NEXTEL COMMUNICATIONS INC - 10-Q Quarterly Report

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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.

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

The accompanying notes are an integral part of these condensed consolidated financial statements

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

Our unaudited condensed consolidated financial statements have been prepared under the rules and regulations of the Securities and Exchange Commission and reflect all adjustments that are necessary for a fair presentation of the results for interim periods. All adjustments made were normal recurring accruals. You should not expect the results of operations of interim periods to be an indication of the results for a full year. You should read the condensed consolidated financial statements in conjunction with the consolidated financial statements and notes contained in our annual report on Form 10-K for the year ended December 31, 2002.

Earnings (Loss) Per Common Share. Basic earnings (loss) per common share is calculated by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share adjusts basic earnings per common share for the effects of potentially dilutive common shares. Potentially dilutive common shares primarily include the dilutive effects of shares issuable under our incentive equity plans computed using the treasury stock method, and the dilutive effects of shares presently issuable upon the conversion of our convertible preferred stock computed using the if-converted method.

As of March 31, 2003, 50 million shares issuable upon the assumed conversion of our convertible senior notes and zero coupon convertible preferred stock could potentially dilute earnings per share in the future but were excluded from the calculation of diluted earnings per common share due to their antidilutive effects. Additionally, as of March 31, 2003, 77 million shares issuable under our incentive equity plan and other equity plans that could also potentially dilute earnings per share in the future were excluded from the calculation of diluted earnings per common share as the exercise prices exceeded the average market price of our class A common stock for the quarter ended March 31, 2003. Because we reported losses for the three months ended March 31, 2002, the calculation of diluted earnings per common share for that period excludes the effects of all potentially dilutive common shares due to their antidilutive effects.

Intangible Assets. Effective January 1, 2002, we adopted Statement of Financial Accounting Standards, or SFAS, No. 142, “Goodwill and Other Intangible Assets.” Under SFAS No. 142 we are no longer required to amortize goodwill and intangible assets with indefinite useful lives, but we are required to test these assets

for impairment at least annually. We continue to amortize intangible assets that have finite lives over their useful lives.

During the three months ended March 31, 2003, we recorded about $316 million of Federal Communications Commissions, or FCC, licenses, which includes both licenses acquired from NeoWorld Communications, Inc. and deposits for licenses paid prior to 2003 that were recorded in other assets. The table below summarizes our intangible assets.

For intangible assets with finite lives, we recorded aggregate amortization expense of $13 million for the three months ended March 31, 2003 and $10 million for the three months ended March 31, 2002. Based only on the amortized intangible assets existing at March 31, 2003, we estimate the amortization expense to be $36 million for the remainder of 2003, $29 million during 2004, $5 million during 2005, $2 million during 2006 and less than $1 million during 2007. Actual amortization expense to be reported in future periods could differ from these estimates as a result of new intangible asset acquisitions, changes in useful lives and other relevant factors.

In connection with the adoption of SFAS No. 142, we ceased amortizing FCC license costs, as we believe that our portfolio of FCC licenses represents an intangible asset with an indefinite useful life. As a result, in the first quarter 2002, we incurred a one-time cumulative non-cash charge to the income tax provision of $335 million to increase the valuation allowance related to our net operating losses. As these FCC licenses are no longer amortized for book purposes but are amortized for tax purposes, we are recording additional deferred tax liabilities as amortization occurs.

Stock-Based Compensation. We account for stock-based compensation for employees and non-employee members of our board of directors in accordance with Accounting Principles Board, or APB, Opinion No. 25, “Accounting for Stock Issued to Employees.” Under APB Opinion No. 25, compensation expense is based on the intrinsic value on the measurement date, calculated as the difference between the fair value of the class A common stock and the relevant exercise price. We account for stock-based compensation for non-employees at fair value using a Black-Scholes option-pricing model in accordance with the provisions of SFAS No. 123 and other applicable accounting principles. We recorded stock-based compensation expense of $2 million for the three months ended March 31, 2003 and $3 million for the three months ended March 31, 2002.

We comply with the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” Consistent with the provisions of SFAS No. 123, had compensation costs been determined based on the fair value of the awards granted since 1995, our income (loss) available to common stockholders and earnings (loss) per common share would have been as follows:

NII Holdings. In May 2002, NII Holdings, Inc. filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code. In November 2002, NII Holdings emerged from bankruptcy. Before its reorganization, NII Holdings was our substantially wholly owned subsidiary. As a result of NII Holdings’ bankruptcy filing in May 2002, we began accounting for our investment in NII Holdings using the equity method and accordingly, have presented NII Holdings’ net operating results for the quarter ended March 31, 2002 as equity in losses of unconsolidated affiliates.

Upon NII Holdings’ emergence from bankruptcy in November 2002, we began accounting for our new ownership interest in NII Holdings using the equity method and resumed recording our proportionate share of NII Holdings’ results of operations. As of March 31, 2003, we owned about 35% of the outstanding stock of NII Holdings. Summarized unaudited financial information reported by NII Holdings is presented below.

New Accounting Pronouncements. In November 2002, the Financial Accounting Standards Board, or FASB, issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” The Interpretation addresses disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. The Interpretation also clarifies requirements related to the recognition of liability by a guarantor at the inception of a guarantee for the fair value of the obligations the guarantor has undertaken in issuing that guarantee. The initial recognition and measurement provisions of the Interpretation are applicable on a prospective basis to guarantees issued or modified on or after January 1, 2003. The implementation of FASB Interpretation No. 45 did not have a material impact on our financial position or results of operations.

In November 2002, the Emerging Issues Task Force, or EITF, issued a final consensus on EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” EITF Issue No. 00-21 provides guidance on when and how an arrangement involving multiple deliverables should be divided into separate units of accounting. EITF Issue No. 00-21 is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003, and we may elect to apply the provisions of EITF Issue No. 00-21 to existing arrangements and record the impact as a cumulative effect of a change in accounting principle in the statement of operations. We are currently assessing the impact of adopting EITF Issue No. 00-21. Under the provisions of Staff Accounting Bulletin, or SAB, No. 101, “Revenue Recognition in Financial Statements,” we account for the sale of our handsets and the subsequent service to the customer as a single unit of accounting due to the fact that our wireless service is essential to the functionality of our handsets. Accordingly, we recognize revenue from handset sales and an equal amount of cost of handset revenues over the expected customer relationship period, when title to the handset passes to the customer. Under EITF Issue No. 00-21, we no longer need to consider whether a customer is able to realize utility from the handset in the absence of the undelivered service. If we conclude that EITF Issue No. 00-21 requires us to account for the sale of our handsets as a unit of accounting separate from the subsequent service to the customer, we would recognize revenue from handset sales and the related cost of handset revenues when title to the handset passes to the customer. Accordingly, handset revenues and cost of handset revenues would be increased by equal amounts for sales of handsets beginning in the third quarter of 2003. If we applied EITF Issue No. 00-21 to existing arrangements, we would also reduce our total assets and liabilities by an equal amount, representing the revenues and costs deferred under SAB No. 101. There would be no impact on our cash flows, operating income or net income if we divide our arrangement into separate units of accounting under EITF Issue No. 00-21.

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities.” The Interpretation clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Interpretation applies immediately to variable interest entities created after January 31, 2003, or in which we obtain an interest after that date. The Interpretation is effective July 1, 2003 to variable interest entities in which we hold a variable interest acquired before February 1, 2003. We believe that the implementation of FASB Interpretation No. 46 will not have a material impact on our financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies financial accounting and reporting for derivative instruments, including derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” In particular, this statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative, clarifies when a derivative contains a financing component, amends the definition of an underlying to conform it to language used in FASB Interpretation No. 45, “Guarantor’s

Accounting and Disclosure Requirements for Guarantees of Indebtedness of Others,” and amends certain other existing pronouncements. SFAS No. 149 is applied prospectively to all contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. However, the provisions of this statement that relate to “SFAS 133 Implementation Issues,” which have been effective for fiscal quarters beginning prior to June 15, 2003, continue to be applied in accordance with their respective effective dates. We are in the process of assessing the impact of adopting SFAS No. 149 on our financial position and results of operations.

Reclassification and Other. We have reclassified some prior period amounts to conform to our current period presentation.

As a result of our adoption in January 2000 of SAB No. 101, we recognized revenues from handset sales and activation fees and equal amounts of cost of revenues during the following periods that are attributable to handset sales and activation fees previously reported in periods prior to 2000 as follows:

Change in Asset Life. We shortened the estimated useful lives of some of our network assets in the first quarter 2003 and recorded about $17 million, or $0.02 per common share, of additional depreciation expense in the first quarter 2003 as a result of these changes in estimates.

NeoWorld Communications. In January 2003, we consummated the acquisition of all of the stock of NeoWorld Communications, which owned and operated 900 megahertz specialized mobile radio systems. Pursuant to our agreements, we paid an aggregate cash purchase price of $280 million, of which $201 million was paid in 2003.

Preferred Stock Conversion. In March 2003, we, Craig O. McCaw and Digital Radio, L.L.C., an affiliate of Mr. McCaw, entered into an agreement revising certain existing arrangements relating to our corporate governance. As a result of these revisions, all issued and outstanding shares of our class A preferred stock and class B preferred stock, all of which were held by Digital Radio, were converted into shares of our class A common stock. The class A preferred stock and class B preferred stock were the primary mechanism for providing Digital Radio with corporate governance rights associated with Mr. McCaw’s investment in Nextel in 1995.

The above table reflects the purchase and retirement of $491 million in aggregate principal amount at maturity of our outstanding senior notes during the three months ended March 31, 2003. See note 5.

Capital Lease Obligation. In March 2003, we paid $69 million in cash related to the exercise of the early buy-out option provided for in one of our switch equipment capital lease agreements, $54 million of which related to the reduction of the capital lease obligation.

The above table reflects the purchase and retirement of $77 million in aggregate face amount of our outstanding mandatorily redeemable preferred stock during the three months ended March 31, 2003. See note 5.

Note 5. Retirement of Long-Term Debt and Mandatorily Redeemable Preferred Stock

During the quarter ended March 31, 2003, we purchased and retired a total of $491 million in aggregate principal amount at maturity of our outstanding senior notes and $77 million in aggregate face amount of our outstanding mandatorily redeemable preferred stock in exchange for about $570 million in cash.

As a result of the purchase and retirement of the senior notes, we recognized a $5 million loss in other income (expense) in the accompanying condensed statements of operations, representing the excess of the purchase price over the carrying value of the purchased and retired notes and the write-off of unamortized debt financing costs. As a result of the purchase and retirement of the mandatorily redeemable preferred stock, we recognized a $2 million loss, representing the excess of the purchase price over the carrying value of the purchased and retired mandatorily redeemable preferred stock and the write-off of unamortized financing costs. Since the second quarter 2002, we have purchased and retired securities using both stock and cash. We may, from time to time, as we deem appropriate, enter into similar transactions that in the aggregate may be material.

We hedge the cash flows and fair values of some of our long-term debt using interest rate swaps. We enter into these derivative contracts to manage our exposure to interest rate changes by achieving a desired proportion of fixed rate versus variable rate debt. In an interest rate swap, we agree to exchange the difference between a variable interest rate and either a fixed or another variable interest rate, multiplied by a notional principal amount.

In July 2001, we entered into three interest rate swap agreements to hedge the risk of changes in fair value of a portion of our long-term fixed rate debt, which are attributable to changes in the London Interbank

Offered Rate, or LIBOR, as the benchmark interest rate. These fair value hedges qualify for hedge accounting using the short-cut method since the swap terms match the critical terms of the hedged debt. Accordingly, there was no net effect on our results of operations for the quarters ended March 31, 2003 and 2002 relating to the ineffectiveness of these fair value hedges. As of March 31, 2003, we have recognized all of these interest rate swaps at their fair values of $62 million, consisting of $4 million in interest receivable and $58 million in other assets, with an offsetting $58 million adjustment to the carrying value of our hedged debt.

Additionally, we use interest rate swaps to hedge the variability of future cash flows, which are caused by changes in LIBOR, as the benchmark interest rate, associated with some of our long-term variable rate debt. As of March 31, 2003, we have one cash flow hedge remaining, which is recorded at its fair value of $108 million in other current liabilities on our balance sheet. Since this interest rate swap qualifies for cash flow hedge accounting, an unrealized loss of $20 million, representing the effective portion of the change in its fair value as of March 31, 2003, is reported in accumulated other comprehensive loss. We expect to reclassify this entire $20 million to interest expense in 2003 since this swap will terminate pursuant to a mandatory cash settlement provision in October 2003. The ineffective portion of the change in fair value of this swap qualifying for cash flow hedge accounting is recognized in our statement of operations in the period of the change. Interest expense includes a loss of $2 million for the quarter ended March 31, 2003 and a net effect of zero for the quarter ended March 31, 2002 relating to the ineffective portion of the change in fair value of this swap.

In February 2003, we terminated a variable to variable interest rate swap in the notional amount of $400 million in accordance with its original terms. There was no realized gain or loss associated with this termination. Since this swap did not qualify for cash flow hedge accounting, changes in its fair value up to the termination date were recognized in our statement of operations in the period of the change. Interest expense includes a gain of $2 million for each of the quarters ended March 31, 2003 and 2002, representing changes in the fair value of this swap.

Interest expense related to the periodic net cash settlements on all swaps was $6 million for the quarter ended March 31, 2003 and $7 million for the quarter ended March 31, 2002.

In April 2001, a purported class action lawsuit was filed in the Circuit Court in Baltimore, Maryland by the Law Offices of Peter Angelos, and subsequently in other state courts in Pennsylvania, New York and Georgia by Mr. Angelos and other firms, alleging that wireless telephones pose a health risk to users of those telephones and that the defendants failed to disclose these risks. We, along with numerous other companies, were named as defendants in these cases. The cases were ultimately transferred to federal court in Baltimore, Maryland. On March 5, 2003, the court granted the defendants’ motions to dismiss. The plaintiffs have appealed this decision.

We have reviewed the accompanying condensed consolidated balance sheet of Nextel Communications, Inc. and subsidiaries (the “Company”) as of March 31, 2003, the related condensed consolidated statements of operations and comprehensive income (loss) and cash flows for the three-month periods ended March 31, 2003 and 2002 and the condensed consolidated statement of changes in stockholders’ equity for the three-month period ended March 31, 2003. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Nextel Communications, Inc. and subsidiaries as of December 31, 2002, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 20, 2003, March 5, 2003 as to notes 11, 13 and 15, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2002 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

The following is a discussion and analysis of our consolidated financial condition and results of operations for the three-month periods ended March 31, 2003 and 2002, and significant factors that could affect our prospective financial condition and results of operations. You should read this discussion in conjunction with our 2002 annual report on Form 10-K. Historical results may not indicate future performance. See “— Forward-Looking Statements.”

We are a leading provider of wireless communications services in the United States. Our service offerings include digital wireless service; Nextel Direct Connect®, our long-range digital walkie-talkie service; and wireless data, including email, text messaging and Nextel Online® services, which provide wireless access to the Internet, an organization’s internal databases and other applications. Our all-digital packet data network is based on Motorola, Inc.’s integrated Digital Enhanced Network, or iDEN®, wireless technology.


	•	we had about 11.1 million handsets in service in the United States; and

	•	our network or the compatible network of Nextel Partners, Inc. was operational in 197 of the top 200 U.S. markets.

We owned about 31% of the common stock of Nextel Partners as of March 31, 2003. Nextel Partners provides digital wireless telecommunications services under the Nextel brand name in mid-sized and tertiary U.S. markets. Nextel Partners has the right to operate in 57 of the top 200 metropolitan statistical areas in the United States ranked by population. In addition to our domestic operations, as of March 31, 2003, we owned about 35% of the outstanding common stock of NII Holdings, Inc. NII Holdings provides wireless communications services primarily in selected Latin American markets.

From 1987, when we began operations, through 2001, we were unable to generate sufficient cash flow from operations to fund our business and its expansion. Due to our history of losses and negative cash flow through 2001, we have incurred substantial indebtedness to date to finance our operations. While we had income available to common stockholders of $208 million for the quarter ended March 31, 2003, there can be no assurance that we will continue to operate profitably, and if we cannot operate profitably, we may not be able to meet our debt service, working capital, capital expenditure or other cash needs. Our accumulated deficit was $7,553 million at March 31, 2003.

Acquisition. In January 2003, we consummated the acquisition of all of the stock of NeoWorld Communications, Inc., which owned and operated 900 megahertz, or MHz, specialized mobile radio systems. Pursuant to our agreements, we paid an aggregate cash purchase price of $280 million, of which $201 million was paid in 2003.

Debt and Preferred Stock Repurchases. During the quarter ended March 31, 2003, we purchased and retired a total of $491 million in aggregate principal amount at maturity of our outstanding senior notes and $77 million in aggregate face amount of our outstanding mandatorily redeemable preferred stock in exchange for about $570 million in cash. We may, from time to time, as we deem appropriate, enter into similar transactions that in the aggregate may be material.

We consider the following accounting policies and estimates to be the most important to our financial position and results of operations, either because of the significance of the financial statement item or because they require the exercise of significant judgment and/or use of significant estimates. While we believe that the estimates we use are reasonable, actual results could differ from those estimates.

Revenue Recognition. Operating revenues primarily consist of wireless service revenues and revenues generated from handset and accessory sales. Service revenues primarily include fixed monthly access charges for mobile telephone, Nextel Direct Connect and other wireless services, variable charges for airtime and

We recognize revenue for access charges and other services charged at fixed amounts ratably over the service period, net of credits and adjustments for service discounts, billing disputes and fraud or unauthorized usage. We recognize excess usage and long-distance revenue at contractual rates per minute as minutes are used. As a result of the cutoff times of our multiple billing cycles each month, we are required to estimate the amount of subscriber revenues earned but not billed from the end of each billing cycle to the end of each reporting period. These estimates are based primarily on rate plans in effect and historical minutes of use.

We recognize revenue from handset sales on a straight-line basis over the expected customer relationship period of 3.5 years starting when title to the handset passes to the customer. Our wireless service is essential to the functionality of our handsets due to the fact that the handsets can, with very limited exceptions, only be used on our network. Accordingly, this multiple element arrangement is not accounted for separately. This estimate results in our amortizing an equal amount of revenue and expense over the expected customer relationship period and accordingly does not impact operating income or net income.

Allowance for Doubtful Accounts. We establish an allowance for doubtful accounts receivable sufficient to cover probable and reasonably estimated losses. Since we have well over one million accounts, it is impracticable to review the collectibility of all individual accounts when we determine the amount of our allowance for doubtful accounts receivable each period. Therefore, we consider a number of factors in establishing the allowance, including historical collection experience, current economic trends, estimates of forecasted write-offs, agings of the accounts receivable portfolio and other factors. When collection efforts on individual accounts have been exhausted, the account is written off by reducing the allowance for doubtful accounts. Our allowance for doubtful accounts was $123 million as of March 31, 2003.

Valuation and Recoverability of Long-Lived Assets. Long-lived assets such as property, plant and equipment represented about $8,828 million of our $21,123 million in total assets as of March 31, 2003. Our nationwide network is highly complex and, due to constant innovation and enhancements, some network assets may lose their utility faster than anticipated. We periodically reassess the economic lives of these components and make adjustments to their expected lives after considering historical experience and capacity requirements, consulting with the vendor and assessing new product and market demands and other factors. When these factors indicate network assets may not be useful for as long as anticipated, we depreciate the remaining book values over the remaining useful lives. We currently calculate depreciation using the straight-line method based on estimated useful lives of up to 31 years for buildings, 3 to 20 years for network equipment and network software and 3 to 12 years for non-network internal use software, office equipment and other assets. In the first quarter 2003, we reassessed the estimated useful lives of some of our network assets and recorded about $17 million in additional depreciation expense as a result of these changes in estimates.

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss, if any, is recognized for the difference between the fair value and carrying value of the asset. Impairment analyses are based on our current business and technology strategy, our views of growth rates for our business, anticipated future economic and regulatory conditions and expected technological availability.

Valuation and Recoverability of Intangible Assets. Intangible assets with indefinite useful lives represented about $6,804 million of our $21,123 million in total assets as of March 31, 2003. Intangible assets with indefinite useful lives consist of our Federal Communications Commission, or FCC, licenses and goodwill. In 2002, we ceased amortizing these assets, and we performed initial and annual impairment tests of FCC licenses and goodwill as of January 1, 2002 and October 1, 2002, respectively. We concluded that there was no impairment as the fair values of these intangible assets were greater than their carrying values. Using a residual value approach, we measured the fair value of our 800 MHz and 900 MHz licenses by deducting the fair values of our net assets as well as the fair values of certain unrecorded identified intangible assets, other than these FCC licenses, from our reporting unit’s fair value, which was determined using a discounted cash

We have invested about $350 million in other FCC licenses that are currently not used in our network. We have pledged to exchange these licenses along with other licenses in a proposal filed with the FCC. If we do not exchange these licenses in the future, we have an alternative business plan for use of these licenses. If the alternative business plan is not realized, some of or the entire recorded asset could become impaired.

Recoverability of Capitalized Software to be Sold, Leased, or Otherwise Marketed. As of March 31, 2003, we had capitalized about $56 million in costs for software that will be sold, leased, or otherwise marketed. We begin amortizing costs when the software is ready for its intended use. Our current plans indicate that we will recover the value of the assets; however, to the extent there are changes in economic conditions, technology or the regulatory environment, or our strategic partners associated with the development and marketing of the software elect not to participate to the extent we expect, our plans could change and some or all of these assets could become impaired.

Net Operating Loss Valuation Allowance. We have provided a full reserve against our net operating loss carryforwards as of March 31, 2003. This reserve is established due to the fact that we do not have a sufficient history of taxable income at this time to conclude that it is more likely than not that the net operating loss will be realized. To the extent that we have taxable income in future periods, we would expect to realize the benefits of at least some of the net operating loss carryforwards.

Operating revenues primarily consist of wireless service revenues and revenues generated from handset and accessory sales. Service revenues primarily include fixed monthly access charges for mobile telephone, Nextel Direct Connect and other wireless services, variable charges for airtime and Nextel Direct Connect usage in excess of plan minutes, long-distance charges derived from calls placed by our customers and activation fees. We recognize revenue for access charges and other services charged at fixed amounts ratably over the service period, net of credits and adjustments for service discounts, billing disputes and fraud or unauthorized usage. We recognize excess usage and long-distance revenue at contractual rates per minute as minutes are used. We recognize revenue from activation fees on a straight-line basis over the expected customer relationship period of 3.5 years, starting when wireless service is activated.

We recognize revenue from accessory sales when title passes upon delivery of the accessory to the customer. We recognize revenue from handset sales on a straight-line basis over the expected customer relationship period of 3.5 years when title to the handset passes to the customer. Therefore, handset revenues in the current period largely reflect the recognition of handset sales that occurred and were deferred in prior periods. Our wireless service is essential to the functionality of our handsets due to the fact that the handsets can, with very limited exceptions, only be used on our network. Therefore, in accordance with Staff Accounting Bulletin, or SAB, No. 101, “Revenue Recognition in Financial Statements,” we do not account for our multiple element arrangement separately.

Cost of providing wireless service consists primarily of costs to operate and maintain our network, costs of interconnection with local exchange carrier facilities and costs of activation. Costs to operate and maintain our network primarily include direct switch and transmitter and receiver site costs, such as rent, utilities, property taxes and maintenance for the network switches and sites, payroll and facilities costs associated with our network engineering employees and frequency leasing costs. Interconnection costs have fixed and variable components. The fixed component of interconnection costs consists of monthly flat-rate fees for facilities leased from local exchange carriers and fluctuates in relation to the number of transmitter and receiver sites and switches in service and the related equipment installed at each site. The variable component of interconnection costs, which fluctuates in relation to the level and duration of wireless calls, generally consists of per-minute use fees charged by wireline and wireless providers for wireless calls terminating on their networks. We recognize the cost of activation over the expected customer relationship period of 3.5 years in amounts equivalent to revenues recognized from activation fees.

Cost of handset and accessory revenues consists primarily of the cost of the handsets and accessories sold, order fulfillment related expenses and write-downs of handset and related accessory inventory for shrinkage. We recognize the costs of handset revenue over the expected customer relationship period of 3.5 years in amounts equivalent to revenues recognized from handset sales. Handset costs in excess of the revenues generated from handset sales, or subsidies, are expensed at the time of sale.

Selling and marketing costs primarily consist of customer acquisition costs, including residual payments to our dealers, commissions earned by our indirect dealers, distributors and our direct sales force for new handset activations, payroll and facilities costs associated with our direct sales force and marketing employees, advertising and media program costs and telemarketing.

General and administrative costs primarily consist of fees paid to outsource billing, customer care and information technology operations, bad debt expense and back office support activities including customer retention, collections, information technology, legal, finance, human resources, strategic planning and technology and product development, along with the related payroll and facilities costs.

An additional measurement we use to manage our business is the rate of customer churn. The customer churn rate is an indicator of customer retention and represents the monthly percentage of the customer base that disconnects from service. Churn consists of both involuntary churn and voluntary churn. Involuntary churn occurs when we have taken action to disconnect the handset from service, usually due to lack of payment. Voluntary churn occurs when a customer elects to disconnect service. Customer churn is calculated by dividing the number of handsets disconnected from commercial service during the period by the average number of handsets in commercial service during the period. A low churn rate is important because customer acquisition costs are generally higher than customer retention costs.

Our average monthly customer churn rate during the first quarter of 2003 was about 1.9% as compared to about 2.1% during the first quarter 2002. We attribute the improvement in customer churn to our ongoing focus on customer retention. We have implemented customer retention initiatives to proactively identify and address our customers’ needs at various touch points with the customer over the customer life cycle. These initiatives include such programs as strategic care provided to customers with certain calling attributes and efforts to migrate customers to more optimal service pricing plans. Also, we believe that our customer churn reflects our focus on acquiring high quality subscribers, including add-on subscribers from existing customer accounts, and the attractiveness of our differentiated products and services.

If general economic conditions worsen, if competitive conditions in the wireless telecommunications industry intensify or if our new handset or service offerings are not well received, we may experience changes in demand for our product and service offerings, which may adversely affect our results of operations. See “— Forward-Looking Statements.”

Service revenues. Service revenues increased 21% from the first quarter 2002 to the first quarter 2003. Our service revenues were impacted by the significant increase in the number of handsets in service (volume) offset by the slight decrease in the average monthly service revenue per handset in service (rate).

From a volume perspective, our service revenues increased principally as a result of a 21% increase in handsets in service. The growth in the number of handsets in service from March 31, 2002 to March 31, 2003 is the result of a number of factors, principally:


	•	our differentiated products and services, including enhanced Nextel Direct Connect and Nextel Online;

	•	increased brand name recognition through increased advertising and marketing campaigns;

	•	the introduction of more competitive service pricing plans targeted at meeting more of our customers’ needs, including a variety of fixed-rate plans offering bundled monthly minutes and other integrated services and features;

	•	selected handset pricing promotions and improved handset choices; and

	•	increased sales force and marketing staff, including staff associated with our Nextel stores, and selling efforts targeted at specific vertical markets.

From a rate perspective, our average monthly service revenue per handset decreased slightly from the first quarter 2002 to the first quarter 2003. We attribute the slight decrease in average monthly service revenue per handset to:


	•	the introduction of more competitive pricing plans in 2002, which affected our overage revenues; and

	•	to a lesser extent, growth in our government accounts which generally have lower access charges than other segments of our business; partially offset by

	•	the increased fees that we began charging many of our customers in October 2002 to recover a portion of the costs associated with government mandated telecommunications services such as enhanced 911 and number portability; and

	•	the benefit of full-minute rounding that was implemented in the second quarter 2002.

We expect an increase in the average monthly service revenue per handset for the second quarter 2003 as compared with the first quarter 2003 due to seasonality factors. See “— Forward-Looking Statements.”

Cost of service. Cost of service increased 5% from the first quarter 2002 to the first quarter 2003, primarily as a result of increased handsets in service and the resulting increased minutes of use. Specifically, we experienced:


	•	a 5% increase in costs incurred in the operation and maintenance of our network and fixed interconnection costs; and

	•	a 7% increase in variable interconnection fees.

The costs related to the operation and maintenance of our network and fixed interconnection fees increased 5% primarily due to:


	•	a net increase in transmitter and receiver site related expenses as a result of a 3% increase in the number of transmitter and receiver sites placed in service and additional network enhancements added to existing sites from March 31, 2002 to March 31, 2003;

	•	increases in frequency leasing costs and roaming fees paid to Nextel Partners as our growing subscriber base roamed onto Nextel Partners’ compatible network; and

	•	increases in service and repair due to an increased number of replacement handsets being shipped to customers.

Variable interconnection fees increased 7% while total system minutes of use increased 33% from the first quarter 2002 to the first quarter 2003. We attribute this increase in system minutes of use to a 21% increase in the number of handsets in service as well as a 10% increase in the average monthly billable minutes of use per handset over the same period. Our lower variable interconnection cost per minute of use was primarily the result of rate savings achieved through efforts implemented during the second quarter 2002 to move long distance traffic to lower cost carriers.

We expect the aggregate amount of cost of service to increase as customer usage of our network increases and as we make additional investments in our network to meet our customers’ needs. However, we expect the cost per minute to decline as compared to 2002 due to improvements in network operating efficiencies. Additionally, annual transmitter and receiver site rent expense will benefit through 2007 from the amortization of the deferred gain that we recorded in connection with the lease transaction with SpectraSite Holdings, Inc. Further, payments previously classified as a reduction to the financing obligation prior to 2003 are recorded as operating lease payments beginning in 2003. Additional information regarding the SpectraSite lease transactions can be found in notes 5 and 7 to the consolidated financial statements of our 2002 annual report on Form 10-K. See also “— Liquidity and Capital Resources” and “— Future Capital Needs and Resources — Capital Needs — Capital expenditures.”

Service gross margin. Service gross margin, exclusive of depreciation expense, as a percentage of service revenues increased from 81% for the first quarter 2002 to 83% for the first quarter 2003. Our service gross margin percentage improved primarily due to a combination of increasing subscriber growth, revenue enhancement initiatives and achievement of economies of scale and network operating efficiencies.

Handset and Accessory Revenues and Cost of Handset and Accessory Revenues.

During the first quarter 2003, we recorded $161 million of handset and accessory revenues, an increase of $35 million from the first quarter 2002. During the first quarter 2003, we recorded $310 million of cost of

Handset and accessory revenues. Reported handset and accessory revenues are influenced by the number of handsets sold, the sales prices of the handsets sold and the effect of SAB No. 101, which requires that handset revenue generated from sales to customers be spread over the estimated life of the customer relationship period rather than recording all handset revenue at the time of sale. The effect of SAB No. 101 in the table above is the net effect of current period sales being deferred to future periods, offset by the benefit of handset sales deferred in previous periods that are now being recognized as revenue.

Current period handset and accessory sales increased $67 million, or 37%, for the first quarter 2003 compared to the first quarter 2002. This increase reflects an increase in the number of handsets sold of about 14% and an overall increase in the sales prices of the handsets. This increase in handset and accessory sales was partially offset by the increase in the SAB No. 101 net deferrals of $32 million. The increase in the SAB No. 101 net deferrals reflects increasing revenues from handset sales in 2003 primarily due to increased handset prices.

Cost of handset and accessory revenues. Reported cost of handset and accessory revenues are influenced by the number of handsets sold, the cost of the handsets sold and the effect of SAB No. 101. With respect to

Current period cost of handset and accessory sales increased $37 million, or 10%, for the first quarter 2003 compared to the first quarter 2002. This increase reflects an increase in the number of handsets sold of about 14% partially offset by a slight reduction in the average cost we pay for handsets. This increase in the cost of handset and accessory sales was largely offset by the increase in the SAB No. 101 net deferrals of $32 million.

Handset and accessory gross subsidy. We generally sell handsets at prices below our cost in response to competition, to attract new customers and as retention inducements for existing customers. While we expect to continue the industry practice of selling handsets at prices below cost, we experienced improvements in our handset and accessory gross subsidy for the first quarter of 2003 compared to the first quarter 2002. Handset and accessory gross subsidy decreased 17% from the first quarter 2002 to the first quarter 2003 even though we experienced about a 14% increase in the number of handsets sold. We attribute the improvement in handset and accessory gross subsidy to:


	•	increased sales of our feature rich, higher priced and lower subsidy handsets, including the effect of increased handset prices charged to some of our indirect dealers beginning in the second quarter of 2002 in return for higher commissions to be paid to the dealers upon activation of handsets for new subscribers; and

	•	a decline in the average cost that we pay for our portfolio of handsets.

Selling and marketing. The increase in selling and marketing expenses from the first quarter 2002 to the first quarter 2003 reflects:


	•	a $25 million increase in direct sales and marketing payroll and other related expenses primarily associated with our opening an additional 242 Nextel stores between March 31, 2002 and March 31, 2003;

	•	a $14 million increase in advertising expenses as a result of our marketing campaigns directed at increasing brand awareness and promoting our differentiated services, as well as advertising costs related to the Boost Mobile test program, which launched in the quarter ended September 30, 2002; and

	•	a $26 million increase in commissions and residuals earned by indirect dealers and distributors despite a decrease in the percentage of handset activations for new subscribers coming from the indirect


		dealers in the first quarter 2003 as compared to the same period in 2002. This increase in the commissions earned by the indirect dealers and distributors is due to a change in the dealer compensation plan instituted in the second quarter of 2002. See “— Handset and accessory gross subsidy” for a description of the change in the handset pricing and commission plan. For the quarter ended March 31, 2003, these higher commissions paid to dealers have substantially offset the increase in handset revenues that we experienced due to the increase in handset sales prices.

General and administrative. The increase in general and administrative expenses from the first quarter 2002 to the first quarter 2003, reflects:


	•	a $21 million increase in expenses related to billing, collection, customer retention and customer care activities;

	•	a $22 million increase in personnel, facilities and general corporate expenses; offset by

	•	a $37 million decrease in bad debt expense.

Billing, collection, customer retention and customer care related costs increased primarily due to the costs to support a larger customer base. However, these costs are increasing at a slower rate than our customer growth rate in part due to cost savings we are realizing as a result of outsourcing many aspects of our customer care function.

Personnel, facilities and general corporate expenses increased primarily as a result of increases in headcount, professional fees and other expenses relating to our public safety and technology initiatives and our financial systems software upgrade initiatives, and employee compensation costs.

Bad debt expense decreased $37 million from $93 million, or 4.8% of operating revenues, in the first quarter of 2002 to $56 million, or 2.4% of operating revenues, in the first quarter of 2003. The decrease in both bad debt expense and bad debt expense as a percentage of operating revenues reflects the results of system and strategic initiatives instituted within the past 12 months. With the completion of our integrated billing, customer care and collections system in 2002, productivity of various departments, including collections, has improved. Further, we made strategic decisions to strengthen our credit policies and procedures specifically in the area of compliance with our deposit policy, limiting the account sizes for high risk accounts and fraud pre-screening. The credit and collection software tools that we implemented in the last 12 months now enable us to better screen and monitor the credit quality and delinquency levels of our customers. We have also benefited from improvements in recoveries of past due accounts handled by third party agencies. These factors and others have resulted in increasing collections, an improvement in the accounts receivable agings and a reduction in the write-offs for fraud-related accounts. While we believe that bad debt expense as a percentage of operating revenues in 2003 will be lower than that experienced in 2002, bad debt expense in the future could be adversely affected by general economic and business conditions. See “— Forward-Looking Statements.”

We expect the aggregate amount of selling, general and administrative expenses to continue to increase in the future as a result of a number of factors, including but not limited to:


	•	increased marketing and advertising in connection with advertising campaigns designed to increase brand awareness in our markets;

	•	increased costs associated with expanding our retail operations by opening additional Nextel stores; and

	•	increased costs to support a growing customer base, including costs associated with billing, collection, customer retention and customer care activities; partially offset by

	•	savings expected from our outsourcing arrangements, our billing and customer care system and obtaining an increasing percentage of sales from our customer convenience channels.

We expect our information and technology outsourcing arrangement entered into in 2002 will result in about $140 million of reduced costs over a five year period relative to our previous run-rate, primarily in the

form of lower capital spending. We also expect our customer care outsourcing arrangement entered into in 2002 will result in more than $1,000 million of reduced costs over an eight-year period relative to our run-rate in 2001. Our actual experience through March 31, 2003 indicates that we are realizing the benefits of these outsourcing arrangements. While we believe our aggregate customer care related costs will continue to increase in order to support the growth in our customer base, we believe these increases will be less than we would have experienced without the outsourcing arrangement. See “— Forward-Looking Statements.”

Depreciation expense increased $28 million from the first quarter 2002 to the first quarter 2003. In the first quarter 2003, we recorded $17 million, or $.02 per share, in depreciation expense as a result of shortening the estimated useful lives of some of our network assets in the first quarter 2003. Further, depreciation increased during this period as a result of a 3% increase in transmitter and receiver sites in service, as well as costs to modify existing switches and transmitter and receiver sites in existing markets primarily to enhance our network. We periodically review the useful lives of our fixed assets as circumstances warrant. Events that would likely cause us to review the useful lives of our fixed assets include decisions made by regulatory agencies and our decisions surrounding strategic or technology matters. It is possible that depreciation expense may increase in future periods as a result of one or a combination of these decisions. Depreciation expense recorded in a period can also be impacted by several factors, including the effect of fully depreciated assets, the timing between when capital assets are purchased and when they are deployed into service which is when depreciation commences, company-wide decisions surrounding levels of capital spending and the level of spending on non-network assets which generally have much shorter depreciable lives as compared to network assets.

In January 2002, we announced outsourcing agreements for our information technology and customer care functions. In connection with these outsourcing agreements, we recorded a $35 million restructuring charge in the first quarter of 2002, which primarily represented the future lease payments related to facilities we have since vacated or plan to vacate net of estimated sublease income.

The $48 million decrease in interest expense from the first quarter 2002 to the first quarter 2003 primarily relates to:


	•	a $34 million decrease resulting from the purchase and retirement of our senior notes, as discussed below;

	•	a $10 million decrease due to a reduction in the weighted average interest rates related to our bank credit facility from 5.1% during the first quarter 2002 to 3.9% during the first quarter 2003; and

	•	a $4 million decrease related to the SpectraSite tower lease agreements, which are accounted for as operating leases beginning in the first quarter 2003.

Interest expense related to our senior notes decreased from the first quarter 2002 to the first quarter 2003 primarily due the purchase and retirement of $2,419 million in aggregate principal amount at maturity of our senior notes since the second quarter 2002. As of March 31, 2002, we had outstanding long-term debt of $13,938 million. Due principally to repurchases of these securities, as of March 31, 2003, we had outstanding long-term debt of $11,823 million.

The $3 million decrease in interest income from the first quarter 2002 to the first quarter 2003 is primarily due to a decrease in the average cash and short-term investments balances in the first quarter 2003 as compared to the same period in 2002.

The loss on retirement of debt in 2003 relates to the purchase and retirement of some of our senior notes during 2003.

The $13 million in equity in losses of unconsolidated affiliates in the first quarter 2003 is due to losses attributable to our equity method investment in Nextel Partners of $16 million partially offset by our equity in earnings of NII Holdings of $3 million. The $152 million equity in losses of unconsolidated affiliates for the first quarter 2002 includes a $127 million loss representing our share through March 31, 2002 of NII Holdings’ operating results before it emerged from bankruptcy and a $25 million loss attributable to our equity method investment in Nextel Partners.

The increase in the income tax provision in 2002 is primarily attributable to the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.” As a result of this adoption in the first quarter 2002, we incurred a one-time cumulative non-cash charge to the income tax provision of $335 million to increase the valuation allowance related to our net operating losses. We have provided a full reserve against our net operating loss carryforwards as of March 31, 2003. This reserve is established due to the fact that we do not have a sufficient history of taxable income at this time to conclude that it is more likely than not that the net operating loss will be realized. To the extent that we have taxable income in future periods, we will realize the benefits of at least some of the net operating loss carryforwards.

As of March 31, 2003, we had total liquidity of about $3.6 billion available to fund our operations including $2.3 billion of cash, cash equivalents and short-term investments and about $1.3 billion available under the revolving loan commitment of our bank credit facility. Until the third quarter 2002, total cash used in investing activities, primarily for capital expenditures and spectrum acquisitions associated with developing, enhancing and operating our network, has more than offset our cash flows provided by operating activities. For the quarter ended March 31, 2003, total cash provided by operating activities exceeded cash flows used in investing activities by $135 million as compared to a deficit of $692 million for the same period in 2002. We have historically used external sources of funds, primarily from debt incurrences and equity issuances, to fund capital expenditures, acquisitions and other nonoperating needs.

Net cash provided by operating activities for the first quarter 2003 improved by $341 million over the same period in 2002 primarily reflecting the improved performance of our operations from our achievement of certain economies of scale and from the growth in our customer base.

Net cash used in investing activities for the first quarter 2003 decreased by $486 million over the same period in 2002 due to:


	•	a $213 million decrease in cash paid for capital expenditures;

	•	a $38 million decrease in cash paid for purchases of licenses, acquisitions, investments and other; and

	•	a $250 million increase related to the relinquishment of NII Holdings’ cash upon the deconsolidation of NII Holdings in 2002; offset by

	•	a $15 million increase in net cash purchases of short-term investments.

Capital expenditures to fund the ongoing investment in our network continued to represent the largest use of our funds for investing activities. Cash payments for capital expenditures totaled $386 million for the first quarter 2003 and $599 million for the first quarter 2002. Capital expenditures decreased during the first quarter 2003 compared with the same period in 2002 primarily due to several factors, including:


	•	implementation of enhanced processes and tools that allow us to more efficiently deploy and utilize network assets;

	•	our improved spectrum utilization, which allows us to add enhancements to existing transmitter and receiver sites rather than building additional sites; and

	•	technological advances in network equipment which provide us with more capacity at a lower cost; see “— Future Capital Needs and Resources — Capital Needs — Capital expenditures.”

We made cash payments during the first quarter 2003 totaling $214 million for licenses, investments and other, including $201 million related to the acquisition of all the stock of NeoWorld Communications. We made cash payments during the first quarter of 2002 totaling $252 million for licenses, acquisitions, investments and other, including $109 million for the assets of Chadmoore Wireless Group, Inc.

Net cash used in financing activities during the first quarter 2003 consisted primarily of:


	•	$570 million paid for the purchase and retirement of $491 million in aggregate principal amount at maturity of our outstanding senior notes and $77 million in aggregate face amount of our outstanding mandatorily redeemable preferred stock;

	•	$70 million for repayments under capital lease and finance obligations, including a payment of $54 million associated with the early buy-out option under one of our capital lease agreements; partially offset by

	•	$20 million of net borrowings under the long-term credit facility.

Net cash used in financing activities during the first quarter 2002 consisted primarily of $28 million for repayments under capital lease and finance obligations.

As of March 31, 2003, our capital resources included $2.3 billion of cash, cash equivalents and short-term investments and $1.3 billion of the revolving loan commitment under our credit facility, as discussed below. Therefore, our resulting total amount of liquidity to fund our operations was about $3.6 billion as of March 31, 2003.

Our ongoing capital needs depend on a variety of factors, including the extent to which we are able to fund the cash needs of our business from operating activities. Until recently, we have been unable to fund our capital expenditures, spectrum acquisition costs and business acquisitions with the cash generated by our operating activities. Therefore, we have met the cash needs of our business principally by raising capital from issuances of debt and equity securities. To the extent we can generate sufficient cash flow from our operating activities, we will be able to use less of our available liquidity and will have less, if any, need to raise capital from the capital markets. To the extent we generate less cash flow from our operating activities, we will be required to use more of our available liquidity to fund operations or raise additional capital from the capital markets. We may be unable to raise additional capital on acceptable terms, if at all. Our ability to generate cash flow from operating activities is dependent upon, among other things:


	•	the amount of revenue we are able to generate from our customers;

	•	the amount of operating expenses required to provide our services;

	•	the cost of acquiring and retaining customers, including the subsidies we incur to provide handsets to both our new and existing customers; and

	•	our ability to continue to grow our customer base.

As of March 31, 2003, our credit facility provided for total secured financing capacity of up to $5.8 billion, subject to the satisfaction or waiver of applicable borrowing conditions. As of March 31, 2003, this facility consisted of a $1.4 billion revolving loan commitment, of which $116 million has been accessed, and $4.4 billion in term loans, all of which have been accessed. We made a principal repayment on the term loans in the amount of $49 million in the first quarter of 2003, due to the scheduled reduction in term loan commitment levels. The term loan commitment levels will continue to be reduced every quarter until the term loans mature, which occurs over a period from December 31, 2007 to March 31, 2009. On March 31, 2003, the amount of the revolving loan commitment available to us was reduced by $38 million and will continue to be reduced by $38 million every quarter through March 31, 2004. Starting April 1, 2004, the reductions become more significant until 2007 when no amounts will be available under the credit facility.

The credit facility requires compliance with financial ratio tests, including total indebtedness to operating cash flow, secured indebtedness to operating cash flow, operating cash flow to interest expense and operating cash flow to specified charges, each as defined under the credit facility. Some of these ratios became more stringent in 2003, at which time they become fixed. As of March 31, 2003, we were in compliance with all financial ratio tests under our credit facility, and we expect to remain in full compliance with these ratio tests. Borrowings under the credit facility are secured by liens on assets of substantially all of our subsidiaries. The maturity dates of the loans may accelerate if we do not comply with the financial ratio tests, which could have a material adverse effect on our financial condition.

In addition, the loans under the credit facility can accelerate if the aggregate amount of our public notes that mature within the succeeding six months of any date before June 30, 2009, or if the aggregate amount of our redeemable stock that is mandatorily redeemable within the succeeding six months of any date before June 30, 2009, exceed amounts specified in our credit facility. However, no such acceleration is required if the long-term rating for our public notes is at least BBB- by Standard & Poor’s Ratings Services or Baa3 by Moody’s Investors Service, Inc. There is no provision under any of our indebtedness that requires repayment in the event of a downgrade by any ratings service. As of March 31, 2003, the maturities of our public notes and mandatorily redeemable preferred stock do not exceed the amounts specified in our credit facility.

Our ability to access additional amounts under the credit facility may be restricted by provisions included in some of our public notes and mandatorily redeemable preferred stock that limit the incurrence of additional indebtedness in certain circumstances. The availability of borrowings under this facility also is subject to the satisfaction or waiver of specified borrowing conditions. As of March 31, 2003, we were able to access substantially all of the remaining $1.3 billion available.

The credit facility also contains covenants which limit our ability and the ability of some of our subsidiaries to incur additional indebtedness; create liens; pay dividends or make distributions in respect of our or their capital stock or make specified other restricted payments; consolidate, merge or sell all or substantially all of our or their assets; guarantee obligations of other entities; enter into hedging agreements; enter into transactions with affiliates or related persons or engage in any business other than the telecommunications business. Finally, except for distributions for specified limited purposes, these covenants limit the distribution of substantially all of our subsidiaries’ net assets.

Additionally, during the quarter ended March 31, 2003, we purchased and retired $568 million in principal amount of long-term debt and in face amount of mandatorily redeemable preferred stock in exchange for cash on hand, resulting in the avoidance of principal, interest, and dividend payments of about $889 million over the life of these securities. From the three-month period ended June 30, 2002 to March 31, 2003, we have purchased and retired about $3.8 billion in principal amount of long-term debt and in face amount of mandatorily redeemable preferred stock in exchange for cash and shares of our class A common stock, resulting in the avoidance of principal, interest and dividend payments of about $6.3 billion over the life of these securities, $6.1 billion of which will be avoided subsequent to March 31, 2003. See “— Future contractual obligations” for further information about future cash payments related to our long-term debt and preferred securities. We may, from time to time, as we deem appropriate, enter into similar transactions that in the aggregate may be material.

We currently anticipate that our future capital needs will principally consist of funds required for:


	•	capital expenditures to expand and enhance our network, as discussed immediately below under “— Capital expenditures;”

	•	operating expenses relating to our network;

	•	future investments, including potential spectrum purchases and investments in new business opportunities;

	•	potential substantial payments in connection with the Consensus Plan relating to the proposed public safety spectrum realignment (see Part II, Item 5. “Other Information”);

	•	debt service requirements related to our long-term debt, capital lease and financing obligations and mandatorily redeemable preferred stock;

	•	potential material increases in the cost of compliance with regulatory mandates; and

	•	other general corporate expenditures.

Capital expenditures. Our capital expenditures for the first quarter 2003 were $316 million, including capitalized interest. In the future, we expect our capital spending to be driven by several factors including:


	•	the construction of additional transmitter and receiver sites to maintain system quality and the installation of related switching equipment in existing market coverage areas;

	•	the enhancement of our network coverage;

	•	the enhancements to our existing iDEN technology to increase voice capacity and to offer nationwide Direct Connect™ in 2003; and


	•	any potential future enhancement of our network through the deployment of next generation technologies.

Our future capital expenditures are significantly affected by future technology improvements and technology choices. In the third quarter 2003, we expect to commence implementation of a significant technology upgrade to our iDEN network, the 6:1 voice coder software upgrade. We expect that this software upgrade will nearly double our voice capacity for wireless interconnect calls and leverage our investment in our existing infrastructure. See “— Forward-Looking Statements.” Technological developments like this would allow us to significantly reduce the amount of capital expenditures we would need to make for our current network in future years. However, any anticipated reductions in capital expenditures could be more than offset to the extent we incur additional capital expenditures to deploy new technologies. We will only deploy a new technology when deployment is warranted by expected customer demand, when we have sufficient capital available and when the anticipated benefits of services requiring the next generation technology outweigh the costs of providing those services.

Future contractual obligations. The table below sets forth our best estimates as to the amounts and timing of future contractual payments for our most significant contractual obligations as of March 31, 2003. The information in the table reflects future unconditional payments and is based upon, among other things, the terms of the relevant agreements, appropriate classification of items under generally accepted accounting principles currently in effect and certain assumptions, such as future interest rates. Future events, including additional purchases of our securities and refinancing of those securities, could cause actual payments to differ significantly from these amounts. See “— Forward-Looking Statements.” Except as required by applicable law, we disclaim any obligation to modify or update the information contained in the table.


(1)	These amounts include principal amortization and estimated interest payments based on management’s expectation as to future interest rates, assume the current payment schedule and exclude any additional future drawdown under the revolving loan commitment.

(2)	These amounts principally include future lease costs relating to transmitter and receiver sites and switches and office facilities.

The above table excludes amounts that may be paid or will be paid in connection with interest rate swap agreements that do not have mandatory cash settlement provisions prior to maturity and spectrum acquisitions. We have committed, subject to certain conditions which may not be met, to pay up to about $150 million for spectrum acquisitions and leasing agreements entered into and outstanding as of March 31, 2003. Included in the “Other” caption are minimum amounts due under our most significant service contracts, including agreements for telecommunications and customer billing services and contracts related to our information and technology and customer care outsourcing arrangements. Amounts actually paid under some of these “Other” agreements will likely be higher due to variable components of these agreements. The more significant variable components that determine the ultimate obligation owed include items such as hours contracted, subscribers, interest rates and other factors. In addition, we are party to various arrangements that are conditional in nature and obligate us to make payments only upon the occurrence of certain events, such as the delivery of functioning software or products. Because it is not possible to predict the timing or amounts that may be due under these conditional arrangements, no amounts have been included in the table above. Significant amounts expected to be paid to Motorola for infrastructure, handsets and

related services are not shown above due to the uncertainty surrounding the timing and extent of these payments and because minimum contractual amounts under our agreements with Motorola are not significant. See note 15 of the consolidated financial statements contained in our 2002 annual report on Form 10-K.

In addition, the table above excludes amounts that we may be required to or elect to pay with respect to Nextel Partners. In 1999, we entered into agreements with Nextel Partners, and other parties, including Motorola and Eagle River Investments, Inc., an affiliate of Craig O. McCaw, one of our directors, relating to the capitalization, governance, financing and operation of Nextel Partners. Nextel Partners is constructing and operating a network utilizing the iDEN technology used in our network. In addition, the certificate of incorporation of Nextel Partners establishes circumstances in which we will have the right or obligation to purchase the outstanding shares of class A common stock of Nextel Partners at specified prices. We may pay the consideration for such a purchase in cash, shares of our stock, or a combination of both. Subject to certain limitations and conditions, including possible deferrals by Nextel Partners, we will have the right to purchase the outstanding shares of Nextel Partners’ class A common stock on January 29, 2008.

Subject to various limitations and conditions, we may be required to purchase the outstanding shares of Nextel Partners’ class A common stock:


	•	if (i) we elect to cease using iDEN technology on a nationwide basis; (ii) such change means that Nextel Partners cannot offer nationwide roaming comparable to that available to its subscribers before our change; and (iii) we elect not to pay for the equipment necessary to permit Nextel Partners to make a technology change;

	•	if we elect to terminate the relationship with Nextel Partners because of its breach of the operating agreements;

	•	if we experience a change of control; or

	•	if we breach the operating agreements.

In addition, if we require a change by Nextel Partners to match changes we have made in our business, operations or systems, in certain circumstances we have the right to purchase, and Nextel Partners’ stockholders have the right to require us to purchase, the outstanding class A common stock. Except in the case of Nextel Partners’ breach, the consideration we would be required to pay could also involve a premium based on various pricing formulas or appraisal processes. We may not transfer our interest in Nextel Partners to a third party before January 29, 2011, and Nextel Partners’ class A common stockholders have the right, and in specified instances the obligation, to participate in any sale of our interest.

Future outlook. Since the third quarter of 2002, our total cash flows provided by operating activities have exceeded our total cash flows used in investing activities and our debt service requirements. We expect to fund our capital needs at least through 2003 by using our anticipated cash flows from operating activities. See “— Forward-Looking Statements.”


	•	the anticipated level of capital expenditures, including an expected significant positive impact associated with the 6:1 voice coder software upgrade which Motorola is developing for our expected deployment beginning in the third quarter of 2003; and

	•	our scheduled debt service requirements.

Additionally, we have the ability to use existing cash, cash equivalents and short-term investments on hand and available of $2.3 billion as of March 31, 2003, or drawdown on the available revolving loan commitment under our credit facility of $1.3 billion as of March 31, 2003 to fund our capital needs.

If our business plans change, including as a result of changes in technology, or if economic conditions in any of our markets generally or competitive practices in the mobile wireless telecommunications industry change materially from those currently prevailing or from those now anticipated, or if other presently

unexpected circumstances arise that have a material effect on the cash flow or profitability of our mobile wireless business, the anticipated cash needs of our business could change significantly.

Our above conclusion that we will be able to fund our capital requirements at least through 2003 by using existing cash balances and cash generated from operations does not take into account:


	•	the impact of our participation in any future auctions for the purchase of spectrum licenses;

	•	any significant acquisition transactions or the pursuit of any significant new business opportunities other than those currently being pursued by us;

	•	deployment of next generation technologies;

	•	potential material additional purchases of our outstanding debt securities and mandatorily redeemable preferred stock for cash;

	•	potential material increases in the cost of compliance with regulatory mandates; and

	•	potential material changes to our business plan that could result from the FCC’s action on the proposed public safety spectrum realignment.

Any of these events or circumstances could involve significant additional funding needs in excess of the identified currently available sources, and could require us to raise additional capital to meet those needs. However, our ability to raise additional capital, if necessary, is subject to a variety of additional factors that we cannot presently predict with certainty, including:


	•	the commercial success of our operations;

	•	the volatility and demand of the capital markets; and

	•	the market prices of our securities.

We have had and may in the future have discussions with third parties regarding potential sources of new capital to satisfy actual or anticipated financing needs. At present, other than the existing arrangements that have been consummated or are described in this report, we have no legally binding commitments or understandings with any third parties to obtain any material amount of additional capital. The entirety of the above discussion also is subject to the risks and other cautionary and qualifying factors set forth under “— Forward-Looking Statements.”

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995. A number of the statements made in, or incorporated by reference into, this quarterly report are not historical or current facts, but deal with potential future circumstances and developments. They can be identified by the use of forward-looking words such as “believes,” “expects,” “plans,” “may,” “will,” “would,” “could,” “should” or “anticipates” or other comparable words, or by discussions of strategy that may involve risks and uncertainties. We caution you that these forward-looking statements are only predictions, which are subject to risks and uncertainties including technological uncertainty, financial variations, changes in the regulatory environment, industry growth and trend predictions. The operation and results of our wireless communications business may be subject to the effect of other risks and uncertainties in addition to the relevant qualifying factors identified in the foregoing “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” including, but not limited to:


	•	general economic conditions in the geographic areas and occupational market segments that we are targeting for our digital mobile network service;

	•	the availability of adequate quantities of system infrastructure and handset equipment and components to meet service deployment and marketing plans and customer demand;

	•	the availability and cost of acquiring additional spectrum;


	•	the timely development and availability of new handsets with expanded applications and features;

	•	the success of efforts to improve, and satisfactorily address any issues relating to, our digital mobile network performance;

	•	the successful implementation and performance of the technology being deployed or to be deployed in our various market areas, including the expected 6:1 voice coder software upgrade being developed by Motorola and technologies to be implemented in connection with our contemplated launch of our nationwide Direct Connect service;

	•	market acceptance of our new line of Java™ embedded handsets and service offerings, including our Nextel Online services;

	•	the timely delivery and successful implementation of new technologies deployed in connection with any future enhanced iDEN or next generation or other advanced services we may offer;

	•	the ability to achieve market penetration and average subscriber revenue levels sufficient to provide financial viability to our digital mobile network business;

	•	the impact on our cost structure or service levels of the general downturn in the telecommunications sector, including the adverse effect of any bankruptcy of any of our tower providers or telecommunications suppliers;

	•	our ability to successfully scale, in some circumstances in conjunction with third parties under our outsourcing arrangements, our billing, collection, customer care and similar back-office operations to keep pace with customer growth, increased system usage rates and growth in levels of accounts receivables being generated by our customers;

	•	access to sufficient debt or equity capital to meet operating and financing needs;

	•	the quality and price of similar or comparable wireless communications services offered or to be offered by our competitors, including providers of cellular and personal communication services including, for example, two-way radio services;

	•	the impact of legislation or regulatory actions relating to specialized mobile radio services, wireless communications services or telecommunications generally, including, for example, the impact of number portability on our business;

	•	the costs of compliance with regulatory mandates, particularly the requirement to deploy location-based 911 capabilities; and

	•	other risks and uncertainties described from time to time in our reports filed with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2002.

We primarily use senior notes, bank credit facilities and mandatorily redeemable preferred stock to finance our obligations. We are exposed to market risk from changes in interest rates and equity prices. Our primary interest rate risk results from changes in the U.S. London Interbank Offered Rate, or LIBOR, U.S. prime and Eurodollar rates, which are used to determine the interest rates applicable to our borrowings. Interest rate changes expose our fixed rate long-term borrowings to changes in fair value and expose our variable rate long-term borrowings to changes in future cash flows. We use derivative instruments primarily consisting of interest rate swap agreements to manage this interest rate exposure by achieving a desired proportion of fixed rate versus variable rate borrowings. All of our derivative transactions are entered into for non-trading purposes.

As of March 31, 2003, we held $921 million of short-term investments consisting of debt securities in the form of commercial paper and corporate bonds. As the weighted average maturity from the date of purchase

As of March 31, 2003, the fair value of our investment in NII Holdings’ 13% senior secured notes, which was determined based on quoted market prices of the notes, totaled $53 million. This investment is reported at its fair value in our financial statements.

The table below summarizes our remaining interest rate risks as of March 31, 2003 in U.S. dollars. The table presents principal cash flows and related interest rates by year of maturity for our senior notes, bank credit facilities, capital lease and finance obligations and mandatorily redeemable preferred stock in effect at March 31, 2003. In the case of the mandatorily redeemable preferred stock and senior notes, the table excludes the potential exercise of the relevant redemption or conversion features. This table also assumes that we will refinance our indebtedness to levels necessary to avoid an earlier repayment obligation with respect to our bank credit agreement. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Future Capital Needs and Resources.” For interest rate swap agreements, the table presents notional amounts and the related interest rates by year of maturity. Fair values included in this section have been determined based on:


	•	quoted market prices for our senior notes and mandatorily redeemable preferred stock;

	•	estimates from bankers for our bank credit facility;

	•	present value of future cash flows for our capital lease and finance obligations using a discount rate available for similar obligations; and

	•	estimates from bankers to settle our interest rate swap agreements.

Notes 7, 8, 9 and 12 to the consolidated financial statements included in our 2002 annual report on Form 10-K contain descriptions and significant changes in outstanding amounts of our senior notes, bank credit facilities, capital lease and finance obligations, interest rate swap agreements and mandatorily redeemable preferred stock and should be read together with the following table.

We maintain a set of disclosure controls and procedures that are designed to ensure that information relating to Nextel (including our consolidated subsidiaries) required to be disclosed in our periodic filings

under the Securities Exchange Act is recorded, processed, summarized and reported in a timely manner under the Securities Exchange Act of 1934. Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to our most recent evaluation.

See Part I, note 1, “Basis of Presentation, NII Holdings,” for a discussion of NII Holdings’ voluntary reorganization under Chapter 11 of the United States Bankruptcy Code.

California Service Quality Standards Proceeding. On December 5, 2002, the California Public Utilities Commission, or CPUC, proposed service quality standards and reporting requirements applicable to wireless carriers. We and other wireless carriers have filed comments and reply comments strongly opposing the imposition of any service quality measures or reporting requirements on wireless carriers. This proceeding remains pending before the CPUC.

California Numbering Proceedings Before the FCC. On March 14, 2003, the CPUC requested permission to withdraw one of two petitions it had filed with the FCC that could affect the timely availability of new telephone numbers to assign to our and other wireless carriers’ customers. That petition also could have required wireless carriers to take back and replace the telephone numbers of certain customers in California. The FCC granted the CPUC’s request to withdraw the petition on March 28, 2003. The other petition, if granted, could negatively affect our and other wireless carriers’ ability to promptly assign customers new numbers within their desired local calling area.

NextWave. On January 27, 2003, the Supreme Court ruled that the FCC had acted beyond its regulatory authority when it cancelled NextWave Communications, Inc.’s wireless licenses. The court rejected arguments that the FCC had a regulatory interest in taking licenses from NextWave. The FCC recently confirmed that NextWave will have an extended period of time to complete its initial build-out and the FCC recently accepted build-out notifications for certain NextWave licenses.

Mobile Satellite Service Reallocation Proceeding. On January 30, 2003, the FCC adopted an order that permits mobile satellite service providers to integrate ancillary terrestrial components into their mobile satellite networks, subject to FCC authorization and compliance with FCC requirements. On that same date, the FCC reallocated 30 MHz of spectrum from the 2 gigahertz mobile satellite service, including the 1990-2000 MHz band, to fixed and mobile terrestrial services. The reallocated spectrum includes 5 MHz identified as replacement spectrum to make possible the Consensus Plan for 800 MHz realignment that would mitigate interference between 800 MHz commercial wireless licensees and public safety operators. A rulemaking proceeding has been initiated to identify how the 30 MHz of reallocated spectrum can be used and how it will be assigned for wireless services. Comments and reply comments were filed in April 2003. The satellite industry has filed petitions for reconsideration of the FCC’s reallocation decision.

Interconnection Costs. Several incumbent local exchange carriers, or ILECs, operating in rural areas, in conjunction with BellSouth Corp. and other Regional Bell Operating Companies, have initiated state proceedings seeking to require commercial mobile radio services, or CMRS, carriers to pay access-type charges for local traffic that originates on a CMRS carrier’s network, travels over BellSouth’s or another Regional Bell Operating Company’s network and terminates on a rural ILEC’s network. If any of the state commissions rule in the rural ILECs’ favor, CMRS carrier interconnection costs in those markets, including ours, could increase.

800 MHz Realignment Plan. We, along with the leading public safety and private wireless organizations, have proposed a comprehensive Consensus Plan for mitigating interference to 800 MHz public safety licensees through realigning the 800 MHz land mobile radio spectrum to create separate blocks for public safety and commercial operations. The proposal remains pending before the FCC. In April 2003, the FCC asked the primary manufacturers of equipment operating in the 800 MHz band whether they had any additional information to provide to supplement the record in the FCC’s proceeding on the public safety interference issue or any practical or technical solutions to this problem. On May 6, 2003, Motorola submitted an ex parte letter to the FCC stating that it is making progress with technical advances in receiver design that may be effective in mitigating public safety interference and that it believes that these advances, together with other methods, may be a solution to the interference issue. It is uncertain what solutions, if any, may be adopted by the FCC.

Additional Consulting Services. Last year Deloitte & Touche LLP, our outside audit firm, had announced plans to separate its consulting practice from its audit practice, joining other major accounting firms in this course of action. We had continued to use Deloitte for certain consulting work as permitted by the Sarbanes-Oxley Act of 2002 and rules of the Securities and Exchange Commission, based in part, on the expectation the separation would take place. However, Deloitte recently announced it had abandoned plans to separate the practices. Going forward, with the exception of projects finishing in 2003, we will not utilize any management consulting services by Deloitte’s consulting practice as long as that consulting practice remains associated with Deloitte & Touche LLP and Deloitte continues to serve as our outside audit firm.


	1.	Current report on Form 8-K dated and filed on January 8, 2003 reporting under Item 5 certain financial results and other data for the year ended December 31, 2002.

	2.	Current report on Form 8-K dated and filed on January 16, 2003 reporting under Item 9 our acquisition of all of the stock of Neoworld Communications, Inc.

	3.	Current report on Form 8-K dated and filed on February 14, 2003 reporting under Item 9 certain management changes.

	4.	Current report on Form 8-K dated and filed on February 20, 2003 reporting under Item 9 our financial results and other data for the quarter and year ended December 31, 2002.

	5.	Current report on Form 8-K dated and filed on March 6, 2003 reporting under Item 5 certain changes to our board of directors and the execution of an agreement with Craig O. McCaw and Digital Radio, L.L.C..

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.


	By:	/s/ WILLIAM G. ARENDT


	William G. Arendt
	Vice President and Controller
	(Principal Accounting Officer)

I, Timothy M. Donahue, President & Chief Executive Officer of Nextel Communications, Inc., certify that:


	1. I have reviewed this quarterly report on Form 10-Q of Nextel Communications, Inc.;

	2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

	3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

	4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):


	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


	6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

I, Paul N. Saleh, Executive Vice President & Chief Financial Officer of Nextel Communications, Inc., certify that:


	1. I have reviewed this quarterly report on Form 10-Q of Nextel Communications, Inc.;

	2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

	3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

	4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):


	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


	6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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 0-19656


Delaware (State or other jurisdiction of incorporation or organization		36-3939651 (I.R.S. Employer Identification No.)
2001 Edmund Halley Drive, Reston, Virginia (Address of principal executive offices)		20191 (Zip Code)
(Registrant’s telephone number, including area code) (703) 433-4000


	Number of Shares Outstanding
Title of Class	on April 30, 2003

Class A Common Stock, $0.001 par value		992,411,328
Class B Nonvoting Common Stock, $0.001 par value		35,660,000


			Page

Part I	Financial Information.
	Item 1.	Financial Statements — Unaudited.
		Condensed Consolidated Balance Sheets As of March 31, 2003 and December 31, 2002		3
		Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For the Three Months Ended March 31, 2003 and 2002		4
		Condensed Consolidated Statement of Changes in Stockholders’ Equity For the Three Months Ended March 31, 2003		5
		Condensed Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2003 and 2002		6
		Notes to Condensed Consolidated Financial Statements		7
		Independent Accountants’ Review Report		16
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		34
	Item 4.	Controls and Procedures		35
Part II	Other Information.
	Item 1.	Legal Proceedings		37
	Item 5.	Other Information		37
	Item 6.	Exhibits and Reports on Form 8-K		38


			2003			2002

ASSETS
Current assets
	Cash and cash equivalents		$	1,356		$	1,846
	Short-term investments			921			840
	Accounts and notes receivable, less allowance for doubtful accounts of $123 and $127.			996			1,077
	Handset and accessory inventory			194			245
	Prepaid expenses and other current assets			672			642

		Total current assets		4,139			4,650
Investments				147			145
Property, plant and equipment, net of accumulated depreciation of $5,406 and $5,007.				8,828			8,918
Intangible assets, net of accumulated amortization of $89 and $76.				6,903			6,607
Other assets				1,106			1,164

			$	21,123		$	21,484

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
	Accounts payable		$	426		$	515
	Accrued expenses and other			1,849			1,749
	Due to related parties			206			241
	Current portion of long-term debt, capital lease and finance obligations			236			251

		Total current liabilities		2,717			2,756
Long-term debt				11,624			12,079
Capital lease and finance obligations				165			220
Deferred income taxes				1,632			1,619
Deferred revenues and other				960			949

		Total liabilities		17,098			17,623

Commitments and contingencies (note 7)
Mandatorily redeemable preferred stock				947			1,015
Stockholders’ equity
	Convertible preferred stock, 0 and 4 shares issued and outstanding			—			136
	Common stock, class A, 992 and 968 shares issued and outstanding			1			1
	Common stock, class B, nonvoting convertible, 36 shares issued and outstanding			—			—
	Paid-in capital			10,648			10,530
	Accumulated deficit			(7,553	)		(7,793	)
	Deferred compensation, net			(5	)		(7	)
	Accumulated other comprehensive loss			(13	)		(21	)

		Total stockholders’ equity		3,078			2,846

			$	21,123		$	21,484


			2003			2002

Operating revenues
	Service revenues		$	2,210		$	1,831
	Handset and accessory revenues			161			126

				2,371			1,957

Operating expenses
	Cost of service (exclusive of depreciation included below)			369			351
	Cost of handset and accessory revenues			310			305
	Selling, general and administrative			786			715
	Restructuring and impairment charges			—			35
	Depreciation			399			371
	Amortization			14			11

				1,878			1,788

Operating income				493			169

Other income (expense)
	Interest expense			(225	)		(273	)
	Interest income			12			15
	Loss on retirement of debt			(5	)		—
	Equity in losses of unconsolidated affiliates, net			(13	)		(152	)

				(231	)		(410	)

Income (loss) before income tax provision				262			(241	)
Income tax provision				(22	)		(350	)

Net income (loss)				240			(591	)
	Loss on retirement of mandatorily redeemable preferred stock			(2	)		—
	Mandatorily redeemable preferred stock dividends and accretion			(30	)		(63	)

Income (loss) available to common stockholders			$	208		$	(654	)

Earnings (loss) per common share
	Basic		$	0.21		$	(0.82	)

	Diluted		$	0.20		$	(0.82	)

Weighted average number of common shares outstanding
	Basic			1,010			801

	Diluted			1,047			801

Comprehensive income (loss), net of income tax
	Unrealized loss on available-for-sale securities, net		$	—		$	(20	)
	Foreign currency translation adjustment			1			26
	Cash flow hedge:
		Reclassification of transition adjustment included in net income (loss)		2			2
		Unrealized gain on cash flow hedge		5			10

	Other comprehensive income			8			18
	Net income (loss)			240			(591	)

Comprehensive income (loss), net of income tax			$	248		$	(573	)



		Convertible						Class A				Class B													Accumulated
		Preferred Stock						Common Stock				Common Stock													Other
																Paid-in			Accumulated			Deferred			Comprehensive
		Shares			Amount			Shares		Amount		Shares		Amount		Capital			Deficit			Compensation			(Loss) Income			Total

Balance, January 1, 2003.			4		$	136			968	$	1		36	$	—	$	10,530		$	(7,793	)	$	(7	)	$	(21	)	$	2,846
	Net income																			240									240
	Other comprehensive income																									8			8
	Conversion of preferred stock into common stock		(4	)		(136	)		22		—						136												—
	Common stock issued under equity plans								2		—						13												13
	Deferred compensation and other																1						2						3
	Loss on retirement of mandatorily redeemable preferred stock																(2	)											(2	)
	Dividends and accretion on mandatorily redeemable preferred stock																(30	)											(30	)

Balance, March 31, 2003.			—		$	—			992	$	1		36	$	—	$	10,648		$	(7,553	)	$	(5	)	$	(13	)	$	3,078


					2003			2002

Cash flows from operating activities
	Net income (loss)				$	240		$	(591	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Amortization of debt financing costs and accretion of senior notes				23			92
		Provision for losses on accounts receivable				56			93
		Restructuring and impairment charges				—			31
		Depreciation and amortization				413			382
		Loss on retirement of debt				5			—
		Equity in losses of unconsolidated affiliates, net				13			152
		Income tax provision				12			350
		Other, net				(28	)		2
		Change in assets and liabilities, net of effects from acquisitions:
			Accounts and notes receivable			18			(96	)
			Handset and accessory inventory			49			12
			Prepaid expenses and other assets			16			(15	)
			Accounts payable, accrued expenses and other			(4	)		60

				Net cash provided by operating activities		813			472

Cash flows from investing activities
	Capital expenditures					(386	)		(599	)
	Purchases of short-term investments					(728	)		(1,037	)
	Proceeds from maturities and sales of short-term investments					650			974
	Payments for purchases of licenses, investments and other, net of cash acquired					(214	)		(143	)
	Payments for acquisitions, net of cash acquired					—			(109	)
	Cash relinquished as a result of deconsolidation of NII Holdings					—			(250	)

				Net cash used in investing activities		(678	)		(1,164	)

Cash flows from financing activities
	Purchase and retirement of debt securities and mandatorily redeemable preferred stock					(570	)		—
	Borrowings under long-term credit facility					69			—
	Repayments under long-term credit facility					(49	)		—
	Payment for capital lease buy-out					(54	)		—
	Repayments under capital lease and finance obligations					(16	)		(28	)
	Mandatorily redeemable preferred stock dividends paid					(15	)		—
	Other					10			1

				Net cash used in financing activities		(625	)		(27	)

Net decrease in cash and cash equivalents						(490	)		(719	)
Cash and cash equivalents, beginning of period						1,846			2,481

Cash and cash equivalents, end of period					$	1,356		$	1,762



			Three Months
			Ended March 31,

			2003		2002


			(in millions, except
			per share amounts)
Income (loss) available to common stockholders — basic and diluted			$	208	$	(654	)

Weighted average number of common shares outstanding — basic				1,010		801
	Effect of dilutive securities:
		Equity plans		20		—
		Class A convertible preferred stock		17		—

Weighted average number of common shares outstanding — diluted				1,047		801

Earnings (loss) per common share
	Basic		$	0.21	$	(0.82	)

	Diluted		$	0.20	$	(0.82	)



			March 31, 2003						December 31, 2002

			Gross				Net		Gross				Net
			Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
		Useful Lives	Value		Amortization		Value		Value		Amortization		Value


		(in millions)
Amortized intangible assets
	Customer lists	2 to 3 years	$	129	$	76	$	53	$	129	$	66	$	63
	Noncompete and spectrum sharing agreements and other	Up to 20 years		59		13		46		58		10		48

				188		89		99		187		76		111

Unamortized intangible assets
	FCC licenses			6,783				6,783		6,475				6,475
	Goodwill			21				21		21				21

				6,804				6,804		6,496				6,496

Total intangible assets			$	6,992	$	89	$	6,903	$	6,683	$	76	$	6,607


	March 31,			December 31,
	2003			2002


	(in millions)
Unrealized gain on available-for-sale securities, net	$	7		$	7
Cumulative foreign currency translation adjustment		—			(1	)
Cumulative effect of accounting change for cash flow hedge		(2	)		(4	)
Unrealized loss on cash flow hedge		(18	)		(23	)

	$	(13	)	$	(21	)



		Three Months
		Ended
		March 31,

		2003			2002


		(in millions)
Capital expenditures, including capitalized interest
	Cash paid for capital expenditures	$	386		$	599
	Changes in capital expenditures accrued, unpaid or financed		(70	)		(113	)

		$	316		$	486

Interest costs
	Interest expense	$	225		$	273
	Interest capitalized		11			12

		$	236		$	285

Cash paid for interest, net of amounts capitalized		$	154		$	152

Cash received for interest		$	9		$	15

Cash paid for income taxes		$	14		$	2


	Successor Company		Predecessor Company
	Three Months Ended		Three Months Ended
	March 31, 2003		March 31, 2002


	(in millions)
Operating revenues	$	203	$	195
Cost of revenues		74		78
Net income (loss) from continuing operations		9		(157	)
Net income (loss)		9		(155	)


					Accretion of
	Balance		Book Value		Unamortized		Balance		Principal
	December 31,		of		Discount or		March 31,		Value of
	2002		Retirements		Dividends		2003		Retirements


	(dollars in millions)
10.65% senior redeemable discount notes due 2007	$	756	$	65	$	—	$	691	$	65
9.75% senior serial redeemable discount notes due 2007		1,086		154		—		932		154
9.95% senior serial redeemable discount notes due 2008		1,364		79		16		1,301		79
12% senior serial redeemable discount notes due 2008		297		26		—		271		26
9.375% senior serial redeemable notes due 2009		1,796		126		—		1,670		126
5.25% convertible senior notes due 2010		622		15		—		607		15
9.5% senior serial redeemable notes due 2011		948		26		—		922		26
13% series D exchangeable preferred stock mandatorily redeemable 2009		471		8		—		463		8
11.125% series E exchangeable preferred stock mandatorily redeemable 2010		454		69		7		392		69

Total retirements			$	568					$	568


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.



														Change from
					% of						% of			Previous Year
		March 31,			Operating			March 31,			Operating
		2003			Revenues			2002			Revenues			Dollars		Percent


		(dollars in millions)
*Three Months Ended*
Service revenues		$	2,210			93	%	$	1,831			94	%	$	379		21	%
Cost of service (exclusive of depreciation)			369			16	%		351			18	%		18		5	%

	Service gross margin	$	1,841					$	1,480					$	361		24	%

	Service gross margin percentage		83	%					81	%


(1)	Amount excludes the impact of test markets such as the Boost Mobile^TM program.


													2008 and
Future Contractual Obligations	Total		2003		2004		2005		2006		2007		Thereafter


	(in millions)
Public senior notes	$	11,206	$	482	$	647	$	647	$	647	$	2,554	$	6,229
Bank credit facility(1)		5,904		288		525		674		708		749		2,960
Capital lease and finance obligations		235		35		49		51		53		47		—
Preferred stock cash payments		1,797		78		104		104		104		104		1,303
Operating leases(2)		1,512		336		400		300		188		106		182
Other		1,837		415		379		295		232		172		344

Total	$	22,491	$	1,634	$	2,104	$	2,071	$	1,932	$	3,732	$	11,018



		Year of Maturity
																							Fair
		2003			2004			2005			2006			2007			Thereafter			Total			Value


		(dollars in millions)
I. Interest Rate Sensitivity
*Mandatorily Redeemable Preferred Stock, Long-term Debt and Capital Lease and Finance Obligations*
	Fixed Rate	$	27		$	39		$	43		$	48		$	1,951		$	6,424		$	8,532		$	8,612
	Average Interest Rate		10	%		10	%		10	%		10	%		9	%		9	%		9	%
	Variable Rate	$	149		$	327		$	433		$	466		$	505		$	2,656		$	4,536		$	4,366
	Average Interest Rate		3	%		3	%		3	%		3	%		3	%		5	%		4	%

*Interest Rate Swaps*
	Variable to Fixed(1)	$	—		$	—		$	—		$	570		$	—		$	—		$	570		$	(108	)
	Average Pay Rate		—			—			—			8	%		—			—			8	%
	Average Receive Rate		—			—			—			2	%		—			—			2	%
	Fixed to Variable	$	—		$	—		$	—		$	—		$	—		$	500		$	500		$	62
	Average Pay Rate		—			—			—			—			—			5	%		5	%
	Average Receive Rate		—			—			—			—			—			10	%		10	%


(1)	This interest rate swap requires a cash settlement in October 2003.


Exhibit
Number		Exhibit Description

	10.1	Agreement, dated March 5, 2003 between Nextel, Digital Radio, L.L.C. and Mr. Craig O. McCaw (incorporated by reference to Exhibit 10.1 to Nextel’s Current Report on Form 8-K dated and filed on March 6, 2003).
	15	Letter in Lieu of Consent for Review Report.
	99.1	Sarbanes-Oxley Act of 2002 Certifications.


Date: May 14, 2003		/s/ TIMOTHY M. DONAHUE -------------------------------------------------------- Timothy M. Donahue President & Chief Executive Officer


Date: May 14, 2003		/s/ PAUL N. SALEH -------------------------------------------------------- Paul N. Saleh Executive Vice President & Chief Financial Officer