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Telephone and Data Systems Inc.
         U.S. Cellular
         TDS Telecom




    Serving our customers over the decades




                                  2001 Annual Report
2001                     Annual Report             Serving our customers over the decades




                                                                                                      percent change
Financial Highlights                                           2001                           2000         from 2000
(Dollars in thousands, except per share amounts)

Operating Revenues
  U.S. Cellular                                           $ 1,894,830                 $ 1,716,640                 10%
  TDS Telecom                                                 693,712                     610,216                 14
                                                          $ 2,588,542                 $ 2,326,856                 11
Net Income (Loss) from Continuing Operations
 Excluding Gains (losses)                                 $ 168,111                   $    154,753                9
 From Gains (losses)                                        (336,359)                       (9,226)             n/m
                                                          $ (168,248)                 $    145,527              n/m
Basic Earnings per Share
  Continuing Operations                                   $     (2.87)                $        2.42             n/m

Diluted Earnings per Share
  Continuing Operations
     Excluding Gains (losses)                             $      2.86                 $        2.54               13
     From Gains (losses)                                        (5.73)                          (.15)           n/m
                                                          $     (2.87)                $        2.39             n/m
Dividends per Share                                       $        .54                $          .50               8
Basic Weighted Average Common Shares (000s)                    58,661                        59,922               (2)
Common Stockholders’ Equity                               $ 3,518,924                 $   3,936,067              (11)
Return on Average Equity                                          (4.5)%                         4.5%           n/m
Capital Expenditures                                      $ 700,150                   $     456,019               54
Total Assets                                              $ 8,046,792                 $   8,634,609               (7)
Cellular Customers                                          3,461,000                     3,061,000               13
Telephone Access Lines
  ILEC                                                        650,700                      601,200                 8
  CLEC                                                        197,200                      112,100                76
Common Share Record Owners                                      2,541                        2,669                (5)
Total Employees                                                 9,300                        8,859                 5

n/m - Percentage change not meaningful.




Table of Contents
About Your Company                                 01   Consolidated Financial Statements                         38
Chairman and President’s Message                   02   Notes to Consolidated Financial Statements                43
U.S. Cellular Operations                           06   Report of Management                                      62
TDS Telecom Operations                             12   Report of Independent Public Accountants                  62
Board of Directors and Officers                    18   Consolidated Quarterly Income Information                 63
Selected Consolidated Financial Data               22   Eleven-Year Summaries                                     64
Management’s Discussion                            23   Shareowners’ Information                                  68
Telephone and Data Systems, Inc.                                                                                U.S. Cellular
                                                                                                                Corporation


Telephone and Data Systems, Inc. [AMEX: TDS] is a diversified telecommunications                                [AMEX: USM] is TDS’s

company with wireless telephone and telephone operations. At December 31, 2001,                                 82.2%-owned wireless telephone

                                                                                                                subsidiary. U.S. Cellular and TDS
TDS provided high-quality telecommunications services to 4.3 million customer
                                                                                                                own interests in 176 cellular
units in 34 states. TDS’s business strategy is to expand its existing operations
                                                                                                                markets and own or have the right
through internal growth and acquisitions and to explore and develop other
                                                                                                                to acquire interest in 28 Personal
telecommunications businesses that management believes utilize TDS’s expertise
                                                                                                                Communication Services (“PCS”)
in providing customer focused telecommunications services.
                                                                                                                markets. The cellular and PCS

                                                                                                                interests represent 27.4 million and
              WA                                                                                           ME
                                               MN
                                                                                                                3.6 million population equivalents,
                                                                                                      VT
                                                               MI
                   ID                                     WI
         OR
                                                                                                                respectively. U.S. Cellular’s 142
                                                                                                 NY
                                                                     MI


                                                                                                                majority-owned and managed
                                                                                                PA
                                                                                OH
                                                    IA
                                                                                            MD
                                     NE                              IN
                                                                IL
                                                                                                                markets have 3,461,000 cellular
                                                                                                VA
                                                                                 WV
                             CO
                                          KS             MO                KY
    CA
                                                                                                                telephones in service.
                                                                                      NC
                                                                      TN
                        AZ
                                          OK                                         SC
                                                          AR

                                                                                GA
                                                                     AL
                                                                MS
                                                                                                                TDS Telecommunications
                                      TX
                                                                                                                Corporation

                                                                                           FL
                                                                                                                (“TDS Telecom”) is TDS’s wholly-

                                                                                                                owned telephone subsidiary.
    TDS Corporate headquarters, Chicago, IL
                                                                                                                TDS Telecom operates in 29 states
    U.S. Cellular Markets currently owned and managed
    U.S. Cellular PCS markets                                                                                   with 109 telephone companies,
    TDS Telecommunications operations
                                                                                                                which serve 650,700 access
    States of operation or markets owned
                                                                                                                lines, and two competitive local

                                                                                                                exchange carriers, which serve
Our 2001 Annual Report
                                                                                                                197,200 access lines.
focuses on how we have served our customers over the decades. We are now entering our
fourth decade of offering outstanding communication services to our customers. Following
the message from the Chairman and President, we highlight how each business unit has
served our customers over the past three decades and how we will continue to serve them
for decades to come. Each business unit will present three employees that have helped
TDS to grow and become the successful company it is today. The strength of TDS comes
                                                                                                                www.teldta.com
from these and many outstanding employees who helped make TDS a vibrant, dynamic
organization that in turn creates value for our shareholders.

                                                                                                                                            1
Telephone and Data Systems, Inc. continued its solid                  acquisitions in 2001 that are also designed to strengthen       purchase two ILECs in southern New Hampshire, a rapidly
                                                                                                                                       its footprint.                                                  growing part of New England with excellent demographic
                                                                 performance in 2001 despite the difficult economic
                                                                                                                                                                                                       characteristics. MCT, Inc. and Telecommunications Systems
                                                                                                                                       Our other major business operation, TDS TELECOM, in which
                                                                 conditions during the last three quarters of the year.                                                                                of New Hampshire, Inc., each bring long-established, well-
                                                                                                                                       TDS owns 100% of the equity, achieved another very
                Chairman                                                                                                                                                                               maintained exchanges in parts of the state which adjoin or are
                                                                 TDS grew operating revenues by 11% in 2001 and operating              successful year in 2001. Revenue from its Incumbent Local
                                                                                                                                                                                                       very close to existing TDS TELECOM ILEC operations.
                                                                 cash flow by 8%. Diluted earnings per share from continuing           Exchange Carrier (“ILEC”) business rose 9% and ILEC cash
                  and                                            operations – excluding gains (losses) rose to $2.86.                  flow grew 10%. In addition, TDS TELECOM posted excellent    In addition to its growing wireless and wireline operations,
                                                                                                                                       results in its Competitive Local Exchange Carrier (“CLEC”)
               President’s                                                                                                                                                                         TDS also owns a substantial portfolio of investments in
                                                                 U.S. Cellular, our largest business unit and 82.2%-owned
                                                                                                                                       operations. Its two CLEC operations, TDS METROCOM           established publicly traded companies that are involved in the
                                                                 subsidiary, continued its double-digit growth in revenue
                Message                                                                                                                and USLink, grew their revenues
                                                                 (up 10%) and operating cash flow (up 11%) despite the slow                                                                                                   telecommunications industry, which
                                                                                                                                       by 70% and 14%, respectively.
                                                                 economy. Net customer additions were 354,000 and                                                                                                             have good growth prospects.
                                                                                                                                       TDS METROCOM expanded into
                                                                 U.S. Cellular had 3,461,000 customer units as of December 31, 2001.
                                                                                                                                                                                                                              Our largest position is a 3.1% stake
                                                                                                                                       Michigan in 2001 and now operates
                                                                                                                                                                                         Our mission is to
                                                                 This impressive growth is in the context of a wireless industry                                                                                              (131.5 million shares) in Deutsche
                                                                                                                                       in three clustered midwestern states
                                                                 in the United States that is still expanding. It also reflects well                                                                                          Telekom AG, the international telecom-
                                                                                                                                       – Wisconsin, Illinois and Michigan.             provide outstanding
                                                                 on all the hard work of our associates at U.S. Cellular. During                                                                                              munications giant head-quartered in
                                                                                                                                       We believe that TDS METROCOM’s
                                                                                                                                                                                    communications services
                                                                 2001, U.S. Cellular’s management continued the process,                                                                                                      Germany. We acquired the position
                                                                                                                                       business model of offering high-
                                                                 which began in 2000, of refocusing every aspect of                                                                                                           when Deutsche Telekom acquired
                                                                                                                                       quality, facilities-based service in           to our customers and
LeRoy T. (“Ted”) Carlson, Jr.
                                                                 U.S. Cellular’s operations on offering outstanding service                                                                                                   VoiceStream Wireless Corporation in
                                                                                                                                       middle-sized markets, and then
President and Chief Executive Officer
                                                                                                                                                                                      meet the needs of our
                                                                 quality. These efforts gained industry-wide recognition when                                                                                                 May 2001. We believe that Deutsche
                                                                                                                                       deeply penetrating those markets,
                                                                 U.S. Cellular won the 2001 Titan Wireless Award for customer                                                                                                 Telekom is a strong company with
                                                                                                                                       will yield very good shareholder
                                        Walter C.D. Carlson                                                                                                                         shareholders, our people
                                                                 service. The award was conferred by Wireless Review, a                                                                                                       prospects for good cash flow growth
                                         Chairman of the Board                                                                         returns. TDS METROCOM’s initial
                                                                                                                                                                                      and our communities.
                                                                 highly regarded wireless trade magazine.                                                                                                                     over the next several years.
                                                                                                                                       markets were cash flow positive by
                                                                                                                                       the end of 2001. We anticipate that
                                                                 We are relying on an intensification of the formula that has                                                                                                 Through our U.S. Cellular and TDS
                                                                                                                                       more recently launched markets will
                                                                 already brought us meaningful success at U.S. Cellular to                                                                                                    TELECOM subsidiaries, we also hold
                                                                                                                                       become cash flow positive, on
                                                                 assure the Company’s future. This formula combines state-of-                                                                      a 12,946,000 ADR share position in Vodafone Group PLC, the
                                                                                                                                       average, within 24 months of their launches. The CLEC model
                                                                 the-art customer service, as exemplified by our call centers                                                                      London-based world-wide wireless enterprise. Additional
                                                                                                                                       is successful because TDS METROCOM is able to draw upon
                                                                 and extensive retail distribution, with a very high-quality                                                                       smaller portfolio positions include VeriSign, Inc., a provider of
                                                                                                                                       TDS TELECOM’s existing billing systems and upon its
                                                                 network to deliver a top-notch wireless service experience.                                                                       Internet services, and Rural Cellular Corporation, a rural
                                                                                                                                       engineering, regulatory, accounting and human resource
                                                                 The result is one of the lowest postpay customer churn rates                                                                      cellular provider in the United States.
                                                                                                                                       staffs which allows TDS METROCOM’s management team
                                                                 in the industry – 1.7%. U.S. Cellular customers receive the
                                                                                                                                                                                                   U.S. Cellular also has minority partnership interests in other
                                                                                                                                       to concentrate on marketing and selling to new customers
                                                                 highest quality local, regional and national service plans, and
                                                                                                                                       and on provisioning lines from a Regional Bell Operating    wireless enterprises. The most valuable is a 5.5% stake in the
                                                                 many of them recommend U.S. Cellular to their friends.
                                                                                                                                       Company (“RBOC”).                                           greater Los Angeles wireless business operated by Verizon
                                                                 Our regional strategy at U.S. Cellular has been enhanced by                                                                       Communications, Inc.
                                                                                                                                       TDS TELECOM completed the successful merger of Chorus
                                                                 strengthening the footprint of the markets within which we
                                                                                                                                       Communications Group, Ltd. (“Chorus”) in 2001. The merger   The strength of our operating companies, combined with our
                                                                 deliver service. We are especially focused on our greater
                                                                                                                                       brought approximately 43,000 ILEC access lines and          investment holdings and modest financial leverage, have
                                                                 Midwest markets which include almost half of U.S. Cellular’s
                                                                                                                                       approximately 27,000 Internet customers to TDS TELECOM.     created strong financial positions for TDS and U.S. Cellular.
                                                                 customers. We made progress in 2001 as we acquired
                                                                                                                                       We also gained a substantial number of highly trained and   Investment grade credit ratings of A- and A3 were assigned to
                                                                 Personal Communications Services (“PCS”) licenses which
                                                                                                                                       experienced telecommunication employees who are             TDS and U.S. Cellular by the major credit rating agencies. Our
                                                                 will enable us to serve new territories representing 2.8 million
                                                                                                                                       strengthening our entire TDS TELECOM operation with their   strong financial position helps assure that we have good
                                                                 population equivalents in the Midwest. We also participated
                                                                                                                                       energy and ideas.                                           access to the debt capital markets at affordable rates.
                                                                 as a limited partner of Black Crow Wireless, L.P. (“Black
                                                                 Crow”) in the Federal Communications Commission (“FCC”)               The acquisition highlights a major thrust of our ILEC           In November we used our financial strength to raise $500
                                                                 spectrum auction early in 2001. Black Crow was the                    expansion strategy for TDS TELECOM. Chorus’s operations in      million of TDS 7.60% Series A Notes due in 2041. The notes
                                                                 successful bidder for 17 licenses in 13 markets, representing         southern Wisconsin are in areas that are contiguous to our      may be called by TDS after 2006. We used the proceeds
                                                                 a total population of 6.9 million, which complement U.S.              existing ILEC operations. By joining with Chorus we are able
                                                                                                                                                                                                       primarily to repay almost all of TDS’s short-term debts. The
                                                                 Cellular’s existing operations. It is unclear, however, whether       to expand the scale of existing operations and secure
                                                                                                                                                                                                       offering, which was well received by retail investors, sold out
                                                                 Black Crow will be able to buy most of these licenses because         synergies that lead to meaningful cost savings.
                                                                                                                                                                                                       the first day. The low interest rate environment at the end of
                                                                 of the ongoing legal dispute between the FCC and NextWave
                                                                                                                                       Our ILEC clustering strategy at TDS TELECOM is also apparent    2001 represented an exceptional opportunity to obtain long-
                                                                 Telecom, Inc. On March 4, 2002, the United States Supreme
                                                                                                                                       in the agreements we entered into (one early in 2002) to        term debt capital at attractive terms.
                                                                 Court elected to take up the issue and a decision is anticipated
                                                                 in the spring of 2003. U.S. Cellular made additional


    2                                                                                                                                                                                                                                                           3
Our development team is committed to analyzing potential               vision of the importance of telecommunications in people’s
                   Chairman and President’s Message                                                                                   acquisitions using net present value of discounted cash flow           lives and his passionate commitment to our customers, to our
                                                                                                                                      methodology with cost of capital determined by business                team members and to the Company’s success. We are pleased
                                                                                                                                      segment. Our goal is to exceed our cost of capital in each of          that he will continue to serve TDS as a director and officer.
                                                                                                                                      our telecommunications industry segments.
                                                                                                                                                                                                             At the same time, the TDS Board of Directors unanimously
The year 2001 was difficult for wireless telecommunications        TDS METROCOM, our CLEC operation, should continue its
                                                                                                                                      We are also constantly monitoring our portfolio of investments.        elected Walter C.D. Carlson as non-executive Chairman of the
stocks. However, our stock held up reasonably well. TDS            rapid growth as potential customers look for alternatives to the
                                                                                                                                      We are committed to understanding the future prospects for             Board. Walter Carlson has been a director of TDS since 1981 and
held steady during a year which saw some wireless stocks           RBOCs. There is much room to grow because other CLECs
                                                                                                                                      these companies which, with only one exception, operate in             a director of U.S. Cellular since 1989. As a partner at Sidley Austin
decline substantially. During the same period the S&P              have made only modest inroads into most of the markets
                                                                                                                                      the same industry segments as our                                                                   Brown & Wood he has provided
declined 13% and the NASDAQ declined 21%. We believe that          TDS METROCOM serves. We will continue to evaluate
                                                                                                                                      own operating companies. Our tax                                                                    advice to a number of chief executive
the prospects for the wireless sector will brighten as the         expansion plans for TDS METROCOM using a disciplined
                                                                                                                                      basis in these investment positions                                                                 officers and boards of directors.
economy emerges from the recession. Our optimism is based          discounted cash flow rate of return approach and our
                                                                                                                                      is very low, so monetizing our
                                                                                                                                                                                                                                             During the year 2001 we had only
on the continuing potential for wireless expansion in the United   assessment of TDS METROCOM’s success in its current markets.
                                                                                                                                      investments presents tax issues. We
                                                                                                                                                                                                                                             one other officer transition at TDS.
States. At year-end the United States penetration rate was about
                                                                                                                                      are continuing to examine a variety
                                                                   Strategic Resource Allocation
                                                                                                                                                                                                                                             Kevin Gallagher joined us as Vice
45%, compared to over 80% in several European countries.
                                                                   One of the primary responsibilities of management at TDS’s         of tax-advantaged methods that
                                                                                                                                                                                                                                             President and Corporate Secretary in
U.S. Cellular’s customer penetration rates continued to climb,     corporate office is to work with our business units to allocate    could reduce the tax consequences
                                                                                                                                                                                                                                             December. He was Senior Vice
going from 12.3% in 2000 to 13.5% in 2001. The increase            financial resources to take advantage of the best opportunities.   if we were to monetize any of our
                                                                                                                                                                                                                                             President- General Counsel/Secretary
reflects well on our sales and marketing initiatives. Some         Our business units devoted substantial resources in 2001 to        investment assets.
                                                                                                                                                                                                                                             of 360˚ Communications Company
analysts believe that wireless penetration rates in certain        adding facilities to provide for organic growth in customers
                                                                                                                                      Share repurchase remains another                                                                       until it was acquired by another
developed countries may ultimately approach 100% due to            and in customer usage of our networks.                                                                                On February 11, 2002, Walter C.D. Carlson
                                                                                                                                      potentially important option for use                                                                   company. He has a strong legal
                                                                                                                                                                                     was elected Chairman of the Board of Directors.
the growing wireless connectivity of devices such as personal
                                                                   At U.S. Cellular we continued to move customers from analog        of our capital. We were cautious                                                                       background and excellent telecom-
                                                                                                                                                                                       He succeeds LeRoy T. Carlson who will continue
digital assistants and portable computers in addition to the                                                                                                                               to serve as an Officer and Director of
                                                                   service to higher quality, feature-rich digital service. At the    during 2001 and did not make                                                                           munications industry experience.
                                                                                                                                                                                            Telephone and Data Systems, Inc.
growth of traditional wireless phones. U.S. Cellular plans to
                                                                   end of 2001, approximately 70% of U.S. Cellular customers          significant repurchases under existing                                                                 Gregory Wilkinson, who had been
participate aggressively in these wireless service developments.
                                                                   were taking advantage of our digital networks. We added            board authorizations at either TDS or                                                                  with TDS almost from our inception
In preparation for a dramatic increase in wireless data            over 370 new cell sites in 2001 to extend and improve              U.S. Cellular because of the uncertainty associated with possible           in a number of senior executive positions, most recently Vice
transmission, we announced plans to implement Code Division        coverage and process large increases in wireless minutes of        credit commitments for the licenses which the Black Crow                    President and Corporate Secretary, retired. We thank him for
Multiple Access (“CDMA”) technology across U.S. Cellular’s         use. For 2002 we are projecting $620-$640 million in total         partnership bid on, as well as the need to preserve capital                 his many contributions, and wish him every success.
entire network during 2002, 2003 and 2004. Detailed analysis       capital expenditures at U.S. Cellular. This includes $80-$95       that may be employed to strengthen our wireless or
                                                                                                                                                                                                                  Conclusion
conducted by our own engineering group and confirmed by            million associated with the first year of our three-year           wireline markets. At U.S. Cellular we also had to anticipate the
                                                                                                                                                                                                                  The year 2001 marked the twentieth anniversary of the
outside consultants showed that CDMA was our best                  implementation plan for CDMA.                                      costs of our technology upgrade to CDMA. Share repurchase
                                                                                                                                                                                                                  original listing of TDS’s shares on the American Stock
alternative. CDMA technology allows U.S. Cellular to maximize                                                                         remains an option to increase shareholder value and we will
                                                                   We are also committed to improving TDS TELECOM’s                                                                                               Exchange. The public capital markets in the United States
the capacity of its networks over the next three years and                                                                            continue to consider further purchases as business and market
                                                                   operations and we will invest approximately $170-$190                                                                                          have been and will continue to be vitally important to TDS’s
provides the lowest cost path to 3G services in the future. The                                                                       conditions warrant.
                                                                   million in 2002 to improve and expand our existing ILEC and                                                                                    ability to obtain the capital necessary to build the business.
three-year CDMA implementation will cost approximately
                                                                   CLEC operations. As part of our efforts to offer attractive new    Transition                                                                  We thank you, our shareholders, for your important part
$400-$450 million.
                                                                   services, we began offering high-speed DSL service in 16           On February 11, 2002, LeRoy T. Carlson, the Company’s
                                                                                                                                                                                                                  in this process and for your support in 2001 and into the
Growth prospects at TDS TELECOM are also excellent. The            more of our large ILEC markets in 2001. These 16 additional        founder, retired as Chairman of the TDS Board of Directors
                                                                                                                                                                                                                  future. We welcome your ideas on how we can improve
Company has built a very positive reputation in its ILEC           ILEC markets were the beneficiaries of the experience already      and was elected to the office of Chairman Emeritus. His
                                                                                                                                                                                                                  our performance and thereby continue to grow the value of
markets by offering a full range of high-quality                   gained in our CLEC markets. This is a good example of how          leadership was responsible for building TDS, which began
                                                                                                                                                                                                                  the Company.
telecommunications services backed by outstanding, locally         our ILEC and CLEC operations work together to use their            with a small number of rural phone companies in southern
                                                                                                                                                                                                                  The Company’s progress is only possible with the
delivered customer service. We saw this reputation’s effect in     experience synergistically to enhance shareholder value. By        Wisconsin, into a multi-regional telecommunications provider
                                                                                                                                                                                                                  commitment of our exceptionally talented associates and
2001, the first full year that we offered our own brand of         year-end we had over 9,000 DSL customers throughout our            with over 4.3 million customer units in 34 states, revenues of
                                                                                                                                                                                                                  employees. We thank you for your ongoing creativity and
long-distance service to our customers. The service, TDS           ILEC and CLEC operations.                                          $2.6 billion and 9,300 employees. We are thankful for his
                                                                                                                                                                                                                  effort and for your dedication to serving our customers.
TRUE TALK™, was chosen by over 125,000 customers by the
                                                                   We are also actively seeking to acquire wireless and wireline
end of 2001. We anticipate future revenue growth at
                                                                   properties that fit the clustering strategies we are pursuing to
TDS TELECOM as we continue to sell both data services, such
                                                                   create value in the future. At U.S. Cellular we are constantly     Cordially yours,
as dial-up digital Internet access and high-speed Digital
                                                                   searching for properties that will strengthen our current
Subscriber Line (“DSL”), and additional voice services such as
                                                                   markets. At TDS TELECOM, we are seeking to add ILEC
call waiting, voice mail and caller identification.
                                                                   properties that are geographically close to our existing ILEC
                                                                   operations so that synergies can produce service improvements
                                                                   and cost savings. We are also examining a few carefully            LeRoy T. Carlson, Jr.                                                  Walter C.D. Carlson
                                                                   selected opportunities to further expand our CLEC operations       President and Chief Executive Officer                                  Chairman of the Board
                                                                   through additional “greenfield” builds.

    4                                                                                                                                                                                                                                                                       5
Dynamic Organization – A New
                                                                                                                 U.S. Cellular Customer Units
                                                                                                                 Thousands of Units
                                                                                                                                                                  Mission, Vision and Strategy
                                                                                                                                                         – 3500
                                                                                                                                                                  In keeping with U.S. Cellular’s renewed customer
                                                                                                                                            3,461

                                                                                                                                                                  focus, we developed a new vision, mission
                                                                                                                                                         – 3250   statement and business strategy during 2001. Our
                                                                                                                                                                  new vision defines customer satisfaction as the
                                                                                                                                                                  product for which U.S. Cellular will be known in
                                                                                                                               3,061
                                                                                                                                                         – 3000
             U.S. Cellular                                                                                                                                        the wireless marketplace.
                                                                                                                                                                  Our Vision: We will proudly provide the best customer
                                                                                                                                                         – 2750
                                                                                                                                                                  satisfaction. Customers “Expect it!” We deliver.
                                                                                                                                                                                                                          Lorrie Klawonn
                                                                                                                  2,602
                                                                                                                                                                  The new mission reflects our commitment to
                                                                                                                                                         – 2500                                                           Retail Store Manager
                                                                                                                                                                  three equally important stakeholders—customers,         Ottumwa, IA
                                                                                                                                                                  shareholders and associates.
                                                                                                                                                                                                                          Lorrie’s greatest accomplishment,
                                                                                                                                                         – 2250
                                                                                                                          99           00           01
                                                                                                                                                  Our Mission: To provide the highest level of
                                                                                                                                                                                                                          in her 12 years with U.S. Cellular,
                                                                                                                                                  customer satisfaction, which will generate profitable
                      Our continued focus on the customer led to a new vision                                                                                                                                             is reprogramming 90% of her
                                                                                                                growth for our shareholders and superior rewards for our associates. We will achieve this
                   which defines customer satisfaction as the product for which                                 through a Dynamic Organization based on standards of excellence.
                                                                                                                                                                                                                          customers’ phones in just three
                              we will be known in the wireless marketplace.                                     U.S. Cellular will achieve its vision and mission through continued profitable growth,                    days following U.S. Cellular’s
                                                                                                                attained by focusing on four strategic priorities.
                                                                                                                                                                                                                          change from B band license to
                                                                                                                Our Strategy: Increase customer satisfaction, grow revenues profitability, drive standards
                                                                                                                                                                                                                          A band. Lorrie currently is the
                                                                                                                of excellence and drive the Dynamic Organization.
                                                                                                                                                                                                                          manager of a U.S. Cellular retail
                                                                                                                The Dynamic Organization continues to be a catalyst for change. A 2001 culture
                                                                                                                survey of U.S. Cellular associates showed an important shift in associate perceptions—                    store in Ottumwa, Iowa.
                                                                                                                a statistically significant increase in the number of associates who believe that “serving
                                                                                                                customers is my first priority.” It is these associates who make the difference at                        Lorrie’s dedication to customer
                                                                                                                U.S. Cellular and I would like to thank each of them. Within this report I recognize
                                                                                                                                                                                                                          service and inspirational
                                                                                                                three individuals who have always put the customer first. Thank you, Lorrie Klawonn,
                                                                        John E. “Jack” Rooney
                                                                                                                Dana Dorcas and Veronica Ornes. We appreciate your dedication and thank you for                           leadership make her an invaluable
                                                                        President and Chief Executive Officer
                                                                        United States Cellular Corporation      delivering what our customers expect. You are part of a winning team and by
                                                                                                                                                                                                                          associate. She heads a great team
                                                                                                                recognizing you I recognize the entire team of associates at U.S. Cellular.
                                                                                                                                                                                                                          of associates who are excited to
                                                                                                                2001 in Review
                      Serving Our Customers Over the Decades                                                                                                                                                              work at U.S. Cellular. “It’s fun
                                                                                                                U.S. Cellular’s accomplishments in 2001 were many and varied. By executing our new
                                                                                                                                                                                                                          working with new associates
    U.S. Cellular has been a proud member of the TDS family since 1983. From the time we gained                 vision, mission and business strategy to refocus on our customers, we achieved
                                                                                                                outstanding results during the year. Some of the highlights include:                                      and telling them how the cellular
          our first cellular customer in Knoxville, Tennessee, in June 1985, right up to today,
                                                                                                                • We continued our dedication to outstanding customer service, and received                               industry has evolved from the
       we have enjoyed tremendous support from our parent company. For our part, we have                          recognition in a number of publications both nationally and throughout our service
                                                                                                                                                                                                                          days when we had to drive uphill
                                                                                                                  areas as the “best wireless provider.”
       turned the TDS vision of wireless telecommunications from a dream into the reality of a                                                                                                                            three miles to get a signal on
                                                                                                                • With the principles of the Dynamic Organization management philosophy as a
                                                                                                                                                                                                                          our bag phones.”
                                                                                                                  basis, our top leaders attended training sessions to develop the new leadership style
      nearly two-billion-dollar business. As an integral part of TDS, U.S. Cellular will continue to
                                                                                                                  required to execute our strategy and achieve our mission.
        be a leader in the growing wireless industry, as the following achievements indicate.
                                                                                                                • We continued to lead the industry in low churn, achieving a 1.7% churn rate on our
                                                                                                                  postpay customer base.
                                                                                                                • We invested nearly $490 million on improvements to our wireless network.
                                                                                                                • Minutes of use on our wireless systems increased 45% in 2001, indicating a strong
                                                                                                                  demand for wireless services in our markets.
                                                                                                                • We reorganized all of our distribution channels, and introduced a new “high-tech,
                                                                                                                  high-touch” look to our retail stores.
6                                                                                                                                                                                                                                                     7
U.S. Cellular
                                       Our financial results, and the key drivers of those results, were strong, but did not
                                       meet our targets for the year. An extremely competitive wireless marketplace has
                                                                                                                                                                                       Creating the
                                       driven revenue per minute of use downward throughout the industry, lessening the
                                       positive effect on revenues of the increase in minutes of use. The effects of the
                                                                                                                                                                                         dynamic
                                       terrorist attacks on September 11, 2001, and the overall downturn in the economy,
                                       especially for retailers, had a significant impact on our business in the second half of
                                                                                                                                                                                        difference
                                       2001. Traffic into our retail and agent locations slowed substantially, even during the
                                       holiday shopping season. As a result, despite our low churn rate, we added fewer
Dana Dorcas                            new customers in 2001 than in 2000.
Director of Sales
                                       We added 354,000 net new customers during 2001, ending the year with just under 3.5
Gainesville, FL
                                       million customer units. Driven by the increase in customers, service revenues increased
As Director of Sales in the
                                       10% to $1,826 million. Operating cash flow totaled $618 million, an 11% increase from
Southeast Georgia/Florida cluster,     the previous year, helping produce net income from operations of $181 million.
Dana oversees all aspects of           These results are indicative of a strong company. We feel that the changes we have
                                       made to refocus on our customers, along with our other accomplishments, will
U.S. Cellular operations. On several                                                                                                 Customer Care Center associates are a vital
                                       provide the basis for continued strong profitable growth at U.S. Cellular.                      connection to our customers. First-call
occasions, over the eleven years                                                                                                        resolution is their number one goal.

                                       Connecting With Our Customers
that Dana has been with U.S.
                                       Serving customers is indeed the first priority of U.S. Cellular associates. Connecting
Cellular, he has taken over the
                                       with our customers means being easily accessible to them—whenever, wherever and
leadership of various U.S. Cellular    however they choose to do business with us. Our goal is to ensure that all customers
                                       and potential customers have a positive experience with U.S. Cellular.
operations that needed immediate
                                       Positive customer perceptions are vital to a successful, retail-driven organization.
attention. By improving morale
                                       During 2001, U.S. Cellular introduced its new “high-tech, high-touch” retail stores.
and performance, he transformed        More than 20 newly designed stores were opened in new locations, more than 50
                                       existing stores were remodeled and elements of the new design concept were
these operations into winners.
                                       incorporated into the company’s other retail locations. The new stores, designed with
                                       feedback from customer advisory panels, increase the ease and convenience of
Dana has the ability to motivate
                                       shopping for wireless products and services by guiding customers through every step            In 2001, we opened a new state-of-the-art
and lead his teams to achieve                                                                                                          I.S. facility to better serve our associates.
                                       of the buying process—from selecting the right rate plan to choosing the best phone
their goals, and as he would say,      and wireless accessories.
“You are only as good as your          Some customers may choose to connect with us through U.S. Cellular agents located
                                       throughout our service areas. During 2001, we placed more emphasis on exclusive
team!” This is evidenced by his
                                       agents who represent only U.S. Cellular. New merchandising programs, new signage,
being awarded the Company’s 2001       store fixtures identical to those in our company-owned stores and the ability to
                                       activate customer accounts online are just part of the support and incentives provided
Cultural Survey Coaches Award.
                                       to our exclusive agents. In September 2001, U.S. Cellular signed an exclusive service
His ability to quickly assess needed   agreement with Catalyst Marketing, Inc., (“Catalyst”) to expand its exclusive agent
                                       network throughout the central, eastern and southwestern regions of the United
changes is complemented by his                                                                                                             Our new “high-tech,
                                       States. The Catalyst stores will reflect U.S. Cellular’s new “high-tech, high-touch” retail
salesmanship and planning skills.
                                                                                                                                                high-touch” retail
                                       store branding strategy.
                                                                                                                                             stores are designed
                                       The growing number of customers who prefer to connect with U.S. Cellular online
                                       now have improved access via our redesigned Web site, launched in April 2001. It                    to increase the ease
                                       provides fast and easy access to information on U.S. Cellular, its products and services,
                                                                                                                                                   and convenience
                                       and offers the convenience of online wireless shopping.
                                                                                                                                              of shopping for our
                                                                                                                                                 wireless products
                                                                                                                                                           and services.
        8                                                                                                                                                                                             9
telephone data systems  2001ar
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telephone data systems 2001ar

  • 1. Telephone and Data Systems Inc. U.S. Cellular TDS Telecom Serving our customers over the decades 2001 Annual Report
  • 2. 2001 Annual Report Serving our customers over the decades percent change Financial Highlights 2001 2000 from 2000 (Dollars in thousands, except per share amounts) Operating Revenues U.S. Cellular $ 1,894,830 $ 1,716,640 10% TDS Telecom 693,712 610,216 14 $ 2,588,542 $ 2,326,856 11 Net Income (Loss) from Continuing Operations Excluding Gains (losses) $ 168,111 $ 154,753 9 From Gains (losses) (336,359) (9,226) n/m $ (168,248) $ 145,527 n/m Basic Earnings per Share Continuing Operations $ (2.87) $ 2.42 n/m Diluted Earnings per Share Continuing Operations Excluding Gains (losses) $ 2.86 $ 2.54 13 From Gains (losses) (5.73) (.15) n/m $ (2.87) $ 2.39 n/m Dividends per Share $ .54 $ .50 8 Basic Weighted Average Common Shares (000s) 58,661 59,922 (2) Common Stockholders’ Equity $ 3,518,924 $ 3,936,067 (11) Return on Average Equity (4.5)% 4.5% n/m Capital Expenditures $ 700,150 $ 456,019 54 Total Assets $ 8,046,792 $ 8,634,609 (7) Cellular Customers 3,461,000 3,061,000 13 Telephone Access Lines ILEC 650,700 601,200 8 CLEC 197,200 112,100 76 Common Share Record Owners 2,541 2,669 (5) Total Employees 9,300 8,859 5 n/m - Percentage change not meaningful. Table of Contents About Your Company 01 Consolidated Financial Statements 38 Chairman and President’s Message 02 Notes to Consolidated Financial Statements 43 U.S. Cellular Operations 06 Report of Management 62 TDS Telecom Operations 12 Report of Independent Public Accountants 62 Board of Directors and Officers 18 Consolidated Quarterly Income Information 63 Selected Consolidated Financial Data 22 Eleven-Year Summaries 64 Management’s Discussion 23 Shareowners’ Information 68
  • 3. Telephone and Data Systems, Inc. U.S. Cellular Corporation Telephone and Data Systems, Inc. [AMEX: TDS] is a diversified telecommunications [AMEX: USM] is TDS’s company with wireless telephone and telephone operations. At December 31, 2001, 82.2%-owned wireless telephone subsidiary. U.S. Cellular and TDS TDS provided high-quality telecommunications services to 4.3 million customer own interests in 176 cellular units in 34 states. TDS’s business strategy is to expand its existing operations markets and own or have the right through internal growth and acquisitions and to explore and develop other to acquire interest in 28 Personal telecommunications businesses that management believes utilize TDS’s expertise Communication Services (“PCS”) in providing customer focused telecommunications services. markets. The cellular and PCS interests represent 27.4 million and WA ME MN 3.6 million population equivalents, VT MI ID WI OR respectively. U.S. Cellular’s 142 NY MI majority-owned and managed PA OH IA MD NE IN IL markets have 3,461,000 cellular VA WV CO KS MO KY CA telephones in service. NC TN AZ OK SC AR GA AL MS TDS Telecommunications TX Corporation FL (“TDS Telecom”) is TDS’s wholly- owned telephone subsidiary. TDS Corporate headquarters, Chicago, IL TDS Telecom operates in 29 states U.S. Cellular Markets currently owned and managed U.S. Cellular PCS markets with 109 telephone companies, TDS Telecommunications operations which serve 650,700 access States of operation or markets owned lines, and two competitive local exchange carriers, which serve Our 2001 Annual Report 197,200 access lines. focuses on how we have served our customers over the decades. We are now entering our fourth decade of offering outstanding communication services to our customers. Following the message from the Chairman and President, we highlight how each business unit has served our customers over the past three decades and how we will continue to serve them for decades to come. Each business unit will present three employees that have helped TDS to grow and become the successful company it is today. The strength of TDS comes www.teldta.com from these and many outstanding employees who helped make TDS a vibrant, dynamic organization that in turn creates value for our shareholders. 1
  • 4. Telephone and Data Systems, Inc. continued its solid acquisitions in 2001 that are also designed to strengthen purchase two ILECs in southern New Hampshire, a rapidly its footprint. growing part of New England with excellent demographic performance in 2001 despite the difficult economic characteristics. MCT, Inc. and Telecommunications Systems Our other major business operation, TDS TELECOM, in which conditions during the last three quarters of the year. of New Hampshire, Inc., each bring long-established, well- TDS owns 100% of the equity, achieved another very Chairman maintained exchanges in parts of the state which adjoin or are TDS grew operating revenues by 11% in 2001 and operating successful year in 2001. Revenue from its Incumbent Local very close to existing TDS TELECOM ILEC operations. cash flow by 8%. Diluted earnings per share from continuing Exchange Carrier (“ILEC”) business rose 9% and ILEC cash and operations – excluding gains (losses) rose to $2.86. flow grew 10%. In addition, TDS TELECOM posted excellent In addition to its growing wireless and wireline operations, results in its Competitive Local Exchange Carrier (“CLEC”) President’s TDS also owns a substantial portfolio of investments in U.S. Cellular, our largest business unit and 82.2%-owned operations. Its two CLEC operations, TDS METROCOM established publicly traded companies that are involved in the subsidiary, continued its double-digit growth in revenue Message and USLink, grew their revenues (up 10%) and operating cash flow (up 11%) despite the slow telecommunications industry, which by 70% and 14%, respectively. economy. Net customer additions were 354,000 and have good growth prospects. TDS METROCOM expanded into U.S. Cellular had 3,461,000 customer units as of December 31, 2001. Our largest position is a 3.1% stake Michigan in 2001 and now operates Our mission is to This impressive growth is in the context of a wireless industry (131.5 million shares) in Deutsche in three clustered midwestern states in the United States that is still expanding. It also reflects well Telekom AG, the international telecom- – Wisconsin, Illinois and Michigan. provide outstanding on all the hard work of our associates at U.S. Cellular. During munications giant head-quartered in We believe that TDS METROCOM’s communications services 2001, U.S. Cellular’s management continued the process, Germany. We acquired the position business model of offering high- which began in 2000, of refocusing every aspect of when Deutsche Telekom acquired quality, facilities-based service in to our customers and LeRoy T. (“Ted”) Carlson, Jr. U.S. Cellular’s operations on offering outstanding service VoiceStream Wireless Corporation in middle-sized markets, and then President and Chief Executive Officer meet the needs of our quality. These efforts gained industry-wide recognition when May 2001. We believe that Deutsche deeply penetrating those markets, U.S. Cellular won the 2001 Titan Wireless Award for customer Telekom is a strong company with will yield very good shareholder Walter C.D. Carlson shareholders, our people service. The award was conferred by Wireless Review, a prospects for good cash flow growth Chairman of the Board returns. TDS METROCOM’s initial and our communities. highly regarded wireless trade magazine. over the next several years. markets were cash flow positive by the end of 2001. We anticipate that We are relying on an intensification of the formula that has Through our U.S. Cellular and TDS more recently launched markets will already brought us meaningful success at U.S. Cellular to TELECOM subsidiaries, we also hold become cash flow positive, on assure the Company’s future. This formula combines state-of- a 12,946,000 ADR share position in Vodafone Group PLC, the average, within 24 months of their launches. The CLEC model the-art customer service, as exemplified by our call centers London-based world-wide wireless enterprise. Additional is successful because TDS METROCOM is able to draw upon and extensive retail distribution, with a very high-quality smaller portfolio positions include VeriSign, Inc., a provider of TDS TELECOM’s existing billing systems and upon its network to deliver a top-notch wireless service experience. Internet services, and Rural Cellular Corporation, a rural engineering, regulatory, accounting and human resource The result is one of the lowest postpay customer churn rates cellular provider in the United States. staffs which allows TDS METROCOM’s management team in the industry – 1.7%. U.S. Cellular customers receive the U.S. Cellular also has minority partnership interests in other to concentrate on marketing and selling to new customers highest quality local, regional and national service plans, and and on provisioning lines from a Regional Bell Operating wireless enterprises. The most valuable is a 5.5% stake in the many of them recommend U.S. Cellular to their friends. Company (“RBOC”). greater Los Angeles wireless business operated by Verizon Our regional strategy at U.S. Cellular has been enhanced by Communications, Inc. TDS TELECOM completed the successful merger of Chorus strengthening the footprint of the markets within which we Communications Group, Ltd. (“Chorus”) in 2001. The merger The strength of our operating companies, combined with our deliver service. We are especially focused on our greater brought approximately 43,000 ILEC access lines and investment holdings and modest financial leverage, have Midwest markets which include almost half of U.S. Cellular’s approximately 27,000 Internet customers to TDS TELECOM. created strong financial positions for TDS and U.S. Cellular. customers. We made progress in 2001 as we acquired We also gained a substantial number of highly trained and Investment grade credit ratings of A- and A3 were assigned to Personal Communications Services (“PCS”) licenses which experienced telecommunication employees who are TDS and U.S. Cellular by the major credit rating agencies. Our will enable us to serve new territories representing 2.8 million strengthening our entire TDS TELECOM operation with their strong financial position helps assure that we have good population equivalents in the Midwest. We also participated energy and ideas. access to the debt capital markets at affordable rates. as a limited partner of Black Crow Wireless, L.P. (“Black Crow”) in the Federal Communications Commission (“FCC”) The acquisition highlights a major thrust of our ILEC In November we used our financial strength to raise $500 spectrum auction early in 2001. Black Crow was the expansion strategy for TDS TELECOM. Chorus’s operations in million of TDS 7.60% Series A Notes due in 2041. The notes successful bidder for 17 licenses in 13 markets, representing southern Wisconsin are in areas that are contiguous to our may be called by TDS after 2006. We used the proceeds a total population of 6.9 million, which complement U.S. existing ILEC operations. By joining with Chorus we are able primarily to repay almost all of TDS’s short-term debts. The Cellular’s existing operations. It is unclear, however, whether to expand the scale of existing operations and secure offering, which was well received by retail investors, sold out Black Crow will be able to buy most of these licenses because synergies that lead to meaningful cost savings. the first day. The low interest rate environment at the end of of the ongoing legal dispute between the FCC and NextWave Our ILEC clustering strategy at TDS TELECOM is also apparent 2001 represented an exceptional opportunity to obtain long- Telecom, Inc. On March 4, 2002, the United States Supreme in the agreements we entered into (one early in 2002) to term debt capital at attractive terms. Court elected to take up the issue and a decision is anticipated in the spring of 2003. U.S. Cellular made additional 2 3
  • 5. Our development team is committed to analyzing potential vision of the importance of telecommunications in people’s Chairman and President’s Message acquisitions using net present value of discounted cash flow lives and his passionate commitment to our customers, to our methodology with cost of capital determined by business team members and to the Company’s success. We are pleased segment. Our goal is to exceed our cost of capital in each of that he will continue to serve TDS as a director and officer. our telecommunications industry segments. At the same time, the TDS Board of Directors unanimously The year 2001 was difficult for wireless telecommunications TDS METROCOM, our CLEC operation, should continue its We are also constantly monitoring our portfolio of investments. elected Walter C.D. Carlson as non-executive Chairman of the stocks. However, our stock held up reasonably well. TDS rapid growth as potential customers look for alternatives to the We are committed to understanding the future prospects for Board. Walter Carlson has been a director of TDS since 1981 and held steady during a year which saw some wireless stocks RBOCs. There is much room to grow because other CLECs these companies which, with only one exception, operate in a director of U.S. Cellular since 1989. As a partner at Sidley Austin decline substantially. During the same period the S&P have made only modest inroads into most of the markets the same industry segments as our Brown & Wood he has provided declined 13% and the NASDAQ declined 21%. We believe that TDS METROCOM serves. We will continue to evaluate own operating companies. Our tax advice to a number of chief executive the prospects for the wireless sector will brighten as the expansion plans for TDS METROCOM using a disciplined basis in these investment positions officers and boards of directors. economy emerges from the recession. Our optimism is based discounted cash flow rate of return approach and our is very low, so monetizing our During the year 2001 we had only on the continuing potential for wireless expansion in the United assessment of TDS METROCOM’s success in its current markets. investments presents tax issues. We one other officer transition at TDS. States. At year-end the United States penetration rate was about are continuing to examine a variety Strategic Resource Allocation Kevin Gallagher joined us as Vice 45%, compared to over 80% in several European countries. One of the primary responsibilities of management at TDS’s of tax-advantaged methods that President and Corporate Secretary in U.S. Cellular’s customer penetration rates continued to climb, corporate office is to work with our business units to allocate could reduce the tax consequences December. He was Senior Vice going from 12.3% in 2000 to 13.5% in 2001. The increase financial resources to take advantage of the best opportunities. if we were to monetize any of our President- General Counsel/Secretary reflects well on our sales and marketing initiatives. Some Our business units devoted substantial resources in 2001 to investment assets. of 360˚ Communications Company analysts believe that wireless penetration rates in certain adding facilities to provide for organic growth in customers Share repurchase remains another until it was acquired by another developed countries may ultimately approach 100% due to and in customer usage of our networks. On February 11, 2002, Walter C.D. Carlson potentially important option for use company. He has a strong legal was elected Chairman of the Board of Directors. the growing wireless connectivity of devices such as personal At U.S. Cellular we continued to move customers from analog of our capital. We were cautious background and excellent telecom- He succeeds LeRoy T. Carlson who will continue digital assistants and portable computers in addition to the to serve as an Officer and Director of service to higher quality, feature-rich digital service. At the during 2001 and did not make munications industry experience. Telephone and Data Systems, Inc. growth of traditional wireless phones. U.S. Cellular plans to end of 2001, approximately 70% of U.S. Cellular customers significant repurchases under existing Gregory Wilkinson, who had been participate aggressively in these wireless service developments. were taking advantage of our digital networks. We added board authorizations at either TDS or with TDS almost from our inception In preparation for a dramatic increase in wireless data over 370 new cell sites in 2001 to extend and improve U.S. Cellular because of the uncertainty associated with possible in a number of senior executive positions, most recently Vice transmission, we announced plans to implement Code Division coverage and process large increases in wireless minutes of credit commitments for the licenses which the Black Crow President and Corporate Secretary, retired. We thank him for Multiple Access (“CDMA”) technology across U.S. Cellular’s use. For 2002 we are projecting $620-$640 million in total partnership bid on, as well as the need to preserve capital his many contributions, and wish him every success. entire network during 2002, 2003 and 2004. Detailed analysis capital expenditures at U.S. Cellular. This includes $80-$95 that may be employed to strengthen our wireless or Conclusion conducted by our own engineering group and confirmed by million associated with the first year of our three-year wireline markets. At U.S. Cellular we also had to anticipate the The year 2001 marked the twentieth anniversary of the outside consultants showed that CDMA was our best implementation plan for CDMA. costs of our technology upgrade to CDMA. Share repurchase original listing of TDS’s shares on the American Stock alternative. CDMA technology allows U.S. Cellular to maximize remains an option to increase shareholder value and we will We are also committed to improving TDS TELECOM’s Exchange. The public capital markets in the United States the capacity of its networks over the next three years and continue to consider further purchases as business and market operations and we will invest approximately $170-$190 have been and will continue to be vitally important to TDS’s provides the lowest cost path to 3G services in the future. The conditions warrant. million in 2002 to improve and expand our existing ILEC and ability to obtain the capital necessary to build the business. three-year CDMA implementation will cost approximately CLEC operations. As part of our efforts to offer attractive new Transition We thank you, our shareholders, for your important part $400-$450 million. services, we began offering high-speed DSL service in 16 On February 11, 2002, LeRoy T. Carlson, the Company’s in this process and for your support in 2001 and into the Growth prospects at TDS TELECOM are also excellent. The more of our large ILEC markets in 2001. These 16 additional founder, retired as Chairman of the TDS Board of Directors future. We welcome your ideas on how we can improve Company has built a very positive reputation in its ILEC ILEC markets were the beneficiaries of the experience already and was elected to the office of Chairman Emeritus. His our performance and thereby continue to grow the value of markets by offering a full range of high-quality gained in our CLEC markets. This is a good example of how leadership was responsible for building TDS, which began the Company. telecommunications services backed by outstanding, locally our ILEC and CLEC operations work together to use their with a small number of rural phone companies in southern The Company’s progress is only possible with the delivered customer service. We saw this reputation’s effect in experience synergistically to enhance shareholder value. By Wisconsin, into a multi-regional telecommunications provider commitment of our exceptionally talented associates and 2001, the first full year that we offered our own brand of year-end we had over 9,000 DSL customers throughout our with over 4.3 million customer units in 34 states, revenues of employees. We thank you for your ongoing creativity and long-distance service to our customers. The service, TDS ILEC and CLEC operations. $2.6 billion and 9,300 employees. We are thankful for his effort and for your dedication to serving our customers. TRUE TALK™, was chosen by over 125,000 customers by the We are also actively seeking to acquire wireless and wireline end of 2001. We anticipate future revenue growth at properties that fit the clustering strategies we are pursuing to TDS TELECOM as we continue to sell both data services, such create value in the future. At U.S. Cellular we are constantly Cordially yours, as dial-up digital Internet access and high-speed Digital searching for properties that will strengthen our current Subscriber Line (“DSL”), and additional voice services such as markets. At TDS TELECOM, we are seeking to add ILEC call waiting, voice mail and caller identification. properties that are geographically close to our existing ILEC operations so that synergies can produce service improvements and cost savings. We are also examining a few carefully LeRoy T. Carlson, Jr. Walter C.D. Carlson selected opportunities to further expand our CLEC operations President and Chief Executive Officer Chairman of the Board through additional “greenfield” builds. 4 5
  • 6. Dynamic Organization – A New U.S. Cellular Customer Units Thousands of Units Mission, Vision and Strategy – 3500 In keeping with U.S. Cellular’s renewed customer 3,461 focus, we developed a new vision, mission – 3250 statement and business strategy during 2001. Our new vision defines customer satisfaction as the product for which U.S. Cellular will be known in 3,061 – 3000 U.S. Cellular the wireless marketplace. Our Vision: We will proudly provide the best customer – 2750 satisfaction. Customers “Expect it!” We deliver. Lorrie Klawonn 2,602 The new mission reflects our commitment to – 2500 Retail Store Manager three equally important stakeholders—customers, Ottumwa, IA shareholders and associates. Lorrie’s greatest accomplishment, – 2250 99 00 01 Our Mission: To provide the highest level of in her 12 years with U.S. Cellular, customer satisfaction, which will generate profitable Our continued focus on the customer led to a new vision is reprogramming 90% of her growth for our shareholders and superior rewards for our associates. We will achieve this which defines customer satisfaction as the product for which through a Dynamic Organization based on standards of excellence. customers’ phones in just three we will be known in the wireless marketplace. U.S. Cellular will achieve its vision and mission through continued profitable growth, days following U.S. Cellular’s attained by focusing on four strategic priorities. change from B band license to Our Strategy: Increase customer satisfaction, grow revenues profitability, drive standards A band. Lorrie currently is the of excellence and drive the Dynamic Organization. manager of a U.S. Cellular retail The Dynamic Organization continues to be a catalyst for change. A 2001 culture survey of U.S. Cellular associates showed an important shift in associate perceptions— store in Ottumwa, Iowa. a statistically significant increase in the number of associates who believe that “serving customers is my first priority.” It is these associates who make the difference at Lorrie’s dedication to customer U.S. Cellular and I would like to thank each of them. Within this report I recognize service and inspirational three individuals who have always put the customer first. Thank you, Lorrie Klawonn, John E. “Jack” Rooney Dana Dorcas and Veronica Ornes. We appreciate your dedication and thank you for leadership make her an invaluable President and Chief Executive Officer United States Cellular Corporation delivering what our customers expect. You are part of a winning team and by associate. She heads a great team recognizing you I recognize the entire team of associates at U.S. Cellular. of associates who are excited to 2001 in Review Serving Our Customers Over the Decades work at U.S. Cellular. “It’s fun U.S. Cellular’s accomplishments in 2001 were many and varied. By executing our new working with new associates U.S. Cellular has been a proud member of the TDS family since 1983. From the time we gained vision, mission and business strategy to refocus on our customers, we achieved outstanding results during the year. Some of the highlights include: and telling them how the cellular our first cellular customer in Knoxville, Tennessee, in June 1985, right up to today, • We continued our dedication to outstanding customer service, and received industry has evolved from the we have enjoyed tremendous support from our parent company. For our part, we have recognition in a number of publications both nationally and throughout our service days when we had to drive uphill areas as the “best wireless provider.” turned the TDS vision of wireless telecommunications from a dream into the reality of a three miles to get a signal on • With the principles of the Dynamic Organization management philosophy as a our bag phones.” basis, our top leaders attended training sessions to develop the new leadership style nearly two-billion-dollar business. As an integral part of TDS, U.S. Cellular will continue to required to execute our strategy and achieve our mission. be a leader in the growing wireless industry, as the following achievements indicate. • We continued to lead the industry in low churn, achieving a 1.7% churn rate on our postpay customer base. • We invested nearly $490 million on improvements to our wireless network. • Minutes of use on our wireless systems increased 45% in 2001, indicating a strong demand for wireless services in our markets. • We reorganized all of our distribution channels, and introduced a new “high-tech, high-touch” look to our retail stores. 6 7
  • 7. U.S. Cellular Our financial results, and the key drivers of those results, were strong, but did not meet our targets for the year. An extremely competitive wireless marketplace has Creating the driven revenue per minute of use downward throughout the industry, lessening the positive effect on revenues of the increase in minutes of use. The effects of the dynamic terrorist attacks on September 11, 2001, and the overall downturn in the economy, especially for retailers, had a significant impact on our business in the second half of difference 2001. Traffic into our retail and agent locations slowed substantially, even during the holiday shopping season. As a result, despite our low churn rate, we added fewer Dana Dorcas new customers in 2001 than in 2000. Director of Sales We added 354,000 net new customers during 2001, ending the year with just under 3.5 Gainesville, FL million customer units. Driven by the increase in customers, service revenues increased As Director of Sales in the 10% to $1,826 million. Operating cash flow totaled $618 million, an 11% increase from Southeast Georgia/Florida cluster, the previous year, helping produce net income from operations of $181 million. Dana oversees all aspects of These results are indicative of a strong company. We feel that the changes we have made to refocus on our customers, along with our other accomplishments, will U.S. Cellular operations. On several Customer Care Center associates are a vital provide the basis for continued strong profitable growth at U.S. Cellular. connection to our customers. First-call occasions, over the eleven years resolution is their number one goal. Connecting With Our Customers that Dana has been with U.S. Serving customers is indeed the first priority of U.S. Cellular associates. Connecting Cellular, he has taken over the with our customers means being easily accessible to them—whenever, wherever and leadership of various U.S. Cellular however they choose to do business with us. Our goal is to ensure that all customers and potential customers have a positive experience with U.S. Cellular. operations that needed immediate Positive customer perceptions are vital to a successful, retail-driven organization. attention. By improving morale During 2001, U.S. Cellular introduced its new “high-tech, high-touch” retail stores. and performance, he transformed More than 20 newly designed stores were opened in new locations, more than 50 existing stores were remodeled and elements of the new design concept were these operations into winners. incorporated into the company’s other retail locations. The new stores, designed with feedback from customer advisory panels, increase the ease and convenience of Dana has the ability to motivate shopping for wireless products and services by guiding customers through every step In 2001, we opened a new state-of-the-art and lead his teams to achieve I.S. facility to better serve our associates. of the buying process—from selecting the right rate plan to choosing the best phone their goals, and as he would say, and wireless accessories. “You are only as good as your Some customers may choose to connect with us through U.S. Cellular agents located throughout our service areas. During 2001, we placed more emphasis on exclusive team!” This is evidenced by his agents who represent only U.S. Cellular. New merchandising programs, new signage, being awarded the Company’s 2001 store fixtures identical to those in our company-owned stores and the ability to activate customer accounts online are just part of the support and incentives provided Cultural Survey Coaches Award. to our exclusive agents. In September 2001, U.S. Cellular signed an exclusive service His ability to quickly assess needed agreement with Catalyst Marketing, Inc., (“Catalyst”) to expand its exclusive agent network throughout the central, eastern and southwestern regions of the United changes is complemented by his Our new “high-tech, States. The Catalyst stores will reflect U.S. Cellular’s new “high-tech, high-touch” retail salesmanship and planning skills. high-touch” retail store branding strategy. stores are designed The growing number of customers who prefer to connect with U.S. Cellular online now have improved access via our redesigned Web site, launched in April 2001. It to increase the ease provides fast and easy access to information on U.S. Cellular, its products and services, and convenience and offers the convenience of online wireless shopping. of shopping for our wireless products and services. 8 9