Telephone and Data Systems

Walter C.D. Carlson and LeRoy T. Carlson, Jr.

To Our Shareholders

The TDS mission is to provide outstanding communication services to our customers, and to meet the needs of our shareholders, our people and our communities. In following this mission, we seek to continuously grow our businesses, create opportunities for our associates and employees, and steadily build value over the long term for our shareholders.

Consolidated Operating Results

The TDS companies made progress on their strategies in 2010, despite a challenging economy and intense competition in their markets.

U.S. Cellular, our wireless business, successfully transitioned to the leadership of CEO Mary N. Dillon, whose strong consumer products background, operational experience and customer understanding complement her skilled senior management team.
U.S. Cellular introduced The Belief Project^SM, an innovative platform for providing a wireless customer experience that distinguishes us from competitors.
TDS Telecom, our wireline business, increased revenues, improved operating margins, and increased penetration of data services among its residential and commercial customers.
TDS increased its dividend for the 36^th consecutive year, and recently announced its 37^th increase.

TDS´ overall profitability declined, however, due to rising costs of acquiring wireless customers, and to modest declines in wireless revenues and customers. At the same time, growth in smartphone sales and use of data services led to improvement in average revenue per customer and in customer loyalty.

The TDS companies´ focus on customer satisfaction led to important third-party recognition. U.S. Cellular was named the nation´s best wireless service carrier by a leading consumer advocacy organization. And, both
U.S. Cellular and TDS Telecom were selected as J.D. Power and Associates´ 2011 Customer Service Champions, based on studies conducted in 2010.

TDS and U.S. Cellular were also among only 200 companies in the nation to be designated "Most Trustworthy" by Forbes Magazine and Audit Integrity for transparent accounting practices.

Building Value for Shareholders

TDS is committed to growing shareholder value over the long term. TDS repurchased Special Common Shares in 2010 through a $250 million program authorized in 2009, and we plan to continue to do so at a measured rate. Additionally, we continue to evaluate approaches to reducing the trading discount on the TDS Special Common Shares, relative to the TDS Common Shares.

Strengthening Our Financial Foundation

TDS' financial team made a concerted effort in 2010 to increase our financial flexibility and reduce interest expense. TDS and U.S. Cellular replaced revolving credit agreements with new agreements that extended maturity dates and carried more favorable terms. TDS also issued $225 million of new senior notes at
6.875 percent, and used the proceeds to redeem some of our 7.6 percent notes.

We ended 2010 with a strong balance sheet and ample liquidity, giving us the flexibility to support our businesses by investing in infrastructure improvement and growth opportunities. We believe that our long-term strategies will enable us to reach our return on capital targets in each of our businesses.

Among the 200 Most Trustworthy Companies in the U.S. — Forbes Magazine and Audit Integrity

Advocating for Our Customers

U.S. Cellular and TDS Telecom continued to advocate in 2010 on critical policy issues that could impact our ability to serve our customers. As the Federal Communications Commission (FCC) seeks to implement additional portions of the National Broadband Plan, we are closely monitoring potential changes to the Universal Service Fund and will work to assure high-quality wireless and wireline services for our rural customers. We are also actively supporting the FCC's efforts to make additional sources of wireless spectrum available and attainable.

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