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allfor thecustomer
technology and service.


                                         Telephone and Data Systems, Inc.

                                         United States Cellular Corporation
                                         TDS Telecommunications Corporation




                             1999 Annual Report
all for the customer                                                                                          Telephone and
                                                                                                                                                                                       Data Systems, Inc.

                                                                                                                    Percent change
                                                                                                                                                                           United States Cellular Corporation
Financial Highlights                                             1999                              1998               from 1998
                                                                     (Dollars in thousands, except per share amounts)
                                                                                                                                                                                       United States Cellular
Operating Revenues
                                                                                                                                                                                       Corporation [AMEX: USM]
  U.S. Cellular                                        $ 1,417,181                      $ 1,162,467                      22%
                                                                                                                                                                                       is TDS’s 80.7%-owned
  TDS Telecom                                              545,917                          488,104                      12
                                                                                                                                                                                       cellular telephone subsidiary.
                                                       $ 1,963,098                      $ 1,650,571                      19
                                                                                                                                                                                       U.S. Cellular and TDS own
Net Income from Continuing Operations                  $ 314,151                        $ 201,399                        56
                                                                                                                                                                                       cellular interests representing
Net Income from Continuing Operations
                                                                                                                                                                                       26.4 million population
   Available to Common                                      313,004                          199,748                     57
                                                                                                                                                                                       equivalents in 180 markets.
Basic Earnings Per Share
                                                                                                                                                                                       U.S. Cellular’s 139 majority-
   from Continuing Operations                                    5.09                             3.28                   55
                                                                                                                                                                                       owned and managed markets
Diluted Earnings Per Share
   from Continuing Operations                                   5.02                           3.22                      56                                                            have 2,602,000 cellular
Dividends Per Share                                    $          .46                   $        .44                      5                                                            telephones in service.
Weighted Average Common Shares (000s)                         61,436                         60,982                       1
Common Stockholders’ Equity                            $   2,483,101                    $ 2,237,908                      11
Return on Equity                                                13.3%                           9.5%                     40
                                                                                                                                                                           TDS Telecommunications Corporation
                                                                                                                                     Telephone and Data Systems, Inc.
Capital Expenditures                                   $     399,631                    $ 463,543                       (14)
Total Assets                                           $   5,375,828                    $ 5,042,604                       7
                                                                                                                                     [AMEX: TDS] is a diversified                      TDS Telecommunications
Cellular Customers                                         2,602,000                      2,183,000                      19
                                                                                                                                                                                       Corporation (“TDS Telecom”)
                                                                                                                                     telecommunications company with
Telephone Access Lines
                                                                                                                                                                                       is TDS’s wholly-owned
   ILEC                                                     571,700                          547,500                      4
                                                                                                                                                                                       telephone subsidiary. TDS
                                                                                                                                     cellular telephone and telephone
   CLEC                                                      74,100                           34,100                    117
                                                                                                                                                                                       Telecom operates in 28 states
Common Share Record Owners                                    2,845                            3,947                    (28)
                                                                                                                                     operations. At December 31, 1999,                 with 104 telephone companies,
Total Employees                                               8,153                            8,014                      2
                                                                                                                                                                                       which serve 547,500 access
                                                                                                                                     TDS provided high-quality telecom-                lines, and two competitive
Our 1999 Annual Report                               Table of Contents                                                                                                                 local exchange carriers, which
                                                                                                                                     munications services to 3.2 million
                                                                                                                                                                                       serve 74,100 access lines.
focuses on Customer Care, a leading differentiator   About Your Company                                                   1
                                                                                                                                     customers in 35 states. TDS’s
for TDS. Through its strategic business units, TDS   Chairman and President’s Message                                     2
offers big city services to rural, suburban and      U.S. Cellular Operations                                             8
                                                                                                                                     business development strategy is
smaller city customers. Following the message        TDS Telecom Operations                                              14
                                                                                                                                                                           Associated Service Companies
from the Chairman and President, we highlight        Aerial Operations                                                   20
                                                                                                                                     to expand its existing operations
what each business unit is doing to care for their   Board of Directors and Officers                                     22
                                                                                                                                     through internal growth and
customers today and in the future.                   Company Management                                                  24                                                            TDS also operates service
                                                     Selected Consolidated Financial Data                                26                                                            subsidiaries which provide
                                                                                                                                     acquisitions and to explore and
                                                     Management’s Discussion                                             27                                                            custom printing and other
                                                     Consolidated Financial Statements                                   42                                                            products and services.
                                                                                                                                     develop other telecommunications
                                                     Notes to Consolidated Financial Statements                          47

                                                                                                                                     businesses that management
                                                     Report of Management                                                66
                                                     Report of Independent Public Accountants                            66
                                                                                                                                     believes utilize TDS’ expertise in
                                                                                                                                                          s
                                                     Consolidated Quarterly Income Information                           67
                                                     Eleven-Year Summaries                                               68
                                                                                                                                     customer-based telecommunications.
                                                     Shareowners’ Information                                            72


                                                                                                                                                                                                                         2
strong growth                                                                                                         Chairman and
                                                                                                                                                                   President’s Message

                                  Dear Fellow                           These results were in large part due to our employees’ unwavering focus on customer satisfaction. Customer
                                                                        care and satisfaction is a core value on which TDS was founded, and remains a critical differentiation factor
                                  Shareholders:                         for our company in an increasingly competitive marketplace. A strong business franchise and optimal
                                                                        operating results come directly from close attention to satisfying our customer base, which is the theme of
                                                                        this year’s annual report.

                                  Telephone and Data                    On September 17, 1999, TDS approved a plan for the merger of Aerial Communications, Inc. with
                                                                        VoiceStream Wireless Corporation. Shareholders of Aerial, including TDS, will receive 0.455 shares of

                                  Systems, Inc. marked                  VoiceStream for each share of Aerial stock they own. The market value for the shares TDS will receive was
                                                                        $4.7 billion on February 29, 2000, based on our projected ownership of 35.6 million shares, or about 14%
                                                                        of VoiceStream when the merger is concluded. The transaction represents the culmination of a process we
                                  its 30th anniversary                  initiated in December 1998 when we announced that we intended to pursue a spin-off of TDS’s ownership
                                                                        in Aerial to its shareholders while exploring other alternatives. Although we believe that we could have

                                  on January 1, 1999,                   achieved a successful spin-off of Aerial, this merger represents a preferable outcome because it allows Aerial
                                                                        to participate in the consolidation taking place among those PCS wireless companies using Global Systems
                                                                        for Mobile Communications, or GSM, technology. GSM technology is the leading digital wireless standard
                                  and our 31st year                     in the world today, and the merger of Aerial and VoiceStream (which also merged with Omnipoint
                                                                                                                                          Corporation in early 2000) will create the
                                                           The market price of TDS’ stock                  s                              only national company in the United States
                                  was another year of
LeRoy T. (“Ted”) Carlson, Jr.
                                                                                                                                          which uses GSM technology—a unique
President and Executive Officer
                                                           reached a record high during 1999.                                             asset. VoiceStream is an exceptionally well-

                                  outstanding financial                                                                                   managed company, and is well-positioned to
LeRoy T. Carlson
Chairman                                                                                                                                  incorporate Aerial’s many strengths into its
                                                           Telephone and Data Systems, Inc.
                                                                                                                                          ongoing development. We believe the
                                  performance. We posted                                                                                  merger of the two companies presents a
                                                                                                                                          clear opportunity to create very large

                                  excellent 19% growth                                                                                    economies of scale and to maximize Aerial
                                                                                                                                          and TDS shareholder values. The merger of
                                                                                                                                          Aerial with VoiceStream was approved by
                                  in operating revenues                                                                                   Aerial and VoiceStream shareholders on
                                                                                                                                          February 24, 2000, and is planned to be

                                  together with an                                                                                        completed in the second quarter of 2000,
                                                                                                                                          subsequent to approval by the Federal
                                                                                                                                          Communications Commission.
                                  equally impressive                    Rapid growth in the number of customers and larger footprints offered to those customers are major
                                                                        trends that affected the wireless industry in 1999. Another trend is much higher customer expectations

                                  23% growth in                         about the types of and performance standards for communications technology, especially wireless
                                                                        communications. This latter trend is very closely linked to the growth of the Internet and other data
                                                                        services, which will continue to exert a major impact on every facet of the telecommunications industry.
                                  operating cash flow.                  The combined effect of all these and other telecommunications industry trends was a sharp increase in the
                                                                        values of wireless telecommunications businesses in 1999.




2                                                                                                                                                                                        3
strategic direction                                                                                                                                                                                  Chairman and
                                                                                                                                                                                                                               President’s Message

    The increase in our stock price was striking even after taking into account the strength of the wireless                        TDS Telecom posted a 7% revenue growth and a 14% operating cash flow growth in its core local exchange
    industry. The market has begun to recognize the values we have created in both wireless and wireline. Our                       (quot;ILECquot;) business in 1999. TDS Telecom succeeded in expanding its Internet service provider offering to
    TDS stock, together with the stocks of our two publicly traded subsidiaries, U.S. Cellular and Aerial,                          60,400 customers by year-end. TDS Telecom’s CLEC ventures also achieved outstanding results. TDS
    recorded record highs last year. At year-end, TDS posted a 180% increase in share price for the 12 months,                      Metrocom, based in Wisconsin, and USLink, based in Minnesota, grew revenues over 300% and 42%,
    while gains at U.S. Cellular and Aerial were 166% and 936%, respectively.                                                       respectively. This dramatic growth strengthens our conviction that major value-creating opportunities will
                                                                                                                                    continue to come from our CLEC activities and our determination to create additional shareholder value by
    While the substantial increase in the price of TDS stock in 1999 is most welcome, we believe that there is
                                                                                                                                    aggressively building promising new businesses in telecommunications.
    still a substantial gap between the stock market’s valuation of TDS and the future potential of our
    company. During 2000 and beyond, we will continue to work diligently to grow TDS’s real value and close                         TDS Metrocom and USLink are winning in the competitive marketplace through focused sales and
    the gap between stock market value and true economic value. Our strong operating performance and                                marketing and by building their markets in a timely, cost-efficient manner. We are currently reviewing plans
    substantial operating cash flow, coupled with sizable equity positions in high-quality, publicly traded                         to expand TDS Metrocom into several additional markets that fit well with its existing cluster of operations.
    telecommunications companies, should lead to higher values over time than the stock market currently has
                                                                                                                                                                                                    Transitions
    awarded either TDS or U.S. Cellular.
                                                                                                                       United States Cellular Corporation
                                                                                                                                                                                                    Michael Jack joined TDS as Vice President
    TDS’s major assets now include majority positions in U.S. Cellular and Aerial, both of which are publicly                                                                                       and Corporate Controller in November
    traded, as well as TDS Telecom, our wholly-owned wireline subsidiary, and its two competitive local exchange                                                                                    1999, after a long and successful career with
    (quot;CLECquot;) operations: TDS Metrocom and USLink. Our ownership in Aerial will, as we have mentioned,                                                                                               Cummins Engine Company, Inc. Greg
    become a significant equity stake in VoiceStream once the Aerial/VoiceStream merger is completed.                                                                                               Wilkinson, our former controller, was
                                                                                                                                                                                                    appointed Vice President and Corporate
    Through our U.S. Cellular and TDS Telecom subsidiaries, we also hold a substantial position in Vodafone
                                                                                                                                                                                                    Secretary, with additional responsibilities in
    AirTouch plc, the European-based, worldwide mobile phone giant. This position had a value of $641 million
                                                                                                                                                                                                    contract management. Michael Hron, a long
    at December 31, 1999. Our publicly traded portfolio is further diversified with stock holdings in Rural
                                                                                                                                                                                                    time partner with our primary law firm, and
    Cellular Corporation (a rural cellular provider that operates in the upper Midwestern and Northeastern
                                                                                                                                                                                                    important contributor to the Company’s
    United States) and in Illuminet Holdings, Inc., a leading United States provider of network services. TDS
                                                                                                                                                                                                    success over the years, has been formally
    also has a 30% stake in privately held TSR Wireless Holdings, LLC, a national messaging and wireless
                                                                                                                                                                                                    appointed Corporate Counsel. He has
    retailing company. As mentioned above, we believe the total ownership interests held by TDS, whether
                                                                                                                       Wireless telecommunications                                                  primary responsibility for all legal matters
    valued at publicly traded levels or at estimated private market values levels, are worth substantially more than
                                                                                                                                                                                                    that affect TDS and its subsidiaries.
                                                                                                                       businesses, including
    the current stock price of TDS.
                                                                                                                                                                                  Murray Swanson, Managing Director of Sonera Corporation
    Our two major ongoing operating businesses, U.S. Cellular and TDS Telecom, delivered outstanding
                                                                                                                       U.S. Cellular, saw sharp                                   U.S., who served as TDS’s Chief Financial Officer until 1998
    growth in 1999. U.S. Cellular rapidly grew its customer base during 1999, adding over 400,000 net new
                                                                                                                                                                                  and who has continued to serve on our Board of Directors,
                                                                                                                       increases in market value
    customers, which drove a 22% increase in service revenues and a 27% increase in operating cash flow. U.S.
                                                                                                                                                                                  plans to leave the Board upon completion of the Aerial
    Cellular initiated a major branding and advertising campaign to solidify its position as a leading wireless
                                                                                                                       in 1999.                                                   merger with VoiceStream. We thank him for his many
    carrier in the United States. U.S. Cellular’s ability to grow its customer base during 1999, from 8.8% of
                                                                                                                                                                                  contributions to TDS.
    population served to 10.4% of population served, reflects the strength of its sales activities and distribution
    channels as well as the quality of its network. Its rapid growth also reflects the worldwide trend toward ever
                                                                                                                                    Strategic Considerations
    greater use of wireless communications. Penetration rates for wireless service in the United States still lag
                                                                                                                                    The merger of Aerial with VoiceStream will enable TDS to redirect its cash flow, used for the past several
    some other parts of the world. Analysts who follow the industry are now projecting wireless telephone
                                                                                                                                    years to support Aerial, to other purposes. As we consider how to deploy our future cash flow, we plan to
    service penetration in the United States to grow from about 30% currently to 70% by 2007, and to exceed
                                                                                                                                    intensify our focus on growing our existing businesses. We are committed to delivering on our mission of
    100% or more in later years as wireless functionality is incorporated into devices such as laptop computers
                                                                                                                                    providing outstanding telecommunications services to our customers, and thereby creating additional value for
    and personal digital assistants.
                                                                                                                                    our shareholders, improving growth opportunities for our employees, and promoting the economic well-being
    1999 saw an increase in the number and popularity of nationwide calling plans offered by large wireless                         of the communities we serve.
    carriers. These carriers rely on the networks of regionally based carriers, like U.S. Cellular, to enable their
    customers to roam throughout the country. Additional roaming revenues generated by increasing usage by
    these large carriers’ customers helped spur U.S. Cellular’s revenue growth.



4                                                                                                                                                                                                                                                    5
scope of service                                                                             Chairman and
                                                                       United States Cellular Corporation Operations
                              TDS Corporate Headquarters
                                                                       TDS Telecommunications Corporation Operations
                              Chicago, Illinois
                                                                                                                                                                                                                                                    President’s Message

                        WA                                                                                                                               • In evaluating potential acquisitions for TDS Telecom, our development team is seeking properties that will
                                                                                                                                                  ME
                                                                                                                                                           fit well with existing TDS Telecom clusters. We also look for opportunities for TDS Telecom to add value
                                                                                                                                        VT                 by working synergistically with U.S. Cellular. For example, Southeast Telephone Company, which we
                                                                                           MI
                                                                                                                                             NH
                                                                          MN
                                ID                                                                                                                         recently agreed to acquire, adjoins another TDS Telecom ILEC property and is also within U.S. Cellular’s
                                                                                          WI
                   OR
                                                                                                                                   NY
                                                                                                  MI                                                       Wisconsin footprint. Its customers will be able to select a wide array of wireline and mobile services from
                                                                                                                                                           TDS Telecom and U.S. Cellular. Similarly, our eagerness to expand TDS Metrocom in Wisconsin is
                                                                                                                                  PA
                                                                                                                                                           influenced not only by its success in Madison, Green Bay and the Fox River Valley, but also by the potential
                                                                                                              OH
                                                                               IA
                                                                                                                              MD                           for synergies with U.S. Cellular.
                                                                                                   IN
                                                                                            IL
                                                                                                                                  VA
                                                                                                                   WV                                    • We are determined to deploy our capital in the most advantageous manner and thereby produce good
                                                       CO
                                                                                                                                                           returns for our shareholders. All new business opportunities, including acquisitions, that are made by our
                                                              KS                    MO                   KY
              CA
                                                                                                                                                           business units must meet our discounted future cash flow and return on capital objectives.
                                                                                                                        NC
                                                                                                    TN
                                         AZ
                                                                                                                                                         • Take advantage of opportunities in the market to repurchase TDS and U.S. Cellular stock at attractive
                                                                 OK                                                 SC
                                                                                     AR
                                                                                                                                                           prices. In 1999, we repurchased 664,410 TDS Common Shares at an average price of $121.18 per share.
                                                                                                              GA                                           In early 2000, we announced two new programs: for TDS to repurchase 2,000,000 TDS Common Shares
                                                                                                   AL
                                                                                            MS
                                                                                                                                                           and for U.S. Cellular to repurchase 1,400,000 U.S. Cellular Common Shares. We believe that TDS and
                                                                                                                                                           U.S. Cellular still represent two of the most compelling values in the telecommunications industry. These
                                                            TX
                                                                                                                                                           programs will be implemented as market conditions and opportunities warrant.
                         HI
                                                                                                                                                         Conclusion
                                                                                                                             FL
                                                                                                                                                         We thank you, our shareholders, customers and employees, for your loyal and vigorous support in 1999. We
                                                                                                                                                         will stay firmly focused on our growth and value creation course. We will continue to aggressively search for
                                                                                                                                                         significant opportunities to grow our revenues, customers, cash flow and return on investment through
                                                                                                                                                         attractive acquisitions and trades, and by providing our customers with outstanding telecommunications
Through its strategic business                                        We are striving to:                                                                services and customer care. We look forward to continuing to build substantial long-term shareholder value
                                                                                                                                                         and earning your continued support.
                                                               • Offer our customers ever-improved services. We
units, TDS provides telecommu-
                                                                 are making substantial capital investments to
nications services to smaller                                    improve the quality and variety of our services. We                                     Cordially yours,
                                                                 are determined to keep outstanding customer
and mid-sized markets.                                           service a distinguishing feature of our businesses.
                                                                 We are also continuously improving the quality of
       • our telecommunications networks. For example, U.S. Cellular is accelerating the roll-out of its digital
         networks, which have been so well received by our customers. By year-end 1999, 22% of our cellular                                              LeRoy T. Carlson, Jr.
         customers used digital services, and we anticipate that 40% of the cellular customer base will use digital                                      President and Chief Executive Officer
         services by the end of 2000. TDS Metrocom has successfully sold over 500 lines of new high-speed digital
         subscriber line, or DSL, technology. Plans are also underway to offer high-speed DSL service in several of
         our ILEC markets. We are continuing to convert USLink customers to our own switch facilities, which
         will help to improve service and profitability.

            • Find expansion opportunities in growth markets where our expertise allows us to offer very competitive
                                                                                                                                                         LeRoy T. Carlson
              service-value propositions. These markets are typically the smaller and mid-sized markets of the United
                                                                                                                                                         Chairman
              States. An important factor in our search for new cellular markets is our determination to strengthen our
              existing footprint through purchases of, or trades for, properties contiguous to our existing clusters.
              Proximity allows us to more economically offer ever wider geographic roaming plans to our customers,
              and to take greater advantage of existing advertising programs and distribution channels.


6                                                                                                                                                                                                                                                                         7
2.6 million customers                                                                                                            U.S. Cellular


                                            On behalf of all             We expect to reach the three-million-customer milestone in late 2000 or early 2001, a little more than two
                                                                         years after adding our two millionth customer in late 1998.

                                            of the associates            Fueled by strong customer growth, U.S. Cellular achieved record levels of revenues and operating cash flow
                                                                         in 1999. Revenues increased 22% to over $1.4 billion and combined with continuing operating efficiencies
                                                                         to drive a 27% increase in operating cash flow, which totaled $486 million for the year. Both of these results
                                            at U.S. Cellular,            exceeded our targets for the year.

                                                                         Embracing Change
                                            we are proud to              Our ability to turn revenues into profits results from our customer focus together with a commitment to
                                                                         continuing improvement that helps us to compete in our dynamic industry. Our customer-centered approach

                                            report the excellent         drives our success, whether we are developing new products to increase the value of our service or improving
                                                                         our systems to enhance the quality of service we provide our customers. On the following pages, we will
    H. Donald Nelson
                                                                         highlight some examples of our customer focus and describe how our customer service techniques have
                                            results our team
    President and Chief Executive Officer
                                                                         evolved to address the rapid changes in our business.
    United States Cellular Corporation
                                                                                                                                                SM
                                                                         During 1999, we changed our brand name and logo to U.S. Cellular (see inset photo) from United States
                                            produced in 1999.            Cellular ®. This new brand and logo signify to our customers and associates that we operate as one unified
                                                                                                                                           SM
                                                                         brand and company across all our markets. Our new U.S. Cellular logo with the accompanying star is simpler
                                                                                                                 and bolder than the old logo. Our tag line, “The Way People Talk
                                            We added over                                                        Around Here ,” has not changed, nor has its meaning to our
                                                                                                                                 SM




                                                                                                                 associates and customers. We still strive to project the same image

                                            400,000 net new                                                      of quality our brand has always represented.

                                                                                                                  Our name is only one visible reminder of our brand. Our associates

                                            customers during                                                      and their actions represent the U.S. Cellular brand to our
                                                                                                                  customers, reinforcing our image every day. The key to our
                                                                                                                  reputation as a quality service provider is the individual treatment
                                            the year, ending                                                      our associates give each customer. Our associates are trained to be
                                                                                                                  flexible: to provide each customer with the best, most personal

                                            the year with                                                         service through whatever technology the customer chooses.
                                                                                                                  Whether our customers prefer dealing with U.S. Cellular in
                                                                                                                  person, over the phone, by mail, through an interactive voice
                                            over 2.6 million                                                      response (“IVR”) system, or through the Internet, we strive to
                                                                                                                  satisfy each customer’s needs on the first contact.

                                            customers.                                                            Matching Solutions to Customers’ Needs
                                                                                                                  Our associates recognize each customer’s needs and match the service
                                                                                                                  solution to meet or exceed those needs. Each interaction with a
                                                                   Although our logo has                          customer is an opportunity to provide a solution tailored to that
                                                                   changed, providing                             customer in the friendliest, most professional manner.

                                                                                                                  Examples of such day-to-day customer contacts include: 1) changing
                                                                   excellent service to                           a pricing plan to better fit a customer’s calling patterns, 2) upgrading
                                                                   our customers has                              a customer to a digital handset and service plan to meet that
                                                                                                                  customer’s desire for better roaming capabilities or better rates,
                                                                   remained a top priority.                       and 3) exchanging a wireless phone from a vehicle for a portable


2                                                                                                                                                                                              3
a special kind of                                                                                                 U.S. Cellular



                                                                                                      connection
            handset to allow the customer more flexibility in using his or her service. Contacts
            may also be more urgent: customers may need 911 emergency service, roadside
            assistance when a car breaks down, or community assistance during adverse weather
            conditions. In each case, our associates use U.S. Cellular’s services to improve the
            quality of our customers’ lives.

            Our North Carolina associates had firsthand experience with adverse weather
            conditions last September, when Hurricane Floyd dropped twenty inches of rain on
            our service territory in one day. U.S. Cellular associates worked around the clock for
            five days to maintain our wireless service at a time when it was often the only method
            of communication available. U.S. Cellular associates helped other flood victims by
            providing wireless phones, relief funds and supplies to those in need, despite the fact
            that many of our associates suffered their own losses during the storm.

                                                      U.S. Cellular’s commitment to quality
                                                      customer service includes a number of com-
                                                      munity programs. In addition to general
                                                      information on how to safely use our
                                                      services, we offer learning tools to school-
                                                      children and provide specific assistance to
                                                      the homeless, to abuse victims and to
                                                      police support groups. Our involvement
                                                      in these programs enables us to enrich the
                                                      communities that support our business
                                                      while enhancing our brand image.
Our associates resolve
                                               Using Communications Centers and
                                               Technology Changes to Improve
problems and answer
                                               Customer Service
customers’ questions                           Our customer service function has
                                               undergone tremendous change in the past
quickly with the state-of-                     few years. The biggest change has been
                                               the transfer of customer service to our five
the-art technology in our                      regional Communications Centers, which
Communications Centers.                        served nearly 90% of our customers
                                               as of year-end 1999. The state-of-the-art
       technology in these Communications Centers gives associates quick access to
       customer information, which helps them to resolve problems and answer customer
       questions rapidly and cost effectively.

            The most important technological improvement in our Communications Centers
            is our new billing and customer information system, the Customer Acquisition and
            Retention System (“CARES”). As of year-end 1999, CARES served approximately
                                                                                                       Customers in our retail stores receive communications
            two-thirds of our customers. As a near-real-time system, CARES enables our
            associates to access customer account information more quickly, thus increasing
                                                                                                       solutions tailored to their needs from friendly,
            their ability to answer customer questions on the first contact. CARES also allows

                                                                                                       professional U.S. Cellular associates.
4                                                                                                                                                                         5
hometown service                                                                                                                                            Markets Currently Owned and Managed
                                                                                                                                     United States Cellular Corporation
                                                                                                                                                                                                                                                                                                                                                                          U.S. Cellular
                                                                                                                                     Corporate Headquarters, Chicago, Illinois




                                                                                                                                                   WA                                                                                                                                                                                                                                    ME
            for better analysis and earlier detection of customer service issues. As a result, our associates are able to make                 82
                                                                                                                                                              90
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                                                                                                                                                                                                                                                                                                                                                                                          95
            changes to customer records more quickly.                                                                                               82
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                                                                                                                                              84
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            Our Communications Centers are home to a host of other technological improvements that enhance                                               84
                                                                                                                                                                                                                                                                                                                                                                                     NH
                                                                                                                                                                                                                                                                                                                                                                               91

                                                                                                                                                                   ID
                                                                                                                                 5
                                                                                                                                         OR
            customer service. Our IVR system enables customers to receive answers to certain questions without directly                                                                                                                               WI
                                                                                                                                                                                                                                                                       43
                                                                                                                                                                                                                                                 94
                                                                                                                                                                             15
            contacting our customer service associates. This technology improves our response time to customer                                                                                                                                                                                                                                                  81
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                                                                                                                                                                        86                                                                                        94
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                                                                                                                                                                                                                                                                                                                                               PA
                                                                                                                                                                                                                                                            90
            questions while reducing phone traffic into the Communications Centers for those customers who choose                                                                                                                                                  43
                                                                                                                                                                                                                                       35                                                                                 90                                          295
                                                                                                                                                                                                                                                                                                                                                               81
                                                                                                                                                                                                                                                                                                                                              80
                                                                                                                                                                                                                                                                                                         80
                                                                                                                                                                                                                                  IA             380                                                     90                     79
                                                                                                                                                                                                                                                                 88
            to talk to a live person. Our Internet web site, www.uscellular.com, has a separate “Ask Us” section which
                                                                                                                                                                                                                                                                                   80                                                                     76
                                                                                                                                                                                                                                                                                                                        77
                                                                                                                                                                                                                                                                                   90
                                                                                                                                                                                                                                                                                                         OH
                                                                                                                                                                                                                        29
                                                                                                                                                                                                                                            80                                                                                                           70
                                                                                                                                                                                                                                                                                                   75
                                                                                                                                                                                                                                                                 IL                     IN                                                                           MD
                                                                                                                                 5
                                                                                                                                                                                                                                                                                                              70
                                                                                                                                                                                                                                                                                  65
            allows customers to send questions and receive answers via e-mail. Each of these technological                                                                                                                                                                  74
                                                                                                                                                                                                                                                                                                                                                               95
                                                                                                                                                                                                                                                                                                                        WV
            improvements gives our customers additional flexibility in the way they do business with us.                                                                                                                                                                                                                                             VA
                                                                                                                                                                                                                                                                  70
                                                                                                                                                                                                                                  35
                                                                                                                                                                                                                                                                                                                         64
                                                                                                                                                                                                                                                                                                                               77
                                                                                                                                                                                                                   70                                                        64
                                                                                                                                                                                                                                            MO
                                                                                                                                       CA                                                              KS                    35

            All of our customer service centers have added another type of tool, computer telephony integration                                                                                                                                                                                                                                           85
                                                                                                                                                                                                                                                                                                                               81
                                                                                                                                                                                                                                                                        24

                                                                                                                                                                                                                                                                                                                               NC
                                                                                                                                                                                                                                                                                             40                                                40
                                                                                                                                                                                                                                                                 55
            (“CTI”), to their resources. CTI technology enables our customer service associates to view specific                                                                                                                                                                                    75
                                                                                                                                                                                                                                                                                       TN                                                77
                                                                                                                                                                                                                                  44
                                                                                                                                                                                                                                                                                              24
                                                                                                                                                                                                                                                                        40                                                     26
            customer account information as each customer calls in. This shortens the length of time spent on each call                                                                                 OK         35
                                                                                                                                                                                                                                                                                                                                     SC             95
                                                                                                                                                                                                                                                                                                                                    20

            and allows us to route the caller to the customer service representative best equipped to handle the call. We                                                                    40               44
                                                                                                                                              5

                                                                                                                                                                                                                                                                                                                        GA
                                                                                                                                                                                                                                                                                                                   75
            use predictive dialing for various phone campaigns, including courtesy calls to welcome new customers and                                                                                                   35



            to remind customers whose contracts will soon be due for renewal. Overall, recent technological advances
                                                                                                                                                                                                  TX
                                                                                                                                                                                   10                                                                                                                               10
                                                       have greatly enhanced our ability to provide outstanding customer
                                                       service, thereby vastly improving the overall value of our product.                                                                        10
                                                                                                                                                                                                                                                                                                                                                    95
                                                                                                                                                                                                                                                                                                                                         75

                                                                                                                                                                                                                                                                                                                                               FL
                                                                                                                                                         HI                                              10

                                                       We recently introduced a customer service program that rewards                                                                              35



                                                       our best customers with benefits that are important to them.
                                                       Extras such as a separate customer service hotline, discounts on
                                                       accessories and upgrades, and free bonus minutes are included in
                                                       the customer service packages offered in this program. Such
                                                                                                                                                                                                                        Our clustering and partnering
                                                       benefits have enabled us to retain our most valuable customers as                                 Positioning for the Future
                                                       we face increasing levels of competition. Based on this success, we                               The success we achieved in 1999 was a direct result of our
                                                                                                                                                                                                                        strategies have enabled us
                                                       will soon be implementing similar programs for other high-value                                   focus on the customer. High-quality customer service,
                                                       or high-potential customer segments.                                                              implementation of new technologies and improved
                                                                                                                                                                                                                        to offer larger home service
Our new customer                                                                                                                                         network quality drove this success. Net new customer
                                                       Focusing on Network Quality
                                                                                                                                                                                                                        areas to our customers.
                                                                                                                                                         additions from our marketing channels totaled 404,000
information system                                     As the wireless marketplace becomes more crowded, one of the
                                                                                                                                                         in 1999, meeting our target of a 1.6% increase in
                                                       ongoing challenges we face is distinguishing U.S. Cellular’s brand of
                                                                                                                                                         incremental penetration during the year. An emerging segment, customers using our TalkTracker® prepaid
allows our associates                                  service from that of our competitors. To that end, we are focusing on
                                                                                                                                                         service, represented 10% of our gross customer additions in 1999. We greatly increased the number of
                                                       the aspects of wireless service our customers have told us they
to better serve our                                                                                                                                      customers using our digital services during 1999. Overall, prepaid users and digital users represented 3% and
                                                       consider most important—large service areas and system reliability.
                                                                                                                                                         22%, respectively, of our customer base at year-end.
customers by accessing                           Our clustering and partnering strategies have enabled us to offer
                                                                                                                                                         We also enjoyed a stable churn rate, which, for the fourth consecutive year, remained under 2% for our
                                                 larger home service areas to our customers than would otherwise be
information faster.                                                                                                                                      postpay customers. Monthly system operations expense per customer declined significantly and general and
                                                 possible. We continue to evaluate the local service territories we
                                                                                                                                                         administrative expense per customer remained constant during 1999. These metrics remain among the most
                                                 offer and make changes as necessary. Consolidation and competition
                                                                                                                                                         important measures of our success, and we will strive to keep improving them in the future.
       in the wireless industry in recent years has increased our competitors’ service footprints, putting a premium
                                                                                                                                                         With the help of our 4,800 dedicated associates, we plan to expand our customer base as well as our revenues
       on our ability to compete on the basis of service territory.
                                                                                                                                                         and profitability. At the same time, we remain committed to improving the quality of service we deliver to
            With 2,300 cell sites in service and an increasing number of cell sites with digital capabilities, network quality
                                                                                                                                                         our customers. Further improvements through the use of CARES, together with the growing expertise of
            is one of our best selling points. At year-end 1999, all of our clusters had digital capabilities and 35% of the
                                                                                                                                                         the associates in our Communications Centers, will ensure that our customers continue to receive the
            minutes used on our systems were on our digital network. In 2000 and beyond, we plan to add new cell sites
                                                                                                                                                         highest quality service possible.
            to improve coverage and to rapidly extend our digital capabilities to more of our service areas.

6                                                                                                                                                                                                                                                                                                                                                                                              7
service reliability                                                                                                       TDS Telecom


                                            TDS Telecom posted            Our focus on expense management and return on capital produced strong improvements in operating cash
                                                                          flow, which grew over $32 million, or 16%, over 1998.

                                            strong financial              The number of total access lines grew by over 11% while revenues grew to over $545 million, a 12% increase
                                                                          over 1998. TDS Telecom’s CLEC ventures saw explosive growth in 1999. TDS Metrocom, our facilities-
                                                                          based CLEC headquartered in Madison, Wisconsin, more than doubled in size in 1999, growing from
                                            growth in 1999.               11,800 lines in 1998 to 30,700 lines in 1999. The USLink CLEC operation based in Pequot Lakes,
                                                                          Minnesota, saw similar increases, growing from 22,300 lines in 1998 to 43,400 lines in 1999. We began

                                            Our successes were            converting the Pequot Lakes operation, which has resold services from the local ILEC, to a mostly facilities-
                                                                          based CLEC operation in 1999 and will continue the conversion in 2000.

                                                                          TDS Telecom’s strong performance results from successful implementation of a three-part strategy: 1) grow
                                            driven by the                 and strengthen core local telephone, or ILEC, business, 2) leverage strengths into attractive markets, and
    James Barr III                                                        3) create a robust line of data products and services to sell in our existing and new markets. Unwavering focus

                                            extraordinary growth
    President and Chief Executive Officer                                 on customer service as evidenced by our commitment to state-of-the-art technology remains at the core of
    TDS Telecommunications Corporation                                    our business strategy.

                                            of our competitive            Extraordinary Customer Service
                                                                          At TDS Telecom, it all starts and ends with the customer. We realize that attracting new customers is just a
                                                                          first step. The real challenge lies in keeping existing customers. Our dedication begins when a customer first
                                            local exchange                contacts us. We answer 70% of our calls in 20 seconds or less. In almost every case, a Customer Sales and
                                                                                                                      Service Representative, not a recording, offers detailed consultation

                                            carrier (“CLEC”)                                                          and provides customer-focused solutions. New product installations
                                                                                                                      are completed in days instead of the weeks it often takes larger,
                                                                                                                      somewhat more impersonal companies.
                                            ventures, TDS                                                           TDS Telecom’s fast response times and personal service come from
                                                                                                                    our commitment to local presence and to innovation. We maintain
                                            Metrocom and USLink,                                                    sales and service offices in 109 ILEC locations across the United
                                                                                                                    States. By staying close to our customers, we are able to offer

                                            and continued                                                           fast, personal service on the terms our customers want, whether
                                                                                                                    in person, by phone, by mail, or electronically. We are pleased
                                                                                                                    to report that our Internet web sites www.tdstelecom.com,
                                            strong performance                                                      www.tdsmetro.com and www.uslink.com, which offer e-commerce
                                                                                                                    and on-line ordering capabilities, contact information and self-help
                                                                                                                    options, became increasingly popular in 1999.
                                            from our incumbent                                                      We demonstrated our commitment to innovation in customer
                                                                                                                    service last year by completing the deployment of our Virtual
                                            local exchange                                                          Business Office (“VBO”). VBO enables us to maintain our local
                                                                                                                    offices while still offering our customers the efficiencies of a
                                                                   We offer a broad range
                                            carrier (“ILEC”)                                                        centralized call center. This initiative uses computer telephony
                                                                                                                    integration technology to join offices together into regional
                                                                   of data products and                             clusters. Customers who call into their local sales and service office
                                            business activities.   services to our customers,                       are automatically transferred to another office in their area if all
                                                                                                                    lines are busy. TDS Telecom customer service representatives are
                                                                   including WebTV Internet.                        trained to assist customers regardless of where the calls originate.

8                                                                                                                                                                                             9
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telephone data systems 99AR

  • 1. allfor thecustomer technology and service. Telephone and Data Systems, Inc. United States Cellular Corporation TDS Telecommunications Corporation 1999 Annual Report
  • 2. all for the customer Telephone and Data Systems, Inc. Percent change United States Cellular Corporation Financial Highlights 1999 1998 from 1998 (Dollars in thousands, except per share amounts) United States Cellular Operating Revenues Corporation [AMEX: USM] U.S. Cellular $ 1,417,181 $ 1,162,467 22% is TDS’s 80.7%-owned TDS Telecom 545,917 488,104 12 cellular telephone subsidiary. $ 1,963,098 $ 1,650,571 19 U.S. Cellular and TDS own Net Income from Continuing Operations $ 314,151 $ 201,399 56 cellular interests representing Net Income from Continuing Operations 26.4 million population Available to Common 313,004 199,748 57 equivalents in 180 markets. Basic Earnings Per Share U.S. Cellular’s 139 majority- from Continuing Operations 5.09 3.28 55 owned and managed markets Diluted Earnings Per Share from Continuing Operations 5.02 3.22 56 have 2,602,000 cellular Dividends Per Share $ .46 $ .44 5 telephones in service. Weighted Average Common Shares (000s) 61,436 60,982 1 Common Stockholders’ Equity $ 2,483,101 $ 2,237,908 11 Return on Equity 13.3% 9.5% 40 TDS Telecommunications Corporation Telephone and Data Systems, Inc. Capital Expenditures $ 399,631 $ 463,543 (14) Total Assets $ 5,375,828 $ 5,042,604 7 [AMEX: TDS] is a diversified TDS Telecommunications Cellular Customers 2,602,000 2,183,000 19 Corporation (“TDS Telecom”) telecommunications company with Telephone Access Lines is TDS’s wholly-owned ILEC 571,700 547,500 4 telephone subsidiary. TDS cellular telephone and telephone CLEC 74,100 34,100 117 Telecom operates in 28 states Common Share Record Owners 2,845 3,947 (28) operations. At December 31, 1999, with 104 telephone companies, Total Employees 8,153 8,014 2 which serve 547,500 access TDS provided high-quality telecom- lines, and two competitive Our 1999 Annual Report Table of Contents local exchange carriers, which munications services to 3.2 million serve 74,100 access lines. focuses on Customer Care, a leading differentiator About Your Company 1 customers in 35 states. TDS’s for TDS. Through its strategic business units, TDS Chairman and President’s Message 2 offers big city services to rural, suburban and U.S. Cellular Operations 8 business development strategy is smaller city customers. Following the message TDS Telecom Operations 14 Associated Service Companies from the Chairman and President, we highlight Aerial Operations 20 to expand its existing operations what each business unit is doing to care for their Board of Directors and Officers 22 through internal growth and customers today and in the future. Company Management 24 TDS also operates service Selected Consolidated Financial Data 26 subsidiaries which provide acquisitions and to explore and Management’s Discussion 27 custom printing and other Consolidated Financial Statements 42 products and services. develop other telecommunications Notes to Consolidated Financial Statements 47 businesses that management Report of Management 66 Report of Independent Public Accountants 66 believes utilize TDS’ expertise in s Consolidated Quarterly Income Information 67 Eleven-Year Summaries 68 customer-based telecommunications. Shareowners’ Information 72 2
  • 3. strong growth Chairman and President’s Message Dear Fellow These results were in large part due to our employees’ unwavering focus on customer satisfaction. Customer care and satisfaction is a core value on which TDS was founded, and remains a critical differentiation factor Shareholders: for our company in an increasingly competitive marketplace. A strong business franchise and optimal operating results come directly from close attention to satisfying our customer base, which is the theme of this year’s annual report. Telephone and Data On September 17, 1999, TDS approved a plan for the merger of Aerial Communications, Inc. with VoiceStream Wireless Corporation. Shareholders of Aerial, including TDS, will receive 0.455 shares of Systems, Inc. marked VoiceStream for each share of Aerial stock they own. The market value for the shares TDS will receive was $4.7 billion on February 29, 2000, based on our projected ownership of 35.6 million shares, or about 14% of VoiceStream when the merger is concluded. The transaction represents the culmination of a process we its 30th anniversary initiated in December 1998 when we announced that we intended to pursue a spin-off of TDS’s ownership in Aerial to its shareholders while exploring other alternatives. Although we believe that we could have on January 1, 1999, achieved a successful spin-off of Aerial, this merger represents a preferable outcome because it allows Aerial to participate in the consolidation taking place among those PCS wireless companies using Global Systems for Mobile Communications, or GSM, technology. GSM technology is the leading digital wireless standard and our 31st year in the world today, and the merger of Aerial and VoiceStream (which also merged with Omnipoint Corporation in early 2000) will create the The market price of TDS’ stock s only national company in the United States was another year of LeRoy T. (“Ted”) Carlson, Jr. which uses GSM technology—a unique President and Executive Officer reached a record high during 1999. asset. VoiceStream is an exceptionally well- outstanding financial managed company, and is well-positioned to LeRoy T. Carlson Chairman incorporate Aerial’s many strengths into its Telephone and Data Systems, Inc. ongoing development. We believe the performance. We posted merger of the two companies presents a clear opportunity to create very large excellent 19% growth economies of scale and to maximize Aerial and TDS shareholder values. The merger of Aerial with VoiceStream was approved by in operating revenues Aerial and VoiceStream shareholders on February 24, 2000, and is planned to be together with an completed in the second quarter of 2000, subsequent to approval by the Federal Communications Commission. equally impressive Rapid growth in the number of customers and larger footprints offered to those customers are major trends that affected the wireless industry in 1999. Another trend is much higher customer expectations 23% growth in about the types of and performance standards for communications technology, especially wireless communications. This latter trend is very closely linked to the growth of the Internet and other data services, which will continue to exert a major impact on every facet of the telecommunications industry. operating cash flow. The combined effect of all these and other telecommunications industry trends was a sharp increase in the values of wireless telecommunications businesses in 1999. 2 3
  • 4. strategic direction Chairman and President’s Message The increase in our stock price was striking even after taking into account the strength of the wireless TDS Telecom posted a 7% revenue growth and a 14% operating cash flow growth in its core local exchange industry. The market has begun to recognize the values we have created in both wireless and wireline. Our (quot;ILECquot;) business in 1999. TDS Telecom succeeded in expanding its Internet service provider offering to TDS stock, together with the stocks of our two publicly traded subsidiaries, U.S. Cellular and Aerial, 60,400 customers by year-end. TDS Telecom’s CLEC ventures also achieved outstanding results. TDS recorded record highs last year. At year-end, TDS posted a 180% increase in share price for the 12 months, Metrocom, based in Wisconsin, and USLink, based in Minnesota, grew revenues over 300% and 42%, while gains at U.S. Cellular and Aerial were 166% and 936%, respectively. respectively. This dramatic growth strengthens our conviction that major value-creating opportunities will continue to come from our CLEC activities and our determination to create additional shareholder value by While the substantial increase in the price of TDS stock in 1999 is most welcome, we believe that there is aggressively building promising new businesses in telecommunications. still a substantial gap between the stock market’s valuation of TDS and the future potential of our company. During 2000 and beyond, we will continue to work diligently to grow TDS’s real value and close TDS Metrocom and USLink are winning in the competitive marketplace through focused sales and the gap between stock market value and true economic value. Our strong operating performance and marketing and by building their markets in a timely, cost-efficient manner. We are currently reviewing plans substantial operating cash flow, coupled with sizable equity positions in high-quality, publicly traded to expand TDS Metrocom into several additional markets that fit well with its existing cluster of operations. telecommunications companies, should lead to higher values over time than the stock market currently has Transitions awarded either TDS or U.S. Cellular. United States Cellular Corporation Michael Jack joined TDS as Vice President TDS’s major assets now include majority positions in U.S. Cellular and Aerial, both of which are publicly and Corporate Controller in November traded, as well as TDS Telecom, our wholly-owned wireline subsidiary, and its two competitive local exchange 1999, after a long and successful career with (quot;CLECquot;) operations: TDS Metrocom and USLink. Our ownership in Aerial will, as we have mentioned, Cummins Engine Company, Inc. Greg become a significant equity stake in VoiceStream once the Aerial/VoiceStream merger is completed. Wilkinson, our former controller, was appointed Vice President and Corporate Through our U.S. Cellular and TDS Telecom subsidiaries, we also hold a substantial position in Vodafone Secretary, with additional responsibilities in AirTouch plc, the European-based, worldwide mobile phone giant. This position had a value of $641 million contract management. Michael Hron, a long at December 31, 1999. Our publicly traded portfolio is further diversified with stock holdings in Rural time partner with our primary law firm, and Cellular Corporation (a rural cellular provider that operates in the upper Midwestern and Northeastern important contributor to the Company’s United States) and in Illuminet Holdings, Inc., a leading United States provider of network services. TDS success over the years, has been formally also has a 30% stake in privately held TSR Wireless Holdings, LLC, a national messaging and wireless appointed Corporate Counsel. He has retailing company. As mentioned above, we believe the total ownership interests held by TDS, whether Wireless telecommunications primary responsibility for all legal matters valued at publicly traded levels or at estimated private market values levels, are worth substantially more than that affect TDS and its subsidiaries. businesses, including the current stock price of TDS. Murray Swanson, Managing Director of Sonera Corporation Our two major ongoing operating businesses, U.S. Cellular and TDS Telecom, delivered outstanding U.S. Cellular, saw sharp U.S., who served as TDS’s Chief Financial Officer until 1998 growth in 1999. U.S. Cellular rapidly grew its customer base during 1999, adding over 400,000 net new and who has continued to serve on our Board of Directors, increases in market value customers, which drove a 22% increase in service revenues and a 27% increase in operating cash flow. U.S. plans to leave the Board upon completion of the Aerial Cellular initiated a major branding and advertising campaign to solidify its position as a leading wireless in 1999. merger with VoiceStream. We thank him for his many carrier in the United States. U.S. Cellular’s ability to grow its customer base during 1999, from 8.8% of contributions to TDS. population served to 10.4% of population served, reflects the strength of its sales activities and distribution channels as well as the quality of its network. Its rapid growth also reflects the worldwide trend toward ever Strategic Considerations greater use of wireless communications. Penetration rates for wireless service in the United States still lag The merger of Aerial with VoiceStream will enable TDS to redirect its cash flow, used for the past several some other parts of the world. Analysts who follow the industry are now projecting wireless telephone years to support Aerial, to other purposes. As we consider how to deploy our future cash flow, we plan to service penetration in the United States to grow from about 30% currently to 70% by 2007, and to exceed intensify our focus on growing our existing businesses. We are committed to delivering on our mission of 100% or more in later years as wireless functionality is incorporated into devices such as laptop computers providing outstanding telecommunications services to our customers, and thereby creating additional value for and personal digital assistants. our shareholders, improving growth opportunities for our employees, and promoting the economic well-being 1999 saw an increase in the number and popularity of nationwide calling plans offered by large wireless of the communities we serve. carriers. These carriers rely on the networks of regionally based carriers, like U.S. Cellular, to enable their customers to roam throughout the country. Additional roaming revenues generated by increasing usage by these large carriers’ customers helped spur U.S. Cellular’s revenue growth. 4 5
  • 5. scope of service Chairman and United States Cellular Corporation Operations TDS Corporate Headquarters TDS Telecommunications Corporation Operations Chicago, Illinois President’s Message WA • In evaluating potential acquisitions for TDS Telecom, our development team is seeking properties that will ME fit well with existing TDS Telecom clusters. We also look for opportunities for TDS Telecom to add value VT by working synergistically with U.S. Cellular. For example, Southeast Telephone Company, which we MI NH MN ID recently agreed to acquire, adjoins another TDS Telecom ILEC property and is also within U.S. Cellular’s WI OR NY MI Wisconsin footprint. Its customers will be able to select a wide array of wireline and mobile services from TDS Telecom and U.S. Cellular. Similarly, our eagerness to expand TDS Metrocom in Wisconsin is PA influenced not only by its success in Madison, Green Bay and the Fox River Valley, but also by the potential OH IA MD for synergies with U.S. Cellular. IN IL VA WV • We are determined to deploy our capital in the most advantageous manner and thereby produce good CO returns for our shareholders. All new business opportunities, including acquisitions, that are made by our KS MO KY CA business units must meet our discounted future cash flow and return on capital objectives. NC TN AZ • Take advantage of opportunities in the market to repurchase TDS and U.S. Cellular stock at attractive OK SC AR prices. In 1999, we repurchased 664,410 TDS Common Shares at an average price of $121.18 per share. GA In early 2000, we announced two new programs: for TDS to repurchase 2,000,000 TDS Common Shares AL MS and for U.S. Cellular to repurchase 1,400,000 U.S. Cellular Common Shares. We believe that TDS and U.S. Cellular still represent two of the most compelling values in the telecommunications industry. These TX programs will be implemented as market conditions and opportunities warrant. HI Conclusion FL We thank you, our shareholders, customers and employees, for your loyal and vigorous support in 1999. We will stay firmly focused on our growth and value creation course. We will continue to aggressively search for significant opportunities to grow our revenues, customers, cash flow and return on investment through attractive acquisitions and trades, and by providing our customers with outstanding telecommunications Through its strategic business We are striving to: services and customer care. We look forward to continuing to build substantial long-term shareholder value and earning your continued support. • Offer our customers ever-improved services. We units, TDS provides telecommu- are making substantial capital investments to nications services to smaller improve the quality and variety of our services. We Cordially yours, are determined to keep outstanding customer and mid-sized markets. service a distinguishing feature of our businesses. We are also continuously improving the quality of • our telecommunications networks. For example, U.S. Cellular is accelerating the roll-out of its digital networks, which have been so well received by our customers. By year-end 1999, 22% of our cellular LeRoy T. Carlson, Jr. customers used digital services, and we anticipate that 40% of the cellular customer base will use digital President and Chief Executive Officer services by the end of 2000. TDS Metrocom has successfully sold over 500 lines of new high-speed digital subscriber line, or DSL, technology. Plans are also underway to offer high-speed DSL service in several of our ILEC markets. We are continuing to convert USLink customers to our own switch facilities, which will help to improve service and profitability. • Find expansion opportunities in growth markets where our expertise allows us to offer very competitive LeRoy T. Carlson service-value propositions. These markets are typically the smaller and mid-sized markets of the United Chairman States. An important factor in our search for new cellular markets is our determination to strengthen our existing footprint through purchases of, or trades for, properties contiguous to our existing clusters. Proximity allows us to more economically offer ever wider geographic roaming plans to our customers, and to take greater advantage of existing advertising programs and distribution channels. 6 7
  • 6. 2.6 million customers U.S. Cellular On behalf of all We expect to reach the three-million-customer milestone in late 2000 or early 2001, a little more than two years after adding our two millionth customer in late 1998. of the associates Fueled by strong customer growth, U.S. Cellular achieved record levels of revenues and operating cash flow in 1999. Revenues increased 22% to over $1.4 billion and combined with continuing operating efficiencies to drive a 27% increase in operating cash flow, which totaled $486 million for the year. Both of these results at U.S. Cellular, exceeded our targets for the year. Embracing Change we are proud to Our ability to turn revenues into profits results from our customer focus together with a commitment to continuing improvement that helps us to compete in our dynamic industry. Our customer-centered approach report the excellent drives our success, whether we are developing new products to increase the value of our service or improving our systems to enhance the quality of service we provide our customers. On the following pages, we will H. Donald Nelson highlight some examples of our customer focus and describe how our customer service techniques have results our team President and Chief Executive Officer evolved to address the rapid changes in our business. United States Cellular Corporation SM During 1999, we changed our brand name and logo to U.S. Cellular (see inset photo) from United States produced in 1999. Cellular ®. This new brand and logo signify to our customers and associates that we operate as one unified SM brand and company across all our markets. Our new U.S. Cellular logo with the accompanying star is simpler and bolder than the old logo. Our tag line, “The Way People Talk We added over Around Here ,” has not changed, nor has its meaning to our SM associates and customers. We still strive to project the same image 400,000 net new of quality our brand has always represented. Our name is only one visible reminder of our brand. Our associates customers during and their actions represent the U.S. Cellular brand to our customers, reinforcing our image every day. The key to our reputation as a quality service provider is the individual treatment the year, ending our associates give each customer. Our associates are trained to be flexible: to provide each customer with the best, most personal the year with service through whatever technology the customer chooses. Whether our customers prefer dealing with U.S. Cellular in person, over the phone, by mail, through an interactive voice over 2.6 million response (“IVR”) system, or through the Internet, we strive to satisfy each customer’s needs on the first contact. customers. Matching Solutions to Customers’ Needs Our associates recognize each customer’s needs and match the service solution to meet or exceed those needs. Each interaction with a Although our logo has customer is an opportunity to provide a solution tailored to that changed, providing customer in the friendliest, most professional manner. Examples of such day-to-day customer contacts include: 1) changing excellent service to a pricing plan to better fit a customer’s calling patterns, 2) upgrading our customers has a customer to a digital handset and service plan to meet that customer’s desire for better roaming capabilities or better rates, remained a top priority. and 3) exchanging a wireless phone from a vehicle for a portable 2 3
  • 7. a special kind of U.S. Cellular connection handset to allow the customer more flexibility in using his or her service. Contacts may also be more urgent: customers may need 911 emergency service, roadside assistance when a car breaks down, or community assistance during adverse weather conditions. In each case, our associates use U.S. Cellular’s services to improve the quality of our customers’ lives. Our North Carolina associates had firsthand experience with adverse weather conditions last September, when Hurricane Floyd dropped twenty inches of rain on our service territory in one day. U.S. Cellular associates worked around the clock for five days to maintain our wireless service at a time when it was often the only method of communication available. U.S. Cellular associates helped other flood victims by providing wireless phones, relief funds and supplies to those in need, despite the fact that many of our associates suffered their own losses during the storm. U.S. Cellular’s commitment to quality customer service includes a number of com- munity programs. In addition to general information on how to safely use our services, we offer learning tools to school- children and provide specific assistance to the homeless, to abuse victims and to police support groups. Our involvement in these programs enables us to enrich the communities that support our business while enhancing our brand image. Our associates resolve Using Communications Centers and Technology Changes to Improve problems and answer Customer Service customers’ questions Our customer service function has undergone tremendous change in the past quickly with the state-of- few years. The biggest change has been the transfer of customer service to our five the-art technology in our regional Communications Centers, which Communications Centers. served nearly 90% of our customers as of year-end 1999. The state-of-the-art technology in these Communications Centers gives associates quick access to customer information, which helps them to resolve problems and answer customer questions rapidly and cost effectively. The most important technological improvement in our Communications Centers is our new billing and customer information system, the Customer Acquisition and Retention System (“CARES”). As of year-end 1999, CARES served approximately Customers in our retail stores receive communications two-thirds of our customers. As a near-real-time system, CARES enables our associates to access customer account information more quickly, thus increasing solutions tailored to their needs from friendly, their ability to answer customer questions on the first contact. CARES also allows professional U.S. Cellular associates. 4 5
  • 8. hometown service Markets Currently Owned and Managed United States Cellular Corporation U.S. Cellular Corporate Headquarters, Chicago, Illinois WA ME for better analysis and earlier detection of customer service issues. As a result, our associates are able to make 82 90 5 95 changes to customer records more quickly. 82 182 VT 84 93 89 Our Communications Centers are home to a host of other technological improvements that enhance 84 NH 91 ID 5 OR customer service. Our IVR system enables customers to receive answers to certain questions without directly WI 43 94 15 contacting our customer service associates. This technology improves our response time to customer 81 84 84 90 86 94 94 PA 90 questions while reducing phone traffic into the Communications Centers for those customers who choose 43 35 90 295 81 80 80 IA 380 90 79 88 to talk to a live person. Our Internet web site, www.uscellular.com, has a separate “Ask Us” section which 80 76 77 90 OH 29 80 70 75 IL IN MD 5 70 65 allows customers to send questions and receive answers via e-mail. Each of these technological 74 95 WV improvements gives our customers additional flexibility in the way they do business with us. VA 70 35 64 77 70 64 MO CA KS 35 All of our customer service centers have added another type of tool, computer telephony integration 85 81 24 NC 40 40 55 (“CTI”), to their resources. CTI technology enables our customer service associates to view specific 75 TN 77 44 24 40 26 customer account information as each customer calls in. This shortens the length of time spent on each call OK 35 SC 95 20 and allows us to route the caller to the customer service representative best equipped to handle the call. We 40 44 5 GA 75 use predictive dialing for various phone campaigns, including courtesy calls to welcome new customers and 35 to remind customers whose contracts will soon be due for renewal. Overall, recent technological advances TX 10 10 have greatly enhanced our ability to provide outstanding customer service, thereby vastly improving the overall value of our product. 10 95 75 FL HI 10 We recently introduced a customer service program that rewards 35 our best customers with benefits that are important to them. Extras such as a separate customer service hotline, discounts on accessories and upgrades, and free bonus minutes are included in the customer service packages offered in this program. Such Our clustering and partnering benefits have enabled us to retain our most valuable customers as Positioning for the Future we face increasing levels of competition. Based on this success, we The success we achieved in 1999 was a direct result of our strategies have enabled us will soon be implementing similar programs for other high-value focus on the customer. High-quality customer service, or high-potential customer segments. implementation of new technologies and improved to offer larger home service Our new customer network quality drove this success. Net new customer Focusing on Network Quality areas to our customers. additions from our marketing channels totaled 404,000 information system As the wireless marketplace becomes more crowded, one of the in 1999, meeting our target of a 1.6% increase in ongoing challenges we face is distinguishing U.S. Cellular’s brand of incremental penetration during the year. An emerging segment, customers using our TalkTracker® prepaid allows our associates service from that of our competitors. To that end, we are focusing on service, represented 10% of our gross customer additions in 1999. We greatly increased the number of the aspects of wireless service our customers have told us they to better serve our customers using our digital services during 1999. Overall, prepaid users and digital users represented 3% and consider most important—large service areas and system reliability. 22%, respectively, of our customer base at year-end. customers by accessing Our clustering and partnering strategies have enabled us to offer We also enjoyed a stable churn rate, which, for the fourth consecutive year, remained under 2% for our larger home service areas to our customers than would otherwise be information faster. postpay customers. Monthly system operations expense per customer declined significantly and general and possible. We continue to evaluate the local service territories we administrative expense per customer remained constant during 1999. These metrics remain among the most offer and make changes as necessary. Consolidation and competition important measures of our success, and we will strive to keep improving them in the future. in the wireless industry in recent years has increased our competitors’ service footprints, putting a premium With the help of our 4,800 dedicated associates, we plan to expand our customer base as well as our revenues on our ability to compete on the basis of service territory. and profitability. At the same time, we remain committed to improving the quality of service we deliver to With 2,300 cell sites in service and an increasing number of cell sites with digital capabilities, network quality our customers. Further improvements through the use of CARES, together with the growing expertise of is one of our best selling points. At year-end 1999, all of our clusters had digital capabilities and 35% of the the associates in our Communications Centers, will ensure that our customers continue to receive the minutes used on our systems were on our digital network. In 2000 and beyond, we plan to add new cell sites highest quality service possible. to improve coverage and to rapidly extend our digital capabilities to more of our service areas. 6 7
  • 9. service reliability TDS Telecom TDS Telecom posted Our focus on expense management and return on capital produced strong improvements in operating cash flow, which grew over $32 million, or 16%, over 1998. strong financial The number of total access lines grew by over 11% while revenues grew to over $545 million, a 12% increase over 1998. TDS Telecom’s CLEC ventures saw explosive growth in 1999. TDS Metrocom, our facilities- based CLEC headquartered in Madison, Wisconsin, more than doubled in size in 1999, growing from growth in 1999. 11,800 lines in 1998 to 30,700 lines in 1999. The USLink CLEC operation based in Pequot Lakes, Minnesota, saw similar increases, growing from 22,300 lines in 1998 to 43,400 lines in 1999. We began Our successes were converting the Pequot Lakes operation, which has resold services from the local ILEC, to a mostly facilities- based CLEC operation in 1999 and will continue the conversion in 2000. TDS Telecom’s strong performance results from successful implementation of a three-part strategy: 1) grow driven by the and strengthen core local telephone, or ILEC, business, 2) leverage strengths into attractive markets, and James Barr III 3) create a robust line of data products and services to sell in our existing and new markets. Unwavering focus extraordinary growth President and Chief Executive Officer on customer service as evidenced by our commitment to state-of-the-art technology remains at the core of TDS Telecommunications Corporation our business strategy. of our competitive Extraordinary Customer Service At TDS Telecom, it all starts and ends with the customer. We realize that attracting new customers is just a first step. The real challenge lies in keeping existing customers. Our dedication begins when a customer first local exchange contacts us. We answer 70% of our calls in 20 seconds or less. In almost every case, a Customer Sales and Service Representative, not a recording, offers detailed consultation carrier (“CLEC”) and provides customer-focused solutions. New product installations are completed in days instead of the weeks it often takes larger, somewhat more impersonal companies. ventures, TDS TDS Telecom’s fast response times and personal service come from our commitment to local presence and to innovation. We maintain Metrocom and USLink, sales and service offices in 109 ILEC locations across the United States. By staying close to our customers, we are able to offer and continued fast, personal service on the terms our customers want, whether in person, by phone, by mail, or electronically. We are pleased to report that our Internet web sites www.tdstelecom.com, strong performance www.tdsmetro.com and www.uslink.com, which offer e-commerce and on-line ordering capabilities, contact information and self-help options, became increasingly popular in 1999. from our incumbent We demonstrated our commitment to innovation in customer service last year by completing the deployment of our Virtual local exchange Business Office (“VBO”). VBO enables us to maintain our local offices while still offering our customers the efficiencies of a We offer a broad range carrier (“ILEC”) centralized call center. This initiative uses computer telephony integration technology to join offices together into regional of data products and clusters. Customers who call into their local sales and service office business activities. services to our customers, are automatically transferred to another office in their area if all lines are busy. TDS Telecom customer service representatives are including WebTV Internet. trained to assist customers regardless of where the calls originate. 8 9