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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission file number 1-9712

UNITED STATES CELLULAR CORPORATION

(Exact name of Registrant as specified in its charter)

8410 West Bryn Mawr, Suite 700, Chicago, Illinois 60631
(Address of principal executive offices) (Zip code)

Registrant's Telephone Number: (773) 399-8900

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

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

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes     X        No            

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

        Indicated by checkmark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes     X        No            

        As of February 28, 2003, the aggregate market value of registrant's Common Shares held by nonaffiliates was approximately $365.1 million (based upon the closing price of the Common Shares on February 28, 2003, of $24.35, as reported by the American Stock Exchange). For purposes hereof, it was assumed that each director, executive officer and holder of 10% or more of the voting power of the Company is an affiliate.

        The number of shares outstanding of each of the registrant's classes of common stock, as of February 28, 2003, is 53,113,991 Common Shares, $1 par value, and 33,005,877 Series A Common Shares, $1 par value.

DOCUMENTS INCORPORATED BY REFERENCE

        Those sections or portions of the registrant's 2002 Annual Report to Shareholders and of the registrant's Notice of Annual Meeting of Shareholders and Proxy Statement for its Annual Meeting of Shareholders to be held May 6, 2003, described in the cross reference sheet and table of contents attached hereto are incorporated by reference into Parts II and III of this report.

CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS

(1)

Parenthetical references are to information incorporated by reference from Exhibit 13, which includes portions of the registrant's Annual Report to Shareholders for the year ended December 31, 2002 ("Annual Report") and from the registrant's Notice of Annual Meeting of Shareholders and Proxy Statement for its Annual Meeting of Shareholders to be held on May 6, 2003 (the "Proxy Statement").

(2)

Annual Report section entitled "United States Cellular Stock and Dividend Information."

(3)

Annual Report section entitled "Selected Consolidated Financial Data."

(4)

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

(5)

Annual Report sections entitled "Consolidated Statements of Operations," "Consolidated Statements of Cash Flows," "Consolidated Balance Sheets," "Consolidated Statements of Changes in Common Shareholders' Equity," "Notes to Consolidated Financial Statements," "Consolidated Quarterly Income Information (Unaudited)," "Report of Independent Accountants" and "Copy of Previously Issued Report of Independent Accountants."

(6)

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

(7)

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

(8)

Proxy Statement section entitled "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" and "Securities Authorized for Issuance under Equity Compensation Plans."

(9)

Proxy Statement section entitled "Certain Relationships and Related Transactions."

United States Cellular Corporation

8410 WEST BRYN MAWR        •        CHICAGO, ILLINOIS 60631
TELEPHONE (773) 399-8900

PART I

Item 1. Business

The Company

        United States Cellular Corporation (the "Company") provides wireless telephone service to 4,103,000 customers through the operations of 149 majority-owned ("consolidated") wireless systems serving approximately 18% of the geography and approximately 13% of the population of the United States. Since 1985, when the Company began providing cellular service in Knoxville, Tennessee and Tulsa, Oklahoma, the Company has expanded its wireless networks and customer service operations to cover eight market areas in 25 states as of December 31, 2002. The Company owns wireless licenses covering territories in two additional states and has the rights to commence service in those licensed areas in the future. The wireless licenses that the Company currently manages cover a total population of more than one million in each market area.

        The Company's ownership interests in wireless licenses include interests in licenses covering 175 cellular MSAs or RSAs and 35 personal communication service ("PCS") BTAs. Of those interests, the Company owns controlling interests in licenses covering 143 MSAs or RSAs and all 35 PCS BTAs. The Company's interests in licenses covering six PCS BTAs are owned exclusively through joint ventures ("JVs") in which the Company owns a limited partner interest; the Company is considered to have the controlling financial interest for financial reporting purposes in these PCS BTAs.

        The Company manages the operations of all but two of the cellular licenses in which it owns a controlling interest; the Company has contracted with another wireless operator to manage the operations of the other two markets. The Company also manages the operations of four additional cellular licenses in which it does not own a controlling interest, through an agreement with the controlling interest holder or holders. The Company manages or has the rights to manage the operations of 29 of the 35 PCS BTAs in which it owns licenses. As of year-end 2002, six of these BTAs were operational; marketing activities had not yet begun in the other 29 BTAs. In the six PCS BTAs in which the Company owns a limited partner interest, the general partner has the authority to select the manager of these operations. None of these six PCS BTAs were operational at year-end 2002.

        The following table summarizes the status of the Company's interests in wireless markets at December 31, 2002.

(1)

The Company owns a controlling interest in each of the 143 cellular markets and 35 PCS markets. The Company owns a limited partner interest in six PCS markets, and includes the operations of these markets in its consolidated results because the Company is considered to have the controlling financial interest for financial reporting purposes. Six PCS markets were operational at year-end 2002 and the customer activity for these markets is included in the Company's consolidated results in 2002.

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(2)

Represents cellular markets in which the Company owns a noncontrolling interest and which are accounted for using the equity method. The Company's investments in these markets are included in investment in unconsolidated entities on its balance sheet and its proportionate share of the net income of these markets is included in investment income on its statement of operations.

(3)

Represents cellular markets in which the Company owns a noncontrolling interest and which are accounted for using the cost method. The Company's investments in these markets are included in investment in unconsolidated entities on its balance sheet.

        Some of the territory covered by the PCS BTA licenses the Company operates overlaps with territory covered by the cellular licenses the Company operates. In other cases, the Company owns a controlling interest in one license and a limited partner interest in another license which covers the same PCS BTA. For the purpose of tracking population counts, when the Company acquires a licensed area that overlaps a licensed area it already owns, it does not duplicate the number of population equivalents for any overlapping licensed area. Only non-overlapping, incremental population equivalents are added to the reported amount of total population equivalents in the case of an acquisition of a licensed area that overlaps a previously owned licensed area. The incremental population equivalents that are added in such event are referred to throughout this Form 10-K as "incremental" population measurements. Amounts reported in this Form 10-K as "total market population" and "population equivalents" do not duplicate any population equivalents in the case of any overlapping licensed areas the Company owns.

        The Company's wireless interests represent 42.0 million incremental population equivalents as of December 31, 2002. Overall, 95% of the Company's incremental population equivalents are in consolidated markets and 5% are in markets in which the Company holds an investment interest.

        The Company is a limited partner in a JV which was a successful bidder for 17 PCS licenses in 13 markets in the January 2001 Federal Communications Commission ("FCC") spectrum auction ("Auction 35"). The JV has acquired five of such licenses in four markets, which are included in the 35 PCS BTAs discussed above. With respect to the remaining licenses, such licenses had been reauctioned by the FCC after defaults by winning bidders in a prior auction and were made subject by the FCC to the final outcome of certain legal proceedings initiated by the prior winning bidders. During 2002, the FCC allowed all successful bidders to opt out of any pending applications to purchase licenses resulting from Auction 35. The FCC approved the dismissal of the JV's pending applications and all amounts deposited with the FCC have been returned to the JV.

        The Company believes that it is the eighth largest wireless company in the United States, based on internally prepared calculations of the aggregate number of customers in its consolidated markets compared to the number of customers disclosed by other wireless companies in their publicly released information. The Company's business development strategy is to operate controlling interests in wireless licenses in areas adjacent to or in proximity to its other wireless licenses, thereby building contiguous operating market areas. The Company anticipates that grouping its operations into market areas will continue to provide the Company certain economies in its capital and operating costs. As the number of opportunities for outright acquisitions has decreased in recent years, and as the Company's regions have grown, the Company's focus has broadened to include exchanges and divestitures of managed and investment interests which are considered less essential to the Company's operating strategy.

        Wireless systems in the Company's 149 operational consolidated markets served 4,103,000 customers at December 31, 2002, and contained 3,914 cell sites. The average penetration rate in the Company's operational consolidated markets was 11.22% at December 31, 2002, and the churn rate in these markets averaged 2.1% per month for the twelve months ended December 31, 2002.

        The Company was incorporated in Delaware in 1983. The Company's executive offices are located at 8410 West Bryn Mawr, Chicago, Illinois 60631. Its telephone number is 773-399-8900. The Common Shares of the Company are listed on the American Stock Exchange under the symbol "USM." The Company's Liquid Yield Option Notes ("LYONs") are also listed on the American Stock Exchange under the symbol "USM.B". The Company's 8.75% Senior Notes are listed on the New York Stock Exchange under the symbol "UZG". The Company is a majority-owned subsidiary of Telephone and Data Systems, Inc. ("TDS"). TDS owns 82.2% of the combined total of the outstanding Common Shares and Series A Common Shares of the Company and controls 96.0% of the combined voting power of both classes of common stock.

4

        Unless the context indicates otherwise, references to:

•

"TDS" refers to Telephone and Data Systems, Inc., and its subsidiaries;



•

"The Company" or "U.S. Cellular" refer to United States Cellular Corporation and its subsidiaries;



•

"MSA" refer to the Metropolitan Statistical Area, as designated by the U.S. Office of Management and Budget and used by the FCC in designating metropolitan cellular market areas;



•

"RSA" refer to the Rural Service Area, as used by the FCC in designating non-MSA cellular market areas;



•

"MTA" refer to Metropolitan Trading Areas, used by the FCC in dividing the United States into PCS market areas for licenses in Blocks A and B;



•

"BTA" refer to Basic Trading Areas, used by the FCC in dividing the United States into PCS market areas for licenses in Blocks C through F;



•

"PCS" refer to personal communication service;



•

cellular, PCS, or wireless "markets" or "systems" refer to MSAs, RSAs, MTAs, BTAs, or any combination thereof; and



•

"population equivalents" mean the population of a market, based on 2002 Claritas estimates, multiplied by the percentage interests that the Company owns or has the right to acquire in an entity licensed or designated to receive a license from the FCC to operate a cellular or PCS system in such market ("licensee").

Available Information

        The Company's website is http://www.uscellular.com. Investors may access, free of charge, through the About Us / Investor Relations portion of the website, the Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practical after such material is electronically filed with the Securities and Exchange Commission.

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR CAUTIONARY STATEMENT

        This Annual Report on Form 10-K, including exhibits, contains statements that are not based on historical fact, including the words "believes", "anticipates", "intends", "expects", and similar words. These statements constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the following risks:

•

Increases in the level of competition in the markets in which the Company operates could adversely affect the Company's revenues or increase its costs to compete.



•

Advances or changes in telecommunications technology could render certain technologies used by the Company obsolete. Competitors may have a lower fixed investment per customer because of technology changes.



•

Changes in the telecommunications regulatory environment could adversely affect the Company's financial condition or results of operations or could prevent the portion of the Company's business which depends on access to competitors' facilities from obtaining such access on reasonable terms.



•

Changes in the supply or demand of the market for wireless licenses, increased competition, adverse developments in the Company's business or the wireless industry and/or other

5

factors could result in an impairment of the value of the Company's investment in licenses, goodwill and/or physical assets, which may require the Company to write down the value of such assets.

•

Conversions of LYONs, early redemptions of debt or repurchases of debt, changes in estimates or other factors or developments, could cause the amounts reported under Contractual Obligations in the Company's Management's Discussion and Analysis of Results of Operations and Financial Condition incorporated by reference herein to be different from the amounts presented.



•

Changes in circumstances relating to and/or in the assumptions underlying the accounting estimates described under Critical Accounting Policies in the Company's Management's Discussion and Analysis of Results of Operations and Financial Condition incorporated by reference herein could have a material effect on the Company's financial condition, changes in financial condition and results of operations.



•

Settlements, judgments, restraints on its current or future manner of doing business and/or legal costs resulting from pending or future litigation that are Company-specific or that apply to the wireless industry in general could have an adverse effect on the Company's financial condition, results of operations or ability to do business.



•

Costs, integration problems or other factors associated with acquisitions/divestitures of properties and or licenses could have an adverse effect on the Company's financial condition or results of operations.



•

Changes in prices, the number of wireless customers, average revenue per unit, penetration rates, churn rates, roaming rates and the mix of products and services offered in wireless markets could have an adverse effect on the Company's operations.



•

Changes in roaming partners, rates, and the ability to provide voice and data services on other carriers' networks could have an adverse effect on the Company's operations.



•

Changes in competitive factors with national wireless carriers could result in product and cost disadvantages and could have an adverse effect on the Company's operations.



•

Continued uncertainty of access to capital for telecommunications companies, further deterioration in the capital markets, other changes in market conditions or other factors could limit or restrict the availability of financing on terms and prices acceptable to the Company, which could require the Company to reduce its construction, development and acquisition programs.



•

Changes in the Company's credit ratings could limit or restrict the availability of financing on terms and prices acceptable to the Company, which could require the Company to reduce its construction, development and acquisition programs.



•

Changes in circumstances or other events relating to the integration of Chicago 20MHz, including market launch costs or problems or other factors associated with such acquisition could have an adverse effect on the Company's financial condition or results of operations.



•

The continuation of the economic downturn and continued bankruptcies in the telecommunications industry could result in higher bad debts and slower business activity, which would have an adverse effect on the Company's business.



•

War, conflicts, hostilities and/or terrorists attacks could have an adverse effect on the Company's business.



•

Changes in our accounting policies, estimates or assumptions could have an adverse effect on our financial condition or results of operations.



•

Changes in general economic and business conditions, both nationally and in the market areas in which the Company operates, could have an adverse effect on the Company's business.

6

        The Company undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. Readers should evaluate any statements in light of these important factors.

Wireless Telephone Operations

        The Wireless Telephone Industry.    Wireless telephone technology provides high-quality, high-capacity communications services to hand-held portable and in-vehicle wireless telephones. Wireless telephone systems are designed for maximum mobility of the customer. Access is provided through system interconnections to local, regional, national and world-wide telecommunications networks. Wireless telephone systems also offer a full range of ancillary services such as conference calling, call-waiting, call-forwarding, voice mail, facsimile and data transmission; those systems which have digital radio capabilities may offer additional features such as caller ID, short messaging services and certain data transmission services.

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

        The FCC currently grants two licenses to provide cellular telephone service in each cellular licensed area. Multiple licenses have been granted in each PCS licensed area, and PCS licensed areas (BTAs and MTAs) overlap with cellular licensed areas. As a result, PCS license holders can and do compete with cellular license holders for customers. Competition for customers also includes competing communications technologies, such as:

•

conventional landline telephone,



•

Specialized Mobile Radio ("SMR") systems,



•

mobile satellite communications systems, and



•

radio paging.

        PCS licensees have initiated service in nearly all areas of the United States, including substantially all of the Company's licensed areas, and the Company expects other wireless operators to continue deployment of PCS in all of the Company's operating regions throughout 2003. Additionally, technologies such as Enhanced Specialized Mobile Radio ("ESMR") and mobile satellite communication systems are proving to be competitive with wireless service in many of the Company's markets.

        The services available to wireless customers and the sources of revenue available to wireless system operators are similar to those provided by conventional landline telephone companies. Customers may be charged a separate fee for system access, airtime, long-distance calls and ancillary services. Wireless system operators also provide service to customers of other operators' wireless systems while the customers are temporarily located within the operators' service areas. Customers using service away from their home system are called "roamers." Roaming is available because technical standards require that analog wireless telephones be compatible in all market areas in the United States. Additionally, because the Company has deployed digital radio technologies in substantially all of its service areas, its customers with digital, dual-mode (both analog and digital capabilities) or tri-mode (analog plus digital capabilities at both the cellular and PCS radio frequencies) wireless telephones can roam in other companies' service areas which have a compatible digital technology in place. Likewise, the Company can provide roaming service to other companies' customers who have compatible digital wireless telephones. In all cases, the

7

system that provides the service to roamers will generate usage revenue, at rates that have been negotiated between the serving carrier and the customer's carrier.

        There have been a number of technical developments in the wireless industry since its inception. Currently, while substantially all companies' MTSOs process information digitally, on certain cellular systems the radio transmission uses analog technology. All PCS systems utilize digital radio transmission. Several years ago, certain digital transmission techniques were approved for implementation by the wireless industry. Time Division Multiple Access ("TDMA") technology was selected as one industry standard by the wireless industry and has been deployed by many wireless operators, including the Company's operations in a substantial portion of its markets. Another digital technology, Code Division Multiple Access ("CDMA"), is also being deployed by the Company in its remaining markets. In 2002, the Company began its plans to deploy CDMA 1XRTT technology, which allows for higher speed data transmission, throughout all of its markets, over a three-year period ending in 2004. As of December 31, 2002, the Company had deployed CDMA 1XRTT technology in a substantial portion of its Midwest market area, where it had previously deployed TDMA technology, as part of its technology conversion plans.

        The Company will continue to deploy the TDMA technology currently in place for the next few years. Migration of the Company's customers to CDMA handsets in these markets is expected to take a few years; in addition, continuing to deploy its current TDMA technology will enable the Company to use both CDMA and TDMA to serve roaming customers in these markets.

        Digital radio technology offers several advantages, including the following:

•

greater privacy,



•

less transmission noise,



•

data transmission capabilities,



•

greater system capacity, and



•

potentially lower incremental costs to accommodate additional system usage.

        The conversion from analog to digital radio technology is continuing on an industry-wide basis; however, this process is expected to continue for a few more years. Wireless operators in the United States have deployed TDMA, CDMA and a third digital technology, Global System for Mobile Communication ("GSM"), in the licensed areas where they have begun operations.

        The Company's Operations.    From its inception in 1983 until 1993, the Company was principally in a start-up phase. Until 1993, the Company's activities had been concentrated significantly on the acquisition of interests in cellular licenses and on the construction and initial operation of wireless systems. The development of a wireless system is capital-intensive and requires substantial investment prior to and subsequent to initial operation. The Company experienced operating losses and net losses from its inception until 1993. In the years since 1993, the Company has produced operating income and net income, except in 2002 when higher operating expenses and losses on investments resulted in a net loss for the year.

        Management anticipates further growth in wireless units in service and revenues as the Company continues to expand through internal growth and as the PCS licenses acquired in 2001 and 2002 become fully integrated into the Company's operations. Expenses associated with this expansion may reduce the rate of growth in cash flows from operating activities and operating income during the period of additional growth. In addition, the Company anticipates that the seasonality of revenue streams and operating expenses may cause the Company's cash flows from operating activities and operating income to vary from quarter to quarter.

        While the Company has produced operating income and net income since 1993 (except the net loss in 2002), changes in any of several factors may reduce the Company's growth in operating income and net income over the next few years. These factors include:

•

the growth rate in the Company's customer base;



•

the usage and pricing of wireless services;



•

the cost to begin or integrate operations of newly acquired licensed areas;

8

•

the percentage of customers who discontinue service (the "churn rate");



•

the cost of providing wireless services, including the cost of attracting and retaining customers;



•

the Company's migration to a single digital equipment platform, which will require substantial capital expenditures;



•

continued competition from other wireless licensees and other telecommunication technologies; and



•

continuing technological advances which may provide additional competitive alternatives to wireless service.

        The Company is building a substantial presence in selected geographic areas throughout the United States where it can efficiently integrate and manage wireless telephone systems. Its wireless interests include eight operating market areas. See "The Company's Wireless Interests."

        The Company has acquired its wireless interests through the wireline application process for MSAs and RSAs, including settlements and exchanges with other applicants, and through acquisitions, including acquisitions from TDS and third parties.

Wireless Systems Development

        Acquisitions, Divestitures and Exchanges.    The Company assesses its wireless holdings on an ongoing basis in order to maximize the benefits derived from grouping its markets geographically. The Company also reviews attractive opportunities for the acquisition of additional wireless spectrum. Over the past few years, the Company has completed exchanges of minority interests or controlling interests in its less strategic markets for controlling interests in markets which better complement its operating market areas. The Company has also completed outright sales of other less strategic markets, and has purchased controlling interests in markets which enhance its operating market areas. In 2001, the Company began acquiring interests in PCS markets. These markets are either adjacent to the Company's current operations, thus expanding its current operating market areas, or are in territories in which the Company currently operates, and will add spectrum capacity to those operations. As a result of its acquisition activities, currently 95% of the Company's interests are in markets where it is the operator or expects to manage.

        The Company may continue to make opportunistic acquisitions or exchanges in markets that further strengthen its operating market areas and in other attractive markets. The Company also seeks to acquire minority interests in markets where it already owns the majority interest and/or operates the market. There can be no assurance that the Company, or TDS for the benefit of the Company, will be able to negotiate additional acquisitions or exchanges on terms acceptable to it or that regulatory approvals, where required, will be received. The Company plans to retain minority interests in certain wireless markets which it believes will earn a favorable return on investment. Other minority interests may be exchanged for interests in markets which enhance the Company's operations or may be sold for cash or other consideration. The Company also continues to evaluate the disposition of certain controlling interests in wireless licenses which are not essential to its corporate development strategy.

        Acquisition of Chicago 20MHz.    On August 7, 2002, the Company completed the acquisition of all of the assets and certain liabilities of in Chicago 20MHz, LLC ("Chicago 20MHz") from PrimeCo Wireless Communications LLC ("PrimeCo"). The purchase price was approximately $618 million, including working capital and other adjustments. Chicago 20MHz operated the PrimeCo wireless system in the Chicago Major Trading Area ("MTA"), and is the holder of certain FCC licenses, including a 20 megahertz ("MHz") PCS license in the Chicago MTA (excluding Kenosha County, Wisconsin) covering a total population of 13.2 million.

        The Company financed the Chicago 20MHz purchase using $175 million from the Company's 9% Series A Notes due 2032 issued to PrimeCo, $105 million from an intercompany note with TDS and the remaining amount from the Company's $500 million revolving credit facility with a series of banks. Net of cash acquired in the transaction and bonds issued to the sellers of Chicago 20MHz, the Company used cash totaling $431.9 million for the acquisition of Chicago 20MHz.

9

        Other Acquisitions.    Additionally in 2002, the Company, through JVs, acquired majority interests in 10 MHz licenses in three PCS markets. The interests the Company acquired are 100% owned by the joint ventures, and the Company is considered to have the controlling financial interest in these joint ventures for financial reporting purposes. The Company also acquired the remaining minority interests in three other PCS markets in which it previously owned an interest, resulting in 100% ownership in those markets. The aggregate amount paid by the Company to acquire the interests in these transactions, which represented 1.4 million population equivalents (684,000 incremental population equivalents), was $21.1 million.

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

        Pending Acquisition—Subsequent Event.    On March 10, 2003, the Company announced that it had entered into a definitive agreement with AT&T Wireless ("AWE") to exchange wireless properties. The Company will receive 10 and 20 MHz PCS licenses in 13 states, representing 12.2 million incremental population equivalents contiguous to existing properties and 4.4 million population equivalents that overlap existing properties in the Midwest and Northeast. The Company will also receive approximately $31 million in cash and minority interests in six markets it currently controls. The Company will transfer wireless assets and approximately 141,000 customers in 10 markets, representing 1.5 million population equivalents, in Florida and Georgia to AWE. Total Company revenue in 2002 of $107 million and operating income, excluding shared services costs, of $25 million was attributable to these markets. The transaction is subject to regulatory approvals. The closing of the transfer of the Company's properties and the assignment to the Company of most of the PCS licenses is expected to occur in the third quarter of 2003. The assignment and development of certain licenses will be deferred by the Company until later periods. The acquisition of licenses in the exchange will be accounted for as a purchase by the Company and the transfer of the properties by the Company will be accounted for as a sale. The buildout of the licenses could require substantial capital investment by the Company over the next several years. The Company is currently working on a buildout and financing plan for these markets.

        The following table summarizes by major classes, the recorded value of the assets and liabilities of the 10 markets that U.S. Cellular will be transferring.

        The Company is currently evaluating the fair value of the assets involved in this transaction. No determination of gain or loss related to this transaction has been made. As a result of signing the definitive agreement for this transaction, the Company will reclassify the net assets of the markets to be transferred as assets held for sale and will report their operations as discontinued operations in the first quarter of 2003.

Wireless Interests and Operating Market Areas

        The Company operates its adjacent wireless systems under an organization structure in which it groups its markets into geographic market areas to offer customers large local service areas which primarily utilize the Company's network. Customers may make outgoing calls and receive incoming calls within each market area without special roaming arrangements. In addition to benefits to customers, its operating strategy also has provided to the Company certain economies in its capital and operating costs. These economies are made possible through increased sharing of facilities, personnel and other costs and enable the Company to maintain a relatively low per customer cost of service. The extent to which the Company benefits from these revenue

10

enhancements and economies of operation is dependent on market conditions, population size of each market area and network engineering considerations.

        The Company may continue to make opportunistic acquisitions and exchanges which will complement its established operating market area. From time to time, the Company may also consider exchanging or selling its interests in markets which do not fit well with its long-term strategies.

        The Company owned interests in wireless telephone systems in 175 cellular markets and 35 PCS markets at December 31, 2002, representing 42.0 million incremental population equivalents. The following table summarizes the changes in the Company's incremental population equivalents in recent years.

(1)

Based on 2002 Claritas estimates for all years.

(2)

Includes incremental population equivalents in markets in which the Company owns a controlling interest at the end of each respective year, and in 2002 and 2001 also includes incremental population equivalents in PCS markets in which the Company owns a noncontrolling limited partner interest but the Company is considered to have the controlling financial interest for financial reporting purposes.

(3)

In 2001, includes incremental population equivalents in markets in which the Company has the right to acquire noncontrolling limited partner interests in PCS markets in which the Company will be considered to have the controlling financial interest for financial reporting purposes. In 2000, includes population equivalents in a market in which the Company had the right, pursuant to agreements pending at the end of the year, to acquire a controlling interest.

(4)

Includes population equivalents in markets in which the Company owns noncontrolling interests at the end of each respective year, and which are accounted for using the equity method.

(5)

Includes population equivalents in markets in which the Company owns noncontrolling interests at the end of each respective year, and which are accounted for using the cost method.

        The following section details the Company's wireless interests, including those it owned or had the right to acquire as of December 31, 2002. The table presented therein lists the cellular and PCS markets that the Company manages or has the right to manage grouped according to operating market area. The Company's operating structure shows the areas in which the Company is currently focusing its development efforts. These market areas have been devised with a long-term goal of allowing delivery of wireless service to areas of economic interest and along corridors of economic activity. The number of incremental population equivalents represented by the Company's wireless interests may have no direct relationship to the number of potential wireless customers or the revenues that may be realized from the operation of the related wireless systems.

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THE COMPANY'S WIRELESS INTERESTS

        The table below sets forth certain information with respect to the interests in wireless markets which the Company owned or had the right to acquire pursuant to definitive agreements as of December 31, 2002.

        Some of the territory covered by the PCS BTA licenses the Company owns overlaps with territory covered by the cellular licenses the Company owns. In other cases, the Company owns a controlling interest in one license and a limited partner interest in another license which covers the same PCS BTA. For the purpose of tracking amounts in the "Incremental Current and Acquirable Population Equivalents" column in the table below, when the Company acquires a licensed area that overlaps a licensed area it already owns, it does not duplicate the number of population equivalents for any overlapping licensed area. Only non-overlapping, incremental population equivalents are added to the amounts in the "Incremental Current and Acquirable Population Equivalents" column in the table below, in the case of an acquisition of a licensed area that overlaps a previously owned licensed area.