Guarantor to Become an Affiliate.    Guarantor shall notify Beneficiary immediately of its intention to (i) purchase ADSs, Ordinary Shares or any other equity security of the Issuer in an amount that would cause Guarantor to become the beneficial owner, directly or indirectly, of more than three percent of the outstanding shares of any equity security of the Issuer, (ii) permit any of its officers or directors to accept a position as an officer or director of the Issuer, (iii) take any action that would cause Guarantor to possess, directly or indirectly, the power to direct or cause the direction of the management and policies of the Issuer, whether by ownership of voting securities, by contract or otherwise or (iv) take any other action that could reasonably be expected to result in Guarantor's becoming an "affiliate", within the meaning of Rule 144 under the Securities Act, of the Issuer. Guarantor shall not take any such action unless a period of fifteen Business Days shall have elapsed after receipt of such notice by Beneficiary and Beneficiary shall not have objected in writing to such action during such period.

ARTICLE 4
Miscellaneous

        Section 4.01.    Notices.    All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard forms of telecommunication. Notices to Beneficiary shall be directed to it care of JPMorgan Chase Bank, 277 Park Avenue, 11^th Floor, New York, New York, 10172, Attention: EDG Corporate Marketing (Ross Gray), Telephone No. 212-622-5730, Telecopy No. 212-622-0105 with a copy to JPMorgan Chase Bank, 500 Stanton Christiana Road, Newark, DE 19713-2107, Attention: Collateral Ops, 3 Ops 2, Telephone No. 302-634-3158, Telecopy No. 302-634-3208 and notices to Guarantor shall be directed to Guarantor at Telephone and Data Systems, Inc., 30 North La Salle Street, Suite 4000, Chicago, IL 60602-2507, Attention: Treasurer, Telephone No.: (312) 630-1900, Telecopy No.: (312) 634-0442, with a copy to Sidley Austin Brown & Wood, Bank One Plaza, 10 S. Dearborn, Chicago, IL 60603, Attention: William DeCarlo, Telephone No.: (312) 853-7000, Telecopy No.: (312) 853-7036.

        Section 4.02.    Governing Law; Submission to Jurisdiction: Severability; Waiver of Jury Trial; Service of Process.    (a) This Guarantee shall be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine and each party hereto submits to the jurisdiction of the Courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City.

        (b)  To the extent permitted by law, the unenforceability or invalidity of any provision or provisions of this Guarantee shall not render any other provision or provisions herein contained unenforceable or invalid.

        (c)  Guarantor and Beneficiary hereby irrevocably and unconditionally waive any and all right to trial by jury in any legal proceeding arising out of or related to this Guarantee.

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        (d)  The parties irrevocably consent to service of process given in the manner provided for notices in Section 4.01. Nothing in this Guarantee will affect the right of either party to serve process in any other manner permitted by law.

        Section 4.03.    Matters Related to Agent.    The rights and obligations of the Agent shall be as set forth in Section 9.09 of the Stock Purchase Agreement.

        Section 4.04.    Amendments, Waivers.    Any provision of this Guarantee may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of any amendment, by Beneficiary and Guarantor and in the case of any waiver, by Beneficiary. No failure or delay by Beneficiary in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

        Section 4.05.    No Third Party Rights, Successor and Assigns.    This Agreement is not intended and shall not be construed to create any rights in any person other than Guarantor, Beneficiary, any affiliate of Beneficiary designated by Beneficiary pursuant to the terms of the Agreements and their respective successors and assigns, and no other person shall assert any rights as third party beneficiary hereunder. Whenever any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party. All the covenants and agreements herein contained by or on behalf of Guarantor and Beneficiary shall bind, and inure to the benefit of, their respective successors and assigns whether so expressed or not, and shall be enforceable by and inure to the benefit of Beneficiary and its successors and assigns. The rights and duties of Guarantor under this Guarantee may not be assigned or transferred by any party hereto without the prior written consent of Beneficiary. Beneficiary may assign or transfer any of its rights or duties hereunder without the prior written consent of Guarantor.

        Section 4.06.    Counterparts.    This Guarantee may be executed in any number of counterparts, and all such counterparts taken together shall be deemed to constitute one and the same agreement.

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        IN WITNESS WHEREOF, the parties have signed this Guarantee as of the date and year first above written.

GUARANTOR:
TELEPHONE AND DATA SYSTEMS, INC.
By:	/s/  LEROY T. CARLSON, JR. Name: LeRoy T. Carlson, Jr. Title: President and CEO
By:	/s/  SANDRA L. HELTON Name: Sandra L. Helton Title: Executive Vice President and CFO

BENEFICIARY:
JPMORGAN CHASE BANK, LONDON BRANCH     by J.P. MORGAN SECURITIES INC., as Agent
By:	/s/  STEPHEN L. ROTI Name: Stephen L. Roti Title: VP

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Exhibit 10.20

EX-10.21

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Exhibit 10.21

GUARANTY

        This Guaranty, dated as of October 22, 2002 is made by Telephone and Data Systems, Inc. (the "Guarantor"), in favor of Societe Generale (the "Counterparty").

        1.    Guaranty.    In order to induce the Counterparty to enter into the variable prepaid forward transactions, the terms and conditions of which are set forth in the confirmations (the "Confirmations"; the transactions thereby confirmed, the "Transactions") dated as of October 22, 2002, October 29, 2002, November 19, 2002 and December 2, 2002 between Counterparty and the Guarantor's wholly-owned subsidiary, TDSI Corporation ("Primary Obligor"), the Guarantor absolutely and unconditionally guarantees to the Counterparty, its successors and permitted assigns, the prompt payment when due of the Guaranteed Obligations, as defined below. Except as expressly provided herein, such guarantee shall be without regard to any counterclaim, set-off, deduction or defense of any kind which Primary Obligor or the Guarantor may have or assert against Counterparty, and without abatement, suspension, deferment or diminution on account of any event or condition whatsoever; provided however, that Guarantor's obligations under this Guaranty shall be subject to Primary Obligor's rights to set-off as provided in the Agreement, as defined below. "Guaranteed Obligations" shall mean the sum of (i) any and all floating amount payment obligations of Primary Obligor under the Confirmations and (ii) the difference between (a) all other amounts payable by Primary Obligor under the Agreement with respect to the Transactions, whether due or to become due, secured or unsecured, joint or several (together with the floating rate payment obligations described in (i) above, the "Primary Obligations") together with any and all costs and expenses (including reasonable legal fees and expenses) incurred by Counterparty in enforcing Counterparty's rights under this Guaranty less (b) the value of the Collateral; provided however that in the event that the Counterparty uses its reasonable best efforts to realize the value of the Collateral by setoff, sale, acceptance or any other means available to Counterparty under the Agreement and is unable to realize the full value of the Collateral within 30 days after the date on which Counterparty first becomes able to exercise its rights under Paragraph 8(a) of the Credit Support Annex, as defined below, "Guaranteed Obligations" shall mean the difference between (a) the Primary Obligations together with any and all expenses (including reasonable legal fees and expenses) incurred by Counterparty in enforcing Counterparty's rights under this Guaranty less (b) the value of the Collateral the Counterparty is able to realize within such 30 days, if any. The Primary Obligations shall include interest on overdue payments owed pursuant to the Agreement, as provided in Section 2(e) and Section 6(d)(ii) of the Master Agreement at the rates provided for therein. The term "Master Agreement" means the ISDA Master Agreement dated the date hereof between Counterparty and Primary Obligor; the term "Credit Support Annex" means the Credit Support Annex supplementing and forming part of the Master Agreement; and the term "Agreement" means the Master Agreement, the Credit Support Annex and the Confirmations, taken together as composing one and the same contract.

        2.    Nature of Guaranty.    This Guaranty is a guarantee of payment and not of collection. Any amounts or deliveries that would be owed or due by Primary Obligor to the Counterparty under the Agreement but are unenforceable or not allowable against Primary Obligor because Primary Obligor is the subject of a bankruptcy, liquidation, reorganization or similar case or proceeding, shall nonetheless be deemed owed or due for the purposes of this Guaranty. Subject to the requirement in paragraph 1 of this Guaranty that Counterparty use its reasonable best efforts to collect against the Collateral, the Counterparty shall not be obligated, as a condition precedent to performance by the Guarantor hereunder, to file any claim relating to the Primary Obligations in the event that Primary Obligor becomes subject to a bankruptcy, liquidation, reorganization or similar case or proceeding, and the failure of the Counterparty to file a claim shall not affect the Guarantor's obligations hereunder. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment to the Counterparty by Primary Obligor on account of any Obligation is returned to Primary Obligor or is rescinded upon the insolvency, bankruptcy, liquidation or reorganization of Primary Obligor or otherwise, all as though such payment has not been made.

        3.    Guaranty Absolute.    The liability of Guarantor under this Guaranty shall be irrevocable, absolute and unconditional irrespective of, and Guarantor hereby irrevocably waives, any defenses it may or hereafter have (other than those defenses expressly provided for in this Guaranty) in any way relating to any or all of the following: (a) any lack of validity or enforceability of the Agreement or this Guaranty; (b) the entry into additional transactions, any indulgences, concession, waiver or consent given to the Primary Obligor or any other changes in the amount, time, manner or place of payment of, or in any other term of any or all of, the Primary Obligations; (c) any taking, exchange, release, non-perfection, realization or application of or on any security (other than the requirement that the Counterparty use its reasonable best efforts to realize upon and apply the Collateral to the Primary Obligations as described in Paragraph 1 of this Guaranty); (d) any change, restructuring or termination in or of the structure or existence of the Primary Obligor; or (e) any other circumstances (including without limitation any statute of limitations) that might otherwise constitute a defense available to, or a discharge of, Guarantor or the Primary Obligor.

        4.    Waivers and Acknowledgments.    The Guarantor waives demands, promptness, diligence and all notices that may be required by law or to perfect the Counterparty's rights hereunder except notice to the Guarantor of a default by Primary Obligor under the Agreement. No failure, delay or single or partial exercise by the Counterparty of its rights or remedies hereunder shall operate as a waiver of such rights or remedies. All rights and remedies hereunder or allowed by law shall be cumulative and exercisable from time to time.

        5.    Representations and Warranties.    The Guarantor hereby represents and warrants that:

        (a)  the Guarantor is duly organized, validly existing and in good standing under the laws of Delaware;

        (b)  the Guarantor has the requisite corporate power and authority to issue this Guaranty and to perform its obligations hereunder, and has duly authorized, executed and delivered this Guaranty;

        (c)  the Guarantor is not required to obtain any authorization, consent, approval, exemption or license from, or to file any registration with, any government authority as a condition to the validity of, or to the execution, delivery or performance of, this Guaranty;

        (d)  as of the date of this Guaranty, there is no action, suit or proceeding pending or threatened against the Guarantor before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could affect, in a materially adverse manner, the ability of the Guarantor to perform any of its obligations under, or which in any manner questions the validity of, this Guaranty;

        (e)  the execution, delivery and performance of this Guaranty by the Guarantor does not contravene or constitute a default under any statute, regulation or rule of any governmental authority or under any provision of the Guarantor's certificate of incorporation or by-laws or any contractual restriction binding on the Guarantor;

        (f)    this Guaranty constitutes the legal, valid and binding obligation of the Guarantor enforceable in accordance with its terms, subject to the effect of any bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally, and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); and

        (g)  the obligations of the Guarantor under this Guaranty shall rank pari passu with other unsecured obligations of the Guarantor.

        6.    Subrogation.    Upon payment by Guarantor of any sums to Counterparty under this Guaranty, all rights of Guarantor against Primary Obligor arising as a result thereof by way of right of

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subrogation or otherwise shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full of the Primary Obligations.

        7.    Termination.    The Guarantor hereby waives any right to terminate or revoke this Guaranty and acknowledges that its obligations under this Guaranty are continuing in nature.

        8.    Notices.    Any notice or communication required or permitted to be made hereunder shall be made in the same manner and with the same effect, unless otherwise specifically provided herein, as set forth in the Agreement.

        9.    GOVERNING LAW; JURISDICTION.    This Guaranty shall be governed by and construed in accordance with the laws of the State of New York. The Guarantor hereby irrevocably consents to, for the purposes of any proceeding arising out of this Guaranty, the exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the borough of Manhattan in New York City.

        10.    Waiver of Immunity.    To the extent that the Guarantor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to the Guarantor or the Guarantor's property, the Guarantor hereby irrevocably waives such immunity in respect of the Guarantor's obligations under this Guaranty.

        11.    Waiver of Jury Trial.    The Guarantor hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Guaranty or the negotiation, administration or enforcement hereof.

        12.    Miscellaneous.    Each reference herein to the Guarantor, Counterparty or Primary Obligor shall be deemed to include their respective successors and assigns. The provisions hereof shall inure in favor of each such successor or assign. This Guaranty (i) shall supersede any prior or contemporaneous representations, statements or agreements, oral or written, made by or between the parties with regard to the subject matter hereof, (ii) may be amended only by a written instrument executed by the Guarantor and Counterparty and (iii) may not be assigned by either party without the prior written consent of the other party.

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        IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the date first above written.

TELEPHONE AND DATA SYSTEMS, INC.
By:	/s/  LEROY T. CARLSON, JR.
	Name:	LeRoy T. Carlson, Jr.
	Title:	Chairman
and
By:	/s/  SANDRA L. HELTON
	Name:	Sandra L. Helton
	Title:	Executive Vice President & Chief Financial Officer

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Exhibit 10.21

EX-10.22

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Exhibit 10.22

GUARANTEE

        GUARANTEE dated as of this 6^th day of November, 2002, by TELEPHONE AND DATA SYSTEMS, INC., a Delaware corporation (with its successors, "Guarantor"), for the benefit of JPMORGAN CHASE BANK (with its successors and assigns, "Beneficiary").

        WHEREAS, TDSI Corporation, a Delaware corporation (with its successors, "Obligor"), is a 100%-owned subsidiary of Guarantor; and

        WHEREAS, Obligor has entered into the Stock Purchase Agreement dated as of the date hereof, between Obligor and Beneficiary (the "Stock Purchase Agreement") pursuant to which Obligor and Beneficiary have agreed to sell and purchase certain ordinary shares, no par value, of Deutsche Telekom AG, a German stock corporation (the "Issuer"), or security entitlement in respect thereof (the "Ordinary Shares"), at the time and on the terms set forth therein; and

        WHEREAS, pursuant to the Pledge Agreement dated as of the date hereof among Obligor, Beneficiary and JPMorgan Chase Bank, as Collateral Agent (the "Pledge Agreement"), Obligor has granted to Beneficiary, as of the date hereof, a security interest in certain Ordinary Shares to secure the obligations of Obligor under the Stock Purchase Agreement;

        NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor agrees as follows:

ARTICLE 1
Guarantee

        Section 1.01.    Guarantee.    (a) Guarantor hereby absolutely, irrevocably and unconditionally guarantees the full and punctual payment when due of any and all obligations of Obligor (the "Obligations") under the Stock Purchase Agreement and the Pledge Agreement, each as may be further modified, amended or supplemented from time to time (collectively, the "Agreements"). Upon failure by the Obligor to pay punctually any Obligation, the Guarantor shall forthwith on demand pay the amount not so paid at the place and in the manner specified in the instrument evidencing such Obligation. Guarantor's obligations under this Guarantee shall be subject to Obligor's defenses and rights to set-off, counterclaim or withhold payment as provided in the Agreements. Guarantor agrees to pay on demand any and all fees, funding and other costs and expenses (including reasonable attorney's fees and expenses) incurred by Beneficiary in connection with enforcing any rights or collecting any amounts or deliveries under the Agreements. Any amounts or deliveries that would be owed or due by Obligor to Beneficiary under the Agreements but are unenforceable or not allowable against Obligor because Obligor is the subject of a bankruptcy, liquidation, reorganization or similar case or proceeding, shall nonetheless be deemed owed or due for the purposes of this Article 1. Beneficiary shall not be obligated to file any claim relating to the Obligations in the event Obligor becomes subject to a bankruptcy, liquidation, reorganization or similar case or proceeding, and the failure by Beneficiary to so file shall not affect Guarantor's obligations hereunder.

        (b)  This Article 1 is a guarantee of payment when due and not of collection. Guarantor agrees that Beneficiary may resort to Guarantor for payment of any of the Obligations, whether or not Beneficiary shall have realized against or applied, or attempted (except as provided below) to realize against or apply, any property provided by an entity as collateral security or other credit support for the Obligations (such property and credit support collectively, "Security") or proceeded or attempted to proceed against Obligor or any other entity principally or secondarily obligated with respect to the Obligations.

        (c)  Guarantor's obligations under this Article 1 shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise

be returned by Beneficiary upon or as a result of the insolvency, bankruptcy, liquidation or reorganization of Obligor or otherwise, all as though such payment has not been made.

        (d)  Notwithstanding the foregoing, Beneficiary agrees that it will not make a demand or claim under this Guarantee in respect of any Secured Portion of the Obligations unless Beneficiary has first used commercially reasonable efforts, for at least five Business Days, to realize against or apply property held as Collateral (as defined in the Pledge Agreement) under the Pledge Agreement in satisfaction of the Obligations. "Secured Portion" means, at any time, a portion of the Obligations consisting of the obligation to deliver cash or property with a value, as determined by the Calculation Agent (as defined in the Stock Purchase Agreement), equal to the value, as determined by the Calculation Agent in a consistent manner, of the Collateral then pledged to the Beneficiary under the Pledge Agreement.

        Section 1.02.    Guarantee Absolute.    Guarantor guarantees that the Obligations will be paid strictly in accordance with the provisions of the Agreements (and, to the extent applicable, this Article 1), regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such provisions or the rights of Beneficiary with respect thereto. The liability of Guarantor under this Article 1 shall be irrevocable, absolute and unconditional irrespective of, and Guarantor hereby irrevocably waives, any defenses it may now or hereafter have (including any defense based on the failure to provide notice to or obtain the consent of Guarantor) in any way relating to, any or all of the following:

        (a)  any lack of validity or enforceability of the Agreements;

        (b)  the entry into additional transactions, any indulgence, concession, waiver or consent given to Obligor, or any other changes in the amount of, time, manner or place of payment of, or in any other term of any or all of the Obligations;

        (c)  any taking, exchange, release, non-perfection, realization or application of or on any Security;

        (d)  any change, restructuring or termination in or of the structure or existence of Obligor; or

        (e)  any other circumstances (including, without limitation, any statute of limitations) that might otherwise constitute a defense available to, or a discharge of, Guarantor or Obligor.

        Section 1.03.    Waivers and Acknowledgments.    (a) Guarantor hereby waives promptness, diligence, demand for performance, notice of acceptance, presentment, protest, non-performance, default, acceleration, early termination, protest or dishonor, any other notice with respect to any of the Obligations and this Article 1, and, except as provided in Section 1.01(d), any requirement that Beneficiary protect, secure, perfect or insure any Security or exhaust any right or take any action against Guarantor or any other entity or any Security.

        (b)  Guarantor hereby waives any right to revoke this guarantee, and acknowledges that its obligations under this Article 1 are continuing in nature and apply to all Obligations, whether existing now or in the future.

        (c)  Guarantor hereby waives (i) any defense arising by reason of any claim or defense based upon an election of remedies by Beneficiary that in any manner impairs, reduces, releases or otherwise adversely affects Guarantor's subrogation, reimbursement, exoneration, contribution or indemnification rights or other rights to proceed against Obligor, any other guarantor, any other entity or any Security, and (ii) except as provided in Section 1.01(a), any defense based on any right of set-off or counterclaim against or in respect of Guarantor's obligations under this Article 1.

        Section 1.04.    Subrogation.    Guarantor will not exercise any rights that it may now have or hereafter acquire against Obligor or any other guarantor that arise from the existence, payment, performance or enforcement of Guarantor's obligations under this Article 1, including, without

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limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of Beneficiary against Obligor, any other guarantor or any security, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from Obligor or any other guarantor, directly or indirectly, in cash or other property, by set-off or in any other manner, payment or security on account of such claim, remedy or right, unless and until all of the Obligations shall have been finally and irrevocably satisfied in full. If any amount shall be paid to Guarantor in violation of the preceding sentence at any time prior to the final and irrevocable payment or performance in full of all of the Obligations, such amount shall be held in trust for the benefit of Beneficiary and shall forthwith be paid to Beneficiary to be (at the election of Beneficiary) credited and applied to the Obligations, whether matured or unmatured, in accordance with the terms of the Agreements, and/or to be held as collateral security for any Obligations thereafter arising.

ARTICLE 2
Representations and Warranties

        Section 2.01.    Representations and Warranties.    Guarantor represents and warrants to Beneficiary that:

        (a)  The representations and warranties made by Obligor under the Agreements are true and correct.

        (b)  Guarantor is a corporation duly organized and existing in good standing under the laws of its jurisdiction of incorporation and has the requisite corporate power to own its properties and to carry on its business as now being conducted.

        (c)  The execution and delivery of this Guarantee and the performance by Guarantor of its obligations hereunder do not violate or conflict with any provision of the certificate of incorporation or bylaws of Guarantor, any law applicable to Guarantor, any order or judgment of any court or other agency of government applicable to Guarantor or any of Guarantor's assets or any contractual restriction binding on or affecting Guarantor or any of Guarantor's assets.

        (d)  All government and other consents that are required to have been obtained by Guarantor with respect to this Guarantee have been obtained and are in full force and effect and all conditions of any such consents have been complied with. Guarantor has complied and will comply with all applicable disclosure or reporting requirements in respect of the transactions contemplated by the Agreements, including without limitation any requirements imposed by Section 13 or Section 16 of the Securities Exchange Act of 1934, as amended, or the rules and regulations thereunder.

        (e)  Guarantor has the requisite corporate power and authority to enter into and perform this Guarantee. The execution, delivery and performance by Guarantor of this Guarantee have been duly authorized by all necessary corporate action. This Guarantee has been duly executed and delivered by Guarantor. Guarantor's obligations under this Guarantee constitute Guarantor's legal, valid and binding obligations enforceable in accordance with its terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)).

        (f)    No Acceleration Event (as such term is defined in the Stock Purchase Agreement) or event that, with the giving of notice or the lapse of time or both, would constitute an Acceleration Event has occurred and is continuing and no such event would occur as a result of Guarantor' s entering into or performing Guarantor's obligations under this Guarantee.

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        (g)  There is not pending or, to Guarantor's knowledge, threatened against Guarantor or any of its affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator (including without limitation any bankruptcy, insolvency or similar proceeding) that is likely to affect the legality, validity or enforceability against Guarantor of this Guarantee or Guarantor's legal right to perform its obligations under this Guarantee.

        (h)  Guarantor is not, nor has Guarantor been, at any time in the preceding three months, an "affiliate", within the meaning of Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), of the Issuer. Guarantor is not, on the date of this Agreement, in possession of any material non-public information regarding the Issuer.

        (i)    Guarantor is not and, after giving effect to the transactions contemplated hereby, will not be an "investment company" as such term is defined in the Investment Company Act of 1940, as amended.

        (j)    Guarantor is acting for its own account, and has made its own independent decision to enter into this Guarantee and as to whether this Guarantee is appropriate or proper for Guarantor based upon its own judgment and upon advice of such advisors as Guarantor deems necessary. Guarantor acknowledges and agrees that Guarantor is not relying, and has not relied, upon any communication (written or oral) of Beneficiary or any affiliate, employee or agent of Beneficiary with respect to the legal, accounting, tax or other implications of this Guarantee and that each of Obligor and Guarantor has conducted its own analyses of the legal, accounting, tax and other implications hereof and thereof; it being understood that information and explanations related to the terms and conditions of this Guarantee shall not be considered investment advice or a recommendation to enter into this Guarantee. Guarantor is entering into this Guarantee with a full understanding of all of the terms and risks hereof (economic and otherwise) and is capable of evaluating and understanding (on Guarantor's own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks. Guarantor is also capable of assuming (financially and otherwise), and assumes, those risks. Guarantor acknowledges that neither Beneficiary nor any affiliate, employee or agent of Beneficiary is acting as a fiduciary for or an advisor to Guarantor in respect of this Guarantee.

ARTICLE 3
Covenants

        Section 3.01.    Taxes.    Guarantor shall pay any and all documentary, stamp, transfer or similar taxes and charges that may be payable in respect of the entry into this Guarantee. Guarantor further agrees to make all payments in respect of this Guarantee free and clear of, and without withholding or deduction for or on account of, any present or future taxes, duties, fines, penalties, assessments or other governmental charges of whatsoever nature (or interest on any taxes, duties, fines, penalties, assessments or other governmental charges of whatsoever nature) ("Tax") imposed, levied, collected, withheld or assessed by, within or on behalf of the United States or any political subdivision or governmental authority thereof or therein having power to tax or any jurisdiction from or through which payment pursuant to this Guarantee is made by Guarantor, or any political subdivision or governmental authority thereof or therein having power to tax, other than a Tax that would not be imposed in respect of a payment under this Guarantee but for a present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and Beneficiary or a person related to Beneficiary (including, without limitation, a connection arising from Beneficiary or such related person being or having been a citizen or resident of such jurisdiction, or being or having been organized, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from Beneficiary or such related person having executed, delivered, performed its obligation or received a payment under, or enforced, this Guarantee). In the event such withholding or

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deduction is imposed, Guarantor agrees to indemnify Beneficiary for the full amount of such withholding or deduction, as well as any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, provided that Beneficiary has provided to Guarantor a duly executed and completed Internal Revenue Service Form W-9 (with respect to the benefits of an income tax treaty) (i) upon execution of this Guarantee, with such form to be updated at the beginning of each succeeding three calendar year period beginning after the execution of this Guarantee, or as otherwise required under then applicable Treasury Regulations; (ii) promptly upon reasonable demand by Guarantor; and (iii) promptly upon learning that any form previously provided has become obsolete or incorrect.

        Section 3.02.    Actions That Could Cause Guarantor to Become an Affiliate.    Guarantor shall notify Beneficiary immediately of its intention to (i) purchase Ordinary Shares, American Depositary Shares (evidenced by American Depositary Receipts), each representing one Ordinary Share, or any other equity security of the Issuer in an amount that would cause Guarantor to become the beneficial owner, directly or indirectly, of more than three percent of the outstanding shares of any equity security of the Issuer, (ii) permit any of its officers or directors to accept a position as an officer or director of the Issuer, (iii) take any action that would cause Guarantor to possess, directly or indirectly, the power to direct or cause the direction of the management and policies of the Issuer, whether by ownership of voting securities, by contract or otherwise or (iv) take any other action that could reasonably be expected to result in Guarantor's becoming an "affiliate", within the meaning of Rule 144 under the Securities Act, of the Issuer. Guarantor shall not take any such action unless a period of fifteen Business Days shall have elapsed after receipt of such notice by Beneficiary and Beneficiary shall not have objected in writing to such action during such period.

ARTICLE 4
Miscellaneous

        Section 4.01.    Notices.    All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard forms of telecommunication. Notices to Beneficiary shall be directed to it care of JPMorgan Chase Bank, 277 Park Avenue, 11^th Floor, New York, New York, 10172, Attention: EDG Corporate Marketing (Ross Gray), Telephone No. 212-622-5730, Telecopy No. 212-622-0105 with a copy to JPMorgan Chase Bank, 500 Stanton Christiana Road, Newark, DE 19713-2107, Attention: Collateral Ops, 3 Ops 2, Telephone No. 302-634-3158, Telecopy No. 302-634-3208 and notices to Guarantor shall be directed to Guarantor at Telephone and Data Systems, Inc., 30 North La Salle Street, Suite 4000, Chicago, IL 60602-2507, Attention: Treasurer, Telephone No.: (312) 630-1900, Telecopy No.: (312) 634-0442, with a copy to Sidley Austin Brown & Wood, Bank One Plaza, 10 S. Dearborn, Chicago, IL 60603, Attention: William DeCarlo, Telephone No.: (312) 853-7000, Telecopy No.: (312) 853-7036.

        Section 4.02.    Governing Law; Submission to Jurisdiction; Severability; Waiver of Jury Trial; Service of Process.    (a) This Guarantee shall be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine and each party hereto submits to the jurisdiction of the Courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City.

        (b)  To the extent permitted by law, the unenforceability or invalidity of any provision or provisions of this Guarantee shall not render any other provision or provisions herein contained unenforceable or invalid.

        (c)  Guarantor and Beneficiary hereby irrevocably and unconditionally waive any and all right to trial by jury in any legal proceeding arising out of or related to this Guarantee.

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        (d)  The parties irrevocably consent to service of process given in the manner provided for notices in Section 4.01. Nothing in this Guarantee will affect the right of either party to serve process in any other manner permitted by law.

        Section 4.03.    Matters Related to Agent.    The rights and obligations of the Agent shall be as set forth in Section 9.09 of the Stock Purchase Agreement.

        Section 4.04.    Amendments, Waivers.    Any provision of this Guarantee may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of any amendment, by Beneficiary and Guarantor and in the case of any waiver, by Beneficiary. No failure or delay by Beneficiary in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

        Section 4.05.    No Third Party Rights.    This Agreement is not intended and shall not be construed to create any rights in any person other than Guarantor, Beneficiary, any affiliate of Beneficiary designated by Beneficiary pursuant to the terms of the Agreements and their respective successors and assigns, and no other person shall assert any rights as third party beneficiary hereunder. Whenever any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party. All the covenants and agreements herein contained by or on behalf of Guarantor and Beneficiary shall bind, and inure to the benefit of, their respective successors and assigns whether so expressed or not, and shall be enforceable by and inure to the benefit of Beneficiary and its successors and assigns. The rights and duties of Guarantor under this Guarantee may not be assigned or transferred by any party hereto without the prior written consent of Beneficiary. Beneficiary may assign or transfer any of its rights or duties hereunder without the prior written consent of Guarantor.

        Section 4.06.    Counterparts.    This Guarantee may be executed in any number of counterparts, and all such counterparts taken together shall be deemed to constitute one and the same agreement.

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        IN WITNESS WHEREOF, the parties have signed this Guarantee as of the date and year first above written.

GUARANTOR:
TELEPHONE AND DATA SYSTEMS, INC.
By:	/s/  LEROY T. CARLSON, JR. Name: LeRoy T. Carlson, Jr. Title: President and CEO
By:	/s/  SANDRA L. HELTON Name: Sandra L. Helton Title: Executive Vice President and CFO

BENEFICIARY:
JPMORGAN CHASE BANK, LONDON BRANCH     by J.P. MORGAN SECURITIES INC., as Agent
By:	/s/  STEPHEN L. ROTI Name: Stephen L. Roti Title: VP

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Exhibit 10.22

EX-10.23

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Exhibit 10.23

GUARANTEE

        GUARANTEE dated as of this 12^th day of November, 2002, by TELEPHONE AND DATA SYSTEMS, INC., a Delaware corporation (with its successors, "Guarantor"), for the benefit of JPMORGAN CHASE BANK (with its successors and assigns, "Beneficiary").

        WHEREAS, TDSI Corporation, a Delaware corporation (with its successors, "Obligor"), is a 100%-owned subsidiary of Guarantor; and

        WHEREAS, Obligor has entered into the Stock Purchase Agreement dated as of the date hereof, between Obligor and Beneficiary (the "Stock Purchase Agreement") pursuant to which Obligor and Beneficiary have agreed to sell and purchase certain ordinary shares, no par value, of Deutsche Telekom AG, a German stock corporation (the "Issuer"), or security entitlement in respect thereof (the "Ordinary Shares"), at the time and on the terms set forth therein; and

        WHEREAS, pursuant to the Pledge Agreement dated as of the date hereof among Obligor, Beneficiary and JPMorgan Chase Bank, as Collateral Agent (the "Pledge Agreement"), Obligor has granted to Beneficiary, as of the date hereof, a security interest in certain Ordinary Shares to secure the obligations of Obligor under the Stock Purchase Agreement;

        NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor agrees as follows:

ARTICLE 1
Guarantee

        Section 1.01.    Guarantee.    (a) Guarantor hereby absolutely, irrevocably and unconditionally guarantees the full and punctual payment when due of any and all obligations of Obligor (the "Obligations") under the Stock Purchase Agreement and the Pledge Agreement, each as may be further modified, amended or supplemented from time to time (collectively, the "Agreements"). Upon failure by the Obligor to pay punctually any Obligation, the Guarantor shall forthwith on demand pay the amount not so paid at the place and in the manner specified in the instrument evidencing such Obligation. Guarantor's obligations under this Guarantee shall be subject to Obligor's defenses and rights to set-off, counterclaim or withhold payment as provided in the Agreements. Guarantor agrees to pay on demand any and all fees, funding and other costs and expenses (including reasonable attorney's fees and expenses) incurred by Beneficiary in connection with enforcing any rights or collecting any amounts or deliveries under the Agreements. Any amounts or deliveries that would be owed or due by Obligor to Beneficiary under the Agreements but are unenforceable or not allowable against Obligor because Obligor is the subject of a bankruptcy, liquidation, reorganization or similar case or proceeding, shall nonetheless be deemed owed or due for the purposes of this Article 1. Beneficiary shall not be obligated to file any claim relating to the Obligations in the event Obligor becomes subject to a bankruptcy, liquidation, reorganization or similar case or proceeding, and the failure by Beneficiary to so file shall not affect Guarantor's obligations hereunder.

        (b)  This Article 1 is a guarantee of payment when due and not of collection. Guarantor agrees that Beneficiary may resort to Guarantor for payment of any of the Obligations, whether or not Beneficiary shall have realized against or applied, or attempted (except as provided below) to realize against or apply, any property provided by an entity as collateral security or other credit support for the Obligations (such property and credit support collectively, "Security") or proceeded or attempted to

        (c)  proceed against Obligor or any other entity principally or secondarily obligated with respect to the Obligations.

        (d)  Guarantor's obligations under this Article 1 shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise

be returned by Beneficiary upon or as a result of the insolvency, bankruptcy, liquidation or reorganization of Obligor or otherwise, all as though such payment has not been made.

        (e)  Notwithstanding the foregoing, Beneficiary agrees that it will not make a demand or claim under this Guarantee in respect of any Secured Portion of the Obligations unless Beneficiary has first used commercially reasonable efforts, for at least five Business Days, to realize against or apply property held as Collateral (as defined in the Pledge Agreement) under the Pledge Agreement in satisfaction of the Obligations. "Secured Portion" means, at any time, a portion of the Obligations consisting of the obligation to deliver cash or property with a value, as determined by the Calculation Agent (as defined in the Stock Purchase Agreement), equal to the value, as determined by the Calculation Agent in a consistent manner, of the Collateral then pledged to the Beneficiary under the Pledge Agreement.

        Section 1.02.    Guarantee Absolute.    Guarantor guarantees that the Obligations will be paid strictly in accordance with the provisions of the Agreements (and, to the extent applicable, this Article 1), regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such provisions or the rights of Beneficiary with respect thereto. The liability of Guarantor under this Article 1 shall be irrevocable, absolute and unconditional irrespective of, and Guarantor hereby irrevocably waives, any defenses it may now or hereafter have (including any defense based on the failure to provide notice to or obtain the consent of Guarantor) in any way relating to, any or all of the following:

        (a)  any lack of validity or enforceability of the Agreements;

        (b)  the entry into additional transactions, any indulgence, concession, waiver or consent given to Obligor, or any other changes in the amount of, time, manner or place of payment of, or in any other term of any or all of the Obligations;

        (c)  any taking, exchange, release, non-perfection, realization or application of or on any Security;

        (d)  any change, restructuring or termination in or of the structure or existence of Obligor; or

        (e)  any other circumstances (including, without limitation, any statute of limitations) that might otherwise constitute a defense available to, or a discharge of, Guarantor or Obligor.

        Section 1.03.    Waivers and Acknowledgments.    (a) Guarantor hereby waives promptness, diligence, demand for performance, notice of acceptance, presentment, protest, non-performance, default, acceleration, early termination, protest or dishonor, any other notice with respect to any of the Obligations and this Article 1, and, except as provided in Section 1.01(d), any requirement that Beneficiary protect, secure, perfect or insure any Security or exhaust any right or take any action against Guarantor or any other entity or any Security.

        (b)  Guarantor hereby waives any right to revoke this guarantee, and acknowledges that its obligations under this Article 1 are continuing in nature and apply to all Obligations, whether existing now or in the future.

        (c)  Guarantor hereby waives (i) any defense arising by reason of any claim or defense based upon an election of remedies by Beneficiary that in any manner impairs, reduces, releases or otherwise adversely affects Guarantor's subrogation, reimbursement, exoneration, contribution or indemnification rights or other rights to proceed against Obligor, any other guarantor, any other entity or any Security, and (ii) except as provided in Section 1.01(a), any defense based on any right of set-off or counterclaim against or in respect of Guarantor's obligations under this Article 1.

        Section 1.04.    Subrogration.    Guarantor will not exercise any rights that it may now have or hereafter acquire against Obligor or any other guarantor that arise from the existence, payment, performance or enforcement of Guarantor's obligations under this Article 1, including, without

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limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of Beneficiary against Obligor, any other guarantor or any security, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from Obligor or any other guarantor, directly or indirectly, in cash or other property, by set-off or in any other manner, payment or security on account of such claim, remedy or right, unless and until all of the Obligations shall have been finally and irrevocably satisfied in full. If any amount shall be paid to Guarantor in violation of the preceding sentence at any time prior to the final and irrevocable payment or performance in full of all of the Obligations, such amount shall be held in trust for the benefit of Beneficiary and shall forthwith be paid to Beneficiary to be (at the election of Beneficiary) credited and applied to the Obligations, whether matured or unmatured, in accordance with the terms of the Agreements, and/or to be held as collateral security for any Obligations thereafter arising.

ARTICLE 2
Representation and Warranties

        Section 2.01.    Representation and Warranties.    Guarantor represents and warrants to Beneficiary that:

        (a)  The representations and warranties made by Obligor under the Agreements are true and correct.

        (b)  Guarantor is a corporation duly organized and existing in good standing under the laws of its jurisdiction of incorporation and has the requisite corporate power to own its properties and to carry on its business as now being conducted.

        (c)  The execution and delivery of this Guarantee and the performance by Guarantor of its obligations hereunder do not violate or conflict with any provision of the certificate of incorporation or bylaws of Guarantor, any law applicable to Guarantor, any order or judgment of any court or other agency of government applicable to Guarantor or any of Guarantor's assets or any contractual restriction binding on or affecting Guarantor or any of Guarantor's assets.

        (d)  All government and other consents that are required to have been obtained by Guarantor with respect to this Guarantee have been obtained and are in full force and effect and all conditions of any such consents have been complied with. Guarantor has complied and will comply with all applicable disclosure or reporting requirements in respect of the transactions contemplated by the Agreements, including without limitation any requirements imposed by Section 13 or Section 16 of the Securities Exchange Act of 1934, as amended, or the rules and regulations thereunder.

        (e)  Guarantor has the requisite corporate power and authority to enter into and perform this Guarantee. The execution, delivery and performance by Guarantor of this Guarantee have been duly authorized by all necessary corporate action. This Guarantee has been duly executed and delivered by Guarantor. Guarantor's obligations under this Guarantee constitute Guarantor's legal, valid and binding obligations enforceable in accordance with its terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)).

        (f)    No Acceleration Event (as such term is defined in the Stock Purchase Agreement) or event that, with the giving of notice or the lapse of time or both, would constitute an Acceleration Event has occurred and is continuing and no such event would occur as a result of Guarantor' s entering into or performing Guarantor's obligations under this Guarantee.

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        (g)  There is not pending or, to Guarantor's knowledge, threatened against Guarantor or any of its affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator (including without limitation any bankruptcy, insolvency or similar proceeding) that is likely to affect the legality, validity or enforceability against Guarantor of this Guarantee or Guarantor's legal right to perform its obligations under this Guarantee.

        (h)  Guarantor is not, nor has Guarantor been, at any time in the preceding three months, an "affiliate", within the meaning of Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), of the Issuer. Guarantor is not, on the date of this Agreement, in possession of any material non-public information regarding the Issuer.

        (i)    Guarantor is not and, after giving effect to the transactions contemplated hereby, will not be an "investment company" as such term is defined in the Investment Company Act of 1940, as amended.

        (j)    Guarantor is acting for its own account, and has made its own independent decision to enter into this Guarantee and as to whether this Guarantee is appropriate or proper for Guarantor based upon its own judgment and upon advice of such advisors as Guarantor deems necessary. Guarantor acknowledges and agrees that Guarantor is not relying, and has not relied, upon any communication (written or oral) of Beneficiary or any affiliate, employee or agent of Beneficiary with respect to the legal, accounting, tax or other implications of this Guarantee and that each of Obligor and Guarantor has conducted its own analyses of the legal, accounting, tax and other implications hereof and thereof; it being understood that information and explanations related to the terms and conditions of this Guarantee shall not be considered investment advice or a recommendation to enter into this Guarantee. Guarantor is entering into this Guarantee with a full understanding of all of the terms and risks hereof (economic and otherwise) and is capable of evaluating and understanding (on Guarantor's own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks. Guarantor is also capable of assuming (financially and otherwise), and assumes, those risks. Guarantor acknowledges that neither Beneficiary nor any affiliate, employee or agent of Beneficiary is acting as a fiduciary for or an advisor to Guarantor in respect of this Guarantee.

ARTICLE 3
Covenants

        Section 3.01.    Taxes.    Guarantor shall pay any and all documentary, stamp, transfer or similar taxes and charges that may be payable in respect of the entry into this Guarantee. Guarantor further agrees to make all payments in respect of this Guarantee free and clear of, and without withholding or deduction for or on account of, any present or future taxes, duties, fines, penalties, assessments or other governmental charges of whatsoever nature (or interest on any taxes, duties, fines, penalties, assessments or other governmental charges of whatsoever nature) ("Tax") imposed, levied, collected, withheld or assessed by, within or on behalf of the United States or any political subdivision or governmental authority thereof or therein having power to tax or any jurisdiction from or through which payment pursuant to this Guarantee is made by Guarantor, or any political subdivision or governmental authority thereof or therein having power to tax, other than a Tax that would not be imposed in respect of a payment under this Guarantee but for a present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and Beneficiary or a person related to Beneficiary (including, without limitation, a connection arising from Beneficiary or such related person being or having been a citizen or resident of such jurisdiction, or being or having been organized, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from Beneficiary or such related person having executed, delivered, performed its obligation or received a payment under, or enforced, this Guarantee). In the event such withholding or

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deduction is imposed, Guarantor agrees to indemnify Beneficiary for the full amount of such withholding or deduction, as well as any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, provided that Beneficiary has provided to Guarantor a duly executed and completed Internal Revenue Service Form W-9 (with respect to the benefits of an income tax treaty) (i) upon execution of this Guarantee, with such form to be updated at the beginning of each succeeding three calendar year period beginning after the execution of this Guarantee, or as otherwise required under then applicable Treasury Regulations; (ii) promptly upon reasonable demand by Guarantor; and (iii) promptly upon learning that any form previously provided has become obsolete or incorrect.

        Section 3.02.    Actions That Could Cause Guarantor to Become an Affiliate.    Guarantor shall notify Beneficiary immediately of its intention to (i) purchase Ordinary Shares, American Depositary Shares (evidenced by American Depositary Receipts), each representing one Ordinary Share, or any other equity security of the Issuer in an amount that would cause Guarantor to become the beneficial owner, directly or indirectly, of more than three percent of the outstanding shares of any equity security of the Issuer, (ii) permit any of its officers or directors to accept a position as an officer or director of the Issuer, (iii) take any action that would cause Guarantor to possess, directly or indirectly, the power to direct or cause the direction of the management and policies of the Issuer, whether by ownership of voting securities, by contract or otherwise or (iv) take any other action that could reasonably be expected to result in Guarantor's becoming an "affiliate", within the meaning of Rule 144 under the Securities Act, of the Issuer. Guarantor shall not take any such action unless a period of fifteen Business Days shall have elapsed after receipt of such notice by Beneficiary and Beneficiary shall not have objected in writing to such action during such period.

ARTICLE 4
Miscellaneous

        Section 4.01.    Notices.    All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard forms of telecommunication. Notices to Beneficiary shall be directed to it care of JPMorgan Chase Bank, 277 Park Avenue, 11^th Floor, New York, New York, 10172, Attention: EDG Corporate Marketing (Ross Gray), Telephone No. 212-622-5730, Telecopy No. 212-622-0105 with a copy to JPMorgan Chase Bank, 500 Stanton Christiana Road, Newark, DE 19713-2107, Attention: Collateral Ops, 3 Ops 2, Telephone No. 302-634-3158, Telecopy No. 302-634-3208 and notices to Guarantor shall be directed to Guarantor at Telephone and Data Systems, Inc., 30 North La Salle Street, Suite 4000, Chicago, IL 60602-2507, Attention: Treasurer, Telephone No.: (312) 630-1900, Telecopy No.: (312) 634-0442, with a copy to Sidley Austin Brown & Wood, Bank One Plaza, 10 S. Dearborn, Chicago, IL 60603, Attention: William DeCarlo, Telephone No.: (312) 853-7000, Telecopy No.: (312) 853-7036.

        Section 4.02.    Governing Law; Submission to Jurisdication; Severability; Waiver of Jury Trial; Service of Process.    (a) This Guarantee shall be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine and each party hereto submits to the jurisdiction of the Courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City.

        (b)  To the extent permitted by law, the unenforceability or invalidity of any provision or provisions of this Guarantee shall not render any other provision or provisions herein contained unenforceable or invalid.

        (c)  Guarantor and Beneficiary hereby irrevocably and unconditionally waive any and all right to trial by jury in any legal proceeding arising out of or related to this Guarantee.

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        (d)  The parties irrevocably consent to service of process given in the manner provided for notices in Section 4.01. Nothing in this Guarantee will affect the right of either party to serve process in any other manner permitted by law.

        Section 4.03.    Matters Related to Agent.    The rights and obligations of the Agent shall be as set forth in Section 9.09 of the Stock Purchase Agreement.

        Section 4.04.    Amendments, Waivers.    Any provision of this Guarantee may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of any amendment, by Beneficiary and Guarantor and in the case of any waiver, by Beneficiary. No failure or delay by Beneficiary in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

        Section 4.05.    No Third Party Rights, Successors and Assigns.    This Agreement is not intended and shall not be construed to create any rights in any person other than Guarantor, Beneficiary, any affiliate of Beneficiary designated by Beneficiary pursuant to the terms of the Agreements and their respective successors and assigns, and no other person shall assert any rights as third party beneficiary hereunder. Whenever any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party. All the covenants and agreements herein contained by or on behalf of Guarantor and Beneficiary shall bind, and inure to the benefit of, their respective successors and assigns whether so expressed or not, and shall be enforceable by and inure to the benefit of Beneficiary and its successors and assigns. The rights and duties of Guarantor under this Guarantee may not be assigned or transferred by any party hereto without the prior written consent of Beneficiary. Beneficiary may assign or transfer any of its rights or duties hereunder without the prior written consent of Guarantor.

        Section 4.06.    Counterparts.    This Guarantee may be executed in any number of counterparts, and all such counterparts taken together shall be deemed to constitute one and the same agreement.

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        IN WITNESS WHEREOF, the parties have signed this Guarantee as of the date and year first above written.

GUARANTOR:
TELEPHONE AND DATA SYSTEMS, INC.
By:	/s/  LEROY T. CARLSON, JR. Name: LeRoy T. Carlson, Jr. Title: President and CEO
By:	/s/  SANDRA L. HELTON Name: Sandra L. Helton Title: Executive Vice President and CFO

BENEFICIARY:
JPMORGAN CHASE BANK, LONDON BRANCH     by J.P. MORGAN SECURITIES INC., as Agent
By:	/s/  STEPHEN L. ROTI Name: Stephen L. Roti Title: VP

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Exhibit 10.23

EX-10.24

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Exhibit 10.24

EXECUTION COPY

GUARANTY

        This Guaranty, dated as of December 5, 2002 is made by Telephone and Data Systems, Inc. (the "Guarantor"), in favor of WestLB AG (the "Counterparty").

        1.    Guaranty.    In order to induce the Counterparty to enter into the variable prepaid forward transaction, the terms and conditions of which are set forth in the confirmation (the "Confirmation"; the transaction thereby confirmed, the "Transaction") dated as of the date hereof between WestLB Panmure Securities, Inc., as Agent of Counterparty, and the Guarantor's wholly-owned subsidiary, TDSI Corporation ("Primary Obligor"), the Guarantor absolutely and unconditionally guarantees to the Counterparty, its successors and permitted assigns, the prompt payment when due of the Guaranteed Obligations, as defined below. Except as expressly provided herein, such guarantee shall be without regard to any counterclaim, set-off, deduction or defense of any kind which Primary Obligor or the Guarantor may have or assert against Counterparty, and without abatement, suspension, deferment or diminution on account of any event or condition whatsoever; provided however, that Guarantor's obligations under this Guaranty shall be subject to Primary Obligor's rights to set-off as provided in the Agreement, as defined below. "Guaranteed Obligations" shall mean the difference between (a) all other amounts payable by Primary Obligor under the Agreement with respect to the Transaction, whether due or to become due, secured or unsecured, joint or several (the "Primary Obligations") together with any and all costs and expenses (including reasonable legal fees and expenses) incurred by Counterparty in enforcing Counterparty's rights under this Guaranty less (b) the value of the Collateral; provided however that in the event that the Counterparty uses its reasonable best efforts to realize the value of the Collateral by setoff, sale, acceptance or any other means available to Counterparty under the Agreement and is unable to realize the full value of the Collateral within 30 days after the date on which Counterparty first becomes able to exercise its rights under Paragraph 8(a) of the Credit Support Annex, as defined below, "Guaranteed Obligations" shall mean the difference between (a) the Primary Obligations together with any and all expenses (including reasonable legal fees and expenses) incurred by Counterparty in enforcing Counterparty's rights under this Guaranty less (b) the value of the Collateral the Counterparty is able to realize within such 30 days, if any. The Primary Obligations shall include interest on overdue payments owed pursuant to the Agreement, as provided in Section 2(e) and Section 6(d)(ii) of the Master Agreement at the rates provided for therein. The term "Master Agreement" means the ISDA Master Agreement dated the date hereof between Counterparty and Primary Obligor; the term "Credit Support Annex" means the Credit Support Annex supplementing and forming part of the Master Agreement; and the term "Agreement" means the Master Agreement, the Credit Support Annex and the Confirmation, taken together as composing one and the same contract.

        2.    Nature of Guaranty.    This Guaranty is a guarantee of payment and not of collection. Any amounts or deliveries that would be owed or due by Primary Obligor to the Counterparty under the Agreement but are unenforceable or not allowable against Primary Obligor because Primary Obligor is the subject of a bankruptcy, liquidation, reorganization or similar case or proceeding, shall nonetheless be deemed owed or due for the purposes of this Guaranty. Subject to the requirement in paragraph 1 of this Guaranty that Counterparty use its reasonable best efforts to collect against the Collateral, the Counterparty shall not be obligated, as a condition precedent to performance by the Guarantor hereunder, to file any claim relating to the Primary Obligations in the event that Primary Obligor becomes subject to a bankruptcy, liquidation, reorganization or similar case or proceeding, and the failure of the Counterparty to file a claim shall not affect the Guarantor's obligations hereunder. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment to the Counterparty by Primary Obligor on account of any Obligation is returned to Primary Obligor or

is rescinded upon the insolvency, bankruptcy, liquidation or reorganization of Primary Obligor or otherwise, all as though such payment has not been made.

        3.    Guaranty Absolute.    The liability of Guarantor under this Guaranty shall be irrevocable, absolute and unconditional irrespective of, and Guarantor hereby irrevocably waives, any defenses it may or hereafter have (other than those defenses expressly provided for in this Guaranty) in any way relating to any or all of the following: (a) any lack of validity or enforceability of the Agreement or this Guaranty; (b) the entry into additional transactions, any indulgences, concession, waiver or consent given to the Primary Obligor or any other changes in the amount, time, manner or place of payment of, or in any other term of any or all of, the Primary Obligations; (c) any taking, exchange, release, non-perfection, realization or application of or on any security (other than the requirement that the Counterparty use its reasonable best efforts to realize upon and apply the Collateral to the Primary Obligations as described in Paragraph 1 of this Guaranty); (d) any change, restructuring or termination in or of the structure or existence of the Primary Obligor; or (e) any other circumstances (including without limitation any statute of limitations) that might otherwise constitute a defense available to, or a discharge of, Guarantor or the Primary Obligor.

        4.    Waivers and Acknowledgments.    The Guarantor waives demands, promptness, diligence and all notices that may be required by law or to perfect the Counterparty's rights hereunder except notice to the Guarantor of a default by Primary Obligor under the Agreement. No failure, delay or single or partial exercise by the Counterparty of its rights or remedies hereunder shall operate as a waiver of such rights or remedies. All rights and remedies hereunder or allowed by law shall be cumulative and exercisable from time to time.

        5.    Representations and Warranties.    The Guarantor hereby represents and warrants that:

        (a)  the Guarantor is duly organized, validly existing and in good standing under the laws of Delaware;

        (b)  the Guarantor has the requisite corporate power and authority to issue this Guaranty and to perform its obligations hereunder, and has duly authorized, executed and delivered this Guaranty;

        (c)  the Guarantor is not required to obtain any authorization, consent, approval, exemption or license from, or to file any registration with, any government authority as a condition to the validity of, or to the execution, delivery or performance of, this Guaranty;

        (d)  as of the date of this Guaranty, there is no action, suit or proceeding pending or threatened against the Guarantor before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could affect, in a materially adverse manner, the ability of the Guarantor to perform any of its obligations under, or which in any manner questions the validity of, this Guaranty;

        (e)  the execution, delivery and performance of this Guaranty by the Guarantor l does not contravene or constitute a default under any statute, regulation or rule of any governmental authority or under any provision of the Guarantor's certificate of incorporation or by-laws or any contractual restriction binding on the Guarantor;

        (f)    this Guaranty constitutes the legal, valid and binding obligation of the Guarantor enforceable in accordance with its terms, subject to the effect of any bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally, and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); and

        (g)  the obligations of the Guarantor under this Guaranty shall rank pari passu with other unsecured obligations of the Guarantor.

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        6.    Subrogation.    Upon payment by Guarantor of any sums to Counterparty under this Guaranty, all rights of Guarantor against Primary Obligor arising as a result thereof by way of right of subrogation or otherwise shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full of the Primary Obligations.

        7.    Termination.    The Guarantor hereby waives any right to terminate or revoke this Guaranty and acknowledges that its obligations under this Guaranty are continuing in nature.

        8.    Notices.    Any notice or communication required or permitted to be made hereunder shall be made in the same manner and with the same effect, unless otherwise specifically provided herein, as set forth in the Agreement.

        9.    GOVERNING LAW; JURISDICTION.    This Guaranty shall be governed by and construed in accordance with the laws of the State of New York. The Guarantor hereby irrevocably consents to, for the purposes of any proceeding arising out of this Guaranty, the exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the borough of Manhattan in New York City.

        10.    Waiver of Immunity.    To the extent that the Guarantor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to the Guarantor or the Guarantor's property, the Guarantor hereby irrevocably waives such immunity in respect of the Guarantor's obligations under this Guaranty.

        11.    Waiver of Jury Trial.    The Guarantor hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Guaranty or the negotiation, administration or enforcement hereof.

        12.    Miscellaneous.    Each reference herein to the Guarantor, Counterparty or Primary Obligor shall be deemed to include their respective successors and assigns. The provisions hereof shall inure in favor of each such successor or assign. This Guaranty (i) shall supersede any prior or contemporaneous representations, statements or agreements, oral or written, made by or between the parties with regard to the subject matter hereof, (ii) may be amended only by a written instrument executed by the Guarantor and Counterparty and (iii) may not be assigned by either party without the prior written consent of the other party.

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        IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the date first above written.

TELEPHONE AND DATA SYSTEMS, INC.
By:	/s/  LEROY T. CARLSON, JR.
	Name:	LeRoy T. Carlson, Jr.
	Title:	President & Chief Executive Officer
and
By:	/s/  SANDRA L. HELTON
	Name:	Sandra L. Helton
	Title:	Executive Vice President & Chief Financial Officer

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Exhibit 10.24

EX-12

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Exhibit 12

TELEPHONE AND DATA SYSTEMS, INC.
RATIO OF EARNINGS TO FIXED CHARGES

(Dollars In Thousands)

				12 Months Ended 12/31/02
EARNINGS:
	Income (Loss) from Continuing Operations before income taxes			$	(1,555,669	)
		Add (Deduct):
			Earnings on Equity Method		(43,675	)
			Distributions from Minority Subsidiaries		31,328
			Minority interest in pre-tax income of subsidiaries that do not have fixed charges		(15,044	)
					(1,583,060	)
		Add fixed charges:
			Consolidated interest expense		157,034
			Interest Portion (1/3) of Consolidated Rent Expense		27,461
				$	(1,398,565	)
FIXED CHARGES:
		Consolidated interest expense/Trust Originated Preferred Securities		$	157,034
		Interest Portion (1/3) of Consolidated Rent Expense			27,461
				$	184,495
RATIO OF EARNINGS TO FIXED CHARGES					—
		Tax-Effected Redeemable Preferred Dividends		$	25
		Fixed Charges			184,495
			Fixed Charges and Redeemable Preferred Dividends	$	184,520
RATIO OF EARNINGS TO FIXED CHARGES AND REDEEMABLE PREFERRED DIVIDENDS					—
		Tax-Effected Preferred Dividends		$	750
		Fixed Charges			184,495
			Fixed Charges and Preferred Dividends	$	185,245
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS					—

The dollar deficiency resulting in less than one-to-one coverage is $1,583,060 for the ratio of earnings to fixed charges, $1,583,085 for the ratio of earnings to fixed charges and redeemable preferred dividends and $1,583,810 for the ratio of earnings to fixed charges and preferred dividends.

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Exhibit 12

EX-13

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Exhibit 13

SELECTED CONSOLIDATED FINANCIAL DATA

	Year Ended or at December 31,
	2002			2001			2000		1999			1998
	(Dollars in thousands, except per share amounts)
Operating Revenues	$	2,985,366		$	2,588,542		$	2,326,856	$	2,122,346		$	1,803,639
Operating Income		386,355			436,155			420,066		370,393			270,487
Gain (Loss) on Marketable Securities and Other Investments		(1,888,391	)		(548,305	)		15,716		345,938			262,698
Income (Loss) from Continuing Operations		(987,737	)		(173,963	)		115,056		291,326			185,222
Discontinued Operations, net of tax		—			24,092			2,125,787		(111,492	)		(106,965	)
Net Income (Loss) Available to Common	$	(984,798	)	$	(198,513	)	$	2,236,498	$	178,687		$	76,606
Basic Weighted Average Shares Outstanding (000's)		58,644			58,661			59,922		61,436			60,982
Basic Earnings per Share from Continuing Operations	$	(16.85	)	$	(2.97	)	$	1.91	$	4.72		$	3.01
Basic Earnings per Share from Discontinued Operations		—			(.41	)		35.47		(1.81	)		(1.75	)
Basic Earnings per Share from Income (Loss) Available to Common		(16.79	)		(3.38	)		37.32		2.91			1.26
Diluted Earnings per Share from Continuing Operations		(16.85	)		(2.97	)		1.88		4.65			2.99
Diluted Earnings per Share from Discontinued Operations		—			(.41	)		35.06		(1.78	)		(1.73	)
Diluted Earnings per Share from Income (Loss) Available to Common		(16.79	)		(3.38	)		36.88		2.87			1.26
Dividends per Common and Series A Common Share	$	.58		$	.54		$	.50	$	.46		$	.44
Cash and Cash Equivalents	$	1,298,936		$	140,744		$	99,019	$	111,010		$	45,139
Property, Plant and Equipment, net		3,196,243			2,544,439			2,171,801		2,081,020			2,004,439
Total Assets		9,602,028			8,079,574			8,667,390		5,430,257			5,118,620
Notes Payable		461,792			265,300			499,000		—			170,889
Long-Term Debt (excluding current portion)		1,641,624			1,507,764			1,172,987		1,279,877			1,275,086
Prepaid Forward Contracts		1,656,616			—			—		—			—
Common Stockholders' Equity		3,052,623			3,518,924			3,936,067		2,448,261			2,253,195
Capital Expenditures	$	899,050		$	700,150		$	456,019	$	399,631		$	463,543
Current Ratio		1.7			.8			.5		1.4			.7

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION

        Telephone and Data Systems, Inc. ("TDS" or the "Company") is a diversified telecommunications company providing high-quality telecommunications services to approximately 5.1 million wireless telephone and wireline telephone customer units in 35 states at December 31, 2002. TDS conducts substantially all of its wireless telephone operations through its 82.2%-owned subsidiary, United States Cellular Corporation ("U.S. Cellular") and its incumbent local exchange carrier ("ILEC") and competitive local exchange carrier ("CLEC") wireline telephone operations through its wholly-owned subsidiary, TDS Telecommunications Corporation ("TDS Telecom").

        On August 7, 2002, U.S. Cellular completed the acquisition of the assets and certain liabilities of Chicago 20MHz, LLC ("Chicago 20MHz") from PrimeCo Wireless Communications LLC ("PrimeCo"). Chicago 20MHz operates a wireless system in the Chicago Major Trading Area ("MTA"). Chicago 20MHz is the holder of certain FCC licenses, including a 20 megahertz PCS license in the Chicago MTA (excluding Kenosha County, WI) covering 13.2 million population equivalents ("POPs").

        The following discussion and analysis should be read in conjunction with TDS's consolidated financial statements and footnotes.

RESULTS OF OPERATIONS

        Operating Revenues increased 15% ($396.8 million) during 2002 and 11% ($261.7 million) during 2001 reflecting primarily the 18% and 14% growth in customer units in 2002 and 2001, respectively. In 2002, acquisitions contributed 8% of the customer growth while in 2001 acquisitions contributed 2% of the customer growth. U.S. Cellular revenues increased $289.6 million in 2002 and $178.2 million in 2001 on 19% and 13% increases in customer units, respectively. The acquisition of Chicago 20MHz and two small markets contributed 10% of U.S. Cellular customer growth in 2002. Acquisitions contributed 2% of U.S. Cellular customer growth in 2001. TDS Telecom revenues increased $107.2 million in 2002 and $83.5 million in 2001 as equivalent access lines increased by 15% and 19%, respectively. The increase in equivalent access lines is primarily related to the growth in the competitive local exchange operations and acquisitions. Acquisitions contributed 3% of TDS Telecom's customer growth in 2002 and 6% in 2001.

        Operating Expenses rose 21% ($446.6 million) in 2002 and 13% ($245.6 million) in 2001. U.S. Cellular operating expenses increased $325.7 million during 2002 and $153.3 million during 2001 due primarily to the costs associated with providing service to an expanding customer base, additional depreciation expense and acquisitions. TDS Telecom operating expenses increased $120.9 million during 2002 and $92.3 million during 2001 due to the expansion of the competitive local exchange business, acquisitions and growth in ILEC products and services.

        TDS adopted Statement of Financial Accounting Standards ("SFAS") No. 142 effective January 1, 2002, and ceased the amortization of license costs and goodwill on that date. TDS determined that no impairment charge was required upon the completion of the initial impairment review required by SFAS No. 142.

        Operating Income decreased 11% ($49.8 million) in 2002 and increased 4% ($16.1 million) in 2001. U.S. Cellular's operating income decreased 11% ($36.0 million) in 2002 and increased 9% ($24.9 million) in 2001. The decline in U.S. Cellular operating income in 2002 reflects the costs associated with the acquisition of Chicago 20MHz and increased marketing and depreciation expenses, offset somewhat by the effect of ceasing amortization of license costs and goodwill and the increase in customers and revenues. TDS Telecom's operating income declined 12% ($13.8 million) in 2002 and 7% ($8.8 million) in 2001. The decrease in TDS Telecom's operating income in 2002 was primarily due

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to increased ILEC and CLEC bad debts and increased operating losses from expanding the CLEC business.

        The table below represents the amounts that would have been reported as operating income in 2001 and 2000 if the non-amortization provisions of SFAS No. 142 had been in effect in such years and is presented in accordance with SFAS No. 142 in order to permit comparison with operating income in 2002.

			Year Ended December 31,
			2002			2001			2000
			(Dollars in thousands)
Operating Income
U.S. Cellular			$	281,166		$	317,212		$	292,313
		Amortization Expense		—			36,490			33,840
		As Adjusted		281,166			353,702			326,153
TDS Telecom
	ILEC—			167,914			161,916			142,708
		Amortization Expense		—			6,577			6,155
		As Adjusted		167,914			168,493			148,863
	CLEC—			(62,725	)		(42,973	)		(14,955	)
		Amortization Expense		—			225			225
		As Adjusted		(62,725	)		(42,748	)		(14,730	)
	Operating Income			386,355			436,155			420,066
		Amortization Expense		—			43,292			40,220
		As Adjusted	$	386,355		$	479,447		$	460,286

        Investment and Other Income (Expense) primarily includes gains and (losses) on marketable securities and other investments, dividend and interest income, investment income and loss on debt extinguishment.

        Dividend and interest income increased by $43.1 million in 2002 compared to 2001 due primarily to a $45.3 million Deutsche Telekom common share dividend. TDS became a Deutsche Telekom shareholder of record in June 2001 subsequent to the declaration of the 2001 annual dividend. Deutsche Telekom has indicated that it may not pay a dividend in 2003. Interest income has varied from period to period reflecting changes in amounts earning interest and changes in interest rates. Proceeds from the monetization activities will be temporarily invested in short-term interest bearing accounts. This increase in invested funds should increase interest income in 2003. See Financial Resources—Cash Flows from Continuing Financing Activities for a discussion of proceeds from the monetization activities.

        Investment income. TDS's share of income in unconsolidated entities in which it has a minority interest, totaled $43.7 million in 2002, $50.6 million in 2001 and $38.7 million in 2000. TDS follows the equity method of accounting, which recognizes TDS's proportionate share of the income and losses accruing to it under the terms of its partnership or shareholder agreements, where TDS's ownership interest equals or exceeds 20% for corporations and 3% to 5% for partnerships. A one-time gain was reported by an equity method investment increasing equity income by $5.1 million in 2001. Investment income in 2000 was reduced by $8.0 million of equity losses from a paging investment as a result of the paging company filing for bankruptcy.

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        Amortization of goodwill related to minority investments totaled $1.3 million in 2001 and $10.3 million in 2000. Beginning January 1, 2002, upon implementation of SFAS No. 142, the Company ceased amortization of equity method goodwill. Amortization of goodwill in 2000 included $7.7 million of amortization relating to a paging investment. The Company wrote-off the paging investment in 2000.

        Gain (loss) on marketable securities and other investments totaled $(1,888.4) million in 2002, $(548.3) million in 2001 and $15.7 million in 2000.

        In 2002, management determined that the decline in value of marketable securities relative to their accounting cost basis was other than temporary and charged a $1,757.5 million loss to the statement of operations. Generally accepted accounting principles ("GAAP") require management to determine whether a decline in fair value below the accounting cost basis is other than temporary. If management determines that the decline in value of the marketable equity securities is other than temporary, the unrealized loss included in other comprehensive income would be recognized and recorded as a loss in the statement of operations. See Application of Critical Accounting Policies—Marketable Equity Securities.

        TDS had notes receivable from Airadigm Communications, Inc. ("Airadigm") and Kington Management Corporation ("Kington") aggregating $100.6 million relating to the funding of Airadigm's operations and the purchase by Kington of certain of U.S. Cellular's minority interests in 2000. The values of the notes are directly related to the values of certain assets and contractual rights of Airadigm and the value of the minority cellular market interests. As a result of changes in business strategies and other events, a review of the Airadigm business plan and a review of the fair market value analysis of the cellular markets, including third party fair value analysis, management concluded that the notes receivable were impaired. Accordingly, TDS recorded a loss of $94.0 million in 2002 to establish a valuation allowance for the Airadigm notes receivable, write down the Kington notes receivable and write-off certain capitalized costs.

        TDS recorded additional losses in 2002 of $25.4 million related to the withdrawal from a partnership in which it had owned an investment interest, $7.3 million to the write down of a wireless investment to fair value and $4.2 million to the reduction in value of a land purchase option.

        In 2001, TDS realized a loss of $644.9 million as a result of the merger between VoiceStream Wireless Corporation ("VoiceStream") and Deutsche Telekom and a gain of $96.1 million as a result of the merger between Illuminet Holdings, Inc. and VeriSign Inc. The Company recognizes gains and losses on the difference between the accounting basis of the shares given up and the fair value of the shares and cash, if any, received in merger transactions.

        TDS received a final bankruptcy settlement totaling $0.5 million in 2001 after recording an $80.4 million write-off of its investment in a paging company that filed for Chapter 7 bankruptcy protection in 2000. The sale of non-strategic cellular interests and the settlement of a legal matter resulted in a gain of $96.1 million in 2000.

        Loss on extinguishment of debt totaled $7.0 million in 2001 and $36.9 million in 2000. TDS adopted SFAS No. 145 in the second quarter of 2002 and no longer reports gains and losses from the extinguishment of debt as an extraordinary item. Certain Liquid Yield Option Notes ("LYONs") were converted for cash resulting in the losses in 2001 and 2000.

        Interest Expense increased 27% ($28.5 million) in 2002 and 3% ($3.2 million) in 2001.

        The increase in interest expense in 2002 was primarily due to the issuance of $500 million of 7.6% Series A Notes in December 2001 ($34.8 million), to amounts related to variable prepaid forward contracts ("forward contracts") ($7.8 million), and to the issuance of 30-year, 9% Series A Notes ($4.6 million) and 30-year 8.75% Senior Notes ($1.8 million) by U.S. Cellular. The increase in 2002 was offset somewhat by a decrease in average short-term debt balances and related interest expense

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($12.1 million), a $116.5 million reduction in medium-term notes ($7.5 million), and a reduction in LYONs interest expense ($0.9 million). See Note 14—Long-term Debt and Note 15—Financial Instruments and Derivatives, for an explanation of the forward contracts.

        The increase in interest expense in 2001 was related primarily to an increase in short-term debt prior to the sale of $500 million of 7.6% Series A Notes in December 2001. Interest expense declined by $6.2 million due to the reduction in LYONs debt.

        Income Tax Expense (Benefit) was $(577.0) million in 2002, $(44.9) million in 2001 and $149.5 million in 2000. The tax benefit related to the loss on marketable securities and other investments was $720.5 million in 2002 and $211.9 million in 2001. The effective tax (benefit) rate was (37.1)% in 2002, (25.1)% in 2001, and 48.3% in 2000. The effective income tax rate excluding such gains and losses was 43.1%, 45.2% and 45.4% for the years ended December 31, 2002, 2001 and 2000, respectively. See Note 2—Income Taxes in the Notes to Consolidated Financial Statements for further discussion of the effective tax rate.

        Minority Share of Income includes the minority public shareholders' share of U.S. Cellular's net income, the minority shareholders' or partners' share of certain U.S. Cellular subsidiaries' net income or loss and other TDS minority interests. U.S. Cellular's minority public shareholders' share of U.S. Cellular's net income was reduced by $32.7 million in 2002 due to U.S. Cellular's $183.3 million, net of tax, loss on marketable equity securities and other investments in 2002. U.S. Cellular's minority public shareholders' share of U.S. Cellular's net income increased by $9.0 million in 2000 as a result of gains recorded in 2000 by U.S. Cellular.

			Year Ended December 31,
			2002			2001			2000
			(Dollars in thousands)
Minority Share of Income
	U.S. Cellular
		Minority Public Shareholders'	$	3,277		$	(31,163	)	$	(35,530	)
		Subsidiaries' Minority Interests		(12,281	)		(8,591	)		(7,062	)
				(9,004	)		(39,754	)		(42,592	)
	Other Subsidiaries			(64	)		(161	)		(2,434	)
			$	(9,068	)	$	(39,915	)	$	(45,026	)

        Discontinued Operations. The merger of Aerial Communications, Inc. with VoiceStream was completed on May 4, 2000. TDS recognized a gain of $2,125.8 million, net of tax, or $35.06 per diluted share on this transaction. The gain was reduced by $24.1 million, net of tax, or $.41 per diluted share, in 2001 to reflect adjustments to estimates used during the closing in the calculation of income and other tax liabilities.

        Cumulative Effect of Accounting Change. Effective January 1, 2002, U.S. Cellular changed its method of accounting for commissions expenses related to customer activations and began deferring expense recognition of a portion of commissions expenses in the amount of activation fees revenue deferred. The cumulative effect of this accounting change on periods prior to 2002 was recorded in 2002 increasing net income by $3.4 million, net of tax and minority interest, or $.06 per diluted share.

        Effective January 1, 2000, U.S. Cellular changed its method of accounting for certain activation and reconnection fees charged to its customers when initiating service through its retail and direct channels or when resuming service after suspension. The cumulative effect of this accounting change on periods prior to 2000 was recorded in 2000 reducing net income by $3.8 million, net of tax and minority interest, or $.06 per diluted share.

Net Income (Loss) Available to Common and Diluted Earnings Per Share were significantly affected by gains and losses from marketable securities and other investments and ceasing the amortization of license costs and goodwill effective January 1, 2002, upon adoption of SFAS No. 142.

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WIRELESS TELEPHONE OPERATIONS

        TDS provides wireless telephone service through United States Cellular Corporation ("U.S. Cellular"), an 82.2%-owned subsidiary. U.S. Cellular owns, manages and invests in wireless markets throughout the United States. Growth in the customer base is the primary reason for the change in U.S. Cellular's results of operations in 2002 and 2001. The number of customer units increased 19% to 4,103,000 at December 31, 2002 and increased 13% to 3,461,000 at December 31, 2001. In 2002, U.S. Cellular added 310,000 net new customer units from its marketing efforts and 332,000 customer units from acquisitions. U.S. Cellular added 354,000 net new customer units from its marketing efforts and 46,000 customer units from acquisitions in 2001.

			Year Ended December 31,
			2002			2001			2000
			(Dollars in thousands)
Operating Revenues
	Retail service		$	1,682,020		$	1,408,253		$	1,227,590
	Inbound roaming			255,443			272,361			292,437
	Long-distance and other			161,430			145,771			133,895
		Service Revenues		2,098,893			1,826,385			1,653,922
	Equipment sales			85,585			68,445			62,718
				2,184,478			1,894,830			1,716,640
Operating Expenses
	System operations			492,750			421,114			350,507
	Marketing and selling			368,888			297,239			303,721
	Cost of equipment sold			185,283			124,028			139,654
	General and administrative			505,237			434,579			364,747
	Depreciation and amortization			351,154			300,658			265,698
				1,903,312			1,577,618			1,424,327
Operating Income				281,166			317,212			292,313
	Add amortization of goodwill and license costs			—			36,490			33,840
Operating Income, as adjusted			$	281,166		$	353,702		$	326,153
Consolidated Markets:
	Markets			149			142			139
	Market penetration			11.22	%		13.48	%		12.29	%
	Cell sites in service			3,914			2,925			2,501
	Average monthly service     revenue per customer unit		$	47.25		$	46.28		$	49.21
	Total Churn rate per month			2.1	%		1.9	%		2.0	%
	Post-pay churn rate per month			1.8	%		1.7	%		1.8	%
	Cost per gross     customer addition		$	365		$	322		$	330
	Employees			6,100			5,150			5,250

        The operating income as adjusted amounts for 2001 and 2000 in the table above represent the amounts that would have been reported as operating income in those years if the non-amortization provisions of SFAS No. 142 had been in effect in such years, and is presented in accordance with SFAS No. 142 in order to permit comparison with operating income in 2002.

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        Operating Revenues increased 15% ($289.6 million) in 2002 and 10% ($178.2 million) in 2001. The revenue increases were driven by the 19% and 13% growth in customer units in 2002 and 2001, respectively. The Chicago 20MHz acquisition in 2002 increased operating revenues by $76.1 million and total service revenues by $68.5 million since the date of the acquisition in August 2002. Average monthly service revenue per customer was $47.25 in 2002, $46.28 in 2001 and $49.21 in 2000.

        Retail service revenues (charges to U.S. Cellular's customers for local system usage and usage of systems other than their local systems) increased 19% ($273.8 million) in 2002 and 15% ($180.7 million) in 2001 due primarily to the growth in customers and the acquisition of Chicago 20MHz. Average monthly retail service revenue per customer was $37.86 in 2002, $35.68 in 2001 and $36.52 in 2000. Local minutes of use averaged 304 per month in 2002, 216 per month in 2001 and 157 per month in 2000, while average retail service revenue per minute continued to decline. Competitive pressures and U.S. Cellular's use of incentive programs and rate plans to stimulate overall usage resulted in the lower average monthly retail service revenue per minute of use.

        Inbound roaming revenues (charges to other wireless service providers whose customers use U.S. Cellular's systems when roaming) decreased 6% ($16.9 million) in 2002 and 7% ($20.1 million) in 2001. Lower negotiated roaming rates have offset increased minutes of use, resulting in decreased roaming revenues in both years.

        Management anticipates that the future rate of growth in inbound roaming minutes of use will be reduced due to newer customers roaming less than existing customers, reflecting further penetration of the consumer market. In addition, as other wireless operators expand service in U.S. Cellular markets, roaming partners may switch their business to these operators. Average inbound roaming revenue per minute of use is expected to continue to decline in the future, reflecting the general downward trend in negotiated rates.

        Long-distance and other revenues increased 11% ($15.6 million) in 2002 and 9% ($11.9 million) in 2001. The volume of long-distance calls billed by U.S. Cellular increased in both years primarily from inbound roamers using U.S. Cellular's systems to make calls. The increase in volume was partially offset in both years by price reductions primarily related to long-distance charges on roaming minutes of use as well as U.S. Cellular's increasing use of pricing plans that include long-distance calling at no additional charge. Average monthly long-distance and other revenue per customer was $3.63 in 2002, $3.70 in 2001 and $3.99 in 2000.

        Equipment sales revenues increased 25% ($17.1 million) in 2002 and 9% ($5.7 million) in 2001. In order to provide better control over handset quality, U.S. Cellular began selling handsets to agents beginning in the second quarter of 2002 at a price approximately equal to cost. Equipment sales revenue is recognized upon delivery of the related products to the agents, net of any anticipated agent rebates. In most cases, the agents receive a rebate from U.S. Cellular at the time the agents sign up a new customer or retain a current customer. Handset sales to agents, net of all rebates, increased equipment sales revenues by $20.8 million in 2002.

        Operating Expenses increased 21% ($325.7 million) in 2002 and 11% ($153.3 million) in 2001. Chicago 20MHz increased operating expenses by $142.2 million since the acquisition in August 2002. Operating expenses as a percent of service revenue were 90.7% in 2002, 86.4% in 2001 and 86.1% in 2000. The increase in operating expenses as a percentage of service revenues relates primarily to additional expenses related to the operations of Chicago 20MHz.

        Costs of providing service (system operations expenses) increased 17% ($71.6 million) in 2002 and 20% ($70.6 million) in 2001. Systems operations expenses as a percent of service revenues were 23.5% in 2002, 23.1% in 2001 and 21.2% in 2000. Systems operations expenses include customer usage expenses (charges from other service providers for wireline connection, toll and roaming costs incurred by customers' use of systems other than their local systems), and maintenance, utility and cell site

7

expenses. In 2002, system operations expense increased primarily due to a $33.9 million increase in the cost of minutes used on the systems, a $28.1 million increase in the cost of maintaining the network and a $9.6 million increase in the costs associated with customer roaming on other companies' systems. Included in the 2002 increases above are $15.7 million of expenses related to Chicago 20MHz. The increase in systems operations expense in 2001 was primarily due to a $38.8 million increase in the costs associated with customers roaming on other companies' systems, a $19.6 million increase in the cost of maintaining the network and a $12.2 million increase related to the increased volume of minutes used on the systems.

        Costs to expand the customer base consist of marketing and selling expenses and the cost of equipment sold. These expenses less equipment sales revenue represent the cost to add a new customer. Rebates paid to agents on equipment sales revenue related to the retention of current customers, $14.6 million in 2002, are subtracted from the total costs to add a new customer for the purposes of calculating cost per gross customer activation. The cost to add a new customer was $365 in 2002, $322 in 2001 and $330 in 2000. Gross customer activations (excluding acquired customers) increased 14% in 2002 and declined 5% in 2001.

        Marketing and selling expenses (sales salaries, commissions, advertising and marketing, merchandise management expenses) increased 24% ($71.6 million) in 2002 and decreased 2% ($6.5 million) in 2001. The increase in 2002 was primarily due to enhancements made to merchandise management and telesales processes and the development of data services strategies ($25.7 million) and advertising costs primarily related to the Chicago brand launch ($25.7 million). In total, Chicago 20MHz expenses totaled $42.3 million, some of which are included in the advertising costs noted above.

        In 2002, U.S. Cellular changed its accounting for commissions expenses, reflecting a change in its method of applying Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial Statements." Effective January 1, 2002, U.S. Cellular began deferring expense recognition of a portion of its commissions expenses, in the amount of activation fees revenue deferred. U.S. Cellular recognizes the related commissions expense over the average customer life, which is estimated to be a 48-month period. This change resulted in a reduction in marketing and selling expenses of $2.8 million in 2002, and a cumulative effect on prior periods as of January 1, 2002, of $3.4 million, net of tax and minority interest.

        The decrease in marketing and selling costs in 2001 was primarily due to a 5% decrease in gross customer activations. Also, during the second half of 2001, U.S. Cellular changed certain agent compensation plans to reduce the base commission payment and include future residual payments to agents. Such residual payments recognize the agent's role in providing ongoing customer support, promote agent loyalty and encourage agent sales to customers who are more likely to have greater usage and remain customers for a longer period of time. As a greater percentage of U.S. Cellular's customer base becomes activated by agents receiving residual payments, it is possible that aggregate residual payments to agents may grow by a larger percentage than the growth in gross customer activations.

        Cost of equipment sold increased 49% ($61.3 million) in 2002 and decreased 11% ($15.6 million) in 2001. The increase in 2002 is primarily due to the sale of handsets to agents ($55.8 million) and the acquisition of Chicago 20MHz ($19.6 million). Excluding these factors, cost of equipment sold would have decreased $14.1 million due to the reduction in per unit cost of handsets sold, offset by a 14% increase in gross customer activations. The decline in 2001 is primarily due to the 5% decrease in gross customer activations.

        General and administrative expenses (costs of customer service, local and regional business offices and corporate expenses) increased 16% ($70.7 million) in 2002 and 19% ($69.9 million) in 2001. General and administrative expenses as a percent of service revenues were 24.1% in 2002, 23.8% in 2001 and 22.1% in 2000. The increase in general and administrative expenses in 2002 is primarily due

8

to the increase in bad debt expense of $35.0 million and an increase in customer service related expenses as a result of the 19% increase in the customer base. Chicago 20MHz expenses, some of which are included in the explanation above, totaled $40.4 million in 2002. In 2001, the increase in general and administrative expenses was primarily due to a $27.8 million increase in administrative employee-related expenses and a $9.8 million increase in customer retention costs.

        Depreciation and amortization expense as a percent of service revenues was 16.7% in 2002, 16.5% in 2001 and 16.1% in 2000. Depreciation expense increased 31% ($74.6 million) in 2002 and 15% ($31.4 million) in 2001, reflecting increases in average fixed asset balances of 31% and 20%, respectively. Increased fixed asset balances in both years resulted from additions of new cell sites built to improve coverage and capacity, additions of digital radio channels to accommodate increased usage, upgrades to provide digital service and commencement of the migration to a single digital platform. Depreciation expense increased by $16.9 million due to the acquisition of Chicago 20MHz in August 2002. In addition, depreciation increased by $15.0 million in 2002 to reflect the write-off of certain analog radio equipment based on fixed asset inventory reviews.

        Amortization expense decreased 38% ($24.2 million) in 2002 and increased 6% ($3.5 million) in 2001. The decrease in amortization expense in 2002 is a result of the implementation of SFAS No. 142. U.S. Cellular determined that licenses have indefinite lives and no longer amortizes the intangible asset. No impairment charge was required upon the completion of the initial impairment review. Amortization of license costs and goodwill totaled $36.5 million in 2001 and $33.8 million in 2000.

        Operating Income decreased 11% ($36.0 million) to $281.2 million in 2002 from $317.2 million in 2001 and increased 9% ($24.9 million) in 2001 from $292.3 million in 2000. The decline in operating income in 2002 was primarily due to the acquisition and subsequent brand launch of Chicago 20MHz, increased costs to provide service driven by increases in cell sites and minutes of use and increased depreciation expense. The increased expenses were offset somewhat by increases in revenues and reductions in license cost and goodwill amortization. The improvement in operating income in 2001 was primarily driven by the substantial growth in customer units and revenue. Operating margin, as a percent of service revenue, was 13.4% in 2002, 17.4% in 2001 and 17.7% in 2000.

        Management expects service revenues to continue to grow during 2003; however, management anticipates that average monthly service revenue per customer will decrease as retail service revenue per minute of use and inbound roaming revenue per minute of use decline.

        Related to U.S. Cellular's acquisition and subsequent transition of the Chicago 20MHz operations, U.S. Cellular plans to incur additional expenses in 2003 as it competes in the Chicago market. Additionally, U.S. Cellular plans to build out its network into other as yet unserved portions of its PCS licensed areas and will begin marketing operations in those areas during 2003 and 2004. All expense categories will be affected by these startup and transition activities, and there is no assurance that the expenses incurred will result in any increase in revenues over the startup and transition periods. As a result, U.S. Cellular's operating income and operating margins may decrease during 2003 and 2004.

        Management believes U.S. Cellular's operating results reflect seasonality in both service revenues, which tend to increase more slowly in the first and fourth quarters, and operating expenses, which tend to be higher in the fourth quarter due to increased marketing activities and customer growth. This seasonality may cause operating income to vary from quarter to quarter. Management anticipates that the impact of such seasonality will decrease in the future, particularly as it relates to operating expenses, as the proportion of full year customer activations derived from fourth quarter holiday sales is expected to decline.

        Competitors licensed to provide wireless services have initiated service in many of U.S. Cellular's markets over the past several years. U.S. Cellular expects other wireless operators to continue deployment of their networks throughout all its service areas during 2003. U.S. Cellular's management

9

continues to monitor other wireless communications providers' strategies to determine how this additional competition is affecting U.S. Cellular's results. The effects of additional wireless competition have significantly slowed customer growth in certain of U.S. Cellular's markets. Coupled with the downturn in the nation's economy, the effect of increased competition has caused U.S. Cellular customer growth in these markets to be slower than expected over the past 18 months although U.S.Cellular's overall customer growth improved in the second half of 2002 due primarily to the acquisition and promotions associated with the brand launch of the Chicago market. Management anticipates that customer growth may be slower in the future, primarily as a result of the increase in competition in its markets and the maturation of the wireless industry. There can be no assurance that the marketing efforts in the transition and startup markets will result in additional customer or revenue growth in the future.

Acquisition of Chicago 20MHz

        On August 7, 2002, U.S. Cellular completed the acquisition of Chicago 20MHz, representing 13.2 million population equivalents (POPs), for approximately $618 million. U.S. Cellular financed the purchase using its revolving lines of credit, $175 million in 9% Series A Notes due 2032 and proceeds from a $105 million loan from TDS.

        The Chicago MTA is the fourth largest MTA in the United States. The markets that comprise the Chicago MTA are adjacent to U.S. Cellular's Iowa, Illinois, Wisconsin and Indiana markets, which is its largest contiguous service area. Of the total Chicago MTA population of 13.2 million, approximately 81% was not previously covered by U.S. Cellular's licenses. There is a strong community of interest between U.S. Cellular's other Midwest markets and the Chicago 20MHz markets. The Chicago MTA was the single largest roaming destination of U.S. Cellular's customers prior to the acquisition.

        Chicago 20MHz owns licenses covering 18 Basic Trading Areas ("BTAs") that comprise the Chicago MTA. The Chicago MTA includes, among others, the Chicago, Bloomington-Normal, Champaign- Urbana, Decatur-Effingham, Peoria, Rockford and Springfield BTAs in Illinois, the South Bend and Fort Wayne BTAs in Indiana and the Benton Harbor BTA in Michigan.

        U.S. Cellular launched its "U.S. Cellular" brand in the Chicago 20MHz licensed area in the fourth quarter of 2002. In conjunction with this brand launch, U.S. Cellular has incurred additional costs for advertising and customer care in 2002 and plans to incur similar costs in 2003. Additionally, U.S. Cellular plans to invest approximately $90 million in capital expenditures during the first year following the Chicago 20MHz acquisition, $65 million of which had been spent in 2002. These capital investments will improve coverage in the Chicago 20MHz network, including an upgrade of the current CDMA system to 1XRTT, and will enhance U.S. Cellular's marketing distribution in the Chicago market.

        U.S. Cellular competes in the Chicago MTA directly against larger and more established wireless service providers, as it does in many of its other markets. The other wireless carriers competing in all or part of the Chicago MTA include Cingular, Verizon Wireless, AT&T Wireless, Sprint PCS, Nextel and T-Mobile. These competitors provide wireless services on a substantially national basis. As a result, they have customer bases and financial resources substantially greater than U.S. Cellular, which is a regional competitor.

WIRELINE TELEPHONE OPERATIONS

        TDS operates its wireline telephone operations through TDS Telecommunications Corporation ("TDS Telecom"), a wholly-owned subsidiary. TDS Telecom served 1,002,600 equivalent access lines at the end of 2002, an increase of 132,200 lines over 2001. At the end of 2001, TDS Telecom served 870,400 equivalent access lines, an increase of 138,700 equivalent access lines over 2000. TDS Telecom provides service through local telephone operations, or incumbent local exchange companies ("ILEC") and through competitive local exchange companies ("CLEC").

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        TDS Telecom's local telephone companies served 711,200 equivalent access lines at the end of 2002 compared to 678,300 at the end of 2001 and 619,600 at the end of 2000. Local telephone operations have grown through acquisitions and internal growth. Acquisitions added 27,000 lines in 2002 and 44,900 lines in 2001, and internal growth added 5,900 lines in 2002 and 13,800 lines in 2001.

        Total long distance access minutes of use declined 2.3% in 2002 and remained flat in 2001 from 2000. Slower growth in internal equivalent access lines and the decrease in long distance access minutes of use are due primarily to a weaker economy, the use of high capacity lines, DSL implementation and wireless, email and broadband substitution.

        TDS Telecom's competitive local exchange companies served 291,400 equivalent access lines at the end of 2002 compared to 192,100 lines at the end of 2001 and 112,100 at the end of 2000. Internal growth in access lines has increased as CLEC operations have increased their presence in current markets and expanded into new markets.

        Access line equivalents are derived by converting each high capacity data line to the estimated equivalent number, in terms of capacity, of switched access lines. The historical statistics for the ILECs, which had been based on access lines, have been adjusted to an equivalent number of access lines. The change to equivalent access line reporting was made to account for an increasing use of data lines. The statistics for CLECs have been and continue to be reported using access line equivalents.

        Operating Revenues increased 15% ($107.2 million) to $800.9 million in 2002 and 14% ($83.5 million) to $693.7 million in 2001. The increase was due to the growth in local telephone operations, including growth from acquisitions and services such as long-distance resale, and the expansion of competitive local exchange activities.

        Operating Expenses totaled $695.7 million in 2002, up 21% ($120.9 million) from 2001 and totaled $574.8 million in 2001, up 19% ($92.3 million) from 2000. The increase in operating expenses related primarily to the growth in expenses from the provision of long-distance and DSL service, ILEC acquisitions and continued expenses from expansion of competitive local exchange activities.

        Operating Income decreased 12% ($13.8 million) in 2002 and 7% ($8.8 million) in 2001. TDS Telecom's overall operating margin was 13.1% in 2002, 17.1% in 2001 and 20.9% in 2000. Operating income in 2002 does not include amortization of goodwill. Amortization expense totaled $6.8 million in 2001 and $6.4 million in 2000.

11

			Year Ended December 31,
			2002			2001			2000
			(Dollars in thousands)
Incumbent Local Exchange Operations
	Operating Revenues
		Local Service	$	192,511		$	179,529		$	168,775
		Network access and long-distance		346,597			319,410			285,738
		Miscellaneous		87,679			77,878			74,468
				626,787			576,817			528,981
	Operating Expenses
		Operating expenses		328,641			283,114			261,884
		Depreciation and amortization		130,232			131,787			124,389
				458,873			414,901			386,273
	Local Telephone
		Operating Income	$	167,914		$	161,916		$	142,708
Competitive Local Exchange Operations
	Operating Revenues		$	176,602		$	118,812		$	84,720
	Operating Expenses
		Operating expenses		210,268			144,211			90,619
		Depreciation and amortization		29,059			17,574			9,056
				239,327			161,785			99,675
		Competitive Local Exchange Operating (Loss)		(62,725	)		(42,973	)		(14,955	)
	Intercompany revenue elimination			(2,501	)		(1,917	)		(3,485	)
	Intercompany expense elimination			(2,501	)		(1,917	)		(3,485	)
Operating Income				105,189			118,943			127,753
Add amortization of goodwill				—			6,802			6,380
Operating Income, as adjusted			$	105,189		$	125,745		$	134,133
Equivalent Access lines (ILEC)				711,200			678,300			619,600
Growth in ILEC equivalent access lines:
	Acquisitions			27,000			44,900			10,300
	Internal growth			5,900			13,800			26,000
Average monthly revenue per equivalent ILEC access line			$	74.71		$	74.96		$	72.99
Equivalent Access lines (CLEC)				291,400			192,100			112,100
Average monthly revenue per CLEC equivalent access line			$	60.13		$	67.89		$	80.37
Employees				3,570			3,410			2,820

        The operating income as adjusted amounts for 2001 and 2000 in the table above represent the amounts that would have been reported as operating income in those years if the non-amortization provisions of SFAS No. 142 had been in effect in such years and is presented in accordance with SFAS No. 142 in order to permit comparison with operating income in 2002.

Local Telephone Operations

        Operating revenues increased 9% ($50.0 million) to $626.8 million in 2002 and 9% ($47.8 million) to $576.8 million in 2001. Average monthly revenue per local telephone equivalent access line was $74.71 in 2002, $74.96 in 2001 and $72.99 in 2000. Local telephone operating revenues are anticipated to grow slightly in 2003.

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        Local service revenues (provision of local telephone exchange service within the franchise serving area of TDS Telecom's local telephone companies) increased 7% ($13.0 million) in 2002 and 6% ($10.8 million) in 2001. Average monthly local service revenue per equivalent access line was $22.95 in 2002, $23.33 in 2001 and $23.29 in 2000. Acquisitions increased revenues by $10.6 million and $4.8 million in 2002 and 2001, respectively. The sale of custom calling and advanced features increased revenues by $2.1 million in 2002 and $2.6 million in 2001. Access line growth, excluding acquisitions, resulted in increases in revenues of $1.4 million and $3.5 million, respectively.

        Network access and long-distance revenues (compensation for carrying interstate and intrastate long-distance traffic on TDS Telecom's local telephone networks) increased 9% ($27.2 million) in 2002 and 12% ($33.7 million) in 2001. Average monthly network access and long-distance revenue per equivalent access line was $41.31 in 2002, $41.51 in 2001 and $39.43 in 2000. Acquisitions increased revenues by $17.2 million in 2002 and $6.5 million in 2001. Revenues increased by $11.4 million in 2002 and $16.3 million in 2001 as TDS Telecom began selling long-distance service to its customers in the third quarter of 2000. Revenue generated from increased network usage increased $1.6 million in 2002 and $7.1 million in 2001. Compensation from state and national revenue pools for recovery of the expense of providing network access decreased $3.5 million in 2002 and increased $4.3 million in 2001.

        Miscellaneous revenues (charges for (i) leasing, selling, installing and maintaining customer premise equipment, (ii) providing billing and collection services, (iii) providing Internet services and (iv) selling of digital broadcast satellite receivers) increased 13% ($9.8 million) in 2002 and 5% ($3.4 million) in 2001. Acquisitions increased revenues by $9.6 million while revenue from data transmission services increased $7.8 million in 2002. Billing and collection revenues declined by $6.3 million in 2002.

        Operating expenses increased 11% ($44.0 million) in 2002 and 7% ($28.6 million) in 2001. Local telephone expenses as a percent of local telephone revenues were 73.2% in 2002, 71.9% in 2001 and 73.0% in 2000.

        The increases in local telephone expenses related primarily to acquisitions, the cost of providing Internet service, the sale of long-distance service and wage and benefit increases. TDS Telecom has emphasized cost containment measures to offset rising costs. Acquisitions increased cash expenses by $22.9 million in 2002 and $10.0 million in 2001. The cost of providing DSL and Internet service increased by $8.4 million in 2002 and $2.6 million in 2001. Bad debt expense, net of National Exchange Carrier Association ("NECA") pool recoveries, increased by $7.8 million in 2002 primarily related to the bankruptcy filings of WorldCom and Global Crossing. The sale of long-distance service by TDS Telecom increased expenses by $7.6 million in 2002 and $10.7 million in 2001. Depreciation and amortization expenses decreased 1% ($1.6 million) in 2002 and increased 6% ($7.4 million) in 2001. The increased investment in plant and equipment was offset by the reduction in goodwill amortization in 2002. In accordance with SFAS No. 142, effective January 1, 2002, TDS Telecom no longer amortizes telephone franchise costs (goodwill). No impairment charge was required upon the completion of the initial impairment review in 2002. Amortization expense of goodwill amounted to $6.6 million in 2001 and $6.2 million in 2000.

        Operating income increased 4% ($6.0 million) to $167.9 million in 2002 and 14% ($19.2 million) to $161.9 million in 2001 from $142.7 million in 2000. The local telephone operating margin was 26.8% in 2002, 28.1% in 2001 and 27.0% in 2000. The decrease in operating margin in 2002 was primarily due to the additional bad debt expenses incurred related to the bankruptcy filings of WorldCom and Global Crossing. The increase in operating margin in 2001 was caused by the growth in revenue along with the emphasis on controlling costs. Local telephone operating expenses are expected to increase due to inflation while additional revenues and expenses are expected from new or expanded product offerings.

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        TDS Telecom's local telephone operations are subject to the provisions of SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation." TDS Telecom periodically reviews the criteria for applying these provisions to determine whether continuing application of SFAS No. 71 is appropriate. TDS Telecom believes that such criteria are still being met and therefore has no current plans to change its method of accounting.

        In analyzing the effects of discontinuing the application of SFAS No. 71, management has determined that the useful lives of plant assets used for regulatory and financial reporting purposes are consistent with generally accepted accounting principles, and therefore, any adjustments to telecommunications plant would be immaterial, as would be any write-off of regulatory assets and liabilities.

Competitive Local Exchange Operations

        TDS Telecom's CLEC strategy maintains a geographic focus and is designed to leverage TDS Telecom's existing management and infrastructure to complement TDS Telecom's ILEC clustering strategy. TDS Telecom has followed a strategy of controlled entry into certain targeted mid-size communities, regionally proximate to existing TDS Telecom facilities and service areas, with facilities-based entry as a CLEC. TDS Telecom intends to be the leading alternative provider for customers' wired telecommunications needs in its CLEC markets.

        TDS Telecom's first CLEC, TDS Metrocom, became operational providing service in Madison, WI in January 1998. TDS Metrocom is a facilities-based, full-service alternative to the incumbent local exchange carrier, providing both voice and data services to commercial and consumer accounts, as well as wholesale services to inter-exchange carriers and other carriers. TDS Telecom also began offering local service through USLink on a resale basis in 1998 in Minnesota. TDS Metrocom operates as a CLEC in the greater Fox Valley area, suburban Milwaukee, Racine, Kenosha, Janesville and Beloit, WI markets. In early 2001, TDS Metrocom began facility-based services in Rockford and the Lake County northern suburbs of Chicago, IL. In mid-2001, TDS Metrocom extended its facility-based services to the greater Grand Rapids area, Kalamazoo, Battle Creek, Holland, Grand Haven, Lansing, Jackson, Ann Arbor and the western suburbs of Detroit, MI markets. Equivalent access lines increased by 52% in 2002 (99,300) and 71% (80,000) in 2001.

        Operating revenues (revenue from the provision of local and long-distance telephone service and revenue from a long-distance provider) increased 49% ($57.8 million) to $176.6 million in 2002 and 40% ($34.1 million) to $118.8 million in 2001. The increases were primarily due to the increases in equivalent access lines in both years. Average monthly revenue per equivalent access line was $60.13 in 2002, $67.89 in 2001 and $80.37 in 2000.

        Operating expenses increased 48% ($77.5 million) in 2002 and 62% ($62.1 million) in 2001 due primarily to the costs incurred to grow the customer base and expand the service territories in Wisconsin, Illinois and Michigan. Operating expenses include a $2.4 million charge relating to the WorldCom and Global Crossing bankruptcies and an increase in retail bad debt expense of $8.6 million in 2002.

        Operating loss totaled $62.7 million in 2002, $43.0 million in 2001 and $15.0 million in 2000. The competitive local exchange operating losses reflect the expenses associated with the growth and expansion in the business. Operating losses from competitive local exchange operations are anticipated to decrease in 2003 due to increased revenues from customers and a reduction in market expansion costs.

14

RECENT ACCOUNTING PRONOUNCEMENTS

        SFAS No. 143, "Accounting for Asset Retirement Obligations," was issued in June 2001, and will become effective for the Company beginning January 1, 2003. SFAS No. 143 requires entities to record the fair value of a liability for legal obligations associated with an asset retirement in the period in which the obligation is incurred. When the liability is initially recorded, the entity capitalizes the cost of the asset retirement obligation by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset.

        U.S. Cellular has reviewed its contractual obligations under SFAS No. 143 and has determined that, based upon its historical experience with asset retirements, the impact of adopting this standard will not have a material effect on its financial position and results of operations.

        TDS's ILEC companies follow the provisions of SFAS No. 71, and therefore conform to the accounting principles as prescribed by the respective state public utilities commissions and other federal agencies, and where applicable, accounting principles generally accepted in the United States of America. On December 20, 2002, the Federal Communications Commission ("FCC") notified carriers by Order that it will not adopt SFAS No. 143 since the FCC concluded that SFAS No. 143 conflicted with the FCC's current accounting rules that require incumbent local telephone companies to accrue for asset retirement obligations through prescribed depreciation rates. Pursuant to the FCC order and the provisions of SFAS No. 71, the Company has determined that the adoption of SFAS No. 143 will not have a material impact on the financial position or results of operations of the Company's regulated telephone companies.

        TDS Telecom's unregulated telephone enterprises will adopt SFAS No. 143 effective January 1, 2003, and the Company has determined that this standard will not have a material effect on the Company's financial position or results of operations.

        FASB Interpretation ("FIN") No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" was issued in November 2002. FIN No. 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements are effective for periods ending after December 15, 2002. The initial recognition and initial measurement provisions shall be applied only on a prospective basis to guarantees issued or modified after December 31, 2002. The Company adopted the disclosure provisions in 2002 and will adopt the recognition and measurement provisions for guarantees issued or modified after December 31, 2002.

15

FINANCIAL RESOURCES

        The following table shows certain information relating to TDS's financial resources and requirements.

		Year Ended December 31,
		2002			2001			2000
		(Dollars in thousands)
Cash flows from (used in)
	Operating activities	$	793,637		$	545,805		$	755,422
	Investing activities		(1,366,584	)		(519,858	)		(605,659	)
	Financing activities		1,731,139			15,778			(155,191	)
	Discontinued operations		—			—			(6,563	)
Net increase (decrease) in cash and cash equivalents		$	1,158,192		$	41,725		$	(11,991	)

        Cash Flows From Continuing Operating Activities represents a significant source of funds to the Company. Income from continuing operations excluding adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities, excluding proceeds from litigation settlement and changes in assets and liabilities from operations ("noncash items") totaled $815.5 million in 2002, $583.7 million in 2001 and $592.5 million in 2000. Proceeds from the settlement of litigation added $42.5 million in 2000. Changes in assets and liabilities from operations required $21.9 million in 2002, required $37.9 million in 2001 and provided $120.5 million in 2000, reflecting timing differences in the collection of accounts receivable, payment of accounts payable and accrued taxes. The following table is a summary of the components of cash flows from continuing operating activities.

	Year Ended December 31,
	2002			2001			2000
	(Dollars in thousands)
Income (loss) from continuing operations	$	(987,737	)	$	(173,963	)	$	115,056
Noncash items included in income from continuing operations		1,803,279			757,688			477,420
Income from continuing operations excluding noncash items		815,542			583,725			592,476
Proceeds from litigation settlement		—			—			42,457
Changes in assets and liabilities from operations		(21,905	)		(37,920	)		120,489
	$	793,637		$	545,805		$	755,422

        Cash Flows From Continuing Investing Activities primarily represents uses of funds to acquire, construct and upgrade modern high-quality communications networks and facilities as a basis for creating long-term value for shareowners. In recent years, rapid changes in technology and new opportunities have required substantial investments in revenue enhancing and cost reducing upgrades of TDS's networks. Cash flows used for investing activities primarily represent cash required for capital expenditures, and the acquisition of wireless and telephone properties and wireless spectrum. Proceeds from merger transactions, the sale of non-strategic properties and distributions from unconsolidated entities have provided substantial funds in recent years which have partially offset the cash requirements for investing activities; however, such sources cannot be relied upon to provide continuing or regular sources of financing.

16

        The primary purpose of TDS's construction and expansion expenditures is to provide for customer growth and increasing customer usage of the network, to upgrade service and to take advantage of service-enhancing and cost-reducing technological developments in order to maintain competitive services. Cash expenditures for capital additions totaled $899.0 million in 2002, $700.2 million in 2001 and $456.0 million in 2000. U.S. Cellular's capital additions totaled $730.6 million in 2002, $503.3 million in 2001 and $305.4 million in 2000. Construction of cell sites totaled 437 cell sites in 2002, 377 in 2001 and 224 in 2000. In 2002, the plant additions included the migration toward a single digital platform, and in all three years, included the addition of digital radio channels to accommodate increased usage, the replacement of retired assets, the change out of analog equipment for digital equipment and the improvement of information systems. TDS Telecom's capital additions for its local telephone operations totaled $116.5 million in 2002, $99.9 million in 2001 and $93.4 million in 2000 representing expenditures for switch modernization and outside plant facilities to maintain and enhance the quality of service and offer new revenue opportunities. TDS Telecom's capital additions also included expenditures of $51.9 million in 2002, $96.9 million in 2001 and $57.2 million in 2000 for switching and other network facilities for its competitive local exchange business.

        Cash used for acquisitions, excluding cash acquired, totaled $531.2 million in 2002, $392.8 million in 2001 and $200.7 million in 2000. TDS's acquisitions include primarily the purchase of controlling interests in wireless markets and telephone properties, minority interests that increased the ownership of majority-owned markets and wireless spectrum.

        On August 7, 2002, U.S. Cellular completed the acquisition of Chicago 20MHz. U.S. Cellular paid $431.9 million in cash, net of cash acquired, and issued $175 million of 9% Notes due in 2032 to PrimeCo. U.S. Cellular financed the cash portion of the purchase price by using its revolving lines of credit and a $105 million loan from TDS. An additional $10.5 million was paid in January 2003 to adjust the purchase price for the final working capital adjustment. The Company also acquired two telephone companies ($78.2 million), three PCS licenses ($18.0 million) and additional minority interests in majority owned markets ($3.1 million) in 2002.

        In 2001, the Company added the majority interests in one cellular market, 26 PCS licenses and two telephone companies. The PCS licenses were acquired on U.S. Cellular's behalf and through joint ventures. The PCS licenses acquired through joint ventures are 100% owned by the joint ventures, and the Company is considered to have the controlling financial interest in these joint ventures for financial reporting purposes. The joint venture interests are consolidated in TDS's and U.S. Cellular's financial statements.

        In 2000, the Company acquired the majority interests in two cellular markets, one telephone company and a minority interest in one telephone company.

        U.S. Cellular received a cash refund of $56.1 million on its FCC deposits in 2002. Cash totaling $570.0 million was received by TDS from the merger of Deutsche Telekom and VoiceStream along with 131.5 million Deutsche Telekom AG ordinary shares in 2001. The sale of non-strategic cellular assets and other investments provided $73.0 million in 2000.

        TDS loans and advances, primarily to Airadigm Communications, Inc., totaled $2.6 million in 2002, $9.8 million in 2001 and $55.1 million in 2000. Distributions from unconsolidated investments provided $31.3 million in 2002, $16.6 million in 2001 and $34.8 million in 2000. The 2000 amount included a special nonrecurring distribution of $11.8 million.

        Cash Flows From Continuing Financing Activities primarily reflects changes in short-term debt balances, proceeds from the sale of long-term debt and from entering into forward contracts, cash used to repurchase common shares, and cash used for the repurchase and conversion of LYONs securities.

        The Company has used short-term debt to finance acquisitions, for general corporate purposes and to repurchase common shares. Internally generated funds as well as proceeds from forward contracts

17

and the sale of non-strategic cellular and other investments, from time to time, have been used to reduce short-term debt. In addition, TDS has taken advantage of opportunities to reduce short-term debt with proceeds from the sale of long-term debt securities, including sales of debt securities by subsidiaries.

        In 2002, the Company received $1,631.8 million from forward contracts related to its investments in Deutsche Telekom, Vodafone and VeriSign. A portion of the proceeds from the Deutsche Telekom and VeriSign forward contracts were used by TDS to pay down TDS's short-term debt. The remaining cash from the forward contracts is currently in Cash and cash equivalents. U.S. Cellular used the proceeds from its Vodafone forward contract to pay down short-term debt.

        In November 2002, U.S. Cellular issued $130 million face value of 8.75% Senior Notes due in November 2032. The net proceeds of $129.8 million, after the reimbursement of expenses, were used to repurchase a portion of the $175 million 9% Series A Notes that U.S. Cellular issued in connection with the acquisition of Chicago 20MHz. TDS received $484.2 million from the sale of $500 million 40-year 7.6% Series A Notes in 2001. The proceeds were used to reduce short-term debt. TDS retired a total of $51.0 million and $65.5 million of medium-term notes at par value in 2002 and 2001, respectively.

        Short-term debt provided cash totaling $196.5 million in 2002 and $499.0 million in 2000 and required $249.5 million in 2001. Dividends paid on Common and Preferred Shares, excluding dividends reinvested, totaled $34.4 million in 2002, $32.1 million in 2001 and $30.5 million in 2000.

        The board of directors of TDS and U.S. Cellular have authorized the repurchase of common shares of TDS and U.S. Cellular. No shares were repurchased in 2002. During 2001 and 2000, TDS repurchased 325,000 shares and 2,666,000 shares, respectively, for an aggregate purchase price of $30.3 million, or an average of $93.47 per share, and $287.7 million, or an average of $107.94 per share, respectively. Cash required for the repurchase of common shares totaled $39.4 million in 2001 and $290.1 million in 2000 reflecting differences in the number of shares acquired and timing differences in the cash disbursements. During 2001 and 2000, U.S. Cellular repurchased 643,000 and 3,524,000 common shares for an aggregate purchase price of $29.9 million, or an average of $46.45 per share, and $234.8 million, or an average of $66.64 per share, respectively. Cash required for the repurchase of U.S. Cellular common shares totaled $40.9 million and $223.8 million in 2001 and 2000, respectively.

        U.S. Cellular's LYONs securities are convertible, at the option of the holders, at any time prior to maturity, redemption or purchase, into U.S. Cellular common shares at a conversion rate of 9.475 U.S. Cellular common shares per LYON. Upon notice of conversion, U.S. Cellular has the option to deliver to holders either U.S. Cellular common shares or cash equal to the market value of such common shares. In addition, U.S. Cellular has opportunistically repurchased LYONs securities in private transactions and in open-market transactions. In 2001, U.S. Cellular paid $32.0 million and issued 644,000 U.S. Cellular common shares to retire LYONs securities with a carrying value of $55.1 million. During 2000, U.S. Cellular retired LYONs securities with a carrying value of $126.2 million for cash totaling $99.4 million and for 1,416,000 U.S. Cellular common shares.

18

LIQUIDITY AND CAPITAL RESOURCES

        Management believes that internal cash flow, existing cash and cash equivalents and funds available from line of credit arrangements provide sufficient financial resources to finance its near-term capital, business development and expansion expenditures. TDS and its subsidiaries have access to public and private capital markets to help meet their long-term financing needs. TDS and its subsidiaries anticipate accessing public and private capital markets to issue debt and equity securities only when and if capital requirements, financial market conditions and other factors warrant.

        However, the availability of external financial resources is dependent on economic events, business developments, technological changes, financial conditions or other factors. If at any time financing is not available on terms acceptable to TDS, TDS might be required to reduce its business development and capital expenditure plans, which could have a materially adverse effect on its business and financial condition. TDS does not believe that any circumstances that could materially adversely affect TDS's liquidity or its capital resources are currently reasonably likely to occur, but it cannot provide assurances that such circumstances will not occur or that they will not occur rapidly. Economic downturns, changes in financial markets or other factors could rapidly change the availability of TDS's liquidity and capital resources. Uncertainty of access to capital for telecommunications companies, further deterioration in the capital markets, other changes in market conditions or other factors could limit or restrict the availability of financing on terms and prices acceptable to TDS, which could require TDS to reduce its construction, development and acquisition programs.

        U.S. Cellular and TDS Telecom are generating substantial internal funds from operations. Cash flow from continuing operating activities totaled $793.6 million in 2002, $545.8 million in 2001 and $755.4 million in 2000. Cash flow from continuing operating activities in 2001 was reduced by about $147.5 million for income taxes paid (net of credits utilized) on the taxable gain from the merger of Deutsche Telekom and VoiceStream.

        TDS and its subsidiaries had Cash and cash equivalents totaling $1,298.9 million at December 31, 2002. The large cash balance is due to the receipt of cash from the Deutsche Telekom forward contracts during the fourth quarter. TDS anticipates using the cash to reduce outstanding debt and for general corporate purposes.

        To the extent TDS would retire debt, TDS anticipates it would likely be at the TDS corporate level. The table below indicates the long-term debt held at the TDS corporate level which could be retired in 2003 and the initial call dates of the remaining TDS long-term debt to show the amounts that TDS could redeem in advance of the maturity date, at no prepayment penalty, if it chose to do so.

	Initial Call Dates
Redemption Amounts
	Total		2003		2004		2005		2006
	(Dollars in millions)
TDS Medium—Term Notes	$	122.7	$	65.5	$	—	$	17.2	$	40.0
TDS 7% Notes		200.0		—		—		—		200.0
TDS 7.6% Series A Notes		500.0		—		—		—		500.0
Mandatorily Redeemable Trust Preferred Securities		300.0		300.0		—		—		—
	$	1,122.7	$	365.5	$	—	$	17.2	$	740.0

Revolving Credit Facilities

        As discussed below, TDS and its subsidiaries have $1,425 million of revolving credit facilities available for general corporate purposes as well as an additional $87 million of bank lines of credit as of December 31, 2002.

19

        TDS had a $600 million revolving credit facility for general corporate purposes at December 31, 2002. TDS had $3.3 million of letters of credit outstanding against the revolving credit agreement leaving $596.7 million available for use. The credit facility expires in January 2007. Borrowings bear interest at the London Interbank Borrowing Rate ("LIBOR") plus a contractual spread based on the Company's credit rating. The contractual spread was 30 basis points as of December 31, 2002 (for a rate of 1.68% based on the LIBOR rate at December 31, 2002).

        TDS also had $87 million of additional bank lines of credit for general corporate purposes at December 31, 2002, all of which were unused. The lines of credit expire in less than one year. Effective January 1, 2003, $12 million of bank lines of credit expired and were not renewed. These line of credit agreements provide for borrowings at negotiated rates up to the prime rate (4.25% at December 31, 2002).

        U.S. Cellular had a $500 million bank revolving line of credit ("1997 Revolving Credit Facility") for general corporate purposes at December 31, 2002, $40 million of which was available. The revolving credit facility expires in August 2004. This line of credit provides for borrowings with interest at LIBOR plus a margin percentage, based on U.S. Cellular's credit rating, which was 19.5 basis points as of December 31, 2002 (for a rate of 1.58% based on the LIBOR rate at December 31, 2002).

        U.S. Cellular also had a $325 million bank revolving line of credit ("2002 Revolving Credit Facility") to be used for general corporate purposes at December 31, 2002, all of which was unused. The 2002 Revolving Credit Facility expires in June 2007. This line of credit provides for borrowings with interest at LIBOR plus a margin percentage, based on U.S. Cellular's credit rating, which was 55 basis points as of December 31, 2002 (for a rate of 1.93% based on the LIBOR rate at December 31, 2002).

        TDS's and U.S. Cellular's interest costs would increase if their credit rating goes down which would increase their cost of financing, but their credit facilities would not cease to be available solely as a result of a decline in their credit rating. A downgrade in TDS's or U.S. Cellular's credit rating could adversely affect its ability to renew existing, or obtain access to new, credit facilities in the future. The continued availability of the revolving credit facilities requires TDS and U.S. Cellular to comply with certain negative and affirmative covenants, maintain certain financial ratios and to represent certain matters at the time of each borrowing. At December 31, 2002, TDS and U.S. Cellular were in compliance with all covenants and other requirements set forth in the credit agreements. Certain of TDS's and U.S. Cellular's credit facilities would accelerate in the event of a change in control.

Long-term Financing

        At December 31, 2002, TDS and its subsidiaries are in compliance with all covenants and other requirements set forth in long-term debt indentures. TDS does not have any rating downgrade triggers that would accelerate the maturity dates of its long-term debt. However, a downgrade in TDS's credit rating could adversely affect its ability to refinance existing, or obtain access to new, long-term debt in the future.

        U.S. Cellular issued $175 million of 9% Series A Notes due 2032 to PrimeCo in connection with the purchase of Chicago 20MHz. Interest is payable quarterly. The notes are callable by U.S. Cellular after five years at the principal amount plus accrued but unpaid interest. In connection with the purchase of Chicago 20MHz from PrimeCo, U.S. Cellular registered such notes with the SEC for resale. As described below, in November 2002, U.S. Cellular used the proceeds from the sale of its 8.75% Senior Notes to purchase $129.8 million of the 9% Series A Notes from PrimeCo. In January 2003, U.S. Cellular repurchased the remaining $45.2 million of 9% Series A Notes from PrimeCo. The repurchase was financed using short-term debt. Following such repurchases, all of the 9% Series A Notes were cancelled.

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        In November 2002, U.S. Cellular sold $130 million of 8.75% Senior Notes due in November 2032. Interest is payable quarterly. The notes are callable by U.S. Cellular after five years at the principal amount plus accrued but unpaid interest. The $129.8 million net proceeds from the sale of the notes (after reimbursement of expenses) were used to purchase a portion of the 9% Series A Notes that were issued to PrimeCo. The $130 million of 8.75% Senior Notes were issued under U.S. Cellular's $500 million shelf registration statement on Form S-3 filed in May 2002.

Contractual Obligations

        As of December 31, 2002, the resources required for scheduled repayment of long-term debt, trust originated securities and aggregate minimum commitments under noncancelable long-term operating leases, were as follows:

	Payments due by Period
Contractual Obligations	Total			2003			2004			2005			2006			2007			After 5 years
	(Dollars in millions)
Long-term Debt Obligations(1)	$	1,868.2		$	64.5		$	20.1		$	23.8		$	222.5		$	273.8		$	1,263.5
Average Interest Rate on Debt(2)		7.04	%		5.41	%		5.51	%		5.95	%		6.86	%		7.11	%		7.13	%
Prepaid Forward Contracts(3)	$	1,754.1		$	—		$	—		$	—		$	—		$	738.7		$	1,015.4
Trust Originated Securities—average interest rate of 8.27%(4)		300.0			—			—			—			—			—			300.0
Operating Leases(5)		377.9			71.6			65.2			56.6			46.0			45.0			93.5
Purchase Obligations(6)		240.9			42.2			56.2			56.2			56.2			30.1			—
	$	4,541.1		$	178.3		$	141.5		$	136.6		$	324.7		$	1,087.6		$	2,672.4

(1)

Scheduled debt repayments include long-term debt and the current portion of long-term debt but excludes $162.1 million of unamortized discount on the zero coupon debentures (LYONs). See Note 14—Long-term Debt.

(2)

Represents the average interest rate on all debt shown above for the indicated period.

(3)

Schedule of debt repayments excludes $97.5 million of unamortized discount on zero coupon debt. Debt repayments listed as due after 5 years come due in 2008. See Note 14—Long-term Debt.

(4)

See Note 17—Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Company Subordinated Debentures.

(5)

Represents the amount due under operating leases for the periods specified. See Note 22—Commitments and Contingencies.

(6)

Represents obligations due under vendor equipment contracts. The 2003 amounts are also included in estimated capital expenditures for U.S. Cellular. See Note 22—Commitments and Contingencies.

        On January 31, 2003, U.S. Cellular entered into an agreement to rename Comiskey Park, home of the Chicago White Sox American League baseball team, U.S. Cellular Field. U.S. Cellular will pay $3.4 million per year for 20 years for the naming rights ($68 million in aggregate). Concurrent with the naming rights agreement, U.S. Cellular purchased a media package to place various forms of advertising in and around the facility. For the media package, U.S. Cellular will pay $600,000 in 2003, with future annual payments increasing by 3% per year through 2025. The total combined cost of the naming rights and media package is $87 million over 23 years. The amounts related to the naming rights and media package are not included in the above table.

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Capital Expenditures

        U.S. Cellular's estimated capital spending for 2003 totals approximately $600-$630 million primarily to add cell sites to expand and enhance coverage, to provide additional capacity to accommodate increased network usage, to provide additional digital service capabilities including the migration toward a single digital platform—CDMA technology, to build out certain PCS licensed areas, to satisfy certain regulatory requirements for specific services such as enhanced 911 and wireless number portability and to enhance billing and office systems. The migration to offering CDMA in all U.S. Cellular markets is expected to be completed during 2004, at an approximate cost of $400-$450 million over the three year period 2002-2004. The CDMA conversion costs totaled $215 million in 2002 and are estimated to be $50 million in 2003. U.S. Cellular plans to finance its cellular construction program using primarily internally generated cash and funds from the revolving credit facilities.

        TDS Telecom's estimated capital spending for 2003 approximates $170 million. The incumbent local telephone companies are expected to spend approximately $130 million to provide for normal growth and to upgrade plant and equipment to provide enhanced services. The competitive local exchange companies are expected to spend approximately $40 million to build switching and other network facilities to meet the needs of a growing customer base. TDS Telecom plans to finance its construction program using primarily internally generated cash.

Acquisitions

        TDS reviews attractive opportunities to acquire additional telecommunications companies and wireless spectrum, which it believes will add value to the business.

        U.S. Cellular is a limited partner in a joint venture that was a successful bidder for 17 licenses in 13 markets in the January 2001 FCC spectrum auction ("Auction 35"). In 2001, the joint venture acquired five of such licenses in four markets for a total of $4.1 million and at December 31, 2001, had deposits with the FCC totaling $56.1 million for the remaining licenses.

        In May 2002, the FCC refunded 85% of the deposits, or $47.6 million. On September 12, 2002, the FCC issued a public notice permitting the winning bidders in Auction 35 to dismiss some or all of their applications. In November 2002, the joint venture notified the FCC of its election to opt-out of its applications for the remaining 12 license applications and on December 9, 2002, the FCC issued a public notice dismissing the applications. On December 20, 2002, the joint venture received the remaining $8.5 million of deposits paid to the FCC.

Subsequent Event

        On March 10, 2003, U.S. Cellular announced that it had entered into a definitive agreement with AT&T Wireless ("AWE") to exchange wireless properties. U.S. Cellular will receive 10 and 20MHz PCS licenses in 13 states, representing 12.2 million incremental population equivalents contiguous to existing properties and 4.4 million population equivalents that overlap existing properties in the Midwest and Northeast. U.S. Cellular will also receive approximately $31 million in cash and minority interests in six markets it currently controls. U.S. Cellular will transfer wireless assets and approximately 141,000 customers in 10 markets, representing 1.5 million population equivalents, in Florida and Georgia to AWE. Total U.S. Cellular revenue in 2002 of $107 million and operating income, excluding shared services costs, of $25 million was attributable to these markets. The transaction is subject to regulatory approvals. The closing of the transfer of the U.S. Cellular properties and the assignment to U.S. Cellular of most of the PCS licenses is expected to occur in the third quarter of 2003. The assignment and development of certain licenses will be deferred by U.S. Cellular until later periods. The acquisition of licenses in the exchange will be accounted for as a purchase by U.S. Cellular and the transfer of the properties by U.S.Cellular will be accounted for as a sale. The build-out of the licenses

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could require substantial capital investment by U.S. Cellular over the next several years. U.S. Cellular is currently working on a build-out and financing plan for these markets.

        The following table summarizes the recorded value of the assets and liabilities of the 10 markets that U.S. Cellular will be transferring.

		December 31, 2002
		(Dollars in millions)
Current assets		$	16.8
Net property, plant and equipment			86.0
Licenses			53.1
Goodwill			78.2
Other			.6
	Total assets		234.7
Current liabilities			(13.4	)
Net assets to be transferred		$	221.3

        U.S. Cellular is currently evaluating the fair value of the assets involved in this transaction. No determination of gain or loss related to this transaction has been made. As a result of signing the definitive agreement for this transaction, U.S. Cellular will reclassify the net assets of the markets to be transferred as assets held for sale and will report their operations as discontinued operations in the first quarter of 2003.

Repurchase of Securities and Dividends

        As market conditions warrant, TDS and U.S. Cellular may repurchase their common shares on the open market or at negotiated prices in private transactions. In 2003, the Board of Directors authorized the repurchase of up to 3.0 million TDS Common Shares through February 2006. U.S. Cellular has approximately 859,000 shares remaining on its 1.4 million Common Share repurchase authorization that expires in December 2003. The repurchase programs are intended to create value for the shareholders. Any repurchases of common shares will be funded by internal cash flow, supplemented by short-term borrowings and other sources.

        The U.S. Cellular Board of Directors has authorized management to opportunistically repurchase LYONs in private transactions. U.S. Cellular may also purchase a limited amount of LYONs in open-market transactions from time-to-time. U.S. Cellular LYONs are convertible, at the option of their holders, at any time prior to maturity, redemption or purchase, into U.S. Cellular Common Shares at a conversion rate of 9.475 U.S. Cellular Common Shares per LYON. Upon conversion, U.S. Cellular has the option to deliver to holders either U.S. Cellular Common Shares or cash equal to the market value of the U.S. Cellular Common Shares into which the LYONs are convertible. U.S. Cellular may redeem the LYONs for cash at the issue price plus accrued original issue discount through the date of redemption.

        TDS paid total dividends on its common and preferred stock of $34.4 million in 2002, $32.1 million in 2001 and $30.5 million in 2000. TDS has no current plans to change its policy of paying dividends. TDS paid quarterly dividends of $.145, $.135 and $.125 in 2002, 2001 and 2000, respectively. TDS authorized an increase in the dividend rate to $.155 effective with the March 2003 dividend.

MARKET RISK

        TDS is subject to market rate risks due to fluctuations in interest rates and market prices of marketable equity securities. The majority of TDS's debt, excluding long-term debt related to the

23

forward contracts, is in the form of long-term, fixed-rate notes, convertible debt, debentures and trust securities with original maturities ranging up to 40 years. Accordingly, fluctuations in interest rates can lead to significant fluctuations in the fair value of such instruments. The majority of long-term debt related to the forward contracts bears interest at LIBOR plus a contractual spread with the remainder bearing interest at a weighted average effective rate of 4.4% per year. As of December 31, 2002, TDS had not entered into any significant financial derivatives to reduce its exposure to interest rate risks.

        The annual requirements for principal payments on long-term debt and the average interest rates are shown under the Contractual Obligations heading in the Liquidity and Capital Resources section. At December 31, 2002 and 2001, the aggregate principal amounts of long-term debt, excluding the loans associated with the forward contracts, were $1,706.1 million at December 31, 2002 and $1,575.2 million at December 31, 2001, the estimated fair value was $1,684.4 million and $1,559.7 million, and the average interest rate on the debt was 7.04% and 7.28%, respectively. The fair value was estimated using market prices for TDS's 7.6% Series A Notes, U.S. Cellular's 8.75% Senior Notes and U.S. Cellular's LYONs and discounted cash flow analysis for the remaining debt. The trust securities instruments totaling $300 million, with an average interest rate of 8.27%, are due in 2037 and 2038. The fair value of the trust securities was $296.7 million and $299.2 million based upon the market price at December 31, 2002 and 2001, respectively.

        TDS maintains a portfolio of available-for-sale marketable equity securities. The market value of these investments aggregated $1,944.9 million at December 31, 2002 and $2,700.2 million at December 31, 2001. As of December 31, 2002, the net unrealized holding gain, net of tax included in Accumulated other comprehensive income (loss) totaled $243.4 million. In 2002, TDS recognized, in the statement of operations, losses of $1,045.0 million, net of tax and minority interest, related to investments in marketable securities as a result of management's determination that unrealized losses with respect to the investments were other than temporary. Management continues to review the valuation of the investments on a periodic basis. If management determines in the future that an unrealized loss is other than temporary, the loss will be recognized and recorded in the statement of operations.

        TDS and its subsidiaries have entered into a number of forward contracts related to the marketable equity securities that it holds. See Note 14—Long-Term Debt and Note 15—Financial Instruments and Derivatives in the notes to the consolidated financial statements, for a description of the forward contracts. The risk management objective of the forward contracts is to hedge the value of the marketable equity securities from losses due to decreases in the market prices of the securities ("downside limit") while retaining a share of gains from increases in the market prices of such securities ("upside potential"). The downside risk is hedged at or above the accounting cost basis thereby eliminating the other than temporary risk on these contracted securities.

        Under the terms of the forward contracts, the Company will continue to own the contracted shares and will receive dividends paid on such contracted shares, if any. The forward contracts mature from May 2007 to August 2008 and, at the Company's option, may be settled in shares of the respective security or in cash, pursuant to formulas that "collar" the price of the shares. The collars effectively limit the Company's downside risk and upside potential on the contracted shares. The collars could be adjusted for any changes in dividends on the contracted shares. The forward contracts may be settled in shares of the respective marketable equity security or in cash upon expiration of the forward contract. If the Company elects to settle in shares, it will be required to deliver the number of shares of the contracted security determined pursuant to the formula. If shares are delivered in the settlement of the forward contract, the Company would incur a current tax liability at the time of delivery based on the difference between the tax basis of the marketable equity securities delivered and the net amount realized through maturity. If the Company elects to settle in cash it will be required to pay an amount in cash equal to the fair market value of the number of shares determined pursuant to the formula.

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        Deferred taxes have been provided for the difference between the financial reporting basis and the income tax basis of the marketable equity securities and are included in deferred tax liabilities on the balance sheet. As of December 31, 2002, such deferred tax liabilities totaled $739.0 million.

        The following table summarizes certain facts surrounding the contracted securities as of December 31, 2002.

		Collar(1)
Security	Shares	Downside Limit (Floor)		Upside Potential (Ceiling)		Loan Amount (000's)
VeriSign	2,361,333		$8.82		$11.46	$	20,819
Vodafone(2)	12,945,915	$	15.07-$16.07	$	20.92-$23.66		201,038
Deutsche Telekom	131,461,861	$	10.74-$12.41	$	12.88-$16.33		1,532,257
							1,754,114
Unamortized debt discount							(97,498	)
						$	1,656,616

(1)

The per share amounts represent the range of floor and ceiling prices of all the securities monetized.

(2)

U.S. Cellular owns 10.2 million and TDS Telecom owns 2.7 million Vodafone ADR's.

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The principal amount of the forward contracts is accounted for as a loan. The estimated fair value of the forward contract loans was $1,648.9 million. Contracts aggregating $1,295.3 million require quarterly interest payments at LIBOR plus 0.5% (for a rate of 1.88% at December 31, 2002). Contracts aggregating $458.8 million are structured as zero coupon obligations with a weighted average effective interest rate of 4.4% per year. The fair value was estimated based upon a discounted cash flow analysis. The collar portions of the forward contracts are accounted for as derivative instruments. The collars could be adjusted for any changes in dividends on the contracted shares.

        The following analysis presents the hypothetical change in the fair value of our marketable equity securities and derivative instruments at December 31, 2002, assuming hypothetical price fluctuations of plus and minus 10%, 20% and 30%. As of December 31, 2001, marketable equity securities totaled $2,700.2 million and the Company did not have any derivative instruments outstanding. The table presents hypothetical information as required by SEC rules. Such information should not be inferred to suggest that TDS has any intention of selling any marketable securities or canceling any derivative instruments.

				Valuation of investments assuming indicated increase
	Dec. 31, 2002 Fair Value
				+10%			+20%			+30%
	(Dollars in millions)
Marketable Equity Securities	$	1,944.9		$	2,139.4		$	2,333.9		$	2,528.4
Derivative Instruments(1)	$	(58.5	)	$	(241.2	)	$	(420.6	)	$	(600.6	)

	Valuation of investments assuming indicated decrease
	-10%		-20%		-30%
	(Dollars in millions)
Marketable Equity Securities	$	1,750.4	$	1,556.0	$	1,361.5
Derivative Instruments(1)	$	111.6	$	287.3	$	461.8

(1)

Represents change in the fair value of the derivative instruments assuming the indicated increase or decrease in the underlying securities.

Off Balance Sheet Arrangements

        TDS has no material transactions, arrangements, obligations (including contingent obligations) or other relationships with unconsolidated entities or other persons ("off-balance sheet arrangements"), that have or are reasonably likely to have a material current or future effect on financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources or significant components of revenues or expenses.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

        The Company prepares its consolidated financial statement in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The Company's significant accounting policies are discussed in detail in Note 1 to the consolidated financial statements.

        The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various other assumptions and information that are believed to be reasonable under the circumstances, the results of which form the

26

basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from estimates under different assumptions or conditions.

Critical Accounting Estimates

        Management believes the following critical accounting estimates reflect its more significant judgments and estimates used in the preparation of its consolidated financial statements. The Company's senior management has discussed the development and selection of each of the following accounting estimates and the following disclosures with the audit committee of the Company's board of directors.

Valuation of Notes Receivable

        Kington Notes Receivable. U.S. Cellular held notes receivable aggregating $45.8 million, including interest, from Kington Management Corporation ("Kington") that were due in June 2005. These notes relate to the purchase by Kington of two of U.S. Cellular's minority interests in 2000. The value of the notes was directly related to the fair market value of the related interests.

        As a result of changes in business strategies and other events, in 2002 management reviewed the fair market value of the wireless markets. An independent third party valuation of one of the wireless minority interests sold to Kington and a recent transaction involving an unrelated party holding an interest in the same market as the other wireless minority interest sold to Kington indicated a lower market value for these wireless minority interests, and therefore a lower value of the notes. Management concluded that the notes receivable were impaired. In addition, in the fourth quarter of 2002, Kington decided to withdraw from the partnerships. A loss of $38.1 million was charged to the statement of operations in 2002 and was reported in the caption Gain (loss) on marketable securities and other investments. The carrying value of the receivable at December 31, 2002 was $7.8 million. The Company received payment of approximately $7.6 million in January 2003 and expects to receive the remaining amount from Kington at a later date.

        Airadigm Notes Receivable. On November 1, 2000, the United States Bankruptcy Court for the Western District of Wisconsin confirmed a plan of financial reorganization for Airadigm Communications, Inc., a Wisconsin-based wireless service provider. Under the terms of the plan of reorganization, TDS and an unrelated entity have provided funding to meet certain obligations of Airadigm. Airadigm continues to operate as an independent company providing wireless services. As of September 30, 2002, TDS had provided funding of $54.8 million to Airadigm that TDS had recorded as notes receivable and had capitalized $1.1 million in other costs associated with Airadigm.

        TDS reviewed the value of Airadigm's current and contractual assets, Airadigm's business plan and the facts and circumstances surrounding the investment. TDS concluded that the note receivable was impaired and established a valuation allowance for the amount of the loan and charged the capitalized costs to expense. A loss of $55.9 million was charged to the statement of operations in the third quarter of 2002 and was reported in the caption Gain (loss) on marketable securities and other investments.

        In October 2002, TDS terminated its right to purchase licenses and assets from Airadigm. TDS has the right to foreclose on certain assets of Airadigm and cease its operations at any time. TDS is evaluating the desirability of providing any additional funding on a month-to-month basis. Additional loans aggregating $300,000 were provided to Airadigm in the fourth quarter of 2002. TDS recorded a valuation allowance on these amounts and reported the expense in Other income (expense) net.

        The carrying values of such notes receivable and other capitalized costs at December 31, 2002 have been reduced to zero. TDS could recognize a gain if it receives any amount in respect of such notes,

27

but does not believe that such circumstances are reasonably possible to any material degree in the near-term.

Marketable Equity Securities

        The Company holds a substantial amount of marketable securities that are publicly traded and can have volatile share prices. These investments are classified as available-for-sale and are stated at fair value based on quoted market prices. The marketable securities are marked to market each period with the unrealized gain or loss in value of the securities reported as Accumulated other comprehensive income (loss), net of income taxes and minority interest, which is included in the stockholders' equity section of the balance sheet.

        The market values of marketable securities may fall below the accounting cost basis of such securities. Generally accepted accounting principles require management to determine whether a decline in fair value below the accounting cost basis is other than temporary. If management determines the decline in value to be other than temporary, the unrealized loss included in Accumulated other comprehensive income (loss) is recognized and recorded as a loss in the statement of operations. The determination of whether a decline in fair market value below the accounting cost basis is other than temporary is a critical accounting estimate because the result of such determination may be significant to the Company's results of operation.

        Factors that management considers in determining whether a decrease in the market value of its securities is an other than temporary decline include if there has been a significant change in the financial condition, operational structure or near-term prospects of the issuer; how long and how much the security has been below historical cost; and whether TDS has the intent and ability to retain its investment in the issuer's securities to allow the market value to return to historical cost levels. TDS is in the same industry classification as the issuers of its marketable securities enhancing the Company's ability to evaluate the effects of any changes in industry-specific factors which may affect the determination of whether a decline in market values of its marketable securities is other than temporary. In 2002, based on a review of such factors, management determined that a decline in the value of marketable equity securities relative to their respective accounting cost basis was other than temporary and charged an aggregate $1,757.5 million loss to the statement of operations ($1,045.0 million net of tax and minority interest) and reduced the accounting cost basis of such marketable equity securities by a respective amount.

        During 2002, TDS began utilizing derivative financial instruments to reduce the market risk due to fluctuations in market prices of marketable equity securities. At December 31, 2002, the Company had forward contracts maturing in 2007 and 2008 in connection with substantially all of the Company's marketable equity security portfolio, hedging the market price risk with respect to the contracted securities. The downside risk is hedged at or above the accounting cost basis, thereby eliminating the other than temporary risk of loss on these contracted securities. As of December 31, 2002, the aggregate market value of the marketable equity securities totaled $1,944.9 million and the aggregate accounting cost basis was $1,545.7 million.

        Accordingly, unless TDS acquires other marketable equity securities or cancels or modifies any forward contracts, the Company will no longer be required to make any assumptions regarding whether any future unrealized losses are other than temporary.

License Costs and Goodwill

        As of December 31, 2002, the Company reported $1,038.6 million of wireless license costs, net of accumulated amortization and $1,106.5 million of goodwill, net of accumulated amortization, as a result of the acquisitions of wireless licenses and markets, and the acquisition of operating telephone companies.

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        TDS adopted SFAS No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002. With the implementation of SFAS No. 142, the Company assessed its recorded balances of wireless license costs and goodwill for potential impairment. The Company completed its initial impairment assessments in the first quarter of 2002. No impairment charge was necessary upon the completion of the initial impairment review. After the initial impairment review, wireless licenses and goodwill must be reviewed for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. There can be no assurance that upon review at a later date material impairment charges will not be required.

        The intangible asset impairment test consists of comparing the fair value of the intangible asset to the carrying amount of the intangible asset. If the carrying amount exceeds the fair value, an impairment loss is recognized for the difference. The goodwill impairment test is a two-step process. The first step compares the fair value of the reporting unit to its carrying value. If the carrying amount exceeds the fair value, the second step of the test is performed to measure the amount of impairment loss, if any. The second step compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount exceeds the implied fair value, an impairment loss is recognized for that difference.

        The fair value of an intangible asset and reporting unit goodwill is the amount at which that asset or reporting unit could be bought or sold in a current transaction between willing parties. Therefore, quoted market prices in active markets are the best evidence of fair value and should be used when available. If quoted market prices are not available, the estimate of fair value is based on the best information available, including prices for similar assets and the use of other valuation techniques. Other valuation techniques include present value analysis, multiples of earnings or revenue or a similar performance measure. The use of these techniques involve assumptions by management about the following factors that are highly uncertain and can result in a range of values: future cash flows, the appropriate discount rate, and other factors and inputs.

Allocation of Chicago 20MHz Purchase Price

        In connection with the purchase of Chicago 20MHz, the Company, in 2002, allocated the total acquisition costs to all tangible and intangible assets acquired and all liabilities assumed, with the excess purchase price over the fair value of net assets acquired recorded to goodwill. The values allocated to such assets are critical accounting estimates because they are significant to the Company's financial condition. The values of such allocations include underlying assumptions about uncertain matters that are material to the determination of the values, and different estimates could have had a material impact on the Company's financial presentation that would have been used in the current period.

        An independent appraiser provided a valuation of Chicago 20MHz's assets. The following table summarizes the revised estimated fair values of the Chicago 20MHz assets acquired and liabilities assumed at the date of acquisition. The Company revised the estimated amounts since the quarter

29

ended September 30, 2002 due to additional information derived during an audit of such information following the initial estimates. The current revised estimate at December 31, 2002 is shown below.

		2002
		(Dollars in millions)
Current assets, excluding $7.0 cash acquired		$	34.1
Property, plant and equipment			236.0
Other assets			0.8
Customer list			43.4
Licenses			163.5
Goodwill			168.4
	Total assets acquired		646.2
Current liabilities			(22.5	)
Non-current liabilities			(1.3	)
	Total liabilities acquired		(23.8	)
Net assets purchased		$	622.4

A $4.5 million reduction of goodwill is expected in January 2003, to reflect a reduction in notes issued to PrimeCo. In January 2003, U.S. Cellular repurchased the remaining $45.2 million of 9% Series A Notes, previously issued to PrimeCo, for $40.7 million.

Income Taxes

        The accounting for income taxes, the amounts of income tax assets and liabilities and the related income tax provision are critical accounting estimates because such amounts are significant to the company's financial condition, changes in financial condition and results of operations.

        The preparation of the consolidated financial statements requires the Company to calculate a provision for income taxes. This process involves calculating the current income tax liability together with assessing temporary differences resulting from the different treatment of items, such as depreciation expense, for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheet. The Company must then assess the likelihood that deferred tax assets will be recovered from future taxable income and to the extent management believes that recovery is not likely, establish a valuation allowance. Management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against deferred tax assets. The Company's current net deferred tax asset was $20.3 million as of December 31, 2002, representing primarily the deferred tax effects of the allowance for doubtful accounts on accounts receivable.

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        The temporary differences that gave rise to the noncurrent deferred tax assets and liabilities as of December 31, 2002 are as follows:

		December 31, 2002
		(Dollars in millions)
Deferred Tax Asset
	Net operating loss carryforwards	$	80.6
	Derivative accounting		32.5
	Partnership investments		17.6
			130.7
Less valuation allowance			54.8
Total Deferred Tax Asset			75.9
Deferred Tax Liability
	Marketable equity securities		739.0
	Property, plant and equipment		372.5
	Licenses		130.1
	Other		4.8
Total Deferred Tax Liability			1,246.4
	Net Deferred Income Tax Liability	$	1,170.5

The valuation allowance relates to state net operating loss carryforwards and the federal operating loss carryforwards for those subsidiaries not included in the federal income tax return since it is more than likely that a portion will expire before such carryforwards can be utilized.

        The deferred income tax liability relating to marketable equity securities of $739.0 million at December 31, 2002 represents deferred income taxes calculated on the difference between the book basis and the tax basis of the marketable securities. Income taxes will be payable when TDS sells the marketable securities.

        The Company is routinely subject to examination of its income tax returns by the Internal Revenue Service ("IRS") and other tax authorities. The Company periodically assesses the likelihood of adjustments to its tax liabilities resulting from these examinations to determine the adequacy of its provision for income taxes, including related interest. Management judgment is required in assessing the eventual outcome of these examinations. Changes to such assessments affect the calculation of the Company's income tax expense. The IRS has completed audits of the Company's federal income tax returns for tax years through 1996.

        In the event of an increase in the value of tax assets or a decrease in the value of tax liabilities, TDS would decrease the income tax expense or increase the income tax benefit by an equivalent amount. In the event of a decrease in the value of tax assets or an increase in the value of tax liabilities, TDS would increase the income tax expense or decrease the income tax benefit by an equivalent amount.

Initial Adoption of Accounting Policies

        During 2002, TDS began utilizing derivative financial instruments to reduce market risks due to fluctuations in market prices of marketable equity securities. Prior to 2002, the Company had no significant derivative financial instruments. The Company does not hold or issue derivative financial instruments for trading purposes. The Company recognizes all derivatives as either assets or liabilities on the Balance Sheet and measures those instruments at fair value. Changes in fair value of those

31

instruments will be reported in earnings or other comprehensive income depending on the use of the derivative and whether it qualifies for hedge accounting. The accounting for gains and losses associated with changes in the fair value of the derivative and the effect on the consolidated financial statements will depend on its hedge designation and whether the hedge is highly effective in achieving offsetting changes in the fair value of the hedged item or cash flows of the asset or liability hedged. Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities," (as amended) establishes the accounting and reporting standards for derivative instruments and hedging activities.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The following persons are partners of Sidley Austin Brown & Wood, the principal law firm of TDS and its subsidiaries: Walter C.D. Carlson, a trustee and beneficiary of a voting trust that controls TDS, the chairman of the board and member of the board of directors of TDS and a director of U.S. Cellular, a subsidiary of TDS; William S. DeCarlo, the Acting General Counsel of TDS and an Assistant Secretary of TDS and certain subsidiaries of TDS; and Stephen P. Fitzell, the General Counsel of U.S. Cellular and an Assistant Secretary of certain subsidiaries of TDS. In addition, prior to August 1, 2002, another partner of Sidley Austin Brown & Wood at the time, Michael G. Hron, was the General Counsel and an Assistant Secretary of TDS, U.S. Cellular and TDS Telecom, and the Secretary or an Assistant Secretary of certain other TDS subsidiaries. Walter C.D. Carlson does not provide legal services to TDS or its subsidiaries.

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY STATEMENT

        This Management's Discussion and Analysis of Results of Operations and Financial Condition and other sections of this Annual Report contain statements that are not based on historical fact, including the words "believes", "anticipates", "intends", "expects" and similar words. These statements constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward-looking statements. Such factors include the following:

•

Increases in the level of competition in the markets in which TDS operates could adversely affect TDS's revenues or increase its costs to compete.



•

Advances or changes in telecommunications technology could render certain technologies used by TDS obsolete. Competitors may have a lower fixed investment per customer because of technology changes.



•

Changes in telecommunications regulatory environment could adversely affect TDS's financial condition or results of operations or could prevent TDS businesses which depend on access to competitors' facilities from obtaining such access on reasonable terms.



•

Changes in the supply or demand of the market for wireless licenses or telephone companies, increased competition, adverse developments in the TDS businesses or the industries in which TDS is involved and/or other factors could result in an impairment of the value of TDS's license costs, goodwill and/or physical assets, which may require TDS to record a write down in the value of such assets.



•

Competition, construction delays, customer churn and other challenges in executing TDS's expansion and development of its CLEC business could result in higher than planned losses, additional

32

financing requirements and/or the write down of the CLEC assets if TDS is unable to successfully implement its plans in this business development.

•

Conversions of LYONs, early redemptions of debt or repurchases of debt, normal scheduled repayments of debt, changes in estimates or other factors or developments could cause the amounts reported under Contractual Obligations to be different from the amounts presented.



•

Changes in circumstances relating to and/or in the assumptions underlying the accounting estimates described under Critical Accounting Policies could have a material effect on the Company's financial condition, changes in financial condition and results of operations.



•

Settlements, judgments, restraints on its current or future manner of doing business and/or legal costs resulting from pending or future litigation that is Company specific or that apply to the industry in general could have an adverse effect on TDS's financial condition, results of operations or ability to do business.



•

Costs, integration problems or other factors associated with acquisitions/ divestitures of properties and/or licenses could have an adverse effect on TDS's financial condition or results of operations.



•

Changes in prices, the number of wireless customers, average revenue per unit, penetration rates, churn rates, roaming rates and the mix of products and services offered in wireless markets could have an adverse effect on TDS's wireless business operations.



•

Changes in roaming partners, rates, and the ability to provide voice and data services on other carriers' networks could have an adverse effect on TDS's wireless business operations.



•

Changes in competitive factors with national carriers could result in product and cost disadvantages that could have an adverse effect on TDS's wireless business operations.



•

Changes in prices, in the number of ILEC and CLEC customers, churn rates, access minutes of use trends, and mix of products and services offered in ILEC and CLEC markets could have an adverse effect on such TDS business segments.



•

Continued migration of customers from wireline to wireless services could have an adverse effect on TDS's wireline businesses.



•

Continued uncertainty of access to capital for telecommunications companies, further deterioration in the capital markets, other changes in market conditions or other factors could limit or restrict the availability of financing on terms and prices acceptable to TDS, which could require TDS to reduce its construction, development and acquisition programs.



•

Changes in TDS's credit ratings could limit or restrict the availability of financing on terms and prices acceptable to TDS, which could require TDS to reduce its construction, development and acquisition programs.



•

Changes in circumstances or other events, relating to the acquisition of Chicago 20MHz, including integration costs or problems or other factors associated with such acquisition could have an adverse effect on TDS's financial condition or results of operations.



•

The continuation of the economic downturn and continued bankruptcies in the telecommunications industry could result in higher bad debts and slower business activity, which would have an adverse effect on TDS's businesses.



•

War, conflicts, hostilities and/or terrorist attacks could have an adverse effect on TDS's businesses.



•

Changes in TDS's accounting policies, estimates or assumptions could have an adverse effect on TDS's financial condition or results of operations.



•

Changes in general economic and business conditions, both nationally and in the market areas in which TDS operates, could have an adverse effect on TDS's businesses.

        TDS undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. Readers should evaluate any statements in light of these important factors.

33

CONSOLIDATED STATEMENTS OF OPERATIONS

		Year Ended December 31,
		2002			2001			2000
		(Dollars in thousands, except per share amounts)
Operating Revenues
	U.S. Cellular	$	2,184,478		$	1,894,830		$	1,716,640
	TDS Telecom		800,888			693,712			610,216
			2,985,366			2,588,542			2,326,856
Operating Expenses
	U.S. Cellular		1,903,312			1,577,618			1,424,327
	TDS Telecom		695,699			574,769			482,463
			2,599,011			2,152,387			1,906,790
Operating Income			386,355			436,155			420,066
Investment and Other Income (Expense)
	Dividend and interest income		57,330			14,246			15,637
	Investment income		43,675			50,639			38,723
	Amortization of goodwill related to minority investments		—			(1,263	)		(10,258	)
	Gain (loss) on marketable securities and other investments		(1,888,391	)		(548,305	)		15,716
	(Loss) on debt extinguishment		—			(6,956	)		(36,870	)
	Other income (expense), net		2,396			5,048			(8,082	)
			(1,784,990	)		(486,591	)		14,866
Income (Loss) Before Interest and Income Taxes			(1,398,635	)		(50,436	)		434,932
Interest expense			132,224			103,710			100,559
Minority interest in income of subsidiary trust			24,810			24,810			24,810
Income (Loss) From Continuing Operations Before Income Taxes and Minority Interest			(1,555,669	)		(178,956	)		309,563
Income tax expense (benefit)			(577,000	)		(44,908	)		149,481
Income (Loss) From Continuing Operations Before Minority Interest			(978,669	)		(134,048	)		160,082
Minority share of income			(9,068	)		(39,915	)		(45,026	)
Income (Loss) From Continuing Operations			(987,737	)		(173,963	)		115,056
Discontinued Operations
	Gain (loss) on disposal of Aerial, net of tax		—			(24,092	)		2,125,787
Income (Loss) Before Cumulative Effect of Accounting Change			(987,737	)		(198,055	)		2,240,843
Cumulative effect of accounting change, net of tax and minority interest			3,366			—			(3,841	)
Net Income (Loss)			(984,371	)		(198,055	)		2,237,002
Preferred dividend requirement			(427	)		(458	)		(504	)
Net Income (Loss) Available to Common		$	(984,798	)	$	(198,513	)	$	2,236,498
Basic Weighted Average Shares Outstanding (000's)			58,644			58,661			59,922
Basic Earnings per Share
	Income (Loss) from Continuing Operations	$	(16.85	)	$	(2.97	)	$	1.91
	Net Income (Loss) Available to Common		(16.79	)		(3.38	)		37.32
Diluted Weighted Average Shares Outstanding (000's)			58,644			58,661			60,636
Diluted Earnings per Share
	Income (Loss) from Continuing Operations	$	(16.85	)	$	(2.97	)	$	1.88
	Net Income (Loss) Available to Common		(16.79	)		(3.38	)		36.88
Dividends per Share		$	.58		$	.54		$	.50

The accompanying notes to consolidated financial statements are an integral part of these statements.

34

CONSOLIDATED STATEMENTS OF CASH FLOWS

			Year Ended December 31,
			2002			2001			2000
			(Dollars in thousands)
Cash Flows From Continuing Operating Activities
	Income (loss) from continuing operations		$	(987,737	)	$	(173,963	)	$	115,056
	Add (deduct) adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities
		Depreciation and amortization		510,445			450,019			399,143
		Deferred income taxes, net		(587,706	)		(266,406	)		(370	)
		Investment income		(43,675	)		(50,639	)		(38,723	)
		Minority share of income		9,068			39,915			45,026
		(Gain) loss on marketable securities and other investments		1,888,391			548,305			(15,716	)
		Noncash interest expense		11,407			10,176			16,448
		Loss on debt extinguishment		—			6,956			36,870
		Other noncash expense		15,349			19,362			34,742
		Proceeds from litigation settlement		—			—			42,457
	Changes in assets and liabilities from operations
		Change in accounts receivable		(27,032	)		(34,125	)		(14,619	)
		Change in materials and supplies		2,473			(7,100	)		(18,786	)
		Change in accounts payable		52,280			(7,828	)		59,550
		Change in advance billing and customer deposits		20,046			1,628			13,895
		Change in accrued taxes		(80,108	)		(1,151	)		56,303
		Change in other assets and liabilities		10,436			10,656			24,146
				793,637			545,805			755,422
Cash Flows From Continuing Investing Activities
	Capital expenditures			(899,050	)		(700,150	)		(456,019	)
	Acquisitions, net of cash acquired			(531,174	)		(392,842	)		(200,718	)
	Increase in notes receivable			(2,581	)		(9,763	)		(55,141	)
	Cash received from mergers			—			570,035			—
	Refund of FCC deposit			56,060			—			—
	Proceeds from investment sales			—			487			72,973
	Distributions from unconsolidated entities			31,328			16,644			34,834
	Investments in and advances to unconsolidated entities			—			(46	)		(4,187	)
	Other investing activities			(21,167	)		(4,223	)		2,599
				(1,366,584	)		(519,858	)		(605,659	)
Cash Flows From Continuing Financing Activities
	Change in notes payable			196,492			(249,522	)		499,000
	Issuance of long-term debt			138,314			489,656			2,209
	Proceeds from prepaid forward contracts			1,631,821			—			—
	Repayments of long-term debt			(148,470	)		(17,806	)		(17,096	)
	Prepayment of medium-term notes			(51,000	)		(65,500	)		—
	Repurchase and conversion of LYONs			—			(31,963	)		(99,356	)
	Repurchase of TDS Common Shares			—			(39,441	)		(290,069	)
	Repurchase of U.S. Cellular Common Shares			—			(40,862	)		(223,847	)
	Dividends paid			(34,445	)		(32,141	)		(30,472	)
	Other financing activities			(1,573	)		3,357			4,440
				1,731,139			15,778			(155,191	)
Cash Flows From Discontinued Operations				—			—			(6,563	)
Net Increase (Decrease) in Cash and Cash Equivalents				1,158,192			41,725			(11,991	)
Cash and Cash Equivalents
	Beginning of period			140,744			99,019			111,010
	End of period		$	1,298,936		$	140,744		$	99,019

The accompanying notes to consolidated financial statements are an integral part of these statements.

35

CONSOLIDATED BALANCE SHEETS—ASSETS

			December 31,
			2002		2001
			(Dollars in thousands)
Current Assets
	Cash and cash equivalents		$	1,298,936	$	140,744
	Accounts receivable
		Due from customers, less allowance of $24,627 and $13,657, respectively		272,997		202,714
		Other, principally connecting companies, less allowance of $15,848 in 2002 and $0 in 2001		175,036		176,447
	Deposit receivable from FCC			—		56,060
	Federal income tax receivable			40,000		—
	Materials and supplies, at average cost			72,441		71,370
	Other current assets			88,602		27,021
				1,948,012		674,356
Investments
	Marketable equity securities			1,944,939		2,700,230
	Wireless license costs			1,038,556		858,792
	Goodwill			1,106,451		870,801
	Customer lists, net of accumulated amortization of $6,567			40,087		—
	Investments in unconsolidated entities			205,995		233,678
	Notes receivable, less valuation allowance of $55,144 in 2002			7,287		101,887
	Other investments			14,914		15,078
				4,358,229		4,780,466
Property, Plant and Equipment, net
	U.S. Cellular			2,148,432		1,527,805
	TDS Telecom			1,047,811		1,016,634
				3,196,243		2,544,439
Other Assets and Deferred Charges				99,544		80,313
			$	9,602,028	$	8,079,574

The accompanying notes to consolidated financial statements are an integral part of these statements.

36

CONSOLIDATED BALANCE SHEETS—
LIABILITIES AND STOCKHOLDERS' EQUITY

		December 31,
		2002			2001
		(Dollars in thousands)
Current Liabilities
	Current portion of long-term debt	$	64,482		$	67,461
	Notes payable		461,792			265,300
	Accounts payable		361,758			270,005
	Advance billings and customer deposits		95,922			68,044
	Accrued interest		31,751			24,264
	Accrued taxes		34,413			14,263
	Accrued compensation		58,678			56,973
	Other current liabilities		58,370			49,906
			1,167,166			816,216
Deferred Liabilities and Credits
	Net deferred income tax liability		1,170,505			1,411,062
	Derivative liability		61,160			—
	Other		55,645			50,468
			1,287,310			1,461,530
Long-term Debt
	Long-term debt, excluding current portion		1,641,624			1,507,764
	Prepaid forward contracts		1,656,616			—
			3,298,240			1,507,764
Commitments and Contingencies (Note 22)
Minority Interest in Subsidiaries			489,735			467,698
Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Company Subordinated Debentures(a)			300,000			300,000
Preferred Shares			6,954			7,442
Common Stockholders' Equity
	Common Shares, par value $.01 per share; authorized 100,000,000 shares; issued and outstanding 55,875,000 and 55,659,000 shares, respectively		559			557
	Series A Common Shares, par value $.01 per share; authorized 25,000,000 shares; issued and outstanding 6,602,000 and 6,778,000 shares, respectively		66			68
	Capital in excess of par value		1,832,806			1,826,840
	Treasury Shares, at cost, 3,799,000 and 3,868,000 shares, respectively		(404,169	)		(406,894	)
	Accumulated other comprehensive income (loss)		191,704			(352,120	)
	Retained earnings		1,431,657			2,450,473
			3,052,623			3,518,924
		$	9,602,028		$	8,079,574

(a)

As described in Note 17, the sole asset of TDS Capital I is $154.6 million principal amount of 8.5% subordinated debentures due 2037 from TDS, and the sole asset of TDS Capital II is $154.6 million principal amount of 8.04% subordinated debentures due 2038 from TDS.

The accompanying notes to consolidated financial statements are an integral part of these statements.

37

CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY

		Common Shares		Series A Common Shares			Capital in Excess of Par Value			Treasury Shares			Comprehensive Income (Loss)			Accumulated Other Comprehensive Income (Loss)			Retained Earnings
		(Dollars in thousands)
Balance, December 31, 1999		$	554	$	70		$	1,897,402		$	(102,975	)				$	179,071		$	474,139
Comprehensive Income
	Net income		—		—			—			—		$	2,237,002			—			2,237,002
	Net unrealized losses on securities		—		—			—			—			(357,415	)		(357,415	)		—
	Comprehensive income												$	1,879,587
Dividends
	Common and Series A common shares		—		—			—			—						—			(29,904	)
	Preferred shares		—		—			—			—						—			(568	)
Repurchase Common Shares			—		—			—			(287,732	)					—			—
Dividend reinvestment, incentive and compensation plans			—		—			5,787			7,206						—			—
Conversion of Series A and Preferred shares			1		(1	)		393			—						—			—
Adjust investment in U.S. Cellular for Common Share issuances and repurchases			—		—			(86,549	)		—						—			—
Other			—		—			(414	)		—						—			—
Balance, December 31, 2000			555		69			1,816,619			(383,501	)					(178,344	)		2,680,669
Comprehensive (Loss)
	Net (loss)		—		—			—			—		$	(198,055	)		—			(198,055	)
	Net unrealized losses on securities		—		—			—			—			(173,776	)		(173,776	)		—
	Comprehensive (loss)												$	(371,831	)
Dividends
	Common and Series A common shares		—		—			—			—						—			(31,683	)
	Preferred shares		—		—			—			—						—			(458	)
Repurchase Common Shares			—		—			—			(30,335	)					—			—
Dividend reinvestment, incentive and compensation plans			—		—			995			6,942						—			—
Conversion of Series A and Preferred shares			2		(1	)		746			—						—			—
Adjust Investment in U.S. Cellular for Common Share issuances and repurchases			—		—			8,368			—						—			—
Other			—		—			112			—						—			—
Balance, December 31, 2001			557		68			1,826,840			(406,894	)					(352,120	)		2,450,473
Comprehensive (Loss)
	Net (loss)		—		—			—			—		$	(984,371	)		—			(984,371	)
	Net unrealized gains on securities		—		—			—			—			594,332			594,332			—
	Net unrealized losses on derivative instruments		—		—			—			—			(50,508	)		(50,508	)		—
	Comprehensive (loss)												$	(440,547	)
Dividends
	Common and Series A common shares		—		—			—			—						—			(34,018	)
	Preferred shares		—		—			—			—						—			(427	)
Dividend reinvestment, incentive and compensation plans			—		—			1,975			2,725						—			—
Conversion of Series A and Preferred shares			2		(2	)		1,156			—						—			—
Adjust Investment in U.S. Cellular for Common Share issuances and repurchases			—		—			2,698			—						—			—
Other			—		—			137			—						—			—
Balance, December 31, 2002		$	559	$	66		$	1,832,806		$	(404,169	)				$	191,704		$	1,431,657

The accompanying notes to consolidated financial statements are an integral part of these statements.

38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

        Telephone and Data Systems, Inc. ("TDS" or "the Company") is a diversified telecommunications company providing high-quality telecommunications services to approximately 5.1 million wireless telephone and wireline telephone customers in 35 states at December 31, 2002. The Company conducts substantially all of its wireless telephone operations through its 82.2%-owned subsidiary, United States Cellular Corporation ("U.S. Cellular") and its Incumbent Local Exchange Carrier ("ILEC") and Competitive Local Exchange Carrier ("CLEC") wireline telephone operations through its wholly-owned subsidiary, TDS Telecommunications Corporation ("TDS Telecom").

        See Note 25—Business Segment Information for summary financial information on each business segment.

PRINCIPLES OF CONSOLIDATION

        The accounting policies of TDS conform to accounting principles generally accepted in the United States of America. The consolidated financial statements include the accounts of TDS, its majority-owned subsidiaries since acquisition and the wireless partnerships in which it has a majority general partnership interest or has a controlling financial interest. All material intercompany items have been eliminated.

BUSINESS COMBINATIONS

        TDS uses the purchase method of accounting for business combinations. TDS includes as investments in subsidiaries the value of the consideration given and all direct and incremental costs relating to acquisitions. All costs relating to unsuccessful negotiations for acquisitions are charged to expense.

USE OF ESTIMATES

        The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

RECLASSIFICATIONS

        Certain amounts reported in prior years have been reclassified to conform to current period presentation. These reclassifications had no impact on previously reported operating revenue, net income and stockholders' equity.

        In conjunction with the implementation of Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets" effective January 1, 2002, the Company reviewed the balance sheet to identify and properly report all goodwill amounts in conjunction with the new standard. As a result of the review, the Company reclassified $475.7 million of wireless license costs, $32.8 million of deferred tax assets and $13.6 million of TDS Telecom ILEC property, plant and equipment to goodwill. The balance sheet as of December 31, 2001 has been reclassified to conform with current period presentation.

39

        SFAS No. 145 "Rescission of SFAS No. 4, 44, and 64 and Technical Corrections" was issued in April 2002, and was effective for fiscal years beginning after May 15, 2002, with early application encouraged. The provisions of SFAS No. 145 preclude gains and losses on the extinguishment of debt from being classified as extraordinary. The Company elected to adopt SFAS No. 145 early and as a result no longer reports the retirement of Liquid Yield Option Notes ("LYONs") debt as extraordinary. LYONs losses on debt retirements of $5.7 million and $30.5 million, net of minority interest of $1.2 million and $6.4 million, respectively, for the years ended December 31, 2001 and 2000, respectively, previously recorded as extraordinary items, have been reclassified. Loss on extinguishment of debt of $7.0 million and $36.9 million for the years 2001 and 2000 are included in the Investment and Other Income (Expense) section of the Statements of Operations. The minority interest amounts are included in the Minority Share of Income caption. There were no income taxes associated with these losses.

CASH AND CASH EQUIVALENTS

        Cash and cash equivalents include cash and those short-term, highly-liquid investments with original maturities of three months or less.

        Outstanding checks aggregating $47.8 million at December 31, 2001 were classified as Accounts payable in the Consolidated Balance Sheets.

MARKETABLE EQUITY SECURITIES

        Marketable equity securities are classified as available-for-sale, and are stated at fair market value. Net unrealized holding gains and losses are included in Accumulated other comprehensive income (loss). Realized gains and losses are determined on the basis of specific identification.

        The market values of marketable securities may fall below the accounting cost basis of such securities. Generally accepted accounting principles require management to determine whether a decline in fair value below the accounting cost basis is other than temporary. If management determines the decline in value to be other than temporary, the unrealized loss included in Accumulated other comprehensive income (loss) is recognized and recorded as a loss in the Statement of Operations.

        Factors that management considers in determining whether a decrease in the market value of its securities is an other than temporary decline include if there has been a significant change in the financial condition, operational structure or near-term prospects of the issuer; how long and how much the security has been below historical cost; and whether TDS has the intent and ability to retain its investment in the issuer's securities to allow the market value to return to historical cost levels.

        During 2002, TDS began utilizing derivative financial instruments to reduce market risks due to fluctuations in market prices of marketable equity securities. At December 31, 2002, the Company had prepaid forward contracts ("forward contracts") maturing in 2007 and 2008 in connection with substantially all the Company's marketable equity security portfolio, hedging the market price risk with respect to the contracted securities. The downside risk is hedged at or above the accounting cost basis thereby eliminating the other than temporary risk on these contracted securities.

DERIVATIVE INSTRUMENTS

        The Company utilizes derivative financial instruments to reduce marketable equity security market value risks. The Company does not hold or issue derivative financial instruments for trading purposes. The Company recognizes all derivatives as either assets or liabilities in the statement of financial condition and measures those instruments at fair value. Changes in fair value of those instruments will be reported in earnings or Accumulated other comprehensive income (loss) depending on the use of

40

the derivative and whether it qualifies for hedge accounting. The accounting for gains and losses associated with changes in the fair value of the derivative and the effect on the consolidated financial statements will depend on its hedge designations and whether the hedge is anticipated to be highly effective in achieving offsetting changes in the fair value of the hedged item or cash flows of the asset hedged.

WIRELESS LICENSE COSTS

        Wireless license costs consist of costs incurred in acquiring Federal Communications Commission licenses to provide wireless service. These costs include amounts paid to license applicants and owners of interests in entities awarded licenses and all direct and incremental costs relating to acquiring the licenses. Wireless license costs are intangible assets with indefinite useful lives and beginning January 1, 2002, with the implementation of SFAS No. 142, are not amortized. Prior to 2002, wireless license costs were amortized over 40 years.

        An intangible asset that is not subject to amortization shall be tested for impairment annually, or more frequently, if events or changes in circumstances indicate that the asset might be impaired. The impairment test shall consist of a comparison of the fair value of an intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess. No impairment charges were recognized in 2002.

GOODWILL

        The Company has substantial amounts of goodwill as a result of the acquisition of wireless licenses and markets, and the acquisition of operating telephone companies. Included in U.S. Cellular's goodwill is goodwill related to various acquisitions structured to be tax-free. No deferred taxes have been provided on this goodwill. TDS Telecom's goodwill reflects the costs in excess of the underlying fair value of the net tangible and intangible assets of acquired telephone companies. The Company adopted SFAS No. 142 on January 1, 2002, and no longer amortizes goodwill. Prior to 2002, goodwill was amortized over 40 years. Upon adoption of SFAS No. 142, the Company assessed its recorded balances of goodwill for potential impairment. Goodwill will be tested for impairment annually. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess. No impairment charges were recognized in 2002.

INVESTMENTS IN UNCONSOLIDATED ENTITIES

        Investments in unconsolidated entities consists of investments where the Company holds a less than 50% ownership interest. The Company follows the equity method of accounting, which recognizes TDS's proportionate share of the income and losses accruing to it under the terms of its partnership or shareholder agreements, where the Company's ownership interest equals or exceeds 20% for corporations and 3% to 5% for partnerships. The cost method of accounting is followed for certain minority interests where the Company's ownership interest is less than 20% for corporations and 3% to 5% for partnerships, or where the Company does not have the ability to exercise significant influence.

PROPERTY, PLANT AND EQUIPMENT

U.S. Cellular

        U.S. Cellular's property, plant and equipment is stated at the original cost of construction including capitalized costs of certain taxes and payroll-related expenses.

        Renewals and betterments of units of property are recorded as additions to plant in service. The original cost of depreciable property retired (along with the related accumulated depreciation) is

41

removed from plant in service and, together with removal cost less any salvage realized, is charged to depreciation expense. Repairs and renewals of minor units of property are charged to system operations expense.

        Costs of developing new information systems are capitalized and amortized starting when each new system is placed in service.

TDS Telecom

Incumbent Local Exchange Operations

        TDS Telecom's ILEC property, plant and equipment is stated at the original cost of construction including the capitalized costs of certain taxes, payroll-related expenses, and an allowance for funds used during construction.

        Renewals and betterments of units of property are recorded as additions to telephone plant in service. The original cost of depreciable property retired is removed from plant in service and, together with removal cost less any salvage realized, is charged to accumulated depreciation. No gain or loss is recognized on ordinary retirements of depreciable telephone property. Repairs and renewals of minor units of property are charged to plant operations expense.

        Cost of developing new information systems are capitalized and amortized starting when each new system is placed in service.

        The Company's incumbent local telephone operations follow accounting for regulated enterprises prescribed by SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation." Management periodically reviews the criteria for applying these provisions to determine whether continuing application of SFAS No. 71 is appropriate. Management believes that such criteria are still being met and therefore has no current plans to change its method of accounting.

        In analyzing the effects of discontinuing the application of SFAS No. 71, management has determined that the useful lives of plant assets used for regulatory and financial reporting purposes are consistent with generally accepted accounting principles and, therefore, any adjustments to telecommunications plant would be immaterial, as would be any write-off of regulatory assets and liabilities.

Competitive Local Exchange Operations

        TDS Telecom's CLEC property, plant and equipment is stated at the original cost of construction including capitalized costs of certain taxes and payroll-related expenses.

        Renewals and betterments of units of property are recorded as additions to plant in service. The original cost of depreciable property retired (along with the related accumulated depreciation) is removed from plant in service and, together with removal cost less any salvage realized, is charged to expense. Repairs and renewals of minor units of property are charged to expense.

        Cost of developing new information systems are capitalized and amortized starting when each new system is placed in service.

DEPRECIATION

        U.S. Cellular provides for depreciation using the straight-line method over the estimated useful lives of the assets.

        TDS Telecom's ILEC operations provide for depreciation on a group basis according to depreciable rates approved by State Public Utility Commissions. TDS Telecom's CLEC operations provide for depreciation using the straight-line method over the estimated useful lives of the assets.

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REVENUE RECOGNITION

        Revenues from wireless operations primarily consist of charges for access, airtime, roaming and value added services provided for U.S. Cellular's retail customers; charges to customers of other systems who use U.S. Cellular's systems when roaming; charges for long-distance calls made on U.S. Cellular's systems; end user equipment sales; and sales of accessories. Revenues are recognized as services are rendered. Unbilled revenues, resulting from wireless service provided from the billing cycle date to the end of each month and from other wireless carriers' customers using U.S. Cellular's systems for the last half of each month, are estimated and recorded.

        Equipment sales represent a separate earnings process. Revenues from equipment and accessory sales are recognized upon delivery to the customer. In order to provide better control over handset quality, U.S. Cellular began selling handsets to agents beginning in the second quarter of 2002, at a price approximately equal to cost. In most cases, the agents receive a rebate from U.S. Cellular at the time the agents sign up a new customer or retain a current customer. The Company accounts for the sale of equipment to agents in accordance with Emerging Issues Task Force ("EITF") Statement 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products.)" This standard requires that equipment sales revenue be reduced by the anticipated rebates to be paid to the agents at the time the agent purchases the handsets. In the fourth quarter of 2002, the Company determined that, in accordance with EITF 01-09, $3.4 million and $14.9 million of rebates recorded in operating expenses should have been reclassified as a reduction of equipment sales revenue for the second and third quarters of 2002, respectively. Additionally, the Company determined that an additional accrual of $2.9 million was required to account for its rebate exposure at September 30, 2002. As a result of these adjustments, the Company has restated its reported 2002 results for the second and third quarters of 2002.

        Activation fees charged with the sale of service only are deferred and recognized over the average customer service period. Activation fees allocated to the sale of equipment and charged in conjunction with the sale of equipment and service are recorded as revenue at the time of sale.

        Effective January 1, 2002, the Company adopted EITF Statement 00-21 "Accounting for Multiple Element Arrangements." Under this pronouncement, activation fees charged with the sale of equipment and service are allocated to the equipment and service based upon the relative fair values of each item. Due to the subsidy provided on customer handsets, this generally results in the recognition of the activation fee as additional handset revenue at the time of sale. Upon the initial adoption of SAB 101 in 2000, had the Company deferred all activation fees at the time of activation, with subsequent recognition over the expected customer service period, the financial results for all periods presented would not have been materially different from those originally reported. The effect of adopting EITF 00-21 did not have a material impact on any of the periods as originally reported.

        Revenue from wireline operations primarily consists of charges for the provision of local telephone exchange service; compensation for carrying interstate and intrastate long-distance traffic on TDS Telecom's local telephone networks; and charges for (i) leasing, selling, installing and maintaining customer premise equipment, (ii) providing billing and collection services, (iii) providing internet services and (iv) selling digital broadcast satellite receivers. Revenues are recognized as services are rendered.

        TDS's telephone subsidiaries participate in revenue pools with other telephone companies for interstate revenue and for certain intrastate revenue. Such pools are funded by toll revenue and/or access charges within state jurisdiction and by access charges in the interstate market. Revenues earned through the various pooling processes are initially recorded based on TDS Telecom's estimates.

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Cumulative Effect of Accounting Change

        Effective January 1, 2002, U.S. Cellular changed its method of accounting for commissions expenses related to customer activations and began deferring expense recognition of a portion of commissions expenses in the amount of activation fees revenue deferred. The Company believes this change is a preferable method of accounting for such costs primarily due to the fact that the new method of accounting provides for better matching of revenue from customer activations to direct incremental costs associated with these activations within each reporting period. The cumulative effect of this accounting change on periods prior to 2002 was recorded in 2002 increasing net income by $3.4 million, net of tax of $3.0 million and minority interest of $1.2 million, or $.06 per diluted share. Upon the initial adoption of SAB 101 in 2000, had the Company deferred expense recognition for a portion of commission expenses in the amount of activation fees revenue deferred upon, the Net Income (Loss) Available to Common, and Basic and Diluted Earnings per Share would have been $(198.1) million, $(3.38) and $(3.38), respectively, for the year ended December 31, 2001, and $2,237.7 million, $37.04 and $36.90, respectively, for the year ended December 31, 2000.

        Effective January 1, 2000, U.S. Cellular changed its method of accounting for certain activation and reconnect fees charged to its customers when initiating service through its retail and direct channels or when resuming service after suspension. The cumulative effect of this accounting change on periods prior to 2000 was recorded in 2000 reducing net income by $3.8 million, net of taxes of $3.7 million and minority interest of $820,000, or $.06 per diluted share.

ADVERTISING COSTS

        The Company expenses advertising costs as incurred. Advertising expense totaled $105.3 million, $77.2 million and $77.0 million in 2002, 2001 and 2000, respectively.

BAD DEBT EXPENSE

        Bad debt expense totaled $84.9 million, $28.5 million and $27.8 million in 2002, 2001 and 2000, respectively.

INCOME TAXES

        TDS files a consolidated federal income tax return. Deferred taxes are computed using the liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Both deferred tax assets and liabilities are measured using the tax rates anticipated to be in effect when the temporary differences reverse. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Deferred tax assets are reduced by a valuation allowance when, in management's opinion, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

STOCK-BASED COMPENSATION

        The Company accounts for stock options, stock appreciation rights ("SARs") and employee stock purchase plans under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" as allowed by SFAS No. 123, "Accounting for Stock-Based Compensation."

        No compensation costs have been recognized for the stock option and employee stock purchase plans. Had compensation cost for all plans been determined consistent with SFAS No. 123, the

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Company's net income available to common and earnings per share would have been reduced to the following pro forma amounts.

		Year Ended December 31,
		2002			2001			2000
		(Dollars in thousands, except per share amounts)
Net Income (Loss) Available to Common
	As Reported	$	(984,798	)	$	(198,513	)	$	2,236,498
	Pro Forma Expense		(11,503	)		(5,429	)		(7,053	)
	Pro Forma		(996,301	)		(203,942	)		2,228,995
Basic Earnings per Share from Net Income (Loss) Available to Common
	As Reported		(16.79	)		(3.38	)		37.32
	Pro Forma Expense		(.20	)		(.10	)		(.12	)
	Pro Forma		(16.99	)		(3.48	)		37.20
Diluted Earnings per Share from Net Income (Loss) Available to Common
	As Reported		(16.79	)		(3.38	)		36.88
	Pro Forma Expense		(.20	)		(.10	)		(.13	)
	Pro Forma	$	(16.99	)	$	(3.48	)	$	36.75

ASSET IMPAIRMENT

        The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company evaluates the asset for possible impairment based on an estimate of related undiscounted cash flows over the remaining asset life. If an impairment is identified, a loss is recognized for the difference between the fair value of the asset (less cost to sell) and the carrying value of the asset.

RECENT ACCOUNTING PRONOUNCEMENTS

        SFAS No. 143, "Accounting for Asset Retirement Obligations," was issued in June 2001, and will become effective for the Company beginning January 1, 2003. SFAS No. 143 requires entities to record the fair value of a liability for legal obligations associated with an asset retirement in the period in which the obligations are incurred. When the liability is initially recorded, the entity capitalizes the cost of the asset retirement obligation by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset.

        U.S. Cellular has reviewed its contractual obligations under SFAS No. 143 and has determined that, based upon its historical experience with asset retirements, the impact of adopting this standard will not have a material effect on its financial position and results of operations.

        TDS Telecom's incumbent local telephone companies follow the provisions of SFAS No. 71, and therefore conform to the accounting principles as prescribed by the respective state public utilities commissions and other federal agencies, and where applicable, accounting principles generally accepted in the United States of America. On December 20, 2002, the Federal Communications Commission ("FCC") notified carriers by Order that it will not adopt SFAS No. 143 since the FCC concluded that SFAS No. 143 conflicted with the FCC's current accounting rules that require incumbent local telephone companies to accrue for asset retirement obligations through prescribed depreciation rates. Pursuant to the FCC's order, and the provisions of SFAS No. 71, the Company has determined that the

45

adoption of SFAS No. 143 will not have a material impact on the financial position or results of operations of the Company's regulated telephone companies.

        TDS Telecom's unregulated telephone enterprises will adopt SFAS No. 143 effective January 1, 2003, and the Company has determined that this standard will not have a material impact on the Company's financial position or results of operations.

        FASB Interpretation ("FIN") No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" was issued in November 2002. FIN No. 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements are effective for periods ending after December 15, 2002. The initial recognition and initial measurement provisions shall be applied only on a prospective basis to guarantees issued or modified after December 31, 2002. The Company adopted the disclosure provisions in 2002 and will adopt the recognition and measurement provisions for guarantees issued or modified after December 31, 2002.

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2      INCOME TAXES

        Income tax provisions charged to income (loss) from continuing operations before minority interest are summarized as follows.

		Year Ended December 31,
		2002			2001			2000
		(Dollars in thousands)
Current
	Federal	$	1,273		$	184,562		$	126,596
	State		2,365			36,936			23,255
	Foreign		7,068			—			—
Deferred
	Federal		(491,616	)		(210,893	)		6,196
	State		(96,090	)		(55,513	)		(6,566	)
Total income tax expense (benefit) from continuing operations		$	(577,000	)	$	(44,908	)	$	149,481

        A reconciliation of the Company's income tax expense (benefit) from continuing operations computed at the statutory rate to the reported income tax expense (benefit) from continuing operations, and the statutory federal income tax (benefit) rate to the Company's effective income tax (benefit) rate from continuing operations, is as follows.

	Year Ended December 31,
	2002					2001					2000
	Amount			Rate		Amount			Rate		Amount			Rate
	(Dollars in millions)
Statutory federal income tax (benefit)	$	(544.5	)	(35.0	)%	$	(62.6	)	(35.0	)%	$	108.3		35.0	%
State income taxes, net of federal benefit		(57.2	)	(3.7	)		(4.8	)	(2.7	)		10.7		3.4
Amortization of license costs and costs in excess of book value		—		—			6.3		3.5			4.7		1.5
Minority share of income not included in consolidated tax return		(4.3	)	(.3	)		(2.6	)	(1.5	)		(1.2	)	(.4	)
Sale of investments		12.6		.8			3.1		1.7			11.3		3.6
Resolution of prior period tax issues		11.5		.7			9.8		5.5			3.6		1.2
Foreign tax		4.6		.3			—		—			—		—
Debt extinguishment		—		—			2.4		1.4			12.9		4.2
Other differences, net		.3		.1			3.5		2.0			(.8	)	(.2	)
Total income tax	$	(577.0	)	(37.1	)%	$	(44.9	)	(25.1	)%	$	149.5		48.3	%

        Income from continuing operations for each of the three years ended December 31, 2002, includes gains and losses (reported in the caption "Gain (loss) on marketable securities and other investments" in the Statements of Operations) that significantly affected income (loss) from continuing operations before income taxes and minority interest and income tax expense. The effective income tax rate excluding such gains and losses was 43.1%, 45.2%, and 45.4% for the years ended December 31, 2002, 2001, and 2000, respectively.

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        Income tax provisions charged to net income (loss) are summarized as follows.

		Year Ended December 31,
		2002			2001			2000
		(Dollars in thousands)
Current
	Federal	$	1,273		$	184,562		$	85,149
	State		2,365			36,936			16,642
	Foreign		7,068			—			—
Deferred
	Federal		(489,183	)		(204,469	)		1,299,481
	State		(95,573	)		(55,513	)		234,081
Total income tax expense (benefit)		$	(574,050	)	$	(38,484	)	$	1,635,353

        The Company's current net deferred tax assets totaled $20.3 million and $3.6 million as of December 31, 2002 and 2001, respectively. The net current deferred tax asset primarily represents the deferred tax effects of the allowance for doubtful accounts on customer receivables.

        The temporary differences that gave rise to the noncurrent deferred tax assets and liabilities are as follows.

		December 31,
		2002			2001
		(Dollars in thousands)
Deferred Tax Asset
	Net operating loss carryforwards	$	80,645		$	46,526
	Derivative accounting		32,473			—
	Partnership investments		17,568			5,970
	Other		—			1,962
			130,686			54,458
	Less valuation allowance		(54,816	)		(35,927	)
Total Deferred Tax Asset			75,870			18,531
Deferred Tax Liability
	Marketable equity securities		739,045			1,137,518
	Property, plant and equipment		372,444			178,869
	Licenses		130,073			113,206
	Other		4,813			—
Total Deferred Tax Liability			1,246,375			1,429,593
	Net Deferred Income Tax Liability	$	1,170,505		$	1,411,062

        TDS had $53.9 million of federal net operating loss carryforward (generating a $18.8 million deferred tax asset) at December 31, 2002, resulting from a 2002 federal taxable loss, expiring in 2022, available to offset future taxable income. In addition, TDS and certain subsidiaries had $740.8 million of state net operating loss carryforward (generating a $54.2 million deferred tax asset) available to offset future taxable income primarily of the individual subsidiaries which generated the loss. Certain subsidiaries which are not included in the federal consolidated income tax return, but file separate tax returns, had a federal net operating loss carryforward (generating a $7.6 million deferred tax asset) available to offset future taxable income which expires between 2003 and 2022. A valuation allowance was established for the state operating loss carryforward and the federal operating loss carryforward for

48

those subsidiaries not included in the federal income tax return since it is more than likely that a portion will expire before such carryforwards can be utilized.

3      EARNINGS PER SHARE

        Basic earnings per share is computed by dividing net income (loss) available to common by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using net income available to common and weighted average common shares adjusted to include the effect of potentially dilutive securities. Potentially dilutive securities include incremental shares issuable upon exercise of outstanding stock options and the potential conversion of preferred stock to common shares. The diluted loss per share calculation for years ended December 31, 2002 and 2001, excludes the effect of the potentially dilutive securities because their inclusion would be anti-dilutive.

        The amounts used in computing earnings per share from continuing operations and the effect on income and the weighted average number of Common and Series A Common Shares of dilutive potential common stock are as follows.

	Year Ended December 31,
	2002			2001			2000
	(Dollars in thousands)
Basic Earnings per Share
Income (Loss) from Continuing Operations	$	(987,737	)	$	(173,963	)	$	115,056
Preferred Dividend Requirement		(427	)		(458	)		(504	)
Income (Loss) from Continuing Operations Available to Common		(988,164	)		(174,421	)		114,552
Discontinued Operations Gain (Loss) on Disposal		—			(24,092	)		2,125,787
Cumulative Effect of Accounting Change		3,366			—			(3,841	)
Net Income (Loss) Available to Common used in Basic Earnings per Share	$	(984,798	)	$	(198,513	)	$	2,236,498
Diluted Earnings per Share
Income (Loss) from Continuing Operations Available to Common used in Basic Earnings per Share	$	(988,164	)	$	(174,421	)	$	114,552
Reduction in preferred dividends if Preferred Shares converted into Common Shares		—			—			446
Minority Income Adjustment(1)		—			—			(798	)
Income (Loss) from Continuing Operations Available to Common		(988,164	)		(174,421	)		114,200
Discontinued Operations Gain (Loss) on Disposal		—			(24,092	)		2,125,787
Cumulative Effect of Accounting Change		3,366			—			(3,841	)
Net Income (Loss) Available to Common used in Diluted Earnings per Share	$	(984,798	)	$	(198,513	)	$	2,236,146

(1)

The minority income adjustment reflects the additional minority share of U.S. Cellular's income computed as if all of U.S. Cellular's issuable securities were outstanding.

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		Year Ended December 31,
		2002	2001	2000
		(Shares in thousands)
Weighted Average Number of Common Shares used in Basic Earnings per Share		58,644	58,661	59,922
Effect of Dilutive Securities:
	Common Shares outstanding if Preferred Shares converted(1)	—	—	206
	Stock options(2)	—	—	498
	Common Shares issuable	—	—	10
Weighted Average Number of Common Shares used in Diluted Earnings per Share		58,644	58,661	60,636

(1)

Preferred Shares convertible into 231,013 Common Shares in 2002 and 239,514 Common Shares in 2001 were not included in computing Diluted Earnings per Share because their effects were anti-dilutive.

(2)

Stock options convertible into 1,792,639 Common Shares in 2002 and 1,381,041 Common Shares in 2001 were not included in computing Diluted Earnings per Share because their effects were anti-dilutive.

		Year Ended December 31,
		2002			2001			2000
Basic Earnings per Share
	Continuing Operations	$	(16.85	)	$	(2.97	)	$	1.91
	Discontinued Operations Gain (loss) on disposal		—			(.41	)		35.47
	Cumulative effect of accounting change		.06			—			(.06	)
		$	(16.79	)	$	(3.38	)	$	37.32
Diluted Earnings per Share
	Continuing Operations	$	(16.85	)	$	(2.97	)	$	1.88
	Discontinued Operations Gain (loss) on disposal		—			(.41	)		35.06
	Cumulative effect of accounting change		.06			—			(.06	)
		$	(16.79	)	$	(3.38	)	$	36.88

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4      MARKETABLE EQUITY SECURITIES

        Information regarding the Company's marketable equity securities is summarized as follows.

	December 31,
	2002			2001
	(Dollars in thousands)
Deutsche Telekom AG 131,461,861 Ordinary Shares	$	1,689,285		$	2,257,200
Vodafone AirTouch plc 12,945,915 ADRs		234,580			332,451
VeriSign, Inc. 2,525,786 Common Shares		20,257			92,998
Rural Cellular Corporation 719,396 equivalent Common Shares		611			16,006
Other		206			1,575
Aggregate Fair Value		1,944,939			2,700,230
Accounting Cost Basis(1)		1,545,713			3,303,106
Gross Unrealized Holding Gains (Losses)		399,226			(602,876	)
Income Tax (Expense) Benefit		(155,794	)		236,331
Unrealized Holding Gains (Losses), net of tax		243,432			(366,545	)
Derivatives, net of tax		(50,508	)		—
Equity Method Unrealized Gains		615			397
Minority Share of Unrealized Holding (Gains) Losses		(1,835	)		14,028
Accumulated Other Comprehensive Income (loss)	$	191,704		$	(352,120	)

(1)

The accounting cost basis of the marketable equity securities was reduced by an other than temporary loss of $1,757.5 million recognized during 2002.

        The Company holds a substantial amount of marketable securities that are publicly traded and can have volatile share prices. The market values of the marketable securities may fall below the accounting cost basis of such securities. If management determines the decline in value of the marketable securities to be other than temporary, the unrealized loss included in other comprehensive income is recognized and recorded as a loss in the Statement of Operations.

        In 2002, management determined that a decline in the value of marketable equity securities relative to their respective accounting cost basis was other than temporary and charged an aggregate $1,757.5 million loss to the statement of operations ($1,045.0 million net of tax and minority interest) and reduced the accounting cost basis of such marketable equity securities by a corresponding amount. The loss is reported in the caption "Gain (loss) on marketable securities and other investments" in the Statements of Operations.

        The merger of Deutsche Telekom AG and VoiceStream Wireless Corporation was completed in 2001. As a result of the merger, the Company's VoiceStream common shares were converted into 131,461,861 Deutsche Telekom AG ordinary shares and the Company received $570.0 million in cash. The merger of VeriSign, Inc. and Illuminet Holdings, Inc. was also completed in 2001. As a result of the merger, the Company's 2,628,748 Illuminet shares (including 138,736 shares acquired through the acquisition of Chorus Communications Group, Ltd. in 2001) were converted into 2,444,735 VeriSign, Inc. shares. The Company recognized a $644.9 million loss as a result of the merger of Deutsche Telekom and VoiceStream. The Company recognized a $96.1 million gain as a result of the VeriSign, Inc. acquisition of Illuminet Holdings, Inc. The Company recognizes gains and losses on the

51

difference between the accounting basis of the shares given up and the fair value of the shares and cash, if any, received.

5      WIRELESS LICENSE COSTS/GOODWILL

        Following is a schedule of activity of wireless license costs.

		December 31,
		2002			2001			2000
		(Dollars in thousands)
Balance, beginning of year		$	858,792		$	857,608		$	822,554
	Additions		181,510			112,068			64,978
	Amortization		—			(22,734	)		(23,116	)
	Sales		—			—			(9,234	)
	Deposit receivable from FCC		—			(56,060	)		—
	Other changes		(1,746	)		(32,090	)		2,426
Balance, end of year		$	1,038,556		$	858,792		$	857,608

        Accumulated amortization of wireless license costs was $168.7 million at December 31, 2002 and 2001. Beginning January 1, 2002, upon implementation of SFAS No. 142, the Company ceased the amortization of license costs.

        In 2001, a consolidated joint venture had deposits with the FCC totaling $56.1 million for certain wireless licenses. At December 31, 2001, the licenses were subject to litigation and the probable outcome was the joint venture receiving a refund of the deposit. Accordingly, the $56.1 million deposit was reclassified from license cost to a current asset. The joint venture received the refund in 2002.

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        Following is a schedule of activity of goodwill.

			December 31,
			2002			2001			2000
			(Dollars in thousands)
Consolidated Beginning Balance			$	870,801		$	654,335		$	590,841
U.S. Cellular
	Balance, beginning of year			473,975			400,966			380,866
		Acquisitions		172,263			53,610			27,794
		Amortization		—			(13,756	)		(10,724	)
		Other		(2,609	)		33,155			3,030
	Balance, end of year			643,629			473,975			400,966
TDS Telecom—ILEC
	Balance, beginning of year			332,848			210,320			184,885
		Acquisitions		64,231			129,172			31,657
		Amortization		—			(6,644	)		(6,222	)
		Other		403			—			—
	Balance, end of year			397,482			332,848			210,320
TDS Telecom—CLEC
	Balance, beginning of year			29,440			7,436			7,661
		Acquisitions		—			22,229			—
		Amortization		—			(225	)		(225	)
	Balance, end of year			29,440			29,440			7,436
Other
	Balance, beginning of year			34,538			35,613			17,429
		Acquisitions		—			—			18,714
		Amortization		—			(1,075	)		(530	)
		Other		1,362			—			—
	Balance, end of year			35,900			34,538			35,613
Net Change				235,650			216,466			63,494
Consolidated Ending Balance			$	1,106,451		$	870,801		$	654,335

        Accumulated amortization of goodwill was $148.8 million at December 31, 2002 and 2001. Beginning January 1, 2002, upon implementation of SFAS No. 142, the Company ceased the amortization of goodwill.

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        Net income (loss) adjusted to exclude license and goodwill amortization expense, net of tax, recorded in the year ended December 31, 2002, 2001 and 2000 is summarized below.

		Year Ended December 31,
		2002			2001			2000
		(Dollars in thousands)
Net Income (Loss)		$	(984,371	)	$	(198,055	)	$	2,237,002
Amortization, net of tax and minority interest effect of
	License costs		—			14,215			13,827
	Goodwill		—			13,788			11,068
	Goodwill for equity method investments		—			1,504			1,428
Adjusted Net Income (Loss)		$	(984,371	)	$	(168,548	)	$	2,263,325
Basic earnings per share:
	Net Income (Loss)	$	(16.79	)	$	(3.38	)	$	37.32
	Amortization, net of tax and minority interest		—			.50			.44
	Adjusted Earnings per Share	$	(16.79	)	$	(2.88	)	$	37.76
Diluted Earnings Per Share:
	Net Income (Loss)	$	(16.79	)	$	(3.38	)	$	36.88
	Amortization, net of tax and minority interest		—			.50			.43
	Adjusted Earnings per Share	$	(16.79	)	$	(2.88	)	$	37.31

6      CUSTOMER LISTS

        The customer lists, intangible assets from the acquisition of wireless properties, are being amortized based on average customer retention periods using the declining balance method. Amortization expense was $6.6 million for the year ended December 31, 2002. Amortization expense for the years 2003 - 2007 is expected to be $15.6 million, $9.5 million, $5.8 million, $3.5 million and $2.1 million, respectively.

7      INVESTMENTS IN UNCONSOLIDATED ENTITIES

        Following is a schedule of activity of investments in unconsolidated entities.

		December 31,
		2002			2001			2000
		(Dollars in thousands)
Balance, beginning of year		$	233,678		$	182,325		$	240,709
	Investment Income		43,675			50,639			38,723
	Distributions		(31,201	)		(14,729	)		(33,787	)
	Amortization		—			(1,257	)		(9,291	)
	Acquisitions		—			23,000			50,093
	Sales		—			(2,305	)		(33,095	)
	Impairment write downs		(32,716	)		—			(69,360	)
	Reclass to accounts receivable		(4,700	)		—			—
	Other		(2,741	)		(3,995	)		(1,667	)
Balance, end of year		$	205,995		$	233,678		$	182,325

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        Equity method investments aggregated $189.4 million and $179.9 million at December 31, 2002 and 2001, respectively. Income and losses from these entities are reflected in the Consolidated Statements of Operations on a pretax basis as Investment income. At December 31, 2002, the cumulative share of income from minority investments accounted for under the equity method was $342.5 million, of which $131.2 million was undistributed. Cost method investments aggregated $16.6 million and $53.8 million at December 31, 2002 and 2001, respectively.

        Investments in unconsolidated entities include goodwill and costs in excess of the underlying book value of certain investments. At December 31, 2002, $167.8 million represented the investment in underlying equity and $38.2 million in unamortized goodwill. Beginning January 1, 2002, upon implementation of SFAS No. 142, the Company ceased the amortization of equity method goodwill. Prior to 2002, these costs were amortized from 10 to 40 years.

        During 2002, TDS reduced the carrying value of two wireless minority investments. The Company withdrew from one partnership and reduced the carrying value by $25.4 million to $5.1 million, the amount the Company expected to receive from the partnership as a result of the withdrawal. The Company reduced the carrying amount of another minority interest by $7.3 million to estimated fair market value based on a cash flow analysis. These charges, aggregating $32.7 million, were included in Gain (Loss) on marketable securities and other investments on the Statements of Operations.

        During 2000, TDS reduced the carrying value of its investment (including $11.0 million of notes receivable) in TSR Wireless Holdings, LLC by $80.4 million to zero. In December 2000, TSR Wireless filed for Chapter 7 bankruptcy. These charges were included in the caption Gain (loss) on marketable securities and other investments in the Consolidated Statements of Operations.

        The Company's more significant investments in unconsolidated entities consist of the following.

		Percentage Ownership
		December 31,
		2002		2001
Cellular investments
	Los Angeles SMSA Limited Partnership	5.5	%	5.5	%
	Volcano Communications Company	45.0	%	45.0	%
	Raleigh-Durham MSA Limited Partnership	8.0	%	8.0	%
	Midwest Wireless Communications, LLC	15.7	%	15.7	%
	North Carolina RSA 1 Partnership	50.0	%	50.0	%
	Oklahoma City SMSA Limited Partnership	14.6	%	14.6	%

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        Based primarily on data furnished to the Company by third parties, the following summarizes the combined assets, liabilities and equity, and the combined results of operations of the entities for which TDS's investments are accounted for by the equity method.

		December 31,
		2002		2001
		(Dollars in thousands)
Assets
	Current	$	240,000	$	278,000
	Due from affiliates		249,000		371,000
	Property and other		1,558,000		1,431,000
		$	2,047,000	$	2,080,000
Liabilities and Equity
	Current liabilities	$	176,000	$	215,000
	Due to affiliates		3,000		24,000
	Deferred credits		90,000		123,000
	Long-term debt		37,000		43,000
	Partners' capital and stockholders' equity		1,741,000		1,675,000
		$	2,047,000	$	2,080,000

			Year Ended December 31,
			2002			2001			2000
			(Dollars in thousands)
Results of Operations
	Revenues		$	2,184,000		$	2,107,000		$	1,996,000
	Costs and expenses			1,699,000			1,504,000			1,472,000
		Operating Income		485,000			603,000			524,000
	Other income (expense)			18,000			(1,000	)		(13,000	)
	Interest expense			(2,000	)		(4,000	)		(21,000	)
	Income taxes			(2,000	)		(5,000	)		(6,000	)
	Net income		$	499,000		$	593,000		$	484,000

8      NOTES RECEIVABLE

        Notes receivable at December 31, 2001, reflect primarily loans to Airadigm Communications, Inc. ($52.7 million) and Kington Management Corporation ($44.2 million). The notes related to the funding of Airadigm's operations and the purchase by Kington of certain of U.S. Cellular's minority interests in 2000. The values of the notes were directly related to the values of certain assets and contractual rights of Airadigm and the value of the minority wireless market interests.

        As a result of changes in business strategies and other events, in 2002 management reviewed the Airadigm business plan and reviewed the fair market value of the wireless markets, including a third party fair value analysis, and concluded that the notes receivable were impaired. The Company recorded valuation allowances against the Airadigm notes receivable reducing the carrying value by $55.1 million to zero and wrote off $1.1 million of capitalized costs. The Kington notes were written down by $38.1 million to net realizable value. These losses were included in the caption Gain (Loss) on Marketable Securities and Other Investment in the Statement of Operations. The carrying value of the receivable at December 31, 2002 was $7.8 million. The Company received payment of approximately $7.6 million in January 2003 and expects to receive the remaining amount from Kington at a later date.

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9      PROPERTY, PLANT AND EQUIPMENT

U.S. CELLULAR

        U.S. Cellular's property, plant and equipment consists of the following.

	December 31,
	2002		2001
	(Dollars in thousands)
Cell site-related equipment	$	1,664,154	$	1,274,315
Land, buildings and leasehold improvements		523,971		370,732
Switching-related equipment		399,086		251,706
Office furniture and equipment		183,285		132,305
Systems development		230,084		168,591
Other operating equipment		113,974		86,796
Work in process		172,996		137,162
		3,287,550		2,421,607
Accumulated depreciation		1,139,118		893,802
	$	2,148,432	$	1,527,805

        Useful lives range from four to twenty-five years for cell site-related equipment, ten to twenty years for buildings and leasehold improvements, three to eight years for switching-related equipment, three to five years for office furniture and equipment, three to seven years for systems development, and ten years for other operating equipment. Depreciation expense totaled $312.0 million, $237.3 million and $205.9 million in 2002, 2001 and 2000, respectively.

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TDS TELECOM

        TDS Telecom's property, plant and equipment consists of the following.

		December 31,
		2002		2001
		(Dollars in thousands)
Incumbent Local Exchange Operations
	Cable and wire	$	1,015,701	$	937,451
	Central office equipment		584,137		533,896
	Office furniture and equipment		122,092		109,684
	Systems development		77,352		73,628
	Land and buildings		83,549		80,445
	Other equipment		63,318		61,072
	Work in process		23,057		21,879
			1,969,206		1,818,055
	Accumulated depreciation		1,119,016		977,388
			850,190		840,667
Competitive Local Exchange Operations
	Cable and wire		67,062		53,903
	Central office equipment		144,293		122,969
	Office furniture and equipment		36,182		26,172
	Systems development		7,572		4,155
	Land and buildings		476		887
	Other equipment		4,779		2,713
	Work in process		10,132		11,895
			270,496		222,694
	Accumulated depreciation		72,875		46,727
			197,621		175,967
Total		$	1,047,811	$	1,016,634

        Useful lives of ILEC property range from fifteen to twenty years for cable and wire, eight to twelve years for central office equipment, five to ten years for office furniture and equipment, five to seven years for systems development and ten to fifteen years for other equipment. Buildings are depreciated over thirty years. The provision for depreciation as a percentage of depreciable property was 6.2% in 2002, 7.2% in 2001 and 7.3% in 2000. Depreciation expense totaled $128.0 million, $123.7 million and $117.5 million in 2002, 2001 and 2000, respectively.

        Useful lives of CLEC property range from fifteen to twenty years for cable and wire, eight to twelve years for central office equipment, five to ten years for office furniture and equipment, five to seven years for systems development and ten to fifteen years for other equipment. Buildings are depreciated over thirty years. The provision for depreciation as a percentage of depreciable property was 12.7% in 2002, 12.9% in 2001 and 12.2% in 2000. Depreciation expense totaled $28.9 million, $17.3 million and $9.0 million in 2002, 2001 and 2000, respectively.

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10    SUPPLEMENTAL CASH FLOW DISCLOSURES

        Following are supplemental cash flow disclosures for interest and income taxes paid and certain noncash transactions.

	Year Ended December 31,
	2002		2001		2000
	(Dollars in thousands)
Interest paid	$	113,942	$	91,629	$	82,629
Income taxes paid		61,896		220,163		75,029
Common Shares issued for conversion of Preferred Shares		122		250		472
Conversion of LYONs for Common Shares of U.S. Cellular		—		29,642		62,560
Notes issued for the Chicago acquisition	$	175,000	$	—	$	—

11    ACQUISITIONS

        Cash expenditures for acquisitions aggregated $531.2 million in 2002, $392.8 million in 2001 and $200.7 million in 2000.

2002 ACQUISITIONS

        On August 7, 2002, U.S. Cellular completed the acquisition of the assets and certain liabilities of Chicago 20 MHz, LLC ("Chicago 20 MHz") from PrimeCo Wireless Communications LLC ("PrimeCo"). Chicago 20MHz operates a wireless system in the Chicago Major Trading Area ("MTA"). Chicago 20MHz is the holder of certain FCC licenses, including a 20 megahertz PCS license in the Chicago MTA (excluding Kenosha County, WI) covering 13.2 million population equivalents (POPs).

        The purchase price was $617.8 million. U.S. Cellular financed the purchase using $327.3 million of revolving lines of credit, $175.0 million in 30 year notes issued to PrimeCo, a $105.0 million loan from TDS and a $10.5 million accrued payable. The Company has included the Chicago 20MHz results of operations in the Statement of Operations subsequent to the purchase date.

        An independent appraiser completed a valuation of Chicago 20 MHz's assets. The tangible fixed assets were valued at net book value. The PCS licenses were valued at $163.5 million. These licenses have an indefinite life and are not being amortized. The customer list was assigned a value of $43.4 million. This intangible is being amortized based on a 30 month average customer retention period using the declining balance method.

        Total goodwill attributed to the Chicago acquisition aggregated $168.4 million, and is not being amortized for financial reporting purposes. In January 2003, U.S. Cellular repaid the $45.2 million outstanding 9% Series A Notes at 90% of face value. The $4.5 million gain on retirement of the 9% Series A Notes will be credited to goodwill, reducing the aggregate goodwill attributed to the Chicago acquisition to $163.9 million. Goodwill is deductible for tax purposes and will be amortized over 15 years for tax purposes.

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        The following table summarizes the estimated fair values of the PrimeCo assets acquired and liabilities assumed at the date of acquisition.

		August 7, 2002
		(Dollars in thousands)
Current assets, excluding $6,984 cash acquired		$	34,081
Property, plant and equipment			235,953
Other assets			815
Customer list			43,400
Licenses			163,500
Goodwill			168,436
	Total assets acquired		646,185
Current liabilities			(22,518	)
Non-current liabilities			(1,300	)
	Total liabilities acquired		(23,818	)
Net assets purchased			622,367
Notes issued to PrimeCo			(175,000	)
Accrued but unpaid items			(15,500	)
Cash required		$	431,867

        In addition, the Company acquired two incumbent local telephone companies, three additional PCS licenses and additional minority interests in majority-owned markets during 2002. In conjunction with these acquisitions, the following assets were acquired and liabilities assumed.

        The goodwill acquired in these acquisitions is not deductible for tax purposes.

	2002
	(Dollars in thousands)
Current assets, excluding $3,366 cash acquired	$	6,454
Property, plant and equipment		24,640
Cellular licenses		18,010
Goodwill—U.S. Cellular		3,827
Goodwill—TDS Telecom		64,231
Other assets		2,068
Current liabilities		(5,450	)
Long-term debt		(9,767	)
Deferred credits		(3,080	)
Other liabilities		(1,627	)
Cash required	$	99,306

        In aggregate, the 2002 acquisitions increased wireless license costs by $181.5 million, U.S. Cellular goodwill by $172.3 million and TDS Telecom's ILEC goodwill by $64.2 million.

2001 ACQUISITIONS

        On September 4, 2001, the Company acquired 100 percent of the outstanding common shares of Chorus Communications Group, Ltd. The aggregate purchase price was $202.8 million in cash, excluding cash acquired. The results of Chorus' operations are included in the consolidated financial statements since that date. Chorus is a telecommunications company serving approximately 43,000

60

business and residential access lines and 27,000 Internet customers primarily in Wisconsin. Its other operations include selling, installing and servicing business telephone and videoconferencing systems, data networks, internet access and long-distance.

        The following table summarizes the estimated fair values of the Chorus assets acquired and liabilities assumed at the date of acquisition.

		September 4, 2001
		(Dollars in thousands)
Current assets, excluding $9,800 cash acquired		$	9,089
Property, plant and equipment			55,170
Investment in unconsolidated entities			23,000
Other assets			5,445
Goodwill			149,969
	Total assets acquired		242,673
Current liabilities			(26,546	)
Non-current liabilities			(7,307	)
Long-term debt			(5,997	)
	Total liabilities assumed		(39,850	)
	Cash required	$	202,823

        The goodwill was assigned to the ILEC segment ($127.8 million) and to the CLEC segment ($22.2 million). None of the goodwill is expected to be deductible for tax purposes.

        In addition, during 2001 the Company acquired 100 percent of an operating cellular market for $56.2 million in cash, certain PCS licenses for $124.1 million in cash and a small incumbent local telephone company and certain other assets for $9.7 million in cash and $1.1 million of deferred cash payments.

        In aggregate, the 2001 acquisitions increased wireless license costs by $112.1 million; U.S. Cellular goodwill by $53.6 million; TDS Telecom's ILEC and CLEC goodwill by $129.2 million and $22.2 million, respectively; and investments in unconsolidated entities by $23.0 million.

2000 ACQUISITIONS

        During 2000, the Company acquired 100 percent of the stock of Southeast Telephone Company, an incumbent local telephone company serving approximately 10,000 access lines in southeastern Wisconsin, for $39.5 million in cash (net of cash acquired). The Company also acquired additional interests in majority-owned operations and in certain unconsolidated entities during 2000. The Company purchased the 48.7% interest in an incumbent local telephone company it did not own for $52.5 million in cash; purchased additional interests in certain majority-owned wireless markets for $18.5 million in cash; made a deposit on certain PCS licenses totaling $51.1 million; and purchased additional interests in certain wireless markets where the Company holds a minority position for $39.1 million in cash and $13.0 million of deferred cash payments. These expenditures increased wireless license costs by $65.0 million, U.S. Cellular goodwill by $27.8 million, TDS Telecom's ILEC goodwill by $31.6 million, other goodwill by $18.7 million, and investments in unconsolidated entities by $50.1 million.

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        Assuming the acquisitions accounted for as purchases during the period January 1, 2001 to December 31, 2002, had taken place on January 1, 2001, unaudited proforma results of operations would have been as follows:

	Year Ended December,
	2002			2001
	(Unaudited, dollars in thousands)
Operating revenues	$	3,111,456		$	2,883,742
Net (loss)		(1,015,194	)		(213,242	)
(Loss) per share—basic and diluted	$	(17.26	)	$	(3.64	)

12    GAIN (LOSS) ON MARKETABLE SECURITIES AND OTHER INVESTMENTS

	Year Ended December 31,
	2002			2001			2000
	(Dollars in thousands)
Marketable securities other than temporary losses	$	(1,757,471	)	$	—		$	—
Notes receivable impairment		(93,978	)		—			—
Impairment of unconsolidated interests		(32,716	)		—			—
Other		(4,226	)		487			—
Deutsche Telekom/VoiceStream merger		—			(644,929	)		—
VeriSign/Illuminet merger		—			96,137			—
Sale of wireless interests		—			—			53,618
Litigation proceeds		—			—			42,457
TSR Wireless write down		—			—			(80,359	)
	$	(1,888,391	)	$	(548,305	)	$	15,716

        Gain (loss) on marketable securities and other investments in 2002 includes an other than temporary investment loss of $1,757.5 million on the Company's marketable securities. The accounting cost basis of the Company's marketable securities was written down to market value upon determining that the unrealized losses on the securities were other than temporary.

        TDS had certain notes receivable from Airadigm Communications, Inc. and Kington Management Corporation. During 2002, management concluded that the notes receivable were impaired, and accordingly, recorded a $54.8 million valuation allowance to reduce the Airadigm note receivable to zero, charged $1.1 million of capitalized costs to expense and reduced the Kington note receivable by $38.1 million to net realizable value.

        TDS recorded additional losses in 2002 of $25.4 million related to the withdrawal from a partnership in which it had owned an investment interest, $7.3 million to the write down of a wireless investment to fair value and $4.2 million to the reduction in value of a land purchase option.

        The Company recognized a $644.9 million loss as a result of the VoiceStream Wireless Corporation merger with Deutsche Telekom AG and a $96.1 million gain as a result of the VeriSign, Inc. acquisition of Illuminet Holdings, Inc. in 2001. TDS received a final bankruptcy settlement totaling $0.5 million in 2001.

        The sale of non-strategic cellular interests, the write down of the carrying value of the investment in TSR Wireless and the settlement of a legal matter generated net gains totaling $15.7 million in 2000.

        These transactions generated net cash proceeds of $570.5 million and $115.4 million in 2001 and 2000, respectively.

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13    NOTES PAYABLE

        The Company has used short-term debt to finance acquisitions, for general corporate purposes and to repurchase common shares. Proceeds from the sale of long-term debt and equity securities from time to time have been used to reduce such short-term debt. Proceeds from the sale of non-strategic cellular and other investments from time to time have also been used to reduce short-term debt.

        TDS had a $600 million revolving credit facility with a group of banks at December 31, 2002, and had $3.3 million of letters of credit outstanding against the revolving credit facility leaving $596.7 million available for use. The terms of the revolving credit facility provide for borrowings with interest at the London InterBank Offered Rate ("LIBOR") plus a margin percentage based on the Company's credit rating. At December 31, 2002, the margin percentage was 30 basis points (for a rate of 1.68%). The margin percentage increases by 10 basis points if more than 50% of the facility is outstanding. Interest and principal are due the last day of the borrowing period, as selected by TDS, of either seven days or one, two, three or six months. TDS pays facility and administration fees at an aggregate annual rate of 0.146% of the total $600 million facility. The credit facility expires in January 2007.

        TDS also had $87 million in direct bank lines of credit at December 31, 2002, all of which were unused. Effective January 1, 2003, $12.0 million of bank lines of credit expired and were not renewed. The terms of the direct bank lines of credit provide for borrowings at negotiated rates up to the prime rate.

        U.S. Cellular had a $500 million revolving credit facility with a group of banks at December 31, 2002, $40 million of which was unused. The terms of the credit facility provide for borrowings with interest at the LIBOR rate plus a margin percentage based on the Company's credit rating. At December 31, 2002, the margin percentage was 19.5 basis points (for a rate of 1.58%). Interest and principal are due the last day of the borrowing period, as selected by U.S. Cellular, of either seven days or one, two, three or six months. U.S. Cellular pays facility and administration fees at an aggregate annual rate of 0.142% of the total $500 million facility. The credit facility expires in August 2004.

        U.S. Cellular had an additional $325 million revolving credit facility with a group of banks at December 31, 2002, all of which was unused. The terms of the credit facility provide for borrowings with interest at the LIBOR rate plus a margin percentage based on the Company's credit rating. At December 31, 2002, the margin percentage was 55 basis points (for a rate of 1.93%). Interest and principal are due the last day of the borrowing period, as selected by U.S. Cellular, of either seven days or one, two, three or six months. U.S. Cellular pays facility and administration fees at an aggregate annual rate of .20% of the total $325 million facility. The credit facility expires in June 2007.

        Information concerning notes payable is shown in the table that follows.

	Year Ended December 31,
	2002			2001
	(Dollars in thousands)
Balance at end of year	$	461,792		$	265,300
Weighted average interest rate at end of year		1.7	%		2.4	%
Maximum amount outstanding during the year	$	483,442		$	584,850
Average amount outstanding during the year(1)	$	276,283		$	412,804
Weighted average interest rate during the year(1)		2.0	%		4.3	%

(1)

The average was computed based on month-end balances.

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14    LONG-TERM DEBT

        Long-term debt is as follows.

				December 31,
				2002			2001
				(Dollars in thousands)
Telephone and Data Systems, Inc. (Parent)
	7.6% Series A Notes, due in 2041			$	500,000		$	500,000
	Medium-term notes, averaging 9.0%
		9.2% due in 2007			—			22,000
		8.0% to 10.0% due 2021-2025			122,700			151,700
					122,700			173,700
	7.0% Notes, maturing in 2006				200,000			200,000
	Purchase contracts, averaging 6.5%, due through 2021				1,177			1,283
		Total Parent			823,877			874,983
Subsidiaries
	U.S. Cellular
		6.0% zero coupon convertible redeemable debentures (LYONs), maturing in 2015			310,749			310,941
		Unamortized discount			(162,145	)		(170,785	)
					148,604			140,156
		7.25% Notes, maturing in 2007			250,000			250,000
		8.75% Senior Notes, maturing in 2032			130,000			—
		9% Series A Notes, repurchased in 2003			45,200			—
		Other, 9.0% due 2005-2010			13,000			13,000
	TDS Telecom
		RUS, RTB and FFB Mortgage Notes, various rates averaging 5.5% in 2002 and 5.6% in 2001, due through 2031			266,234			279,287
		Other long-term notes, various rates averaging 7.6% in 2002 and 7.2% in 2001, due through 2006			14,692			9,631
	Other Subsidiaries
		Long-term notes and leases, 6.8% to 7.9%, due through 2009			14,499			8,168
			Total Subsidiaries		882,229			700,242
Total long-term debt					1,706,106			1,575,225
	Less: Current portion of long-term debt				64,482			67,461
Total long-term debt, excluding current portion				$	1,641,624		$	1,507,764

TELEPHONE AND DATA SYSTEMS, INC. (PARENT)

        TDS sold $500 million principal amount of 7.6% unsecured Series A Notes in 2001 with proceeds to the Company of $484.2 million. The notes are due in 2041. Interest is payable quarterly. The notes are redeemable by the Company beginning December 2006 at 100% of the principal amount plus accrued and unpaid interest.

        The Medium-Term Notes ("MTNs") mature at various times from 2021 to 2025. Interest is payable semi-annually. The MTNs are unsecured and may be redeemed by the Company at par value plus accrued but unpaid interest. TDS redeemed MTNs aggregating $51.0 million in 2002 and $65.5 million

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in 2001. As of December 31, 2002, MTNs aggregating $65.5 million, $17.2 million and $40.0 million have initial redemption dates in 2003, 2005 and 2006, respectively.

        The 7.0% unsecured notes are due August 2006. Interest is payable semi-annually. The notes are redeemable at any time at the option of the Company, at a redemption price equal to the greater of (a) 100% of the principal amount of such notes, plus accrued but unpaid interest, or (b) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semi-annual basis at the Treasury Rate plus .25%.

SUBSIDIARIES—U.S. CELLULAR

        U.S. Cellular's 6.0% yield to maturity zero coupon convertible redeemable unsecured notes ("LYONs") are due in 2015. There is no periodic payment of interest. Each note is convertible at the option of the holder at any time at a conversion rate of 9.475 U.S. Cellular Common Shares per $1,000 of notes. Upon notice of conversion, U.S. Cellular may elect to deliver its Common Shares or cash equal to the market value of the Common Shares. U.S. Cellular may redeem the notes for cash at the issue price plus accrued original issue discount through the date of redemption. Holders have the right to exercise their conversion option prior to the redemption date. There were no conversions of LYONs in 2002. During 2001, holders converted $55.1 million carrying value of LYONs. U.S. Cellular delivered $32.0 million in cash and 644,000 U.S. Cellular Common Shares for these conversions. During 2000, holders converted $126.2 million carrying value of LYONs. U.S. Cellular delivered $99.4 million in cash and 1,416,000 U.S. Cellular Common Shares for these conversions. The LYONs converted for cash resulted in a loss of $7.0 million and $36.9 million in 2001 and 2000, respectively, reported as (Loss) on debt extinguishment in the Statements of Operations.

        U.S. Cellular's 7.25% unsecured senior notes are due 2007 and interest is payable semi-annually. U.S. Cellular may redeem the notes beginning 2004 at principal amount plus accrued interest.

        In November 2002, U.S. Cellular sold $130.0 million of 8.75% unsecured Senior Notes due in November 2032. Interest is paid quarterly. U.S. Cellular may redeem the notes beginning in 2007 at principal amount plus accrued interest. The $129.8 million net proceeds from the sale of the notes (after reimbursement of costs) were used to purchase a portion of the 9% Series A Notes.

        U.S. Cellular issued $175.0 million of 9% Series A Notes due 2032 to PrimeCo in connection with the acquisition of Chicago 20MHz on August 7, 2002. Interest is payable quarterly. The notes are callable by U.S. Cellular after five years at the principal amount plus accrued but unpaid interest. U.S. Cellular repurchased $129.8 million of the 9% Senior Notes in 2002. U.S. Cellular repurchased the remaining $45.2 million 9% Senior Notes in January 2003 using funds from the revolving credit facility.

SUBSIDIARIES—TDS TELECOM

        TDS Telecom's RUS, RTB and FFB Mortgage Notes issued under certain loan agreements with the Rural Utilities Service ("RUS"), Rural Telephone Bank ("RTB") and Federal Financing Bank ("FFB"), agencies of the United States of America, are to be repaid in equal monthly or quarterly installments covering principal and interest beginning six months to three years after dates of issue and expiring through 2031. Substantially all telephone plant of the incumbent local exchange companies is pledged under RUS and RTB mortgage notes and various other obligations of the telephone subsidiaries.

CONSOLIDATED

        The annual requirements for principal payments on long-term debt, excluding amounts due on the forward contracts, are approximately $64.5 million, $20.1 million, $23.8 million, $222.5 million and $273.8 million for the years 2003 through 2007, respectively.

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        The financial covenants associated with its debt obligations require that the company maintain certain debt to capital and interest coverage ratios. The covenants also, among other things, restrict the Company's ability, subject to certain exclusions, to incur additional liens; enter into sale and leaseback transactions; and sell, consolidate, or merge assets. As of December 31, 2002, the Company was in compliance with all of the covenants of its debt obligations.

        In addition, the financial covenants of debt obligations of certain subsidiaries of the Company require that these subsidiaries maintain certain debt to capital, interest coverage, and debt to EBITDA ratios. The covenants also, among other things, restrict these subsidiaries' ability, subject to certain exclusions, to incur additional liens; enter into sale and leaseback transactions; sell, consolidate, or merge assets, and pay dividends. The covenants may prescribe certain terms associated with intercompany loans from certain subsidiaries to TDS. As of December 31, 2002, the Company's subsidiaries were in compliance with all of the covenants of their debt obligations.

PREPAID FORWARD CONTRACTS

        TDS maintains a portfolio of available-for-sale marketable equity securities. During 2002, the Company entered into variable prepaid forward contracts ("forward contracts") in connection with its Deutsche Telekom, Vodafone and VeriSign marketable securities. The principal amount of the forward contracts is accounted for as a loan. The collar portions of the forward contracts are accounted for as derivative instruments. Option premiums paid were initially recorded as a derivative asset and option premiums received were initially recorded as a derivative liability. The following table summarizes certain facts surrounding the contracted securities, pledged as collateral for the forward contracts, as of December 31, 2002.

Security		Shares	Proceeds		Loan Amount
			(Dollars in thousands)
Deutsche Telekom		131,461,861	$	1,411,856	$	1,532,257
	Unamortized debt discount					(93,469	)
						1,438,788
Vodafone		12,945,915		201,038		201,038
VeriSign		2,361,333		18,927		20,819
	Unamortized debt discount					(4,029	)
						16,790
			$	1,631,821	$	1,656,616

        The Deutsche Telekom forward contracts mature from May 2007 to August 2008. Contracts aggregating $1,094.3 million require quarterly interest payments at LIBOR plus 0.5% (for a rate of 1.88% based on the LIBOR rate at December 31, 2002). Contracts aggregating $438.0 million are structured as zero coupon obligations with a weighted average effective interest rate of 4.4% per year. No interest payments are required for the zero coupon obligations during the contract period.

        The Vodafone forward contracts mature in May and November 2007. The Vodafone forward contracts require quarterly interest payments at LIBOR plus 0.5% (for a rate of 1.88% based on LIBOR rate at December 31, 2002).

        The VeriSign forward contract matures in May 2007 and is structured as a zero coupon obligation with an effective interest rate of 5.0% per year. The Company is not required to make interest payments during the contract period.

        Contracts aggregating $738.7 million and $1,015.4 million mature in 2007 and 2008, respectively.

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        The risk management objective of the forward contracts is to hedge the value of the marketable equity securities from losses due to decreases in the market prices of the securities ("downside limit") while retaining a share of gains from increases in the market prices of such securities ("upside potential"). The downside risk is hedged at or above the accounting cost basis thereby eliminating the other than temporary risk on these contracted securities.

        Under the terms of the forward contracts, the Company will continue to own the contracted shares and will receive dividends paid on such contracted shares, if any. The forward contracts mature from May 2007 to August 2008 and, at the Company's option, may be settled in shares of the respective security or in cash, pursuant to formulas that "collar" the price of the shares. The collars effectively limit the Company's downside risk and upside potential on the contracted shares. The collars could be adjusted for any changes in dividends on the contracted shares. The forward contracts may be settled in shares of the respective marketable equity security or in cash upon expiration of the forward contract. If the Company elects to settle in shares, it will be required to deliver the number of shares of the contracted security determined pursuant to the formula. If shares are delivered in the settlement of the forward contract, the Company would incur a current tax liability at the time of delivery based on the difference between the tax basis of the marketable equity securities delivered and the net amount realized through maturity. If the Company elects to settle in cash it will be required to pay an amount in cash equal to the fair market value of the number of shares determined pursuant to the formula.

15    FINANCIAL INSTRUMENTS AND DERIVATIVES

FINANCIAL INSTRUMENTS

        Financial instruments are as follows.

	December 31,
	2002				2001
	Book Value		Fair Value		Book Value		Fair Value
	(Dollars in thousands)
Cash and Cash Equivalents	$	1,298,936	$	1,298,936	$	140,744	$	140,744
Notes Payable		461,792		461,792		265,300		265,300
Long-term Debt		1,706,106		1,684,407		1,575,225		1,559,700
Prepaid Forward Contracts		1,656,616		1,648,900		—		—
Company-obligated Preferred Securities of Subsidiary Trust		300,000		296,700		300,000		299,200
Preferred Shares	$	6,954	$	4,978	$	7,442	$	5,392

        The carrying amounts of cash and cash equivalents and notes payable approximate fair value due to the short-term nature of these financial instruments. The fair value of the Company's long-term debt was estimated using market prices for the 7.6% Series A Notes, the 6.0% zero coupon convertible debentures and the 8.75% Senior Notes, and discounted cash flow analysis for the remaining debt. The fair value of the debt component of the Company's prepaid forward contracts was determined using discounted cash flow analysis. The fair value of the Company-Obligated Mandatorily Redeemable Preferred Securities was determined using the market prices of the securities. The fair value of the Company's Preferred Shares was estimated using discounted cash flow analysis.

DERIVATIVES

        During 2002, the Company entered into forward contracts in connection with its Deutsche Telekom, Vodafone, and VeriSign marketable securities. The principal amount of the forward contracts is accounted for as a loan. The collar portions of the forward contracts are accounted for as derivative

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instruments. The following table summarizes the shares contracted and the downside limit and upside potential.

	December 31, 2002
Security	Shares	Downside Limit (Floor)		Upside Potential (Ceiling)
VeriSign	2,361,333	$	8.82	$	11.46
Vodafone	12,945,915	$	15.07-$16.07	$	20.92-$23.66
Deutsche Telekom	131,461,861	$	10.74-$12.41	$	12.88-$16.33

        The forward contracts for the forecasted transactions and hedged items are designated as cash flow or fair value hedges and recorded as assets or liabilities on the balance sheet at their fair value. The fair value of the derivative instruments is determined using the Black-Scholes model.

        The Deutsche Telekom and Vodafone forward contracts are designated as cash flow hedges, where changes in the forward contract's fair value are recognized in accumulated other comprehensive income until they are recognized in earnings when the forward contract is settled. If the delivery of the contracted shares does not occur, or it becomes probable that it will not occur, the gain or loss on the related cash flow hedge is recognized in earnings at that time. No components of the forward contracts are excluded in the measurement of hedge effectiveness for cash flow hedges. The critical terms of the forward contracts are the same as the underlying forecasted transactions; therefore, changes in the fair value of the forward contracts are anticipated to be effective in offsetting changes in the expected cash flows from the forecasted transactions. No gains or losses related to ineffectiveness of cash flow hedges were recognized in earnings for the year ended December 31, 2002.

        With regards to the forward contracts on the Vodafone AirTouch plc shares and the Deutsche Telekom AG shares, transactions being accounted for as cash flow hedges, management has evaluated the expected timing of the hedged forecasted transactions to deliver the underlying shares to settle the forward contracts, and believes that these forecasted transactions are probable of occurring in the periods specified in the related hedge documentation or within an additional two-month period of time thereafter.

        The VeriSign forward contract is designated as a fair value hedge, where effectiveness of the hedge is assessed based upon the intrinsic value of the underlying options. The intrinsic value of the forward contract is defined as the difference between the applicable option strike price and the market value of the contracted shares on the balance sheet date. Changes in the intrinsic value of the options are expected to be perfectly effective at offsetting changes in the fair value of the hedged item. Changes in the intrinsic value of the options are recognized in Accumulated other comprehensive income (loss) until they are recognized in earnings when the forward contract is settled. Changes in the time value of the options are excluded from the effectiveness assessment and are recognized in earnings each period. Changes in the time value of the options aggregating $1.3 million of income for the year ended December 31, 2002, were included in the Statement of Operations caption Other Income (Expense).

        At December 31, 2002, the Company reported a derivative asset of $2.6 million, included in the balance sheet caption Other Assets and Deferred Charges, and a derivative liability of $61.2 million included in the balance sheet caption Deferred Liabilities and Credits.

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16    MINORITY INTEREST IN SUBSIDIARIES

        The following table summarizes the minority shareholders' and partners' interests in the equity of consolidated subsidiaries.

		December 31,
		2002		2001
		(Dollars in thousands)
U.S. Cellular
	Public shareholders	$	430,168	$	409,000
	Subsidiaries' partners and shareholders		48,242		46,432
			478,410		455,432
Other minority interests			11,325		12,266
		$	489,735	$	467,698

        The Board of Directors of U.S. Cellular from time to time has authorized the repurchase of U.S. Cellular Common Shares not owned by TDS. U.S. Cellular may use repurchased shares to fund acquisitions, for the conversion of LYONs and for other corporate purposes. U.S. Cellular repurchased no shares during 2002. U.S. Cellular repurchased 643,000 Common Shares in 2001 for $29.9 million and reissued 644,000 Common Shares in 2001 for the conversion of U.S. Cellular's zero coupon convertible debt.

17    COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY COMPANY SUBORDINATED DEBENTURES

        TDS Capital I, a subsidiary trust of TDS, has outstanding 6,000,000 8.5% Company-Obligated Mandatorily Redeemable Preferred Securities. The sole asset of TDS Capital I is $154.6 million principal amount of TDS's 8.5% Subordinated Debentures due December 31, 2037.

        TDS Capital II, a subsidiary trust of TDS, has outstanding 6,000,000 8.04% Company-Obligated Mandatorily Redeemable Preferred Securities. The sole asset of TDS Capital II is $154.6 million principal amount of TDS's 8.04% Subordinated Debentures due March 31, 2038.

        Payments due on the obligations of TDS Capital I and II under preferred securities issued by TDS Capital I and II are fully and unconditionally guaranteed by TDS to the extent each trust has funds available therefor. However, TDS's obligations are subordinate and junior in right of payment to certain other indebtedness of TDS. TDS has the right to defer payments of interest on the Subordinated Debentures by extending the interest payment period, at any time, for up to 20 consecutive quarters. If interest payments on the Subordinated Debentures are so deferred, distributions on the preferred securities will also be deferred. During any deferral, distributions will continue to accrue with interest thereon. In addition, during any such deferral, TDS may not declare or pay any dividend or other distribution on, or redeem or purchase, any of its common stock.

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        The 8.5% and 8.04% Subordinated Debentures are redeemable by TDS, in whole or in part, from time to time, on or after November 18, 2002, and March 31, 2003, respectively, or, in whole but not in part, at any time in the event of certain income tax circumstances. If the Subordinated Debentures are redeemed, TDS Capital I and II must redeem preferred securities on a pro rata basis having an aggregate liquidation amount equal to the aggregate principal amount of the Subordinated Debentures so redeemed. In the event of the dissolution, winding up or termination of TDS Capital I and II, the holders of preferred securities will be entitled to receive, for each preferred security, a liquidation amount of $25 plus accrued and unpaid distributions thereon to the date of payment, unless, in connection with the dissolution, winding up or termination, Subordinated Debentures are distributed to the holders of the preferred securities.

18    PREFERRED SHARES

        The holders of outstanding Preferred Shares are entitled to one vote per share. The Company had 69,539 Preferred Shares ($100 per share stated value) authorized, issued and outstanding at December 31, 2002, of which 68,052 Shares were redeemable at the option of TDS and 1,487 Shares were redeemable at the option of the holder, at $100 per share plus accrued and unpaid dividends. The average dividend rate was $6.00 per share. At December 31, 2002, 59,395 Preferred Shares were convertible into 208,864 TDS Common Shares.

        The following is a schedule of Preferred Shares activity.

		Year Ended December 31,
		2002			2001			2000
		(Dollars in thousands)
Balance, beginning of year		$	7,442		$	7,827		$	9,005
Less:
	Conversion of preferred		(122	)		(250	)		(472	)
	Redemption of preferred		(366	)		(135	)		(706	)
Balance, end of year		$	6,954		$	7,442		$	7,827

19    COMMON STOCKHOLDERS' EQUITY

COMMON STOCK

        The holders of Common Shares are entitled to one vote per share. The holders of Series A Common Shares are entitled to ten votes per share. Series A Common Shares are convertible, on a share-for-share basis, into Common Shares. TDS has reserved 6,602,000 Common Shares at December 31, 2002, for possible issuance upon such conversion.

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        The following table summarizes the number of Common and Series A Common Shares outstanding.

		Common Shares	Series A Common Shares		Treasury Shares
		(Shares in thousands)
Balance December 31, 1999		55,412	6,959		(1,237	)
	Repurchase Common Shares	—	—		(2,666	)
	Conversion of Series A Common Shares	86	(86	)	—
	Dividend reinvestment, incentive and compensation plans	6	7		175
	Other	—	—		12
	Conversion of Preferred Shares	20	—		—
Balance December 31, 2000		55,524	6,880		(3,716	)
	Repurchase Common Shares	—	—		(325	)
	Conversion of Series A Common Shares	111	(111	)	—
	Dividend reinvestment, incentive and compensation plans	6	9		172
	Other	5	—		1
	Conversion of Preferred Shares	13	—		—
Balance December 31, 2001		55,659	6,778		(3,868	)
	Conversion of Series A Common Shares	189	(189	)	—
	Dividend reinvestment, incentive and compensation plans	8	13		65
	Other	13	—		4
	Conversion of Preferred Shares	6	—		—
Balance December 31, 2002		55,875	6,602		(3,799	)

COMMON SHARE REPURCHASE PROGRAM

        The Board of Directors of TDS from time to time has authorized the repurchase of TDS Common Shares. On February 28, 2003, the Board of Directors authorized the repurchase of up to 3.0 million Common Shares through February 2006. The Company may use repurchased shares to fund acquisitions and for other corporate purposes.

        The Company repurchased 325,000 Common Shares in 2001 for $30.3 million and 2,666,000 Common Shares in 2000 for $287.7 million. No shares were repurchased in 2002. The Company reissued 69,000 Common Shares in 2002, 173,000 in 2001 and 187,000 in 2000 for acquisitions and incentive and compensation plans.

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

        The cumulative balance of unrealized gains (losses) on securities and derivative instruments and related income tax effects included in Accumulated other comprehensive income (loss) are as follows.

			Year Ended December 31,
			2002			2001			2000
			(Dollars in thousands)
Balance, beginning of year			$	(352,120	)	$	(178,344	)	$	179,071
Marketable Securities
Add (Deduct):
	Unrealized gains (losses) on securities			(755,369	)		(856,244	)		(620,834	)
	Income (tax) benefit			294,468			343,869			244,829
				(460,901	)		(512,375	)		(376,005	)
	Equity method unrealized gains			218			397			—
	Minority share of unrealized (gains) losses			10,035			11,161			18,590
Net unrealized gains (losses)				(450,648	)		(500,817	)		(357,415	)
Deduct (Add):
	Recognized (losses) on securities			(1,757,471	)		(548,793	)		—
	Income tax (expense) benefit			686,591			221,752			—
				(1,070,880	)		(327,041	)		—
	Minority share of recognized losses			25,900			—			—
Net recognized gains (losses) from Marketable Equity Securities included in Net Income				(1,044,980	)		(327,041	)		—
				594,332			(173,776	)		(357,415	)
Derivative Instruments
	Unrealized loss on derivative instruments			(82,980	)		—			—
	Income tax benefit			32,472			—			—
				(50,508	)		—			—
Net change in unrealized gains (losses) included in Comprehensive Income				543,824			(173,776	)		(357,415	)
Balance, end of year			$	191,704		$	(352,120	)	$	(178,344	)
Accumulated Unrealized Gain on Derivative Instruments
	Balance, beginning of year		$	—		$	—		$	—
	Add (Deduct):
	Unrealized loss on derivative instruments
		Cash flow hedges		(84,869	)		—			—
		Fair value hedges		1,889			—			—
				(82,980	)		—			—
		Income tax benefit		32,472			—			—
Balance, end of year			$	(50,508	)	$	—		$	—

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20    DIVIDEND REINVESTMENT, INCENTIVE AND COMPENSATION PLANS

        The following table summarizes Common and Series A Common Shares issued, including reissued Treasury Shares, for the employee stock ownership plans and dividend reinvestment plans described below.

		Year Ended December 31,
		2002	2001	2000
Common Shares
	Tax-deferred savings plan	—	18,000	14,000
	Dividend reinvestment plan	8,000	6,000	5,000
	Employee stock purchase plan	24,000	18,000	20,000
	Stock-based compensation plans	41,000	136,000	142,000
		73,000	178,000	181,000
Series A Common Shares
	Dividend reinvestment plan	13,000	9,000	7,000

TAX-DEFERRED SAVINGS PLAN

        TDS had reserved 45,000 Common Shares at December 31, 2002, for issuance under the TDS Tax-Deferred Savings Plan, a qualified profit-sharing plan pursuant to Sections 401(a) and 401(k) of the Internal Revenue Code. Participating employees have the option of investing their contributions and the Company's contributions in TDS Common Shares, U.S. Cellular Common Shares or seven nonaffiliated funds.

DIVIDEND REINVESTMENT PLANS

        TDS had reserved 419,000 Common Shares at December 31, 2002, for issuance under the Automatic Dividend Reinvestment and Stock Purchase Plan and 122,000 Series A Common Shares for issuance under the Series A Common Share Automatic Dividend Reinvestment Plan. These plans enable holders of TDS's Common Shares and Preferred Shares to reinvest cash dividends in Common Shares and holders of Series A Common Shares to reinvest cash dividends in Series A Common Shares. The purchase price of the shares is 95% of the market value, based on the average of the daily high and low sales prices for TDS's Common Shares on the American Stock Exchange for the ten trading days preceding the date on which the purchase is made.

STOCK-BASED COMPENSATION PLANS

        TDS had reserved 2,473,000 Common Shares at December 31, 2002, for options granted and to be granted to key employees. TDS has established certain plans that provide for the grant of stock options to officers and employees. The options are exercisable over a specified period not in excess of ten years. Options vest from three months to four years from the date of grant. The options expire from 2003 to 2012 or 30 days after the date of the employee's termination of employment, if earlier.

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        A summary of the status of TDS stock option plans at December 31, 2002, 2001 and 2000 and changes during the years then ended is presented in the table and narrative that follows.

		Number of Shares		Weighted Average Option Prices		Weighted Average Black-Scholes Values of Option Grants
Stock Options:
Outstanding December 31, 1999 (813,000 exercisable)		918,000		$	43.66
	Granted	584,000		$	111.50	$	47.07
	Exercised	(141,000	)	$	41.10
	Canceled	(28,000	)	$	92.92
Outstanding December 31, 2000 (933,000 exercisable)		1,333,000		$	72.90
	Granted	216,000		$	99.58	$	51.05
	Exercised	(153,000	)	$	36.38
	Canceled	(5,000	)	$	108.94
Outstanding December 31, 2001 (1,031,000 exercisable)		1,391,000		$	80.37
	Granted	467,000		$	59.32	$	22.62
	Exercised	(41,000	)	$	43.03
	Canceled	(20,000	)	$	107.25
Outstanding December 31, 2002 (1,355,000 exercisable)		1,797,000		$	75.24

        At December 31, 2002, 1,355,000 options were exercisable, have exercise prices between $34.36 and $119.20 with a weighted average exercise price of $72.09, and a weighted average remaining contractual life of 6.8 years. The weighted average exercise price of options exercisable at December 31, 2001 and 2000 is $69.39 and $55.10, respectively. The remaining 442,000 options are not exercisable, have exercise prices between $59.14 and $119.16 with a weighted average exercise price of $85.02, and a weighted average remaining contractual life of 8.5 years.

        The following table provides certain details concerning TDS stock options outstanding at December 31, 2002:

Range of Exercise Prices		Stock Options Outstanding	Weighted Average Exercise Price		Weighted Average Contractual Life (Years)
$	25.40-$50.80	494,000	$	42.80	4.4
$	50.80-$101.60	738,000	$	69.30	8.9
$	101.60-$127.00	565,000	$	111.41	7.5

        The following table provides certain details concerning TDS stock options exercisable at December 31, 2002:

Range of Exercise Prices		Stock Options Exercisable	Weighted Average Exercise Price
$	25.40-$50.80	494,000	$	42.80
$	50.80-$101.60	499,000	$	73.55
$	101.60-$127.00	362,000	$	110.09

        The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2002, 2001 and 2000, respectively: risk-free interest rates of 4.2%, 4.9% and 5.2%; expected dividend yields of

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1.3%, 0.7% and 0.5%; expected lives of 8.6 years, 8.1 years and 7.6 years and expected volatility of 29.9%, 32.3% and 29.4%.

        U.S.Cellular has established Stock Option plans that provide for the grant of stock options to officers and employees and has reserved 1,190,000 Common Shares for options granted and to be granted to key employees. The options under the plan are exercisable from the date of vesting through 2003 to 2012, or 30 days following the date of the employee's termination of employment, if earlier.

        A summary of the status of U.S. Cellular's stock option plans at December 31, 2002, 2001 and 2000 and changes during the years then ended is presented in the table and narrative as follows.

		Number of Shares		Weighted Average Option Prices		Weighted Average Black-Scholes Values of Option Grants
Stock Options:
Outstanding December 31, 1999 (106,000 exercisable)		592,000		$	28.14
	Granted	166,000		$	57.57	$	32.80
	Exercised	(200,000	)	$	19.74
	Canceled	(33,000	)	$	35.28
Outstanding December 31, 2000 (127,000 exercisable)		525,000		$	40.32
	Granted	498,000		$	54.90	$	33.65
	Exercised	(81,000	)	$	24.31
	Canceled	(58,000	)	$	38.38
Outstanding December 31, 2001 (200,000 exercisable)		884,000		$	50.42
	Granted	869,000		$	38.80	$	19.74
	Exercised	(9,000	)	$	29.45
	Canceled	(201,000	)	$	47.17
Outstanding December 31, 2002 (336,000 exercisable)		1,543,000		$	45.15

        At December 31, 2002, 336,000 stock options were exercisable, have exercise prices between $24.48 and $73.31 with a weighted average exercise price of $46.71 and a weighted average remaining contractual life of 6.1 years. The weighted average exercise price of options exercisable at December 31, 2001 and 2000, was $39.98 and $32.65, respectively. The remaining 1,207,000 options are not exercisable, have option prices between $23.20 and $73.31 with a weighted average exercise price of $44.72 and a weighted average remaining contractual life of 8.7 years.

        The following table provides certain details concerning U.S. Cellular stock options outstanding at December 31, 2002.

Range of Exercise Prices		Stock Options Outstanding	Weighted Average Exercise Price		Weighted Average Contractual Life (Years)
$	23.20-$43.99	924,000	$	38.00	8.4
$	44.00-$73.31	619,000	$	55.83	7.1

        The following table provides certain details concerning U.S. Cellular stock options exercisable at December 31, 2002:

Range of Exercise Prices		Stock Options Exercisable	Weighted Average Exercise Price
$	24.48-$43.99	110,000	$	30.77
$	44.00-$73.31	226,000	$	54.49

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        The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2002, 2001 and 2000, respectively: risk-free interest rates of 4.6%, 5.0% and 5.1%; expected dividend yield of zero for all years; expected lives of 9.4 years, 8.2 years and 7.6 years and expected volatility of 39.4%, 31.7% and 34.5%.

21    EMPLOYEE BENEFIT PLANS

PENSION PLAN

        The Company sponsors a qualified noncontributory defined contribution pension plan. The plan provides benefits for the employees of TDS, TDS Telecom and U.S. Cellular. Under this plan, pension costs are calculated separately for each participant and are funded currently. TDS also sponsors an unfunded non-qualified deferred supplemental executive retirement plan to supplement the benefits under the plan to offset the reduction of benefits caused by the limitation on annual employee compensation under the tax laws.

        Total pension costs were $11.0 million, $8.8 million and $8.6 million in 2002, 2001 and 2000, respectively.

OTHER POSTRETIREMENT BENEFITS

        The Company sponsors two defined benefit postretirement plans that cover most of the employees of TDS, TDS Telecom and the subsidiaries of TDS Telecom. One plan provides medical benefits and the other plan provides life insurance benefits. Both plans are contributory, with retiree contributions adjusted annually. The medical plan anticipates future cost sharing changes that are consistent with the Company's intent to increase retiree contributions by the health care cost trend rate.

        An amount not to exceed 25 percent of the total contribution to the pension plan may be contributed to fund the cost of the medical benefits annually. An additional contribution equal to a reasonable amortization of the past service cost may be made without regard to the 25 percent limitation.

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        The following table reconciles the beginning and ending balances of the benefit obligation and the fair value of plan assets for the other postretirement benefit plans.

		December 31,
		2002			2001
		(Dollars in thousands)
Change in Benefit Obligation
	Benefit obligation at beginning of year	$	27,606		$	20,109
	Service cost		1,249			750
	Interest cost		1,967			1,482
	Actuarial loss		6,359			6,249
	Benefits paid		(1,174	)		(984	)
	Benefit obligation at end of year		36,007			27,606
Change in Plan Assets
	Fair value of plan assets at beginning of year		17,959			21,948
	Actual return on plan assets		(2,164	)		(3,036	)
	Employer contribution		38			31
	Benefits paid		(1,174	)		(984	)
	Fair value of plan assets at end of year		14,659			17,959
Funded Status			(21,348	)		(9,647	)
Unrecognized net actuarial loss			12,005			2,062
Unrecognized prior service cost			(959	)		(1,087	)
(Accrued) benefit cost		$	(10,302	)	$	(8,672	)

        The following table sets forth the weighted average assumptions used in accounting for the plans.

	December 31,
	2002		2001
Discount rate	7.0	%	7.25	%
Expected return on plan assets	8.5	%	8.5	%

        For measurement purposes, a 13.0% and 10.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2002 and 2001, respectively. The 2002 annual rate of increase is expected to remain at 13% in 2003 and then decrease to 5.75% by 2010 while the 2001 annual rate of increase was expected to remain at 10% in 2002 and then decrease to 5.75% by 2010.

        Net periodic benefit cost for the years ended December 31, 2002, 2001 and 2000 include the following components.

	Year Ended December 31,
	2002			2001			2000
	(Dollars in thousands)
Service cost	$	1,249		$	750		$	1,028
Interest cost on accumulated postretirement benefit obligation		1,967			1,482			1,592
Expected return on plan assets		(1,487	)		(1,836	)		(1,909	)
Net amortization and deferral		(128	)		(543	)		(420	)
Net postretirement (income) cost	$	1,601		$	(147	)	$	291

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        The health care cost trend rate assumption has a significant effect on the amounts reported. A one-percentage-point increase or decrease in assumed health care cost trend rates would have the following effects.

	One Percentage Point
	Increase		Decrease
	(Dollars in thousands)
Effect on total of service and interest cost components	$	530	$	(453	)
Effect on postretirement benefit obligation	$	3,560	$	(3,163	)

22    COMMITMENTS AND CONTINGENCIES

CONSTRUCTION AND EXPANSION

        The primary purpose of TDS's construction and expansion expenditures is to provide for normal growth, to upgrade communications service, to expand into new communication areas and to take advantage of service-enhancing and cost-reducing technological developments. U.S. Cellular's estimated capital spending approximates $600-$630 million for 2003, primarily to add cell sites to expand and enhance coverage, to provide additional capacity to accommodate increased usage, to provide additional digital service capabilities including the migration toward a single platform—CDMA technology, to build out certain PCS licensed areas, to satisfy certain regulatory requirements for specific services such as enhanced 911 and wireless number portability, and to enhance billing and office systems.

        The conversion toward CDMA is expected to be completed during 2004, at an approximate cost of $400-$450 million over the three year period 2002-2004. The CDMA conversion costs totaled $215 million in 2002 and are estimated to be $50 million in 2003.

        U.S. Cellular has obligations under certain vendor equipment contracts aggregating $240.9 million at December 31, 2002. Payments pursuant to the contracts are expected to total $42.2 million, $56.2 million, $56.2 million, $56.2 million and $30.1 million for the years 2003-2007, respectively.

        TDS Telecom's estimated capital spending approximates $170 million for 2003, including approximately $130 million for the incumbent local exchange markets to provide for normal growth, and to upgrade plant and equipment to provide enhanced services, and approximately $40 million for the competitive local exchange markets to build switching and other network facilities to meet the needs of a growing customer base.

LEASE COMMITMENTS

        TDS and its subsidiaries have leases for certain plant facilities, office space and data processing equipment, most of which are classified as operating leases. For the years 2002, 2001 and 2000, rent expense for noncancelable, long-term leases was $68.2 million, $52.9 million and $48.0 million, respectively, and rent expense under cancelable, short-term leases was $14.2 million, $3.0 million and

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$5.4 million, respectively. At December 31, 2002, the aggregate minimum rental commitments under noncancelable, long-term operating leases were as follows.

	Minimum Future Rental Payments
	(Dollars in thousands)
2003	$	71,554
2004		65,189
2005		56,550
2006		45,966
2007		45,038
Thereafter	$	93,469

CONTINGENCIES

        The Company is involved in legal proceedings before the Federal Communications Commission and various state and federal courts from time to time. Management does not believe that any of such proceedings should have a material adverse impact on the financial position, results of operations or cash flows of the Company.

23    DISCONTINUED OPERATIONS

        In September 1999, the Board of Directors of TDS approved a plan of merger between Aerial Communications, Inc. ("Aerial"), its then over 80%-owned personal communications services company, and VoiceStream Wireless Corporation ("VoiceStream"). The merger closed on May 4, 2000. As a result of the merger, Aerial shareholders received 0.455 VoiceStream common shares for each share of Aerial stock they owned. TDS received 35,570,493 shares of VoiceStream common stock valued at $3,899.4 million at closing. TDS recognized a gain of approximately $2,125.8 million, net of $1,515.9 million in taxes, on this transaction. TDS had a basis in Aerial of $287.8 million, including deferred losses of $75.9 million from September 17, 1999 to May 4, 2000. In 2001, the gain on disposal of Aerial was reduced by $24.1 million, or $.41 per share, reflecting adjustments to estimates used during the closing in the calculation of income and other tax liabilities.

        Summarized income statement information relating to discontinued operations, excluding any corporate charges and intercompany interest expense, is as follows.

	Year Ended December 31, 2000
	(Dollars in thousands)
Revenues	$	94,463
Expenses		164,148
Operating (Loss)		(69,685	)
Minority share of loss		33,459
Other (expense) income		(29,533	)
Interest expense		(8,605	)
(Loss) Before Income Taxes		(74,364	)
Income tax (benefit)		(36,624	)
Net (Loss)		(37,740	)
Losses deferred after measurement date		37,740
Net (Loss) from Discontinued Operations	$	—

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        Summarized cash flow statement information relating to discontinued operations is as follows.

	Year Ended December 31, 2000
	(Dollars in thousands)
Cash flows from operating activities	$	(55,851	)
Cash flows from investing activities		(17,325	)
Cash flows from financing activities		108,180
Cash provided (used) by discontinued operations		35,004
(Increase) in cash included in Net Assets of Discontinued Operations		(41,567	)
Cash flows from discontinued operations	$	(6,563	)

24    SUBSEQUENT EVENTS

        On January 31, 2003, U.S. Cellular entered into an agreement to rename Comiskey Park, home of the Chicago White Sox American League baseball team, U.S. Cellular Field. U.S. Cellular will pay $3.4 million per year for 20 years for the naming rights ($68 million in aggregate). Concurrent with the naming rights agreement, U.S. Cellular purchased a media package to place various forms of advertising in and around the facility. For the media package, U.S. Cellular will pay $600,000 in 2003, with future annual payments increasing by 3% per year through 2025. The total combined cost of the naming rights and media package is $87 million over 23 years.

        On March 10, 2003, U.S. Cellular announced that it had entered into a definitive agreement with AT&T Wireless ("AWE") to exchange wireless properties. U.S. Cellular will receive 10 and 20MHz PCS licenses in 13 states, representing 12.2 million incremental population equivalents contiguous to existing properties and 4.4 million population equivalents that overlap existing properties in the Midwest and Northeast. U.S. Cellular will also receive approximately $31 million in cash and minority interests in six markets it currently controls. U.S. Cellular will transfer wireless assets and approximately 141,000 customers in 10 markets, representing 1.5 million population equivalents, in Florida and Georgia to AWE. Total U.S. Cellular revenue in 2002 of $107 million and operating income, excluding shared services costs, of $25 million was attributable to these markets. The transaction is subject to regulatory approvals. The closing of the transfer of the U.S. Cellular properties and the assignment to U.S. Cellular of most of the PCS licenses is expected to occur in the third quarter of 2003. The assignment and development of certain licenses will be deferred by U.S. Cellular until later periods. The acquisition of licenses in the exchange will be accounted for as a purchase by U.S. Cellular and the transfer of the properties by U.S.Cellular will be accounted for as a sale. The build-out of the licenses could require substantial capital investment by U.S. Cellular over the next several years. U.S. Cellular is currently working on a build-out and financing plan for these markets.

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        The following table summarizes the recorded value of the assets and liabilities of the 10 markets that U.S. Cellular will be transferring.

		December 31, 2002
		(Dollars in millions)
Current assets		$	16.8
Net property, plant and equipment			86.0
Licenses			53.1
Goodwill			78.2
Other			.6
	Total assets		234.7
Current liabilities			(13.4	)
Net assets to be transferred		$	221.3

        U.S. Cellular is currently evaluating the fair value of the assets involved in this transaction. No determination of gain or loss related to this transaction has been made. As a result of signing the definitive agreement for this transaction, U.S. Cellular will reclassify the net assets of the markets to be transferred as assets held for sale and will report their operations as discontinued operations in the first quarter of 2003.

25    BUSINESS SEGMENT INFORMATION

        The Company conducts substantially all of its wireless telephone operations through its 82.2%-owned subsidiary, United States Cellular Corporation ("U.S. Cellular"). At December 31, 2002, U.S. Cellular provided cellular telephone service to 4.1 million customers through 149 majority-owned and managed cellular systems in 25 states. The Company conducts its wireline telephone operations through its wholly-owned subsidiary, TDS Telecommunications Corporation ("TDS Telecom"). TDS Telecom provides service through local telephone operations, or Incumbent Local Exchange Carrier ("ILEC") companies and through Competitive Local Exchange Carrier ("CLEC") companies. At December 31, 2002, TDS Telecom operated 111 incumbent telephone companies serving 711,200 equivalent access lines in 28 states and two competitive local exchange carriers serving 291,400 equivalent access lines in 5 states.

        U.S. Cellular and TDS Telecom are billed for all services they receive from TDS, consisting primarily of information processing and general management services. Such billings are based on expenses specifically identified to U.S. Cellular and TDS Telecom and on allocations of common expenses. Management believes the method used to allocate common expenses is reasonable and that all expenses and costs applicable to U.S. Cellular and TDS Telecom are reflected in the accompanying business segment information on a basis which is representative of what they would have been if U.S. Cellular and TDS Telecom operated on a stand-alone basis.

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        Financial data for the Company's business segments for each of the years ended December 31, 2002, 2001 and 2000 are as follows.

		Year Ended or at December 31, 2002
					TDS Telecom
		U.S. Cellular			ILEC			CLEC			All Other(1)			Total
		(Dollars in thousands)
Operating revenues		$	2,184,478		$	626,787		$	176,602		$	(2,501	)	$	2,985,366
Operating income (loss)			281,166			167,914			(62,725	)		—			386,355
Depreciation and amortization expense			351,154			130,232			29,059			—			510,445
Operating income before depreciation and amortization(2)			632,320			298,146			(33,666	)		—			896,800
Significant noncash items:
	Investment income		42,068			530			—			1,077			43,675
	Gain (loss) on marketable securities and other investments		(295,454	)		(95,518	)		—			(1,497,419	)		(1,888,391	)
Marketable securities			185,961			—			—			1,758,978			1,944,939
Investment in unconsolidated entities			161,451			18,965			—			25,579			205,995
Total assets			4,699,132			1,858,923			246,185			2,797,788			9,602,028
Capital expenditures		$	730,645		$	116,486		$	51,919		$	—		$	899,050

		Year Ended or at December 31, 2001
				TDS Telecom
		U.S. Cellular		ILEC		CLEC			All Other(1)			Total
		(Dollars in thousands)
Operating revenues		$	1,894,830	$	576,817	$	118,812		$	(1,917	)	$	2,588,542
Operating income (loss)			317,212		161,916		(42,973	)		—			436,155
Depreciation and amortization expense			300,658		131,787		17,574			—			450,019
Operating income before depreciation and amortization(2)			617,870		293,703		(25,399	)		—			886,174
Significant noncash items:
	Investment income		41,934		1,739		—			6,966			50,639
	Gain (loss) on marketable securities and other investments		—		—		—			(548,305	)		(548,305	)
Marketable securities			272,390		—		—			2,427,840			2,700,230
Investment in unconsolidated entities			159,454		48,320		—			25,904			233,678
Total assets			3,759,157		1,527,758		213,566			2,579,093			8,079,574
Capital expenditures		$	503,334	$	99,866	$	96,950		$	—		$	700,150

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		Year Ended or at December 31, 2000
				TDS Telecom
		U.S. Cellular		ILEC		CLEC			All Other(1)			Total
		(Dollars in thousands)
Operating revenues		$	1,716,640	$	528,981	$	84,720		$	(3,485	)	$	2,326,856
Operating income (loss)			292,313		142,708		(14,955	)		—			420,066
Depreciation and amortization expense			265,698		124,389		9,056			—			399,143
Operating income before depreciation and amortization(2)			558,011		267,097		(5,899	)		—			819,209
Significant noncash items:
	Investment income		43,727		1,731		—			(6,735	)		38,723
	Gain (loss) on marketable securities and other investments		96,075		—		—			(80,359	)		15,716
Marketable securities			377,900		—		—			3,744,004			4,121,904
Investment in unconsolidated entities			137,474		24,619		—			20,232			182,325
Total assets			3,446,852		1,245,260		120,543			3,854,735			8,667,390
Capital expenditures		$	305,417	$	93,401	$	57,201		$	—		$	456,019

(1)

Consists of the TDS Corporate operations, TDS Telecom intercompany eliminations, TDS Corporate and TDS Telecom marketable equity securities and all other businesses not included in the U.S. Cellular or TDS Telecom segments.

(2)

Operating income before depreciation and amortization is a measure of profit and loss used by the chief operating decision maker to review the operating performance of each reportable business segment and is reported above in accordance with SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information."

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REPORT OF MANAGEMENT

        Management of Telephone and Data Systems, Inc. has the responsibility for preparing the accompanying consolidated financial statements and for their integrity and objectivity. The statements were prepared in accordance with accounting principles generally accepted in the United States of America applied on a consistent basis, and in management's opinion are fairly presented. The financial statements include amounts that are based on management's best estimates and judgments. Management also prepared the other information in the annual report and is responsible for its accuracy and consistency with the financial statements.

        Management of TDS has established and maintains a system of internal control that provides reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition, and the prevention and detection of fraudulent financial reporting.

        The system of internal control provides for appropriate division of responsibility and is documented by written policies and procedures that are communicated to employees with significant roles in the financial reporting process and updated as necessary. Management monitors the system of internal control for compliance, considers recommendations for improvements and updates such policies and procedures as necessary. Monitoring includes an internal auditing program to independently assess the effectiveness of the internal controls and recommend possible improvements thereto. Management believes that TDS's system of internal control is adequate to accomplish the objectives discussed herein. The concept of reasonable assurance recognizes that the costs of a system of internal accounting controls should not exceed, in management's judgment, the benefits to be derived.

        The consolidated financial statements of TDS have been audited by PricewaterhouseCoopers LLP, Independent Public Accountants.

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REPORT OF INDEPENDENT ACCOUNTANTS

TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF TELEPHONE AND DATA SYSTEMS, INC.:

        In our opinion, the accompanying consolidated balance sheet as of December 31, 2002 and the related consolidated statements of operations, common stockholders' equity and cash flows for the year then ended present fairly, in all material respects, the financial position of Telephone and Data Systems, Inc. and its subsidiaries as of December 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The consolidated financial statements of the Company as of December 31, 2001 and for each of the two years in the period ended December 31, 2001, prior to the revisions discussed in Notes 1 and 5 to the financial statements, were audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on those consolidated financial statements in their report dated January 25, 2002.

        As disclosed in Note 1, the Company changed the manner in which it accounts for goodwill and other intangible assets as a result of the adoption of the accounting guidance of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets", on January 1, 2002. Also as disclosed in Note 1, the Company changed the manner in which it presents losses on debt retirements as a result of the adoption of SFAS No. 145, "Rescission of SFAS No. 4, 44 and 64, Amendment of FAS 13, and Technical Corrections", during 2002. In addition, as disclosed in Note 1, the Company changed the method in which it accounts for direct incremental deferred costs related to wireless customer activations on January 1, 2002.

        As discussed above, the financial statements of Telephone and Data Systems, Inc. as of December 31, 2001, and for each of the two years in the period ended December 31, 2001, were audited by other independent accountants who have ceased operations. As described in Notes 1 and 5, these financial statements have been revised to separately reflect amounts that represent goodwill, and to include the transitional disclosures required by SFAS No. 142. Also, as described in Note 1, these financial statements have been revised to classify losses resulting from debt retirements as a component of income (loss) from continuing operations in accordance with the provisions of SFAS No. 145. We audited the adjustments described in Notes 1 and 5 that were applied to revise the 2001 and 2000 financial statements. We also audited the transitional disclosures described in Notes 1 and 5. In our opinion, the revisions and transitional disclosures for 2001 and 2000 included in Notes 1 and 5 are appropriate and the adjustments described in Notes 1 and 5 are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2001 or 2000 financial statements of the Company other than with respect to such adjustments and transitional disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 or 2000 financial statements taken as a whole.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois
February 3, 2003, except as to Note 24,
as to which the date is March 10, 2003

85

COPY OF PREVIOUSLY ISSUED REPORT OF INDEPENDENT ACCOUNTANTS

THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. THESE INDEPENDENT ACCOUNTANTS HAVE CEASED OPERATIONS, AND HAVE NOT REISSUED THEIR REPORT IN CONJUNCTION WITH THIS ANNUAL REPORT. THEIR REPORT IS INCLUDED IN THE ANNUAL REPORT AS PERMITTED BY RULE 2-02(E) OF REGULATION S-X OF THE SECURITIES AND EXCHANGE COMMISSION. AS DESCRIBED IN NOTES 1 AND 5, THE 2001 AND 2000 CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN REVISED TO SEPARATELY REFLECT AMOUNTS THAT REPRESENT GOODWILL AND TO INCLUDE TRANSITIONAL DISCLOSURES REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. (SFAS) 142, "GOODWILL AND OTHER INTANGIBLE ASSETS," WHICH WAS ADOPTED BY THE COMPANY AS OF JANUARY 1, 2002. ALSO, AS DESCRIBED IN NOTE 1, THE 2001 AND 2000 CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN REVISED TO CLASSIFY LOSSES RESULTING FROM DEBT RETIREMENTS AS A COMPONENT OF INCOME (LOSS) FROM CONTINUING OPERATIONS IN ACCORDANCE WITH THE PROVISIONS OF SFAS NO. 145, "RESCISSION OF SFAS NO. 4, 44, AND 64, AMENDMENT TO FAS 13, AND TECHNICAL CORRECTIONS," WHICH WAS ADOPTED BY THE COMPANY DURING 2002. THE ARTHUR ANDERSEN LLP REPORT DOES NOT EXTEND TO THESE CHANGES TO THE 2001 AND 2000 CONSOLIDATED FINANCIAL STATEMENTS. THE ADJUSTMENTS TO THE 2001 AND 2000 CONSOLIDATED FINANCIAL STATEMENTS WERE REPORTED ON BY PRICEWATERHOUSECOOPERS LLP AS STATED IN THEIR REPORT APPEARING HEREIN.

TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF TELEPHONE AND DATA SYSTEMS, INC.:

        We have audited the accompanying consolidated balance sheets of Telephone and Data Systems, Inc. (a Delaware corporation) and Subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, common stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Telephone and Data Systems, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

        As explained in Note 1 of Notes to Consolidated Financial Statements, effective January 1, 2000, the Company changed certain of its accounting principles for revenue recognition as a result of the adoption of Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements."

/s/ ARTHUR ANDERSEN LLP

Chicago, Illinois
January 25, 2002

The consolidated balance sheet at December 31, 2000 and the consolidated statements of operations, common stockholders' equity and cash flow for the year ended December 31, 1999 are not required to be presented in the 2002 Annual Report.

86

CONSOLIDATED QUARTERLY INFORMATION (UNAUDITED)

		2002
		Quarter Ended
		March 31			June 30			Sept. 30			Dec. 31
		(Dollars in thousands, except per share amounts)
Operating Revenues		$	665,197		$	720,443		$	784,102		$	815,624
Operating Income			105,367			123,292			94,210			63,486
Gain (Loss) on Marketable Securities and Other Investments			(37,400	)		(1,719,126	)		(90,071	)		(41,794	)
Income (Loss) Before Cumulative Effect of Accounting Change			14,010			(951,790	)		(20,488	)		29,469
Net Income (Loss)		$	17,376		$	(951,790	)	$	(20,488	)	$	(29,469	)
Weighted Average Shares Outstanding (000's)			58,600			58,639			58,660			58,676
Basic Earnings per Share from Income (Loss)
	Before Cumulative Effect of Accounting Change	$	.23		$	(16.23	)	$	(.35	)	$	(.50	)
Diluted Earnings per Share from Income (Loss)
	Before Cumulative Effect of Accounting Change		.23			(16.23	)		(.35	)		(.50	)
Basic Earnings per Share—Net Income (Loss)			.29			(16.23	)		(.35	)		(.50	)
Diluted Earnings per Share—Net Income (Loss)		$	.29		$	(16.23	)	$	(.35	)	$	(.50	)

Results from previous quarters in 2002 have been restated to conform to current period presentation.

87

SUMMARY OF INCOME STATEMENT AND
RELATED EFFECTS OF 2002 ACCOUNTING CHANGES

			Three Months Ended
			March 31, 2002							June 30, 2002									September 30, 2002
Effects of 2002 Accounting Changes			As Reported		Changes			As Restated		As Reported			Changes			As Restated			As Reported			Changes			As Restated
			(Dollars in thousands, except per share amounts)
Operating Revenues
	Changes related to EITF 01-09 reclassification(1)				$	—							$	(3,371	)							$	(14,850	)
	Changes related to EITF 01-09 accrual(1)					—								—									(2,935	)
		Total	$	665,197	$	—		$	665,197	$	723,814		$	(3,371	)	$	720,443		$	801,887		$	(17,785	)	$	784,102
Operating Expenses
	Changes related to EITF 01-09 reclassification(1)				$	—							$	(3,371	)							$	(14,850	)
	Changes related to SAB 101(2)					(829	)							(1,224	)								(936	)
		Total	$	560,659	$	(829	)	$	559,830	$	601,746		$	(4,595	)	$	597,151		$	705,678		$	(15,786	)	$	689,892
Operating income				104,538		829			105,367		122,068			1,224			123,292			96,209			(1,999	)		94,210
Net Income (loss) from Continuing Operations				13,597		413			14,010		(952,381	)		591			(951,790	)		(19,511	)		(977	)		(20,488	)
Cumulative effect of a change in accounting principle(2)				—		3,366			3,366		—			—			—			—						—
Net income (Loss)				13,597		3,779			17,376		(952,381	)		591			(951,790	)		(19,511	)		(977	)		(20,488	)
Basic earnings per share from cumulative effect of a change in accounting principle				—		.06			.06		—			—			—			—			—			—
Basic earnings per share from continuing operations				.23		—			.23		(16.24	)		.01			(16.23	)		(.33	)		(.02	)		(.35	)
Diluted earnings per share from continuing operations				.23		—			.23		(16.24	)		.01			(16.23	)		(.33	)		(.02	)		(.35	)
Basic earnings per share—Net Income (Loss)				.23		.06			.29		(16.24	)		.01			(16.23	)		(.33	)		(.02	)		(.35	)
Diluted earnings per share—Net Income (Loss)			$	.23	$	.06		$	.29	$	(16.24	)	$	.01		$	(16.23	)	$	(.33	)	$	(.02	)	$	(.35	)

        U.S. Cellular made certain changes to its accounting policies which required the Company to adjust certain items on its income statement for the first three quarters of 2002. Other than the cumulative effect of the accounting change, none of the above prior period changes have a significant impact on operating income, net income (loss) or earnings per share. These changes do, however, have a significant impact on certain income statement captions for the restated periods.

(1)

U.S. Cellular changed its accounting for certain rebate transactions pursuant to Emerging Issues Task Force Statement No. 01-09 ("EITF No. 01-09") in the fourth quarter of 2002. Under EITF No. 01-09, all rebates paid to agents who participate in qualifying new activation and retention transactions are recorded as a reduction of equipment sales revenues. Previously, the Company had recorded new activation rebates as marketing and selling expense and retention rebates as general and administrative expense. Further, these rebates are now recorded at the time handsets are sold by the Company to these agents. Previously, the Company recorded these transactions at the time the handsets were delivered by agents to the Company's customers. As described in Note 1 to the consolidated financial statements, the Company has restated its reported results for the second and third quarters of 2002.

(2)

U.S. Cellular changed its accounting policy related to certain transactions pursuant to Staff Accounting Bulletin ("SAB") No. 101 during the fourth quarter of 2002. The Company had adopted SAB No. 101 as of January 1, 2000, and began deferring certain customer activation fees as of that date. As permitted by SAB No. 101, as of January 1, 2002, U.S. Cellular began deferring commissions expenses equal to the amount of activation fees deferred. In conjunction with this change, the Company recorded a $3.4 million addition to net income as of January 1, 2002, related to commissions expenses which would have been deferred in prior years had the Company adopted its new policy at the time it adopted SAB No. 101.

88

		2001
		Quarter Ended
		March 31			June 30			Sept. 30		Dec. 31
		(Dollars in thousands, except per share amounts)
Operating Revenues		$	600,369		$	642,301		$	675,009	$	670,863
Operating Income			90,490			122,243			118,419		105,003
Gain (Loss) on Marketable Securities and Other Investments			—			(644,929	)		—		96,624
Income (Loss) Before Cumulative Effect of Accounting Change			28,234	(1)		(339,717	)		51,496		61,932
Net Income (Loss)		$	28,234		$	(339,717	)	$	51,496	$	61,932
Weighted Average Shares Outstanding (000's)			58,718			58,653			58,711		58,561
Basic Earnings per Share from Income (Loss)
	Before Cumulative Effect of Accounting Change	$	.48	(1)	$	(5.79	)	$	.88	$	1.06
Diluted Earnings per Share from Income (Loss)
	Before Cumulative Effect of Accounting Change		.47	(1)		(5.79	)		.87		1.05
Basic Earnings per Share—Net Income (Loss)			.48			(5.79	)		.88		1.06
Diluted Earnings per Share—Net Income (Loss)		$	.47		$	(5.79	)	$	.87	$	1.05

(1)

The Company adopted SFAS No. 145 "Rescission of FASB Statements No. 4, 44 and 64, Amendment of SFAS 13, and Technical Corrections" in the second quarter of 2002 and restated 2001 amounts for comparability. SFAS No. 145 precludes gains and losses on the extinguishment of debt from being classified as extraordinary. In the quarter ended March 31, 2001, a loss on the conversions of LYONs totaling $2,988, net of tax and minority interest, and $.05 per basic and diluted share, was originally reported as an extraordinary item. The reclassification of the loss to Investment and Other Income, in accordance with SFAS No. 145, reduced Income (Loss) Before Cumulative Effect of Accounting Change as previously reported from $31,222 to $28,234, Basic Earnings per Share from continuing operations from $.53 to $.48, and Diluted Earnings per Share from continuing operations from $.52 to $.47.

89

SHAREHOLDER INFORMATION

TDS STOCK AND DIVIDEND INFORMATION

        TDS's Common Shares are listed on the American Stock Exchange ("AMEX") under the symbol "TDS" and in the newspapers as "TeleData." As of February 28, 2003, TDS Common Shares were held by 2,268 record owners and the Series A Common Shares were held by 46 record owners. TDS has paid cash dividends on Common Shares since 1974, and paid dividends of $.58 and $.54 per Common and Series A Common Share during 2002 and 2001, respectively.

        The Common Shares of United States Cellular Corporation, an 82.2%-owned subsidiary of TDS, are listed on the AMEX under the symbol "USM" and in the newspapers as "US Cellular."

MARKET PRICE PER COMMON SHARE BY QUARTER

        TDS's Series A Common Shares and Preferred Shares are not actively traded and therefore, quotations are not reported for such securities. Dividends on TDS's Preferred Shares have been paid quarterly since the dates of issue. The high and low sales prices of the Common Shares on the AMEX as reported by the Dow Jones News Service are as follows.

	2002
	1st		2nd		3rd		4th
High	$	90.82	$	93.15	$	66.44	$	56.84
Low		79.24		57.90		49.75		44.10
Dividends Paid	$	.145	$	.145	$	.145	$	.145
	2001
	1st		2nd		3rd		4th
High	$	107.20	$	110.60	$	111.25	$	98.90
Low		85.16		89.50		86.60		87.50
Dividends Paid	$	.135	$	.135	$	.135	$	.135

DIVIDEND REINVESTMENT PLAN

        Our dividend reinvestment plan provides our common and preferred shareholders with a convenient and economical way to participate in the future growth of TDS. Common and preferred shareholders of record owning ten (10) or more shares may purchase Common Shares with their reinvested dividends at a five percent discount from market price. Shares may also be purchased, at market price, on a monthly basis through optional cash payments of up to $5,000 in any calendar quarter. The initial ten (10) shares cannot be purchased directly from TDS. An authorization card and prospectus will be mailed automatically by the transfer agent to all registered record holders with ten (10) or more shares. Once enrolled in the plan, there are no brokerage commissions or service charges for purchases made under the plan.

90

QuickLinks

Exhibit 13

SELECTED CONSOLIDATED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED BALANCE SHEETS—ASSETS
CONSOLIDATED BALANCE SHEETS— LIABILITIES AND STOCKHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF MANAGEMENT
REPORT OF INDEPENDENT ACCOUNTANTS
COPY OF PREVIOUSLY ISSUED REPORT OF INDEPENDENT ACCOUNTANTS
CONSOLIDATED QUARTERLY INFORMATION (UNAUDITED)
SUMMARY OF INCOME STATEMENT AND RELATED EFFECTS OF 2002 ACCOUNTING CHANGES
SHAREHOLDER INFORMATION

EX-18

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Exhibit 18

February 3, 2003

Board of Directors
Telephone and Data Sytems, Inc.
30 North LaSalle Street
Chicago, Illinois 60602

Dear Directors:

        We are providing this letter to you for inclusion as an exhibit to your Form 10-K filing pursuant to Item 601 of Regulation S-K.

        We have audited the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and issued our report thereon dated February 3, 2003. Note 1 to the financial statements describes a change in accounting principle from expensing incremental direct costs relating to certain transactions in which revenue on up-front fees was deferred pursuant to Staff Accounting Bulletin No. 101: Revenue Recognition in Financial Statements to a method that defers such incremental direct costs up to, but not exceeding, the amount of deferred revenue. It should be understood that the preferability of one acceptable method of accounting over another for the deferral or expense of such incremental direct costs has not been addressed in any authoritative accounting literature, and in expressing our concurrence below we have relied on management's determination that this change in accounting principle is preferable. Based on our reading of management's stated reasons and justification for this change in accounting principle in the Form 10-K, and our discussions with management as to their judgment about the relevant business factors relating to the change, we concur with management that such change represents, in the Company's circumstances, the adoption of a preferable accounting principle in conformity with Accounting Principles Board Opinion No. 20.

Very truly yours,

/s/ PricewaterhouseCoopers LLP

QuickLinks

Exhibit 18

EX-21

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Exhibit 21

TELEPHONE AND DATA SYSTEMS, INC.
SUBSIDIARY AND AFFILIATED COMPANIES
December 31, 2002

U.S. CELLULAR		STATE OF INCORPORATION
	UNITED STATES CELLULAR CORPORATION	DELAWARE
	BANGOR CELLULAR TELEPHONE, L.P.	Partnership
	BLACK CROW WIRELESS, L.P.	Partnership
	BMG GROUP, LLC	OKLAHOMA
	CALIFORNIA RURAL SERVICE AREA #1, INC.	CALIFORNIA
	CAROLINA CELLULAR, INC.	NORTH CAROLINA
	CEDAR RAPIDS CELLULAR TELEPHONE, L.P.	Partnership
	CELLVEST, INC.	DELAWARE
	CENTRAL CELLULAR TELEPHONES LTD	ILLINOIS
	CENTRAL FLORIDA CELLULAR TELEPHONE COMPANY, INC	FLORIDA
	CHAMPLAIN CELLULAR, INC	NEW YORK
	CHARLOTTESVILLE MSA CELLULAR PARTNERSHIP	Partnership
	CHICAGO 20MHZ, LLC	DELAWARE
	COMMUNITY CELLULAR TELEPHONE COMPANY	TEXAS
	CROWN POINT CELLULAR INC.	NEW YORK
	DAVENPORT CELLULAR TELEPHONE COMPANY	Partnership
	DAVENPORT CELLULAR TELEPHONE COMPANY, INC.	DELAWARE
	DUBUQUE CELLULAR TELEPHONE, L.P.	Partnership
	EASTERN NORTH CAROLINA CELLULAR JOINT VENTURE	Partnership
	EAU CLAIRE MSA, INC.	WISCONSIN
	FLORIDA RSA # 8, INC.	DELAWARE
	GEORGIA RSA # 11, INC.	GEORGIA
	GRAY BUTTE JOINT VENTURE	Partnership
	GREEN BAY CELLTELCO	Partnership
	HARDY CELLULAR TELEPHONE COMPANY	DELAWARE
	HUMPHREY COUNTY CELLULAR, INC.	DELAWARE
	ILLINOIS RSA # 3, INC.	ILLINOIS
	INDIANA RSA # 4, INC.	DELAWARE
	INDIANA RSA # 5, INC.	INDIANA
	INDIANA RSA NO. 4 LIMITED PARTNERSHIP	Partnership
	INDIANA RSA NO. 5 LIMITED PARTNERSHIP	Partnership
	IOWA 13, INC.	DELAWARE
	IOWA RSA # 3, INC.	DELAWARE
	IOWA RSA # 9, INC.	DELAWARE
	IOWA RSA # 12, INC.	DELAWARE
	JACKSONVILLE CELLULAR PARTNERSHIP	Partnership
	JACKSONVILLE CELLULAR TELEPHONE COMPANY	DELAWARE
	JACKSON SQUARE WIRELESS, L.P.	Partnership
	KANSAS # 15 LP	Partnership
	KANSAS RSA # 15, INC.	OHIO
	KENOSHA CELLULAR TELEPHONE, L.P.	Partnership
	LACROSSE CELLULAR TELEPHONE COMPANY, INC.	DELAWARE
	LEWISTON CELLTELLCO PARTNERSHIP	Partnership
	MADISON CELLULAR TELEPHONE COMPANY	Partnership
	MAINE RSA # 1, INC.	MAINE

MAINE RSA # 4, INC.	MAINE
MANCHESTER-NASHUA CELLULAR TELEPHONE, L.P.	Partnership
MCDANIEL CELLULAR TELEPHONE COMPANY	DELAWARE
MINNESOTA INVCO OF RSA # 7, INC.	DELAWARE
MINNESOTA INVCO OF RSA # 8, INC.	DELAWARE
MINNESOTA INVCO OF RSA # 9, INC.	DELAWARE
MINNESOTA INVCO OF RSA # 10, INC.	DELAWARE
N.H. #1 RURAL CELLULAR, INC.	NEW HAMPSHIRE
NEW YORK RSA 2 CELLULAR PARTNERSHIP	Partnership
NEWPORT CELLULAR, INC.	NEW YORK
NORTH CAROLINA RSA # 4, INC.	DELAWARE
NORTH CAROLINA RSA # 9, INC.	NORTH CAROLINA
NORTH CAROLINA RSA 1 PARTNERSHIP	Partnership
NORTH CAROLINA RSA NO. 6, INC.	CALIFORNIA
OHIO STATE CELLULAR PHONE COMPANY, INC.	FLORIDA
OREGON RSA # 2, INC.	OREGON
OREGON RSA # 3, INC.	OREGON
OREGON RSA NO. 2 LIMITED PARTNERSHIP	Partnership
OREGON RSA NO. 3 LIMITED PARTNERSHIP	Partnership
PCS WISCONSIN, LLC	WISCONSIN
PINE VALLEY WIRELESS, LP	Partnership
PRIMECO REAL ESTATE HOLDINGS, LLC	DELAWARE
PRIMECO SPECTRUM HOLDINGS, LLC	DELAWARE
RACINE CELLULAR TELEPHONE COMPANY	Partnership
ST. LAWRENCE SEAWAY RSA CELLULAR PARTNERSHIP	Partnership
TENNESSEE RSA # 3, INC.	DELAWARE
TENNESSEE RSA # 4 SUB 2, INC.	TENNESSEE
TEXAHOMA CELLULAR, L.P.	Partnership
TEXAS # 20 RURAL CELLULAR, INC.	TEXAS
TEXAS INVCO OF RSA # 6, INC.	DELAWARE
TOWNSHIP CELLULAR TELEPHONE, INC.	DELAWARE
TULSA GENERAL PARTNER, INC.	DELAWARE
UNITED STATES CELLULAR INVESTMENT COMPANY, INC.	DELAWARE
UNITED STATES CELLULAR INVESTMENT CO. OF ALLENTOWN	PENNSYLVANIA
UNITED STATES CELLULAR INVESTMENT COMPANY OF EAU CLAIRE	WISCONSIN
UNITED STATES CELLULAR INVESTMENT COMPANY OF FRESNO, INC.	CALIFORNIA
UNITED STATES CELLULAR INVESTMENT COMPANY OF OKLAHOMA CITY, INC.	OKLAHOMA
UNITED STATES CELLULAR INVESTMENT COMPANY OF SANTA CRUZ, INC.	CALIFORNIA
UNITED STATES CELLULAR INVESTMENT CORPORATION OF LOS ANGELES	INDIANA
UNITED STATES CELLULAR OPERATING COMPANY LLC (fka UNITED STATES CELLULAR OPERATING COMPANY)	DELAWARE
UNITED STATES CELLULAR OPERATING COMPANY OF BANGOR	MAINE

2

UNITED STATES CELLULAR OPERATING COMPANY OF CEDAR RAPIDS	DELAWARE
UNITED STATES CELLULAR OPERATING COMPANY OF DES MOINES	IOWA
UNITED STATES CELLULAR OPERATING COMPANY OF DUBUQUE	IOWA
UNITED STATES CELLULAR OPERATING COMPANY OF FT. PIERCE	FLORIDA
UNITED STATES CELLULAR OPERATING COMPANY OF KENOSHA	DELAWARE
UNITED STATES CELLULAR OPERATING COMPANY OF KNOXVILLE	TENNESSEE
UNITED STATES CELLULAR OPERATING COMPANY OF LACROSSE, INC.	WISCONSIN
UNITED STATES CELLULAR OPERATING COMPANY OF LEWISTON-AUBURN	MAINE
UNITED STATES CELLULAR OPERATING COMPANY OF MANCHESTER-NASHUA, INC.	NEW HAMPSHIRE
UNITED STATES CELLULAR OPERATING COMPANY OF MEDFORD	OREGON
UNITED STATES CELLULAR OPERATING COMPANY OF TULSA, INC.	OKLAHOMA
UNITED STATES CELLULAR OPERATING COMPANY OF WATERLOO	IOWA
UNITED STATES CELLULAR OPERATING COMPANY OF YAKIMA	WASHINGTON
UNITED STATES CELLULAR TELEPHONE COMPANY (GREATER KNOXVILLE), L.P.	Partnership
UNITED STATES CELLULAR TELEPHONE OF GREATER TULSA, L.L.C.	OKLAHOMA
UNIVERSAL CELLULAR FOR EAU CLAIRE MSA, INC.	WISCONSIN
USCC DISTRIBUTION CO.	DELAWARE
USCC FINANCIAL, LLC	DELAWARE
USCC PAYROLL CORPORATION	DELAWARE
USCC PURCHASE LLC	DELAWARE
USCC REAL ESTATE CORPORATION	DELAWARE
USCC WIRELESS INVESTMENT, INC.	DELAWARE
USCCI CORPORATION	DELAWARE
USCIC OF AMARILLO, INC.	DELAWARE
USCIC OF DAYTONA, LLC	DELAWARE
USCIC OF JACKSON, INC.	DELAWARE
USCIC OF NORTH CAROLINA RSA # 1, INC.	DELAWARE
USCIC OF OHIO RSA #9, INC.	DELAWARE
USCIC OF PENNSYLVANIA 5, INC.	DELAWARE
USCOC OF CHARLOTTESVILLE, INC.	VIRGINIA
USCOC OF CORPUS CHRISTI, INC.	TEXAS
USCOC OF CUMBERLAND, INC.	MARYLAND
USCOC OF FLORIDA RSA #7, INC.	DELAWARE
USCOC OF GREATER IOWA, INC	PENNSYLVANIA

3

	USCOC OF GREATER MISSOURI, LLC (fka PEACE VALLEY CELLULAR TELEPHONE COMPANY)	DELAWARE
	USCOC OF IDAHO RSA # 5, INC	DELAWARE
	USCOC OF ILLINOIS RSA # 1, INC.	VIRGINIA
	USCOC OF ILLINOIS RSA # 4, INC.	ILLINOIS
	USCOC OF IOWA RSA # 1, INC.	IOWA
	USCOC OF IOWA RSA # 16, INC.	DELAWARE
	USCOC OF JACKSONVILLE, INC.	NORTH CAROLINA
	USCOC OF JACK-WIL, INC.	DELAWARE
	USCOC OF NEW HAMPSHIRE RSA # 2, INC.	DELAWARE
	USCOC OF NORTH CAROLINA RSA # 7, INC.	NORTH CAROLINA
	USCOC OF OKLAHOMA RSA # 10, INC.	OKLAHOMA
	USCOC OF OREGON RSA # 5, INC.	DELAWARE
	USCOC OF PENNSYLVANIA RSA #10-B2, INC.	DELAWARE
	USCOC OF RICHLAND, INC.	WASHINGTON
	USCOC OF ROCKFORD, INC.	ILLINOIS
	USCOC OF SOUTH CAROLINA RSA # 4, INC.	SOUTH CAROLINA
	USCOC OF ST. JOSEPH, INC.	DELAWARE
	USCOC OF TALLAHASSEE, INC.	FLORIDA
	USCOC OF TEXAHOMA, INC.	TEXAS
	USCOC OF VICTORIA, INC.	TEXAS
	USCOC OF VIRGINIA RSA # 2, INC.	VIRGINIA
	USCOC OF VIRGINIA RSA # 3, INC.	VIRGINIA
	USCOC OF WASHINGTON 4, INC.	DELAWARE
	USCOC OF WILMINGTON, INC.	NORTH CAROLINA
	VERMONT RSA NO. 2-B2, INC.	DELAWARE
	VICTORIA CELLULAR CORPORATION	TEXAS
	VICTORIA CELLULAR PARTNERSHIP	Partnership
	VIRGINIA RSA # 4, INC.	VIRGINIA
	VIRGINIA RSA # 7, INC.	VIRGINIA
	WARD BUTTE JOINT VENTURE	Partnership
	WASHINGTON RSA # 5, INC.	WASHINGTON
	WATERLOO / CEDAR FALLS CELLTELCO PARTNERSHIP	Partnership
	WESTELCOM CELLULAR, INC.	NEW YORK
	WESTERN SUB-RSA LIMITED PARTNERSHIP	Partnership
	WILMINGTON CELLULAR PARTNERSHIP	Partnership
	WILMINGTON CELLULAR TELEPHONE CO.	NORTH CAROLINA
	WOODLAND WIRELESS, LP	Partnership
	X-10 WIRELESS, L.P.	Partnership
	YAKIMA MSA LIMITED PARTNERSHIP	Partnership
	YAKIMA VALLEY PAGING LIMITED PARTNERSHIP	Partnership
TDS TELECOMMUNICATIONS
	TDS TELECOMMUNICATIONS CORPORATION	DELAWARE
	INCUMBENT LOCAL EXCHANGE COMPANIES
	AMELIA TELEPHONE CORPORATION	VIRGINIA
	ARCADIA TELEPHONE COMPANY	OHIO
	ARIZONA TELEPHONE COMPANY	ARIZONA

4

ARVIG TELEPHONE COMPANY	MINNESOTA
ASOTIN TELEPHONE COMPANY	WASHINGTON
BADGER TELECOM, LLC	DELAWARE
BARNARDSVILLE TELEPHONE COMPANY	NORTH CAROLINA
BLACK EARTH TELEPHONE COMPANY, LLC	DELAWARE
BLUE RIDGE TELEPHONE COMPANY	GEORGIA
BONDUEL TELEPHONE COMPANY	WISCONSIN
BRIDGE WATER TELEPHONE COMPANY	MINNESOTA
BURLINGTON, BRIGHTON & WHEATLAND TELEPHONE COMPANY	WISCONSIN
BUTLER TELEPHONE COMPANY, INC.	ALABAMA
CALHOUN CITY TELEPHONE COMPANY, INC.	MISSISSIPPI
CAMDEN TELEPHONE COMPANY	INDIANA
CAMDEN TELEPHONE AND TELEGRAPH COMPANY, INC.	GEORGIA
CENTRAL STATE TELEPHONE COMPANY, LLC	DELAWARE
CHATHAM TELEPHONE COMPANY	MICHIGAN
CLEVELAND COUNTY TELEPHONE COMPANY, INC.	ARKANSAS
COBBOSSEECONTEE TELEPHONE COMPANY	MAINE
COMMUNICATIONS CORPORATION OF INDIANA	INDIANA
COMMUNICATION CORPORATION OF MICHIGAN	MICHIGAN
COMMUNICATIONS CORPORATION OF SOUTHERN INDIANA	INDIANA
CONCORD TELEPHONE EXCHANGE, INC.	TENNESSEE
CONTINENTAL TELEPHONE COMPANY	OHIO
DECATUR TELEPHONE COMPANY	ARKANSAS
DELTA COUNTY TELE-COMM, INC.	COLORADO
DEPOSIT TELEPHONE COMPANY	NEW YORK
DICKEYVILLE TELEPHONE, LLC	DELAWARE
EASTCOAST TELECOM, INC.	WISCONSIN
EDWARDS TELEPHONE COMPANY, INC.	NEW YORK
GRANTLAND TELECOM, INC.	WISCONSIN
HAMPDEN TELEPHONE COMPANY	MAINE
HAPPY VALLEY TELEPHONE COMPANY	CALIFORNIA
HARTLAND & ST. ALBANS TELEPHONE COMPANY	MAINE
HOLLIS TELEPHONE COMPANY, INC	NEW HAMPSHIRE
HOME TELEPHONE COMPANY, INC.	INDIANA
HOME TELEPHONE COMPANY	OREGON
HOME TELEPHONE COMPANY OF PITTSBORO, INC.	INDIANA
HORNITOS TELEPHONE COMPANY	CALIFORNIA
HUMPHREYS COUNTY TELEPHONE COMPANY	TENNESSEE
ISLAND TELEPHONE COMPANY	MICHIGAN
KEARSARGE TELEPHONE COMPANY	NEW HAMPSHIRE
LESLIE COUNTY TELEPHONE COMPANY, INC.	KENTUCKY
LEWIS RIVER TELEPHONE COMPANY, INC.	WASHINGTON
LEWISPORT TELEPHONE COMPANY	KENTUCKY
LITTLE MIAMI COMMUNICATIONS CORPORATION	OHIO
LUDLOW TELEPHONE COMPANY	VERMONT
MAHANOY & MAHANTANGO TELEPHONE COMPANY	PENNSYLVANIA
MCCLELLANVILLE TELEPHONE COMPANY, INC.	SOUTH CAROLINA
MCDANIEL TELEPHONE COMPANY	WASHINGTON
MERRIMACK COUNTY TELEPHONE COMPANY	NEW HAMPSHIRE

5

MID-AMERICA TELEPHONE, INC.	OKLAHOMA
MID-PLAINS, INC.	WISCONSIN
MID-STATE TELEPHONE COMPANY	MINNESOTA
MIDWAY TELEPHONE COMPANY, LLC	DELAWARE
MOUNT VERNON TELEPHONE COMPANY, LLC	DELAWARE
MYRTLE TELEPHONE COMPANY, INC.	MISSISSIPPI
NELSON BALLGROUND TELEPHONE COMPANY	GEORGIA
NEW CASTLE TELEPHONE COMPANY	VIRGINIA
NEW LONDON TELEPHONE COMPANY	MISSOURI
NORTHFIELD TELEPHONE COMPANY	VERMONT
NORWAY TELEPHONE COMPANY, INC.	SOUTH CAROLINA
OAKMAN TELEPHONE COMPANY, INC.	ALABAMA
OAKWOOD TELEPHONE COMPANY	OHIO
OKLAHOMA COMMUNICATION SYSTEMS, INC.	OKLAHOMA
ORCHARD FARM TELEPHONE COMPANY	MISSOURI
ORISKANY FALLS TELEPHONE CORPORATION	NEW YORK
PEOPLES TELEPHONE COMPANY, INC.	ALABAMA
PERKINSVILLE TELEPHONE COMPANY, INC.	VERMONT
PORT BYRON TELEPHONE COMPANY	NEW YORK
POTLATCH TELEPHONE COMPANY, INC.	IDAHO
QUINCY TELEPHONE COMPANY	FLORIDA
RIVERSIDE TELECOM, LLC	DELAWARE
S & W TELEPHONE COMPANY, INC.	INDIANA
SALEM TELEPHONE COMPANY	KENTUCKY
SALUDA MOUNTAIN TELEPHONE COMPANY	NORTH CAROLINA
SERVICE TELEPHONE COMPANY, INC.	NORTH CAROLINA
SHIAWASSEE TELEPHONE COMPANY	MICHIGAN
SOMERSET TELEPHONE COMPANY	MAINE
SOUTHEAST MISSISSIPPI TELEPHONE COMPANY	MISSISSIPPI
SOUTHEAST TELEPHONE COMPANY OF WISCONSIN, INC.	WISCONSIN
SOUTHWESTERN TELEPHONE COMPANY	ARIZONA
ST. STEPHEN TELEPHONE COMPANY	SOUTH CAROLINA
STOCKBRIDGE & SHERWOOD TELEPHONE COMPANY, INC.	WISCONSIN
STRASBURG TELEPHONE COMPANY	COLORADO
SUGAR VALLEY TELEPHONE COMPANY	PENNSYLVANIA
TELLICO TELEPHONE COMPANY, INC.	TENNESSEE
TENNESSEE TELEPHONE COMPANY	TENNESSEE
TENNEY TELEPHONE COMPANY, LLC	DELAWARE
THE FARMERS TELEPHONE COMPANY, LLC	DELAWARE
THE ISLAND TELEPHONE COMPANY	MAINE
THE MERCHANTS & FARMERS TELEPHONE COMPANY	INDIANA
THE SCANDINAVIA TELEPHONE COMPANY	WISCONSIN
THE STOUTLAND TELEPHONE COMPANY	MISSOURI
THE VANLUE TELEPHONE COMPANY	OHIO
THE WEST PENOBSCOT TELEPHONE & TELEGRAPH COMPANY	MAINE
TIPTON TELEPHONE COMPANY, INC.	INDIANA
TOWNCOMM, INC.	NEW YORK
TOWNSHIP TELEPHONE COMPANY, INC.	NEW YORK
TRI-COUNTY TELEPHONE COMPANY, INC.	INDIANA
UTELCO, INC.	WISCONSIN

6

	VERNON TELEPHONE COMPANY	NEW YORK
	VIRGINIA TELEPHONE COMPANY	VIRGINIA
	WARREN TELEPHONE COMPANY	MAINE
	WAUNAKEE TELEPHONE COMPANY, LLC	DELAWARE
	WILLISTON TELEPHONE COMPANY	SOUTH CAROLINA
	WILTON TELEPHONE COMPANY, INC.	NEW HAMPSHIRE
	WINSTED TELEPHONE COMPANY	MINNESOTA
	WINTERHAVEN TELEPHONE COMPANY	CALIFORNIA
	WOLVERINE TELEPHONE COMPANY	MICHIGAN
	WYANDOTTE TELEPHONE COMPANY	OKLAHOMA
	OTHER COMPANIES
	ARVIG CELLULAR, INC.	MINNESOTA
	CAMDEN CELLULAR, INC.	GEORGIA
	CHORUS NETWORKS, INC.	WISCONSIN
	CHORUS PROPERTIES, LLC	WISCONSIN
	DANUBE COMMUNICATIONS, INC.	MINNESOTA
	DTC-NYSINET	NEW YORK
	GEORGIA RSA # 12 PARTNERSHIP	GEORGIA
	HBC TELECOM, INC.	MINNESOTA
	MCT COMMUNICATIONS, INC.	NEW HAMPSHIRE
	NEW HAMPSHIRE TELEPHONE COMPANY, INC.	NEW HAMPSHIRE
	PIONEER COMMUNICATIONS, INC.	WISCONSIN
	TDS COMMUNICATIONS SOLUTIONS, INC.	DELAWARE
	TDS DATACOM, INC.	DELAWARE
	TDS LONG DISTANCE CORPORATION	DELAWARE
	TDS METROCOM, LLC	DELAWARE
	TDS TELECOM SERVICE CORPORATION	IOWA
	TDSI TELECOMMUNICATIONS CORPORATION	DELAWARE
	TRI-COUNTY COMMUNICATIONS CORPORATION	INDIANA
	U.S. LINK, INC.	MINNESOTA
TDS GROUP
	AFFILIATE FUND	DELAWARE
	CCR ACQUISITION CO.	INDIANA
	CCR MERGER CO.	INDIANA
	COMMVEST, INC.	DELAWARE
	NATIONAL TELEPHONE & TELEGRAPH COMPANY	CALIFORNIA
	NELSON-BALL GROUND CELLULAR TELEPHONE & SERVICES, INC.	GEORGIA
	RUDEVCO, INC.	CALIFORNIA
	SUTTLE-STRAUS, INC.	WISCONSIN
	TDS CAPITAL TRUST I	DELAWARE
	TDS CAPITAL TRUST II	DELAWARE
	TDS CAPITAL TRUST III	DELAWARE
	TDSI CORPORATION	DELAWARE
	TELECOM TECHNOLOGIES FUND LLC (TTF)	WISCONSIN

*

50% or more owned companies

7

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Exhibit 21

EX-23.1

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Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

        We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File Nos. 33-8857, 33-59435, 33-68456, 333-71632 and 333-38355), in the Registration Statement on Form S-4 (File No. 33-64293), and in the Registration Statements on Form S-8 (File Nos. 33-35172, 33-57257, 33-64035, 333-23947, 333-58121, 333-58127, 333-71688, 333-76453, 333-103540, and 333-103541) of Telephone and Data Systems, Inc. of our report dated February 3, 2003, except as to Note 24, as to which the date is March 10, 2003, relating to the consolidated financial statements of Telephone and Data Systems, Inc., which appears in the 2002 Annual Report to Shareholders, which is incorporated by reference in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated February 3, 2003, except as to Note 24, as to which the date is March 10, 2003, relating to the financial statement schedules, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois
March 19, 2003

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Exhibit 23.1

EX-23.2

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Exhibit 23.2

NOTICE REGARDING CONSENT OF ARTHUR ANDERSEN LLP

        Section 11(a) of the Securities Act of 1933, as amended (the "Securities Act"), provides that if any part of a registration statement at the time such part becomes effective contains an untrue statement of a material fact or an omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring a security pursuant to such registration statement (unless it is proved that at the time of such acquisition such person knew of such untruth or omission) may sue, among others, every accountant who has consented to be named as having prepared or certified any part of the registration statement, or as having prepared or certified any report or valuation which is used in connection with the registration statement, with respect to the statement in such registration statement, report or valuation which purports to have been prepared or certified by the accountant.

        This Form 10-K is incorporated by reference into the Company's filings on Form S-3 (File Nos. 33-8857, 33-59435, 33-68456, 333-71632 and 333-38355), Form S-4 (File No. 33-64293) and Form S-8 (File Nos. 33-35172, 33-57257, 33-64035, 333-23947, 333-58121, 333-58127, 333-71688, 333-76453, 333-103540 and 333-103541) (collectively, the Registration Statements) and, for purposes of determining any liability under the Securities Act, is deemed to be a new registration statement for each Registration Statement into which it is incorporated by reference.

        On May 23, 2002 the Board of Directors dismissed Arthur Andersen LLP as its independent public accountants and appointed PricewaterhouseCoopers LLP as its independent public accountants. After reasonable efforts, the Company has been unable to obtain Arthur Andersen's written consent to the incorporation by reference into the Registration Statements of its audit report with respect to Company's financial statements as of December 31, 2001 and 2000 and for the years then ended included in this Form 10-K. Under these circumstances, Rule 437a under the Securities Act permits the Company to file this Form 10-K without a written consent from Arthur Andersen. As a result, however, Arthur Andersen may not have any liability under Section 11(a) of the Securities Act for any untrue statements of a material fact contained in the financial statements audited by Arthur Andersen or any omissions of a material fact required to be stated therein. Accordingly, you may not be able to assert a claim against Andersen under Section 11(a) of the Securities Act for any purchases of securities under the Registration Statements made on or after the date of this Form 10-K. To the extent provided in Section 11(b)(3)(C) of the Securities Act, however, other persons who are liable under Section 11(a) of the Securities Act, including the Company's officers and directors, should still be able to rely on Arthur Andersen's original audit reports as being made by an expert for purposes of establishing a due diligence defense under Section 11(b) of the Securities Act.

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Exhibit 23.2

EX-99.1

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Exhibit 99.1

Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code

        I, LeRoy T. Carlson, Jr., the chief executive officer of Telephone and Data Systems, Inc., certify that (i) the annual report on Form 10-K for the year ended December 31, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Telephone and Data Systems, Inc.

/s/  LEROY T. CARLSON, JR. LeRoy T. Carlson, Jr.
March 20, 2003

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Exhibit 99.1

EX-99.2

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Exhibit 99.2

Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code

        I, Sandra L. Helton, the chief financial officer of Telephone and Data Systems, Inc., certify that (i) the annual report on Form 10-K for the year ended December 31, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Telephone and Data Systems, Inc.

/s/  SANDRA L. HELTON Sandra L. Helton
March 20, 2003

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Exhibit 99.2