future, and that it will continue to provide rebates to agents who  sell handsets to new and current customers. In these transactions, equipment sales revenue is recognized upon delivery of the related products to the agents, net of any anticipated agent rebates. In most cases, the agents receive a rebate from U.S. Cellular at the time these agents provide handsets to sign up new customers or retain current customers. Handset sales to agents, net of all rebates, increased equipment sales revenues by $52.7 million in 2003 and $20.8 million in 2002. Equipment sales to customers through U.S. Cellular’s non-agent channels increased $7.6 million, or 10%, to $85.5 million in 2003 from $77.9 million in 2002 and increased $9.5 million, or 14%, in 2002 from $68.4 million  in 2001. Customers added to U.S. Cellular’s customer base through its marketing distribution channels (“gross customer activations”), the primary driver of equipment sales revenues, increased 9% in 2003 and 14% in 2002. Gross customer activations from non-agent channels increased 5% in 2003 and 8% in 2002. The increases in gross customer activations from non-agent channels in both years were driven by an increase in store traffic in U.S. Cellular’s markets and the acquisition of the Chicago market in August 2002, which added to U.S. Cellular’s distribution network. The increases in equipment sales revenues from U.S. Cellular’s non-agent channels  in both years were primarily attributable to the increase in handsets sold to customers for retention purposes, as U.S. Cellular continued to focus on retaining customers by offering existing customers handset pricing similar to that offered to new customers, particularly as these customers near the expiration date of their service contracts. This impact was partially offset by lower revenue per handset in both years, reflecting the reduction in sales prices to end users as a result of increased competition. Operating expenses increased $547.4 million, or 29%, to $2,463.8 million in 2003 from $1,916.4 million in 2002 and increased $338.8 million, or 21%, in 2002 from $1,577.6 million in 2001. System operations expenses (excluding depreciation) increased  $83.4 million, or 17%, to $576.2 million in 2003 from $492.8 million in 2002 and increased $71.7 million, or 17%, in 2002 from $421.1 million in 2001. System operations expenses include charges from landline telecommunications service providers for U.S. Cellular’s customers’ use  of their facilities, costs related to local interconnection to the landline In total, management expects system operations expenses to increase over the next few years, driven by the following factors: Monthly system operations expenses per customer increased 2% to $11.26 in 2003 and increased 4% to $11.09 in 2002 from $10.67 in 2001. This measurement is calculated by dividing total system opera- tions expenses as reported for each of the annual periods by 12, then dividing that quotient by average customers during each respective 12-month period as defined in footnote 4 to the table of summarized operating data shown on page 22. Management uses this measurement to assess the cost of customer usage and network usage and mainte- nance on a per unit basis. System operations expenses increased in both years due to the  August 2002 acquisition of the Chicago market, as a full year of activity in the Chicago market is included in 2003 compared to only the period from August 7 – December 31 in 2002. The increases in expenses in  the Chicago market in both periods were partially offset by reductions in expenses in other markets, primarily in the Midwest, when certain customers in surrounding markets used the Chicago system. Prior to acquiring the Chicago market, U.S. Cellular paid roaming charges to third parties when any of its customers roamed in the Chicago market. As a result of the above factors, the components of system operations expenses were affected as follows: The ongoing reductions both in the per-minute cost of usage on  U.S. Cellular’s systems and in negotiated roaming rates partially offset the above factors. network, charges for maintenance of U.S. Cellular’s network, long-dis- tance charges and outbound roaming expenses. The increases in system operations expenses in both years were due to the following factors: • increases of 7% and 34%, respectively, in the number of cell sites within U.S. Cellular’s systems, to 4,184 in 2003 from 3,914 in 2002 and from 2,925 in 2001, as U.S. Cellular continues to expand and enhance coverage in its service areas both through acquisitions  and internal growth; and • increases in minutes of use both on U.S. Cellular’s systems and by U.S. Cellular’s customers using other systems while roaming. • the cost of minutes used on U.S. Cellular’s systems increased  $46.5 million, or 38%, in 2003 and $33.9 million, or 38%, in 2002; • maintenance, utility and cell site expenses increased $40.3 million, or 31%, in 2003 and $28.1 million, or 27%, in 2002, as the average number of cell sites in service increased 17% and 30% in 2003  and 2002, respectively; in markets where U.S. Cellular maintains two digital radio equipment technologies, the related costs increased on a per cell site basis as well; and • expenses incurred when U.S. Cellular’s customers used other systems when roaming decreased $3.4 million, or 1%, in 2003 and increased $9.6 million, or 4%, in 2002. • increases in the number of cell sites within U.S. Cellular’s systems  as it continues to add capacity and enhance quality in all markets, and begins development activities in new markets; and • increases in minutes of use, both on U.S. Cellular’s systems and  by U.S. Cellular’s customers on other systems when roaming. Operating Expenses Year Ended December 31, 2003 2002 2001 (as restated) (Dollars in thousands) System operations (excluding  depreciation shown below) $ 576,159 $ 492,750 $ 421,114 Cost of equipment sold 355,150 242,523 166,759 Selling, general and administrative 1,004,655 829,993 689,087 Depreciation 374,769 311,993 237,346 Amortization and accretion 57,564 39,161 63,312 Loss on impairment of intangible assets 49,595 — — Loss on assets held for sale 45,908 — — Total Operating Expenses $2,463,800 $1,916,420 $1,577,618 Management’s Discussion and Analysis of Results of Operations and Financial Condition