Management’s Discussion and Analysis of Results of Operations and Financial Condition 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: 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 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 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. 26 (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. Y ear ended December 31, 2003 2002 2001 (Dollars in thousands, except per customer amounts) Components of cost (1) Selling, general and administrative  expenses as reported $1,004,655 $ 829,993 $ 689,087 Less selling, general and administrative  expenses related to the acquisition of new customers (428,944) (368,888) (297,239) Add cost of equipment sold related to  the retention of existing customers 106,611 57,240 42,731 Less equipment sales revenues  related to the retention of existing  customers, excluding agent rebates (27,328) (13,108) — Add agent rebate reductions of equipment sales revenues related to the retention of existing customers 30,736 14,579 — Net cost of serving and retaining customers $ 685,730 $ 519,816 $ 434,579 Divided by average customers during period (000s) (2) 4,263 3,702 3,289 Divided by twelve months in each period 12 12 12 Average monthly general and administrative expenses per customer $ 13.40 $ 11.70 $ 11.01 (4) Gross customer activations represent customers added to U.S. Cellular’s customer base, during  the respective periods presented, through its marketing distribution channels. * 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. Year ended December 31, 2003 2002 2001 (Dollars in thousands, except per customer amounts) Components of cost Selling, general and administrative  expenses related to the acquisition  of new customers (1) $428,944 $368,888 $297,239 Cost of equipment sold to new customers (2) 248,539 185,283 124,028 Less equipment sales revenues from new customers (3) (162,402) (100,164) (68,445) Total cost $515,081 $454,007 $352,822 Gross customer activations (000s) (4) 1,357 1,244 1,095 Sales and marketing cost per gross customer activation $ 380 $ 365 $ 322 (1) Selling, general and administrative expenses related to the acquisition of new customers is reconciled to total selling, general and administrative expenses as follows: Year ended December 31, 2003 2002 2001 (Dollars in thousands) Selling, general and administrative  expenses as reported $1,004,655 $ 829,993 $ 689,087 Less expenses related to serving and  retaining customers (575,711) (461,105) (391,848) Selling, general and administrative expenses  related to the acquisition of new customers $ 428,944 $ 368,888 $ 297,239 (2) Cost of equipment sold, excluding amounts related to the retention of existing customers is reconciled to total cost of equipment sold as follows: Year ended December 31, 2003 2002 2001 (Dollars in thousands) Cost of equipment sold as reported $ 355,150 $ 242,523 $166,759 Less cost of equipment sold related to  the retention of existing customers (106,611) (57,240) (42,731) Cost of equipment sold to new customers $ 248,539 $ 185,283 $124,028 (3) Equipment sales revenues, excluding amounts related to the retention of existing customers is reconciled to total equipment sales revenues as follows: Year ended December 31, 2003 2002 2001 (Dollars in thousands) Equipment sales revenues as reported $158,994 $ 98,693 $ 68,445 Less equipment sales revenues related  to the retention of existing customers, excluding agent rebates* (27,328) (13,108) — Add agent rebate reductions of  equipment sales revenues related to  the retention of existing customers 30,736 14,579 — Equipment sales revenues from new customers $162,402 $100,164 $ 68,445