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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995

OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 1-8251

- --------------------------------------------------------------------------------
TELEPHONE AND DATA SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
- --------------------------------------------------------------------------------

IOWA 36-2669023
- -------------------------------- --------------------------------
(State or other jurisdiction (IRS Employer Identification
of incorporation or No.)
organization)

30 NORTH LASALLE STREET, CHICAGO, ILLINOIS 60602
(Address of principal executive offices) (Zip code)

REGISTRANT'S TELEPHONE NUMBER: (312) 630-1900

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange
Title of each class on which registered
- ----------------------------- -----------------------------
Common Shares, $1 par value American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None
-------------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes __X__ No ______

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.___X___

As of February 29, 1996, the aggregate market values of the registrant's
Common Shares, Series A Common Shares and Preferred Shares held by nonaffiliates
were approximately $2.4 billion, $14.5 million and $48.1 million, respectively.
The closing price of the Common Shares on February 29, 1996, was $46.125 , as
reported by the American Stock Exchange. Because no market exists for the Series
A Common Shares and Preferred Shares, the registrant has assumed for purposes
hereof that (i) each Series A Common Share has a market value equal to one
Common Share because the Series A Common Shares were initially issued by the
registrant in exchange for Common Shares on a one-for-one basis and are
convertible on a share-for-share basis into Common Shares, (ii) each
nonconvertible Preferred Share has a market value of $100 because each of such
shares had a stated value of $100 when issued, and (iii) each convertible
Preferred Share has a value of $46.125 times the number of Common Shares into
which it was convertible on February 29, 1996.

The number of shares outstanding of each of the registrant's classes of
common stock, as of February 29, 1996, is 52,576,779 Common Shares, $1 par
value, and 6,893,101 Series A Common Shares, $1 par value.

DOCUMENTS INCORPORATED BY REFERENCE

Those sections or portions of the registrant's 1995 Annual Report to
Shareholders, and of the registrant's Notice of Annual Meeting and Proxy
Statement for its Annual Meeting of Shareholders to be held May 17, 1996,
described in the cross reference sheet and table of contents attached hereto are
incorporated by reference into Part II of this report.

- --------------------------------------------------------------------------------

CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS

- --------------------------------------------------------------------------------

PAGE NUMBER
OR REFERENCE(1)
---------------

Item 1. Business............................................. 3
Item 2. Properties........................................... 40
Item 3. Legal Proceedings.................................... 40
Item 4. Submission of Matters to a Vote of Security
Holders............................................ 40
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................ 41 (2)
Item 6. Selected Financial Data.............................. 41 (3)
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 41 (4)
Item 8. Financial Statements and Supplementary Data.......... 41 (5)
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ 41
Item 10. Directors and Executive Officers of the Registrant... 42 (6)
Item 11. Executive Compensation............................... 42 (7)
Item 12. Security Ownership of Certain Beneficial Owners and
Management......................................... 42 (8)
Item 13. Certain Relationships and Related Transactions....... 42 (9)
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K........................................ 43
<FN>
- ---------
(1) Parenthetical references are to information incorporated by reference from
the registrant's Exhibit 13, which includes portions of its Annual Report
to Shareholders for the year ended December 31, 1995 ("Annual Report"), and
from the registrant's Notice of Annual Meeting of Shareholders and Proxy
Statement for its Annual Meeting of Shareholders, to be held on May 17,
1996 (the "Proxy Statement").

(2) Annual Report sections entitled "TDS Stock and Dividend Information" and
"Market Price per Common Share by Quarter."

(3) Annual Report section entitled "Selected Consolidated Financial Data."

(4) Annual Report section entitled "Management's Discussion and Analysis of
Results of Operations and Financial Condition."

(5) Annual Report sections entitled "Consolidated Statements of Income,"
"Consolidated Statements of Cash Flows," "Consolidated Balance Sheets,"
"Consolidated Statements of Common Stockholders' Equity," "Notes to
Consolidated Financial Statements," "Consolidated Quarterly Income
Information (Unaudited)" and "Report of Independent Public Accountants."

(6) Proxy Statement sections entitled "Election of Directors" and "Executive
Officers."

(7) Proxy Statement section entitled "Executive Compensation," except for the
information specified in Item 402(a)(8) of Regulation S-K under the
Securities Exchange Act of 1934, as amended.

(8) Proxy Statement section entitled "Security Ownership of Certain Beneficial
Owners and Management."

(9) Proxy Statement section entitled "Certain Relationships and Related
Transactions."

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TELEPHONE AND DATA SYSTEMS, INC.
30 NORTH LASALLE STREET, CHICAGO, ILLINOIS 60602 [LOGO]
TELEPHONE (312) 630-1900

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PART I
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ITEM 1. BUSINESS

Telephone and Data Systems, Inc. (the "Company" or "TDS"), is a diversified
telecommunications service company with cellular telephone, local telephone and
radio paging operations and developing personal communications services
operations. At December 31, 1995, the Company served approximately 1.9 million
customer units in 37 states, including 710,000 cellular telephones, 425,900
telephone access lines and 784,500 pagers. For the year ended December 31, 1995,
cellular operations provided 52% of the Company's consolidated revenues;
telephone operations provided 37%; and paging operations provided 11%. The
Company's business development strategy is to expand its existing operations
through internal growth and acquisitions and to explore and develop other
telecommunications businesses that management believes will utilize the
Company's expertise in customer-based telecommunications services.

The Company conducts substantially all of its cellular operations through
its 80.8%-owned subsidiary, United States Cellular Corporation [AMEX: "USM"].
USM provides cellular telephone service to 710,000 customers through 137
majority-owned and managed ("consolidated") cellular systems serving
approximately 17% of the geography and approximately 8% of the population of the
United States. Since 1985, when the Company began providing cellular service in
Knoxville, Tennessee, the Company has expanded its cellular networks and
customer service operations to cover 147 markets in 29 states as of December 31,
1995. In total, the Company now operates nine market clusters, of which five
have a total population of more than two million, and each of which has a total
population of more than one million, plus other unclustered markets. Overall,
83% of the Company's 24.5 million population equivalents are in markets which
are or will be consolidated, 1% are in managed but not consolidated markets and
16% are in markets in which the Company holds an investment interest.

The Company conducts substantially all of its telephone operations through
its wholly owned subsidiary, TDS Telecommunications Corporation ("TDS Telecom").
TDS Telecom currently operates 100 telephone companies serving 425,900 access
lines in 28 states. TDS Telecom is expanding by offering additional lines of
telecommunications products and services to existing customers and through the
selective acquisition of local exchange telephone companies serving rural and
suburban areas. TDS Telecom has acquired 24 telephone companies and divested one
telephone company since the beginning of 1991. These net acquisitions added
73,100 access lines during this five-year period, while internal growth added
74,100 lines.

The Company conducts substantially all of its radio paging operations
through its 82.3%-owned subsidiary, American Paging, Inc. [AMEX: "APP"]. APP
offers radio paging and related services through its subsidiaries. Since the
beginning of 1991, the number of pagers in service increased from 201,200 to
784,500 at December 31, 1995, primarily from internal growth. APP provides
service through 38 sales and service operating centers in 14 states and the
District of Columbia. APP's service areas cover a total population of
approximately 75 million.

The Company conducts substantially all of its broadband personal
communications services operations through its wholly owned subsidiary, American
Portable Telecom, Inc. ("APT"). In March 1995, APT was the successful bidder for
eight broadband PCS licenses. The six primary 30 megahertz PCS licenses that are
being developed cover the Major Trading Areas of Minneapolis,

Tampa-St. Petersburg-Orlando, Houston, Pittsburgh, Kansas City and Columbus, and
account for 27.3 million population equivalents. APT has entered into a
definitive agreement to sell its license covering the Guam MTA, subject to FCC
approval, and is pursuing a sale of its license for the Alaska MTA with several
interested parties. On February 20, 1996, APT filed a registration statement for
an initial public offering of 11.0 million of its Common Shares. If the initial
public offering is completed as currently planned, TDS will own approximately
84% of the equity of APT upon completion of the offering (assuming the
Underwriters' over-allotment option to purchase 1,650,000 additional common
shares is not exercised).

The Company was incorporated in Iowa in 1968. The Company's executive
offices are located at 30 North LaSalle Street, Chicago, Illinois 60602. Its
telephone number is 312-630-1900.

Unless the context indicates otherwise: (i) references to "TDS" or the
"Company" refer to Telephone and Data Systems, Inc., and its subsidiaries; (ii)
references to "USM" refer to United States Cellular Corporation and its
subsidiaries; (iii) references to "TDS Telecom" refer to TDS Telecommunications
Corporation and its subsidiaries; (iv) references to "APP" refer to American
Paging, Inc. and its subsidiaries; (v) references to "APT" refer to American
Portable Telecom, Inc. and its subsidiaries; (vi) references to "MSA" or to a
particular city refer to the Metropolitan Statistical Area, as designated by the
U.S. Office of Management and Budget and used by the Federal Communications
Commission ("FCC") in designating metropolitan cellular market areas; (vii)
references to "RSA" refer to the Rural Service Area, as used by the FCC in
designating non-MSA cellular market areas; (viii) references to cellular
"markets" or "systems" refer to MSAs, RSAs or both; (ix) references to "MTA"
refer to Major Trading Areas, as used by the FCC in designating Personal
Communications Services ("PCS") markets; (x) references to "population
equivalents" mean the population of a market, based on 1995 Donnelley Marketing
Service Estimates, multiplied by the percentage interests that the Company owns
or has the right to acquire in an entity licensed, designated to receive a
license or expected to receive a construction permit ("licensee") by the FCC to
construct or operate a cellular or a PCS system in such market; and (xi)
references to "1996 Act" refer to the Telecommunications Act of 1996.

CELLULAR TELEPHONE OPERATIONS

THE CELLULAR TELEPHONE INDUSTRY

Cellular telephone technology provides high-quality, high-capacity
communications services to in-vehicle and hand-held portable cellular
telephones. Cellular technology is a major improvement over earlier mobile
telephone technologies. Cellular telephone systems are designed for maximum
mobility of the customer. Access is provided through system interconnections to
local, regional, national and world-wide telecommunications networks. Cellular
telephone systems also offer a full range of ancillary services such as
conference calling, call-waiting, call-forwarding, voice mail, facsimile and
data transmission.

Cellular telephone systems divide each service area into smaller geographic
areas or "cells." Each cell is served by radio transmitters and receivers
operating on discrete radio frequencies licensed by the FCC. All of the cells in
a system are connected to a computer-controlled Mobile Telephone Switching
Office ("MTSO") which is connected to the conventional ("landline") telephone
network and potentially other MTSOs. Each conversation on a cellular phone
involves a transmission over a specific set of radio frequencies from the
cellular phone to a transmitter/receiver at a cell site. The transmission is
forwarded from the cell site to the MTSO and from there may be forwarded to the
landline telephone network to complete the call. As the cellular telephone moves
from one cell to another, the MTSO determines radio signal strength and
transfers ("hands off") the call from one cell to the next. This hand-off is not
noticeable to either party on the phone call.

The FCC currently grants only two licenses to provide cellular telephone
service in each market. However, competition for customers includes competing
communications technologies such as conventional landline and mobile telephone,
Specialized Mobile Radio ("SMR") systems and radio paging. PCS is expected to be
competitive with cellular service in the future in some or all of USM's markets,
and emerging technologies such as Enhanced Specialized Mobile Radio ("ESMR") and
mobile satellite communication systems may prove to be competitive with cellular
service in the future in some or all of the markets where USM has operations.

The services available to cellular customers and the sources of revenue
available to cellular system operators are similar to those provided by
conventional landline telephone companies. Customers are charged a separate fee
for system access, airtime, long-distance calls, and ancillary services.
Cellular system operators often provide service to customers of other operators'
cellular systems while the customers are temporarily located within the
operators' service areas. Customers using service away from their home system
are called "roamers." Roaming is available because technical standards require
that analog cellular telephones be compatible in all market areas in the United
States. The system that provides the service to these roamers will generate
usage revenue. Many operators, including USM, charge premium rates for this
roaming service.

There are a number of recent technical developments in the cellular
industry. Currently, while most of the MTSOs process information digitally, most
of the radio transmission is done on an analog basis. During 1992, a new
transmission technique was approved for implementation by the cellular industry.
Time Division Multiple Access ("TDMA") technology was selected as one industry
standard by the cellular industry and has been deployed in several markets,
including USM's operations in Tulsa, Oklahoma. Another digital technology, Code
Division Multiple Access ("CDMA"), is expected to be deployed by USM in a
commercial trial during 1996. The Company also expects to deploy some CDMA
digital radio channels in other markets on a trial basis in the near future.
Digital radio technology offers several advantages including greater privacy,
less transmission noise, greater system capacity and potentially lower
incremental costs for additional customers. The conversion from analog to
digital radio technology is expected to be an industry-wide process that will
take a number of years.

The cellular telephone industry is characterized by high initial fixed
costs. Accordingly, if and when revenues less variable costs exceed fixed costs,
incremental revenues should yield an operating profit. The amount of profit, if
any, under such circumstances is dependent on, among other things, prices and
variable marketing costs which in turn are affected by the amount and extent of
competition. Until technological limitations on total capacity are approached,
additional cellular system capacity can normally be added in increments that
closely match demand and at less than the proportionate cost of the initial
capacity.

CELLULAR OPERATIONS

A significant portion of the aggregate market value of TDS's Common Shares
is represented by the market value of TDS's interest in USM. From its inception
in 1983 until the last two years, USM has principally been in a start-up phase.
Until that time, USM's activities had been concentrated significantly on the
acquisition of interests in entities licensed or designated to receive a license
("licensees") from the FCC to provide cellular service and on the construction
and initial operation of cellular systems. The development of a cellular system
is capital-intensive and requires substantial investment prior to and subsequent
to initial operation. USM experienced operating losses and net losses from its
inception until the past two years. During the past two years, USM generated
operations-driven net income and has significantly increased its operating cash
flows during that time. Management anticipates increasing growth in cellular
units in service and revenues as USM continues its vigorous expansion and
development programs. Marketing and system operations expenses associated with
this expansion may reduce the rate of growth in operating cash flow and
operating income during the period of accelerated growth. In addition, USM
anticipates that the seasonality of revenue streams and operating expenses may
affect USM's operating and net results over the next several quarters.

While USM produced operating income and net income during 1994 and 1995,
changes in any of several factors may reduce USM's growth in operating income
and net income over the next few years. These factors include: (i) the growth
rate in USM's customer base; (ii) the usage and pricing of cellular services;
(iii) the churn rate; (iv) the cost of providing cellular services, including
the cost of attracting new customers; (v) the introduction of competition from
PCS and other emerging technologies; and (vi) continuing technological advances
which may provide competitive alternatives to cellular service.

USM is building a substantial presence in selected geographic areas
throughout the United States where it can efficiently integrate and manage
cellular telephone systems. Its cellular interests include operating clusters of
markets in the following areas: Iowa, Wisconsin/Illinois, Missouri, Eastern
North Carolina/South Carolina, Virginia, West Virginia/Pennsylvania/Maryland,
Oregon/California, Washington/Oregon/Idaho, Indiana/Kentucky, Eastern
Tennessee/Western North Carolina, Oklahoma/

Missouri/Kansas, Texas/Oklahoma, Maine/New Hampshire/Vermont, Florida/Georgia
and Southwestern Texas. See "USM's Cellular Interests." USM has acquired its
cellular interests through the wireline application process (22%), including
settlements and exchanges with other applicants, and through acquisitions (78%),
including acquisitions from TDS and third parties.

CELLULAR SYSTEMS DEVELOPMENT

ACQUISITIONS. During the last five years, USM has expanded its size,
particularly in contiguous or adjacent markets, through an ongoing acquisition
program aimed at strengthening USM's position in the cellular industry. This
growth has resulted primarily from acquisitions of interests in mid-sized and
rural markets and has been based on obtaining interests with rights to manage
the underlying market.

The Company has increased its population equivalents by 63% from
approximately 15.0 million at December 31, 1990, to approximately 24.5 million
at December 31, 1995. Markets managed or to be managed by USM have increased
from 88 markets at December 31, 1990, to 140 markets at December 31, 1995. As of
December 31, 1995, 84% of the Company's population equivalents represented
interests in markets USM manages or expects to manage compared to 77% at
December 31, 1990.

Recently, the pace of acquisitions has slowed as industry-wide consolidation
has reduced the number of markets available for acquisition. USM's population
equivalents grew at a compound annual rate of over 10% over the last five years,
but decreased by 4% from 1994 to 1995 due to the increased number of completed
and pending divestitures.

USM plans to acquire additional cellular interests through acquisitions or
exchanges in markets that further strengthen its market clusters and in other
attractive markets. USM also seeks to acquire minority interests in markets
where it already owns (or has the right to acquire) the majority interest. While
USM believes that it will be successful in making additional acquisitions or
exchanges, there can be no assurance that USM, or TDS for the benefit of USM,
will be able to negotiate additional acquisitions or exchanges on terms
acceptable to it or that regulatory approvals, where required, will be received.
USM plans to retain minority interests in certain cellular markets which it
believes will earn a favorable return on investment. Other minority interests
may be exchanged for interests in markets which enhance USM's market clusters or
may be sold for cash or other consideration. USM also continues to evaluate the
disposition of certain managed interests which are not essential to its
corporate development strategy.

USM, or TDS for the benefit of USM, has historically negotiated acquisitions
of cellular interests from third parties primarily in consideration for USM's or
TDS's equity securities. Cellular interests acquired by TDS in these
transactions have been assigned to USM. At that time, USM reimbursed TDS for the
value of TDS securities issued in such transactions, generally by issuing Common
Shares to TDS or by increasing the balance due TDS under USM's Revolving Credit
Agreement in amounts equal to the value of TDS securities delivered at the time
the acquisitions were completed. The fair market value of the USM securities
issued to TDS in connection with these transactions was equal to the fair market
value of the TDS securities delivered in the transactions and was determined at
the time the transactions were completed.

In the past two years, USM, or TDS for the benefit of USM, has also
negotiated divestitures and exchanges of cellular interests with third parties.
The consideration received from these divestitures of non-strategic markets has
primarily been cash, which has been used to reduce debt or for general corporate
purposes. The exchanges have included the divestiture of controlling interests
in non-strategic markets in exchange for controlling interests in markets which
further enhance USM's clusters.

COMPLETED ACQUISITIONS. During 1995, USM, or TDS for the benefit of USM,
completed the acquisition of controlling interests in ten markets and several
minority interests representing approximately 1.5 million population equivalents
for an aggregate consideration of $136.4 million. The consideration consisted of
1.9 million TDS Common Shares, 422,000 USM Common Shares and $ 41.9 million in
cash. USM reimbursed TDS for TDS securities issued and cash paid in the
acquisitions through an increase of $14.6 million in the debt to TDS under the
Revolving Credit Agreement, the issuance to TDS of 2.7 million USM Common Shares
and 456,000 USM Common Shares to be issued to TDS in the future.

COMPLETED DIVESTITURES AND EXCHANGES. During 1995, USM completed the
divestiture of controlling interests in six markets and minority interests in
six other markets representing approximately 1.1 million population equivalents
for an aggregate consideration of $129.3 million, primarily cash. Also during
1995, USM completed six separate exchange transactions which resulted in the
acquisition of controlling interests in twelve markets, representing 2.0 million
population equivalents, and the divestiture of ten markets plus three market
partitions, representing 2.1 million population equivalents.

PENDING ACQUISITIONS, DIVESTITURES, AND EXCHANGES. At December 31, 1995,
USM, or TDS for the benefit of USM, had entered into agreements to purchase a
controlling interest in one market and several minority interests in another
market, to exchange a controlling interest in one market for a controlling
interest in another market, to sell controlling interests in seven markets, one
minority interest and one market partition and to settle litigation related to
an investment interest which was sold in 1995 for aggregate consideration
estimated to be approximately $150 million in cash and $20 million of notes
receivable due in three years. All of these pending transactions are expected to
be completed during 1996.

TDS and USM maintain shelf registration of their respective Common Shares
and Preferred Shares under the Securities Act of 1933 for issuance specifically
in connection with acquisitions.

The Company has had voting control of USM since USM's incorporation. TDS
owned an aggregate of 67,052,931 shares of common stock of USM at December 31,
1995, representing over 80% of the combined total of USM's outstanding Common
and Series A Common Shares and over 95% of their combined voting power. Assuming
USM's Common Shares are issued in all instances in which USM has the choice to
issue its Common Shares or other consideration and assuming all other issuances
of USM's common stock to TDS and third parties for completed and pending
acquisitions and redemptions of USM Preferred Stock and TDS Preferred Shares had
been completed at December 31, 1995, TDS would have owned over 80% of the total
outstanding common stock of USM and controlled over 95% of the combined voting
power of both classes of its common stock.

CELLULAR INTERESTS AND CLUSTERS

USM operates clusters of adjacent cellular systems in nearly all of its
markets, enabling its customers to benefit from larger service areas than
otherwise possible. Where USM offers wide-area coverage, its customers enjoy
uninterrupted service within the designated area. Customers may also make
outgoing calls and receive incoming calls within this area without special
roaming arrangements. In addition to benefits to customers, clustering also has
provided to USM certain economies in its capital and operating costs. These
economies are made possible through increased sharing of facilities, personnel
and other costs and have resulted in a reduction of USM's per customer cost of
service. The extent to which USM benefits from these revenue enhancements and
economies of operation is dependent on market conditions, population size of
each cluster and engineering considerations.

USM anticipates that it will continue to pursue strategic acquisitions and
exchanges which will complement its established market clusters. From time to
time, USM may also consider exchanging or selling its interests in markets which
do not fit well with its long-term strategies.

USM owned or had the right to acquire interests in cellular telephone
systems in 201 markets at December 31, 1995, representing 24.5 million
population equivalents. The following table summarizes the growth in USM's
population equivalents in recent years and the development status of these
population equivalents.

DECEMBER 31,
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------

(THOUSANDS OF POPULATION EQUIVALENTS) (1)
Operational Markets:
Majority-Owned and Managed................................ 19,755 18,365 18,619 14,597 10,651
Minority-Owned and Managed (2)............................ 511 1,195 1,166 2,049 1,788
Markets to be Managed, Net of Markets to be Divested: (3)
Majority-Owned............................................ 269 2,200 1,015 1,847 3,046
Minority-Owned (2)........................................ -- -- 6 5 124
------- ------- ------- ------- -------
Total Markets Managed and to be Managed................... 20,535 21,760 20,806 18,498 15,609
Minority Interests in Markets Managed by Others............. 3,916 3,703 3,505 3,606 3,334
------- ------- ------- ------- -------
Total..................................................... 24,451 25,463 24,311 22,104 18,943
------- ------- ------- ------- -------
------- ------- ------- ------- -------

- ---------
(1) Based on 1995 Donnelley Marketing Services estimates for all years.

(2) Includes markets where USM has the right to acquire an interest but does not
currently own an interest.

(3) Includes markets which are operational but which are currently managed by
third parties.

The following section details USM's cellular interests, including those it
owned or had the right to acquire as of December 31, 1995. The table presented
therein lists clusters of markets that USM manages or anticipates managing.
USM's market clusters show the areas in which USM is currently focusing its
development efforts. These clusters have been devised with a long-term goal of
allowing delivery of cellular service to areas of economic interest and along
corridors of economic activity.

USM'S CELLULAR INTERESTS

The table below sets forth certain information with respect to the interests
in cellular markets which USM and TDS owned or had the right to acquire pursuant
to definitive agreements as of December 31, 1995.

The number of population equivalents represented by USM's cellular interests
may have no direct relationship to the number of potential cellular customers or
the revenues that may be realized from the operation of the related cellular
systems.

PERCENTAGE TOTAL
CHANGE CURRENT AND
CURRENT PURSUANT TO ACQUIRABLE
1995 PERCENTAGE DEFINITIVE POPULATION
CLUSTER/MARKET POPULATION INTEREST AGREEMENTS(1) TOTAL EQUIVALENTS
- -------------------------------------------- ----------- ----------- -------------- ------------- -----------

MARKETS MANAGED BY THE COMPANY:
MIDWEST REGIONAL MARKET CLUSTER:
IOWA:
Des Moines, IA.......................... 422,000 100.00% 100.00% 422,000
Davenport, IA-IL........................ 359,000 97.37 97.37 350,000
Humboldt (IA 10)........................ 183,000 100.00 100.00 183,000
Cedar Rapids, IA........................ 178,000 95.66 95.66 171,000
Muscatine (IA 4)........................ 155,000 100.00 100.00 155,000
Iowa (IA 6)............................. 154,000 100.00 100.00 154,000
Waterloo-Cedar Falls, IA................ 148,000 90.31 90.31 133,000
Hardin (IA 11).......................... 111,000 100.00 100.00 111,000
Jackson (IA 5).......................... 109,000 100.00 100.00 109,000
Kossuth (IA 14)......................... 108,000 100.00 100.00 108,000
Lyon (IA 16)............................ 104,000 100.00 100.00 104,000
Iowa City, IA........................... 101,000 100.00 100.00 101,000
Mitchell (IA 13)........................ 67,000 100.00 100.00 67,000
Dubuque, IA............................. 88,000 72.96 72.96 64,000
Mills (IA 1)............................ 61,000 100.00 100.00 61,000
Audubon (IA 7).......................... 55,000 100.00 100.00 55,000
Union (IA 2)............................ 50,000 100.00 100.00 50,000
Monroe (IA 3)........................... 91,000 49.00 49.00 45,000
Winneshiek (IA 12) *.................... 116,000 24.50 24.50 28,000
Ida (IA 9) *............................ 64,000 16.67 16.67 11,000
----------- -----------
2,724,000 2,482,000
----------- -----------
WISCONSIN/ILLINOIS:
Peoria, IL.............................. 345,000 100.00 100.00 345,000
Jo Daviess (IL 1)....................... 317,000 100.00 100.00 317,000
Wood (WI 7)#............................ 286,000 0.00 100.00% 100.00 286,000
Adams (IL 4) *(2)....................... 214,000 100.00 100.00 214,000
Mercer (IL 3)........................... 204,000 100.00 100.00 204,000
Vernon (WI 8) *......................... 233,000 74.00 74.00 172,000
Pierce (WI 5)........................... 94,000 100.00 100.00 94,000
Wausau, WI *............................ 121,000 71.76 71.76 87,000
Trempealeau (WI 6) (2).................. 82,000 100.00 100.00 82,000
LaCrosse, WI............................ 102,000 74.57 74.57 76,000
Rochester, MN * (3)..................... 114,000 100.00 (85.33) 14.67 17,000
----------- -----------
2,112,000 1,894,000
----------- -----------

MISSOURI:
Columbia, MO*........................... 124,000 100.00% 100.00% 124,000
Stone (MO 15)........................... 114,000 100.00 100.00 114,000
Laclede (MO 16)......................... 96,000 100.00 100.00 96,000
Washington (MO 13)...................... 91,000 100.00 100.00 91,000
Callaway (MO 6) *....................... 85,000 100.00 100.00 85,000
Schuyler (MO 3)......................... 56,000 100.00 100.00 56,000
Shannon (MO 17) *....................... 55,000 100.00 100.00 55,000
Linn (MO 5) (4)......................... 54,000 100.00 100.00 54,000
Brown (KS 5)............................ (5) 100.00 (100.00)% 0.00 --
DeKalb (MO 4)........................... (5) 100.00 (100.00) 0.00 --
Atchison (MO 1)......................... (5) 100.00 (100.00) 0.00 --
----------- -----------
675,000 675,000
----------- -----------
TOTAL MIDWEST REGIONAL MARKET
CLUSTER.............................. 5,511,000 5,051,000
----------- -----------
MID-ATLANTIC REGIONAL MARKET CLUSTER:
EASTERN NORTH CAROLINA/SOUTH CAROLINA:
Northampton (NC 8)...................... 286,000 100.00 100.00 286,000
Rockingham (NC 7)....................... 282,000 100.00 100.00 282,000
Harnett (NC 10)......................... 278,000 100.00 100.00 278,000
Greene (NC 13).......................... 239,000 100.00 100.00 239,000
Greenville (NC 14)...................... 238,000 100.00 100.00 238,000
Hoke (NC 11)............................ 221,000 100.00 100.00 221,000
Ashe (NC 3)............................. 159,000 100.00 100.00 159,000
Chesterfield (SC 4)..................... 211,000 100.00 100.00 211,000
Sampson (NC 12)......................... 126,000 100.00 100.00 126,000
Chatham (NC 6).......................... 155,000 81.16 81.16 126,000
Camden (NC 9)........................... 119,000 100.00 100.00 119,000
----------- -----------
2,314,000 2,285,000
----------- -----------
VIRGINIA:
Roanoke, VA............................. 234,000 100.00 100.00 234,000
Bedford (VA 4).......................... 175,000 100.00 100.00 175,000
Lynchburg, VA........................... 159,000 100.00 100.00 159,000
Charlottesville, VA..................... 142,000 82.41 11.11 93.52 133,000
Buckingham (VA 7)....................... 89,000 100.00 100.00 89,000
Tazewell (VA 2) (2)..................... 83,000 100.00 100.00 83,000
Bath (VA 5)............................. 62,000 100.00 100.00 62,000
----------- -----------
944,000 935,000
----------- -----------
WEST VIRGINIA/PENNSYLVANIA/MARYLAND:
Monongalia (WV 3) *..................... 269,000 100.00 100.00 269,000
Raleigh (WV 7) *........................ 255,000 100.00 100.00 255,000
Grant (WV 4) *.......................... 169,000 100.00 100.00 169,000
Tucker (WV 5) *......................... 131,000 100.00 100.00 131,000
Hagerstown, MD *........................ 127,000 100.00 100.00 127,000
Cumberland, MD *........................ 101,000 100.00 100.00 101,000
Bedford (PA 10) (2) *................... 49,000 100.00 100.00 49,000
Garrett (MD 1) *........................ 30,000 100.00 100.00 30,000
Greene (PA 9)........................... (5) 100.00 (100.00) 0.00 --
----------- -----------
1,131,000 1,131,000
----------- -----------
TOTAL MID-ATLANTIC REGIONAL MARKET
CLUSTER.............................. 4,389,000 4,351,000
----------- -----------

NORTHWEST REGIONAL MARKET CLUSTER:
OREGON/CALIFORNIA:
Coos (OR 5)............................. 255,000 100.00% 100.00% 255,000
Del Norte (CA 1)........................ 208,000 100.00 100.00 208,000
Medford, OR *........................... 166,000 100.00 100.00 166,000
Mendocino (CA 9)........................ 140,000 100.00 100.00 140,000
Crook (OR 6) *.......................... 187,000 62.50 62.50 117,000
Modoc (CA 2)............................ 59,000 100.00 100.00 59,000
----------- -----------
1,015,000 945,000
----------- -----------
WASHINGTON/OREGON/IDAHO:
Clark (ID 6)............................ 290,000 100.00 100.00 290,000
Pacific (WA 6) *........................ 179,000 100.00 100.00 179,000
Richland-Kennewick-Pasco, WA *.......... 177,000 100.00 100.00 177,000
Butte (ID 5)............................ 156,000 100.00 100.00 156,000
Yakima, WA *............................ 212,000 54.55 54.55 115,000
Okanogan (WA 4)......................... 115,000 100.00 100.00 115,000
Umatilla (OR 3) *....................... 149,000 60.42 60.42 90,000
Kittitas (WA 5) (2) *................... 69,000 83.50 83.50 58,000
Hood River (OR 2) *..................... 71,000 30.32 30.32 22,000
Skamania (WA 7) *....................... 27,000 30.32 30.32 8,000
----------- -----------
1,445,000 1,210,000
----------- -----------
TOTAL NORTHWEST REGIONAL MARKET
CLUSTER.............................. 2,460,000 2,155,000
----------- -----------
INDIANA/KENTUCKY MARKET CLUSTER:
Meade (KY 3)............................ 311,000 100.00 100.00 311,000
Evansville, IN.......................... 321,000 78.13 78.13 251,000
Owen (IN 7)............................. 222,000 100.00 100.00 222,000
Elliott (KY 9).......................... 204,000 100.00 100.00 204,000
Fulton (KY 1)........................... 188,000 100.00 100.00 188,000
Clay (KY 11)............................ 171,000 100.00 100.00 171,000
Powell (KY 10).......................... 153,000 100.00 100.00 153,000
Union (KY 2)............................ 127,000 100.00 100.00 127,000
Ross (OH 9) *........................... 247,000 49.00 49.00 121,000
Owensboro, KY........................... 91,000 81.81 81.81 74,000
Warren (IN 5) *......................... 122,000 33.33 33.33 41,000
Miami (IN 4) *.......................... 180,000 0.00 14.29% 14.29 26,000
Williams (OH 1) *....................... (5) 75.00 (75.00) 0.00 0
----------- -----------
TOTAL INDIANA/KENTUCKY MARKET
CLUSTER.............................. 2,337,000 1,889,000
----------- -----------
EASTERN TENNESSEE/WESTERN NORTH CAROLINA
MARKET CLUSTER:
Knoxville, TN *......................... 546,000 96.03 96.03 524,000
Whitfield (GA 1)........................ 217,000 100.00 100.00 217,000
Asheville, NC *......................... 206,000 100.00 100.00 206,000
Henderson (NC 4) (2) *.................. 189,000 100.00 100.00 189,000
Bledsoe (TN 7) (2) *.................... 146,000 96.03 96.03 140,000
Hamblen (TN 4) (2) *.................... 130,000 100.00 100.00 130,000
Giles (TN 6) *.......................... 156,000 80.00 80.00 125,000
Macon (TN 3) *.......................... 334,000 16.67 16.67 56,000
Yancey (NC 2) (2) *..................... 31,000 100.00 100.00 31,000
----------- -----------
TOTAL EASTERN TENNESSEE/WESTERN NORTH
CAROLINA MARKET CLUSTER.............. 1,955,000 1,618,000
----------- -----------
TEXAS/OKLAHOMA/MISSOURI/KANSAS REGIONAL
MARKET CLUSTER:
OKLAHOMA/MISSOURI/KANSAS:
Tulsa, OK *............................. 787,000 55.06 55.06 433,000
Elk (KS 15) *........................... 154,000 0.00 99.00 99.00 153,000
Joplin, MO *............................ 143,000 100.00 100.00 143,000
Seminole (OK 6)......................... 218,000 55.06 55.06 120,000
Nowata (OK 4) (2) *..................... 103,000 55.06 55.06 57,000
----------- -----------
1,405,000 906,000
----------- -----------

TEXAS/OKLAHOMA:
Garvin (OK 9)........................... 201,000 100.00% 100.00% 201,000
Haskell (OK 10)......................... 83,000 100.00 100.00 83,000
Wichita Falls, TX *..................... 135,000 51.65 51.65 70,000
Lawton, OK *............................ 118,000 51.65 51.65 61,000
Jackson (OK 8) *........................ 96,000 51.65 51.65 50,000
Hardeman (TX 5) (2) *................... 38,000 51.65 51.65 20,000
Briscoe (TX 4) (2) *.................... 11,000 51.65 51.65 6,000
Beckham (OK 7) (2) *.................... 10,000 51.65 51.65 5,000
----------- -----------
692,000 496,000
----------- -----------
TOTAL TEXAS/OKLAHOMA/MISSOURI/KANSAS
REGIONAL MARKET CLUSTER.............. 2,097,000 1,402,000
----------- -----------
MAINE/NEW HAMPSHIRE/VERMONT MARKET
CLUSTER:
Manchester-Nashua, NH................... 349,000 87.95 87.95 307,000
Coos (NH 1) *........................... 222,000 100.00 100.00 222,000
Kennebec (ME 3)......................... 222,000 100.00 100.00 222,000
Somerset (ME 2)......................... 151,000 100.00 100.00 151,000
Bangor, ME.............................. 148,000 91.08 91.08 135,000
Addison (VT 2) (2) *.................... 107,000 100.00 100.00 107,000
Washington (ME 4) *..................... 85,000 100.00 100.00 85,000
Lewiston-Auburn, ME..................... 104,000 82.05 82.05 85,000
Oxford (ME 1)........................... 83,000 100.00 100.00 83,000
----------- -----------
TOTAL MAINE/NEW HAMPSHIRE/VERMONT
MARKET CLUSTER....................... 1,471,000 1,397,000
----------- -----------
FLORIDA/GEORGIA MARKET CLUSTER:
Tallahassee, FL......................... 275,000 100.00 100.00 275,000
Worth (GA 14)........................... 246,000 100.00 100.00 246,000
Gainesville, FL......................... 219,000 100.00 100.00 219,000
Toombs (GA 11).......................... 152,000 100.00 100.00 152,000
Fort Pierce, FL (6)*.................... 285,000 49.00 49.00 140,000
Walton (FL 10).......................... 111,000 100.00 100.00 111,000
Putnam (FL 5)........................... 70,000 100.00 100.00 70,000
Dixie (FL 6)............................ 54,000 100.00 100.00 54,000
Jefferson (FL 8)........................ 53,000 100.00 100.00 53,000
Calhoun (FL 9).......................... 40,000 100.00 100.00 40,000
----------- -----------
TOTAL FLORIDA/GEORGIA MARKET
CLUSTER.............................. 1,505,000 1,360,000
----------- -----------
SOUTHWESTERN TEXAS MARKET CLUSTER:
Corpus Christi, TX...................... 380,000 100.00 100.00 380,000
Atascosa (TX 19)........................ 224,000 100.00 100.00 224,000
Edwards (TX 18)......................... 211,000 100.00 100.00 211,000
Laredo, TX.............................. 169,000 93.74 93.74 158,000
Wilson (TX 20).......................... 137,000 100.00 100.00 137,000
Victoria, TX............................ 81,000 99.22 99.22 80,000
----------- -----------
TOTAL SOUTHWESTERN TEXAS MARKET
CLUSTER.............................. 1,202,000 1,190,000
----------- -----------
OTHER OPERATIONS:
Hawaii (HI 3)........................... 139,000 100.00 100.00 139,000
Poughkeepsie, NY........................ (5) 83.11 (83.11)% 0.00 --
Columbia (NY 6)......................... (5) 100.00 (100.00) 0.00 --
----------- -----------
139,000 139,000
----------- -----------
Total Managed Markets................. 23,066,000 20,552,000
----------- -----------

MARKETS MANAGED BY OTHERS:
Los Angeles/Oxnard, CA *................ 15,478,000 5.50% 5.50% 851,000
Nashville/Clarksville-Hopkinsville,
TN-KY *................................ 1,282,000 49.00 49.00 627,000
Baton Rouge, LA (7) *................... 565,000 52.00 (2.01)% 49.99 282,000
Seattle-Everett/Tacoma/Bremerton, WA
*...................................... 3,019,000 7.01 7.01 212,000
Biloxi/Pascagoula, MS *................. 357,000 49.00 49.00 175,000
Oklahoma City, OK *..................... 989,000 14.60 14.60 144,000
Portland, ME *.......................... 283,000 49.00 49.00 139,000
McAllen, TX............................. 476,000 26.20 26.20 125,000
Portsmouth-Dover-Rochester, NH-ME *..... 277,000 40.00 40.00 111,000
Others (Fewer than 100,000 population
equivalents
each).................................. 1,233,000
-----------
Total Population Equivalents of
Markets Managed by
Others............................... 3,899,000
-----------
Total Population Equivalents.......... 24,451,000
-----------
-----------

- ------------
* Designates wireline market.

# Designates operational market managed by a third party until USM acquires a
controlling interest.

(1) Interests under these agreements are expected to be acquired or divested at
the various times specified therein following the satisfaction of customary
closing conditions.

(2) These markets have been or will be partitioned into more than one licensed
area. The 1995 population, percentage ownership and number of population
equivalents shown are for the licensed areas within the markets in which USM
owns or has the right to acquire an interest.

(3) USM has an agreement to divest a controlling interest in this market and
will retain an investment interest after the divestiture.

(4) USM has an agreement to divest a partitioned area in this market. The 1995
population, percentage ownership and number of population equivalents shown
is for the licensed area within the market which USM will own upon
completion of the divestiture.

(5) USM has agreements to divest its controlling interests in these markets. The
1995 populations of these markets are not included in the related cluster or
group totals.

(6) USM owns 80% of the entity which owns and operates this market but has only
a 49% interest in the earnings and profits.

(7) USM owns a noncontrolling limited partnership interest in this market.

SYSTEM DESIGN AND CONSTRUCTION. USM designs and constructs its systems in a
manner it believes will permit it to provide high-quality service to mobile,
transportable and portable cellular telephones, generally based on market and
engineering studies which relate to specific markets. Engineering studies are
performed by USM personnel or independent engineering firms. USM's switching
equipment is digital, which reduces noise and crosstalk and is capable of
interconnecting in a manner which reduces costs of operation. While digital
microwave interconnections are typically made between the MTSO and cell sites,
primarily analog radio transmission is used between cell sites and the cellular
telephones themselves.

In accordance with its strategy of building and strengthening market
clusters, USM has selected high capacity digital cellular switching systems that
are capable of serving multiple markets through a single MTSO. USM's cellular
systems are designed to facilitate the installation of equipment which will
permit microwave interconnection between the MTSO and the cell site. USM has
implemented such microwave interconnection in most of the cellular systems it
manages. In other systems in which USM owns or has an option to purchase a
majority interest and where it is believed to be cost-efficient, such microwave
technology will also be implemented. Otherwise, such systems will rely upon
landline telephone connections or microwave links owned by others to link cell
sites with the MTSO. Although the installation of microwave network
interconnection equipment requires a greater initial capital investment, a
microwave network enables a system operator to avoid the current and future
charges associated with leasing telephone lines from the landline telephone
company, while generally improving system reliability. In addition, microwave
facilities can be used to connect separate cellular systems to allow shared
switching, which reduces the aggregate cost of the equipment necessary to
operate both systems.

USM has continued to expand its internal network in 1995 to encompass nearly
all of its markets. This network provides automatic call delivery for USM's
customers and handoff between adjacent markets. The network has also been
extended through links with certain systems operated by several other carriers,
including GTE, US West, Ameritech, BellSouth, Centennial Cellular Corp.,
Southwestern Bell, AT&T Wireless, Vanguard Cellular Systems and others.
Additionally, USM has implemented two Signal Transfer Points which will allow it
to interconnect efficiently with network providers such as the Independent
Telephone Network and the North American Cellular Network.

During 1996, USM intends to extend the network for its customers through
interconnection with one or more network providers as well as additional "point
to point" connections required for hand-off. This expanded network will increase
the area in which customers can automatically receive incoming calls, and should
also reduce the incidence of "tumbling" electronic serial number fraud due to
the pre-call validation feature of networked systems.

USM believes that currently available technologies will allow sufficient
capacity on USM's networks to meet anticipated demand over the next few years.

COSTS OF SYSTEM CONSTRUCTION AND FINANCING

Construction of cellular systems is capital-intensive, requiring substantial
investment for land and improvements, buildings, towers, MTSOs, cell site
equipment, microwave equipment, engineering and installation. USM, consistent
with FCC control requirements, uses primarily its own personnel to engineer and
oversee construction of each cellular system where it owns or has the right to
acquire a controlling interest. In so doing, USM expects to improve the overall
quality of its systems and to reduce the expense and time required to make them
operational.

The costs (exclusive of license costs) of the operational systems in which
USM owns or has the right to acquire an interest are generally financed through
capital contributions or intercompany loans to the partnerships or subsidiaries
owning the systems, and through certain vendor financing.

MARKETING

USM's marketing plan is designed to continue rapid penetration of its market
clusters and to increase customer awareness of cellular service. The marketing
plan stresses the quality of USM's service offerings and incorporates rate plans
and cellular telephone equipment which are designed to meet the needs of a
variety of customer segments and their usage patterns. USM's distribution
channels include direct sales personnel, agents and retail service centers in
the vast majority of its markets. These USM-owned and managed locations are
designed to market cellular service to the consumer segment in a familiar
setting.

USM manages each cluster of markets from one administrative office with a
local staff, including sales, customer service, engineering and in some cases
installation personnel. Direct sales consultants market cellular service to
potential business customers throughout each cluster. Retail associates work out
of the retail locations and market cellular service to the consumer segment. USM
maintains an ongoing training program to improve the effectiveness of sales
consultants and retail associates by focusing their efforts on obtaining
customers and maximizing the sale of high-user packages. These packages provide
for customers to obtain a minimum amount of usage at discounted rates per
minute, at fixed prices which are charged, even if usage falls below a defined
monthly minimum amount.

USM continues to expand its relationships with agents, dealers and non-USM
retailers to obtain customers. Agents and dealers are independent business
people who obtain customers for USM on a commission basis. USM's agents are
generally in the business of selling cellular telephones, cellular service
packages and other related products. USM's dealers include car stereo companies
and other companies whose customers are also potential cellular customers. The
non-USM retailers include car dealers, major appliance dealers, office supply
dealers and mass merchants.

USM opened its own retail locations in late 1993, expanding to over 170
locations by the end of 1995. These USM-owned and operated businesses utilize
rental facilities in high-traffic areas. USM is working toward a uniform
appearance of these stores, with all having similar displays and layouts. The
retail centers' hours of business match those of the retail trade in the local
marketplace, often staying

open on weekends and later in the evening than a typical business supplier.
Additionally, to fully serve customer needs, these stores sell accessories to
complement the phones and services USM has traditionally provided.

In addition to its own retail centers, USM actively pursues national retail
accounts, as agents for USM, which may potentially yield new customer additions
in multiple markets. Agreements have been entered into with such national
distributors as Wal-Mart, Chrysler Corporation, Ford Motor Company, General
Motors, AT&T, Radio Shack, Best Buy and Sears, Roebuck & Co. in certain of USM's
markets. Upon the sale of a cellular telephone by one of these national
distributors, USM receives, often exclusively within the territories served, the
resulting cellular customer.

USM uses a variety of direct mail, billboard, radio, television and
newspaper advertising to stimulate interest by prospective customers in
purchasing USM's cellular service and to establish familiarity with USM's name.
Advertising is directed at gaining customers, increasing usage of existing
customers and increasing the public awareness and understanding of the cellular
services offered by USM. USM attempts to select the advertising and promotion
media that are most appealing to the targeted groups of potential customers in
each local market. USM utilizes local advertising media and public relations
activities and establishes programs to enhance public awareness of USM, such as
providing telephones and service for public events and emergency uses.

CUSTOMERS AND SYSTEM USAGE

Cellular customers come from a wide range of occupations. They typically
include a large proportion of individuals who work outside of their offices such
as people in the construction, real estate, wholesale and retail distribution
businesses and professionals. Increasingly, USM is providing cellular service to
consumers and to customers who use their cellular telephones for security
purposes. Although many of USM's customers use in-vehicle cellular telephones,
most new customers are selecting portable cellular telephones, as these units
have become more compact and fully featured as well as more attractively priced.

USM's cellular systems are used most extensively during normal business
hours between 7:00 am and 6:00 pm. On average, the local retail customers in
USM's majority-owned and managed systems used their cellular systems
approximately 95 minutes per unit each month and generated retail revenue of
approximately $44 per month during 1995, compared to 95 minutes and $47 per
month in 1994. Revenue generated by roamers, together with local, toll and other
revenues, brought USM's total average monthly service revenue per customer unit
in majority-owned and managed markets to $72 during 1995. Average monthly
service revenue per customer unit decreased approximately 9% during 1995,
related to the industry-wide trend of newer customers tending to use fewer
minutes per month, to per minute pricing decreases, off-peak incentives and to
declining contribution of inbound roaming revenue per customer. USM anticipates
that average monthly service revenue per customer unit will continue to decline
as its distribution channels provide additional customers who generate lower
revenue per local minute of use and as roaming revenues grow more slowly.
However, this effect is more than offset by USM's increasing number of
customers.

In addition to revenue from local retail customers, USM generates revenue
from roaming customers and other services. USM's roaming service allows a
customer to place or receive a call in a cellular service area away from the
customer's home market area. USM has entered into "roaming agreements" with
operators of other cellular systems covering virtually all systems in the United
States and Canada. These agreements offer customers the opportunity to roam in
these systems. These reciprocal agreements automatically pre-register the
customers of USM's systems in the other carriers' systems. Also, a customer of a
participating system roaming (i.e. traveling) in a USM market where this
arrangement is in effect is able to make and receive calls on USM's system. The
charge for this service is typically at premium rates and is billed by USM to
the customer's home system, which then bills the customer. USM has entered into
agreements with other cellular carriers to transfer roaming usage at agreed-upon
rates. In some instances, based on competitive factors, USM may charge a lower
amount to its customers than the amount actually charged to USM by another
cellular carrier for roaming.

The following table summarizes certain information about customers and
market penetration in USM's managed operations.

YEAR ENDED OR AT DECEMBER 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- -------- --------

(DOLLARS IN THOUSANDS)
Majority-owned and managed markets:
Cellular markets in operation (1).................... 137 130 116 92 67
Total population of markets in service (000s)........ 22,309 21,314 19,383 15,014 11,481
Customer Units:
at beginning of period (2)......................... 421,000 261,000 150,800 97,000 57,300
additions during period (2)........................ 426,000 250,000 165,300 88,600 59,800
disconnects during period (2)...................... 137,000 90,000 55,100 34,800 20,100
at end of period (2)............................... 710,000 421,000 261,000 150,800 97,000
Market penetration at end of period (3).............. 3.18% 1.98% 1.35% 1.00% 0.84%
Consolidated revenues.................................. $ 492,395 $ 332,404 $ 214,310 $139,929 $ 84,956
Depreciation expense................................... 57,302 39,520 25,665 16,606 8,814
Amortization expense................................... 32,156 25,934 19,362 13,033 10,455
Operating income (loss)................................ 42,755 17,385 (8,656) (12,705) (16,831)
Construction expenditures.............................. 218,506 158,453 94,088 58,832 66,037
Identifiable assets.................................... $1,890,621 $1,584,142 $1,275,569 $858,795 $612,981

- ---------
(1) Represents the number of markets in which USM owned at least a 50% interest
and which it managed, including its reseller operation in 1991-1992. The
revenues and expenses of these cellular markets are included in USM's
consolidated revenues and expenses.

(2) Represents the approximate number of revenue-generating cellular telephones
served by the cellular markets referred to in footnote (1). The revenue
generated by such cellular telephones is included in consolidated revenues.

(3) Computed by dividing the number of customer units at the end of the period
by the total population of markets in service as estimated by Donnelley
Marketing Service for the respective years.

The following table summarizes, by operating cluster, the total population,
USM's customer units and penetration for USM's majority-owned and managed
markets that were operational as of December 31, 1995.

OPERATING CLUSTERS POPULATION CUSTOMERS PENETRATION
- ----------------------------------------------------------------- ---------- ---------- ------------

Iowa............................................................. 2,453,000 91,000 3.71%
Wisconsin/Illinois............................................... 1,826,000 42,000 2.30
Missouri......................................................... 920,000 24,000 2.61
Eastern North Carolina/South Carolina............................ 2,314,000 63,000 2.72
Virginia......................................................... 944,000 26,000 2.75
West Virginia/Pennsylvania/Maryland.............................. 1,319,000 29,000 2.20
Indiana/Kentucky................................................. 1,916,000 57,000 2.97
Oregon/California................................................ 1,015,000 28,000 2.76
Washington/Oregon/Idaho.......................................... 1,347,000 45,000 3.34
Eastern Tennessee/Western North Carolina......................... 1,621,000 63,000 3.89
Oklahoma/Missouri/Kansas......................................... 1,251,000 69,000 5.52
Texas/Oklahoma................................................... 692,000 22,000 3.18
Maine/New Hampshire/Vermont...................................... 1,471,000 46,000 3.13
Florida/Georgia.................................................. 1,505,000 54,000 3.59
Southwestern Texas............................................... 1,202,000 32,000 2.66
Other Operations................................................. 513,000 19,000 3.70
---------- ---------- ---
22,309,000 710,000 3.18%
---------- ---------- ---
---------- ---------- ---

CELLULAR TELEPHONES AND INSTALLATION

There are a number of different types of cellular telephones, all of which
are currently compatible with cellular systems nationwide. USM offers a full
range of vehicle-mounted, transportable and hand-held portable cellular
telephones. Features offered in some of the cellular telephones include
hands-free calling, repeat dialing, horn alert and others.

USM negotiates volume discounts from its cellular telephone suppliers. USM
discounts cellular telephones to meet competition or to stimulate sales by
reducing the cost of becoming a cellular customer. In these instances, where
permitted by law, customers are generally required to sign an extended service
contract with USM. USM also cooperates with cellular equipment manufacturers in
local advertising and promotion of cellular equipment.

USM has established service and/or installation facilities in many of its
local markets to ensure quality installation and service of the cellular
telephones it sells. These facilities allow USM to improve its service by
promptly assisting customers who experience equipment problems. Additionally,
USM maintains a repair facility in Tulsa, Oklahoma, which handles more complex
service and repair issues.

PRODUCTS AND SERVICES

USM's customers are able to choose from a variety of packaged pricing plans
which are designed to fit different calling patterns. USM's customer bills
typically show separate charges for custom-calling features, airtime in excess
of the packaged amount, and toll calls. Custom-calling features provided by USM
include wide-area call delivery, call forwarding, call waiting, three-way
calling and no-answer transfer. USM also offers a voice message service in many
of its markets. This service, which functions like a sophisticated answering
machine, allows customers to receive messages from callers when they are not
available to take calls.

REGULATION

The operations of USM are subject to FCC and state regulation. The licenses
held by the Company are granted by the FCC for the use of radio frequencies and
are an important component of the overall value of the assets of USM. The
construction, operation and transfer of cellular systems in the United States
are regulated to varying degrees by the FCC pursuant to the Communications Act
of 1934 ("Communications Act"). The FCC has promulgated regulations governing
construction and operation of cellular systems, and licensing (including renewal
of licenses) and technical standards for the provision of cellular telephone
service. See "Telephone Operations -- Telecommunications Act of 1996"

For licensing purposes, the FCC has divided the United States into separate
geographic markets (MSAs and RSAs). In each market, the allocated cellular
frequencies are divided into two equal blocks. During the application process,
the FCC reserved one block of frequencies for non-wireline applicants and
another block for wireline applicants. Subject to FCC approval, a cellular
system may be sold to either a wireline or non-wireline entity, but no entity
which controls a cellular system may own an interest in another cellular system
in the same MSA or RSA.

The completion of acquisitions involving the transfer of control of a
cellular system requires prior FCC approval. Acquisitions of minority interests
generally do not require FCC approval. Whenever FCC approval is required, any
interested party may file a petition to dismiss or deny USM's application for
approval of the proposed transfer.

When the first cell of a cellular system has been constructed, FCC rules
authorize the licensee to offer commercial service to the public. The FCC must
be notified of the construction of that cell within fifteen days of the
completion of construction. The licensee is then said to have "operating
authority." Initial operating licenses are granted for ten-year periods. The FCC
must be notified each time an additional cell is constructed which enlarges the
service area of a given market.

The FCC's rules also generally require persons or entities holding cellular
construction permits or licenses to coordinate their proposed frequency usage
with neighboring cellular licensees in order to avoid electrical interference
between adjacent systems. The height and power of base stations in the cellular
system are regulated by FCC rules, as are the types of signals emitted by these
stations. In

addition to regulation by the FCC, cellular systems are subject to certain
Federal Aviation Administration regulations with respect to the siting and
construction of cellular transmitter towers and antennas.

The FCC has established standards for conducting comparative renewal
proceedings between a cellular licensee seeking renewal of its license and
challengers filing competing applications. The FCC has: (i) established criteria
for comparing the renewal applicant to challengers, including the standards
under which a "renewal expectancy" will be granted to the applicant seeking
license renewal; (ii) established basic qualifications standards for
challengers; and (iii) provided procedures for preventing possible abuses in the
comparative renewal process. The FCC has concluded that it will award a renewal
expectancy if the licensee has (i) provided "substantial" performance, which is
defined as "sound, favorable and substantially above a level of mediocre service
just minimally justifying renewal," and (ii) complied with FCC rules, policies
and the Communications Act. If a renewal expectancy is awarded to an existing
licensee, its license is renewed and competing applications are not considered.
USM's Tulsa and Knoxville licenses were renewed in 1995. USM's next renewal
applications are due to be filed in 1996, for Des Moines, Iowa; Peoria, Illinois
and Roanoke, Virginia.

USM conducts and plans to conduct its operations in accordance with all
relevant FCC rules and regulations and anticipates being able to qualify for a
renewal expectancy in its upcoming renewal filings. Accordingly, USM believes
that current regulations will have no significant effect on its operations and
financial condition. However, changes in the regulation of cellular operators or
their activities and of other mobile service providers could have a material
adverse effect on USM's operations.

The FCC has also provided that five years after the initial licenses are
granted, unserved areas within markets previously granted to licensees may be
applied for by both wireline and non-wireline entities and by third parties.
Accordingly, many unserved area applications have been filed by USM and others.
USM's strategy with respect to system construction in its markets has been and
will be to build cells covering areas within such markets that USM considers
economically feasible to serve or might conceivably wish to serve and to do so
within the five-year period following issuance of the license. In cases where
applications for unserved areas are filed which are "mutually exclusive" and
would result in overlapping service areas, the FCC will decide between the
competing applicants by an auction process.

USM is also subject to state and local regulation in some instances. In
1981, the FCC preempted the states from exercising jurisdiction in the areas of
licensing, technical standards and market structure. In 1993, Congress preempted
states from regulating the entry of cellular systems into service and the rates
charged by cellular systems to customers. However, certain states still require
cellular system operators to go through a state certification process to serve
communities within their borders. All such certificates can be revoked for
cause. In addition, certain state authorities continue to regulate several
aspects of a cellular operator's business, including the resale of intra-state
long-distance service to its customers, the technical arrangements and charges
for interconnection with the landline network and the transfer of interests in
cellular systems, though it is uncertain whether states any longer have the
right to regulate transfers under current law. The siting and construction of
the cellular facilities, including transmitter towers, antennas and equipment
shelters are still subject to state or local zoning and land use regulations. In
addition, states may still regulate other "terms and conditions" of cellular
service.

Pursuant to 1993 amendments to the Communications Act, cellular service is
classified as a Commercial Mobile Radio Service ("CMRS"), in that it is service
offered to the public, for a fee, which is interconnected to the public switched
telephone network. The FCC has determined that it will forbear from requiring
CMRS carriers to comply with a number of statutory provisions otherwise
applicable to common carriers, such as the filing of tariffs.

There are two regulatory proceedings currently pending before the FCC which
are of particular importance to the cellular industry. In the first proceeding,
the FCC has sought comment on whether "enhanced 911" regulations should be
imposed on cellular carriers. "Enhanced 911" capabilities would enable cellular
systems to determine the precise location of the person making the emergency
call.

In the second proceeding, the FCC, in 1996, issued a Notice of Proposed
Rulemaking regarding the method by which cellular carriers and LECs shall
compensate each other for interconnecting cellular and local exchange
facilities. The FCC has tentatively proposed a "bill and keep" system, under
which cellular and other CMRS carriers and LECs would simply keep all revenues
from calls originating on their systems and would not have to pay special
"interconnection" charges to each other. Since CMRS carriers now pay more to
interconnect with LECs than VICE VERSA, such a rule, if adopted, would be
favorable to the cellular industry. The FCC has also sought comment in this
proceeding on whether it should pre-empt all state regulations of
interconnection.

The FCC has also allocated a total of 140 megahertz ("MHz") to broadband
PCS, 20 MHz to unlicensed operations and 120 MHz to licensed operations,
consisting of two 30 MHz blocks in each of the 51 MTAs and one 30 MHz block and
three 10 MHz blocks in each of 493 BTAs. Cellular operators and those entities
under common ownership with them are permitted to participate in the ownership
of PCS licensees, except for those PCS licenses reserved for small businesses,
and licenses for PCS service areas in which the cellular operator owns a 20% or
greater interest in a cellular licensee, the service area of which covers 10% or
more of the population of the PCS service area. In the latter case, the cellular
license is limited to one 10 MHz PCS channel block.

The FCC licensed the first two 30 MHz MTA frequency blocks in 1995. The FCC
is currently holding an auction for the 30 MHz BTA block which is reserved for
small business entities. APT has been licensed in eight MTAs for 30 MHz blocks.
APT has entered into a definitive agreement to sell its license covering the
Guam MTA, subject to FCC approval, and is pursuing the sale of its license for
the Alaska MTA.

In compliance with FCC restrictions on common ownership of cellular and
broadband PCS interests in overlapping market areas, USM entered into a series
of arrangements for the divestiture or restructuring of certain of its cellular
interests in market areas where APT was awarded broadband PCS licenses. A number
of these proposed arrangements required FCC approval of assignment or transfer
of control applications before they could be consummated. All of these
applications have been approved by the FCC and are either consummated or
awaiting consummation. APT believes that it has taken reasonable steps to comply
with the FCC's cross-interest policies. This is no assurance that the FCC might
not raise questions regarding these compliance efforts.

PCS technology is currently under development and will be similar in some
respects to cellular technology. When it becomes commercially available, this
technology is expected to offer increased capacity for wireless two-way and
one-way voice, data and multimedia communications services and is expected to
result in increased competition in USM's operations. The ability of these future
PCS licensees to complement or compete with existing cellular licensees will be
affected by future FCC rule-makings. These and other future technological
developments in the wireless telecommunications industry and the enhancement of
current technologies will likely create new products and services that are
competitive with the services currently offered by USM. There can be no
assurance that the company will not be adversely affected by such technological
developments.

Media reports have suggested that certain radio frequency ("RF") emissions
from portable cellular telephones might be linked to cancer. USM has reviewed
relevant scientific information and, based on such information, is not aware of
any credible evidence linking the usage of portable cellular telephones with
cancer. The FCC currently has a rulemaking proceeding pending to update the
guidelines and methods it uses for evaluating RF emissions in radio equipment,
including cellular telephones. While the proposal would impose more restrictive
standards on RF emissions from low-power devices such as portable cellular
telephones, it is anticipated that all cellular telephones currently marketed
and in use will comply with those standards.

COMPETITION

USM's principal competitor for cellular telephone service in each market is
the licensee of the second cellular system in that market. Competition for
customers between the two systems in each market is based on quality of service,
price, size of area covered, services offered, and responsiveness of customer
service. The competing entities in many of the markets in which USM has an
interest have financial resources which are substantially greater than those of
USM and its partners in such markets.

The FCC's rules require all operational cellular systems to provide, on a
nondiscriminatory basis, cellular service to resellers which purchase blocks of
mobile telephone numbers from an operational system and then resell them to the
public.

In addition to competition from the other cellular licensee in each market,
there is also competition from, among other technologies, conventional mobile
telephone and SMR systems, both of which are able to connect with the landline
telephone network. USM believes that conventional mobile telephone systems and
conventional SMR systems are competitively disadvantaged because of
technological limitations on the capacity of such systems. The FCC has
previously given approval, through waivers of its rules, to ESMR, an enhanced
SMR system. ESMR systems may have cells and frequency reuse like cellular. The
first ESMR systems were implemented in 1993 in Los Angeles. In 1995, an ESMR
provider initiated service in Tulsa, Oklahoma, where USM operates a cellular
system. Although less directly a substitute for cellular service, wireless data
services and one-way paging service (and in the future, two-way paging services)
may be adequate for those who do not need full two-way voice service.

The FCC has allocated radio channels to a mobile satellite system in which
transmissions from mobile units to satellites would augment or replace
transmissions to cell sites, and several consortia to provide such service have
been formed. Such a system is designed primarily to serve the communications
needs of remote locations and a mobile satellite system could provide viable
competition for land-based cellular systems in such areas. It is also possible
that the FCC may in the future assign additional frequencies to cellular
telephone service to provide for more than two cellular telephone systems per
market.

PCS is anticipated to be competitive with cellular service in the future.
PCS providers are expected to offer digital, wireless communications services.
Similar technological advances or regulatory changes in the future may make
available other alternatives to cellular service, thereby creating additional
sources of competition. The first PCS system was initiated in Washington, D.C.
in 1995. USM expects PCS operators to begin deployment of PCS in some of its
larger cellular markets like Tulsa, Oklahoma; Knoxville, Tennessee; and Des
Moines, Iowa in late 1996 or early 1997.

TELEPHONE OPERATIONS

The Company's telephone operations are conducted through TDS Telecom and 100
telephone subsidiaries. These telephone companies, ranging in size from less
than 500 to more than 40,000 access lines, serve 425,900 access lines in 28
states.

The Company provides modern, high-quality local and long-distance telephone
service. Local service is provided by the Company's operating telephone
subsidiaries. Long-distance or toll service is provided through connections with
long-distance carriers, primarily AT&T and the Bell Operating Companies
("BOCs"). The Company anticipates that it will need to make arrangements with
AT&T, the BOCs and other large companies in order to offer certain
software-intensive services such as information gateway services. There is no
assurance that the Company will be able to obtain such arrangements or that such
arrangements, if obtained, will be on terms favorable to the Company.

Future growth in telephone operations is expected to be derived from the
acquisition of additional telephone companies, from providing service to new or
presently unserved establishments, from business expansion in the areas served
by the Company, from upgrading existing customers to higher grades of service,
from increased usage of the network through both local and long-distance calling
and from providing additional services made possible by advances in technology.

The following table summarizes certain information regarding the Company's
telephone operations.

YEAR ENDED OR AT DECEMBER 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- -------- -------- -------- --------

(DOLLARS IN THOUSANDS)
Telephone Operations
Access lines*..................................... 425,900 392,500 356,200 321,700 304,000
% Residential................................... 80.6 81.3 82.0 83.1 83.8
% Business (nonresidential)..................... 19.4 18.7 18.0 16.9 16.2
Total revenues.................................... $ 354,841 $306,341 $268,122 $238,095 $211,232
% Local service................................. 26.8 26.8 26.9 27.4 29.0
% Network access and long-distance.............. 61.6 60.0 59.3 57.9 57.0
Depreciation and amortization expense............. $ 77,354 $ 68,878 $ 59,562 $ 51,946 $ 43,425
Operating income.................................. 98,240 91,606 79,110 72,217 65,242
Construction expenditures......................... 101,139 117,867 82,233 67,357 67,856
Total identifiable assets......................... $1,058,241 $984,563 $829,489 $723,855 $674,712

- ---------
* An "access line" is a single or multi-party circuit between the customer's
establishment and the central switching office.

TELEPHONE ACQUISITIONS

TDS pursues an active program of acquiring operating telephone companies.
Since January 1, 1991, TDS has acquired 24 telephone companies serving a total
of 74,200 access lines for an aggregate consideration totaling $253.8 million.
The consideration consisted of $49.7 million in cash and notes, 155,000
Preferred Shares and 4.8 million Common Shares of the Company. TDS also sold one
telephone company serving 1,100 access lines in 1995.

At December 31, 1995, the Company had agreements, awaiting regulatory or
other approvals, to acquire one telephone company which serves 8,000 access
lines. This acquisition is expected to be completed for an aggregate
consideration consisting of approximately 658,400 Common Shares of the Company.

The Company continually evaluates acquisition opportunities. Telephone
holding companies and others actively compete for the acquisition of telephone
companies and such acquisitions are subject to the consent or approval of
regulatory agencies in most states and, in some cases, to federal waivers that
may affect the form of regulation or amount of interstate cost recovery of
acquired telephone exchanges. While management believes that it will be
successful in making additional acquisitions, there can be no assurance that the
Company will be able to negotiate additional acquisitions on terms acceptable to
it or that regulatory approvals, where required, will be received.

The Company maintains shelf registration of its Common Shares and Preferred
Shares under the Securities Act of 1933 for issuance specifically in connection
with acquisitions.

It is the Company's policy to preserve, insofar as possible, the local
management of each telephone company it acquires. The Company provides the
telephone subsidiaries with centralized purchasing and general management and
other services, at cost plus a reasonable rate of return on invested capital.
These services afford the subsidiaries expertise in the following areas:
finance, accounting and treasury services; marketing; customer service; traffic;
engineering and construction; accounting and customer billing; rate
administration; credit and collection; and the development of administrative and
procedural practices.

CONSTRUCTION AND DEVELOPMENT PROGRAM

The Company's 1995 and 1996 capital plan reflects its continuing commitment
to a First-To-Market service provisioning strategy. With the deployment of
fiber-fed digital serving areas ("DSAs") designed to condition the Company's
outside plant facilities for Integrated Services Digital Network ("ISDN") and
the upgrading of its switching platforms with Signaling System 7 ("SS7"),
Advanced Calling Services ("ACS") and ISDN, the Company intends to remain
competitive in its service territories. During 1995, the Company continued to
upgrade its exchange distribution network facilities by deploying 165 DSAs and

480 route miles of fiber optic cable. In 1996, the Company will update
additional outside plant facilities through the implementation of 211 DSAs and
440 route miles of fiber optic cable. By year-end 1996, the Company expects to
have 3,500 route miles of fiber cable in place. The Company continued its
aggressive role out of flagship switching systems built by AT&T (the "5ESS") and
Siemens Stromberg-Carlson (the "EWSD") in accordance with its strategy of
bringing advanced calling services to its customers. In 1995, the Company
installed 39 switching systems, including 11 host switches and in 1996, plans to
install an additional 47 switching systems including 11 more hosts. The 1995 and
1996 installed switches represent 71,260 and 66,908 lines bringing the total
AT&T and Siemens Stromberg-Carlson equipped lines installed to 250,541. The
Company's switching platform upgrades and replacements result in 77,543 equipped
lines of ISDN and 85,251 equipped lines of SS7 and ACS being installed in 1995
with an additional 91,411 and 115,803 equipped lines installed in 1996. At the
end of 1996, cumulative totals for the Company's ISDN, SS7 and ACS rollouts are
projected to be 281,066, 360,788 and 336,285 lines representing 59%, 75% and
70%, respectively, of all equipped lines. This switch deployment schedule will
continue to keep the Company well ahead of its 1993 rollout plan.

In 1995, the Company continued its efforts to improve customer service and
engage new revenue sources. One such effort was the start-up of the Network
Management Center ("NEMAC"). The NEMAC is a centralized switching support group
that combines the knowledge and expertise of the Company's most experienced
switching personnel to provide switching network performance monitoring 24 hours
a day, 7 days a week, as well as providing technical assistance in the
performance of switching equipment maintenance, problem resolution and upgrades.
As of the end of 1995, six people were dedicated to NEMAC operations and before
it is fully operational at the end of 1996, an estimated 28 additional people
will be employed.

New revenue ventures expanded in 1995 include TDSNET -- the Company's wholly
owned internet provider -- which began its operations in late 1994 though the
deployment of its first internet access node. In 1995, TDSNET expanded its
operations to include 5 additional operating sites and anticipates expanding its
operations to include a minimum of 8 additional nodes in 1996. Further, TDSNET
has plans to investigate the feasibility of implementing 12 additional operating
sites in late 1996 pending the results of associated market feasibility studies.
The deployment of voice mail systems will also help supplement revenues through
its 1996 deployment of 11 additional systems to bring the cumulative number of
systems deployed to 31. A significant service enhancing project that will help
to support the TDSNET and NEMAC operations also began in 1995. The TCP/IP
Multiprotocal Network that interconnects the operating locations of TDSNET, the
NEMAC, operating telcos and regional management centers of the Company was
initiated in late 1995. The Multiprotocal Network will allow the Company to
effectively provide centralized computing, switch surveillance, maintenance and
upgrade support to its operating telephone companies, Internet nodes and
management centers. Plans for the network to enable customer service personnel
from one operating location to assist customers at a different operating
location will also be implemented in 1996. At year-end 1995, 16 operating
companies and the 5 management centers were interconnected via the TCP/IP
network with an additional 50 operating companies planned for interconnection by
the end of 1996.

During 1995, the Company initiated a voice dialing trial, which will
continue in 1996, at an Indiana subsidiary. If the results of the trial prove
positive, further deployment of voice dialing will be planned. The Company also
completed plans to deploy 3 Asynchronous Transfer Mode ("ATM") video switching
systems in Oklahoma as part of a 1996 county-wide interactive educational
system. Both new ventures will enhance the Company's portfolio of
telecommunications technology experience.

The Company's total 1996 capital budget is $125 million compared to $101.1
in 1995 and $117.9 in 1994. Financing for the 1996 capital additions will be
provided primarily by internally generated funds and supplemented by RUS
long-term financing.

FEDERAL FINANCING AND HIGH COST SUPPORT PROGRAMS

TDS Telecom's primary sources of long-term financing for additions to
telephone plant and equipment have been the Rural Utilities Service ("RUS"),
previously named the Rural Electrification Administration, the Rural Telephone
Bank ("RTB") and the Federal Financing Bank ("FFB"), agencies of the United
States of America. The RUS has made primarily 35-year loans to telephone
companies since 1949, at interest rates of 2% and 5%, for the purpose of
improving telephone service in rural areas.

Currently, the RUS is authorized to make hardship loans at a 5% interest rate
and other loans at an interest rate approximating the government's rate for
instruments of comparable maturity. The previous rate cap of 7% for these loans
has been removed for 1996. The RTB, established in 1971, makes loans at interest
rates based on its average cost of money (6.88% for its fiscal year ended
September 30, 1995), and in some cases makes loans concurrently with RUS loans.
In addition, the RUS guarantees loans made to telephone companies by the FFB at
the federal cost of money (6.562% for a 35-year note at December 31, 1995).

Substantially all of the Company's telephone plant is pledged or is subject
to mortgages to secure obligations of the operating telephone companies to the
RUS, RTB and FFB. The amount of dividends on common stock that may be paid by
the operating telephone companies is limited by certain financial requirements
set forth in the mortgages. Of the $390.6 million of underlying retained
earnings of the telephone subsidiaries at December 31, 1995, $169.1 million was
available for the payment of dividends on the subsidiaries' common stock.

At December 31, 1995, the Company's operating telephone companies had
unadvanced loan commitments under the RUS, RTB and FFB loan programs aggregating
approximately $147 million, at a weighted average annual interest rate of 6.31%,
to finance specific construction activities in 1996 and future years. These loan
commitments are generally issued for five-year periods and may be extended under
certain circumstances. The Company's operating telephone companies intend to
make further applications for additional loans from the RUS, RTB and FFB as
their needs arise. There is no assurance that these applications will be
accepted or what the terms or interest rates of any future loan commitments will
be.

A number of the telephone subsidiaries recover a proportion of their costs
via interstate support mechanisms. The 1996 Act requires modification of those
mechanisms by early 1997. In the interim, the interstate Universal Service Fund
("USF") has been capped and indexed for years 1994, 1995 and the first half of
1996. The 1996 Act requires an extensive review of support mechanisms, including
USF, which could involve the development of new mechanisms and changes in
eligibility criteria. There is no assurance that cost recovery through direct
and indirect interstate mechanisms will remain at current levels. Some telephone
subsidiaries are in states where support and rate structures are under
reevaluation or have been changed. The 1996 Act also affects state support
programs. There is no assurance that the states will continue to provide for
cost recovery from current sources. The Company would expect to seek higher
local service rates to recover costs for which current interstate or intrastate
recovery may become unavailable.

REGULATION

LECs, including the Company's local telephone operating subsidiaries, are
regulated by state regulatory agencies with respect to such matters as local
rates, intrastate toll rates, intrastate access charges billed to intrastate
interexchange carriers, service areas, service standards, accounting and related
matters. States have traditionally regulated entry to compete with an existing
LEC. However, the 1996 Act has almost completely preempted state entry
authority. In a number of states, construction plans, borrowing, depreciation
rates, affiliated charge transactions and certain other financial transactions
are also subject to regulatory approval. The Company has sought and will
continue to seek appropriate increases in local and other service rates and
changes in rate structure to achieve reasonable rates and earnings. The Company
also actively seeks to maintain current revenue streams in light of increasing
earnings review activity at the state level and the enactment of the 1996 Act
which adopts a national policy favoring local exchange service competition and
intrastate long distance competition.

Although the TDS LECs still operate largely in a regulated environment, the
Company has been taking steps to prepare for competition. For example, with the
onset of local competition, the Company will seek pricing and policy directives
to make its rate structures more appropriate in a competitive environment. The
TDS Telecom operating LECs are also participating in state regulatory and
legislative processes seeking appropriate recognition and policy responses for
differences encountered in serving rural service areas. The developing changes
in market structure and policy might impact the operating

LECs' earnings if adequate rate increases are not approved or are unduly
delayed. To the extent that state regulatory approval of operating company
responses to policy and marketplace changes remain necessary, TDS is not now
able to predict the extent of such impact.

The FCC regulates interstate toll rates, interstate access charges paid by
interexchange carriers to local exchange carriers and other matters relating to
interstate telephone service. The FCC also regulates and requires licenses for
the use of radio frequencies in telephone operations. The Company's telephone
subsidiaries concur in the National Exchange Carrier Association ("NECA")
interstate common line and traffic sensitive tariffs pursuant to FCC rules and
participate in the access revenue pools administered by NECA for interstate
access services. Where applicable, the Company's subsidiaries also participate
in intrastate access tariffs and toll-pooling arrangements approved by state
regulatory authorities for intrastate long distance services. Such interstate
and intrastate arrangements are intended to compensate LECs, such as the
Company's operating telephone companies, for the costs, including a fair rate of
return, of facilities furnished in originating and terminating interstate and
intrastate long distance services. The FCC has stated its intention to conduct a
comprehensive review of its interstate access rules.

Numerous aspects of federal and state telephone regulation have, in recent
years, been subject to reexamination and ongoing modification, often to pursue
the goals of increasing competition and reducing regulation. For example, state
toll revenue pooling arrangements that are the source of substantial revenues to
local exchange companies continue to be replaced with access-charge-based
arrangements. In these cases, access charges are typically priced to result in
revenue flows similar to those realized in the toll-pooling process. To the
extent they are not, the Company may seek adjustments in other rates. The 1996
Act is likely to accelerate the pace of both state and federal regulatory
reevaluation.

Some of the Company's high cost rural companies now recover a greater
portion of their costs from interstate sources than do urban companies. The FCC
and a federal-state joint board are conducting a rulemaking proceeding on this
subject which could lead to a reduction of this source of revenue. The FCC has
limited the growth of such interstate high cost recovery under the existing
mechanism pending adoption of new rules. Prior to the 1996 Act, the FCC was
seeking to control the level of interstate high cost support by regulating the
support available when an underserved rural LEC or a rural portion of a larger
LEC is acquired. The new proceeding on universal service support is expected to
pursue some of the earlier proceedings' proposals. This might affect the
Company's decision or purchase price for further potential acquisitions. Among
the many proposals advanced for modifying high-cost support are proposals to
base high cost compensation on some "proxy," rather than the current actual cost
measurements, and to make competitors eligible for high cost compensation. The
impact will depend on which of the many alternatives the FCC and joint board
members select. The Company is pursuing a strategy of network modernization and
customer service designed to maintain a strong competitive position as national
and state policies change.

The FCC and many states are placing large LECs under "price caps," rather
than rate-of-return regulation. The price cap approach differs from traditional
rate-of-return regulation by focusing primarily on the prices of communication
services. The intention of price cap regulation is to focus on productivity, and
the FCC's plan for telephone operating companies provides for the sharing with
customers of profits, achieved by increased productivity, that exceed allowed
returns. The Company's telephone subsidiaries have not elected price caps or an
alternative FCC plan designed for smaller LECs for 1996 and will, therefore,
remain in the NECA pools for this period. Since approximately one-third of the
Company's telephone subsidiaries serve high-cost areas, important averaging
mechanisms associated with the NECA pooling process would be lost if the Company
elected either of the alternatives to traditional rate-of-return regulation.
However, the FCC is currently considering whether to initiate a proceeding to
prescribe a new rate of return for rate-of-return LECs. In addition, NECA has
pending with the FCC a Petition for Rulemaking proposing rule revisions to allow
incentive settlement options within the NECA pools. The settlement options are
designed to provide companies wishing to remain in the NECA pools with
incentives similar to those previously adopted by the FCC but only available to
non-NECA participants. Management continues to evaluate opportunities under all
forms of regulation.

The FCC has been gradually relaxing regulation of AT&T's interstate services
as competition develops. The 1996 Act preserves interstate toll rate averaging
and endorses a nationwide policy that interstate and intrastate long distance
rates should not be higher in rural locations with limited traffic volumes than
in high volume urban areas.

The reevaluation of telephone company requirements and compensation
arrangements which is mandated by the 1996 Act introduces uncertainty as to the
future prospects of the Company's local telephone businesses. For example, the
FCC has said it will commence a more comprehensive review of LEC access charge
rules and policies, but has not yet indicated what changes it will propose or
when it will consider changes in access policy. The outcome of such a review may
affect the source and nature of the operating companies' recovery of
interstate-allocated costs. The FCC has also opened a proceeding to develop new
policies for LECs' compensation arrangements with cellular and PCS providers for
interconnections between and among LEC and wireless networks. To the extent that
resolution of the proceeding may raise the TDS LECs' interconnection costs, the
operating companies would expect to adjust their charges to recover such
increased costs. The FCC must first resolve questions about how the 1996 Act
affects its jurisdiction and regulatory options. In the past, the FCC has
frequently adopted transition rules when changing cost recovery mechanisms to
prevent abrupt revenue and rate changes. While regulatory issues remain
unresolved, the Company cannot predict the cumulative nature or extent of
impacts from regulatory reform.

TELECOMMUNICATIONS ACT OF 1996

The Telecommunications Act of 1996 (the "1996 Act") was enacted on February
8, 1996. The 1996 Act mandates significant changes in existing
telecommunications rules and policies to promote competition, ensure the
availability of telecommunications services to all parts of the nation and to
streamline regulation of the telecommunications industry to remove regulatory
burdens.

The 1996 Act provides that implementing its legislative objectives will be
the task of the FCC, the state public utilities commissions and a federal-state
joint board. Much of this implementation must be completed in numerous,
virtually simultaneous, proceedings with short, 6-18 month, deadlines. These
proceedings are expected to address issues (and possibly even proposals) already
before the FCC in pending rulemaking proceedings affecting the telephone and
wireless industries, as well as additional areas of telecommunications policy
and regulation. The proceedings will also replace, modify or terminate existing
FCC and state policies and regulations that are inconsistent with the new law.

OPEN COMPETITION. The primary purpose and effect of the new law is to open
all telecommunications markets to competition -- including local telephone
service. The 1996 Act makes virtually all direct or indirect state and local
barriers to competition unlawful. It directs the FCC to preempt all inconsistent
state and local laws and regulations, after notice and comment proceedings. It
also enables electric and other utilities to engage in telecommunications
service through qualifying subsidiaries.

Only narrow powers over competitive entry are left to state and local
authorities. Each state retains the power to impose "competitively neutral"
requirements that are consistent with the 1996 Act's universal service provision
and necessary for universal services, public safety and welfare, continued
service quality and consumer rights. While a state may not impose requirements
that effectively function as barriers to entry, it retains limited authority to
regulate certain competitive practices in rural telephone company service areas.

Some specific provisions of the 1996 Act which are expected to affect local
exchange, wireless and interexchange providers are:

EXPANDED INTERCONNECTION OBLIGATIONS. The 1996 Act establishes a general
duty for all telecommunications carriers, including cellular and PCS providers,
to interconnect with other carriers.

Congress has also developed a somewhat more specific list of requirements
with respect to the interconnection obligations of Local Exchange Carriers
("LECs"). These obligations include resale, number portability, dialing parity,
access to rights-of-way and reciprocal compensation. These LEC

obligations do not extend to wireless service providers, unless the FCC decides
to include them within the definition of a LEC. However, the requirements apply
to competitive providers of local exchange or exchange access services, as well
as the incumbent LECs, including the TDS Telecom LECs.

Unless exempted or granted suspension or modification, LECs designated
"incumbents" have additional obligations as follows: to negotiate in good faith;
to comply with more detailed interconnection terms, including non-discrimination
and unbundling their network and service components so competitors may provide
only those elements they choose to provide; to offer their retail services at
wholesale rates to facilitate resale by their competitors; and to allow other
carriers to place equipment necessary for interconnection or access on their
premises.

The 1996 Act establishes a framework for state commissions to mediate and
arbitrate interconnection negotiations between incumbent LECs and carriers
requesting interconnection, services or network elements. The 1996 Act
establishes deadlines, standards for state commission approval of
interconnection agreements and recourse to the FCC if a state commission fails
to act.

UNIVERSAL SERVICE. The 1996 Act establishes principles and a process for
implementing a strengthened "universal service" policy. This policy seeks
nationwide, affordable service and access to advanced telecommunications and
information services. It calls for reasonably comparable urban and rural rates
and services. The 1996 Act also requires universal service to schools, libraries
and rural health facilities at discounted rates.

Regulators must complete a major overhaul of current support mechanisms to
eliminate implicit subsidies. All long distance providers must provide urban and
rural long distance services essentially at averaged rates and must average long
distance calls from one state to another. To receive universal service support,
a carrier must obtain state designation as an "eligible telecommunications
carrier" and provide universal service throughout a state-designated service
area. The state must designate more than one requesting eligible carrier to
receive support in most areas, but can only do so in a rural telephone company's
area if it makes a public interest finding.

CARRIER SUPPORT OBLIGATIONS. The 1996 Act requires all interstate
telecommunications providers, including wireless service providers, to "make an
equitable and non-discriminatory contribution," to support the cost of providing
universal service, unless their contribution would be DE MINIMIS.

BELL OPERATING COMPANY PROVISIONS. The 1996 Act establishes the process for
eliminating all remaining line-of-business restrictions placed on the BOCs by
the AT&T divestiture consent decree. Subject to specific safeguards, the BOCs
may immediately provide long distance service outside the area where that Bell
group serves, as well as specified "incidental" long distance services. For
in-region long distance relief, the BOCs must obtain an FCC public interest
finding and show that they have met a strict list of interconnection
requirements and that there is a specified level of competition in each in-
region state to be relieved of the long distance ban.

PROHIBITION AGAINST CROSS-SUBSIDY. The 1996 Act prohibits a LEC from
subsidizing any competitive service (including voice mail, voice
storage/retrieval, live operator services and related ancillary services) from
its telephone exchange service or exchange access service.

TELEPHONE COMPANY PROVISION OF CABLE TELEVISION SERVICES. The 1996 Act
eliminates the ban on LEC provision of cable programming service directly to
subscribers within its telephone service area. However, most mergers,
acquisitions and joint ventures by LECs and cable systems in the same area
remain unlawful.

INFRASTRUCTURE SHARING. LECs with "eligible telecommunications carrier"
status that lack economies of scale may share features and functions of larger
neighboring incumbent LECs on non-common carrier terms.

USE OF CUSTOMER INFORMATION. The new law restricts the use of customer
information for purposes beyond the provision of service except subject to
prescribed safeguards, and requires LECs to provide directory listing
information to competing telephone directory providers.

ELIMINATION OF ALIEN OFFICER/DIRECTOR RESTRICTIONS. The current
restrictions on the numbers of alien officers and directors of FCC licensee
companies and companies controlling such licenses has been eliminated.

BOC COMMERCIAL MOBILE JOINT MARKETING. BOCs are permitted to market jointly
and sell wireless services in conjunction with telephone exchange service,
exchange access, intraLATA and interLATA telecommunications and information
services.

WIRELESS FACILITIES SITING. The 1996 Act limits the rights of states and
localities to regulate placement of wireless facilities so as to "prohibit" the
provision of wireless services or to "discriminate" among providers of such
services. It also eliminates environmental effects (provided that the wireless
system complies with FCC rules) as a basis for states and localities to regulate
the placement, construction or operation of wireless facilities.

EQUAL ACCESS. Section 332(c) of the Communications Act is amended to
provide that wireless providers are not required to provide equal access to
common carriers for toll services. The FCC is authorized to require unblocked
access subject to certain conditions.

DEREGULATION. The FCC is required to forbear from applying any statutory or
regulatory provision that is not necessary to keep telecommunications rates and
terms reasonable or to protect consumers. A state may not apply a statutory or
regulatory provision that the FCC decides to forbear from applying. In addition,
the FCC must review its telecommunications regulations every two years and
change any that are no longer necessary.

COMPETITION

The 1996 Act ushers in a new wave of competition in the telecommunications
industry. The 1996 Act embraces competition in telecommunications as a national
policy and also starts the process of deregulation. The 1996 Act applies
expanded interconnection and other requirements to local exchange telephone
companies for the purpose of stimulating competition. Initially, TDS Telecom
LECs may qualify for an exemption from certain interconnection provisions of the
1996 Act.

The Company has no assurance that its LECs will not be adversely affected by
the changes mandated by the 1996 Act. The Company believes that there eventually
will be open entry into nearly every aspect of the telephone industry, including
local service, interstate and intrastate toll, switched and special access
services and customer premises equipment. Accordingly, the Company expects
competition in the telephone business to be dynamic and intense as a result of
the entrance of new competitors and the development of new technologies,
products and services.

A series of FCC, court and state regulatory agencies' decisions have
introduced competition into certain sectors of the telephone industry already.
Technological developments in cellular telephone, digital microwave, coaxial
cable, fiber optics and other wireless and wired technologies may further
encourage the development of alternatives to traditional telephone service.
Facilities-based competition for intra-LATA toll markets is growing at the state
level (and this trend is expected to continue). Although states have generally
acknowledged differences in urban and rural markets, the competitive nature of
individual markets will be determined by FCC rules and state commission
implementation efforts.

Certain providers and users of toll service may seek to bypass the LEC's
switching services and local distribution facilities, particularly if services
are not strategically priced. There are three primary ways by which users of
toll service may bypass the Company's switching services today. First, users may
construct and operate or lease facilities to transmit their traffic to an
interexchange carrier. Second, certain interexchange carriers provide services
which allow users to divert their traffic from the LEC's usage-sensitive
services to their flat-rate services. Third, users may choose to use cellular
telephone service to bypass the LEC's switching services. The Company's
telephone subsidiaries have experienced only a small loss of traffic to such
bypass. The Company and the exchange carrier industry are seeking to address
bypass by advocating strong public policy which ensures adequate interstate and
intrastate cost recovery mechanisms for high cost rural telephone service and
flexible pricing, including reduced pricing of access and toll services, where
appropriate.

The 1996 Act may provide the Company with increased communications
opportunities in video and voice communications. The 1996 Act allows telephone
companies to provide video programming in the

service areas, but places restrictions on cable system buyouts and management
arrangements. The Company will actively monitor regulatory proceedings seeking
to protect its interests in these areas, and will continue to evaluate new
business opportunities that might arise.

RADIO PAGING OPERATIONS

WIRELESS MESSAGING INDUSTRY

Paging is a wireless communications messaging technology which uses an
assigned radio frequency, licensed by the FCC, to contact a paging customer
within a geographic service area. Pagers are small, lightweight, easy-to-use,
battery-operated devices which receive messages by the broadcast of a radio
signal. To contact a customer, a message is initiated by placing a telephone
call to the customer's pager number. The telephone call is received by a
computerized paging switch which generates a signal sent to
microprocessor-controlled radio transmitters within the service area. These
radio transmitters are connected to the paging terminal either through land-line
or satellite. The transmitters broadcast a digital or analog signal that is
received by the pager and delivered as a digital display, alphanumeric text,
tone or voice message.

The paging industry started in 1949 when the FCC allocated certain radio
frequencies for exclusive use in providing one-way and two-way types of mobile
communications services. The industry grew slowly during its first thirty years
as the quality and reliability of equipment was developed and the market began
to perceive the benefits of wireless communications. Until the 1980s, the
industry was highly fragmented with a large number of small, local operators.
During that decade, acquisitions of many firms by regional telephone companies
and others greatly consolidated the industry. Several large industry
acquisitions occurred during the mid-1990s which resulted in the further
consolidation of the paging industry.

In April 1995, APP was granted five regional narrowband PCS licenses by the
FCC, providing equivalent coverage to that of a nationwide license. Each of the
five licenses consists of a 50 kHz outbound channel on frequency 930.625 MHz
paired with a 12.5 kHz return channel on frequency 901.80625 MHz. The PCS
licenses provide APP with the opportunity to introduce two-way wireless
messaging communications services including acknowledgment paging, data and
telemetry services and digitized voice messaging throughout the United States.
The Company intends to begin deploying these new services in some of its
existing markets in early 1997.

Manufacturers of pagers and transmission equipment have produced innovative
technological advances which are expected to continue to broaden the potential
market size for paging services and support the industry's rapid growth rate.
Micro circuitry, liquid crystal display technology and digital signal processing
all have expanded the capability and capacity of paging services while reducing
equipment and air time costs and equipment size. Future technological
developments are expected to greatly expand the messaging capacity of the paging
infrastructure and provide advanced two-way paging and data services such as
acknowledgment paging, which allow customers to confirm a message to the
originator. Other developments include digitized voice paging and
notebook/palm-top computer wireless data applications connected to the network
by a wireless modem encased in a Personal Computer Memory Card International
Association ("PCMCIA") card which functions as a pager and wireless modem.

APP provides wireless communications messaging services in the United States
with operations concentrated in Florida and in the Mid-Atlantic and Midwest
regions. APP has experienced strong growth in the number of pagers in service,
increasing from 236,800 at the end of 1991 to 784,500 at year-end 1995.

The following table summarizes certain information about APP's operations.

YEAR ENDED OR AT DECEMBER 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------

(DOLLARS IN THOUSANDS)
Pagers in service................................. 784,500 652,800 460,900 322,200 236,800
Total revenues.................................... $107,150 $ 92,065 $ 75,363 $ 54,716 $ 43,972
Depreciation and amortization expense............. 24,692 17,178 13,392 10,412 9,047
Operating (loss).................................. (8,997) (169) (721) (5,447) (7,750)
Additions to property and equipment............... 28,994 27,403 24,813 15,501 13,322
Identifiable assets............................... $159,170 $146,107 $ 74,923 $ 57,080 $ 41,726

COMPANY STRATEGY

APP's business strategy is to promote above industry average growth in
customers, revenue and operating cash flow by providing the highest quality
service through one of the industry's most technologically advanced digital
transmission systems with a focus on strong customer service and competitive
pricing. APP stresses quality in every customer interaction and strives to
continuously improve the productivity and efficiency of its employees and its
communications systems.

EXTENSIVE SPECTRUM ACQUISITIONS. In 1995, APP was granted five regional
narrowband PCS licenses at auction by the FCC, providing coverage equivalent to
that of a nationwide license. Each license consists of a 50 kHz outbound channel
on frequency 930.625 MHz paired with a 12.5 kHz return channel on frequency
901.80625 MHz. The licenses will enable APP to introduce two-way wireless
messaging communications services including acknowledgment paging, data and
telemetry services, wireless e-mail and digitized voice messaging. During 1996,
APP plans to complete three phases of beta-testing of the ReFLEX25-Registered
Trademark- protocol and to initiate engineering design and construction in the
initial markets by year-end. APP also intends to continue exploring synergies
with affiliated companies, such as United States Cellular Corporation and
American Portable Telecom, Inc.

In 1994, the FCC granted APP exclusive use of a paging channel on 929.3375
MHz throughout the United States subject to construction/buildout requirements.
APP notified the FCC, by letter dated January 23, 1995, that these requirements
had been met. APP believes this license will enable the Company to offer
competitive regional and nationwide messaging services and has built the systems
required to utilize and retain an exclusive license. APP's Minnesota, Oklahoma
and Washington, D.C. systems utilize this frequency.

STRATEGIC ALLIANCES AND AFFILIATES. APP is a joint venture partner with
Nexus Telecommunications Systems Ltd. Of Israel ("Nexus") in American Messaging
Services, LLC. ("AMS"). AMS was formed to develop multiple applications and
distribution channels worldwide for a patented communications network that
provides two-way paging, location and telemetry services. In September 1995,
American Paging and Nexus introduced the TAG pager, a low-cost two-way pager
which will operate on the Nexus network. Samsung Electronics of Korea will
manufacture the first version of the TAG pager. American Paging holds the
exclusive marketing rights for the Nexus two-way paging technology in the
Western Hemisphere.

In October, APP announced an agreement with Upper Canada Communication
Group, Inc. ("UCCG") of Toronto for the coordinated development and use of
narrowband PCS and conventional PCP paging frequencies in North America. Under
the terms of the agreement, each company will pursue its own PCS build out plans
but will have the added potential to market North American coverage of advanced
wireless messaging services. In a related action, both the FCC and Industry
Canada have provided conditional authority for both companies to construct and
operate transmitters in previously restricted areas.

APP RESTRUCTURING

During the third quarter of 1995, APP began restructuring three key
operating areas: sales and marketing, administration, and customer service. Upon
completion, APP expects to improve its customer mix, lower its administrative
costs and improve customer service. The restructuring is

expected to extend into the second half of 1996. Restructuring-related expenses
include severance costs to be paid as APP's operating centers are closed, costs
of canceling office leases and incurred consulting fees.

The first goal of the restructuring effort is to increase sales
productivity. A key element of this strategy is to improve customer mix.
American Paging aims to increase the percentage of paging units sold directly to
customers by increasing the number of direct sales representatives. Over
one-half of APP's employees are anticipated to be involved in sales functions at
the completion of restructuring. Another key element of the strategy is to
increase sales force productivity through both an improved organization
structure designed to clarify responsibilities and streamline communications,
and improved sales force training.

The second goal of the restructuring effort is to reduce both operating and
administrative expense. APP plans to consolidate 17 operating centers into a
single facility to be located in Oklahoma City, Oklahoma. The national Customer
Service Center ("CSC") office will consolidate APP's customer service,
administrative, billing and collections functions. Currently, the administrative
centers are co-located with 17 of APP's 38 sales offices. Following the
restructuring, field offices will be primarily devoted to sales, and will occupy
significantly reduced office space.

The third goal of the restructuring effort is to improve customer service,
which is critical to adding and retaining customers. Beginning in the second
quarter of 1996, American Paging plans to provide full-service customer response
24-hours-per-day, seven-days-per-week through its CSC.

PAGING OPERATIONS

APP provides local, state-wide, regional and nationwide advanced, one-way
digital wireless messaging communications services to customers through its
sales and service operation centers. It offers local and regional paging
coverage throughout Florida, the Midwest (including all or parts of Illinois,
Indiana, Kentucky, Minnesota, Missouri and Wisconsin), the Mid-Atlantic
(including all or parts of Maryland, Pennsylvania, Virginia, and Washington,
D.C.) regions, and in the states of Oklahoma, Texas, Arizona and Utah. One-way
paging services are also offered in Ohio, Iowa, and Southern California, through
various transmitter-sharing agreements with nonaffiliated service providers.
Nationwide one-way and two-way paging is offered through APP's alliance with
nonaffiliated service providers.

Generally, a paging system consists of a control center, transmitters,
dedicated links (wire, fiber optic, radio, or satellite) between the control
center and the transmitters and the pagers themselves. The control center is
interconnected with the public switched telephone network ("PSTN") and receives
messages from land line telephones. Messages received at the control center are
matched to each pager's unique telephone number, or "cap code," translated into
digital signals and forwarded over dedicated links to transmitters that
broadcast the message over a specified frequency. If the pager to which the
message is directed is in the transmitter coverage area, it will recognize its
"cap code" and indicate to its wearer that it has received a page.

APP currently provides four types of pagers in all of its markets: digital
(or numeric) display, alphanumeric text display, tone and voice. A digital
display pager permits a caller to transmit to the customer a numeric message
that may consist of a telephone number, an account number or coded information.
It has the memory to store several numeric messages that can be recalled by the
customer when desired. Alphanumeric text display service allows customers to
receive, store, and display full text messages of between 80 and 160 characters,
which are sent from either a data entry device or an operator. A tone pager
notifies the customer that a message has been received by emitting an audible
beep, displaying a flashing light or vibrating. In the case of voice service,
the notification is followed by a brief voice message.

Since 1986, APP has made a limited number of selective acquisitions of
paging companies which had been providing service in the same areas as APP, or
in areas adjacent to APP's service areas. In 1995, APP obtained approximately
28,400 customers from its acquisition of Dial-Page, Incorporated (of Florida),
Page Link (of Minnesota) and the Texas paging assets of Century
Telecommunications, Inc. In total, APP has added 87,300 net customers through
acquisitions since 1991. As the industry continues to consolidate, APP expects
to evaluate attractive acquisition opportunities and continue to make selective
acquisitions on an ongoing basis.

MARKETING STRATEGY

APP directs its marketing efforts at value-oriented customers who appreciate
APP's high degree of technical reliability and high level of customer service.
APP's marketing strategy is designed to increase market share and operating cash
flow by achieving rapid growth at modest cost per net customer unit added.
Continuing quality improvements, including new services and products, help
stimulate this growth while controlling costs.

APP generates its revenues from (i) service usage billed on a flat-rate or
measured-service basis, (ii) pager rentals, (iii) pager warranties, maintenance
and repair, (iv) loss protection, (v) voice mail usage on a flat rate or
measured service basis, (vi) activation fees, (vii) the sale of pager
accessories and (viii) service usage of value-added services such as text
dispatching, second telephone numbers or group calls. Service to end users is
provided directly by APP in most cases.

APP markets its services directly through its sales force complemented by
customer service representatives, and indirectly through third-party resellers
and retailers. APP's sales force and customer service representatives have the
responsibility to ensure that all customers and prospects as well as resellers
and retailers understand APP's competitive advantages: reliable high-quality
wireless networks, wide-area coverage, value-priced selection of pagers and
ancillary services, and responsive sales and customer service staff.

APP offers its services to third-party resellers under marketing agreements.
APP offers paging air time in bulk quantities at wholesale rates to resellers
who then "re-sell" APP's air time to end users at a markup. APP's cost of
obtaining customer units through resellers is substantially less than the cost
of obtaining customer units through direct sales or retail distribution
channels. Resellers incur the cost to acquire customers as well as to service,
bill and collect revenues from the customer. They also assume the cost of the
paging unit for those who rent rather than purchase. APP sells pagers to
retailers at a small mark-up or cost. Retail outlets then sell the pagers to the
customers who then purchase the services from APP. Resellers and retailers may
also sell services of other wireless communications companies which may compete
with APP. APP seeks to develop long-term and cooperative relationships with its
resellers and retailers.

COMPETITION

APP faces significant competition in all of its markets. A number of APP's
competitors, which include local, regional and national paging companies and
certain regional telephone companies, possess greater financial, technical and
other resources than APP. Moreover, certain competitors in the paging business
offer wider coverage in certain geographic areas than does APP and certain
competitors follow a low-price discounting strategy to expand market share. If
any of such companies were to devote additional resources to the paging business
or increase competitive pressure in APP's markets, APP's results of operations
could be adversely affected.

A number of wireless communication technologies, including cellular,
broadband and narrowband PCS, SMR and others, are competitive forms of
technology used in, or projected to be used for, wireless two-way
communications. Cellular telephone technology provides an alternative
communications system for customers who are frequently away from fixed-wire
communications systems (i.e., ordinary telephones). APP believes that paging
will remain one of the lowest-cost forms of wireless messaging due to the
low-cost infrastructure associated with paging systems, as well as advances in
technology that will provide for reduced paging costs.

Narrowband PCS differs from cellular and broadband technology and service in
that APP expects it to carry primarily high-speed one-way and two-way paging,
data transfer and short voice messages. APP envisions applications for
narrowband PCS such as convenient two-way paging potentially aimed at business
users and the mass consumer market; increased capacity to support more
alphanumeric customers; high-speed, two-way data conveyance to highly mobile
devices such as lap-top computer and Personal Digital Assistants ("PDA"); and
high-speed, one-way digitized voice messaging. APP believes that these services
will be complementary to the services and functionality of cellular and
broadband PCS. APP intends to begin providing narrowband PCS services in
selected markets as the technology becomes commercially available, which is
estimated to be early 1997.

Broadband PCS technology is currently under development and will be similar
in design to cellular technology. When offered commercially, this technology
will offer increased capacity for wireless two-way communication and,
accordingly, is expected to result in increased competition for APP.

Future technological developments in the wireless telecommunications
industry and the enhancement of current technologies will likely create new
products and services that are competitive with the paging services currently
offered by APP. There can be no assurance that APP would not be adversely
affected by such technology changes.

GOVERNMENT REGULATION

APP's paging operations are subject to regulation by the FCC and by state
regulatory agencies. The FCC exercises broad authority to regulate market entry
and rates and shares responsibilities with state regulatory authorities over a
broad range of other matters. See "Telephone Operations -- Telecommunications
Act of 1996."

The FCC is responsible for awarding licenses for the wireless or radio
frequencies used by APP and its subsidiaries to provide its one- and two-way
messaging and other service offerings. It also establishes and enforces the
licensing, technical and operating rules which govern operations on those
frequencies, the terms and conditions under which the wireless systems of APP
and its subsidiaries are interconnected with and obtain services and facilities
from other service providers such as local exchange carriers and others with
respect to interstate services and adjudicates any consumer or other complaints
filed under the Communications Act with respect to service providers subject to
its jurisdiction.

The FCC licenses granted to APP are issued for up to ten years at the end of
which time renewal applications must be approved by the FCC. Most of APP's
current licenses expire between 1997 and 2001. FCC renewals are generally
granted as long as APP is in compliance with FCC regulations. Although APP is
unaware of any circumstances which would prevent the approval of any pending or
future renewal applications, no assurance can be given that APP's licenses will
be renewed by the FCC in the future. Moreover, although revocation and
involuntary modification of licenses are extraordinary regulatory measures, the
FCC has the authority to restrict the operation of licensed facilities or revoke
or modify licenses. No license granted to APP has ever been involuntarily
revoked or modified.

The Communications Act requires licensees, such as APP, to obtain prior
approval from the FCC for the assignment or transfer of control of any
construction permit or station license, or any rights thereunder. The
Communications Act also requires prior approval by the FCC of acquisitions of
other paging companies by APP. The FCC has approved all transfers of control for
which APP has sought approval. APP also routinely applies for FCC authority to
use frequencies, modify the technical parameters of existing licenses, expand
its service territory and provide new services. Although there can be no
assurance that any future requests for approval or applications filed by APP
will be approved or acted upon in a timely manner by the FCC, or that the FCC
will grant the relief requested, APP has no reason to believe that any such
requests, applications or relief will not be approved or granted.

Pursuant to 1993 amendments to the Communications Act, a paging service is
classified as a CMRS, to the extent that it is a service offered to the public,
for a fee, which is interconnected to the public switched telephone network. The
FCC has determined that it will forbear from requiring CMRS carriers to comply
with a number of statutory provisions otherwise applicable to common carriers,
such as the filing of tariffs.

The scope of state regulatory authority while excluding market entry and
rate regulation covers such matters as the terms and conditions of
interconnection between local exchange carriers and wireless carriers with
respect to intrastate services, customer billing information and practices,
billing disputes, other consumer protection matters, facilities setup issues,
transfers of control, the bundling of services and equipment and requirements
relating to the availability of capacity on a wholesale basis. In these areas,
particularly the terms and conditions of interconnection between local exchange
carriers and wireless providers, the FCC and state regulatory authorities share
regulatory responsibilities with respect to interstate and intrastate issues,
respectively.

The FCC and a number of state regulatory authorities have initiated or
indicated their intention to examine the structure of access charge payments,
mutual compensation arrangements for interconnected local exchange carriers and
wireless providers, the pricing of dedicated and common transport and switching
facilities provided by local exchange carriers to wireless providers,
implementation of number portability to permit customers to retain their
telephone numbers when they change service providers, and alterations in the
structure of universal service funding.

APP and its subsidiaries have been and intend to remain active participants
in proceedings before the FCC and, through its membership in state associations
of wireless providers, before state regulatory authorities. Proceedings with
respect to the foregoing policy issues before the FCC and state regulatory
authorities could have a significant impact on the competitive market structure
among wireless providers and the relationships between wireless providers and
other carriers. APP is unable to predict the scope, pace, or financial impact of
policy changes which could be adopted in these proceedings.

BROADBAND PCS OPERATIONS

THE WIRELESS TELECOMMUNICATIONS INDUSTRY

PCS is a term commonly used in the United States to describe a portion of
radio spectrum (1850-1990 MHz) 60MHz of which was auctioned by the FCC in March
1995. This portion of radio spectrum is to be used by PCS licensees to provide
wireless communication services. PCS will initially compete directly with
existing cellular telephone, paging and mobile radio services. PCS will also
include features which are not generally offered by cellular providers, such as:
(i) the provision of all services to one untethered, mobile number; (ii)
lower-priced service options; and (iii) in the near future, medium-speed data
transmissions to and from portable computers, advanced paging services and
facsimile services. In addition, PCS providers may be the first to be able to
offer mass market wireless local loop applications, in competition with switched
and direct access local telecommunications services.

OPERATION OF WIRELESS NETWORKS. Wireless service areas are divided into
multiple regions called "cells," each of which contains a base station
consisting of a low-power transmitter, a receiver and signaling equipment. The
cells are typically configured on a grid in a honeycomb-like pattern, although
terrain factors (including natural and man-made obstructions) and signal
coverage patterns may result in irregularly shaped cells and overlaps or gaps in
coverage. The base station in each cell is connected by microwave, fiber optic
cable or telephone wires to a switching office. The switching office controls
the operation of the wireless telephone network for its entire service area,
performing inter-base station hand-offs, managing call delivery to handsets,
allocating calls among the cells within the network and connecting calls to the
local landline telephone system or to a long-distance telephone carrier.
Wireless service providers have interconnection agreements with various local
exchange carriers and interexchange carriers, thereby integrating the wireless
telephone network with landline telecommunications systems. Because two-way
wireless networks are fully interconnected with landline telephone networks and
long-distance networks, subscribers can receive and originate both local and
long distance calls from their wireless telephones.

The signal strength of a transmission between a handset and a base station
declines as the handset moves away from the base station, so the switching
office and the base stations monitor the signal strength of calls in progress.
When the signal strength of a call declines to a predetermined level, the
switching office may "hand off" the call to another base station that can
establish a stronger signal with the handset. If a handset leaves the service
area of the wireless service provider, the call is disconnected unless an
appropriate technical interface is established to hand off the call to an
adjacent system.

Operators of wireless networks frequently agree to provide service to
subscribers from other compatible networks who are temporarily located in or
traveling through the operator's service area. Such subscribers are called
roamers. Agreements among network operators allocate revenues received from
roamers. With automatic roaming, wireless subscribers are preregistered in
certain networks outside their service area and receive service automatically
while they are roaming, without having to notify the switching office. Other
roaming features permit calls to a subscriber to follow the subscriber into
different networks, so that the subscriber will continue to receive calls in a
different network just as if the subscriber were within his or her service area.

While PCS and cellular networks utilize similar technologies and hardware,
they operate on different frequencies and utilize different signaling protocols.
As a result, it generally will not be possible for users of one type of network
to roam on a different type of network outside of their service area, or to hand
off calls from one type of network to another. Digital signal transmission is
accomplished through the use of frequency management technologies, or protocols.
These protocols manage the radio channel either by dividing it into distinct
time slots (a method known as Time Division Multiple Access, or "TDMA") or by
assigning specific coding instructions to each packet of digitized data that
comprises a signal (a method known as Code Division Multiple Access, or "CDMA").
While the FCC has mandated that licensed cellular networks in the U.S. must
utilize compatible analog signaling protocols, the FCC has intentionally avoided
mandating a universal digital signaling protocol. Currently, three principal
competing, incompatible signaling protocols have been proposed by various
vendors for use in PCS networks: GSM (as defined below), CDMA and TDMA. Because
these protocols are incompatible, a subscriber of a network that relies on GSM
technology, for example, will be unable to use his handset when traveling in an
area served only by CDMA or TDMA-based wireless operators, unless he carries a
dual-mode handset that permits the subscriber to use the cellular network in
that area. For this reason, the success of each protocol will depend both on its
ability to offer enhanced wireless service and on the extent to which its users
will be able to use their handsets when roaming outside their service area.

Wireless subscribers generally are charged separately for monthly access,
air time, long-distance calls and custom-calling features (although
custom-calling features may be included in monthly access charges in certain
pricing plans). Wireless network operators pay fees to local exchange and long-
distance telephone companies for access to their networks and toll charges based
on standard or negotiated rates. When wireless operators provide service to
roamers from other networks, they generally charge roamer air-time usage rates,
which usually are higher than standard air-time usage rates for their own
subscribers, and additionally may charge daily access fees. Special, discounted
rate roaming arrangements, often between neighboring operators who wish to
stimulate usage in their respective territories, provide for reduced roaming
fees and no daily access fees.

PRODUCTS AND SERVICES

APT's fundamental customer proposition will be an affordable, reliable,
high-quality mobile voice communications service. At the commencement of
commercial service, APT intends to offer coverage in those areas of the PCS
Markets where most of the population lives and works. Subsequent construction of
its PCS networks will provide coverage which approximates that of current
cellular operators. APT will also provide roaming capabilities, through
agreements with other GSM operators and cellular operators.

APT will provide several distinct services and features, certain of which
are currently available only on networks employing the GSM standard. These
include:

THE SMARTCARD. GSM technology employs a credit-card sized smartcard which
contains a microchip containing detailed information about a customer's service
profile. The smartcard will allow APT to initiate services or change a
customer's service package from a remote location. The smartcard also allows
customers to roam onto other GSM-based networks by using their cards in handsets
compatible with the local network.

FEATURE-RICH HANDSETS. As part of its basic service package, APT will
provide easy-to-use, interactive menu-driven phones that will enable customers
to utilize the features available in a GSM network. These handsets will
primarily use words and easy-to-use menus rather than numeric codes to operate
handset functions such as call-forwarding, call-waiting and text-messaging.

SHORT TEXT MESSAGING. GSM technology allows for the capability to send and
receive short text messages, similar to two-way radio paging services. This
service allows APT to offer a quicker and less expensive form of wireless
communication when a full conversation is not necessary.

ENHANCED SECURITY. APT's service will provide greater security from
eavesdropping and fraud than existing wireless service. Greater conversation
security is provided by the encryption code of the digital GSM signal. Greater
fraud protection is provided because GSM handsets require the use of a smartcard
with a sophisticated authentication scheme, the replication of which is
virtually impossible.

In addition to its basic and enhanced wireless service packages, APT plans
to bundle wireless services with other telecommunications services through
strategic alliances and resale agreements.

APT will also seek to provide bundled service options in partnership with local
businesses and affinity marketing groups. Examples include bundling wireless
service with local telephone and utility services, with banking services or with
local information services. Through these arrangements, APT's customers will be
able to buy multiple services from a single provider, access account information
remotely, and obtain services such as weather and traffic reports as text
messages.

As the market for wireless telecommunications services continues to develop,
APT expects to offer advanced wireless applications such as mobile data
services, wireless private branch exchange applications, wireless local loop
services and other individually customized wireless products and services.

APT plans to construct networks for its PCS markets using Global System for
Mobile Communication ("GSM") technology. By implementing GSM technology,
currently the most widely utilized PCS technology in the world, APT believes it
will be able to launch service early in its markets as well as rapidly complete
the initial construction of its networks.

APT selected GSM technology for its PCS networks because it believes that
GSM has significant advantages compared to other digital technologies. The
advantages include (i) established commercial operations currently serving over
12 million customers in over 85 countries; (ii) new and enhanced service
features not currently available through other technologies, including call
encryption and text messaging; and (iii) an open architecture offering APT the
flexibility and cost advantages of a technology supported by multiple equipment
vendors offering "off the shelf" equipment.

Although APT has chosen GSM for deployment in its PCS markets and believes
that GSM offers significant advantages over the other two principal competing
technologies for PCS deployment, to the extent most competitors in the PCS
industry utilize a competing technology that is not compatible with GSM, APT's
business could be adversely affected and APT's GSM network might be rendered
obsolete.

APT was incorporated in 1991 and has no significant operating history. APT
expects to launch commercial service in early 1997. APT believes that its future
operating results will be subject to several factors, some of which are outside
the control of APT. These factors include the cost of constructing APT's PCS
networks (including any unanticipated costs associated therewith), the costs of
relocation of microwave licensees, changes in technology, and general and local
economic conditions. In addition, the extent of the potential demand for PCS
cannot be estimated with any degree of certainty.

APT has incurred cumulative net losses from inception to December 31, 1995
of approximately $8.0 million. APT expects to incur significant operating losses
and to generate negative cash flow from operating activities during the next
several years, while it develops and constructs its PCS networks and builds a
PCS customer base. There can be no assurance that APT will achieve or sustain
profitability or positive cash flow from operating activities in the future. If
APT cannot achieve operating profitability or positive cash flow from operating
activities, it may not be able to meet its debt service or working capital
requirements.

The development, construction and initial start-up phase associated with the
construction of APT's PCS networks will require substantial capital. APT
estimates that the aggregate funds required through December 31, 1998 will total
approximately $830 million. Although APT is seeking financing from various
sources, there can be no assurance that financing will be available to APT or,
if available, that it can be obtained on terms acceptable to APT and within any
limitations that may be contained in the financing arrangements. Failure to
obtain such financing could result in the delay or abandonment of some or all of
APT's development and expansion plans and could have a material adverse effect
on APT's financial condition and results of operations.

MARKETING AND DISTRIBUTION

APT's marketing objective is to create demand for its PCS service by clearly
differentiating its service offerings. APT believes the strength of its
marketing efforts will be a key contributor to its success. APT has developed
overall marketing strategies as well as certain, specific local marketing
strategies for each PCS Market.

APT plans to use both mass marketing and specific customer segment
marketing. APT's mass marketing efforts will emphasize the value of APT's
high-quality, innovative services and will be

supported by a heavily promoted brand name. APT also plans to create marketing
programs for particular customer segments. For each targeted segment APT will
create a specific marketing program including a service package, pricing plan,
promotional strategy and distinctive distribution channels.

APT believes that by tailoring its service packages and marketing efforts to
specific market segments, customers will perceive a higher value in relation to
the cost of service, will be more inclined to use PCS services and will have
higher levels of customer satisfaction. APT also believes that targeted service
offerings generally create increased customer loyalty and satisfaction, lower
churn and higher life-cycle margins.

APT plans to offer its services and products through traditional cellular
sales channels as well as through new, lower cost channels which increase the
quality of the typical sale. APT will utilize traditional sales channels which
might include mass merchandisers and retail outlets, company retail stores,
sales agents and a direct sales force to execute both its mass-market and
segment-specific strategies. Based in part upon the remote activation feature of
the GSM smartcard, APT also intends to develop distribution innovations such as
simplified retail sales processes and lower-cost channels which might include
inbound telesales, affinity marketing programs, neighborhood sales and on-line
sales.

APT'S PCS MARKETS

APT has licenses to provide PCS services to the Minneapolis, Tampa-St.
Petersburg-Orlando, Houston, Pittsburgh, Kansas City and Columbus MTAs. APT has
entered into a definitive agreement to sell its license covering the Guam MTA,
subject to FCC approval, and is pursuing the sale of its license for the Alaska
MTA. APT believes its PCS Markets have attractive demographic characteristics
including growing populations, high population densities, favorable commuting
patterns, high median household incomes and favorable business climates. APT
believes the geographic and economic diversity of its PCS Markets insulates it
from regional trends and any single competitor. The following table sets forth
certain information regarding the PCS Markets and ranks each of the MTAs below
in relation to the 51 MTAs in the country with number one as the highest in each
category.

SUMMARY MARKET DATA (1)

1995
POPS POP SQUARE
MTA (MM) RANK MILES
- --------------------------------------------- ------- ----- -------

Minneapolis.................................. 6.3 12 216,471
Tampa-St. Petersburg-Orlando................. 5.9 13 16,904
Houston...................................... 5.7 14 39,799
Pittsburgh................................... 4.1 21 22,890
Kansas City.................................. 3.0 34 42,212
Columbus..................................... 2.3 38 13,174
------- -------
Total........................................ 27.3 351,450
------- -------
------- -------

- ---------
(1) Source: In the case of POPs, from 1995 Donnelley Information Services
Estimates; in the case of square miles, Paul Kagan Associates 1995 PCS Atlas
and Data Book.

COMPETITION

The wireless telecommunications industry is experiencing significant
technological change, as evidenced by the increasing pace of digital upgrades to
existing analog wireless networks, evolving industry standards, ongoing
improvements in the capacity and quality of digital technology, shorter
development cycles for new products and enhancements, and changes in end-user
requirements and preferences. Accordingly, APT expects competition in the
wireless telecommunications business to be dynamic and intense as a result of
the entrance of new competitors and the development of new technologies,
products and services.

APT also will face competition from other current or developing
technologies, such as paging, ESMR and global satellite networks and expects to
compete with cellular and PCS resellers. In the future, cellular service and PCS
will also compete more directly with traditional landline telephone

service providers and with cable operators who expand into the offering of
traditional communications services over their cable systems. In addition, APT
may face competition from technologies that may be introduced in the future.

APT anticipates that market prices for two-way wireless services generally
will decline in the future based upon increased competition. APT will compete to
attract and retain customers principally on the basis of services and
enhancements, its customer service, the size and location of its service areas
and pricing. APT's ability to compete successfully will also depend, in part, on
its ability to anticipate and respond to various competitive factors affecting
the industry, including new services that may be introduced, changes in consumer
preferences, demographic trends, economic conditions and discount pricing
strategies by competitors, which could adversely affect APT's operating margins.

APT will compete directly with up to five other PCS providers in each of its
PCS Markets. These may include PCS PrimeCo, Sprint Telecommunications Venture
("STV") and AT&T Wireless Services, Inc. In addition, each of the PCS Markets
will be served by other two-way wireless service providers, including licensed
cellular operators and resellers. Many of APT's competitors have substantially
greater financial, technical, marketing, sales and distribution resources than
those of APT and have significantly greater experience than APT in testing new
or improved telecommunications products and services and obtaining regulatory
approvals. Some competitors are expected to market other services, such as cable
television access, with their wireless telecommunications service offerings.
Several of APT's competitors are operating, or planning to operate, through
joint ventures and affiliation arrangements, wireless telecommunications
networks that encompass most of the United States.

APT also expects that existing cellular providers in the PCS Markets, most
of which have an infrastructure in place and have been operational for a number
of years, will upgrade their networks to provide comparable services in
competition with APT. Principal cellular providers in the PCS Markets are AT&T
Wireless Services, Inc., BellSouth Mobility, Inc., GTE Mobile Communications
Corporation, AirTouch Communications, Inc., U S WEST NewVector Group, Inc., Bell
Atlantic NYNEX Mobile and Ameritech Cellular.

As of February 15, 1996, several major PCS providers, including PCS PrimeCo
and STV, have publicly announced that they intend to deploy CDMA-based PCS
networks. It is anticipated that CDMA-based PCS providers, including competitors
in several of APT's PCS Markets, will cover markets containing at least 89% of
the U.S. population. The fact that APT's PCS customers will not be able to roam
into regions not served by GSM-based PCS networks, unless the customers use
dual-mode telephones that would permit them to use the existing cellular
network, and in which APT has entered into a roaming agreement with the cellular
operator, may adversely affect APT's ability to establish a PCS customer base
and to compete successfully in the PCS business with those PCS operators
offering greater roaming capabilities.

Handsets used for GSM-based PCS networks will not be automatically
compatible with cellular systems, and vice versa. APT expects dual-mode phones
to be available in early 1997, which will permit subscribers to roam by using
the existing cellular wireless network in other markets. Until then, this lack
of interoperability may impede APT's ability to attract current cellular
subscribers or potential new wireless communication subscribers that desire the
ability to access different service providers in the same market.

REGULATION OF WIRELESS TELECOMMUNICATIONS INDUSTRY

REGULATORY ENVIRONMENT. The FCC regulates the licensing, construction,
operation and acquisition of wireless telecommunications systems in the U.S.
pursuant to the Communications Act and the rules, regulations and policies
promulgated by the FCC thereunder. Under the Communications Act, the FCC is
authorized to allocate, grant and deny licenses for PCS frequencies, establish
regulations governing the interconnection of PCS networks with wireline and
other wireless carriers, grant or deny license renewals and applications for
transfer of control or assignment of PCS licenses, and impose fines and
forfeitures for any violations of FCC regulations.

PCS LICENSING. The FCC established PCS service areas in the United States
and its possessions and territories based upon Rand McNally's market definition
of 51 MTAs comprised of 493 smaller BTAs. Each MTA consists of at least two
BTAs.

The FCC has allocated 120 MHz of radio spectrum in the 2 GHz band for
licensed broadband PCS services. The FCC divided the 120 MHz of spectrum into
six individual blocks, each of which is allocated to serve either MTAs or BTAs.
The spectrum allocation includes two 30 MHz blocks ("A" and "B" blocks) licensed
for each of the 51 MTAs, one 30 MHz block ("C" block) licensed for each of the
493 BTAs, and three 10 MHz blocks ("D," "E" and "F" blocks) licensed for each of
the 493 BTAs. A PCS license will be awarded for each MTA and BTA in every block,
for a total of more than 2,000 licenses. This means that in any PCS service area
as many as six licensees could be operating separate PCS networks. Under the
FCC's rules, a broadband PCS licensee may own combinations of licenses (E.G.,
one MTA (30 MHz) and one BTA (10 MHz)) with total aggregate spectrum coverage of
up to 40 MHz in a single geographic area. Cellular licensees are restricted from
holding attributable interests in 30 MHz PCS licenses for PCS service areas
which significantly overlap their cellular service areas. When mutually
exclusive applications are filed for the same MTA or BTA, those licenses will be
awarded pursuant to auctions. The FCC has adopted comprehensive rules that
outline the bidding process, describe the bidding application and payment
process, establish penalties for certain bid withdrawals, default or
disqualification and establish regulatory safeguards.

On June 23, 1995, the Chief of the Wireless Telecommunications Bureau
("Bureau") of the FCC granted to subsidiaries of APT eight A and B block
broadband PCS authorizations in an order in which, at the culmination of the A
and B block auction, the FCC issued a total of 99 such initial authorizations.
APT has paid its winning bid amount to the United States Treasury. An appeal has
been taken to the FCC from the Bureau order by a party alleging that some of the
authorizations were granted to parties which had engaged in collusion in the
lottery. That party has also sought review of the denial of its motion for a
stay of the grant of A and B block authorizations. No allegation of collusion
was made against TDS or APT. A late-filed request for recision of the Bureau
order was filed by a denied applicant for an authorization for New York City,
which is not one of the markets for which APT holds authorizations. APT would
defend vigorously any challenges to the authorizations it has been granted.

On November 9, 1995, in CINCINNATI BELL TELEPHONE CO. V. FCC (Case No.
94-3701/4113), the United States Court of Appeals for the Sixth Circuit granted
two petitions for review of an FCC order that had barred certain common
ownership of cellular and PCS interests in the same market, and remanded the
case to the FCC for further proceedings. Neither of the two petitioners had been
barred by cross interests from applying for any of the authorizations the FCC
later granted to APT. APT is watching the FCC proceedings closely.

In compliance with FCC restrictions on common ownership of cellular and
broadband PCS interests in overlapping market areas, United States Cellular,
another subsidiary of TDS, entered into a series of arrangements for the
divestiture or restructuring of certain of its cellular interests in market
areas where APT was awarded broadband PCS licenses. A number of these proposed
arrangements required FCC approval of assignment or transfer of control
applications before they could be consummated. Many of these applications have
been approved by the FCC and are either consummated or awaiting consummation.
Certain applications filed by United States Cellular have been opposed and
remain pending. APT believes that it has taken reasonable steps to comply with
the FCC's cross-interest policies. There can be no assurance that the FCC will
not raise questions regarding these compliance efforts.

The grants of licenses to APT are also conditioned upon timely compliance
with the FCC's buildout requirements, I.E., coverage of one-third of the
population of a PCS market within five years of initial license grant and
coverage of two-thirds of that population within ten years. A significant factor
affecting the schedule and cost of APT's network implementation will be the
relocation of existing private microwave facilities which operate on the same
frequencies to be used for APT's broadband PCS operations. Under the FCC's
policies, if APT decides that any existing microwave facility must be relocated,
it is required to provide substitute facilities at its own expense so that the
companies using these existing facilities may continue to have access to the
same or equivalent communications capabilities. The FCC has pending proceedings
to decide whether permissible relocation costs should be limited, whether the
pace of negotiations between broadband PCS licensees and affected private
microwave licensees should be accelerated and whether new procedures should be
adopted for the

sharing of relocation costs where the relocation of private microwave facilities
benefits multiple broadband PCS licensees. Regardless of the outcome of the FCC
pending proceedings, APT expects to proceed with construction so that these
requirements will be met.

The FCC licenses granted to APT are issued for a ten-year period expiring
June 23, 2005 and may be renewed. In the event challengers file competing
applications in response to any of APT's renewal filings, the FCC has rules and
policies providing that the application of the licensee seeking renewal will be
granted and the application of the challenger will not be considered in the
event that the broadband PCS licensee involved has (i) provided "substantial"
performance, which is defined as "sound, favorable and substantially above a
level of mediocre service just minimally justifying renewal" and (ii)
substantially complied with FCC rules, policies and the Communications Act.
Although APT is unaware of any circumstances which would prevent the approval of
any future renewal applications, there can be no assurance that APT's licenses
will be renewed by the FCC in the future. Moreover, although revocation and
involuntary modification of licenses are extraordinary regulatory measures, the
FCC has the authority to restrict the operation of licensed facilities or revoke
or modify licenses.

The FCC has proceedings in process which could open up other frequency bands
for wireless telecommunications and PCS-like services. There can be no assurance
that such proceedings will not result in additional wireless competitors.

In addition, the FCC has pending proceedings to address various forms of
interconnection obligations which could affect broadband PCS and other wireless
service providers. In its mutual compensation proceedings, the FCC is examining
its policies regarding the compensation arrangements which apply when wireless
providers, including broadband PCS providers, interconnect with LECs. In a
different part of the same proceeding, the FCC is considering whether to rely
upon private negotiations between wireless providers to determine whether direct
interconnections between wireless networks should occur. The FCC is also
considering whether private negotiations should be the preferred basis for
wireless providers to permit the customers of one such provider to obtain
service while roaming in the service area of the other.

In related parts of the foregoing proceedings, the FCC is trying to decide
whether to require all wireless providers to provide capacity to non-facilities
based resellers, whether wireless licensees should be permitted to resell
capacity acquired from other wireless providers in the markets where they hold
licenses at least during an initial startup period and whether wireless
providers should be required to offer unbundled communications capacity to
resellers who intend to operate their own switching facilities.

The FCC also has proceedings regarding the expansion of the permissible uses
of broadband PCS networks to provide wireless local loop and other fixed
services in competition with the wireline offerings of the LECs. It is also
considering the possible adoption of requirements on broadband PCS and other
providers of real-time voice services to implement enhanced 911 capabilities
within some number of years after the FCC's decision.

In addition, there are citizenship requirements, assignment requirements and
other federal regulations and requirements which may affect the business of APT.
See also "Telephone Operations -- Telecommunications Act of 1996."

STATE AND LOCAL REGULATION. The scope of state regulatory authority covers
such matters as the terms and conditions of interconnection between LECs and
wireless carriers with respect to intrastate services, customer billing
information and practices, billing disputes, other consumer protection matters,
facilities construction issues, transfers of control, the bundling of services
and equipment and requirements relating to the availability of capacity on a
wholesale basis. In these areas, particularly the terms and conditions of
interconnection between LECs and wireless providers, the FCC and state
regulatory authorities share regulatory responsibilities with respect to
interstate and intrastate issues, respectively.

APT and its subsidiaries have been and intend to remain active participants
in proceedings before the FCC and before state regulatory authorities.
Proceedings with respect to the foregoing policy issues before the FCC and state
regulatory authorities could have significant impacts on the competitive market

structure among wireless providers and the relationships between wireless
providers and other carriers. APT is unable to predict the scope, pace, or
financial impact of policy changes which could be adopted in these proceedings.

OTHER SUBSIDIARIES

Subsidiaries of the Company provide data processing and related services
(TDS Computing Services, Inc.); graphic communications services (Suttle Press,
Inc.); and telemessaging services (Integrated Communications Services, Inc.).

EMPLOYEES

The Company enjoys satisfactory employee relations. As of December 31, 1995,
6,363 persons were employed by the Company, 149 of whom are represented by
unions.

- --------------------------------------------------------------------------------

ITEM 2. PROPERTIES

The property of TDS consists principally of switching and cell site
equipment related to cellular telephone operations; telephone lines, central
office equipment, telephone instruments and related equipment, and land and
buildings related to telephone operations; and radio pagers and transmitting
equipment related to radio paging operations. As of December 31, 1995, TDS's
gross property, plant and equipment of approximately $2.0 billion consisted of
the following:

Cellular telephone........................... 35.2
Telephone.................................... 55.2
Radio paging................................. 5.2
PCS.......................................... .6
Other........................................ 3.8
------
100.0 %
------
------

The plant and equipment of TDS is maintained in good operating condition and
is suitable and adequate for the Company's business operations. The properties
of the operating telephone subsidiaries and most of the tangible assets of the
cellular subsidiaries are subject to the lien of the mortgages securing the
funded debt of such companies. The Company owns substantially all of its central
office buildings, local administrative buildings, warehouses, and storage
facilities used in its telephone operations and leases most of its offices and
transmitter sites used in its cellular and paging businesses. All of the
Company's telephone lines and cell and transmitter sites are located either on
private or public property. Locations on private land are by virtue of easements
or other arrangements.

- --------------------------------------------------------------------------------

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in a number of legal proceedings before the FCC and
various state and federal courts. In some cases, the litigation involves
disputes regarding rights to certain landline or cellular telephone systems and
other interests. The Company does not believe that any such proceeding should
have a material adverse impact on the Company.

- --------------------------------------------------------------------------------

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the fourth
quarter of 1995.

- --------------------------------------------------------------------------------
PART II
- --------------------------------------------------------------------------------

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Incorporated by reference from Exhibit 13, Annual Report sections entitled
"TDS Stock and Dividend Information" and "Market Price per Common Share by
Quarter."

- --------------------------------------------------------------------------------

ITEM 6. SELECTED FINANCIAL DATA

Incorporated by reference from Exhibit 13, Annual Report section entitled
"Selected Consolidated Financial Data," except for ratios of earnings to fixed
charges, which are incorporated herein by reference from Exhibit 12 to this
Annual Report on Form 10-K.

- --------------------------------------------------------------------------------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Incorporated by reference from Exhibit 13, Annual Report section entitled
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."

- --------------------------------------------------------------------------------

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Incorporated by reference from Exhibit 13, Annual Report sections entitled
"Consolidated Statements of Income," "Consolidated Statements of Cash Flows,"
"Consolidated Balance Sheets," "Consolidated Statements of Common Stockholders'
Equity," "Notes to Consolidated Financial Statements," "Consolidated Quarterly
Income Information (Unaudited)," and "Report of Independent Public Accountants."

- --------------------------------------------------------------------------------

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

- --------------------------------------------------------------------------------
PART III
- --------------------------------------------------------------------------------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated by reference from Proxy Statement sections entitled "Election
of Directors" and "Executive Officers."

- --------------------------------------------------------------------------------

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference from Proxy Statement section entitled "Executive
Compensation" except for the information specified in Item 402(a)(8) of
Regulation S-K under the Securities Exchange Act of 1934, as amended.

- --------------------------------------------------------------------------------

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference from Proxy Statement sections entitled "Security
Ownership of Management" and "Principal Shareholders."

- --------------------------------------------------------------------------------

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference from Proxy Statement section entitled "Certain
Relationships and Related Transactions."

- --------------------------------------------------------------------------------
PART IV
- --------------------------------------------------------------------------------

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

The following documents are filed as a part of this report:

(a)(1) Financial Statements

Consolidated Statements of Income.................................. Annual Report*
Consolidated Statements of Cash Flows.............................. Annual Report*
Consolidated Balance Sheets........................................ Annual Report*
Consolidated Statements of Common Stockholders' Equity............. Annual Report*
Notes to Consolidated Financial Statements......................... Annual Report*
Consolidated Quarterly Income Information (Unaudited).............. Annual Report*
Report of Independent Public Accountants........................... Annual Report*

- ---------
* Incorporated by reference from Exhibit 13.

(2) Schedules

LOCATION
--------

Report of Independent Public Accountants on Financial Statement Schedules......... page 46
I. Condensed Financial Information of Registrant-Balance Sheets as of December
31, 1995 and 1994 and Statements of Income and Statements of Cash Flows for
each of the Three Years in the Period Ended December 31, 1995.............. page 47
II. Valuation and Qualifying Accounts for each of the Three Years in the Period
Ended December 31, 1995.................................................... page 51
Los Angeles SMSA, Nashville/Clarksville MSA, and Baton Rouge MSA Limited
Partnership Combined Financial Statements....................................... page 52
Compilation Report of Independent Public Accountants on Combined
Financial Statements..................................................... page 53
Reports of Other Independent Accountants................................... page 54
Combined Statements of Operations (Unaudited).............................. page 60
Combined Balance Sheets (Unaudited)........................................ page 61
Combined Statements of Cash Flows (Unaudited).............................. page 62
Combined Statements of Changes in Partners' Capital (Unaudited)............ page 63
Notes to Unaudited Combined Financial Statements........................... page 64
All other schedules have been omitted because they are not applicable or not
required because the required information is shown in the financial statements
or notes thereto.

(3) Exhibits

The exhibits set forth in the accompanying Index to Exhibits are filed as a part
of this Report. The following is a list of each management contract or
compensatory plan or arrangement required to be filed as an exhibit to this form
pursuant to Item 14(c) of this Report.

EXHIBIT
NUMBER DESCRIPTION
- ------------------------------------------------------------------------------------------------------------

10.1 Salary Continuation Agreement for LeRoy T. Carlson dated May 20, 1977, as amended May 22, 1981 and
May 25, 1984 is hereby incorporated by reference to the Company's Registration Statement on Form
S-2, No. 2-92307.
10.2(a) Supplemental Benefit Agreement for LeRoy T. Carlson dated March 21, 1980, as amended March 20, 1981
is hereby incorporated by reference to an exhibit to the Company's Registration Statement on Form
S-7, No. 2-74615.
10.2(b) Memorandum of Amendment to Supplemental Benefit Agreement dated May 28, 1991 is hereby incorporated
by reference to Exhibit 10.2(b) to the Company's Annual Report Form 10-K for the year ended December
31, 1991.
10.3 Stock Option Agreement, dated February 25, 1987, between the Company and Murray L. Swanson is hereby
incorporated by reference to an exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1988.
10.4 Stock Appreciation Rights Award and Non-Qualified Stock Option Agreement, dated March 14, 1988,
between the Company and LeRoy T. Carlson, Jr., is hereby incorporated by reference to an exhibit to
the Company's Annual Report on Form 10-K for the year ended December 31, 1988.
10.5 Stock Option and Stock Appreciation Rights Award Agreement dated January 15, 1990 between the
Company and James Barr III, is hereby incorporated by reference to Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991.
10.6(a) 1988 Stock Option and Stock Appreciation Rights Plan of the Company is hereby incorporated by
reference to Exhibit A to the Company's definitive Notice of Annual Meeting and Proxy Statement
dated March 31, 1988.
10.6(b) Amendment #1 to 1988 Stock Option and Stock Appreciation Rights Plan of the Company is hereby
incorporated by reference to Exhibit 10.7(b) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993.
10.6(c) Amendment #2 to 1988 Stock Option and Stock Appreciation Rights Plan of the Company is hereby
incorporated by reference to Exhibit 10.7(c) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993.
10.7 1985 Incentive Stock Option Plan of the Company is hereby incorporated by reference to Exhibit A to
the Company's definitive Notice of Annual Meeting and Proxy Statement dated April 24, 1986.
10.8(a) Telephone and Data Systems, Inc. 1994 Long-Term Incentive Plan is hereby incorporated by reference
to Exhibit 99.1 to the Company's Registration Statement on Form S-8 (Registration No. 33-57257).
10.8(b) Form of 1994 Long-Term Stock Option Agreement (Transferable Form) is hereby incorporated by
reference to Exhibit 99.2 to the Company's Registration Statement on Form S-8 (Registration No.
33-57257).
10.8(c) Form of 1994 Long-Term Stock Option Agreement (Nontransferable Form) is hereby incorporated by
reference to Exhibit 99.3 to the Company's Registration Statement on Form S-8 (Registration No.
33-57257).
10.8(d) Form of 1995 Performance Stock Option Agreement (Transferable Form) is hereby incorporated by
reference to Exhibit 99.4 to the Company Registration statement on Form S-8 (Registration No.
33-57257).

EXHIBIT
NUMBER DESCRIPTION
- ------------------------------------------------------------------------------------------------------------

10.8(e) Form of 1995 Performance Stock Option Agreement (Nontransferable Form) is hereby incorporated by
reference to Exhibit 99.5 to the Company's Registration Statement on Form S-8 (Registration No.
33-57257).
10.9 Supplemental Executive Retirement Plan of the Company is hereby incorporated by reference to Exhibit
10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
10.10 Deferred Compensation Agreement for Rudolph E. Hornacek dated November 30, 1995.

(b) Reports on Form 8-K filed during the quarter ended December 31, 1995.

TDS filed a Current Report on Form 8-K on October 3, 1995 dated September 28,
1995, which included a press release that announced that an FCC administrative
law judge issued a ruling finding the Company and United States Cellular
Corporation fully qualified to be FCC licensees. The decision favorably resolved
candor issues raised in the La Star and Wisconsin RSA 8 (Vernon) matters.

- --------------------------------------------------------------------------------

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES

To the Shareholders and Board of Directors of Telephone and Data Systems, Inc.:

We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Telephone and Data Systems, Inc.
and Subsidiaries Annual Report to Shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated February 6, 1996 (except
with respect to the matter discussed in Note 17, as to which the date is
February 20, 1996). Our audits were made for the purpose of forming an opinion
on the basic consolidated financial statements taken as a whole. The financial
statement schedules listed in Item 14(a)(2) are the responsibility of the
Company's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
consolidated financial statements. These financial statement schedules have been
subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Chicago, Illinois
February 6, 1996
(except with respect to the matter
discussed in Note 17, as to
which the date is February 20, 1996)

SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
- --------------------------------------------------------------------------------
Telephone and Data Systems, Inc. (Parent)

BALANCE SHEETS

ASSETS
- --------------------------------------------------------------------------------

DECEMBER 31,
----------------------
(DOLLARS IN THOUSANDS) 1995 1994
- -------------------------------------------------------------------------------------------

CURRENT ASSETS
Cash and cash equivalents $ 383 $ 291
Temporary investments 99 184
Notes receivable from affiliates 55,156 189,820
Advances to affiliates 1,816 22,016
Accounts receivable
Due from subsidiaries--Income taxes 27,058 7,682
Due from subsidiaries--Other 19,897 8,624
Other 3,163 2,555
Other current assets 518 650
----------------------
108,090 231,822

- -------------------------------------------------------------------------------------------

INVESTMENT IN SUBSIDIARIES
Underlying book value 2,133,492 1,605,813
Cost in excess of underlying book value at date of acquisition 1,987 1,907
----------------------
2,135,479 1,607,720

- -------------------------------------------------------------------------------------------

OTHER INVESTMENTS
Minority interests in telephone and cellular companies and other
investments 28,103 31,648

- -------------------------------------------------------------------------------------------

OTHER ASSETS AND DEFERRED CHARGES
Debt issuance expenses 2,175 2,027
Development and acquisition expenses 1,703 599
Other 5,884 7,239
----------------------
9,762 9,865
- -------------------------------------------------------------------------------------------
$2,281,434 $1,881,055
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------

The Notes to Consolidated Financial Statements, included in the Annual
Report, are an integral part of these statements.

SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
- --------------------------------------------------------------------------------
Telephone and Data Systems, Inc. (Parent)

BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------

DECEMBER 31,
----------------------
(DOLLARS IN THOUSANDS) 1995 1994
- -------------------------------------------------------------------------------------------

CURRENT LIABILITIES
Current portion of long-term debt and preferred stock $ 13,251 $ 13,053
Notes payable 180,760 97,629
Notes payable to affiliates 30,086 2,852
Advances from affiliates 2,464 345
Accounts payable
Due to subsidiaries--Federal income taxes 14,405 5,959
Due to subsidiaries--Other 31,317 1,395
Other 1,549 811
Accrued interest 10,733 9,234
Accrued taxes (6,837) (2,124)
Other 3,951 3,427
----------------------
281,679 132,581
- -------------------------------------------------------------------------------------------
DEFERRED LIABILITIES AND CREDITS
Investment tax credits (1,934) (1,694)
Income taxes 20,065 14,368
Postretirement benefits obligation other than pensions 11,216 12,067
Other 7,920 3,903
----------------------
37,267 28,644
- -------------------------------------------------------------------------------------------
LONG-TERM DEBT, excluding current portion (Note B) 242,458 203,764
- -------------------------------------------------------------------------------------------
REDEEMABLE PREFERRED SHARES, excluding current portion (Note A) 2,260 13,209
- -------------------------------------------------------------------------------------------
NONREDEEMABLE PREFERRED SHARES 29,710 29,819
- -------------------------------------------------------------------------------------------

COMMON STOCKHOLDERS' EQUITY
Common Shares, par value $1 per share; authorized 100,000,000
shares; issued and outstanding 51,137,426 and 47,937,570 shares,
respectively 51,137 47,938
Series A Common Shares, par value $1 per share; authorized
25,000,000 shares; issued and outstanding 6,893,101 and
6,886,684 shares, respectively 6,893 6,887
Common Shares issuable, 31,431 and 41,908 shares, respectively 1,496 1,995
Capital in excess of par value 1,417,513 1,288,453
Retained earnings 211,021 127,765
----------------------
1,688,060 1,473,038
- -------------------------------------------------------------------------------------------
$2,281,434 $1,881,055
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------

The Notes to Consolidated Financial Statements, included in the Annual
Report, are an integral part of these statements.

SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
- --------------------------------------------------------------------------------
Telephone and Data Systems, Inc. (Parent)

STATEMENTS OF INCOME
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31,
-------------------------------
(DOLLARS IN THOUSANDS) 1995 1994 1993
- -----------------------------------------------------------------------------------------

Operating service revenues $ 21,863 $ 17,402 $ 17,179
Cost of sales and operating expenses 21,827 18,189 17,109
-------------------------------
Net operations 36 (787) 70
-------------------------------

Other income
Interest income received from affiliates 26,179 13,840 27,333
Other, net (4,490) (1,507) (1,128)
-------------------------------
21,689 12,333 26,205
-------------------------------

Income before interest and income taxes 21,725 11,546 26,275
Interest expense 31,371 22,107 18,934
Federal income tax expense (credit) 6,433 1,411 (2,602)
-------------------------------
Corporate operations (16,079) (11,972) 9,943
Equity in net income of subsidiaries and other
investments 124,852 71,793 23,953
-------------------------------

Net income $ 108,773 $ 59,821 $ 33,896
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------

The Notes to Consolidated Financial Statements, included in the Annual
Report, are an integral part of these statements.

Note A: The annual requirements for redemption of Redeemable Preferred Shares are $13.5
million, $1.3 million, $79,000, $79,000 and $78,000 for the years 1996 through 2000,
respectively.

Note B: The annual requirements for principal payments on long-term debt are $336,000,
$394,000, $476,000, $372,000 and $309,000 for the years 1996 through 2000,
respectively.

SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
- --------------------------------------------------------------------------------
Telephone and Data Systems, Inc. (Parent)

STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31,
-------------------------------------------
(DOLLARS IN THOUSANDS) 1995 1994 1993

- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 108,773 $ 59,821 $ 33,896
Add (Deduct) adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 1,237 1,080 2,547
Gain on sale of investments (408) -- --
Deferred taxes 5,457 8,572 4,563
Equity income (124,852) (71,793) (23,953)
Other noncash expense 1,316 691 6
Change in accounts receivable (32,359) 1,859 1,076
Change in accounts payable 39,106 1,769 (4,603)
Change in accrued taxes (4,713) (4,587) 2,463
Change in other assets and liabilities 3,459 (1,236) 2,689
-------------------------------------------
(2,984) (3,824) 18,684
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt borrowings 38,908 (130) 91,601
Repayment of long-term debt (1,349) (1,611) (11,935)
Change in notes payable 83,131 91,629 (40,140)
Change in notes payable to affiliates 27,235 1,034 (175)
Change in advances from affiliates 2,118 (3) --
Common stock issued 8,078 11,185 109,972
Redemption of preferred shares (9,609) (644) (220)
Dividends paid (23,971) (20,906) (17,830)
-------------------------------------------
124,541 80,554 131,273
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions
Value of assets acquired (129,005) (215,658) (331,225)
Common Shares issued 127,836 173,658 281,605
Preferred Shares issued -- 12,500 3,000
-------------------------------------------
Net cash paid for acquisitions (1,169) (29,500) (46,620)
Proceeds from sale of investments 4,800 -- --
Investments in subsidiaries (302,722) (527) (126,108)
Dividends from subsidiaries 17,690 17,373 16,266
Other investments (198) (3,058) 1,424
Change in notes receivable from affiliates 139,849 (64,850) 28,040
Change in advances to affiliates 20,200 (20,400) 1,073
Change in temporary investments 85 (128) 114
-------------------------------------------
(121,465) (101,090) (125,811)
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 92 (24,360) 24,146
CASH AND CASH EQUIVALENTS--
Beginning of period 291 24,651 505
-------------------------------------------
End of period $ 383 $ 291 $ 24,651
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------

The Notes to Consolidated Financial Statements, included in the Annual
Report, are an integral part of these statements.

TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
- --------------------------------------------------------------------------------

COLUMN A
DESCRIPTION COLUMN B COLUMN C-1 COLUMN C-2 COLUMN E
- ---------------------------------------------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER COLUMN D END OF
(DOLLARS IN THOUSANDS) PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
------------ ------------ ------------ ----------- ------------

FOR THE YEAR ENDED DECEMBER 31, 1995
Deducted from deferred state tax asset:
For unrealized net operating losses $ (8,962) 3,905 (5,004) -- (10,061)
Deducted from accounts receivable:
For doubtful accounts (2,785) (16,648) -- 14,329 (5,104)
FOR THE YEAR ENDED DECEMBER 31, 1994
Deducted from deferred state tax asset:
For unrealized net operating losses (8,704) 327 (585) -- (8,962)
Deducted from accounts receivable:
For doubtful accounts (2,093) (9,710) -- 9,018 (2,785)
Deducted from marketable equity securities:
For unrealized loss (626) -- 626 -- --
FOR THE YEAR ENDED DECEMBER 31, 1993
Deducted from deferred state tax asset:
For unrealized net operating losses (6,452) -- $ (2,252) -- $ (8,704)
Deducted from accounts receivable:
For doubtful accounts (1,608) (5,837) -- 5,352 (2,093)
Deducted from marketable equity securities:
For unrealized loss $ -- $ -- $ (626) $ -- $ (626)
- -------------------------------------------------------------------------------------------------------------------------------

LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
COMBINED FINANCIAL STATEMENTS

The following financial statements are the combined financial statements of
the cellular system partnerships listed below which are accounted for by the
Company following the equity method. The combined financial statements were
compiled from financial statements and other information obtained by the Company
as a limited partner of the cellular limited partnerships listed below. The
cellular system partnerships included in the combined financial statements, the
periods each partnership is included, and the Company's ownership percentage of
each cellular system partnership at December 31, 1995 are set forth in the
following table.

PERIODS THE
INCLUDED COMPANY'S
IN LIMITED
COMBINED PARTNERSHIP
CELLULAR SYSTEM PARTNERSHIP STATEMENTS INTEREST
- --------------------------------------------------------- -------- -----------

Los Angeles SMSA Limited Partnership..................... 1993-95 5.5%
Nashville/Clarksville MSA Limited Partnership............ 1993-95 49.0%
Baton Rouge MSA Limited Partnership...................... 1993-95 52.0%

COMPILATION REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of
TELEPHONE AND DATA SYSTEMS, INC.:

The accompanying combined balance sheets of the Los Angeles SMSA Limited
Partnership, the Nashville/Clarksville MSA Limited Partnership and the Baton
Rouge MSA Limited Partnership as of December 31, 1995 and 1994 and the related
combined statements of operations, changes in partners' capital, and cash flows
for each of the three years in the period ended December 31, 1995, have been
prepared from the separate financial statements, which are not presented
separately herein, of the Los Angeles SMSA, Nashville/Clarksville MSA and Baton
Rouge MSA limited partnerships, as described in Note 1. We have reviewed for
compilation only the accompanying combined financial statements, and, in our
opinion, those statements have been properly compiled from the amounts and notes
of the underlying separate financial statements of the Los Angeles SMSA,
Nashville/Clarksville MSA and Baton Rouge MSA limited partnerships, on the basis
described in Note 1.

The statements for the Los Angeles SMSA, Nashville/Clarksville MSA and Baton
Rouge MSA limited partnerships were audited by other auditors as set forth in
their reports included on pages 54 through 59. We have not been engaged to audit
either the separate financial statements of the aforementioned limited
partnerships or the related combined financial statements in accordance with
generally accepted auditing standards and to render an opinion as to the fair
presentation of such financial statements in accordance with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Chicago, Illinois
February 9, 1996

REPORTS OF OTHER INDEPENDENT ACCOUNTANTS

To The Partners of
LOS ANGELES SMSA LIMITED PARTNERSHIP:

In our opinion, the balance sheet and the related statements of income,
partner's capital and of cash flows and the financial statement schedule II --
valuation and qualifying accounts present fairly, in all material respects, the
financial position of Los Angeles SMSA Limited Partnership at December 31, 1995,
and the results of its operations and its cash flows for the year in conformity
with generally accepted accounting principles. These financial statements, which
are not presented separately herein, are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

San Francisco, California
January 25, 1996

REPORTS OF OTHER INDEPENDENT ACCOUNTANTS

To The Partners of
LOS ANGELES SMSA LIMITED PARTNERSHIP:

We have audited the balance sheets of Los Angeles SMSA Limited Partnership
as of December 31, 1994, and the related statements of operations, partners'
capital and cash flows for each of the two years in the period ended December
31, 1994; such financial statements are not included separately herein. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Los Angeles SMSA Limited
Partnership as of December 31, 1994, and results of its operations and its cash
flows for each of the two years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Newport Beach, California
February 17, 1995

REPORTS OF OTHER INDEPENDENT ACCOUNTANTS

To The Partners of
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP:

We have audited the balance sheet of Nashville/Clarksville MSA Limited
Partnership as of December 31, 1995, and the related statements of income,
changes in partners' capital and cash flows for the year then ended; such
financial statements are not included separately herein. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nashville/Clarksville MSA
Limited Partnership as of December 31, 1995, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.

COOPERS & LYBRAND L.L.P.

Atlanta, Georgia
February 9, 1996

To The Partners of
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP:

We have audited the balance sheet of Nashville/Clarksville MSA Limited
Partnership as of December 31, 1994, and the related statements of income,
changes in partners' capital and cash flows for the year then ended; such
financial statements are not included separately herein. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nashville/Clarksville MSA
Limited Partnership as of December 31, 1994, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.

COOPERS & LYBRAND L.L.P.

Atlanta, Georgia
February 10, 1995

REPORTS OF OTHER INDEPENDENT ACCOUNTANTS

To The Partners of
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP:

We have audited the balance sheet of Nashville/Clarksville MSA Limited
Partnership as of December 31, 1993, and the related statements of income,
changes in partners' capital and cash flows for the year then ended; such
financial statements are not included separately herein. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nashville/Clarksville MSA
Limited Partnership as of December 31, 1993, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.

COOPERS & LYBRAND

Atlanta, Georgia
February 11, 1994

REPORTS OF OTHER INDEPENDENT ACCOUNTANTS

To The Partners of
BATON ROUGE MSA LIMITED PARTNERSHIP:

We have audited the balance sheet of Baton Rouge MSA Limited Partnership as
of December 31, 1995, and the related statements of income, changes in partners'
capital and cash flows for the year then ended; such financial statements are
not included separately herein. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Baton Rouge MSA Limited
Partnership as of December 31, 1995, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.

COOPERS & LYBRAND L.L.P.

Atlanta, Georgia
February 9, 1996

To The Partners of
BATON ROUGE MSA LIMITED PARTNERSHIP:

We have audited the balance sheet of Baton Rouge MSA Limited Partnership as
of December 31, 1994, and the related statements of income, changes in partners'
capital and cash flows for the year then ended; such financial statements are
not included separately herein. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Baton Rouge MSA Limited
Partnership as of December 31, 1994, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.

COOPERS & LYBRAND L.L.P.

Atlanta, Georgia
February 10, 1995

REPORTS OF OTHER INDEPENDENT ACCOUNTANTS

To The Partners of
BATON ROUGE MSA LIMITED PARTNERSHIP:

We have audited the balance sheet of Baton Rouge MSA Limited Partnership as
of December 31, 1993, and the related statements of income, changes in partners'
capital and cash flows for the year then ended; such financial statements are
not included separately herein. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Baton Rouge MSA Limited
Partnership as of December 31, 1993, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.

COOPERS & LYBRAND

Atlanta, Georgia
February 11, 1994

LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)

YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
(DOLLARS IN THOUSANDS)

Revenues................................................................... $ 811,933 $ 648,896 $ 515,228
Expenses
Selling, general and administrative...................................... 460,048 370,938 296,499
Depreciation and amortization............................................ 71,748 66,234 57,357
----------- ----------- -----------
Total expenses........................................................... 531,796 437,172 353,856
----------- ----------- -----------
Operating income........................................................... 280,137 211,724 161,372
Other income............................................................... 985 573 272
----------- ----------- -----------
Net Income................................................................. $ 281,122 $ 212,297 $ 161,644
----------- ----------- -----------
----------- ----------- -----------

The accompanying notes are an integral part of these combined financial
statements.

LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
(UNAUDITED)

ASSETS

DECEMBER 31,
------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)

Current Assets
Cash.................................................................................. $ 214 $ 38
Accounts receivable--customers, net................................................... 116,966 95,630
Accounts receivable--affiliates....................................................... 14,830 16,016
Notes receivable--affiliates.......................................................... 8,860 402
Other current assets.................................................................. 11,801 18,523
----------- -----------
152,671 130,609
Notes Receivable--Other................................................................. 3,184 --
Property, Plant and Equipment, net...................................................... 564,564 380,473
Other................................................................................... 23,715 1,640
----------- -----------
Total Assets............................................................................ $ 744,134 $ 512,722
----------- -----------
----------- -----------

LIABILITIES AND PARTNERS' CAPITAL

DECEMBER 31,
------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)

Current Liabilities
Accounts payable--other............................................................... $ 53,526 $ 58,210
Accounts payable--affiliates.......................................................... -- 1,431
Notes payable......................................................................... 5,084 692
Customer deposits..................................................................... 3,311 4,060
Other current liabilities............................................................. 50,191 39,323
----------- -----------
112,112 103,716
Other Liabilities....................................................................... 5,788 5,539
Partners' Capital....................................................................... 626,234 403,467
----------- -----------
Total Liabilities and Partners' Capital................................................. $ 744,134 $ 512,722
----------- -----------
----------- -----------

The accompanying notes are an integral part of these combined financial
statements.

LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CASH FLOWS

(UNAUDITED)

DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
(DOLLARS IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES
Net Income............................................................ $ 281,122 $ 212,297 $ 161,644
Add (Deduct) adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization....................................... 71,748 66,234 57,357
Deferred revenue and other credits.................................. (966) 1,387 497
Loss on asset dispositions.......................................... 3,021 3,542 3,838
Change in accounts receivable....................................... (19,523) (9) (37,422)
Change in accounts payable and accrued expenses..................... (3,587) 25,527 6,119
Change in other assets and liabilities.............................. 15,185 (2,069) 4,286
------------ ------------ ------------
347,000 306,909 196,319
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in notes payable............................................. 4,392 692 --
Change in notes receivable.......................................... (7,355) 3,354 (5)
Capital contribution................................................ 5,096 -- --
Capital distribution................................................ (72,017) (166,300) (111,461)
------------ ------------ ------------
(69,884) (162,254) (111,466)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment, net of retirements...... (254,629) (143,807) (86,011)
(Increases) decreases in other assets............................... (21,573) (44) 1,335
Change in deferred charges.......................................... (738) (827) (202)
Proceeds from sale of assets........................................ -- 34 26
------------ ------------ ------------
(276,940) (144,644) (84,852)
------------ ------------ ------------
NET INCREASE IN CASH.................................................... 176 11 1
CASH
Beginning of period................................................. 38 27 26
------------ ------------ ------------
End of period....................................................... $ 214 $ 38 $ 27
------------ ------------ ------------
------------ ------------ ------------

The accompanying notes are an integral part of these combined financial
statements.

LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(UNAUDITED)

(DOLLARS IN THOUSANDS)
Balance at January 1, 1993...................................................... $ 307,287
Distributions................................................................. (111,461)
Net Income for the year ended December 31, 1993............................... 161,644
---------
Balance at December 31, 1993.................................................... 357,470
Distributions................................................................. (166,300)
Net Income for the year ended December 31, 1994............................... 212,297
---------
Balance at December 31, 1994.................................................... 403,467
Contributions................................................................. 13,662
Distributions................................................................. (72,017)
Net Income for year ended December 31, 1995................................... 281,122
---------
Balance at December 31, 1995.................................................... $ 626,234
---------
---------

The accompanying notes are an integral part of these combined financial
statements.

LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS

1. BASIS OF COMBINATION:

The combined financial statements and notes thereto were compiled from the
individual financial statements of cellular limited partnerships listed below in
which United States Cellular Corporation (AMEX symbol "USM") has a
non-controlling ownership interest and which it accounts for using the equity
method. The cellular partnerships, the period each partnership is included in
the combined financial statements and USM's ownership interest in each
partnership are set forth in the table below. The combined financial statements
and notes thereto present 100% of each partnership whereas USM's ownership
interest is shown in the table.

PERIOD INCLUDED LIMITED
IN COMBINED PARTNERSHIP
STATEMENTS INTEREST
--------------- -------------

Los Angeles SMSA Limited Partnership................................................................ 1993-95 5.5%
Nashville/Clarksville MSA Limited Partnership....................................................... 1993-95 49.0%
Baton Rouge MSA Limited Partnership................................................................. 1993-95 52.0%

Profits, losses and distributable cash are allocated to the partners based
upon respective partnership interests. Distributions are made quarterly at the
discretion of the General Partner for one of the Partnerships.

Of the partnerships included in the combined financial statements, the Los
Angeles SMSA Limited Partnership is the most significant, accounting for
approximately 86% of the combined total assets at December 31, 1995, and
substantially all of the combined net income for the year then ended.

USM's investment in and advances to Los Angeles SMSA Limited Partnership
totaled $27,784,000 as of December 31, 1995, of which $29,282,000 represents its
proportionate share of net assets of the Partnership. USM's investment in and
advances to the Nashville/Clarksville MSA Limited Partnership totaled
$25,889,000 as of December 31, 1995, of which $29,957,000 represents its
proportionate share of net assets. USM's investment in and advances to the Baton
Rouge MSA Limited Partnership totaled $19,723,000 as of December 31, 1995,
$16,993,000 of which represents its proportionate share of net assets.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR COMBINED ENTITIES:

PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is computed
using the straight-line method over the following estimated lives:

Buildings.............................................. 10-15 years
Equipment.............................................. 3-10 years
Furniture and Fixtures................................. 5-10 years
Leasehold Improvements................................. 10 years

Effective January 1, 1995, one of the Partnerships changed its estimate of
the useful lives of certain telecommunications equipment from 7 to 10 years. The
change in estimate had the effect of reducing depreciation expense and
increasing net income by approximately $14,844,000 for 1995.

LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Property, Plant and Equipment consists of:

DECEMBER 31,
------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)

Land.................................................................................... $ 3,974 $ 2,987
Buildings and Leasehold Improvements.................................................... 149,644 100,312
Equipment............................................................................... 580,810 432,949
Furniture and Fixtures.................................................................. 58,580 33,602
Under Construction...................................................................... 80,665 55,176
----------- -----------
873,673 625,026
Less Accumulated Depreciation........................................................... 309,109 244,553
----------- -----------
$ 564,564 $ 380,473
----------- -----------
----------- -----------

Included in buildings are costs relating to the acquisition of cell site
leases; such as legal, consulting, and title fees. Lease acquisition costs are
capitalized when incurred and amortized over the period of the lease. Costs
related to unsuccessful negotiations are expensed in the period the negotiations
are terminated.

Gains and losses on disposals are included in income at amounts equal to the
difference between net book value and proceeds received upon disposal.

On January 10, 1994, one of the Partnerships entered into an agreement with
its major supplier to purchase $77 million in equipment. At December 31, 1995,
approximately $22 million in equipment had been purchased by the Partnership
under the agreement.

OTHER CURRENT ASSETS

Other current assets includes inventory consisting primarily of cellular
phones and accessories held for resale stated at average cost. Consistent with
industry practice, losses on sales of cellular phones are recognized in the
period in which sales are made as a cost of acquiring subscribers.

REVENUE RECOGNITION

Revenues from operations primarily consist of charges to customers for
monthly access charges, cellular airtime usage, and roamer charges. Revenues are
recognized as services are rendered. Unbilled revenues, resulting from cellular
service provided from the billing cycle date to the end of each month and from
other cellular carriers' customers using the partnership's cellular systems for
the last half of each month, are estimated and recorded as receivables. Unearned
monthly access charges and bundled service packages relating to the periods
after month-end are deferred and netted against accounts receivable and
recognized the following month when services are provided.

INCOME TAXES

No provisions have been made for federal or state income taxes since such
taxes, if any, are the responsibility of the individual partners.

ADVERTISING

Advertising costs are expensed as incurred. The advertising expense for 1995
was $42,046,000.

ESTIMATES AND ASSUMPTIONS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.

LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(CONTINUED)

IMPAIRMENT OF LONG-LIVED ASSETS

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121").
Under SFAS 121, the Partnerships are required to evaluate long-lived assets and
certain identifiable intangible assets, including fixed assets, for impairment
whenever events or changes in circumstances indicate that the book value of an
asset may not be recoverable. An impairment loss should be recognized whenever
the review demonstrates that the book value of a long-lived asset is not
recoverable. The Partnerships do not expect the implementation of SFAS 121,
adopted effective January 1, 1996, to have a material impact on its financial
condition or results of operations.

RECLASSIFICATIONS

Certain reclassifications of the 1994 and 1993 financial statements of one
of the Partnerships have been made to conform to the 1995 presentation. The
reclassifications have not affected previously reported net income or partners'
capital.

3. LEASE COMMITMENTS:

Future minimum rental payments required under operating leases for real
estate that have initial or remaining noncancellable lease terms in excess of
one year as of December 31, 1995, are as follows:

(DOLLARS IN THOUSANDS)
1996............................................................. $ 20,063
1997............................................................. 18,723
1998............................................................. 17,992
1999............................................................. 16,563
2000............................................................. 13,409
Thereafter....................................................... 20,076
---------
$ 106,826
---------
---------

The initial lease terms generally range from 5 to 25 years with the majority
of them having initial terms of 10 years and providing for one renewal option of
5 years and for rental escalation. Included in selling, general and
administrative expense are rental costs of $17,455,000, $17,750,000 and
$15,119,000 for the years ended December 31, 1995, 1994, and 1993, respectively.
One of the Partnerships leases office facilities under a ten-year lease
agreement which provides for free rent incentives for six months and rent
escalation over the ten-year period. The Partnership recognizes rent expense on
a straight-line basis and recorded the related deferred rent as a noncurrent
liability to be amortized as an adjustment to rental costs over the life of the
lease.

4. SUPPLEMENTAL CASH FLOW INFORMATION

On November 1, 1995, one of the Partners of one of the Partnerships
contributed a note receivable of $3,152,000 (Note 5) and other assets of
$104,000 and the assets and liabilities of other RSA interests totaling
$6,018,000. All assets and liabilities were recorded at their historical net
book value. The contribution of the note receivable and the combined properties
is reflected in the Statement of Changes in Partners' Capital.

During 1995, one of the Partnerships replaced and upgraded certain of its
cellular equipment with new cellular technology which supports both analog and
digital voice transmissions. In connection with this equipment upgrade, the
Partnership traded-in cellular equipment with a net book value of $3,704,000 for
new cellular equipment with a cost of $6,250,000. The remaining balance was
funded through the credit facility with its General Partner.

LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(CONTINUED)

5. RELATED PARTY TRANSACTIONS:

Certain affiliates of these cellular limited partnerships provide services
for the system operations, legal, financial, management and administration of
these entities. These affiliates are reimbursed for both direct and allocated
costs (totaling $59.5 million in 1995, $57.6 million in 1994 and $57.1 million
in 1993) related to providing these services. In addition, certain affiliates
have established a credit facility with certain partnerships to provide working
capital to the partnership. One of the partnerships participates in a
centralized cash management arrangement with its general partner. At December
31, 1995 and 1994, the interest-bearing balance amounted to $14,830,000 and
$16,016,000, respectively. Effective January 1, 1989, the general partner pays
or charges the Partnership monthly interest, computed using the general
partner's average borrowing rate, on the amounts due to or from the Partnership.
Interest earned in 1995, 1994 and 1993 was $785,000, $1,480,000 and $1,294,000,
respectively.

One of the Partnerships has a note receivable from its General Partner with
a balance of $3,152,000 and accrued interest of $32,000 at December 31, 1995.
The note bears interest at 12% per annum, compounded quarterly with all
principal and interest due at maturity on May 10, 1997. The note was contributed
to the Partnership by its General Partner during 1995 (Note 4).

6. ACCOUNTS RECEIVABLE

Accounts receivable of one of the partnerships consists of:

DECEMBER 31
-------------------------
1995 1994
------------ -----------

Retail......................................................................... $ 83,682 $ 63,626
Wholesale...................................................................... 17,660 14,557
Intercarrier and other......................................................... 9,437 9,280
------------ -----------
110,779 87,463
Allowance for doubtful accounts................................................ (8,719) (3,033)
------------ -----------
$ 102,060 $ 84,430
------------ -----------
------------ -----------

Accounts receivable are derived from revenues earned from customers located
in the Partnership's metropolitan serving area. The Partnership performs ongoing
credit evaluations of its customers and in certain circumstances obtains
refundable deposits. The Partnership maintains reserves for potential credit
losses; historically, such losses have been within management's expectations.
The carrying value of accounts receivable approximates fair value.

Two of the Partnerships provide cellular service and sell cellular
telephones to diversified groups of consumers within concentrated geographical
areas. The general partner performs credit evaluations of the Partnerships'
customers and generally does not require collateral. Receivables are generally
due within 30 days. Credit losses related to customers have been within
management's expectations.

7. REGULATORY MATTERS:

On December 21, 1993, the California Public Utilities Commission ("CPUC")
issued an Order Instituting Investigation into the regulation of mobile
telephone service and wireless communications. The investigation proposes a
regulatory program which would encompass all forms of mobile telephone services.

In 1993, the U.S. Congress passed legislation prohibiting state and local
governments from regulating the rates for commercial mobile radio services
("CMRS"), including cellular service. States with rate regulation in place on
June 1, 1993, including California, were given the opportunity to petition the
Federal Communications Commission ("FCC") for continuation of such authority.
The CPUC filed such a petition with the FCC. The FCC denied the CPUC's petition
in an interim decision issued in May 1995 and issued a final Order in August
1995 (the "Order"), thereby preempting the CPUC's authority over rates. As a
consequence, one of the Partnerships withdrew its rate-related traiffs.

LOS ANGELES SMSA LIMITED PARTNERSHIP
NASHVILLE/CLARKSVILLE MSA LIMITED PARTNERSHIP
BATON ROUGE MSA LIMITED PARTNERSHIP
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(CONTINUED)

The CPUC is currently considering outstanding issues concerning its
remaining jurisdiction over CMRS providers in recognition of the changes in
federal law and the Order. Specifically, the CPUC is assessing changes to
existing regulation in light of the preemption of rate and entry regulation and
the scope of its residual authority to regulate "other terms and conditions" of
services. Until the CPUC completes its assessment of its remaining regulatory
authority, the effect, if any, of such regulation to the Partnership and its
operating activities can not be determined.

8. CONTINGENCIES AND COMMITMENTS:

A class action complaint was filed in November 1993 naming a partner of one
of the partnerships as general partner of the Partnership. In April 1995, the
Partnership was named as a necessary party to the action. The plaintiff alleged
the Partnership conspired to fix the price of wholesale and retail cellular
service in its metropolitan serving area market. The plaintiff alleged damages
for the class "in a sum in excess of $100 million." The Partnership has answered
the complaint and intends to defend itself vigorously. This case has been
consolidated for purposes of discovery with two other class actions making
identical price-fixing allegations. The case has been removed to federal court.
The other cases have been stayed pending resolution of a motion to remand the
case to state court. In addition, three non-class action antitrust cases brought
by cellular agents making similar allegations were settled for immaterial
amounts. In April 1995, a Federal class action complaint was dismissed on a
motion for summary judgment. The dismissal was upheld on appeal. The Partnership
does not believe that these proceedings will have a material adverse effect on
the Partnership's financial position.

In September 1995, a class action lawsuit was brought on behalf of all
subscribers of the general partner of one of the Partnerships, including the
Partnership's subscribers, regarding customer notification of the Partnership's
practices with respect to billing for fractional minutes of service. No
dispositive motions have been filed in the proceeding and discovery has not yet
begun. The Partnership believes the lawsuit to be without merit.

One of the Partnerships is a party to various other lawsuits arising in the
ordinary course of business. Although the ultimate resolution of these
proceedings cannot be ascertained, the Partnership's management does not believe
they will have a materially adverse effect on the results of operations or
financial position of the Partnership.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

TELEPHONE AND DATA SYSTEMS, INC.

By: /S/ LEROY T. CARLSON
------------------------------------------
LeRoy T. Carlson,
CHAIRMAN
By: /S/ LEROY T. CARLSON, JR.
------------------------------------------
LeRoy T. Carlson, Jr.,
PRESIDENT (CHIEF EXECUTIVE OFFICER)
By: /S/ MURRAY L. SWANSON
------------------------------------------
Murray L. Swanson,
EXECUTIVE VICE PRESIDENT-FINANCE
(CHIEF FINANCIAL OFFICER)
By: /S/ GREGORY J. WILKINSON
------------------------------------------
Gregory J. Wilkinson,
VICE PRESIDENT AND CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)

Dated March 21, 1996

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
- -------------------------------------------------------------------- ----------- ---------------------

/S/ LEROY T. CARLSON DIRECTOR March 21, 1996
-----------------------------------------------
LeRoy T. Carlson
/S/ LEROY T. CARLSON, JR. DIRECTOR March 21, 1996
-----------------------------------------------
LeRoy T. Carlson, Jr.
/S/ MURRAY L. SWANSON DIRECTOR March 21, 1996
-----------------------------------------------
Murray L. Swanson
/S/ RUDOLPH E. HORNACEK DIRECTOR March 21, 1996
-----------------------------------------------
Rudolph E. Hornacek
/S/ JAMES BARR III DIRECTOR March 21, 1996
-----------------------------------------------
James Barr III
/S/ LESTER O. JOHNSON DIRECTOR March 21, 1996
-----------------------------------------------
Lester O. Johnson
/S/ DONALD C. NEBERGALL DIRECTOR March 21, 1996
-----------------------------------------------
Donald C. Nebergall
/S/ HERBERT S. WANDER DIRECTOR March 21, 1996
-----------------------------------------------
Herbert S. Wander
/S/ WALTER C.D. CARLSON DIRECTOR March 21, 1996
-----------------------------------------------
Walter C.D. Carlson
/S/ DONALD R. BROWN DIRECTOR March 21, 1996
-----------------------------------------------
Donald R. Brown
/S/ ROBERT J. COLLINS DIRECTOR March 21, 1996
-----------------------------------------------
Robert J. Collins

- --------------------------------------------------------------------------------
INDEX TO EXHIBITS
- --------------------------------------------------------------------------------

EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- ------------ ------------------------------------------------------------------------------------------------------------------

3.1 Articles of Incorporation, as amended, are hereby incorporated by reference to an exhibit to the Company's Report
on Form 8-A/A-2 dated December 20, 1994.

3.2 By-laws, as amended, are hereby incorporated by reference to an exhibit to the Company's Report on Form 8-A/A-2
dated December 20, 1994.

4.1 Articles of Incorporation, as amended, are hereby incorporated by reference to an exhibit to the Company's Report
on Form 8-A/A-2 dated December 20, 1994.

4.2 By-laws, as amended, are hereby incorporated by reference to an exhibit to the Company's Report on Form 8-A/A-2
dated December 20, 1994.

4.3 The Indenture and Supplemental Indentures for the Company's Series A, B, C, D, E and F Subordinated Debentures are
not being filed as exhibits because the total authorized subordinated debentures do not exceed 10% of the total
assets of the Company and its Subsidiaries. The Company agrees to furnish a copy of such Indentures and
Supplemental Indentures if so requested by the Commission.

4.4 The Indenture between the Company and Harris Trust and Savings Bank, Trustee, dated February 1, 1991, under which
the Company's Medium-Term Notes are issuable, is hereby incorporated by reference to the Company's Current Report
on Form 8-K filed on February 19, 1991.

4.5 Revolving Credit Agreement, dated as of May 19, 1995, among TDS and the First National Bank of Boston, as agent,
is hereby incorporated by reference to the registrant's Form 8-K dated May 19, 1995.

9.1(a) Voting Trust Agreement, dated as of June 30, 1989, is hereby incorporated by reference to an exhibit to
Post-Effective Amendment No. 3 to the Company's Registration Statement on Form S-1, No. 33-12943.

9.1(b) Amendment dated as of May 9, 1991 to the Voting Trust Agreement dated as of June 30, 1989, is hereby incorporated
by reference to Exhibit 9.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.

9.1(c) Amendment dated as of November 20, 1992, to the Voting Trust Agreement dated as of June 30, 1989, as amended, is
hereby incorporated by reference to Exhibit 9.1(c) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992.

10.2(a) Supplemental Benefit Agreement for LeRoy T. Carlson dated March 21, 1980, as amended March 20, 1981, is hereby
incorporated by reference to an exhibit to the Company's Registration Statement on Form S-7, No. 2-74615.

10.2(b) Memorandum of Amendment to Supplemental Benefit Agreement dated as of May 28, 1991, is hereby incorporated by
reference to Exhibit 10.2(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.

10.3 Stock Option Agreement, dated February 25, 1987, between the Company and Murray L. Swanson, is hereby incorporated
by reference to an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1988.

EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- ------------ ------------------------------------------------------------------------------------------------------------------

10.4 Stock Appreciation Rights Award and Non-Qualified Stock Option Agreement, dated March 14, 1988, between the
Company and LeRoy T. Carlson, Jr., is hereby incorporated by reference to an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1988.

10.5 Stock Option and Stock Appreciation Rights Award Agreement dated January 15, 1990 between the Company and James
Barr III, is hereby incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991.

10.6(a) 1988 Stock Option and Stock Appreciation Rights Plan of the Company, is hereby incorporated by reference to
Exhibit A to the Company's definitive Notice of Annual Meeting and Proxy Statement dated March 31, 1988.

10.6(b) Amendment #1 to 1988 Stock Option and Stock Appreciation Rights Plan of the Company, is hereby incorporated by
reference to Exhibit 10.7(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993.

10.6(c) Amendment #2 to 1988 Stock Option and Stock Appreciation Rights Plan of the Company, is hereby incorporated by
reference to Exhibit 10.7(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993.

10.7 1985 Incentive Stock Option Plan of the Company, is hereby incorporated by reference to Exhibit A to the Company's
definitive Notice of Annual Meeting and Proxy Statement dated April 24, 1986.

10.8(a) Telephone and Data Systems, Inc. 1994 Long-Term Incentive Plan is hereby incorporated by reference to Exhibit 99.1
to the Company's Registration Statement on Form S-8 (Registration No. 33-57257).

10.8(b) Form of 1994 Long-Term Stock Option Agreement (Transferable Form) is hereby incorporated by reference to Exhibit
99.2 to the Company's Registration Statement on Form S-8 (Registration No. 33-57257).

10.8(c) Form of 1994 Long-Term Stock Option Agreement (Nontransferable Form) is hereby incorporated by reference to
Exhibit 99.3 to the Company's Registration Statement on Form S-8 (Registration No. 33-57257).

10.8(d) Form of 1995 Performance Stock Option Agreement (Transferable Form) is hereby incorporated by reference to Exhibit
99.4 to the Company Registration statement on Form S-8 (Registration No. 33-57257).

10.9 Supplemental Executive Retirement Plan of the Company is hereby incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.

10.10 Deferred Compensation Agreement for Rudolph E. Hornacek dated November 30, 1995.

10.11 Securities Loan Agreement, dated June 13, 1995, between TDS and Merrill Lynch & Co. is hereby incorporated by
reference to Exhibit 99.1 to the Form 8-K dated June 16, 1995 of United States Cellular Corporation.

10.12 Registration Rights Agreement among TDS, Merrill Lynch & Co. and United States Cellular Corporation is hereby
incorporated by reference to Exhibit 99.2 to the Form 8-K dated June 16, 1995 of United States Cellular
Corporation.

10.13 Common Share Delivery Arrangement Agreement among TDS, Merrill Lynch & Co. and United States Cellular Corporation
is hereby incorporated by reference to Exhibit 99.3 to the Form 8-K dated June 16, 1995 of United States Cellular
Corporation.

EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- ------------ ------------------------------------------------------------------------------------------------------------------

10.14 LYONs Offering Agreement between TDS and United States Cellular Corporation is hereby incorporated by reference to
Exhibit 99.4 to the Form 8-K dated June 16, 1995 of United States Cellular Corporation.

11 Statement regarding computation of per share earnings.

12 Statements regarding computation of ratios.

13 Incorporated portions of 1995 Annual Report to Security Holders.

21 List of Subsidiaries of the Company.

23.1 Consent of independent public accountants.

23.2 Consent of independent accountants.

27 Financial Data Schedules