PART I

Item 1.  Business

Telephone and Data Systems, Inc. (“TDS”), incorporated in 1968, is a diversified telecommunications company providing high-quality communications services to approximately 4.95.0 million wireless customers and 1.2 million wireline and cable connections at December 31, 2015.2016.  TDS conducts all of its wireless operations through its majority-owned subsidiary, United States Cellular Corporation (“U.S. Cellular”).  As of December 31, 2015,2016, TDS owned 84%83% of the combined total of the outstanding Common Shares and Series A Common Shares of U.S. Cellular and controlled 96% of the combined voting power of both classes of U.S. Cellular common stock.  TDS provides broadband, video, voice and hosted and managed services, through its wholly-owned subsidiary, TDS Telecommunications Corporation (“TDS Telecom”).  TDS was incorporated in 1968 and changed its state of incorporation from Iowa to Delaware in 1998.  TDS Common Shares trade under the ticker symbol “TDS” on the New York Stock Exchange (“NYSE”).  U.S. Cellular Common Shares trade on the NYSE under the ticker symbol “USM.”

Under listing standards of the NYSE, TDS is a “controlled company” as such term is defined by the NYSE.  TDS is a controlled company because over 50% of the voting power for the election of directors of TDS is held by the trustees of the TDS Voting Trust.

TDS has four business segments: U.S. Cellular and TDS Telecom’s Wireline, Cable, and Hosted and Managed Services (“HMS”) operations.  TDS operations also include the wholly-owned subsidiary Suttle-Straus, Inc. (“Suttle-Straus”).  Suttle-Straus’ financial results were not significant to TDS’ operations.  All of TDS’ segments operate only in the United States, except for HMS, which includes an insignificant foreign operation.  Additional information about TDS’ segments is incorporated herein by reference from Note 18 — Business Segment Information, in TDS’ Annual Report to Shareholders, filed as Exhibit 13 hereto.

The map below highlights TDS’ consolidated areas of operations:

U.S. CELLULAR OPERATIONS

General

U.S. Cellular, incorporated under the state laws of Delaware in 1983, provides wireless telecommunications services to customers with approximately 4.95.0 million customersconnections in 23 states collectively representing a total population of 32.032 million. U.S. Cellular operates in one reportable segment, and all of its wireless operating markets are in the United States.  U.S. Cellular’s strategy is to attract and retain wireless customers through a value proposition comprised of a high-quality network, outstanding customer service, and competitive devices, plans, and pricing, all provided with a local focus.

Customers, Services and Products

Customers.  U.S. Cellular provides service to postpaid and prepaid customers from a variety of demographic segments.  U.S. Cellular focuses on retail consumers, government,governments, and small-to-mid-size business customers in industries such as construction, retail, agriculture, professional services and real estate. These customers are served primarily through U.S. Cellular’s retail and direct sales channels.  U.S. Cellular builds customer loyalty by offering high-quality network services, outstanding customer-focused support services, effectivecompetitive pricing, and other benefits as discussed further in “Marketing, Customer Service, and Sales and Distribution Channels.”

Services.  U.S. Cellular’s postpaid customers are able to choose from a variety of national plans with voice, messaging and data usage options and pricing that are designed to fit different customer needs, usage patterns and budgets. Helping a customer find the right pricing plan is an important element of U.S. Cellular’s brand positioning. U.S. Cellular offers Shared Connect data plans which allow customers to share data usage among all users and devices connected to the plan. Business rate plans are designed to meet the unique needs of the business customer. U.S. Cellular’s national plans price all domestic calls as local calls, regardless of where they are made or received in the United States, with no long distance or roaming charges, and can do so through the existence ofmade possible by roaming partnerships.agreements with other wireless carriers.  See “System Usage” section below for further discussion related to roaming. U.S. Cellular also offers monthly prepaid service plans, which provide customers unlimited voice and unlimited messaging with a specified amount of high-speed data and unlimited data at lower speeds once the high-speed data limit is reached to ensure customers are never without data access.

U.S. Cellular’s portfolio of smartphones, tablets and other connected devices is a key part of its strategy to deliver wireless devices which allow customers to stay productive, entertained and connected on the go; these devices are backed by U.S. Cellular’s high-speed networks, including a fourth generation (“4G”) Long-Term Evolution (“LTE”) network, which as of December 31, 2015, coveredcovers 99% of its postpaid customersconnections and supports nationwide roaming. U.S. Cellular’s 4G LTE network features smartphone messaging, data and internet services that allow customers to access the web and social network sites, e-mail, text, picture and video message, utilize turn-by-turn GPS navigation, and browse and download thousands of applications to customize their wireless devices to fit their lifestyles. 

In 2015, U.S. Cellular expanded itsalso offers advanced wireless solutions to consumers and business and government customers, including a growing suite of connected machine to machine solutions and software applications across the categories of monitor and control (e.g., sensors and cameras), business automation/operations (e.g., e-forms), communication (e.g., enterprise messaging, back-up router for business continuity services) and asset management (e.g., telematics, fleet management).  U.S. Cellular intends to continue to further enhance its advanced wireless services and connected solutionsthese offerings for consumer and business customers in 20162017 and beyond.

Devices and Products.  U.S. Cellular offers a comprehensive range of wireless devices such as handsets, modems,tablets, mobile hotspots, home phones and tabletsrouters for use by its customers. U.S. Cellular offers wireless devices that are compatible with most of its 4G LTE and third generation (“3G”) networks and all are compliant with the Federal Communications Commission (“FCC”) enhanced wireless 911 requirements. In addition, U.S. Cellular also offers a wide range of accessories, significantly expanding the breadth of products offered, fromincluding wireless basics such as carrying cases, hands-free devices, batteries, batteryscreen protectors, chargers, and memory cards to relatedas well as an ever growing assortment of consumer electronics such as headphones, speakers, and Bluetooth keyboards. hands-free devices. In addition, U.S. Cellular also sells wireless devices to agents and other third-party distributors for resale.recently introduced an assortment of home automation products (e.g., cameras, sensors, thermostats).

During 2016, U.S. Cellular frequently discounts wireless devices sold to new and current customers in order to attract new customers or to retain existing customers by reducing the cost of becoming or remaining a wireless customer.  U.S. Cellular also offersoffered customers the option to purchase certain devices under two alternatives:  (1) through equipment installment contracts over a specified time period, while providingwhere no annual service contract is signed and a discount is provided on their connection charge.charge or (2) alternative plans that are subject to a service contract.  Starting in September 2016, however, new postpaid handset sales to retail consumers are made under equipment installment plans only; business and government customers may continue to purchase equipment under either alternative.  For certain installment plans, after a specified period of time, the customer may have the right to upgrade to a new device prior to reaching the end of the installment term, thus enabling customers to more easily access the latest smartphones and provide a better overall customer experience. 

U.S. Cellular continues to offer severaldevice service programs that allow the customerprovide customers a simple process to receivereplace a replacementdamaged or defective device through a retail store or throughvia direct mail. U.S. Cellular also offers its Device Protection+ program which includes overnight delivery while continuing to provide customers peace of mind by coveringa replacement device for lost and stolen devices.

The devices offered include a full array of value and iconic smartphones and feature phones. During 2015,  In 2016, U.S. Cellular continued to bolster its expanding smartphonelaunched Device Protection+ Advanced, which includes 100GB of data backup, TechSupport+, and tablet portfolio with Android wireless devices and tablets such as the Samsung Galaxy S6 and S6 Edge+, Samsung Galaxy Note 5, LG G4, Motorola G LTE, Samsung Galaxy Tab S2, and LG Gpad 8.0, andAppleCare services for Apple products such as the iPhone 6S, iPhone 6S Plus, and the full complement of iPads. U.S. Cellular’s smartphone offerings play a significant role in driving data service usage and revenues. U.S. Cellular also offered additional products and services including LTE wireless routers and hotspots for broadband coverage as well as home phones and OnLook connected home. iOS customers.

U.S. Cellular offers a full array of both iconic and value smartphones with options for both Android and iOS customers.  U.S. Cellular continues to bolster its expanding smartphone portfolio with the Samsung Galaxy S® 7 and S® 7 Edge, the iPhone® 7 and 7 Plus, the LG V20 and K8, and the Motorola G4 Play.  Along with the iconic devices, U.S. Cellular supports the larger ecosystem of Samsung and Apple devices, such as the Samsung Gear VR, the Samsung Gear S2 and the Apple Watch.  For tablets, U.S. Cellular offers the full complement of iPads, the Samsung Galaxy Tab S2, the LG G Pad F™ 8.0 LTE, and the ZTE ZPad™.  U.S. Cellular’s smartphone offerings play a significant role in attracting customers and driving data service usage and revenues. U.S. Cellular also offers additional products and services that utilize the company’s network, including feature phones, mobile hotspots, LTE wireless routers and home phones.  

U.S. Cellular purchases wireless devices and accessory products from a number of original equipment manufacturers, including Samsung, Apple, Motorola, LG, Superior Communications, Kyocera, ZTE, Tessco, and Sierra Wireless.Tessco.  U.S. Cellular negotiates volume discountsalso has relationships with its suppliers to ensure best possible pricing and works with themidentifies opportunities for promotional support.  Additionally, in promoting specific equipment in its local advertising.2016 U.S. Cellular completed multiple auctions to optimize pricing from accessories suppliers and was able to realize lower costs as a result.  U.S. Cellular does not own significant product warehousing and distribution infrastructure. Instead,infrastructure; rather, it contracts with third party providers for substantially allthe majority of its product warehousing, distribution and direct customer fulfillment activities.  U.S. Cellular also contracts with third party providers for services related to its device replacementservice programs.

U.S. Cellular continuously monitors the financial condition of its wireless device and accessory suppliers. BecauseSince U.S. Cellular purchases wireless devices and accessorieshas a diversified portfolio of products from numerous suppliers,more than one supplier, U.S. Cellular does not expect the financial condition of any single supplier to affect its ability to offer a competitive varietyportfolio of wireless devices and accessories for sale to customers.

Marketing, Customer Service, and Sales and Distribution Channels

Marketing and Advertising.  U.S. Cellular’s marketing plan is focused on acquiring, retaining and growing customer relationships by maintaining a high-quality wireless network, providing outstanding customer service, and offering a comprehensive portfolio of products and services built around customer needs at fair prices.prices with a local focus.

U.S. Cellular believes that creating positive relationships with its customers enhances their wireless experience and builds customer loyalty. U.S. Cellular currently offers several customer-centric programs and services to customers. The Overage Protection service provides customers peace of mind by sending them text message alerts when they come close to reaching their allowable monthly plan minutes, text messages or data usage in order to avoid overage charges. With the launch of Shared Data plans, whereby customers select the size of the data bucket to share among all of their lines/devices, U.S. Cellular also offers a service to customers on Shared Connect data plans to allow customersthem to limit data usage on specific lines – or for the entire account – thereby providing controls to manage account overages. This service, Data Usage Controls, allows customers an easy way to split updivide their data bucket by line.

U.S. Cellular increases consumer awareness using media such as television, radio, newspaper, direct mail advertising, digital, social media, and sponsorships. U.S. Cellular has achieved its current level of penetration of its markets through a combination of a strong brand position, promotional advertising, broad distribution, maintaining a high-quality wireless network and providing outstanding customer service. U.S. Cellular’s advertising is directed at increasing the public awareness of the U.S. Cellular brand and understanding of the wireless services it offers, improvingto attract potential customers’ awareness of the U.S. Cellular brand, attracting and retainingcustomers, retain existing customers and increasing existing customers’increase their usage of U.S. Cellular’s services. U.S. Cellular attempts to select the advertising and promotional media that are most appealing to the targeted groups of potential customers in each local market. U.S. Cellular supplements its advertising with a focused public relations program that drives store traffic, supports sales of products and services, and builds brand awareness and preference. The approach combines national and local media relations in mainstream and social media channels with market-wide activities, events, and sponsorships.

U.S. Cellular focuses its charitable giving strategy on supporting initiatives relevant to consumers in its service areas. These initiatives include support of programs that focus on youth in the communities U.S. Cellular serves, such as the Boys and Girls Clubs and 4H Societies of America.

Customer Service.  U.S. Cellular manages customer retention by focusing on outstanding customer service through the development of processes that are customer-friendly, extensive training of frontline sales and support associates and the implementation of retention programs.

U.S. Cellular currently operates four regional customer care centers in its operating markets with personnel who are responsible for customer service activities, and a national financial services center with personnel who perform credit and other customer payment activities. U.S. Cellular also contracts with third parties that provide additional customer care and financial services support.

Sales and Distribution Channels.  U.S. Cellular supports a multi-faceted distribution program, including retail sales, direct sales, third-party national retailers, and independent agents, plus a website and telesales.

Company retail store locations are designed to market wireless products and services to the consumer and small business segments in a setting familiar to these types of customers.  As of December 31, 2015,2016, retail sales associates work in approximately 270267 U.S. Cellular-operated retail stores and kiosks.  Direct sales consultants market wireless services to mid-size business and government customers.  Additionally, the U.S. Cellular website enables customers to activate service and purchase wireless devices online.

U.S. Cellular maintains an ongoing training program to improve the effectiveness of retail sales associates and direct sales consultants by focusing their efforts on obtaining customers by facilitating the sale of appropriate packages for the customer’s expected usage and value-added services that meet the individual needs of the customer.

U.S. Cellular has relationships with exclusive and non-exclusive agents which(collectively “agents”).  Those agents are independent businesses that obtain customers for U.S. Cellular on a commission basis. At December 31, 2015,2016, U.S. Cellular had contracts with these businesses aggregating 580523 locations. U.S. Cellular provides additional support and training to its exclusive agents to increase customer satisfaction and to ensure a consistent customer experience. U.S. Cellular’s agents are generally in the business of selling wireless devices, wireless service packages and other related products. No single agent accounted for 10% or more of U.S. Cellular’s operating revenues during the past three years.

Since 2013, U.S. Cellular has expanded its distributionproducts and services are also offered through third-party national and on-line retailers.  Wal-Mart, Sam’s Club, and Dollar General offer U.S. Cellular products and services at select retail locations in U.S. Cellular’s service areas.  Further, Amazon offers U.S. Cellular’s postpaid and prepaid services on-line. U.S. Cellular continues to explore new relationships with additional third-party retailers as part of its strategy to expand distribution.

System Usage

U.S. Cellular’s main sources of revenues are from its own customers and from customers of competitorsother wireless operators who roam on its network.  The interoperability ofAn inter-carrier roaming agreement is negotiated between the wireless service enables a customeroperators to enable customers who isare in a wireless service area other than the customer’s home service area to place or receive a call, SMS or use data in that service area. U.S. Cellular has entered into reciprocal roaming agreements with operators of other wireless systems covering virtually all systems with Code Division Multiple Access (“CDMA”) technology in the United States, Canada and Mexico. RoamingIn addition, U.S. Cellular has entered into 4G LTE roaming agreements offerwith national wireless companies and, as a result, a majority of U.S. Cellular customers the opportunitycurrently have access to roamnationwide 4G LTE service.

When roaming on these systems. These reciprocal agreementsanother wireless carrier’s network, customers will automatically pre-register on the serving carrier’s network allowing customers of U.S. Cellular’s systems in the other carriers’ systems. In addition, a customer of a participating system roaming in a U.S. Cellular market where this arrangement is in effect is able to make andor receive calls, SMS or data on U.S. Cellular’s system.use data.  The charge for this service is negotiated as part of the roaming agreement between U.S. Cellular and the roaming customer’s carrier.  U.S. Cellular bills this charge to the customer’s home carrier, which then may bill the customer. In many instances, based on competitive factors, carriers, including U.S. Cellular, generally domay or may not charge their customers for roaming, or charge lower amounts to their customers than the amounts actually charged to them by other wireless carriers for roaming.  Since 2010, U.S. Cellular has offered nationwide 3G data roaming services, allowing its customers to access high-speed data across the country.

Business Development Strategy

U.S. Cellular groups its individual markets (geographic service areas as defined by the FCC in which wireless carriers are licensed, for fixed terms, to provide service) into broader geographic market areas to offer customers large service areas that primarily utilize U.S. Cellular’s network. U.S. Cellular’s ownership interests in wireless licenses include both consolidated and investment interests in operating and non-operating licenses covering portions of 3132 states and a total population of 50.550 million at December 31, 2015.2016.

TDS TELECOM OPERATIONS

General

TDS Telecom operates in 34 states and through its Wireline and Cable operations provides broadband, video and voice services to approximately 1.2 million connections in 34 states through its Wireline and Cable operations.connections.  The overall strategy for the Wireline and Cable businesses is to “ownoffer the best pipebroadband connection in the market”market in order to capitalize on data growth and customers’ needs for higher broadband speeds.speeds and leverage that growth by bundling services with video and voice. 

In addition, TDS Telecom provides a wide range of Information Technology (“IT”) services including colocation, cloud computing, hosted and hosting solutions, managed services, hosted application management, and sales of IT hardware and related maintenance and professional services through its HMS business. 

Business Development Strategy

TDS Telecom seeks to grow its operations through the acquisition of businesses that support and complement its existing products and services.  TDS Telecom may also seek to divest or exchange interests that are not strategic to its long-term success.  See Note 6 — Acquisitions, Divestitures and Exchanges in the Notes to Consolidated Financial Statements for a description of significant acquisitions, divestitures and exchanges.exchanges since the beginning of 2014. There can be no assurance that TDS or TDS Telecom will be able to negotiate additional acquisitions on terms acceptable to them or that regulatory approvals, where required, will be received, or that TDS will have the financial resources to continue to make acquisitions. 

Core Network

TDS Telecom has developed and deployed an inter-regional data routing infrastructure using owned and leased fiber capacity which allows it to reach over 91% of its Wireline physical access lines and 100% of its Cable access lines withleverage its multi-gigabit core network.network across all three of its segments.  This configuration, along with the continued development of an Internet Protocol (IP) network that interconnects substantially all the existing service territories, allows for next generation IP service offerings: IP-based video, TDS managedIP,commercially hosted IP-voice (managedIP), residential Voice over IP (“VoIP”), least-cost routing, and comprehensive IP policy management.

The TDS Telecom core network is also standardizing equipment and processes to increase efficiency in maintaining its network.  TDS Telecom utilizes centralized monitoring and management of its network to reduce costs and improve service reliability.  Network standardization has aided TDS Telecom in operating its 24-hours-a-day / 7-days-per-week Network Management Center, which continuously monitors the network in an effort to proactively identify and correct network faults prior to any customer impact. In addition, TDS Telecom anticipates reducing costs through the sharing of best practices across operations, centralization or standardization of functions and processes, and deployment of technologies and systems that provide for greater efficiencies and profitability.

Wireline

Operations

Wireline operations are located in a mix of rural, small town and suburban markets, with the largest concentrations of customers in the Upper Midwest and the Southeast.  As of December 31, 2015,2016, TDS Telecom operates 105 incumbent local exchange carriers (“ILEC”) in 25 states and provides telecommunications services as a competitive local exchange carrier (“CLEC”) in Illinois, Michigan, Minnesota, New Hampshire, and Wisconsin. Wireline operations provide retail telecommunications services to both residential and commercial customers that reside within its respective service territories.customers.  Wireline also provides services to wholesale customers, whowhich are primarily interexchange carriers (companies that provide long-distance telephone and data services between local exchange areas) and wireless carriers that compensate TDS Telecom for the use of its facilities to originate and terminate their voice and data transmissions.

Customers, Services and Products

Wireline operations generate revenues by providing the following services and products to residential and commercial customers and carriers:

• Broadband: Fiber technology is being deployed to select markets to provide Internet speeds of up to 1 gigabit.Gigabit per second (“Gbps”).  In certain non-fiber markets, TDS Telecom continues to upgrade the data networkshas deployed copper bonding technology to increase data speeds reaching up to 50 Megabits per second (“Mbps”).  Premium security and support services are available to enhance the customers’ high-speed Internet experience.
• Video: TDS TV is a comprehensive all-digital TV service available in select TDS markets that provides customers with connected-home DVRs, video-on-demand (“VOD”) and TV Everywhere (“TVE”).  Where TDS TV is not available, TDS Telecom partners with DISH® to offer digital satellite television.
• Voice: Call plans include local and long-distance telephone service, Voice over Internet Protocol (“VoIP”)VoIP and enhanced local services like voicemail, caller ID, call forwardingfind me follow me, collaboration, instant messaging and more.  Many features are bundled with calling plans to give customers the best value.
• Network access services are provided to interexchange and wireless carriers for the origination and termination of interstate and intrastate long distancelong-distance phone calls on TDS Telecom’s network and special access services are provided to carriers and others.

Wireline’s objective is to be the preferred broadband provider in its markets, focusing on broadband as the core growth component of its service offerings.  Wireline believes that its residential and business customers have a strong preference to purchase complementary telecommunications services from a single provider. Wireline has found that by offering and bundling services in high-value based packages with a strong customer service orientation, it can build customer loyalty and reduce customer churn.  The Wireline residential customer strategy is to provide broadband, video and voice services through value-added bundling of these services.  The commercial focus is to provide advanced IP-based data and voice services.

Residential.  Wireline residential customer operations provide high-speed data products,services, video services and local and long-distance voice service.  In selected residential markets, Wireline’s marketing and promotional strategies focus on its Internet Protocol Television Service (“IPTV”) service offering under the brand TDS TV.  This interactive video offering is intended to counter intensifying competition for video and broadband services.  In markets where IPTV is not offered, TDS Telecom has partnered with a satellite TV provider to allow for triple or double play bundling.  Approximately 79%81% of ILEC customers have at least two services.

Commercial.  Wireline commercial customer operations provide broadband, IP basedIP-based services, local and long-distancehosted voice service and othercollaboration services to small to medium sized businesses.  Wireline operations provide commercial customers with secure and reliable Internet access, data connections and advanced voice service with innovative VoIP features.  The Wireline flagship product is managedIP, a fully-hosted software and hardware solution that provides customers with a secure Internet connection and the latest VoIPinnovative collaboration features and capabilities.  TDS managedIP is available in markets covering 88%85% of all commercial customers at December 31, 2015.2016.  TDS managedIP is also available to customers whowhich have locations outside the traditional wirelineWireline footprint by offering the service over the customer’s data network.

Wireline has continued to expand its presence in the business broadband market with managedIP telephony, high-speed symmetrical dedicated broadband and point-to-point Ethernet services.  TDS managedIP delivers business customers a converged voice and data communications solution to the desktop.  Point-to-point Ethernet provides customers secure and reliable high-speed data links for two or more locations over TDS Telecom’s internal network, not the public Internet.  The strategy includes leveraging products such as managedIP and hosted and managed services to all of Wireline’s commercial customers, differentiating both on service excellence and a superior product portfolio.

Wireline focuses its commercial marketing on information-intensive industries such as financial services, health services, real estate, hotels and motels, retail, education and government.  Wireline uses its direct sales force, indirect agents, inside sales, telemarketing, digital marketing, and targeted mailings to sell products and services to commercial markets, which are segmented into tiers based on size (in terms of connections and revenues) and strategic importance.  Different sales and distribution channels are used to target each segment.

Wholesale.  Wireline operations continue to provide a high level of service to traditional interexchange and wireless carriers.  Wireline’s wholesale market focus is on access revenues, which is the compensation received from the interexchange carriers for carrying long distancevoice and data traffic on TDS Telecom’s networks.  Federal and state Universal Service Fund (“USF”) revenues, which support the cost of providing telecommunication services in high cost areas, are also included in wholesale service revenues.  In 2015,2016, TDS Telecom recognized $181.4$175 million in wholesale revenues which included $74.6$67 million received under all the Federal USFfederal regulatory support programs.  Recent and proposed regulatory changes may affect the amounts of future Wireline wholesale revenues.  See additional information in Risk Factors and information incorporated by reference from Exhibit 13 to this Form 10-K, Annual Report section “Regulatory Matters”.

Access Technology and System Design

Wireline operates an integrated, highly-reliable network that consists of central office host and remote sites, primarily equipped with digital and IP switches.  Fiber optic and copper cable connect the host central offices with remote switches and ultimately with end customers.  Wireline continues to upgrade and expand its telecommunications network to respond to the needs of its customers for greater bandwidth and advanced technologies.  Broadband service is provided to 94%95% of its ILEC physical access lines.service addresses.  The network is transitioning from its legacy circuit-switched network to a highly reliable IP-based broadband network to facilitate the integration of broadband, video and voice services. 

Wireline has pursued a plan to deploy fiber to the homefiber-to-the-home technology, which enables significantly greater broadband speeds to selected residential subdivisions and to commercial customers, when the investment is economically justified.  Fiber technology is being deployed to provide internet speeds of up to 1 Gbps.  In addition, in non-fiber markets, data speeds are being increased through the use of copper bonding technology.  Approximately 36%42% of Wireline service addresses are capable of 25 Mbps or greater broadband speeds at the end of 2015.  Fiber technology is being deployed to provide internet speeds of up to 1 gigabit per second. 2016.

Competition

The competitive environment in the telecommunications industry has changed significantly as a result of technological advances, customer expectations, and changes to regulation.  Wireline continues to seek to develop and maintain an efficient cost structure to ensure that it can compete with price-based initiatives from competitors.  Wireline is faced withfaces significant challenges, including competition from cable, VoIP,low-cost voice providers, wireless and other wireline providers as well as decreases in intercarrier compensation received for the use of TDS Telecom’s networks. 

Wireline has experienced customer connection and access minute declines due to competition from wireless carriers offering local and nationwide voice and data plans, from cable providers offering voice and data services via cable modems, from limited fiber overbuilders, and from other VoIPlow cost voice providers. 

While TDS Telecom positions itself as a high-quality telecommunications provider, it is also experiencing competition from:from Regional Bell Operating Companies (“RBOCs”) in areas where TDS Telecom competes as a CLEC, from other CLECs, cable providers, wireless carriers, VoIP providers and fiber overbuilders.  In addition, theCLEC.  The RBOCs are continuing to implement technological changes that could impede TDS Telecom’s access to facilities used to provide CLEC telecommunications services.  To mitigate this risk TDS Telecom has implemented and is working on other forms of last mile access alternatives to deliver services.

Cable

Operations

TDS Telecom entered the cableTelecom’s Cable business with the acquisition of substantially all of the assets of Baja Broadband, LLC (“Baja”) on August 1, 2013,was developed through recent multiple strategic acquisitions which operates cable systems in marketsoperate primarily in Colorado, New Mexico, Oregon, Texas, and Utah.  Baja was rebranded as TDS in 2015.  On September 1, 2014, TDS Telecom expanded itsTelecom’s cable operations with the acquisition of substantially allbusiness, a natural extension of the assets of a group of companies operating as BendBroadband, headquartered in Bend, Oregon.  As part of the agreement, a Tier III data center providing colocationWireline business, operates under two brand names: TDS and managed services and a cable advertising and broadcast business were also acquired.  The operations of the data center are included in the HMS segment.  The operations of the cable and the advertising and broadcast businesses are included in the Cable segment.BendBroadband.

Through its Cable operations, TDS Telecom is expandingseeks to be the leading provider of broadband services whilein its targeted markets by leveraging its core competencies in network management and customer focus.  The Cable strategy is to operate in marketsexpand its broadband services and leverage that growth by bundling with a growing population.video and voice services.  Through investment in plant upgrades, and improvements in programming and customer service levels, TDS Telecom intends to strengthen its markets and continue to grow its revenue base.

Customers, Services and Products

Residential.  Cable offers advanced broadband, video and voice services.  These services are actively bundled at competitive prices to encourage cross-selling within Cable’s customer base and to attract new customers.  Approximately 54%57% of residential customers subscribe to a bundle of services.

• Broadband:  DOCSIS 3.0 technology is deployed to 95% of service addresses which allows Cable to offer enhanced transmission speeds.  TDS Telecom anticipatesis offering 300 Mbps service in key markets in the near future.its largest markets.  Access to 24/7 technical support and security features is also provided to broadband customers.
• Video: Customers have access to basic service, premium programming and high-definition television combined with DVR service.  TDS Telecom recently introduced “CatchTV,” a branded whole-home DVR solution.
• Voice:  Telephony service uses IP to transport digitized voice signals over the same private network that brings cable television and high-speed databroadband services to customers.  All residential voice service customers have access to direct international calling and can subscribe to various long distance plans.

Commercial.  Business services are delivered over a robust network to provide broadband products, multi-line phone solutions and video.  Cable provides advanced business services, including data networking, Ethernet, hosting, broadband access and VoIP services, to small and medium sized businesses.  TDS Telecom is currently extending its managedIP product line to its Cable operations. Cable’s commercial service team works with its customers’ IT managers to develop customized telecommunications solutions and provides implementation capabilities essential to the needs of the individual business.

Hosted and Managed Services

Operations

TDS Telecom’s HMS business offers a full suitewide range of IT solutionsservices including colocation, cloud computing, hosted and hosting solutions, managed services, hosted application management, and sales of IT hardware and related maintenance and professional services.  HMS operates a total of eight data centers.  It owns two data centers in Iowa, one each in Minnesota, Wisconsin, Colorado and Oregon and it leases two data centers in Arizona.  TDS Telecom’s HMS business was developed through multiple strategic acquisitions.  The HMS business operates under a single, unified brand, OneNeck IT Solutions.  HMS has been organized to leverageleverages the trusted advisor relationships of its solutions provider acquisitionsbuilt over time to offer the entire HMS product portfolio to its customers.

The goal of HMS operations is to create, deliver and support a platform of IT products and services tailored for mid-sizedmid-market business customers.  These businesses typically have not outsourced their IT management and represent a market seeking a highly trusted provider relationship.  HMS intends to grow its relationship with its customers by combining its status as a trusted IT advisor with data center assets and an expansive product set.  Furthermore, cloud computing presents an opportunity for growth as it changes the way businesses buy computing power and IT services.  HMS is positioning itself to grow by buildinghas a sophisticated sales team, strong customer service delivery, extensive engineering talent, and deep ties to vendors.  HMS seeks to partner with customers to reduce their IT risk profiles and create cost savings.

A highly sophisticated sales force is critical to success in the hosted and managed services marketplace.  With the complexity of the sales process and the high level interactions necessary to win customer orders, highly experienced account executives, sales engineers and support staff are needed to gain the trust of customers looking to outsource IT functions.  HMS continues to enhance its sales capabilities in order to deliver products and services in all HMS product categoriescustomers demand in all of its markets. 

HMS has established a support organization capable of meeting mid-market customer demands for enhanced product offerings.  HMS has put in place an integrated, scalable, service delivery platform intended to exceed the quality commitments made to customers.  HMS is continually improving the efficiency and cost effectiveness of its service delivery model through standardization and automation of functions to improve profitability while maintaining high customer satisfaction.

Customers, Services and Products

HMS’ customers span multiple industries including healthcare, financial, manufacturing, retail, and government and are located across the United States.  Regional presences encompass states in the Upper Midwest, Great Plains, Rocky Mountains, Northwest, and Southwest, and are key to establishing the locally-known trusted advisor relationships that mid-market companies desire.  HMS primarily targets mid-market companies that are between 200 and 2,000 employees in size.  HMS also serves smaller customers with sophisticated IT needs as well as enterprise clients which value the trusted relationships they have built with HMS over time.

HMS operates fault tolerant, continuously maintainablemaintained data center facilities.  Value is provided to its customers through experienced teams that manage mission critical data centers, cloud, and customer infrastructure 24 hours per day 365 days per year.  Controls are in place at HMS’ facilities to provide assurances to customers that their data is secure and available, and that processing integrity, confidentiality and privacy requirements are met. Data centers are the foundation for outsourced IT services, which include hostedcolocation, cloud and managed-services,hosting, managed services, and application management and cloud services.management.

HMS’ portfolio of hosted and managed services covers servers, voice and data networks, Microsoft Exchange environments, storage, and service desk capabilities on equipment located both within HMS data centers and at customer locations.  HMS also has significant expertise in hosted application management including enterprise resource planning systems.  These systems can be hosted in HMS data centers, on customer premises or on the HMS cloud computing infrastructure.

TDS — REGULATION

TDS’ operations are subject to federal, state and local regulation.  Key regulatory considerations are discussed below.   Additional information relating to TDS’ regulatory environment is in Risk Factors and incorporated by reference from Exhibit 13 to this Form 10-K, Annual Report section “Regulatory Matters.”

U.S. Cellular

TDS provides various wireless services, including voice and data services, pursuant to licenses granted by the FCC.  The construction, operation and transfer of wireless systems in the United States are regulated to varying degrees by the FCC pursuant to the Communications Act of 1934, as amended (“Communications Act”).  The FCC currently does not require wireless carriers to comply with a number of statutory provisions otherwise applicable to common carriers that provide, originate or terminate interstate or international telecommunications.  However, the FCC has enacted regulations governing construction and operation of wireless systems, licensing (including renewal of licenses) and technical standards for the provision of wireless services under the Communications Act.

Wireless licenses segmented by geographic areas are granted by the FCC based on various geographic areas.FCC.  The completion of acquisitions, involving the transfer of control of all or a portion of a wireless system, requires prior FCC approval.  The FCC determines on a case-by-case basis whether an acquisition of wireless licenses is in the public interest.  Wireless licenses are granted generally granted for a ten year term or, in some cases, for a fifteen year term.  The FCC has establishedestablishes the standards for conducting comparative renewal proceedings between a wireless license holder seeking renewal of its license and challengers filing competing applications.  All of U.S. Cellular’s licenses for which it applied for renewal betweensince 1995 and 2015 have been renewed.  The FCC is pursuing proceedings to modify the license renewal process.  U.S. Cellular expects to continue to meet the criteria of anythe FCC’s license renewal process.

As part of its data services, U.S. Cellular provides internet access.  As described more fully inSuch internet access services may be subject to different regulatory requirements than other wireless services.

Reference is made to Exhibit 13 to this Form 10-K under “Regulatory Matters – FCC Net Neutrality Order,” there areMatters” for information regarding any significant recent developments and proposals that may result in greater regulation of wireless data services relating to internet access.the foregoing regulatory matters.

Although the Communications Act generally pre-empts state and local governments from regulating the entry of, or the rates charged by, wireless carriers, certain state and local governments regulate other terms and conditions of wireless services, including billing, termination of service arrangements, imposition of early termination fees, advertising, network outages, the use of handsets while driving, zoning and land use.  Further, the Federal Aviation Administration also regulates the siting, lighting and construction of transmitter towers and antennae.

Wireline

The FCC generally exercises jurisdiction over all facilities of, and services offered by, TDS Telecom’s ILECs as telecommunications common carriers, to the extent they provide, originate or terminate interstate or international telecommunications.  As described more fully in Exhibit 13 to this Form 10-K under “Regulatory Matters – FCC Connect America Fund (CAF),” there are developments that will result in changes to the FCC’s universal service fund program.

State public utility commissions generally exercise jurisdiction over intrastate telecommunications facilities and services.

The Communications Act requires, among other things, that telecommunications common carriers offer interstate services when requested at just and reasonable rates at terms and conditions that are non-discriminatory.  Maximum rates for regulated interstate services are prescribed by the FCC, andFCC.  In many states, local rates paid by end user customers and intrastate access charges paid by carriers continue to be subject to state commission approval in many states.approval.

TDS Telecom’s CLEC operations are subject to similar but reduced regulation compared to ILECs.

In addition to traditional circuit-switched voice service that is fully regulated as a telecommunications common carrier service, TDS Telecom also provides interconnected VoIP, which is currently subject to less regulation.

TDS’ Cable operations also provide interconnected VoIP and broadband services, including internet access.  The interconnected VoIP and internet regulatory matters and issues described above under “Wireline” are substantially similar for cable providers, including proposals that may result in greaterchanges in regulation of broadband internet services as described more fully in Exhibit 13 to this formForm 10-K under “Regulatory Matters – FCC Net Neutrality Order.Matters.”

HMS

HMS is subject to varying degrees of regulation in each of the jurisdictions in which it operates.  Federal, state and local laws and regulations, and their interpretation and enforcement may be applicable and may differ significantly among those jurisdictions.  These regulations and laws may cover taxation, privacy, data protection, copyrights and other intellectual property, electronic communications and regulations applicable to electronic products and services.

TDS—OTHER ITEMS

Debt Securities

The following securities trade on the NYSE: TDS’ 6.625% Senior Notes due 2045 trade under the symbol “TDI,” TDS’ 6.875% Senior Notes due 2059 trade under the symbol “TDE,” TDS’ 7.0% Senior Notes due 2060 trade under the symbol “TDJ” and TDS’ 5.875% Senior Notes due 2061 trade under the symbol “TDA.”  U.S. Cellular’s 6.95% Senior Notes due 2060 trade under the symbol “UZA.”  U.S. Cellular’s 7.25% Senior Notes due 2063 trade under the symbol “UZB.”  U.S. Cellular’s 7.25% Senior Notes due 2064 trade under the symbol “UZC.”  U.S. Cellular’s 6.7% Senior Notes due 2033 are traded over the counter and are not listed on any stock exchange.

Employees

TDS had approximately 10,40010,300 full-time and part-time employees as of December 31, 2015,2016, less than 1% of whom were represented by labor organizations.  TDS considers its relationship with its employees to be good.

Location and Company Information

TDS executive offices are located at 30 North LaSalle Street, Suite 4000, Chicago, Illinois 60602.  TDS’ telephone number is 312-630-1900.  TDS’ website is www.tdsinc.com.  TDS files with, or furnishes to, the Securities and Exchange Commission (“SEC”) annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, as well as various other information.  Anyone may access, free of charge, through the Investor Relations portion of the website, the TDS annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), as soon as reasonably practical after such material is electronically filed with the SEC.  The public may read and copy any materials TDS files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington D.C. 20549.  The public may obtain information on the operation of the Reference Room by calling the SEC at 1-800-732-0330.  The public may also view electronic filings of TDS by accessing SEC filings at www.sec.gov.

U.S. Cellular executive offices are located at 8410 West Bryn Mawr Avenue, Chicago, Illinois 60631.  U.S. Cellular’s telephone number is 773-399-8900.  U.S. Cellular’s website address is www.uscellular.com.  U.S. Cellular files with, or furnishes to, the SEC annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, as well as various other information.  Investors may access, free of charge, through the Investor Relations portion of the website, U.S. Cellular’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practical after such material is filed electronically with the SEC.  The public may read and copy any materials U.S. Cellular files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington D.C. 20549.  The public may obtain information on the operation of the Reference Room by calling the SEC at 1-800-732-0330.  The public may also view electronic filings of U.S. Cellular by accessing SEC filings at www.sec.gov.

Item 1A.  Risk Factors

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

SAFE HARBOR CAUTIONARY STATEMENT

This Annual Report on Form 10-K, including exhibits, contains statements that are not based on historical facts and represent forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act of 1995.  All statements, other than statements of historical facts, that address activities, events or developments that TDS intends, expects, projects, believes, estimates, plans or anticipates will or may occur in the future are forward-looking statements.  The words “believes,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “projects” and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward-looking statements.  Such risks, uncertainties and other factors include those set forth below under “Risk Factors” in this Form 10-K.  Each of the following risks could have a material adverse effect on TDS;TDS’ business, financial condition or results of operations; however, such factors are not necessarily all of the important factors that could cause actual results, performance or achievements to differ materially from those expressed in, or implied by, the forward-looking statements contained in this document.  Other unknown or unpredictable factors also could have material adverse effects on future results, performance or achievements.  TDS undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.  You should carefully consider the following risk factors and other information contained in, or incorporated by reference into, this Form 10-K to understand the material risks relating to TDS’ business.

Risk Factors

1. Intense competition in the markets in which TDS operates could adversely affect TDS’ revenues or increase its costs to compete.

Competition in the wireless industry is intense and is expected to intensify further in the future due to the general effects of the economy, as well as multiple wireless industry factors such as increasing market penetration, decreasing customer churn rates, introduction of new products, new competitors and changing prices.  There is competition in pricing; handsets and other devices; network quality, coverage, speed and technologies; distribution; new entrants; and other categories.  In particular, wireless competition includes aggressive promotional pricing to induce customers to switch carriers, which could result in switching activity and churn; data network speed is becoming a competitive differentiator; and there has been a resurgence of new entrants to wireless markets including prepaid brands that have been purchased by national carriers.  TDS’ ability to compete effectively will depend, in part, on its ability to anticipate and respond to various competitive factors affecting the telecommunications industry.  TDS anticipates that competition will continue to cause the prices for products and services to continue to decline and the costs to compete to increase.  Most of TDS’ competitors are national or global telecommunications companies that are larger than TDS, possess greater financial and other resources, possess more extensive coverage areas and more spectrum within their coverage areas, and market other services with their communications services that TDS does not offer.  Further, other companies that currently are less competitive may also add more efficient and superior low-band spectrum to become more competitive in TDS’ primary markets.  In particular, to the extent that existing competitors or new entrants acquire low-band (600 MHz) spectrum in FCC Auction 1000 in 20161002 in TDS markets, TDS could face increased competition over time from competitors which hold more efficient and superior low-band spectrum.  In addition, TDS may face competition from technologies that may be introduced in the future.  New technologies, services and products that are more commercially effective than the technologies, services and products offered by TDS may be developed.  Further, new technologies may be proprietary such that TDS is not able to adopt such technologies.  There can be no assurance that TDS will be able to compete successfully in this environment. 

Sources of competition to TDS’ wireless business typically include two to four competing wireless telecommunications service providers in each market, wireline telecommunications service providers, cable companies, resellers (including mobile virtual network operators)MVNO), and providers of other alternate telecommunications services.  Many of TDS’ wireless competitors and other competitors have substantially greater financial, technical, marketing, sales, purchasing and distribution resources than TDS.

Sources of competition to TDS’ Wireline ILEC business include, but are not limited to, resellers of local exchange services, interexchange carriers, RBOCs, direct broadcast satellite transmission service providers, wireless communications providers, cable companies, access providers, CLECs, fiber overbuilders, VoIP providers and providers using other emerging technologies.  The Wireline CLEC business sources of competition include the sources identified above as well as the ILEC in each market, which enjoys competitive advantages, including its wireline connection to virtually all of the customers and potential customers of Wireline’s CLEC business, its established brand name, its lower overhead costs, and its substantial financial resources.  Wireline’s CLEC business is typically required to discount services to win potential customers.  Further, this business may be negatively impacted if it cannot provide levels of bandwidth prospective customers demand due in large part to lack of availability of IP-based wholesale services at competitive prices.  In the future, TDS expects the number of its physical access lines served to continue to be adversely affected by wireless voice and broadband substitution and by cable company competition.

Some of the specific risks presented by certain Wireline competitors include:

• Cable companies – continued deployment of broadband technologies such as DOCSIS 3.0 and their further evolution that substantially increase data transferbroadband speeds, and offering these speeds to customers at relatively low prices, including speed upgrades for no additional charge, and competition for video services.
• Wireless – the trend of customers “substituting” their wireline voice and broadband connections with a wireless device and wireless voice and broadband services continues.
• RBOCs – continue to be formidable competitors given their full suite of services, experience and strong financial resources.
• VoIP providers – are able to offer voice service at a very low price point.
• Fiber overbuilders – municipalities or other providers offering the same or higher data speeds at similar or lower price points.

• Other providers – competition to IPTV and broadband from broadcast television, satellite providers and on-line video services.

TDS’ Cable business also provides broadband, video and voice services, as well as cable television service.services.  Cable’s business faces sources of competition similar to the Wireline business, but with some differences.  In particular, Cable does not typically compete against another cable company for broadband services, but competes against ILECs that primarily offer DSL-based services and may also offer fiber-based and other premium and enhanced data services.  Cable provides VoIP services rather than traditional wireline voice connections and faces competition from other VoIP providers, but also faces competition from ILECs providing traditional wireline voice connections.  With respect to video, Cable also competes against broadcast television, direct broadcast satellite providers, on-line video services, but may also compete againstand wireline providers which have begun to upgrade their networks to provide video services in addition to voice and high-speed internet access services.

Sources of competition for HMS’ business primarily include large diversified telecommunicationstechnology and technologyother companies, as well as smaller independent companies that focus on mid-market companies.  In addition, new entrants may emerge and grow rapidly creating additional sources of competition or companies may begin insourcing IT services.  The IT services market is large and complex, with a diverse array of segments in which performance and market dynamics vary considerably.  As a result of these dynamics the IT services market is a highly competitive environment.  Therefore, the HMS business is increasingly required to assume greater potential contractual risk obligations, such as risks relating to the consequences of data breaches or unauthorized disclosure of confidential customer information, in order to win new customer engagements.  In the event of such incidents, the HMS business could be materially adversely affected.

If TDS does not adapt to compete effectively in such a highly competitive environment, such competitive factors could result in product, service, pricing or cost disadvantages and could have an adverse effect on TDS’ business, financial condition or results of operations.

2. A failure by TDS to successfully execute its business strategy (including planned acquisitions, spectrum acquisitions, divestitures and exchanges) or allocate resources or capital could have an adverse effect on TDS’ business, financial condition or results of operations.

The successful execution of business strategies, the optimal allocation within TDS’ portfolio of assets and optimal capital allocation decisions depend on various internal and external factors, many of which are not in TDS’ control.  TDS’ ability to achieve projected financial results by implementing and executing its business strategies and optimally allocating its assets and capital could be affected by such factors.  Such factors include but are not limited to pricing practices by competitors, relative scale, purchasing power, roaming and other strategic agreements, wireless device availability, timing of introduction of wireless devices, access to spectrum, emerging technologies, programming and retransmission costs, mid-market demand for cloud and hosted services and other factors.  In addition, there is no assurance that U.S. Cellular’s or TDS Telecom’s strategies will be successful.  Even if TDS executes its business strategies as intended, such strategies may not be successful in the long-termlong term at achieving growth in customers, revenues, net income, or generating portfolio returns greater than TDS’ cost of capital.  In addition, if at some point a change in asset allocation is desired, the company may be unable to alter asset allocation to meet growth and return goals in a timely and efficient manner.  In such case, there would be an adverse effect on TDS’ business, financial condition and results of operations.  TDS’ current forecast does not indicateindicates that TDS will not achieve a return on capital that exceeds its cost of capital overin the near term.foreseeable future.  See Item 1. Business for additional information on TDS’ business strategy. 

U.S. Cellular is a regional wireless carrier, but competes primarily against much larger national wireless carriers with much greater resources.  Its business strategy in attempting to attract and retain wireless customers through a value proposition comprised of a high-quality network, outstanding customer service, and competitive devices, plans and pricing, all provided with a local focus has not resulted in, and in the future may not result in, performance that achieves returns in line with or above its cost of capital.  U.S. Cellular’s current forecast does not indicateindicates that U.S. Cellular will not achieve a return on capital that exceeds its cost of capital in the near term.foreseeable future.  U.S. Cellular also might be unable to adopt technologies, products and services as fast as itits larger competitors.  As a result, consumers who are eager to adopt new technologies, products and services more quickly may select U.S. Cellular’s competitors rather than U.S. Cellular as their service provider.  To the extent that U.S. Cellular does not attract or retain these types of customers, U.S. Cellular could be at a competitive disadvantage and have a customer base that generates lower overall average revenue per unit (“ARPU”), average revenue per account (“ARPA”) and profit margins relative to its competition.

TDS Telecom operates the Wireline, Cable and HMS segments.  Wireline and Cable each provide broadband, video and voice services and, as a result, have certain risks in common, but also have certain risks that are specific to that segment.  HMS provides a wide range of IT services and has risks that are not shared with the other business segments.  The following summarizes the business strategy risks of the Wireline, Cable and HMS segments.

Although theThe overall strategy for the both the Wireline and Cable businesses includes owningis to offer the best pipebroadband connection in its markets in order to capitalize on data growth and the customerscustomers’ need for higher broadband speeds,speeds.  Wireline’s DSL-based services have several limitations compared to DOCSIS technologies employed by cable companies.  In addition, the rural nature of Wireline’s markets make it more difficult to provide high-speed products efficiently.  Wireline is also faced with other significant challenges, including customer connection and access minute declines in traditional wireline voice services, competition from cable, VoIP, wireless and other wireline providers as well as decreases in intercarrier compensation received for the use of Wireline’s networks.  Wireline’s IPTV product has significant costs and risks relating to programming and retransmission and may not be able to fully pass these costs on to customers.  Wireline must continually adjust its cost structure as a result of these challenges.  A failure to develop and maintain an efficient cost structure would have an adverse effect on the Wireline business.

Similar to Wireline’s IPTV product and Cable’s business hashave significant costs and risks relating to programming and retransmission.  Such costs have been increasing and Cable’s businessthese costs may not be able to be fully pass these costspassed on to customers.  In addition, Cable’s business isboth businesses are limited in itstheir ability to obtain programming at favorable costs and terms due to itstheir small scale.  Although Cable’s business development strategy includes evaluating opportunities for possible further acquisitions of desirable cable companies on attractive terms to increase the scale of its business, there is no assurance that this strategy will be successful.  Also, Cable’s business may be affected by aA wide range of regulatory or other issues also affect both businesses, including matters pertaining to set-top boxes, equipment connectivity, content regulation, closed captioning, pole attachments, privacy, copyright, technical standards, and municipal entry into video and broadband.  Further, changes in consumer behavior and/or new technologies are causing consumers to reduce or cancel their cable video services and instead seek to obtain video on demand over the internet or through new technologies.

Although Cable’s business development strategy includes evaluating opportunities for possible further acquisitions of desirable cable companies on attractive terms to increase the scale of its business, there is no assurance that this strategy will be successful.

HMS’ business strategy is to create, deliver and support a platform of IT products and services tailored for mid-sized business customers and grow the business organically or through acquisitions.  HMS’ service platform provides the potential for expansion of current products and services to additional markets in or near HMS’ current footprint.  There is no assurance that HMS may continue towill make opportunisticany acquisitions of companies that furtherto strengthen its operating market areas andor enter additional attractive markets.  However,Even if it does so, there is no assurance that TDSany such acquisitions will be successful in finding further opportunities for acquisitions of desirable companies.successful.  The HMS business is faced with a number of risks in its pursuit of its strategy, including:  the ability to successfully combine acquired companies to provide an integrated platform of IT products and services;  the rate of outsourcing IT needs and moving to the cloud by mid-sized business customers; the ability to sell recurring revenue streams;services; whether potential customers ascribe sufficient value to HMS’ more customized cloud and hosted services compared to more commodity based offerings of larger competitors; HMS’ limited scale when competing with larger competitors.competitors; and the impact of IT wage inflation on the profitability of on-shore support services.

A failure by TDS to execute its business strategies successfully or to allocate resources or capital optimally could have an adverse effect on TDS’ businesses, financial condition or results of operations.

3. Uncertainty in TDS’ future cash flow and liquidity or in the ability to access capital, deterioration in the capital markets, other changes in TDS’ performance or market conditions, changes in TDS’ credit ratings or other factors could limit or restrict the availability of financing on terms and prices acceptable to TDS, which could require TDS to reduce its construction, development or acquisition programs, reduce the acquisition of spectrum licenses, and/or reduce or cease share repurchases and/or the payment of dividends.

TDS and its subsidiaries operate capital-intensive businesses.  TDS has used internally-generated funds and also has also obtained substantial funds from external sources for general corporate purposes.  In the past, TDS’ existing cash and investment balances, funds available under its revolving credit facilities, funds from other financing sources, including a term loan and other long-term debt, and cash flows from operating, investing and financing activities, including sales of assets or businesses, provided sufficient liquidity and financial flexibility for TDS to meet its normal day-to-day operating needs and debt service requirements, to finance the build-out and enhancement of markets and to fund acquisitions.  There is no assurance that this will be the case in the future.  It may be necessary from time to time to increase the size of the existing revolving credit facilities, to put in place new credit facilities, or to obtain other forms of financing in order to fund potential expenditures.  TDS’ liquidity would be adversely affected if, among other things, TDS is unable to obtain short or long-term financing on acceptable terms, TDS makes spectrum license purchases in FCC auctions or from other parties, TDS makes business acquisitions, the LA Partnership does not resumediscontinues or reduces distributions compared to prior historical levels and/or Eligible Telecommunications Carrier (“ETC”) and/or other regulatory support payments continue to decline.  In addition, although sales of assets or businesses by TDS have been an important source of liquidity for TDS in recent periods, TDS does not expect a similar level of such sales in the future, which will reduce a source of liquidity for TDS.  In recent years, TDS’ credit rating has declined to sub-investment grade.  In certain recent periods, TDS has incurred negative free cash flow (defined as Cash flows from operating activities less Cash usedpaid for additions to property, plant and equipment) and this will continue in the future if operating results do not improve.improve or if capital expenditures do not decrease.  TDS currently expects to have negative free cash flow in 2016.2017.  TDS may require substantial additional capital for, among other uses, funding day-to-day operating needs, working capital, acquisitions of providers of wireless or wireline telecommunications services, cable markets, IT services or other businesses, spectrum license or system acquisitions, system development and network capacity expansion, debt service requirements, the repurchase of shares, the payment of dividends, or making additional investments.  There can be no assurance that sufficient funds will continue to be available to TDS or its subsidiaries on terms or at prices acceptable to TDS.  Insufficient cash flows from operating activities, changes in its credit ratings, defaults of the terms of debt or credit agreements, uncertainty of access to capital, deterioration in the capital markets, reduced regulatory capital at banks which in turn limits their ability to borrow and lend, other changes in the performance of TDS or in market conditions or other factors could limit or restrict the availability of financing on terms and prices acceptable to TDS, which could require TDS to reduce its acquisition, capital expenditure and business development programs, reduce the acquisition of spectrum licenses, and/or reduce or cease share repurchases and/or the payment of dividends.  TDS cannot provide assurances that circumstances that could have a material adverse effect on its liquidity or capital resources will not occur.  Any of the foregoing would have an adverse impact on TDS’ businesses, financial condition or results of operations. 

4. TDS has a significant amount of indebtedness which could adversely affect its financial performance and in turn adversely affect its ability to make payments on its indebtedness, comply with terms of debt covenants and incur additional debt.

TDS has a significant amount of indebtedness and may need to incur additional indebtedness.  TDS’ level of indebtedness could have important consequences.  For example, it (i) may limit TDS’ ability to obtain additional financing for working capital, capital expenditures or general corporate purposes, particularly if the ratings assigned to its debt securities by rating organizations are revised downward; (ii) will require TDS to dedicate a substantial portion of its cash flow from operations to the payment of interest and principal on its debt, reducing the funds available to TDS for other purposes including expansion through acquisitions, capital expenditures, marketing spending and expansion of its business; and (iii) may limit TDS’ flexibility to adjust to changing business and market conditions and make TDS more vulnerable to a downturn in general economic conditions as compared to TDS’ competitors.  TDS’ ability to make scheduled payments on its indebtedness or to refinance its obligations with respect to its indebtednessit will depend on its financial and operating performance, which, in turn, is subject to prevailing economic and competitive conditions and other factors beyond its control.  In addition, TDS’ leverage may put it at a competitive disadvantage to some of its competitors that are not as leveraged. 

The TDS and U.S. Cellular revolving credit facilities and the U.S. Cellular term loan facility require TDS or U.S. Cellular, as applicable, to comply with certain affirmative and negative covenants, including certain financial covenants.  Depending on actual financial performance of TDS and U.S. Cellular, there is a risk that TDS and/or U.S. Cellular could fail to satisfy the required financial covenants.  If TDS or U.S. Cellular breach a financial or other covenant of any of these agreements, it would result in a default under that agreement, and could involve a cross-default under other debt instruments.  This could in turn cause the affected lenders to accelerate the repayment of principal and accrued interest on any outstanding debt under such agreements and, if they choose, terminate the facility.  If appropriate, TDS and U.S. Cellular may request the applicable lender for an amendment of financial covenants in the TDS and U.S. Cellular revolving credit facility and the U.S. Cellular term loan facility, in order to provide additional financial flexibility to TDS and U.S. Cellular, and may also seek other changes to such facilities.  There is no assurance that the lenders will agree to any amendments.  If the lenders agree to amendments, this may result in additional payments or higher interest rates payable to the lenders and/or additional restrictions.  Restrictions in such debt instruments may limit TDS’ operating and financial flexibility.

As a result, TDS’ level of indebtedness, restrictions contained in debt instruments and/or possible breaches of covenants, defaults, and acceleration of indebtedness could have an adverse effect on TDS’ business, financial condition, revenues, results of operations and cash flows.

5. Changes in roaming practices or other factors could cause TDS’ roaming revenues to decline from current levels, roaming expenses to increase from current levels and/or impact TDS’ ability to service its customers in geographic areas where TDS does not have its own network, which could have an adverse effect on TDS’ business, financial condition or results of operations.

TDS’ revenues include roaming revenues related to the use of TDS’ network by other wireless carriers’ customers who travel within TDS’ coverage areas. Changes in the network footprints of carriers due to mergers, acquisitions or network expansions could have an adverse effect on TDS’ roaming revenues. For example, consolidation among other carriers which have network footprints that currently overlap TDS’ network could decrease the amount of roaming revenues for TDS. 

Similarly, TDS’ wireless customers can access another carrier’s digital system automatically only if the other carrier allows TDS’ customers to roam on its network.  TDS relies on roaming agreements with other carriers to provide roaming capability to its customers in areas of the U.S. and internationally outside of its service areas, including Mexico and Canada, and to improve coverage within selected areas of TDS’ network footprint.  Such agreements cover traditional voice services as well as data services.  Although TDS currently has long-term roaming agreements with certain other carriers, these agreements generally are subject to renewal and termination if certain events occur.  FCC rules and orders impose certain requirements on wireless carriers to offer certain roaming arrangements to other carriers.  However, carriers frequently disagree on what is required.  Although TDS has entered into 4G LTE roaming agreements with national carriers, there is no assurance that TDS will be able to maintain these agreements and/or enter into new agreements with other carriers to provide roaming services using 4G LTE or other technologies, or that it will be able to do so on reasonable or cost effective terms.

Some competitors may be able to obtain lower roaming rates than TDS is able to obtain because they have larger call volumes or may be able to reduce roaming charges by providing service principally over their own networks.  In addition, the quality of service that a wireless carrier delivers during a roaming call may be inferior to the quality of service TDS provides, the price of a roaming call may not be competitive with prices of other wireless carriers for such call, and TDS’ customers may not be able to use some of the advanced features, such as voicemail notification or data applications, that TDS customers enjoy when making calls on TDS’ network.  TDS’ rate of adoption of new technologies, such as those enabling high-speed data and voice services, could affect its ability to enter into or maintain roaming agreements with other carriers.  In addition, TDS’ wireless technology may not be compatible with technologies used by other carriers, which may limit the ability of TDS to enter into voice or data roaming agreements with such other carriers.  Carriers whose customers roam on TDS’ roaming partnersnetwork could switch their business to new operators or, over time, to their own networks.  Changes in roaming usage patterns, rates for roaming minutes or data usage or relationships with carriers whose customers generate roaming minutes or data use on TDS’ network could have an adverse effect on TDS’ revenues and revenue growth.  Further, other carriers could negotiate higher roaming rates for accessing their networks, resulting in increased roaming expense for TDS.

To the extent that TDS’ key roaming partnersother carriers expand their networks in TDS’ service areas, the roaming arrangements between TDS and these key roaming partnersother carriers could become less strategic for the roaming partners.them.  That is, these key roaming partnersother carriers will have fewer or less extensive geographic areas where roaming services are required by their customers and, as a result, the roaming arrangements could become less critical to serving their customer base.  This presents a risk to TDS in that, to the extent TDS is not able to enter into economically viable roaming arrangements with key roaming partners,these other carriers, this could impact TDS’ ability to service its customers in geographic areas where TDS does not have its own network.

8. To the extent that existing competitors or new entrants acquire low-band (600 MHz) spectrum in U.S. Cellular markets in Auction 1000, U.S. Cellular could face increased competition over time from competitors that hold more efficient and superior low-band spectrum, which would have an adverse effect on TDS’ wireless competitive position.
   8. Changes in the regulatory environment or a failureFailure by TDS to timely or fully comply with any existing applicable legislative and/or regulatory requirements or changes thereto could adversely affect TDS’ business, financial condition or results of operations.

   TDS’ operations are subject to varying degrees of regulation by the FCC, state public utility commissions and other federal, state and local regulatory agencies and legislative bodies.  TDS is unable to predictChanges in the future actionsadministration of the various regulatory agencies and legislative bodies that govern TDS,could result in different policies with respect to many federal laws and regulations, including but such actions could have adverse effects on TDS’ business.not limited to changes to fiscal and tax policies, which may include comprehensive tax reform.  New or amended regulatory requirements could increase TDS’ costs and divert resources from other initiatives.

   Adverse decisions, increased regulation, or changes to existing regulation by regulatory bodies could negatively impact TDS’ operations by, among other things, changing the amount that can be charged for local, intrastate or interstate access rates, increasing TDS’ costs of doing business, permitting greater competition or limiting TDS’ ability to engage in certain sales or marketing activities.  New regulatory mandates or enforcement may require unexpected or changedincreased capital investment,expenditures, lost revenues, changes in operationshigher operating expenses or other changes. 

   Court decisions and rulemakings could have a substantial impact on TDS’ operations, including rulemakings on intercarrier access compensation, state and federal universal service, and treatment of VoIP traffic or unbundled network elements.  Litigation and different objectives among federal and state regulators could create uncertainty and delay TDS’ ability to respond to new regulations.  Further, wireless licenses are subject to renewal by the FCC and could be revoked in the event of a violation of applicable laws or regulatory requirements.  Also, FCC rules relating to net neutrality, broadband consumer privacy and other rules may result in additional costs for compliance and may limit opportunities to derive profits from certain business practices or resources, if not amended or rescinded.

   TDS attempts to timely and fully comply with all regulatory requirements.  However, TDS is unable to predict the future actions of the various legislative and regulatory bodies that govern TDS, but such actions could have adverse effects on TDS’ business.  Any failure by TDS to timely or fully comply with any regulatory requirements could adversely affect TDS’ financial condition, results of operations or ability to do business.

   For additional information about TDS’ regulatory environment, see Risk Factor Number 15 below.below and “Regulatory Matters” in Exhibit 13 to this Form 10-K.

   9. An inability to attract people of outstanding potential, to develop their potential through education and assignments, and to retain them by keeping them engaged, challenged and properly rewarded could have an adverse effect on TDS' business, financial condition or results of operations.

   TDS’ businesses are highly technical and competition for skilled talent in the telecommunications and IT services industries is aggressive.  Due to competition for qualified management, technical, sales and other personnel, there can be no assurance that TDS will be able to continue to attract and/or retain people of outstanding potential for the development of its business.  The loss of the services of existing key personnel as well as the failure to recruit additional qualified personnel in a timely manner could have an adverse effect on TDS’ business, financial condition or results of operations.

   10. TDS’ assets are concentrated primarily in the U.S. telecommunications industry.  Consequently, its operating results may fluctuate based on factors related primarily to conditions in this industry.

   TDS’ assets and revenue streams are concentrated primarily in the U.S. telecommunications industry.  The U.S. telecommunications industry is facing significant change and an uncertain operating environment.  Although TDS has diversified into HMS and the cable businesses, TDS’ revenue streams continue to be substantially derived from telecommunications services, including wireless, wireline, broadband and internet services.  TDS’ focus on the U.S. telecommunications industry, together with its positioning relative to larger competitors with greater resources within the industry, may represent increased risk for investors due to the lack of diversification.  This could have an adverse effect on TDS’ ability to profitablyattain and sustain long-term, profitable revenue growth and could have an adverse effect on its business, financial condition or results of operations.

   11. TDS’ smaller scale relative to larger competitors that may have much greater financial and other resources than TDS could cause TDS to be unable to compete successfully, which could adversely affect its business, financial condition or results of operations.

   There has been a trend in the telecommunications, IT services and related industries in recent years towards consolidation of service providers through acquisitions, reorganizations and joint ventures.  This trend could continue, leading to larger competitors over time.  TDS has smaller scale efficiencies compared to larger competitors.  TDS may be unable to compete successfully with larger companies that have substantially greater financial, technical, marketing, sales, purchasing and distribution resources or that offer more services than TDS, which could adversely affect TDS’ revenues and costs of doing business.  Specifically, TDS’ smaller scale relative to most of its competitors could have the following impacts, among others:

   • Low profit margins and returns on investment that are below TDS’ cost of capital;
   • Increased operating costs due to lack of leverage with vendors;
   • Limited opportunities for strategic partnerships as potential partners are focused on wireless, wireline, cable and IT services companies with greater scale and scope;
   • Limited access to content and programming;
   • Limited ability to influence industry standards;
   • Reduced ability to invest in research and development of new products and services;
   • Vendors may deem TDS non-strategic and not develop or sell products and services to TDS, particularly where technical requirements differ from those of larger companies;
   • Limited access to intellectual property; and
   • Other limited opportunities such as for software development or third party distribution.
   
   

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TDS’ telecommunications businesses increasingly depend on access to content for data music or video services and access to new wireless devices being developed by vendors.  TDS’ ability to obtain such access depends in part on other parties.  If TDS is unable to obtain timely access to new content or wireless devices being developed by vendors, its business, financial condition or results of operations could be adversely affected.

As a result of the foregoing, TDS’ smaller scale relative to larger competitors could adversely affect TDS’ business, financial condition or results of operations.

12. Changes in various business factors, including changes in demand, customer preferences and perceptions, price competition, churn from customer switching activity and other factors, could have an adverse effect on TDS’ business, financial condition or results of operations.

Changes in any of several factors could have an adverse effect on TDS’ business, financial condition or results of operations.  These factors include, but are not limited to:

• Demand for or usage of services, particularly data services;
• Customer preferences, including internet speed and type of wireless devices;
• Customer perceptions of network quality and performance;
• The pricing of services, including an increase in price-based competition;
• Access to and cost of programming;
• The overall size and growth rate of TDS’ customer base;
• ARPU or ARPA;
• Penetration rates;
• Churn rates;
• Selling expenses;
• Net customer acquisition and retention costs;
• Customers’ ability to pay for services and the potential impact on bad debts expense;
• Roaming agreements and rates;
• Third-party vendor support;
• The mix of products and services offered by TDS and purchased by customers;
• The costs of providing products and services; and

• Mid-market demand for cloud and hosted services.

13. Advances or changes in technology could render certain technologies used by TDS obsolete, could put TDS at a competitive disadvantage, could reduce TDS’ revenues or could increase its costs of doing business.

The telecommunications and IT services industries are experiencing significant changes in technologies and services expected by customers.  In the telecommunications industry, this is evidenced by evolving industry standards, ongoing improvements in the capacity and quality of digital technology, shorter development cycles for new services and products, and enhancements and changes in end-user requirements and preferences.  Widespread deployment of new technologies could cause the technology used on TDS’ wireless networks, and traditional circuit-switched telephone servicesor IP-based networks, and cable networks to become less competitive or obsolete.  Also, high-speed wireless networks (“wireless broadband”) represent a product offering and opportunity for TDS’ wireless business, but also represent a risk for TDS’ Wireline and Cable businesses as customers may elect to substitute their wireline broadband connection for wireless broadband.  Further, fixed-mobile convergence services that combine wireline broadband services with mobile services represent a competitive threat.  If the trend toward convergence continues, TDS is at a competitive disadvantage to larger competitors, including the national wireless carriers and other potential large new entrants with much greater financial and other resources in adapting to such convergence.  In addition, the IT services market is characterized by rapidly changing technology and services.  Future technological changes or advancements may enable other technologies to equal or exceed TDS’ current levels of service and render its system infrastructure obsolete.  For example, the timing, cost, and availability of CDMA enabled devices and other CDMA ecosystem support needs may inhibit TDS’ ability to maintain 3G wireless voice services.services until it is fully replaced by VoLTE.  TDS may not be able to respond to such changes and implement new technology on a timely or cost-effective basis, which could reduce its revenues or increase its costs of doing business.  If TDS cannot keep pace with these technological changes or other changes in the telecommunications or IT services industries over time, its financial condition, results of operations or ability to do business could be adversely affected.

14. Complexities associated with deploying new technologies present substantial risk and TDS’ investments in unproven technologies may not produce the benefits that TDS expects.

TDS’ wireless business has recently completed the transition to 4G LTE and has implemented 4G LTE roaming agreements with national carriers.  In addition, TDS’ wireless business also is testing VoLTE. The transition to 4G LTE involved significant time and cost and any future implementationwill begin commercial deployment of VoLTE will involve additionalin early 2017 and has begun testing 5G technology. Transition to new technologies involves significant time and cost.  Furthermore, the wireless business may involveexperiences rapid technology changes and new services and products.  If TDS fails to effectively deploy new wireless technologies, services or products on a timely basis, this could have an adverse impact on TDS’ business, financial condition and results of operations.

TDS’ Wireline business is deploying technologically advanced wireline and broadband services including advanced DSL, fiber optic access and bonded/vectored Very-high-speed digital subscriber line 2 technologies (“VDSL2”).  A significant amount of the product development and integration risks are borne by TDS.  Further, the simultaneous rollout of these advanced services and technologies increases the execution risk.  If TDS fails to effectively deploy new technologies and products on a timely basis, this could have an adverse impact on TDS’ business, financial condition and results of operations.

Cable’s business is also subject to complexities associated with deploying new technologies, such as DOCSIS 3.1, and involves substantial risk, including rapid technology changes.  If Cable’s business does not respond appropriately to technology changes, its competitive position may be adversely affected.

The HMS business is also continuously evaluating and deploying advances in technology relating to IT services.  If HMS fails to effectively deploy new technologies and products on a timely basis, this could have an adverse impact on its business, financial condition and results of operations.

Furthermore, it is not certain that TDS’ investments in various new, unproven technologies and service and product offerings will be effective.  The markets for some of these services, products and solutions may still be emerging and the overall potential for these markets may be uncertain.  If customer demand for these new services, products and solutions does not develop as expected, TDS’ business, financial condition or results of operations could be adversely affected.

15. TDS receives regulatory support and is subject to numerous surcharges and fees from federal, state and local governments, and the applicability and the amount of the support and fees are subject to great uncertainty.uncertainty, which could have an adverse effect on TDS’ business, financial condition or results of operations.

Telecommunications companies may be designated by states, or in some cases by the FCC, as an ETC to receive universal service support payments if they provide specified services in “high cost” areas. U.S. Cellular has been designated as an ETC in certain states and received $92.1$92 million in high cost support for service to high cost areas in 2015.2016. TDS Telecom also received support under USF support programs.  In 2015,2016, TDS Telecom received $74.6$67 million under all the Federal USFfederal regulatory support programs. 

In 2011, the FCC released an order (“Reform Order”) to: reform its universal service and intercarrier compensation mechanisms; establish a new, broadband-focused support mechanism; and propose further rules to advance reform.  Pursuant to the Reform Order, U.S. Cellular’s ETC support has been phased down by 40% since July 1, 2012.  As provided by the Reform Order, the phasedown is currently suspended and U.S. Cellular will continue to receive 60% of its baseline support until a new fund proposed in the Reform Order is operational.  With respectOn February 23, 2017, the FCC adopted an order concerning the Mobility Fund II and the resumption of the phase down.  The text of the order has not been released but the press release issued by the FCC following adoption of the order indicates that the order will establish a Mobility Fund II support mechanism of $453 million annually for ten years to TDS Telecom, it remains unclearbe distributed through a market-based, multi-round reverse auction and that the phase down of unnecessary legacy support from the Federal USF will commence on the first day of the month following the completion of the auction and will conclude two years later.  U.S. Cellular cannot predict at this time when the Mobility Fund II auction will occur, when the phase down period for its existing legacy support from the Federal USF will commence, or whether the new mechanismMobility Fund II auction will provide TDS Telecom with the same level of support over time that TDS Telecom receives today.  Further proceedings including litigation may also be possible. At this time, TDS cannot predict the net effect of further changesopportunities to the USF high costCompany to offset any loss in existing support. However, U.S. Cellular currently expects that its legacy support program underwill continue at the Reform Order.existing level for 2017.  If the foregoing regulatory support is reduced from current levels, this could have an adverse effect on TDS’ business, financial condition or operating results.

In January 2017, TDS Telecom accepted a Federal USF offer under the FCC’s Alternative Connect America Cost Model (“A-CAM”) program in which TDS Telecom will receive $75 million of support revenue annually for ten years in exchange for meeting defined build-out obligations to extend broadband services, including standalone broadband, in unserved and underserved rural areas.  Build-out obligations under this program will require capital expenditures over the ten-year period that may be significant.  In the event additional high-cost support becomes available in 2017, TDS Telecom could receive additional support revenue; however the additional revenues would also include increased speed requirements for certain build-out locations.  There is no assurance that these build-outs will be fully funded by the support revenue received under the A-CAM program.

With respect to intercarrier compensation, the Reform Order provides for a reduction in the charges that U.S. Cellular pays to wireline phone companies to transport and terminate calls that originate on their networks, which will reduce U.S. Cellular's operating expenses.  The reductions in intercarrier charges are to increase over the next five to ten years, further reducing U.S. Cellular's operating expenses.  With respect to TDS Telecom, the Reform Order provides for a reduction in the charges that TDS Telecom pays to wireline phone companies to transport and terminate calls that originate on TDS Telecom’s network, which will reduce TDS Telecom’s operating expenses.  However, TDS Telecom also receives revenue from other carriers to transport and terminate calls that originate on those carriers’ networks.  As reductions in intercarrier charges are to increase over the next five to ten years, TDS Telecom’s related revenues and operating expenses are expected to decline.  The net effect of these changes is not known.  Further proceedings including litigation may also be possible.  TDS cannot predict whether such changes will have a material adverse effect on TDS’ business, financial condition or results of operations.

Telecommunications providers pay a variety of surcharges and fees on their gross revenues from interstate and intrastate services, including USF fees and common carrier regulatory fees.

The division of services between interstate services and intrastate services, including the divisions associated with the Federal USF fees, is a matter of interpretation and may in the future be contested by the FCC or state authorities.  The FCC also may change in the future the basis on which Federal USF fees are charged.  The Federal government and many states also apply transaction-based taxes to sales of TDStelecommunications products and services and to purchases of telecommunications services from various carriers.  In addition, state regulators and local governments have imposed and may continue to impose various surcharges, taxes and fees on TDStelecommunications services.  The applicability of these surcharges and fees to its services is uncertain in many cases and jurisdictions may contest whether TDS has assessed and remitted those monies correctly.  Periodically, state and federal regulators may increase or change the surcharges and fees TDS currently pays.  In some instances, TDS passes through these charges to its customers.  However, Congress, the FCC, state regulatory agencies or state legislatures may limit the ability to pass through transaction-based tax liabilities, regulatory surcharges and regulatory fees imposed on TDS to customers.  TDS may or may not be able to recover some or all of those taxes from its customers and the amount of taxes may deter demand for its services or increase its cost to provide service which could have an adverse effect on its business, financial condition or operating results.

16. Performance under device purchase agreements could have a material adverse impact on TDS' business, financial condition or results of operations.

TDS has entered into purchase commitments with certain vendors and may enter into similar purchase commitments with other vendors in the future.  If TDS is unable to sell all of the devices that it is required to purchase under such agreements, or if it is unable to sell them at the prices it projects, its business, financial condition or results of operations could be adversely affected.

No assurance can be given that TDS will be successful with respect to its acquisition, divestiture or exchange strategies or initiatives.  If TDS is not successful with respect to its acquisitions, divestitures or exchanges, its business, financial condition or results of operations could be adversely affected.

19. TDS offers customers the option to purchase certain devices under installment contracts which, compared to fixed-term service contracts, includes risks that TDS may possibly incur greater churn, lower cash flows, increased costs and/or increased bad debts expense due to differences in contract terms, which could have an adverse impact on TDS' financial condition or results of operations.

TDS offerssells devices to customers the option to purchase certain wireless devices under installment contracts over a specified period of time.  Customers who take advantage of these planswith installment contracts are not required to sign a fixed-term service contract to obtain postpaid service; rather, their service is provided on a month to month basis with no early termination fee.  These device installment contract plans may not meet TDS’ customers’ or potential customers’ needs, expectations or demands.  In addition, customers on these device installment contract plans can discontinue their service at any time without penalty, other than the obligation of any residual commitment they may have for unpaid service or for amounts due under the installment contract for the device.  TDS could experience a higher churn rate than it expects due to the ability of customers to more easily change service providers, which could adversely affect its results of operations.  TDS’ operational and financial performance may be adversely affected if it is unable to grow its customer base and achieve the customer penetration levels that it anticipates with this business model.

In addition, operation of TDS’ supply chain and management of its inventory require accurate forecasting of customer growth and demand, which has become increasingly challenging. If overall demand for wireless devices or the mix of demand for wireless devices is significantly different than TDS’ expectations, TDS could face inadequate or excess supplies of particular models of wireless devices. This could result in lost sales opportunities or an excess supply of inventory. Either of these situations could adversely affect TDS’ revenues, costs of doing business, results of operations or financial condition.

Also, TDS has other arrangements with third parties, including arrangements pursuant to which TDS outsources certain support functions to third party vendors.  Operational problems associated with such functions, including any failure by the vendor to provide the required level of service under the outsourcing arrangements, could have adverse effects on TDS’ business, financial condition or results of operations.

22. TDS has significant investments in entities that it does not control.  Losses in the value of such investments could have an adverse effect on TDS’ financial condition or results of operations.

TDS has significant investments in entities that it does not control, including equity investments and interests in certain variable interest entities.  TDS’ interests in such entities do not provide TDS with control over the business strategy, financial goals, network build-out plans or other operational aspects of these entities.  TDS cannot provide assurance that these entities will operate in a manner that will increase or maintain the value of TDS’ investments, that TDS’ proportionate share of income from these investments will continue at the current level in the future or that TDS will not incur losses from the holding of such investments.  Losses in the values of such investments or a reduction in income from these investments could adversely affect TDS’ financial condition or results of operations. 

25. The market price of TDS’ Common Shares is subject to fluctuations due to a variety of factors.

Factors that may affect the future market price of TDS’ Common Shares include:

• General economic conditions, including conditions in the credit and financial markets;
• Industry conditions;
• Fluctuations in TDS’ quarterly customer additions, churn rate, revenues, results of operations or cash flows;
• Variations between TDS’ actual financial and operating results and those expected by analysts and investors; and

• Announcements by TDS’ competitors. 

Any of these or other factors could adversely affect the future market price of TDS’ Common Shares, or could cause the future market price of TDS’ Common Shares to fluctuate from time to time.

Numerous state and local legislative bodies have enacted or proposed legislation restricting or prohibiting the use of wireless devices while driving motor vehicles.  These enacted or proposed laws or other similar laws, if passed, could have the effect of reducing customer usage and/or increasing costs, which could have an adverse effect on TDS’ business, financial condition, or results of operations.

30. Claims of infringement of intellectual property and proprietary rights of others, primarily involving patent infringement claims, could prevent TDS from using necessary technology to provide products or services or subject TDS to expensive intellectual property litigation or monetary penalties, which could have an adverse effect on TDS’ business, financial condition or results of operations.

TDS faces possible effects of industry litigation relating to patents, other intellectual property or otherwise, that may restrict TDS’ access to devices for sale to customers.  If technology that TDS uses in products or services were determined by a court to infringe a patent or other intellectual property right held by another person, TDS could be precluded from using that technology and could be required to pay significant monetary damages.  TDS also may be required to pay significant royalties to such person to continue to use such technology in the future.  The successful enforcement of any intellectual property rights, or TDS’ inability to negotiate a license for such rights on acceptable terms, could force TDS to cease using the relevant technology and offering services incorporating the technology. 

32. Any of the foregoing events or other events could cause revenues, earnings, capital expenditures and/or any other financial or statistical information to vary from TDS’ forward-looking estimates by a material amount.

From time to time, TDS may disclose forward-looking information, including estimates of future serviceoperating revenues; various measures of income before income taxes; and/or capital expenditures.  Any such forward-looking information includes consideration of known or anticipated changes to the extent disclosed, but dynamic market conditions and/or other unknown or unanticipated events, including but not limited to the risks discussed above, could cause such estimates to differ materially from the actual amounts.