TELEPHONE & DATA SYSTEMS INC /DE/, DEF 14A, 1998-06-10

TELEPHONE & DATA SYSTEMS INC /DE/
DEF 14A, 1998-06-10
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<PAGE>

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. ___ )

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

TELEPHONE AND DATA SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction
applies:
N/A
2) Aggregate number of securities to which transaction
applies:
N/A
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
N/A
4) Proposed maximum aggregate value of transaction:
N/A
5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
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<PAGE>
TELEPHONE AND DATA SYSTEMS, INC.
30 North LaSalle Street
Suite 4000
Chicago, Illinois 60602
Phone: (312) 630-1900
Fax: (312) 630-1908

[TDS LOGO]

June 10, 1998

Dear Fellow Shareholders:

You are cordially invited to attend the 1998 Annual Meeting of Shareholders
on Friday, July 10, 1998, at 10:00 a.m. Chicago time, at Harris Trust and
Savings Bank, 111 West Monroe Street, 8th Floor, Chicago, Illinois. The formal
notice of the meeting and the Board of Directors' Proxy Statement are enclosed.
Shareholders are being asked to elect four Class II directors at the Annual
Meeting. As a result of the approval of the Tracking Stock Proposal at the
Company's Special Meeting of Shareholders on April 27, 1998, the holders of
Common Shares will be entitled to elect one more director at the 1998 Annual
Meeting of Shareholders, in addition to the director which they would otherwise
elect. The Board of Directors recommends a vote FOR the nominees for director.

In addition, as previously announced, the Board of Directors has approved an
amendment to the Company's Restated Certificate of Incorporation. This amendment
is intended to improve certain corporate governance features of the Tracking
Stock Proposal, which was approved by the Company's shareholders on April 27,
1998. The Board of Directors recommends a vote FOR this proposal.

Shareholders are also being asked to ratify the selection of outside
auditors. The Board of Directors recommends a vote FOR this proposal.

The Board of Directors and members of our management team will be at the
Annual Meeting to meet with shareholders and discuss operating results and plans
for the future. We would like to have as many shareholders as possible
represented at the meeting. Please sign and return the enclosed proxy card(s),
whether or not you plan to attend.

If you have any questions prior to the Annual Meeting, please call Investor
Relations at (312) 630-1900. We look forward to visiting with you at the Annual
Meeting.

Very truly yours,

[SIGNATURE] [SIGNATURE]

LeRoy T. Carlson LeRoy T. Carlson, Jr.
Chairman President and Chief Executive Officer

PLEASE HELP US AVOID THE EXPENSE OF FOLLOW-UP
PROXY MAILINGS TO SHAREHOLDERS BY
SIGNING AND RETURNING THE ENCLOSED PROXY CARD(S) PROMPTLY
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AND
PROXY STATEMENT

TO THE SHAREHOLDERS OF

TELEPHONE AND DATA SYSTEMS, INC.

The 1998 Annual Meeting of Shareholders of Telephone and Data Systems, Inc.,
a Delaware corporation (the "Company" or "TDS"), will be held at Harris Trust
and Savings Bank, 111 West Monroe Street, 8th Floor, Chicago, Illinois, on
Friday, July 10, 1998 at 10:00 a.m. Chicago time, for the following purposes:

1. To elect four Class II members of the Board of Directors. The Board of
Directors unanimously recommends that shareholders vote FOR the Board of
Directors' nominees for Class II directors.

2. To consider and vote upon a proposal to amend the Restated Certificate
of Incorporation of the Company. The Board of Directors unanimously
recommends that shareholders vote FOR this proposal.

3. To consider and vote upon a proposal to ratify the selection of Arthur
Andersen LLP as the Company's independent public accountants for the year
ended December 31, 1998. The Board of Directors unanimously recommends
that shareholders vote FOR this proposal.

4. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.

This Notice of Annual Meeting and Proxy Statement is first being mailed to
shareholders on or about June 10, 1998.

The Board of Directors has fixed the close of business on June 2, 1998, as
the record date for the determination of shareholders entitled to notice of, and
to vote at, the Annual Meeting or any adjournments thereof.

The Board of Directors would like to have all shareholders represented at
the Annual Meeting. If you do not expect to be present, please sign and mail
your proxy in the enclosed self-addressed envelope to Harris Trust and Savings
Bank, 311 West Monroe Street, Chicago, Illinois 60606. Proxies given pursuant to
this solicitation may be revoked at any time prior to the closing of polls at
the Annual Meeting (by written notice to the Secretary of the Company or
attendance at the Annual Meeting of Shareholders and notice to the Secretary of
such revocation). Once the polls are closed, however, proxies may not be
retroactively revoked.

If you hold more than one class of the Company's shares, you will find
enclosed a separate proxy card for each holding. To assure that all of your
shares are represented, please return a proxy printed in black ink for Common
Shares, including Common Shares owned through the TDS dividend reinvestment plan
and through the TDS Tax-Deferred Savings Plan; a proxy card printed in green ink
for Series A Common Shares, including Series A Common Shares owned through the
dividend reinvestment plan; a proxy card printed in red ink for Preferred Shares
issued before October 31, 1981 (Series A, B, D, G, H and N); and a proxy card
printed in blue ink for Preferred Shares issued after October 31, 1981 (Series
O, S, U, BB, DD, EE, GG, II, JJ, KK, LL, QQ, SS and TT).

On May 31, 1998, the Company had outstanding and entitled to vote 54,037,092
Common Shares, par value $.01 per share (excluding Common Shares held by the
Company and a subsidiary of the Company); 6,939,280 Series A Common Shares, par
value $.01 per share; and 279,401 Preferred Shares, par value $.01 per share.
Except as set forth in the next paragraph, each of the outstanding Common Shares
and Preferred Shares is entitled to one vote on all matters to come before the
Annual Meeting and each of the outstanding Series A Common Shares is entitled to
ten votes on all matters to come before the Annual Meeting. Accordingly, the
voting power of all outstanding Series A Common Shares was 69,392,800 votes, and
the total voting power of all outstanding shares of all classes of capital stock
was 123,709,293 votes at May 31, 1998.

<PAGE>
With respect to the election of directors at the Annual Meeting, the holders
of Common Shares and holders of the Preferred Shares issued before October 31,
1981 (Series A, B, D, G, H and N), voting as a group (collectively, the "Public
Holders"), will be entitled to elect two Class II directors. The holders of
Series A Common Shares and the holders of the Preferred Shares issued after
October 31, 1981 (Series O, S, U, BB, DD, EE, GG, II, JJ, KK, LL, QQ, SS and
TT), voting as a group (collectively, the "Series A Holders"), will be entitled
to elect two Class II directors.

VOTING INFORMATION

The Public Holders may, with respect to the election of the Class II
directors to be elected by the Public Holders, vote FOR the election of such
director nominees or WITHHOLD authority to vote for such director nominees. The
Series A Holders may, with respect to the election of the Class II directors to
be elected by the Series A Holders, vote FOR the election of such director
nominees or WITHHOLD authority to vote for such director nominees. A shareholder
may, with respect to the proposal to amend the Company's Restated Certificate of
Incorporation, (i) vote FOR approval, (ii) vote AGAINST approval or (iii)
ABSTAIN from voting on such proposal. A shareholder may, with respect to the
proposal to ratify the selection of Arthur Andersen LLP as the Company's
independent public accountants for 1998, (i) vote FOR approval, (ii) vote
AGAINST approval or (iii) ABSTAIN from voting on such proposal. The Board of
Directors recommends a vote FOR the Board of Director's nominees for Class II
directors, FOR the proposal to amend the Company's Restated Certificate of
Incorporation and FOR the ratification of the selection of Arthur Andersen LLP.
All properly executed and unrevoked proxies received in the accompanying form in
time for the 1998 Annual Meeting will be voted in the manner directed therein.
If no direction is made, a proxy by any shareholder will be voted FOR the
election of the Board of Director's nominees to serve as Class II directors, FOR
the proposal to amend the Company's Restated Certificate of Incorporation and
FOR the proposal to ratify the selection of Arthur Andersen LLP as the Company's
independent public accountants for 1998.

The election of the Class II directors to be elected by the Public Holders
requires the affirmative vote of holders of a plurality of votes of the shares
present in person or represented by proxy and entitled to vote with respect to
such directors at the Annual Meeting. Accordingly, if a quorum exists, the
person receiving a plurality of votes of the Public Holders with respect to the
election of each Class II director will be elected to serve as a Class II
director. A majority of the votes entitled to be cast with respect to the
election of such Class II director by such voting group constitutes a quorum for
action on such proposal. Withheld votes and non-votes with respect to the
election of such Class II directors will not affect the outcome of the election
of such directors.

The election of the Class II directors to be elected by the Series A Holders
requires the affirmative vote of holders of a plurality of the votes of the
shares present in person or represented by proxy and entitled to vote with
respect to such directors at the Annual Meeting. Accordingly, if a quorum
exists, each person receiving a plurality of votes of the Series A Holders with
respect to the election of each Class II director will be elected to serve as a
Class II director. A majority of the votes entitled to be cast with respect to
the election of such Class II directors by such voting group constitutes a
quorum for action on such proposal. Withheld and non-votes with respect to the
election of such Class II directors will not affect the outcome of the election
of such Class II directors.

Assuming a quorum exists, the approval of the proposal to amend the Restated
Certificate of Incorporation of the Company requires the affirmative vote of
holders of a majority of the voting power of all classes of capital stock of the
Company, voting as group. The presence in person or by proxy of a majority of
the voting power of all classes of capital stock of the Company shall constitute
a quorum for such purpose. In addition, since the proposal may be deemed to have
an adverse effect on the holders of Series A Common Shares, the approval of this
proposal also requires the affirmative vote of holders of a majority of the
outstanding Series A Common Shares, voting as a class. The presence in person or
by proxy of a majority of the outstanding Series A Common Shares shall
constitute a quorum for such purpose. Abstentions and non-votes will be treated
as votes against this proposal.

Assuming a quorum exists, the approval of the proposal to ratify the
selection of Arthur Andersen LLP as the Company's independent public accountants
for 1998 requires that the affirmative vote of a majority of the voting power of
shares of capital stock present in person or represented by proxy and entitled
to vote with respect to such matter. A majority of the votes entitled to be cast
on the proposal constitutes a quorum for action on that proposal. Abstentions
will be treated as votes against this proposal. Non-votes will not affect the
determination of whether such proposal is approved for purposes of such vote.

A complete list of shareholders entitled to vote at the Annual Meeting,
arranged in alphabetical order and by voting group, showing the address of and
number of shares held by each shareholder, will be kept open at the offices of
the Company, 30 North LaSalle Street, 40th Floor, Chicago, Illinois 60602, for
examination by any shareholder, for a period of at least ten days prior to the
Annual Meeting.

-2-
<PAGE>
RECENT DEVELOPMENTS

On April 27, 1998, shareholders of the Company approved a proposal (the
"Tracking Stock Proposal") relating to, among other things, the authorization of
three classes of tracking stock which are intended to separately reflect the
performance of the Company's cellular telephone, landline telephone and personal
communications ("PCS") businesses, and the change of the Company's state of
incorporation from Iowa to Delaware. As a result, following the receipt of
regulatory approvals, the Company was reincorporated as a Delaware corporation
on May 22, 1998. The reincorporation simply changed the Company's state of
incorporation from Iowa to Delaware and did not result in any change to the
assets, liabilities, businesses, operations, management or strategies of the
Company. As a result of the reincorporation, the Company became a Delaware
corporation subject to the Delaware General Corporation Law ("DGCL"). A
consequence of the reincorporation is that the Public Holders will be entitled
to elect one more director at the 1998 Annual Meeting of Shareholders, in
addition to the director which they would otherwise elect.

PROPOSAL 1

ELECTION OF DIRECTORS

The Company's Board of Directors is divided into three classes. Each year,
one class is elected to serve for three years. At the 1998 Annual Meeting of
Shareholders, four Class II directors will be elected for a term of three years
or until their successors are elected and qualified. The Board of Director's
nominees for election as Class II directors are identified in the tables below.
In the event any such nominee, who has expressed an intention to serve if
elected, fails to stand for election, the persons named in the proxy presently
intend to vote for a substitute nominee designated by the Board of Directors.

NOMINEES

CLASS II DIRECTORS--TERMS TO EXPIRE IN 2001

The following persons, if elected at the 1998 Annual Meeting of
Shareholders, will serve as Class II directors until the 2001 Annual Meeting of
Shareholders or until their successors are elected and qualified:

NOMINEE FOR ELECTION BY THE PUBLIC HOLDERS

<TABLE>
<CAPTION>
SERVED AS
POSITION WITH TDS DIRECTOR
NAME AGE AND PRINCIPAL OCCUPATION SINCE
- ---------------------------------- --------- -------------------------------------------------------------------- -------------
<S> <C> <C> <C>
Kevin A. Mundt.................... 44 Director of Corporate Decisions, Inc. N/A
Murray L. Swanson................. 57 Director and Executive Vice President--Finance of the Company (chief 1983
financial officer)
</TABLE>

Kevin A. Mundt is a co-founder, and has been a director since 1984, of
Corporate Decisions, Inc., a strategy consulting firm with 150 professionals in
offices in North America and Europe. Corporate Decisions, Inc. recently merged
with Mercer Management Consulting. Mr. Mundt's management consulting practice
focuses on advising companies on strategies for profitable growth in changing
markets. Prior to his association with Corporate Decisions, Mr. Mundt was
associated with Bain and Company. Mr. Mundt holds a B.A. degree in economics
from Brown University and an M.B.A. from the Harvard Graduate School of
Business. Mr. Mundt will fill the directorship presently held by Mr. James Barr
III. Mr. Barr's term as a Class II director will expire at the 1998 Annual
Meeting, as discussed below.

Murray L. Swanson has been the Company's Executive Vice President--Finance
and chief financial officer for more than five years. Mr. Swanson has indicated
to TDS that he plans to resign from the Company effective July 15, 1998, but has
agreed to provide consulting services to the Company through the end of February
1999. Mr. Swanson is currently a Class II director of TDS and was previously
elected by the Series A Holders. If elected at the 1998 Annual Meeting by the
Public Holders, Mr. Swanson will continue to serve as a Class II director of the
Company. Mr. Swanson is also a director of United States Cellular Corporation
(AMEX: "USM"), a subsidiary of the Company which operates and invests in
cellular telephone companies and properties, Aerial Communications, Inc. (Nasdaq
National Market: "AERL"), a subsidiary of the Company which offers broadband
personal communications services, and TDS Telecommunciations Corporation ("TDS
Telecom"), a subsidiary of TDS which operates local telephone companies.

-3-
<PAGE>
NOMINEES FOR ELECTION BY THE SERIES A HOLDERS

<TABLE>
<CAPTION>
SERVED AS
POSITION WITH TDS DIRECTOR
NAME AGE AND PRINCIPAL OCCUPATION SINCE
- ---------------------------------- --------- -------------------------------------------------------------------- -------------
<S> <C> <C> <C>
LeRoy T. Carlson, Jr.............. 51 Director and President of the Company (chief executive officer) 1968
Donald C. Nebergall............... 69 Director and Consultant to the Company and other companies 1977
</TABLE>

LeRoy T. Carlson, Jr., has been the Company's President and chief executive
officer for more than five years. Mr. LeRoy T. Carlson, Jr. is also Chairman and
a director of USM, AERL and TDS Telecom. Mr. LeRoy T. Carlson, Jr. is the son of
Mr. LeRoy T. Carlson, and the brother of Mr. Walter C.D. Carlson and Dr. Letitia
G.C. Carlson.

Donald C. Nebergall has been a consultant to the Company and other companies
since 1988. Mr. Nebergall was Vice President of The Chapman Company, a
registered investment advisory company located in Cedar Rapids, Iowa, from 1986
to 1988. Prior to that, he was the Chairman of Brenton Bank & Trust Company,
Cedar Rapids, Iowa, from 1982 to 1986, and was its President from 1972 to 1982.

Messrs. Carlson and Nebergall are currently Class II directors of TDS and
were previously elected by the Series A Holders.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES FOR CLASS II
DIRECTORS.

-4-
<PAGE>
OTHER DIRECTORS

CLASS II DIRECTOR--TERM TO EXPIRE IN 1998

The following person is a current Class II director whose term will expire
at the 1998 Annual Meeting:

Mr. Barr has been President and chief executive officer and a director of
TDS Telecom for more than five years. Mr. Barr is also a director of AERL. Mr.
Barr was elected by the Public Holders. The Board of Directors has nominated Mr.
Kevin A. Mundt to fill the directorship currently held by Mr. Barr, as discussed
previously. Mr. Barr's term as a Class II director will expire at the 1998
Annual Meeting of Shareholders. However, it is expected that Mr. Barr will be
appointed as a Class I Director by the Board of Directors following the 1998
Annual Meeting to fill a vacancy on the Board of Directors resulting from the
resignation of Mr. Donald R. Brown, as discussed below.

CLASS III DIRECTORS--TERMS TO EXPIRE IN 1999

The following persons are current Class III directors whose terms will
expire at the 1999 Annual Meeting:

<TABLE>
<CAPTION>
POSITION WITH TDS SERVED AS
NAME AGE AND PRINCIPAL OCCUPATION DIRECTOR SINCE
- -------------------------------- ----------- ------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
LeRoy T. Carlson................ 82 Director and Chairman of the Company 1968
Walter C.D. Carlson............. 44 Director of the Company and Partner, Sidley & Austin, Chicago, 1981
Illinois
Letitia G.C. Carlson............ 37 Director of the Company, Medical Doctor and Assistant Professor at 1996
George Washington University Medical Center
Herbert S. Wander............... 63 Director of the Company and Partner, Katten, Muchin & Zavis, 1968
Chicago, Illinois
</TABLE>

Messrs. LeRoy T. Carlson, Walter C.D. Carlson, Herbert S. Wander and Dr.
Letitia G.C. Carlson have had the principal occupations indicated for more than
five years.

Mr. LeRoy T. Carlson is the father of Messrs. LeRoy T. Carlson, Jr. and
Walter C.D. Carlson and Dr. Letitia G.C. Carlson.

Messrs. LeRoy T. Carlson and Walter C.D. Carlson and Dr. Letitia G.C.
Carlson were elected by the Series A Group. Mr. Wander was elected by the Public
Holders.

The law firms of Sidley & Austin and Katten, Muchin & Zavis provided legal
services to TDS in 1997.

CLASS I DIRECTORS--TERMS TO EXPIRE IN 2000

The following persons are current Class I directors whose terms will expire
at the 2000 Annual Meeting:

<TABLE>
<CAPTION>
POSITION WITH TDS SERVED AS
NAME AGE AND PRINCIPAL OCCUPATION DIRECTOR SINCE
- -------------------------------- ----------- ------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
Donald R. Brown................. 68 Director of the Company 1979
Rudolph E. Hornacek............. 71 Director and Vice President--Engineering of the Company 1968
George W. Off................... 51 Director of the Company and President and Chief Executive Officer January 1997
of Catalina Marketing Corporation
Martin L. Solomon............... 61 Director of the Company and Chairman and Chief Executive Officer of June 1997
American Country Holdings, Inc.
</TABLE>

Donald R. Brown has been retired since December 1997. Prior to his
retirement, Mr. Brown had been President of the Wholesale Markets Group of TDS
Telecom between 1995 and 1997. He was also Senior Vice President of

-5-
<PAGE>
TDS Telecom between 1992 and 1997. Mr. Brown has indicated to TDS that he
intends to resign as a director following the 1998 Annual Meeting of
Shareholders. As discussed above, the Board of Directors expects to appoint Mr.
James Barr III as a Class I director to fill the vacancy created by the
resignation of Mr. Brown.

Rudolph E. Hornacek has been Vice President--Engineering of the Company for
more than five years. He is a director of TDS Telecom and AERL.

George W. Off is the President and Chief Executive Officer and a member of
the Board of Directors of Catalina Marketing Corporation, a New York Stock
Exchange listed company, which he was instrumental in founding in 1983. Mr. Off
became President and Chief Executive Officer of Catalina in 1994. Prior to that,
Mr. Off was President and Chief Operating Officer between 1992 and 1994, and its
Executive Vice President between 1990 and 1992. Catalina is a leading supplier
of in-store electronic scanner-activated consumer promotions. Mr. Off has nearly
30 years experience in the retail marketing industry, and has previously held
operations and executive positions at two major supermarket chains and has
worked as a consultant.

Mr. Off was identified as a candidate for the Board by a national search
firm specializing in board of director searches after an extensive search in
1996. Mr. Off met or exceeded all of the requirements for an independent
director which had been provided to the search firm. Considering Mr. Off's
qualifications, the Board appointed Mr. Off as a director in January 1997 and
nominated him as the Board's candidate for election as a Class I director by the
Public Holders at the 1997 Annual Meeting. Mr. Off was not elected as a director
by the Public Holders at such meeting. Following the announcement of the voting
results of such meeting in June 1997, the Board of Directors determined to
increase the size of the Board and to appoint Mr. Off to fill the vacancy
created thereby. Accordingly, Mr. Off was appointed as a Class I director in
June, 1997. This was done because the Board believed that the failure of the
Public Holders to elect Mr. Off was due to dissatisfaction with the public
market value of the TDS Common Shares, rather than based on Mr. Off's
qualifications. Considering the circumstances, the Board determined that it
would be in the best interests of TDS and its shareholders to retain the
services of a director with Mr. Off's qualifications. Under the Restated
Certificate of Incorporation, Mr. Off will stand for election as a Class I
director by the Series A Holders at the Annual Meeting to be held in 2000.

Martin L. Solomon has been Chairman and Chief Executive Officer and a
director of American Country Holdings, Inc., an insurance holding company, since
June 1997. Prior to that time, Mr. Solomon had been occupied primarily as a
private investor since 1990. He is the former Vice Chairman of Great Dane
Holdings, Inc. and, in addition to TDS and American Country Holdings, Inc., is
currently the director of three public companies: XTRA Corporation, a lessor of
truck trailers, marine containers and other equipment; Hexcel Corporation, a
manufacturer of composite materials; and DLB Oil and Gas, Inc., a company
engaged in oil exploration and production.

Messrs. Brown and Hornacek were elected by the Series A Holders. Mr. Solomon
was elected by the Public Holders.

COMMITTEES AND MEETINGS

The Board of Directors of the Company held nine meetings during 1997. Each
person who was a director during all of 1997 attended at least 75% of the
meetings.

The Board of Directors does not have a formal nominating committee.

The Audit Committee of the Board of Directors, among other things,
determines audit policies, reviews external and internal audit reports and
reviews recommendations made by the Company's internal auditing staff and
independent public accountants. The current members of the Audit Committee are:
Messrs. Walter C.D. Carlson (Chairman), George W. Off and Herbert S. Wander. The
Audit Committee held three meetings in 1997 which were attended by all members.

The Stock Option Compensation Committee approves the annual salary, bonus
and other cash compensation for the President, considers and approves long-term
compensation for executive officers and considers and recommends to the Board of
Directors any changes to long-term compensation plans or policies. The current
members of the Stock Option Compensation Committee are: Mr. George W. Off
(Chairman) and Dr. Letitia G.C. Carlson. The Stock Option Compensation Committee
held two meetings in 1997 which were attended by both members.

-6-
<PAGE>
The primary function of the Compensation Committee is to approve the annual
salary, bonus and other cash compensation of officers and key employees of TDS
other than the President. The sole member of the Compensation Committee is LeRoy
T. Carlson, Jr., President of TDS. All actions of the Compensation Committee are
taken by written consent.

EXECUTIVE OFFICERS

In addition to the executive officers identified in the tables regarding the
election of directors, set forth below is a table identifying current officers
of the Company and its subsidiaries who may be deemed to be executive officers
of the Company for disclosure purposes under the rules of the Securities and
Exchange Commission. Unless otherwise indicated, the position held is an office
of the Company.
<TABLE>
<CAPTION>
NAME AGE
- ----------------------------------------------------- ---
<S> <C> <C>
H. Donald Nelson..................................... 64
Donald W. Warkentin.................................. 42
Scott H. Williamson.................................. 46
Michael K. Chesney................................... 42
George L. Dienes..................................... 67
C. Theodore Herbert.................................. 62
Peter L. Sereda...................................... 39
Mark A. Steinkrauss.................................. 52
Edward W. Towers..................................... 51
Byron A. Wertz....................................... 51
Gregory J. Wilkinson................................. 47
Michael G. Hron...................................... 53

<CAPTION>
NAME POSITION

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

<S> <C>
H. Donald Nelson..................................... President and CEO of United States Cellular Corporation

Donald W. Warkentin.................................. President and CEO of Aerial Communications, Inc.

Scott H. Williamson.................................. Senior Vice President--Acquisitions and Corporate Development

Michael K. Chesney................................... Vice President--Corporate Development

George L. Dienes..................................... Vice President--Corporate Development

C. Theodore Herbert.................................. Vice President--Human Resources

Peter L. Sereda...................................... Vice President and Treasurer

Mark A. Steinkrauss.................................. Vice President--Corporate Relations

Edward W. Towers..................................... Vice President--Corporate Development & Operations

Byron A. Wertz....................................... Vice President--Corporate Development

Gregory J. Wilkinson................................. Vice President and Controller

Michael G. Hron...................................... Secretary

</TABLE>

H. Donald Nelson has served as a director and the President and Chief
Executive Officer of USM for more than five years.

Donald W. Warkentin was appointed a director and President and Chief
Executive Officer of AERL in 1995. Prior to that time, Mr. Warkentin was Vice
President of Multimedia Marketing for US West Communications from 1994 to 1995.
Before that, Mr. Warkentin was Head of Marketing for Mercury One-2-One in the
United Kingdom, the world's first PCS venture.

Scott H. Williamson was appointed Senior Vice President--Acquisitions and
Corporate Development of the Company in February 1998. Prior to that time, he
was Vice President--Acquisitions of the Company since November 1995. Immediately
before joining the Company, Mr. Williamson was Vice President, Corporate
Development of FMC Corporation, a manufacturer of machinery and chemicals,
between 1993 and 1995. Before that, Mr. Williamson was Vice President of
Acquisitions and Development of Itel Corporation, a diversified holding company,
for more than five years.

Michael K. Chesney was appointed a Vice President--Corporate Development of
the Company in 1994. Prior to that, he was Director of Corporate Development of
the Company for more than five years.

George L. Dienes has been a Vice President--Corporate Development of the
Company for more than five years.

C. Theodore Herbert has been Vice President--Human Resources of the Company
for more than five years.

Peter L. Sereda joined the Company and was appointed Vice President and
Treasurer of the Company in February 1998. Prior to joining the Company, he was
employed by Specialty Foods Corporation, a privately held company which produces
meat and bakery products, between 1994 and 1998. At Specialty Foods Corporation,
Mr. Sereda was Vice President of Finance--Operations between 1997 and 1998, and
was Vice President and Treasurer between 1994 and 1997. Prior to that time, Mr.
Sereda was employed by Duchossois Industries, Inc., a privately-held diversified
manufacturing company, between 1986 and 1994, and was its Treasurer between 1990
and 1994.

-7-
<PAGE>
Mark A. Steinkrauss was appointed Vice President--Corporate Relations of the
Company in March 1998. Prior to joining the Company, Mr. Steinkrauss was
employed by Fruit of the Loom, Inc., an international apparel company, for more
than five years. At Fruit of the Loom, Mr. Steinkrauss was Vice President,
Corporate Relations, between 1993 and 1998, and was Vice President, Investor
Relations, between 1992 and 1993.

Edward W. Towers was appointed Vice President--Corporate Development and
Operations of the Company in May, 1997. Immediately prior thereto, Mr. Towers
was Vice President--Market and Business Development of USM for more than five
years.

Byron A. Wertz was appointed a Vice President--Corporate Development of the
Company in 1994. Prior to that, he was Director--Telecommunications Development
of the Company for more than five years. Mr. Wertz is the nephew of LeRoy T.
Carlson and the cousin of each of LeRoy T. Carlson, Jr., Walter C.D. Carlson and
Letitia G.C. Carlson.

Gregory J. Wilkinson was appointed a Vice President of the Company in 1993.
He has been the Controller of the Company for more than five years.

Michael G. Hron has been the Secretary of the Company for more than five
years. He has been a partner at the law firm of Sidley & Austin for more than
five years.

All of TDS' executive officers devote substantially all of their time to the
Company or its subsidiaries, except for Michael G. Hron who is a practicing
attorney.

-8-
<PAGE>
EXECUTIVE COMPENSATION

SUMMARY OF COMPENSATION

The following table summarizes the compensation paid by TDS to the President
and chief executive officer of TDS and certain other executive officers of the
Company and its subsidiaries other than the chief executive officer. Due to the
fact that certain 1997 salaries and bonuses have not yet been finalized, the
Company is reporting the five most highly compensated executive officers in
addition to the President and chief executive officer.

SUMMARY COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
--------------------------------
ANNUAL COMPENSATION SECURITIES
------------------------ RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(2) BONUS(3) STOCK AWARDS(4) OPTIONS/SARS(5) COMPENSATION(6)
- -------------------------------------- --------- ----------- ----------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
LeRoy T. Carlson ..................... 1997 $ 381,000 $ 90,000 -- 8,295 $ 67,956
Chairman 1996 347,000 135,000 -- 9,367 68,467
1995 317,000 120,000 -- 9,476 65,215

LeRoy T. Carlson, Jr ................. 1997 $ 515,000 $ 105,000 -- 11,770 $ 22,894
President (chief executive officer) 1996 440,000 250,000 -- 13,233 22,047
1995 390,000 140,000 -- 13,114 20,883

Murray L. Swanson .................... 1997 $ 312,000 $ 145,000 -- 4,279 $ 31,780
Executive Vice President-- Finance 1996 293,000 115,000 -- 4,899 35,378
(chief financial officer) 1995 269,000 110,000 -- 4,563 30,327

James Barr III ....................... 1997 $ 325,000 $ 97,500 -- -- $ 34,777
President of TDS Telecommunications 1996 295,512 100,000 -- -- 35,214
Corporation 1995 267,500 100,000 -- -- 33,274

H. Donald Nelson(7) .................. 1997 $ 337,709 $ 135,000 $ 254,837 25,178 $ 34,468
President of United States Cellular 1996 306,672 145,000 -- 8,560 26,748
Corporation 1995 274,712 140,180 -- 9,736 31,803

Donald W. Warkentin(8) ............... 1997 $ 283,011 $ 109,300 -- 255,112 $ 24,817
President of Aerial Communications, 1996 238,996 264,372 -- 9,526 12,682
Inc. 1995 103,788 56,000 -- 19,500 95,411
</TABLE>

- ---------

(1) Does not include the discount amount under any dividend reinvestment plan or
any employee stock purchase plan since such plans are generally available to
all eligible shareholders or salaried employees, respectively. Does not
include the value of any perquisites and other personal benefits, securities
or property, since the aggregate amount of such compensation is less than
the lesser of either $50,000 or 10% of the total of annual salary and bonus
reported for the named executive officers above.

(2) Represents the dollar value of base salary (cash and non-cash) earned by the
named executive officer during the fiscal year identified.

(3) Represents the dollar value of bonus (cash and non-cash) earned by the named
executive officer for 1996 and 1995. Final bonuses for 1997 have not yet
been determined for Messrs. LeRoy T. Carlson, LeRoy T. Carlson, Jr., and
James Barr. The amounts listed above for such persons include partial
advances of the 1997 bonus. See "Executive Officer Compensation Report."

(4) Represents the value of bonus stock and restricted stock (based on the
closing price of USM Common Shares on the date of grant) awarded to Mr.
Nelson in 1997.

(5) Represents the number of shares subject to stock options ("Options") and/or
stock appreciation rights ("SARs") awarded during the fiscal year
identified. Unless otherwise indicated by footnote, the awards represent
Options without tandem SARs and relate to TDS Common Shares. In the case of
H. Donald Nelson, the amounts represent the number of USM shares subject to
Options and/or SARs awarded during the fiscal year identified. In the case
of Donald W. Warkentin, the amounts for 1995 and 1996 represent TDS Common
Shares subject to Options and the amount in 1997 represents AERL Common
Shares subject to Options.

-9-
<PAGE>
(6) Includes contributions by the Company for the benefit of the named executive
officer under the TDS Tax-Deferred Savings Plan ("TDSP"), the TDS Employees'
Pension Trust or the TDS Wireless Companies' Pension Plan ("Pension Plan"),
including earnings accrued under a related supplemental benefit agreement,
and the TDS Supplemental Executive Retirement Plan ("SERP"), and the taxable
dollar value of any insurance premiums paid during the covered fiscal year
with respect to term life insurance for the benefit of the named executive
("Life Insurance"), as indicated below for 1997:

<TABLE>
<CAPTION>
LEROY T. CARLSON, JAMES BARR
LEROY T. CARLSON JR. MURRAY L. SWANSON III H. DONALD NELSON DONALD W. WARKENTIN
---------------- ------------------- ------------------ ------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
TDSP.............. $ 1,900 $ 1,900 $ 1,900 $ 1,900 $ 3,166 $ 3,166
Pension Plan...... 22,755 5,964 8,302 15,394 7,638 7,638
SERP.............. 30,000 12,546 18,016 14,606 19,852 13,563
Life Insurance.... 13,301 2,484 3,562 2,877 3,812 450
-------- -------- -------- ------------- -------- --------
Total......... $ 67,956 $ 22,894 $ 31,780 $ 34,777 $ 34,468 $ 24,817
-------- -------- -------- ------------- -------- --------
-------- -------- -------- ------------- -------- --------
</TABLE>

(7) All of Mr. Nelson's compensation is paid by USM. Mr. Nelson's annual
compensation is approved by LeRoy T. Carlson, Jr., the Chairman of USM, and
Mr. Nelson's long-term compensation is approved by the stock option
compensation committee of USM.

(8) Mr. Warkentin was originally hired by TDS in 1995 but is now an employee of
AERL. As an employee of AERL, Mr. Warkentin's annual compensation is
approved by LeRoy T. Carlson, Jr., the Chairman of AERL, and Mr. Warkentin's
long-term compensation is approved by the stock option compensation
committee of AERL. Mr. Warkentin's 1996 bonus includes a $150,000 signing
bonus on his one-year anniversary date of his employment by AERL. "All Other
Compensation" for Mr. Warkentin in 1995 includes the reimbursement of moving
expenses of $95,411, related to his relocation to Chicago to serve as
President of AERL.

GENERAL INFORMATION REGARDING OPTIONS AND SARS

The following tables show, as to the executive officers who are named in the
Summary Compensation Table, information regarding Options and/or SARs.

INDIVIDUAL OPTION/SAR GRANTS IN 1997

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS/ SARS FOR OPTION TERMS(4)
OPTIONS/SARS GRANTED TO EXERCISE MARKET EXPIRATION --------------------------
NAME GRANTED(1) EMPLOYEES(2) PRICE PRICE(3) DATE 5% 10%
- ---------------------------------- ------------- --------------- --------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
LeRoy T. Carlson(5)............... 8,295 12.2% $ 37.77 $ 37.77 12/15/07 $ 212,964 $ 549,612

LeRoy T. Carlson, Jr.(5).......... 11,770 17.3% $ 37.77 $ 37.77 12/15/07 $ 302,180 $ 779,859

Murray L. Swanson(5).............. 4,279 6.3% $ 37.77 $ 37.77 12/15/07 $ 109,858 $ 283,519

H. Donald Nelson(6)............... 8,178 $ 24.48 $ 24.48 05/01/07 $ 125,903 $ 319,063
(7)............... 17,000 $ 25.25 $ 25.25 05/14/07 269,953 684,114
------------- ----------- -------------
Total Mr. Nelson.............. 25,178 13.8% $ 395,856 $ 1,003,177
------------- ----------- -------------
------------- ----------- -------------

Donald W. Warkentin(8)............ 106,883 $ 17.00 $ 6.38 04/18/06 $ -- $ --
(9)............. 104,500 $ 9.74 $ 7.38 04/18/06 192,565 842,427
(10)............ 43,729 $ 4.94 $ 4.88 12/15/07 142,051 370,511
------------- ----------- -------------
Total Mr. Warkentin(11)....... 255,112 17.6% $ 334,616 $ 1,212,938
------------- ----------- -------------
------------- ----------- -------------
</TABLE>

- ---------

(1) Represents the number of TDS shares underlying Options awarded during the
year, except in the case of H. Donald Nelson, in which case the amount
represents the number of USM shares underlying Options/SARs awarded during
the fiscal year, and in the case of Donald W. Warkentin, in which case the
amount represents the number of AERL shares underlying Options/SARs awarded
during the fiscal year.

(2) Represents the percent of total TDS shares underlying Options awarded to
all TDS employees during the fiscal year, except for H. Donald Nelson, in
which case the percentage represents the percent of total USM

-10-
<PAGE>
shares underlying the total Options awarded to all USM employees during the
fiscal year, and in the case of Donald W. Warkentin, in which case the
percentage represents the percent of total AERL shares underlying the total
Options awarded to all AERL employees during the fiscal year.

(3) Represents the fair market value of shares as of the award date.

(4) Represents the potential realizable value of each grant of Options,
assuming that the market price of the shares underlying the Options
appreciates in value from the award date to the end of the Option term at
the indicated annualized rates.

(5) Pursuant to the Company's 1994 Long-Term Incentive Plan, on May 1, 1997,
such named executive officers were granted options (the "Performance
Options") to purchase Common Shares based on the achievement of certain
levels of corporate and individual performance in 1996 as contemplated by
the 1994 Long-Term Incentive Plan. The purchase price per Common Share
subject to the Performance Options is the average of the closing price of
the Common Shares on the American Stock Exchange for the 20 trading days
ended on the trading day immediately preceding April 30, 1997. The
Performance Options became exercisable on December 15, 1997.

(6) The USM 1996 Performance Options were awarded to Mr. Nelson under the USM
1994 Long Term Incentive Plan as of May 1, 1997 and became exercisable on
December 15, 1997.

(7) The USM 1997 Automatic Options become exercisable in annual increments of
20% on March 31 of each year beginning in 1998 and ending in 2002, and are
exercisable until May 14, 2007 at the exercise price of $25.25.

(8) Such AERL Options were granted at AERL's initial public offering price of
$17.00 per share. They are immediately exercisable with respect to 21,377
AERL Common Shares, and become exercisable with respect to an additional
21,377 AERL Common Shares on each of December 15, 1997, 1998, 1999 and
2000, and expire on April 18, 2006.

(9) Such AERL Supplemental Options became immediately exercisable with respect
to 20,900 AERL Common Shares on January 23, 1997, and become exercisable
with respect to an additional 20,900 AERL Common Shares on each of December
15, 1997, 1998, 1999 and 2000, and expire on April 18, 2006.

(10) Such AERL Options became exercisable on December 15, 1997, and are
exercisable until December 15, 2007, at the exercise price of $4.94 per
share.

(11) In addition, Mr. Warkentin received an adjustment to the number of TDS
shares subject to options granted under the TDS 1994 Long-Term Incentive
Plan with respect to 1995 performance. Mr. Warkentin received an option
for an additional 813 TDS shares, for a total of 9,526 TDS shares subject
to options for 1995 performance at an exercise price of $47.60 per share.

Mr. Barr did not receive any option grants in 1997.

-11-
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN 1997, AND DECEMBER 31, 1997 OPTION/SAR VALUE
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
---------------------------------------
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
1997 UNDERLYING UNEXERCISED IN-THE-MONEY
------------------------------ OPTIONS/SARS(3) OPTIONS/SARS(4)
SHARES ACQUIRED VALUE -------------------------- -----------
NAME ON EXERCISE(1) REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE
- ------------ ----------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
LeRoy T.
Carlson... 1996 Performance Options(5)..... 8,295 -- $ 72,913
1995 Performance Options(6)..... 9,367 -- --
1994 Performance Options(7)..... 9,476 -- 79,977
1994 Automatic Options(8)....... 28,840 7,210 --
----------- ------------- -----------
Total....................... 55,978 7,210 $ 152,890
----------- ------------- -----------
----------- ------------- -----------
LeRoy T.
Carlson,
Jr........ 1996 Performance Options(5)..... 11,770 -- $ 103,458
1995 Performance Options(6)..... 13,233 -- --
1994 Performance Options(7)..... 13,114 -- 110,682
1994 Automatic Options(8)....... 37,680 9,420 --
1988 Options(9)................. 76,500 12,750 2,444,175
----------- ------------- -----------
Total....................... 152,297 22,170 $2,658,315
----------- ------------- -----------
----------- ------------- -----------
Murray L.
Swanson... 1996 Performance Options(5)..... 4,279 -- $ 37,612
1995 Performance Options(6)..... 4,899 -- --
1994 Automatic Options(7)....... 4,563 -- 38,512
1994 Performance Options(8)..... 14,800 3,700 --
1987 Options(10)................ 3,375 $ 106,954 -- -- --
----------- ------------- -----------
Total....................... 28,541 3,700 $ 76,124
----------- ------------- -----------
----------- ------------- -----------
James Barr
III....... 1990 Options(11)................ 14,000 6,000 $ 91,840
----------- ------------- -----------
----------- ------------- -----------
H. Donald USM 1997 Automatic
Nelson.... Options(12)..................... 17,000 $ --
USM 1996 Performance
Options(13)..................... 8,178 -- 53,321
USM 1995 Performance
Options(14)..................... 7,960 -- --
USM 1994 Performance
Options(15)..................... 9,136 -- 15,257
USM 1994 Automatic
Options(16)..................... 22,560 5,640 --
USM 1991 Options(17)............ 10,238 $ 146,711 -- -- --
USM SARs(18).................... 21,600 14,400 345,600
----------- ------------- -----------
Total........................... 69,434 37,040 $ 414,178
----------- ------------- -----------
----------- ------------- -----------

Donald W. TDS 1995 Performance
Warkentin.. Options(6)...................... 9,526 -- $ --
TDS 1995 Automatic
Options(19)..................... 19,500 -- 182,520
----------- ------------- -----------
Total TDS Options............... 29,026 -- $ 182,520
----------- ------------- -----------
----------- ------------- -----------
AERL IPO Options(20)............ 42,753 64,130 $ --
AERL Supplemental Options(21)... 41,800 62,700 --
AERL 1996 Performance
Options(22)..................... 43,729 -- 103,747
----------- ------------- -----------
Total AERL Options.......... 128,282 126,830 $ 103,747
----------- ------------- -----------
----------- ------------- -----------

NAME UNEXERCISABLE
- ------------ -------------
<S> <C>
LeRoy T.
Carlson... $ --
--
--
--
-------------
$ --
-------------
-------------
LeRoy T.
Carlson,
Jr........ $ --
--
--
--
407,363
-------------
$ 407,363
-------------
-------------
Murray L.
Swanson... $ --
--
--
--
--
-------------
$ --
-------------
-------------
James Barr
III....... $ 39,360
-------------
-------------
H. Donald
Nelson.... $ 97,750

--
--
230,400
-------------
$ 328,150
-------------
-------------
Donald W.
Warkentin.. $ --

--
-------------
$ --
-------------
-------------
$ --
--

--
-------------
$ --
-------------
-------------
</TABLE>

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

(1) Represents the number of TDS Common Shares with respect to which the
Options or SARs were exercised.

(2) Represents the aggregate dollar value realized upon exercise, based on the
difference between the exercise price and the average of the high and low
price of the shares on the date of exercise.

(3) Represents the number of TDS Common Shares subject to Options and/or SARs,
except for H. Donald Nelson, in which case the information is presented
with respect to USM shares, and for Donald W. Warkentin, in which case the
information is presented with respect to TDS shares and AERL shares, as
indicated.

(4) Represents the aggregate dollar value of in-the-money, unexercised Options
and SARs held at the end of the fiscal year, based on the difference
between the exercise price and $46.56, the market value of TDS Common
Shares on December 31, 1997 or, with respect to Options for USM shares,
$31.00, the market value of USM Common Shares on December 31, 1997 or, with
respect to Options for AERL shares, $7.31, the market value of AERL Common
Shares on December 31, 1997.

(5) Such options became exercisable on December 15, 1997 and are exercisable
until December 15, 2007 at the exercise price of $37.77 per share.

(6) Such options became exercisable on December 15, 1996 and are exercisable
until December 15, 2006 at the exercise price of $47.60 per share.

(7) Such options became exercisable on December 15, 1995, and are exercisable
until May 1, 2005 at the exercise price of $38.12 per share.

(8) Such options become exercisable in annual increments of 20% on each of
December 15, 1995 and on the first through the fourth anniversaries of such
date, and are exercisable until November 4, 2004 at the exercise price of
$47.59 per share.

-12-
<PAGE>
(9) Options for a total of 127,500 shares were granted on March 14, 1988 to
become exercisable with respect to 12,750 shares on March 14 of each year
between 1989 through 1998. Options for a total of 38,250 shares have been
exercised prior to 1996. The unexercised 1988 Options are exercisable until
March 14, 1999 at the exercise price of $14.61 per share.

(10) Options for a total of 33,750 shares were granted on February 15, 1987, to
become exercisable with respect to 3,375 shares on February 25 of each
year between 1988 through 1997. Options for a total of 30,375 shares were
exercised prior to 1997. Options for 3,375 shares were exercised in 1997.
The value realized is equal to the product of the number of shares
exercised and the difference between the exercise price of $8.31 and
$40.00, the fair market value of the Common Shares on March 24, 1997, the
exercise date.

(11) The 1990 Options were granted on January 15, 1990 to become exercisable
with respect to 2,000 shares on January 15 of each year between 1991
through 2000, and are exercisable until January 15, 2001 at the exercise
price of $40.00 per share.

(12) The USM 1997 Automatic Options become exercisable in annual increments of
20% on March 31 of each year beginning in 1998 and ending in 2002, and are
exercisable until May 14, 2007 at the exercise price of $25.25.

(13) USM 1996 Performance Options became exercisable on December 15, 1997 and
are exercisable until May 1, 2007 at the exercise price of $24.48.

(14) The USM 1995 Performance Options became exercisable on December 15, 1996
and are exercisable until May 1, 2006 at the exercise price of $34.60 per
share.

(15) The USM 1994 Performance Options became exercisable on December 15, 1995
and are exercisable until May 1, 2005 at the exercise price of $29.33 per
share.

(16) The USM 1994 Automatic Options become exercisable in annual increments of
20% on each of December 15, 1994, and on the first through the fourth
anniversaries of such date, and are exercisable until November 9, 2004 at
the exercise price of $32.25 per share.

(17) The USM 1991 Options are exercisable until November 1, 1997 at the
exercise price of $15.67 per share. All 1991 options were exercised in
1997.

(18) The USM SARs were granted in 1988 and are exercisable at the exercise
price of $15.00 per share.

(19) In 1995, Mr. Warkentin was awarded options for 32,500 TDS Common Shares at
an exercise price of $37.20. Such options were originally scheduled to
become exercisable with respect to 6,500 TDS Common Shares on December 15
of 1995, 1996, 1997, 1998 and 1999. However, in February 1997, in partial
consideration for the grant of options for 106,883 AERL Common Shares at
an exercise price equal to AERL's initial public offering price of $17.00
per share, Mr. Warkentin agreed to the cancellation of options with
respect to a total of 13,000 TDS Common Shares which would have become
exercisable on December 15, 1998 and 1999.

(20) As discussed in note (19) above, the AERL IPO Options were granted at
AERL's initial public offering price of $17.00 per share. They are
immediately exercisable with respect to 21,377 AERL Common Shares, and
become exercisable with respect to an additional 21,377 AERL Common Shares
on each of December 15, 1997, 1998, 1999 and 2000, and expire on April 18,
2006.

(21) The AERL Supplemental Options were granted at an exercise price of $9.74
per share. Such options became immediately exercisable with respect to
20,900 AERL Common Shares on January 23, 1997, and become exercisable with
respect to an additional 20,900 AERL Common Shares on each of December 15,
1997, 1998, 1999 and 2000, and expire on April 18, 2006.

(22) The AERL 1996 Performance Options became exercisable on December 15, 1997,
and are exercisable until December 15, 2007, at the exercise price of
$4.94 per share.

TDS TELECOM PHANTOM INCENTIVE OPTION PLAN

Mr. James Barr III participates in the TDS Telecommunications Corporation
Phantom Stock Incentive Plan (the "TDS Telecom Plan"). The TDS Telecom Plan was
adopted by TDS Telecom in 1997 and relates to the five-year period beginning on
January 1, 1995. Under the TDS Telecom Plan, Mr. Barr was awarded certain
phantom stock units by the Chairman of TDS Telecom. The award consists of
automatic awards and performance awards. The automatic awards vest in five equal
annual installments beginning on December 15, 1995. The performance awards
include a corporate performance award and an individual performance award. The
performance awards vest on December 15 of the year following the performance
year to which they relate. When vested, the phantom stock option units may be
exercised at an exercise price determined in accordance with the terms of the
plan. Upon exercise of the phantom stock units, Mr. Barr will receive a cash
payment equal to the difference between the exercise price and the implied value
of the phantom stock unit as provided in the TDS Telecom Plan.

-13-
<PAGE>
The following table summarizes the award of options for phantom stock units
to Mr. Barr in 1997:

TDS TELECOM PHANTOM STOCK PLAN--AWARDS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS(3)
NUMBER OF SHARES, PERFORMANCE OR OTHER -----------------------------------
UNITS OR OTHER PERIOD UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME RIGHTS(1) OR PAYOUT(2) (#) (#) (#)
- ------------------------------------------------- ----------------- ----------------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
James Barr III................................... 39,217 1995 22,558 45,116 67,674
45,185 1996 22,558 45,116 67,674
22,558 1997 22,558 45,116 67,674
22,558 1998 22,558 45,116 67,674
22,558 1999 22,558 45,116 67,674
</TABLE>

- ---------

(1) For 1995 and 1996, represents the actual number of automatic and performance
phantom stock units which were awarded for such years. For 1997, 1998 and
1999, represents the minimum number of automatic phantom stock option units
which will become exercisable. In 1998, Mr. Barr exercised options for an
aggregate of 106,960 phantom stock units for 1995, 1996 and 1997, and
received a net cash payment, prior to withholding taxes, of $327,410.

(2) Represents the fiscal year to which such phantom stock units relate.

(3) The minimum threshold number (representing the automatic options) vests on
December 15 of the year to which the award relates, and the additional units
which may be awarded at target or maximum performance (representing
performance options) vest on December 15 of the year following the
performance year to which the award relates. All phantom stock unit options
expire on July 1, 2003.

Upon the effectiveness of the initial public offering of TDS
Telecommunications Group Common Shares ("Telecom Group Shares"), it is expected
that Mr. Barr's rights under the TDS Telecom Plan will be converted into options
for Telecom Group Shares.

-14-
<PAGE>
PENSION PLANS AND SUPPLEMENTAL BENEFIT AGREEMENTS

The Telephone and Data Systems, Inc. Employees' Pension Trust (the "TDS
Pension Plan") is a defined contribution plan designed to provide retirement
benefits for eligible employees of the Company and certain of its affiliates
which adopt the TDS Pension Plan. Annual employer contributions based upon
actuarial assumptions are made under a formula designed to fund a target pension
benefit for each participant commencing generally upon the participant's
attainment of retirement age. The amounts of the annual contributions are
included above in the Summary Compensation Table under "All Other Compensation."

USM and AERL have adopted the Telephone and Data Systems, Inc. Wireless
Companies' Pension Plan (the "Wireless Pension Plan"). The Wireless Pension
Plan, a qualified non-contributory defined contribution pension plan, provides
pension benefits for USM and AERL employees. Under the Wireless Pension Plan,
pension costs are calculated separately for each participant and are funded
currently. The amount of the annual contribution for Messrs. H. Donald Nelson
and Donald W. Warkentin are included above in the Summary Compensation Table
under "All Other Compensation."

The TDS Supplemental Executive Retirement Plan ("SERP") provides
supplemental benefits under the TDS Pension Plan and the Wireless Pension Plan.
The SERP was established to offset the reduction of benefits caused by the
limitation on annual employee compensation under the Code. The SERP is a
non-qualified deferred compensation plan and is intended to be unfunded. The
amounts of the accruals for the benefit of the named executive officers are
included above in the Summary Compensation Table under "All Other Compensation."

In 1980, TDS entered into a non-qualified supplemental benefit agreement
with LeRoy T. Carlson which, as amended, requires TDS to pay a supplemental
retirement benefit to Mr. Carlson, in the amount of $47,567 plus interest at a
rate equal to 1/4% under the prime rate for the period from May 15, 1981 (the
date of Mr. Carlson's 65th birthday) to May 31, 1992, in five annual
installments beginning June 1, 2001, plus interest at 9 1/2% compounded
semi-annually from June 1, 1992. The agreement was entered into because certain
amendments made to the TDS Pension Plan in 1974 had the effect of reducing the
amount of retirement benefits which Mr. Carlson would receive under the TDS
Pension Plan. The payments to be made under the agreement, together with the
retirement benefits under the TDS Pension Plan, were designed to permit Mr.
Carlson to receive approximately the same retirement benefits he would have
received if the TDS Pension Plan had not been amended. All of the interest
accrued under this agreement is included above in the Summary Compensation Table
under "All Other Compensation" and identified in footnote 6 thereto as
contributions under the TDS Pension Plan.

In 1988, USM entered into a non-qualified supplemental benefit agreement
with H. Donald Nelson which requires USM to pay a supplemental retirement
benefit to Mr. Nelson. The agreement was entered into because Mr. Nelson's
employment with TDS was terminated upon the completion of the initial public
offering of USM Common Shares in 1988 and, as a result, he was no longer
eligible to participate in the TDS Pension Plan. Under the supplemental benefit
agreement, USM is obligated to pay Mr. Nelson an amount equal to the difference
between the retirement benefit he will receive from the TDS Pension Plan and
that which he would have received had he continued to work for TDS, less any
amounts which he is entitled to receive under any other qualified pension plan
(such as the Wireless Pension Plan). USM will pay any such benefit at the same
time as Mr. Nelson receives payments from the TDS Pension Plan. The actual
benefits payable to Mr. Nelson upon retirement will be based upon the facts that
exist at the time and will be determined actuarially. Since the nature of this
agreement is a defined benefit arrangement, no amounts related thereto are
included above in the Summary Compensation Table.

In 1996, AERL entered into a non-qualified supplemental benefit agreement
with Donald W. Warkentin which requires AERL to pay a supplemental retirement
benefit to Mr. Warkentin. The agreement was entered into because Mr. Warkentin's
employment with TDS was terminated as a result of the completion of the initial
public offering of AERL Common Shares in 1996 and, as a result, he was no longer
eligible to participate in the TDS Pension Plan. Under the supplemental benefit
agreement, AERL is obligated to pay Mr. Warkentin an amount equal to the
difference between the retirement benefit he will receive from the TDS Pension
Plan and that which he would have received had he continued to work for TDS,
less any amounts which he is entitled to receive under any other qualified
defined benefit or money purchase pension plan (such as the Wireless Pension
Plan). AERL will pay any such benefit at the same time as Mr. Warkentin receives
payments from the TDS Pension Plan. The actual benefits payable to Mr. Warkentin
upon retirement will be based upon the facts that exist at the time and will be
determined actuarially. Since the nature of this agreement is a defined benefit
arrangement, no amounts related thereto are included above in the Summary
Compensation Table.

-15-
<PAGE>
DEFERRED COMPENSATION AGREEMENTS

Mr. H. Donald Nelson and Mr. James Barr III are parties to Executive
Deferred Compensation Agreements, pursuant to which such persons will have a
specified percentage of gross compensation deferred and credited to a Deferred
Compensation Account. The Deferred Compensation Account will be credited with
interest compounded monthly, computed at a rate equal to one-twelfth of the sum
of the average thirty-year Treasury Bond rate plus 1.25 percentage points until
the Deferred Compensation Amount is paid to such persons.

SALARY CONTINUATION AND CONSULTING AGREEMENT

The Company has entered into an agreement with LeRoy T. Carlson whereby it
will employ Mr. Carlson until he elects to retire. Mr. Carlson is to be paid at
least $60,000 per annum until his retirement. The agreement also provides that
upon his retirement, Mr. Carlson will be retained by the Company as a part-time
consultant (for not more than 60 hours in any month) until his death or
disability. Upon his retirement, Mr. Carlson will receive $75,000 per annum as a
consultant, plus increments beginning in 1985 equal to the greater of three
percent of his consulting fee or two-thirds of the percentage increase in the
consumer price index for the Chicago metropolitan area. If Mr. Carlson becomes
disabled before retiring, the Company can elect to discontinue his employment
and retain him in accordance with the consulting arrangement described above.
Upon Mr. Carlson's death (unless his death follows his voluntary termination of
his employment or the consulting arrangement), his widow will receive until her
death an amount equal to that which Mr. Carlson would have received as a
consultant. The Company may terminate payments under the agreement if Mr.
Carlson becomes the owner of more than 21% of the stock, or becomes an officer,
director, employee or paid agent of any competitor of the Company within the
continental United States. No amounts were paid or payable under this agreement
in 1997, 1996 or 1995, and no amounts related thereto are included above in the
Summary Compensation Table.

COMPENSATION OF DIRECTORS

Effective July 23, 1996, the Board of Directors adopted a Compensation Plan
(the "Non-Employee Directors' Plan") for non-employee directors ("Non-Employee
Directors"). A Non-Employee Director is a director of the Company who is not an
employee of the Company, USM, AERL or TDS Telecom ("Affiliates"). The purpose of
the Non-Employee Directors' Plan is to provide for reasonable compensation to
non-employee directors in connection with their services to the Company, in
order to induce qualified persons to become and serve as non-employee members of
the Board of Directors.

The Non-Employee Directors' Plan provides that, effective for the twelve
month period ending at the time of the Company's 1997 annual meeting, each
Non-Employee Director will receive an annual director's fee of $24,000; and each
director of the Company who is not an employee of any Affiliate will continue to
receive a fee of $1,000, plus reimbursement of reasonable out-of-pocket expenses
incurred in connection with travel, for attendance at each regularly scheduled
or special meeting of the Board of Directors. The Non-Employee Directors' Plan
also provides that, effective as of July 23, 1996, each director of the Company
who is not an employee of any Affiliate will receive a fee of $750, plus
reimbursement of reasonable out-of-pocket expenses incurred in connection with
travel, for attendance at each meeting of the Audit Committee, Stock Option
Compensation Committee, or other committee established by resolution of the
Board of Directors.

Under the Non-Employee Directors' Plan, an amount equal to 50% of the annual
director's fee will be paid immediately prior to the Company's Annual Meeting of
Shareholders by the delivery of Common Shares of the Company having a fair
market value as of the date of payment equal to such percentage of the annual
fee. In addition, under the Non-Employee Directors' Plan, an amount equal to 33%
of each committee meeting fee will be accumulated and paid immediately prior to
the Company's Annual Meeting of Shareholders by the delivery of Common Shares of
the Company having a fair market value as of the date of payment equal to such
percentage of such fee. The Company has reserved 15,000 Common Shares of the
Company for issuance pursuant to the Non-Employer Director's Plan.

Donald C. Nebergall, a director of the Company, also received $15,485 as a
bonus and $152,800 for consulting services provided to the Company and was
reimbursed for out-of-pocket expenses incurred in connection with such services
in 1997.

In addition, the Company pays life insurance premiums on behalf of
directors. Except for such life insurance premiums, directors who are also
employees of the Company or any Affiliate do not receive any additional
compensation for services rendered as directors.

-16-
<PAGE>
EXECUTIVE OFFICER COMPENSATION REPORT

This report is submitted by LeRoy T. Carlson, Jr., President, who serves as
the Compensation Committee of the Board of Directors for all executive officers
of the Company other than the President, and by the TDS Stock Option
Compensation Committee of the Board of Directors, which approves all
compensation for the President and approves long-term compensation to executive
officers who are employees of the Company. Long-term compensation for H. Donald
Nelson is approved by the stock option compensation committee of USM (as
described in its report in the proxy statement of USM), and long-term
compensation for Donald W. Warkentin is approved by the stock option
compensation committee of AERL (as described in its report in the proxy
statement of AERL).

The Company's compensation policies for executive officers are intended to
provide incentives for the achievement of corporate and individual performance
goals and to provide compensation consistent with the financial performance of
the Company. The Company's policies are based on the belief that the incentive
compensation performance goals for executive officers should be based on factors
over which such officers have control and which are important to the Company's
long-term success. It is also believed that compensation paid should be
appropriate in relation to the financial performance of the Company and should
be sufficient to enable the Company to attract and retain individuals possessing
the talents required for the Company's long-term successful performance.

Executive compensation consists of both annual and long-term compensation.
Annual compensation consists of a base salary and an annual bonus. The Company
evaluates the annual compensation of each executive officer on an aggregate
basis by combining the base salary and bonus, and also evaluates the level of
the base salary and the bonus separately. Annual compensation decisions are
based partly on individual and corporate short-term performance and partly on
the individual and corporate cumulative long-term performance during the
executive's tenure in his position, particularly with regard to the President
(chief executive officer). Long-term compensation is intended to compensate
executives primarily for their contributions to long-term increases in
shareholder value. Long-term compensation is generally provided through the
grant of stock options.

The process of determining base salary begins with establishing an
appropriate salary range for each officer. Each officer's range is based upon
the particular duties and responsibilities of the officer, as well as salaries
for comparable positions with other companies. These other companies include the
companies included in the peer group index described below under "Stock
Performance Chart", as well as other companies in the telecommunications
industry and other industries with similar characteristics, to the extent
considered appropriate in the judgment of the President, based on similar size,
function, geography or otherwise. No written or formal list of specific
companies is prepared. Instead, as discussed below, the President is provided
with various sources of information about executive compensation at other
companies, such as compensation reported in proxy statements of comparable
companies and salary surveys published by various organizations. The President
uses these sources and makes a personal determination of appropriate sources,
companies and ranges for each executive officer. The base salary of each officer
is set within a range considered appropriate in the judgment of the President
based on an assessment of the particular responsibilities and performance of
such officer, taking into account the performance of the Company and/or its
business units or divisions, other comparable companies, the industry and the
economy in general during the immediately preceding year. The President makes a
personal determination of the appropriate range based on the total mix of
information available to him. The range considered to be relevant by the
President is based on his informed judgment, using the information provided to
him by the Vice President of Human Resources, as discussed below. The range is
not based on any formal analysis nor is there any documentation of the range
which the President considers relevant in making his compensation decisions. The
salary of the executive officers is believed to be at slightly above the median
of the range considered to be relevant in the judgment of the President.

Annually, the nature and extent of each executive officer's major
accomplishments and contributions for the year are determined through written
information prepared by the executive and by others familiar with his
performance, including the executive's direct supervisor. With regard to all
executive officers other than the President, the President evaluates the
information in terms of the personal objectives given by the President or other
direct supervisor to such executive officer for the performance appraisal
period. The President also makes an assessment of how well the Company did as a
whole during the year and the extent to which the President believes the
executive officer contributed to the results. With respect to executive officers
having primary responsibility over a certain business unit or division of the
Company, the President considers the performance of the business unit or
division and makes an assessment of the contribution of the executive officer
thereto. No specific measures of performance are considered determinative in the
compensation of executive officers. Instead, all of the facts and

-17-
<PAGE>
circumstances are taken into consideration by the President in his executive
compensation decisions. Ultimately, it is the informed judgment of the President
that determines an executive's salary and bonus, this being based on the total
mix of information rather than on any specific measures of performance.

The primary focus of the Company is increasing long-term shareholder value
through growth, measured primarily in such terms as revenues, customer units in
service, operating cash flow (operating income plus depreciation and
amortization) and operating income. However, there is no quantifiable or direct
relationship between compensation and such or any other measures of performance.
Instead, such compensation decisions are made subjectively considering such
performance measures, as well as all other facts and circumstances in general
terms.

Other than for the President of TDS, the President of TDS approves annual
compensation for executive officers of TDS and each of its business units or
divisions. The Vice President--Human Resources accumulates and prepares various
materials, including relevant base pay and bonus information, for the annual
compensation reviews of executive officers. These materials are reviewed by the
President along with various performance evaluation information. The President
will determine the bonus for 1997 and base salary for 1998 for all executives
other than himself. The Company has no written or formal corporate bonus plan.
The bonuses for corporate executive officers are determined by the President
based on his evaluation of each executive's contribution to the Company, the
achievement of individual objectives, the performance of the Company and/or its
business units and divisions and all other facts and circumstances considered
relevant in his judgment. The President has not yet taken action to approve the
final 1997 bonuses and/or the 1998 base salaries for certain of these
executives. Due to the fact that certain 1997 bonuses had not been determined as
of the end of 1997, the President approved advance bonus payments for 1997 to
certain executive officers, other than the President of TDS. The final amounts
or partial advances approved for the named executives are listed above in the
Summary Compensation Table.

The annual compensation of the President (chief executive officer) of the
Company is proposed by the President to the Stock Option Compensation Committee
of the Board of Directors, and approved or adjusted by the Stock Option
Compensation Committee. In addition to the factors described above for all
executive officers in general, the Vice President--Human Resources prepares an
analysis of compensation paid to chief executive officers of other comparable
companies. These other companies include the companies included in the peer
group index described below under "Stock Performance Chart", as well as other
companies in the telecommunications industry and other industries with similar
characteristics, to the extent considered appropriate in the judgment of the
President, based on similar size, function, geography or otherwise. This
information is presented to the President who recommends a base salary and bonus
level for himself. The Stock Option Compensation Committee approves the final
base salary and bonus of the President based on the recommendation of the
President. The Stock Option Compensation Committee approved a 1996 bonus of
$250,000 for the President, and increased his 1997 base salary to $515,000,
representing an increase of $75,000 or 17% over his base salary of $440,000 in
1996. The Stock Option Compensation Committee has not yet approved the
President's bonus for 1997, or the President's base salary for 1998.

As with the other executive officers, the compensation of the President is
based on all facts and circumstances and the total mix of information rather
than related to any specific measures of performance. The Stock Option
Compensation Committee has access to numerous performance measures and financial
statistics prepared by the Company's financial personnel. This financial
information includes the audited financial statements of the Company, as well as
internal financial statements such as budgets and their results, operating
statistics and various analyses. The Stock Option Compensation Committee is not
limited in its analysis to the information presented to it by the President or
available from financial personnel, and may consider other factual or subjective
factors as the members of such committee deem appropriate in their compensation
decisions. No specific measures of performance are considered determinative in
the compensation of the President. Instead, all of the facts and circumstances
are taken into consideration by the Stock Option Compensation Committee in its
executive compensation decisions. Ultimately, it is the informed judgment of the
Stock Option Compensation Committee, based on the recommendation of the
President, that determines the salary and bonus for the President, this being
based on the total mix of information rather than on any specific measures of
performance.

As discussed above for the other executive officers, the primary focus of
the Company is increasing long-term shareholder value through growth, measured
primarily in such terms as revenues, customer units in service, operating cash
flow (operating income plus depreciation and amortization ) and operating
income. However, as discussed above, there is no quantifiable or direct
relationship between compensation and such or any other measures of performance.
Instead, such compensation decisions are made subjectively considering such
performance measurers, as well as all other facts and circumstances in general
terms.

-18-
<PAGE>
The Stock Option Compensation Committee believes that the annual total base
salary and bonus compensation of the President has been set at a level less than
an average level for equally responsible executives at companies which it
considers comparable. The members of the Stock Option Compensation Committee
base this belief on their personal assessment and judgment of the President's
responsibilities in comparison to the chief executive officers and chief
operating officers of the companies included in the peer group index described
below under "Stock Performance Chart", as well as other companies in the
telecommunications industry and other industries with similar characteristics,
based on the information prepared by the Vice President of Human Resources, as
discussed above. The President has a substantial beneficial interest in the
Company, as described below under "Security Ownership of Management", and will
benefit together with other shareholders based on the performance of the
Company. The Stock Option Compensation Committee considers this an important
fact in connection with its review and approval or adjustment of the salary and
bonus recommended by the President for himself.

At such time as the President approves the 1997 bonuses and 1998 salaries
for executive officers, and recommends the 1997 bonus and 1998 salary for
himself, he may also recommend to the Stock Option Compensation Committee
long-term compensation in the form of additional stock option grants, stock
appreciation rights or otherwise for executive officers and himself. The
long-term compensation decisions for executive officers will be made by the
Stock Option Compensation Committee in a manner similar to that described for
annual base salary and bonus decisions, except that the stock options will
generally vest over several years in a manner which will reflect the goal of
relating the long-term compensation of the executive officers, including the
President, to increases in shareholder value over the same period.

The performance of the Company also bears upon the number of stock options
which will become awarded and exercisable with respect to the executive
officers. As indicated under the table "Individual Option/SAR Grants in 1997",
certain named executive officers received an award in 1997 of Performance
Options based on the achievement of certain levels of corporate and individual
performance in 1996.

SECTION 162(M) OF THE CODE. Section 162(m) of the Code generally limits to
$1 million the amount that a publicly held corporation is allowed each year to
deduct for the compensation paid to each of the corporation's chief executive
officer and the corporation's four most highly compensated officers other than
the chief executive officer, subject to certain exceptions. For various reasons,
the Company does not believe that the $1 million deduction limitation should
have a material effect on the Company in the immediate future. If the $1 million
deduction limitation is expected to have a material effect on the Company in the
future, the Company will consider ways to maximize the deductibility of
executive compensation, while retaining the discretion the Company deems
necessary to compensate executive officers in a manner commensurate with
performance and the competitive environment for executive talent.

This Executive Officer Compensation Report is submitted by LeRoy T. Carlson,
Jr., sole member of the Compensation Committee; and by the Stock Option
Compensation Committee: George W. Off (Chairman) and Letitia G.C. Carlson.

-19-
<PAGE>
STOCK PERFORMANCE CHART

The following chart graphs the performance of the cumulative total return to
shareholders (stock price appreciation plus dividends) during the previous five
years in comparison to returns of the Standard & Poor's 500 Composite Stock
Price Index and a peer group index. The peer group index was constructed
specifically for the Company and includes the following companies: 360
Communications Co., AirTouch Communications, Inc., Aliant Communications, Inc.,
ALLTEL Corp., Centennial Cellular CP (Class A), Century Telephone Enterprises,
Inc., Frontier Corp., Vanguard Cellular Systems (Class A) and TDS. In
calculating the peer group index, the returns of each company in the group have
been weighted according to such company's market capitalization at the beginning
of the period.

COMPARATIVE FIVE-YEAR TOTAL RETURNS*
TDS, S&P 500, PEER GROUP
(PERFORMANCE RESULTS THROUGH 12/31/97)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
TDS S&P 500 PEER GROUP
<S> <C> <C> <C>
1992 $100.00 $100.00 $100.00
1993 $129.26 $110.08 $123.45
1994 $115.38 $111.53 $135.48
1995 $99.77 $153.45 $135.70
1996 $92.44 $188.68 $124.25
1997 $119.94 $251.63 $175.74
</TABLE>

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
TDS.................................................... $ 100.00 $ 129.26 $ 115.38 $ 99.77 $ 92.44 $ 119.94
S&P 500................................................ $ 100.00 $ 110.08 $ 111.53 $ 153.45 $ 188.68 $ 251.63
Peer Group............................................. $ 100.00 $ 123.45 $ 135.48 $ 135.70 $ 124.25 $ 175.74
</TABLE>

Assumes $100 invested at the close of trading on the last trading day
preceding the first day of the fifth preceding fiscal year in TDS Common Shares,
S&P 500, and Peer Group.

*Cumulative total return assumes reinvestment of dividends.

The TDS peer group has been changed from the prior year to reflect TDS'
significant operations and investments in the wireless industry. The TDS peer
group now includes all of the companies in the USM peer group as well as certain
other telecommunications companies which operate landline telephone businesses.
For comparison with the above-reported peer group results, if the Company had
not changed the peer group index from the peer group reported in its 1997 Notice
of Annual Meeting and Proxy Statement, the peer group results would have been as
follows:

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Former Peer Group...................................... $ 100.00 $ 122.50 $ 116.43 $ 136.52 $ 139.91 $ 175.77
</TABLE>

The former peer group index included the following companies: Aliant
Communications, Inc., ALLTEL Corp., C-TEC Corp., Century Telephone Enterprises,
Inc., Cincinnati Bell, Inc., Citizens Utilities Co. (Class A), Frontier Corp.,
Southern New England Telecommunications Corp. and TDS.

-20-
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The sole member of the Compensation Committee is LeRoy T. Carlson, Jr.,
President of TDS. The primary function of the Compensation Committee is to
approve the annual salary, bonus and other cash compensation of officers and key
employees of TDS other than the President. LeRoy T. Carlson, Jr. is a member of
the Board of Directors of TDS, USM, AERL and TDS Telecom. LeRoy T. Carlson, Jr.
is also the Chairman of USM, AERL and TDS Telecom and, as such, approves the
executive officer annual compensation decisions for USM, AERL and TDS Telecom.
LeRoy T. Carlson, Jr. is compensated by TDS for his services to TDS and all of
its subsidiaries. However, USM and AERL reimburse TDS for a portion of such
compensation pursuant to intercompany agreements between TDS and such
subsidiaries. The Stock Option Compensation Committee of the Board of Directors
of TDS makes annual compensation decisions for the President of TDS and makes
long-term compensation decisions for all executive officers who are employees of
TDS. The members of the Stock Option Compensation Committee are George W. Off
(Chairman) and Letitia G.C. Carlson. The members of the Stock Option
Compensation Committee are neither officers or employees of the Company or any
of its subsidiaries nor directors of any of the Company's subsidiaries.
Long-term compensation for executive officers who are employees of USM or AERL
are approved by the stock option compensation committees of USM and AERL
respectively. The stock option compensation committees of USM and AERL are
composed of directors of such subsidiaries who are neither officers or employees
of TDS or any of its subsidiaries nor directors of TDS.

In addition to such compensation committee interlocks and insider
participation in compensation decisions, the Company and certain related parties
are involved in the following relationships and transactions.

ISSUANCE OF TDS SHARES IN CONNECTION WITH CERTAIN ACQUISITIONS. The Company
may issue TDS securities in connection with the acquisition of cellular
interests on behalf of USM. At the time such acquisitions are closed, the
acquired cellular interests are generally transferred to USM, which reimburses
TDS by issuing USM securities to TDS or by increasing the balance due to TDS
under a revolving credit agreement between TDS and USM (the "Revolving Credit
Agreement"). The fair market value of the USM securities issued to TDS in
connection with these transactions is calculated in the same manner and over the
same time period as the fair market value of the TDS securities issued to the
sellers in such acquisitions. During 1997, USM issued 996,000 USM Common Shares
to TDS to reimburse TDS for 759,000 TDS Common Shares issued for such cellular
interests.

OTHER RELATIONSHIPS AND RELATED TRANSACTIONS. Walter C.D. Carlson, a
director of TDS, Michael G. Hron, Secretary of TDS and certain TDS subsidiaries,
William S. DeCarlo, the Assistant Secretary of TDS and certain TDS subsidiaries,
Stephen P. Fitzell, the Secretary of certain TDS subsidiaries, and Sherry S.
Treston, the Assistant Secretary of certain TDS subsidiaries, are partners of
Sidley & Austin, the principal law firm of TDS and its subsidiaries. Walter C.D.
Carlson is a trustee and beneficiary of a voting trust which controls TDS.

BENEFICIAL OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth at March 31, 1998, the number of Common
Shares and Series A Common Shares beneficially owned, and the percentage of the
outstanding shares of each such class so owned by each director and nominee for
director of the Company, by each of the executive officers named in the Summary
Compensation Table and by all directors and executive officers as a group (other
than dividend reinvestment shares issued in April 1998 for the March 1998
dividend).

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF INDIVIDUAL OR BENEFICIAL PERCENT PERCENT OF
NUMBER OF PERSONS IN GROUP TITLE OF CLASS OWNERSHIP(1) OF CLASS VOTING POWER
- ------------------------------------------- ------------------------------ ---------------------- ----------- ---------------
<S> <C> <C> <C> <C>
LeRoy T. Carlson, Jr.,
Walter C.D. Carlson,
Letitia G.C. Carlson,
Donald C. Nebergall and
Melanie J. Heald(2)........................ Series A Common Shares 6,337,187 91.4% 51.3%

LeRoy T. Carlson, Jr.,
C. Theodore Herbert
and Michael G. Hron(3)..................... Common Shares 148,876 * *
Series A Common Shares 1,008 * *
</TABLE>

-21-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF INDIVIDUAL OR BENEFICIAL PERCENT PERCENT OF
NUMBER OF PERSONS IN GROUP TITLE OF CLASS OWNERSHIP(1) OF CLASS VOTING POWER
- ------------------------------------------- ------------------------------ ---------------------- ----------- ---------------
<S> <C> <C> <C> <C>
LeRoy T. Carlson, Jr.,
C. Theodore Herbert
and Michael G. Hron(4)..................... Common Shares 142,575 * *

LeRoy T. Carlson(5)(12).................... Common Shares 62,407 * *
Series A Common Shares 51,975 * *

LeRoy T. Carlson, Jr.(6)(12)............... Common Shares 170,510 * *

Walter C.D. Carlson(7)..................... Common Shares 405 * *

Letitia G.C. Carlson(8).................... Common Shares 470 * *

Murray L. Swanson(9)(12)................... Common Shares 47,204 * *
Series A Common Shares 2,506 * *

Rudolph E. Hornacek(10)(12)................ Common Shares 22,410 * *
Series A Common Shares 1,669 * *

James Barr III(12)......................... Common Shares 19,958 * *

Donald C. Nebergall(11).................... Common Shares 1,463 * *

Donald R. Brown(9)......................... Common Shares 4,001 * *
Series A Common Shares 4,735 * *

Herbert S. Wander.......................... Common Shares 334 * *

George W. Off.............................. Common Shares 1,127 * *

Martin L. Solomon.......................... Common Shares 15,000 * *

Kevin A. Mundt............................. -- -- -- --

H. Donald Nelson........................... Common Shares 4,098 * *
Series A Common Shares 5,308 * *

Donald W. Warkentin(12).................... Common Shares 29,566 * *

All directors, director nominees and
executive officers as a group (24
persons)(12)............................... Common Shares 863,749 1.6% *
Series A Common Shares 6,424,580 92.6% 52.0%
</TABLE>

- ---------

* Less than 1%

(1) The nature of beneficial ownership for shares in this column is sole voting
and investment power, except as otherwise set forth in these footnotes.

(2) The shares listed are held by the persons named as trustees under a voting
trust which expires June 30, 2009, created to facilitate longstanding
relationships among the trust certificate holders. Under the terms of the
voting trust, the trustees hold and vote the Series A Common Shares held in
the trust. If the voting trust were terminated, the following persons would
each be deemed to own beneficially more than 5% of the outstanding Series A
Common Shares: Margaret D. Carlson (wife of LeRoy T. Carlson), LeRoy T.
Carlson, Jr., Walter C.D. Carlson, Prudence E. Carlson, Letitia G.C.
Carlson (children of LeRoy T. Carlson and Margaret D. Carlson) and Donald
C. Nebergall, as trustee under certain trusts for the benefit of the heirs
of LeRoy T. and Margaret D. Carlson and an educational institution.

(3) Voting and investment control is shared by the persons named as members of
the investment management committee of the Telephone and Data Systems, Inc.
Employees' Pension Trust I and the Wireless Companies' Pension Plan. Such
members disclaim beneficial ownership of such shares, which are held for
the benefit of plan participants.

(4) Voting and investment control with respect to Company-match shares is
shared by the persons named as members of the investment management
committee of the Telephone and Data Systems, Inc. Tax-Deferred Savings
Trust. Does not include 55,125 shares acquired by trust employee
contributions for which voting and investment control is passed-through to
plan participants.

-22-
<PAGE>
(5) Includes 51,975 Series A Common Shares held by Mr. Carlson's wife. Mr.
Carlson disclaims beneficial ownership of such shares. Does not include
252,668 Series A Common Shares held for the benefit of LeRoy T. Carlson,
630,525 Series A Common Shares held for the benefit of Mr. Carlson's wife
or 50,526 Series A Common Shares held for the benefit of certain
grandchildren of Mr. Carlson (an aggregate of 933,719 shares, or 13.5% of
class) in the voting trust described in footnote (2). Beneficial ownership
is disclaimed as to Series A Common Shares held for the benefit of his wife
and grandchildren in such voting trust.

(6) Does not include 1,068,186 Series A Common Shares (15.4% of class) held in
the voting trust described in footnote (2), of which 1,037,084 shares are
held for the benefit of LeRoy T. Carlson, Jr. Beneficial ownership is
disclaimed with respect to an aggregate of 31,102 Series A Common Shares
held for the benefit of his wife, his children and others in such voting
trust.

(7) Does not include 1,087,366 Series A Common Shares (15.7% of class) held in
the voting trust described in footnote (2), of which 1,058,143 shares are
held for the benefit of Walter C.D. Carlson. Beneficial ownership is
disclaimed with respect to an aggregate of 29,223 Series A Common Shares
held for the benefit of his wife and children in such voting trust.

(8) Does not include 1,070,127 Series A Common Shares (15.4% of class) held in
the voting trust described in footnote (2), of which 1,061,477 shares are
held for the benefit of Letitia G.C. Carlson. Beneficial ownership is
disclaimed with respect to an aggregate of 8,650 Series A Common Shares
held for the benefit of her husband and child in such voting trust.

(9) Includes shares as to which voting and/or investment power is shared,
and/or shares held by spouse and/or children.

(10) Does not include Series A Common Shares held as custodian for his
children, for which beneficial ownership is disclaimed.

(11) Does not include 641,540 Series A Common Shares (9.2% of class) held as
trustee under trusts for the benefit of the heirs of LeRoy T. and Margaret
D. Carlson and an educational institution, or 31 Series A Common Shares
held for the benefit of Donald C. Nebergall, which are included in the
voting trust described in footnote (2).

(12) Includes the following number of Common Shares that may be purchased
pursuant to stock options and/or stock appreciation rights which are
currently exercisable or exercisable within 60 days: Mr. LeRoy T. Carlson,
55,978 shares; Mr. LeRoy T. Carlson, Jr., 165,047 shares; Mr. Swanson,
28,541 shares; Mr. Barr, 16,000 shares; Mr. Hornacek, 14,551 shares; Mr.
Warkentin, 29,026 shares; all other executive officers, 151,508 shares;
and all directors and officers as a group, 460,651 shares.

-23-
<PAGE>
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS

In addition to persons listed in the preceding table and the footnotes
thereto, the following table sets forth as of March 31, 1998, or the latest
practicable date, information regarding each person who is known to the Company
to beneficially own more than 5% of any class of voting securities of TDS, based
on publicly available information and the Company's stock records as of such
date. The nature of beneficial ownership in this table is sole voting and
investment power except as otherwise set forth in footnotes thereto.
<TABLE>
<CAPTION>
SHARES OF PERCENT
SHAREHOLDER'S NAME AND ADDRESS TITLE OF CLASS CLASS OWNED OF CLASS
- ---------------------------------------------------------------- -------------------- ------------- -----------
<S> <C> <C> <C>
The Equitable Companies Inc.(1)
787 Seventh Avenue
New York, New York 10019 Common Shares 10,988,100 20.4%
Franklin Mutual Advisers, Inc.(2)
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078 Common Shares 5,279,200 9.8%
Gabelli Funds, Inc.(3)
One Corporate Center
Rye, New York 10580 Common Shares 2,799,405 5.2%
William and Betty McDaniel
160 Stowell Road
Salkum, Washington 98582 Preferred Shares 46,666 16.0%
Bennet R. Miller
1212 Wea Avenue
Lafayette, Indiana 47905 Preferred Shares 30,000 10.3%
The Peterson Revocable Living Trust
Kenneth M. & Audrey M. Peterson, Trustees
108 Avocado Lane
Weslaco, Texas 78596 Preferred Shares 20,637 7.1%

<CAPTION>
PERCENT OF
SHAREHOLDER'S NAME AND ADDRESS VOTING POWER
- ---------------------------------------------------------------- -----------------
<S> <C>
The Equitable Companies Inc.(1)
787 Seventh Avenue
New York, New York 10019 8.9%
Franklin Mutual Advisers, Inc.(2)
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078 4.3%
Gabelli Funds, Inc.(3)
One Corporate Center
Rye, New York 10580 2.3%
William and Betty McDaniel
160 Stowell Road
Salkum, Washington 98582 *
Bennet R. Miller
1212 Wea Avenue
Lafayette, Indiana 47905 *
The Peterson Revocable Living Trust
Kenneth M. & Audrey M. Peterson, Trustees
108 Avocado Lane
Weslaco, Texas 78596 *
</TABLE>

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

* Less than 1%

(1) Based on the most recent Schedule 13G (Amendment No. 11) filed with the SEC.
Includes shares held by the following affiliates: The Equitable Life
Assurance Society of the United States--4,176,200 shares; Alliance Capital
Management, L.P.--6,782,543 shares; Wood, Struthers & Winthrop Management
Corp.--28,976 shares; and Donaldson Lufkin & Jenrette Securities
Corporation--381 shares. In such Schedule 13G, Equitable reported sole
voting power with respect to 5,644,753 shares, shared voting power with
respect to 5,255,600 shares, sole dispositive power with respect to
10,987,719 shares and shared dispositive power with respect to 381 shares.
Alpha Assurance I.A.R.D. Mutuelle, Alpha Assurances Vie Mutuelle, AXA
Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, Uni Europe
Assurance Mutuelle and AXA, corporations organized under the laws of France,
are affiliates of The Equitable Companies, Inc.

(2) Based on a Schedule 13D (Amendment No. 4) filed with the SEC. Such Schedule
13D reports that Franklin Mutual Advisers, Inc. exercised sole voting and
investment power with respect to all such shares. Such Schedule 13D is also
filed on behalf of Franklin Resources, Inc., the parent holding company of
Franklin Mutual Advisers, Inc., and by Charles B. Johnson and Rupert H.
Johnson, Jr., principal shareholders of such parent holding company.

(3) Based upon a Schedule 13D filed with the SEC. Includes shares held by the
following affiliates: Gabelli Funds, Inc.--810,000 shares; ALCE Partners,
L.P.--1,000 shares; GAMCO Investors, Inc.--1,969,705 shares; Gabelli Fund,
LDC--1,000 shares; Gabelli International Limited-- 10,000 shares; Gabelli
Multimedia Partners, L.P.--1,200 shares; Gemini Capital Management
Ltd.--4,000 shares; Marc J. Gabelli-- 0 shares; and Mario J. Gabelli--2,500
shares. In such Schedule 13D filing, such group has reported sole voting
power with respect to 2,724,405 shares, shared voting power with respect to
-0- shares, sole dispositive power with respect to 2,799,405 shares and
shared dispositive power with respect to -0- shares.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16 of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder require the Company's directors and officers, and
persons who are deemed to own more than ten percent of the Common Shares
(collectively, the "Reporting Persons"), to file certain reports ("Section 16
Reports") with the SEC with respect to their beneficial ownership of Common
Shares. The Reporting Persons are also required to furnish the Company with
copies of all Section 16 Reports they file.

-24-
<PAGE>
Based on a review of copies of Section 16 Reports furnished to the Company
by the Reporting Persons and written representations by directors and officers
of the Company, the Company believes that all Section 16 filing requirements
applicable to the Reporting Persons during and with respect to 1997 were
complied with on a timely basis.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See "Executive Compensation--Compensation Committee Interlocks and Insider
Participation."

PROPOSAL 2

AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION

On April 17, 1998, the Board of Directors of the Company determined to take
certain action to amend the Company's Restated Certificate of Incorporation at
the 1998 Annual Meeting of Shareholders, assuming shareholders approved the
Tracking Stock Proposal at the Special Meeting on April 27, 1998. As a result,
since the Tracking Stock Proposal was approved by shareholders on April 27,
1998, the Board of Directors is submitting a proposal to shareholders to
consider an amendment to the Restated Certificate of Incorporation of TDS
Delaware which is intended to improve certain corporate governance provisions of
the Tracking Stock Proposal (the "Amendment"). The Amendment would effect the
following three changes to the Company's Restated Certificate of Incorporation
(the "Restated Certificate"):

1. Paragraph (g) would be added to Section B.8 of Article IV of the
Restated Certificate as follows:

"(g) The Corporation shall not merge with or consolidate with any other
corporation or other entity in a transaction which requires a vote of the
stockholders of the Corporation under the DGCL unless, in addition to the
vote required by the DGCL, such merger or consolidation is also approved by
holders of a majority of the Common Shares and the Series A Common Shares,
each voting separately as a class."

The effect of the addition of the above section would be that any merger or
consolidation of the Company which requires a shareholder vote under the DGCL
will also require a class vote by a majority of the holders of the Common Shares
and Series A Common Shares, each voting separately as a class.

2. Paragraph 3 of Section A of Article IV of the Restated Certificate would
be amended to delete the references to "Common Shares" and "Series A Common
Shares" in such paragraph, as follows [deletions are shown in brackets]:

"3. The number of authorized [Common Shares, Series A Common Shares,]
Special Common Shares, Cellular Group Common Shares, Telecom Group Common
Shares, Aerial Group Common Shares or Undesignated Shares may be increased or
decreased at any time or from time-to-time (but not below the number of such
shares then outstanding in such class, respectively) by the affirmative vote of
the holders of a majority of the voting power of shares of capital stock of the
Corporation entitled to vote on all matters (not including shares entitled to
vote only in the election of directors or as otherwise required by law,
including Section 242(b)(2) of the DGCL) pursuant to paragraph 8(c) of Section B
of this Article IV."

The effect of the above referenced deletions would be that, under the DGCL,
any increase or decrease in the authorized number of Common Shares will require
a class vote by a majority of the holders of Common Shares and that any increase
or decrease in the authorized number of Series A Common Shares will require a
class vote by a majority of the holders of Series A Common Shares.

3. Paragraph (f) of Section B.17 of Article IV of the Restated Certificate,
which is repeated below in brackets, would be deleted, and paragraphs (g) and
(h) thereof would be redesignated as paragraphs (f) and (g), respectively.

[(f) In accordance with Section 203(b)(3) of the DGCL, the Corporation
expressly elects not to be governed by Section 203 of the DGCL.]

The effect of the deletion of the above referenced section would be to cause
the Company to be subject to the provisions of Section 203 of the DGCL.

Under Section 203, a corporation is prohibited from engaging in any
"business combination" (which is broadly defined in the statute) with an
"interested shareholder" (defined as a person beneficially owning 15% or more of
a corporation's voting stock) for a period of three years following the time
that the board of directors approved the transaction in which the shareholder
became an interested shareholder unless: (i) before such person became an

-25-
<PAGE>
interested shareholder, the board of directors approved the transaction in which
the shareholder became an interested shareholder; (ii) upon consummation of the
transaction which resulted in the shareholder becoming an interested
shareholder, the interested shareholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
shares owned by directors and officers or employee stock ownership plans that do
not provide for confidential voting by plan participants); or (iii) at or
following the time such person became an interested shareholder, the business
combination is approved by the board of directors and authorized at a meeting of
shareholders by the affirmative vote of holders of 66 2/3% of the outstanding
voting stock of the corporation not owned by the interested shareholder.

The foregoing description of the Amendment is qualified in its entirety by
reference to the complete terms of the Tracking Stock Proposal, including the
complete text of the Restated Certificate prior to the Amendment, which is
incorporated by reference herein from the Company's Proxy Statement/Prospectus
dated March 24, 1998, as supplemented.

The Trustees of the TDS Voting Trust intend to vote in favor of the
Amendment, subject to approval by a vote of 75% in interest of the beneficiaries
of record of the TDS Voting Trust. It is anticipated that the beneficiaries will
approve the Amendment by the requisite vote. Approval of the Amendment requires
the affirmative vote of a majority of the voting power of the capital stock of
the Company and a majority of the outstanding Series A Common Shares. Since the
TDS Voting Trust holds a majority of the voting power of all shares of capital
stock of the Company and a majority of the Series A Common Shares, the approval
of the Amendment is assured if the Trustees and at least 75% in interest of the
beneficiaries of the TDS Voting Trust vote for the Amendment.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT.

PROPOSAL 3

INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors anticipates continuing the services of Arthur
Andersen LLP as independent public accountants for the current fiscal year.
Representatives of Arthur Andersen LLP, who served as independent public
accountants for the last fiscal year, are expected to be present at the Annual
Meeting of Shareholders and will have the opportunity to make a statement and
respond to questions at the Annual Meeting.

Shareholder ratification of the selection of Arthur Andersen LLP as the
Company's independent public accountants is not required by the Bylaws or
otherwise. However, as a matter of good corporate practice, the Board of
Directors has elected to seek such ratification by the affirmative vote of the
holders of a majority of the votes cast by shares entitled to vote with respect
to such matter at the Annual Meeting. Should the shareholders fail to ratify the
selection of Arthur Andersen LLP as independent public accountants, the Board of
Directors will consider whether to retain such firm for the year ending December
31, 1998.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE SELECTION
OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY FOR THE
CURRENT FISCAL YEAR.

SHAREHOLDER PROPOSALS

Proposals of shareholders intended to be presented at the 1999 Annual
Meeting of Shareholders must be received by the Company at its principal
executive offices not later than February 10, 1999 for inclusion in the
Company's proxy statement and form of proxy relating to that meeting.

SOLICITATION OF PROXIES

Your proxy is solicited by the Board of Directors and its agents and the
cost of solicitation will be paid by the Company. Officers, directors and
regular employees of the Company, acting on its behalf, may also solicit proxies
by mail, advertisement, telephone, telegraph, in person or other methods. None
of such persons will receive additional compensation for such solicitations. The
Company has also retained MacKenzie Partners, Inc. to assist in the solicitation
of proxies for a fee of $7,500 plus reimbursement of out-of-pocket expenses. The
Company will, at its expense, request brokers and other custodians, nominees and
fiduciaries to forward proxy soliciting material to the beneficial owners of
shares held of record by such persons.

-26-
<PAGE>
FINANCIAL INFORMATION

THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997, INCLUDING THE FINANCIAL STATEMENTS
AND THE SCHEDULES THERETO, UPON THE WRITTEN OR ORAL REQUEST OF ANY SHAREHOLDER
AS OF THE RECORD DATE, AND WILL PROVIDE COPIES OF THE EXHIBITS TO ANY SUCH
DOCUMENTS UPON PAYMENT OF A REASONABLE FEE WHICH SHALL NOT EXCEED THE COMPANY'S
REASONABLE EXPENSES INCURRED THEREWITH. REQUESTS FOR SUCH MATERIALS SHOULD BE
DIRECTED TO INVESTOR RELATIONS, TELEPHONE AND DATA SYSTEMS, INC., 30 NORTH
LASALLE STREET, 40TH FLOOR, CHICAGO, ILLINOIS 60602, TELEPHONE (312) 630-1900.

OTHER BUSINESS

It is not anticipated that any action will be asked of the shareholders
other than that set forth above, but if other matters properly are brought
before the Annual Meeting, the persons named in the proxy will vote in
accordance with their best judgment.

By order of the Board of Directors

[SIGNATURE]
Michael G. Hron
SECRETARY

ALL SHAREHOLDERS ARE URGED TO SIGN, DATE AND MAIL THEIR PROXIES PROMPTLY.

-27-
<PAGE>

PROXY PROXY

PROXY FOR COMMON SHARES SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF THE SHAREHOLDERS OF
TELEPHONE AND DATA SYSTEMS, INC.
TO BE HELD ON JULY 10, 1998

The undersigned hereby appoints LeRoy T. Carlson, Jr., and Donald C.
Nebergall, or either of them acting in the absence of the other, with power
of substitution, attorneys and proxies for and in the name and place of the
undersigned, to vote the number of Common Shares that the undersigned would
be entitled to vote if then personally present at the 1998 Annual Meeting of
the Shareholders of Telephone and Data Systems, Inc., to be held on Friday,
July 10, 1998, or at any adjournment thereof, as set forth in the
accompanying Notice of Annual Meeting and Proxy Statement, receipt of which
is hereby acknowledged, as designated on the reverse side hereof.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES IN PROPOSAL
1 AND "FOR" PROPOSALS 2 AND 3.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED ON
THE REVERSE SIDE HEREOF. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" THE NOMINEES IN PROPOSAL 1 AND "FOR" PROPOSALS 2 AND 3. IF A NOMINEE
IS UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE, THE PERSONS NAMED IN
THIS PROXY SHALL HAVE DISCRETIONARY AUTHORITY TO VOTE FOR A SUBSTITUTE
NOMINEE DESIGNATED BY THE BOARD OF DIRECTORS (UNLESS AUTHORITY TO VOTE FOR
NOMINEES HAS BEEN WITHHELD).

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)

Whether or not you are able to attend the Annual Meeting of Shareholders, it
is important that your shares be represented. Accordingly, please complete
and sign the proxy card printed above, tear at the perforation, and mail the
card in the enclosed postage paid envelope addressed to Telephone and Data
Systems, Inc., c/o Harris Trust and Savings Bank.

<PAGE>

TELEPHONE AND DATA SYSTEMS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES IN PROPOSAL 1
AND "FOR" PROPOSALS 2 AND 3.

WITHHOLD FOR ALL
FOR ALL EXCEPT

1. Election of Class II Directors
(Nominees: K. Mundt and M. Swanson) / / / / / /

- -----------------------------------
(Except nominee(s) written above)

2. Amendment of Restated Certificate of FOR AGAINST ABSTAIN
Incorporation / / / / / /

3. Ratify Accountants for 1998 FOR AGAINST ABSTAIN
/ / / / / /

4. In accordance with their discretion, to vote upon all other matters that
may properly come before said Annual Meeting and any adjournment thereof,
including matters incidental to the conduct of the meeting.

Dated:________________________, 1998

Please Sign Here_____________________

_____________________

NOTE: Please date this proxy and sign it exactly as your name or names
appear. All joint owners of shares should sign. State full title when signing
as executor, administrator, trustee, guardian, etc. Please return signed
proxy in the enclosed envelope.

TRIANGLE FOLD AND DETACH HERE TRIANGLE

<PAGE>

PROXY PROXY

PROXY FOR SERIES A COMMON SHARES SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF THE SHAREHOLDERS OF
TELEPHONE AND DATA SYSTEMS, INC.
TO BE HELD ON JULY 10, 1998

The undersigned hereby appoints LeRoy T. Carlson, Jr., and Donald C.
Nebergall, or either of them acting in the absence of the other, with power
of substitution, attorneys and proxies for and in the name and place of the
undersigned, to vote the number of Series A Common Shares that the
undersigned would be entitled to vote if then personally present at the 1998
Annual Meeting of the Shareholders of Telephone and Data Systems, Inc., to be
held on Friday, July 10, 1998, or at any adjournment thereof, as set forth in
the accompanying Notice of Annual Meeting and Proxy Statement, receipt of
which is hereby acknowledged, as designated on the reverse side hereof.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES IN PROPOSAL 1 AND
"FOR" PROPOSALS 2 AND 3.

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)

<PAGE>

TELEPHONE AND DATA SYSTEMS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES IN PROPOSAL 1
AND "FOR" PROPOSALS 2 AND 3.

WITHHOLD FOR ALL
FOR ALL EXCEPT

1. Election of Class II Directors
(Nominees: L. Carlson, Jr. and D. Nebergall) / / / / / /

- -----------------------------------
(Except nominee(s) written above)

2. Amendment of Restated Certificate of FOR AGAINST ABSTAIN
Incorporation / / / / / /

3.Ratify Accountants for 1998 FOR AGAINST ABSTAIN
/ / / / / /

Dated:________________________, 1998

Please Sign Here_____________________

_____________________

TRIANGLE FOLD AND DETACH HERE TRIANGLE

<PAGE>

PROXY PROXY

PROXY FOR PREFERRED SHARES ISSUED PRIOR TO OCTOBER 31, 1981 SOLICITED
ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF THE SHAREHOLDERS OF
TELEPHONE AND DATA SYSTEMS, INC.
TO BE HELD ON JULY 10, 1998

The undersigned hereby appoints LeRoy T. Carlson, Jr., and Donald C.
Nebergall, or either of them acting in the absence of the other, with power
of substitution, attorneys and proxies for and in the name and place of the
undersigned, to vote the number of Preferred Shares that the undersigned
would be entitled to vote if then personally present at the 1998 Annual
Meeting of the Shareholders of Telephone and Data Systems, Inc., to be held
on Friday, July 10, 1998, or at any adjournment thereof, as set forth in the
accompanying Notice of Annual Meeting and Proxy Statement, receipt of which
is hereby acknowledged, as designated on the reverse side hereof.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES IN PROPOSAL
1 AND "FOR" PROPOSALS 2 AND 3.

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)

<PAGE>

TELEPHONE AND DATA SYSTEMS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES IN PROPOSAL 1
AND "FOR" PROPOSALS 2 AND 3.

WITHHOLD FOR ALL
FOR ALL EXCEPT

1. Election of Class II Directors
(Nominees: K. Mundt and M. Swanson) / / / / / /

- -----------------------------------
(Except nominee(s) written above)

2. Amendment of Restated Certificate of FOR AGAINST ABSTAIN
Incorporation / / / / / /

3. Ratify Accountants for 1998 FOR AGAINST ABSTAIN
/ / / / / /

Dated:________________________, 1998

Please Sign Here_____________________

_____________________

TRIANGLE FOLD AND DETACH HERE TRIANGLE

<PAGE>

PROXY PROXY

PROXY FOR PREFERRED SHARES ISSUED AFTER OCTOBER 31, 1981 SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF THE SHAREHOLDERS OF
TELEPHONE AND DATA SYSTEMS, INC.
TO BE HELD ON JULY 10, 1998

The undersigned hereby appoints LeRoy T. Carlson, Jr., and Donald C.
Nebergall, or either of them acting in the absence of the other, with power
of substitution, attorneys and proxies for and in the name and place of the
undersigned, to vote the number of Preferred Shares that the undersigned
would be entitled to vote if then personally present at the 1998 Annual
Meeting of the Shareholders of Telephone and Data Systems, Inc., to be held
on Friday, July 10, 1998, or at any adjournment thereof, as set forth in the
accompanying Notice of Annual Meeting and Proxy Statement, receipt of which
is hereby acknowledged, as designated on the reverse side hereof.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES
IN PROPOSAL 1 AND "FOR" PROPOSALS 2 AND 3.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
ON THE REVERSE SIDE HEREOF. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" THE NOMINEES IN PROPOSAL 1 AND "FOR" PROPOSALS 2 AND 3. IF A NOMINEE IS
UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE, THE PERSONS NAMED IN THIS
PROXY SHALL HAVE DISCRETIONARY AUTHORITY TO VOTE FOR A SUBSTITUTE NOMINEE
DESIGNATED BY THE BOARD OF DIRECTORS (UNLESS AUTHORITY TO VOTE FOR NOMINEES
HAS BEEN WITHHELD).

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)

Whether or not you are able to attend the Annual Meeting of
Shareholders, it is important that your shares be represented.
Accordingly, please complete and sign the proxy card printed above,
tear at the perforation, and mail the card in the enclosed postage
paid envelope addressed to Telephone and Data Systems, Inc., c/o
Harris Trust and Savings Bank.

<PAGE>

TELEPHONE AND DATA SYSTEMS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES
IN PROPOSAL 1 AND "FOR" PROPOSALS 2 AND 3.

1. Election of Class II Directors FOR WITHHOLD FOR ALL
(Nominees: L. Carlson, Jr. and D. Nebergall) ALL ALL EXCEPT
/ / / / / /

---------------------------------
(Except nominee(s) written above)

2. Amendment of Restated Certificate FOR AGAINST ABSTAIN
of Incorporation
/ / / / / /

3. Ratify Accountants for 1998 FOR AGAINST ABSTAIN
/ / / / / /

Dated: , 1998
-------------------------

Please Sign Here
--------------------

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

NOTE: Please date this proxy and sign
it exactly as your name or names
appear. All joint owners of shares
should sign. State full title when
signing as executor, administrator,
trustee, guardian, etc. Please return
signed proxy in the enclosed envelope.

FOLD AND DETACH HERE

Whether or not you are able to attend the Annual Meeting of
Shareholders, it is important that your shares be represented.
Accordingly, please complete and sign the proxy card printed above,
tear at the perforation, and mail the card in the enclosed postage
paid envelope addressed to Telephone and Data Systems, Inc., c/o
Harris Trust and Savings Bank.