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

 
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  -------------
                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


 X      QUARTERLY REPORT  PURSUANT TO  SECTION 13 OR 15(d) OF THE
        SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended              June 30, 1997                      
                              --------------------------------------------------

                                              OR

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

For the transition period from                        to                     
                              ------------------------  ------------------------

                          Commission File Number 1-8251

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

                        TELEPHONE AND DATA SYSTEMS, INC.

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

             (Exact name of registrant as specified in its charter)

            Iowa                                           36-2669023           
 -----------------------------                 ------------------------------ 
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

                30 North LaSalle Street, Chicago, Illinois  60602 
             --------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (312) 630-1900

                                 Not Applicable 
             ------------------------------------------------------
           (Former address of principal executive offices) (Zip Code)

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 the number of shares outstanding of each of the issuer's classes of 
common stock, as of the latest practicable date.

            Class                              Outstanding at July 31, 1997  
   -----------------------------              -------------------------------
    Common Shares, $1 par value                      52,580,316 Shares
Series A Common Shares, $1 par value                  6,927,174 Shares

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



<PAGE>


                        TELEPHONE AND DATA SYSTEMS, INC.
                        --------------------------------

                         2ND QUARTER REPORT ON FORM 10-Q
                         -------------------------------


                                      INDEX
                                      -----


                                                                      Page No.
                                                                      --------

Part I.      Financial Information

                Management's Discussion and Analysis of
                   Results of Operations and Financial Condition        2-13

                Consolidated Statements of Income -
                   Three Months and Six Months Ended
                   June 30, 1997 and 1996                                14

                Consolidated Statements of Cash Flows -
                   Six Months Ended June 30, 1997 and 1996               15

                Consolidated Balance Sheets -
                   June 30, 1997 and December 31, 1996                 16-17

                Notes to Consolidated Financial Statements             18-21


Part II.     Other Information                                         22-23


Signatures                                                               24



<PAGE>


                          PART I. FINANCIAL INFORMATION
                          -----------------------------
                TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
                -------------------------------------------------
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
          -------------------------------------------------------------
                             AND FINANCIAL CONDITION
                             -----------------------


Telephone and Data Systems, Inc. ("TDS" or the "Company") is a diversified
telecommunications company which provides high-quality telecommunications 
services to nearly 2.6 million cellular telephone, local telephone, personal 
communications service ("PCS") and radio paging customer units.  TDS's long-term
business development strategy is to expand its operations through internal
growth and acquisitions, and to explore and develop telecommunications 
businesses that management believes utilize TDS's expertise in customer-based 
telecommunications.

TDS continued to make substantial progress during the first half of 1997 with 
excellent growth in the cellular business, the launch of all six of Aerial's PCS
markets and steady results in the telephone business.  Revenues increased 23% as
a result of a 20% increase in customer units to nearly 2.6 million units.  The
commencement of PCS operations significantly reduced operating cash flows,
operating income and net income as compared to last year.  Strong increases in 
cash flow from United States Cellular Corporation and solid growth from TDS 
Telecommunications, Inc. were offset by Aerial Communications, Inc.'s start-up
activities resulting in a 3% decline in operating cash flow.  Operating income
decreased by 38% primarily due to the PCS start-up activities.  Net income to 
common declined 83% to $15.5 million as a result of a reduction in gains on the
sale of cellular interests and other investments and on the losses incurred in 
the start-up of the PCS markets.

United States Cellular Corporation ("U.S. Cellular"), TDS's 80.9%-owned cellular
subsidiary, continued its rapid growth during the first half of 1997.  Customer
units increased 47% to 1,263,000.  The increase in customer units drove a 28%
increase in revenues, a 36% increase in operating cash flow and a 57% increase 
in operating income.

TDS Telecommunications Corporation ("TDS Telecom"), TDS's wholly owned telephone
subsidiary, continued to provide solid growth with an 18% increase in revenues,
a 12% increase in operating cash flow and a 5% increase in operating income.  
Telephone access lines increased by 6% to 500,000.

Aerial Communications, Inc. ("Aerial"), TDS's 82.6%-owned PCS subsidiary,
launched service in all six of its markets in the first half of 1997.  Customer
units totaled 28,000 at June 30, 1997.  The launching of service resulted in
Aerial's costs being included in operating income in the second quarter of 1997.
Operating cash flow was a negative $45.8 million while operating losses totaled
$51.6 million.   PCS development costs, costs incurred prior to the launch of 
service, (included in "Investment and Other Income (Expense)") totaled $21.6
million in the first half of 1997 and $13.5 million in 1996.

American Paging, Inc. ("American Paging"), TDS's 82.0%-owned paging subsidiary,
reported a 3% decline in units in service to 780,600 contributing to a 7% 
decline in revenues.  The decrease in revenues combined with an increase in 
operating expenses caused operating losses to increase as compared to 1996.
Customer units increased by 13,200 units in the second quarter of 1997, the 
first reported quarterly increase in units since the second quarter of 1996.
 

                                       -2-
<PAGE>



RESULTS OF OPERATIONS
---------------------

Six Months Ended 6/30/97 Compared to Six Months Ended 6/30/96
-------------------------------------------------------------

Telephone and Data Systems, Inc. ("TDS" or the "Company") reported net income 
available to common of $15.5 million, or $.25 per share, in the first half of
1997, compared to $92.9 million, or $1.54 per share, in the first half of 1996.
Net income available to common from U.S. Cellular and TDS Telecom increased
59% to $66.6 million, or $1.10 per share, in the first half of 1997, from $41.9
million, or $.70 per share, in the first half of 1996.  Aerial's PCS development
and start-up activities reduced net income and earnings per share by $40.2
million, or $.66 per share, in 1997 and $5.6 million, or $.10 per share, in
1996.  American Paging's activities reduced net income and earnings per share by
$15.0 million, or $.25 per share, in 1997 and $4.2 million, or $.07 per share in
1996.  Net income included gains on the sale of cellular interests and other
investments of $4.0 million, or $.06 per share in 1997 and $60.8 million, or
$1.01 per share in 1996.

The table below summarizes the effects of the business units and gains (along
with the related impact on income taxes and minority interest) on net income
available to common and earnings per share.

                                                  Six Months Ended June 30,
                                                ---------------------------
                                                   1997            1996
                                                -----------     -----------
                                                  (Dollars in thousands, 
                                                 except per share amounts)
Net Income Available to Common
   U.S. Cellular and TDS Telecom                $   66,642     $   41,938
   Aerial                                          (40,193)        (5,636)
   American Paging                                 (14,969)        (4,202)
   Gains                                             4,007         60,789
                                                -----------    -----------
                                                $   15,487     $   92,889
                                                ===========    ===========
Earnings Per Share
   U.S. Cellular and TDS Telecom                $     1.10     $      .70
   Aerial                                             (.66)          (.10)
   American Paging                                    (.25)          (.07)
   Gains                                               .06           1.01
                                                -----------    ----------- 
                                                $      .25     $     1.54
                                                ===========    ===========
 

Operating Revenues increased 23% ($125.4 million) during the first half of 1997
primarily as a result of a 20% increase in customer units served to nearly 2.6 
million units at June 30, 1997.  U.S. Cellular contributed 71% ($89.1 million)
of the total increase in revenues and most of the increase in customer units, 
while TDS Telecom contributed 26% ($33.0 million) of the total increase in
revenues.

U.S. Cellular revenues increased 28% ($89.1 million) in 1997 on a 47% increase 
in customer units and strong inbound roaming revenues.  Cellular customers 
increased to 1,263,000 at June 30, 1997 from 860,000 at June 30, 1996.  Total
average monthly service revenue per customer was $56.03 in the first half of
1997 and $64.93 in 1996.  Average monthly service revenue per customer continues
to decline due to competitive pressures, incentive programs, consumer market
penetration and roaming revenues increasing at a slower rate than the U.S. 
Cellular customer base.

Local retail revenue increased 36% ($68.7 million) in the first half of 1997 due
primarily to the 47% customer growth.  Average monthly local retail revenue per
customer was $37.21 in the first half


                                       -3-
<PAGE>





of 1997 and $40.85 in 1996.  Average local minutes of use per retail customer 
increased to 106 in 1997 from 102 in 1996, while average local retail revenue
per minute totaled $.35 in 1997 compared to $.40 in 1996.  U.S. Cellular's 
increasing use of incentive programs that encourage lower-priced weekend and
off-peak usage, in order to stimulate overall usage, resulted in an increase in
average minutes of use and a lower average revenue per minute of use.  Average
revenue per minute also declined due to increased amounts of bill credits given
to customers as incentives to become or remain customers.  Inbound roaming
revenue (charges to customers of other systems who use U.S. Cellular's cellular
systems when roaming) increased 17% ($15.2 million) in the first half of 1997. 
The growth in roaming revenue is due to a 24% increase in minutes used offset
somewhat by negotiated reductions in roaming rates.  Average inbound roaming 
revenue per minute totaled $.88 in 1997 and $.93 in 1996.  Average monthly
inbound roaming revenue per customer was $14.66 in 1997 compared to $18.63 in
1996.  The decrease is related to both the decrease in roaming revenue per
minute and the faster growth of U.S. Cellular's customer base as compared to the
growth of inbound roaming revenues.

Beginning on January 1, 1997, U.S. Cellular changed its income statement 
presentation of certain credits for free or reduced-price air time or access 
given to customers on their monthly bills.  The foregone revenues are now 
reported as a reduction of local retail revenue instead of marketing and selling
expense (for new customers) and general and administrative expense (for current
customers).  Amounts in the affected revenue and expense categories have been 
reclassified for previous years, throughout this Form 10-Q.  Operating income 
and net income are not affected by this change.

TDS Telecom revenues increased 18% ($33.0 million) in 1997 due to growth in 
telephone operations ($22.4 million) and growth in other operations ($10.6
million).  Telephone operations revenues increased as a result of the effects of
acquisitions ($8.0 million), recovery of increased costs of providing 
long-distance services ($6.4 million), internal access line growth since 
June 30, 1996 ($2.8 million), increased network usage ($2.3 million) and 
increased sale of customer premise equipment ($2.1 million).  The number of
telephone access lines increased 6%  to 500,000 at June 30, 1997 from 471,000 at
June 30, 1996.  Average monthly revenue per access line increased to $66.99 for
the first half of 1997 from $65.52 in 1996.  Other operations include the 
revenues of a long-distance provider, a recently acquired cellular interest as
well as TDS Telecom's new business ventures which include an Internet access 
provider and a structured wiring business.

Aerial revenues totaled $7.1 million in 1997 consisting primarily of revenues 
from units sold to customers ($5.9 million).  At June 30, 1997, Aerial had
28,000 customers in service resulting in $1.2 million of service revenue.

American Paging revenues decreased 7% ($3.8 million) in 1997 due primarily to
decreases in the number of paging units in service and the average revenue per 
unit.  The number of pagers in service decreased 3% to 780,600 in 1997 from 
803,500 in 1996.  Average revenue per unit decreased 4% to $9.48 in 1997 from
$9.89 in 1996 reflecting competitive pricing declines and a shift in
distribution channel mix towards indirect channels, which typically provide 
lower service revenue per unit.

Operating Expenses rose 33% ($155.7 million) in the first half of 1997 due 
primarily to added expenses to serve the growing customer base and PCS expenses
attributable to the start-up activities.  U.S. Cellular represented 42%
($65.3 million) of the total increase  and TDS Telecom represented 20% 
($30.5 million) of the increase primarily due to the increase in customers while
Aerial's start-up activities represented 38% ($58.8 million) of the increase.



                                       -4-
<PAGE>




U.S. Cellular expenses increased 24% ($65.3 million) during 1997.  System 
operations expenses increased 32% ($16.9 million) in 1997 as a result of
increases in customer usage expenses and costs associated with the growing 
number of cell sites within U.S. Cellular's systems.  Customer usage expenses
grew 38% ($11.9 million) as minutes of use increased, primarily related to the
47% increase in customer units and increased roaming usage.  Maintenance, 
utility and cell site expenses increased 24% ($5.0 million) reflecting primarily
the increase in the number of cell sites to 1,485 in 1997 from 1,185 in 1996.
Marketing and selling expenses incurred to add new customers increased 30%
($26.3 million), including a $4.4 million increase in cost of equipment sold. 
Cost per gross customer addition declined to $320 in 1997 from $325 in 1996 
while gross customer activations increased to 321,000 in 1997 from 240,000 in
1996.  As discussed above, customer bill credits were reclassified from
marketing and selling expenses and general and administrative expenses to local
retail revenue in 1997 and 1996.  General and administrative expenses increased 
15% ($12.3 million) due to the growing customer base in existing markets and an
expansion of local office and corporate staff necessitated by U.S. Cellular's 
growth.  Depreciation and amortization increased 19% ($9.8 million) primarily 
due to the increase in average fixed assets since June 30, 1996.

TDS Telecom expenses increased 22% ($30.5 million) during 1997 primarily due to
growth in telephone operations ($18.7 million) and growth in other operations 
($11.8 million).  Telephone operations increased primarily due to the effects of
acquisitions ($6.2 million), increased depreciation and amortization 
($5.8 million), growth in internal operations ($4.4 million), and development of
a centralized network management center and new products and services ($2.8
million).  Other operations include the expenses of a long-distance provider, a
recently acquired cellular interest as well as TDS Telecom's new business
ventures which include an Internet access provider and a structured wiring
business.

Aerial expenses, included in operating expenses, totaled $58.8 million in the
first half of 1997.  Expenses incurred in the first quarter of 1997, prior to
the launch of the first market, are included in PCS Development Costs as part of
Other Income.  System operations expenses totaled $4.0 million reflecting the
costs of operating Aerial's network, primarily cell site expenses, landline
interconnection charges and wages.  Marketing and selling expenses reflecting an
aggressive advertising campaign that accompanied the launch of service, totaled
$14.9 million while cost of equipment sold totaled $15.0 million.  General and 
administrative expenses totaled $17.2 million reflecting the expenses associated
with the management and operating teams as well as overhead expenses.  Customer 
service expenses totaled $1.8 million primarily for the staffing to support the
roll-out of the PCS markets.  Depreciation and amortization totaled $5.9 
million.

American Paging expenses increased 2% ($1.1 million) in the first half of 1997.
Selling, general and administrative expenses increased 4% ($1.3 million) 
primarily due to increases in selling and marketing costs associated with 
increased recruiting and training costs related to sales force turnover 
($4.1 million), offset somewhat by a decrease in general and administrative
expenses ($2.7 million) primarily related to the decrease in restructuring 
costs.  During the first half of 1996, American Paging recorded restructuring
expenses of $1.9 million related to subleasing office space, employee severance,
out placement services and consulting services.



                                       -5-
<PAGE>



Operating Income decreased 38% ($30.3 million) in the first half of 1997 
reflecting the effects of Aerial's start-up activities offset somewhat by strong
(57%) growth in U.S. Cellular's operating results.  The strong growth in 
cellular operating income is reflected in the cellular margin improvements.  TDS
Telecom's margin decreased due primarily to TDS Telecom's new business ventures.

                                         Six Months Ended June 30,
                               ----------------------------------------
                                   1997          1996           Change
                               -----------   -----------   ------------ 
                                         (Dollars in thousands)

Operating Income
    U.S. Cellular              $   65,599    $   41,843     $   23,756
    TDS Telecom                    51,306        48,848          2,458
    Aerial                        (51,633)           --        (51,633)
    American Paging               (15,540)      (10,653)        (4,887)
                               -----------   -----------    ----------- 
                               $   49,732    $   80,038     $  (30,306)
                               ===========   ===========    ===========
Operating Margins
    U.S. Cellular                   16.3%         13.4%
    TDS Telecom                     23.3%         26.1%
    Aerial                            N/M           N/M
    American Paging                (31.8%)       (20.3%)
    Consolidated                     7.3%         14.5%

N/M = Not Meaningful

Management believes there exists a seasonality at U.S. Cellular in both service
revenue, which tend to increase more slowly in the first and fourth quarters,
and operating expenses, which tend to be higher in the fourth quarter due to 
increased marketing activities and customer growth.  This seasonality may cause
operating income to vary from quarter-to-quarter.  Additionally, competitors
licensed to provide PCS services have initiated service in certain of U.S. 
Cellular's markets over the past twelve months.  U.S. Cellular expects PCS
operators to complete initial deployment of PCS across all of its markets by the
end of 1998.  U.S. Cellular's management is monitoring these and other wireless
communications providers' strategies to determine what effect this additional
competition will have on U.S. Cellular's future strategies and results.

Investment and Other Income (Expense) totaled $24.3 million in 1997 and $124.1
million in 1996.  Gain on Sale of Cellular Interests and Other Investments
totaled $10.6 million in the first half of 1997 and $128.3 million in 1996 as 
the Company has sold or traded certain non-strategic cellular interests and sold
other investments.  PCS Development Costs totaled $21.6 million in 1997 and
$13.5 million in 1996.  The increase is associated with the costs prior to
launching PCS service in Aerial markets.  Effective with the beginning of the 
second quarter of 1997, all costs associated with the markets are now being
included in operating income.  Cellular Investment Income, the Company's share 
of income of cellular markets in which the Company has a minority interest and
follows the equity method of accounting, increased 59% ($13.2 million) in the 
first half of 1997 as income from the cellular markets increased.  Cellular
investment income is net of amortization of license costs relating to these 
minority interests.



                                       -6-
<PAGE>



Minority Share of Income includes the minority shareholders' share of U.S. 
Cellular's, Aerial's and American Paging's net income or loss, minority 
partners' share of U.S. Cellular's operating markets and other minority 
shareholders' and partners' share of subsidiaries' net income or loss.  The
decrease in 1997 is primarily related to the increase in Aerial's net loss 
allocated to its minority shareholders and the decrease in U.S. Cellular's net 
income allocated to its minority shareholders caused by the reduction in gains.
Minority shareholders of American Paging are not allocated losses in 1997 as
American Paging's shareholders' equity is negative.

                                                 Six Months Ended June 30,
                                        --------------------------------------
                                           1997           1996         Change
                                        ----------     ----------    ---------
                                                (Dollars in thousands)
Minority Share of (Income) Loss
  United States Cellular
     Minority Shareholders' Share       $  (9,563)     $ (17,845)    $  8,282
     Minority Partners' Share              (7,248)        (5,421)      (1,827)
                                        ----------     ----------    --------- 
                                          (16,811)       (23,266)       6,455
  Aerial                                   13,488            809       12,679
  American Paging                              --          2,422       (2,422)
  Telephone Subsidiaries and Other           (869)          (767)        (102)
                                        ----------     ----------    --------- 
                                        $  (4,192)     $ (20,802)    $ 16,610
                                        ==========     ==========    =========
                                                                            
Interest Expense increased 60% ($12.7 million) in the first half of 1997 
primarily due to the increase in short- and long-term debt outstanding.  
Interest expense also increased $3.4 million as the Company discontinued 
capitalizing interest on broadband PCS licenses upon commencement of PCS
operations.

Income Tax Expense decreased 73% ($65.8 million) in 1997 compared with 1996 
primarily due to the decrease in pretax income.  The effective income tax rate 
was 59% in the first half of 1997 and 49% in 1996.

Certain expenses are not deductible for tax purposes, such as amortization of 
intangibles related to tax free acquisitions.  The amount of these expenses were
about the same in 1997 and 1996.  Pretax income however, is expected to be 
substantially lower in 1997.  Due to the expected lower pretax income, the 
impact of these expenses on the effective income tax rate increased the rate
approximately 10 percentage points when compared to 1996.

Net Income Available to Common decreased $77.4 million to $15.5 million in the 
first half of 1997 from $92.9 million in the first half of 1996.  Earnings Per
Common Share were $.25 in the first half of 1997 and $1.54 in the first half of
1996.

Net income available to common included significant gains from the sale of
cellular interests and other investments in 1996 as well as significant PCS 
development costs in 1997 and 1996 as explained previously.

TDS anticipates that start-up and development of high-quality networks and the
marketing of systems in Aerial's markets will reduce the rate of growth in TDS's
operating and net income from levels which would otherwise be achieved during
the next few years.



                                       -7-
<PAGE>




Three Months Ended 6/30/97 Compared to Three Months Ended 6/30/96

Net income available to common was $6.4 million, or $.11 per share, in 1997 
compared to $59.5 million, or $.97 per share in 1996.  Net income from U.S. 
Cellular and TDS Telecom increased 67% to $38.2 million, or $.64 per share in
1997 from $22.9 million, or $.37 per share, in 1996, primarily reflecting growth
in the cellular business. The loss from Aerial's PCS start-up activities totaled
$28.6 million, or $.48 per share, in 1997 and $1.8 million, or $.03 per share in
1996.  American Paging's loss reduced net income and earnings per share by $7.2
million, or $.12 per share, in 1997 and $2.1 million, or $.03 per share in 1996.
Net income and earnings per share included gains of $4.0 million, or $.07 per
share, in 1997 and  $40.5 million, or $.66 per share, in 1996.

The table below summarizes the effects of the business units and gains
(along with the related impact on income taxes and minority interest) on net
income available to common and earnings per share.

                                                   Three Months Ended June 30,
                                                  ----------------------------
                                                     1997             1996
                                                  -----------    -------------
                                                     (Dollars in thousands,
                                                   except per share amounts)
Net Income Available to Common
   U.S. Cellular and TDS Telecom                  $    38,190    $    22,855
   Aerial                                             (28,639)        (1,807)
   American Paging                                     (7,207)        (2,079)
   Gains                                                4,007         40,481
                                                  -----------    ----------- 
                                                  $     6,351    $    59,450
                                                  ===========    ===========
Earnings Per Share
   U.S. Cellular and TDS Telecom                  $       .64     $      .37
   Aerial                                                (.48)          (.03)
   American Paging                                       (.12)          (.03)
   Gains                                                  .07            .66
                                                  -----------    -----------
                                                  $       .11     $      .97
                                                  ===========    ===========

Operating Revenues increased 23% ($66.3 million) during the second quarter of 
1997 for reasons generally the same as the first six months.  U.S. Cellular
revenues increased 28% ($48.1 million) in 1997.  Local retail revenue increased
36% ($36.6 million) in the second quarter of 1997, while inbound roaming revenue
increased 18% ($8.8 million).  Average monthly service revenue per customer was
$58.41 in the second quarter of 1997 and $67.43 in 1996.  TDS Telecom revenues
increased 13% ($13.1 million) in the second quarter of 1997.  Average revenue 
per access line increased slightly to $67.03 in the second quarter of 1997 from
$66.72 in 1996.  Aerial revenues totaled $7.1 million in the second quarter of
1997 consisting primarily of revenues from units sold to customers 
($5.9 million).  American Paging revenues decreased 8% ($2.0 million) in 1997.
Average revenue per unit decreased 4% to $9.34 in 1997 from $9.73 in 1996.
 
Operating Expenses rose 44% ($107.9 million) during the second quarter of 1997
for reasons generally the same as the first six months.  U.S. Cellular expenses
increased 26% ($36.0 million).  System operations expense increased 32% 
($9.2 million).  Marketing and selling expenses, including cost of equipment 
sold, increased 32% ($14.1 million).  Cost per gross customer addition remained
steady at $320 in the second quarter of 1997 and 1996.  TDS Telecom expenses
increased 20% ($14.6 million) for reasons generally the same as the first six 
months.  Aerial's operating expenses were incurred in the second quarter of 1997
as the markets were placed into service.  American Paging operating expenses
decreased 5% ($1.5 million) due primarily to the $1.5 million restructuring
charge recorded in 1996.



                                       -8-
<PAGE>



Operating Income decreased 85% ($41.6 million) in the second quarter of 1997 
reflecting the $51.6 million operating loss from the PCS start-up activities.  
U.S. Cellular operating income increased $12.1 million reflecting continued 
growth in customers and revenues.
 
                                        Three Months Ended June 30,       
                              --------------------------------------------  
                                  1997             1996           Change
                              ------------     -----------     -----------  
                                          (Dollars in thousands)
Operating Income
    U.S. Cellular             $    42,154      $   30,021      $   12,133
    TDS Telecom                    24,080          25,627          (1,547)
    Aerial                        (51,633)             --         (51,633)
    American Paging                (7,129)         (6,567)           (562)
                              ------------     -----------     -----------
                              $     7,472      $   49,081      $  (41,609)
                              ============     ===========     ===========

Operating Margins:
    U.S. Cellular                   19.4%           17.7%
    TDS Telecom                     21.7%           26.2%
    Aerial                            N/M             N/M
    American Paging                (29.4%)         (25.0%)
    Consolidated                     2.1%           16.7%

 N/M = Not Meaningful

Investment and Other Income totaled $29.3 million in 1997 and $81.9 million in 
1996.  Gain on Sale of Cellular Interests and Other Investments totaled $10.6 
million in the second quarter of 1997 compared to $86.5 million in 1996 as the 
Company has sold or traded certain non-strategic cellular interests and sold
other investments.  PCS Development Costs, costs incurred prior to the 
commencement of operations in the PCS markets, totaled $7.8 million in 1996.  
Cellular Investment Income increased 51% ($6.0 million), reflecting improvement 
in U.S. Cellular's equity-method markets managed by others.

Minority Share of Income decreased 89% ($12.0 million) in the second quarter of
1997 due primarily to the increase in Aerial's net loss allocated to its
minority shareholders and the decrease in U.S. Cellular's net income allocated
to its minority shareholders caused by the reduction in gains.
 
                                               Three Months Ended June 30,
                                        ---------------------------------------
                                           1997          1996          Change  
                                        ----------    -----------    ----------
                                                 (Dollars in thousands)
Minority Share of (Income) Loss
    United States Cellular
        Minority Shareholders' Share    $  (6,042)    $  (12,230)    $   6,188
        Minority Partners' Share           (4,383)        (3,309)       (1,074)
                                        ----------    -----------    ----------
                                          (10,425)       (15,539)        5,114
    Aerial                                  9,639            809         8,830
    American Paging                            --          1,476        (1,476)
    Telephone Subsidiaries and Other         (647)          (181)         (466)
                                        ----------    -----------    ----------
                                        $  (1,433)    $  (13,435)    $  12,002
                                        ==========    ===========    ==========

Interest Expense increased $10.7 million to $19.9 million in the second quarter
of 1997 for reasons generally the same as the first six months.



                                       -9-
<PAGE>




Income Tax Expense decreased $52.1 million in 1997 compared with 1996 as pretax 
income decreased.  The effective income tax rate was 60% in the second quarter 
of 1997 and 51% in 1996.

Net Income Available to Common decreased 89% ($53.1 million) to $6.4 million in 
the second quarter of 1997 from $59.4 million in 1996.  Earnings Per Common 
Share were $.11 in 1997 and $.97 in 1996.

FINANCIAL RESOURCES AND LIQUIDITY

TDS and its subsidiaries operate relatively capital-intensive businesses.  Rapid
growth has caused expenditures for construction, expansion and acquisition 
programs to exceed internally generated cash flow.  Accordingly, in recent 
years, TDS has obtained substantial funds from external sources to acquire PCS 
licenses, to build-out PCS markets, to fund acquisitions and to repurchase 
common shares.  Although increasing internal cash flow from U.S. Cellular and 
steady internal cash flow from TDS Telecom have reduced the need for external 
financing, Aerial's development and construction activities will require 
significant additional funds from external sources.

Cash Flows From Operating Activities.  TDS is generating substantial internal 
funds from the rapid growth in customer units and revenues in the U.S. Cellular 
and TDS Telecom business units.  U.S. Cellular's operating cash flow increased 
36% ($33.6 million) while TDS Telecom's operating cash flow increased 12% 
($10.7 million).  However, due to the start-up of operations at Aerial, 
operating cash flow (operating income plus depreciation and amortization) 
decreased 3% to $181.5 million in the first half  of 1997 from $187.4 million in
1996 as a result of Aerial's $45.8 million negative cash flow.  Cash flows for
other operating activities (investment and other income, interest and income tax
expense, and changes in working capital and other assets and liabilities) 
required $74.9 million in the first half of 1997 and $101.2 million in 1996.

                                            Six Months Ended June 30,
                               ------------------------------------------     
                                    1997           1996          Change
                               ------------   ------------   ------------
                                         (Dollars in thousands)
Operating cash flow
     U.S. Cellular             $   127,191    $    93,594    $    33,597
     TDS Telecom                   100,491         89,753         10,738
     Aerial                        (45,750)            --        (45,750)
     American Paging                  (395)         4,010         (4,405)
                               ------------   -----------    ------------
                                   181,537        187,357         (5,820)
Other operating activities         (74,864)      (101,152)        26,288
                               ------------   ------------   ------------
                               $   106,673    $    86,205    $    20,468
                               ============   ============   ============ 

Cash Flows from Financing Activities.  TDS has used short-term debt to finance 
its PCS and radio paging operations, for acquisitions and for general corporate
purposes. TDS has taken advantage of attractive opportunities from time-to-time
to retire short-term debt with the proceeds from long-term debt and equity sales
and sales of non-strategic assets.  Cash flows from financing activities totaled
$244.0 million in the first half of 1997 compared to $8.5 million in 1996.  
Increases in short-term debt  provided most of the Company's external financing 
requirements during the first half of 1997.  The 1997 borrowings were used 
primarily to fund expenditures for PCS construction and development activities 
and for stock repurchases.  In 1996, Aerial received net proceeds of $195.1 
million in an initial public offering.  TDS also paid down $163.4 million of 
short-term debt in 1996.

In December 1996, the Company authorized the repurchase of up to three million 
TDS Common Shares over a period of three years.  Through June 30, 1997, TDS has
purchased 1,798,100 TDS


                                      -10-
<PAGE>



Common Shares for an aggregate purchase price of $69.9 million.  TDS also 
purchased 350,000 U.S. Cellular Common Shares for $9.8 million in the first half
of 1997.

Cash Flows From Investing Activities.  TDS makes substantial investments each 
year to acquire, construct, operate and maintain modern high-quality 
communications networks and facilities as a basis for creating long-term value 
for shareowners.  Cash flows from investing activities required $372.7 million 
in the first half of 1997 compared to $72.7 million in 1996, primarily for 
additions to property, plant and equipment totaling $393.2 million in 1997 and 
$211.8 million in 1996.  The increase in property, plant and equipment is 
primarily related to Aerial's construction activities.  The sales of 
non-strategic cellular interests and other investments provided $21.4 million
in 1997 and $183.9 million in 1996.

Property, Plant and Equipment.  The primary purpose of TDS's construction and 
expansion program is to provide for significant customer growth, to upgrade 
service, to expand into new communication areas, and to take advantage of 
service-enhancing and cost-reducing technological developments.  Additions to 
property, plant and equipment totaled $393.2 million in the first half of 1997. 
U.S. Cellular had capital expenditures of $161.1 million primarily for cell 
sites and equipment.  TDS Telecom incurred $54.8 million for telephone plant 
and equipment while Aerial incurred $157.7 million primarily for digital and 
incremental switching to launch its markets.

Acquisitions.  TDS continually reviews attractive opportunities for the 
acquisition of additional cellular and telephone companies which add value to 
the organization.  As the number of opportunities for outright acquisitions of 
cellular interests has decreased and as U.S. Cellular's clusters have grown to 
realize greater economies of scale, U.S. Cellular's focus has shifted toward
exchanges and sales of non-strategic interests.

In February 1997, U.S. Cellular announced that it had entered into an exchange 
agreement with BellSouth Corporation, pursuant to which U.S. Cellular will 
receive majority interests in 12 contiguous markets adjacent to its Iowa and 
Wisconsin/Illinois clusters.  In exchange, U.S. Cellular will transfer its 
majority interests in 10 markets, minority interests in 13 markets, pay cash 
and incur certain income tax costs, the amounts of which are dependent upon 
certain factors.   U.S. Cellular will receive majority interests representing 
approximately 3.9 million population equivalents ("pops") in the transaction, 
and will divest majority interests representing approximately 1.9 million pops 
and minority interests representing 1.4 million pops.  The transaction is 
subject to various regulatory and other approvals.



                                      -11-
<PAGE>




LIQUIDITY

TDS anticipates that the aggregate resources required for 1997 will include 
approximately $800 million for capital spending, consisting of $300 million for 
cellular capital additions, $130 million for telephone capital additions, $345 
million for PCS capital additions and $25 million for the radio paging property 
and equipment, and $255 million for working capital and operating expenses for
Aerial.  The Company anticipates financing these expenditures with internally 
generated funds and short-term and intermediate-term financing.

TDS is generating substantial internal funds from the rapid growth in customer 
units and revenues.  Operating cash flow for the twelve months ended June 30, 
1997 increased $22.1 million, or 6%, to $379.9 million from $357.8 million in 
1996 despite the $45.8 million negative operating cash flow associated with the 
PCS start-up activities.

                                  Twelve Months Ended June 30,
                            --------------------------------------------      
                                1997            1996           Change
                            -------------   ------------    ------------       
                                        (Dollars in thousands)
Operating cash flow
       Cellular             $    229,802    $    166,186    $    63,616
       Telephone                 203,063         179,149         23,914
       PCS                       (45,750)             --        (45,750)
       Radio paging               (7,254)         12,460        (19,714)
                            -------------   ------------    ------------
                            $    379,861    $    357,795    $    22,066
                            =============   ============    ============

U.S. Cellular plans to finance its cellular construction program using primarily
internally generated cash supplemented by short-term and intermediate-term 
financing.  TDS Telecom plans to finance its construction program using 
internally generated cash supplemented by long-term financing from federal 
government programs.  Aerial plans to finance its construction expenditures and 
working capital requirements with short-term and intermediate-term financing, 
vendor financing and sales of minority equity interests in its MTAs.

U.S. Cellular filed a shelf Registration Statement on Form S-3 on July 31, 1997 
for the sale of up to $400 million of unsecured debt.  U.S. Cellular expects to 
issue debt securities under the shelf registration during the third quarter of 
1997.  U.S. Cellular anticipates using the proceeds of the offering for 
general corporate purposes, which may include the repayment of indebtedness.

TDS and its subsidiaries have cash and temporary investments totaling $67.8 
million and longer-term cash investments totaling $42.8 million at June 30, 
1997. These investments are primarily the result of telephone operations' 
internally generated cash. While certain regulated telephone subsidiaries' debt 
agreements place limits on intercompany dividend payments, these restrictions
are not expected to affect the Company's ability to meet its cash obligations.

TDS and its subsidiaries also have access to a variety of external capital 
sources.  TDS and its subsidiaries had $645 million of bank lines of credit for 
general corporate purposes at June 30, 1997. Unused amounts of such lines 
totaled $140 million. These line of credit agreements provide for borrowings at 
negotiated rates up to the prime rate.  U.S. Cellular is currently engaged in
negotiations regarding a proposed $500 million revolving credit facility, 
although no agreement in principle has been reached.

The Company anticipates requiring additional funding to finance Aerial's 
expected capital expenditures and working capital requirements, to finance 
acquisitions and for general corporate purposes.  The timing and amount of such 
funding requirements will depend on the timing of Aerial's construction and 
operational requirements, the timing of acquisitions, and other relevant


                                      -12-
<PAGE>



factors.  There can be no assurance that sufficient funds will be available to 
the Company on terms or at prices acceptable to the Company.  If sufficient 
funding is not made available to the Company on terms and prices acceptable to 
the Company, the Company would have to reduce its construction, development and 
acquisition programs.  TDS and its subsidiaries anticipate accessing public and 
private capital markets to issue debt and equity securities only when capital
requirements, financial market conditions and other factors warrant.
































PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY 
STATEMENT

This Management's Discussion and Analysis of Financial Condition and Results of 
Operations  contain "forward-looking" statements, as defined in the Private 
Securities Litigation Reform Act of 1995, that are based on current 
expectations, estimates and projections.  Statements that are not historical 
facts, including statements about the Company's beliefs and expectations are 
forward-looking statements.  These statements contain potential risks and 
uncertainties and, therefore, actual results may differ materially.  TDS 
undertakes no obligation to update publicly any forward-looking statements 
whether as a result of new information, future events or otherwise.

Important factors that may affect these projections or expectations include, 
but are not limited to:  changes in the overall economy; changes in competition 
in markets in which TDS operates; advances in telecommunications technology; 
changes in the telecommunications regulatory environment; pending and future 
litigation; availability of future financing; start-up of PCS operations; and 
unanticipated changes in growth in cellular customers, penetration rates, churn 
rates and the mix of products and services offered in TDS's markets.  Readers 
should evaluate any statements in light of these important factors.



                                      -13-
<PAGE>




                TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
                -------------------------------------------------
                        CONSOLIDATED STATEMENTS OF INCOME
                        ---------------------------------
                                    Unaudited
                                    ---------

                                   Three Months Ended        Six Months Ended
                                       June 30,                   June 30,
                                  ---------------------   ---------------------
                                     1997        1996        1997        1996  
                                  ---------   ---------   ---------   --------- 
                                              (Dollars in thousands, 
                                             except per share amounts)
OPERATING REVENUES
    Cellular telephone            $ 217,579   $ 169,470   $ 402,163   $ 313,112
    Telephone                       111,026      97,935     220,040     187,046
    PCS                               7,143          --       7,143          -- 
    Radio paging                     24,248      26,296      48,828      52,606
                                  ---------   ---------   ---------   ---------
                                    359,996     293,701     678,174     552,764
                                  ---------   ---------   ---------   ---------
OPERATING EXPENSES
    Cellular telephone              175,425     139,449     336,564     271,269
    Telephone                        86,946      72,308     168,734     138,198
    PCS                              58,776          --      58,776          --
    Radio paging                     31,377      32,863      64,368      63,259
                                  ---------   ---------   ---------   ---------
                                    352,524     244,620     628,442     472,726
                                  ---------   ---------   ---------   ---------
OPERATING INCOME                      7,472      49,081      49,732      80,038
                                  ---------   ---------   ---------   ---------
INVESTMENT AND OTHER INCOME
    Interest and dividend income      3,478       3,947       6,896       6,123
    Cellular investment income, 
      net of license cost 
      amortization                   17,802      11,780      35,403      22,229
    PCS development costs                --      (7,761)    (21,614)    (13,507)
    Gain on sale of cellular
      interests and other 
      investments                    10,598      86,494      10,598     128,252
    Other (expense), net             (1,129)        879      (2,766)      1,765
    Minority share of income         (1,433)    (13,435)     (4,192)    (20,802)
                                  ---------   ---------   ---------   ---------
                                     29,316      81,904      24,325     124,060
                                  ---------   ---------   ---------   ---------
INCOME BEFORE INTEREST
    AND INCOME TAXES                 36,788     130,985      74,057     204,098
Interest expense                     19,880       9,137      33,694      20,997
                                  ---------   ---------   ---------   ---------
INCOME BEFORE INCOME TAXES           16,908     121,848      40,363     183,101
Income tax expense                   10,087      62,156      23,925      89,720
                                  ---------   ---------   ---------   ---------
NET INCOME                            6,821      59,692      16,438      93,381
Preferred Dividend Requirement         (470)       (242)       (951)       (492)
                                  ---------   ---------   ---------   ---------
NET INCOME AVAILABLE TO
    COMMON                        $   6,351   $  59,450   $  15,487   $  92,889
                                  =========   =========   =========   =========
WEIGHTED AVERAGE COMMON
    SHARES (000s)                    60,161      61,259      60,757      60,465

EARNINGS PER COMMON SHARE         $     .11   $     .97   $     .25   $    1.54
                                  =========   =========   =========   =========
DIVIDENDS PER COMMON AND
    SERIES A COMMON SHARE         $    .105   $     .10   $     .21   $     .20
                                  =========   =========   =========   =========

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


                                      -14-
<PAGE>




                TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
                -------------------------------------------------
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      -------------------------------------
                                    Unaudited
                                    ---------
                                                           Six Months Ended
                                                               June 30,
                                                  -----------------------------
                                                      1997              1996
                                                  -------------     -----------
                                                      (Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                    $    16,438       $    93,381
        Add (Deduct) adjustments to 
        reconcile net income to net cash 
        provided by operating activities
           Depreciation and amortization              131,806           107,318
           Deferred taxes                               5,483            23,437
           Investment income                          (37,993)          (24,550)
           Minority share of income                     4,192            20,802
           Gain on sale of cellular interests
            and other investments                     (10,598)         (128,252)
           Noncash interest expense                    11,712             8,249
           Other noncash expense                       11,475             9,989
           Change in accounts receivable              (26,795)          (30,690)
           Change in materials and supplies            (7,581)            4,646
           Change in accounts payable                     553           (11,378)
           Change in accrued taxes                     11,904            16,674
           Change in other assets and liabilities      (3,923)           (3,421)
                                                 -------------      -----------
                                                      106,673            86,205
                                                 -------------      -----------
CASH FLOWS FROM FINANCING ACTIVITIES
    Long-term debt borrowings                           7,935             6,811
    Repayments of long-term debt                      (20,435)          (16,327)
    Change in notes payable                           346,604          (163,437)
    Dividends paid                                    (13,652)          (13,046)
    Repurchase of Common Shares                       (68,523)               --
    Purchase of subsidiary common stock                (9,801)               --
    Proceeds from the issuance of subsidiaries' stock      --           195,118
    Other financing activities                          1,879              (638)
                                                -------------       -----------
                                                      244,007             8,481
                                                -------------       -----------
CASH FLOWS FROM INVESTING ACTIVITIES
    Additions to property, plant and equipment       (393,232)         (211,845)
    Investments in and advances to cellular
        minority partnerships                          (6,167)          (10,919)
    Distributions from partnerships                    24,028            10,031
    Investments in PCS licenses                        (5,073)          (13,525)
    Proceeds from investment sales                     21,384           183,896
    Change in other investments                         3,291            (1,822)
    Acquisitions, net of cash acquired                (36,606)             (925)
    Change in temporary investments and 
        marketable securities                          19,628           (27,582)
                                                -------------      ------------
                                                     (372,747)          (72,691)
                                                -------------      ------------
NET (DECREASE) INCREASE IN CASH AND
  CASH EQUIVALENTS                                    (22,067)           21,995
CASH AND CASH EQUIVALENTS -
    Beginning of period                                57,633            55,116
                                                -------------      ------------
    End of period                               $      35,566      $     77,111
                                                =============      ============
                                                                              
  The accompanying notes to financial statements are an integral part of these
                                  statements.


                                      -15-
<PAGE>




                TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
                -------------------------------------------------

                           CONSOLIDATED BALANCE SHEETS
                           ---------------------------
              
                                     ASSETS
                                     ------

                                           (Unaudited)
                                          June 30, 1997       December 31, 1996
                                        ---------------       -----------------
                                                   (Dollars in thousands)

CURRENT ASSETS
    Cash and cash equivalents           $        35,566         $        57,633
    Temporary investments                        32,256                  61,664
    Accounts receivable from customers
        and others                              209,512                 181,212
    Materials and supplies, at average cost,
        and other current assets                 64,641                  45,561
                                        ---------------         --------------- 
                                                341,975                 346,070
                                        ---------------         ---------------
INVESTMENTS
    Cellular license acquisition costs, 
        net of amortization                   1,108,119               1,088,409
    Cellular minority interests                 222,117                 206,390
    PCS license acquisition costs               380,625                 382,724
    Franchise costs and other costs in 
        excess of the underlying book 
        value of subsidiaries, net              179,368                 181,845
    Other investments                            94,757                  84,536
                                        ---------------         --------------- 
                                              1,984,986               1,943,904
                                        ---------------         ---------------
PROPERTY, PLANT AND EQUIPMENT
    Cellular telephone, net                     745,671                 650,754
    Telephone, net                              770,662                 774,388
    PCS, net                                    486,326                 322,723
    Radio paging, net                            47,846                  51,472
    Other, net                                   37,591                  29,552
                                        ---------------         --------------- 
                                              2,088,096               1,828,889
                                        ---------------         --------------- 
OTHER ASSETS AND DEFERRED CHARGES                91,071                  82,106
                                        ---------------         ---------------
    TOTAL ASSETS                        $     4,506,128         $     4,200,969
                                        ===============         =============== 
 

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


                                      -16-
<PAGE>



                TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES
                -------------------------------------------------

                           CONSOLIDATED BALANCE SHEETS
                           ---------------------------

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



                                                (Unaudited)
                                               June 30, 1997   December 31, 1996
                                               --------------  -----------------
                                                      (Dollars in thousands)
CURRENT LIABILITIES
    Current portion of long-term debt
        and preferred shares                     $     38,346      $     38,197
    Notes payable                                     505,206           160,537
    Accounts payable                                  216,925           205,427
    Advance billings and customer deposits             35,191            32,434
    Accrued interest                                   12,173            11,777
    Accrued taxes                                      16,640             3,194
    Other current liabilities                          51,430            57,701
                                                 ------------      ------------ 
                                                      875,911           509,267
                                                 ------------      ------------ 

DEFERRED LIABILITIES AND CREDITS                      223,019           214,906
                                                 ------------      ------------ 
LONG-TERM DEBT, excluding current portion             983,364           982,232
                                                 ------------      ------------
REDEEMABLE PREFERRED SHARES, excluding
    current portion                                       279               280
                                                 ------------      ------------ 
MINORITY INTEREST in subsidiaries                     430,169           432,343
                                                 ------------      ------------ 
NONREDEEMABLE PREFERRED SHARES                         28,640            29,000
                                                 ------------      ------------
COMMON STOCKHOLDERS' EQUITY
    Common Shares, par value $1 per share              54,367            54,237
    Series A Common Shares, 
      par value $1 per share                            6,922             6,917
    Common Shares issuable (10,480 and 30,977
      shares, respectively)                               499             1,461
    Capital in excess of par value                  1,660,797         1,661,093
    Treasury Shares, at cost (1,796,070 shares)       (69,867)               --
    Retained earnings                                 312,028           309,233
                                                 ------------      ------------
                                                    1,964,746         2,032,941
                                                 ------------      ------------
    TOTAL LIABILITIES AND 
    STOCKHOLDERS' EQUITY                         $  4,506,128      $  4,200,969
                                                 ============      ============

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


                                      -17-
<PAGE>



                TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.    The consolidated financial statements included herein have been prepared 
      by the Company, without audit, pursuant to the rules and regulations of 
      the Securities and Exchange Commission.  Certain information and footnote 
      disclosures normally included in financial statements prepared in 
      accordance with generally accepted accounting principles have been
      condensed or omitted pursuant to such rules and regulations, although the 
      Company believes that the disclosures are adequate to make the information
      presented not misleading.  It is suggested that these consolidated 
      financial statements be read in conjunction with the consolidated 
      financial statements and the notes thereto included in the Company's 
      latest annual report on Form 10-K.

      The accompanying unaudited consolidated financial statements contain all
      adjustments (consisting of only normal recurring items) necessary to 
      present fairly the financial position as of June 30, 1997 and December 
      31, 1996, and the results of operations and cash flows for the six months 
      ended June 30, 1997 and 1996.  The results of operations for the six 
      months ended June 30, 1997 and 1996, are not necessarily indicative of the
      results to be expected for the full year.

2.    Certain amounts reported in prior periods have been reclassified to
      conform to the current period presentation.

3.    Earnings per Common Share were computed by dividing Net Income Available 
      to Common by the weighted average number of common and common equivalent 
      shares outstanding during the period.  Dilutive common stock equivalents 
      at June 30, 1997 consist of dilutive Common Share options.

      The Financial Accounting Standards Board issued Statement of Financial 
      Accounting Standards ("SFAS") No. 128, "Earnings per Share" in March 1997
      which will become effective in December 1997.  Earnings per share would 
      not change if the SFAS No. 128 was in effect as of January 1, 1996.

4.    Supplemental Cash Flow Information
      Cash and cash equivalents include cash and those short-term, highly liquid
      investments with original maturities of three months or less.  Those 
      investments with original maturities of more than three months to twelve 
      months are classified as temporary investments.  Temporary investments are
      stated at cost, which approximates market.  Those investments with 
      original maturities of more than 12 months are classified as marketable
      securities and are stated at amortized cost.



                                      -18-
<PAGE> 





      TDS acquired certain cellular licenses, operating companies and telephone 
      companies in 1997 and 1996.  In conjunction with these acquisitions, the 
      following assets were acquired and liabilities assumed and Common Shares 
      issued.


                                                        Six Months Ended
                                                             June 30,
                                                  ---------------------------- 
                                                     1997              1996
                                                  ----------      ------------ 
                                                  (Dollars in thousands, except
                                                        per share amounts)

      Property, plant and equipment               $      --       $     46,883
      Cellular licenses                              36,719             67,238
      Decrease in equity method investment
         in cellular interests                           --              2,826
      Franchise costs                                    --             21,774
      Long-term debt                                     --            (23,267)
      Deferred credits                                   --             (5,602)
      Other assets and liabilities,
         excluding cash and cash equivalents             --              5,208
      Minority interest                                (113)              (443)
      Common Shares issued and issuable                  --           (113,658)
      USM Stock issued and issuable                      --                (34)
                                                  ----------      ------------
      Increase in cash due to acquisitions        $  36,606       $        925
                                                  ==========      ============

The following table summarizes interest and income taxes paid, and other 
noncash transactions.

                                                       Six Months Ended
                                                           June 30,
                                                  ---------------------------- 
                                                     1997             1996
                                                  ----------      ------------
                                                      (Dollars in thousands)

      Interest Paid                               $  32,102      $      26,465
      Income Taxes Paid                               6,818             39,504
      Common Shares issued by TDS for
         conversion of TDS Preferred Stock        $     338      $       4,382


5.    Business Segment Information

      The following tables summarize business segment information for the three 
      months and six months ended or at June 30, 1997, and 1996.



                                      -19-
<PAGE> 





CELLULAR OPERATIONS

                             Three Months Ended or at    Six Months Ended or at
                                     June 30,                    June 30,
                             ------------------------  ------------------------
                                 1997         1996         1997         1996
                             -----------  -----------  -----------  -----------
                               (Dollars in thousands, except per share amounts)
Operating Revenues
    Local service            $   139,285  $   102,713  $   260,312  $   191,655
    Inbound roaming               57,244       48,485      102,584       87,433
    Long-distance and other       21,050       18,272       39,267       34,024
                             -----------  -----------  -----------  -----------
                                 217,579      169,470      402,163      313,112
                             -----------  -----------  -----------  -----------
Operating Expenses
    System operations             38,048       28,811       69,277       52,389
    Marketing and selling         39,959       27,663       76,999       55,071
    Cost of equipment sold        17,763       15,917       35,757       31,390
    General and administrative    48,224       40,444       92,939       80,668
    Depreciation and amortization 31,431       26,614       61,592       51,751
                             -----------  -----------  -----------  -----------
                                 175,425      139,449      336,564      271,269
                             -----------  -----------  -----------  -----------
Operating Income             $    42,154  $    30,021  $    65,599  $    41,843
                             ===========  ===========  ===========  ===========
Additions to property, plant
    and equipment            $   107,996  $    55,320  $   161,058  $   100,931
Identifiable assets          $ 2,279,433  $ 1,991,436  $ 2,279,433  $ 1,991,436

TELEPHONE OPERATIONS

                            Three Months Ended or at     Six Months Ended or at
                                    June 30,                    June 30,
                            -------------------------  ------------------------ 
                                1997         1996         1997          1996
                            ------------  -----------  -----------   ----------
                               (Dollars in thousands, except per share amounts)
Telephone Operations
    Operating Revenues
        Local Service       $     30,491  $    27,316  $    60,352   $   52,545
        Network access and 
         long distance            56,717       52,287      113,309      100,793
        Miscellaneous             12,650       12,588       24,359       22,252
                            ------------  -----------  -----------   ----------
                                  99,858       92,191      198,020      175,590
                            ------------  -----------  -----------   ----------
    Operating Expenses
        Network operations        18,099       18,235       35,800       32,312
        Depreciation and 
         amortization             23,811       19,307       47,104       39,444
        Customer operations       16,290       13,931       31,187       25,445
        Corporate and other       16,643       15,083       31,733       29,900
                            ------------  -----------  -----------   ---------- 
                                  74,843       66,556      145,824      127,101
                            ------------  -----------  -----------   ----------
    Telephone 
     Operating Income             25,015       25,635       52,196       48,489
                            ------------  -----------  -----------   ----------
Other Operations
    Revenues                      11,396        5,914       22,480       11,948
    Expenses                      12,331        5,922       23,370       11,589
                            ------------  -----------  -----------   ----------
    Other Operating Income          (935)          (8)        (890)         359
                            ------------  -----------  -----------   ----------
Intercompany Eliminations
    Revenues                        (228)        (170)        (460)        (492)
    Expenses                        (228)        (170)        (460)        (492)
                            ------------  -----------  -----------   ----------
Operating Income             $    24,080  $    25,627  $    51,306  $    48,848
                            ============  ===========  ===========   ==========
Additions to 
  property, plant 
  and equipment              $    30,934  $    27,220  $    54,838  $    54,742
Identifiable assets          $ 1,174,508  $ 1,151,179  $ 1,174,508  $ 1,151,179




                                      -20-
<PAGE> 




PCS OPERATIONS
                               Three Months Ended or at  Six Months Ended or at
                                       June 30,                 June 30,
                                ----------------------   ----------------------
                                   1997        1996         1997         1996
                                ----------   ---------   ----------    --------
                                (Dollars in thousands, except per share amounts)

Operating Revenues              $    7,143   $      --   $    7,143    $     --
                                ----------   ---------   ----------    --------
Operating Expenses
    Systems operations               4,042          --        4,042          --
    Marketing and selling           14,890          --       14,890          --
    Cost of equipment sold          14,972          --       14,972          --
    General and administrative      17,239          --       17,239          --
    Customer service                 1,750          --        1,750          --
    Depreciation                     5,161          --        5,161          --
    Amortization                       722          --          722          --
                                ----------   ---------   ----------    --------
                                    58,776          --       58,776          --
                                ----------   ---------   ----------    --------
Operating (Loss)                $  (51,633)  $      --   $  (51,633)   $     --
                                ==========   =========   ==========    ========
Additions to property, plant
    and equipment               $   73,094   $  13,545   $  157,702   $  22,455
Identifiable assets             $  814,823   $ 342,647   $  814,823   $ 342,647


RADIO PAGING OPERATIONS
                                Three Months Ended or at  Six Months Ended or at
                                        June 30,                June 30,
                                ----------------------   ----------------------
                                   1997        1996        1997          1996
                                ----------   ---------   ---------   ----------
                                (Dollars in thousands, except per share amounts)

Operating Revenues              $  24,248    $  26,296   $  48,828   $   52,606
                                ----------   ---------   ---------   ----------
Costs and expenses
    Cost of services                6,179        6,826      13,040       12,845
    Selling, general and 
     administrative                15,270       15,781      31,533       30,185
    Cost of equipment sold          2,487        2,762       4,650        5,566
    Depreciation and amortization   7,441        7,494      15,145       14,663
                                ---------    ---------   ---------   ----------
                                   31,377       32,863      64,368       63,259
                                ---------    ---------   ---------   ----------
Operating (Loss)                $  (7,129)   $  (6,567)  $ (15,540)  $  (10,653)
                                =========    =========   =========   ==========
Additions to property, plant
    and equipment               $   8,518    $  11,214   $  11,472   $   22,028
Identifiable assets             $ 147,382    $ 165,438   $ 147,382   $  165,438


OTHER OPERATIONS
                              Three Months Ended or at   Six Months Ended or at
                                     June 30,                   June 30,
                               -----------------------   ----------------------
                                 1997          1996        1997        1996
                               ---------     ---------   ---------  -----------
                               (Dollars in thousands, except per share amounts)
Additions to property, plant
    and equipment               $  3,666     $   8,226   $   8,162  $    11,689
Identifiable Assets             $ 89,982     $ 116,442   $  89,982  $   116,442


                                      -21-
<PAGE>




                           PART II. OTHER INFORMATION
                           --------------------------

Item 4.  Submission of Matters to a Vote of Security-Holders
------------------------------------------------------------

         At the Annual Meeting of Shareholders of TDS, held on May 16, 1997, the
         following number of votes were cast for the matters indicated:

         (1)      For the election of one Class I director of the Company by the
                  holders of Common Shares and holders of Preferred Shares 
                  issued before October 31, 1981:

                  Nominee                    For                      Withhold
                  ----------------       ----------                  ---------- 
                  George W. Off           8,635,100                   1,432,881
                                         ==========                  ==========

                  Martin L. Solomon      31,979,170                   1,051,076
                                         ==========                  ==========

         (2)      For the election of two Class I directors of the Company by 
                  the holders of Series A Common Shares and the holders of 
                  Preferred Shares issued after October 31, 1981:
 
                  Nominee                    For                      Withhold
                  -------------------    ----------                   --------- 
                  Rudolph E. Hornacek    68,984,089                         140
                                         ==========                   =========

                  Donald R. Brown        68,984,089                         140
                                         ==========                   =========
 
         (3)      Proposal to Ratify the Selection of Arthur Andersen, LLP as 
                  Independent Public Accountants for 1997:


                                       For           Against          Abstain
                                   -----------      ---------         -------
                   Total Votes     111,456,567       366,324          258,962
                                   ===========      =========         =======

         (4)      Shareholder Proposal re: Classified Board:
 
                                                                        Broker
                                     For        Against     Abstain    Non-Vote
                                  ----------   ----------   -------    --------
                           
                  Total Votes     35,512,238   75,094,516   606,309     869,420
                                  ==========   ==========   =======    ========

         (5)      Shareholder Proposal re: Director Independence:
                                                                        Broker
                                     For        Against     Abstain    Non-Vote
                                  ----------   ----------   -------   ---------
          
                  Total Votes     34,553,350   75,885,544   774,169     869,420
                                  ==========   ==========   =======   =========



                                      -22-
<PAGE>



Item 5.  Other Information
--------------------------

         In December 1996, TDS authorized the repurchase of up to 3 million TDS 
         Common Shares over a period of three years.  Through June 30, 1997, TDS
         has repurchased 1,798,100 TDS Common Shares for an aggregate purchase 
         price of $69.9 million.  TDS also purchased 350,000 U.S. Cellular 
         Common Shares for $9.8 million in the first quarter of 1997.  The share
         repurchases were financed primarily by borrowings under TDS' short-term
         lines of credit.

         On July 31, 1997, U.S. Cellular announced that it had filed a shelf 
         registration statement with the Securities and Exchange Commission 
         covering $400 million of debt securities.  The news release issued to
         announce this is attached as Exhibit 99.

Item 6.  Exhibits and Reports on Form 8-K.
------------------------------------------

    (a)      Exhibit 3.2 - Restated By-laws

    (b)      Exhibit 11 - Computation of earnings per common share

    (c)      Exhibit 12 - Statement regarding computation of ratios

    (d)      Exhibit 27 - Financial Data Schedule

    (e)      Exhibit 99 - U.S. Cellular news release dated July 31, 1997

    (f)      Reports on Form 8-K filed during the quarter ended June 30, 1997

             No reports on Form 8-K were filed during the quarter ended 
             June 30, 1997.


 






                                      -23-
<PAGE>


                                   SIGNATURES
                                   ----------


      Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                        TELEPHONE AND DATA SYSTEMS, INC.
                        ---------------------------------
                                  (Registrant)





Date        August 12, 1997                        MURRAY L. SWANSON
          --------------------                ---------------------------------
                                              Murray L. Swanson,
                                              Executive Vice President-Finance
                                              (Chief Financial Officer)



Date       August 12, 1997                        GREGORY J. WILKINSON 
         --------------------                 ---------------------------------
                                              Gregory J. Wilkinson,
                                              Vice President and Controller
                                              (Principal Accounting Officer)



                                     -24-
<PAGE>                                      
<PAGE>