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                         TELEPHONE AND DATA SYSTEMS, INC.
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                (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
                                  May 10, 1997
 
Dear Fellow Shareowners:
 
                        SUPPORT YOUR BOARD OF DIRECTORS!
 
    We are seeking your support! The TDS annual meeting will be held in only a
few days on May 16, 1997. Your Board of Directors has nominated MR. GEORGE W.
OFF for election as a Class I Director by holders of Common Shares and Preferred
Shares issued before October 31, 1981. A proxy contest is being conducted by
Franklin Mutual Advisers, Inc. ("Franklin"), which is seeking to elect its own
nominee in opposition to Mr. Off. Do NOT sign or return any blue proxy card to
Franklin. Your Board of Directors unanimously recommends that you VOTE FOR MR.
OFF by returning the enclosed WHITE proxy card(s) today, even if you have
previously voted a blue or white proxy card.
 
                YOUR BOARD IS BUILDING VALUE FOR TDS SHAREOWNERS
 
    TDS's business development strategy is to expand its existing operations
through internal growth and acquisitions and to explore and develop other
telecommunications businesses that management believes utilize TDS's expertise
in customer-based telecommunications. We have been consistent in our strategies,
goals and mission of building long-term shareowner value. The intrinsic,
private-market value of TDS has grown rapidly over the past ten years. This
tremendous growth has been accomplished to a significant degree by taking
advantage of unusual corporate development opportunities in wireless
telecommunications.
 
    - We capitalized on our position in the wireline telephone business to
      achieve a significant position in the cellular business.
 
    - We applied for cellular licenses in all cases in which we were permitted
      under FCC rules and were successful in many lotteries.
 
    - We started acquiring valuable cellular interests in the early days of the
      cellular industry.
 
    - We bought mid-sized metropolitan cellular markets at $10-$15 per pop in
      the late '80s.
 
    - We bought rural service areas at $50-$60 per pop in the early '90s.
 
    - We clustered these properties together to add to their private market
      value.
 
    - We believe that the private market value of our cellular business
      approaches $200 per pop today.
 
    - We enhanced the scale and scope of our wireless business by buying major
      metropolitan PCS markets at an average price of about $10 per pop in FCC
      auctions.

    We have taken a number of other actions designed to gain recognition of the
intrinsic value TDS has created in the TDS Common Shares. Since 1994, we have
generated cash proceeds of over $400 million by trading and selling
non-strategic assets to finance corporate development and growth. In addition,
given the recent relatively low price of your Common Shares, we have greatly
reduced the use of those Common Shares in corporate development and have
implemented a Common Share repurchase program. We continue to explore
alternatives for achieving greater recognition of the growing intrinsic value of
your Company in the capital markets and enhancing shareowner value in ways that
comport well with the growth and financing strategies that have contributed so
greatly to building the long-term intrinsic value of your Company.
 
    IN FACT, FRANKLIN CONFIRMS THE COMPANY'S SUCCESS when it states that an
independent securities analyst believes that the Company's private market value
is more than twice the current price of TDS's common stock. CLEARLY,
management's strategy of building shareowner value is working. AT THE SAME TIME,
the Company has preserved and enhanced the fundamental strength of your Company,
which has never been better.
 
    THE PROOF that management's strategy is working is that your Company's rate
of growth in cash flow is accelerating as the Company obtains the benefits from
its earlier acquisitions. The Company's operating cash flow per share and
earnings per share have increased from 1991 through 1996 at compound annual
growth rates of 14.5% and 18.9%, respectively.
 
    TDS HAS EXPERIENCED EXTRAORDINARY GROWTH! When you consider the growth of
operating cash flow per share and earnings per share, it is clear that TDS has
been building value for its shareowners. This growth has permitted the Company
to increase its per share dividend on an annual basis. TDS is one of the few
primarily wireless companies that has significant income, high equity, low debt
and an investment grade debt rating. TDS has paid increasing dividends for 23
consecutive years. The TDS per-share dividend has increased at an annual
compound growth rate of nearly 7% for the ten-year period ended December 31,
1996.
 
    The stability of the Company has enabled it to become a company with 7,000
employees, providing millions of customers with state-of-the-art communications
services. The long-term investment philosophy of the Company has made this
possible. Unlike companies with short-term investment goals that boost their
stock price through short-term quick fixes, the Company has grown and expanded
efficiently and continuously.
 
    THE USE OF TDS STOCK HAS INCREASED VALUE! The use of stock has enabled TDS
to make acquisitions that have contributed significantly to the growth in
operating cash flow and earnings. 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, which represents 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.
THE COMPANY'S PERFORMANCE ALSO COMPARES FAVORABLY TO THE AVERAGE TOTAL RETURN OF
14.8% TO 15.7% IN EACH CASE FOR THREE FRANKLIN MUTUAL SERIES FUNDS FOR THE SAME
PERIOD, AS REPORTED IN AN ADVERTISEMENT WHICH APPEARED IN THE MAY 1997 ISSUE OF
KIPLINGER'S PERSONAL FINANCE MAGAZINE.
 
    The TDS stock price has been depressed recently. However, so have the prices
of many of its wireless peers. Nevertheless, 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.

    We share the concern of other shareowners and would like to see improvement
in the TDS stock price. The Board has been responsive to the concerns of its
shareowners and has taken action to improve the TDS stock price. Your Board and
management met with certain shareowners, including Franklin, to discuss actions
which could be taken to improve the performance of the TDS stock price. Because
of the low stock price, the Board has reduced the number of shares being issued
for acquisitions. Between 1989 and 1994, the cumulative annual growth rate in
the total number of Series A and Common Shares outstanding was 13.2%. Between
1994 and 1996, the cumulative annual growth rate in the total number of
outstanding Series A and Common Shares was 5.6%. The Board also authorized a
stock buy-back program in December 1996. The Company has purchased approximately
1.2 million TDS Common Shares in 1997.
 
    Contrary to what Franklin has asserted, the number of TDS shares outstanding
on March 31, 1997 was NOT greater than the number outstanding on December 31,
1996. The number of outstanding Series A Common Shares did not change, and the
number of outstanding Common Shares decreased by 729,000 shares, due primarily
to the repurchase of approximately 798,000 Common Shares during the first
quarter.
 
    We believe that the way to enhance the TDS stock price is to make
investments and conduct operations in ways that will result in substantial
increases in long-term shareowner value per share. TDS could not have become as
large and strong as it is without judiciously using debt and equity financing.
The Board does not authorize the issuance of equity unless it believes that it
will strengthen the Company and enhance per share value over the long term. Your
Board does not support any actions which may result in temporary, short-term
increases in stock market value at the expense of longer-term financial strength
and competitiveness.
 
    Management is focused on long-term internal growth of intrinsic value per
share and financial strength. As shown on pages 72-75 of the Company's 1996
Annual Report to Shareowners, the 10-year financial performance of the Company
is excellent.
 
    The current structure of TDS reflects the creativity of management in
focusing on value and providing financing alternatives. TDS believes it has a
knowledgeable team of financial executives with significant understanding of
financial structure and also has extensive access to the advice of outside
experts. We believe there are substantial financing and tax efficiencies derived
from the Company's structure. Management believes that this structure continues
to serve the goal of TDS of increasing long-term shareowner value per share.
Nevertheless, TDS is always open to opportunities to change the structure if
these would increase long-term shareowner value per share.
 
          QUALIFICATIONS, INDEPENDENCE AND EXPERIENCE OF TDS DIRECTORS
 
    The TDS Board includes persons who are well qualified to represent the
interests of shareowners. Collectively, members of management of the Company,
including the Board, beneficially own approximately 11% of the common stock of
TDS, most of which is owned by members of the Carlson family. Moreover,
substantially all of the Carlson family's assets are invested in TDS common
stock. As major shareowners of TDS, the interest of the Carlson family is
totally aligned with the goal of increasing shareowner value per share. Studies
show that owner-managed companies perform better than agent-managed companies.
 
    The Company believes that all directors should own stock in TDS.
Accordingly, in 1996 the Company adopted a compensation plan for non-employee
directors, pursuant to which non-employee directors will receive 50% of the
annual director's fee and 33% of committee meeting fees in the form of Common
Shares.

    TDS has a seasoned, balanced Board which has the requisite background and
experience needed to competently represent shareowners, including two partners
of major law firms, four MBAs, an engineer, a former chairman and president of a
bank and a medical doctor and assistant professor who, collectively, have over
180 years of experience in the telecommunications industry. The background and
experience of Franklin's candidate do not fill any recognized gap in the current
mix of expertise on the TDS Board.
 
    In May 1996, the Company recognized the desirability of having an additional
qualified independent director on the Board, after the retirement of a former
director. The Board of Directors followed the best corporate practices in
identifying and nominating an independent director to the Board. The Company
engaged the national search firm, Spencer Stuart, to identify an eminently
qualified independent director for the Board. After an extensive search, Mr. Off
was appointed to the Board based on this search and the Board, following common
and accepted corporate practice, recommended Mr. Off's election to the Board by
the Common Share Group based on the outstanding qualifications and independence
of Mr. Off.
 
    Mr. Off, like all of the other current directors of TDS, will continue to
hold the Company accountable to all of its shareowners and will continue to
devote himself to increasing the intrinsic value of your investment in TDS.
 
    Mr. Off is completely independent of the Company and of any shareowner. Mr.
Off also meets or exceeds all of the requirements established for an independent
director. Mr. Off is a CEO of a public company who has substantial experience in
consumer marketing. The Board believes that Mr. Off's consumer marketing
experience and background are important to the Company's future success due to
the increasingly competitive nature of the Company's businesses. Mr. Off has a
high degree of business acumen, as evidenced by his participation in the
founding of Catalina Marketing Corporation from its inception, and helping it to
develop as a major public corporation which is listed on the New York Stock
Exchange.
 
    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. Mr.
Off brings the qualifications needed to develop the Company's intrinsic value
through building the Company's businesses.
 
    WE BELIEVE THAT MR. OFF IS CLEARLY THE MORE QUALIFIED AND INDEPENDENT
CANDIDATE AND RECOMMEND THAT SHAREOWNERS VOTE FOR MR. OFF.

                            YOUR VOTE IS IMPORTANT!
 
    Please VOTE your WHITE proxy card FOR MR. OFF and mail it TODAY, using the
enclosed postage-paid envelope. Since time is short, you may also fax your proxy
to us by following the instructions on the reverse side of this letter.
 
    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. Even
if you have voted before, please SIGN, DATE AND RETURN the enclosed WHITE proxy
card(s) NOW.
 
    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. MAIL the proxy
     card in the enclosed envelope or FAX BOTH SIDES to our proxy solicitor,
     MacKenzie Partners, Inc., at the number provided below.
 
  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
                              FAX: (212) 929-0308
 
    PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY
                                   STATEMENT
 
  This letter contains "forward-looking" statements, as defined in the Private
  Securities Litigation Reform Act of 1995, that are based on current
  expectations, estimates and projections. Statements that are not historical
  facts, including statements about the Company's beliefs and expectations,
  are forward-looking statements. These statements contain potential risks and
  uncertainties and, therefore, actual results may differ materially. The
  Company undertakes no obligation to update publicly any forward-looking
  statements, whether as a result of new information, future events or
  otherwise.
 
  Important factors that may affect these projections or expectations include,
  but are not limited to: changes in the overall economy; changes in
  competition in the Company's markets; advances in telecommunications
  technology; changes in the telecommunications regulatory environment;
  pending and future litigation; availability of future financing; and the
  unanticipated changes in growth in PCS customers, penetration rates, churn
  rates and the mix of products and services offered in the Company's markets.
  Readers should evaluate any statements in light of these important factors.