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* In part of 2002 and all of 2001, equipment sales revenues related to retaining current customers were included in equipment sales revenues. In 2003 and part of 2002, these revenues were recorded in selling, general and administrative expenses as a reduction of the cost of equipment sold to retain current customers. In order to conform the operating results for 2003 and the part of 2002 for which these revenues were recorded in selling, general and administrative expenses to the current period presentation, U.S. Cellular reclassified the revenues related to retaining current customers in these periods as equipment sales revenues. 

(4) Gross customer activations represent customers added to U.S. Cellular’s customer base, during the respective periods presented, through its marketing distribution channels. 

Monthly general and administrative expenses per customer, including the net costs related to the renewal or upgrade of service contracts of existing U.S. Cellular customers (“net customer retention costs”), increased 15% to $13.40 in 2003 and increased 6% to $11.70 in 2002 

from $11.01 in 2001. Management uses this measurement to assess the cost of serving and retaining its customers on a per unit basis. T his measurement is reconciled to total selling, general and administra- tive expenses as follows: 

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(1) These components were previously identified in the table which calculates sales and marketing cost per customer activation and related footnotes shown above. 

(2) Average customers for each respective period were previously defined in footnote 4 to the table of summarized operating data shown on page 22. 

Depreciation expense increased $62.8 million, or 20%, to $374.8 million in 2003 from $312.0 million in 2002 and increased $74.7 million, or 31%, in 2002, from $237.3 million in 2001. The increases in both years reflect rising average fixed asset balances, which increased 23% in 2003 and 31% in 2002. Increased fixed asset balances in both 2003 and 2002 resulted from the following factors: 

•t he addition of 507 and 437 new cell sites in 2003 and 2002, respec- tively, built to improve coverage and capacity in U.S. Cellular’s markets; 

• the acquisition of the Chicago market in 2002; 

•U .S. Cellular’s migration of its network toward a single digital equipment platform, which began during the second half of 2002; 

• the addition of digital radio channels to U.S. Cellular’s network to accommodate increased usage; and 

• investments in U.S. Cellular’s billing and office systems. 

See “Liquidity and Capital Resources – Capital Expenditures” for further discussion of U.S. Cellular’s capital expenditures. 

In addition to the above factors, in 2003, U.S. Cellular took certain cell sites, in which its antennae were co-located on third parties’ towers, out of service, writing off the remaining net book value of the related assets. This write-off increased depreciation expense $7.0 million in 2003. These cell sites were acquired from another carrier in a 2001 transac- tion. U.S. Cellular recorded $11.6 million less depreciation expense in 

