United States Cellular Corporation ("U.S. Cellularฎ") owns, operates and invests in wireless markets throughout the United States. U.S. Cellular is an 81%-owned subsidiary of Telephone and Data Systems, Inc. ("TDS™") as of March 31, 2009.

The following discussion and analysis should be read in conjunction with U.S. Cellular's interim consolidated financial statements included in Item 1 above, and with its audited consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations included in its Annual Report on Form 10-K ('Form 10-K') for the year ended December 31, 2008.

OVERVIEW

The following is a summary of certain selected information contained in the comprehensive Management's Discussion and Analysis of Financial Condition and Results of Operations that follows. The overview does not contain all of the information that may be important. You should carefully read the entire Management's Discussion and Analysis of Financial Condition and Results of Operations and not rely solely on the overview.

U.S. Cellular provides wireless telecommunications services to approximately 6.2 million customers in five geographic market areas in 26 states. As of March 31, 2009, U.S. Cellular's average penetration rate in its consolidated operating markets, calculated by dividing U.S. Cellular's total customers by the total population of 46.3 million in such markets, was 13.5%. U.S. Cellular operates on a customer satisfaction strategy, meeting customer needs by providing a comprehensive range of wireless products and services, excellent customer support, and a high-quality network. U.S. Cellular'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. U.S. Cellular believes that operating in contiguous market areas will continue to provide it with certain economies in its capital and operating costs. Financial and operating highlights in the first three months of 2009 included the following:

† Net retail customer additions were 63,000. Total customers increased from 6,196,000 at December 31, 2008 to 6,243,000 at March 31, 2009;

† The postpay churn rate was 1.5%. Postpay customers comprised approximately 95% of U.S. Cellular's retail customer base as of March 31, 2009;

† Service revenues of $981.9 million increased $19.8 million (2%) year-over-year, despite a $12.7 million (17%) reduction in inbound roaming revenues; the increase was driven by growth in customers and average monthly service revenue per unit. Average monthly service revenue per customer increased 1% year-over-year to $52.54, driven primarily by growth in revenues from data products and services;

† Cash flows from operating activities were $185.6 million. At March 31, 2009, cash and cash equivalents totaled $191.8 million and there were no outstanding borrowings under the revolving credit facility;

† Additions to property, plant and equipment totaled $137.7 million, including expenditures to construct cell sites, increase capacity in existing cell sites and switches, expand mobile broadband services based on third generation Evolution Data Optimized technology ("3G") to additional markets, outfit new and remodel existing retail stores and continue the development and enhancement of U.S. Cellular's office systems. Total cell sites in service increased 8% year-over-year to 6,942; and

† U.S. Cellular launched efforts on a number of multi-year initiatives including the development of: a new point-of-sale system to consolidate billing on one platform; an Electronic Data Warehouse/Customer Relationship Management System to collect and analyze information more efficiently to build and improve customer relationships; and an Internet/Web platform to enable customers to complete a wide range of transactions and, eventually, to manage their accounts online.

† Operating income was $114.8 million in 2009, compared to $119.0 million in 2008.

U.S. Cellular anticipates that future growth in its operating income will be affected by the following factors:

† Uncertainty related to current economic conditions and their impact on demand for U.S. Cellular's products and services;

† Increasing penetration in the wireless industry;

† Costs of customer acquisition and retention, such as equipment subsidies and advertising;

† Industry consolidation and the resultant effects on roaming revenues, service and equipment pricing and other effects of competition;

† Providing service in recently launched areas or potential new market areas;

† Potential increases in prepay and reseller customers as a percentage of U.S. Cellular's customer base;

†          Costs of developing and introducing new products and services;



†          Costs of developing and enhancing office and customer support
systems;

† Continued enhancements to its wireless networks, including expansion of 3G services and potential deployments of new technology;

†          Increasing costs of regulatory compliance; and



†          Uncertainty in future eligible telecommunication carrier ("ETC")
funding.

† Net income attributable to U.S. Cellular increased $14.0 million to $84.6 million in 2009 compared to $70.6 million in 2008, due primarily to lower income tax expense. Basic earnings per share was $0.97 in 2009, which was $0.16 higher than in 2008, and Diluted earnings per share was $0.97, which was $0.17 higher than in 2008.

Cash Flows and Investments

U.S. Cellular believes that cash on hand, expected future cash flows from operating activities and sources of external financing provide financial flexibility and are sufficient to permit U.S. Cellular to finance its contractual obligations and anticipated capital expenditures for the foreseeable future. U.S. Cellular continues to seek to maintain a strong balance sheet and an investment grade credit rating.

See "Financial Resources" and "Liquidity and Capital Resources" below for additional information related to cash flows and investments, including the impacts of recent economic events.

2009 Estimates

U.S. Cellular expects the factors described above to impact revenues and operating income for the next several quarters. Any changes in the above factors, as well as the effects of other drivers of U.S. Cellular's operating results, may cause revenues and operating income to fluctuate over the next several quarters.

U.S. Cellular's estimates of full-year 2009 results for net retail customer additions; service revenues; operating income; depreciation, amortization and accretion expenses; and capital expenditures are shown below. Such estimates represent U.S. Cellular's views as of the date of filing of U.S. Cellular's Form 10-Q for the three months ended March 31, 2009. Such forward-looking statements should not be assumed to be accurate as of any future date. U.S. Cellular undertakes no duty to update such information whether as a result of new information, future events or otherwise. There can be no assurance that final results will not differ materially from such estimated results.

                                                 2009                 2008
                                           Estimated Results     Actual Results
Net retail customer additions               75,000 - 150,000              149,000
Service revenues                             $3,900 - $4,000
                                                     million     $3,940.3 million
Operating income(1)                              $275 - $350
                                                     million        $27.7 million
Depreciation, amortization and                  Approx. $600
accretion expenses(1)                                million       $987.0 million
Capital expenditures                            Approx. $575
                                                     million       $585.6 million

U.S. Cellular management currently believes that the foregoing estimates represent a reasonable view of what is achievable considering actions that U.S. Cellular has taken and will be taking. However, the current general economic conditions have created a challenging business environment that could significantly impact actual results. U.S. Cellular anticipates that its customer base will increase during 2009 as a result of its continuing focus on customer satisfaction, attractively priced service plans, a broad line of handsets and other products, and improvements in distribution. U.S. Cellular believes growth in its revenues will result primarily from attracting wireless users switching from other wireless carriers, selling additional products and services to its existing customers, and increasing the number of multi-device users among its existing customers, rather than by adding users that are new to wireless service. U.S. Cellular is focusing on opportunities to increase revenues, pursuing cost reduction initiatives in various areas and implementing a number of initiatives to enable future growth. The initiatives are intended, among other things, to allow U.S. Cellular to accelerate its introduction of new products and services, better segment its customers for retention and to sell additional services such as data, expand its Internet sales and customer service capabilities, and improve its prepay products and services.

RESULTS OF OPERATIONS



Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008



Following is a table of summarized operating data for U.S. Cellular's
consolidated operations.



As of March 31,(1)                                       2009            2008
Total market population of consolidated operating
markets(2)                                             46,306,000      45,262,000
Customers(3)                                            6,243,000       6,175,000
Market penetration(2)                                        13.5 %          13.6 %
Total full-time equivalent employees                        8,754           8,105
Cell sites in service                                       6,942           6,452




For the Three Months Ended March 31,(4)            2009      2008
Net customer additions(5)                          47,000    73,000
Net retail customer additions(5)                   63,000    85,000
Average monthly service revenue per customer(6)   $ 52.54   $ 52.24
Postpay churn rate (7)                                1.5 %     1.4 %

(2) Calculated using 2008 and 2007 Claritas population estimates for 2009 and 2008, respectively. "Total market population of consolidated operating markets" is used only for the purposes of calculating market penetration of consolidated operating markets, which is calculated by dividing customers by the total market population (without duplication of population in overlapping markets).

The total market population and penetration measures for consolidated operating markets apply to markets in which U.S. Cellular provides wireless service to customers. For comparison purposes, total market population and penetration related to all consolidated markets in which U.S. Cellular owns an interest were 83,726,000 and 7.5%, and 82,846,000 and 7.5%, as of March 31, 2009 and 2008, respectively.

(3) U.S. Cellular's customer base consists of the following types of customers:

                                                               March 31,
                                                          2009           2008
Customers on postpay service plans in which the end
user is a customer of U.S. Cellular ("postpay
customers")                                              5,480,000      5,331,000
Customers on prepay service plans in which the end
user is a customer of U.S. Cellular ("prepay
customers")                                                290,000        309,000
End user customers acquired through U.S. Cellular's
agreements with third parties ("reseller
customers")                                                473,000        535,000
Total customers                                          6,243,000      6,175,000

(4) Amounts include results for U.S. Cellular's consolidated operating markets for the period January 1 through March 31; operating markets acquired during a particular period are included as of the acquisition date.

(5) "Net customer additions" represents the number of net customers added to U.S. Cellular's overall customer base through all of its marketing distribution channels, excluding any customers transferred through acquisitions, divestitures or exchanges. "Net retail customer additions" represents the number of net customers added to U.S. Cellular's customer base through its marketing distribution channels, excluding net reseller customers added to its reseller customer base and excluding any customers transferred through acquisitions, divestitures or exchanges.

(6) Management uses this measurement to assess the amount of service revenue that U.S. Cellular generates each month on a per customer basis. Variances in this measurement are monitored and compared to variances in expenses on a per customer basis. Average monthly service revenue per customer is calculated as follows:

                                                            Three Months Ended
                                                                 March 31,
                                                           2009             2008
Service revenues per Consolidated Statements of
Operations (000s)                                      $     981,874    $    962,094
Divided by average customers during period (000s)*             6,229           6,139
Divided by number of months in each period                         3               3
Average monthly service revenue per customer           $       52.54    $      52.24

(7) Postpay churn rate represents the percentage of the postpay customer base that disconnects service each month.

Components of Operating Income



                                                                 Increase/      Percentage
Three Months Ended March 31,         2009           2008         (Decrease)       Change
                                                   (Dollars in thousands)
Retail service                    $   874,098    $   850,470    $     23,628             3 %
Inbound roaming                        60,057         72,755         (12,698 )         (17 )%
Other                                  47,719         38,869           8,850            23 %
Service revenues                      981,874        962,094          19,780             2 %
Equipment sales                        70,890         75,762          (4,872 )          (6 )%
Total operating revenues            1,052,764      1,037,856          14,908             1 %

System operations (excluding
Depreciation, amortization and
accretion reported below)             200,003        191,016           8,987             5 %
Cost of equipment sold                185,701        178,045           7,656             4 %
Selling, general and
administrative                        412,448        403,626           8,822             2 %
Depreciation, amortization and
accretion                             137,651        142,530          (4,879 )          (3 )%
Loss on asset disposals, net            2,191          3,673          (1,482 )         (40 )%
Total operating expenses              937,994        918,890          19,104             2 %
Operating income                  $   114,770    $   118,966    $     (4,196 )          (4 )%

Operating Revenues

Service revenues

Service revenues consist primarily of: (i) charges for access, airtime, roaming, recovery of regulatory costs and value-added services, including data products and services and long distance, provided to U.S. Cellular's retail customers and to end users through third-party resellers ("retail service"); (ii) charges to other wireless carriers whose customers use U.S. Cellular's wireless systems when roaming, including long-distance roaming ("inbound roaming"); and
(iii) amounts received from the Federal Universal Service Fund ("USF").

The increase in Service revenues was due to the growth in the average customer base, which increased 1% to 6.2 million in 2009 from 6.1 million in 2008, and higher average monthly service revenue per customer; average monthly service revenue per customer was $52.54 in 2009 and $52.24 in 2008.

Retail service revenues

The increase in Retail service revenues in 2009 was due primarily to growth in U.S. Cellular's average customer base and an increase in average monthly retail service revenue per customer.

The increase in the average number of customers was driven by the net retail customer additions that U.S. Cellular generated from its marketing distribution channels. Average monthly retail service revenue per customer increased 1% to $46.78 in 2009 from $46.18 in 2008. The increase resulted primarily from the growth in revenues from data products and services, which more than offset a slight decline in revenues from voice services.

Revenues from data products and services totaled $157.0 million in 2009 and $115.7 million in 2008, and represented 16% of total service revenues in 2009 compared to 12% of total service revenues in 2008. Such growth, which positively impacted average monthly retail service revenue per customer, reflected customers' continued and increasing usage of U.S. Cellular's text, picture, and video messaging services, easyedgeSM service and applications, premium mobile Internet services, and smart phone handsets and services. During the first quarter of 2009, U.S. Cellular introduced unlimited messaging plans and unlimited messaging and mobile Internet plans to further drive data usage and revenues. U.S. Cellular expects that the growth in revenues from data products and services will continue as customers migrate to the new unlimited plans and as U.S. Cellular's 3G network expands to approximately 61% of its cell sites by the end of 2009.

Revenues from voice services declined year-over-year due primarily to a reduction in average monthly retail voice revenues per customer. The reduction in average monthly retail voice revenues per customer was partially attributable to customers moving towards service plans with free incoming minutes and larger coverage areas, and staying within their packaged minutes, thereby limiting overages. Also, a decrease in the prepay customer base contributed to a decline in prepay voice revenues.

Inbound roaming revenues

The decrease in Inbound roaming revenues in 2009 was due primarily to a decline in roaming revenues from the combined entity of Verizon Wireless ("Verizon") and Alltel Corporation ("Alltel"). In January 2009, Verizon acquired Alltel. As a result of this transaction, the network footprints of Verizon and Alltel were combined. This has resulted in a decrease in inbound roaming revenues for U.S. Cellular, since the combined Verizon and Alltel entity has reduced its usage of U.S. Cellular's network in certain coverage areas that previously were used by Verizon and Alltel (as separate entities). U.S. Cellular anticipates that this trend will increase over the next several quarters and will more than offset the positive impact of the trends of increasing minutes of use and increasing data usage from U.S. Cellular's other roaming partners.

Additional changes in the network footprints of other carriers also could have an adverse effect on U.S. Cellular's inbound roaming revenues. For example, consolidation among other carriers which have network footprints that currently overlap U.S. Cellular's network could further decrease the amount of inbound roaming revenues for U.S. Cellular. U.S. Cellular also anticipates that its roaming revenue per minute of use will decline over time due to the renegotiation of existing contracts. The foregoing could have an adverse effect on U.S. Cellular's business, financial condition or results of operations.

Other revenues

The growth in Other revenues was due primarily to an increase in amounts that were received from the USF for states in which U.S. Cellular has been designated as an Eligible Telecommunications Carrier ("ETC"). U.S. Cellular was eligible to receive ETC funds in sixteen states in 2009 and eleven states in the first quarter of 2008; the ETC revenue amounts recorded were $37.7 million in 2009 and $30.5 million in 2008.

The Federal Communications Commission ("FCC") is considering significant changes to the USF. U.S. Cellular is not able to predict what changes, if any, will be adopted by the FCC. Such changes could have a material adverse impact on U.S. Cellular's financial condition and results of operations.

Equipment sales revenues

Equipment sales revenues include revenues from sales of handsets and related accessories to both new and existing customers, as well as revenues from sales of handsets and accessories to agents. All equipment sales revenues are recorded net of anticipated rebates.

U.S. Cellular strives to offer a competitive line of quality handsets to both new and existing customers. U.S. Cellular's customer retention efforts include offering new handsets at discounted prices to existing customers as the expiration date of the customer's service contract approaches. U.S. Cellular also continues to sell handsets to agents; this practice enables U.S. Cellular to provide better control over the quality of handsets sold to its customers, establish roaming preferences and earn quantity discounts from handset manufacturers which are passed along to agents. U.S. Cellular anticipates that it will continue to sell handsets to agents in the future.

The decrease in 2009 equipment sales revenues was driven by a decline of 9% in average revenue per handset sold, primarily reflecting aggressive handset promotions and discounts, partially offset by an increase in total handsets sold. Due to the current highly competitive conditions related to handset pricing in the wireless industry, U.S. Cellular expects continued pressure on its handset pricing in the foreseeable future.

Operating Expenses

System operations expenses (excluding Depreciation, amortization and accretion)

System operations expenses (excluding Depreciation, amortization, and accretion) include charges from wireline telecommunications service providers for U.S. Cellular's customers' use of their facilities, costs related to local interconnection to the wireline network, charges for maintenance of U.S. Cellular's network, long-distance charges, outbound roaming expenses and payments to third-party data product and platform developers. Key components of the overall increase in system operations expenses were as follows:

† The cost of network usage on U.S. Cellular's systems increased $4.8 million, or 7%, in 2009, as voice and data usage on U.S. Cellular's systems increased driven primarily by continued migration to voice plans with a larger number of packaged minutes, text messaging plans, and other data offerings. In addition, data network and developer costs increased due to the increase in data usage;

† Maintenance, utility and cell site expenses increased $2.8 million, or 4%, in 2009, primarily driven by increases in the number of cell sites within U.S. Cellular's network and rent expense per cell site. The number of cell sites totaled 6,942 in 2009 and 6,452 in 2008, as U.S. Cellular continued to grow by expanding and enhancing coverage in its existing markets; and

† Expenses incurred when U.S. Cellular's customers used other carriers' networks while roaming increased $1.4 million, or 3%, in 2009. The increase is due to an increase in roaming minutes of use driven by customer migration to national and wide area plans.

U.S. Cellular expects total system operations expenses to increase in the foreseeable future, driven by the following factors:

† Increases in the number of cell sites and other network facilities within U.S. Cellular's systems as it continues to add capacity and enhance quality;

† Continued expansion of 3G services to additional markets; and

† Increases in total voice minutes of use and data usage, both on U.S. Cellular's network and by U.S. Cellular's customers on other carriers' networks when roaming.

These factors are expected to be partially offset by anticipated decreases in the per-minute cost of usage on U.S. Cellular's and other carriers' networks.

Cost of equipment sold

Cost of equipment sold increased in 2009 due primarily to a 4% increase in the number of handsets sold.

U.S. Cellular expects loss on equipment, defined as equipment sales revenues less cost of equipment sold, to continue to be a significant cost and perhaps to increase in the foreseeable future as wireless carriers continue to use handset availability and pricing as a means of competitive differentiation. New handsets with expanded capabilities, particularly smart phones and premium touch screen . . .