The effective tax rate on Income before income taxes for the three months ended March 31,June 30, 2020 and 2019, was 4.2%9.6% and 32.6%28.8%, respectively. The effective tax rate on Income before income taxes for the six months ended June 30, 2020 and 2019, was 6.9% and 31.3%, respectively. The lower effective tax rate in 2020 as compared to 2019 is due primarily to the income tax benefits of the CARES Act enacted on March 27, 2020.

U.S. Cellular owns, operates, and invests in wireless markets throughout the United States. U.S. Cellular is an 83%82%-owned subsidiary of TDS. 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 localcommunity focus. 

Total postpaid handset net lossesadditions increased for the three months ended March 31,June 30, 2020, when compared to the same period last year, due primarily to lower gross additions as a result of aggressive industry-wide competition, and, to a lesser extent, lower consumer switching activity in the latter half of March due to impacts of COVID-19. This was partially offset by a decrease in handsetyear. Handset defections decreased as a result of lower consumer switching activity related to COVID-19, as well as a reduction in March.non-pay defections related to the FCC Keep Americans Connected Pledge. Partially offsetting the decrease in defections were lower gross additions resulting from lower consumer switching activity.

Other service revenues increased for the three and six months ended March 31,June 30, 2020, largely due to an increase in tower rental revenues.

Selling, general and administrative expenses increaseddecreased for the three and six months ended March 31,June 30, 2020, driven primarily by an increasedecreases in bad debts expense, as a result of U.S. Cellular's participation in the FCC Keep Americans Connected Pledge. Also contributing to the increase were higheradvertising expense and employee related expenses. These increases were partially offset by a decrease in advertising costs.

TDS Telecom provides a wide range of communications services to residential and commercial customers. TDS Telecom operates in two segments: Wireline, which includes fiber deployments into new markets, and Cable.

On December 31, 2019, TDS acquired substantially all of the assets of MI Connection Communications System, dba Continuum. Continuum is a cable company that passes approximately 40,000 service addresses in North Carolina and offers broadband, video and voice services, which complement the TDS Telecom portfolio of products.

Operating expenses increased for the three and six months ended March 31,June 30, 2020, due primarily to increased employee-related expenses as TDS Telecom scales up its organization to execute on its fiber deployment, expenses related to the addition of Continuum, increased plant maintenance and building expenses, as well as a gain on the sale of assets in the first quarter of 2019.

TDS Telecom’s Wireline business provides broadband, video and voice services. These services are provided to residential, commercial, and wholesale customers in a mix of rural, small town and suburban markets, with the largest concentration of its customers in the Upper Midwest and the Southeast. TDS Telecom’s residential strategy is to focus on broadband bundled with video and voice services. In its commercial business, TDS Telecom’s focus is on small- to medium-sized businesses and its sales efforts emphasize providing broadband with voice and video collaboration services.

Cost of services increaseddecreased for the three months ended March 31,June 30, 2020, due primarily to higherlower employee-related expenses as TDS Telecom scales up its organization to execute on its fiber deployment, and the capitalization of new modems, partially offset by increases in storm damage repair costs and higher video programming costs. Cost of services increased for the six months ended June 30, 2020, due primarily to increases in storm damage repair costs and higher video programming costs, partially offset by a decrease of $2 million in expenses related to the capitalization of new modems. See depreciation, amortization and accretion section below for more details.details related to the capitalization of modems.

Selling, general and administrative expenses increaseddecreased for the three months ended March 31,June 30, 2020, due primarily to higherlower employee-related expenses. Selling, general and administrative expenses as a result ofincreased for the fiber deployment, andsix months ended June 30, 2020, due primarily to increased advertising costs in the out-of-territory markets, partially offset by decreases in legal costs.

Depreciation, amortization and accretion decreased asfor the three and six months ended June 30, 2020, due primarily to certain assets becamebecoming fully depreciated, partially offset by depreciation on new fiber assets.

Effective January 1, 2020, the cost of most modems, along with associated installation costs, is being capitalized. These costs, which are estimated to be $14 million infor the full year of 2020, were previously expensed as a cost of service.

Gain on asset disposals decreased for the threesix months ended March 31,June 30, 2020, due to the sale of fiber assets in certain CLEC markets during the first quarter of 2019.

TDS Telecom’s Cable strategy is to expand its broadband services and leverage that growth by bundling with video and voice services. TDS Telecom seeks to be the leading provider of broadband services in its targeted markets by leveraging its core competencies in network management and customer focus.

Cost of services increased for the three and six months ended March 31,June 30, 2020, due primarily to the acquisition of Continuum ($3 million)million and $6 million, respectively) and increases in employee-related and programming expense.

Selling, general and administrative expenses increased for the three and six months ended March 31,June 30, 2020, due primarily to the acquisition of Continuum ($1 million)million for each period) and increases in employee-related expenses and advertising.expenses.

Depreciation, amortization and accretion increased for the three and six months ended March 31,June 30, 2020, due primarily to the acquisition of Continuum.

TDS and its subsidiaries operate capital-intensive businesses. Historically, TDS has used internally-generated funds and also has 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 and receivables securitization agreements, funds from other financing sources, including term loans and other long-term debt, and cash flows from operating and certain 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. See Market Risk for additional information regarding maturities of long-term debt.

TDS has incurred negative free cash flow at times in the past and this could occur in the future, and forecasting future cash flow is more challenging with the various risks and uncertainties related to COVID-19. However, TDS believes that existing cash and investment balances, funds available under its revolving credit, term loan and receivables securitization agreements, and expected cash flows from operating and investing activities will provide sufficient liquidity for TDS to meet its normal day-to-day operating needs and debt service requirements for the coming year. TDS will continue to monitor the rapidly changing business and market conditions and plans to take appropriate actions, as necessary, to meet its liquidity needs.

TDS may require substantial additional capital for, among other uses, funding day-to-day operating needs including working capital, acquisitions of providers of cable, wireless or wireline telecommunications services, IT services or other businesses, wireless spectrum license or system acquisitions, capital expenditures, debt service requirements, the repurchase of shares, the payment of dividends, or making additional investments, including new technologies and out of territoryout-of-territory builds. It may be necessary from time to time to increase the size of the existing revolving credit agreements, to put in place new credit agreements, or to obtain other forms of financing in order to fund potential expenditures. TDS, through U.S. Cellular, made payments related to a wireless spectrum auctionauctions in 2020 (see Regulatory Matters - Spectrum Auctions). TDS also expects annual capital expenditures in 2020 to be higher than in 2019, due primarily to investments at U.S. Cellular to enhance network speed and capacity and to continue deploying VoLTE and 5G technology in its network, and at TDS Telecom to increase levels of fiber investment. TDS’ liquidity would be adversely affected if, among other things, TDS is unable to obtain financing on acceptable terms, TDS makes significant wireless spectrum license purchases, TDS makes significant business acquisitions, distributions from unconsolidated entities are discontinued or significantly reduced compared to historical levels, or Federal USF and/or other regulatory support payments decline.

TDS’ credit rating currently is sub-investment grade. 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 TDS' 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 wireless spectrum licenses, and/or reduce or cease share repurchases and/or the payment of dividends. Any of the foregoing developments would have an adverse impact on TDS' businesses, financial condition or results of operations. TDS cannot provide assurance that circumstances that could have a material adverse effect on its liquidity or capital resources will not occur.

Cash and cash equivalents include cash and money market investments. The primary objective of TDS’ Cash and cash equivalents investment activities is to preserve principal. Cash held by U.S. Cellular is for use in its operations and acquisition, capital expenditure and business development programs including the purchase of wireless spectrum licenses. TDS does not have direct access to U.S. Cellular cash unless U.S. Cellular pays a dividend on its common stock. U.S. Cellular has no current intention to pay a dividend to its shareholders.

In March 2020, TDS entered into a new $400 million unsecured revolving credit agreement with certain lenders and other parties and U.S. Cellular entered into a new $300 million unsecured revolving credit agreement with certain lenders and other parties. Amounts under the new revolving credit agreement are available for general corporate purposes including acquisitions, wireless spectrum license purchases and capital expenditures, andagreements may be borrowed, repaid and reborrowed from time to time until maturity in March 2025. As a result of the new agreements, TDS' and U.S. Cellular's previous revolving credit agreements due to expire in May 2023 were terminated. As of March 31,June 30, 2020, there were no outstanding borrowings under the revolving credit agreements, except for letters of credit, and TDS’ and U.S. Cellular’s unused capacity under their revolving credit agreements was $399 million and $298 million, respectively.

In March 2020, TDS and U.S. Cellular amended their senior term loan credit agreements in order to conform the agreements with their revolving credit agreements. There were no significant changes to other key terms of the senior term loan credit agreements. In March 2020, TDS borrowed $50 million under its senior term loan credit agreement. In June 2020, U.S. Cellular amended and restated its senior term loan agreement and increased its borrowing capacity to $300 million. There were no significant changes to other key terms of the U.S. Cellular senior term loan credit agreement.

TDS and U.S. Cellular believe they were in compliance with all of the financial covenants and requirements set forth in their revolving credit agreements, senior term loan credit agreements and receivables securitization agreement as of March 31,June 30, 2020.

Capital expenditures (i.e., additions to property, plant and equipment and system development expenditures; excludes wireless spectrum license additions), which include the effects of accruals and capitalized interest, for the threesix months ended March 31,June 30, 2020 and 2019, were as follows:

TDS may be engaged from time to time in negotiations (subject to all applicable regulations) relating to the acquisition, divestiture or exchange of companies, properties, wireless spectrum licenses (including pursuant to FCC auctions) and other possible businesses. In general, TDS may not disclose such transactions until there is a definitive agreement. TDS assesses its business interests on an ongoing basis with a goal of improving the competitiveness of its operations and increasing its long-term return on capital. As part of this strategy, TDS reviews attractive opportunities to acquire additional wireless operating markets and wireless spectrum licenses, including pursuant to FCC auctions; and telecommunications, cable or other possible businesses.

TDS consolidates certain “variable interest entities” as defined under GAAP. See Note 10 — Variable Interest Entities in the Notes to Consolidated Financial Statements for additional information related to these variable interest entities. TDS may elect to make additional capital contributions and/or advances to these variable interest entities in future periods in order to fund their operations.

There were no material changes outside the ordinary course of business between December 31, 2019 and March 31,June 30, 2020, to the Contractual and Other Obligations disclosed in MD&A included in TDS’ Form 10-K for the year ended December 31, 2019. In March 2020, TDS borrowed $50 million under its senior term loan credit agreement. In April 2020, U.S. Cellular borrowed $125 million under its receivables securitization agreement.

The following discussion addresses certain captions in the consolidated balance sheet and changes therein. This discussion is intended to highlight the significant changes and is not intended to fully reconcile the changes. Changes in financial condition during 2020 were as follows:

Income taxes receivable increased $75$124 million primarily reflecting future tax refunds attributable to the expected carryback of 2020 net operating losses, as allowed under the CARES Act which was enacted during the quarter.in March 2020.

Accrued compensation decreased $44$36 million due primarily to employee bonus payments in March 2020.

TDS sometimes uses information derived from consolidated financial information but not presented in its financial statements prepared in accordance with GAAP to evaluate the performance of its business. Specifically, TDS has referred to the following measures in this Form 10-Q Report: