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                        TELEPHONE AND DATA SYSTEMS, INC.
- --------------------------------------------------------------------------------
                (Name of Registrant as Specified In Its Charter)

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TELEPHONE AND DATA SYSTEMS, INC.
 
30 North LaSalle Street
Suite 4000
Chicago, Illinois 60602
Phone: (312) 630-1900
                                                                          [LOGO]
Fax: (312) 630-1908
Internet home page: www.teldta.com
                                 April 30, 1997
 
Dear Fellow Shareowners:
 
    The TDS annual meeting will be held on May 16, 1997. At the meeting, holders
of Common Shares and Preferred Shares issued before October 31, 1981 will elect
one Class I director to the Board. YOUR BOARD OF DIRECTORS HAS NOMINATED MR.
GEORGE W. OFF FOR THAT POSITION. A disruptive proxy contest is being conducted
by Franklin Mutual Advisers, Inc. ("Franklin"), which is seeking to elect an
alternate candidate to the Board. For the reasons discussed below, your Board of
Directors unanimously recommends that you VOTE FOR MR. OFF. YOUR VOTE IS
IMPORTANT! No matter how many shares you own, please sign, date and return the
enclosed WHITE proxy card(s) as soon as possible, even if you have already sent
in a blue proxy card.
 
                   TDS IS BUILDING LONG-TERM SHAREOWNER VALUE
 
    The Board and the Carlson family are firmly committed to increasing
long-term shareowner value and believe that this will occur as a result of the
substantial investments that the Company is making in the cellular, personal
communications services (PCS) and telephone businesses. We believe that
Franklin's proxy materials are intended to make you believe that the Board and
the Carlson family are not concerned about building value for TDS shareowners.
THAT IS FALSE! In our view, Franklin lacks a sufficiently long-term perspective
to appreciate how those investments create value.
 
    THE COMPANY'S RECORD IS EXCELLENT! Two of the most important benchmarks for
companies in our business -- operating cash flow per share and earnings per
share -- increased from 1991 through 1996 at compound annual growth rates of
14.5% and 18.9%, respectively. In addition, the Company has increased its annual
dividend rate during each of the past 23 consecutive years. The charts below
illustrate the growth in operating cash flow and earnings per share.
 
                                                 
     OPERATING CASH FLOW PER SHARE(1)               EARNINGS PER SHARE(2)
EDGAR REPRESENTATION OF DATA POINTS USED IN         EDGAR REPRESENTATION OF DATA POINTS USED IN
PRINTED GRAPHIC                                     PRINTED GRAPHIC
1991  $3.21                                         1991  $0.43
1996  $6.31                                         1996  $1.02
(1) Operating income plus depreciation and          (2) Excluding gains on sales of assets.
    amortization based on shares outstanding at
    year end.


 

    We believe Franklin is not only mistaken about how to build value but also
overlooks the extraordinary long-term growth that TDS has already achieved. When
you consider the growth of operating cash flow per share and earnings per share
(which TAKE INTO ACCOUNT all stock issuances), it is clear that TDS has been
building value for its shareowners. Franklin's focus on growth in the number of
outstanding shares misses the point. The use of stock has enabled TDS to make
acquisitions that have contributed significantly to the growth in operating cash
flow and earnings.
 
                       TDS SHARE PRICES -- THE REAL STORY
 
    The following graph shows the performance of TDS Common Shares over a ten-
year period ending December 31, 1996. If you had invested $100 in TDS Common
Shares on December 31, 1986 and reinvested cash dividends, your investment would
have grown to $490 in ten years -- representing a compound annual growth rate of
17.2%. This compares favorably to the S&P 500, which had a 14.9% annual compound
growth rate over the same period, assuming the reinvestment of cash dividends.
 
                     GROWTH IN VALUE OF TDS COMMON SHARES*
 
          EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
                            December 31, 1986  $100
                            December 31, 1996  $490
 
*  Assumes $100 invested in TDS Common Shares on the last trading day in 1986,
and assumes the reinvestment of cash dividends.
 
    With its short-term, myopic focus, Franklin can't seem to look beyond the
current stock price. TDS is now primarily a wireless company. Like the prices of
many of its wireless peers, the TDS stock price has been depressed due largely,
we believe, to the recent increase in the competitive nature of the
telecommunications industry and the large-scale investments needed to compete in
this marketplace. NONETHELESS, THE PERCENTAGE CHANGE IN THE COMPANY'S STOCK
PRICE FOR THE TWO-YEAR PERIOD ENDED MARCH 31, 1997 IS COMPARABLE TO OR BETTER
THAN ITS CELLULAR PEERS.
 
    Both the Board and the Carlson family (which founded TDS and has
substantially all of its assets in TDS stock) believe there is significant room
for improvement in the current stock price. However, we believe that the way to
enhance the TDS stock price is to make investments and conduct operations in
ways that will result in long-term growth in value. This strategy is far better
than financial re-engineering that may result in temporary, short-term increases
at the expense of longer-term financial strength and competitiveness. The
Company's structure is designed to achieve substantial financing

and tax efficiencies. TDS is one of the few wireless companies that has
significant income, high equity, low debt and an investment grade debt rating;
and TDS has paid increasing dividends for 23 consecutive years.
 
    We share the desire of all shareowners for improvement in the TDS stock
price. As a result of this concern, your Board and management met with certain
shareowners to discuss action which could be taken to improve the performance of
the TDS stock price. The Board authorized a stock buy-back program in December
1996, and the Company has since purchased approximately 1.2 million TDS Common
Shares. The Board is continuing to explore additional means to enhance long-term
shareowner value.
 
       MR. OFF IS TRULY INDEPENDENT AND FULLY QUALIFIED TO INCREASE VALUE
 
    Due to the increasingly competitive nature of the Company's businesses, the
Board believes that consumer marketing skills are critical to the Company's
future success. Accordingly, the Company's search for a new independent director
was designed to identify a prominent CEO of a public company who has substantial
experience in consumer marketing. This search, conducted by the national search
firm Spencer Stuart, identified Mr. George W. Off, who was added to the Board in
January 1997. The Board believes that Mr. Off's background and experience make
him truly qualified to assist in building long-term shareowner value for the
Company. There is no indication that the other nominee has similar experience to
bring to the Board.
 
    Mr. Off brings substantial marketing and consumer product expertise to a
Board that, collectively, has more than 180 years of experience in the
telecommunications industry. He is completely independent of the Company and of
any shareowner. In contrast, we believe that Franklin's nominee intends to serve
Franklin's short-term interests. Your Board is firmly committed to the goal of
building shareowner value and will not be distracted by this side-show. We ask
for your support.
 
                            YOUR VOTE IS IMPORTANT!
 
    Your vote is important to ensure that TDS remains on the steady course of
building long-term shareowner value, and to ensure that qualified and
independent Board members represent the best interests of all shareowners.
 
    Please VOTE your WHITE proxy card FOR MR. OFF and mail it today, using the
enclosed postage-paid envelope.
 
    Thank you for your continued loyalty and support.
 
                               Very truly yours,
 
                                        
           [SIG]                           [SIG]
LEROY T. CARLSON                           LEROY T. CARLSON, JR.
Chairman                                   President and Chief Executive Officer


 

 
                                   IMPORTANT!
 
 1.  Regardless of how many shares you own, YOUR VOTE IS VERY IMPORTANT. Please
     sign, date and mail the enclosed WHITE proxy card(s), printed in black ink
     for Common Shares or red ink for Preferred Shares issued prior to October
     31, 1981.
 
     PLEASE VOTE EACH WHITE PROXY CARD you receive, since each account must be
     voted separately. Only your latest dated proxy counts.
 
 2.  We urge you NOT TO SIGN ANY BLUE PROXY CARD sent to you by Franklin, even
     as a vote of protest.
 
 3.  Even if you have sent a BLUE proxy card to Franklin, you have every right
     to change your vote. You may revoke that proxy and vote as recommended by
     management by signing, dating and mailing the enclosed WHITE proxy card in
     the enclosed envelope.
 
 4.  IF YOUR SHARES ARE HELD IN THE NAME OF A BANK, BROKER OR OTHER NOMINEE,
     please direct the party responsible for your accounts to vote the WHITE
     proxy card as recommended by management.
 
    If you have any questions on how to vote your shares, please contact our
           proxy solicitor, MacKenzie Partners, Inc., as indicated below:
 
                                        [LOGO]
 
                                156 Fifth Avenue
                              New York, New York 10010
                           (212) 929-5500 (call collect)
                                         or
                           CALL TOLL-FREE (800) 322-2885