##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

FORM 10-K

|                                                |  |                                                                                                 
|----------------------------------------------- |  | ------------------------------------------------------------------------------------------------
|(Mark One)                                     
|þ                                               |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF
    THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended December 31,
    2002
|OR                                             
|o                                               |  | 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                 

NEXTEL COMMUNICATIONS, INC.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 36-3939651                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)
|2001 Edmund Halley Drive, Reston,
    Virginia                     |  | 20191                                   
|(Address of principal executive offices)                           |  | (Zip Code)                              

Registrants telephone number, including
area code: (703) 433-4000

Securities registered pursuant to
Section 12(b) of the Act: None

Securities registered pursuant to
Section 12(g) of the Act: class A common stock,
$0.001 par value

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  þ     No  o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K.  o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Act).  Yes  þ     No  o

Based on the closing sales price on June 28,
2002, the aggregate market value of the voting and nonvoting
common stock held by nonaffiliates of the registrant was about
$2,255,317,817.

On March 14, 2003, the number of shares
outstanding of the registrants class A common stock,
$0.001 par value, and class B nonvoting common stock,
$0.001 par value, was 991,486,210 and 35,660,000, respectively.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement relating to the
Annual Meeting of Stockholders scheduled to be held May 29,
2003 are incorporated in Part III, Items 10, 11, 12
and 13.



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TABLE OF CONTENTS



|                                                                                                                                                  |                                                                                                          |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                                                                                                           
|                                                                                                                                                  | Item 1. Business                                                                                        
|                                                                                                                                                  | Item 2. Properties                                                                                      
|                                                                                                                                                  | Item 3. Legal Proceedings                                                                               
|                                                                                                                                                  | Item 4. Submission of Matters to a Vote of Security Holders                                             
|PART II                                                                                                                                          
|                                                                                                                                                  | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                           
|                                                                                                                                                  | Item 6. Selected Financial Data                                                                         
|                                                                                                                                                  | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations           
|                                                                                                                                                  | 2. Year ended December 31, 2001 vs. year ended December 31, 2000.                                       
|                                                                                                                                                  | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                                     
|                                                                                                                                                  | Item 8. Financial Statements and Supplementary Data                                                     
|                                                                                                                                                  | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure            
|PART III                                                                                                                                         
|                                                                                                                                                  | Item 10. Directors and Executive Officers of the Registrant                                             
|                                                                                                                                                  | Item 11. Executive Compensation                                                                         
|                                                                                                                                                  | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
|                                                                                                                                                  | Item 13. Certain Relationships and Related Transactions                                                 
|                                                                                                                                                  | Item 14. Controls and Procedures                                                                        
|PART IV                                                                                                                                          
|                                                                                                                                                  | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                               
|SIGNATURES                                                                                                                                       
|CERTIFICATIONS                                                                                                                                   
|Exhibit Index                                                                                                                                    
|NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES Index to Consolidated Financial Statements and Financial Statement Schedules                        
|INDEPENDENT AUDITORS REPORT                                                                                                                     
|NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES                                                                                                     
|CONSOLIDATED BALANCE SHEETS As of December 31, 2002 and 2001                                                                                     
|NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES                                                                                                     
|CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 2002, 2001 and 2000                                                       
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                                                       
|SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT Condensed Balance Sheets As of December 31, 2002 and 2001                            
|SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS                                                                                                 
|SCHEDULE III CONSOLIDATED FINANCIAL STATEMENTS OF NII HOLDINGS, INC.Index to Consolidated Financial Statements and Financial Statement Schedules
|NII HOLDINGS, INC. AND SUBSIDIARIES INDEPENDENT AUDITORS REPORT                                                                                 
|NII HOLDINGS, INC. AND SUBSIDIARIES                                                                                                              
|CONSOLIDATED BALANCE SHEETS As of December 31, 2002 (Successor Company) and December 31, 2001 (Predecessor Company) (in thousands)               
|NII HOLDINGS, INC. AND SUBSIDIARIES                                                                                                              
|SUCCESSOR COMPANY CONDENSED CONSOLIDATING BALANCE SHEET As of December 31, 2002 (in thousands)                                                   
|SUCCESSOR CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Two Months Ended December 31, 2002 (in thousands)                              
|2002/2003 Long-Term Incentive Plan                                                                                                               
|Employment Agreement                                                                                                                             
|Subsidiaries of Nextel                                                                                                                           
|Consent of Deloitte & Touche LLP                                                                                                                 
|Consent of Deloitte & Touche LLP                                                                                                                 
|Sarbanes-Oxley Act of 2002 Certifications                                                                                                        



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TABLE OF CONTENTS

PART I

|         |  |                                                                                                     |  |  |    |      |  | 
|-------- |  | --------------------------------------------------------------------------------------------------- |  |  | -- | ---- |  | 
|Item     |  |                                                                                                     |  |  |    | Page
|         |  |                                                                                                     |  |  |    |     
|1.       |  | Business                                                                                            |  |  | 1  |     
|2.       |  | Properties                                                                                          |  |  | 34 |     
|3.       |  | Legal Proceedings                                                                                   |  |  | 35 |     
|4.       |  | Submission of Matters to a Vote of Security
    Holders                                             |  |  | 35 |     
|PART II 
|        
|5.       |  | Market for Registrants Common Equity and
    Related Stockholder Matters                           |  |  | 37 |     
|6.       |  | Selected Financial Data                                                                             |  |  | 38 |     
|7.       |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations           |  |  | 41 |     
|7A.      |  | Quantitative and Qualitative Disclosures about
    Market Risk                                      |  |  | 71 |     
|8.       |  | Financial Statements and Supplementary Data                                                         |  |  | 73 |     
|9.       |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure            |  |  | 73 |     
|PART III
|        
|10.      |  | Directors and Executive Officers of the Registrant                                                  |  |  | 74 |     
|11.      |  | Executive Compensation                                                                              |  |  | 74 |     
|12.      |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholders Matters |  |  | 74 |     
|13.      |  | Certain Relationships and Related Transactions                                                      |  |  | 74 |     
|14.      |  | Controls and Procedures                                                                             |  |  | 74 |     
|PART IV 
|15.      |  | Exhibits, Financial Statement Schedules, and
    Reports on Form 8-K                                |  |  | 75 |     

See page 35 for Executive Officers of
the Registrant.



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NEXTEL COMMUNICATIONS, INC.






PART I







Item 1.     Business

A.     Overview

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, together with Nextel Partners, Inc.,
currently serve 197 of the top 200 U.S. markets where
240 million people live or work. We ended 2002 with about
14,900 employees and 10.6 million handsets in service, and
we had $8,721 million in operating revenues for the year.

We owned about 32% of the common stock of Nextel
Partners as of December 31, 2002. Nextel Partners provides
digital wireless communications 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
December 31, 2002, we owned about 36% of the outstanding
common stock of NII Holdings, Inc., formerly known as
Nextel International, Inc. NII Holdings provides wireless
communications services primarily in selected Latin American
markets. On May 24, 2002, NII Holdings filed a
voluntary petition for reorganization under Chapter 11 of
the U.S. Bankruptcy Code in the United States Bankruptcy
Court for the District of Delaware. On November 12, 2002,
NII Holdings emerged from bankruptcy. Before its
reorganization, NII Holdings was our substantially wholly
owned subsidiary. See  F. Our Strategic
Relationships  4. NII Holdings.

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 $1,660 million during 2002, there can be no assurance
that we will continue to operate profitably, and if we cannot we
may not be able to meet our debt service, working capital,
capital expenditure or other cash needs. Our accumulated deficit
was $7,793 million at December 31, 2002.

Our principal executive and administrative
facility is located at 2001 Edmund Halley Drive, Reston,
Virginia 20191, and our telephone number is (703) 433-4000. In
addition, we have sales and engineering offices throughout the
country.

B.     Business
Strategy

Our business strategy is to provide
differentiated products and services in order to acquire and
retain the most valuable customers in the wireless
telecommunications industry. We also seek to aggressively drive
greater operating efficiencies in our business and optimize the
performance of our network while minimizing costs.

1. Provide differentiated products and
services.We seek to provide the
most advanced suite of differentiated products and services in
the wireless industry. Our customers are uniquely equipped with
Nextel Direct Connect, so they can instantly make digital
two-way calls to one, 10 or even up to 100 other Nextel
customers. We are the only national provider of this
walkie-talkie service.

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We are seeking to further differentiate the power
of Direct Connect in 2003 by implementing nationwide
Direct Connect, expected to become available in the third
quarter of 2003. At that time, Nextel customers are expected to
be able to use the Direct Connect feature to instantly connect
with anyone on our national network, regardless of the
senders or receivers location. We further
differentiate our suite of services through our nationwide,
all-packet data network, which enables our customers to send and
receive wireless email and communicate through sophisticated
business applications using Nextel wireless phones, in addition
to laptop computers and handheld computing devices.

2. Acquire and retain the most
valuable customers in the wireless
industry.Our unique and
differentiated product base allows us to market our advanced
wireless services to small, medium and large businesses, in
addition to government agencies, other organizations and high
value generating individuals. As compared to other national
wireless companies in the U.S., our intense focus on these
customer groups has resulted in our gaining what we believe is
the most valuable customer base, with the highest customer
loyalty rate, the highest monthly average revenue per customer
and the highest lifetime revenue per customer.

3. Aggressively seek greater operating
efficiencies.We are always
seeking new ways to create operating efficiencies in our
business. In 2002, we completed the outsourcing of much of our
customer care operations in order to operate more efficiently,
while providing more effective customer care. We also outsourced
much of the management of our corporate data center, database
administration, helpdesk and other technical functions in a
further effort to reduce costs. In 2002, we continued to scale
our customer convenient distribution channels: web sales,
telesales and our Nextel stores. We expect that as we continue
to scale these distribution channels in 2003, the cost of
acquiring new customers will decrease.

4. Optimize the performance of our
nationwide network at a minimum
cost.We have built the largest
guaranteed all digital wireless network in the U.S., which has
been designed and constructed to support the full complement of
our wireless services. In 2002, we implemented enhanced
processes and advancements that allow us to more efficiently
utilize our network, which allowed us to reduce the number of
additional transmitter and receiver sites built as compared to
2001 and accordingly reduce our capital expenditures. In 2003,
we will seek to continue to improve and upgrade our network by
building additional sites where necessary, and also, more
importantly, by implementing advanced technology solutions such
as an updated software platform that we believe will allow us to
further improve our network capacity and performance while
minimizing our costs.

C.     Products and
Solutions

1. Handsets.All of the handsets we sell incorporate iDEN technology and
offer our unique 4-in-1 service, including digital wireless
service, Nextel Direct Connect walkie-talkie service, wireless
Internet access and two-way messaging capabilities. All of our
handsets are developed and manufactured by Motorola, other than
the Blackberry 6510 device, which is manufactured by
Research in Motion Ltd. In 2002, we introduced over ten
different handset models, which range from our most basic model,
the i30sx, designed for entry level communications, to the
recently launched Blackberry 6510 device, which offers our
customers a single device for all their communications and
personal data assistant, or PDA, requirements. Our handsets
offer a wide range of features, which may include built-in
speakerphone, additional line service, conference calling, an
external screen that lets customers view caller ID,
voice-activated dialing for hands-free operation, a voice
recorder for calls and memos, an advanced phonebook that manages
contacts and datebook tools to manage calendars and alert users
of business and personal meetings. All of our current handset
offerings have subscriber identification module, or SIM, cards.
SIM cards carry relevant authentication information and address
book information, thereby greatly easing subscribers
abilities to upgrade their handsets quickly and easily,
particularly in conjunction with our on-line web based back-up
tools.

In 2002, we launched several new handsets. In
July 2002, we began offering our customers the first mobile
phone in the U.S. with a color display and embedded
Java technology, the Motorola i95cl. The
handsets large color screen and 8 megabits of memory allow
our customers to take advantage of

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robust Java applications including maps,
animation, games and graphics. Our customers may also
personalize the phone to meet their individual needs by
downloading applications from business productivity tools to
games, wallpaper and ring tones.


In October 2002, we began offering the Motorola
i88sTM, our first handset supporting location-based
services with global positioning satellite, or GPS, technology.
This handset is designed to provide technically capable
emergency response centers with information that will assist in
the location of someone who has called 911 and will support
future location-based services for our wireless customers.
Equipped with an internal GPS antenna and GPS functionality to
provide latitude and longitude information about the handset,
the i88s handset also offers our customers Java technology,
speakerphone, voice recorder, voice-activated dialing, 250-entry
phonebook, date book and VibraCall alert.

We also offer handsets targeted at meeting the
needs of particular customer groups. For example, in December
2002 we began offering the Motorola i35s and the
GPS-enabled Motorola i58sr. Both handsets were designed
with a focus on durability in order to meet the needs of
customers in industrial sectors such as construction and public
safety. In addition, both models offer non-slip rubber grips and
adhere to certain military standards for resistance to dust,
shock and vibration, for additional protection in harsh working
environments.

Also in December 2002, in conjunction with
Research in Motion, we began offering the Blackberry 6510.
This handset offers the combination of a Nextel phone PDA and
always-on wireless access to business email
capability along with Nextel Direct Connect and many of the
other features of our traditional handsets. The Blackberry 6510
allows customers to automatically and wirelessly receive and
answer email as they would on their computers with a standard
typewriter keyboard. In addition, it offers Nextel Online
services as well as the Java operating system, which allows
customers to develop or use productivity applications for their
business.

Many of our recent handsets include pre-installed
Java applications and games, as well as a calculator tool,
expense pad and several selectable wallpaper patterns. Customers
can also download additional applications and musical ring tones
from our website for many of these handsets.

2. Improved Nextel Direct
Connect.Historically our key
competitive differentiator has been Nextel Direct Connect, the
long-range walkie-talkie service that allows communication at
the touch of one button. Direct Connect gives customers the
ability to instantly set up a conference on either a private
(one-to-one) or group (one-to-many) basis within their local
calling area. In 2002, we significantly improved Nextel Direct
Connect by beginning the implementation of nationwide Direct
Connect, which will allow any two Nextel customers to instantly
contact one another from anywhere on the Nextel national
network. This service will be the first of its kind to be
available on any wireless network. Phase 1 of this innovation,
which is currently being deployed, allows Nextel customers
traveling to a market outside of their local calling area to
continue to use Nextel Direct Connect to contact those who have
traveled with them from their home market and also to connect
with Nextel customers in the visited market. This allows Nextel
customers traveling between any of hundreds of cities within
these markets to communicate instantly using Direct Connect with
other Nextel customers in that market.

We expect nationwide Direct Connect to become
fully available in the third quarter of 2003. At that time,
Nextel customers will be able to use the Direct Connect feature
to instantly connect with anyone on our national network,
regardless of the senders or receivers location. We
expect nationwide Direct Connect to greatly enhance the instant
communication abilities of business users within their
organization and with suppliers, vendors and customers, as well
as to provide individuals the ability to contact business
colleagues, friends and family instantly, from coast-to-coast
and to Hawaii.

3. Wireless business solutions and
Nextel Online.In 2002, we
announced our wireless business solutions initiative, designed
to address the real-time needs of our business customers.
Building on our prior experience with providing our customers
with data solutions, wireless business solutions are helping
companies increase productivity through the delivery of
real-time information to mobile decision makers at any location.
Accessible via our wireless handsets, as well as handhelds and
other devices including laptop

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computers, Nextel wireless data solutions enable
quick response among workers in the field and streamline
operations through faster exchanges of information by
integrating with corporate intranets and back-office systems,
such as sales force automation, order entry, inventory tracking
and customer relationship management, to support true workforce
mobility. We also target wireless business solutions to specific
customers based on their industry and individualized business
needs. In addition, we offer our customers always-on
connectivity to the World Wide Web directly from their handset
through Nextel Online. Nextel Online combines the vast resources
of the Web with the convenience and immediacy of an
Internet-ready handset. We believe wireless business solutions
will increase customer retention and generate incremental
revenue by providing companies a comprehensive framework for
creating end-to-end wireless value.




|   |                           
|-- | --------------------------
|D. | Our Network and Technology

1. Our iDEN network
technology.Our handsets and
network infrastructure employ the advanced iDEN technology
developed and designed by Motorola. iDEN technology is able to
employ scattered, non-contiguous spectrum frequencies. Because
of their fragmented character, these frequencies previously were
only usable for two-way radio calls, such as those used to
dispatch taxis and delivery vehicles. We are currently the only
national U.S. wireless service provider other than Nextel
Partners utilizing iDEN technology, and iDEN handsets are not
currently designed to roam onto non-iDEN domestic national
wireless networks. While iDEN offers a number of advantages in
relation to other technology platforms, unlike other wireless
technologies, it is a proprietary technology that relies solely
on the efforts of Motorola and any future licensees of this
technology for further research and continuing technology and
product development and innovation. Motorola is also the sole
source supplier of iDEN infrastructure and all of our handsets
except the Blackberry 6510. In the event Motorola
determined not to continue manufacturing, supporting or
enhancing our iDEN based infrastructure and handsets, we may be
materially adversely affected. Furthermore, iDEN technology is
not as widely adopted and currently has fewer subscribers on a
worldwide basis in relation to other wireless technologies.

The iDEN technology shares many common components
with the global system for mobile communications, or GSM,
technology that has been established as the digital cellular
communications standard in Europe and with a variation of that
GSM technology being deployed by certain personal communications
services, or PCS, operators in the United States. The design of
our network currently is premised on dividing a service area
into multiple sites having a typical coverage area of from less
than one mile to up to 25 miles in radius, depending on the
terrain and the power setting. Each site contains a low-power
transmitter/ receiver and control equipment referred to as the
base station. The base station in each site is connected by
microwave, fiber optic cable or digital telephone line to a
computer controlled switching center. The switching center
controls the automatic hand-off of cellular calls from site to
site as a subscriber travels, coordinates calls to and from a
handset and connects wireless calls to the public switched
telephone network. Nortel Networks Corporation has supplied most
of the mobile telephone switches for our network through
Motorola. In the case of Nextel Direct Connect, a piece of
equipment called a dispatch application processor provides a
fast call setup, identifies the target radio and connects the
customers initiating the call to other targeted customers
utilizing a highly efficient, packet-based air interface between
the base station and the subscriber equipment.

Currently, there are three principal digital
technology formats used by providers of cellular telephone
service or PCS in the United States:



| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | time division multiple access, or TDMA, digital
    transmission technology;    
|
| |  | code division multiple access, or CDMA, digital
    transmission technology; and
|
| |  | GSM-PCS, a variation of the TDMA-based GSM
    digital technology format.       

Although TDMA, CDMA and GSM-PCS are digital
transmission technologies that share certain basic
characteristics and areas of contrast to analog transmission
technology, they are not compatible or interchangeable with each
other. Although Motorolas proprietary iDEN technology is
based on the

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TDMA technology format, it differs in a number of
significant respects from the versions of this technology used
by cellular and PCS providers in the United States.


The iDEN technology significantly increases the
capacity of our existing channels and permits us to utilize our
current holdings of spectrum more efficiently. This increase in
capacity is accomplished in two ways.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | First, each channel on our network is capable of
    carrying up to six voice and/or control paths, by employing
    six-time slot TDMA digital technology. Alternatively, each
    channel is capable of carrying up to three voice and/or control
    paths, by employing three-time slot TDMA digital technology.
    Each voice transmission is converted into a stream of data bits
    that are compressed before being transmitted. This compression
    allows each of these voice or control paths to be transmitted on
    the same channel without causing interference. Upon receipt of
    the coded voice data bits, the digital handset decodes the voice
    signal. Using iDEN technology, our Direct Connect service
    achieves about six times improvement over analog specialized
    mobile radio in channel utilization capacity. We also currently
    achieve about three times improvement over analog specialized
    mobile radio in channel utilization capacity for channels used
    for mobile telephone service. See  3. Our
    technology plans.
|
| |  | Second, our network reuses each channel many
    times throughout the market area in a manner similar to that
    used in the cellular industry, further improving channel
    utilization capacity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Motorola provides the iDEN infrastructure
equipment and substantially all of the handsets throughout our
markets under various agreements. These agreements set forth the
prices we must pay to purchase and license this equipment as
well as a structure to develop new features and make long-term
improvements to our network. Motorola is recognized as the
overall integrator of our iDEN network elements and has
committed to make various components of our network available to
us. We and Motorola have also agreed to warranty and maintenance
programs and specified indemnity arrangements. We expect to
continue to rely principally on Motorola or its licensees for
the manufacture of substantially all of our handsets and a
substantial portion of the equipment necessary to construct,
enhance and maintain our iDEN network for the next several
years. If Motorola fails to provide us with equipment and
handsets, as well as anticipated handset and infrastructure
improvements, our operations will be adversely affected. We are
also relying on Motorola to provide us with technology
improvements designed to expand our wireless voice capacity and
improve our services. These contemplated enhancements include
the development of the 6:1 voice coder software upgrade
designed to increase voice capacity beginning in 2003, and the
expansion of our Direct Connect service to offer our nationwide
Direct Connect service.

In addition to our extensive domestic coverage,
our customers are able to travel and still receive the benefits
of their Nextel service where we have roaming or
interoperability agreements. We have entered into
interoperability agreements with NII Holdings Latin
American affiliates to provide for coordination of customer
identification and validation necessary to facilitate roaming
between our domestic markets and NII Holdings Latin
American markets. We also have roaming agreements in effect with
TELUS Corporation in Canadian market areas where TELUS offers
iDEN-based services. Furthermore, the Motorola i2000plus
handset we offer is a dual mode handset that operates on both
the iDEN technology used by Nextel and the
GSM 900 megahertz, or MHz, standard and allows digital
roaming on iDEN 800 MHz and GSM 900 MHz networks
in over 80 countries. Our iDEN SIM cards can also be placed
in standard GSM handsets, such as the Motorola v60 GSM
handset that we offer, to enable international roaming
capabilities.

2. Network
enhancement.During 2002, we
enhanced our network coverage to our subscribers by adding about
800 transmitter and receiver sites to our network, bringing the
total number of sites as of December 31, 2002 to about
16,300. This compares with the 2,800 sites we added to our
network in 2001. We reduced the number of additional sites built
in 2002 as compared to 2001, and accordingly reduced our
necessary capital expenditures, in anticipation of deployment of
the 6:1 voice coder (see  3. Our
technology plans) and as a result of advanced radio
frequency planning and network management tools, inventory
management tools and more balanced loading of our network
between peak and off-peak hours.

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Also, to improve the quality and capacity of our
network during 2002, we purchased, or agreed to purchase,
additional spectrum in the 800 and 900 MHz bands. We now
have about 22 MHz of spectrum in the 800 and 900 MHz
bands in most of the top 100 U.S. markets and about
4 MHz of spectrum in the 700 MHz band in most major
U.S. metropolitan markets. We also increased the number of
switches in service on our network to 84 by adding
3 switches during 2002. In 2002, our improved network
carried over 73 billion total system minutes of use, up 40%
from 2001.

We anticipate further expanding our network in
2003 to improve our coverage and capacity by adding additional
transmitter and receiver sites and through the technological
advancements discussed below under  3. Our
technology plans. We determine where to build new sites on
the basis of the sites proximity to targeted customers,
our ability to acquire and build the site and frequency
propagation characteristics. Site procurement efforts include
obtaining leases and permits, and in many cases, zoning
approvals. Before a new site can be built, we must complete
equipment installation, including construction of equipment
shelters, towers and power systems, testing and pre-operational
systems optimization.

In an effort to improve our network and expedite
network deployment, beginning in 1999 we transferred many of our
communications towers and related assets to SpectraSite
Holdings, Inc., which we then leased back. SpectraSite also has
constructed additional towers to support expansion of our
network. In addition, we have signed a master lease agreement
for the co-location of sites on Crown Castle International
Corporations and American Tower Corp.s domestic
communications towers, among others. We also own and operate
towers and, in selected sites, seek to co-locate other third
parties on those towers.

3. Our technology
plans.We are currently testing a
significant technology upgrade to our existing network which
will nearly double our capacity for wireless interconnect calls.
Motorola has developed new voice coder software, which we refer
to as the 6:1 voice coder since it allows six
cellular calls to be conducted concurrently over a single radio
channel. Motorola has demonstrated this technology to us, and we
currently have this technology in our test laboratory for final
evaluation, with an expected roll-out throughout our network
beginning in the third quarter of 2003. We expect the
improvements to our voice capacity for wireless interconnect
calls will be realized once 6:1 capable handsets are
available and our customers acquire those handsets. The expected
delivery of the 6:1 voice coder has already allowed us to
leverage our investment in our existing infrastructure by
limiting the number of new sites we must build to meet capacity
as we grow our customer base. However, Motorola may not deliver
these improvements within our anticipated timeframe, if at all,
or they may not provide the advantages that we expect. In that
case, we could face additional costs.

We now have about 22 MHz of spectrum in the 800
and 900 MHz bands in most of the top 100 U.S. markets
and about 4 MHz of spectrum in the 700 MHz band in
most major U.S. metropolitan markets. We continuously
review alternate technologies as they are developed. To date,
however, it has not been regarded as necessary to adapt
currently available alternative technologies to operate on our
present spectrum position. As we have substantially completed
the relocation of incumbent operators out of certain portions of
our spectrum, we have access to contiguous blocks of spectrum,
similar to our cellular and PCS competitors. This availability
of a significant block of contiguous spectrum may permit the
introduction of a broader range of technology options than is
available to us on non-contiguous blocks of spectrum.

Along with our strong, feature-rich product
portfolio based on the Nextel Direct Connect service, we offer
what we believe is the most far reaching and robust packet data
network of any national wireless operator. It is from this
position that we are evaluating potential future technology
choices, which include CDMA, evolution data only (EvDO) and
orthagonal frequency division multiplexing (OFDM), among others.

We do not see a need to migrate to a next
generation technology at this time for voice capacity given the
significant capacity enhancements expected in 2003 for the
existing iDEN technology, as discussed above. However, based on
our current outlook, we do anticipate an eventual deployment of
next generation technology and therefore actively continue to
evaluate new technologies. We will only deploy a new technology
when it is warranted by expected customer demand, when we have
sufficient capital to deploy

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the technology and when the anticipated benefits
of services requiring next generation technology outweigh the
costs of providing those services. Some of the factors that may
influence us to accelerate a deployment of a new technology
include:




| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the possibility that expected capacity upgrades
    to our network may not be developed and delivered as currently
    contemplated;                                           
|
| |  | a significant increase in customer demand for
    higher speed data services beyond those available using our
    existing network; or                                         
|
| |  | developments relating to the spectrum realignment
    now before the Federal Communications Commission, or FCC. See
     4. Proposed public safety spectrum
    realignment.

Our consideration of alternative technologies
would likely be materially affected by our contractual
obligations to Motorola. For example, if we were to determine
that the iDEN technology we use is no longer suited to our
needs, we have agreed to notify Motorola six months prior to any
public announcement or formal contract to purchase equipment
utilizing alternate technology. If Motorola manufactures, or
elects to manufacture, the equipment utilizing the alternate
technology that we elect to deploy, we must give Motorola the
opportunity to supply 50% of our infrastructure requirements for
the alternate technology for three years.

We have entered into an exclusive development
agreement with QUALCOMM, Inc. to develop, subject to certain
conditions and limitations, our Nextel Direct Connect service on
various CDMA platforms. We may enter into additional development
agreements of this nature with other infrastructure or handset
vendors. There have been many recent announcements of
competitive push-to-talk products by our U.S. national
wireless competitors and small start-up companies, some of which
have the support of large infrastructure vendors. To date, these
announcements largely consist of product demonstrations and
laboratory trials.

4. Proposed public safety spectrum
realignment.We currently are
authorized to operate on about 26 MHz of spectrum that is
licensed to us by the FCC and similar local regulatory bodies
(see  K. Regulation). While we hold
spectrum in each of the 700, 800 and 900 MHz bands, we
principally operate on our spectrum located in the 800 MHz
band. Our unique iDEN technology allows us to use scattered,
non-contiguous channels. Under the licensing scheme developed by
the FCC during the 1970s, we occupy spectrum that is intermixed
and adjacent to that used by other specialized mobile radio, or
SMR, licenses for commercial, business and industrial/land
transportation, and public safety users in the 800 MHz
band. Different types of SMR licensees successfully coexisted
for many years, but changes over the past few years to the
network architecture necessary to support high-capacity
commercial digital technology have resulted in situations where
commercial and non-commercial licensees experience system
interference. In particular, high-site analog networks used by
public safety entities are experiencing system problems that
have been traced to the digital low-site operations of nearby
commercial SMR and cellular licensees, even though all licensees
are operating within the authorized parameters of their licenses
and in compliance with FCC rules.

Because the public safety interference issue is
directly linked to the current 800 MHz spectrum allocations
for public safety and commercial users, on November 21,
2001, we filed a proposal with the FCC seeking to resolve the
interference problem and enable more efficient use of the
spectrum by all parties through the realignment of spectrum
allocations and spectrum licenses in the 700, 800 and
900 MHz bands. In March 2002, the FCC issued a Notice of
Proposed Rulemaking to consider proposals to solve the public
safety interference issue.

During the course of the FCCs proceedings,
a coalition of private wireless industry associations, public
safety associations and we initiated discussions relating to the
proposed 700, 800 and 900 MHz spectrum realignment to
attempt to present a Consensus Plan to the FCC for
its consideration. On August 7, 2002, a Consensus Plan was
filed by numerous parties that, together with us, represent over
90% of the 800 MHz licensees affected by the proposed
realignment. If adopted, the proposal would establish separate
channel blocks for low-site cellular and commercial SMR
licensees from the channel blocks used

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by high-site public safety and private wireless
licensees, so that the realigned licenses, in conjunction with
proposed technical requirements, would no longer interfere with
each other. Under the proposal, we would maintain our net
spectrum allocation, although we would exchange all of our
spectrum in the 700 and 900 MHz bands and a running average
of 2.5 MHz in the 800 MHz band for 16 MHz of
contiguous spectrum in the 800 MHz band and 10 MHz of
contiguous spectrum in the 1.9 gigahertz, or GHz, band. On
December 24, 2002, the parties filed a supplement to the
original Consensus Plan. In the original proposal, assuming the
Consensus Plan was adopted, we proposed to contribute up to
$500 million over the next several years towards the cost
of public safety relocation in accordance with the Consensus
Plan. The December 24 submission revises our proposed
contribution to up to $850 million over the next several
years. Under the revised proposal, up to $700 million would
assist public safety users and up to $150 million would
assist private wireless licensees in completing relocations
under the realignment. The parties to the Consensus Plan
reiterated that this funding by us would be provided only if the
FCC grants us a replacement 10 MHz nationwide commercial
mobile radio services, or CMRS, license at 1910-1915/
1990-1995 MHz in return for the spectrum that we would
relinquish in the 700, 800 and 900 MHz bands. In addition
to seeking comment on both the initial and revised Consensus
Plan, the FCC also invited the submission of additional
proposals that could solve the public safety interference
problem.


We cannot be certain what, if any, long-term
solutions to the public safety interference problem will be
adopted by the FCC. While we are currently working with the
public safety community on a case-by-case basis to solve
interference problems as they are reported, absent FCC action we
may be unable to solve future problems without reducing the
efficiency of our network or restricting service to our
customers. In addition, while the public safety community is
aware of the potential network problems their personnel may
experience, we cannot be certain that we or the wireless
industry in general may not be subject to litigation should a
situation arise in which damage or harm occurs as a result of
commercial interference with a public safety communications
network.



|   |                                            
|-- | -------------------------------------------
|E. | 2002 and Year-to-Date 2003
    Developments

1. Direct Connect
upgrade.In January 2003, we began
the implementation of nationwide Nextel Direct Connect, which
will allow our customers to instantly contact each other using
our walkie-talkie feature, nationwide. The first stage of this
implementation, which has been substantially completed, allows
any Nextel subscribers traveling to a market outside of their
local calling area to continue to use Nextel Direct Connect with
each other and with other Nextel subscribers in the visited
market. We expect nationwide Direct Connect to become available
in the third quarter of 2003. See
 C. Products and Solutions 
2. Improved Nextel Direct Connect.

2. New distribution
channels.In 2002, we opened an
additional 210 retail outlets to generate new customers and
brand awareness and to serve as additional points of contact for
existing and new customers. As of December 31, 2002, we had
expanded operations to about 420 retail locations. In 2002, we
also expanded the use of our web sales and telesales. Together,
these new customer convenient distribution channels accounted
for 22% of our new subscribers in 2002. See
 I. Sales and Distribution.

3. Customer
care.In January 2002, we
announced an eight-year customer relationship management
agreement with International Business Machines Corporation, or
IBM, and Teletech Holdings, Inc., a world leader in customer
relationship management solutions, to manage our customer care
centers. Under the terms of the agreement, about 4,000 of our
employees were transferred to Teletech. This agreement is
designed to enhance the customer experience and build ongoing
brand loyalty for Nextel as we work with IBM and Teletech to
introduce leading edge call center technology and process
improvements, including a voice response system designed to
address customer requests at a reduced cost to us. See
 G. Customer Care.

4. Information technology
outsourcing.In January 2002, we
announced a five-year information technology outsourcing
agreement with Electronic Data Systems Corp., or EDS, under
which EDS manages our corporate data center, database
administration, helpdesk, desktop services and other technical
functions. We and EDS selected Sun Microsystems Inc. as the
platform provider of choice for this

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agreement. Under the terms of this outsourcing
agreement, about 290 employees were transferred to EDS to work
in support of our information technology infrastructure.


5. Boost
Mobile.In the third quarter of
2002, in association with the Australian founders of the
Boost brand, we launched a lifestyle-based mobile
telecommunications test program, providing Boost Mobile
branded wireless services targeting the California and Nevada
youth markets. This test is expected to be completed in the
third quarter of 2003, after which Boost Mobile will consider
future plans for this program. See 
H. Marketing.

6. Director and officer
developments.In March 2003, we
announced the appointment of Stephanie M. Shern, former
vice chair and partner of Ernst & Young, LLP, to serve
on our board of directors. In February 2003, Thomas N.
Kelly Jr., previously our Executive Vice President and
Chief Marketing Officer, was promoted to Executive Vice
President and Chief Operating Officer. Mr. Kelly replaces
James F. Mooney, who left Nextel effective
September 30, 2002. See also  F. Our Strategic
Relationships  3. Craig O. McCaw.

7. Debt
repurchase.In 2002, we purchased
and retired a total of $1,928 million in aggregate
principal amount at maturity of our outstanding senior notes and
$1,258 million in aggregate face amount of our outstanding
mandatorily redeemable preferred stock in exchange for
172 million shares of class A common stock valued at
$1,197 million and $843 million in cash. These
repurchases will reduce our future cash needs by eliminating
principal and interest payments on the repurchased securities.
See note 8 to the consolidated financial statements
appearing at the end of this annual report on Form 10-K. We
may, from time to time, as we deem appropriate, enter into
similar transactions that in the aggregate may be material.

8. Proposed public safety spectrum
realignment.In 2002, we, along
with a coalition of private wireless industry associations and
public safety associations, proposed a realignment of the 700,
800 and 900 MHz spectrum in which we principally operate,
which seeks to resolve interference experienced by public safety
communications systems. If the FCC approves this realignment, we
would vacate certain portions of our spectrum holdings, exchange
certain portions of our spectrum with public safety operators
and receive 16 MHz of contiguous spectrum in the
800 MHz band and 10 MHz of contiguous spectrum in the
1.9 GHz band. We also would contribute up to
$850 million over the next several years towards the cost
of relocation of public safety and private wireless users. We
cannot predict the outcome of the proposed realignment plan at
this time, and there is no assurance that the FCC will adopt any
realignment plan. See  D. Our Network and
Technology  4. Proposed public safety spectrum
realignment.

9. NII
Holdings.On May 24, 2002,
NII Holdings filed a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code in the United
States Bankruptcy Court for the District of Delaware. On
November 12, 2002, NII Holdings emerged from bankruptcy.
Before its reorganization, NII Holdings was our
substantially wholly owned subsidiary.

As a result of the bankruptcy reorganization, all
previously outstanding equity interests in NII Holdings
were cancelled. In addition, NII Holdings extinguished
$2,331 million in senior redeemable notes and other
unsecured, non-trade claims that existed prior to its bankruptcy
filing and in exchange issued shares of new common stock valued
at $2.50 per share. This included the $857 million
aggregate principal amount of notes of NII Holdings that we
purchased in August 2001. The reorganization of NII Holdings
also included a new infusion of capital into NII Holdings of
$190 million, $140 million of which was provided by
existing creditors in exchange for about $181 million in
aggregate principal amount at maturity of a new series of 13%
senior secured notes of NII Holdings and shares of NII
Holdings class A common stock. We contributed about
$51 million in cash of this $140 million and received
in exchange about $66 million in aggregate principal amount
at maturity of these new notes and 5.7 million shares of
NII Holdings new class A common stock. As a
result of the bankruptcy, we also received 1.4 million
shares of NII Holdings new class A common stock,
valued at $4 million, in settlement of the old NII Holdings
senior notes held by us and other claims. We also provided
$50 million of additional funding to NII Holdings in
exchange for a U.S.-Mexico cross border spectrum sharing
arrangement, $25 million of which remains in escrow pending
the completion of NII Holdings obligations under this
arrangement.

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As a result of NII Holdings bankruptcy
filing in May 2002, we began accounting for our investment in
NII Holdings, effective May 2002, using the equity method. In
accordance with the equity method, we did not recognize equity
in losses of NII Holdings after May 2002 as we had already
recognized $1,408 million of losses in excess of our
investment in NII Holdings through that date. We have classified
the 2002 net operating results of NII Holdings through May 2002
as equity in losses of unconsolidated affiliates, as permitted
under the accounting rules governing a mid-year change from
consolidating a subsidiary to accounting for the investment
using the equity method. However, the presentation of
NII Holdings in the financial statements as a consolidated
subsidiary in 2001 and prior periods has not changed from the
prior presentation.

In November 2002, upon NII Holdings
emergence from bankruptcy, we recognized a non-cash pre-tax gain
on deconsolidation of NII Holdings in the amount of
$1,218 million consisting primarily of the reversal of
equity losses we had recorded in excess of our investment in NII
Holdings. At the same time, 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 December 31, 2002, we owned
about 36% of the outstanding common stock of NII Holdings. See
 F. Our Strategic Relationships  4. NII
Holdings.

10. Acquisitions.In early 2002, we purchased 800 and 900 MHz SMR licenses
and related assets from Chadmoore Wireless Group, Inc. for an
aggregate cash purchase price of $136 million. On
January 15, 2003, we consummated the acquisition of all of
the stock of NeoWorld Communications, Inc., which owned and
operated 900 MHz SMR systems. We paid the balance of the
purchase price of $201 million in cash on January 15,
2003. This amount is in addition to previous payments of
$79 million through December 31, 2002.

11. SpectraSite.During 2002, we recognized a $37 million
other-than-temporary reduction in the fair value of our
investment in SpectraSite. In December 2002, we sold all of
our equity investment in SpectraSite for a de minimus amount.
The sale of our equity investment in SpectraSite ended our
continuing involvement in SpectraSite for substantially all of
our tower leases. Accordingly, for accounting purposes, we
recorded a deferred gain on the sale of these towers to
SpectraSite and will account for their leasebacks as operating
leases. We also reduced our finance obligation by
$655 million. See notes 5 and 7 to the consolidated
financial statements appearing at the end of this annual report
on Form 10-K.

12. GSA
contract.In December 2002, we
announced the signing of a contract award with the
U.S. General Services Administration, or GSA, which will
enable us to provide our services to all federal agencies, as
well as state and local agencies with federal funding, and will
offer unique interoperability advantages for emergency
preparedness and response. The contract has a term of two years
with three one-year option periods. The estimated value of the
contract is up to $200 million per year. We were awarded
our initial GSA contract in March 1999.

F.     Our Strategic
Relationships

1. Motorola.As of March 14, 2003, Motorola was the beneficial owner of
about 8% of our class A common stock, assuming the
conversion of the outstanding shares of our class B
nonvoting common stock, all of which are owned by Motorola. We
have a number of important strategic and commercial
relationships with Motorola. Motorola is the sole provider of
the iDEN infrastructure equipment and all of the handsets used
throughout our network except the Blackberry 6510. As
discussed above, we also work closely with Motorola to improve
existing products and develop new technologies and enhancements
to existing technologies for use in our network. We also rely on
Motorola for network maintenance and enhancement. See
 D. Our Network and Technology.

In July 1995, we acquired all of Motorolas
800 MHz SMR licenses in the continental United States in
exchange for 83.3 million shares of our class A common
stock and 35.7 million shares of our nonvoting class B
common stock. As of March 14, 2003, Motorola owned
47.5 million shares of our class A common stock and
35.7 million shares of our nonvoting class B common
stock. As a result of the agreement relating to that
acquisition, Motorola has the right to nominate two persons for
election as members of our

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board of directors. Motorola has exercised this
right only with respect to one director, Keith J. Bane. In
addition, Motorola has granted Digital Radio, an affiliate of
Craig O. McCaw, who is a member of our board of directors, a
right of first offer or a right of first refusal to purchase
shares of common stock that are owned by Motorola, although that
right has been waived with respect to some of these shares.


2. Nextel
Partners.Digital wireless
communications services are provided under the Nextel brand name
in mid-sized and tertiary U.S. markets by Nextel Partners.
Nextel Partners has the right to operate in 57 of the top 200
metropolitan statistical areas in the United States ranked by
population. In January 1999, one of our subsidiaries entered
into agreements with Nextel Partners and other parties,
including Motorola and Eagle River Investments, L.L.C., an
affiliate of Mr. McCaw, relating to the capitalization,
governance, financing and operation of Nextel Partners. Our
subsidiary owned about 32% of Nextel Partners common stock
as of December 31, 2002.

We entered into this relationship principally to
accelerate the build-out of our network outside the largest
metropolitan market areas that are the main focus of our network
coverage. As an inducement to obtain Nextel Partners
commitment to undertake and complete the anticipated network
expansion, we agreed that we would not offer wireless
communications services under the Nextel brand name, iDEN
services on 800 MHz frequencies, or wireless communications
services that allow interconnect with landline
telecommunications in Nextel Partners territory. We also
have roaming agreements with Nextel Partners covering all of the
U.S. market areas in which Nextel Partners currently
provides, or will in the future provide, iDEN-based services.

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 of any such purchase in
cash, shares of our class A common stock, or a combination
of both.

Subject to various 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;                                                                                                                                                                                                                                                                                                                    
|
| |  | if we breach the operating agreements; or                                                                                                                                                                                                                                                                                                                
|
| |  | if Nextel Partners fails to implement changes
    required by us to match changes we have made in our business,
    operations or systems.                                                                                                                                                                                                               

If we purchase the outstanding shares of Nextel
Partners class A common stock:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | As a result of the termination of our operating
    agreements with Nextel Partners as a result of our breach, the
    purchase price could involve a premium based on a pricing
    formula.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | As a result of the termination of our operating
    agreements as a result of breach by Nextel Partners, the
    purchase price could involve a discount based on a pricing
    formula.                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | As a result of the election of a majority of the
    non-Nextel stockholders to require us to purchase, after Nextel
    Partners failure to implement changes in business,
    operations or systems required by us, the purchase price will be
    an amount equal to the higher of the fair market value as
    determined by the appraisal process and a 20% rate of return on
    each tranche of invested capital in Nextel Partners, whether
    contributed in cash or in kind, from the date of its
    contribution through the purchase date, which value will be
    divided over all of Nextel Partners capital stock.
|
| |  | For any other reason, the purchase price will be
    the fair market value of the class A common stock. Under
    the certificate of incorporation of Nextel Partners, fair market
    value is defined as the price                                                                                                                                                                                                                                                                                                                                                                                                                 

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| |  |                                                                                                                                                                                                                                                                      
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | that a buyer would be willing to pay for all of
    Nextel Partners outstanding capital stock, excluding the
    series B preferred stock owned by us, in an
    arms-length transaction and includes a control premium, as
    determined by an appraisal process.

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.

In connection with a series of transactions in
1999, we sold assets and transferred specified FCC licenses to
Nextel Partners. In exchange, at the dates of transfer, Nextel
Partners issued to us equity having a total agreed value of
$140 million and paid us $142 million in cash related
to the assets sold and the reimbursement of costs and net
operating expenses.

As a result of Nextel Partners initial
public offering in February 2000, our total ownership interest
was diluted. Our investment in certain Nextel Partners preferred
stock converted into voting class B common stock. Our
subsidiary continues to hold nonvoting preferred stock that is
subject to mandatory cash redemption by February 2010. At
December 31, 2002 and 2001, our investment in Nextel
Partners, which includes equity in Nextel Partners losses,
was $52 million and $127 million.

Timothy M. Donahue, a member of our board of
directors and our President and Chief Executive Officer, is a
director of Nextel Partners.

3. Craig O.
McCaw.As of March 14, 2003,
Mr. McCaw, a member of our board, and his affiliates
beneficially owned about 5% of our class A common stock,
assuming the exercise of all options held by controlled
affiliates of Mr. McCaw. In 1995, Mr. McCaw acquired
significant equity interests in Nextel (including an investment
in our class A convertible redeemable preferred stock and
class B convertible preferred stock), and we agreed to
certain arrangements related to our corporate governance. In
connection with these equity investments, we reached an
agreement with Mr. McCaw and Digital Radio, L.L.C., an
affiliate of Mr. McCaw, on a number of matters relating to
the ownership, acquisition and disposition of our securities,
including without limitation the granting of registration and
anti-dilutive rights to Digital Radio and specified affiliates,
as well as limitations on investments by Digital Radio and its
affiliates in excess of about 45% of our voting securities.

Pursuant to the original securities purchase
agreement, as amended, our certificate of incorporation and our
by-laws, we, Digital Radio and Mr. McCaw established
certain arrangements relating to our corporate governance
associated with those investments, including, without
limitation, matters relating to Digital Radios right to
elect a minimum of three representatives to our board of
directors, or that greater number of directors representing not
less than 25% of all of the members of the board of directors.
Mr. McCaw, Dennis M. Weibling and J. Timothy Bryan were
originally appointed as directors pursuant to these rights. We
also agreed to create a five-member operations committee of the
board of directors, which was responsible for formulating key
aspects of our business strategy and operations, and Digital
Radio was entitled to have a majority of the members of this
committee selected from among its representatives on the board
of directors.

The operations committee had the authority to
formulate key aspects of our business strategy, including
certain decisions relating to our technology; acquisitions;
certain budgets and marketing, strategic and financing plans;
nomination and oversight of some of our executive officers; and
endorsement of nominees to our board of directors and its
committees. If a majority of the members of our board of
directors who were independent of Mr. McCaw had voted to
override actions taken, or proposed to be taken, by the
operations committee, there would have been no consequences to
us. If our board of directors had acted to revoke or terminate
the operations committee, a $25 million liquidated damages
payment would have been due to Digital Radio, except in
specified circumstances.

Under these agreements, in the event Digital
Radio, Mr. McCaw and his controlled affiliates were to
cease to own at least 5% of the voting power of our equity
securities (assuming conversion of the class A preferred
stock it held), the shares of class A preferred stock would
automatically convert into shares of class A common stock.
Further, Mr. McCaw and Digital Radio agreed that, subject
to limited exceptions,

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including existing securities holdings and
relationships, until one year after the termination of the
operations committee, none of Mr. McCaw, Digital Radio or
their controlled affiliates would participate in other two-way
terrestrial-based mobile wireless communications systems in any
part of North America or South America, unless those
opportunities first had been presented to and waived or rejected
by us in accordance with the provisions of the securities
purchase agreement.


Concurrently with the execution of the securities
purchase agreement with Digital Radio and Mr. McCaw, we
entered into a management support agreement with Eagle River,
Inc., a controlled affiliate of Digital Radio, pursuant to which
Eagle River would provide management and consulting services to
us, our board of directors and the operations committee of our
board from time to time as requested. In consideration of the
services to be provided to us under the management support
agreement, we agreed to pay Eagle River up to $200,000 per year
and entered into an incentive option agreement granting to Eagle
River the option to purchase an aggregate of 2.0 million
shares of our class A common stock at an exercise price of
$6.13 per share. This option expires in April 2005 and is
presently exercisable in full.

In March 2003, we, Digital Radio and
Mr. McCaw entered into an agreement revising these
arrangements as Mr. McCaw was soon to no longer own at
least 5% of the voting power of our outstanding equity
securities. As a result, Digital Radio no longer has the right
to appoint board members as discussed above, nor does it have
rights to appoint board members to serve on committees of our
board. In addition, the operations committee was terminated.
Furthermore, all of the shares of the class A preferred
stock and class B preferred stock held by Digital Radio
converted into shares of our class A common stock. In
addition, the management support agreement was terminated. Until
February 13, 2004, Mr. McCaw, Digital Radio and their
controlled affiliates have agreed not to participate in other
two-way terrestrial-based mobile wireless communications systems
in North America and South America without first presenting us
the opportunity and a 30-day right to elect to participate in
any such opportunity. In addition, Mr. McCaw and
Mr. Weibling have consented to remain members of our board,
subject to stockholder ratification.

4. NII
Holdings.On November 12,
2002, NII Holdings, our former subsidiary, reorganized under
Chapter 11 of the U.S. Bankruptcy Code. NII Holdings
provides wireless communications services primarily in selected
Latin American markets.

On December 31, 2001, NII Holdings
Argentine operating company failed to make principal payments on
its $108 million Argentine credit facilities, and on
February 1, 2002, NII Holdings failed to make a
$41 million interest payment on its $650 million
aggregate principal amount 12.75% senior notes, resulting in
defaults under this facility and these notes, as well as under
its $382 million of vendor financing facilities with
Motorola Credit Corporation due to cross-default provisions. NII
Holdings decided not to make these payments as part of the cash
preservation process undertaken to restructure its debts and
implement a revised business plan.

In May 2002, NII Holdings reached an agreement in
principle with its main creditors to restructure its outstanding
debt. In connection with this agreement, on May 24, 2002,
NII Holdings filed a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code in the United
States Bankruptcy Court for the District of Delaware. While NII
Holdings, Inc., the U.S. parent company, operated as a
debtor-in-possession under the Bankruptcy Code, its
non-U.S. subsidiaries continued providing continuous
wireless communication services in the ordinary course of
business. On October 28, 2002, the Bankruptcy Court
confirmed NII Holdings plan of reorganization, and on
November 12, 2002, NII Holdings emerged from bankruptcy.
Before its reorganization, NII Holdings was our substantially
wholly owned subsidiary.

As a result of the bankruptcy reorganization, all
previously outstanding equity interests in NII Holdings were
cancelled. In addition, NII Holdings extinguished
$2,331 million in senior redeemable notes and other
unsecured, non-trade claims that existed prior to its bankruptcy
filing and in exchange issued shares of new common stock valued
at $2.50 per share. This included the $857 million
aggregate principal amount of notes of NII Holdings that we
purchased in August 2001. NII Holdings reinstated in full its

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$325 million of outstanding equipment
financing owed to Motorola Credit, subject to deferrals of
principal amortization and some structural modifications. NII
Holdings also repaid the outstanding principal balance, together
with accrued interest, due under its $57 million
incremental financing facility owed to Motorola Credit using
restricted cash held in escrow, which amount will be available
for borrowing under some circumstances. The Argentine credit
facility was retired in exchange for a $5 million payment
and the issuance of 400,000 shares of NII Holdings new
class A common stock.


The reorganization of NII Holdings also included
a new infusion of capital into NII Holdings of
$190 million, $140 million of which was provided by
existing creditors in exchange for about $181 million in
aggregate principal amount at maturity of a new series of 13%
senior secured notes of NII Holdings and shares of NII
Holdings new class A common stock. We contributed
about $51 million in cash of this $140 million and
received in exchange about $66 million in aggregate
principal amount at maturity of these new notes and
5.7 million shares of NII Holdings new class A
common stock. We allocated the $51 million investment
between the debt and equity instruments based upon their
relative fair values. This resulted in a carrying value of
$37 million for the debt and a carrying value of
$14 million for the 5.7 million shares of NII
Holdings new class A common stock. As a result of the
bankruptcy, we also received 1.4 million shares of NII
Holdings new class A common stock, valued at
$4 million, in settlement of the old NII Holdings senior
notes held by us and other claims. We also provided
$50 million of additional funding to NII Holdings in
exchange for a U.S.-Mexico cross border spectrum sharing
arrangement, $25 million of which remains in escrow pending
the completion of NII Holdings obligations under this
arrangement.

As a result of NII Holdings bankruptcy
filing in May 2002, we began accounting for our investment in
NII Holdings, effective May 2002, using the equity method. In
accordance with the equity method, we did not recognize equity
in losses of NII Holdings after May 2002 as we had already
recognized $1,408 million of losses in excess of our
investment in NII Holdings through that date. We have classified
the 2002 net operating results of NII Holdings through May 2002
as equity in losses of unconsolidated affiliates, as permitted
under the accounting rules governing a mid-year change from
consolidating a subsidiary to accounting for the investment
using the equity method. However, the presentation of NII
Holdings in the financial statements as a consolidated
subsidiary in 2001 and prior periods has not changed from the
prior presentation.

In November 2002, upon NII Holdings
emergence from bankruptcy, we recognized a non-cash pre-tax gain
on deconsolidation of NII Holdings in the amount of
$1,218 million consisting primarily of the reversal of
equity losses we had recorded in excess of our investment in NII
Holdings, partially offset by charges recorded when we
consolidated NII Holdings, including, among other items,
$185 million of cumulative foreign currency translation
losses. At the same time, 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 December 31, 2002, we owned
about 36% of the outstanding common stock of NII Holdings.

Upon NII Holdings emergence from
bankruptcy, we entered into a revised overhead services
agreement with NII Holdings under which we provide certain
administrative, engineering and technical, information
technology and marketing services for agreed fees. We also have
roaming agreements between one of our wholly owned subsidiaries
and wholly owned subsidiaries of NII Holdings.

Mr. Donahue is a director of NII Holdings.

G.     Customer
Care

We made significant improvements to our customer
care function in 2002. We recently completed the implementation
of our new billing and customer management system called
Ensemble. The Ensemble system is a world class
activation, billing, and customer management system designed to
provide increased reliability and functionality for our customer
care representatives, system scalability to allow services to be
provided to an estimated 25 million subscribers, one common
database and integration of all platform

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software modules included in the system. Through
the Ensemble system, we expect to better interact with our
customers while reducing our costs.


In January 2002, we announced an eight-year
customer relationship management agreement with IBM and Teletech
to manage our customer care centers. See  E. 2002
and Year-to-Date 2003 Developments  3. Customer
care. Transferring the day-to-day operations of the call
centers has afforded us the ability to significantly refine our
business processes and procedures, resulting in a higher
customer satisfaction rating and an improved first call
resolution rate, while minimizing costs. We believe these
improvements in systems, organizational alignment, process, and
cost structure have positioned us to continue to make customer
care a competitive advantage in 2003.

H.     Marketing

Our marketing strategy focuses principally on
targeting high value customers that we believe will be likely to
perceive and appreciate the potential for our wireless services.
We believe that our ability to deliver a full line of integrated
mobile communications services, including our innovative Nextel
Direct Connect feature, using a single multi-function handset on
our own network, significantly differentiates us from other
providers of wireless communications services.

Our marketing program and related advertising
campaigns currently are designed to increase brand awareness and
in particular to expand the use of our newer, customer
convenient distribution channels: web sales, telesales and our
Nextel stores. We are currently focusing on heightening brand
awareness of our differentiated Direct Connect feature in
anticipation of its nationwide rollout. Our marketing and
advertising is also designed to stimulate additional demand for
our services by stressing their versatility, value, simplicity
and quality, and we consistently stress the benefits of our
unique Nextel Direct Connect service. For example, we are
building our brand image through affiliations with most major
sports leagues.

We offer pricing options that we believe
differentiate our services from those of many of our
competitors. Our pricing packages offer our customers simplicity
and predictability in their wireless telecommunications billing
by combining Nextel Direct Connect service minutes with a mix of
cellular and long-distance minutes. Furthermore, no roaming
charges are assessed for mobile telephone services provided to
our customers traveling anywhere on our network or the
compatible network of Nextel Partners in the United States. We
also offer special pricing plans that allow some customers to
aggregate the total number of account minutes for all their
handsets and reallocate the aggregate minutes among those
handsets.

I.     Sales and
Distribution

We use a variety of channels as part of our
strategy to increase our customer base. We employ direct sales
representatives who market our service directly to potential and
existing customers. The focus of our direct sales force is
primarily on mid-to-large businesses and government agencies
that value our industry expertise and extensive product
portfolio.

We also utilize indirect sales, which mainly
consist of local and national non-affiliated dealers. These
indirect dealers represent our largest channel of distribution.
Dealers are independent contractors that solicit customers for
our service and are generally paid through commissions and
residuals. Dealers participate with us in all the markets we
serve including corporate, government, general business and
individual sales.

In 2002, we continued to expand distribution
through customer convenient channels, including web sales,
telesales and sales through Nextel stores. These channels
generally allow us to acquire customers at a lower cost than our
traditional direct and indirect sales. In 2002, we opened about
210 retail locations and had about 420 retail locations as of
December 31, 2002. These Nextel stores generate new
customers and brand awareness as well as serve as additional
points of contact for existing and new customers.

In 2002, we expanded the number of new
subscribers garnered through our web sales and telesales.
Customers willingness to buy through these customer
convenient channels has driven significant growth

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for us. On the web, customers are able to compare
our various rate plans and access the full suite of our products
and services, including handsets, accessories, and special
promotions. Our website allows customers to make account
inquiries and encourages handset and accessory sales directly
over the Internet. We also provide our customers with a
toll-free number (1-800-NEXTEL9) to purchase our products and
services. As we increase brand awareness through our expanded
marketing efforts, we believe our Nextel stores, web sales and
telesales will be increasingly useful distribution channels for
all of our services.


J.     Competition

Since the introduction of mobile communications
technology, growth in the industry has been rapid, with more
than 135 million wireless handsets now in service in the
U.S., providing analog cellular, digital cellular, enhanced SMR
and PCS, as reported by the Cellular Telecommunications and
Internet Association, or CTIA.

We compete principally with five other national
providers of mobile wireless voice communications: AT&T
Wireless, Cingular Wireless, Sprint PCS, Verizon Wireless and
Deutsche Telecom/T-Mobile. We also compete with regional
providers of mobile wireless voice communications, such as
Southern LINC. Additional licensees may enter our markets by
operating systems utilizing frequencies obtained in FCC auction
proceedings. Some of the competitors listed above have financial
resources, subscriber bases, coverage areas and/or name
recognition greater than we do. In addition, several of these
competitors have more extensive channels of distribution than
ours, a more expansive spectrum position than ours, or are able
to acquire customers at a lower cost. Additionally, we expect
our current and future competitors will continue to upgrade
their systems to provide digital wireless communications
services competitive with those available on our network.

We believe we compete based on our differentiated
service offerings and products, including Nextel Direct Connect.
Several of our competitors have announced the intention to
introduce products that compete with Nextel Direct Connect.
While no competing product has been introduced yet, our
competitors have introduced pricing plans that offer features
such as unlimited mobile-to-mobile calling, reduced rates for
calls placed between pre-arranged groups of callers or shared
minutes between groups of callers. In the event potential
customers regard those services as equivalent to Nextel Direct
Connect or our competitors are able to provide dispatch service
comparable to ours, our competitive advantage could be impaired.
Additionally, the wireless industry competes based on price.
Over the past several years, as the intensity of competition
among wireless communications providers has increased, we and
our competitors have decreased prices or increased service and
product offerings, resulting in declining average monthly
revenue per subscriber which may continue. Competition in
pricing and service and product offerings may also adversely
impact customer retention.

Consolidation has and may continue to create
additional large, well-capitalized competitors with substantial
financial, technical, marketing and other resources. Some of our
competitors are also creating joint ventures that will fund and
construct a shared infrastructure that both carriers will use to
provide advanced services. By using joint ventures, these
competitors may lower their cost of providing advanced services
to their customers. In addition, we expect that in the future,
providers of wireless communications services may compete more
directly with providers of traditional landline telephone
services and, potentially, energy companies, utility companies
and cable operators that expand their services to offer
communications services. We also expect our network business to
face competition from other technologies and services developed
and introduced in the future, including potentially those using
unlicensed spectrum.

K.     Regulation

We are an SMR operator regulated by the FCC. The
FCC regulates the licensing, construction, operation and
acquisition of all other wireless telecommunications systems in
the United States, including cellular and PCS operators. SMR
regulations have undergone significant changes during the last
decade, and we now are generally subject to the same FCC rules
and regulations as cellular and PCS operators, known
collectively with SMR operators as CMRS providers.

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Within the limitations of available spectrum and
technology, SMR operators are authorized by the FCC to provide
mobile communications services, including mobile telephone,
two-way radio dispatch (referred to as walkie-talkie),
paging and mobile data and Internet services. We use iDEN
technology developed by Motorola to deliver these services.
Unlike some other digital transmission technologies, iDEN can be
deployed on non-contiguous frequency holdings. This benefits us
because many of our 800 MHz channel holdings are composed
of non-contiguous blocks of spectrum. While iDEN offers a number
of advantages in relation to other technology platforms, unlike
other wireless technologies, it is a proprietary technology that
relies solely on the efforts of Motorola and any future users of
this technology for further research and continuing technology
and product development and innovation.

In addition to being subject to FCC regulation,
we are subject to certain state requirements. While the
Communications Act of 1996 preempts state and local regulation
of the entry of, or the rates charged by, any CMRS provider, it
permits states to regulate the other terms and
conditions of CMRS. The FCC has not clearly defined what
is meant by the other terms and conditions of CMRS,
but has upheld the legality of states assessing universal
service payment requirements on CMRS carriers. The FCC also has
held that most private lawsuits based on state law claims
concerning how wireless rates are promoted or disclosed are not
preempted by the Communications Act.

State and local governments are permitted to
manage public rights of way and can require fair and reasonable
compensation from telecommunications providers so long as the
compensation required is publicly disclosed by the government.
The siting of cell sites and base stations also remains subject
to state and local jurisdiction. States also may impose
competitively neutral requirements that, among other things, are
necessary for universal service or to defray the costs of state
Enhanced 911, or E911, services programs, to protect the public
safety and welfare, and to safeguard the rights of customers.

1. Licensing.We currently hold about 26 MHz of spectrum in the 700, 800 and
900 MHz bands in our geographic markets, though we primarily
operate in 800 MHz spectrum to provide service to our customers.
The FCC regulates the licensing, construction, operation,
acquisition and sale of our CMRS business and spectrum holdings
pursuant to the Communications Act, as amended from time to
time, and the FCCs associated rules, regulations and
policies. FCC requirements impose operating and other
restrictions on our business that increase our costs. The FCC
does not currently regulate CMRS rates, and states are legally
preempted from regulating CMRS rates and entry. The
Communications Act and FCC rules require the FCCs prior
approval of the assignment or transfer of control of an FCC
license. Non-controlling interests in an entity that holds an
FCC license generally may be bought or sold without FCC
approval. Approval from the Federal Trade Commission and the
Department of Justice, as well as state or local regulatory
authorities, may be required if we sell or acquire spectrum
interests.

We hold several kinds of licenses to deploy 800
MHz SMR channels in digital mode. We hold thousands of these
licenses, which together allow us to provide coverage across the
continental United States. Our 700, 800 and 900 MHz licenses are
subject to requirements that we meet population coverage
benchmarks tied to the initial license grant dates. For most of
our licenses, within three years of the license grant date, we
must provide coverage to one third of the population in the
licensed area, and within five years of the grant date, we must
cover two thirds of the population in the licensed area or make
a showing of substantial service. Our 700 MHz
licenses have no specific build-out requirements, but we must
show substantial service by the license expiration date. To
date, we have met all of the construction milestones applicable
to our licenses except in the case of licenses that are not
material to our business.

Our 800 and 900 MHz licenses have a 10-year
term and our 700 MHz licenses have a 15-year term, at the end of
which each must be renewed. The FCC allows renewal
expectancies, which are presumptions that the licenses
will be renewed to any 700, 800 or 900 MHz licensee that
has provided substantial service during its past license term
and has substantially complied with applicable FCC rules and
policies and the Communications Act.

On November 21, 2001, we filed a proposal
with the FCC that would result in a more efficient use of
spectrum through the realignment of spectrum licenses and
spectrum allocations in the 700, 800 and 900 MHz bands. In
March 2002, the FCC issued a Notice of Proposed Rulemaking to
consider proposals

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to solve the public safety interference issue.
During the course of the FCCs proceedings, a coalition of
private wireless industry associations, public safety
associations and we initiated discussions relating to the
proposed 700, 800 and 900 MHz spectrum realignment to
attempt to present a Consensus Plan to the FCC for
its consideration. On August 7, 2002, a Consensus Plan was
filed by numerous parties that, together with us, represent over
90% of the 800 MHz licensees affected by the proposed
realignment. Under the Consensus Plan, we would exchange certain
portions of our spectrum in the 800 MHz band to relocate public
safety operators to the lower portion of the 800 MHz band, as
well as relinquish all spectrum in the 700 and 900 MHz
bands in exchange for contiguous blocks of spectrum in the 800
MHz and 1.9 GHz bands. On December 24, 2002, we, together
with the coalition of private wireless industry associations and
public safety associations, filed an update to the Consensus
Plan which, among other things, modified the amount up to which
we would be willing to contribute over the next several years
primarily towards the cost of public safety relocation, assuming
the FCC approves the Consensus Plan as submitted. See
 D. Our Network and
Technology  4. Proposed public safety spectrum
realignment.


In some cases we use common carrier
point-to-point microwave facilities to connect the transmitter,
receiver and signaling equipment for cell sites, and to link
them to the main switching office. The FCC licenses these
facilities separately and they are subject to regulation as to
technical parameters and service.

Our business is subject to certain Federal
Aviation Administration regulations governing the location,
lighting, and construction of transmitter towers and antennas
and may be subject to regulation under federal environmental
laws and the FCCs environmental regulations. State or
local zoning and land use regulations also apply to our
activities.

2. New spectrum opportunities,
spectrum auctions, and third generation wireless
services.In February 2001, the
FCC concluded its auction of 6 MHz of spectrum in the 700 MHz
band, also referred to as the guard band. In two 700
MHz guard band auctions, we paid about $350 million for 40
licenses. Each license is for 4 MHz of spectrum. These FCC
licenses are issued for a period of 15 years and are
subject to unique operational requirements, including
eligibility and use restrictions, as well as interference
protection requirements that generally will preclude their use
for CMRS. Additionally, there are FCC restrictions on the amount
of spectrum in this band that we can use. As part of the 800 MHz
spectrum realignment proposal discussed above, Nextel, as one of
a coalition of parties, has proposed to contribute its 700 MHz
spectrum to the FCC for reallocation for public safety use, and
we would receive replacement spectrum. Thus, the long-term use
of our 700 MHz spectrum is dependent upon the outcome of the 800
MHz realignment proceeding. In the event we retain the licenses,
we plan to meet all requirements necessary to secure the
retention and renewal of these FCC licenses. Under the
FCCs rules, guard band licensees are required to file an
annual report describing the use of their licensed spectrum. On
October 1, 2002, we made our first required report to the
FCC, and on February 27, 2003, we filed our subsequent
annual report.

Other spectrum located in the 700 MHz spectrum
band, which can be used for a broad variety of commercial
applications, was scheduled for auction by the FCC beginning
June 19, 2002. Pursuant to congressional legislation, on
July 26, 2002, the FCC postponed the auction for spectrum
in the upper 700 MHz band. No date has been set for the
upper 700 MHz auction. On June 26, 2002, the FCC also
postponed the auction for spectrum in the lower portion of the
700 MHz band until August 27, 2002. That auction ended
on September 18, 2002 without our participation. On
December 2, 2002, the FCC announced the reauction of over
two hundred licenses still available in the lower 700 MHz
band. That auction is scheduled to commence on May 28, 2003
and will include the licenses that remained unsold in previous
lower 700 MHz band auction. Currently, incumbent television
licensees are operating on both blocks of this 700 MHz band
spectrum. Under current FCC rules, these licensees are not
required to relinquish these channels until 2006 at the
earliest, limiting the usefulness of this spectrum for other
purposes, including CMRS service, until that time or later.

In January 2001, the FCC completed an auction of
additional spectrum that can be used for providing CMRS. The FCC
auctioned certain reclaimed PCS licenses, including those
initially awarded to NextWaveCommunications, Inc. and
some of its affiliates which were cancelled by the FCC after

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NextWave failed to make timely payments of
its government installment loans as required by the terms of the
licenses awarded. We participated, but did not obtain any
licenses, in that auction. In June 2001, the United States Court
of Appeals for the District of Columbia Circuit found that the
FCC had improperly cancelled the NextWave licenses. On
January 27, 2003, the Supreme Court ruled that the FCC had
acted beyond its regulatory authority when it cancelled
NextWaves licenses. The court, in an
8 to 1 vote, affirmed the lower courts ruling
and rejected arguments that the FCC had a legitimate regulatory
interest in taking licenses from a company that is reorganizing
its finances in bankruptcy. NextWave now has the option
of completing the buildout of its network or selling the
licenses to other companies. The FCC recently confirmed that
NextWave will have an extended period of time to complete
its initial build-out.


In November 2002, the FCC allocated 90 MHz
of spectrum in the 1710-1755 MHz and 2110-2155 MHz
bands that can be used for third generation, or 3G,
wireless services. On November 22, 2002, the FCC also
released a Notice of Proposed Rulemaking seeking comment on the
service and technical rules for 3G services in the
1710-1755 MHz and 2110-2155 MHz bands. Comments and
reply comments have been filed, and the proceeding remains
pending.

In January 2002, the FCC released a Report and
Order reallocating 27 MHz of spectrum that was previously
reserved primarily for federal government uses to a variety of
non-federal government uses, including private and commercial
fixed and mobile operations. These reallocations could provide
opportunities for advanced wireless services. In February 2002,
the FCC released a Notice of Proposed Rulemaking proposing a
flexible licensing, technical and operating framework, as well
as competitive bidding and interference standards for the
27 MHz of reallocated spectrum. Generally, the bands
identified are encumbered by existing governmental or commercial
users, and there are substantial unresolved transitional issues
related to the relocation of these incumbents. One nationwide
5 MHz license in the 1670-1675 MHz band will be
auctioned on April 30, 2003. This license was originally
scheduled for auction on October 30, 2002. We cannot
predict when or whether the FCC will conduct any of the other
spectrum auctions or if it will release additional spectrum that
might be useful to us or the wireless industry in the future.

On August 9, 2001, the FCC adopted a Notice
of Proposed Rulemaking seeking comment on proposals by New ICO
Global Communications (Holdings) Ltd., a controlled affiliate of
Mr. McCaw, and Motient Services, Inc. to allow mobile
satellite service providers to supplement service to their
customers through the incorporation of a wireless ancillary
terrestrial component into their mobile satellite networks. On
January 30, 2003, the FCC adopted an order that permits
mobile satellite services providers to integrate ancillary
terrestrial components into their mobile satellite networks,
subject to FCC authorization. To do so, providers will be
required to show compliance with certain FCC mandated
conditions. On that same date, the FCC reallocated spectrum that
can be used to provide a variety of new wireless services,
including 3G service. In particular, the FCC reallocated
30 MHz of spectrum from the 2 GHz mobile satellite service,
including the 1990-2000 MHz band, to fixed and mobile
services. A rulemaking proceeding has been initiated to identify
how that reallocated spectrum can be used and how it will be
reallocated. Comments are due on April 14, 2003, and reply
comments are due April 28, 2003.

3. Spectrum caps and secondary
spectrum markets.Prior to
January 1, 2003, the FCCs spectrum aggregation
limitations prohibited any entity from holding attributable
interests in licenses for more than 55 MHz of applicable
spectrum, although no more than 10 MHz of SMR spectrum in
the 800 and 900 MHz SMR service bands and no 700 MHz
licenses were counted toward the spectrum cap. In November 2001,
the FCC eliminated the spectrum cap effective January 1,
2003. Although it eliminated the spectrum cap, the FCC will
continue to evaluate, on a case-by-case basis, spectrum
aggregation caused by CMRS carriers mergers and
acquisitions to determine whether a particular transaction will
result in too much concentration in the affected wireless
markets. It is widely believed that elimination of the spectrum
cap may facilitate consolidation in the commercial wireless
industry; however, it is not known what procedures the FCC will
use to evaluate commercial wireless transactions or how such
procedures will affect the speed of the FCCs application
process.

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In November 2000, the FCC adopted a policy
statement and Notice of Proposed Rulemaking suggesting ways to
promote the development of secondary markets in radio spectrum.
The FCC tentatively concluded that spectrum licensees should be
permitted to enter into leasing agreements with third parties to
encourage greater use of underutilized spectrum. If the FCC
adopts liberal spectrum leasing rules, we may have increased
access to spectrum from parties who are willing to lease, but
not sell, their spectrum. That proceeding remains pending.

In June 2002, the FCC established a Spectrum
Policy Task Force to assist in identifying and evaluating
changes in spectrum policy to increase spectrum efficiency and
assist with technical and public safety spectrum issues. After
receiving industry comment on existing spectrum policies and
recommendations for possible improvements, the Task Force
released a report setting forth a comprehensive review of
current spectrum policy and stating a range of recommendations
for further review or implementation. In November 2002, the FCC
released a public notice seeking comment on the report and, in
particular, issues relating to setting concrete standards for
harmful interference, the use of unlicensed spectrum
technologies, the legalization of spectrum swaps and spectrum
trading. That proceeding remains pending.

In December 2002, the FCC initiated two inquiries
also addressing wireless spectrum issues: the first requests
comment on the feasibility of making additional spectrum
available for unlicensed devices; and the second requests
comment on the provision of spectrum-based services in rural
areas. Comments on the rural services notice of inquiry were
filed in February 2003, and comments on the unlicensed services
inquiry are due in April 2003. All of these spectrum initiatives
ultimately could have an effect on the way we do business, and
the spectrum that is available to us and our competitors. It is
not known at this point what spectrum initiatives the FCC will
adopt, if any, in response to the Task Force report or whether
it will facilitate secondary markets for spectrum trading or
leasing.

4. 911
services.Pursuant to a 1996 FCC
order, CMRS providers, including us, are required to provide
E911 services to their customers. Phase I E911, which we began
deploying in 1998, requires wireless carriers to transmit
(a) the 911 callers telephone number and (b) the
location of the transmitter and receiver site from which the
call is being made to the designated public safety answering
point, or PSAP, which is the 911 dispatch center. Phase II E911
requires the transmission of more accurate location information
to the PSAP. Pursuant to an October 2001 order, we launched
Phase II service on October 1, 2002 by beginning the sale
and activation of handsets equipped with assisted GPS, or A-GPS,
technology.

In addition to selling A-GPS handsets, Phase II
E911 requires that we coordinate to deploy the infrastructure,
facilities and interconnectivity necessary to enable the
transmission of latitude and longitude information from the
A-GPS handset to a PSAP. Successful transmission of this
location information to a PSAP requires substantial cooperation
with the local exchange carrier and the PSAP, as well as third
party database providers, all of which must have the necessary
infrastructure and compatible software in place to connect with
our network. As of March 1, 2003, we have deployed Phase II
in 28 areas in various parts of the country encompassing more
than 100 PSAPs.

Because our Phase II E911 services can only be
accessed with an A-GPS handset, the FCC also required that a
certain percentage of our new handset activations be A-GPS
pursuant to interim benchmarks between January 1, 2003 and
December 31, 2005, when we are required to have 95% of our
total customer base using A-GPS-capable handsets. Depending on
our rate of customer churn, customers decisions to upgrade
their handsets, the percentage of new customers added to our
network who purchase A-GPS handsets and overall wireless
marketplace conditions, achieving these benchmarks could impose
material costs on us over time. In 2002, we began charging a fee
to recover some of the costs that we are currently incurring
associated with Phase II E911. We cannot predict with certainty
at this time the effect of this E911 mandate on our operations.

Motorola is our sole supplier for all of our
handsets except the Blackberry 6510 and we are dependent on
Motorola to provide the handset-based location technology
solution. Nonetheless, the FCC appears to have held us
responsible for meeting the Phase II deadlines, even in the
event Motorola is unable to produce the necessary handsets and
infrastructure on a timely basis. As a result, we have sought

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reconsideration of that portion of the FCCs
decision. That petition is still pending. Additionally, we
recently filed comments in a new FCC proceeding on E911,
asserting that manufacturers should be equally bound by the
FCCs E911 rules and requirements.


5. Numbering.The FCC and state communications commissions have been
increasingly aggressive in their efforts to conserve the
telephone numbers that carriers assign to their customers. These
efforts may disproportionately affect wireless service providers
by imposing additional costs. Like other telecommunications
carriers, we must have access to telephone numbers for new
customers. The FCCs number conservation rules, while
intended to make numbers available, could harm us and other
telecommunications carriers, either individually or in the
aggregate, by causing increased costs and regulatory expense.

In order to promote the efficient allocation and
use of telephone numbers by all telecommunications carriers, the
FCC has adopted new number conservation requirements including
number pooling whereby carriers are assigned phone
numbers in blocks of 1,000 rather than 10,000. We have completed
all network and infrastructure upgrades in compliance with the
FCCs pooling mandate. Additionally, the FCC requires
carriers to meet an increasingly higher number usage threshold
before they can obtain additional telephone numbers. The CTIA
filed a petition requesting the FCC to forbear from further
increases in the utilization threshold. The FCC sought comment
on the CTIA petition, and that proceeding remains pending.

The FCC also has shown a willingness to delegate
to the states a larger role in number conservation. Certain
states have sought additional numbering authority, outside the
number conservation authority originally granted by the FCC. In
particular, the California Public Utilities Commission has filed
two petitions with the FCC that, if granted, would affect our
ability to access telephone numbering resources and assign
telephone numbers to our customers, and would require us to
replace the phone numbers of many of our customers in
California. We filed comments opposing both petitions.

Wireless providers also are subject to a
requirement that they implement telephone number portability,
which enables customers to keep their telephone numbers when
they change carriers within established geographic markets.
Number portability already is available to most wireline
customers, and the FCC originally set a deadline of
November 24, 2002, for wireless providers to implement
number portability for their customers in certain markets. On
July 26, 2002, the FCC delayed the implementation of
wireless number portability for one year until November 24,
2003. Number portability requires significant upgrades to our
network and infrastructure. In addition, number portability may
encourage wireless customers to change carriers, which could
increase churn, thus further increasing costs for all wireless
carriers. In 2002, we began charging a fee to recover some of
the costs that we are incurring associated with telephone number
portability. The CTIA and Verizon Wireless have appealed the
FCCs November 24, 2003 deadline to the Circuit Court
of Appeals for the District of Columbia Circuit and have sought
review of the FCCs standard applied in setting the
November 24, 2003 date. On January 23, 2003, the CTIA
also filed a petition with the FCC requesting that wireline
carriers be required to allow their customers to retain their
numbers when switching to a wireless carrier. Resolving this
petition could delay the November 24, 2003 number
portability deadline. We filed comments in support of the CTIA
petition, and that proceeding remains pending.

6. Motor vehicle
restrictions.A number of states
and localities are considering banning or restricting the use of
wireless phones while driving a motor vehicle. In 2001, New York
enacted a statewide ban on driving while holding a wireless
phone, and similar legislation is pending in other states. A
handful of localities also have enacted ordinances banning or
restricting the use of handheld wireless phones by drivers.
Should this become a nationwide initiative, all wireless
carriers could experience a decline in the number of minutes of
use by subscribers. On the federal level, a bill has been
introduced in Congress (the Mobile Telephone Driving Safety Act
of 2003) that, if passed, would prohibit wireless users from
using a handheld mobile telephone while driving. Specifically,
the bill would withhold a portion of federal funds appropriated
for the states from any state that does not enact legislation
that prohibits an individual from using a handheld mobile
telephone while operating a motor vehicle, except in the case of
an emergency or other exceptional circumstance.

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7. Health
concerns.FCC rules limit the
permissible human exposure to radio frequency radiation from
wireless transmission equipment. On December 11, 2001, the
FCCs Office of Engineering and Technology dismissed a
Petition for Inquiry filed by a non-profit public interest
organization, to initiate a proceeding to revise the FCCs
radio frequency guidelines. On January 10, 2002, the
organization petitioned the FCC to overturn this decision and
open an inquiry. The matter remains pending at the FCC.

Studies have been undertaken to determine whether
certain radio frequency emissions from wireless handsets may be
linked to various health problems, including cancer, and whether
wireless handsets may also interfere with various electronic
medical devices, including hearing aids and pacemakers. Concerns
over radio frequency emissions may have the effect of
discouraging the use of wireless handsets, which would decrease
demand for our services. Various studies have found no evidence
that cell phones cause cancer, although one of the reports
indicated that further study might be appropriate as to one rare
form of cancer. A recent study in Italy, however, has
affirmatively linked mobile-phone radiation to cancer growth and
the National Cancer Institute has cautioned that the studies
have limitations, given the relatively short amount of time
cellular phones have been widely available. Additional studies
of radio frequency emissions are ongoing, and the ultimate
findings of these studies will not be known until they are
completed and made public. Class-action lawsuits are also
pending against several wireless carriers and manufacturers to
force wireless carriers to supply hands-free devices with phones
and to compensate customers who have purchased
radiation-reducing devices. See Item 3. Legal
Proceedings.

8. Electronic
surveillance.In 1994, Congress
enacted the Communications Assistance for Law Enforcement Act,
or CALEA. CALEA requires telecommunications carriers, including
us, to upgrade their networks to provide certain wiretap
capabilities to law enforcement agencies. The FCC has granted
several industry-wide extensions of the CALEA deadline. We have
signed two cooperative agreements with the Federal Bureau of
Investigation, or FBI, to bring our interconnect and dispatch
networks into compliance with CALEA. The agreements essentially
confirm the validity of our CALEA software solutions, arrange
for the deployment of the solutions in our networks, and provide
for some cost recovery associated with their deployment. We have
already installed and deployed the required core CALEA
capabilities in our interconnect and digital dispatch networks
and have therefore brought our interconnect and digital dispatch
networks into full compliance with CALEA.

On September 28, 2001 the FCC issued a
public notice governing the CALEA compliance deadlines for the
additional CALEA requirements applicable to carriers such as us
that operate packet mode communications networks. Pursuant to
the public notice, we filed to extend the packet mode compliance
deadline to November 19, 2003, and the extension was
automatically granted pending FBI approval of the installation
and deployment schedule. We are now working with our primary
equipment vendor, Motorola, to design and implement a compliant
packet mode solution. It is likely that we will request another
extension of the packet mode deadline beyond November 19,
2003, which also would be automatically granted pending approval
by the FBI of the installation and deployment schedule. The
extension may be necessary because of the current uncertainties
in the technical requirements. Cost recovery for developing,
installing and deploying this solution will depend to a large
extent on the FBIs interpretation of CALEA.

9. Truth in Billing and consumer
protection.The FCCs Truth
in Billing rules generally require CMRS licensees such as us to
provide full and fair disclosure of all charges on their
wireless bills, display a toll-free phone number to call for
billing questions, and identify any third-party service
providers whose charges appear on the bill.

Over twenty states have commenced inquiries to
examine the billing and advertising practices of certain
nationwide wireless carriers. On October 29, 2001, North
Carolina served us with a letter of inquiry requesting certain
documents related to our billing and advertising practices in
that state. We fully complied with the informational request and
the inquiry remains pending. In December 2002, the Missouri
Attorney General filed a lawsuit against us, asserting that our
imposition of the $1.55 federal programs cost recovery fee on
our customers is misleading and deceptive. The lawsuit is
pending. Another wireless provider, Sprint PCS, is the subject
of a similar pending Missouri Attorney General lawsuit.
Recently, the

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Arizona Corporation Commission adopted final
rules regulating certain operational and customer-service
aspects of our business. Asserting that the Arizona Corporation
Commission has no jurisdiction to apply these rules to wireless
service, the industry, including us, has sought rehearing at the
Arizona Corporation Commission and filed an appeal in court if
the rehearing request is rejected. The rules, however, must be
certified by the Arizona Attorney General before
they are effective.


On June 6, 2002, the California Public
Utilities Commission proposed extensive consumer protection and
privacy regulations for all telecommunications carriers. If
adopted, the rules will significantly alter our business
practices in California with respect to nearly every aspect of
the carrier-customer relationship, including solicitations,
marketing, activations, billing and customer care, and will,
according to a recent study, impose approximately
$900 million in costs on the wireless industry in
California, including the cost of lost jobs. Efforts to amend
these proposed rules remain ongoing. It is uncertain when or if
the final rules will be adopted.

In February 2003, United States Senator Schumer
announced his intentions to introduce federal legislation that
calls for a wireless subscriber bill of rights. The
legislation would mandate wireless number portability by the
November 24, 2003 deadline, would authorize the FCC to
monitor cell phone service quality, and would require wireless
providers, like us, to prominently indicate all costs and terms
of service on all subscriber contracts. If passed, the
legislation could significantly increase our costs of doing
business.

10. Miscellaneous federal
regulations.Each of the following
existing and potential regulatory obligations could increase the
costs of our, and our competitors, operations.

Certain interstate incumbent local exchange
carriers, or ILECs, in rural areas have started to impose on
wireless carriers, including us, charges to terminate traffic
that we send to them by filing state tariffs. These new rural
ILEC tariffs feature high termination rates that are not based
on the rural ILECs cost of terminating the traffic we
send. The rural ILECs justify termination tariffs as a
legitimate means of recovering their costs for transport and
termination of wireless traffic. On September 6, 2002, we,
along with other wireless carriers, filed a petition with the
FCC to have these tariffs declared unlawful. This proceeding
remains pending.

Under the FCCs rules, wireless providers
are potentially eligible to receive universal service subsidies;
however, they are also required to contribute to both federal
and state universal service funds. The rules adopted by the FCC
in its universal service orders require telecommunications
carriers generally (subject to limited exemptions) to fund
existing universal service programs for high cost carriers and
low income customers and to fund new universal service programs
to support services to schools, libraries and rural health care
providers. In 2002, the FCC initiated two universal service
proceedings relevant to all telecommunications providers,
including us: one concerns what services universal service funds
can be used to support, and the other addresses how universal
service mandatory contributions from customers are assessed and
recovered by carriers. Regardless of our ability to receive
universal service funding for the supported services we provide,
we are required to fund these federal programs based on our
interstate end-user telecommunications revenue and also are
required to contribute to some state universal service programs.

On December 13, 2002, the FCC released an
order and Second Further Notice of Proposed Rulemaking in the
mandatory contribution proceeding. The order also included a
restriction on the amount that carriers can include on a
customers bill to recover their costs of contributing to
the universal service fund. On January 29, 2003, we filed a
petition for reconsideration of, among other things, the new
restrictions on our ability to recover our costs for
contributing to universal service. The Second Further Notice of
Proposed Rulemaking could substantially alter the manner by
which the FCC calculates carrier contributions to the federal
fund. If adopted, the proposal could increase our mandatory
contribution to the federal universal service fund, as well as
those of other wireless carriers.

Section 255 of the Communications Act
requires telecommunications carriers such as us, and
manufacturers of telecommunications equipment such as Motorola,
to make their products and services

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accessible to and usable by persons with
disabilities to the extent these measures are readily
achievable. Pursuant to this mandate, we and Motorola are
continuing to develop and market a variety of products and
services to facilitate access to our wireless network by persons
with disabilities. If the FCC requires the wireless industry to
improve accessibility on a unilateral basis by redesigning
digital phones, Motorola has advised us that the requirements
may not be technologically feasible and that any related
technical changes to the iDEN handset could add significantly to
its cost of production.


In addition, a Notice of Proposed Rulemaking
currently is pending at the FCC to consider whether mobile
phones should be hearing aid compatible. The FCC solicited
comments on what technical standards should be adopted if the
FCC decides that mobile phones must be hearing aid compatible.
We are unable at this point to predict the outcome of this
proceeding.

The FCC also is considering the imposition of an
automatic roaming obligation on all CMRS providers. On
January 5, 2001, comments were filed with the FCC on this
issue, the majority of which opposed a mandatory automatic
roaming obligation. We oppose any new roaming regulation,
although the second largest iDEN provider in the U.S., Southern
LINC, supports a mandate that would apply only to iDEN
providers. We filed reply comments on February 5, 2001
opposing the adoption of such a narrow roaming regulation. The
proceeding remains pending.

The issue of wireless subscriber privacy,
particularly relating to location tracking, has been implicated
in some of the FCCs wireless proceedings, including those
relating to its E911 and CALEA mandates. The FCC has adopted
rules limiting the use of customer proprietary network
information by telecommunications carriers, including us, in
marketing a broad range of telecommunications and other services
to their customers and the customers of affiliated companies.

On July 25, 2002, the FCC clarified its
privacy rules governing carriers use, disclosure and
safeguarding of customer proprietary network information, or
CPNI. Most significantly, the FCC prohibited carriers from
disclosing CPNI to unrelated third parties or carrier affiliates
that do not provide communications-related services, unless they
first obtain their customers express consent. Moreover the
FCC enumerated safeguards that carriers must implement to
protect against the unauthorized use and disclosure of CPNI. The
FCC did not adopt specific privacy rules for location-based
information. Specifically, in a separate order released on
July 24, 2002, the FCC declined to commence a rulemaking
procedure to adopt rules to implement the wireless location
information privacy amendments to Section 222 of the
Communications Act of 1934, as amended. The CTIA had requested
that the FCC adopt safe harbor rules for location
privacy. The FCC, however, concluded that the statute was
sufficiently plain that a customer must give express consent
before the carrier can use or disclose customer location
information obtained in connection with a customers use of
wireless services, except in specified emergencies or if
mandated by the court.

The FCC has issued a Notice of Proposed
Rulemaking regarding telemarketing practices. As part of its
examination of the Telephone Consumer Protection Act, the FCC is
seeking comment on the extent to which telemarketing to wireless
consumers exists today and asks whether consumers receive
solicitations on their wireless phones, and, if so, the nature
and frequency of such solicitations. The FCC will reexamine the
scope of implied consumer consent to telemarketing solicitation,
which could affect some of our marketing practices. There is no
indication on how the FCC will decide this proceeding, and
whether more restrictive or additional telephone sales
obligations will be imposed. Comments were filed on
December 9, 2002, and reply comments were filed
January 31, 2003.

The FCC has determined that the interstate,
interexchange offerings (commonly referred to as long-distance)
of wireless carriers are subject to the interstate,
interexchange rate averaging and integration provisions of the
Communications Act. Rate averaging and integration requires
carriers to average interstate long-distance CMRS rates between
high cost and urban areas, and to offer comparable rates to all
customers, including those living in Alaska, Hawaii, Puerto
Rico, and the U.S. Virgin Islands. The U.S. Court of
Appeals for the District of Columbia Circuit, however, rejected
the FCCs application of these requirements to wireless
carriers, remanding the issue to the FCC to consider further
whether wireless carriers should be required to average and
integrate their long-distance rates across all

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U.S. territories. This proceeding remains
pending, but the FCC has stated that the rate averaging and
integration rules will not be applied to wireless carriers
during the pendency of the proceeding.


L.     Employees

As of February 28, 2003, we had about 15,200
employees. None of our employees are covered by a collective
bargaining agreement, and we believe that our relationship with
our employees is good.

M.     Risk
Factors



|   |                                                                                                                      
|-- | ---------------------------------------------------------------------------------------------------------------------
|1. | We have a history of net losses and
    negative cash flow and may not be able to generate sufficient
    net income.

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. We may not be
able to generate sufficient cash flow to meet our debt service,
working capital, capital expenditure or other cash needs. We may
be unable to continue to generate sufficient cash flows from our
internal business operations to support our growth and continued
operations. While we had income available to common stockholders
of $1,660 million during 2002, our accumulated deficit was
$7,793 million at December 31, 2002.



|   |                                                                                                                                                          
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | We have substantial indebtedness and if we
    cannot obtain additional funds if needed, we may not be able to
    implement our long-term business plan.

Our long-term cash needs may be much greater than
our cash on hand and availability under our existing financing
agreements. As of December 31, 2002, we had about
$13,565 million of outstanding indebtedness, including
$7,761 million of senior notes and $4,500 million of
indebtedness under our bank credit facility, as well as
$272 million of capital lease and finance obligations and
$1,015 million in mandatorily redeemable preferred stock
obligations. The level of our outstanding indebtedness greatly
exceeds our cash on hand and our annual cash flows from
operating activities. At December 31, 2002, we had
$2,686 million of cash, cash equivalents and short-term
investments on hand. We had $2,523 million of cash provided
by operating activities during 2002. Our principal repayment
obligations on our outstanding indebtedness under our senior
notes, credit facility and capital lease and finance obligations
and our redemption obligations under our mandatorily redeemable
preferred stock as of December 31, 2002 total
$251 million for 2003, $383 million for 2004,
$494 million for 2005, $523 million for 2006,
$2,609 million for 2007 and $9,427 million after 2007.

If we are unable to raise any necessary
additional financing, we may not be able to:



| |   |                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | expand and enhance our network, including
    implementation of any enhanced iDEN services to expand wireless
    voice capacity or enhanced data services or any deployment of
    third generation, or 3G, or other next
    generation mobile wireless services;
|
| |  | maintain our anticipated levels of growth;                                                                                                                                                                                                                             
|
| |  | meet our debt service requirements; or                                                                                                                                                                                                                                 
|
| |  | pursue strategic acquisitions or other
    opportunities to increase our spectrum holdings, including those
    that may be necessary to support or provide next generation
    mobile wireless services.                                                              

Our failure to timely achieve any one of these
goals could result in the delay or abandonment of some or all of
our development, expansion and acquisition plans and
expenditures, which could have an adverse effect on us.

Our bank credit facility as in effect on
December 31, 2002 provided for total secured financing
capacity of up to about $5.9 billion, which availability
declines over time, provided we satisfy financial and other
conditions. As of December 31, 2002, we had borrowed
$4.5 billion of this secured financing. The continued
availability of funds under our term loans and our ability to
access the remaining availability under our revolving loan
commitment is limited by various financial covenants and ratios,
including the

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ratio of our total debt to operating cash flow,
as defined under the bank credit facility. Our ability to access
the remaining availability is also subject to the satisfaction
of covenants under indentures relating to our public notes and
other conditions. Our access to additional funds also may be
limited by:




| |   |                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |  | the terms of our existing financing agreements,
    including restrictive covenants;                                          
|
| |  | existing debt service requirements;                                                                                           
|
| |  | market conditions affecting the
    telecommunications industry in general;                                                   
|
| |  | the terms of options and other convertible
    securities issued to others that may make equity financings more
    difficult;
|
| |  | the potential commercial opportunities and risks
    associated with implementation of our business plan;                     
|
| |  | the markets perception of our performance
    and assets; and                                                                
|
| |  | the actual amount of cash we need to pursue our
    business strategy.                                                        



|   |                                                                                                                                   
|-- | ----------------------------------------------------------------------------------------------------------------------------------
|3. | We have significant intangible assets,
    which may not be adequate to satisfy our obligations in the
    event of a liquidation.

If we default on debt or if we were liquidated,
the value of our assets may not be sufficient to satisfy our
obligations. We have a significant amount of intangible assets,
such as licenses granted by the Federal Communications
Commission. The value of these licenses will depend
significantly upon the success of our business and the growth of
the specialized mobile radio and wireless communications
industries in general. We had a net tangible book value deficit
of $3,944 million as of December 31, 2002.



|   |                                                                                                                    
|-- | -------------------------------------------------------------------------------------------------------------------
|4. | Our existing financing agreements contain
    covenants and financial tests that limit how we conduct
    business.

As a result of restrictions contained in our
financing agreements, we may be unable to raise additional
financing, compete effectively, particularly in respect of next
generation technologies, or take advantage of new business
opportunities. This may affect our ability to generate revenues
and profits. Among other matters, we are restricted in our
ability to:



| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | incur or guarantee additional indebtedness,
    including additional borrowings under existing financing
    arrangements;
|
| |  | pay dividends and make other distributions;                                                                               
|
| |  | pre-pay any subordinated indebtedness;                                                                                    
|
| |  | make investments and other restricted payments;
    and                                                                   
|
| |  | sell assets.                                                                                                              

Under our bank credit facility, we also are
required to maintain specified financial ratios and satisfy
financial tests. Our inability to meet these ratios and other
tests could result in a default under our bank credit facility,
which could have a material adverse effect on us as we could
then be required to repay all amounts then outstanding, unless
we were able to negotiate an amendment or waiver. Although in
the first quarter of 2001 we were able to amend the covenants
under our bank credit facility to avert a likely covenant
violation, there is no assurance that we would be able to do so
in the future. Borrowings under the bank credit facility are
secured by liens on assets of substantially all of our
subsidiaries.



|   |                                                                                                                                                         
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | We may not be able to obtain additional or
    contiguous spectrum, which may adversely affect our ability to
    implement our long-term business plan.

We may seek to acquire additional or contiguous
spectrum through negotiated purchases, in government-sponsored
auctions of spectrum or otherwise. We cannot be sure in which
auctions we may

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participate or whether we will be a successful
bidder. Contiguous spectrum may be necessary in implementing 3G
or other next generation technologies that may allow us to
provide additional products or services to our customers or
provide other benefits. Further, to the extent we cannot obtain
contiguous spectrum, we may not be able to implement future
technologies at a lower cost. We may not be able to accomplish
any spectrum acquisition or the necessary additional capital for
that spectrum may not be available to us. If sufficient
additional capital is not available, to the extent we are able
to complete any spectrum acquisition, the amount of funding
available to us for our existing business would be reduced. Even
if we are able to acquire spectrum, we still may require
additional capital to finance the pursuit of any new business
opportunities associated with our acquisitions of additional
spectrum, including those necessary to support or provide next
generation wireless services. This additional capital may not be
available.




|   |                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | If we are not able to compete effectively
    in the highly competitive wireless communications industry, our
    future growth and operating results will suffer.

There are currently six national wireless
communications services providers, including us. Our ability to
compete effectively with these providers and other prospective
wireless communications service providers depends on the factors
below, among others.



|   |                                                                                                                                                                    
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a. | If our wireless communications technology
    does not perform in a manner that meets customer expectations,
    we will be unable to attract and retain customers.

Customer acceptance of the services we offer is
and will continue to be affected by technology-based differences
and by the operational performance and reliability of our
network. We may have difficulty attracting and retaining
customers if we are unable to resolve quality issues related to
our network as they arise or if those issues:



| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | limit our ability to expand our network coverage
    or capacity as currently planned; or             
|
| |  | were to place us at a competitive disadvantage to
    other wireless service providers in our markets.



|   |                                                                                                                                                    
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|b. | We may be limited in our ability to grow
    unless we expand system capacity and improve the efficiency of
    our business systems and processes.

Our subscriber base continues to grow rapidly.
Our operating performance and ability to retain these new
customers may be adversely affected unless we are able to timely
and efficiently meet the demands for our services and address
increased demands on our customer service, billing and other
back-office functions. To successfully increase our number of
subscribers, we must:



| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | expand the capacity of our network;                                                                                                    
|
| |  | potentially obtain additional spectrum in some or
    all of our markets;                                                              
|
| |  | secure sufficient transmitter and receiver sites
    at appropriate locations to meet planned system coverage and
    capacity targets;
|
| |  | obtain adequate quantities of base radios and
    other system infrastructure equipment; and                                           
|
| |  | obtain an adequate volume and mix of handsets and
    related accessories to meet subscriber demand.                                   

Additionally, customer reliance on our customer
care functions will increase as we add customers through
channels not involving direct face-to-face contact with a sales
representative, such as web sales or telesales. We recently
outsourced many aspects of our customer care function and cannot
be sure that this outsourcing will not heighten these risks.

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|   |                                                                                                                             
|-- | ----------------------------------------------------------------------------------------------------------------------------
|c. | Some of our competitors are financially
    stronger than we are, which may limit our ability to compete
    based on price.

Because of their resources and, in some cases,
ownership by larger companies, some of our competitors may be
able to offer services to customers at prices that are below the
prices that we can offer for comparable services. If we cannot
compete effectively based on the price of our service offerings,
our revenues and growth may be adversely affected.



|   |                                                                                                          
|-- | ---------------------------------------------------------------------------------------------------------
|d. | We may face continuing pressure to reduce
    prices, which could adversely affect operating
    results.

Over the past several years, as the intensity of
competition among wireless communications providers has
increased, we and our competitors have decreased prices or
increased service and product offerings, resulting in declining
average monthly revenue per subscriber which may continue.
Competition in pricing and service and product offerings may
also adversely impact customer retention. To the extent we
continue to offer more competitive pricing packages, our average
monthly revenue per subscriber may continue to decrease, which
would adversely affect our results of operations. If this trend
continues, it may be increasingly difficult for us to remain
competitive. We may encounter further market pressures to:



| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | continue to migrate existing customers to lower
    priced service offering packages;                                                                                             
|
| |  | restructure our service offering packages to
    offer more value;                                                                                                                
|
| |  | reduce our service offering prices; or                                                                                                                                            
|
| |  | respond to particular short-term, market specific
    situations, such as special introductory pricing or particular
    new product or service offerings, in a particular market.



|   |                                                                                                                               
|-- | ------------------------------------------------------------------------------------------------------------------------------
|e. | Our digital handsets are more expensive
    than those of some competitors, which may affect our growth and
    profitability.

With the exception of the Blackberry 6510,
which is available only from Research in Motion, we currently
market multi-function digital handsets only available from one
supplier. The higher cost of these handsets, as compared to
analog handsets and digital handsets that do not incorporate a
similar multi-function capability and are available from
multiple suppliers, may make it more difficult or less
profitable for us to attract customers. In addition, the higher
cost of our handsets requires us to absorb part of the cost of
offering handsets to new and existing customers. These increased
costs and handset subsidy expenses may reduce our growth and
profitability.



|   |                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------
|f. | If we do not keep pace with rapid
    technological changes, we may not be able to attract and retain
    customers.

Our network uses scattered, non-contiguous
spectrum frequencies. Because of their fragmented character,
these frequencies traditionally were only usable for two-way
radio calls, such as those used to dispatch taxis and delivery
vehicles. We became able to use these frequencies to provide a
wireless telephone service competitive with cellular carriers
only when Motorola developed its proprietary iDEN technology. We
are currently the only national U.S. wireless service
provider utilizing iDEN technology, and iDEN handsets are not
currently designed to roam onto other domestic wireless
networks. The wireless telecommunications industry is
experiencing significant technological change, including the
deployment of unlicensed spectrum devices. Future technological
advancements may enable other wireless technologies to equal or
exceed our current levels of service and render iDEN technology
obsolete. If we are unable to meet future advances in competing
technologies on a timely basis, or at an acceptable cost, we may
not be able to compete effectively and could lose customers to
our competitors. In addition, competition among the differing
wireless communications technologies could:



| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | further segment the user markets, which could
    reduce the demand for, and competitiveness of, our technology;
    and

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| |   |                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | reduce the resources devoted by third party
    suppliers, including Motorola, which supplies all of our current
    iDEN technology, to developing or improving the technology for
    our systems.



|   |                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------
|g. | Our coverage is not as extensive as that of
    other wireless service providers, which may limit our ability to
    attract and retain customers.

Our network does not provide the extensive
roaming coverage that is available through some of our
competitors. The coverage areas of these other providers include
areas where our network, or that of our affiliate Nextel
Partners, has not been built or will not be built. In addition,
some of our competitors provide their customers with handsets
with both digital and analog capability, which expands their
coverage, while we have only digital capability. We may not,
either alone or together with Nextel Partners, be able to
achieve comparable system coverage with some of our competitors.
If a sufficient number of customers or potential customers are
not willing to accept system coverage limitations as a trade-off
for our multi-function wireless communications package, our
operating results will be adversely affected.



|   |                                                                                                                                         
|-- | ----------------------------------------------------------------------------------------------------------------------------------------
|h. | If our wireless data and Internet services
    do not perform satisfactorily, our operations and growth could
    be adversely affected.

We offer our subscribers access to wireless data
and Internet services, marketed under the brand name Nextel
Online. Unless these services perform satisfactorily, are
utilized by a sufficient number of our subscribers and produce
sufficient levels of customer satisfaction, our future results
may be adversely affected. Because we have less spectrum than
some of our competitors, and because we have elected to defer
the deployment of any next generation technology, any wireless
data and Internet services that we offer could be significantly
limited compared to those services offered by other wireless
communications providers.

Our wireless data and Internet capabilities may
not allow us to perform fulfillment and other customer support
services more economically or to realize a source of future
incremental revenue. Further, our wireless data and Internet
capabilities may not counter the effect of increasing
competition in our markets and the related pricing pressure on
basic wireless voice services or incrementally differentiate us
from our competitors. We also may not successfully realize our
goals if:



| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | we or third party developers fail to develop new
    applications for our customers;                          
|
| |  | we are unable to offer these new services
    profitably;                                                     
|
| |  | these new service offerings adversely affect the
    performance or reliability of our network; or            
|
| |  | we otherwise do not achieve a satisfactory level
    of customer acceptance and utilization of these services.

Any resulting customer dissatisfaction, or
failure to realize cost reductions or incremental revenue, could
have an adverse effect on our results of operations, growth
prospects and perceived value.



|   |                                                                                                                                        
|-- | ---------------------------------------------------------------------------------------------------------------------------------------
|i. | Costs and other aspects of a future
    deployment of advanced digital technology could adversely affect
    our operations and growth.

Based on our current outlook, we anticipate
eventually deploying advanced digital technology that will allow
high capacity wireless voice and higher speed data transmission,
and potentially other advanced digital services. The technology
that we would deploy to provide these types of broadband
wireless services is sometimes referred to as next generation.
Significant capital requirements would be involved in
implementing any next generation technologies. However, we may
not have sufficient capital to deploy this technology. There
also can be no guarantee that this technology will provide the
advantages that we expect. The actual amount of the funds
required to finance and implement this technology could
significantly exceed managements estimate. Further, any
future implementation could require additional unforeseen
capital expenditures in the event of unforeseen delays, cost
overruns, unanticipated expenses, regulatory changes,
engineering design changes, network or systems compatibility,
equipment unavailability

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and technological or other complications such as
our inability to successfully coordinate this change with our
customer care, billing, order fulfillment and other back-office
operations. Finally, as there are several types of next
generation technologies that may not be fully compatible with
each other or with other currently deployed digital
technologies, if the type of technology that we choose to deploy
does not gain widespread acceptance or perform as expected, our
business may be adversely affected. In addition to the costs
associated with a change in technology, we could also incur
specified obligations with respect to Nextel Partners if we
elect to deploy new technologies (see  F. Our
Strategic Relationships  2. Nextel Partners).




|   |                                                                                                                 
|-- | ----------------------------------------------------------------------------------------------------------------
|j. | If competitors provide comparable two-way
    walkie-talkie services, we could lose a competitive
    advantage.

We differentiate ourselves by providing two-way
walkie-talkie services, marketed as Nextel Direct Connect. These
services are currently not available through traditional
cellular or personal communication services providers, although
there have been many recent announcements of competitive
push-to-talk products by our U.S. national wireless
competitors and small start-up companies, some of whom have the
support of large infrastructure vendors. If either personal
communication services or cellular operators provide a
comparable two-way walkie-talkie service in the future, our
competitive advantage could be impaired. Further, some of our
competitors have attempted to compete with our Nextel Direct
Connect service by offering unlimited mobile-to-mobile calling
plan features and reduced rate calling plan features for
designated small groups. If these offerings are perceived as
viable substitutes for our Direct Connect service, our business
may be adversely affected.



|   |                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|k. | If our roaming partners experience
    financial or operational difficulties, our customers
    ability to roam onto their networks may be impaired, which could
    adversely affect our ability to attract and retain customers who
    roam on those networks.

Nextel Partners operates a network compatible
with ours in numerous mid-sized and tertiary markets.
NII Holdings also provides services to our customers
through roaming agreements and a cross border spectrum sharing
arrangement. If Nextel Partners or NII Holdings experiences
financial or operational difficulties, the ability of our
customers to roam on their networks may be impaired. In that
event, our ability to attract and retain customers who want to
access subscribers on Nextel Partners portion of the
network or NII Holdings network may be adversely
affected. In addition, in the event of termination of the cross
border spectrum sharing arrangement, we may incur additional
costs to replace the anticipated benefits from that arrangement.



|   |                                                                                                                                 
|-- | --------------------------------------------------------------------------------------------------------------------------------
|7. | Government regulations determine how we
    operate, which could increase our costs and limit our growth and
    strategy plans.

The Federal Communications Commission regulates
the licensing, operation, acquisition and sale of our business.
Future changes in regulation or legislation and Congress
and the Federal Communications Commissions continued
allocation of additional spectrum for commercial mobile radio
services, which include specialized mobile radio, cellular and
personal communication services, could impose significant
additional costs on us either in the form of direct out of
pocket costs or additional compliance obligations. For example,
compliance with regulations requiring us to provide public
safety organizations with caller location information will
materially increase our cost of doing business to the extent
that we are unable to recover some or all of these costs from
our customers. Further, if we fail to comply with applicable
regulations, we may be subject to sanctions, which may have a
material adverse effect on our business. For example, while the
Communications Act of 1996 requires that we make products and
services accessible to persons with disabilities, Motorola has
advised us that these requirements may not be technologically
feasible. These regulations also can have the effect of
introducing additional competitive entrants to the already
crowded wireless communications marketplace.

It is possible that we may face additional
regulatory prohibitions or limitations on our services. For
example, the California Public Utilities Commission has proposed
extensive consumer protection and

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privacy regulations for all telecommunications
carriers. If adopted, the rules will significantly alter our
business practices in California with respect to nearly every
aspect of the carrier-customer relationship, including
solicitations, marketing, activations, billing and customer
care. If these regulations are adopted in California as
currently proposed, they would impose significant additional
costs on us as well as other wireless carriers. If any new
regulations prohibit us from providing planned services, it
could be more difficult for us to compete. Finally, we cannot be
certain that we or the wireless industry in general may not be
subject to litigation should a situation arise in which damage
or harm occurs as a result of interference between a commercial
licensee like us and a public safety licensee, such as a 911
emergency operator.


Further, some state and local jurisdictions have
adopted legislation that could affect our costs and operations
in those areas. For example, some jurisdictions such as the
State of New York have laws restricting or prohibiting the use
of portable communications devices while driving motor vehicles,
and federal legislation has been proposed that would affect
funding available to states that do not adopt similar
legislation. If similar laws are enacted in other jurisdictions,
we may experience reduced subscriber usage and demand for our
services, which could have a material adverse effect on our
results of operations.



|   |                                                                                         
|-- | ----------------------------------------------------------------------------------------
|8. | We are susceptible to influence by
    Motorola, whose interests may conflict with ours.

Motorola holds a significant block of our
outstanding stock and has the ability to exert significant
influence over our affairs, as long as it retains specified
ownership levels. Motorola and its affiliates engage in wireless
communications businesses, and may in the future engage in
additional businesses, which compete with some or all of the
services we offer. Motorolas right to nominate two people
for election to our board of directors could give them
additional leverage if any conflict of interest were to arise.

9. If
Motorola fails to provide us with equipment and handsets, as
well as anticipated handset and infrastructure improvements, our
operations will be adversely affected.

Motorola is currently our sole source for most of
the network equipment and all of the handsets we use except the
Blackberry 6510. If Motorola fails to deliver system
infrastructure and handsets or enhancements on a timely,
cost-effective basis, we may not be able to adequately service
our existing subscribers or add new subscribers. Furthermore, in
the event Motorola determined not to continue manufacturing,
supporting or enhancing our iDEN based infrastructure and
handsets, we may be materially adversely affected. We expect to
continue to rely principally on Motorola or its licensees for
the manufacture of a substantial portion of the equipment
necessary to construct, enhance and maintain our iDEN network
and handset equipment for the next several years.

We are also relying on Motorola to provide us
with technology improvements designed to expand our wireless
voice capacity and improve our services. These contemplated
enhancements include the development of the 6:1 voice coder
software upgrade designed to increase voice capacity and deliver
packet data service at higher speeds beginning in 2003, and the
expansion of our Direct Connect service to offer our nationwide
Direct Connect service. We believe these improvements may be
necessary to maintain the competitiveness of our digital
network. Any failure of Motorola to deliver these expected
improvements would impose significant additional costs on us.
However, Motorola may not deliver these improvements within our
anticipated timeframe, if at all, or they may not provide the
advantages that we expect. We are also relying on Motorola to
provide the handset-based location technology solution necessary
for us to comply with the Federal Communications
Commissions Enhanced 911 requirements. We are responsible
for timely meeting these requirements, whether or not Motorola
is able to produce the necessary handsets and infrastructure.



|    |                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------
|10. | Agreements with Motorola reduce our
    operational flexibility and may adversely affect our growth or
    operating results.

We have entered into agreements with Motorola
that reduce our operational flexibility by limiting our ability
to use other technologies that would displace our existing iDEN
network. These agreements may

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delay or prevent us from employing new or
different technologies that perform better or are available at a
lower cost because of the additional economic costs and other
impediments to change arising under the Motorola agreements. For
example, our equipment purchase agreement with Motorola requires
us to provide Motorola with notice of our determination that
Motorolas technology is no longer suited to our needs at
least six months before publicly announcing or entering into a
contract to purchase equipment utilizing an alternate
technology. In addition, if Motorola manufactures, or elects to
manufacture, the equipment utilizing the alternate technology
that we elect to deploy, we must give Motorola the opportunity
to supply 50% of our infrastructure requirements for the
alternate technology for three years. This may limit our ability
to negotiate with an alternate equipment supplier.




|    |                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------
|11. | Concerns about health risks associated with
    wireless equipment may reduce the demand for our
    services.

Portable communications devices have been alleged
to pose health risks, including cancer, due to radio frequency
emissions from these devices. Purported class actions and other
lawsuits have been filed against numerous wireless carriers,
including us, seeking not only damages but also remedies that
could increase our cost of doing business. While the current
lawsuits against us have been dismissed by the federal court,
the time for appeal has not yet run, and we cannot be sure
additional lawsuits will not be filed. We cannot be sure that
our business and financial condition will not be adversely
affected by litigation of this nature or public perception about
health risks. The actual or perceived risk of mobile
communications devices could adversely affect us through a
reduction in subscribers, reduced network usage per subscriber
or reduced financing available to the mobile communications
industry. Further research and studies are ongoing, and we
cannot be sure that these studies will not demonstrate a link
between radio frequency emissions and health concerns.



|    |                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------
|12. | Our investments in other companies may
    affect our growth and operating results because we are not in
    sole control of the enterprise.

We have entered into arrangements regarding our
ownership interests in Nextel Partners and have entered into
certain agreements regarding our investment in
NII Holdings. We may enter into similar arrangements in the
future. These arrangements are subject to uncertainties,
including risks that:



| |   |                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we do not have the ability to control the
    enterprises;                                                                                                                                                                      
|
| |  | the other participants at any time may have
    economic, business or legal interests or goals that are
    inconsistent with our goals or those of the enterprise;                                                             
|
| |  | a participant may be unable to meet its economic
    or other obligations to the enterprise, and we may be required
    to fulfill some or all of those obligations or restrict the
    business of the affected enterprise; and
|
| |  | in the case of Nextel Partners, we also may be or
    become obligated to acquire all or a portion of the ownership
    interest of some or all of the other participants in the
    enterprise.                                



|    |                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|13. | Our issuance of additional shares of common
    stock and general conditions in the wireless communications
    industry may affect the price of our common stock.

We currently have arrangements in various forms,
including options and convertible securities, under which we
will issue a substantial number of new shares of our
class A common stock. At December 31, 2002, we had
commitments to issue 22.2 million shares upon conversion of
class A convertible preferred stock (all of which was
converted in March 2003), 35.7 million shares upon
conversion of class B nonvoting common stock,
50.7 million shares upon conversion of convertible senior
notes and zero coupon convertible preferred stock and
92.4 million shares upon exercise of options or in
connection with other awards under our incentive equity plan.
All of these in the aggregate represent 201 million shares,
or 17% of our class A common stock outstanding on
December 31, 2002 assuming these shares issuable had been
outstanding on that date. In addition, we may elect in some
circumstances to issue equity to satisfy

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obligations otherwise payable in cash or to make
acquisitions, and we have and may continue to issue common stock
to purchase some of our outstanding securities. An increase in
the number of shares of our common stock that are or will become
available for sale in the public market may adversely affect the
market price of our common stock and, as a result, could impair
our ability to raise additional capital through the sale of our
common stock or convertible securities and adversely affect our
stock price. Some of the shares subject to issuance are or may
be registered with the Securities and Exchange Commission and
thus are or may become freely tradable, without regard to the
volume limitations of Rule 144 under the Securities Act of
1933.




|    |                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|14. | Our forward-looking statements are subject
    to a variety of factors that could cause actual results to
    differ materially from current beliefs.

Safe Harbor Statement under the
Private Securities Litigation Reform Act of
1995:A number of the statements made
in this annual report on Form 10-K 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 those outlined in the above Risk Factors
section and elsewhere in this document 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;

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| |   |                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;
|
| |  | future legislation or regulatory actions relating
    to specialized mobile radio services, other wireless
    communications services or telecommunications generally; and                                  
|
| |  | the costs of compliance with regulatory mandates,
    particularly the requirement to deploy location-based 911
    capabilities.                                                                            

N. Available Information

We make available free of charge on or through
our Internet website at www.nextel.com our annual report on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed
or furnished pursuant to Section 13(a) of the Securities
Exchange Act of 1934 as soon as reasonably practicable after we
electronically file such materials with, or furnish them to, the
Securities and Exchange Commission.




Item 2.     Properties

We currently lease our principal executive and
administrative offices, which are located at 2001 and 2003
Edmund Halley Drive, in Reston, Virginia. This facility is about
330,000 square feet, and the lease has an initial term expiring
July 10, 2009, with four five-year renewal options. A
summary of our major leased facilities as of December 31,
2002 is as follows:

|                           |  |             |         |                    |  |  |               | 
|-------------------------- |  | ----------- | ------- | ------------------ |  |  | ------------- | 
|Location                   |  | Square feet |         | Year of Expiration
|                           |  |             |         |                   
|Reston, Virginia           |  |             | 330,000 |                    |  |  | 2009          | 
|Denver, Colorado           |  |             | 114,000 |                    |  |  | 2004          | 
|Englewood, Colorado        |  |             | 140,000 |                    |  |  | 2008          | 
|Hampton Roads, Virginia    |  |             | 157,000 |                    |  |  | 2009 and 2010 | 
|Herndon, Virginia          |  |             | 132,000 |                    |  |  | 2013          | 
|McLean, Virginia           |  |             | 129,000 |                    |  |  | 2006          | 
|Irvine, California         |  |             | 119,000 |                    |  |  | 2005          | 
|Rutherford, New Jersey     |  |             | 116,000 |                    |  |  | 2008          | 
|Temple, Texas              |  |             | 109,000 |                    |  |  | 2016          | 
|Farmington Hills, Michigan |  |             | 108,000 |                    |  |  | 2008          | 
|Norcross, Georgia          |  |             | 105,000 |                    |  |  | 2005          | 

None of the expiration dates for these leases
disclosed above include the extensions related to the exercise
of renewal options. Under our customer relationship
management agreement with IBM and Teletech, we have transitioned
some of our customer care operations to different locations and
have vacated, and expect to vacate or sublease, some of the
facilities mentioned above. We also lease smaller office
facilities for sales, maintenance and administrative operations
in our markets. We have about 300 of these leases in effect at
December 31, 2002, generally with terms ranging from 1 to
15 years, not including extensions related to the exercise
of renewal options.

As of December 31, 2002, we also leased
facilities for about 55 mobile switching offices. These leases
all have at least ten-year initial terms, typically with renewal
options, and range between 15,000 and 45,000 square feet. In
2002, we initiated operations in about 210 retail locations and
had in place about 420 outlets at December 31, 2002. These
kiosks and small store locations typically have leases of less
than five years and range from between 150 and 1,700 square feet.

We lease transmitter and receiver sites for the
transmission of our radio service under various individual site
leases as well as master site lease agreements. The terms of
these leases generally range from month-to-month to
20 years. As of December 31, 2002, we had about 16,300
constructed sites at leased locations in the United States for
our network. We also own properties and a limited number of
transmission towers where management considers it advisable.

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Item 3.     Legal
Proceedings

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.

See  Item 1.
Business  F. Our Strategic Relationships 
4. NII Holdings for a discussion of NII Holdings
voluntary reorganization under Chapter 11 of the
U.S. Bankruptcy Code.

We are subject to other claims and legal actions
that arise in the ordinary course of business. We do not believe
that any of these other pending claims or legal actions will
have a material effect on our business or results of operation.




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

No matters were submitted to a vote of our
security holders during the fourth quarter of 2002.

Executive Officers of the Registrant

The following people are serving as our executive
officers as of March 27, 2003. These executive officers
were elected to serve until their successors have been elected.
There is no family relationship between any of our executive
officers or between any of these officers and any of our
directors.

Timothy M. Donahue.Mr. Donahue is 54 years old
and has served as our Chief Executive Officer since July 1999.
Mr. Donahue also has served as President since joining us
in February 1996 and also served as Chief Operating Officer from
February 1996 until July 1999. Mr. Donahue has served as
one of our directors since June 1996. From 1986 to January 1996,
Mr. Donahue held various senior management positions with
AT&T Wireless Services, Inc., including Regional President
for the Northeast. Mr. Donahue serves as a director of NII
Holdings, Nextel Partners and Eastman Kodak Company.

Paul N. Saleh.Mr. Saleh is 46 years old
and has served as Executive Vice President and Chief Financial
Officer since September 2001. From June 1999 to August 2001,
Mr. Saleh served as Senior Vice President and Chief
Financial Officer of Disney International, a subsidiary of The
Walt Disney Company. From April 1997 to June 1999,
Mr. Saleh served as Senior Vice President and Treasurer of
The Walt Disney Company. Prior to joining The Walt Disney
Company, Mr. Saleh worked for twelve years with Honeywell
Inc., where he was most recently Vice President and Treasurer.

Morgan E. OBrien.Mr. OBrien is 58 years
old and has served as Vice Chairman of our board of directors
since March 1996. Mr. OBrien also has been one of our
directors since co-founding Nextel in 1987. From 1987 to March
1996, Mr. OBrien served as Chairman of our board of
directors and from 1987 to October 1994, Mr. OBrien
also served as our General Counsel.

Thomas N. Kelly, Jr.Mr. Kelly is 55 years old,
joined us in April 1996 and has served as Executive Vice
President and Chief Operating Officer since February 2003. From
1996 to February 2003, Mr. Kelly served as our Executive
Vice President and Chief Marketing Officer. Between 1993 and
1996, Mr. Kelly was Regional Vice President of Marketing
for AT&T Wireless. Prior to joining AT&T Wireless,
Mr. Kelly worked for twelve years with the marketing
consulting firm of Howard Bedford Nolan, where he was most
recently an Executive Vice President.

Barry J. West.Mr. West is 57 years old,
joined us in March 1996 and serves as Executive Vice President
and Chief Technology Officer. Previously, Mr. West served
in various senior positions with British Telecom plc for more
than five years, most recently as Director of Value-Added
Services and Corporate Marketing at Cellnet, a cellular
communications subsidiary of British Telecom.

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Leonard J. Kennedy.Mr. Kennedy is 51 years old
and since January 2001 has served as Senior Vice President and
General Counsel. From 1995 until January 2001, Mr. Kennedy
was a member of the law firm Dow, Lohnes & Albertson,
specializing in telecommunications law and regulatory policy.

William G. Arendt.Mr. Arendt is 45 years old
and has served as our Vice President and Controller since
joining us in May 1997. From June 1996 until joining us,
Mr. Arendt was Vice President and Controller for Pocket
Communications, Inc., a PCS company. From September 1992 until
June 1996, he was Controller for American Mobile Satellite
Corporation. Previously, Mr. Arendt worked for thirteen
years at Ernst & Young LLP.

Richard S. Lindahl.Mr. Lindahl is 39 years old and has served as our Vice
President and Treasurer since May 2002. From August 1997 to May
2002, Mr. Lindahl served us in various capacities,
including Assistant Treasurer and Director, Financial Planning
& Analysis. Prior to joining us in August 1997,
Mr. Lindahl held the position of Vice President, Financial
Planning with Pocket Communications.

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PART II




Item 5.     Market
for Registrants Common Equity and Related Stockholder
Matters

A.     Market for
Common Stock

Our class A common stock is traded on the
Nasdaq National Market under the trading symbol
NXTL. The following table lists, on a per share
basis, the high and low sale prices for the common stock as
reported by the Nasdaq National Market for the periods indicated:

|              |  |                                     |       |      |  |      |      |     |  |   |       |  |  |   |       | 
|------------- |  | ----------------------------------- | ----- | ---- |  | ---- | ---- | --- |  | - | ----- |  |  | - | ----- | 
|              |  |                                    
|              |  | Quarterly Common Stock Price Ranges
|              |  | Year Ended December 31,            
|              |  |                                    
|              |  |                                     |       |     
|              |  | 2002                                |       | 2001
|              |  |                                     |       |     
|Quarter Ended |  | High                                |       | Low  |  | High |      | Low
|              |  |                                     |       |      |  |      |      |    
|March 31      |  | $                                   | 12.08 |      |  | $    | 3.35 |     |  | $ | 38.63 |  |  | $ | 11.75 | 
|June 30       |  |                                     | 6.75  |      |  |      | 2.50 |     |  |   | 20.35 |  |  |   | 11.19 | 
|September 30  |  |                                     | 8.69  |      |  |      | 2.57 |     |  |   | 18.40 |  |  |   | 7.85  | 
|December 31   |  |                                     | 14.67 |      |  |      | 6.85 |     |  |   | 12.31 |  |  |   | 6.87  | 

B.     Number of
Stockholders of Record

As of March 14, 2003, there were about 3,900
holders of record of our class A common stock. We have the
authority to issue shares of nonvoting common stock, which are
convertible on a share-for-share basis into shares of
class A common stock. As of March 14, 2003, there was
a single stockholder of record holding all of the 35,660,000
outstanding shares of nonvoting common stock.

C.     Dividends

We have not paid any dividends on our common
stock and do not plan to pay dividends on our common stock for
the foreseeable future. The indentures governing our public
notes and our bank credit agreement and other financing
documents prohibit us from paying dividends, except in
compliance with specified financial covenants, and limit our
ability to dividend cash from the subsidiaries that operate our
network to Nextel Communications. While these restrictions are
in place, any profits generated by these subsidiaries may not be
available to us for payment of dividends.

We anticipate that for the foreseeable future any
cash flow generated from our operations will be used to develop
and expand our business and operations and fund other financing
initiatives. Any future determination as to the payment of
dividends on our common stock will be at the discretion of our
board of directors and will depend upon our operating results,
financial condition and capital requirements, contractual
restrictions, general business conditions and other factors that
our board of directors deems relevant. There can be no assurance
that we will pay dividends on our common stock at any time in
the future.

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D. Securities Authorized for Issuance
under Equity Compensation Plans

Equity Compensation Plan Information

|                                                               |  |                            |            |                               |  |                           |       |  |  |  |            | 
|-------------------------------------------------------------- |  | -------------------------- | ---------- | ----------------------------- |  | ------------------------- | ----- |  |  |  | ---------- | 
|                                                               |  |                            |            |                               |  | Number of securities     
|                                                               |  |                            |            |                               |  | remaining available for  
|                                                               |  | Number of securities to be |            |                               |  | future issuance under    
|                                                               |  | issued upon exercise of    |            | Weighted-average exercise     |  | equity compensation plans
|                                                               |  | outstanding options,       |            | price of outstanding options, |  | (excluding securities    
|                                                               |  | warrants and rights        |            | warrants and rights           |  | reflected in column (a)) 
|Plan Category                                                  |  | (a)                        |            | (b)                           |  | (c)                      
|                                                               |  |                            |            |                               |  |                          
|Equity compensation plans approved by security
    holders     |  |                            | 90,376,546 |                               |  | $                         | 21.01 |  |  |  | 50,851,962 | 
|Equity compensation plans not approved by
    security holders |  |                            | 2,458      | (1)                           |  |                           | 8.98  |  |  |  | N/A        | 
|                                                               |  |                            |            |                               |  |                           |       |  |  |  |            | 
|Total                                                          |  |                            | 90,379,004 |                               |  |                           |       |  |  |  | 50,851,962 | 
|                                                               |  |                            |            |                               |  |                           |       |  |  |  |            | 



---



|    |                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------
|(1) | These shares are issuable under an equity
    compensation plan assumed in connection with our acquisition of
    Dial Page, Inc. in 1996.

E.     Recent Sales
of Unregistered Securities

During the year ended December 31, 2002, we
issued 172 million shares of our class A common stock
to existing security holders in connection with the exchange of
securities discussed in note 8 to the consolidated
financial statements appearing at the end of this annual report
on Form 10-K. These shares were issued pursuant to the
exemption from registration requirements of the Securities Act
of 1933 provided by Section 3(a)(9).




Item 6.     Selected
Financial Data

The table below sets forth selected consolidated
financial data for the periods or dates indicated and should be
read in conjunction with the consolidated financial statements,
related notes and other financial information appearing at the
end of this annual report on Form 10-K.

The information presented below that is derived
from our consolidated financial statements includes the
consolidated results of NII Holdings through December 31,
2001. On May 24, 2002, NII Holdings filed a voluntary
petition for reorganization under Chapter 11 of the
U.S. Bankruptcy Code in the United States Bankruptcy Court
for the District of Delaware. On November 12, 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, effective May 2002, using the equity method. In
accordance with the equity method, we did not recognize equity
in losses of NII Holdings after May 2002 as we had already
recognized $1,408 million of losses in excess of our
investment in NII Holdings through that date. We have classified
the 2002 net operating results of NII Holdings through May 2002
in the amount of $226 million as equity in losses of
unconsolidated affiliates, as permitted under the accounting
rules governing a mid-year change from consolidating a
subsidiary to accounting for the investment using the equity
method. However, the presentation of NII Holdings in the
financial statements as a consolidated subsidiary in 2001 and
prior periods has not changed from the prior presentation. The
following table provides the operating revenues and net loss of
NII Holdings included in our consolidated results for 2001 and
prior periods, excluding the impact of intercompany eliminations:

|                   |  |               |       |      |  |      |     |      |  |   |     |  |  |   |     | 
|------------------ |  | ------------- | ----- | ---- |  | ---- | --- | ---- |  | - | --- |  |  | - | --- | 
|                   |  | 2001          |       | 2000 |  | 1999 |     | 1998
|                   |  |               |       |      |  |      |     |     
|                   |  |              
|                   |  | (in millions)
|Operating revenues |  | $             | 680   |      |  | $    | 330 |      |  | $ | 124 |  |  | $ | 68  | 
|Net loss           |  |               | 2,497 |      |  |      | 417 |      |  |   | 520 |  |  |   | 237 | 

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In November 2002, upon NII Holdings
emergence from bankruptcy, we recognized a non-cash pre-tax gain
on deconsolidation of NII Holdings in the amount of
$1,218 million. At the same time, 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 December 31,
2002, we owned about 36% of the outstanding common stock of NII
Holdings. Additional information regarding NII Holdings
restructuring can be found in notes 1, 3, 5, 7 and 8 to the
consolidated financial statements appearing at the end of this
annual report on Form 10-K.

Operating revenues and cost of
revenues.Effective
January 1, 2000, we adopted the Securities and Exchange
Commissions Staff Accounting Bulletin, or SAB,
No. 101, Revenue Recognition in Financial
Statements. Based upon this guidance, we changed our
handset and activation revenue and cost recognition policies.
Upon adoption of SAB No. 101, we began recognizing handset
sales and activation fees as operating revenues on a
straight-line basis over the estimated customer relationship
period of 3.5 years for domestic sales and periods of up to
4 years for international sales. We recognize the costs of
handset sales and activation over the same periods in amounts
equivalent to the revenues recognized from handset sales and
activation fees. The direct and incremental handset costs in
excess of the revenues generated from handset sales are expensed
at the time of sale and the activation costs in excess of the
revenues generated from activation fees are expensed as incurred
as these amounts exceed our minimum contractual revenues. Prior
to the adoption of SAB No. 101, we recognized revenues from
handset sales and the related costs when title to the handset
passed to the customer, and we recognized activation fees upon
completion of the activation service and the related activation
costs as incurred.

We have accounted for the adoption of SAB
No. 101 as a change in accounting principle and therefore
have not restated the financial statements of years prior to
2000. Additional information regarding this accounting change
can be found in note 1 to the consolidated financial
statements appearing at the end of this annual report on
Form 10-K.

Restructuring and impairment
charges.The restructuring and
impairment charge in 2001 is primarily attributable to NII
Holdings and consists of non-cash pre-tax impairment charges and
pre-tax restructuring and other charges of about
$1,747 million. Additional information regarding this
restructuring charge can be found in note 3 to the
consolidated financial statements appearing at the end of this
annual report on Form 10-K.

Depreciation and
amortization.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 will continue to
amortize intangible assets that have finite lives over their
useful lives. Upon 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. Additional information regarding the
adoption of SFAS No. 142 as well as a pro forma
presentation of our financial results reflecting the adoption of
SFAS No. 142 as if it had occurred on January 1, 2000
can be found in note 1 to the consolidated financial
statements appearing at the end of this annual report on
Form 10-K.

Gain on deconsolidation of NII
Holdings.In November 2002, upon
NII Holdings emergence from bankruptcy, we recognized a
non-cash pre-tax gain on deconsolidation of NII Holdings in the
amount of $1,218 million consisting primarily of the
reversal of equity losses we had recorded in excess of our
investment in NII Holdings, partially offset by charges recorded
when we consolidated NII Holdings, including, among other items,
$185 million of cumulative foreign currency translation
losses.

Other income (expense),
net.As more fully discussed in
note 5 to the consolidated financial statements appearing
at the end of this annual report on Form 10-K, other income
(expense), net in 2000 includes a $275 million gain
realized when NII Holdings exchanged its stock in Clearnet
Communications, Inc. for stock in TELUS as a result of the
acquisition of Clearnet by TELUS. Other income (expense), net in
2001 includes a $188 million other-than-temporary reduction
in the fair value of NII Holdings investment in TELUS.

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Income tax provision.As a result of our adoption of
SFAS No. 142, in the first quarter of 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. This cumulative charge was required
since we have significant deferred tax liabilities related to
our FCC licenses that have a significantly lower tax basis than
book basis. Additional information regarding the adoption of
SFAS No. 142 can be found in note 1 to the
consolidated financial statements appearing at the end of this
annual report on Form 10-K.

Domestic long-term debt and mandatorily
redeemable preferred stock.In
2002, we purchased and retired a total of $1,928 million in
aggregate principal amount at maturity of our outstanding senior
notes with a net book value of $1,911 million and
$1,258 million in aggregate face amount of our outstanding
mandatorily redeemable preferred stock with a net book value of
$1,272 million in exchange for 172 million shares of
class A common stock valued at $1,197 million and
$843 million in cash. Additional information regarding the
purchase and retirement of our long-term debt and mandatorily
redeemable preferred stock can be found in note 8 to the
consolidated financial statements appearing at the end of this
annual report on Form 10-K.

Effective April 1, 2002, we adopted SFAS
No. 145, Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. The adoption of SFAS No. 145 required us
to classify gains and losses from extinguishments of debt as
other income (expense) rather than as extraordinary items in all
periods presented.

Finance obligation.In December 2002, we sold all
of our equity investment in SpectraSite for a de minimus amount.
The sale of our equity investment in SpectraSite ended our
continuing involvement in SpectraSite for substantially all of
our tower leases. Accordingly, we recognized a deferred gain on
the sale of these towers to SpectraSite and will account for
their leasebacks as operating leases. We reduced our finance
obligation by $655 million. Additional information
regarding SpectraSite can be found in notes 5 and 7 to the
consolidated financial statements appearing at the end of this
annual report on Form 10-K.

|                                                                    |         |                                         |       |      |  |      |        |       |   |      |        |       |   |   |        |       |   |   |        |       |  
|------------------------------------------------------------------- | ------- | --------------------------------------- | ----- | ---- |  | ---- | ------ | ----- | - | ---- | ------ | ----- | - | - | ------ | ----- | - | - | ------ | ----- | -
|                                                                    |         |                                        
|                                                                    |         | Year Ended December 31,                
|                                                                    |         |                                        
|                                                                    |         | 2002                                    |       | 2001 |  | 2000 |        | 1999  |   | 1998
|                                                                    |         |                                         |       |      |  |      |        |       |   |     
|                                                                    |         |                                        
|                                                                    |         | (in millions, except per share amounts)
|STATEMENT OF OPERATIONS DATA                                        |         |                                         |       |      |  |      |        |       |   |      |        |       |   |   |        |       |   |   |        |      
|Operating revenues                                                  |         | $                                       | 8,721 |      |  | $    | 7,689  |       |   | $    | 5,714  |       |   | $ | 3,786  |       |   | $ | 2,295  |      
|Cost of revenues (exclusive of depreciation
    included below)     |         |                                         | 2,516 |      |  |      | 2,869  |       |   |      | 2,172  |       |   |   | 1,579  |       |   |   | 1,218  |      
|Selling, general and administrative                                 |         |                                         | 3,039 |      |  |      | 3,020  |       |   |      | 2,278  |       |   |   | 1,672  |       |   |   | 1,297  |      
|Restructuring and impairment charges                                |         |                                         | 35    |      |  |      | 1,769  |       |   |      |       |       |   |   |       |       |   |   |       |      
|Depreciation and amortization                                       |         |                                         | 1,595 |      |  |      | 1,746  |       |   |      | 1,265  |       |   |   | 1,004  |       |   |   | 832    |      
|                                                                    |         |                                         |       |      |  |      |        |       |   |      |        |       |   |   |        |       |   |   |        |      
|Operating income (loss)                                             |         |                                         | 1,536 |      |  |      | (1,715 | )     |   |      | (1     | )     |   |   | (469   | )     |   |   | (1,052 | )    
|Interest expense, net                                               |         |                                         | (990  | )    |  |      | (1,196 | )     |   |      | (849   | )     |   |   | (782   | )     |   |   | (622   | )    
|Gain (loss) on retirement of debt, net of debt
    conversion costs |         |                                         | 354   |      |  |      | 469    |       |   |      | (127   | )     |   |   | (68    | )     |   |   | (133   | )    
|Gain on deconsolidation of NII Holdings                             |         |                                         | 1,218 |      |  |      |       |       |   |      |       |       |   |   |       |       |   |   |       |      
|Equity in losses of unconsolidated affiliates                       |         |                                         | (302  | )    |  |      | (95    | )     |   |      | (152   | )     |   |   | (73    | )     |   |   | (12    | )    
|Other (expense) income, net                                         |         |                                         | (39   | )    |  |      | (223   | )     |   |      | 281    |       |   |   | 26     |       |   |   | (25    | )    
|Income tax (provision) benefit                                      |         |                                         | (391  | )    |  |      | 135    |       |   |      | 33     |       |   |   | 28     |       |   |   | 192    |      
|                                                                    |         |                                         |       |      |  |      |        |       |   |      |        |       |   |   |        |       |   |   |        |      
|Net income (loss)                                                   |         |                                         | 1,386 |      |  |      | (2,625 | )     |   |      | (815   | )     |   |   | (1,338 | )     |   |   | (1,652 | )    
|Gain on retirement of mandatorily redeemable
    preferred stock    |         |                                         | 485   |      |  |      |       |       |   |      |       |       |   |   |       |       |   |   |       |      
|Mandatorily redeemable preferred stock dividends
    and accretion  |         |                                         | (211  | )    |  |      | (233   | )     |   |      | (209   | )     |   |   | (192   | )     |   |   | (149   | )    
|                                                                    |         |                                         |       |      |  |      |        |       |   |      |        |       |   |   |        |       |   |   |        |      
|Income (loss) available to common stockholders                      |         | $                                       | 1,660 |      |  | $    | (2,858 | )     |   | $    | (1,024 | )     |   | $ | (1,530 | )     |   | $ | (1,801 | )    
|                                                                    |         |                                         |       |      |  |      |        |       |   |      |        |       |   |   |        |       |   |   |        |      
|Earnings (loss) per common share                                    |         |                                         |       |      |  |      |        |       |   |      |        |       |   |   |        |       |   |   |        |      
|                                                                    | Basic   |                                         | $     | 1.88 |  |      | $      | (3.67 | ) |      | $      | (1.35 | ) |   | $      | (2.39 | ) |   | $      | (3.23 | )
|                                                                    |         |                                         |       |      |  |      |        |       |   |      |        |       |   |   |        |       |   |   |        |      
|                                                                    | Diluted |                                         | $     | 1.78 |  |      | $      | (3.67 | ) |      | $      | (1.35 | ) |   | $      | (2.39 | ) |   | $      | (3.23 | )
|                                                                    |         |                                         |       |      |  |      |        |       |   |      |        |       |   |   |        |       |   |   |        |      
|Weighted average number of common shares
    outstanding            |         |                                         |       |      |  |      |        |       |   |      |        |       |   |   |        |       |   |   |        |      
|                                                                    | Basic   |                                         |       | 884  |  |      |        | 778   |   |      |        | 756   |   |   |        | 639   |   |   |        | 557   |  
|                                                                    |         |                                         |       |      |  |      |        |       |   |      |        |       |   |   |        |       |   |   |        |      
|                                                                    | Diluted |                                         |       | 966  |  |      |        | 778   |   |      |        | 756   |   |   |        | 639   |   |   |        | 557   |  
|                                                                    |         |                                         |       |      |  |      |        |       |   |      |        |       |   |   |        |       |   |   |        |      

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|                                                                                              |  |               |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|--------------------------------------------------------------------------------------------- |  | ------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                                                              |  |              
|                                                                                              |  | December 31, 
|                                                                                              |  |              
|                                                                                              |  | 2002          |        | 2001 |  | 2000 |        | 1999 |  | 1998
|                                                                                              |  |               |        |      |  |      |        |      |  |     
|                                                                                              |  |              
|                                                                                              |  | (in millions)
|BALANCE SHEET DATA                                                                            |  |               |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Cash, cash equivalents and short-term
    investments, including restricted portion           |  | $             | 2,686  |      |  | $    | 3,801  |      |  | $    | 4,674  |  |  | $ | 5,808  |  |  | $ | 321    | 
|Property, plant and equipment, net                                                            |  |               | 8,918  |      |  |      | 9,274  |      |  |      | 8,791  |  |  |   | 6,152  |  |  |   | 4,915  | 
|Intangible assets, net                                                                        |  |               | 6,607  |      |  |      | 5,778  |      |  |      | 5,671  |  |  |   | 4,551  |  |  |   | 4,937  | 
|Total assets                                                                                  |  |               | 21,484 |      |  |      | 22,064 |      |  |      | 22,686 |  |  |   | 18,410 |  |  |   | 11,573 | 
|Domestic long-term debt, capital lease and
    finance obligations, including current portion |  |               | 12,550 |      |  |      | 14,865 |      |  |      | 12,212 |  |  |   | 9,954  |  |  |   | 6,462  | 
|Debt of NII Holdings, nonrecourse to and not held
    by parent                               |  |               |       |      |  |      | 1,865  |      |  |      | 2,519  |  |  |   | 1,549  |  |  |   | 1,257  | 
|Mandatorily redeemable preferred stock                                                        |  |               | 1,015  |      |  |      | 2,114  |      |  |      | 1,881  |  |  |   | 1,770  |  |  |   | 1,578  | 
|Stockholders equity (deficit)                                                                |  |               | 2,846  |      |  |      | (582   | )    |  |      | 2,028  |  |  |   | 2,574  |  |  |   | 230    | 






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

A.     Overview

The following is a discussion and analysis of our
consolidated financial condition and results of operations for
each of the three years in the period ended December 31,
2002 and significant factors that could affect our prospective
financial condition and results of operations. Historical
results may not indicate future performance. See Part I,
Item 1. Business  M. Risk
Factors  14. Our forward-looking statements are
subject to a variety of factors that could cause actual results
to differ materially from current beliefs.

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s
iDEN wireless technology.

We, together with Nextel Partners, currently
serve 197 of the top 200 U.S. markets where
240 million people live or work. We ended 2002 with about
14,900 employees and 10.6 million handsets in service, and
we had $8,721 million in operating revenues for the year.

We owned about 32% of the common stock of Nextel
Partners as of December 31, 2002. Nextel Partners provides
digital wireless communications 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
December 31, 2002, we owned about 36% of the outstanding
common stock of NII Holdings, formerly known as Nextel
International. NII Holdings provides wireless communications
services primarily in selected Latin American markets. On
May 24, 2002, NII Holdings filed a voluntary petition for
reorganization under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the District of
Delaware. On November 12, 2002, NII Holdings emerged from
bankruptcy. Before its reorganization, NII Holdings was our
substantially wholly owned subsidiary.

As a result of the bankruptcy reorganization, all
previously outstanding equity interests in NII Holdings were
cancelled. In addition, NII Holdings extinguished
$2,331 million in senior redeemable notes and other
unsecured, non-trade claims that existed prior to its bankruptcy
filing and in exchange issued shares of new common stock valued
at $2.50 per share.

As a result of NII Holdings bankruptcy
filing in May 2002, we began accounting for our investment in
NII Holdings, effective May 2002, using the equity method. In
accordance with the equity method, we did not recognize equity
in losses of NII Holdings after May 2002 as we had already
recognized $1,408 million of losses in excess of our
investment in NII Holdings through that date. We have classified
the 2002 net operating results of NII Holdings through May 2002
as equity in losses of unconsolidated affiliates, as permitted
under the accounting rules governing a mid-year change from
consolidating a

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subsidiary to accounting for the investment using
the equity method. However, the presentation of NII Holdings in
the financial statements as a consolidated subsidiary in 2001
and prior periods has not changed from the prior presentation.


In November 2002, upon NII Holdings
emergence from bankruptcy, we recognized a non-cash pre-tax gain
on deconsolidation of NII Holdings in the amount of
$1,218 million consisting primarily of the reversal of
equity losses we had recorded in excess of our investment in NII
Holdings. At the same time, 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.

Additional information regarding NII
Holdings restructuring can be found in notes 1, 3, 5,
7 and 8 to the consolidated financial statements appearing at
the end of this annual report on Form 10-K.



| |                                                
| | -----------------------------------------------
| | Critical Accounting Policies and
    Estimates.

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 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. 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 for domestic sales and periods of up to
four years for international sales, 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
$127 million as of December 31, 2002.

Valuation and recoverability of long-lived
assets.Long-lived assets such as
property, plant and equipment represented about
$8,918 million of our $21,484 million in total assets
as of December 31, 2002. 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

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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.


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 $6,496 million of
our $21,484 million in total assets as of December 31,
2002. Intangible assets with indefinite useful lives consist of
our 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 domestic net
assets, other than these FCC licenses, from our domestic
reporting units fair value, which was determined using a
discounted cash flow analysis. The analysis was based on our
long-term cash flow projections, discounted at our corporate
weighted average cost of capital.

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 or the entire recorded asset could become
impaired.

Recoverability of capitalized software to
be sold, leased, or otherwise
marketed.As of December 31,
2002, we had capitalized about $53 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 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
December 31, 2002. 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.

B.     Results of
Operations

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.

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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
for domestic sales and periods of up to four years for
international sales, 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 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 for domestic costs and periods of up to
four years for international costs 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.



| |                                                    
| | ---------------------------------------------------
| | Selected Domestic Financial and Operating
    Data.

|                                                             |  |                     |        |      |  |      |        |  |  |   |        | 
|------------------------------------------------------------ |  | ------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                             |  |                    
|                                                             |  | For the Years Ended
|                                                             |  | December 31,       
|                                                             |  |                    
|                                                             |  | 2002                |        | 2001 |  | 2000
|                                                             |  |                     |        |      |  |     
|Average monthly revenue per handset in service(1)            |  | $                   | 70     |      |  | $    | 71     |  |  | $ | 74     | 
|Handsets in service, end of period (in
    thousands)(2)(3)  |  |                     | 10,612 |      |  |      | 8,667  |  |  |   | 6,678  | 
|Net handset additions (in thousands)(2)                      |  |                     | 1,956  |      |  |      | 1,988  |  |  |   | 2,163  | 
|Transmitter and receiver sites in service, end of
    period |  |                     | 16,300 |      |  |      | 15,500 |  |  |   | 12,700 | 
|Net transmitter and receiver sites placed in
    service     |  |                     | 800    |      |  |      | 2,800  |  |  |   | 3,900  | 
|Switches in service, end of period                           |  |                     | 84     |      |  |      | 81     |  |  |   | 75     | 
|System minutes of use (in billions)                          |  |                     | 73.5   |      |  |      | 52.5   |  |  |   | 31.9   | 
|Average monthly billable minutes of use per
    handset      |  |                     | 630    |      |  |      | 565    |  |  |   | 470    | 



---



|    |                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Average monthly revenue per handset/unit in
    service, or ARPU, is an industry term that measures service
    revenues per month from our customers divided by the weighted
    average number of handsets in commercial service during that
    month, excluding the impact of test markets such as the Boost

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Mobile program. ARPU is not a measurement under
    accounting principles generally accepted in the United States
    and may not be similar to ARPU measures of other companies. We
    believe that ARPU provides useful information concerning the
    appeal of our rate plans and service offerings and our
    performance in attracting and retaining high value customers.
    Effective January 1, 2003, the ARPU metric will also
    include amounts earned under various service and repair programs
    and cancellation fees.
|   
|(2) | Amount excludes the impact of test markets such
    as the Boost Mobile program.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(3) | In the fourth quarter of 2002, we completed the
    analysis of our subscriber records after the conversion of our
    billing system, and we identified non-revenue generating units
    that were incorrectly introduced into the subscriber base prior
    to 2002. Therefore, in 2002, we reduced our subscriber base by
    about 10,500 subscribers, including about 7,000 as of the
    beginning of the fourth quarter of 2002.                                                                                                    

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
2002 was about 2.1% as compared to about 2.3% during 2001. We
attribute the improvement in customer churn to customer
retention initiatives that we began implementing in the first
quarter of 2001 and have continued into 2003. These initiatives
include customer focused programs such 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 see declines in demand for our
product and service offerings, which may adversely affect our
results of operations. See Part I, Item 1.
Business  M. Risk Factors  14. Our
forward-looking statements are subject to a variety of factors
that could cause actual results to differ materially from
current beliefs.



| |                                                                      
| | ---------------------------------------------------------------------
| | 1. Year ended December 31, 2002
    vs. year ended December 31, 2001.

As described in note 1 to our consolidated
financial statements appearing at the end of this annual report
on Form 10-K, our consolidated results for 2001 include the
results of operations of NII Holdings. As further described in
note 1, we no longer consolidate NII Holdings, and its 2002
results of operations are accounted for using the equity method.



| |                                          
| | -----------------------------------------
| | Service Revenues and Cost of
    Service.



| |                                                       
| | ------------------------------------------------------
| | Consolidated service revenues and cost of
    service.

Consolidated service revenues increased from
$7,221 million for the year ended December 31, 2001 to
$8,186 million for 2002. The $965 million increase in
service revenues reflects a $1,611 million increase
attributable to our domestic operations as discussed below, as
well as the impact of the deconsolidation of our international
operations in 2002, which contributed $646 million to
service revenues in our consolidated results in 2001.

Consolidated cost of service decreased from
$1,499 million for the year ended December 31, 2001 to
$1,469 million for 2002. The $30 million decrease in
cost of service reflects a $145 million increase
attributable to our domestic operations as discussed below, as
well as the impact of the deconsolidation of our international
operations in 2002, which contributed $175 million to cost
of service in our consolidated

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results in 2001. The following section provides a
more detailed analysis of our domestic service revenues and cost
of service.




| |                                                   
| | --------------------------------------------------
| | Domestic service revenues and cost of
    service.

|                 |                                 |                       |       |           |   |              |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |    |  
|---------------- | ------------------------------- | --------------------- | ----- | --------- | - | ------------ | -- | --------- |  | ------------- | ----- | ------- | - |  | -- | - |  | - | ----- | ----- |  |  | -- | -- | -
|                 |                                 |                       |       |           |   |              |    |           |  |              
|                 |                                 |                       |       | % of      |   |              |    | % of      |  | Change from  
|                 |                                 | Year Ended            |       | Domestic  |   | Year Ended   |    | Domestic  |  | Previous Year
|                 |                                 | December 31,          |       | Operating |   | December 31, |    | Operating |  |              
|                 |                                 | 2002                  |       | Revenues  |   | 2001         |    | Revenues  |  | Dollars       |       | Percent
|                 |                                 |                       |       |           |   |              |    |           |  |               |       |        
|                 |                                 |                      
|                 |                                 | (dollars in millions)
|Service revenues |                                 | $                     | 8,186 |           |   |              | 94 | %         |  | $             | 6,575 |         |   |  | 94 | % |  | $ | 1,611 |       |  |  | 25 | % 
|Cost of service  |                                 |                       | 1,469 |           |   |              | 17 | %         |  |               | 1,324 |         |   |  | 19 | % |  |   | 145   |       |  |  | 11 | % 
|                 |                                 |                       |       |           |   |              |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|                 | Service gross margin            |                       | $     | 6,717     |   |              |    |           |  |               | $     | 5,251   |   |  |    |   |  |   | $     | 1,466 |  |  |    | 28 | %
|                 |                                 |                       |       |           |   |              |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|                 | Service gross margin percentage |                       |       | 82        | % |              |    |           |  |               |       | 80      | % |  |    |   |  |   |       |       |  |  |    |    |  
|                 |                                 |                       |       |           |   |              |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   

Domestic service revenues.Service revenues increased 25%
from the year ended December 31, 2001 to the year ended
December 31, 2002. Our service revenues are impacted by
both the number of handsets in service (volume) and average
monthly revenue per handset in service (rate).

From a volume perspective, our service revenues
increased principally as a result of a 22% increase in handsets
in service. The growth in the number of handsets in service from
December 31, 2001 to December 31, 2002 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, ARPU decreased from
about $71 for the year ended December 31, 2001 to about $70
for the year ended December 31, 2002. We attribute the
slight decrease in ARPU to:



| |   |                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the introduction of more competitive pricing
    plans in 2002, which provide more minutes of use with a lower
    monthly access charge to the customer; and                                                                                         
|
| |  | increases in credits and adjustments for service
    discounts or billing disputes as a result of issues experienced
    by customers during the billing system conversion or changes in
    billing practices as discussed below; partially offset by
|
| |  | the following revenue enhancement initiatives
    during 2002:                                                                                                                                                                                        



| |   |                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | in the first quarter of 2002, we began charging
    many of our customers a fee to recover a portion of the costs
    associated with government mandated telecommunications services
    such as E911 and number portability; and                                                                       
|
| |  | in the second quarter of 2002, for many of our
    customer accounts, we implemented the industry-wide practice of
    full minute rounding, raised the excess usage rate for some
    customer accounts and decreased the off-peak hours, which are
    generally billed at lower rates than peak hours.

We expect ARPU to drop to the high $60 range in
2003 as competition increases.

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Domestic cost of service.Cost of service increased 11% from
the year ended December 31, 2001 to the year ended
December 31, 2002, primarily as a result of increased
handsets in service and the resulting increased minutes of use.
Specifically, we experienced:



| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | a 12% increase in costs incurred in the operation
    and maintenance of our network and fixed interconnection costs;
    and
|
| |  | a 4% increase in variable interconnection fees.                                                                              

The costs related to the operation and
maintenance of our network and fixed interconnection fees
increased 12% primarily due to:



| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a 5% increase in the number of transmitter and
    receiver sites and a 4% increase in switches placed in service
    and additional network capacity added to existing sites from
    December 31, 2001 to December 31, 2002; and
|
| |  | increases in frequency leasing costs and roaming
    fees paid to Nextel Partners as our growing subscriber base
    roamed onto Nextel Partners compatible network.                                                             

Variable interconnection fees increased 4% while
total system minutes of use increased 40% from the year ended
December 31, 2001 to the year ended December 31, 2002,
principally due to a 22% increase in the number of handsets in
service as well as a 12% 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
affected by favorable settlements of rate disputes with our
service providers, rate savings achieved through new agreements
with long distance providers signed in mid-2001 as well as
efforts implemented during the second quarter of 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
add more sites, switches and capacity 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 rent expense will
benefit through 2007 from the amortization of the deferred gain
that we recorded in connection with the lease transaction with
SpectraSite. Further, payments previously classified as a
reduction to the financing obligation will now be recorded as
operating lease payments. Additional information regarding the
SpectraSite lease transactions can be found in notes 5 and
7 to the consolidated financial statements appearing at the end
of this annual report on Form 10-K. See also
 D. Liquidity and Capital Resources and
 E. Future Capital Needs and
Resources  Capital Needs  Capital
Expenditures.

Domestic service gross margin.Service gross margin as a
percentage of service revenues increased from 80% for the year
ended December 31, 2001 to 82% for the year ended
December 31, 2002. While the service gross margin has
increased in the aggregate, our service gross margin as a
percentage of service revenues generally remained flat prior to
2002. During 2002, service gross margin as a percentage of
service revenues improved primarily due to a combination of
increasing subscriber growth and achievement of economies of
scale and network operating efficiencies.



| |                                                                               
| | ------------------------------------------------------------------------------
| | Handset and Accessory Revenues and Cost of
    Handset and Accessory Revenues.



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Consolidated handset and accessory revenues
    and cost of handset and accessory revenues.

Consolidated handset and accessory revenues
increased from $468 million for the year ended
December 31, 2001 to $535 million for 2002. The
$67 million increase in handset and accessory revenues
reflects a $96 million increase attributable to our
domestic operations as discussed below, as well as the impact of
the deconsolidation of our international operations in 2002,
which contributed $29 million to handset and accessory
revenues in our consolidated results in 2001.

Consolidated cost of handset and accessory
revenues decreased from $1,370 million for the year ended
December 31, 2001 to $1,047 million for 2002. The
$323 million decrease in cost of handset and accessory
revenues reflects a $167 million decrease attributable to
our domestic operations as discussed below, as

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well as the impact of the deconsolidation of our
international operations in 2002, which contributed
$156 million to cost of handset and accessory revenues in
our consolidated results in 2001. The following section provides
a more detailed analysis of our domestic handset and accessory
revenues and cost of handset and accessory revenues.




| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Domestic handset and accessory revenues and
    cost of handset and accessory revenues.

During the year ended December 31, 2002, we
recorded $535 million of handset and accessory revenues, an
increase of $96 million from the year ended
December 31, 2001. During the year ended December 31,
2002, we recorded $1,047 million of cost of handset and
accessory revenues, a decrease of $167 million from
December 31, 2001. These results are summarized in the
table below.

|                                                   |                                            |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |      |      |   |  |    |     |   
|-------------------------------------------------- | ------------------------------------------ | --------------------- | ----- | --------- |  | ------------ | -- | --------- | - | ------------- | ----- | ------- |  |  | -- | -- | - | - | ---- | ---- | - |  | -- | --- | --
|                                                   |                                            |                       |       |           |  |              |    |           |   |              
|                                                   |                                            |                       |       | % of      |  |              |    | % of      |   | Change from  
|                                                   |                                            | Year Ended            |       | Domestic  |  | Year Ended   |    | Domestic  |   | Previous Year
|                                                   |                                            | December 31,          |       | Operating |  | December 31, |    | Operating |   |              
|                                                   |                                            | 2002                  |       | Revenues  |  | 2001         |    | Revenues  |   | Dollars       |       | Percent
|                                                   |                                            |                       |       |           |  |              |    |           |   |               |       |        
|                                                   |                                            |                      
|                                                   |                                            | (dollars in millions)
|Current period handset and accessory sales         |                                            | $                     | 892   |           |  |              | 10 | %         |   | $             | 484   |         |  |  | 7  | %  |   | $ | 408  |      |   |  | 84 | %  
|Net effect of SAB No. 101 handset deferrals        |                                            |                       | (357  | )         |  |              | (4 | )%        |   |               | (45   | )       |  |  | (1 | )% |   |   | (312 | )    |   |  | NM |    
|                                                   |                                            |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |      |      |   |  |    |    
|                                                   | Handset and accessory revenues             |                       |       | 535       |  |              |    | 6         | % |               |       | 439     |  |  |    | 6  | % |   |      | 96   |   |  |    | 22  | % 
|                                                   |                                            |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |      |      |   |  |    |    
|Current period cost of handset and accessory sales |                                            |                       | 1,404 |           |  |              | 16 | %         |   |               | 1,259 |         |  |  | 18 | %  |   |   | 145  |      |   |  | 12 | %  
|Net effect of SAB No. 101 handset deferrals        |                                            |                       | (357  | )         |  |              | (4 | )%        |   |               | (45   | )       |  |  | (1 | )% |   |   | (312 | )    |   |  | NM |    
|                                                   |                                            |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |      |      |   |  |    |    
|                                                   | Cost of handset and accessory
    revenues |                       |       | 1,047     |  |              |    | 12        | % |               |       | 1,214   |  |  |    | 17 | % |   |      | (167 | ) |  |    | (14 | )%
|                                                   |                                            |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |      |      |   |  |    |    
|Handset and accessory gross subsidy                |                                            | $                     | (512  | )         |  |              |    |           |   | $             | (775  | )       |  |  |    |    |   | $ | 263  |      |   |  | 34 | %  
|                                                   |                                            |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |      |      |   |  |    |    



---

NM  Not Meaningful

Domestic 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.

|                                             |                                                 |               |      |             |   |               |      |     |   |   |      |      |  
|-------------------------------------------- | ----------------------------------------------- | ------------- | ---- | ----------- | - | ------------- | ---- | --- | - | - | ---- | ---- | -
|                                             |                                                 |               |      |            
|                                             |                                                 | Year Ended    |      |            
|                                             |                                                 | December 31,  |      |            
|                                             |                                                 |               |      | Change from
|SAB No. 101 Effect                           |                                                 | 2002          |      | 2001        |   | Previous Year
|                                             |                                                 |               |      |             |   |              
|                                             |                                                 |              
|                                             |                                                 | (in millions)
|Handset sales deferred                       |                                                 | $             | (715 | )           |   | $             | (391 | )   |   | $ | (324 | )   
|Previously deferred handset sales recognized |                                                 |               | 358  |             |   |               | 346  |     |   |   | 12   |     
|                                             |                                                 |               |      |             |   |               |      |     |   |   |      |     
|                                             | Net effect of SAB No. 101 handset
    deferrals |               | $    | (357        | ) |               | $    | (45 | ) |   | $    | (312 | )
|                                             |                                                 |               |      |             |   |               |      |     |   |   |      |     

Current period handset and accessory sales
increased $408 million, or 84%, for the year ended
December 31, 2002 compared to 2001. This increase reflects
an increase in the number of handsets sold of about 18% 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
$312 million. The increase in the SAB No. 101 net
deferrals reflects increasing revenues from handset sales in
2002 primarily due to increased handset prices.

Domestic 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

48



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##### Table of Contents



No. 101. With respect to the cost of handset
and accessory revenues, the SAB No. 101 effect is recorded
in amounts equivalent to handset revenues deferred and
recognized.


|                                                         |                                                 |               |      |             |   |               |      |     |   |   |      |      |  
|-------------------------------------------------------- | ----------------------------------------------- | ------------- | ---- | ----------- | - | ------------- | ---- | --- | - | - | ---- | ---- | -
|                                                         |                                                 |               |      |            
|                                                         |                                                 | Year Ended    |      |            
|                                                         |                                                 | December 31,  |      |            
|                                                         |                                                 |               |      | Change from
|SAB No. 101 Effect                                       |                                                 | 2002          |      | 2001        |   | Previous Year
|                                                         |                                                 |               |      |             |   |              
|                                                         |                                                 |              
|                                                         |                                                 | (in millions)
|Cost of handset sales deferred                           |                                                 | $             | (715 | )           |   | $             | (391 | )   |   | $ | (324 | )   
|Previously deferred cost of handset sales
    recognized |                                                 |               | 358  |             |   |               | 346  |     |   |   | 12   |     
|                                                         |                                                 |               |      |             |   |               |      |     |   |   |      |     
|                                                         | Net effect of SAB No. 101 handset
    deferrals |               | $    | (357        | ) |               | $    | (45 | ) |   | $    | (312 | )
|                                                         |                                                 |               |      |             |   |               |      |     |   |   |      |     

Current period cost of handset and accessory
sales increased $145 million, or 12%, for the year ended
December 31, 2002 compared to 2001. This increase reflects
an increase in the number of handsets sold of about 18%
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 more than offset by the increase in the SAB
No. 101 net deferrals of $312 million.

Domestic 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 during
2002. Handset and accessory gross subsidy decreased 34% from the
year ended December 31, 2001 to the year ended
December 31, 2002 even though we experienced about an 18%
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.                                                                                                                                                                                                                                                                       

See  Domestic selling and
marketing for a more detailed description of the change in
the commission plan.



| |                                                  
| | -------------------------------------------------
| | Selling, General and Administrative
    Expenses.



| |                                                               
| | --------------------------------------------------------------
| | Consolidated selling, general and
    administrative expenses.

Consolidated selling, general and administrative
expenses increased from $3,020 million for the year ended
December 31, 2001 to $3,039 million for 2002. The
$19 million increase in selling, general and administrative
expenses reflects a $464 million increase attributable to
our domestic operations as discussed below, as well as the
impact of the deconsolidation of our international operations in
2002, which contributed $445 million to selling, general
and administrative expenses in our consolidated results in 2001.
The following section provides a more detailed analysis of our
domestic selling, general and administrative expenses.



| |                                                           
| | ----------------------------------------------------------
| | Domestic selling, general and
    administrative expenses.

|                           |                                     |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |    |  
|-------------------------- | ----------------------------------- | --------------------- | ----- | --------- |  | ------------ | -- | --------- | - | ------------- | ----- | ------- |  |  | -- | -- | - | - | --- | --- |  |  | -- | -- | -
|                           |                                     |                       |       |           |  |              |    |           |   |              
|                           |                                     |                       |       | % of      |  |              |    | % of      |   | Change from  
|                           |                                     | Year Ended            |       | Domestic  |  | Year Ended   |    | Domestic  |   | Previous Year
|                           |                                     | December 31,          |       | Operating |  | December 31, |    | Operating |   |              
|                           |                                     | 2002                  |       | Revenues  |  | 2001         |    | Revenues  |   | Dollars       |       | Percent
|                           |                                     |                       |       |           |  |              |    |           |   |               |       |        
|                           |                                     |                      
|                           |                                     | (dollars in millions)
|Selling and marketing      |                                     | $                     | 1,543 |           |  |              | 18 | %         |   | $             | 1,252 |         |  |  | 18 | %  |   | $ | 291 |     |  |  | 23 | % 
|General and administrative |                                     |                       | 1,496 |           |  |              | 17 | %         |   |               | 1,323 |         |  |  | 19 | %  |   |   | 173 |     |  |  | 13 | % 
|                           |                                     |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |   
|                           | Selling, general and administrative |                       | $     | 3,039     |  |              |    | 35        | % |               | $     | 2,575   |  |  |    | 37 | % |   | $   | 464 |  |  |    | 18 | %
|                           |                                     |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |   

49



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##### Table of Contents



Domestic selling and marketing.The increase in domestic selling
and marketing expenses from the year ended December 31,
2001 to the year ended December 31, 2002 reflects:



| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | a $165 million, or 32%, increase in
    commissions and residuals earned by indirect dealers and
    distributors;
|
| |  | a $49 million, or 13%, increase in direct
    sales and marketing payroll and related expenses;                   
|
| |  | a $42 million, or 15%, increase in
    advertising expenses; and                                                  
|
| |  | a $35 million, or 37%, increase in other
    general selling and marketing expenses.                              

Indirect dealers and distributors earn
commissions for activation of handsets for new subscribers. In
addition, we pay some indirect dealers and distributors
residuals to encourage ongoing customer support and to promote
handset sales to high value customers who are more likely to
generate higher monthly service revenues and less likely to
deactivate service. The increase in dealer commissions is
primarily attributable to higher commissions earned by dealers
on activations of higher priced handsets beginning in the second
quarter of 2002. As of December 31, 2002, these higher
commissions paid to dealers have substantially offset the impact
of the revenues from the higher priced handsets. The remaining
increase is primarily related to increasing dealer residuals
along with increasing dealer commissions designed to motivate
the activation of new handsets and sales of data applications.

The increase in sales and marketing payroll and
related expenses is primarily associated with additional
employees hired for our Nextel stores. During 2002, we opened an
additional 210 Nextel stores and had about 420 retail locations
as of December 31, 2002.

Advertising expenses have increased due to our
marketing campaigns, including sports-related sponsorships and
television commercials directed at increasing brand awareness,
as well as promoting our differentiated services, including
Nextel Direct Connect and Nextel Online. In addition,
advertising expenses in 2002 include costs related to the launch
of the Boost Mobile program.

Other general selling and marketing expenses
increased primarily due to additional facilities costs related
to opening new Nextel stores.

Domestic general and administrative.The increase in general and
administrative expenses from the year ended December 31,
2001 to the year ended December 31, 2002, reflects:



| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | a $97 million, or 19%, increase in expenses
    related to billing, collection, customer retention and customer
    care activities;
|
| |  | a $5 million, or 2%, increase in bad debt
    expense; and                                                                          
|
| |  | a $71 million, or 15%, increase in
    personnel, facilities and general corporate expenses.                                        

Billing, collection, customer retention and
customer care related costs increased due to the costs to
support a larger customer base, including increased postage
costs, as well as costs associated with the implementation of
our new billing and customer care system in 2002. 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.

Although bad debt expense increased
$5 million from the year ended December 31, 2001 to
the year ended December 31, 2002, it decreased as a
percentage of domestic operating revenues from 4.7% in 2001 to
3.8% in 2002. The decrease in bad debt expense as a percentage
of operating revenues reflects the results of several
initiatives we put in place, including strengthening our credit
policies and procedures specifically in the area of compliance
with our deposit policy, an increase in our collections staff,
limits on the account sizes for designated high risk accounts,
the suspension of accounts earlier than in the past and the
implementation of new credit and collections software tools
which enable us to better screen and monitor the credit quality
and delinquency levels of our customers.

50



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##### Table of Contents



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 and product development
initiatives, and employee compensation costs.

We expect the aggregate amount of domestic
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 and bad debt;
    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 convenient
    channels.           

We expect our information and technology
outsourcing arrangement 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 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 December 31, 2002
indicates that we are beginning to realize these cost savings.
While we believe our aggregate customer care related costs will
continue to increase due to our anticipated subscriber growth,
we believe these increases will be less than we would have
experienced without the outsourcing arrangement.

Depreciation
and Amortization.

Consolidated
depreciation and amortization.

Consolidated depreciation increased from
$1,508 million for the year ended December 31, 2001 to
$1,541 million for 2002. The $33 million increase in
depreciation reflects a $204 million increase attributable
to our domestic operations as discussed below, as well as the
impact of the deconsolidation of our international operations in
2002, which contributed $171 million to depreciation in our
consolidated results in 2001.

Consolidated amortization decreased from
$238 million for the year ended December 31, 2001 to
$54 million for 2002. The $184 million decrease in
amortization reflects a $121 million decrease attributable
to our domestic operations as discussed below, as well as the
impact of the deconsolidation of our international operations in
2002, which contributed $63 million to amortization in our
consolidated results in 2001. The following section provides a
more detailed analysis of our domestic depreciation and
amortization expense.

Domestic
depreciation and amortization.

|             |                               |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |      |    |  |  |     |    |  
|------------ | ----------------------------- | --------------------- | ----- | --------- |  | ------------ | -- | --------- | - | ------------- | ----- | ------- |  |  | -- | -- | - | - | ---- | -- |  |  | --- | -- | -
|             |                               |                       |       |           |  |              |    |           |   |              
|             |                               |                       |       | % of      |  |              |    | % of      |   | Change from  
|             |                               | Year Ended            |       | Domestic  |  | Year Ended   |    | Domestic  |   | Previous Year
|             |                               | December 31,          |       | Operating |  | December 31, |    | Operating |   |              
|             |                               | 2002                  |       | Revenues  |  | 2001         |    | Revenues  |   | Dollars       |       | Percent
|             |                               |                       |       |           |  |              |    |           |   |               |       |        
|             |                               |                      
|             |                               | (dollars in millions)
|Depreciation |                               | $                     | 1,541 |           |  |              | 17 | %         |   | $             | 1,337 |         |  |  | 19 | %  |   | $ | 204  |    |  |  | 15  | % 
|Amortization |                               |                       | 54    |           |  |              | 1  | %         |   |               | 175   |         |  |  | 2  | %  |   |   | (121 | )  |  |  | (69 | )%
|             |                               |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |      |    |  |  |     |   
|             | Depreciation and amortization |                       | $     | 1,595     |  |              |    | 18        | % |               | $     | 1,512   |  |  |    | 21 | % |   | $    | 83 |  |  |     | 5  | %
|             |                               |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |      |    |  |  |     |   

The $204 million increase in depreciation
expense from the year ended December 31, 2001 to the year
ended December 31, 2002 was primarily the result of a 5%
increase in transmitter and receiver sites in service and a 4%
increase in switches in service, as well as costs to modify
existing switches and

51



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##### Table of Contents



transmitter and receiver sites in existing
markets primarily to enhance the capacity of our network.
Additionally, depreciation increased as a result of our
shortening the useful lives of some of our network assets in the
fourth quarter of 2001 in response to technology upgrades. We
periodically review the useful lives of our fixed assets as
circumstances warrant, and it is possible that depreciation
expense may increase in future periods. Depreciation expense
recorded in a period can 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.


The $121 million decrease in amortization
expense from the year ended December 31, 2001 to the year
ended December 31, 2002 is primarily attributable to the
adoption of SFAS No. 142, Goodwill and Other
Intangible Assets, which required us to cease amortizing
goodwill and FCC licenses effective January 1, 2002.



| |                                                                           
| | --------------------------------------------------------------------------
| | Consolidated Restructuring and Impairment
    Charges, Interest and Other.

|                                                             |  |                         |        |               |  |         |        |         |  |   |       |   |  |  |     |   
|------------------------------------------------------------ |  | ----------------------- | ------ | ------------- |  | ------- | ------ | ------- |  | - | ----- | - |  |  | --- | --
|                                                             |  |                         |        |               |  |        
|                                                             |  |                         |        | Change from  
|                                                             |  | Year Ended December 31, |        | Previous Year
|                                                             |  |                         |        |              
|                                                             |  | 2002                    |        | 2001          |  | Dollars |        | Percent
|                                                             |  |                         |        |               |  |         |        |        
|                                                             |  |                        
|                                                             |  | (dollars in millions)  
|Restructuring and impairment charges                         |  | $                       | (35    | )             |  | $       | (1,769 | )       |  | $ | 1,734 |   |  |  | 98  | % 
|Interest expense                                             |  |                         | (1,048 | )             |  |         | (1,403 | )       |  |   | 355   |   |  |  | 25  | % 
|Interest income                                              |  |                         | 58     |               |  |         | 207    |         |  |   | (149  | ) |  |  | (72 | )%
|Gain on retirement of debt, net of debt
    conversion costs |  |                         | 354    |               |  |         | 469    |         |  |   | (115  | ) |  |  | (25 | )%
|Gain on deconsolidation of NII Holdings                      |  |                         | 1,218  |               |  |         |       |         |  |   | 1,218 |   |  |  | NM  |   
|Equity in losses of unconsolidated affiliates                |  |                         | (302   | )             |  |         | (95    | )       |  |   | (207  | ) |  |  | NM  |   
|Foreign currency transaction losses, net                     |  |                         |       |               |  |         | (70    | )       |  |   | 70    |   |  |  |    |   
|Realized gain on investment                                  |  |                         |       |               |  |         | 47     |         |  |   | (47   | ) |  |  | NM  |   
|Reduction in fair value of investment, net                   |  |                         | (37    | )             |  |         | (188   | )       |  |   | 151   |   |  |  | 80  | % 
|Other, net                                                   |  |                         | (2     | )             |  |         | (12    | )       |  |   | 10    |   |  |  | 83  | % 
|Income tax (provision) benefit                               |  |                         | (391   | )             |  |         | 135    |         |  |   | (526  | ) |  |  | NM  |   
|Income (loss) available to common stockholders               |  |                         | 1,660  |               |  |         | (2,858 | )       |  |   | 4,518 |   |  |  | 158 | % 



---

NM  Not Meaningful

In January 2002, we announced a five-year
information technology outsourcing agreement with EDS, under
which EDS manages our corporate data center, database
administration, helpdesk, desktop services and other technical
functions. Additionally, in January 2002, we announced an
eight-year customer relationship management agreement with IBM
and TeleTech to manage our customer care centers. In connection
with these outsourcing agreements, we recorded a
$35 million domestic restructuring charge in the first
quarter of 2002, which primarily represents the future lease
payments related to facilities we planned to vacate net of
estimated sublease income.

In view of the capital constrained environment
and NII Holdings lack of funding sources, during the
fourth quarter of 2001, NII Holdings undertook an extensive
review of its business plan and determined to pursue a less
aggressive growth strategy that targeted conservation of cash
resources by slowing enhancement and expansion of its networks
and reducing subscriber growth and operating expenses. In
connection with the implementation of this plan and the decision
to discontinue funding to its Philippine operating company, NII
Holdings recorded non-cash pre-tax asset impairment charges and
pre-tax restructuring and other charges of about
$1,747 million in 2001. In May 2001, we recorded a
$22 million restructuring charge to reduce domestic payroll
and other operating costs by implementing a 5% workforce
reduction and streamlining our operations. For more detailed
information, see note 3 to the consolidated financial
statements appearing at the end of this annual report on
Form 10-K.

52



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##### Table of Contents



Consolidated interest expense decreased from
$1,403 million for the year ended December 31, 2001 to
$1,048 million for 2002. The $355 million decrease in
interest expense reflects a $91 million decrease
attributable to our domestic operations as discussed below, as
well as the impact of the deconsolidation of our international
operations in 2002, which contributed $300 million to
interest expense in our consolidated results in 2001, offset by
a $36 million elimination included in our consolidated
results in 2001. The $91 million decrease in domestic
interest expense from the year ended December 31, 2001 to
the year ended December 31, 2002 primarily relates to:



| |   |                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $140 million decrease due primarily to a
    reduction in the weighted average interest rates related to our
    bank credit facility from 6.9% during the year ended
    December 31, 2001 to 4.7% during the year ended
    December 31, 2002; partially offset by
|
| |  | a $36 million decrease in capitalized
    interest due to a decrease in our capital expenditures as well
    as the reduction in our average interest rates;                                                                                                          
|
| |  | a $10 million increase due to the changes in
    fair values of our interest rate swaps; and                                                                                                                                                                          
|
| |  | a $3 million increase primarily related to
    the retirement of our senior notes, as discussed below.                                                                                                                                                                

Interest expense related to our senior notes
increased from the year ended December 31, 2001 to the year
ended December 31, 2002 primarily due to the issuance of
our 9.5% senior notes in February 2001 and our 6% convertible
senior notes in May 2001, partially offset by the retirement of
$1,928 million in aggregate principal amount of our senior
notes during 2002. As of December 31, 2001, we had
outstanding domestic long-term debt of $13,864 million. Due
principally to repurchases of these securities, as of
December 31, 2002, we had outstanding domestic long-term
debt of $12,278 million.

Consolidated interest income decreased from
$207 million for the year ended December 31, 2001 to
$58 million for 2002. The $149 million decrease in
interest income reflects a $172 million decrease
attributable to our domestic operations as discussed below, as
well as the impact of the deconsolidation of our international
operations in 2002, which contributed $13 million to
interest income in our consolidated results in 2001, offset by a
$36 million elimination included in our consolidated
results in 2001. The $172 million decrease in interest
income from the year ended December 31, 2001 to the year
ended December 31, 2002 is primarily due to a general
decrease in interest rates as well as lower average cash and
short-term investments balances in 2002.

The gain on retirement of debt, net of debt
conversion costs in 2002 relates to the purchase and retirement
of some of our senior notes during 2002. The gain on retirement
of debt during 2001 relates to Nextel Communications
purchase of some of NII Holdings senior notes in
August 2001.

In November 2002, upon NII Holdings
emergence from bankruptcy, we recognized a non-cash pre-tax gain
on deconsolidation of NII Holdings in the amount of
$1,218 million consisting primarily of the reversal of
equity losses we had recorded in excess of our investment in NII
Holdings, partially offset by charges recorded when we
consolidated NII Holdings, including, among other items,
$185 million of cumulative foreign currency translation
losses.

The $302 million equity in losses of
unconsolidated affiliates for the year ended December 31,
2002 include:



| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | a $226 million loss representing our share
    of NII Holdings pre-emergence results through May 2002;                      
|
| |  | a $16 million gain representing our share of
    NII Holdings post-emergence results from November to
    December 2002; and
|
| |  | a $92 million loss representing our share of
    Nextel Partners 2002 results.                                              

The $95 million equity in losses of
unconsolidated affiliates for the year ended December 31,
2001 is primarily due to our losses attributable to our equity
method investment in Nextel Partners.

53



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The foreign currency transaction loss in 2001 is
attributable to the inclusion of our international operations in
our consolidated results in 2001.

The realized gain on investment in 2001 primarily
consists of a $42 million gain related to the sale of
NII Holdings investment in TELUS.

During 2002, we recognized a $37 million
reduction in the fair value of our investment in SpectraSite, as
we determined the decline in fair value of this investment to be
other-than-temporary. During 2001, NII Holdings recognized a
$188 million reduction in fair value of its investment in
TELUS, as NII Holdings determined the decline in fair value of
this investment to be other-than-temporary.

The increase in the income tax provision in 2002
is primarily attributable to the adoption of SFAS No. 142,
Goodwill and Other Intangible Assets, as a result of
which we incurred non-cash charges of $386 million to the
income tax provision. For more detailed information, see
notes 1 and 10 to our consolidated financial statements
appearing at the end of this annual report on Form 10-K. We
have provided a full reserve against our net operating loss
carryforwards as of December 31, 2002. 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.






|   |                                                                   
|-- | ------------------------------------------------------------------
|2. | Year ended December 31, 2001 vs. year
    ended December 31, 2000.



| |                                          
| | -----------------------------------------
| | Service Revenues and Cost of
    Service.



| |                                                       
| | ------------------------------------------------------
| | Consolidated service revenues and cost of
    service.

Consolidated service revenues increased from
$5,297 million for the year ended December 31, 2000 to
$7,221 million for 2001. The $1,924 million increase
in service revenues reflects a $1,586 million increase
attributable to our domestic operations as discussed below and a
$342 million increase attributable to our international
operations, offset by a $4 million increase in intercompany
eliminations.

Consolidated cost of service increased from
$1,071 million for the year ended December 31, 2000 to
$1,499 million for 2001. The $428 million increase in
cost of service reflects a $333 million increase
attributable to our domestic operations as discussed below and a
$99 million increase attributable to our international
operations, offset by a $4 million increase in intercompany
eliminations.



| |                                                   
| | --------------------------------------------------
| | Domestic service revenues and cost of
    service.

|                 |                                 |              |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |    |  
|---------------- | ------------------------------- | ------------ | ----- | --------- | - | --------------------- | -- | --------- |  | ------------- | ----- | ------- | - |  | -- | - |  | - | ----- | ----- |  |  | -- | -- | -
|                 |                                 |              |       |           |   |                       |    |           |  |              
|                 |                                 |              |       | % of      |   |                       |    | % of      |  | Changes from 
|                 |                                 | Year Ended   |       | Domestic  |   | Year Ended            |    | Domestic  |  | Previous Year
|                 |                                 | December 31, |       | Operating |   | December 31,          |    | Operating |  |              
|                 |                                 | 2001         |       | Revenues  |   | 2000                  |    | Revenues  |  | Dollars       |       | Percent
|                 |                                 |              |       |           |   |                       |    |           |  |               |       |        
|                 |                                 |              |       |           |   |                       |    |           |  |              
|                 |                                 |              |       |           |   | (dollars in millions) |    |           |  |              
|Service revenues |                                 | $            | 6,575 |           |   |                       | 94 | %         |  | $             | 4,989 |         |   |  | 93 | % |  | $ | 1,586 |       |  |  | 32 | % 
|Cost of service  |                                 |              | 1,324 |           |   |                       | 19 | %         |  |               | 991   |         |   |  | 18 | % |  |   | 333   |       |  |  | 34 | % 
|                 |                                 |              |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|                 | Service gross margin            |              | $     | 5,251     |   |                       |    |           |  |               | $     | 3,998   |   |  |    |   |  |   | $     | 1,253 |  |  |    | 31 | %
|                 |                                 |              |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|                 | Service gross margin percentage |              |       | 80        | % |                       |    |           |  |               |       | 80      | % |  |    |   |  |   |       |       |  |  |    |    |  
|                 |                                 |              |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   

Domestic service revenues.Service revenues increased 32%
from the year ended December 31, 2000 to the year ended
December 31, 2001. Our service revenues are impacted by
both the number of handsets in service (volume) and average
monthly revenue per handset in service (rate).

54



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From a volume perspective, our service revenues
increased principally as a result of a 30% increase in handsets
in service. The growth in the number of handsets in service from
December 31, 2000 to December 31, 2001 is the result
of a number of factors, principally:



| |   |                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;
|
| |  | our differentiated products and services,
    including Nextel Direct Connect and Nextel Online;                                                                                                                                             
|
| |  | increased brand name recognition through
    increased advertising and marketing campaigns;                                                                                                                                                  
|
| |  | aggressive handset pricing promotions and
    increased handset choices;                                                                                                                                                                     
|
| |  | increased sales force and marketing staff and
    selling efforts targeted at specific vertical markets; and                                                                                                                                 
|
| |  | improved quality of service.                                                                                                                                                                                                                 

From a rate perspective, ARPU decreased from
about $74 for the year ended December 31, 2000 to about $71
for the year ended December 31, 2001. We attribute the
decrease in ARPU to the introduction of more competitive pricing
plans providing more minutes of use at a lower price to the
subscriber. These plans typically included a fixed amount of
interconnect minutes combined with an unlimited or fixed amount
of Nextel Direct Connect service, unlimited Nextel Online
services, free incoming calls or free long distance service, all
for a stated package price.

Domestic cost of service.Cost of service increased 34% from
the year ended December 31, 2000 to the year ended
December 31, 2001, primarily as a result of a 68% increase
in costs incurred related to variable interconnect fees on
higher minutes of use and a 31% increase in costs incurred
related to direct switch and transmitter and receiver site costs
including rent, utility and fixed interconnection costs. Total
system minutes of use grew 65% from the year ended
December 31, 2000 to the year ended December 31, 2001
principally due to the larger number of handsets in service as
well as a 20% increase in average monthly minutes of use per
subscriber in 2001 compared to 2000. The direct switch and
transmitter and receiver site costs increased primarily due to a
22% increase in transmitter and receiver sites and related
equipment and an 8% increase in the number of switches we placed
in service from December 31, 2000 to December 31, 2001.

Domestic service gross margin.Service gross margin as a
percentage of service revenues remained flat at 80% for each of
the years ended December 31, 2000 and December 31,
2001.



| |                                                        
| | -------------------------------------------------------
| | International service revenues and cost of
    service.

|                 |                                 |                       |     |               |   |              |    |               |  |               |     |         |   |  |    |   |  |   |     |     |  |  |     |     |  
|---------------- | ------------------------------- | --------------------- | --- | ------------- | - | ------------ | -- | ------------- |  | ------------- | --- | ------- | - |  | -- | - |  | - | --- | --- |  |  | --- | --- | -
|                 |                                 |                       |     |               |   |              |    |               |  |              
|                 |                                 |                       |     | % of          |   |              |    | % of          |  | Changes from 
|                 |                                 | Year Ended            |     | International |   | Year Ended   |    | International |  | Previous Year
|                 |                                 | December 31,          |     | Operating     |   | December 31, |    | Operating     |  |              
|                 |                                 | 2001                  |     | Revenues      |   | 2000         |    | Revenues      |  | Dollars       |     | Percent
|                 |                                 |                       |     |               |   |              |    |               |  |               |     |        
|                 |                                 |                      
|                 |                                 | (dollars in millions)
|Service revenues |                                 | $                     | 651 |               |   |              | 96 | %             |  | $             | 309 |         |   |  | 94 | % |  | $ | 342 |     |  |  | 111 | %  
|Cost of service  |                                 |                       | 180 |               |   |              | 26 | %             |  |               | 81  |         |   |  | 25 | % |  |   | 99  |     |  |  | 122 | %  
|                 |                                 |                       |     |               |   |              |    |               |  |               |     |         |   |  |    |   |  |   |     |     |  |  |     |    
|                 | Service gross margin            |                       | $   | 471           |   |              |    |               |  |               | $   | 228     |   |  |    |   |  |   | $   | 243 |  |  |     | 107 | %
|                 |                                 |                       |     |               |   |              |    |               |  |               |     |         |   |  |    |   |  |   |     |     |  |  |     |    
|                 | Service gross margin percentage |                       |     | 72            | % |              |    |               |  |               |     | 74      | % |  |    |   |  |   |     |     |  |  |     |     |  
|                 |                                 |                       |     |               |   |              |    |               |  |               |     |         |   |  |    |   |  |   |     |     |  |  |     |    

International service gross margin.International service gross margin
increased 107% from the year ended December 31, 2000 to the
year ended December 31, 2001. While the international
service gross margin has increased in the aggregate, the
international service gross margin as a percentage of
international service revenues has decreased due to the
introduction of competitive pricing plans, an increase in costs
related to variable interconnect fees on significantly increased
minutes of use and an increase in site ground lease and utility
expenses incurred due to a 52% increase in the number of

55



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##### Table of Contents



international transmitter and receiver sites
placed in service by NII Holdings from December 31, 2000 to
December 31, 2001.




| |                                                                               
| | ------------------------------------------------------------------------------
| | Handset and Accessory Revenues and Cost of
    Handset and Accessory Revenues.



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Consolidated handset and accessory revenues
    and cost of handset and accessory revenues.

Consolidated handset and accessory revenues
increased from $417 million for the year ended
December 31, 2000 to $468 million in 2001. The
$51 million increase in handset and accessory revenues
reflects a $43 million increase attributable to our
domestic operations as discussed below, and an $8 million
increase attributable to our international operations.

Consolidated cost of handset and accessory
revenues increased from $1,101 million for the year ended
December 31, 2000 to $1,370 million in 2001. The
$269 million increase in cost of handset and accessory
revenues reflects a $214 million increase attributable to
our domestic operations as discussed below and a
$55 million increase attributable to our international
operations. The following section provides a more detailed
analysis of our domestic handset and accessory revenues and cost
of handset and accessory revenues.



| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Domestic handset and accessory revenues and
    cost of handset and accessory revenues.

During the year ended December 31, 2001, we
recorded $439 million of handset and accessory revenues, an
increase of $43 million over 2000. During the year ended
December 31, 2001, we recorded $1,214 million of cost
of handset and accessory revenues, an increase of
$214 million over 2000. These results are summarized in the
table below.

|                                                   |                                            |                       |       |           |   |              |    |           |   |               |       |         |   |  |    |    |   |   |     |      |   |  |     |     |   
|-------------------------------------------------- | ------------------------------------------ | --------------------- | ----- | --------- | - | ------------ | -- | --------- | - | ------------- | ----- | ------- | - |  | -- | -- | - | - | --- | ---- | - |  | --- | --- | --
|                                                   |                                            |                       |       |           |   |              |    |           |   |              
|                                                   |                                            |                       |       | % of      |   |              |    | % of      |   | Change from  
|                                                   |                                            | Year Ended            |       | Domestic  |   | Year Ended   |    | Domestic  |   | Previous Year
|                                                   |                                            | December 31,          |       | Operating |   | December 31, |    | Operating |   |              
|                                                   |                                            | 2001                  |       | Revenues  |   | 2000         |    | Revenues  |   | Dollars       |       | Percent
|                                                   |                                            |                       |       |           |   |              |    |           |   |               |       |        
|                                                   |                                            |                      
|                                                   |                                            | (dollars in millions)
|Current period handset and accessory sales         |                                            | $                     | 484   |           |   |              | 7  | %         |   | $             | 424   |         |   |  | 8  | %  |   | $ | 60  |      |   |  | 14  | %  
|Net effect of SAB No. 101 handset deferrals        |                                            |                       | (45   | )         |   |              | (1 | )%        |   |               | (28   | )       |   |  | (1 | )% |   |   | (17 | )    |   |  | (61 | )% 
|                                                   |                                            |                       |       |           |   |              |    |           |   |               |       |         |   |  |    |    |   |   |     |      |   |  |     |    
|                                                   | Handset and accessory revenues             |                       |       | 439       |   |              |    | 6         | % |               |       | 396     |   |  |    | 7  | % |   |     | 43   |   |  |     | 11  | % 
|                                                   |                                            |                       |       |           |   |              |    |           |   |               |       |         |   |  |    |    |   |   |     |      |   |  |     |    
|Current period cost of handset and accessory sales |                                            |                       | 1,259 |           |   |              | 18 | %         |   |               | 1,028 |         |   |  | 19 | %  |   |   | 231 |      |   |  | 22  | %  
|Net effect of SAB No. 101 handset deferrals        |                                            |                       | (45   | )         |   |              | (1 | )%        |   |               | (28   | )       |   |  | (1 | )% |   |   | (17 | )    |   |  | (61 | )% 
|                                                   |                                            |                       |       |           |   |              |    |           |   |               |       |         |   |  |    |    |   |   |     |      |   |  |     |    
|                                                   | Cost of handset and accessory
    revenues |                       |       | 1,214     |   |              |    | 17        | % |               |       | 1,000   |   |  |    | 18 | % |   |     | 214  |   |  |     | 21  | % 
|                                                   |                                            |                       |       |           |   |              |    |           |   |               |       |         |   |  |    |    |   |   |     |      |   |  |     |    
|                                                   | Handset and accessory gross subsidy        |                       | $     | (775      | ) |              |    |           |   |               | $     | (604    | ) |  |    |    |   |   | $   | (171 | ) |  |     | (28 | )%
|                                                   |                                            |                       |       |           |   |              |    |           |   |               |       |         |   |  |    |    |   |   |     |      |   |  |     |    




NM  Not Meaningful

Domestic 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 was the net effect of current period sales being
deferred to future

56



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periods, offset by the benefit of handset sales
deferred in previous periods that were being recognized as
revenue.


|                                             |                                                 |               |      |             |   |               |      |     |   |   |     |     |  
|-------------------------------------------- | ----------------------------------------------- | ------------- | ---- | ----------- | - | ------------- | ---- | --- | - | - | --- | --- | -
|                                             |                                                 |               |      |            
|                                             |                                                 | Year Ended    |      |            
|                                             |                                                 | December 31,  |      |            
|                                             |                                                 |               |      | Change from
|SAB No. 101 Effect                           |                                                 | 2001          |      | 2000        |   | Previous Year
|                                             |                                                 |               |      |             |   |              
|                                             |                                                 |              
|                                             |                                                 | (in millions)
|Handset sales deferred                       |                                                 | $             | (391 | )           |   | $             | (322 | )   |   | $ | (69 | )  
|Previously deferred handset sales recognized |                                                 |               | 346  |             |   |               | 294  |     |   |   | 52  |    
|                                             |                                                 |               |      |             |   |               |      |     |   |   |     |    
|                                             | Net effect of SAB No. 101 handset
    deferrals |               | $    | (45         | ) |               | $    | (28 | ) |   | $   | (17 | )
|                                             |                                                 |               |      |             |   |               |      |     |   |   |     |    

Current period handset and accessory sales
increased $60 million for the year ended December 31,
2001 compared to 2000. This increase reflected an increase in
the number of handsets sold to new and existing customers,
including sales of new feature rich and higher priced handsets
primarily in the second half of 2001. Due to the competitive
environment, this increase was partially offset by continued
reliance on various customer inducements, including reductions
in the sales prices of handset models and volume-based handset
promotions. This increase in handset and accessory sales was
partially offset by the increase in the SAB No. 101 net
deferrals of $17 million. The increase in the SAB
No. 101 net deferrals reflected increasing revenues from
handset sales in 2001 primarily due to increased handset prices.

Domestic 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 the cost of handset and accessory
revenues, the SAB No. 101 effect is recorded in amounts
equivalent to handset revenues deferred and recognized.

|                                                         |                                                 |               |      |             |   |               |      |     |   |   |     |     |  
|-------------------------------------------------------- | ----------------------------------------------- | ------------- | ---- | ----------- | - | ------------- | ---- | --- | - | - | --- | --- | -
|                                                         |                                                 |               |      |            
|                                                         |                                                 | Year Ended    |      |            
|                                                         |                                                 | December 31,  |      |            
|                                                         |                                                 |               |      | Change from
|SAB No. 101 Effect                                       |                                                 | 2001          |      | 2000        |   | Previous Year
|                                                         |                                                 |               |      |             |   |              
|                                                         |                                                 |              
|                                                         |                                                 | (in millions)
|Cost of handset sales deferred                           |                                                 | $             | (391 | )           |   | $             | (322 | )   |   | $ | (69 | )  
|Previously deferred cost of handset sales
    recognized |                                                 |               | 346  |             |   |               | 294  |     |   |   | 52  |    
|                                                         |                                                 |               |      |             |   |               |      |     |   |   |     |    
|                                                         | Net effect of SAB No. 101 handset
    deferrals |               | $    | (45         | ) |               | $    | (28 | ) |   | $   | (17 | )
|                                                         |                                                 |               |      |             |   |               |      |     |   |   |     |    

Current period cost of handset and accessory
sales increased $231 million for the year ended
December 31, 2001 compared to 2000. This increase reflected
an increase in the number of handsets sold, and to a lesser
extent, the increase in the percentage of higher cost handsets
sold, partially offset by the increase in the SAB No. 101
net deferrals of $17 million.

Domestic 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. Handset and accessory gross subsidy increased 28%
from the year ended December 31, 2000 to 2001 due to the
increased number of handsets sold and to the higher costs of our
handsets.



| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | International handset and accessory
    revenues and cost of handset and accessory
    revenues.

|                                       |                                     |                       |     |               |   |              |    |               |  |               |     |         |   |  |    |   |  |   |    |     |   |  |    |     |   
|-------------------------------------- | ----------------------------------- | --------------------- | --- | ------------- | - | ------------ | -- | ------------- |  | ------------- | --- | ------- | - |  | -- | - |  | - | -- | --- | - |  | -- | --- | --
|                                       |                                     |                       |     |               |   |              |    |               |  |              
|                                       |                                     |                       |     | % of          |   |              |    | % of          |  | Changes from 
|                                       |                                     | Year Ended            |     | International |   | Year Ended   |    | International |  | Previous Year
|                                       |                                     | December 31,          |     | Operating     |   | December 31, |    | Operating     |  |              
|                                       |                                     | 2001                  |     | Revenues      |   | 2000         |    | Revenues      |  | Dollars       |     | Percent
|                                       |                                     |                       |     |               |   |              |    |               |  |               |     |        
|                                       |                                     |                      
|                                       |                                     | (dollars in millions)
|Handset and accessory revenues         |                                     | $                     | 29  |               |   |              | 4  | %             |  | $             | 21  |         |   |  | 6  | % |  | $ | 8  |     |   |  | 38 | %  
|Cost of handset and accessory revenues |                                     |                       | 156 |               |   |              | 23 | %             |  |               | 101 |         |   |  | 31 | % |  |   | 55 |     |   |  | 54 | %  
|                                       |                                     |                       |     |               |   |              |    |               |  |               |     |         |   |  |    |   |  |   |    |     |   |  |    |    
|                                       | Handset and accessory gross subsidy |                       | $   | (127          | ) |              |    |               |  |               | $   | (80     | ) |  |    |   |  |   | $  | (47 | ) |  |    | (59 | )%
|                                       |                                     |                       |     |               |   |              |    |               |  |               |     |         |   |  |    |   |  |   |    |     |   |  |    |    

International handset and accessory gross
subsidy.International handset and
accessory gross subsidy increased 59% from the year ended
December 31, 2000 to the year ended December 31, 2001
primarily

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due to the increase in handsets sold primarily in
Mexico and Brazil, partially offset by a decrease in the average
cost NII Holdings paid for the handsets sold.


Selling,
General and Administrative Expenses.



| |                                                               
| | --------------------------------------------------------------
| | Consolidated selling, general and
    administrative expenses.

Consolidated selling, general and administrative
expenses increased from $2,278 million for the year ended
December 31, 2000 to $3,020 million for 2001. The
$742 million increase in selling, general and
administrative expenses reflects a $576 million increase
attributable to our domestic operations as discussed below, a
$163 million increase attributable to our international
operations and a $3 million increase in intercompany
eliminations. The following section provides a more detailed
analysis of our domestic selling, general and administrative
expenses.



| |                                                           
| | ----------------------------------------------------------
| | Domestic selling, general and
    administrative expenses.

|                           |                                     |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |    |  
|-------------------------- | ----------------------------------- | --------------------- | ----- | --------- |  | ------------ | -- | --------- | - | ------------- | ----- | ------- |  |  | -- | -- | - | - | --- | --- |  |  | -- | -- | -
|                           |                                     |                       |       |           |  |              |    |           |   |              
|                           |                                     |                       |       | % of      |  |              |    | % of      |   | Change from  
|                           |                                     | Year Ended            |       | Domestic  |  | Year Ended   |    | Domestic  |   | Previous Year
|                           |                                     | December 31,          |       | Operating |  | December 31, |    | Operating |   |              
|                           |                                     | 2001                  |       | Revenues  |  | 2000         |    | Revenues  |   | Dollars       |       | Percent
|                           |                                     |                       |       |           |  |              |    |           |   |               |       |        
|                           |                                     |                      
|                           |                                     | (dollars in millions)
|Selling and marketing      |                                     | $                     | 1,252 |           |  |              | 18 | %         |   | $             | 1,002 |         |  |  | 19 | %  |   | $ | 250 |     |  |  | 25 | % 
|General and administrative |                                     |                       | 1,323 |           |  |              | 19 | %         |   |               | 997   |         |  |  | 18 | %  |   |   | 326 |     |  |  | 33 | % 
|                           |                                     |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |   
|                           | Selling, general and administrative |                       | $     | 2,575     |  |              |    | 37        | % |               | $     | 1,999   |  |  |    | 37 | % |   | $   | 576 |  |  |    | 29 | %
|                           |                                     |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |   

Domestic selling and marketing.The increase in domestic selling
and marketing expenses from the year ended December 31,
2000 to the year ended December 31, 2001 primarily reflects
increased costs incurred in connection with growing our customer
base, including:



| |   |                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $90 million, or 49%, increase in
    advertising expenses due to aggressive marketing campaigns,
    including sports-related sponsorships and television commercials
    directed at increasing brand awareness, as well as promoting our
    differentiated services, including the enhancements being made
    to Nextel Direct Connect and Nextel Online;
|
| |  | a $74 million, or 17%, increase in
    commissions and residuals earned by indirect dealers and
    distributors as a result of increased handset sales through
    these channels;                                                                                                                                                                            
|
| |  | a $62 million, or 20%, increase in sales and
    marketing payroll and related expenses, including costs
    associated with our Nextel stores acquired and opened in 2001
    and increased commissions attributable to increased volume
    through our direct distribution channels; and                                                                    
|
| |  | a $24 million increase in other general
    marketing expenses, including $10 million in facilities
    costs related to our Nextel stores acquired and opened in 2001.                                                                                                                                                                                        

Domestic general and administrative.Domestic general and
administrative expenses increased from the year ended
December 31, 2000 to the year ended December 31, 2001
primarily as a result of activities to support a larger customer
base, specifically:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $166 million, or 102%, increase in bad
    debt expense, which has increased as a percentage of domestic
    operating revenues primarily due to the impact of a slowing
    economy and aggressive promotions in late 2000 and early 2001 to
    less creditworthy customers;                                                                                                                                                                                                           
|
| |  | a $145 million, or 39%, increase in expenses
    related to billing, collection, customer retention and customer
    care activities, including the costs associated with our fifth
    customer care center which commenced operations in January 2001
    and our sixth customer care center which commenced operations in
    July 2001, as well as costs associated with the implementation
    of our billing and customer care system, which was put into
    production in 2002; and
|
| |  | a $15 million increase in personnel,
    facilities and general corporate expenses.                                                                                                                                                                                                                                                                                                                                                                                                        

58



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##### Table of Contents





| |                                                                
| | ---------------------------------------------------------------
| | International selling, general and
    administrative expenses.

|                           |                                     |                       |     |               |  |              |    |               |   |               |     |         |  |  |    |    |   |   |    |     |  |  |    |    |  
|-------------------------- | ----------------------------------- | --------------------- | --- | ------------- |  | ------------ | -- | ------------- | - | ------------- | --- | ------- |  |  | -- | -- | - | - | -- | --- |  |  | -- | -- | -
|                           |                                     |                       |     |               |  |              |    |               |   |              
|                           |                                     |                       |     | % of          |  |              |    | % of          |   | Change from  
|                           |                                     | Year Ended            |     | International |  | Year Ended   |    | International |   | Previous Year
|                           |                                     | December 31,          |     | Operating     |  | December 31, |    | Operating     |   |              
|                           |                                     | 2001                  |     | Revenues      |  | 2000         |    | Revenues      |   | Dollars       |     | Percent
|                           |                                     |                       |     |               |  |              |    |               |   |               |     |        
|                           |                                     |                      
|                           |                                     | (dollars in millions)
|Selling and marketing      |                                     | $                     | 210 |               |  |              | 31 | %             |   | $             | 143 |         |  |  | 43 | %  |   | $ | 67 |     |  |  | 47 | % 
|General and administrative |                                     |                       | 234 |               |  |              | 34 | %             |   |               | 138 |         |  |  | 42 | %  |   |   | 96 |     |  |  | 70 | % 
|                           |                                     |                       |     |               |  |              |    |               |   |               |     |         |  |  |    |    |   |   |    |     |  |  |    |   
|                           | Selling, general and administrative |                       | $   | 444           |  |              |    | 65            | % |               | $   | 281     |  |  |    | 85 | % |   | $  | 163 |  |  |    | 58 | %
|                           |                                     |                       |     |               |  |              |    |               |   |               |     |         |  |  |    |    |   |   |    |     |  |  |    |   

International selling, general and
administrative expenses.The
$67 million increase in international selling and marketing
expenses from the year ended December 31, 2000 to the year
ended December 31, 2001 is primarily attributable to
increased commissions from higher levels of handset sales in
Mexico and increased advertising in Mexico. The $96 million
increase in international general and administrative expenses
from the year ended December 31, 2000 to the year ended
December 31, 2001 is primarily due to an increase in
billing and customer care, information technology, facilities
and other general corporate expenses to support a growing
customer base. Additionally, international bad debt expense
increased $25 million, or 156%, from the year ended
December 31, 2000 to the year ended December 31, 2001,
largely in Brazil and Mexico.



| |                                   
| | ----------------------------------
| | Depreciation and
    Amortization.



| |                                                
| | -----------------------------------------------
| | Consolidated depreciation and
    amortization.

Consolidated depreciation increased from
$1,063 million for the year ended December 31, 2000 to
$1,508 million for 2001. The $445 million increase in
depreciation reflects a $392 million increase attributable
to our domestic operations as discussed below, and a
$53 million increase attributable to our international
operations.

Consolidated amortization increased from
$202 million for the year ended December 31, 2000 to
$238 million for 2001. The $36 million increase in
amortization reflects a $16 million increase attributable
to our domestic operations as discussed below, and a
$20 million increase attributable to our international
operations. The following section provides a more detailed
analysis of our domestic depreciation and amortization expense.



| |                                            
| | -------------------------------------------
| | Domestic depreciation and
    amortization.

|             |                               |                       |       |           |  |              |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |    |  
|------------ | ----------------------------- | --------------------- | ----- | --------- |  | ------------ | -- | --------- | - | ------------- | --- | ------- |  |  | -- | -- | - | - | --- | --- |  |  | -- | -- | -
|             |                               |                       |       |           |  |              |    |           |   |              
|             |                               |                       |       | % of      |  |              |    | % of      |   | Change from  
|             |                               | Year Ended            |       | Domestic  |  | Year Ended   |    | Domestic  |   | Previous Year
|             |                               | December 31,          |       | Operating |  | December 31, |    | Operating |   |              
|             |                               | 2001                  |       | Revenues  |  | 2000         |    | Revenues  |   | Dollars       |     | Percent
|             |                               |                       |       |           |  |              |    |           |   |               |     |        
|             |                               |                      
|             |                               | (dollars in millions)
|Depreciation |                               | $                     | 1,337 |           |  |              | 19 | %         |   | $             | 945 |         |  |  | 18 | %  |   | $ | 392 |     |  |  | 41 | % 
|Amortization |                               |                       | 175   |           |  |              | 2  | %         |   |               | 159 |         |  |  | 3  | %  |   |   | 16  |     |  |  | 10 | % 
|             |                               |                       |       |           |  |              |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   
|             | Depreciation and amortization |                       | $     | 1,512     |  |              |    | 21        | % |               | $   | 1,104   |  |  |    | 21 | % |   | $   | 408 |  |  |    | 37 | %
|             |                               |                       |       |           |  |              |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   

Depreciation increased from the year ended
December 31, 2000 to the year ended December 31, 2001
primarily as a result of placing into service, as well as
modifying, additional switches and transmitter and receiver
sites in existing domestic markets primarily to enhance the
coverage and capacity of our network. During the fourth quarter
of 2001, we shortened the useful lives of some assets located in
the information technology data center and the customer care
locations as a result of our customer care and information
technology outsourcing arrangements. We also changed the lives
of some network assets. We recorded an additional
$21 million, or $0.03 per share, in depreciation expense
for the fourth quarter of 2001 as a result of these changes in
estimates.

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The increase in amortization during 2001 is
primarily attributable to domestic licenses acquired in auctions
in late 2000 as well as acquisitions occurring in 2001.



| |                                                 
| | ------------------------------------------------
| | International depreciation and
    amortization.

|             |                               |                       |     |               |  |              |    |               |   |               |     |         |  |  |    |    |   |   |    |    |  |  |    |    |  
|------------ | ----------------------------- | --------------------- | --- | ------------- |  | ------------ | -- | ------------- | - | ------------- | --- | ------- |  |  | -- | -- | - | - | -- | -- |  |  | -- | -- | -
|             |                               |                       |     |               |  |              |    |               |   |              
|             |                               |                       |     | % of          |  |              |    | % of          |   | Change from  
|             |                               | Year Ended            |     | International |  | Year Ended   |    | International |   | Previous Year
|             |                               | December 31,          |     | Operating     |  | December 31, |    | Operating     |   |              
|             |                               | 2001                  |     | Revenues      |  | 2000         |    | Revenues      |   | Dollars       |     | Percent
|             |                               |                       |     |               |  |              |    |               |   |               |     |        
|             |                               |                      
|             |                               | (dollars in millions)
|Depreciation |                               | $                     | 171 |               |  |              | 25 | %             |   | $             | 118 |         |  |  | 36 | %  |   | $ | 53 |    |  |  | 45 | % 
|Amortization |                               |                       | 63  |               |  |              | 9  | %             |   |               | 43  |         |  |  | 13 | %  |   |   | 20 |    |  |  | 47 | % 
|             |                               |                       |     |               |  |              |    |               |   |               |     |         |  |  |    |    |   |   |    |    |  |  |    |   
|             | Depreciation and amortization |                       | $   | 234           |  |              |    | 34            | % |               | $   | 161     |  |  |    | 49 | % |   | $  | 73 |  |  |    | 45 | %
|             |                               |                       |     |               |  |              |    |               |   |               |     |         |  |  |    |    |   |   |    |    |  |  |    |   

International depreciation increased from the
year ended December 31, 2000 to the year ended
December 31, 2001 primarily as a result of placing into
service, as well as modifying, additional switches and
transmitter and receiver sites in international markets
primarily to enhance the coverage and capacity NII
Holdings networks.

The increase in international amortization in
2001 is primarily attributable to international acquisition
activities completed during the second half of 2000.



| |                                                                           
| | --------------------------------------------------------------------------
| | Consolidated Restructuring and Impairment
    Charges, Interest and Other.

|                                                                    |  |                       |        |               |  |         |        |         |  |   |        |   |  |  |      |   
|------------------------------------------------------------------- |  | --------------------- | ------ | ------------- |  | ------- | ------ | ------- |  | - | ------ | - |  |  | ---- | --
|                                                                    |  |                       |        |              
|                                                                    |  | Year Ended            |        | Change from  
|                                                                    |  | December 31,          |        | Previous Year
|                                                                    |  |                       |        |              
|                                                                    |  | 2001                  |        | 2000          |  | Dollars |        | Percent
|                                                                    |  |                       |        |               |  |         |        |        
|                                                                    |  |                      
|                                                                    |  | (dollars in millions)
|Restructuring and impairment charges                                |  | $                     | (1,769 | )             |  | $       |       |         |  | $ | (1,769 | ) |  |  |     |   
|Interest expense                                                    |  |                       | (1,403 | )             |  |         | (1,245 | )       |  |   | (158   | ) |  |  | (13  | )%
|Interest income                                                     |  |                       | 207    |               |  |         | 396    |         |  |   | (189   | ) |  |  | (48  | )%
|Gain (loss) on retirement of debt, net of debt
    conversion costs |  |                       | 469    |               |  |         | (127   | )       |  |   | 596    |   |  |  | NM   |   
|Equity in losses of unconsolidated affiliates                       |  |                       | (95    | )             |  |         | (152   | )       |  |   | 57     |   |  |  | 38   | % 
|Foreign currency transaction losses, net                            |  |                       | (70    | )             |  |         | (25    | )       |  |   | (45    | ) |  |  | (180 | )%
|Realized gain on investment, net                                    |  |                       | 47     |               |  |         | 275    |         |  |   | (228   | ) |  |  | (83  | )%
|Reduction in fair value of investment                               |  |                       | (188   | )             |  |         |       |         |  |   | (188   | ) |  |  |     |   
|Other, net                                                          |  |                       | (12    | )             |  |         | 31     |         |  |   | (43    | ) |  |  | NM   |   
|Income tax benefit                                                  |  |                       | 135    |               |  |         | 33     |         |  |   | 102    |   |  |  | NM   |   
|Loss attributable to common stockholders                            |  |                       | (2,858 | )             |  |         | (1,024 | )       |  |   | (1,834 | ) |  |  | (179 | )%



---

NM  Not Meaningful

In May 2001, we announced a domestic
restructuring to reduce payroll and other operating costs by
implementing a 5% workforce reduction and streamlining our
operations. The workforce reduction, completed during the second
quarter, affected about 800 employees across the entire domestic
organization. As a result of the restructuring, we recorded a
$22 million charge in the second quarter of 2001 consisting
of $15 million related to severance and fringe benefits and
$7 million related to the write-off of information
technology development projects that we abandoned as a result of
the reduced headcount.

During the third quarter of 2001, following NII
Holdings review of the economic conditions, operating
performance and other relevant factors in the Philippines, NII
Holdings decided to discontinue funding to its Philippine
operating company. In view of the capital constrained
environment and NII Holdings lack of funding sources,
during the fourth quarter of 2001, NII Holdings undertook an
extensive review of its business plan and determined to pursue a
less aggressive growth strategy that targeted conservation of
cash resources by slowing enhancement and expansion of its
networks and reducing subscriber growth and operating expenses.
In connection with the implementation of this plan and the

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decision to discontinue funding to its Philippine
operating company, NII Holdings recorded non-cash pre-tax asset
impairment charges and pre-tax restructuring and other charges
of about $1,747 million in 2001, consisting of write-offs
of property, plant and equipment of $1,089 million,
licenses of $476 million, goodwill of $144 million,
intangible and other assets of $32 million and
restructuring charges of $6 million. For more detailed
information, see note 3 to the consolidated financial
statements appearing at the end of this annual report on
Form 10-K.


The increase in interest expense from the year
ended December 31, 2000 to the year ended December 31,
2001 resulted primarily from the issuance of our senior notes in
January 2001 and our convertible notes in May 2001 and NII
Holdings issuance of its senior notes in August 2000, as
well as a higher average level of outstanding borrowings under
our credit facilities, offset by a reduction in the weighted
average interest rate for our domestic bank credit facility.

The decrease in interest income from the year
ended December 31, 2000 to the year ended December 31,
2001 is primarily due to a decrease in interest rates during
2001 as well as a lower average cash balance in 2001.

The gain on retirement of debt in 2001 relates to
our purchase of some of NII Holdings senior notes during
the third quarter of 2001. While these notes were held by Nextel
Communications and remained outstanding obligations of NII
Holdings, a gain was recognized in our consolidated financial
statements in accordance with generally accepted accounting
principles. The loss on retirement of debt, net of debt
conversion costs in 2000 relates to the early retirement of some
of our senior notes during the first quarter of 2000.

The decrease in equity in losses of
unconsolidated affiliates from the year ended December 31,
2000 to the year ended December 31, 2001 is due to
$3 million of decreased losses attributable to our equity
method investment in Nextel Partners. The remaining decrease is
attributable to NII Holdings Philippine affiliate, which
we began consolidating in the third quarter of 2000, and to NII
Holdings Japanese investment, which was written off in the
fourth quarter of 2000.

The foreign currency transaction loss in 2001 is
due primarily to the weakening of the Brazilian real relative to
the U.S. dollar as a result of the economic environment in
both Brazil and Argentina. During the third quarter of 2001, NII
Holdings recorded a translation adjustment of $11 million
as part of the cumulative translation adjustment related to
intercompany loans between a subsidiary of NII Holdings and its
Brazilian operating company as a result of NII Holdings
determination that these intercompany loans were of a long-term
investment nature. Prior to August 2001, the effect of exchange
rate changes on these intercompany loans was reported as foreign
currency transaction losses in our consolidated statements of
operations. The foreign currency transaction loss in 2000 is
primarily attributable to the weakening of the Brazilian real
and Philippine peso relative to the U.S. dollar in the
fourth quarter of 2000.

The realized gain on investment in 2000 resulted
from the exchange of NII Holdings stock in Clearnet for
stock in TELUS as a result of the acquisition of Clearnet by
TELUS in October 2000. On September 30, 2001, NII Holdings
recognized a $188 million reduction in fair value of its
investment in TELUS, as NII Holdings determined the decline in
fair value of this investment to be other-than-temporary. The
realized gain on investment in 2001 primarily consists of a
$42 million gain related to the sale of NII Holdings
investment in TELUS in the fourth quarter.

The increase in the income tax benefit from the
year ended December 31, 2000 to December 31, 2001 is
primarily attributable to the write-off of deferred tax
liabilities related to NII Holdings asset impairment
charges in 2001.

C.     Related Party
Transactions

Motorola.We
have had and expect to continue to have significant transactions
with Motorola. As of March 14, 2003, Motorola was the
beneficial owner of about 8% of our class A common stock,
assuming the conversion of shares of our class B nonvoting
common stock, all of which is owned by Motorola. We have a
number of important strategic and commercial relationships with
Motorola. Motorola is the sole

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provider of the iDEN infrastructure equipment and
all the handsets except the Blackberry 6510 used throughout our
markets. We paid Motorola about $2,314 million during 2002
for these goods and services and net payables to Motorola were
$225 million at December 31, 2002. We also work
closely with Motorola to improve existing products and develop
new technologies for use in our network such as Nationwide
Direct Connect. We rely on Motorola for network maintenance and
enhancements. See Part I, Item 1.
Business  D. Our Network and Technology and
 F. Our Strategic Relationships 
1. Motorola.


Nextel
Partners.In 1999, we entered into
agreements with Nextel Partners, and other parties, including
Motorola and Eagle River Investments, relating to the
capitalization, governance, financing and operation of Nextel
Partners. Nextel Partners operates a network utilizing the iDEN
technology used in our network under the Nextel brand name. 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. Subject to certain
limitations, we will have the right to purchase the outstanding
shares of Nextel Partners class A common stock on
January 29, 2008. We owned about 32% of the common stock of
Nextel Partners as of December 31, 2002.

Under a roaming agreement between one of our
wholly owned subsidiaries and a wholly owned subsidiary of
Nextel Partners, we were charged $40 million during 2002
for our customers roaming on Nextel Partners network, net
of roaming revenues earned. One of our wholly owned subsidiaries
provides specified telecommunications switching services to
Nextel Partners under a switch sharing agreement. For these
services, we earned $52 million in 2002, which we recorded
as a reduction to cost of service. We charged Nextel Partners
$6 million in 2002 for administrative services provided
under a transition services agreement. We recorded these amounts
as a reduction to selling, general and administrative expenses.
We had a net receivable due from Nextel Partners of
$16 million as of December 31, 2002.

Mr. Donahue is a director of Nextel
Partners. See Part I, Item 1.
Business  F. Our Strategic
Relationships  2. Nextel Partners.

NII Holdings.On November 12, 2002, NII Holdings reorganized under
Chapter 11 of the U.S. Bankruptcy Code. NII Holdings
provides wireless communications services primarily in selected
Latin American markets.

On December 31, 2001, NII Holdings
Argentine operating company failed to make principal payments on
its $108 million Argentine credit facilities, and on
February 1, 2002, NII Holdings failed to make a
$41 million interest payment on its $650 million
aggregate principal amount 12.75% senior notes, resulting in
defaults under these facilities, as well as under its
$382 million of vendor financing facilities with Motorola
Credit Corporation due to cross-default provisions. NII Holdings
decided not to make these payments as part of the cash
preservation process undertaken to restructure its debts and
implement a revised business plan.

In May 2002, NII Holdings reached an agreement in
principle with its main creditors to restructure its outstanding
debt. In connection with this agreement, on May 24, 2002,
NII Holdings filed a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code in the United
States Bankruptcy Court for the District of Delaware. While NII
Holdings, Inc., the U.S. parent company, operated as a
debtor-in-possession under the Bankruptcy Code, its
non-U.S. subsidiaries continued providing continuous
wireless communication services in the ordinary course of
business. On October 28, 2002, the Bankruptcy Court
confirmed NII Holdings plan of reorganization and on
November 12, 2002, NII Holdings emerged from bankruptcy.
Before its reorganization, NII Holdings was our substantially
wholly owned subsidiary.

As a result of the bankruptcy reorganization, all
previously outstanding equity interests in NII Holdings were
cancelled. In addition, NII Holdings extinguished
$2,331 million in senior redeemable notes and other
unsecured, non-trade claims that existed prior to its bankruptcy
filing and in exchange issued shares of new common stock valued
at $2.50 per share. This included the $857 million
aggregate principal amount of notes of NII Holdings that we
purchased in August 2001. NII Holdings reinstated in full its

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$325 million of outstanding equipment
financing owed to Motorola Credit, subject to deferrals of
principal amortization and some structural modifications. NII
Holdings also repaid the outstanding principal balance, together
with accrued interest, due under its $57 million
incremental financing facility owed to Motorola Credit using
restricted cash held in escrow, which amount will be available
for borrowing under some circumstances. The Argentine credit
facility was retired in exchange for a $5 million payment
and the issuance of 400,000 shares of NII Holdings new
class A common stock.


The reorganization of NII Holdings included a new
infusion of capital into NII Holdings of $190 million,
$140 million of which was provided by existing creditors in
exchange for about $181 million in aggregate principal
amount at maturity of a new series of 13% senior secured notes
of NII Holdings and shares of NII Holdings class A
common stock. We contributed about $51 million in cash of
this $140 million and received in exchange about
$66 million in aggregate principal amount at maturity of
these new notes and 5.7 million shares of NII
Holdings new class A common stock. We allocated the
$51 million investment between the debt and equity
instruments based upon their relative fair values. This resulted
in a carrying value of $37 million for the debt and a
carrying value of $14 million for the 5.7 million
shares of NII Holdings new class A common stock. Our
allocation was performed in the same manner as and is consistent
with NII Holdings allocation. As a result of the
bankruptcy, we also received 1.4 million shares of NII
Holdings new class A common stock, valued at
$4 million, in settlement of the old NII Holdings senior
notes held by us and other claims. We also provided
$50 million of additional funding to NII Holdings in
exchange for a U.S.-Mexico cross border spectrum sharing
arrangement, $25 million of which remains in escrow pending
the completion of NII Holdings obligations under this
arrangement.

As a result of NII Holdings bankruptcy
filing in May 2002, we began accounting for our investment in
NII Holdings, effective May 2002, using the equity method. In
accordance with the equity method, we did not recognize equity
in losses of NII Holdings after May 2002 as we had already
recognized $1,408 million of losses in excess of our
investment in NII Holdings through that date. We have classified
the 2002 net operating results of NII Holdings through May 2002
as equity in losses of unconsolidated affiliates as permitted
under the accounting rules governing a mid-year change from
consolidating a subsidiary to accounting for the investment
using the equity method. However, the presentation of NII
Holdings in the financial statements as a consolidated
subsidiary in 2001 and prior periods has not changed from the
prior presentation.

In November 2002, upon NII Holdings
emergence from bankruptcy, we recognized a non-cash pre-tax gain
on deconsolidation of NII Holdings in the amount of
$1,218 million consisting primarily of the reversal of
equity losses we had recorded in excess of our investment in NII
Holdings, partially offset by charges recorded when we
consolidated NII Holdings, including, among other items,
$185 million of cumulative foreign currency translation
losses. At the same time, 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 December 31, 2002, we owned
about 36% of the outstanding common stock of NII Holdings.

Upon NII Holdings emergence from
bankruptcy, we entered into a revised overhead services
agreement with NII Holdings under which we provide certain
administrative, engineering and technical information technology
and marketing services for agreed upon service fees. During
2002, we charged NII Holdings $2 million for services
provided under both the original and revised overhead services
agreement. We recorded these amounts as a reduction to selling,
general and administrative expenses. Under roaming agreements
between one of our wholly owned subsidiaries and wholly owned
subsidiaries of NII Holdings, we were charged $7 million
during 2002 for our subscribers roaming on NII Holdings
networks, net of roaming revenues earned of $1 million for
NII Holdings subscribers roaming on our network. We
recorded the roaming revenues we earned from NII Holdings as
service revenues and we recorded the roaming expenses we were
charged as cost of service. We have a net receivable due from
NII Holdings of $1 million as of December 31, 2002.

Mr. Donahue is a director of NII Holdings.

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XO
Communications.During 2002, two
members of our board of directors served on the board of
directors of XO Communications, Inc. Additionally,
Mr. McCaw held rights to shares representing a majority of
the voting interest of XO Communications. As a result of XO
Communications reorganization under Chapter 11 of the
U.S. Bankruptcy Code, Mr. McCaw no longer holds these
voting interests. We are a party to a multi-year agreement with
XO Communications under which it provides us with
telecommunications services. We paid $70 million to XO
Communications during 2002 for telecommunications services.

D.     Liquidity and
Capital Resources

As of December 31, 2002, we had total
liquidity of $4.1 billion available to fund our operations
including $2.7 billion of cash, cash equivalents and
short-term investments and about $1.4 billion available
under the revolving loan commitment of our bank credit facility.
Until the fourth quarter of 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 year ended December 31, 2002,
total cash provided by operating activities exceeded cash flows
used in investing activities by $287 million as compared to
a deficit of $2,383 million for the same period in 2001. We
have historically used external sources of funds, primarily from
debt incurrences and equity issuances, to fund capital
expenditures, acquisitions and other nonoperating needs.



| |            
| | -----------
| | Cash Flows.

|                                                |  |                       |        |               |  |         |        |         |  |   |        |   |  |  |      |   
|----------------------------------------------- |  | --------------------- | ------ | ------------- |  | ------- | ------ | ------- |  | - | ------ | - |  |  | ---- | --
|                                                |  |                       |        |              
|                                                |  | Year Ended            |        | Change from  
|                                                |  | December 31,          |        | Previous Year
|                                                |  |                       |        |              
|                                                |  | 2002                  |        | 2001          |  | Dollars |        | Percent
|                                                |  |                       |        |               |  |         |        |        
|                                                |  |                      
|                                                |  | (dollars in millions)
|Cash provided by operating activities           |  | $                     | 2,523  |               |  | $       | 1,129  |         |  | $ | 1,394  |   |  |  | 123  | % 
|Cash used in investing activities               |  |                       | (2,236 | )             |  |         | (3,512 | )       |  |   | 1,276  |   |  |  | 36   | % 
|Cash (used in) provided by financing activities |  |                       | (922   | )             |  |         | 2,256  |         |  |   | (3,178 | ) |  |  | (141 | )%

Net cash provided by operating activities for the
year ended December 31, 2002 improved by
$1,394 million over the same period in 2001 primarily
reflecting the improved performance of our domestic operations
from our achievement of certain economies of scale and from the
growth in our domestic customer base.

Net cash used in investing activities for the
year ended December 31, 2002 decreased by
$1,276 million over the same period in 2001 due to:



| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | a $1,555 million decrease in cash paid for
    capital expenditures; and                                              
|
| |  | a $585 million decrease in cash paid for
    purchases of licenses, acquisitions, investments and other;
    offset by
|
| |  | a $474 million decrease in net cash proceeds
    from maturities and sales of short-term investments;                 
|
| |  | a $250 million decrease in cash and cash
    equivalents as a result of the deconsolidation of NII Holdings;
    and  
|
| |  | a $140 million decrease in proceeds from
    sales of investments.                                                    

Capital expenditures to fund the continued
enhancement of our network to provide greater capacity continued
to represent the largest use of our funds for investing
activities. Cash payments for capital expenditures include
payments made during the period for capital expenditures that
were accrued at the beginning of the period and included in
capital expenditures during the prior year. Cash payments for
capital expenditures totaled $1,863 million for the year
ended December 31, 2002 and $3,418 million (including
$645 million of international capital expenditures) for the
year ended December 31, 2001. Domestic capital expenditures
decreased primarily due to a 71% decrease in the number of
transmitter and

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receiver sites placed into service during the
year ended December 31, 2002 as compared the same period in
2001. We attribute this decrease primarily to several factors,
including:




| |   |                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | implementation of enhanced processes and tools
    that allow us to more efficiently deploy and utilize network
    assets;                                                     
|
| |  | improved spectrum position which allows us to add
    more capacity to existing transmitter and receiver sites rather
    than building additional sites;                       
|
| |  | technological advances in network equipment which
    provide us with more capacity at a lower cost; and                                                                        
|
| |  | a reduced network build as a result of
    anticipated technological enhancements; see  E.
    Future Capital Needs and Resources  Capital
    Needs  Capital expenditures.

We made cash payments during the year ended
December 31, 2002 totaling $543 million for licenses,
acquisitions, investments and other, including $111 million
related to the acquisition of 800 MHz and 900 MHz licenses from
Chadmoore, $51 million for our investment in NII
Holdings new class A common stock and new senior
notes issued in its reorganization, $50 million for our
U.S.-Mexico cross border spectrum sharing agreement with NII
Holdings and $40 million in cash payments toward our
purchase of NeoWorld.

Net cash used in financing activities during the
year ended December 31, 2002 consisted primarily of
$843 million paid for the purchase of our outstanding debt
securities and mandatorily redeemable preferred stock and
$147 million for repayments under capital lease and finance
obligations and long-term credit facilities. As to the purchase
of our outstanding debt securities and mandatorily redeemable
preferred stock, we may, from time to time, as we deem
appropriate, enter into similar transactions that in the
aggregate may be material. Net cash provided by financing
activities during the year ended December 31, 2001
consisted primarily of $2,250 million in gross proceeds
from the private placements of our 9.5% senior serial redeemable
notes due 2011 and our 6% convertible senior notes due 2011.

E.     Future Capital
Needs and Resources

Capital
Resources.

As of December 31, 2002, our capital
resources included:



| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | $2.7 billion of cash, cash equivalents and
    short-term investments; and                            
|
| |  | about $1.4 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 $4.1 billion as
of December 31, 2002.

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 earnings. 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 earnings 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;

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| |   |                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 December 31, 2002, our credit facility
provided for total secured financing capacity of up to
$5.9 billion, subject to the satisfaction or waiver of
applicable borrowing conditions. As of December 31, 2002,
this facility consisted of a $1.4 billion revolving loan
commitment and $4.5 billion in term loans. All of the term
loans have already been fully accessed. Principal repayment
began on the term loans in the amount of $47 million in the
fourth quarter of 2002, and the several tranches that make up
the term loans mature over a period from December 31, 2007
to March 31, 2009. On December 31, 2002, 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,
as amended. Some of these ratios become more stringent in 2003,
at which time they become fixed. As of December 31, 2002,
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 when they become more stringent in 2003.
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 permitted 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.

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 December 31, 2002, we
were able to access substantially all of the remaining
$1.4 billion available under the bank credit facility.

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.



| |               
| | --------------
| | Capital Needs.

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;                 

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| |   |                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | potential substantial payments in connection with
    the Consensus Plan relating to the proposed public safety
    spectrum realignment (see Part I, Item 1.
    Business  D. Our Network and Technology 
    4. Proposed public safety spectrum realignment);
|
| |  | 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 (see Part I,
    Item 1. Business  K. Regulation); and                                                                                                                      
|
| |  | other general corporate expenditures.                                                                                                                                                                                                                              

Capital expenditures.Our capital expenditures in 2002
were $1,904 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 increase system capacity and 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 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 Part I, Item 1.
Business  M. Risk Factors  14. Our
forward-looking statements are subject to a variety of factors
that could cause actual results to differ materially from
current beliefs. 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 domestic contractual obligations.The following table sets forth our
best estimates as to the amounts and timing of contractual
payments for our most significant domestic contractual
obligations as of December 31, 2002. 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 Part I,
Item 1. Business  M. Risk
Factors  14. Our forward-looking statements are
subject to a variety of factors that could cause

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actual results to differ materially from current
beliefs. Except as required by applicable law, we disclaim
any obligation to modify or update the information contained in
the table.


|                                      |  |               |        |      |  |      |       |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|------------------------------------- |  | ------------- | ------ | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---------- | ----- |  |  | - | ----- |  |  | - | ----- |  |  | - | ------ | 
|Future Domestic                       |  |               |        |      |  |      |       |      |  |      |       |      |  | 2008 and  
|Contractual Obligations               |  | Total         |        | 2003 |  | 2004 |       | 2005 |  | 2006 |       | 2007 |  | Thereafter
|                                      |  |               |        |      |  |      |       |      |  |      |       |      |  |           
|                                      |  |              
|                                      |  | (in millions)
|Public senior notes                   |  | $             | 11,556 |      |  | $    | 627   |      |  | $    | 695   |      |  | $          | 695   |  |  | $ | 695   |  |  | $ | 2,822 |  |  | $ | 6,022  | 
|Credit facility(1)                    |  |               | 5,905  |      |  |      | 400   |      |  |      | 541   |      |  |            | 686   |  |  |   | 715   |  |  |   | 681   |  |  |   | 2,882  | 
|Capital lease and finance obligations |  |               | 336    |      |  |      | 75    |      |  |      | 75    |      |  |            | 74    |  |  |   | 64    |  |  |   | 48    |  |  |   |       | 
|Preferred stock cash payments         |  |               | 1,837  |      |  |      | 100   |      |  |      | 112   |      |  |            | 112   |  |  |   | 112   |  |  |   | 112   |  |  |   | 1,289  | 
|Operating leases(2)                   |  |               | 1,602  |      |  |      | 450   |      |  |      | 397   |      |  |            | 295   |  |  |   | 183   |  |  |   | 101   |  |  |   | 176    | 
|Other                                 |  |               | 1,990  |      |  |      | 567   |      |  |      | 379   |      |  |            | 296   |  |  |   | 232   |  |  |   | 172   |  |  |   | 344    | 
|                                      |  |               |        |      |  |      |       |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|Total                                 |  | $             | 23,226 |      |  | $    | 2,219 |      |  | $    | 2,199 |      |  | $          | 2,158 |  |  | $ | 2,001 |  |  | $ | 3,936 |  |  | $ | 10,713 | 
|                                      |  |               |        |      |  |      |       |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 



---



|    |                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 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
$369 million for domestic spectrum acquisitions (including
$201 million paid for NeoWorld Communications in
January 2003) and leasing agreements entered into and
outstanding as of December 31, 2002. Included in the
Other caption are minimum amounts due under our most
significant service contracts. Amounts actually paid under some
of these 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 appearing
at the end of this annual report on Form 10-K for amounts
paid to Motorola in 2002. The amounts in the table do not
contemplate any future refinancing of indebtedness, although
managements current expectation is to refinance a
significant portion of this indebtedness.

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, 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:

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| |   |                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.We expect to fund our capital
requirements for at least the next 12 months by using
existing cash balances, cash generated from operations, and if
management deems appropriate, the revolving loan commitment
under our credit facility. See Part I, Item 1.
Business  M. Risk Factors  14. Our
forward-looking statements are subject to a variety of factors
that could cause actual results to differ materially from
current beliefs.

In making this assessment, we have considered:



| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | cash, cash equivalents and short-term investments
    on hand and available as of December 31, 2002 of
    $2.7 billion;                                                                                                               
|
| |  | the availability of incremental funding under our
    revolving loan commitment under our credit facility, which
    currently totals about $1.4 billion;                                                                              
|
| |  | 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 in 2003; and
|
| |  | our scheduled debt service requirements.                                                                                                                                                                                               

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 for at least the next 12 months 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                                                                     

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| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | potential material changes to our business plan
    that could result from the proposed public safety spectrum
    realignment, if effected.

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.

F.     Effect of
Inflation

Inflation is not a material factor affecting our
domestic business. General operating expenses such as salaries,
employee benefits and lease costs are, however, subject to
normal inflationary pressures. From time to time, we may
experience price changes in connection with the purchase of
system infrastructure equipment and handsets, but we do not
currently believe that any of these price changes will be
material to our business.

G.     Effect of New
Accounting Standards

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 after December 31, 2002. The disclosure
requirements are effective for guarantees existing as of
December 31, 2002. See notes 6 and 11 to the
consolidated financial statements appearing at the end of this
annual report on Form 10-K.

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 are currently assessing the
impact of adopting this Interpretation; however, we do not
believe that it will 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

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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 SAB No. 101, 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 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 flow,
operating income or net income if we divide our arrangement into
separate units of accounting under EITF Issue No. 00-21.


Forward-Looking Statements

Safe Harbor Statement under the
Private Securities Litigation Reform Act of
1995.A number of statements made
in the foregoing Managements Discussion and Analysis
of Financial Condition and Results of Operations 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 and those
outlined under Part I, Item 1.
Business  M. Risk Factors.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    about Market Risk

We primarily use senior notes, bank and vendor
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 December 31, 2002, we held
$840 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 was
less than five months, these short-term investments do not
expose us to a significant amount of interest rate risk.

As of December 31, 2002, 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 $49 million. This investment is reported at its
fair value in our financial statements.

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The table below summarizes our remaining market
risks as of December 31, 2002 in U.S. dollars. Since
our financial instruments expose us to interest rate risks,
these instruments are presented within each market risk
category. The table presents principal cash flows and related
interest rates by year of maturity for our senior notes, bank
and vendor credit facilities, capital lease and finance
obligations and mandatorily redeemable preferred stock in effect
at December 31, 2002. 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 domestic bank credit agreement.
See Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations  E.
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 senior notes and
    mandatorily redeemable preferred stock;                                                            
|
| |  | estimates from bankers for our domestic bank
    credit facility;                                                                                
|
| |  | present value of future cash flows for capital
    lease and finance obligations using a discount rate available
    for similar obligations; and
|
| |  | estimates from bankers to settle interest rate
    swap agreements.                                                                              

Notes 7, 8, 9 and 12 to the consolidated
financial statements appearing at the end of this annual report
on Form 10-K contain descriptions and significant changes
in outstanding amounts of our senior

72



---



##### Table of Contents



notes, bank and vendor 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.


|                                                                                                         |  |                       |     |      |  |      |     |      |  |      |     |            |  |       |     |       |  |       |       |       |  |   |       |   |  |   |       |   |  |   |       |   |  |   |        |   |  |   |       |  
|-------------------------------------------------------------------------------------------------------- |  | --------------------- | --- | ---- |  | ---- | --- | ---- |  | ---- | --- | ---------- |  | ----- | --- | ----- |  | ----- | ----- | ----- |  | - | ----- | - |  | - | ----- | - |  | - | ----- | - |  | - | ------ | - |  | - | ----- | -
|                                                                                                         |  |                       |     |      |  |     
|                                                                                                         |  | Year of Maturity      |     | 2002 |  | 2001
|                                                                                                         |  |                       |     |      |  |     
|                                                                                                         |  |                       |     |      |  | Fair |     |      |  | Fair
|                                                                                                         |  | 2003                  |     | 2004 |  | 2005 |     | 2006 |  | 2007 |     | Thereafter |  | Total |     | Value |  | Total |       | Value
|                                                                                                         |  |                       |     |      |  |      |     |      |  |      |     |            |  |       |     |       |  |       |       |      
|                                                                                                         |  |                      
|                                                                                                         |  | (dollars in millions)
|I. Interest Rate Sensitivity                                                                             |  |                       |     |      |  |      |     |      |  |      |     |            |  |       |     |       |  |       |       |       |  |   |       |   |  |   |       |   |  |   |       |   |  |   |        |   |  |   |       |  
|Mandatorily Redeemable Preferred Stock,
    Long-term Debt and Capital Lease and Finance
    Obligations |  |                       |     |      |  |      |     |      |  |      |     |            |  |       |     |       |  |       |       |       |  |   |       |   |  |   |       |   |  |   |       |   |  |   |        |   |  |   |       |  
|Fixed Rate                                                                                               |  | $                     | 52  |      |  | $    | 56  |      |  | $    | 61  |            |  | $     | 57  |       |  | $     | 2,173 |       |  | $ | 6,771 |   |  | $ | 9,170 |   |  | $ | 8,140 |   |  | $ | 14,617 |   |  | $ | 8,978 |  
|Average Interest Rate                                                                                    |  |                       | 10  | %    |  |      | 10  | %    |  |      | 10  | %          |  |       | 10  | %     |  |       | 9     | %     |  |   | 9     | % |  |   | 9     | % |  |   |       |   |  |   | 10     | % |  |   |       |  
|Variable Rate                                                                                            |  | $                     | 199 |      |  | $    | 327 |      |  | $    | 433 |            |  | $     | 466 |       |  | $     | 436   |       |  | $ | 2,656 |   |  | $ | 4,517 |   |  | $ | 4,085 |   |  | $ | 5,009  |   |  | $ | 4,426 |  
|Average Interest Rate                                                                                    |  |                       | 3   | %    |  |      | 3   | %    |  |      | 3   | %          |  |       | 3   | %     |  |       | 3     | %     |  |   | 5     | % |  |   | 4     | % |  |   |       |   |  |   | 5      | % |  |   |       |  
|Interest Rate Swaps                                                                                      |  |                       |     |      |  |      |     |      |  |      |     |            |  |       |     |       |  |       |       |       |  |   |       |   |  |   |       |   |  |   |       |   |  |   |        |   |  |   |       |  
|Variable to Fixed(1)                                                                                     |  | $                     |    |      |  | $    |    |      |  | $    |    |            |  | $     | 570 |       |  | $     |      |       |  | $ |      |   |  | $ | 570   |   |  | $ | (112  | ) |  | $ | 570    |   |  | $ | (83   | )
|Average Pay Rate                                                                                         |  |                       |    |      |  |      |    |      |  |      |    |            |  |       | 8   | %     |  |       |      |       |  |   |      |   |  |   | 8     | % |  |   |       |   |  |   | 8      | % |  |   |       |  
|Average Receive Rate                                                                                     |  |                       |    |      |  |      |    |      |  |      |    |            |  |       | 2   | %     |  |       |      |       |  |   |      |   |  |   | 2     | % |  |   |       |   |  |   | 3      | % |  |   |       |  
|Variable to Variable                                                                                     |  | $                     | 400 |      |  | $    |    |      |  | $    |    |            |  | $     |    |       |  | $     |      |       |  | $ |      |   |  | $ | 400   |   |  | $ | (3    | ) |  | $ | 400    |   |  | $ | (13   | )
|Average Pay Rate                                                                                         |  |                       | 5   | %    |  |      |    |      |  |      |    |            |  |       |    |       |  |       |      |       |  |   |      |   |  |   | 5     | % |  |   |       |   |  |   | 5      | % |  |   |       |  
|Average Receive Rate                                                                                     |  |                       | 1   | %    |  |      |    |      |  |      |    |            |  |       |    |       |  |       |      |       |  |   |      |   |  |   | 1     | % |  |   |       |   |  |   | 2      | % |  |   |       |  
|Fixed to Variable                                                                                        |  | $                     |    |      |  | $    |    |      |  | $    |    |            |  | $     |    |       |  | $     |      |       |  | $ | 500   |   |  | $ | 500   |   |  | $ | 74    |   |  | $ | 500    |   |  | $ | 26    |  
|Average Pay Rate                                                                                         |  |                       |    |      |  |      |    |      |  |      |    |            |  |       |    |       |  |       |      |       |  |   | 5     | % |  |   | 5     | % |  |   |       |   |  |   | 5      | % |  |   |       |  
|Average Receive Rate                                                                                     |  |                       |    |      |  |      |    |      |  |      |    |            |  |       |    |       |  |       |      |       |  |   | 10    | % |  |   | 10    | % |  |   |       |   |  |   | 10     | % |  |   |       |  
|II. Foreign Currency Exchange Rate
    Sensitivity                                                       |  |                       |     |      |  |      |     |      |  |      |     |            |  |       |     |       |  |       |       |       |  |   |       |   |  |   |       |   |  |   |       |   |  |   |        |   |  |   |       |  
|Long-Term Debt                                                                                           |  |                       |     |      |  |      |     |      |  |      |     |            |  |       |     |       |  |       |       |       |  |   |       |   |  |   |       |   |  |   |       |   |  |   |        |   |  |   |       |  
|Fixed Rate                                                                                               |  | $                     |    |      |  | $    |    |      |  | $    |    |            |  | $     |    |       |  | $     |      |       |  | $ |      |   |  | $ |      |   |  | $ |      |   |  | $ | 1,475  |   |  | $ | 52    |  
|Average Interest Rate                                                                                    |  |                       |    |      |  |      |    |      |  |      |    |            |  |       |    |       |  |       |      |       |  |   |      |   |  |   |      |   |  |   |       |   |  |   | 13     | % |  |   |       |  
|Variable Rate                                                                                            |  | $                     |    |      |  | $    |    |      |  | $    |    |            |  | $     |    |       |  | $     |      |       |  | $ |      |   |  | $ |      |   |  | $ |      |   |  | $ | 490    |   |  | $ | 490   |  
|Average Interest Rate                                                                                    |  |                       |    |      |  |      |    |      |  |      |    |            |  |       |    |       |  |       |      |       |  |   |      |   |  |   |      |   |  |   |       |   |  |   | 7      | % |  |   |       |  



---



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




Item 8.     Financial
Statements and Supplementary Data

Our consolidated financial statements are filed
under this item, beginning on page F-1 of this annual
report on Form 10-K. The financial statement schedules
required under Regulation S-X are filed pursuant to
Item 15 of this annual report on Form 10-K.




Item 9.     Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

73



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##### Table of Contents






PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Information regarding our directors is
incorporated by reference to the information set forth under the
caption Election of Directors in our proxy statement
relating to our 2003 annual meeting of stockholders, which will
be filed with the Securities and Exchange Commission.
Information regarding our executive officers is incorporated by
reference to Part I of this report under the caption
Executive Officers of the Registrant. Information
regarding compliance with Section 16(a) of the Securities
and Exchange Act of 1934 by our directors, executive officers
and holders of ten percent of a registered class of our equity
securities is incorporated by reference to the information set
forth under the caption Other Information 
Section 16(a) Beneficial Ownership Reporting
Compliance in our proxy statement relating to our 2003
annual meeting of stockholders.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Information regarding compensation of executive
officers and directors is incorporated by reference to the
information set forth under the captions Election of
Directors  Board Committees 
Compensation  Compensation Committee Interlocks and
Insider Participation and  Director
Compensation, and Executive Compensation in
our proxy statement relating to our 2003 annual meeting of
stockholders, which will be filed with the Securities and
Exchange Commission.






|         |                                                                                                        
|-------- | -------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholders
    Matters

Information required by this item is incorporated
by reference to Part II, Item 5. Market for
Registrants Common Equity and Related Stockholder
Matters  D. Securities Authorized for Issuance Under
Equity Compensation Plans of this report and the
information set forth under the caption Securities
Ownership in our proxy statement relating to our 2003
annual meeting of stockholders, which will be filed with the
Securities and Exchange Commission.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Information required by this item is incorporated
by reference to the information set forth under the caption
Certain Relationships and Related Transactions in
our proxy statement relating to our 2003 annual meeting of
stockholders, which will be filed with the Securities and
Exchange Commission.






|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

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 of 1934 is recorded, processed, summarized and
reported in a timely manner under the Securities Exchange Act.
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.

74



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##### Table of Contents






PART IV




Item 15.     Exhibits,
Financial Statement Schedules, and Reports on
Form 8-K



| |          |                                                                                        
| | -------- | ---------------------------------------------------------------------------------------
| | (a)  (1) | The following financial statements are included
    in this annual report on Form 10-K:

|                                                                                                                                  |  |      |     | 
|--------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                  |  | Page
|                                                                                                                                  |  |     
|Independent Auditors Report                                                                                                      |  |      | F-2 | 
|Consolidated Balance Sheets as of
    December 31, 2002 and 2001                                                                  |  |      | F-3 | 
|Consolidated Statements of Operations for the
    Years Ended December 31, 2002, 2001 and 2000                                    |  |      | F-4 | 
|Consolidated Statements of Changes in
    Stockholders Equity (Deficit) for the Years Ended
    December 31, 2002, 2001 and 2000 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2002, 2001 and 2000                                    |  |      | F-6 | 
|Notes to Consolidated Financial Statements                                                                                        |  |      | F-7 | 



| |     |                                                                                                 
| | --- | ------------------------------------------------------------------------------------------------
| | (2) | The following financial statement schedules are
    included in this annual report on Form 10-K.

|                                                                           |  |  |      | 
|-------------------------------------------------------------------------- |  |  | ---- | 
|                                                                          
|Schedule I  Condensed Financial
    Information of Registrant             |  |  | F-49 | 
|Schedule II  Valuation and
    Qualifying Accounts                        |  |  | F-53 | 
|Schedule III  Consolidated
    Financial Statements of NII Holdings, Inc. |  |  | F-54 | 



| |     |                                                                                                                           
| | --- | --------------------------------------------------------------------------------------------------------------------------
| | (3) | List of Exhibits: The exhibits filed as part of
    this report are listed in the Exhibit Index, beginning on
    page 79.

(b) Reports on Form 8-K:



| |     |                                                                                                                                                                                                                                                               
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Current Report on Form 8-K dated and filed
    with the Commission on October 8, 2002, reporting under
    Item 5 specified third quarter operating information.                                                                                              
|
| | (2) | Current Report on Form 8-K dated and filed
    with the Commission on October 24, 2002, reporting under
    Item 5 financial results and other data for the third
    quarter of 2002.                                                                        
|
| | (3) | Current Report on Form 8-K dated and filed
    with the Commission December 17, 2002 reporting under
    Items 5 and 9 specified network plans.                                                                                                               
|
| | (4) | Current Report on Form 8-K dated and filed
    with the Commission on December 24, 2002, reporting under
    Item 5 the announcement of a filing with the Federal
    Communications Commission regarding the proposed public safety
    spectrum realignment.

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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.



| |                            
| | ---------------------------
| | NEXTEL COMMUNICATIONS, INC.



| |     |                  
| | --- | -----------------
| | By: | /s/ PAUL N. SALEH

| | 
| | 
| | 

March 27, 2003


| |                                             
| | --------------------------------------------
| | Paul N. Saleh                               
| | Executive Vice President and Chief Financial
| | Officer                                     

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated below.

|                                                 |  |                                                                                        |  |                |  | 
|------------------------------------------------ |  | -------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                        |  | Title                                                                                  |  | Date          
|                                                 |  |                                                                                        |  |               
|/s/ WILLIAM E. CONWAY, JR.William E. Conway, Jr. |  | Chairman of the Board of Directors                                                     |  | March 27, 2003
|/s/ TIMOTHY M. DONAHUETimothy M. Donahue         |  | President, Chief Executive Officer and Director                                        |  | March 27, 2003
|/s/ PAUL N. SALEHPaul N. Saleh                   |  | Executive Vice President and Chief Financial
    Officer (principal financial officer) |  | March 27, 2003
|/s/ WILLIAM G. ARENDTWilliam G. Arendt           |  | Vice President and Controller (principal
    accounting officer)                       |  | March 27, 2003
|/s/ MORGAN E. OBRIENMorgan E. OBrien           |  | Vice Chairman of the Board                                                             |  | March 27, 2003
|/s/ J. TIMOTHY BRYANJ. Timothy Bryan             |  | Director                                                                               |  | March 27, 2003
|/s/ KEITH J. BANEKeith J. Bane                   |  | Director                                                                               |  | March 27, 2003
|/s/ CRAIG O. MCCAWCraig O. McCaw                 |  | Director                                                                               |  | March 27, 2003
|/s/ V. JANET HILLV. Janet Hill                   |  | Director                                                                               |  | March 27, 2003
|/s/ DENNIS M. WEIBLINGDennis M. Weibling         |  | Director                                                                               |  | March 27, 2003
|/s/ FRANK M. DRENDELFrank M. Drendel             |  | Director                                                                               |  | March 27, 2003
|/s/ WILLIAM E. KENNARDWilliam E. Kennard         |  | Director                                                                               |  | March 27, 2003
|/s/ STEPHANIE M. SHERNStephanie M. Shern         |  | Director                                                                               |  | March 27, 2003

76



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##### Table of Contents






CERTIFICATIONS

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



| |                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. I have reviewed this annual report on
    Form 10-K of Nextel Communications, Inc.;                                                                                                                                                                                                                                                         
|
| | 2. Based on my knowledge, this annual 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
    annual report;
|
| | 3. Based on my knowledge, the financial
    statements, and other financial information included in this
    annual 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 annual
    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 annual 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 annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual 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 annual 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.



| |                                    
| | -----------------------------------
| | /s/ TIMOTHY M. DONAHUE             
| |                                    
| | Timothy M. Donahue                 
| | President & Chief Executive Officer

Date: March 27, 2003

77



---



##### Table of Contents



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



| |                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. I have reviewed this annual report on
    Form 10-K of Nextel Communications, Inc.;                                                                                                                                                                                                                                                         
|
| | 2. Based on my knowledge, this annual 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
    annual report;
|
| | 3. Based on my knowledge, the financial
    statements, and other financial information included in this
    annual 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 annual
    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 annual 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 annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual 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 annual 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.



| |                                                       
| | ------------------------------------------------------
| | /s/ PAUL N. SALEH                                     
| |                                                       
| | Paul N. Saleh                                         
| | Executive Vice President & Chief
    Financial Officer

Date: March 27, 2003

78



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##### Table of Contents






Exhibit Index

All documents referenced below were filed
pursuant to the Securities Exchange Act of 1934 by Nextel
Communications, Inc., file no. 0-19656, unless otherwise
indicated.

|        |       |  |  |                                                                                                                                                                                                                                                                                                                                                                                              
|------- | ----- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       | 
|Number  |       | 
|        |       | 
|        | 3.1.1 |  |  | Restated Certificate of Incorporation of Nextel
    (filed June 1, 2000 as Exhibit 3.1 to Nextels
    post-effective amendment no. 2 to registration statement
    no. 33-1290 on Form S-4 and incorporated herein by
    reference).                                                                                                                                                       
|        | 3.1.2 |  |  | Certificate of Designation of the Powers,
    Preferences and Relative, Participating, Optional and Other
    Special Rights of 13% Series D Exchangeable Preferred Stock
    and Qualifications, Limitations and Restrictions Thereof (filed
    July 22, 1997 as Exhibit 4.1 to Nextels current
    report on Form 8-K dated July 21, 1997 and
    incorporated herein by reference).     
|        | 3.1.3 |  |  | Certificate of Designation of the Powers,
    Preferences and Relative, Participating, Optional and Other
    Special Rights of 11.125% Series E Exchangeable Preferred
    Stock and Qualifications, Limitations and Restrictions Thereof
    (filed February 12, 1998 as Exhibit 4.1 to
    Nextels current report on Form 8-K and incorporated
    herein by reference).                 
|        | 3.1.4 |  |  | Certificate of Designation of the Powers,
    Preferences and Relative, Participating, Optional and Other
    Special Rights of Zero Coupon Convertible Preferred Stock due
    2013 and Qualifications, Limitations and Restrictions Thereof
    (filed February 10, 1999 as Exhibit 4.16 to
    Nextels registration statement on Form S-4 and
    incorporated herein by reference).     
|        | 3.2   |  |  | Amended and Restated By-Laws of Nextel (filed
    July 31, 1995 as Exhibit 4.2 to Nextels
    post-effective amendment no. 1 on Form S-8 to
    registration statement no. 33-91716 on Form S-4 and
    incorporated herein by reference).                                                                                                                                                  
|        | 4.1   |  |  | Indenture dated September 17, 1997 between
    Nextel and Harris Trust and Savings Bank, as Trustee, relating
    to Nextels 10.65% Senior Redeemable Discount Notes due
    2007 (filed September 22, 1997 as Exhibit 4.1 to
    Nextels current report on Form 8-K and incorporated
    herein by reference).                                                                            
|        | 4.2   |  |  | Indenture dated October 22, 1997 between
    Nextel and Harris Trust and Savings Bank, as Trustee, relating
    to Nextels 9.75% Senior Serial Redeemable Discount Notes
    due 2007 (filed October 23, 1997 as Exhibit 4.1 to
    Nextels current report on Form 8-K and incorporated
    herein by reference).                                                                          
|        | 4.3   |  |  | Indenture dated February 11, 1998 between
    Nextel and Harris Trust and Savings Bank, as Trustee, relating
    to Nextels 9.95% Senior Serial Redeemable Discount Notes
    due 2008 (filed February 12, 1998 as Exhibit 4.2 to
    Nextels current report on Form 8-K and incorporated
    herein by reference).                                                                        
|        | 4.4   |  |  | Indenture dated November 4, 1998 between
    Nextel and Harris Trust and Savings Bank, as Trustee, relating
    to Nextels 12.0% Senior Serial Redeemable Notes due 2008
    (filed February 10, 1999 as Exhibit 4.13.1 to
    Nextels registration statement on Form S-4 and
    incorporated herein by reference).                                                                       
|        | 4.5   |  |  | Indenture dated June 16, 1999 between Nextel
    and Harris Trust and Savings Bank, as Trustee, relating to
    Nextels 4.75% Convertible Senior Redeemable Notes due 2007
    (filed June 23, 1999 as Exhibit 4.1 to Nextels
    current report on Form 8-K and incorporated herein by
    reference).                                                                                    
|        | 4.6   |  |  | Indenture dated November 12, 1999 between
    Nextel and Harris Trust and Savings Bank, as Trustee, relating
    to Nextels 9.375% Senior Serial Redeemable Notes due 2009
    (filed November 15, 1999 as Exhibit 4.1 to
    Nextels quarterly report on Form 10-Q for the quarter
    ended September 30, 1999 (the 1999 Third Quarter
    10-Q) and incorporated herein by reference).

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|        |         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | ------- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         | 
|Number  |         | 
|        |         | 
|        | 4.7     |  |  | Indenture dated January 26, 2000 between
    Nextel and Harris Trust and Savings Bank, as Trustee, relating
    to Nextels 5.25% Convertible Senior Redeemable Notes due
    2010 (filed January 26, 2000 as Exhibit 4.1 to
    Nextels current report on Form 8-K and incorporated
    herein by reference).                                                                                                                                                                                                                                          
|        | 4.8     |  |  | Indenture dated January 26, 2001, between
    Nextel and BNY Midwest Trust Company, as Trustee, relating to
    Nextels 9.5% Senior Serial Redeemable Notes due 2011
    (filed January 29, 2001 as Exhibit 4.1 to
    Nextels current report on Form 8-K and incorporated
    herein by reference).                                                                                                                                                                                                                                                   
|        | 4.9     |  |  | Indenture dated May 29, 2001, between Nextel
    and BNY Midwest Trust Company, as Trustee, relating to
    Nextels 6.0% Convertible Senior Redeemable Notes due 2011
    (filed May 29, 2001 as Exhibit 4.1 to Nextels
    current report on Form 8-K and incorporated herein by
    reference).                                                                                                                                                                                                                                                      
|        | 4.9.1   |  |  | Amended and Restated Credit Agreement dated
    November 9, 1999 among Nextel, Nextel Finance Company, the
    other Restricted Companies party thereto, the Lenders Party
    thereto, Toronto Dominion (Texas) Inc., as Administrative Agent,
    and The Chase Manhattan Bank as Collateral Agent (filed
    November 15, 1999 as Exhibit 4.3 to the 1999 Third
    Quarter 10-Q and incorporated herein by reference).                                                                                                                               
|        | 4.9.2   |  |  | Tranche D Term Loan Agreement dated
    March 15, 2000 among Nextel, Nextel Finance Company, the
    other Restricted Companies party thereto, the Lenders Party
    thereto, Toronto Dominion (Texas), as Administrative Agent, and
    The Chase Manhattan Bank as Collateral Agent (filed
    March 15, 2000 as Exhibit 4.1 to Nextels current
    report on Form 8-K and incorporated herein by reference).                                                                                                                                         
|        | 4.9.3   |  |  | Amendment no. 1 dated April 26, 2000 to
    the Amended and Restated Credit Agreement dated November 9,
    1999 among Nextel, Nextel Finance Company, the Other Restricted
    Companies party thereto, the Lenders party thereto, Toronto
    Dominion (Texas), as Administrative Agent, and The Chase
    Manhattan Bank, as Collateral Agent (filed May 5, 2000 as
    Exhibit 4.1 to Nextels current report on
    Form 8-K and incorporated herein by reference).                                                                                 
|        | 4.9.4   |  |  | Amendment no. 2 dated March 29, 2001 to
    the Amended and Restated Credit Agreement dated November 9,
    1999, as amended, among Nextel, Nextel Finance Company, the
    Other Restricted Companies party thereto, the Lenders party
    thereto, Toronto Dominion (Texas), as Administrative Agent, and
    The Chase Manhattan Bank, as Collateral Agent. (filed
    April 2, 2001 as Exhibit 4.13.4 to Nextels
    annual report on Form 10-K for the year ended
    December 31, 2001 and incorporated herein by reference).                     
|        | 10.1.1* |  |  | Letter Agreement between Motorola, Inc. and
    Nextel dated November 4, 1991 (filed November 15, 1991
    as Exhibit 10.47 to the registration statement
    no. 33-43415 on Form S-1 (the 1991 S-1
    Registration Statement) and incorporated herein by
    reference).                                                                                                                                                                                                                                                                            
|        | 10.1.2* |  |  | 1991 Enhanced Specialized Mobile Radio System
    Purchase Agreement between Motorola and Nextel dated
    November 4, 1991(filed November 15, 1991 as
    Exhibit 10.48 to the 1991 S-1 Registration Statement and
    incorporated herein by reference).                                                                                                                                                                                                                                                                                               
|        | 10.1.3* |  |  | Amendment dated August 4, 1994 to the
    Enhanced Specialized Mobile Radio System Equipment Purchase
    Agreement between Nextel and Motorola dated November 1,
    1991, as amended, and to the Letter Agreement between Nextel and
    Motorola dated November 4, 1991, as amended (collectively
    the Equipment Purchase Agreements) (filed
    April 28, 1995 as Exhibit 10.02 to registration
    statement no. 33-91716 on Form S-4 of ESMR, Inc. (the
    ESMR Form S-4 Registration Statement) and
    incorporated herein by reference).

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|        |          |  |  |                                                                                                                                                                                                                                                                                                                                                                        
|------- | -------- |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          | 
|Number  |          | 
|        |          | 
|        | 10.1.4*  |  |  | Second Amendment to Equipment Purchase Agreements
    dated April 4, 1995 (filed April 28, 1995 as
    Exhibit 10.03 to the ESMR Form S-4 Registration
    Statement and incorporated herein by reference).                                                                                                                                                            
|        | 10.1.5*  |  |  | Amendment 004 to the Enhanced Specialized Mobile
    Radio System Purchase Agreement dated April 28, 1996
    between Nextel and Motorola (filed July 5, 1996 as
    Exhibit 99.1 to Nextels current report on
    Form 8-K and incorporated herein by reference).                                                                                                    
|        | 10.1.6*  |  |  | Nextel/ Motorola Agreement dated March 27,
    1997 (filed May 15, 1997 as Exhibit 10.1 to
    Nextels quarterly report on Form 10-Q for the quarter
    ended March 31, 1997 and incorporated by reference herein).                                                                                                                                                  
|        | 10.1.7*  |  |  | iDEN Infrastructure [*] Supply Agreement between
    Motorola and Nextel dated April 13, 1999 (filed
    August 16, 1999 as Exhibit 10.2 to Nextels
    quarterly report on Form 10-Q for the quarter ended
    June 30, 1999 and incorporated herein by reference).                                                                                                  
|        | 10.1.8*  |  |  | Amendment dated December 29, 1999 to the
    iDEN Subscriber Supply Agreement dated November 4, 1991
    between Nextel and Motorola (filed March 30, 2000 as
    Exhibit 10.2.7 to Nextels annual report on
    Form 10-K for the year ended December 31, 1999 and
    incorporated herein by reference).                                                            
|        | 10.1.9*  |  |  | Amendment 001 dated December 29, 1999 to the
    iDEN Infrastructure [*] Supply Agreement dated April 13,
    1999 between Nextel and Motorola (filed March 30, 2000 as
    Exhibit 10.2.8 to Nextels annual report on
    Form 10-K for the year ended December 31, 1999 and
    incorporated herein by reference).                                                  
|        | 10.1.10* |  |  | Amendment 002 dated December 30, 1999 to the
    iDEN Infrastructure [*] Supply Agreement dated April 13,
    1999 between Nextel and Motorola (filed March 30, 2000 as
    Exhibit 10.2.9 to Nextels annual report on
    Form 10-K for the year ended December 31, 1999 and
    incorporated herein by reference).                                                  
|        | 10.1.11* |  |  | Amendment dated December 28, 2000 to iDEN
    Subscriber Supply Agreement dated November 4, 1991 between
    Nextel and Motorola (filed April 2, 2001 as
    Exhibit 10.1.11 to Nextels annual report on
    Form 10-K for the year ended December 31, 2000 and
    incorporated herein by reference).                                                                
|        | 10.1.12* |  |  | Amendment 003 dated March 29, 2001 to iDEN
    Subscriber Supply Agreement dated November 4, 1991 between
    Nextel and Motorola (filed May 15, 2001 as
    Exhibit 10.1 to Nextels quarterly report on
    Form 10-Q for the quarter ended March 31, 2001 and
    incorporated herein by reference).                                                                
|        | 10.1.13* |  |  | Amendment dated December 28, 2000 to iDEN
    Infrastructure [*] Supply Agreement dated April 13, 1999,
    as amended, between Nextel and Motorola (filed April 2,
    2001 as Exhibit 10.1.12 to Nextels annual report on
    Form 10-K for the year ended December 31, 2000 and
    incorporated herein by reference).                                             
|        | 10.1.14* |  |  | Amendment 003 dated November 13, 2001
    Availability/ Outage Goals for 2001 to iDEN Infrastructure [*]
    Supply Agreement dated April 13, 1999, as amended, between
    Nextel and Motorola (filed March 29, 2002 as
    Exhibit 10.1.14 to Nextels annual report on
    Form 10-K for the year ended December 31, 2001 and
    incorporated herein by reference).
|        | 10.1.16* |  |  | Amendment 004 dated March 15, 2002 to iDEN
    Subscriber Supply Agreement dated November 4, 1991 between
    Nextel and Motorola (filed May 15, 2002 as
    Exhibit 10.1 to the quarterly report on Form 10-Q for
    the quarter ended March 31, 2002 (the First Quarter
    2002 10-Q) and incorporated herein by reference).                                     
|        | 10.1.17* |  |  | Amendment 004 dated March 22, 2002 to
    Availability/ Outage Goals for 2002 to iDEN Infrastructure [*]
    Supply Agreement dated April 13, 1999, as amended, between
    Nextel and Motorola (filed May 15, 2002 as
    Exhibit 10.2 to the First Quarter 2002 10-Q and
    incorporated herein by reference).                                                      

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|        |        |  |  |                                                                                                                                                                                                                                                                                                                                 
|------- | ------ |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        | 
|Number  |        | 
|        |        | 
|        | 10.2   |  |  | Agreement and Plan of Contribution and Merger
    dated August 4, 1994, as amended, among Nextel, Motorola,
    ESMR, Inc., ESMR Sub, Inc. and others (filed April 28, 1995
    as Exhibit 2.01 to the ESMR Form S-4 Registration
    Statement and incorporated herein by reference).                                          
|        | 10.3   |  |  | Registration Rights Agreement dated July 28,
    1995 between Nextel and Motorola (filed November 14, 1995
    as Exhibit 10.8 to Nextels quarterly report on
    Form 10-Q for the quarter ended September 30, 1995 and
    incorporated herein by reference).                                                                
|        | 10.4.1 |  |  | Securities Purchase Agreement between Nextel,
    Digital Radio, L.L.C. and Craig O. McCaw, dated April 4,
    1995 (filed April 11, 1995 as Exhibit 2.1 to
    Nextels current report on Form 8-K dated
    April 10, 1995 and incorporated herein by reference).                                                             
|        | 10.4.2 |  |  | Management Support Agreement dated April 4,
    1995 between Nextel and Eagle River, Inc. (filed on
    April 11, 1995 as Exhibit 99.2 to Nextels
    current report on Form 8-K dated April 10, 1995 and
    incorporated herein by reference).                                                                               
|        | 10.4.3 |  |  | Form of Registration Rights Agreement dated
    July 28, 1995 between Nextel and Digital Radio (filed
    March 31, 1997 as Exhibit 10.38 to Nextels
    annual report on Form 10-K for the year ended
    December 31, 1996 (the 1996 Form 10-K) and
    incorporated herein by reference).                                 
|        | 10.4.4 |  |  | First Amendment to the Registration Rights
    Amendment (dated July 28, 1995) among Nextel, Digital Radio
    and Option Acquisition, L.L.C., dated June 18, 1997 (filed
    July 9, 1997 as Exhibit 10.7 to Nextels current
    report on Form 8-K and incorporated herein by reference).                                    
|        | 10.4.5 |  |  | Option Exercise and Lending Commitment Agreement
    between Nextel and Digital Radio dated June 16, 1997 (filed
    July 9, 1997 as Exhibit 10.1 to Nextels current
    report on Form 8-K and incorporated herein by reference).                                                                                             
|        | 10.4.6 |  |  | Incentive Option Agreement between Nextel and
    Eagle River dated April 4, 1995 (filed April 11, 1995
    as Exhibit 99.3 to Nextels current report on
    Form 8-K dated April 10, 1995 and incorporated herein
    by reference).                                                                                          
|        | 10.5.1 |  |  | Option Purchase Agreement among Nextel,
    Unrestricted Subsidiary Funding Company and Option Acquisition
    dated June 16, 1997 (filed July 9, 1997 as
    Exhibit 10.3 to Nextels current report on
    Form 8-K and incorporated herein by reference).                                                                    
|        | 10.5.2 |  |  | Registration Rights Agreement between Nextel and
    Option Acquisition dated June 18, 1997 (filed July 9,
    1997 as Exhibit 10.6 to Nextels current report on
    Form 8-K and incorporated herein by reference).                                                                                                           
|        | 10.6   |  |  | Agreement dated March 5, 2003 between
    Nextel, Digital Radio, L.L.C. and Craig O. McCaw (filed
    March 6, 2003 as Exhibit 10.1 to Nextels current
    report on Form 8-K and incorporated herein by reference).                                                                                                           
|        | 10.7** |  |  | Form of Indemnification Agreement and exhibits
    thereto between Nextel and each of its directors (filed
    June 24, 1992 as Exhibit 10.56 to Nextels annual
    report on Form 10-K for the year ended March 31, 1992
    and incorporated herein by reference).                                                           
|        | 10.8   |  |  | Amendment dated August 9, 2001 to the
    Securities Purchase Agreement dated April 4, 1995 between
    Nextel, Digital Radio, L.L.C. and Craig O. McCaw (filed
    August 10, 2001 as Exhibit 10.1 to Nextels
    quarterly report on Form 10-Q for the quarter ended
    June 30, 2001 and incorporated herein by reference).
|        | 10.9** |  |  | Nextel Amended and Restated Incentive Equity Plan
    (filed April 2, 2001 as Exhibit 10.8 to Nextels
    annual report on Form 10-K for the year ended
    December 31, 2000 and incorporated herein by reference).                                                                                                           

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|        |          |   |  |                                                                                                                                                                                                                                                                                                                                                                                 
|------- | -------- | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          |  
|Number  |          |  
|        |          |  
|        | 10.10**  |   |  | Nextel Severance Benefits Plan (filed
    March 29, 2002 as Exhibit 10.9 to Nextels annual
    report on Form 10-K for the year ended December 31,
    2001 and incorporated herein by reference).                                                                                                                                                                             
|        | 10.11**  |   |  | Nextel Associate Stock Purchase Plan (filed
    June 21, 1996 as Exhibit 4.3 to Nextels
    registration statement no. 333-06523 on Form S-8 and
    incorporated herein by reference).                                                                                                                                                                                        
|        | 10.12**  |   |  | Nextel Cash Compensation Deferral Plan (filed
    December 17, 1997 as Exhibit 4.1 to Nextels
    registration statement No. 333-42537 on Form S-8 and
    incorporated herein by reference).                                                                                                                                                                                  
|        | 10.13**  |   |  | Nextel Change of Control Retention Bonus and
    Severance Pay Plan dated July 14, 1999 (filed April 2,
    2001 as Exhibit 10.12 to Nextels annual report on
    Form 10-K for the year ended December 31, 2000 and
    incorporated herein by reference).                                                                                                                    
|        | 10.14.1* | * |  | Employment Agreement dated February 1, 1996
    between Tim Donahue and Nextel (filed March 31, 1997 as
    Exhibit 10.36 to the 1996 Form 10-K and incorporated
    herein by reference).                                                                                                                                                                                      
|        | 10.14.2* | * |  | Addendum to Employment Agreement between Tim
    Donahue and Nextel dated March 24, 1997 (filed
    March 31, 1997 as Exhibit 10.37 to the 1996
    Form 10-K and incorporated herein by reference).                                                                                                                                                                            
|        | 10.15**  |   |  | Employment Agreement between Paul N. Saleh and
    Nextel dated August 3, 2001 (filed March 29, 2002 as
    Exhibit 10.14 to Nextels annual report on
    Form 10-K for the year ended December 31, 2001 and
    incorporated herein by reference).                                                                                                                            
|        | 10.16.1  |   |  | Joint Venture Agreement among Nextel Partners,
    Inc., Nextel Partners Operating Corp. and Nextel WIP Corp. dated
    January 29, 1999 (filed February 24, 1999 as
    Exhibit 10.1 to Nextels current report on
    Form 8-K and incorporated herein by reference).                                                                                                         
|        | 10.16.2  |   |  | Amended and Restated Shareholders Agreement
    among Nextel Partners and the shareholders named therein dated
    February 18, 2000 (the Nextel Partners Shareholder
    Agreement)(filed by Nextel Partners February 22, 2000
    as Exhibit 10.2 to amendment no. 2 to the registration
    statement no. 333-95473 on Form S-1 and incorporated
    herein by reference).
|        | 10.16.3  |   |  | Amendment no. 1 dated February 22, 2000
    to the Nextel Partners Shareholders Agreement (filed by Nextel
    Partners on October 23, 2000 as Exhibit 10.2 to the
    registration statement no. 333-48470 on Form S-4 and
    incorporated herein by reference).                                                                                                              
|        | 10.16.4  |   |  | Amendment no. 2 dated March 20, 2001 to
    the Nextel Partners Shareholders Agreement (filed by Nextel
    Partners on May 11, 2001 as Exhibit 10.2(b) to Nextel
    Partners current report on Form 8-K and incorporated
    herein by reference).                                                                                                                           
|        | 10.16.5  |   |  | Amendment no. 3 dated April 18, 2001 to
    the Nextel Partners Shareholders Agreement (filed by Nextel
    Partners on May 11, 2001 as Exhibit 10.2(c) to Nextel
    Partners current report on Form 8-K and incorporated
    herein by reference).                                                                                                                           
|        | 10.16.6  |   |  | Amendment no. 4 dated July 25, 2001 to
    the Nextel Partners Shareholders Agreement (filed by Nextel
    Partners on November 13, 2001 as Exhibit 10.2(d) to
    Nextel Partners current report on Form 8-K and
    incorporated herein by reference).                                                                                                                       
|        | 10.16.7  |   |  | Agreement Specifying Obligations of, and Limiting
    Liability and Recourse to, Nextel dated January 29, 1999
    (filed February 24, 1999 as Exhibit 10.3 to
    Nextels current report on Form 8-K and incorporated
    herein by reference).                                                                                                                               

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|        |         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | ------- |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         | 
|Number  |         | 
|        |         | 
|        | 10.17   |  |  | Master Site Lease Agreement among Nextel of New
    York, Inc. Nextel Communications of the Mid-Atlantic, Inc.,
    Nextel South Corp., Nextel of Texas, Inc. Nextel West Corp., and
    Nextel of California, Inc. and Tower Asset Sub Inc. and the
    Landlord Parties as defined therein (filed April 29, 1999
    as Exhibit 10.33 to SpectraSite Holdings, Inc.s
    registration statement no. 333-67043 on Form S-4 (the
    SpectraSite Holdings S-4 Registration Statement) and
    incorporated herein by reference).
|        | 10.18   |  |  | Master Site Commitment Agreement among Nextel,
    Nextel of New York, Nextel Communications of the Mid-Atlantic,
    Nextel South Corp., Nextel of Texas, Nextel West Corp., Nextel
    of California, Tower Parent Corp., SpectraSite Holdings and
    Tower Asset Sub (filed April 29, 1999 as Exhibit 10.34
    to the SpectraSite Holdings S-4 Registration Statement and
    incorporated herein by reference).                                                                                                              
|        | 10.19** |  |  | Nextel Communications, Inc. 2002/2003 Long-Term
    Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10.20** |  |  | First Amendment, dated September 19, 2002,
    to Nextels Change of Control Retention Bonus and Severance
    Pay Plan (filed November 14, 2002 as Exhibit 10.1 to
    Nextels quarterly report on Form 10-Q for the quarter
    ended September 30, 2002 (the Third Quarter 2002
    10-Q) and incorporated herein by reference).                                                                                                                                                                                             
|        | 10.21** |  |  | Separation and Non-Competition Agreement, dated
    September 19, 2002, between Nextel and James F. Mooney
    (filed November 14, 2002 as Exhibit 10.2 to the Third
    Quarter 2002 10-Q and incorporated herein by reference).                                                                                                                                                                                                                                                                                                  
|        | 10.22** |  |  | Release Agreement, dated October 1, 2002,
    between Nextel and James F. Mooney (filed November 14, 2002
    as Exhibit 10.3 to the Third Quarter 2002 10-Q and
    incorporated herein by reference).                                                                                                                                                                                                                                                                                                                            
|        | 10.23** |  |  | Loan Agreement, dated April 27, 2001,
    between Unrestricted Subsidiary Funding Company and James F.
    Mooney (filed October 11, 2002 as Exhibit 99.1 to
    Nextels registration statement on Form S-3 (file
    no. 333-98261) and incorporated herein by reference).                                                                                                                                                                                                                                                       
|        | 10.24** |  |  | Employment Agreement, dated as of January 1,
    2001, between Leonard J. Kennedy and Nextel.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 21      |  |  | Subsidiaries of Nextel.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 23.1    |  |  | Consent of Deloitte & Touche LLP with respect
    to Nextel.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 23.2    |  |  | Consent of Deloitte & Touche LLP with respect
    to NII Holdings, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 99.1    |  |  | Memorandum Opinion and Order of the FCC dated
    February 13, 1991 (filed December 5, 1992 as
    Exhibit 28.1 to the S-1 Registration Statement and
    incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                       
|        | 99.2    |  |  | Sarbanes-Oxley Act of 2002 Certifications.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



---



|   |                                                                                                                                              
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------
|*  | Portions of this exhibit have been omitted and
    filed separately with the Commission pursuant to a request for
    confidential treatment.
|  
|** | Management contract or compensatory plan or
    arrangement                                                                                  

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

Index to Consolidated Financial Statements
and

Financial Statement Schedules


|                                  |                                                                                                                                   |      |     |      | 
|--------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | ---- | --- | ---- | 
|                                  |                                                                                                                                   | Page
|                                  |                                                                                                                                   |     
|INDEPENDENT AUDITORS REPORT      |                                                                                                                                   |      | F-2 |     
|CONSOLIDATED FINANCIAL STATEMENTS |                                                                                                                                   |      |     |     
|                                  | Consolidated Balance Sheets as of
    December 31, 2002 and 2001                                                                  |      |     | F-3  | 
|                                  | Consolidated Statements of Operations for the
    Years Ended December 31, 2002, 2001 and 2000                                    |      |     | F-4  | 
|                                  | Consolidated Statements of Changes in
    Stockholders Equity (Deficit) for the Years Ended
    December 31, 2002, 2001 and 2000 |      |     | F-5  | 
|                                  | Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2002, 2001 and 2000                                    |      |     | F-6  | 
|                                  | Notes to Consolidated Financial Statements                                                                                        |      |     | F-7  | 
|FINANCIAL STATEMENT SCHEDULES     |                                                                                                                                   |      |     |     
|                                  | Schedule I  Condensed Financial
    Information of Registrant                                                                    |      |     | F-49 | 
|                                  | Schedule II  Valuation and
    Qualifying Accounts                                                                               |      |     | F-53 | 
|                                  | Schedule III  Consolidated
    Financial Statements of NII Holdings, Inc.                                                        |      |     | F-54 | 

F-1



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##### Table of Contents






INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholders of
Nextel Communications, Inc.

Reston, Virginia


We have audited the accompanying consolidated
balance sheets of Nextel Communications, Inc. and subsidiaries
(the Company) as of December 31, 2002 and 2001,
and the related consolidated statements of operations, changes
in stockholders equity (deficit), and cash flows for each
of the three years in the period ended December 31, 2002.
Our audits also included financial statement schedules I
and II listed in the Index at Item 15(a)(2). These
consolidated financial statements and financial statement
schedules I and II are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements and the
financial statement schedules I and II based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, such consolidated financial
statements present fairly, in all material respects, the
financial position of Nextel Communications, Inc. and
subsidiaries at December 31, 2002 and 2001, and the results
of their operations and their cash flows for each of the three
years in the period ended December 31, 2002, in conformity
with accounting principles generally accepted in the United
States of America. Also, in our opinion, the financial statement
schedules referred to above, when considered in relation to the
basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set
forth therein.

As discussed in note 1 to the consolidated
financial statements, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and other Intangible Assets, in 2002. As
discussed in notes 1 and 9 to the consolidated
financial statements, in 2001, the Company changed its method of
accounting for derivative instruments to conform to SFAS
No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended by SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain
Hedging Activities, and recorded a cumulative effect of a
change in accounting principle in 2001. As discussed in
note 1 to the consolidated financial statements, the
Company adopted the provisions of Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial
Statements, in 2000.

/s/ DELOITTE & TOUCHE LLP

McLean, Virginia

February 20, 2003, March 5, 2003 as to notes
11, 13 and 15


F-2



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##### Table of Contents






NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES






CONSOLIDATED BALANCE SHEETS


As of December 31, 2002 and
2001


(in millions)


|                                                       |                                                                                    |                                      |        |        |        |   |        |        |        |  
|------------------------------------------------------ | ---------------------------------------------------------------------------------- | ------------------------------------ | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|                                                       |                                                                                    | 2002                                 |        | 2001  
|                                                       |                                                                                    |                                      |        |       
|ASSETS                                                
|Current assets                                         |                                                                                    |                                      |        |        |        |   |        |       
|                                                       | Cash and cash equivalents, of which $0 and $250
    is restricted                  |                                      | $      | 1,846  |        |   | $      | 2,481  |       
|                                                       | Restricted cash of NII Holdings held in escrow                                     |                                      |        |       |        |   |        | 84     |       
|                                                       | Short-term investments                                                             |                                      |        | 840    |        |   |        | 1,236  |       
|                                                       | Accounts and notes receivable, net                                                 |                                      |        | 1,077  |        |   |        | 1,111  |       
|                                                       | Due from related parties                                                           |                                      |        | 33     |        |   |        | 18     |       
|                                                       | Handset and accessory inventory                                                    |                                      |        | 245    |        |   |        | 260    |       
|                                                       | Prepaid expenses and other current assets                                          |                                      |        | 609    |        |   |        | 533    |       
|                                                       |                                                                                    |                                      |        |        |        |   |        |       
|                                                       |                                                                                    | Total current assets                 |        |        | 4,650  |   |        |        | 5,723  |  
|Investments                                            |                                                                                    |                                      | 145    |        |        |   | 188    |       
|Property, plant and equipment, net                     |                                                                                    |                                      | 8,918  |        |        |   | 9,274  |       
|Intangible assets, net                                 |                                                                                    |                                      | 6,607  |        |        |   | 5,778  |       
|Other assets                                           |                                                                                    |                                      | 1,164  |        |        |   | 1,101  |       
|                                                       |                                                                                    |                                      |        |        |        |   |        |       
|                                                       |                                                                                    | $                                    | 21,484 |        |        | $ | 22,064 |       
|                                                       |                                                                                    |                                      |        |        |        |   |        |       
|LIABILITIES AND STOCKHOLDERS EQUITY
    (DEFICIT)    
|Current liabilities                                    |                                                                                    |                                      |        |        |        |   |        |       
|                                                       | Accounts payable                                                                   |                                      | $      | 515    |        |   | $      | 756    |       
|                                                       | Accrued expenses and other                                                         |                                      |        | 1,749  |        |   |        | 1,470  |       
|                                                       | Due to related parties                                                             |                                      |        | 241    |        |   |        | 341    |       
|                                                       | Current portion of long-term debt, capital lease
    and finance obligations       |                                      |        | 251    |        |   |        | 145    |       
|                                                       | Debt of NII Holdings, nonrecourse to and not held
    by parent (notes 7 and 8)    |                                      |        |       |        |   |        | 1,865  |       
|                                                       |                                                                                    |                                      |        |        |        |   |        |       
|                                                       |                                                                                    | Total current liabilities            |        |        | 2,756  |   |        |        | 4,577  |  
|Long-term debt                                         |                                                                                    |                                      | 12,079 |        |        |   | 13,815 |       
|Capital lease and finance
    obligations              |                                                                                    |                                      | 220    |        |        |   | 905    |       
|Deferred income taxes                                  |                                                                                    |                                      | 1,619  |        |        |   | 669    |       
|Deferred revenues and other                            |                                                                                    |                                      | 949    |        |        |   | 566    |       
|                                                       |                                                                                    |                                      |        |        |        |   |        |       
|                                                       |                                                                                    | Total liabilities                    |        |        | 17,623 |   |        |        | 20,532 |  
|                                                       |                                                                                    |                                      |        |        |        |   |        |       
|Commitments and contingencies (notes 7,
    11 and 15) |                                                                                    |                                      |        |        |        |   |        |       
|Mandatorily redeemable preferred stock
    (note 12)   |                                                                                    |                                      | 1,015  |        |        |   | 2,114  |       
|Stockholders equity (deficit)                         |                                                                                    |                                      |        |        |        |   |        |       
|                                                       | Convertible preferred stock, 4 and 8 shares
    issued and outstanding             |                                      |        | 136    |        |   |        | 283    |       
|                                                       | Common stock, class A, 968 and 763 shares
    issued and outstanding               |                                      |        | 1      |        |   |        | 1      |       
|                                                       | Common stock, class B, nonvoting
    convertible, 36 shares issued and outstanding |                                      |        |       |        |   |        |       |       
|                                                       | Paid-in capital                                                                    |                                      |        | 10,530 |        |   |        | 8,581  |       
|                                                       | Accumulated deficit                                                                |                                      |        | (7,793 | )      |   |        | (9,179 | )     
|                                                       | Deferred compensation, net                                                         |                                      |        | (7     | )      |   |        | (17    | )     
|                                                       | Accumulated other comprehensive loss                                               |                                      |        | (21    | )      |   |        | (251   | )     
|                                                       |                                                                                    |                                      |        |        |        |   |        |       
|                                                       |                                                                                    | Total stockholders equity (deficit) |        |        | 2,846  |   |        |        | (582   | )
|                                                       |                                                                                    |                                      |        |        |        |   |        |       
|                                                       |                                                                                    | $                                    | 21,484 |        |        | $ | 22,064 |       
|                                                       |                                                                                    |                                      |        |        |        |   |        |       

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

F-3



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##### Table of Contents






NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF
OPERATIONS


For the Years Ended December 31, 2002,
2001 and 2000


(in millions, except per share
amounts)


|                                                         |                                                                                         |      |       |        |   |      |        |        |   |   |        |        |  
|-------------------------------------------------------- | --------------------------------------------------------------------------------------- | ---- | ----- | ------ | - | ---- | ------ | ------ | - | - | ------ | ------ | -
|                                                         |                                                                                         | 2002 |       | 2001   |   | 2000
|                                                         |                                                                                         |      |       |        |   |     
|Operating revenues                                       |                                                                                         |      |       |        |   |      |        |        |   |   |        |       
|                                                         | Service revenues                                                                        |      | $     | 8,186  |   |      | $      | 7,221  |   |   | $      | 5,297  |  
|                                                         | Handset and accessory revenues                                                          |      |       | 535    |   |      |        | 468    |   |   |        | 417    |  
|                                                         |                                                                                         |      |       |        |   |      |        |        |   |   |        |       
|                                                         |                                                                                         |      | 8,721 |        |   |      | 7,689  |        |   |   | 5,714  |       
|                                                         |                                                                                         |      |       |        |   |      |        |        |   |   |        |       
|Operating expenses                                       |                                                                                         |      |       |        |   |      |        |        |   |   |        |       
|                                                         | Cost of service (exclusive of depreciation
    included below)                          |      |       | 1,469  |   |      |        | 1,499  |   |   |        | 1,071  |  
|                                                         | Cost of handset and accessory revenues                                                  |      |       | 1,047  |   |      |        | 1,370  |   |   |        | 1,101  |  
|                                                         | Selling, general and administrative                                                     |      |       | 3,039  |   |      |        | 3,020  |   |   |        | 2,278  |  
|                                                         | Restructuring and impairment charges (note 3)                                           |      |       | 35     |   |      |        | 1,769  |   |   |        |       |  
|                                                         | Depreciation                                                                            |      |       | 1,541  |   |      |        | 1,508  |   |   |        | 1,063  |  
|                                                         | Amortization                                                                            |      |       | 54     |   |      |        | 238    |   |   |        | 202    |  
|                                                         |                                                                                         |      |       |        |   |      |        |        |   |   |        |       
|Operating income (loss)                                  |                                                                                         |      | 1,536 |        |   |      | (1,715 | )      |   |   | (1     | )     
|                                                         |                                                                                         |      |       |        |   |      |        |        |   |   |        |       
|Other income (expense)                                   |                                                                                         |      |       |        |   |      |        |        |   |   |        |       
|                                                         | Interest expense                                                                        |      |       | (1,048 | ) |      |        | (1,403 | ) |   |        | (1,245 | )
|                                                         | Interest income                                                                         |      |       | 58     |   |      |        | 207    |   |   |        | 396    |  
|                                                         | Gain (loss) on retirement of debt, net of debt
    conversion costs of $160, $0 and $23 |      |       | 354    |   |      |        | 469    |   |   |        | (127   | )
|                                                         | Gain on deconsolidation of NII Holdings
    (note 1)                                    |      |       | 1,218  |   |      |        |       |   |   |        |       |  
|                                                         | Equity in losses of unconsolidated affiliates                                           |      |       | (302   | ) |      |        | (95    | ) |   |        | (152   | )
|                                                         | Foreign currency transaction losses, net                                                |      |       |       |   |      |        | (70    | ) |   |        | (25    | )
|                                                         | Realized gain on investments, net                                                       |      |       |       |   |      |        | 47     |   |   |        | 275    |  
|                                                         | Reduction in fair value of investments, net                                             |      |       | (37    | ) |      |        | (188   | ) |   |        |       |  
|                                                         | Other, net                                                                              |      |       | (2     | ) |      |        | (12    | ) |   |        | 31     |  
|                                                         |                                                                                         |      |       |        |   |      |        |        |   |   |        |       
|                                                         |                                                                                         |      | 241   |        |   |      | (1,045 | )      |   |   | (847   | )     
|                                                         |                                                                                         |      |       |        |   |      |        |        |   |   |        |       
|Income (loss) before income tax (provision)
    benefit  |                                                                                         |      | 1,777 |        |   |      | (2,760 | )      |   |   | (848   | )     
|Income tax (provision) benefit                           |                                                                                         |      | (391  | )      |   |      | 135    |        |   |   | 33     |       
|                                                         |                                                                                         |      |       |        |   |      |        |        |   |   |        |       
|Net income (loss)                                        |                                                                                         |      | 1,386 |        |   |      | (2,625 | )      |   |   | (815   | )     
|                                                         | Gain on retirement of mandatorily redeemable
    preferred stock                        |      |       | 485    |   |      |        |       |   |   |        |       |  
|                                                         | Mandatorily redeemable preferred stock dividends
    and accretion                      |      |       | (211   | ) |      |        | (233   | ) |   |        | (209   | )
|                                                         |                                                                                         |      |       |        |   |      |        |        |   |   |        |       
|Income (loss) available to common
    stockholders       |                                                                                         | $    | 1,660 |        |   | $    | (2,858 | )      |   | $ | (1,024 | )     
|                                                         |                                                                                         |      |       |        |   |      |        |        |   |   |        |       
|Earnings (loss) per common share                         |                                                                                         |      |       |        |   |      |        |        |   |   |        |       
|                                                         | Basic                                                                                   |      | $     | 1.88   |   |      | $      | (3.67  | ) |   | $      | (1.35  | )
|                                                         |                                                                                         |      |       |        |   |      |        |        |   |   |        |       
|                                                         | Diluted                                                                                 |      | $     | 1.78   |   |      | $      | (3.67  | ) |   | $      | (1.35  | )
|                                                         |                                                                                         |      |       |        |   |      |        |        |   |   |        |       
|Weighted average number of common shares
    outstanding |                                                                                         |      |       |        |   |      |        |        |   |   |        |       
|                                                         | Basic                                                                                   |      |       | 884    |   |      |        | 778    |   |   |        | 756    |  
|                                                         |                                                                                         |      |       |        |   |      |        |        |   |   |        |       
|                                                         | Diluted                                                                                 |      |       | 966    |   |      |        | 778    |   |   |        | 756    |  
|                                                         |                                                                                         |      |       |        |   |      |        |        |   |   |        |       

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

F-4



---



##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY (DEFICIT)

For the Years Ended December 31, 2002,
2001 and 2000


(in millions)


|                           |                                                                         |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  |  | 
|-------------------------- | ----------------------------------------------------------------------- | ---------------------------------------------- | ----------------------------------------------------------- | -------------------------------------------------------------------- | - | ------------ | --- | ------- | - | ----------- | --- | -------------- |  | -------- | - | ------- |  | ------ | -- | ------ |  | ------------ | - |  |  | - | ------ | ---- | - | - | ------ | ------ | - |  | - | - |  | - | -- | - |  | - | --- | -- | - |  |  | 
|                           |                                                                         |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |        
|                           |                                                                         | Convertible                                    |                                                             | Class A                                                              |   | Class B      |     |         |   |             |     |                |  |         
|                           |                                                                         | Preferred Stock                                |                                                             | Common Stock                                                         |   | Common Stock |     |         |   |             |     | Treasury Stock |  |         
|                           |                                                                         |                                                |                                                             |                                                                      |   |              |     | Paid-in |   | Accumulated |     |                |  | Deferred
|                           |                                                                         | Shares                                         |                                                             | Amount                                                               |   | Shares       |     | Amount  |   | Shares      |     | Amount         |  | Capital  |   | Deficit |  | Shares |    | Amount |  | Compensation
|                           |                                                                         |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |             
|Balance, December 31, 1999 |                                                                         |                                                | 8                                                           |                                                                      |   | $            | 291 |         |   |             | 702 |                |  | $        | 1 |         |  |        | 36 |        |  | $            |  |  |  | $ | 8,046  |      |   | $ | (5,739 | )      |   |  |  |   |  | $ | (6 | ) |  | $ | (23 | ) 
|                           | Net loss                                                                |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        | (815   | ) |  |   |   |  |   |    |   |  |   |     |    |  
|                           |                                                                         | Other comprehensive loss, net of income tax:   |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   | 
|                           |                                                                         |                                                | Foreign currency translation adjustment                     |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  | 
|                           |                                                                         |                                                | Net unrealized gains on available- for-sale
    securities: |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  | 
|                           |                                                                         |                                                |                                                             | Unrealized holding gains arising during the period                   |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  |  | 
|                           |                                                                         |                                                |                                                             | Reclassification adjustment for gain included in
    net loss        |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  |  | 
|                           | Total comprehensive loss                                                |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |  
|                           | Common stock issued under equity plans                                  |                                                |                                                             |                                                                      |   |              |     |         |   |             |     | 7              |  |          |   |        |  |        |    |        |  |              |   |  |  |   |        | 89   |   |   |        |        |   |  |   |  |  |   |    | 4 |  |   |     |    |  
|                           | Conversion of debt securities and preferred stock
    into common stock |                                                |                                                             |                                                                     |   |              |     | (8      | ) |             |     | 18             |  |          |   |        |  |        |    |        |  |              |   |  |  |   |        | 344  |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |  
|                           | Gain on issuance of equity by affiliate, net of
    income tax          |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        | 87   |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |  
|                           | Deferred compensation                                                   |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        | 13   |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     | (5 | )
|                           | Dividends and accretion on mandatorily redeemable
    preferred stock   |                                                |                                                             |                                                                     |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        | (209 | ) |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |  
|                           |                                                                         |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |   
|Balance, December 31, 2000 |                                                                         |                                                | 8                                                           |                                                                      |   |              | 283 |         |   |             | 727 |                |  |          | 1 |         |  |        | 36 |        |  |              |  |  |  |   | 8,370  |      |   |   | (6,554 | )      |   |  |  |   |  |   | (2 | ) |  |   | (28 | ) 
|                           | Net loss                                                                |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        | (2,625 | ) |  |   |   |  |   |    |   |  |   |     |    |  
|                           |                                                                         | Other comprehensive loss, net of income tax:   |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   | 
|                           |                                                                         |                                                | Foreign currency translation adjustment                     |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  | 
|                           |                                                                         |                                                | Net unrealized gains on available- for-sale
    securities: |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  | 
|                           |                                                                         |                                                |                                                             | Unrealized holding losses arising during the
    period              |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  |  | 
|                           |                                                                         |                                                |                                                             | Reclassification adjustment for losses included
    in net loss      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  |  | 
|                           |                                                                         |                                                | Cash flow hedge:                                            |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  | 
|                           |                                                                         |                                                |                                                             | Cumulative effect of accounting change                               |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  |  | 
|                           |                                                                         |                                                |                                                             | Reclassification of transition adjustment
    included in net loss   |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  |  | 
|                           |                                                                         |                                                |                                                             | Unrealized loss on cash flow hedge                                   |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  |  | 
|                           | Total comprehensive loss                                                |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |  
|                           | Common stock issued under equity plans                                  |                                                |                                                             |                                                                      |   |              |     |         |   |             |     | 14             |  |          |   |        |  |        |    |        |  |              |   |  |  |   |        | 142  |   |   |        |        |   |  |   |  |  |   |    | 2 |  |   |     |    |  
|                           | Exchange of debt securities for common stock                            |                                                |                                                             |                                                                      |   |              |     |         |   |             |     | 22             |  |          |   |        |  |        |    |        |  |              |   |  |  |   |        | 292  |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |  
|                           | Deferred compensation and other                                         |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        | 10   |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     | 11 |  
|                           | Dividends and accretion on mandatorily redeemable
    preferred stock   |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        | (233 | ) |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |  
|                           |                                                                         |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |   
|Balance, December 31, 2001 |                                                                         |                                                | 8                                                           |                                                                      |   |              | 283 |         |   |             | 763 |                |  |          | 1 |         |  |        | 36 |        |  |              |  |  |  |   | 8,581  |      |   |   | (9,179 | )      |   |  |  |   |  |   |   |   |  |   | (17 | ) 
|                           | Net income                                                              |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        | 1,386  |   |  |   |   |  |   |    |   |  |   |     |    |  
|                           |                                                                         | Other comprehensive income, net of income tax: |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   | 
|                           |                                                                         |                                                | Foreign currency translation adjustment                     |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  | 
|                           |                                                                         |                                                | Net unrealized gains on available- for-sale
    securities: |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  | 
|                           |                                                                         |                                                |                                                             | Unrealized holding losses arising during the
    period              |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  |  | 
|                           |                                                                         |                                                |                                                             | Reclassification adjustment for losses included
    in net income    |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  |  | 
|                           |                                                                         |                                                | Cash flow hedge:                                            |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  | 
|                           |                                                                         |                                                |                                                             | Reclassification of transition adjustment
    included in net income |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  |  | 
|                           |                                                                         |                                                |                                                             | Unrealized loss on cash flow hedge                                   |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |   |  |  | 
|                           | Total comprehensive income                                              |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |  
|                           | Common stock issued under equity plans                                  |                                                |                                                             |                                                                      |   |              |     |         |   |             |     | 8              |  |          |   |        |  |        |    |        |  |              |   |  |  |   |        | 49   |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |  
|                           | Conversion of preferred stock into common stock                         |                                                |                                                             | (4                                                                   | ) |              |     | (147    | ) |             |     | 24             |  |          |   |        |  |        |    |        |  |              |   |  |  |   |        | 147  |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |  
|                           | Exchange of debt securities for common stock                            |                                                |                                                             |                                                                      |   |              |     |         |   |             |     | 98             |  |          |   |        |  |        |    |        |  |              |   |  |  |   |        | 867  |   |   |        |        |   |  |   |  |  |   |    |   |  |   |     |    |  
|                           | Exchange of mandatorily redeemable preferred
    stock for common stock |                                                |                                                             |                                                                      |   |              |     |         |   |             |     | 75             |  |          |   |        |  |        |    |        |  |              |   |  |  |   |        | 601  |   |   |        |        |   |  |   |  |  |   |    |   |  |   |     |    |  
|                           | Deferred compensation and other                                         |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        | 11   |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     | 10 |  
|                           | Gain on retirement of mandatorily redeemable
    preferred stock        |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        | 485  |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |  
|                           | Dividends and accretion on mandatorily redeemable
    preferred stock   |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        | (211 | ) |   |        |        |   |  |   |   |  |   |    |   |  |   |     |    |  
|                           |                                                                         |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |   
|Balance, December 31, 2002 |                                                                         |                                                | 4                                                           |                                                                      |   | $            | 136 |         |   |             | 968 |                |  | $        | 1 |         |  |        | 36 |        |  | $            |  |  |  | $ | 10,530 |      |   | $ | (7,793 | )      |   |  |  |   |  | $ |   |   |  | $ | (7  | ) 
|                           |                                                                         |                                                |                                                             |                                                                      |   |              |     |         |   |             |     |                |  |          |   |         |  |        |    |        |  |              |   |  |  |   |        |      |   |   |        |        |   |  |   |   |  |   |    |   |  |   |     |   

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                           |                                                                         |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       |        |   |     |      |  
|-------------------------- | ----------------------------------------------------------------------- | ---------------------------------------------- | ----------------------------------------------------------- | -------------------------------------------------------------------- |  | ----- | ---- | ----- |  | --- | --- | - |  | - | ----- | ------ | - | --- | ---- | -
|                           |                                                                         |                                                |                                                             |                                                                     
|                           |                                                                         | Accumulated Other                              |                                                             |                                                                     
|                           |                                                                         | Comprehensive Income (Loss)                    |                                                             |                                                                     
|                           |                                                                         |                                                |                                                             |                                                                     
|                           |                                                                         | Unrealized                                     |                                                             |                                                                      |  |      
|                           |                                                                         | Gain                                           |                                                             | Cumulative                                                           |  | Cash  |      |      
|                           |                                                                         | (Loss) on                                      |                                                             | Translation                                                          |  | Flow  |      |      
|                           |                                                                         | Investments                                    |                                                             | Adjustment                                                           |  | Hedge |      | Total
|                           |                                                                         |                                                |                                                             |                                                                      |  |       |      |      
|Balance, December 31, 1999 |                                                                         | $                                              | 142                                                         |                                                                      |  | $     | (138 | )     |  | $   |    |   |  | $ | 2,574 |       
|                           |                                                                         |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       |       
|                           | Net loss                                                                |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | (815   | )
|                           |                                                                         | Other comprehensive loss, net of income tax:   |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       |        |   |    
|                           |                                                                         |                                                | Foreign currency translation adjustment                     |                                                                      |  |       |      |       |  | 4   |     |   |  |   |       |        |   | 4   |     
|                           |                                                                         |                                                | Net unrealized gains on available- for-sale
    securities: |                                                                      |  |       |      |       |  |     |     |   |  |   |       |        |   |     |     
|                           |                                                                         |                                                |                                                             | Unrealized holding gains arising during the period                   |  |       | 225  |       |  |     |     |   |  |   |       |        |   |     | 225  |  
|                           |                                                                         |                                                |                                                             | Reclassification adjustment for gain included in
    net loss        |  |       | (275 | )     |  |     |     |   |  |   |       |        |   |     | (275 | )
|                           |                                                                         |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       |       
|                           | Total comprehensive loss                                                |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | (861   | )
|                           |                                                                         |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       |       
|                           | Common stock issued under equity plans                                  |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | 93     |  
|                           | Conversion of debt securities and preferred stock
    into common stock |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | 336    |  
|                           | Gain on issuance of equity by affiliate, net of
    income tax          |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | 87     |  
|                           | Deferred compensation                                                   |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | 8      |  
|                           | Dividends and accretion on mandatorily redeemable
    preferred stock   |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | (209   | )
|                           |                                                                         |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       |       
|Balance, December 31, 2000 |                                                                         |                                                | 92                                                          |                                                                      |  |       | (134 | )     |  |     |    |   |  |   | 2,028 |       
|                           |                                                                         |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       |       
|                           | Net loss                                                                |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | (2,625 | )
|                           |                                                                         | Other comprehensive loss, net of income tax:   |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       |        |   |    
|                           |                                                                         |                                                | Foreign currency translation adjustment                     |                                                                      |  |       |      |       |  | (95 | )   |   |  |   |       |        |   | (95 | )   
|                           |                                                                         |                                                | Net unrealized gains on available- for-sale
    securities: |                                                                      |  |       |      |       |  |     |     |   |  |   |       |        |   |     |     
|                           |                                                                         |                                                |                                                             | Unrealized holding losses arising during the
    period              |  |       | (234 | )     |  |     |     |   |  |   |       |        |   |     | (234 | )
|                           |                                                                         |                                                |                                                             | Reclassification adjustment for losses included
    in net loss      |  |       | 149  |       |  |     |     |   |  |   |       |        |   |     | 149  |  
|                           |                                                                         |                                                | Cash flow hedge:                                            |                                                                      |  |       |      |       |  |     |     |   |  |   |       |        |   |     |     
|                           |                                                                         |                                                |                                                             | Cumulative effect of accounting change                               |  |       |      |       |  |     |     |   |  |   | (20   | )      |   |     | (20  | )
|                           |                                                                         |                                                |                                                             | Reclassification of transition adjustment
    included in net loss   |  |       |      |       |  |     |     |   |  |   | 8     |        |   |     | 8    |  
|                           |                                                                         |                                                |                                                             | Unrealized loss on cash flow hedge                                   |  |       |      |       |  |     |     |   |  |   | (17   | )      |   |     | (17  | )
|                           |                                                                         |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       |       
|                           | Total comprehensive loss                                                |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | (2,834 | )
|                           |                                                                         |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       |       
|                           | Common stock issued under equity plans                                  |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | 144    |  
|                           | Exchange of debt securities for common stock                            |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | 292    |  
|                           | Deferred compensation and other                                         |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | 21     |  
|                           | Dividends and accretion on mandatorily redeemable
    preferred stock   |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | (233   | )
|                           |                                                                         |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       |       
|Balance, December 31, 2001 |                                                                         |                                                | 7                                                           |                                                                      |  |       | (229 | )     |  |     | (29 | ) |  |   | (582  | )     
|                           |                                                                         |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       |       
|                           | Net income                                                              |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | 1,386  |  
|                           |                                                                         | Other comprehensive income, net of income tax: |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       |        |   |    
|                           |                                                                         |                                                | Foreign currency translation adjustment                     |                                                                      |  |       |      |       |  | 228 |     |   |  |   |       |        |   | 228 |     
|                           |                                                                         |                                                | Net unrealized gains on available- for-sale
    securities: |                                                                      |  |       |      |       |  |     |     |   |  |   |       |        |   |     |     
|                           |                                                                         |                                                |                                                             | Unrealized holding losses arising during the
    period              |  |       | (37  | )     |  |     |     |   |  |   |       |        |   |     | (37  | )
|                           |                                                                         |                                                |                                                             | Reclassification adjustment for losses included
    in net income    |  |       | 37   |       |  |     |     |   |  |   |       |        |   |     | 37   |  
|                           |                                                                         |                                                | Cash flow hedge:                                            |                                                                      |  |       |      |       |  |     |     |   |  |   |       |        |   |     |     
|                           |                                                                         |                                                |                                                             | Reclassification of transition adjustment
    included in net income |  |       |      |       |  |     |     |   |  |   | 8     |        |   |     | 8    |  
|                           |                                                                         |                                                |                                                             | Unrealized loss on cash flow hedge                                   |  |       |      |       |  |     |     |   |  |   | (6    | )      |   |     | (6   | )
|                           |                                                                         |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       |       
|                           | Total comprehensive income                                              |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | 1,616  |  
|                           |                                                                         |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       |       
|                           | Common stock issued under equity plans                                  |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | 49     |  
|                           | Conversion of preferred stock into common stock                         |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       |       |  
|                           | Exchange of debt securities for common stock                            |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | 867    |  
|                           | Exchange of mandatorily redeemable preferred
    stock for common stock |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | 601    |  
|                           | Deferred compensation and other                                         |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | 21     |  
|                           | Gain on retirement of mandatorily redeemable
    preferred stock        |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | 485    |  
|                           | Dividends and accretion on mandatorily redeemable
    preferred stock   |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       | (211   | )
|                           |                                                                         |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       |       
|Balance, December 31, 2002 |                                                                         | $                                              | 7                                                           |                                                                      |  | $     | (1   | )     |  | $   | (27 | ) |  | $ | 2,846 |       
|                           |                                                                         |                                                |                                                             |                                                                      |  |       |      |       |  |     |     |   |  |   |       |       

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

F-5



---



##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Years Ended December 31, 2002,
2001 and 2000


(in millions)


|                                                                 |                                                                                              |                                                                                            |                                              |                                                         |        |      |        |        |       |      |        |        |       |      |        |  
|---------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | -------------------------------------------- | ------------------------------------------------------- | ------ | ---- | ------ | ------ | ----- | ---- | ------ | ------ | ----- | ---- | ------ | -
|                                                                 |                                                                                              | 2002                                                                                       |                                              | 2001                                                    |        | 2000
|                                                                 |                                                                                              |                                                                                            |                                              |                                                         |        |     
|Cash flows from operating activities                             |                                                                                              |                                                                                            |                                              |                                                         |        |      |        |        |       |      |        |       
|                                                                 | Net income (loss)                                                                            |                                                                                            | $                                            | 1,386                                                   |        |      | $      | (2,625 | )     |      | $      | (815   | )    
|                                                                 | Adjustments to reconcile net income (loss) to net
    cash provided by operating activities: |                                                                                            |                                              |                                                         |        |      |        |        |       |      |        |        |      
|                                                                 |                                                                                              | Amortization of debt financing costs and
    accretion of senior redeemable discount notes |                                              |                                                         | 316    |      |        |        | 504   |      |        |        | 389   |     
|                                                                 |                                                                                              | Provision for losses on accounts receivable                                                |                                              |                                                         | 334    |      |        |        | 370   |      |        |        | 179   |     
|                                                                 |                                                                                              | Stock-based compensation                                                                   |                                              |                                                         | 13     |      |        |        | 16    |      |        |        | 10    |     
|                                                                 |                                                                                              | Restructuring and impairment charges                                                       |                                              |                                                         | 24     |      |        |        | 1,741 |      |        |        |      |     
|                                                                 |                                                                                              | Depreciation and amortization                                                              |                                              |                                                         | 1,595  |      |        |        | 1,746 |      |        |        | 1,265 |     
|                                                                 |                                                                                              | (Gain) loss on retirement of debt                                                          |                                              |                                                         | (514   | )    |        |        | (469  | )    |        |        | 104   |     
|                                                                 |                                                                                              | Debt conversion expense                                                                    |                                              |                                                         | 160    |      |        |        |      |      |        |        | 23    |     
|                                                                 |                                                                                              | Gain on deconsolidation of NII Holdings                                                    |                                              |                                                         | (1,228 | )    |        |        |      |      |        |        |      |     
|                                                                 |                                                                                              | Equity in losses of unconsolidated affiliates                                              |                                              |                                                         | 302    |      |        |        | 95    |      |        |        | 152   |     
|                                                                 |                                                                                              | Foreign currency transaction losses, net                                                   |                                              |                                                         |       |      |        |        | 70    |      |        |        | 25    |     
|                                                                 |                                                                                              | Realized gain on investments, net                                                          |                                              |                                                         |       |      |        |        | (47   | )    |        |        | (275  | )   
|                                                                 |                                                                                              | Reduction in fair value of investments                                                     |                                              |                                                         | 37     |      |        |        | 188   |      |        |        |      |     
|                                                                 |                                                                                              | Income tax provision (benefit)                                                             |                                              |                                                         | 391    |      |        |        | (135  | )    |        |        | (33   | )   
|                                                                 |                                                                                              | Other, net                                                                                 |                                              |                                                         | 21     |      |        |        | 12    |      |        |        | (115  | )   
|                                                                 |                                                                                              | Change in assets and liabilities, net of effects
    from acquisitions:                    |                                              |                                                         |        |      |        |        |       |      |        |        |       |     
|                                                                 |                                                                                              |                                                                                            | Accounts and notes receivable                |                                                         |        | (507 | )      |        |       | (637 | )      |        |       | (406 | )     
|                                                                 |                                                                                              |                                                                                            | Handset and accessory inventory              |                                                         |        | (21  | )      |        |       | (79  | )      |        |       | (78  | )     
|                                                                 |                                                                                              |                                                                                            | Prepaid expenses and other assets            |                                                         |        | (6   | )      |        |       | 195  |        |        |       | (288 | )     
|                                                                 |                                                                                              |                                                                                            | Accounts payable, accrued expenses and other |                                                         |        | 220  |        |        |       | 184  |        |        |       | 439  |       
|                                                                 |                                                                                              |                                                                                            |                                              |                                                         |        |      |        |        |       |      |        |       
|                                                                 |                                                                                              |                                                                                            |                                              | Net cash provided by operating activities               |        |      | 2,523  |        |       |      | 1,129  |        |       |      | 576    |  
|                                                                 |                                                                                              |                                                                                            |                                              |                                                         |        |      |        |        |       |      |        |       
|Cash flows from investing activities                             |                                                                                              |                                                                                            |                                              |                                                         |        |      |        |        |       |      |        |       
|                                                                 | Capital expenditures                                                                         |                                                                                            |                                              | (1,863                                                  | )      |      |        | (3,418 | )     |      |        | (3,294 | )    
|                                                                 | Proceeds from maturities and sales of short-term
    investments                             |                                                                                            |                                              | 3,486                                                   |        |      |        | 4,879  |       |      |        | 4,950  |      
|                                                                 | Purchases of short-term investments                                                          |                                                                                            |                                              | (3,068                                                  | )      |      |        | (3,987 | )     |      |        | (5,801 | )    
|                                                                 | Payments for purchases of licenses, investments
    and other, net of cash acquired          |                                                                                            |                                              | (435                                                    | )      |      |        | (877   | )     |      |        | (935   | )    
|                                                                 | Cash relinquished as a result of the
    deconsolidation of NII Holdings                     |                                                                                            |                                              | (250                                                    | )      |      |        |       |       |      |        |       |      
|                                                                 | Payments for acquisitions, net of cash acquired                                              |                                                                                            |                                              | (111                                                    | )      |      |        | (245   | )     |      |        | (386   | )    
|                                                                 | Proceeds from sales of investments                                                           |                                                                                            |                                              | 2                                                       |        |      |        | 142    |       |      |        |       |      
|                                                                 | Other investments and advances to affiliates                                                 |                                                                                            |                                              |                                                        |        |      |        | (23    | )     |      |        | (20    | )    
|                                                                 | Proceeds from sale of assets                                                                 |                                                                                            |                                              | 3                                                       |        |      |        | 17     |       |      |        | 17     |      
|                                                                 |                                                                                              |                                                                                            |                                              |                                                         |        |      |        |        |       |      |        |       
|                                                                 |                                                                                              |                                                                                            |                                              | Net cash used in investing activities                   |        |      | (2,236 | )      |       |      | (3,512 | )      |       |      | (5,469 | )
|                                                                 |                                                                                              |                                                                                            |                                              |                                                         |        |      |        |        |       |      |        |       
|Cash flows from financing activities                             |                                                                                              |                                                                                            |                                              |                                                         |        |      |        |        |       |      |        |       
|                                                                 | Issuance of debt securities                                                                  |                                                                                            |                                              |                                                        |        |      |        | 2,250  |       |      |        | 1,791  |      
|                                                                 | Purchase and retirement of debt securities and
    mandatorily redeemable preferred stock    |                                                                                            |                                              | (843                                                    | )      |      |        |       |       |      |        | (1,208 | )    
|                                                                 | Repayments under capital lease and finance
    obligations                                   |                                                                                            |                                              | (100                                                    | )      |      |        | (83    | )     |      |        | (44    | )    
|                                                                 | Borrowings under long-term credit facilities                                                 |                                                                                            |                                              | 47                                                      |        |      |        | 19     |       |      |        | 1,907  |      
|                                                                 | Repayments under long-term credit facilities                                                 |                                                                                            |                                              | (47                                                     | )      |      |        | (34    | )     |      |        | (35    | )    
|                                                                 | Proceeds from exercise of stock options, warrants
    and other                              |                                                                                            |                                              | 35                                                      |        |      |        | 124    |       |      |        | 74     |      
|                                                                 | Proceeds from sale-leaseback transactions                                                    |                                                                                            |                                              | 6                                                       |        |      |        | 42     |       |      |        | 376    |      
|                                                                 | Increase in restricted cash held in escrow                                                   |                                                                                            |                                              |                                                        |        |      |        | (27    | )     |      |        |       |      
|                                                                 | Mandatorily redeemable preferred stock dividends
    paid                                    |                                                                                            |                                              | (19                                                     | )      |      |        |       |       |      |        |       |      
|                                                                 | Debt financing costs and other                                                               |                                                                                            |                                              | (1                                                      | )      |      |        | (35    | )     |      |        | (63    | )    
|                                                                 |                                                                                              |                                                                                            |                                              |                                                         |        |      |        |        |       |      |        |       
|                                                                 |                                                                                              |                                                                                            |                                              | Net cash (used in) provided by financing
    activities |        |      | (922   | )      |       |      | 2,256  |        |       |      | 2,798  |  
|                                                                 |                                                                                              |                                                                                            |                                              |                                                         |        |      |        |        |       |      |        |       
|Effect of exchange rate changes on cash and
    cash equivalents |                                                                                              |                                                                                            |                                             |                                                         |        |      | (1     | )      |       |      | 3      |       
|                                                                 |                                                                                              |                                                                                            |                                              |                                                         |        |      |        |        |       |      |        |       
|Net decrease in cash and cash
    equivalents                    |                                                                                              |                                                                                            | (635                                         | )                                                       |        |      | (128   | )      |       |      | (2,092 | )     
|Cash and cash equivalents, beginning of
    period               |                                                                                              |                                                                                            | 2,481                                        |                                                         |        |      | 2,609  |        |       |      | 4,701  |       
|                                                                 |                                                                                              |                                                                                            |                                              |                                                         |        |      |        |        |       |      |        |       
|Cash and cash equivalents, end of
    period                     |                                                                                              | $                                                                                          | 1,846                                        |                                                         |        | $    | 2,481  |        |       | $    | 2,609  |       
|                                                                 |                                                                                              |                                                                                            |                                              |                                                         |        |      |        |        |       |      |        |       

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

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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS




|   |                                                              
|-- | -------------------------------------------------------------
|1. | Summary of Operations and Significant
    Accounting Policies

Operations.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.

As of December 31, 2002:



| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | we had about 10.6 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 32% of the common stock of Nextel
Partners as of December 31, 2002. Nextel Partners provides
digital wireless communications 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
December 31, 2002, we owned about 36% of the outstanding
common stock of NII Holdings, Inc., formerly known as Nextel
International, Inc. NII Holdings provides wireless
communications services primarily in selected Latin American
markets.

In May 2002, NII Holdings reached an agreement in
principle with its main creditors to restructure its outstanding
debt. In connection with this agreement, on May 24, 2002,
NII Holdings filed a voluntary petition for reorganization under
Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the District of Delaware.
While NII Holdings, Inc., the U.S. parent company, operated
as a debtor-in-possession under the Bankruptcy Code, its
non-U.S. subsidiaries continued providing continuous
wireless communication services in the ordinary course of
business. On October 28, 2002, the Bankruptcy Court
confirmed NII Holdings plan of reorganization and on
November 12, 2002, NII Holdings emerged from bankruptcy.
Before its reorganization, NII Holdings was our substantially
wholly owned subsidiary.

As a result of the bankruptcy reorganization, all
previously outstanding equity interests in NII Holdings were
cancelled. In addition, NII Holdings extinguished
$2,331 million in senior redeemable notes and other
unsecured, non-trade claims that existed prior to its bankruptcy
filing and in exchange issued shares of new common stock valued
at $2.50 per share. See notes 7 and 8 for more
details. The reorganization of NII Holdings also included a new
infusion of capital into NII Holdings in exchange for a new
series of 13% senior secured notes of NII Holdings and shares of
NII Holdings new class A common stock. See
note 5 for more details.

Principles of Consolidation.The consolidated financial
statements include the accounts of Nextel Communications, Inc.
and its wholly owned and majority owned subsidiaries. All
significant intercompany transactions and balances have been
eliminated in consolidation.

We use the equity method to account for equity
investments in unconsolidated companies in which we exercise
significant influence over operating and financial policies but
do not have control. We recognize changes in our proportionate
share of the unconsolidated affiliates equity resulting
from the affiliates equity transactions as adjustments to
our investment and stockholders equity balances. We use
the cost method to account for equity investments in
unconsolidated companies in which we do not exercise significant
influence over operating or financial policies and do not have a
controlling interest.

F-7



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


Our consolidated financial statements include the
accounts of NII Holdings and its consolidated subsidiaries
through December 31, 2001. As a result of NII
Holdings bankruptcy filing in May 2002, we began
accounting for our investment in NII Holdings, effective May
2002, using the equity method. In accordance with the equity
method, we did not recognize equity in losses of NII Holdings
after May 2002 as we had already recognized $1,408 million
of losses in excess of our investment in NII Holdings through
that date. We have classified the 2002 net operating results of
NII Holdings through May 2002 as equity in losses of
unconsolidated affiliates as permitted under the accounting
rules governing a mid-year change from consolidating a
subsidiary to accounting for the investment using the equity
method. However, the presentation of NII Holdings in the
financial statements as a consolidated subsidiary in 2001 and
prior periods has not changed from the prior presentation.

In November 2002, upon NII Holdings
emergence from bankruptcy, we recognized a non-cash pre-tax gain
on deconsolidation of NII Holdings in the amount of
$1,218 million consisting primarily of the reversal of
equity losses we had recorded in excess of our investment in NII
Holdings, partially offset by charges recorded when we
consolidated NII Holdings, including, among other items,
$185 million of cumulative foreign currency translation
losses. Upon NII Holdings emergence, we began accounting
for our new 36% ownership interest in NII Holdings using the
equity method and resumed recording our proportionate share of
NII Holdings results of operations. See note 5 for a
more detailed description of our new investment in NII Holdings.

The accounts of our non-U.S. subsidiaries
and affiliates accounted for under the equity method are
presented utilizing accounts as of a date one month earlier (on
a fiscal year ending November 30) than the accounts of our
U.S. subsidiaries and affiliates to ensure timely reporting
of our financial results.

Use of Estimates.The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Due to the inherent uncertainty involved in making those
estimates, actual results to be reported in future periods could
differ from those estimates.

Foreign Currency.Prior to the deconsolidation of
NII Holdings in May 2002, results of operations for
our non-U.S. subsidiaries and affiliates were translated
from the designated functional currency to the U.S. dollar
using average exchange rates during the period, while assets and
liabilities were translated at the exchange rate in effect at
the reporting date. Resulting gains or losses from translating
foreign currency financial statements were reported as other
comprehensive income (loss). The effects of changes in exchange
rates between the designated functional currency and the
currency in which a transaction is denominated were recorded as
foreign currency transaction gains (losses). However, the
effects of changes in exchange rates associated with NII
Holdings U.S. dollar denominated loans to its foreign
subsidiaries that were of a long-term investment nature were
reported as part of the cumulative foreign currency translation
adjustment in our consolidated financial statements.

Cash and Cash Equivalents.Cash equivalents consist of time
deposits and highly liquid short-term investments with
maturities of 90 days or less at the time of purchase.

NII Holdings and its subsidiaries held cash and
cash equivalents of $250 million at December 31, 2001
that were not available to fund any of the cash needs of our
domestic operations due to restrictions contained in their
financing agreements. At December 31, 2001, NII Holdings
also had $84 million in escrow to fund some of its debt
obligations, which was not available to fund any of the other
cash needs of NII Holdings.

F-8



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)




| |                                        
| | ---------------------------------------
| | Supplemental Cash Flow
    Information.

|                                                         |                                                                             |                         |       |       |  |      |       |       |   |   |       |       | 
|-------------------------------------------------------- | --------------------------------------------------------------------------- | ----------------------- | ----- | ----- |  | ---- | ----- | ----- | - | - | ----- | ----- | 
|                                                         |                                                                             |                        
|                                                         |                                                                             | Year Ended December 31,
|                                                         |                                                                             |                        
|                                                         |                                                                             | 2002                    |       | 2001  |  | 2000
|                                                         |                                                                             |                         |       |       |  |     
|                                                         |                                                                             |                        
|                                                         |                                                                             | (in millions)          
|Capital expenditures, including capitalized
    interest |                                                                             |                         |       |       |  |      |       |       |   |   |       |      
|                                                         | Cash paid for capital expenditures                                          |                         | $     | 1,863 |  |      | $     | 3,418 |   |   | $     | 3,294 | 
|                                                         | Change in capital expenditures accrued and unpaid
    or financed           |                         |       | 41    |  |      |       | (282  | ) |   |       | 337   | 
|                                                         |                                                                             |                         |       |       |  |      |       |       |   |   |       |      
|                                                         |                                                                             | $                       | 1,904 |       |  | $    | 3,136 |       |   | $ | 3,631 |      
|                                                         |                                                                             |                         |       |       |  |      |       |       |   |   |       |      
|Interest costs                                           |                                                                             |                         |       |       |  |      |       |       |   |   |       |      
|                                                         | Interest expense                                                            |                         | $     | 1,048 |  |      | $     | 1,403 |   |   | $     | 1,245 | 
|                                                         | Interest capitalized                                                        |                         |       | 48    |  |      |       | 127   |   |   |       | 88    | 
|                                                         |                                                                             |                         |       |       |  |      |       |       |   |   |       |      
|                                                         |                                                                             | $                       | 1,096 |       |  | $    | 1,530 |       |   | $ | 1,333 |      
|                                                         |                                                                             |                         |       |       |  |      |       |       |   |   |       |      
|Cash paid for interest, net of amounts
    capitalized   |                                                                             | $                       | 712   |       |  | $    | 845   |       |   | $ | 816   |      
|                                                         |                                                                             |                         |       |       |  |      |       |       |   |   |       |      
|Cash received for interest                               |                                                                             | $                       | 54    |       |  | $    | 226   |       |   | $ | 370   |      
|                                                         |                                                                             |                         |       |       |  |      |       |       |   |   |       |      
|Cash paid for income taxes                               |                                                                             | $                       | 12    |       |  | $    | 7     |       |   | $ | 4     |      
|                                                         |                                                                             |                         |       |       |  |      |       |       |   |   |       |      
|Other non-cash investing and financing
    activities    |                                                                             |                         |       |       |  |      |       |       |   |   |       |      
|                                                         | Increase in capital lease and finance obligations
    for network equipment |                         | $     |      |  |      | $     | 108   |   |   | $     | 32    | 
|                                                         | Net increase in fair value of marketable debt and
    equity securities     |                         |       | 11    |  |      |       | 43    |   |   |       | 216   | 
|                                                         | Increase in investments from equity transactions
    by affiliates          |                         |       | 12    |  |      |       | 13    |   |   |       | 149   | 

Investments.Marketable debt securities with
maturities greater than 90 days and less than one year at
the time of purchase are classified as short-term investments.
As of December 31, 2002 and 2001, our short-term
investments consist of commercial paper and corporate bonds.

Marketable debt and equity securities intended to
be held more than one year are classified within investments.
All of our investments in marketable debt and equity securities
are classified as available-for-sale as of the balance sheet
date and are reported at fair value. Unrealized gains and
losses, net of income tax, are recorded as other comprehensive
income (loss). We report realized gains or losses, as determined
on a specific identification basis, and other-than-temporary
declines in value, if any, on available-for-sale securities in
other income (expense). We record restricted investments in
publicly traded companies intended to be held-to-maturity at
amortized cost. We record equity investments in privately held
companies at cost since they do not have readily determinable
fair values.

We assess declines in the value of individual
investments to determine whether the decline is
other-than-temporary and thus the investment is impaired. We
make this assessment by considering available evidence,
including changes in general market conditions, specific
industry and individual company data, the length of time and the
extent to which the market value has been less than cost, the
financial condition and near-term prospects of the individual
company and our intent and ability to hold the investment.

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

F-9



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


on individual accounts have been exhausted, the
account is written off by reducing the allowance for doubtful
accounts.

Handset and Accessory Inventory.Handsets and accessories are
valued at the lower of cost or market. We determine cost by the
first-in, first-out, or FIFO, method for domestic operations and
by the weighted average method for our consolidated
international operations. Handset costs in excess of the
revenues generated from handset sales, or handset subsidies, are
expensed at the time of sale. We do not recognize the expected
handset subsidies prior to the time of sale because we expect to
recover the handset subsidies through service revenues. See
 Customer Related Direct Costs below for
additional information.

Property, Plant and Equipment.We record property, plant and
equipment, including improvements that extend useful lives, at
cost, while maintenance and repairs are charged to operations as
incurred. We 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. We amortize
leasehold improvements and assets under capital leases over the
shorter of the lease terms or the estimated useful lives of the
assets. The gross amount of assets recorded under capital lease
and finance obligations included in property, plant and
equipment is $360 million as of December 31, 2002 and
$801 million as of December 31, 2001.

Construction in progress includes labor,
materials, transmission and related equipment, engineering, site
development, interest and other costs relating to the
construction and development of our network. Assets under
construction are not depreciated until placed into service.

We periodically review the depreciation method,
useful lives and estimated salvage value of our property, plant
and equipment and revise those estimates if current estimates
are significantly different from previous estimates.

Capitalized Software.We capitalize costs for computer
software developed or obtained for internal use when incurred
during the application development stage. We classify both
network internal use software and non-network internal use
software as property, plant and equipment.

We capitalize costs for software products that
will be sold, leased or otherwise marketed when technological
feasibility has been established. Capitalization ceases and
amortization starts when the software product is available for
general release to customers. At each balance sheet date, the
unamortized capitalized costs of a software product are compared
to the net realizable value of the product and any excess of
costs over the net realizable value is written off. We classify
software products to be sold, leased or otherwise marketed as
noncurrent other assets.

Intangible Assets.Upon adoption of Statement of
Financial Accounting Standards, or SFAS, No. 142,
Goodwill and Other Intangible Assets, effective
January 1, 2002, we ceased amortizing our intangible assets
with indefinite useful lives, which include our Federal
Communications Commission, or FCC, licenses and goodwill. We
review these assets for impairment as of October 1 of each
year or whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If the fair
value of the licenses or goodwill is less than the carrying
amount of the assets, a loss is recognized for the difference
between the fair value and carrying value of the asset. Prior to
2002, we amortized FCC licenses and goodwill related to the
acquisition of our FCC licenses over 40 years and goodwill
related to the acquisition of our Nextel stores over
10 years. FCC licenses, which authorize wireless carriers
to use radio frequency spectrum, are issued on both a
site-specific and wide-area basis, enabling wireless carriers to
provide service either in specific 800 MHz economic areas or 900
MHz metropolitan trading areas in the United States. Currently,
our 800 MHz and 900 MHz licenses are issued for periods of
10 years and our 700 MHz licenses are issued for a period
of 15 years. All of our FCC licenses are subject to

F-10



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


construction and/or operational and technical
requirements. The FCC has routinely granted license renewals if
the licensees provide substantial services in their licensed
area and have complied with applicable rules and policies and
the Communications Act of 1934, as amended. We believe that we
have met and will continue to meet all requirements necessary to
retain and secure renewal of our FCC licenses. See
 Adoption of SFAS No. 142.

We amortize our intangible assets that have
finite lives over their estimated period benefited using the
straight-line method. We amortize customer lists over their
expected useful lives, which is generally 2 to 3 years.
Other intangible assets include non-compete and spectrum sharing
agreements and trademarks. We amortize non-compete agreements
over the lives of the related agreements, generally 2 to
5 years and trademarks for periods up to 20 years. We
will amortize our spectrum sharing agreement with NII Holdings
over the estimated remaining useful life of the related
international license upon completion of the related network
construction.

We amortized the international licenses and
goodwill related to our international acquisitions over
20 years. In the countries in which NII Holdings operates,
licenses are customarily issued conditionally for specified
periods of time. The licenses are generally renewable provided
the licensee has complied with applicable rules and policies.

Valuation of Long-Lived Assets.We review long-lived assets such
as property, plant and equipment and identifiable intangibles
with finite useful lives 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.

Derivative Instruments and Hedging
Activities.We use derivative
instruments consisting primarily of interest rate swap and
option agreements to manage our exposure to changes in the fair
values or future cash flows of some of our long-term debt, which
are caused by interest rate changes. We do not use derivative
instruments for trading or other speculative purposes.

Effective January 1, 2001, we adopted SFAS
No. 133, Accounting for Derivative Instruments and
Hedging Activities, which, as amended by SFAS
No. 138, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities.
Derivative instruments designated in hedging relationships that
mitigate exposure to changes in the fair value of our debt are
considered fair value hedges. Derivative instruments designated
in hedging relationships that mitigate exposure to the
variability in future cash flows of our debt are considered cash
flow hedges. We formally document all relationships between
hedging instruments and hedged items and the risk management
objective and strategy for each hedge transaction.

We record all derivatives, including any
derivatives embedded in contracts issued, acquired or
substantively modified after December 31, 1998, in other
assets or other liabilities on our balance sheet at their fair
values. If the derivative is designated as a fair value hedge
and the hedging relationship qualifies for hedge accounting,
changes in the fair values of both the derivative and the hedged
portion of our debt are recognized in interest expense in our
statement of operations. If the derivative is designated as a
cash flow hedge and the hedging relationship qualifies for hedge
accounting, the effective portion of the change in fair value of
the derivative is recorded in other comprehensive loss and
reclassified to interest expense when the hedged debt affects
interest expense. The ineffective portion of the change in fair
value of the derivative qualifying for hedge accounting and
changes in the fair values of derivative instruments not
qualifying for hedge accounting are recognized in interest
expense in the period of the change. For hedge transactions that
qualify for hedge accounting using the short-cut method, there
is no net effect on results of operations.

F-11



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


At inception of the hedge and quarterly
thereafter, we perform a correlation assessment to determine
whether changes in the fair values or cash flows of the
derivatives are deemed highly effective in offsetting changes in
the fair values or cash flows of the hedged items. If we do not
deem a derivative highly effective as a hedge, we discontinue
hedge accounting and recognize all subsequent derivative gains
and losses in earnings.

Prior to January 1, 2001, under accounting
principles generally accepted in the United States, we did not
record our derivative instruments on the balance sheet at fair
values. We recognized the periodic net cash settlements as
adjustments to interest expense in our statement of operations.
See note 9 for additional discussion of our derivative
instruments and hedging activities.

Debt Financing Costs.We amortize our debt financing
costs as interest expense over the terms of the underlying
obligations.

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 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
for domestic sales and periods of up to 4 years for
international sales, 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.

Change in accounting principle.In January 2000, we changed our
handset and activation revenue and cost recognition policy in
accordance with Staff Accounting Bulletin, or SAB, No. 101,
Revenue Recognition in Financial Statements. Under
the prior method of accounting, we recognized sales and the
related costs of handsets sold when title to the handset passed
to the customer and we recognized activation fees upon
completion of the activation service and related activation
costs as incurred. We accounted for the adoption of SAB
No. 101 as a change in accounting principle effective
January 1, 2000. This accounting change had no impact on
income (loss) before income tax (provision) benefit, income
(loss) available to common stockholders or related per share
amounts for any period. As a result of our adoption 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 reported prior to 2000 as follows:

|                       |  |               |     |      |  |      |     |  |  |   |     | 
|---------------------- |  | ------------- | --- | ---- |  | ---- | --- |  |  | - | --- | 
|                       |  | 2002          |     | 2001 |  | 2000
|                       |  |               |     |      |  |     
|                       |  |              
|                       |  | (in millions)
|Year ended December 31 |  | $             | 130 |      |  | $    | 256 |  |  | $ | 316 | 
|                       |  |               |     |      |  |      |     |  |  |   |     | 

Customer Related Direct Costs.We recognize the costs of handset
revenues over the expected customer relationship period of
3.5 years for domestic costs and periods of up to
4 years for international costs in amounts equivalent to
the revenues recognized from handset sales. We recognize the
costs of activation over the expected customer relationship
period of 3.5 years in amounts equivalent to the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


revenues recognized from activation fees. Handset
costs in excess of the revenue generated from handset sales are
expensed at the time of sale and other customer related costs
such as commissions and activation and fulfillment costs are
expensed as incurred, as these amounts currently exceed the
minimum contractual revenues. Minimum contractual revenues are
currently limited to the revenue generated from handset sales
and activation fees as our history of enforcing cancellation fee
provisions for contracts with terminating customers is
insufficient.

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, and 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. 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. Stock-based compensation recorded in
income (loss) available to common stockholders was
$13 million, $16 million and $10 million for the
years ended December 31, 2002, 2001 and 2000.

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:

|                                                                |                                  |                                |       |      |   |      |        |       |   |   |        |       |  
|--------------------------------------------------------------- | -------------------------------- | ------------------------------ | ----- | ---- | - | ---- | ------ | ----- | - | - | ------ | ----- | -
|                                                                |                                  |                               
|                                                                |                                  | Year Ended December 31,       
|                                                                |                                  |                               
|                                                                |                                  | 2002                           |       | 2001 |   | 2000
|                                                                |                                  |                                |       |      |   |     
|                                                                |                                  |                               
|                                                                |                                  | (in millions, except per share
|                                                                |                                  | amounts)                      
|Income (loss) available to common
    stockholders, as reported |                                  | $                              | 1,660 |      |   | $    | (2,858 | )     |   | $ | (1,024 | )    
|                                                                | Stock-based compensation expense |                                |       | (342 | ) |      |        | (329  | ) |   |        | (266  | )
|                                                                |                                  |                                |       |      |   |      |        |       |   |   |        |      
|Income (loss) available to common
    stockholders, pro forma   |                                  | $                              | 1,318 |      |   | $    | (3,187 | )     |   | $ | (1,290 | )    
|                                                                |                                  |                                |       |      |   |      |        |       |   |   |        |      
|Earnings (loss) per common share                                |                                  |                                |       |      |   |      |        |       |   |   |        |      
|                                                                | Basic, as reported               |                                | $     | 1.88 |   |      | $      | (3.67 | ) |   | $      | (1.35 | )
|                                                                |                                  |                                |       |      |   |      |        |       |   |   |        |      
|                                                                | Diluted, as reported             |                                | $     | 1.78 |   |      | $      | (3.67 | ) |   | $      | (1.35 | )
|                                                                |                                  |                                |       |      |   |      |        |       |   |   |        |      
|                                                                | Basic, pro forma                 |                                | $     | 1.49 |   |      | $      | (4.10 | ) |   | $      | (1.71 | )
|                                                                |                                  |                                |       |      |   |      |        |       |   |   |        |      
|                                                                | Diluted, pro forma               |                                | $     | 1.43 |   |      | $      | (4.10 | ) |   | $      | (1.71 | )
|                                                                |                                  |                                |       |      |   |      |        |       |   |   |        |      

Advertising Costs.Costs related to advertising and
other promotional expenditures are expensed as incurred.
Advertising costs totaled $345 million during 2002,
$340 million during 2001 and $221 million during 2000.

Income Taxes.Deferred tax assets and
liabilities are determined based on the temporary differences
between the financial reporting and tax bases of assets and
liabilities, applying enacted statutory tax rates in effect for
the year in which the differences are expected to reverse.
Future tax benefits, such as net operating loss carryforwards,
are recognized to the extent that realization of these benefits
is considered to be more likely than not.

Earnings (Loss) Per Common Share, Basic and
Diluted.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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


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
issuable upon the conversion of our convertible senior notes and
convertible preferred stock computed using the if-converted
method.

For the year ended December 31, 2002,
84 million shares issuable under our incentive equity plans
and 8 million shares issuable upon the assumed conversion
of convertible senior notes could potentially dilute earnings
per share in the future but were excluded from the calculation
of diluted earnings per common share due to their current
antidilutive effects. Because we reported losses in 2001 and
2000, the calculation of diluted earnings per common share for
the years ended December 31, 2001 and 2000 excludes the
effects of all potentially dilutive common shares due to their
antidilutive effects.

|                                                                   |                                                                 |                                                                         |       |      |    |      |        |       |   |   |        |       |   | 
|------------------------------------------------------------------ | --------------------------------------------------------------- | ----------------------------------------------------------------------- | ----- | ---- | -- | ---- | ------ | ----- | - | - | ------ | ----- | - | 
|                                                                   |                                                                 |                                                                        
|                                                                   |                                                                 | Year Ended December 31,                                                
|                                                                   |                                                                 |                                                                        
|                                                                   |                                                                 | 2002                                                                    |       | 2001 |    | 2000
|                                                                   |                                                                 |                                                                         |       |      |    |     
|                                                                   |                                                                 |                                                                        
|                                                                   |                                                                 | (in millions, except per share                                         
|                                                                   |                                                                 | amounts)                                                               
|Income (loss) available to common
    stockholders  basic         |                                                                 | $                                                                       | 1,660 |      |    | $    | (2,858 | )     |   | $ | (1,024 | )    
|                                                                   | Interest expense eliminated upon the assumed
    conversion of: |                                                                         |       |      |    |      |        |       |   |   |        |       |  
|                                                                   |                                                                 | 4.75% convertible senior notes due 2007                                 |       |      | 15 |      |        |       |  |   |        |       |  | 
|                                                                   |                                                                 | 6% convertible senior notes due 2011                                    |       |      | 37 |      |        |       |  |   |        |       |  | 
|                                                                   |                                                                 | Zero coupon convertible preferred stock
    mandatorily redeemable 2013 |       |      | 8  |      |        |       |  |   |        |       |  | 
|                                                                   |                                                                 |                                                                         |       |      |    |      |        |       |   |   |        |      
|Income (loss) available to common
    stockholders  diluted       |                                                                 | $                                                                       | 1,720 |      |    | $    | (2,858 | )     |   | $ | (1,024 | )    
|                                                                   |                                                                 |                                                                         |       |      |    |      |        |       |   |   |        |      
|Weighted average number of common shares
    outstanding  basic   |                                                                 |                                                                         | 884   |      |    |      | 778    |       |   |   | 756    |      
|                                                                   | Effect of dilutive securities:                                  |                                                                         |       |      |    |      |        |       |   |   |        |       |  
|                                                                   |                                                                 | Class A convertible preferred stock                                     |       |      | 33 |      |        |       |  |   |        |       |  | 
|                                                                   |                                                                 | Incentive equity plans                                                  |       |      | 6  |      |        |       |  |   |        |       |  | 
|                                                                   |                                                                 | 4.75% convertible senior notes due 2007                                 |       |      | 12 |      |        |       |  |   |        |       |  | 
|                                                                   |                                                                 | 6% convertible senior notes due 2011                                    |       |      | 26 |      |        |       |  |   |        |       |  | 
|                                                                   |                                                                 | Zero coupon convertible preferred stock
    mandatorily redeemable 2013 |       |      | 5  |      |        |       |  |   |        |       |  | 
|                                                                   |                                                                 |                                                                         |       |      |    |      |        |       |   |   |        |      
|Weighted average number of common shares
    outstanding  diluted |                                                                 |                                                                         | 966   |      |    |      | 778    |       |   |   | 756    |      
|                                                                   |                                                                 |                                                                         |       |      |    |      |        |       |   |   |        |      
|Earnings (loss) per common share                                   |                                                                 |                                                                         |       |      |    |      |        |       |   |   |        |      
|                                                                   | Basic                                                           |                                                                         | $     | 1.88 |    |      | $      | (3.67 | ) |   | $      | (1.35 | )
|                                                                   |                                                                 |                                                                         |       |      |    |      |        |       |   |   |        |      
|                                                                   | Diluted                                                         |                                                                         | $     | 1.78 |    |      | $      | (3.67 | ) |   | $      | (1.35 | )
|                                                                   |                                                                 |                                                                         |       |      |    |      |        |       |   |   |        |      

Reclassifications.We have reclassified some prior
period amounts to conform to our current year presentation.

Concentrations of Risk.We believe that the geographic and
industry diversity of our customer base minimizes the risk of
incurring material losses due to concentrations of credit risk.

Motorola is the sole provider of the iDEN
infrastructure equipment and substantially all of the handsets
used throughout our network. If Motorola fails to deliver system
infrastructure, handsets or necessary technology improvements
and enhancements on a timely, cost-effective basis, we may not
be able to adequately service our existing subscribers or add
new subscribers. We expect to continue to rely principally on
Motorola or its licensees for the manufacture of a substantial
portion of the equipment necessary to construct, enhance and
maintain our iDEN network and substantially all of our handsets
for the next several years.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


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 after December 31,
2002. The disclosure requirements are effective for guarantees
existing as of December 31, 2002. See notes 6
and 11.

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 are currently assessing the
impact of adopting this Interpretation; however, we do not
believe that it will 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
SAB No. 101, 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 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 flow,
operating income or net income if we divide our arrangement into
separate units of accounting under EITF Issue No. 00-21.

Adoption of SFAS No. 142.Effective January 1, 2002, we
adopted 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 will continue to amortize
intangible assets that have finite lives over their useful lives.

We performed our initial impairment test of FCC
licenses and goodwill as of January 1, 2002, and annual
impairment test as of October 1, 2002. In both cases, we
concluded that there was no impairment as the fair values of
these intangible assets were greater than their carrying values.
We concluded, based on the guidance in EITF Issue No. 02-7,
Unit of Accounting for Testing Impairment of
Indefinite-Lived Intangible Assets, that the unit of
accounting for our 800 MHz and 900 MHz FCC licenses is
our nationwide footprint. Using a residual value approach, we
measured the fair value of our 800 and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


900 MHz licenses by deducting the fair
values of our domestic net assets, other than these FCC
licenses, from our domestic reporting units fair value,
which was determined using a discounted cash flow analysis. The
analysis was based on our long-term cash flow projections,
discounted at our corporate weighted average cost of capital.

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 of 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. This cumulative charge was required since we have
significant deferred tax liabilities related to our FCC licenses
that have a significantly lower tax basis than book basis.
Historically, we did not need a valuation allowance for the
portion of our net operating loss equal to deferred tax
liabilities related to FCC licenses expected to reverse during
our net operating loss carryforward period. Since we ceased
amortizing FCC licenses, we can no longer estimate the amount,
if any, of deferred tax liabilities related to our FCC licenses
that will reverse during the carryforward period. Accordingly,
we increased our valuation allowance. During the year ended
December 31, 2002, we have recorded an incremental
$51 million non-cash charge to the income tax provision
related to FCC licenses for which we have a tax basis. 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.

Historically, we recorded as goodwill only the
amount that represented the deferred tax effects of the acquired
FCC licenses. Except for these deferred tax effects, the
residual in the purchase price allocation process was accounted
for as FCC licenses. The goodwill arose from transactions
predominantly involving the acquisition of FCC licenses, and we
believe that the values of our FCC licenses and goodwill are
inseparable. Accordingly, we amortized both FCC licenses and
related goodwill over the same periods, using the same
straight-line method. On January 1, 2002, we reclassified
$898 million of the net carrying value of our goodwill
(consisting of a gross carrying value of $1,162 million and
accumulated amortization of $264 million as of
December 31, 2001) to FCC licenses. In connection with this
reclassification, we recorded an additional deferred tax
liability of $574 million, in accordance with the
provisions of SFAS No. 109, Accounting for Income
Taxes. The offsetting increase related to recognizing this
deferred tax liability was recorded to FCC licenses, consistent
with the approach of treating FCC licenses as the residual in
the purchase price allocations for transactions in which the
predominant assets acquired were FCC licenses. On
January 1, 2002, we also adjusted the gross carrying values
of our FCC licenses and goodwill by the accumulated amortization
amounts in accordance with SFAS No. 142.

During the year ended December 31, 2002, we
acquired about $440 million of FCC licenses. Based only on
the amortized intangible assets existing at December 31,
2002, we estimate the amortization expense to be
$47 million during 2003, $26 million during 2004,
$5 million during 2005, $2 million during 2006 and
$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. The table below summarizes our
intangible assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


|                              |                         |                              |  |                   |       |                   |       |          |    |          |    |              |    |          |       |       |    |   |       |       |    |   |       |       |   |   |       |       |    | 
|----------------------------- | ----------------------- | ---------------------------- |  | ----------------- | ----- | ----------------- | ----- | -------- | -- | -------- | -- | ------------ | -- | -------- | ----- | ----- | -- | - | ----- | ----- | -- | - | ----- | ----- | - | - | ----- | ----- | -- | 
|                              |                         |                              |  |                   |       |                  
|                              |                         |                              |  | December 31, 2002 |       | December 31, 2001
|                              |                         |                              |  |                   |       |                  
|                              |                         |                              |  | 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      |    |          | $  | 66           |    |          | $     | 63    |    |   | $     | 114   |    |   | $     | 25    |   |   | $     | 89    |   
|                              | International licenses  |                              |  | 20 years          |       |                   |       |         |    |          |    |             |    |          |       |      |    |   |       | 192   |    |   |       |      |   |   |       | 192   |   
|                              | Noncompete and spectrum |                              |  | Up to 20          |       |                   |       |          |    |          |    |              |    |          |       |       |    |   |       |       |    |   |       |       |   |   |       |       |   
|                              |                         | sharing agreements and other |  |                   | years |                   |       |          | 58 |          |    |              | 10 |          |       |       | 48 |   |       |       | 24 |   |       |       | 9 |   |       |       | 15 | 
|                              |                         |                              |  |                   |       |                   |       |          |    |          |    |              |    |          |       |       |    |   |       |       |    |   |       |       |   |   |       |      
|                              |                         |                              |  |                   |       |                   | 187   |          |    |          | 76 |              |    |          | 111   |       |    |   | 330   |       |    |   | 34    |       |   |   | 296   |      
|                              |                         |                              |  |                   |       |                   |       |          |    |          |    |              |    |          |       |       |    |   |       |       |    |   |       |       |   |   |       |      
|Unamortized intangible assets |                         |                              |  |                   |       |                   |       |          |    |          |    |              |    |          |       |       |    |   |       |       |    |   |       |       |   |   |       |      
|                              | FCC licenses            |                              |  |                   |       |                   |       | 6,475    |    |          |    |              |    |          |       | 6,475 |    |   |       | 6,547 |    |   |       | 1,086 |   |   |       | 5,461 |   
|                              | Goodwill                |                              |  |                   |       |                   |       | 21       |    |          |    |              |    |          |       | 21    |    |   |       | 22    |    |   |       | 1     |   |   |       | 21    |   
|                              |                         |                              |  |                   |       |                   |       |          |    |          |    |              |    |          |       |       |    |   |       |       |    |   |       |       |   |   |       |      
|                              |                         |                              |  |                   |       |                   | 6,496 |          |    |          |    |              |    |          | 6,496 |       |    |   | 6,569 |       |    |   | 1,087 |       |   |   | 5,482 |      
|                              |                         |                              |  |                   |       |                   |       |          |    |          |    |              |    |          |       |       |    |   |       |       |    |   |       |       |   |   |       |      
|Total intangible assets       |                         |                              |  |                   |       | $                 | 6,683 |          |    | $        | 76 |              |    | $        | 6,607 |       |    | $ | 6,899 |       |    | $ | 1,121 |       |   | $ | 5,778 |      
|                              |                         |                              |  |                   |       |                   |       |          |    |          |    |              |    |          |       |       |    |   |       |       |    |   |       |       |   |   |       |      

The table below reflects our financial results
for the specified periods as if we had adopted SFAS No. 142
effective January 1, 2000 and accordingly not amortized our
FCC licenses and goodwill. The income tax provision adjustments
are similar in nature to the actual income tax charges recorded
in 2002, which are discussed above.

|                                                          |                                                    |                          |        |       |   |   |        |       |  
|--------------------------------------------------------- | -------------------------------------------------- | ------------------------ | ------ | ----- | - | - | ------ | ----- | -
|                                                          |                                                    |                         
|                                                          |                                                    | Year Ended              
|                                                          |                                                    | December 31,            
|                                                          |                                                    |                         
|                                                          |                                                    | 2001                     |        | 2000 
|                                                          |                                                    |                          |        |      
|                                                          |                                                    |                         
|                                                          |                                                    | (in millions, except per
|                                                          |                                                    | share amounts)          
|Loss attributable to common stockholders, as
    reported |                                                    | $                        | (2,858 | )     |   | $ | (1,024 | )    
|                                                          | Amortization of goodwill and FCC licenses recorded |                          |        | 147   |   |   |        | 126   |  
|                                                          | Income tax provision adjustments                   |                          |        | (70   | ) |   |        | (338  | )
|                                                          |                                                    |                          |        |       |   |   |        |      
|Loss attributable to common stockholders, pro
    forma   |                                                    | $                        | (2,781 | )     |   | $ | (1,236 | )    
|                                                          |                                                    |                          |        |       |   |   |        |      
|Loss per common share, basic and diluted, as
    reported |                                                    | $                        | (3.67  | )     |   | $ | (1.35  | )    
|                                                          | Amortization of goodwill and FCC licenses recorded |                          |        | 0.19  |   |   |        | 0.17  |  
|                                                          | Income tax provision adjustments                   |                          |        | (0.09 | ) |   |        | (0.45 | )
|                                                          |                                                    |                          |        |       |   |   |        |      
|Loss per common share, basic and diluted, pro
    forma   |                                                    | $                        | (3.57  | )     |   | $ | (1.63  | )    
|                                                          |                                                    |                          |        |       |   |   |        |      

Adoption of SFAS No. 145.On April 1, 2002, we adopted
SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections. SFAS No. 145 requires us
to classify gains and losses from extinguishments of debt as
extraordinary items only if they meet the criteria for such
classification in APB Opinion No. 30, Reporting the
Results of Operations, Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions.
Accordingly, gains and losses on the retirement of debt for all
periods presented have been classified as other income (expense)
in our statements of operations rather than as extraordinary
items.

2.     Significant
Acquisitions

Domestic.In
February 2002, we purchased from Chadmoore Wireless Group, Inc.
800 MHz and 900 MHz specialized mobile radio licenses
for an aggregate cash purchase price of $136 million,
$111 million of which was paid to Chadmoore in 2002. We
accounted for this acquisition as a business combination.

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


In May 2001, we purchased from Arch Wireless,
Inc. 900 MHz specialized mobile radio licenses and Arch
Wireless redeemable cumulative preferred stock for a total cash
purchase price of $250 million. We accounted for this
transaction as an asset purchase. In May 2001, we purchased from
Mobex Communications, Inc. 800 MHz and 900 MHz
specialized mobile radio licenses and related assets and an
equity interest in a subsidiary of Mobex for a total cash
purchase price of $117 million. In June 2001, we purchased
from Motorola, Inc. 900 MHz specialized mobile radio
licenses and related assets for a cash purchase price of
$58 million. In December 2001, we purchased from Pacific
Wireless Technologies, Inc. 800 MHz specialized mobile
radio licenses and related assets for a cash purchase price of
$58 million. Each of these acquisitions was accounted for
as a business combination under the purchase method and
substantially all of the purchase price was allocated to
licenses. Additionally, in May 2001, we purchased from
Lets Talk Cellular & Wireless, Inc. a substantial
portion of the operations, assets and rights associated with
about 200 stores, for a cash purchase price of $34 million.

NII Holdings.In May 2000, NII Holdings
purchased the remaining equity interests of its Peruvian
operating company from Motorola International Development
Corporation and the other minority stockholder, increasing NII
Holdings ownership interest in its Peruvian operating
company from 64% to 100%. At the same time, NII Holdings
purchased all of Motorola Internationals equity interests
in McCaw International (Brazil), Ltd., the parent company of NII
Holdings primary Brazilian operating company. In May 2000,
NII Holdings also purchased three Chilean specialized mobile
radio companies from Motorola International. NII Holdings paid
Motorola International an aggregate purchase price of
$78 million in cash for the acquisitions in Peru, Brazil
and Chile.

In July 2000, NII Holdings entered into a
purchase, release and settlement agreement with McCaw
International (Brazil)s minority interest group,
represented by Telecom Ventures, L.L.C. Under that agreement, in
August 2000, NII Holdings made a cash payment to members of the
group totaling $146 million, received all of the equity
interests held by the group in McCaw International (Brazil) and
exchanged mutual releases with all of the groups members.
In addition, all pending court disputes between NII Holdings and
Telcom Ventures, a member of the group, were permanently
dismissed. As a result, NII Holdings increased its ownership
interest in both its Brazilian operating company and McCaw
International (Brazil) to 100%. Additionally, all rights of
Telcom Ventures in McCaw International (Brazil), including its
rights to put its equity interests to NII Holdings beginning in
October 2001, were terminated.

During 2000, NII Holdings acquired several
additional Latin American businesses for a total cash purchase
price of $163 million. NII Holdings also increased its
direct and indirect ownership interests in its Philippine
operating company to about 51% in 2000 by purchasing some of the
minority owners equity interests for $10 million and
to about 59% in 2001 by purchasing additional equity interests
of the minority holders for $4 million in January 2001.
During the second half of 2002, NII Holdings sold all of its
equity interests in its Philippine operating company.

Purchase Price Allocation.The total purchase price and net
assets acquired for significant domestic business combinations
completed during 2002, 2001 and 2000 and international business
combinations completed during 2000 are presented below. The
direct cost of business combinations and net assets acquired
during 2000 includes the effect of the consolidation of NII
Holdings Philippine operating company previously accounted
for under the equity method.

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


|                                     |                                                         |                         |     |      |  |      |     |     |  |   |     |      |  
|------------------------------------ | ------------------------------------------------------- | ----------------------- | --- | ---- |  | ---- | --- | --- |  | - | --- | ---- | -
|                                     |                                                         |                        
|                                     |                                                         | Year Ended December 31,
|                                     |                                                         |                        
|                                     |                                                         | 2002                    |     | 2001 |  | 2000
|                                     |                                                         |                         |     |      |  |     
|                                     |                                                         |                        
|                                     |                                                         | (in millions)          
|Direct cost of business combinations |                                                         |                         |     |      |  |      |     |     |  |   |     |     
|                                     | Cash paid, net of cash acquired                         |                         | $   | 111  |  |      | $   | 245 |  |   | $   | 386  |  
|                                     | Cash paid in prior periods                              |                         |     | 25   |  |      |     | 22  |  |   |     |     |  
|                                     | Investments  carrying value prior to
    consolidation |                         |     |     |  |      |     |    |  |   |     | 91   |  
|                                     | Accrued acquisition and transaction costs and
    other |                         |     | 6    |  |      |     | 7   |  |   |     | 27   |  
|                                     |                                                         |                         |     |      |  |      |     |     |  |   |     |     
|                                     |                                                         | $                       | 142 |      |  | $    | 274 |     |  | $ | 504 |     
|                                     |                                                         |                         |     |      |  |      |     |     |  |   |     |     
|Net assets acquired                  |                                                         |                         |     |      |  |      |     |     |  |   |     |     
|                                     | Working capital  net                                   |                         | $   |     |  |      | $   | 4   |  |   | $   | 3    |  
|                                     | Property, plant and equipment                           |                         |     |     |  |      |     | 11  |  |   |     | 68   |  
|                                     | Intangible assets                                       |                         |     | 142  |  |      |     | 256 |  |   |     | 503  |  
|                                     | Other assets                                            |                         |     |     |  |      |     | 3   |  |   |     | 5    |  
|                                     | Other liabilities                                       |                         |     |     |  |      |     |    |  |   |     | 25   |  
|                                     | Deferred income taxes                                   |                         |     |     |  |      |     |    |  |   |     | (100 | )
|                                     |                                                         |                         |     |      |  |      |     |     |  |   |     |     
|                                     |                                                         | $                       | 142 |      |  | $    | 274 |     |  | $ | 504 |     
|                                     |                                                         |                         |     |      |  |      |     |     |  |   |     |     

Pro Forma Results.Since results of operations for
the years ended December 31, 2002, 2001 and 2000 were not
materially affected by the business combinations consummated in
2002, 2001 and 2000, pro forma results are not presented. All of
the business combinations described above were accounted for by
the purchase method. As a result, assets and liabilities have
been reflected at estimated fair values at the date of
acquisition. We include the operating results of the acquired
companies in our consolidated statements of operations from
their acquisition dates.

3.     Restructuring
and Impairment Charges

Domestic.In
January 2002, we announced a five-year information technology
outsourcing agreement with Electronic Data Systems Corp., or
EDS, under which EDS manages our corporate data center, database
administration, helpdesk, desktop services and other technical
functions. Additionally, in January 2002, we announced an
eight-year customer relationship management agreement with
International Business Machines Corporation, or IBM, and
TeleTech Holdings, Inc. to manage our customer care centers. In
connection with these outsourcing agreements, we recorded a
$35 million restructuring charge in the first quarter of
2002, which primarily represents the future lease payments
related to facilities we planned to vacate net of estimated
sublease income. The restructuring charge also includes employee
separation costs associated with the involuntary termination of
about 700 employees throughout the organization. As of
December 31, 2002, all of these employee separations have
been completed. The following table presents the activities
related to the restructuring.

|                    |  |                |    |            |  |            |    |                   |  |           |     |   |  |   |    |   |  |   |    | 
|------------------- |  | -------------- | -- | ---------- |  | ---------- | -- | ----------------- |  | --------- | --- | - |  | - | -- | - |  | - | -- | 
|                    |  |                |    |            |  |            |    |                  
|                    |  | Restructuring  |    |            |  | Deductions |    | December 31, 2002
|                    |  | and Impairment |    |            |  |            |    | Restructuring    
|                    |  | Charges        |    | Adjustment |  | Payments   |    | Noncash           |  | Liability
|                    |  |                |    |            |  |            |    |                   |  |          
|                    |  |               
|                    |  | (in millions) 
|Facilities          |  | $              | 29 |            |  | $          | (4 | )                 |  | $         | (3  | ) |  |   |   |   |  | $ | 22 | 
|Employee separation |  |                | 4  |            |  |            | 4  |                   |  |           | (8  | ) |  |   |   |   |  |   |   | 
|Asset impairments   |  |                | 2  |            |  |            |   |                   |  |           |    |   |  |   | (2 | ) |  |   |   | 
|                    |  |                |    |            |  |            |    |                   |  |           |     |   |  |   |    |   |  |   |    | 
|                    |  | $              | 35 |            |  |            |   |                   |  | $         | (11 | ) |  | $ | (2 | ) |  | $ | 22 | 
|                    |  |                |    |            |  |            |    |                   |  |           |     |   |  |   |    |   |  |   |    | 

The adjustment to our facilities charge estimate
results from our ability to utilize some of the vacated
facilities in our ongoing business. The increase to the employee
separation charge results from the

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


continuation of a reduction in force initiative
we began in the first quarter of 2002 and continued into the
second quarter of 2002.

In May 2001, we announced a restructuring to
reduce domestic payroll and other operating costs by
implementing a 5% workforce reduction and streamlining our
operations. The workforce reduction, completed during the second
quarter of 2001, affected about 800 employees across the entire
domestic organization. As a result of the restructuring, we
recorded a $22 million charge in the second quarter of 2001
consisting of $15 million related to severance and fringe
benefits and $7 million related to the write-off of
information technology development projects that we abandoned as
a result of the reduced headcount.

NII Holdings.During the third quarter of 2001,
following NII Holdings review of the economic conditions,
operating performance and other relevant factors in the
Philippines, NII Holdings decided to discontinue funding to its
Philippine operating company. As a result, NII Holdings
performed an assessment of the carrying values of the long-lived
assets in the Philippines, including property, plant and
equipment, intangible assets and other long-lived assets, in
accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of.

SFAS No. 121 requires that long-lived assets
to be held and used be reviewed for impairment on the basis of
undiscounted future cash flows before interest and that those
assets be grouped at the lowest level for which there are
independent identifiable cash flows. To perform its review, NII
Holdings grouped all of the long-lived assets of its Philippine
operating company together. NII Holdings review indicated
that the assets related to its Philippine operating company were
impaired because the estimated undiscounted future cash flows
were less than the carrying values of the assets reviewed.

To estimate fair value of the long-lived assets
related to its Philippine operating company, NII Holdings used a
market value-based approach, as reviewed and determined to be
reasonable by an independent consultant. Based on the results of
the market value-based approach, NII Holdings estimated the fair
value of the long-lived assets to be about $15 million. As
a result, during the third quarter of 2001, NII Holdings
wrote-down the carrying values of the long-lived assets of its
Philippine operating company to their estimated fair market
values and recorded a $147 million non-cash pretax
impairment charge.

In view of the capital constrained environment
and its lack of funding sources, NII Holdings undertook an
extensive review of its business plan during the fourth quarter
of 2001 and determined to pursue a less aggressive growth
strategy that targeted conservation of cash resources by slowing
enhancement and expansion of its networks and reducing
subscriber growth and operating expenses. NII Holdings retained
outside financial advisors to assist it in studying various
strategic alternatives.

NII Holdings revised business plan pursued
a less aggressive growth strategy and reflected the anticipated
available sources of funding. The revised business plan included
some capital expenditures necessary to continue to selectively
build out some of its networks at slower rates and contemplated
the restructuring of its outstanding indebtedness and the
receipt of $250 million of capital funding to finance
capital expenditures and some operating expenses and the
continued availability of short-term handset financing.

In connection with the implementation of its
revised business plan, NII Holdings reviewed the long-lived
assets, including property, plant and equipment, intangible
assets and other long-term assets, held by each of its operating
companies in accordance with SFAS No. 121. Since the
receipt of funds contemplated in its revised business plan was
uncertain, NII Holdings did not consider in its analysis the
future cash flows generated by any additional funding. NII
Holdings analysis indicated that all of the long-lived
assets held by each of its operating companies were impaired,
primarily due to its curtailed growth projections.

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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


In consultation with an independent consultant
and outside financial advisors, NII Holdings estimated the fair
values of the long-lived assets held by its operating companies
based on discounted cash flows. Due to its unique wireless
technology and specific spectrum holdings, comparable market
prices were generally not readily available. As a result, fair
values were derived primarily from the estimated discounted cash
flows from future operations; however, NII Holdings also took
into consideration market-based valuations of Latin American
wireless telecommunications companies to corroborate the results
from the discounted cash flows approach. NII Holdings
determination of fair value required it to make estimates and
assumptions that significantly affect the reported amounts of
long-lived assets at December 31, 2001 and the resulting
impairment charges. These estimates and assumptions primarily
included, but were not limited to, estimates of future cash
flows, remaining useful lives, discount rates, growth rates and
terminal values.

The following table shows the impact of the 2001
impairment and restructuring charges related to NII
Holdings long-lived assets by type (in millions):

|                                                                 |                |   |       |     | 
|---------------------------------------------------------------- | -------------- | - | ----- | --- | 
|Property, plant and equipment                                    |                | $ | 1,089 |    
|Intangibles                                                      |                |   |       |    
|                                                                 | Goodwill       |   |       | 144 | 
|                                                                 | Licenses       |   |       | 476 | 
|                                                                 | Customer lists |   |       | 12  | 
|                                                                 | Other          |   |       | 3   | 
|Other noncurrent assets                                          |                |   | 17    |    
|Restructuring charges and other                                  |                |   | 6     |    
|                                                                 |                |   |       |    
|Total non-cash pretax impairment charge on
    long-lived assets |                | $ | 1,747 |    
|                                                                 |                |   |       |    

During the fourth quarter of 2001, NII Holdings
wrote-down the carrying values of the long-lived assets held by
its operating companies to their estimated fair market values
and recorded non-cash pretax impairment charges of about
$1,594 million. The new cost basis of the impaired assets
was $541 million as of December 31, 2001.

In connection with the fourth quarter
implementation of its revised business plan, NII Holdings
operating companies in Brazil and the Philippines restructured
their operations to align their objectives with NII
Holdings less aggressive growth strategy. These
restructurings included reductions to their workforces and
cancellations of contracts that had been required to sustain
their earlier growth expectations. In addition, NII Holdings
wrote-off an information technology development project that was
abandoned in connection with its revised business plan. As a
result of these restructurings, NII Holdings recorded
$6 million in pre-tax restructuring and other charges in
the fourth quarter of 2001.



|   |                      
|-- | ---------------------
|4. | Balance Sheet Details

|                              |                                      |               |       |       |   |   |       |       |  
|----------------------------- | ------------------------------------ | ------------- | ----- | ----- | - | - | ----- | ----- | -
|                              |                                      |              
|                              |                                      | December 31, 
|                              |                                      |              
|                              |                                      | 2002          |       | 2001 
|                              |                                      |               |       |      
|                              |                                      |              
|                              |                                      | (in millions)
|Accounts and notes receivable |                                      |               |       |       |   |   |       |      
|                              | Trade                                |               | $     | 1,170 |   |   | $     | 1,216 |  
|                              | Notes receivable and other           |               |       | 34    |   |   |       | 62    |  
|                              | Less allowance for doubtful accounts |               |       | (127  | ) |   |       | (167  | )
|                              |                                      |               |       |       |   |   |       |      
|                              |                                      | $             | 1,077 |       |   | $ | 1,111 |      
|                              |                                      |               |       |       |   |   |       |      

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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


|                                              |                                                                   |               |       |        |   |   |       |        |  
|--------------------------------------------- | ----------------------------------------------------------------- | ------------- | ----- | ------ | - | - | ----- | ------ | -
|                                              |                                                                   |              
|                                              |                                                                   | December 31, 
|                                              |                                                                   |              
|                                              |                                                                   | 2002          |       | 2001  
|                                              |                                                                   |               |       |       
|                                              |                                                                   |              
|                                              |                                                                   | (in millions)
|Prepaid expenses and other current
    assets |                                                                   |               |       |        |   |   |       |       
|                                              | Deferred costs of handset sales and activation                    |               | $     | 505    |   |   | $     | 412    |  
|                                              | Prepaid expenses                                                  |               |       | 104    |   |   |       | 121    |  
|                                              |                                                                   |               |       |        |   |   |       |       
|                                              |                                                                   | $             | 609   |        |   | $ | 533   |       
|                                              |                                                                   |               |       |        |   |   |       |       
|Property, plant and equipment                 |                                                                   |               |       |        |   |   |       |       
|                                              | Land                                                              |               | $     | 1      |   |   | $     | 1      |  
|                                              | Buildings and improvements                                        |               |       | 190    |   |   |       | 183    |  
|                                              | Network equipment and software                                    |               |       | 11,043 |   |   |       | 10,139 |  
|                                              | Non-network internal use software, office
    equipment and other |               |       | 1,318  |   |   |       | 1,173  |  
|                                              | Less accumulated depreciation and amortization                    |               |       | (5,007 | ) |   |       | (3,667 | )
|                                              |                                                                   |               |       |        |   |   |       |       
|                                              |                                                                   |               | 7,545 |        |   |   | 7,829 |       
|                                              | Network asset inventory and construction in
    progress          |               |       | 1,373  |   |   |       | 1,445  |  
|                                              |                                                                   |               |       |        |   |   |       |       
|                                              |                                                                   | $             | 8,918 |        |   | $ | 9,274 |       
|                                              |                                                                   |               |       |        |   |   |       |       
|Other assets                                  |                                                                   |               |       |        |   |   |       |       
|                                              | Deferred costs of handset sales and activation                    |               | $     | 678    |   |   | $     | 441    |  
|                                              | Debt financing costs, net                                         |               |       | 183    |   |   |       | 289    |  
|                                              | Deposits on future acquisitions                                   |               |       | 158    |   |   |       | 207    |  
|                                              | Software to be sold, leased or marketed                           |               |       | 53     |   |   |       | 26     |  
|                                              | Other                                                             |               |       | 92     |   |   |       | 138    |  
|                                              |                                                                   |               |       |        |   |   |       |       
|                                              |                                                                   | $             | 1,164 |        |   | $ | 1,101 |       
|                                              |                                                                   |               |       |        |   |   |       |       
|Accrued expenses and other                    |                                                                   |               |       |        |   |   |       |       
|                                              | Deferred handset sales and activation fees                        |               | $     | 505    |   |   | $     | 412    |  
|                                              | Deferred access revenues                                          |               |       | 229    |   |   |       | 166    |  
|                                              | Payroll related items and commissions                             |               |       | 220    |   |   |       | 197    |  
|                                              | Accrued interest                                                  |               |       | 165    |   |   |       | 211    |  
|                                              | Deferred gain on sale leaseback transaction
    (note 5)          |               |       | 106    |   |   |       |       |  
|                                              | Derivative liability                                              |               |       | 104    |   |   |       | 35     |  
|                                              | Customer deposits                                                 |               |       | 98     |   |   |       | 38     |  
|                                              | Other                                                             |               |       | 322    |   |   |       | 411    |  
|                                              |                                                                   |               |       |        |   |   |       |       
|                                              |                                                                   | $             | 1,749 |        |   | $ | 1,470 |       
|                                              |                                                                   |               |       |        |   |   |       |       
|Deferred revenues and other                   |                                                                   |               |       |        |   |   |       |       
|                                              | Deferred handset sales and activation fees                        |               | $     | 678    |   |   | $     | 441    |  
|                                              | Deferred gain on sale leaseback transaction
    (note 5)          |               |       | 185    |   |   |       |       |  
|                                              | Deferred rent                                                     |               |       | 44     |   |   |       | 41     |  
|                                              | Derivative liability                                              |               |       |       |   |   |       | 52     |  
|                                              | Other                                                             |               |       | 42     |   |   |       | 32     |  
|                                              |                                                                   |               |       |        |   |   |       |       
|                                              |                                                                   | $             | 949   |        |   | $ | 566   |       
|                                              |                                                                   |               |       |        |   |   |       |       

F-22



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)




|   |            
|-- | -----------
|5. | Investments

|                                                                                                        |                                                                   |               |     |      |  |   |     |    | 
|------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ------------- | --- | ---- |  | - | --- | -- | 
|                                                                                                        |                                                                   |              
|                                                                                                        |                                                                   | December 31, 
|                                                                                                        |                                                                   |              
|                                                                                                        |                                                                   | 2002          |     | 2001
|                                                                                                        |                                                                   |               |     |     
|                                                                                                        |                                                                   |              
|                                                                                                        |                                                                   | (in millions)
|Equity method investments,at cost less equity in net income
    (loss)                                  |                                                                   |               |     |      |  |   |     |   
|                                                                                                        | NII Holdings, net of equity in net income of $16
    and $0       |               | $   | 32   |  |   | $   |   | 
|                                                                                                        | Nextel Partners, net of equity in net losses of
    $315 and $223 |               |     | 17   |  |   |     | 96 | 
|                                                                                                        | Other                                                             |               |     | 2    |  |   |     | 3  | 
|Mandatorily redeemable preferred stock,at accreted liquidation preference
    value, of Nextel Partners |                                                                   |               | 35  |      |  |   | 31  |   
|Marketable equity securities                                                                            |                                                                   |               |    |      |  |   | 50  |   
|Marketable debt securities  NII
    Holdings                                                           |                                                                   |               | 49  |      |  |   |    |   
|Nonmarketable equity
    securities, at cost                                                            |                                                                   |               | 10  |      |  |   | 8   |   
|                                                                                                        |                                                                   |               |     |      |  |   |     |   
|                                                                                                        |                                                                   | $             | 145 |      |  | $ | 188 |   
|                                                                                                        |                                                                   |               |     |      |  |   |     |   

Our percentage ownership for each of our material
investments is as follows. For equity method investments, the
percentage ownership below represents the percentage of the
affiliates earnings or losses recognized.

|                             |                            |              |  |      |   |  |  |    |  
|---------------------------- | -------------------------- | ------------ |  | ---- | - |  |  | -- | -
|                             |                            |             
|                             |                            | Percentage  
|                             |                            | Ownership   
|                             |                            | December 31,
|                             |                            |             
|                             |                            | 2002         |  | 2001
|                             |                            |              |  |     
|Equity Method Investments    |                            |              |  |      |   |  |  |   
|                             | NII Holdings, Inc.         |              |  | 36   | % |  |  |   |  
|                             | Nextel Partners, Inc.      |              |  | 32   | % |  |  | 32 | %
|Marketable Equity Securities |                            |              |  |      |   |  |  |   
|                             | SpectraSite Holdings, Inc. |              |  |     |   |  |  | 9  | %

NII Holdings.On November 12, 2002, NII
Holdings, our former subsidiary, reorganized under
Chapter 11 of the U.S. Bankruptcy Code. The
reorganization of NII Holdings included a new infusion of
capital into NII Holdings of $190 million,
$140 million of which was provided by existing creditors in
exchange for about $181 million in aggregate principal
amount at maturity of a new series of 13% senior secured notes
of NII Holdings and shares of NII Holdings class A
common stock. We contributed about $51 million in cash of
this $140 million and received in exchange about
$66 million in aggregate principal amount at maturity of
these new notes and 5.7 million shares of NII
Holdings new class A common stock. We allocated the
$51 million investment between the debt and equity
instruments based upon their relative fair values. This resulted
in a carrying value of $37 million for the debt and a
carrying value of $14 million for the 5.7 million
shares of NII Holdings new class A common stock. As a
result of the bankruptcy, we also received 1.4 million
shares of NII Holdings new class A common stock,
valued at $4 million, in settlement of the old NII Holdings
senior notes held by us and other claims. See note 8 for
more details on our purchase of these senior notes in 2001. We
also provided $50 million of additional funding to NII
Holdings in exchange for a U.S.-Mexico cross border spectrum
sharing arrangement, $25 million of which remains in escrow
pending the completion of NII Holdings obligations under
this arrangement.

We account for our investment in NII Holdings new
series of 13% senior secured notes as available-for-sale
securities. We account for our new 36% equity interest in NII
Holdings using the equity method. Based on the total
7.1 million shares of NII Holdings new class A common
stock we own, our equity investment carrying value of
$18 million upon emergence was equal to our 36% share of
NII Holdings new equity value of $50 million under
fresh-start accounting.

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


Upon NII Holdings emergence from
bankruptcy, we entered into a revised overhead services
agreement with NII Holdings under which we provide certain
administrative, engineering and technical, information
technology and marketing services for agreed upon service fees.
During 2002, we charged NII Holdings $2 million for
services provided under both the old and revised overhead
services agreement. We recorded these amounts as a reduction to
selling, general and administrative expenses. Under roaming
agreements between one of our wholly owned subsidiaries and
wholly owned subsidiaries of NII Holdings, we were charged
$7 million during 2002 for our subscribers roaming on NII
Holdings networks, net of roaming revenues earned of
$1 million for NII Holdings subscribers roaming on
our network. We recorded the roaming revenues we earned from NII
Holdings as service revenues and we recorded the roaming
expenses we were charged as cost of service. We have a net
receivable due from NII Holdings of $1 million as of
December 31, 2002.

See the consolidated financial statements of NII
Holdings in the financial statement schedules found at the end
of this annual report on Form 10-K.

Nextel
Partners.In 1999, we entered into
agreements with Nextel Partners, and other parties, including
Motorola and Eagle River Investments, L.L.C., an affiliate of
Mr. McCaw, 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 (a) 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; (b) if we elect to terminate the
relationship with Nextel Partners because of its breach of the
operating agreements; (c) if we experience a change of
control; or (d) 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 would 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.

In connection with a series of transactions in
1999, we sold assets and transferred specified FCC licenses to
Nextel Partners. In exchange, at the dates of transfer, Nextel
Partners issued to us equity having a total agreed value of
$140 million and paid us $142 million in cash related
to the assets sold and the reimbursement of costs and net
operating expenses. Additionally, we made a $13 million
cash equity investment in Nextel Partners to avoid dilution of
our voting interest.

As a result of Nextel Partners initial
public offering in February 2000, our total ownership interest
was diluted. Our investment in certain Nextel Partners preferred
stock converted to voting class B common stock. We continue
to hold nonvoting preferred stock that is subject to mandatory
cash redemption by February 2010.

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


In September 2000, pursuant to binding
agreements, Nextel Partners exercised its option to acquire from
us specified additional territories and assets, including
related FCC licenses. In exchange, we received $31 million
in equity for the licenses and $3 million in cash for the
other assets. This transaction resulted in a gain of
$22 million, of which we recorded $15 million in other
income in 2000. We deferred $7 million of the gain, which
we no longer amortize upon the adoption of SFAS No. 142.

Under a roaming agreement between one of our
wholly owned subsidiaries and a wholly owned subsidiary of
Nextel Partners, we were charged $40 million during 2002,
$36 million during 2001 and $19 million during 2000
for our customers roaming on Nextel Partners network, net
of roaming revenues earned. One of our wholly owned subsidiaries
provides specified telecommunications switching services to
Nextel Partners under a switch sharing agreement. For these
services, we earned $52 million in 2002, $49 million
in 2001 and $15 million in 2000, which we recorded as a
reduction to cost of service. We charged Nextel Partners
$6 million in 2002, $5 million in 2001 and
$4 million in 2000 for administrative services provided
under a services agreement. We recorded these amounts as a
reduction to selling, general and administrative expenses. We
have a net receivable due from Nextel Partners of
$16 million as of December 31, 2002 and
$5 million as of December 31, 2001.

Summarized financial information reported by
Nextel Partners is presented below.

|                                       |  |               |       |      |  |   |       | 
|-------------------------------------- |  | ------------- | ----- | ---- |  | - | ----- | 
|                                       |  |              
|                                       |  | December 31, 
|                                       |  |              
|                                       |  | 2002          |       | 2001
|                                       |  |               |       |     
|                                       |  |              
|                                       |  | (in millions)
|Current assets                         |  | $             | 358   |      |  | $ | 659   | 
|Noncurrent assets                      |  |               | 1,378 |      |  |   | 1,163 | 
|Total assets                           |  |               | 1,736 |      |  |   | 1,822 | 
|Current liabilities                    |  |               | 162   |      |  |   | 128   | 
|Noncurrent liabilities                 |  |               | 1,463 |      |  |   | 1,343 | 
|Mandatorily redeemable preferred stock |  |               | 35    |      |  |   | 31    | 

|                                                                    |  |                         |     |      |  |      |     |  |  |   |     | 
|------------------------------------------------------------------- |  | ----------------------- | --- | ---- |  | ---- | --- |  |  | - | --- | 
|                                                                    |  |                        
|                                                                    |  | Year Ended December 31,
|                                                                    |  |                        
|                                                                    |  | 2002                    |     | 2001 |  | 2000
|                                                                    |  |                         |     |      |  |     
|                                                                    |  |                        
|                                                                    |  | (in millions)          
|Operating revenues                                                  |  | $                       | 671 |      |  | $    | 377 |  |  | $ | 136 | 
|Cost of revenues                                                    |  |                         | 354 |      |  |      | 252 |  |  |   | 112 | 
|Loss before cumulative effect of change in
    accounting principle |  |                         | 282 |      |  |      | 286 |  |  |   | 265 | 
|Loss available to common stockholders                               |  |                         | 286 |      |  |      | 291 |  |  |   | 271 | 

SpectraSite.In April 1999, we and some of our
subsidiaries transferred about 2,000 telecommunications towers
and related assets to SpectraSite Holdings, Inc. and some of its
subsidiaries, which we then leased back. We also entered into a
commitment agreement with SpectraSite to lease at least 1,700
additional towers in the United States by April 2004 to support
the expansion of our network and the compatible network of
Nextel Partners. In exchange, we received $560 million in
cash, which we reflected as a finance obligation on our balance
sheet, and we received an ownership interest in SpectraSite. Due
to our continuing involvement in SpectraSite, these transactions
were accounted for by the financing method. During 2001, we
fulfilled our obligation under the 1,700 tower commitment.

During 2002, we recognized a $37 million
other-than temporary reduction in the fair value of our
investment in SpectraSite. In December 2002, we sold all of our
equity investment in SpectraSite for a de minimus amount.

The sale of our equity investment in SpectraSite
ended our continuing involvement in SpectraSite for
substantially all of our tower leases. Accordingly, we
recognized a deferred gain on the sale of such towers to
SpectraSite and will account for payments under the leasebacks
as operating leases. As a result, the

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


future lease payments will be recorded as rent
expense. We reduced our finance obligation by $655 million,
tower assets by $356 million and deferred transaction costs
by $8 million. The $291 million net difference
represents the deferred gain, which will be recognized over the
remainder of the initial lease term of each tower lease, ranging
from 2003 to 2007. As of December 31, 2002 we had a
remaining finance obligation balance of $10 million.

TELUS Corporation.In October 2000, TELUS Corporation
acquired Clearnet Communications, Inc., a publicly traded
Canadian company in which NII Holdings owned an equity interest,
for cash and stock. TELUS is a telecommunications company that,
before its acquisition of Clearnet, provided wireline, wireless
data and Internet communications services primarily in Western
Canada. Under agreements among NII Holdings, TELUS and Clearnet,
NII Holdings exchanged all of its Clearnet stock for nonvoting
shares of TELUS. In exchange for 8.4 million shares of
Clearnet stock, NII Holdings received 13.7 million shares
of TELUS stock, representing slightly less than 5% of the
ownership interest in TELUS. We recorded a pre-tax gain of
$275 million in 2000 related to this transaction. In
accordance with SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, the shares of
TELUS stock were recorded at their then current market value in
our financial statements.

In September 2001, we recognized a
$188 million other-than-temporary reduction in the fair
value of our investment in TELUS based on its stock price at
September 30, 2001. In November 2001, NII Holdings sold its
investment in TELUS for $196 million in cash, including
$57 million that was placed directly into an escrow account
as collateral for a portion of NII Holdings vendor credit
facilities. NII Holdings recorded a pre-tax gain of
$42 million in the fourth quarter of 2001 as a result of
this sale.

6.     Fair Value of
Financial Instruments

We have determined the estimated fair values of
financial instruments using available market information and
appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop fair
value estimates. As a result, the estimates presented below are
not necessarily indicative of the amounts that we could realize
or be required to pay in a current market exchange. The use of
different market assumptions as well as estimation methodologies
may have a material effect on the estimated fair value amounts.

|                                                                            |  |               |        |            |  |          |        |            |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------- |  | ------------- | ------ | ---------- |  | -------- | ------ | ---------- |  | - | ------ | - |  | - | ------ | -
|                                                                            |  |              
|                                                                            |  | December 31, 
|                                                                            |  |              
|                                                                            |  |               |        |           
|                                                                            |  | 2002          |        | 2001      
|                                                                            |  |               |        |           
|                                                                            |  | Carrying      |        | Estimated  |  | Carrying |        | Estimated 
|                                                                            |  | Amount        |        | Fair Value |  | Amount   |        | Fair Value
|                                                                            |  |               |        |            |  |          |        |           
|                                                                            |  |              
|                                                                            |  | (in millions)
|Marketable equity securities                                                |  | $             |       |            |  | $        |       |            |  | $ | 50     |   |  | $ | 50     |  
|Marketable debt securities  NII
    Holdings                               |  |               | 49     |            |  |          | 49     |            |  |   |       |   |  |   |       |  
|Nonmarketable mandatorily redeemable preferred
    stock of Nextel Partners |  |               | 35     |            |  |          | 17     |            |  |   | 31     |   |  |   | 11     |  
|Debt of NII Holdings, nonrecourse to and not held
    by parent             |  |               |       |            |  |          |       |            |  |   | 1,865  |   |  |   | 542    |  
|Domestic long-term debt, including current portion                          |  |               | 12,278 |            |  |          | 11,033 |            |  |   | 13,864 |   |  |   | 11,044 |  
|Derivative instruments, net                                                 |  |               | (41    | )          |  |          | (41    | )          |  |   | (70    | ) |  |   | (70    | )
|Mandatorily redeemable preferred stock                                      |  |               | 1,015  |            |  |          | 912    |            |  |   | 2,114  |   |  |   | 1,100  |  
|Finance obligation                                                          |  |               | 10     |            |  |          | 8      |            |  |   | 693    |   |  |   | 416    |  

Cash and Cash Equivalents, Restricted Cash,
Short-term Investments, Accounts and Notes Receivable, Escrow
Deposits, Accounts Payable, Accrued Expenses and Due to Related
Parties.The carrying amounts of
these items are reasonable estimates of their fair values.

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NEXTEL COMMUNICATIONS, INC. AND
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


Marketable Debt and Equity Securities.We estimate the fair value of
these securities based on quoted market prices. At
December 31, 2002 and 2001, marketable debt and equity
securities included within investments consist of the following:

|                                     |  |               |    |            |  |            |    |            |  |   |   |  |  |   |    | 
|------------------------------------ |  | ------------- | -- | ---------- |  | ---------- | -- | ---------- |  | - | - |  |  | - | -- | 
|                                     |  |               |    | Gross      |  | Gross      |    |           
|                                     |  | Amortized     |    | Unrealized |  | Unrealized |    |           
|                                     |  | Cost          |    | Gain       |  | Loss       |    | Fair Value
|                                     |  |               |    |            |  |            |    |           
|                                     |  |               |    |           
|                                     |  | (in millions) |    |           
|2002                                 |  |               |    |            |  |            |    |            |  |   |   |  |  |   |    | 
|Available-for-sale debt securities   |  | $             | 38 |            |  | $          | 11 |            |  | $ |  |  |  | $ | 49 | 
|2001                                 |  |               |    |            |  |            |    |            |  |   |   |  |  |   |    | 
|Available-for-sale equity securities |  | $             | 38 |            |  | $          | 12 |            |  | $ |  |  |  | $ | 50 | 

Nonmarketable Mandatorily Redeemable
Preferred Stock of Nextel
Partners.We estimate the fair
value of this investment based on the present value of future
cash flows, using a discount rate available for similar
investments, adjusted for this investments
nonmarketability and credit rating.

Debt.We
estimate the fair value of these securities based on quoted
market prices of our senior notes and estimates from bankers for
our domestic bank credit facility. As NII Holdings bank
and vendor credit facilities did not have quoted market prices,
NII Holdings estimated fair value for these facilities based on
their then current carrying values, as interest rates were reset
periodically. However, as a result of defaults under these
facilities, other methods used to determine fair value could
have resulted in significantly different amounts. See
note 7.

Derivative Instruments.The fair value of these
instruments is based on estimates obtained from bankers to
settle the agreements. See note 9.

Mandatorily Redeemable Preferred Stock.We estimate the fair value of
these securities based on quoted market prices. See note 12.

Finance Obligation.We estimate the fair value of our
finance obligation based on the present value of future cash
flows using a discount rate available for similar obligations.
See note 7.

Letters of Credit.We use letters of credit to back
some lease guarantees. Outstanding letters of credit totaled
$30 million and $31 million at December 31, 2002
and 2001. The letters of credit reflect fair value as a
condition of their underlying purpose and are subject to fees
competitively determined in the market place.

Of the outstanding letters of credit of
$30 million at December 31, 2002, $23 million
relates to a capital lease which will terminate effective March
2003 upon our exercise of the early buy out option provided for
in the lease. See note 7 for related discussion of the
capital lease obligation.

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


7.     Long-Term
Debt, Capital Lease and Finance Obligations

|                                                                                                                                                                                                                              |                                    |                       |        |      |   |   |        |        |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------- | --------------------- | ------ | ---- | - | - | ------ | ------ | -
|                                                                                                                                                                                                                              |                                    |                      
|                                                                                                                                                                                                                              |                                    | December 31,         
|                                                                                                                                                                                                                              |                                    |                      
|                                                                                                                                                                                                                              |                                    | 2002                  |        | 2001
|                                                                                                                                                                                                                              |                                    |                       |        |     
|                                                                                                                                                                                                                              |                                    |                      
|                                                                                                                                                                                                                              |                                    | (dollars in millions)
|Domestic                                                                                                                                                                                                                      |                                    |                       |        |      |   |   |        |       
|10.65% senior redeemable discount notes due
    2007, net of unamortized discount of
    $0 and $59                                                                                                                           |                                    | $                     | 756    |      |   | $ | 781    |       
|9.75% senior serial redeemable discount notes
    due 2007, net of unamortized discount
    of $0 and $86                                                                                                                     |                                    |                       | 1,086  |      |   |   | 1,043  |       
|4.75% convertible senior notes due
    2007                                                                                                                                                                                   |                                    |                       | 284    |      |   |   | 354    |       
|9.95% senior serial redeemable discount notes
    due 2008, net of unamortized discount
    of $16 and $168                                                                                                                   |                                    |                       | 1,364  |      |   |   | 1,459  |       
|12% senior serial redeemable notes due
    2008, net of unamortized discount of
    $3 and $3                                                                                                                                 |                                    |                       | 297    |      |   |   | 297    |       
|9.375% senior serial redeemable notes due
    2009                                                                                                                                                                            |                                    |                       | 1,796  |      |   |   | 2,000  |       
|5.25% convertible senior notes due
    2010                                                                                                                                                                                   |                                    |                       | 622    |      |   |   | 1,150  |       
|9.5% senior serial redeemable notes due
    2011, including a fair value hedge
    adjustment of $58 and $11                                                                                                                  |                                    |                       | 948    |      |   |   | 1,261  |       
|6% convertible senior notes due 2011                                                                                                                                                                                          |                                    |                       | 608    |      |   |   | 1,000  |       
|Bank credit
    facility, interest payable quarterly
    at an adjusted rate calculated based either on the
    U.S. prime rate or London Interbank Offered Rate, or LIBOR,
    (2.7% to 5.9%  2002; 4.02% to 10.44%  2001) |                                    |                       | 4,500  |      |   |   | 4,500  |       
|Other                                                                                                                                                                                                                         |                                    |                       | 17     |      |   |   | 19     |       
|                                                                                                                                                                                                                              |                                    |                       |        |      |   |   |        |       
|Total domestic long-term debt                                                                                                                                                                                                 |                                    |                       | 12,278 |      |   |   | 13,864 |       
|                                                                                                                                                                                                                              | Less domestic current portion      |                       |        | (199 | ) |   |        | (49    | )
|                                                                                                                                                                                                                              |                                    |                       |        |      |   |   |        |       
|                                                                                                                                                                                                                              |                                    | $                     | 12,079 |      |   | $ | 13,815 |       
|                                                                                                                                                                                                                              |                                    |                       |        |      |   |   |        |       
|NII Holdings                                                                                                                                                                                                                  |                                    |                       |        |      |   |   |        |       
|13% senior redeemable discount notes due
    2007, issued by NII Holdings, net of
    unamortized discount of $26                                                                                                             |                                    | $                     |       |      |   | $ | 504    |       
|12.125% senior serial redeemable discount
    notes due 2008, issued by NII
    Holdings, net of unamortized discount of $69                                                                                                  |                                    |                       |       |      |   |   | 420    |       
|12.75% senior serial redeemable notes due
    2010, issued by NII Holdings, net of
    unamortized discount of $5                                                                                                             |                                    |                       |       |      |   |   | 451    |       
|NII Holdings vendor credit
    facilities, interest payable quarterly
    or semiannually at an adjusted rate calculated based either on
    the U.S. prime rate or LIBOR (7.25% to 11.21% 
    2001)                        |                                    |                       |       |      |   |   | 382    |       
|Argentina credit
    facilities, interest payable quarterly
    at an adjusted rate calculated based either on the Adjusted Base
    Rate or the Eurodollar rate (7.63% to 11.5%  2001)                                      |                                    |                       |       |      |   |   | 108    |       
|                                                                                                                                                                                                                              |                                    |                       |        |      |   |   |        |       
|Total NII Holdings debt nonrecourse to
    and not held by parent                                                                                                                                                            |                                    |                       |       |      |   |   | 1,865  |       
|                                                                                                                                                                                                                              | Less NII Holdings current portion |                       |        |     |   |   |        | (1,865 | )
|                                                                                                                                                                                                                              |                                    |                       |        |      |   |   |        |       
|                                                                                                                                                                                                                              |                                    | $                     |       |      |   | $ |       |       
|                                                                                                                                                                                                                              |                                    |                       |        |      |   |   |        |       

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


|                                                   |                      |                       |        |      |   |   |        |        |  
|-------------------------------------------------- | -------------------- | --------------------- | ------ | ---- | - | - | ------ | ------ | -
|                                                   |                      |                      
|                                                   |                      | December 31,         
|                                                   |                      |                      
|                                                   |                      | 2002                  |        | 2001
|                                                   |                      |                       |        |     
|                                                   |                      |                      
|                                                   |                      | (dollars in millions)
|Consolidated                                       |                      |                       |        |      |   |   |        |       
|Total consolidated debt                            |                      | $                     | 12,278 |      |   | $ | 15,729 |       
|                                                   | Less current portion |                       |        | (199 | ) |   |        | (1,914 | )
|                                                   |                      |                       |        |      |   |   |        |       
|                                                   |                      | $                     | 12,079 |      |   | $ | 13,815 |       
|                                                   |                      |                       |        |      |   |   |        |       
|Domestic capital lease and finance
    obligations |                      |                       |        |      |   |   |        |       
|Capital lease obligations                          |                      | $                     | 262    |      |   | $ | 308    |       
|Finance obligation                                 |                      |                       | 10     |      |   |   | 693    |       
|                                                   |                      |                       |        |      |   |   |        |       
|Total capital lease and finance
    obligations    |                      |                       | 272    |      |   |   | 1,001  |       
|                                                   | Less current portion |                       |        | (52  | ) |   |        | (96    | )
|                                                   |                      |                       |        |      |   |   |        |       
|                                                   |                      | $                     | 220    |      |   | $ | 905    |       
|                                                   |                      |                       |        |      |   |   |        |       

See note 8 for information regarding the
retirement of long-term debt.

Domestic Long Term Debt

10.65% Senior Redeemable Discount
Notes.Cash interest on the 10.65%
senior redeemable discount notes due 2007 began to accrue
September 15, 2002 and is payable semiannually beginning
March 15, 2003 at a rate of 10.65% per year. These notes
became callable, at our option, on September 15, 2002 at an
initial redemption price of 105.325% of the aggregate principal
amount of these notes, plus accrued and unpaid interest. These
notes are senior unsecured indebtedness of ours and rank equal
in right of payment with all our other unsubordinated, unsecured
indebtedness.

9.75% Senior Serial Redeemable Discount
Notes.Cash interest on the 9.75%
senior serial redeemable discount notes due 2007 began to accrue
October 31, 2002 and is payable semiannually beginning
April 30, 2003, at a rate of 9.75% per year. These notes
became callable, at our option, October 31, 2002 at an
initial redemption price of 104.875% of the aggregate principal
amount of these notes, plus accrued and unpaid interest. These
notes are senior unsecured indebtedness of ours and rank equal
in right of payment with all our other unsubordinated, unsecured
indebtedness.

9.95% Senior Serial Redeemable Discount
Notes.Cash interest on the 9.95%
senior serial redeemable discount notes due 2008 does not accrue
prior to February 15, 2003, and is payable semiannually
beginning August 15, 2003 at a rate of 9.95% per year. We
may choose to redeem some or all of these notes starting
February 15, 2003 at an initial redemption price of
105.5625% of the aggregate principal amount of these notes, plus
accrued and unpaid interest. These notes are senior unsecured
indebtedness of ours and rank equal in right of payment with all
our other unsubordinated, unsecured indebtedness.

12% Senior Serial Redeemable
Notes.Cash interest on the 12%
senior serial redeemable notes due 2008 is payable semiannually
on May 1 and November 1 at a rate of 12% per year. We
may choose to redeem some or all of these notes starting
November 1, 2003 at an initial redemption price of 106% of
the aggregate principal amount of these notes, plus accrued and
unpaid interest. These notes are senior unsecured indebtedness
of ours and rank equal in right of payment with all our other
unsubordinated, unsecured indebtedness.

9.375% Senior Serial Redeemable
Notes.Cash interest on the 9.375%
senior serial redeemable notes due 2009 is payable semiannually
on May 15 and November 15 at a rate of 9.375% per
year. We may choose to redeem some or all of these notes
starting November 15, 2004 at an initial redemption price
of 104.688% of the aggregate principal amount of these notes,
plus accrued and unpaid interest. These notes

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


are senior unsecured indebtedness of ours and
rank equal in right of payment with all our other
unsubordinated, unsecured indebtedness.

9.5% Senior Serial Redeemable
Notes.In January 2001, we
completed the sale of $1.25 billion in principal amount of
9.5% senior serial redeemable notes due 2011, generating
$1.245 billion in net cash proceeds. Cash interest is
payable semiannually on February 1 and August 1 at a
rate of 9.5% per year. We may choose to redeem some or all of
these notes starting February 1, 2006 at an initial
redemption price of 104.75% of the aggregate principal amount of
these notes, plus accrued and unpaid interest. On or before
February 1, 2004, we may choose to redeem up to 35% of the
original principal amount of the notes using the proceeds of one
or more sales of qualified equity securities at 109.5% of their
principal amount, plus accrued and unpaid interest to the date
of redemption. These notes are senior unsecured indebtedness of
ours and rank equal in right of payment with all of our other
unsubordinated, unsecured indebtedness. In July 2001, we entered
into three interest rate swap agreements to hedge the risk of
changes in fair value attributable to changes in market interest
rates associated with $500 million of our 9.5% senior
serial redeemable notes. As a result of this hedge and in
accordance with SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, we have
recognized a $58 million and $11 million increase to
the carrying value of these notes as of December 31, 2002
and December 31, 2001, respectively. See note 9.
However, this fair value hedge adjustment does not change the
amounts due at maturity of the notes.

4.75% Convertible Senior
Notes.Cash interest on the 4.75%
convertible senior notes due 2007 is payable semiannually on
January 1 and July 1 at a rate of 4.75% per year.
These notes became callable, at our option, on July 6, 2002
at an initial redemption price of 102.714% plus accrued and
unpaid interest. These notes are convertible at the option of
the holders into our class A common stock at any time prior
to redemption, repurchase or maturity at a conversion price of
$23.654 per share, subject to adjustment. These notes are senior
unsecured indebtedness of ours and rank equal in right of
payment with all our other unsubordinated, unsecured
indebtedness.

5.25% Convertible Senior
Notes.In 2000, we completed the
sale of $1.15 billion in principal amount of 5.25%
convertible senior notes due 2010, generating $1.13 billion
in net cash proceeds. Cash interest is payable semiannually on
January 15 and July 15 at a rate of 5.25% per year. We
may choose to redeem some or all of these notes starting
January 18, 2003 at an initial redemption price of 103.5%
of the aggregate principal amount of these notes plus accrued
and unpaid interest. These notes are convertible at the option
of the holders into our class A common stock at any time
prior to redemption, repurchase or maturity at a conversion
price of $74.40 per share, subject to adjustment. These notes
are senior unsecured indebtedness of ours and rank equal in
right of payment with all our other unsubordinated, unsecured
indebtedness.

6% Convertible Senior
Notes.In May 2001, we completed
the sale of $1.0 billion in principal amount of 6%
convertible senior notes due 2011, generating $980 million
in net cash proceeds. Cash interest is payable semiannually on
June 1 and December 1 at a rate of 6% per year. We may
choose to redeem some or all of these notes starting
June 4, 2004 at an initial redemption price of 104% of the
aggregate principal amount of these notes, plus accrued and
unpaid interest. These notes are convertible at the option of
the holders into our class A common stock at any time prior
to redemption, repurchase or maturity at a conversion price of
about $23.84 per share, subject to adjustment. These notes are
senior unsecured indebtness of ours and rank equal in right of
payment with all our other unsubordinated, unsecured
indebtedness.

Domestic Bank Credit Facility.As of December 31, 2002, our
credit facility provided for total secured financing capacity of
up to $5.9 billion, subject to the satisfaction or waiver
of applicable borrowing conditions. As of December 31,
2002, this facility consisted of a $1.4 billion revolving
loan

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


commitment and $4.5 billion in term loans.
All of the term loans have already been fully accessed.
Principal repayment began on the term loans in the amount of
$47 million in the fourth quarter of 2002, and the several
tranches that make up the term loans mature over a period from
December 31, 2007 to March 31, 2009. On
December 31, 2002, 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 thereunder.

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,
as amended. Some of these ratios become more stringent into
2003, at which time they become fixed. As of December 31,
2002, we were in compliance with all financial ratio tests under
our credit facility. 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 permitted 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.

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 December 31, 2002, we
were able to access substantially all of the remaining
$1.4 billion available under the bank credit facility.

The credit facility also contains covenants which
limit our ability and some of our subsidiaries abilities
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.

NII Holdings Long-Term Debt

On November 12, 2002, NII Holdings emerged
from bankruptcy. As a result of the bankruptcy reorganization,
none of the NII Holdings obligations discussed below are
included in our December 31, 2002 balance sheet. See
note 8 for further details.

NII Defaults.On December 31, 2001, NII Holdings Argentine
operating company failed to make principal payments on its
$108 million Argentine credit facilities, and on
February 1, 2002, NII Holdings failed to make a
$41 million interest payment on its $650 million
aggregate principal amount 12.75% senior notes, resulting in
defaults under these facilities, as well as under its
$382 million of vendor financing facilities with Motorola
Credit Corporation due to cross-default provisions. NII Holdings
decided not to make these payments as part of the cash
preservation process undertaken to restructure its debts and
implement a revised business plan. On May 24, 2002, NII
Holdings filed a voluntary petition for

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


reorganization under Chapter 11 of the
U.S. Bankruptcy Code in the United States Bankruptcy Court
for the District of Delaware. The following provides details of
NII Holdings senior notes and credit facilities prior to
their reorganization.

Senior Redeemable Notes issued by NII
Holdings.The 13% senior
redeemable discount notes due 2007 were callable beginning
October 15, 2002. Cash interest on these notes was to
accrue beginning April 15, 2002 and was payable
semiannually beginning October 15, 2002 at a rate of 13%
per year.

The 12.125% senior serial redeemable discount
notes due 2008 were callable beginning April 15, 2003. Cash
interest on these notes was to accrue beginning April 15,
2003 and was payable semiannually beginning October 15,
2003 at a rate of 12.125% per year.

In August 2000, NII Holdings completed the sale
of $650 million in principal amount of 12.75% senior serial
redeemable notes due 2010, generating $624 million in net
cash proceeds. These notes were callable beginning
August 1, 2005. Cash interest was payable semiannually on
February 1 and August 1 at a rate of 12.75% per year.

NII Holdings Facilities.As of December 31, 2001,
there were no amounts available for borrowing under NII
Holdings credit facilities.

An equipment financing agreement with Motorola
Credit Corporation, a subsidiary of Motorola, provided
$125 million in multi-draw term loans to McCaw
International (Brazil), Ltd. Loans made were used to acquire
network equipment and related services from Motorola. The
financing advanced under this agreement was repayable in
U.S. dollars in semiannual installments beginning
December 31, 2002, with final payment due June 30,
2005.

An equipment financing facility between NII
Holdings and Motorola Credit provided for $225 million of
secured term loans primarily used to finance the cost of
qualifying purchases of network equipment and related services
and to repay all of the previously outstanding long-term debt of
NII Holdings Philippine operating company. Amounts
borrowed under this facility were repayable in semiannual
installments beginning December 31, 2002 and maturing
June 30, 2006.

NII Holdings had an agreement with Motorola
Credit under which Motorola Credit provided $57 million in
incremental term loans to NII Holdings. In January 2000, NII
Holdings borrowed the full $57 million available under this
facility to acquire network equipment and related services from
Motorola. Amounts borrowed under this facility were to mature
June 30, 2003. NII Holdings Argentine operating
company had credit facilities with Chase Manhattan Bank and
Motorola Credit which provided $100 million in term loans
for general corporate purposes and $50 million in
incremental term loans for purchasing qualifying network
equipment and related services from Motorola. Loans under this
facility were repayable in quarterly installments beginning
September 30, 2000 through March 31, 2003.

Capital Lease Obligations

In August 2000, we completed a switch equipment
sale leaseback transaction that is being accounted for as a
capital lease. We received total net proceeds of
$280 million, resulting in a gain of $19 million. The
gain, which has been deferred, is being amortized into
depreciation expense on a straight-line basis over the
seven-year lease term.

Effective April 2001, a switch equipment sale
leaseback transaction, previously accounted for as an operating
lease, has been accounted for as a capital lease in the amount
of $84 million due to a modification to the lease
provisions. In December 2002, we notified the lessor of our
intent to exercise the early buy out option provided for in the
lease effective March 2003 in the amount of $69 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


Finance Obligation

In December 2002, we sold all of our equity
investment in SpectraSite for a de minimus amount. The sale of
our equity investment in SpectraSite ended our continuing
involvement in SpectraSite for substantially all of our tower
leases. Accordingly, we recognized a deferred gain on the sale
of these towers to SpectraSite and will account for payments
under the leasebacks as operating leases. We reduced our finance
obligation by $655 million. See note 5 for further
discussion of our transactions with SpectraSite.

Future Maturities of Long-Term Debt, Capital
Lease and Finance Obligations

For the years subsequent to December 31,
2002, scheduled annual maturities of long-term debt, capital
lease and finance obligations outstanding as of
December 31, 2002 under existing long-term debt, capital
lease and finance obligation agreements are as follows:

|                                |  |               |        |               |  |       |     |   |  |   |        |  
|------------------------------- |  | ------------- | ------ | ------------- |  | ----- | --- | - |  | - | ------ | -
|                                |  |               |        | Capital Lease |  |      
|                                |  | Long-Term     |        | and Finance   |  |      
|                                |  | Debt          |        | Obligations   |  | Total
|                                |  |               |        |               |  |      
|                                |  |              
|                                |  | (in millions)
|2003                            |  | $             | 199    |               |  | $     | 75  |   |  | $ | 274    |  
|2004                            |  |               | 327    |               |  |       | 75  |   |  |   | 402    |  
|2005                            |  |               | 433    |               |  |       | 74  |   |  |   | 507    |  
|2006                            |  |               | 466    |               |  |       | 64  |   |  |   | 530    |  
|2007                            |  |               | 2,563  |               |  |       | 48  |   |  |   | 2,611  |  
|Thereafter                      |  |               | 8,251  |               |  |       |    |   |  |   | 8,251  |  
|                                |  |               |        |               |  |       |     |   |  |   |        |  
|                                |  |               | 12,239 |               |  |       | 336 |   |  |   | 12,575 |  
|Less unamortized discount       |  |               | (19    | )             |  |       |    |   |  |   | (19    | )
|Less imputed interest           |  |               |       |               |  |       | (64 | ) |  |   | (64    | )
|Add fair value hedge adjustment |  |               | 58     |               |  |       |    |   |  |   | 58     |  
|                                |  |               |        |               |  |       |     |   |  |   |        |  
|                                |  | $             | 12,278 |               |  | $     | 272 |   |  | $ | 12,550 |  
|                                |  |               |        |               |  |       |     |   |  |   |        |  



|   |                                                                            
|-- | ---------------------------------------------------------------------------
|8. | Retirement of Long-Term Debt and Mandatorily
    Redeemable Preferred Stock

Domestic.In
2000, we utilized $1.21 billion of cash to redeem prior to
final maturity all of our outstanding 10.125% senior notes due
2004 and 9.75% senior notes due 2004. As a result of these
transactions, we recognized a loss of $104 million,
representing the excess of the purchase price over the carrying
values of the redeemed notes and the write-off of
$26 million of unamortized debt financing costs.

Also in 2000, we issued 10.4 million shares
of our class A common stock upon the conversion of
$246 million of our 4.75% convertible senior notes,
representing the stated conversion price of $23.654 per share.
In order to induce conversion of these notes prior to
redemption, we paid the converting note holders cash and
recorded $23 million of debt conversion expense which is
included in other income (expense).

During the first half of 2000, we issued
6.7 million shares of our class A common stock upon
the conversion of $98 million in total accreted value of
our zero coupon convertible preferred stock mandatorily
redeemable in 2013, representing the original stated conversion
rate.

For the year ended December 31, 2002, we
purchased and retired a total of $1,928 million in
aggregate principal amount at maturity of our outstanding senior
notes and $1,258 million in aggregate face amount of our
outstanding mandatorily redeemable preferred stock in exchange
for 172 million shares of class A common stock valued
at $1,197 million and $843 million in cash. As a
result of the purchase and retirement of the senior notes,
excluding the convertible senior notes retired in exchange for
shares of class A common stock, we recognized a gain of
$514 million in other income (expense) in the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


accompanying statements of operations,
representing the excess of the carrying value over the purchase
price of the purchased and retired notes and the write-off of
unamortized debt financing costs. We retired some of our
outstanding convertible senior notes by issuing more shares of
our class A common stock than the noteholders were entitled
to under the original terms of these notes. In accordance with
SFAS No. 84, Induced Conversions of Convertible
Debt, we recorded debt conversion expense of
$160 million in other income (expense) equivalent to the
fair value of the additional shares issued as measured on the
transaction date. As a result of the mandatorily redeemable
preferred stock transactions, we recognized a gain in paid-in
capital of $485 million, representing the excess of the
carrying value over the purchase price of the purchased and
retired mandatorily redeemable preferred stock and the write-off
of unamortized financing costs. We may, from time to time, as we
deem appropriate, enter into similar transactions that in the
aggregate may be material. The table below details these
retirements by security.

|                                                                              |  |                       |       |             |  |              |       |              |  |             |     |  |  |   |       |  |  |   |       | 
|----------------------------------------------------------------------------- |  | --------------------- | ----- | ----------- |  | ------------ | ----- | ------------ |  | ----------- | --- |  |  | - | ----- |  |  | - | ----- | 
|                                                                              |  |                       |       |             |  | Accretion of |       |              |  |            
|                                                                              |  | Balance               |       | Book        |  | Unamortized  |       | Balance      |  | Principal  
|                                                                              |  | December 31,          |       | Value of    |  | Discount or  |       | December 31, |  | Value of   
|                                                                              |  | 2001                  |       | Retirements |  | Dividends    |       | 2002         |  | Retirements
|                                                                              |  |                       |       |             |  |              |       |              |  |            
|                                                                              |  |                      
|                                                                              |  | (dollars in millions)
|10.65% senior redeemable discount notes due
    2007                          |  | $                     | 781   |             |  | $            | 82    |              |  | $           | 57  |  |  | $ | 756   |  |  | $ | 84    | 
|9.75% senior serial redeemable discount notes
    due 2007                    |  |                       | 1,043 |             |  |              | 42    |              |  |             | 85  |  |  |   | 1,086 |  |  |   | 43    | 
|4.75% convertible senior notes due
    2007                                   |  |                       | 354   |             |  |              | 70    |              |  |             |    |  |  |   | 284   |  |  |   | 70    | 
|9.95% senior serial redeemable discount notes
    due 2008                    |  |                       | 1,459 |             |  |              | 233   |              |  |             | 138 |  |  |   | 1,364 |  |  |   | 247   | 
|9.375% senior serial redeemable notes due
    2009                            |  |                       | 2,000 |             |  |              | 204   |              |  |             |    |  |  |   | 1,796 |  |  |   | 204   | 
|5.25% convertible senior notes due
    2010                                   |  |                       | 1,150 |             |  |              | 528   |              |  |             |    |  |  |   | 622   |  |  |   | 528   | 
|9.5% senior serial redeemable notes due
    2011                              |  |                       | 1,261 |             |  |              | 360   |              |  |             | 47* |  |  |   | 948   |  |  |   | 360   | 
|6% convertible senior notes due 2011                                          |  |                       | 1,000 |             |  |              | 392   |              |  |             |    |  |  |   | 608   |  |  |   | 392   | 
|13% series D exchangeable preferred stock
    mandatorily redeemable 2009     |  |                       | 883   |             |  |              | 474   |              |  |             | 62  |  |  |   | 471   |  |  |   | 471   | 
|11.125% series E exchangeable preferred
    stock mandatorily redeemable 2010 |  |                       | 1,149 |             |  |              | 798   |              |  |             | 103 |  |  |   | 454   |  |  |   | 787   | 
|                                                                              |  |                       |       |             |  |              |       |              |  |             |     |  |  |   |       |  |  |   |       | 
|Total retirements                                                             |  |                       |       |             |  | $            | 3,183 |              |  |             |     |  |  |   |       |  |  | $ | 3,186 | 
|                                                                              |  |                       |       |             |  |              |       |              |  |             |     |  |  |   |       |  |  |   |       | 



---



|  |                                                                                         
|- | ----------------------------------------------------------------------------------------
|* | Represents the non-cash increase to the fair
    value hedge adjustment during the year.

NII Holdings.In August 2001, Nextel
Communications purchased in private placement transactions an
aggregate of $422 million in principal amount of NII
Holdings 13% senior redeemable discount notes due 2007,
$241 million in principal amount of NII Holdings
12.125% senior serial redeemable discount notes due 2008 and
$194 million in principal amount of NII Holdings
12.75% senior serial redeemable notes due 2010 in exchange for
about 21.6 million shares of our class A common stock.
Nextel Communications continued to hold these notes, and
therefore, these notes remained outstanding

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


obligations of NII Holdings. However, in
accordance with generally accepted accounting principles, these
transactions were recorded as an early retirement of debt in our
consolidated financial statements. As a result, we recognized a
gain of $469 million, representing the excess of the net
carrying values of the repurchased notes over the market value
of the 21.6 million shares on the dates of the exchange.

On November 12, 2002, NII Holdings
consummated its reorganization under Chapter 11 of the
U.S. Bankruptcy Code. As a result of the bankruptcy
reorganization, NII Holdings extinguished $2,331 million in
senior redeemable notes and other unsecured, non-trade claims
that existed prior to its bankruptcy filing and in exchange
issued shares of new common stock valued at $2.50 per share.
This included the $857 million aggregate principal amount
of notes of NII Holdings that Nextel Communications purchased in
August 2001. NII Holdings reinstated in full its
$325 million of outstanding equipment financing owed to
Motorola Credit Corporation, subject to deferrals of principal
amortization and some structural modifications. NII Holdings
also repaid the outstanding principal balance, together with
accrued interest, due under its $57 million incremental
financing facility owed to Motorola using restricted cash held
in escrow, which amount will be available for borrowing under
some circumstances. The Argentine credit facility was retired in
exchange for a $5 million payment and the issuance of
400,000 shares of NII Holdings new class A common
stock.

9.     Derivative
Instruments and Hedging Activities

We use derivative instruments consisting
primarily of interest rate swap agreements to manage our
exposure to changes in interest rates. We do not use derivative
instruments for trading or other speculative purposes. The use
of derivative instruments exposes us to market risk and credit
risk. Market risk is the adverse effect that a change in
interest rates has on the value of a financial instrument. We
manage market risk associated with our derivative instruments by
establishing and monitoring limits on the degree of risk that
may be undertaken. This risk is also monitored through regular
communication with senior management. While derivative
instruments are subject to fluctuations in values, these
fluctuations are generally offset by fluctuations in fair values
or cash flows of the underlying hedged items. Credit risk is the
risk that the counterparty exposes us to loss in the event of
nonperformance. We mitigate credit risk by dealing only with
counterparties that have at least an A rating from
either Moodys or Standard & Poors, and by
setting exposure limits with each approved counterparty. We
currently do not hedge assets or liabilities denominated in
foreign currencies or foreign currency transactions.

The following table summarizes our interest rate
swap agreements at December 31, 2002 and 2001.

|                                         |  |                       |     |       |  |          |      |      |  |         |           |   |  |  |     |   |  |  |     |  
|---------------------------------------- |  | --------------------- | --- | ----- |  | -------- | ---- | ---- |  | ------- | --------- | - |  |  | --- | - |  |  | --- | -
|                                         |  | Notional              |     | Fair  |  |          |      | Pay  |  | Receive
|                                         |  | Amount                |     | Value |  | Maturity |      | Rate |  | Rate   
|                                         |  |                       |     |       |  |          |      |      |  |        
|                                         |  |                      
|                                         |  | (dollars in millions)
|As of December 31, 2002                  |  |                       |     |       |  |          |      |      |  |         |           |   |  |  |     |   |  |  |     |  
|Pay fixed rate, receive variable rate(1) |  | $                     | 570 |       |  | $        | (112 | )    |  |         | 3.3  year | s |  |  | 8.1 | % |  |  | 1.8 | %
|Pay variable rate, receive fixed rate    |  |                       | 500 |       |  |          | 74   |      |  |         | 8.1  year | s |  |  | 4.8 | % |  |  | 9.5 | %
|Pay variable rate, receive variable rate |  |                       | 400 |       |  |          | (3   | )    |  |         | 0.1 year  |   |  |  | 4.7 | % |  |  | 1.4 | %
|As of December 31, 2001                  |  |                       |     |       |  |          |      |      |  |         |           |   |  |  |     |   |  |  |     |  
|Pay fixed rate, receive variable rate(1) |  | $                     | 570 |       |  | $        | (83  | )    |  |         | 4.3  year | s |  |  | 8.1 | % |  |  | 2.6 | %
|Pay variable rate, receive fixed rate    |  |                       | 500 |       |  |          | 26   |      |  |         | 9.1  year | s |  |  | 5.4 | % |  |  | 9.5 | %
|Pay variable rate, receive variable rate |  |                       | 400 |       |  |          | (13  | )    |  |         | 1.1  year | s |  |  | 5.0 | % |  |  | 2.0 | %



---



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

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

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SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


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 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 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 results of operations for the twelve months
ended December 31, 2002, relating to the ineffectiveness of
these fair value hedges. As of December 31, 2002, we have
recognized the interest rate swaps at their fair values of
$74 million, consisting of $16 million in interest
receivable and $58 million in other assets, with an
offsetting $58 million adjustment to the carrying value of
our hedged debt.

We also 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 December 31, 2002,
we have recognized all of our cash flow hedges at their fair
values of $115 million in other current and other
noncurrent liabilities on our balance sheet. For our interest
rate swap that qualifies for cash flow hedge accounting, an
unrealized loss of $27 million, representing the effective
portion of the change in its fair value, is reported in other
comprehensive loss and will be reclassified to interest expense
in the same period during which our hedged debt affects interest
expense. We expect to reclassify this $27 million to
interest expense in 2003. The ineffective portion of the change
in fair value of our swap qualifying for cash flow hedge
accounting, and changes in the fair value of our swap not
qualifying for hedge accounting, are recognized in our statement
of operations in the period of the change. Interest expense
includes a gain of $10 million for the year ended
December 31, 2002, and a loss of $7 million for the
year ended December 31, 2001, representing changes in the
fair value of our swap not qualifying for hedge accounting.
Interest expense includes a loss of $22 million for the
year ended December 31, 2002 and a net effect of zero for
the year ended December 31, 2001 relating to the
ineffective portion of the change in fair value of our swap
qualifying for cash flow hedge accounting. Interest expense
related to the periodic net cash settlements on all swaps was
$26 million in 2002 and $22 million in 2001.

In June 2001, we terminated a variable to
variable interest rate swap in the notional amount of
$100 million in accordance with its original terms. There
was no realized gain or loss associated with this termination.

Prior to January 1, 2001, under accounting
principles generally accepted in the United States, we did not
record our derivative instruments on the balance sheet at fair
values. We recognized the periodic net cash settlements as
adjustments to interest expense in our statement of operations.
The incremental net effect was a $1 million decrease in
interest expense for the year ended December 31, 2000. Some
of our interest rate swaps and all of our option agreements were
terminated during 2000 in accordance with their original terms.

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)




|    |             
|--- | ------------
|10. | Income Taxes

The components of the income tax (provision)
benefit were as follows:

|                               |         |                         |      |      |   |      |     |     |   |   |    |    |  
|------------------------------ | ------- | ----------------------- | ---- | ---- | - | ---- | --- | --- | - | - | -- | -- | -
|                               |         |                        
|                               |         | Year Ended December 31,
|                               |         |                        
|                               |         | 2002                    |      | 2001 |   | 2000
|                               |         |                         |      |      |   |     
|                               |         |                        
|                               |         | (in millions)          
|Current                        |         |                         |      |      |   |      |     |     |   |   |    |   
|                               | State   |                         | $    | (5   | ) |      | $   |    |   |   | $  |   |  
|                               | Foreign |                         |      |     |   |      |     | (26 | ) |   |    | (2 | )
|Deferred                       |         |                         |      |      |   |      |     |     |   |   |    |   
|                               | Federal |                         |      | (325 | ) |      |     | 33  |   |   |    | 30 |  
|                               | State   |                         |      | (61  | ) |      |     |    |   |   |    |   |  
|                               | Foreign |                         |      |     |   |      |     | 128 |   |   |    | 5  |  
|                               |         |                         |      |      |   |      |     |     |   |   |    |   
|                               |         |                         | (386 | )    |   |      | 161 |     |   |   | 35 |   
|                               |         |                         |      |      |   |      |     |     |   |   |    |   
|Income tax (provision) benefit |         | $                       | (391 | )    |   | $    | 135 |     |   | $ | 33 |   
|                               |         |                         |      |      |   |      |     |     |   |   |    |   

Our income tax (provision) benefit reconciles to
the amount computed by applying the U.S. statutory rate to
loss before extraordinary item as follows:

|                                                 |  |                         |      |      |  |      |       |   |  |   |      |  
|------------------------------------------------ |  | ----------------------- | ---- | ---- |  | ---- | ----- | - |  | - | ---- | -
|                                                 |  |                        
|                                                 |  | Year Ended December 31,
|                                                 |  |                        
|                                                 |  | 2002                    |      | 2001 |  | 2000
|                                                 |  |                         |      |      |  |     
|                                                 |  |                        
|                                                 |  | (in millions)          
|Income tax (provision) benefit at statutory rate |  | $                       | (622 | )    |  | $    | 1,132 |   |  | $ | 261  |  
|State tax (provision) benefit, net               |  |                         | (81  | )    |  |      | 51    |   |  |   | 57   |  
|Amortization of goodwill                         |  |                         |     |      |  |      | (10   | ) |  |   | (10  | )
|Gain on deconsolidation of NII Holdings          |  |                         | 482  |      |  |      |      |   |  |   |     |  
|Gain on retirement of debt                       |  |                         | (109 | )    |  |      |      |   |  |   |     |  
|Decrease (increase) in valuation allowance       |  |                         | 41   |      |  |      | (592  | ) |  |   | (131 | )
|Equity in losses of unconsolidated affiliates    |  |                         | (86  | )    |  |      | (49   | ) |  |   | (53  | )
|Loss on impairment charge                        |  |                         |     |      |  |      | (377  | ) |  |   |     |  
|Other                                            |  |                         | (16  | )    |  |      | (20   | ) |  |   | (91  | )
|                                                 |  |                         |      |      |  |      |       |   |  |   |      |  
|                                                 |  | $                       | (391 | )    |  | $    | 135   |   |  | $ | 33   |  
|                                                 |  |                         |      |      |  |      |       |   |  |   |      |  

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


Deferred tax assets and liabilities consist of
the following:

|                         |                                  |               |        |       |  |  |        |       | 
|------------------------ | -------------------------------- | ------------- | ------ | ----- |  |  | ------ | ----- | 
|                         |                                  |              
|                         |                                  | December 31, 
|                         |                                  |              
|                         |                                  | 2002          |        | 2001 
|                         |                                  |               |        |      
|                         |                                  |              
|                         |                                  | (in millions)
|Deferred tax assets      |                                  |               |        |       |  |  |        |      
|                         | Net operating loss carryforwards |               | $      | 2,063 |  |  | $      | 2,739 | 
|                         | Capital loss carryforward        |               |        | 766   |  |  |        |      | 
|                         | Deferred interest                |               |        |      |  |  |        | 224   | 
|                         | Foreign affiliates               |               |        |      |  |  |        | 11    | 
|                         | Other                            |               |        | 28    |  |  |        | 193   | 
|                         |                                  |               |        |       |  |  |        |      
|                         |                                  |               | 2,857  |       |  |  | 3,167  |      
|Valuation allowance      |                                  |               | (2,383 | )     |  |  | (2,369 | )    
|                         |                                  |               |        |       |  |  |        |      
|                         |                                  |               | 474    |       |  |  | 798    |      
|                         |                                  |               |        |       |  |  |        |      
|Deferred tax liabilities |                                  |               |        |       |  |  |        |      
|                         | Property, plant and equipment    |               |        | 200   |  |  |        | 263   | 
|                         | Intangibles                      |               |        | 1,750 |  |  |        | 1,138 | 
|                         | Other                            |               |        | 143   |  |  |        | 66    | 
|                         |                                  |               |        |       |  |  |        |      
|                         |                                  |               | 2,093  |       |  |  | 1,467  |      
|                         |                                  |               |        |       |  |  |        |      
|                         | Net deferred tax liability       |               | $      | 1,619 |  |  | $      | 669   | 
|                         |                                  |               |        |       |  |  |        |      

At December 31, 2002, we had
$6,078 million of consolidated net operating loss
carryforwards for federal income tax purposes which expire
through 2021. Additionally, we had about $348 million of
separate return net operating loss carryforwards subject to
Section 382 of the Internal Revenue Code, which expire
through 2017. Section 382 restricts the utilization of net
operating losses and other carryover tax attributes upon the
occurrence of an ownership change. In prior years we had such
ownership changes. The utilization of tax net operating losses
may be subject to certain limitations.

In the first quarter of 2002, we adopted SFAS
No. 142. In connection with the adoption of SFAS
No. 142, we incurred a non-cash charge of about
$335 million to income tax expense to increase the
valuation allowance related to our net operating losses and
other deferred tax assets. See note 1 for more detailed
information.

As a result of NII Holdings bankruptcy, we
incurred a capital loss for tax purposes of $1,938 million, and
accordingly, we increased our valuation allowance by $766
million. Additionally, as a result of the deconsolidation, we
removed the deferred tax asset and liability balances that NII
Holdings and its subsidiaries had as of December 31, 2001,
which included a valuation allowance of $711 million.

11.     Commitments
and Contingencies

Operating Lease Commitments.We lease various equipment and
office facilities under operating leases. Leases for transmitter
and receiver sites generally range from month-to-month to
20 years or are cancelable after a short notice period.
Office facilities and equipment are leased under agreements with
terms ranging from 1 to 15 years. The leases normally
provide for the payment of minimum annual rentals and some
leases include provisions for renewal options of up to
10 years.

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


For years subsequent to December 31, 2002,
future minimum payments for all operating lease obligations that
have initial noncancelable lease terms exceeding one year, net
of rental income, are as follows (in millions):

|           |  |   |       | 
|---------- |  | - | ----- | 
|2003       |  | $ | 450   | 
|2004       |  |   | 397   | 
|2005       |  |   | 295   | 
|2006       |  |   | 183   | 
|2007       |  |   | 101   | 
|Thereafter |  |   | 176   | 
|           |  |   |       | 
|           |  | $ | 1,602 | 
|           |  |   |       | 

Total rental expense, net of rental income, was
$400 million during 2002, $370 million during 2001 and
$302 million during 2000.

Other Commitments.We are a party to service and
other contracts in connection with conducting our domestic
business. Minimum amounts due under some of the more significant
agreements are $565 million in 2003, $377 million in
2004, $293 million in 2005, $218 million in 2006,
$172 million in 2007 and $344 million thereafter.
Amounts actually paid under some of these agreements will likely
be higher due to variable components of these agreements. The
more significant variable components that determine the ultimate
obligation owed include such items as hours contracted,
subscribers and interest rates, among others. We also have
committed, subject to certain conditions which may not be met,
to pay up to $369 million for domestic spectrum
acquisitions (including $201 million paid for NeoWorld
Communications in January 2003) and leasing agreements entered
into and outstanding as of December 31, 2002. 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 a product. In addition, significant amounts expected to be
paid to Motorola for infrastructure, handsets and related
services are not included 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 with respect to amounts
paid to Motorola in 2002, 2001 and 2000.

Guarantees.Under certain limited conditions,
our operating subsidiaries may from time to time enter into
agreements with third parties that may require a guarantee of
Nextel Communications, Inc. and/or another of its subsidiaries.
We believe that the likelihood of Nextel Communications and/or
another of its subsidiaries having to make any payments under
the guarantees is remote since our operating subsidiaries have
been, and we believe they will continue to be, able to pay their
obligations with cash flows from their operations.

Contingencies.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.

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)




|    |                                           
|--- | ------------------------------------------
|12. | Mandatorily Redeemable Preferred
    Stock

|                                                                         |                                                                                                                                                                                                          |                       |       |      |  |   |       |       | 
|------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ----- | ---- |  | - | ----- | ----- | 
|                                                                         |                                                                                                                                                                                                          |                      
|                                                                         |                                                                                                                                                                                                          | December 31,         
|                                                                         |                                                                                                                                                                                                          |                      
|                                                                         |                                                                                                                                                                                                          | 2002                  |       | 2001
|                                                                         |                                                                                                                                                                                                          |                       |       |     
|                                                                         |                                                                                                                                                                                                          |                      
|                                                                         |                                                                                                                                                                                                          | (dollars in millions)
|Series D exchangeable preferred stock
    mandatorily redeemable 2009,   |                                                                                                                                                                                                          |                       |       |      |  |   |       |      
|                                                                         | 13% cumulative annual dividend; 470,753 and
    859,391 shares issued; 470,742 and 859,380 shares outstanding,
    stated at liquidation value                                                           |                       | $     | 471  |  |   | $     | 883   | 
|Series E exchangeable preferred stock
    mandatorily redeemable 2010,   |                                                                                                                                                                                                          |                       |       |      |  |   |       |      
|                                                                         | 11.125% cumulative annual dividend; 447,796 and
    1,133,161 shares issued; 447,782 and 1,133,147 shares
    outstanding; stated at liquidation value                                                   |                       |       | 454  |  |   |       | 1,149 | 
|Zero coupon convertible preferred stock
    mandatorily redeemable 2013, |                                                                                                                                                                                                          |                       |       |      |  |   |       |      
|                                                                         | no dividend; convertible into 4,779,386 shares of
    class A common stock; 245,245 shares issued and
    outstanding; stated at accreted liquidation preference value at
    9.25% compounded quarterly |                       |       | 90   |  |   |       | 82    | 
|                                                                         |                                                                                                                                                                                                          |                       |       |      |  |   |       |      
|                                                                         |                                                                                                                                                                                                          | $                     | 1,015 |      |  | $ | 2,114 |      
|                                                                         |                                                                                                                                                                                                          |                       |       |      |  |   |       |      

See note 8 for information regarding
retirement of mandatorily redeemable preferred stock.

Series D Preferred Stock.Shares of our series D
exchangeable preferred stock due 2009 have a liquidation
preference of $1,000 per share. Dividends on the series D
preferred stock accrue at an annual rate of 13% of the
liquidation preference, are cumulative from the date of issuance
and are payable quarterly in cash. Accrued but unpaid dividends
were $15 million at December 31, 2002 and
$24 million at December 31, 2001. The series D
preferred stock is mandatorily redeemable on July 15, 2009
at the liquidation preference plus accrued and unpaid dividends.
We may choose to redeem some or all of the preferred stock at
specified redemption prices. We may also choose to exchange the
series D preferred stock, in whole but not in part, into
subordinated debentures.

Series E Preferred Stock.Shares of our series E
exchangeable preferred stock due 2010 have a liquidation
preference of $1,000 per share. Dividends on the series E
preferred stock accrue at an annual rate of 11.125% of the
liquidation preference, are cumulative from the date of issuance
and are payable quarterly in cash or, on or prior to
February 15, 2003 at our option, in additional shares of
series E preferred stock. Accrued but unpaid dividends were
$6 million at December 31, 2002 and $16 million
at December 31, 2001. The series E preferred stock is
mandatorily redeemable on February 15, 2010 at the
liquidation preference plus accrued and unpaid dividends. We may
choose to redeem some or all of the preferred stock after
February 15, 2003 at specified redemption prices. We may
also choose to exchange the series E preferred stock, in
whole but not in part, after February 15, 2003 into
subordinated debentures.

Zero Coupon Preferred Stock.Shares of our zero coupon
convertible preferred stock due 2013 have a liquidation
preference of $1,000 per share at maturity. The zero coupon
preferred stock had an initial liquidation preference of
$253.675 per share. No dividends will be payable with respect to
the zero coupon preferred stock; however, the liquidation
preference will accrete from the issuance date at an annual rate
of 9.25% compounded quarterly. The zero coupon preferred stock
is convertible at the option of the holders prior to redemption
or maturity into our class A common stock at a conversion
rate of 19.4882 shares of our class A common stock for each
share of zero coupon preferred stock, subject to adjustment upon
the occurrence of specified events. We may choose to redeem some
or all of the preferred stock starting December 23, 2005,
and the preferred stock may be tendered by the holders for
acquisition by us on December 23, 2005 and 2008. The zero
coupon preferred stock is mandatorily redeemable on
December 23, 2013 at the fully accreted liquidation
preference of $1,000 per share. We may elect, subject to the
satisfaction of specified requirements, to pay any redemption or
tender price with our class A common stock.

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NEXTEL COMMUNICATIONS, INC. AND
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)




|    |                               
|--- | ------------------------------
|13. | Capital Stock and Stock Rights

Under our certificate of incorporation, we have
the authority to issue 2,233,883,948 shares of capital stock as
follows:



| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | 2,060,000,000 shares of class A voting
    common stock, par value $0.001 per share;                   
|
| |  | 100,000,000 shares of class B nonvoting
    common stock, par value $0.001 per share;                  
|
| |  | 26,941,933 shares of class A convertible
    redeemable preferred stock, stated value $36.75 per share;
|
| |  | 82 shares of class B convertible preferred
    stock, stated value $1.00 per share;                    
|
| |  | 26,941,933 shares of class C convertible
    redeemable preferred stock, stated value $36.75 per share;
|
| |  | 1,600,000 shares of series D preferred
    stock, described in note 12;                                
|
| |  | 2,200,000 shares of series E preferred stock
    described in note 12;                                 
|
| |  | 800,000 shares of zero coupon preferred stock
    described in note 12; and                            
|
| |  | 15,400,000 shares of undesignated preferred
    stock, par value $0.01 per share.                      

The following is a summary description of our
capital stock.

Common Stock

Holders of common stock are entitled to share
equally, share for share, if dividends are declared on the
common stock, whether payable in cash, property or securities.
There is no provision for cumulative voting with respect to the
election of directors.

Class A Common Stock.The holders of our class A
common stock are entitled to one vote per share on all matters
submitted for action by the stockholders.

Class B Common Stock.Motorola is currently the only
holder of our class B nonvoting common stock. A holder of
our class B common stock has no right to vote on any
matters submitted for action by the stockholders. However, a
holder of the class B common stock does have the right to
vote as a separate class, with each share having one vote, on:



| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | any merger, consolidation, reorganization or
    reclassification of our company or our shares of capital stock;
|
| |  | any amendment to the certificate of
    incorporation; or                                                       
|
| |  | any liquidation, dissolution or winding up of our
    company;                                                  

in which the class B common stock would be
treated differently from the class A common stock.

Shares of class B common stock are
convertible at any time at the option of the holder into an
equal number of shares of class A common stock upon the
actual or expected occurrence of any voting conversion
event as defined in our certificate of incorporation.

Stock Split.The financial information
throughout these financial statements and related footnotes
reflects the effect of a 2-for-1 stock split in the form of a
stock dividend paid on June 6, 2000 to stockholders of
record as of May 26, 2000.

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NEXTEL COMMUNICATIONS, INC. AND
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


Preferred Stock

The class A preferred stock, class B
preferred stock, and class C preferred stock were the
primary mechanism for providing Digital Radio, L.L.C., an
affiliate of Craig O. McCaw, with the corporate governance
rights associated with Mr. McCaws investment in
Nextel in 1995. In 1995, Digital Radio and Mr. McCaw
received specified board representation rights in connection
with their original investment in us, provided they maintained
at least 5% of the voting power of our equity securities
(assuming conversion of the class A preferred stock owned
by Digital Radio). On March 5, 2003, we, Digital Radio and
Mr. McCaw entered into an agreement revising these
arrangements as Mr. McCaw was soon to no longer own at
least 5% of the voting power of our outstanding equity
securities. As a result, all of the shares of the class A
preferred stock and class B preferred stock held by Digital
Radio converted into shares of our class A common stock on
March 5, 2003. See note 15 for further information
regarding our transactions with Mr. McCaw.

Class A Convertible Redeemable
Preferred Stock.Each share of
class A preferred stock was convertible at the election of
the holder into six shares of class A common stock. Upon
the occurrence of specified events, the shares of class A
preferred stock were automatically convertible into shares of
class A common stock on a six-for-one basis or into shares
of class C preferred stock on a one-for-one basis. Holders
of class A preferred stock were entitled to six votes per
share on all matters submitted for action by the stockholders
except for the election of directors. The holders of
class A preferred stock, voting separately as a class, were
entitled to elect three class A directors or 25% of the
members of our board of directors. Such directors comprised the
majority of the members of the operations committee, which had
the authority to formulate key aspects of our business strategy.

Class B Convertible Preferred Stock.Each share of nonvoting
class B preferred stock was automatically convertible on a
one-for-one basis into shares of class A common stock if
Digital Radios equity interest in us fell below specified
levels or if specified transfers of class B preferred stock
occurred. All shares of class B preferred stock were
converted into shares of class A common stock on
March 5, 2003.

Class C Convertible Redeemable
Preferred Stock.Shares of
class C preferred stock were issuable upon conversion of
class A preferred stock upon specified events, on a share
for share basis. The terms of the class C preferred stock
are substantially the same as the terms of the class A
preferred stock except that holders of class C preferred
stock have no special voting rights in the election of
directors, including the appointment of directors to the
operations committee. As a result of the conversion of the
class A preferred stock on March 5, 2003, we will not
issue shares of class C preferred stock.

Ranking

In the event of any liquidation, dissolution or
winding up of our company or upon the distribution of our
assets, all assets and funds remaining after payment in full of
our debts and liabilities, and after the payment to the holders
of the then outstanding preferred stock of the full preferential
amounts to which they were entitled, would be divided and
distributed among the holders of the class A common stock
and nonvoting class B common stock ratably.

Common Stock Reserved for Issuance

As of December 31, 2002, we had reserved
class A common stock for future issuance as detailed below
(in millions).

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


|                                                          |  |  |       | 
|--------------------------------------------------------- |  |  | ----- | 
|4.75% convertible debt conversion rights                  |  |  | 12.0  | 
|5.25% convertible debt conversion rights                  |  |  | 8.4   | 
|6% convertible debt conversion rights                     |  |  | 25.5  | 
|Zero coupon preferred stock conversion rights             |  |  | 4.8   | 
|Class A and class B preferred stock
    conversion rights |  |  | 22.2  | 
|Class B common stock conversion rights                    |  |  | 35.7  | 
|Incentive equity plan                                     |  |  | 141.2 | 
|Options held by affiliates and warrants
    outstanding   |  |  | 2.0   | 
|Employee stock purchase plan                              |  |  | 1.2   | 
|Acquisitions and other                                    |  |  | 146.3 | 
|                                                          |  |  |       | 
|                                                          |  |  | 399.3 | 
|                                                          |  |  |       | 

14.     Stock and
Employee Benefit Plans

Employee Stock Option Plan.Our Incentive Equity Plan provides
for the issuance of up to 180.0 million shares of
class A common stock to officers and employees. Generally,
nonqualified stock options outstanding under our stock option
plan:



| |   |                                                                                                 
| | - | ------------------------------------------------------------------------------------------------
| |  | are granted at prices equal to or exceeding the
    market value of the stock on the grant date;
|
| |  | vest over periods up to four years;                                                             
|
| |  | expire ten years subsequent to award.                                                           

If an option holders employment is
involuntarily terminated within one year after the effective
date of a change of control of Nextel, then that holders
unvested options will immediately vest or otherwise become
payable, subject to some limits.

A summary of the Incentive Equity Plan stock
option activity is as follows (shares in millions):

|                               |           |        |      |                  |   |   |       |       | 
|------------------------------ | --------- | ------ | ---- | ---------------- | - | - | ----- | ----- | 
|                               |           |        |      | Weighted Average
|                               |           | Shares |      | Exercise Price  
|                               |           |        |      |                 
|Outstanding, December 31, 1999 |           |        | 41.7 |                  |   | $ | 13.19 |      
|                               | Granted   |        |      | 24.1             |   |   |       | 61.19 | 
|                               | Exercised |        |      | (7.0             | ) |   |       | 10.58 | 
|                               | Canceled  |        |      | (4.4             | ) |   |       | 34.88 | 
|                               |           |        |      |                  |   |   |       |      
|Outstanding, December 31, 2000 |           |        | 54.4 |                  |   |   | 32.89 |      
|                               | Granted   |        |      | 31.9             |   |   |       | 18.39 | 
|                               | Exercised |        |      | (1.5             | ) |   |       | 11.10 | 
|                               | Canceled  |        |      | (6.0             | ) |   |       | 35.74 | 
|                               |           |        |      |                  |   |   |       |      
|Outstanding, December 31, 2001 |           |        | 78.8 |                  |   |   | 27.14 |      
|                               | Granted   |        |      | 28.6             |   |   |       | 5.37  | 
|                               | Exercised |        |      | (4.8             | ) |   |       | 7.12  | 
|                               | Canceled  |        |      | (14.4            | ) |   |       | 25.40 | 
|                               |           |        |      |                  |   |   |       |      
|Outstanding, December 31, 2002 |           |        | 88.2 |                  |   |   | 21.45 |      
|                               |           |        |      |                  |   |   |       |      
|Exercisable, December 31, 2000 |           |        | 13.2 |                  |   |   | 12.05 |      
|                               |           |        |      |                  |   |   |       |      
|Exercisable, December 31, 2001 |           |        | 33.9 |                  |   |   | 21.93 |      
|                               |           |        |      |                  |   |   |       |      
|Exercisable, December 31, 2002 |           |        | 46.2 |                  |   |   | 23.51 |      
|                               |           |        |      |                  |   |   |       |      

F-43



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


Following is a summary of the status of stock
options outstanding and exercisable at December 31, 2002
(shares in millions):

|            |               |                     |  |                     |      |          |  |        |             |          |  |   |       |  |  |  |      |  |  |   |       | 
|----------- | ------------- | ------------------- |  | ------------------- | ---- | -------- |  | ------ | ----------- | -------- |  | - | ----- |  |  |  | ---- |  |  | - | ----- | 
|            |               |                     |  |                    
|            |               | Options Outstanding |  | Options Exercisable
|            |               |                     |  |                    
|            |               |                     |  | Weighted            |      | Weighted |  |        |             | Weighted
|            |               |                     |  | Average             |      | Average  |  |        |             | Average 
|Exercise    |               |                     |  | Life                |      | Exercise |  |        |             | Exercise
|Price Range |               | Shares              |  | Remaining           |      | Price    |  | Shares |             | Price   
|            |               |                     |  |                     |      |          |  |        |             |         
|            | $2.91  $5.35 |                     |  |                     | 23.9 |          |  |        | 9.25  years |          |  | $ | 5.22  |  |  |  | 5.0  |  |  | $ | 5.17  | 
|            | 5.38  9.97   |                     |  |                     | 7.2  |          |  |        | 5.91  years |          |  |   | 7.99  |  |  |  | 5.1  |  |  |   | 7.90  | 
|            | 10.00  14.91 |                     |  |                     | 12.3 |          |  |        | 6.51  years |          |  |   | 12.43 |  |  |  | 9.1  |  |  |   | 12.86 | 
|            | 15.14  19.75 |                     |  |                     | 12.6 |          |  |        | 6.87  years |          |  |   | 15.94 |  |  |  | 8.1  |  |  |   | 15.73 | 
|            | 20.13  29.75 |                     |  |                     | 15.5 |          |  |        | 7.82  years |          |  |   | 22.53 |  |  |  | 9.6  |  |  |   | 22.55 | 
|            | 30.94  59.88 |                     |  |                     | 1.6  |          |  |        | 7.28  years |          |  |   | 44.32 |  |  |  | 1.0  |  |  |   | 43.71 | 
|            | 61.19  79.59 |                     |  |                     | 15.1 |          |  |        | 7.14  years |          |  |   | 61.94 |  |  |  | 8.3  |  |  |   | 61.92 | 
|            |               |                     |  |                     |      |          |  |        |             |          |  |   |       |  |  |  |      |  |  |   |       | 
|            |               |                     |  |                     | 88.2 |          |  |        |             |          |  |   |       |  |  |  | 46.2 |  |  |   |       | 
|            |               |                     |  |                     |      |          |  |        |             |          |  |   |       |  |  |  |      |  |  |   |       | 

The Incentive Equity Plan also provides for the
grant of deferred shares at no cost to selected employees
generally in consideration of future services. These deferred
shares generally vest over a two to four year service period. An
accelerated vesting schedule may be triggered in the event of a
change in control of our company. We granted deferred shares
during the following years with the weighted average fair values
per share at grant date as indicated: 2002 
0.2 million shares at $6.59; 2001 
0.3 million shares at $14.41 and 2000 
0.2 million shares at $52.59.

Employee Stock Purchase Plan.Under the 1996 Employee Stock
Purchase Plan, eligible employees may subscribe to purchase
shares of class A common stock through payroll deductions
of up to 10% of eligible compensation. The purchase price is the
lower of 85% of market value on the first or last day of each
quarter. The aggregate number of shares purchased by an employee
may not exceed $25,000 of fair market value annually, subject to
limitations imposed by Section 423 of the Internal Revenue
Code. A total of 10.0 million shares are authorized for
purchase under the plan. The Employee Stock Purchase Plan will
terminate on the tenth anniversary of its adoption. Employees
purchased shares under this plan during the following years at
the weighted average prices per share as indicated:
2002  3.9 million shares at $3.79;
2001  1.7 million shares at $11.75 and
2000  0.5 million shares at $35.32.

Options Held by Affiliates Outstanding.The following is a summary of
outstanding options held by affiliates (see note 15) for
the purchase of class A common stock (shares in millions):

|                                            |           |        |      |                  |   |   |       |       | 
|------------------------------------------- | --------- | ------ | ---- | ---------------- | - | - | ----- | ----- | 
|                                            |           |        |      | Weighted Average
|                                            |           | Shares |      | Exercise Price  
|                                            |           |        |      |                 
|Outstanding, December 31,
    1999.         |           |        | 12.2 |                  |   | $ | 10.04 |      
|                                            | Exercised |        |      | (0.2             | ) |   |       | 11.81 | 
|                                            |           |        |      |                  |   |   |       |      
|Outstanding, December 31,
    2000.         |           |        | 12.0 |                  |   |   | 10.02 |      
|                                            | Exercised |        |      | (10.0            | ) |   |       | 10.75 | 
|                                            |           |        |      |                  |   |   |       |      
|Outstanding, December 31, 2001 and
    2002 |           |        | 2.0  |                  |   |   | 6.22  |      
|                                            |           |        |      |                  |   |   |       |      
|Exercisable, December 31,
    2000.         |           |        | 12.0 |                  |   |   | 10.02 |      
|                                            |           |        |      |                  |   |   |       |      
|Exercisable, December 31, 2001 and
    2002 |           |        | 2.0  |                  |   |   | 6.22  |      
|                                            |           |        |      |                  |   |   |       |      

F-44



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


Fair Value Disclosures.The fair value of each option,
deferred share and employee stock purchase plan grant is
estimated on the measurement date using the Black-Scholes
option-pricing model as prescribed by SFAS No. 123 using
the following assumptions:

|                                                               |  |      |             |      |  |      |             |  |  |  |             | 
|-------------------------------------------------------------- |  | ---- | ----------- | ---- |  | ---- | ----------- |  |  |  | ----------- | 
|                                                               |  | 2002 |             | 2001 |  | 2000
|                                                               |  |      |             |      |  |     
|Expected stock price volatility                                |  |      | 69%  83%   |      |  |      | 59%  69%   |  |  |  | 51%  59%   | 
|Risk-free interest rates                                       |  |      | 2.5%  5.1% |      |  |      | 3.6%  5.2% |  |  |  | 4.9%  6.9% | 
|Expected life of option and deferred share grants
    in years |  |      | 3  5       |      |  |      | 3  5       |  |  |  | 3  5       | 
|Expected life of stock purchase plan grants in
    years       |  |      | 0.25        |      |  |      | 0.25        |  |  |  | 0.25        | 

The Black-Scholes option-pricing model was
developed for use in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable. In
addition, option-pricing models require the input of highly
subjective assumptions including the expected stock price
volatility. Because our stock options have characteristics
significantly different from those of traded options, and
because changes in the subjective input assumptions can
materially affect the fair value estimate, we believe that the
existing models do not necessarily provide a reliable single
measure of the fair value of our stock options. The weighted
average estimated fair value of our stock options granted during
2002 was $3.40, during 2001 was $10.59 and during 2000 was
$32.39.

Our stock options are nontransferable, except to
family members or by will, as provided for in the Incentive
Equity Plan, and the actual value of the stock options that an
employee may realize, if any, will depend on the excess of the
market price on the date of exercise over the exercise price.

Employee Benefit Plans.We maintain a defined contribution
plan pursuant to Section 401(k) of the Internal Revenue
Code covering all eligible officers and employees. Participants
may contribute up to 15% of their compensation and be fully
vested over four years of employment. We provide a matching
contribution of 100% of the first 4% of salary contribution by
employees. Prior to January 1, 2001, we provided a matching
contribution of 50% of the first 4% of salary contributed by the
employee. Our contributions were $18 million during 2002,
$18 million during 2001 and $6 million during 2000.

Under our Cash Compensation Deferral Plan, we
provide specified eligible employees and directors the
opportunity to defer cash compensation in excess of amounts
permitted under our 401(k) defined contribution plan. Eligible
employees may defer up to 90% of base salary and 100% of annual
bonus. We may, but are not obligated to, make discretionary
contributions. Distribution payments are made at retirement,
death, disability or termination of employment. The Cash
Compensation Deferral Plan is unfunded and all benefits will be
paid from our general assets. Deferred revenue and other
liabilities include $4 million as of December 31, 2002
and $6 million as of December 31, 2001, representing
deferrals made by participating employees and investment
earnings based on hypothetical investment elections.

Long-Term Incentive Plan.In 2002, we adopted a long term
incentive plan designed to reward key members of our management
for achieving specific performance goals over a two-year period
commencing January 1, 2002. This plan offers management the
opportunity to receive a cash-based payment, or a combination of
cash and stock-based payments at the discretion of the
compensation committee of the board of directors. We recorded
compensation expense of $22 million in 2002 related to the
long-term incentive plan.

NII Holdings Stock Option Plans.In connection with NII
Holdings reorganization in November 2002, the NII Holdings
1997 Employee Stock Option Plan and the Nextel International
Incentive Equity Plan were terminated and all options issued
under the plans were cancelled.

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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)




|    |                           
|--- | --------------------------
|15. | Related Party Transactions

One of our directors is chairman of the board and
chief executive officer of CommScope, Inc. We paid CommScope
$1 million during 2002, $7 million during 2001 and
$14 million during 2000 for coaxial cables and related
equipment for our transmitter and receiver sites. We had amounts
payable to CommScope outstanding of $0.3 million at
December 31, 2002 and 2001.

During 2002, two members of our board of
directors also served on the board of directors of
XO Communications, Inc. Additionally, Mr. McCaw held
rights to shares representing a majority of the voting interest
of XO Communications. As a result of XO
Communications reorganization under Chapter 11 of the
U.S. Bankruptcy Code, Mr. McCaw no longer holds these
voting interests. We are a party to a multi-year agreement with
XO Communications under which it provides us with
telecommunications services. We paid XO Communications
$70 million during 2002, $21 million during 2001 and
$5 million during 2000 for telecommunications services.
Additionally, in September 2001, we purchased an aircraft from
XO Communications for a total consideration of
$24 million.

See note 5 for discussions of our
investments in NII Holdings, Nextel Partners and SpectraSite.

Motorola.We
have a number of important strategic and commercial
relationships with Motorola who is a significant shareholder and
has the right to nominate two persons for election as members of
our board of directors.

Motorola, as the sole supplier, provides the iDEN
infrastructure equipment and substantially all the handsets used
throughout our markets. Our equipment purchase agreements with
Motorola govern our rights and obligations regarding purchases
of network equipment manufactured by Motorola. Motorola and we
have also agreed to warranty and maintenance programs and
specified indemnity arrangements. We also pay Motorola for
handset service and repair, transmitter and receiver site rent
and training. In addition, we are reimbursed for some costs we
incur under various marketing and promotional arrangements.

Net payables to Motorola were $225 million
at December 31, 2002 and $290 million at
December 31, 2001. Net amounts paid to Motorola during the
years ended December 31, 2002, 2001 and 2000 consisted of
the following:

|                                          |  |               |       |              |  |              |     |  |  |   |       | 
|----------------------------------------- |  | ------------- | ----- | ------------ |  | ------------ | --- |  |  | - | ----- | 
|                                          |  | Domestic      |       | NII Holdings |  | Consolidated
|                                          |  |               |       |              |  |             
|                                          |  |              
|                                          |  | (in millions)
|2002                                      |  |               |       |              |  |              |     |  |  |   |       | 
|Handsets and accessory inventory          |  | $             | 1,444 |              |  | $            |    |  |  | $ | 1,444 | 
|Network equipment and software            |  |               | 776   |              |  |              |    |  |  |   | 776   | 
|Warranty, maintenance, training and other |  |               | 94    |              |  |              |    |  |  |   | 94    | 
|                                          |  |               |       |              |  |              |     |  |  |   |       | 
|                                          |  | $             | 2,314 |              |  | $            |    |  |  | $ | 2,314 | 
|                                          |  |               |       |              |  |              |     |  |  |   |       | 
|2001                                      |  |               |       |              |  |              |     |  |  |   |       | 
|Handsets and accessory inventory          |  | $             | 1,276 |              |  | $            | 187 |  |  | $ | 1,463 | 
|Network equipment and software            |  |               | 932   |              |  |              | 200 |  |  |   | 1,132 | 
|Warranty, maintenance, training and other |  |               | 77    |              |  |              | 10  |  |  |   | 87    | 
|                                          |  |               |       |              |  |              |     |  |  |   |       | 
|                                          |  | $             | 2,285 |              |  | $            | 397 |  |  | $ | 2,682 | 
|                                          |  |               |       |              |  |              |     |  |  |   |       | 
|2000                                      |  |               |       |              |  |              |     |  |  |   |       | 
|Handsets and accessory inventory          |  | $             | 1,074 |              |  | $            | 147 |  |  | $ | 1,221 | 
|Network equipment and software            |  |               | 1,018 |              |  |              | 368 |  |  |   | 1,386 | 
|Warranty, maintenance, training and other |  |               | 50    |              |  |              | 2   |  |  |   | 52    | 
|                                          |  |               |       |              |  |              |     |  |  |   |       | 
|                                          |  | $             | 2,142 |              |  | $            | 517 |  |  | $ | 2,659 | 
|                                          |  |               |       |              |  |              |     |  |  |   |       | 

F-46



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


In June 2001, we purchased from Motorola 900 MHz
specialized radio licenses and related assets for a cash
purchase price of $58 million. In December 2001, NII
Holdings sold its equity method investment in its Japanese
affiliate to Motorola for a $6.5 million credit for
equipment purchases.

McCaw
Affiliates.In 1995,
Mr. McCaw acquired significant equity interests in Nextel
and we agreed to certain arrangements related to our corporate
governance. In connection with these equity investments, we
reached an agreement with Mr. McCaw and Digital Radio on a
number of matters relating to the ownership, acquisition and
disposition of our securities. Concurrently with the execution
of the securities purchase agreement with Digital Radio and
Mr. McCaw, we entered into a management support agreement
with Eagle River, Inc., a controlled affiliate of Digital Radio,
pursuant to which Eagle River would provide management and
consulting services to us, our board of directors and the
operations committee of the board from time to time as
requested. In consideration of the services to be provided to us
under the management support agreement, we agreed to pay Eagle
River up to $200,000 per year and entered into an incentive
option agreement granting to Eagle River the option to purchase
an aggregate of 2.0 million shares of our class A
common stock at an exercise price of $6.13 per share. This
option expires in April 2005 and is presently exercisable in
full.

Pursuant to the original securities purchase
agreement, as amended, our certificate of incorporation and our
by-laws, we, Digital Radio and Mr. McCaw established
certain arrangements relating to our corporate governance
associated with those investments, including, without
limitation, matters relating to Digital Radios right to
elect a minimum of three representatives to our board of
directors, or that greater number of directors representing not
less than 25% of all of the members of the board of directors.
We also agreed to create a five-member operations committee of
the board of directors, which was responsible for formulating
key aspects of our business strategy and operations, and Digital
Radio was entitled to have a majority of the members of this
committee selected from among its representatives on the board
of directors. Further, these agreements provided that in the
event Digital Radio, Mr. McCaw and his controlled
affiliates were to cease to own at least 5% of the voting power
of our equity securities (assuming conversion of the
class A preferred stock it held), the shares of
class A preferred stock would automatically convert into
shares of class A common stock.

On March 5, 2003, we, Digital Radio and
Mr. McCaw entered into an agreement revising these
arrangements as Mr. McCaw was soon to no longer own at
least 5% of the voting power of our outstanding equity
securities. As a result of these revisions to these agreements,
Digital Radio no longer is entitled to appoint board members as
discussed above, nor does it have the rights to appoint board
members to serve on committees of the board. In addition,
the operations committee was terminated. Furthermore, all
of the shares of the class A preferred stock and
class B preferred stock held by Digital Radio converted
into shares of our class A common stock. In addition, the
management support agreement was terminated.

In July 2001, various members of the McCaw
family, and entities affiliated with them, who previously were
members of Digital Radio, exercised in full the outstanding
option that was scheduled to expire on that date to purchase an
aggregate of 10.0 million shares of our class A common
stock for an aggregate purchase price of about $108 million.

During 2000, Digital Radio exercised its right to
convert 0.2 million shares of class A convertible
preferred stock into 1.2 million shares of class A
common stock. During 2001, Digital Radio exercised its right to
convert 9,169 shares of class A convertible preferred stock
into 55,014 shares of class A common stock. During 2002,
Digital Radio exercised its right to convert 4.0 million
shares of class A convertible preferred stock into
23.9 million shares of class A common stock.

F-47



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)




|    |                                     
|--- | ------------------------------------
|16. | Quarterly Financial Data (Unaudited)

|                                               |         |                                         |       |        |   |       |       |        |  |   |       |      |  |   |        |      | 
|---------------------------------------------- | ------- | --------------------------------------- | ----- | ------ | - | ----- | ----- | ------ |  | - | ----- | ---- |  | - | ------ | ---- | 
|                                               |         | First                                   |       | Second |   | Third |       | Fourth
|                                               |         |                                         |       |        |   |       |       |       
|                                               |         |                                        
|                                               |         | (in millions, except per share amounts)
|2002                                           |         |                                         |       |        |   |       |       |        |  |   |       |      |  |   |        |     
|Operating revenues                             |         | $                                       | 1,957 |        |   | $     | 2,154 |        |  | $ | 2,279 |      |  | $ | 2,331  |     
|Operating (loss) income                        |         |                                         | 169   |        |   |       | 411   |        |  |   | 466   |      |  |   | 490    |     
|Income tax provision                           |         |                                         | (350  | )      |   |       | (15   | )      |  |   | (8    | )    |  |   | (18    | )   
|Net (loss) income                              |         |                                         | (591  | )      |   |       | 123   |        |  |   | 383   |      |  |   | 1,471  |     
|(Loss) income available to common stockholders |         |                                         | (654  | )      |   |       | 325   |        |  |   | 526   |      |  |   | 1,463  |     
|(Loss) earnings per share                      |         |                                         |       |        |   |       |       |        |  |   |       |      |  |   |        |     
|                                               | Basic   |                                         | $     | (0.82  | ) |       | $     | 0.39   |  |   | $     | 0.58 |  |   | $      | 1.49 | 
|                                               |         |                                         |       |        |   |       |       |        |  |   |       |      |  |   |        |     
|                                               | Diluted |                                         | $     | (0.82  | ) |       | $     | 0.37   |  |   | $     | 0.55 |  |   | $      | 1.38 | 
|                                               |         |                                         |       |        |   |       |       |        |  |   |       |      |  |   |        |     
|2001                                           |         |                                         |       |        |   |       |       |        |  |   |       |      |  |   |        |     
|Operating revenues                             |         | $                                       | 1,742 |        |   | $     | 1,881 |        |  | $ | 1,992 |      |  | $ | 2,074  |     
|Operating (loss) income                        |         |                                         | (76   | )      |   |       | 1     |        |  |   | (99   | )    |  |   | (1,541 | )   
|Income tax benefit                             |         |                                         | 14    |        |   |       | 13    |        |  |   | 20    |      |  |   | 88     |     
|Net loss                                       |         |                                         | (372  | )      |   |       | (369  | )      |  |   | (150  | )    |  |   | (1,734 | )   
|Loss available to common stockholders          |         |                                         | (428  | )      |   |       | (426  | )      |  |   | (209  | )    |  |   | (1,795 | )   
|                                               |         |                                         |       |        |   |       |       |        |  |   |       |      |  |   |        |     
|Loss per share, basic and diluted              |         | $                                       | (0.56 | )      |   | $     | (0.56 | )      |  | $ | (0.27 | )    |  | $ | (2.25  | )   
|                                               |         |                                         |       |        |   |       |       |        |  |   |       |      |  |   |        |     

As described in note 1, we recorded a
$1,218 million gain on the deconsolidation of NII Holdings
in November 2002 upon NII Holdings emergence from
bankruptcy.

During the fourth quarter of 2001, we shortened
the lives of some assets located in facilities that are subject
to the customer care and information technology outsourcing
arrangements. We also changed the lives of some network assets.
We recorded an additional $21 million, or $0.03 per share,
in depreciation expense for the fourth quarter of 2001 as a
result of these changes in estimates. As described in
note 3, NII Holdings recorded non-cash pretax impairment
charges and pretax restructuring and other charges of about
$1,600 million in the fourth quarter of 2001 after revising
its business plan.

The sum of the quarterly loss per share amounts
may not equal the annual amounts because of the changes in the
weighted-average number of shares outstanding during the year.



|    |                  
|--- | -----------------
|17. | Subsequent Events

In January 2003, we consummated the acquisition
of all of the stock of NeoWorld Communications, Inc., which
owned and operated 900 MHz specialized mobile radio systems.
Pursuant to our agreements, we paid the balance of the purchase
price, $201 million in cash, in January 2003. This amount
is in addition to previous payments of $79 million through
December 31, 2002, including $40 million paid in 2002.

F-48



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC.

(Parent Only)







SCHEDULE I  CONDENSED
FINANCIAL INFORMATION OF REGISTRANT


Condensed Balance Sheets


As of December 31, 2002 and
2001


(in millions)


|                                           |                           |                      |        |      |       |   |        |       |       | 
|------------------------------------------ | ------------------------- | -------------------- | ------ | ---- | ----- | - | ------ | ----- | ----- | 
|                                           |                           | 2002                 |        | 2001
|                                           |                           |                      |        |     
|ASSETS                                    
|Current assets                             |                           |                      |        |      |       |   |        |      
|                                           | Cash and cash equivalents |                      | $      | 837  |       |   | $      | 2,105 |      
|                                           | Short-term investments    |                      |        | 840  |       |   |        | 1,236 |      
|                                           | Other current assets      |                      |        | 30   |       |   |        | 27    |      
|                                           |                           |                      |        |      |       |   |        |      
|                                           |                           | Total current assets |        |      | 1,707 |   |        |       | 3,368 | 
|Investments in subsidiaries
    (note 2)   |                           |                      | 10,072 |      |       |   | 9,503  |      
|Property, plant and equipment, net         |                           |                      | 195    |      |       |   | 253    |      
|Deferred income taxes                      |                           |                      | 124    |      |       |   | 64     |      
|Other assets (note 2)                      |                           |                      | 155    |      |       |   | 213    |      
|                                           |                           |                      |        |      |       |   |        |      
|                                           |                           | $                    | 12,253 |      |       | $ | 13,401 |      
|                                           |                           |                      |        |      |       |   |        |      
|LIABILITIES AND STOCKHOLDERS
    EQUITY  
|Current liabilities                        |                           | $                    | 353    |      |       | $ | 270    |      
|Due to subsidiaries                        |                           |                      | 278    |      |       |   | 744    |      
|Long-term debt                             |                           |                      | 7,761  |      |       |   | 9,345  |      
|Mandatorily redeemable preferred
    stock |                           |                      | 1,015  |      |       |   | 2,114  |      
|Stockholders equity                       |                           |                      | 2,846  |      |       |   | 928    |      
|                                           |                           |                      |        |      |       |   |        |      
|                                           |                           | $                    | 12,253 |      |       | $ | 13,401 |      
|                                           |                           |                      |        |      |       |   |        |      

F-49



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC.

(Parent Only)


SCHEDULE I  CONDENSED FINANCIAL
INFORMATION OF REGISTRANT (continued)

Condensed Statements of Operations and
Comprehensive Loss


For the Years Ended December 31, 2002,
2001 and 2000


(in millions)


|                                          |                                                                                         |                                                                          |      |      |     |      |        |        |      |   |        |      |      |  
|----------------------------------------- | --------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ---- | ---- | --- | ---- | ------ | ------ | ---- | - | ------ | ---- | ---- | -
|                                          |                                                                                         | 2002                                                                     |      | 2001 |     | 2000
|                                          |                                                                                         |                                                                          |      |      |     |     
|Operating expenses                        |                                                                                         |                                                                          |      |      |     |      |        |        |      |   |        |     
|                                          | Selling, general and administrative                                                     |                                                                          | $    | 124  |     |      | $      | 126    |      |   | $      | 91   |     
|                                          | Restructuring and impairment charges                                                    |                                                                          |      | 35   |     |      |        | 22     |      |   |        |     |     
|                                          | Depreciation and amortization                                                           |                                                                          |      | 41   |     |      |        | 83     |      |   |        | 63   |     
|                                          |                                                                                         |                                                                          |      |      |     |      |        |        |      |   |        |     
|                                          |                                                                                         |                                                                          | 200  |      |     |      | 231    |        |      |   | 154    |     
|                                          |                                                                                         |                                                                          |      |      |     |      |        |        |      |   |        |     
|Other income (expense)                    |                                                                                         |                                                                          |      |      |     |      |        |        |      |   |        |     
|                                          | Interest expense                                                                        |                                                                          |      | (753 | )   |      |        | (766   | )    |   |        | (608 | )   
|                                          | Interest income (note 5)                                                                |                                                                          |      | 44   |     |      |        | 202    |      |   |        | 302  |     
|                                          | Intercompany income                                                                     |                                                                          |      | 753  |     |      |        | 770    |      |   |        | 608  |     
|                                          | Gain (loss) on retirement of debt, net of debt
    conversion costs of $160, $0 and $23 |                                                                          |      | 354  |     |      |        |       |      |   |        | (127 | )   
|                                          | Intercompany management fee (note 3)                                                    |                                                                          |      | 124  |     |      |        | 126    |      |   |        | 91   |     
|                                          | Equity in net losses of subsidiaries (note 2)                                           |                                                                          |      | (684 | )   |      |        | (1,262 | )    |   |        | (961 | )   
|                                          | Other, net                                                                              |                                                                          |      |     |     |      |        |       |      |   |        | 34   |     
|                                          |                                                                                         |                                                                          |      |      |     |      |        |        |      |   |        |     
|                                          |                                                                                         |                                                                          | (162 | )    |     |      | (930   | )      |      |   | (661   | )   
|                                          |                                                                                         |                                                                          |      |      |     |      |        |        |      |   |        |     
|Net loss                                  |                                                                                         |                                                                          | (362 | )    |     |      | (1,161 | )      |      |   | (815   | )   
|                                          | Gain on retirement of mandatorily redeemable
    preferred stock                        |                                                                          |      | 485  |     |      |        |       |      |   |        |     |     
|                                          | Mandatorily redeemable preferred stock dividends
    and accretion                      |                                                                          |      | (211 | )   |      |        | (233   | )    |   |        | (209 | )   
|                                          |                                                                                         |                                                                          |      |      |     |      |        |        |      |   |        |     
|Loss available to common
    stockholders |                                                                                         | $                                                                        | (88  | )    |     | $    | (1,394 | )      |      | $ | (1,024 | )   
|                                          |                                                                                         |                                                                          |      |      |     |      |        |        |      |   |        |     
|Comprehensive loss, net of income
    tax |                                                                                         |                                                                          |      |      |     |      |        |        |      |   |        |     
|                                          | Net loss                                                                                |                                                                          | $    | (362 | )   |      | $      | (1,161 | )    |   | $      | (815 | )   
|                                          | Net unrealized (loss) gain on available-for-sale
    securities:                        |                                                                          |      |      |     |      |        |        |      |   |        |      |     
|                                          |                                                                                         | Unrealized holding (losses) gains arising during
    the period (note 2) |      |      | (37 | )    |        |        | (189 | ) |        |      | 225  |  
|                                          |                                                                                         | Reclassification adjustment for (loss) gain
    included in net loss     |      |      | (8  | )    |        |        | 149  |   |        |      | (275 | )
|                                          | Foreign currency translation adjustment                                                 |                                                                          |      | 228  |     |      |        | (95    | )    |   |        | 4    |     
|                                          | Cash flow hedge:                                                                        |                                                                          |      |      |     |      |        |        |      |   |        |      |     
|                                          |                                                                                         | Cumulative effect of accounting change                                   |      |      |    |      |        |        | (20  | ) |        |      |     |  
|                                          |                                                                                         | Reclassification of transition adjustment
    included in net loss       |      |      | 8   |      |        |        | 8    |   |        |      |     |  
|                                          |                                                                                         | Unrealized loss on cash flow hedge                                       |      |      | (6  | )    |        |        | (17  | ) |        |      |     |  
|                                          |                                                                                         |                                                                          |      |      |     |      |        |        |      |   |        |     
|Comprehensive loss                        |                                                                                         | $                                                                        | (177 | )    |     | $    | (1,325 | )      |      | $ | (861   | )   
|                                          |                                                                                         |                                                                          |      |      |     |      |        |        |      |   |        |     

F-50



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC.

(Parent Only)


SCHEDULE I  CONDENSED FINANCIAL
INFORMATION OF REGISTRANT (continued)

Condensed Statement of Cash Flows


For the Years Ended December 31, 2002,
2001 and 2000


(in millions)


|                                                         |                                                                                           |                                                         |        |        |      |      |       |        |        |   |        |        |        |  
|-------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------ | ------ | ---- | ---- | ----- | ------ | ------ | - | ------ | ------ | ------ | -
|                                                         |                                                                                           | 2002                                                    |        | 2001   |      | 2000
|                                                         |                                                                                           |                                                         |        |        |      |     
|Cash flows from operating activities                     |                                                                                           |                                                         |        |        |      |      |       |        |        |   |        |       
|                                                         | Net loss                                                                                  |                                                         | $      | (362   | )    |      | $     | (1,161 | )      |   | $      | (815   | )     
|                                                         | Adjustment to reconcile net loss to net cash used
    in operating activities             |                                                         |        | 283    |      |      |       | 713    |        |   |        | 366    |       
|                                                         |                                                                                           |                                                         |        |        |      |      |       |        |        |   |        |       
|                                                         |                                                                                           | Net cash used in operating activities                   |        |        | (79  | )    |       |        | (448   | ) |        |        | (449   | )
|                                                         |                                                                                           |                                                         |        |        |      |      |       |        |        |   |        |       
|Cash flows from investing activities                     |                                                                                           |                                                         |        |        |      |      |       |        |        |   |        |       
|                                                         | Purchases of short-term investments                                                       |                                                         |        | (3,068 | )    |      |       | (3,987 | )      |   |        | (5,123 | )     
|                                                         | Proceeds from maturities and sales of short-term
    investments                          |                                                         |        | 3,486  |      |      |       | 4,829  |        |   |        | 4,272  |       
|                                                         | Other investments and advances to affiliates                                              |                                                         |        | (780   | )    |      |       | (2,327 | )      |   |        | (634   | )     
|                                                         | Capital expenditures and other                                                            |                                                         |        |       |      |      |       | (132   | )      |   |        | (176   | )     
|                                                         |                                                                                           |                                                         |        |        |      |      |       |        |        |   |        |       
|                                                         |                                                                                           | Net cash used in investing activities                   |        |        | (362 | )    |       |        | (1,617 | ) |        |        | (1,661 | )
|                                                         |                                                                                           |                                                         |        |        |      |      |       |        |        |   |        |       
|Cash flows from financing activities                     |                                                                                           |                                                         |        |        |      |      |       |        |        |   |        |       
|                                                         | Issuance of debt securities                                                               |                                                         |        |       |      |      |       | 2,250  |        |   |        | 1,150  |       
|                                                         | Purchase and retirement of debt securities and
    mandatorily redeemable preferred stock |                                                         |        | (843   | )    |      |       |       |        |   |        | (1,208 | )     
|                                                         | Proceeds from exercise of stock options, warrants
    and other                           |                                                         |        | 35     |      |      |       | 124    |        |   |        | 74     |       
|                                                         | Debt financing costs and other                                                            |                                                         |        | (19    | )    |      |       | (28    | )      |   |        | (46    | )     
|                                                         |                                                                                           |                                                         |        |        |      |      |       |        |        |   |        |       
|                                                         |                                                                                           | Net cash (used in) provided by financing
    activities |        |        | (827 | )    |       |        | 2,346  |   |        |        | (30    | )
|                                                         |                                                                                           |                                                         |        |        |      |      |       |        |        |   |        |       
|Net (decrease) increase in cash and cash
    equivalents |                                                                                           |                                                         | (1,268 | )      |      |      | 281   |        |        |   | (2,140 | )     
|Cash and cash equivalents, beginning of
    period       |                                                                                           |                                                         | 2,105  |        |      |      | 1,824 |        |        |   | 3,964  |       
|                                                         |                                                                                           |                                                         |        |        |      |      |       |        |        |   |        |       
|Cash and cash equivalents, end of
    period             |                                                                                           | $                                                       | 837    |        |      | $    | 2,105 |        |        | $ | 1,824  |       
|                                                         |                                                                                           |                                                         |        |        |      |      |       |        |        |   |        |       

F-51



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC.

(Parent only)


SCHEDULE I  CONDENSED FINANCIAL
INFORMATION OF REGISTRANT (continued)

Notes to Condensed Financial
Statements




| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | For accounting policies and other information,
    see the Notes to the Consolidated Financial Statements of Nextel
    Communications Inc. and Subsidiaries, included elsewhere herein.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | 2. | The parent company accounts for its investments
    in subsidiaries using the equity method of accounting. In 2001,
    the parent companys subsidiary, NII Holdings, wrote down
    the carrying values of the long-lived assets held by its
    operating companies to their estimated fair market values and
    recorded non-cash pretax impairment charges and pretax
    restructuring and other charges of about $1.75 billion. The
    parent company accordingly reduced the recorded amount of its
    investment in NII Holdings to zero due to the fact that the
    parent company does not have a legal or constructive obligation
    to provide NII Holdings additional capital. As discussed in
    note 5 below, the parent company also held
    NII Holdings notes, which were classified as
    available-for-sale securities in other assets on the balance
    sheet date and are reported at fair value. The notes were
    initially written-down to zero when applying the equity method
    and were subsequently written back up to fair value, with the
    increase recorded as a net unrealized gain as part of the
    overall comprehensive loss in equity. In 2002, the investment in
    NII Holdings notes was written off against the net
    unrealized gain in connection with the deconsolidation of
    NII Holdings. See note 5 to the consolidated financial
    statements.
|
| | 3. | The parent company has an agreement with each of
    its wholly owned subsidiaries whereby the parent company
    provides administrative services for each of its subsidiaries
    and charges the subsidiaries a fee equal to the actual costs
    incurred in performing these administrative services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | 4. | The parent company allocated interest expense to
    its domestic subsidiaries in the amount of $753 million in
    2002, $766 million in 2001 and $608 million in 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | 5. | As more fully described in note 8 to the
    consolidated financial statements, the parent company purchased
    an aggregate of $857 million in principal amount of three
    series of NII Holdings senior notes in exchange for about
    21.6 million shares of its class A common stock. In
    December 2001, the parent company recorded an impairment charge
    of $284 million, primarily representing the difference
    between the carrying value of the notes and the current market
    value. Included in interest income in 2001 is $36 million
    of interest earned on these notes. In November 2002,
    NII Holdings consummated its bankruptcy reorganization and
    these notes were extinguished. See note 5 to the
    consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | 6. | For the year ended December 31, 2002, we
    purchased and retired a total of $1,928 million in
    aggregate principal amount at maturity of our outstanding senior
    notes and $1,258 million in aggregate face amount of our
    outstanding mandatorily redeemable preferred stock in exchange
    for 172 million shares of class A common stock valued
    at $1,197 million and $843 million in cash. See
    note 8 to the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F-52



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES






SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

(in millions)


|                             |                                             |            |   |            |  |             |   |            |     |           |   |      |   |  |   |      |   |  |   |       | 
|---------------------------- | ------------------------------------------- | ---------- | - | ---------- |  | ----------- | - | ---------- | --- | --------- | - | ---- | - |  | - | ---- | - |  | - | ----- | 
|                             |                                             | Balance at |   | Charged to |  | Charged     |   |            |     | Balance  
|                             |                                             | Beginning  |   | Costs and  |  | to Other    |   |            |     | at End of
|                             |                                             | of Period  |   | Expenses   |  | Accounts(1) |   | Deductions |     | Period   
|                             |                                             |            |   |            |  |             |   |            |     |          
|Year Ended December 31, 2002 |                                             |            |   |            |  |             |   |            |     |           |   |      |   |  |   |      |   |  |   |      
|                             | Allowance for doubtful accounts             |            | $ | 167        |  |             | $ | 334        |     |           | $ | (9   | ) |  | $ | (365 | ) |  | $ | 127   | 
|                             |                                             |            |   |            |  |             |   |            |     |           |   |      |   |  |   |      |   |  |   |      
|                             | Reserve for inventory obsolescence          |            | $ | 17         |  |             | $ | 11         |     |           | $ | (9   | ) |  | $ | (11  | ) |  | $ | 8     | 
|                             |                                             |            |   |            |  |             |   |            |     |           |   |      |   |  |   |      |   |  |   |      
|                             | Valuation allowance for deferred tax assets |            | $ | 2,369      |  |             | $ | 766        | (2) |           | $ | (711 | ) |  | $ | (41  | ) |  | $ | 2,383 | 
|                             |                                             |            |   |            |  |             |   |            |     |           |   |      |   |  |   |      |   |  |   |      
|Year Ended December 31, 2001 |                                             |            |   |            |  |             |   |            |     |           |   |      |   |  |   |      |   |  |   |      
|                             | Allowance for doubtful accounts             |            | $ | 104        |  |             | $ | 370        |     |           | $ | 23   |   |  | $ | (330 | ) |  | $ | 167   | 
|                             |                                             |            |   |            |  |             |   |            |     |           |   |      |   |  |   |      |   |  |   |      
|                             | Reserve for inventory obsolescence          |            | $ | 22         |  |             | $ | 9          |     |           | $ |     |   |  | $ | (14  | ) |  | $ | 17    | 
|                             |                                             |            |   |            |  |             |   |            |     |           |   |      |   |  |   |      |   |  |   |      
|                             | Valuation allowance for deferred tax assets |            | $ | 1,933      |  |             | $ | 436        |     |           | $ |     |   |  | $ |     |   |  | $ | 2,369 | 
|                             |                                             |            |   |            |  |             |   |            |     |           |   |      |   |  |   |      |   |  |   |      
|Year Ended December 31, 2000 |                                             |            |   |            |  |             |   |            |     |           |   |      |   |  |   |      |   |  |   |      
|                             | Allowance for doubtful accounts             |            | $ | 75         |  |             | $ | 179        |     |           | $ | 6    |   |  | $ | (156 | ) |  | $ | 104   | 
|                             |                                             |            |   |            |  |             |   |            |     |           |   |      |   |  |   |      |   |  |   |      
|                             | Reserve for inventory obsolescence          |            | $ | 19         |  |             | $ | 11         |     |           | $ |     |   |  | $ | (8   | ) |  | $ | 22    | 
|                             |                                             |            |   |            |  |             |   |            |     |           |   |      |   |  |   |      |   |  |   |      
|                             | Valuation allowance for deferred tax assets |            | $ | 1,766      |  |             | $ | 167        |     |           | $ |     |   |  | $ |     |   |  | $ | 1,933 | 
|                             |                                             |            |   |            |  |             |   |            |     |           |   |      |   |  |   |      |   |  |   |      



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In 2002, NII Holdings filed a voluntary
    petition for reorganization under Chapter 11 of the U.S.
    Bankruptcy Code. As a result of NII Holdings
    bankruptcy filing, we deconsolidated NII Holdings in 2002
    and deducted the December 31, 2001 amounts relating to
    NII Holdings in the Charged to Other Accounts
    column in 2002. Accordingly, our ending 2002 balances are not
    directly comparable to our ending 2001 and 2000 balances.
|   
|(2) | As a result of NII Holdings
    bankruptcy, we incurred a capital loss for tax purposes of
    $1,938 million, and accordingly we increased our valuation
    allowance by $766 million.                                                                                                                                                                                                                                                                          

F-53



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES






OF NII HOLDINGS, INC.


INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

AND FINANCIAL STATEMENT SCHEDULES


|                                  |                                                                                                                                                                                                                                                                                                                               |      |      
|--------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | -----
|INDEPENDENT AUDITORS REPORT      |                                                                                                                                                                                                                                                                                                                               | F-55
|CONSOLIDATED FINANCIAL STATEMENTS |                                                                                                                                                                                                                                                                                                                               |     
|                                  | Consolidated Balance Sheets  As of
    December 31, 2002 (Successor Company) and December 31,
    2001 (Predecessor Company)                                                                                                                                                                                                 |      | F-56 
|                                  | Consolidated Statements of Operations 
    For the Two Months Ended December 31, 2002 (Successor
    Company), Ten Months Ended October 31, 2002 (Predecessor
    Company), Year Ended December 31, 2001 (Predecessor
    Company) and Year Ended December 31, 2000 (Predecessor
    Company)                                |      | F-57 
|                                  | Consolidated Statements of Changes in
    Stockholders (Deficit) Equity  For the Two
    Months Ended December 31, 2002 (Successor Company), Ten
    Months Ended October 31, 2002 (Predecessor Company), Year
    Ended December 31, 2001 (Predecessor Company) and Year
    Ended December 31, 2000 (Predecessor Company) |      | F-58 
|                                  | Consolidated Statements of Cash Flows 
    For the Two Months Ended December 31, 2002 (Successor
    Company), Ten Months Ended October 31, 2002 (Predecessor
    Company), Year Ended December 31, 2001 (Predecessor
    Company) and Year Ended December 31, 2000 (Predecessor
    Company)                                |      | F-60 
|                                  | Notes to Consolidated Financial Statements                                                                                                                                                                                                                                                                                    |      | F-61 
|                                 
|FINANCIAL STATEMENT SCHEDULE      |                                                                                                                                                                                                                                                                                                                               |     
|                                  | Schedule II  Valuation and
    Qualifying Accounts                                                                                                                                                                                                                                                                           |      | F-118

F-54



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##### Table of Contents






NII HOLDINGS, INC. AND SUBSIDIARIES

INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholders of

NII Holdings, Inc.


Reston, Virginia


We have audited the accompanying consolidated
balance sheets of NII Holdings, Inc. and subsidiaries as of
December 31, 2002 (Successor Company consolidated balance
sheet) and 2001 (Predecessor Company consolidated balance
sheet), and the related consolidated statements of operations,
changes in stockholders (deficit) equity and cash flows
for the two months ended December 31, 2002 (Successor
Company consolidated operations), the ten months ended
October 31, 2002, and for each of the two years in the
period ended December 31, 2001 (Predecessor Company
consolidated operations). Our audits also included the financial
statement schedule listed on page F-54. These consolidated
financial statements and the financial statement schedule are
the responsibility of NII Holdings management. Our
responsibility is to express an opinion on these consolidated
financial statements and the financial statement schedule based
on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

As discussed in Note 1 to the consolidated
financial statements, on October 28, 2002, the Bankruptcy
Court entered an order confirming the plan of reorganization,
which became effective on November 12, 2002. Accordingly,
the accompanying consolidated financial statements have been
prepared in conformity with AICPA Statement of Position 90-7,
Financial Reporting for Entities in Reorganization Under
the Bankruptcy Code, for the Successor Company as a new
entity with assets, liabilities, and a capital structure having
carrying values not comparable with prior periods as described
in Note 1.

In our opinion, the Successor Company
consolidated financial statements present fairly, in all
material respects, the financial position of NII Holdings, Inc.
and subsidiaries at December 31, 2002, and the results of
their operations and their cash flows for the two months ended
December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America. Further, in
our opinion, the Predecessor Company consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of the Predecessor Company at
December 31, 2001, and the results of their operations and
their cash flows for the ten months ended October 31, 2002,
and for each of the two years in the period ended
December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.

As discussed in Note 2 to the consolidated
financial statements, NII Holdings, Inc. and subsidiaries
adopted the provisions of Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial
Statements, in 2000 and Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible
Assets, on January 1, 2002. As also discussed in
Note 2 to the consolidated financial statements, NII
Holdings, Inc. and subsidiaries adopted the provisions of
Emerging Issues Task Force Issue 00-21, Accounting
for Revenue Arrangements with Multiple Deliverables, on
November 1, 2002.

DELOITTE & TOUCHE LLP

McLean, Virginia


March 7, 2003

F-55



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##### Table of Contents






NII HOLDINGS, INC. AND SUBSIDIARIES






CONSOLIDATED BALANCE SHEETS


As of December 31, 2002 (Successor
Company)


and December 31, 2001 (Predecessor
Company)


(in thousands)


|                                                                     |                                                                                                                                                         |                                      |         |              |         |   |           |            |            |  
|-------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ------- | ------------ | ------- | - | --------- | ---------- | ---------- | -
|                                                                     |                                                                                                                                                         | Successor                            |         | Predecessor 
|                                                                     |                                                                                                                                                         | Company                              |         | Company     
|                                                                     |                                                                                                                                                         | December 31,                         |         | December 31,
|                                                                     |                                                                                                                                                         | 2002                                 |         | 2001        
|                                                                     |                                                                                                                                                         |                                      |         |             
|ASSETS                                                               |                                                                                                                                                         |                                      |         |             
|Current assets                                                       |                                                                                                                                                         |                                      |         |              |         |   |           |           
|                                                                     | Cash and cash equivalents                                                                                                                               |                                      | $       | 231,161      |         |   | $         | 250,250    |           
|                                                                     | Restricted cash                                                                                                                                         |                                      |         |             |         |   |           | 84,041     |           
|                                                                     | Accounts receivable, less allowance for doubtful
    accounts of $7,143 and $24,277                                                                     |                                      |         | 100,953      |         |   |           | 116,819    |           
|                                                                     | Handset and accessory inventory                                                                                                                         |                                      |         | 17,954       |         |   |           | 24,486     |           
|                                                                     | Prepaid expenses and other                                                                                                                              |                                      |         | 45,535       |         |   |           | 75,506     |           
|                                                                     |                                                                                                                                                         |                                      |         |              |         |   |           |           
|                                                                     |                                                                                                                                                         | Total current assets                 |         |              | 395,603 |   |           |            | 551,102    |  
|Property, plant and equipment, net                                   |                                                                                                                                                         |                                      | 230,208 |              |         |   | 350,001   |           
|Intangible assets, net                                               |                                                                                                                                                         |                                      | 200,098 |              |         |   | 192,649   |           
|Other assets                                                         |                                                                                                                                                         |                                      | 23,008  |              |         |   | 150,668   |           
|                                                                     |                                                                                                                                                         |                                      |         |              |         |   |           |           
|                                                                     |                                                                                                                                                         | $                                    | 848,917 |              |         | $ | 1,244,420 |           
|                                                                     |                                                                                                                                                         |                                      |         |              |         |   |           |           
|LIABILITIES AND STOCKHOLDERS EQUITY
    (DEFICIT)                   |                                                                                                                                                         |                                      |         |             
|Current liabilities                                                  |                                                                                                                                                         |                                      |         |              |         |   |           |           
|                                                                     | Accounts payable                                                                                                                                        |                                      | $       | 27,673       |         |   | $         | 129,800    |           
|                                                                     | Accrued expenses and other                                                                                                                              |                                      |         | 149,063      |         |   |           | 172,057    |           
|                                                                     | Deferred revenues                                                                                                                                       |                                      |         | 20,763       |         |   |           | 50,066     |           
|                                                                     | Accrued interest                                                                                                                                        |                                      |         | 2,587        |         |   |           | 58,131     |           
|                                                                     | Due to related parties                                                                                                                                  |                                      |         | 52,178       |         |   |           | 139,871    |           
|                                                                     | Current portion of long-term debt, including $0
    and $1,274,462 due to related parties (Note 4)                                                      |                                      |         |             |         |   |           | 2,665,144  |           
|                                                                     |                                                                                                                                                         |                                      |         |              |         |   |           |           
|                                                                     |                                                                                                                                                         | Total current liabilities            |         |              | 252,264 |   |           |            | 3,215,069  |  
|Long-term debt, including $328,193 and $0 due
    to related parties |                                                                                                                                                         |                                      | 432,157 |              |         |   |          |           
|Deferred income taxes                                                |                                                                                                                                                         |                                      | 4,387   |              |         |   | 15,134    |           
|Deferred revenues and other                                          |                                                                                                                                                         |                                      | 68,695  |              |         |   | 36,367    |           
|                                                                     |                                                                                                                                                         |                                      |         |              |         |   |           |           
|                                                                     |                                                                                                                                                         | Total liabilities                    |         |              | 757,503 |   |           |            | 3,266,570  |  
|Commitments and contingencies (Notes 4
    and 12)                   |                                                                                                                                                         |                                      |         |              |         |   |           |           
|Stockholders equity (deficit)                                       |                                                                                                                                                         |                                      |         |              |         |   |           |           
|                                                                     | Common stock, 20,000 shares issued and
    outstanding  2002                                                                                           |                                      |         | 20           |         |   |           |           |           
|                                                                     | Paid-in capital                                                                                                                                         |                                      |         | 49,178       |         |   |           | 934,948    |           
|                                                                     | Series A exchangeable redeemable preferred
    stock, 11 shares issued and outstanding  2001;
    accreted liquidation preference of $1,187,569  2001 |                                      |         |             |         |   |           | 1,050,300  |           
|                                                                     | Common stock, class B, 271,037 shares
    issued  2001, 270,382 shares outstanding 
    2001                                                          |                                      |         |             |         |   |           | 271        |           
|                                                                     | Accumulated earnings (deficit)                                                                                                                          |                                      |         | 42,566       |         |   |           | (3,774,497 | )         
|                                                                     | Treasury stock, at cost, 655 shares 
    2001                                                                                                          |                                      |         |             |         |   |           | (3,275     | )         
|                                                                     | Deferred compensation, net                                                                                                                              |                                      |         |             |         |   |           | (903       | )         
|                                                                     | Accumulated other comprehensive loss                                                                                                                    |                                      |         | (350         | )       |   |           | (228,994   | )         
|                                                                     |                                                                                                                                                         |                                      |         |              |         |   |           |           
|                                                                     |                                                                                                                                                         | Total stockholders equity (deficit) |         |              | 91,414  |   |           |            | (2,022,150 | )
|                                                                     |                                                                                                                                                         |                                      |         |              |         |   |           |           
|                                                                     |                                                                                                                                                         | $                                    | 848,917 |              |         | $ | 1,244,420 |           
|                                                                     |                                                                                                                                                         |                                      |         |              |         |   |           |           

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

F-56



---



##### Table of Contents






NII HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

For the Two Months Ended December 31,
2002 (Successor Company),


Ten Months Ended October 31, 2002
(Predecessor Company),


Year Ended December 31, 2001 (Predecessor
Company) and


Year Ended December 31, 2000 (Predecessor
Company)


(in thousands, except per share
amounts)


|                                                                                                  |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |          |  
|------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ------- | ------------------- | - | ----------------------- | --------- | --------- | - | - | ---------- | --------- | - | - | -------- | -------- | -
|                                                                                                  |                                                                                                                                                |              |         |                    
|                                                                                                  |                                                                                                                                                | Successor    |         | Predecessor Company
|                                                                                                  |                                                                                                                                                | Company      |         |                    
|                                                                                                  |                                                                                                                                                | Two Months   |         | Ten Months          |   |                        
|                                                                                                  |                                                                                                                                                | Ended        |         | Ended               |   | Year Ended December 31,
|                                                                                                  |                                                                                                                                                | December 31, |         | October 31,         |   |                        
|                                                                                                  |                                                                                                                                                | 2002         |         | 2002                |   | 2001                    |           | 2000     
|                                                                                                  |                                                                                                                                                |              |         |                     |   |                         |           |          
|Operating revenues                                                                                |                                                                                                                                                | $            | 143,278 |                     |   | $                       | 637,095   |           |   | $ | 662,446    |           |   | $ | 324,328  |         
|                                                                                                  |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         
|Operating expenses                                                                                |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         
|                                                                                                  | Cost of revenues (exclusive of depreciation shown
    separately below)                                                                        |              |         | 49,498              |   |                         |           | 252,577   |   |   |            | 323,536   |   |   |          | 178,643  |  
|                                                                                                  | Selling, general and administrative                                                                                                            |              |         | 46,483              |   |                         |           | 262,344   |   |   |            | 426,679   |   |   |          | 275,361  |  
|                                                                                                  | Impairment, restructuring and other charges
    (Note 3)                                                                                       |              |         |                    |   |                         |           | 15,808    |   |   |            | 1,581,164 |   |   |          |         |  
|                                                                                                  | Depreciation                                                                                                                                   |              |         | 4,695               |   |                         |           | 55,758    |   |   |            | 162,083   |   |   |          | 113,648  |  
|                                                                                                  | Amortization                                                                                                                                   |              |         | 6,380               |   |                         |           | 9,219     |   |   |            | 56,479    |   |   |          | 39,394   |  
|                                                                                                  |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         
|                                                                                                  |                                                                                                                                                |              | 107,056 |                     |   |                         | 595,706   |           |   |   | 2,549,941  |           |   |   | 607,046  |         
|                                                                                                  |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         
|Operating income (loss)                                                                           |                                                                                                                                                |              | 36,222  |                     |   |                         | 41,389    |           |   |   | (1,887,495 | )         |   |   | (282,718 | )       
|                                                                                                  |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         
|Other income (expense)                                                                            |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         
|                                                                                                  | Interest expense                                                                                                                               |              |         | (10,469             | ) |                         |           | (151,579  | ) |   |            | (297,228  | ) |   |          | (237,743 | )
|                                                                                                  | Interest income                                                                                                                                |              |         | 1,797               |   |                         |           | 3,928     |   |   |            | 13,247    |   |   |          | 22,116   |  
|                                                                                                  | Reorganization items, net (Note 1)                                                                                                             |              |         |                    |   |                         |           | 2,180,223 |   |   |            |          |   |   |          |         |  
|                                                                                                  | Gain on extinguishment of debt, net                                                                                                            |              |         |                    |   |                         |           | 101,598   |   |   |            |          |   |   |          |         |  
|                                                                                                  | Foreign currency transaction gains (losses), net                                                                                               |              |         | 1,357               |   |                         |           | (183,136  | ) |   |            | (61,282   | ) |   |          | (10,671  | )
|                                                                                                  | Realized (losses) gains on investments, net                                                                                                    |              |         |                    |   |                         |           |          |   |   |            | (151,291  | ) |   |          | 239,467  |  
|                                                                                                  | Equity in gains (losses) of unconsolidated
    affiliates                                                                                      |              |         |                    |   |                         |           |          |   |   |            | 9,640     |   |   |          | (33,328  | )
|                                                                                                  | Minority interest in losses of subsidiaries                                                                                                    |              |         |                    |   |                         |           |          |   |   |            |          |   |   |          | 6,504    |  
|                                                                                                  | Other (expense) income, net                                                                                                                    |              |         | (1,557              | ) |                         |           | (8,918    | ) |   |            | (4,181    | ) |   |          | 6,251    |  
|                                                                                                  |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         
|                                                                                                  |                                                                                                                                                |              | (8,872  | )                   |   |                         | 1,942,116 |           |   |   | (491,095   | )         |   |   | (7,404   | )       
|                                                                                                  |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         
|Income (loss) from continuing operations
    before income tax (provision) benefit                |                                                                                                                                                |              | 27,350  |                     |   |                         | 1,983,505 |           |   |   | (2,378,590 | )         |   |   | (290,122 | )       
|Income tax (provision) benefit                                                                    |                                                                                                                                                |              | (4,449  | )                   |   |                         | (26,185   | )         |   |   | 68,750     |           |   |   | (67,660  | )       
|                                                                                                  |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         
|Income (loss) from continuing
    operations                                                      |                                                                                                                                                |              | 22,901  |                     |   |                         | 1,957,320 |           |   |   | (2,309,840 | )         |   |   | (357,782 | )       
|Discontinued operations                                                                           |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         
|                                                                                                  | Income (loss) from operations of Nextel
    Philippines (including gain on disposal of $23,475 for the two
    months ended December 31, 2002) |              |         | 19,665              |   |                         |           | (2,025    | ) |   |            | (170,335  | ) |   |          | (59,973  | )
|                                                                                                  | Income tax (provision) benefit                                                                                                                 |              |         |                    |   |                         |           | (252      | ) |   |            | (17,146   | ) |   |          | 549      |  
|                                                                                                  |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         
|Income (loss) from discontinued
    operations                                                    |                                                                                                                                                |              | 19,665  |                     |   |                         | (2,277    | )         |   |   | (187,481   | )         |   |   | (59,424  | )       
|                                                                                                  |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         
|Net income (loss)                                                                                 |                                                                                                                                                |              | 42,566  |                     |   |                         | 1,955,043 |           |   |   | (2,497,321 | )         |   |   | (417,206 | )       
|Accretion of series A exchangeable
    redeemable preferred stock to liquidation preference value |                                                                                                                                                |              |        |                     |   |                         |          |           |   |   |           |           |   |   | (61,334  | )       
|                                                                                                  |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         
|Income (loss) attributable to common
    stockholders                                             |                                                                                                                                                | $            | 42,566  |                     |   | $                       | 1,955,043 |           |   | $ | (2,497,321 | )         |   | $ | (478,540 | )       
|                                                                                                  |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         
|Net income (loss) from continuing operations
    per common share, basic                          |                                                                                                                                                | $            | 1.15    |                     |   | $                       | 7.24      |           |   | $ | (8.53      | )         |   | $ | (1.69    | )       
|Net income (loss) from discontinued operations
    per common share, basic                        |                                                                                                                                                |              | 0.98    |                     |   |                         | (0.01     | )         |   |   | (0.69      | )         |   |   | (0.24    | )       
|                                                                                                  |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         
|Net income (loss) per common share,
    basic                                                     |                                                                                                                                                | $            | 2.13    |                     |   | $                       | 7.23      |           |   | $ | (9.22      | )         |   | $ | (1.93    | )       
|                                                                                                  |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         
|Net income (loss) from continuing operations
    per common share, diluted                        |                                                                                                                                                | $            | 1.08    |                     |   | $                       | 7.24      |           |   | $ | (8.53      | )         |   | $ | (1.69    | )       
|Net income (loss) from discontinued operations
    per common share, diluted                      |                                                                                                                                                |              | 0.93    |                     |   |                         | (0.01     | )         |   |   | (0.69      | )         |   |   | (0.24    | )       
|                                                                                                  |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         
|Net income (loss) per common share,
    diluted                                                   |                                                                                                                                                | $            | 2.01    |                     |   | $                       | 7.23      |           |   | $ | (9.22      | )         |   | $ | (1.93    | )       
|                                                                                                  |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         
|Weighted average number of common shares
    outstanding, basic                                   |                                                                                                                                                |              | 20,000  |                     |   |                         | 270,382   |           |   |   | 270,750    |           |   |   | 248,453  |         
|                                                                                                  |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         
|Weighted average number of common shares
    outstanding, diluted                                 |                                                                                                                                                |              | 21,143  |                     |   |                         | 270,382   |           |   |   | 270,750    |           |   |   | 248,453  |         
|                                                                                                  |                                                                                                                                                |              |         |                     |   |                         |           |           |   |   |            |           |   |   |          |         

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

F-57



---



##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS (DEFICIT) EQUITY

For the Two Months Ended December 31,
2002 (Successor Company),


Ten Months Ended October 31, 2002
(Predecessor Company),


Year Ended December 31, 2001 (Predecessor
Company) and


Year Ended December 31, 2000 (Predecessor
Company)


(in thousands)


|                                                     |                                                                                                   |                                                                                                                 |                                         |                                                                                           |                            |              |           |            |          |        |         |          |        |         |         |          |         |   |         |          |   |   |     |      |   |   |         |          |   |   |   |   | 
|---------------------------------------------------- | ------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | --------------------------------------- | ----------------------------------------------------------------------------------------- | -------------------------- | ------------ | --------- | ---------- | -------- | ------ | ------- | -------- | ------ | ------- | ------- | -------- | ------- | - | ------- | -------- | - | - | --- | ---- | - | - | ------- | -------- | - | - | - | - | 
|                                                     |                                                                                                   |                                                                                                                 |                                         |                                                                                           |                            |              |           |            |          |       
|                                                     |                                                                                                   | Series A                                                                                                        |                                         |                                                                                           |                            | Class B      |           |           
|                                                     |                                                                                                   | Preferred Stock                                                                                                 |                                         | Common Stock                                                                              |                            | Common Stock |           |           
|                                                     |                                                                                                   |                                                                                                                 |                                         |                                                                                           |                            |              |           | Paid-in   
|                                                     |                                                                                                   | Shares                                                                                                          |                                         | Amount                                                                                    |                            | Shares       |           | Amount     |          | Shares |         | Amount   |        | Capital
|                                                     |                                                                                                   |                                                                                                                 |                                         |                                                                                           |                            |              |           |            |          |        |         |          |        |        
|Balance, January 1, 2000 
    Predecessor Company   |                                                                                                   |                                                                                                                 | 3                                       |                                                                                           |                            | $            | 298,886   |            |          |        | 220,340 |          |        | $       | 399,401 |          |         |   |        |          |   | $ |    |      |   | $ |        |         
|                                                     | Net loss                                                                                          |                                                                                                                 |                                         |                                                                                          |                            |              |           |           |          |        |         |         |        |         |         |         |         |   |         |         |   |   |     |     |   |   |         |         |  
|                                                     |                                                                                                   | Other comprehensive loss, net of income tax:                                                                    |                                         |                                                                                           |                            |              |           |            |          |        |         |          |        |         |         |          |         |   |         |          |   |   |     |      |   |   |         |          |   |  
|                                                     |                                                                                                   |                                                                                                                 | Foreign currency translation adjustment |                                                                                           |                            |             |           |            |          |       |         |          |        |        |         |          |         |  |         |          |   |  |     |      |   |  |         |          |   |  |  
|                                                     |                                                                                                   |                                                                                                                 | Available-for-sale securities:          |                                                                                           |                            |              |           |            |          |        |         |          |        |         |         |          |         |   |         |          |   |   |     |      |   |   |         |          |   |   |  
|                                                     |                                                                                                   |                                                                                                                 |                                         | Unrealized holding gains arising during the year                                          |                            |              |          |            |          |        |        |          |        |         |        |          |         |   |        |          |   |   |    |      |   |   |        |          |   |   |  |  
|                                                     |                                                                                                   |                                                                                                                 |                                         | Reclassification adjustments for gains included
    in net loss, net of taxes of $100,872 |                            |              |          |            |          |        |        |          |        |         |        |          |         |   |        |          |   |   |    |      |   |   |        |          |   |   |  |  
|                                                     |                                                                                                   |                                                                                                                 |                                         |                                                                                           | Total comprehensive loss   |              |           |            |          |        |         |          |        |         |         |          |         |   |         |          |   |   |     |      |   |   |         |          |   |   |   |   | 
|                                                     | Issuance of Series A exchangeable redeemable
    preferred stock to Nextel Communications         |                                                                                                                 |                                         | 8                                                                                         |                            |              |           | 777,985    |          |        |         |         |        |         |         |         |         |   |         |         |   |   |     |     |   |   |         |         |  
|                                                     | Accretion of Series A exchangeable
    redeemable preferred stock to liquidation preference value |                                                                                                                 |                                         |                                                                                          |                            |              |           | 61,334     |          |        |         |         |        |         |         | (61,334  | )       |   |         |         |   |   |     |     |   |   |         |         |  
|                                                     | Issuance of common stock:                                                                         |                                                                                                                 |                                         |                                                                                           |                            |              |           |            |          |        |         |          |        |         |         |          |         |   |         |          |   |   |     |      |   |   |         |          |  
|                                                     |                                                                                                   | Conversion of series A exchangeable
    redeemable preferred stock at accreted liquidation preference
    value |                                         |                                                                                           | (5                         | )            |           |            | (587,905 | )      |         |          | 49,682 |         |         |          | 587,905 |   |         |          |  |   |     |      |  |   |         |          |  |  
|                                                     |                                                                                                   | Exercise of stock options and warrants                                                                          |                                         |                                                                                           |                           |              |           |            |         |        |         |          | 1,015  |         |         |          | 1,725   |   |         |          |  |   |     |      |  |   |         |          |  |  
|                                                     | Purchase of treasury stock                                                                        |                                                                                                                 |                                         |                                                                                          |                            |              |           |           |          |        |         | (12      | )      |         |         |         |         |   |         |         |   |   |     |     |   |   |         |         |  
|                                                     | Deferred compensation                                                                             |                                                                                                                 |                                         |                                                                                          |                            |              |           |           |          |        |         |         |        |         |         | 4,773    |         |   |         |         |   |   |     |     |   |   |         | 3,045    |  
|                                                     | Tax benefits on exercise of stock options                                                         |                                                                                                                 |                                         |                                                                                          |                            |              |           |           |          |        |         |         |        |         |         |         |         |   |         |         |   |   |     |     |   |   |         | 6,677    |  
|                                                     | Conversion of common stock to class B common
    stock                                            |                                                                                                                 |                                         |                                                                                          |                            |              |           |           |          |        |         | (271,025 | )      |         |         | (932,470 | )       |   |         | 271,025  |   |   |     | 271  |   |   |         | 932,199  |  
|                                                     |                                                                                                   |                                                                                                                 |                                         |                                                                                           |                            |              |           |            |          |        |         |          |        |         |         |          |         |   |         |          |   |   |     |      |   |   |         |         
|Balance, December 31, 2000 
    Predecessor Company |                                                                                                   |                                                                                                                 | 6                                       |                                                                                           |                            |              | 550,300   |            |          |        |        |          |        |         |        |          |         |   | 271,025 |          |   |   | 271 |      |   |   | 941,921 |         
|                                                     | Net loss                                                                                          |                                                                                                                 |                                         |                                                                                          |                            |              |           |           |          |        |         |         |        |         |         |         |         |   |         |         |   |   |     |     |   |   |         |         |  
|                                                     |                                                                                                   | Other comprehensive loss, net of income tax:                                                                    |                                         |                                                                                           |                            |              |           |            |          |        |         |          |        |         |         |          |         |   |         |          |   |   |     |      |   |   |         |          |   |  
|                                                     |                                                                                                   |                                                                                                                 | Foreign currency translation adjustment |                                                                                           |                            |             |           |            |          |       |         |          |        |        |         |          |         |  |         |          |   |  |     |      |   |  |         |          |   |  |  
|                                                     |                                                                                                   |                                                                                                                 | Available-for-sale securities:          |                                                                                           |                            |              |           |            |          |        |         |          |        |         |         |          |         |   |         |          |   |   |     |      |   |   |         |          |   |   |  
|                                                     |                                                                                                   |                                                                                                                 |                                         | Unrealized holding losses arising during the year                                         |                            |              |          |            |          |        |        |          |        |         |        |          |         |   |        |          |   |   |    |      |   |   |        |          |   |   |  |  
|                                                     |                                                                                                   |                                                                                                                 |                                         | Reclassification adjustments for losses included
    in net loss, net of taxes of $0      |                            |              |          |            |          |        |        |          |        |         |        |          |         |   |        |          |   |   |    |      |   |   |        |          |   |   |  |  
|                                                     |                                                                                                   |                                                                                                                 |                                         |                                                                                           | Total comprehensive loss   |              |           |            |          |        |         |          |        |         |         |          |         |   |         |          |   |   |     |      |   |   |         |          |   |   |   |   | 
|                                                     | Issuance of Series A exchangeable redeemable
    preferred stock to Nextel Communications         |                                                                                                                 |                                         | 5                                                                                         |                            |              |           | 500,000    |          |        |         |         |        |         |         |         |         |   |         |         |   |   |     |     |   |   |         |         |  
|                                                     | Purchase of treasury stock                                                                        |                                                                                                                 |                                         |                                                                                          |                            |              |           |           |          |        |         |         |        |         |         |         |         |   |         | (643     | ) |   |     |     |   |   |         |         |  
|                                                     | Deferred compensation and other                                                                   |                                                                                                                 |                                         |                                                                                          |                            |              |           |           |          |        |         |         |        |         |         |         |         |   |         |         |   |   |     |     |   |   |         | (6,973   | )
|                                                     |                                                                                                   |                                                                                                                 |                                         |                                                                                           |                            |              |           |            |          |        |         |          |        |         |         |          |         |   |         |          |   |   |     |      |   |   |         |         
|Balance, December 31, 2001 
    Predecessor Company |                                                                                                   |                                                                                                                 | 11                                      |                                                                                           |                            |              | 1,050,300 |            |          |        |        |          |        |         |        |          |         |   | 270,382 |          |   |   | 271 |      |   |   | 934,948 |         
|                                                     | Net income                                                                                        |                                                                                                                 |                                         |                                                                                          |                            |              |           |           |          |        |         |         |        |         |         |         |         |   |         |         |   |   |     |     |   |   |         |         |  
|                                                     |                                                                                                   | Other comprehensive income, net of income tax:                                                                  |                                         |                                                                                           |                            |              |           |            |          |        |         |          |        |         |         |          |         |   |         |          |   |   |     |      |   |   |         |          |   |  
|                                                     |                                                                                                   |                                                                                                                 | Foreign currency translation adjustment |                                                                                           |                            |             |           |            |          |       |         |          |        |        |         |          |         |  |         |          |   |  |     |      |   |  |         |          |   |  |  
|                                                     |                                                                                                   |                                                                                                                 |                                         |                                                                                           | Total comprehensive income |              |           |           |          |        |         |         |        |         |         |         |         |   |         |         |   |   |     |     |   |   |         |         |   |   |   |  | 
|                                                     | Deferred compensation                                                                             |                                                                                                                 |                                         |                                                                                          |                            |              |           |           |          |        |         |         |        |         |         |         |         |   |         |         |   |   |     |     |   |   |         | 10       |  
|                                                     |                                                                                                   |                                                                                                                 |                                         |                                                                                           |                            |              |           |            |          |        |         |          |        |         |         |          |         |   |         |          |   |   |     |      |   |   |         |         
|Balance, October 31, 2002 
    Predecessor Company  |                                                                                                   |                                                                                                                 | 11                                      |                                                                                           |                            |              | 1,050,300 |            |          |        |        |          |        |         |        |          |         |   | 270,382 |          |   |   | 271 |      |   |   | 934,958 |         
|                                                     | Elimination of Predecessor Company
    stockholders equity                                       |                                                                                                                 |                                         | (11                                                                                       | )                          |              |           | (1,050,300 | )        |        |         |         |        |         |         |         |         |   |         | (270,382 | ) |   |     | (271 | ) |   |         | (934,958 | )
|                                                     | Issuance of Successor Company common stock                                                        |                                                                                                                 |                                         |                                                                                          |                            |              |           |           |          |        |         | 20,000   |        |         |         | 20       |         |   |         |         |   |   |     |     |   |   |         | 49,178   |  
|                                                     |                                                                                                   |                                                                                                                 |                                         |                                                                                           |                            |              |           |            |          |        |         |          |        |         |         |          |         |   |         |          |   |   |     |      |   |   |         |         
|Balance, October 31, 2002 
    Successor Company    |                                                                                                   |                                                                                                                 |                                        |                                                                                           |                            |              |          |            |          |        | 20,000  |          |        |         | 20      |          |         |   |        |          |   |   |    |      |   |   | 49,178  |         
|                                                     | Net income                                                                                        |                                                                                                                 |                                         |                                                                                          |                            |              |           |           |          |        |         |         |        |         |         |         |         |   |         |         |   |   |     |     |   |   |         |         |  
|                                                     |                                                                                                   | Other comprehensive loss, net of income tax:                                                                    |                                         |                                                                                           |                            |              |           |            |          |        |         |          |        |         |         |          |         |   |         |          |   |   |     |      |   |   |         |          |   |  
|                                                     |                                                                                                   |                                                                                                                 | Foreign currency translation adjustment |                                                                                           |                            |             |           |            |          |       |         |          |        |        |         |          |         |  |         |          |   |  |     |      |   |  |         |          |   |  |  
|                                                     |                                                                                                   |                                                                                                                 |                                         |                                                                                           | Total comprehensive income |              |           |           |          |        |         |         |        |         |         |         |         |   |         |         |   |   |     |     |   |   |         |         |   |   |   |  | 
|                                                     |                                                                                                   |                                                                                                                 |                                         |                                                                                           |                            |              |           |            |          |        |         |          |        |         |         |          |         |   |         |          |   |   |     |      |   |   |         |         
|Balance, December 31, 2002 
    Successor Company   |                                                                                                   |                                                                                                                 |                                        |                                                                                           |                            | $            |          |            |          |        | 20,000  |          |        | $       | 20      |          |         |   |        |          |   | $ |    |      |   | $ | 49,178  |         
|                                                     |                                                                                                   |                                                                                                                 |                                         |                                                                                           |                            |              |           |            |          |        |         |          |        |         |         |          |         |   |         |          |   |   |     |      |   |   |         |         

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

F-58



---



##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS (DEFICIT)
EQUITY  (Continued)





| |  |                    |            |                |  |          |      |              |  |                             |        |            |  |       |        |   |  |   |          |   |  |   |          |   |  |   |            |  
| |  | ------------------ | ---------- | -------------- |  | -------- | ---- | ------------ |  | --------------------------- | ------ | ---------- |  | ----- | ------ | - |  | - | -------- | - |  | - | -------- | - |  | - | ---------- | -
| |  |                    |            |                |  |          |      |              |  |                             |        |           
| |  |                    |            |                |  |          |      |              |  | Accumulated Other           |        |           
| |  |                    |            |                |  |          |      |              |  | Comprehensive Income (Loss) |        |           
| |  |                    |            |                |  |          |      |              |  |                            
| |  |                    |            | Treasury Stock |  |          |      | Unrealized   |  | Cumulative                  |        |           
| |  | Accumulated        |            |                |  | Deferred |      | Gain (Loss)  |  | Translation                 |        |           
| |  | (Deficit) Earnings |            | Shares         |  | Amount   |      | Compensation |  | on Investments              |        | Adjustment |  | Total
| |  |                    |            |                |  |          |      |              |  |                             |        |            |  |      
| |  | $                  | (859,970   | )              |  |          |     |              |  | $                           |       |            |  | $     |       |   |  | $ | 119,682  |   |  | $ | (137,589 | ) |  | $ | (179,590   | )
| |  |                    | (417,206   | )              |  |          |     |              |  |                             |       |            |  |       |       |   |  |   |         |   |  |   |         |   |  |   | (417,206   | )
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   |         |   |  |   | 3,340    |   |  |   | 3,340      |  
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   | 28,284   |   |  |   |         |   |  |   | 28,284     |  
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   | (142,194 | ) |  |   |         |   |  |   | (142,194   | )
| |  |                    |            |                |  |          |      |              |  |                             |        |            |  |       |        |   |  |   |          |   |  |   |          |   |  |   |            |  
| |  |                    |            |                |  |          |      |              |  |                             |        |            |  |       |        |   |  |   |          |   |  |   |          |   |  |   | (527,776   | )
| |  |                    |            |                |  |          |      |              |  |                             |        |            |  |       |        |   |  |   |          |   |  |   |          |   |  |   |            |  
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   |         |   |  |   |         |   |  |   | 777,985    |  
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   |         |   |  |   |         |   |  |   |           |  
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   |         |   |  |   |         |   |  |   |           |  
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   |         |   |  |   |         |   |  |   | 1,725      |  
| |  |                    |           |                |  |          | 12   |              |  |                             | (62    | )          |  |       |       |   |  |   |         |   |  |   |         |   |  |   | (62        | )
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       | (5,173 | ) |  |   |         |   |  |   |         |   |  |   | 2,645      |  
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   |         |   |  |   |         |   |  |   | 6,677      |  
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   |         |   |  |   |         |   |  |   |           |  
| |  |                    |            |                |  |          |      |              |  |                             |        |            |  |       |        |   |  |   |          |   |  |   |          |   |  |   |            |  
| |  |                    | (1,277,176 | )              |  |          | 12   |              |  |                             | (62    | )          |  |       | (5,173 | ) |  |   | 5,772    |   |  |   | (134,249 | ) |  |   | 81,604     |  
| |  |                    | (2,497,321 | )              |  |          |     |              |  |                             |       |            |  |       |       |   |  |   |         |   |  |   |         |   |  |   | (2,497,321 | )
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   |         |   |  |   | (94,745  | ) |  |   | (94,745    | )
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   | (197,859 | ) |  |   |         |   |  |   | (197,859   | )
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   | 192,087  |   |  |   |         |   |  |   | 192,087    |  
| |  |                    |            |                |  |          |      |              |  |                             |        |            |  |       |        |   |  |   |          |   |  |   |          |   |  |   |            |  
| |  |                    |            |                |  |          |      |              |  |                             |        |            |  |       |        |   |  |   |          |   |  |   |          |   |  |   | (2,597,838 | )
| |  |                    |            |                |  |          |      |              |  |                             |        |            |  |       |        |   |  |   |          |   |  |   |          |   |  |   |            |  
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   |         |   |  |   |         |   |  |   | 500,000    |  
| |  |                    |           |                |  |          | 643  |              |  |                             | (3,213 | )          |  |       |       |   |  |   |         |   |  |   |         |   |  |   | (3,213     | )
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       | 4,270  |   |  |   |         |   |  |   |         |   |  |   | (2,703     | )
| |  |                    |            |                |  |          |      |              |  |                             |        |            |  |       |        |   |  |   |          |   |  |   |          |   |  |   |            |  
| |  |                    | (3,774,497 | )              |  |          | 655  |              |  |                             | (3,275 | )          |  |       | (903   | ) |  |   |         |   |  |   | (228,994 | ) |  |   | (2,022,150 | )
| |  |                    | 1,955,043  |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   |         |   |  |   |         |   |  |   | 1,955,043  |  
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   |         |   |  |   | 67,054   |   |  |   | 67,054     |  
| |  |                    |            |                |  |          |      |              |  |                             |        |            |  |       |        |   |  |   |          |   |  |   |          |   |  |   |            |  
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   |         |   |  |   |         |   |  |   | 2,022,097  |  
| |  |                    |            |                |  |          |      |              |  |                             |        |            |  |       |        |   |  |   |          |   |  |   |          |   |  |   |            |  
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       | 43     |   |  |   |         |   |  |   |         |   |  |   | 53         |  
| |  |                    |            |                |  |          |      |              |  |                             |        |            |  |       |        |   |  |   |          |   |  |   |          |   |  |   |            |  
| |  |                    | (1,819,454 | )              |  |          | 655  |              |  |                             | (3,275 | )          |  |       | (860   | ) |  |   |         |   |  |   | (161,940 | ) |  |   |           |  
| |  |                    | 1,819,454  |                |  |          | (655 | )            |  |                             | 3,275  |            |  |       | 860    |   |  |   |         |   |  |   | 161,940  |   |  |   |           |  
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   |         |   |  |   |         |   |  |   | 49,198     |  
| |  |                    |            |                |  |          |      |              |  |                             |        |            |  |       |        |   |  |   |          |   |  |   |          |   |  |   |            |  
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   |         |   |  |   |         |   |  |   | 49,198     |  
| |  |                    | 42,566     |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   |         |   |  |   |         |   |  |   | 42,566     |  
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   |         |   |  |   | (350     | ) |  |   | (350       | )
| |  |                    |            |                |  |          |      |              |  |                             |        |            |  |       |        |   |  |   |          |   |  |   |          |   |  |   |            |  
| |  |                    |           |                |  |          |     |              |  |                             |       |            |  |       |       |   |  |   |         |   |  |   |         |   |  |   | 42,216     |  
| |  |                    |            |                |  |          |      |              |  |                             |        |            |  |       |        |   |  |   |          |   |  |   |          |   |  |   |            |  
| |  | $                  | 42,566     |                |  |          |     |              |  | $                           |       |            |  | $     |       |   |  | $ |         |   |  | $ | (350     | ) |  | $ | 91,414     |  
| |  |                    |            |                |  |          |      |              |  |                             |        |            |  |       |        |   |  |   |          |   |  |   |          |   |  |   |            |  

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

F-59



---



##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Two Months Ended December 31,
2002 (Successor Company), Ten Months


Ended December 31, 2002 (Predecessor
Company), Year Ended December 31, 2001


(Predecessor Company) and Year Ended
December 31, 2000 (Predecessor Company)


(in thousands)


|                                                                                                       |                                                                                                         |                                              |         |                     |        |              |           |            |        |   |            |           |         |   |          |           |         |  
|------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------- | -------------------------------------------- | ------- | ------------------- | ------ | ------------ | --------- | ---------- | ------ | - | ---------- | --------- | ------- | - | -------- | --------- | ------- | -
|                                                                                                       |                                                                                                         |                                              |         |                    
|                                                                                                       |                                                                                                         |                                              |         | Predecessor Company
|                                                                                                       |                                                                                                         | Successor                                    |         |                    
|                                                                                                       |                                                                                                         | Company                                      |         |                     |        |             
|                                                                                                       |                                                                                                         | Two Months                                   |         | Ten Months          |        | Year Ended  
|                                                                                                       |                                                                                                         | Ended                                        |         | Ended               |        | December 31,
|                                                                                                       |                                                                                                         | December 31,                                 |         | October 31,         |        |             
|                                                                                                       |                                                                                                         | 2002                                         |         | 2002                |        | 2001         |           | 2000      
|                                                                                                       |                                                                                                         |                                              |         |                     |        |              |           |           
|Cash flows from operating
    activities:                                                              |                                                                                                         |                                              |         |                     |        |              |           |            |        |   |            |           |         |   |          |          
|Net income (loss)                                                                                      |                                                                                                         | $                                            | 42,566  |                     |        | $            | 1,955,043 |            |        | $ | (2,497,321 | )         |         | $ | (417,206 | )        
|Adjustments to reconcile net income (loss) to net
    cash provided by (used in) operating activities: |                                                                                                         |                                              |         |                     |        |              |           |            |        |   |            |           |         |   |          |          
|                                                                                                       | Gain on extinguishment of debt, net                                                                     |                                              |         |                    |        |              |           | (101,598   | )      |   |            |          |         |   |          |          |        
|                                                                                                       | Reorganization items, including fresh-start
    valuation adjustments                                   |                                              |         |                    |        |              |           | (2,198,522 | )      |   |            |          |         |   |          |          |        
|                                                                                                       | Amortization of debt financing costs and
    accretion of senior redeemable notes                       |                                              |         | 3,250               |        |              |           | 67,537     |        |   |            | 187,302   |         |   |          | 137,633   |        
|                                                                                                       | Depreciation and amortization                                                                           |                                              |         | 11,217              |        |              |           | 65,356     |        |   |            | 234,556   |         |   |          | 160,918   |        
|                                                                                                       | Provision for losses on accounts receivable                                                             |                                              |         | 634                 |        |              |           | 17,484     |        |   |            | 40,902    |         |   |          | 16,115    |        
|                                                                                                       | Foreign currency transaction losses, net                                                                |                                              |         | 2,001               |        |              |           | 185,284    |        |   |            | 69,854    |         |   |          | 25,273    |        
|                                                                                                       | Equity in (gains) losses of unconsolidated
    affiliates                                               |                                              |         |                    |        |              |           |           |        |   |            | (9,640    | )       |   |          | 53,874    |        
|                                                                                                       | Minority interest in losses of subsidiaries                                                             |                                              |         |                    |        |              |           |           |        |   |            |          |         |   |          | (6,504    | )      
|                                                                                                       | Impairment, restructuring and other charges                                                             |                                              |         |                    |        |              |           | 7,968      |        |   |            | 1,741,007 |         |   |          |          |        
|                                                                                                       | Proceeds from spectrum sharing agreement                                                                |                                              |         |                    |        |              |           | 25,000     |        |   |            |          |         |   |          |          |        
|                                                                                                       | Realized losses (gains) on investments                                                                  |                                              |         |                    |        |              |           |           |        |   |            | 151,291   |         |   |          | (239,467  | )      
|                                                                                                       | Gain on sale of discontinued operations                                                                 |                                              |         | (23,475             | )      |              |           |           |        |   |            |          |         |   |          |          |        
|                                                                                                       | Deferred income tax (benefit) provision                                                                 |                                              |         | (100                | )      |              |           | (448       | )      |   |            | (131,005  | )       |   |          | 88,538    |        
|                                                                                                       | Stock-based compensation                                                                                |                                              |         |                    |        |              |           | (382       | )      |   |            | (17       | )       |   |          | 2,645     |        
|                                                                                                       | Other, net                                                                                              |                                              |         | 834                 |        |              |           | 3,746      |        |   |            | 5,848     |         |   |          | (3,737    | )      
|                                                                                                       | Change in assets and liabilities, net of effects
    from acquisitions:                                 |                                              |         |                     |        |              |           |            |        |   |            |           |         |   |          |           |        
|                                                                                                       |                                                                                                         | Accounts receivable                          |         |                     | (5,583 | )            |           |            | 11,698 |   |            |           | (80,339 | ) |          |           | (58,733 | )
|                                                                                                       |                                                                                                         | Handset and accessory inventory              |         |                     | 152    |              |           |            | 4,300  |   |            |           | 1,466   |   |          |           | (11,193 | )
|                                                                                                       |                                                                                                         | Prepaid expenses and other assets            |         |                     | (3,562 | )            |           |            | 30,308 |   |            |           | 1,631   |   |          |           | (51,962 | )
|                                                                                                       |                                                                                                         | Accounts payable, accrued expenses and other |         |                     | (3,095 | )            |           |            | 30,713 |   |            |           | 152,464 |   |          |           | 92,040  |  
|                                                                                                       |                                                                                                         |                                              |         |                     |        |              |           |            |        |   |            |           |         |   |          |          
|                                                                                                       | Net cash provided by (used in) operating
    activities                                                 |                                              |         | 24,839              |        |              |           | 103,487    |        |   |            | (132,001  | )       |   |          | (211,766  | )      
|                                                                                                       |                                                                                                         |                                              |         |                     |        |              |           |            |        |   |            |           |         |   |          |          
|Cash flows from investing
    activities:                                                              |                                                                                                         |                                              |         |                     |        |              |           |            |        |   |            |           |         |   |          |          
|                                                                                                       | Capital expenditures                                                                                    |                                              |         | (25,683             | )      |              |           | (199,682   | )      |   |            | (644,977  | )       |   |          | (368,732  | )      
|                                                                                                       | Payments for acquisitions, purchases of licenses
    and other                                          |                                              |         | (58                 | )      |              |           | (13,775    | )      |   |            | (35,183   | )       |   |          | (409,152  | )      
|                                                                                                       | Payments for investments in and advances to
    affiliates, net                                         |                                              |         |                    |        |              |           |           |        |   |            |          |         |   |          | (1,582    | )      
|                                                                                                       | Net proceeds from sale of available-for-sale
    securities                                             |                                              |         |                    |        |              |           |           |        |   |            | 139,080   |         |   |          |          |        
|                                                                                                       | Net proceeds from sale of affiliates                                                                    |                                              |         |                    |        |              |           |           |        |   |            | 3,500     |         |   |          |          |        
|                                                                                                       | Purchase of short-term investments                                                                      |                                              |         |                    |        |              |           |           |        |   |            |          |         |   |          | (154,374  | )      
|                                                                                                       | Proceeds from maturities and sales of short-term
    investments                                        |                                              |         |                    |        |              |           |           |        |   |            |          |         |   |          | 154,374   |        
|                                                                                                       | Other                                                                                                   |                                              |         | 727                 |        |              |           |           |        |   |            | 1,390     |         |   |          | 784       |        
|                                                                                                       |                                                                                                         |                                              |         |                     |        |              |           |            |        |   |            |           |         |   |          |          
|                                                                                                       | Net cash used in investing activities                                                                   |                                              |         | (25,014             | )      |              |           | (213,457   | )      |   |            | (536,190  | )       |   |          | (778,682  | )      
|                                                                                                       |                                                                                                         |                                              |         |                     |        |              |           |            |        |   |            |           |         |   |          |          
|Cash flows from financing
    activities:                                                              |                                                                                                         |                                              |         |                     |        |              |           |            |        |   |            |           |         |   |          |          
|                                                                                                       | Proceeds from issuance of series A
    exchangeable redeemable preferred stock to Nextel Communications |                                              |         |                    |        |              |           |           |        |   |            | 500,000   |         |   |          | 692,686   |        
|                                                                                                       | Issuance of debt securities                                                                             |                                              |         |                    |        |              |           | 100,800    |        |   |            |          |         |   |          | 641,043   |        
|                                                                                                       | Proceeds from issuance of common stock                                                                  |                                              |         |                    |        |              |           | 38,394     |        |   |            |          |         |   |          |          |        
|                                                                                                       | Borrowings under long-term credit facilities and
    other                                              |                                              |         |                    |        |              |           |           |        |   |            |          |         |   |          | 56,650    |        
|                                                                                                       | Repayments under long-term credit facilities and
    other                                              |                                              |         |                    |        |              |           | (13,044    | )      |   |            | (34,149   | )       |   |          | (34,440   | )      
|                                                                                                       | Transfers from (to) restricted cash                                                                     |                                              |         |                    |        |              |           | 29         |        |   |            | (26,524   | )       |   |          | (145      | )      
|                                                                                                       | (Repayments to) borrowings from Nextel
    Communications, net                                          |                                              |         |                    |        |              |           | (12,059    | )      |   |            | 9,899     |         |   |          | 13,867    |        
|                                                                                                       | Purchase of treasury stock                                                                              |                                              |         |                    |        |              |           |           |        |   |            | (3,213    | )       |   |          | (62       | )      
|                                                                                                       | Capital contributions from minority stockholders                                                        |                                              |         |                    |        |              |           |           |        |   |            |          |         |   |          | 6,223     |        
|                                                                                                       | Debt financing costs                                                                                    |                                              |         |                    |        |              |           | (2,810     | )      |   |            |          |         |   |          | (16,753   | )      
|                                                                                                       | Proceeds from exercise of stock options and
    warrants                                                |                                              |         |                    |        |              |           |           |        |   |            |          |         |   |          | 1,725     |        
|                                                                                                       |                                                                                                         |                                              |         |                     |        |              |           |            |        |   |            |           |         |   |          |          
|                                                                                                       | Net cash provided by financing activities                                                               |                                              |         |                    |        |              |           | 111,310    |        |   |            | 446,013   |         |   |          | 1,360,794 |        
|                                                                                                       |                                                                                                         |                                              |         |                     |        |              |           |            |        |   |            |           |         |   |          |          
|Effect of exchange rate changes on cash and
    cash equivalents                                       |                                                                                                         |                                              | 314     |                     |        |              | (20,568   | )          |        |   | (1,279     | )         |         |   | 3,333    |          
|                                                                                                       |                                                                                                         |                                              |         |                     |        |              |           |            |        |   |            |           |         |   |          |          
|Net increase (decrease) in cash and cash
    equivalents                                               |                                                                                                         |                                              | 139     |                     |        |              | (19,228   | )          |        |   | (223,457   | )         |         |   | 373,679  |          
|Cash and cash equivalents, beginning of
    period                                                     |                                                                                                         |                                              | 231,022 |                     |        |              | 250,250   |            |        |   | 473,707    |           |         |   | 100,028  |          
|                                                                                                       |                                                                                                         |                                              |         |                     |        |              |           |            |        |   |            |           |         |   |          |          
|Cash and cash equivalents, end of
    period                                                           |                                                                                                         | $                                            | 231,161 |                     |        | $            | 231,022   |            |        | $ | 250,250    |           |         | $ | 473,707  |          
|                                                                                                       |                                                                                                         |                                              |         |                     |        |              |           |            |        |   |            |           |         |   |          |          

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

F-60



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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.     Summary of
Operations and Reorganization

Operations.We
provide wireless communications services targeted at meeting the
needs of business customers in selected markets in Latin
America. We are designing our digital wireless networks to
support multiple wireless services, including:



| |   |                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | digital mobile telephone service, including
    advanced calling features such as speakerphone, conference
    calling, voice-mail, call forwarding and additional line service;
|
| |  | Nextel Direct Connect® service, which allows
    subscribers in the same country to contact each other instantly,
    on a private one-to-one call or on a group call;          
|
| |  | Internet services, mobile messaging services,
    e-mail and JavaTM enabled business applications,
    which are marketed as Nextel OnlineSM
    services; and                
|
| |  | international roaming capabilities, which are
    marketed as Nextel WorldwideSM.                                                                                             

Our principal operations are in major business
centers and related transportation corridors of Mexico, Brazil,
Peru and Argentina. We also provide analog specialized mobile
radio services in Chile.

Reorganization.We
were formerly known as Nextel International, Inc. Prior to
November 12, 2002, we were an indirect, substantially
wholly owned subsidiary of Nextel Communications, Inc. In May
2002, we reached an agreement in principle with our main
creditors, Motorola Credit Corporation, Nextel Communications
and an ad hoc committee of noteholders, to restructure our
outstanding debt. In connection with this agreement, on
May 24, 2002, NII Holdings, Inc. and NII Holdings
(Delaware), Inc. filed voluntary petitions for reorganization
under Chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court for the District of Delaware.
None of our foreign subsidiaries filed for Chapter 11
reorganization. While our U.S. companies that filed for
Chapter 11 operated as debtors-in-possession under the
Bankruptcy Code, our foreign subsidiaries continued operating in
the ordinary course of business during the Chapter 11
process, providing continuous and uninterrupted wireless
communication services to existing and new customers.

As part of our Chapter 11 proceedings, we
filed our original Joint Plan of Reorganization on June 14,
2002, our First Amended Joint Plan of Reorganization on
June 27, 2002, our Second Amended Joint Plan of
Reorganization on July 9, 2002, our Third Amended Joint
Plan of Reorganization on July 26, 2002, and our Revised
Third Amended Joint Plan of Reorganization on July 31,
2002, reflecting the final negotiations with our major creditor
constituents. On October 28, 2002, the Bankruptcy Court
confirmed our plan of reorganization and on November 12,
2002, we emerged from Chapter 11 proceedings.

Following is a summary of the significant
transactions consummated on November 12, 2002 under our
confirmed plan of reorganization:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | NII Holdings amended and restated its Bylaws and
    filed a Restated Certificate of Incorporation with the Secretary
    of State of the State of Delaware authorizing an aggregate of
    100,000,000 shares of common stock, par value $0.001 per share,
    one share of special director preferred stock, par value $1.00
    per share, and 10,000,000 shares of undesignated preferred
    stock, par value $0.001 per share;
|
| |  | NII Holdings cancelled all shares of its
    preferred stock, common stock and other equity interests that
    existed prior to November 12, 2002;                                                                                                                                                                                                                                                                                  
|
| |  | NII Holdings exchanged, on a pro rata basis,
    $2.3 billion in senior redeemable notes and other
    unsecured, non-trade claims that existed prior to its bankruptcy
    filing for 3,920,000 shares of new common stock and canceled its
    then-existing senior redeemable notes and some other unsecured,
    non-trade debt that existed prior to November 12, 2002;                                                        

F-61



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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



1.     Summary of
Operations and Reorganization  (Continued)




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Motorola Credit Corporation reinstated in full
    our $225.0 million international Motorola equipment
    financing facility and our $100.0 million Brazil Motorola
    equipment financing facility including $3.2 million in
    accrued interest, subject to deferrals of principal amortization
    and some structural modifications;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | NII Holdings repaid the outstanding principal
    balance, together with accrued interest, due under its
    $56.7 million international Motorola incremental equipment
    financing facility using restricted cash held in escrow. The
    principal amount repaid will be available for re-borrowing upon
    the terms set forth in the international Motorola equipment
    financing facility (see Note 4);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | NII Holdings raised $140.0 million in
    proceeds from some of our creditors that participated in a
    rights offering in exchange for the issuance of 15,680,000
    additional shares of NII Holdings new common stock and new
    notes with an aggregate principal amount of $180.8 million
    due at maturity. The rights offering provided the holders of NII
    Holdings then-existing senior redeemable notes, and some
    of our other creditors, the opportunity to purchase a pro rata
    share of NII Holdings new common stock, as well as new
    notes issued by NII Holdings (Cayman), Ltd., one of our
    wholly-owned subsidiaries. Through the rights offering, Nextel
    Communications, Inc. purchased $50.9 million of the new
    notes and 5,696,521 shares of the common stock issued, together
    with 1,422,167 shares of common stock that NII Holdings issued
    to Nextel Communications, Inc. in connection with the
    cancellation of NII Holdings senior redeemable notes and
    in satisfaction of claims by Nextel Communications, Inc. under
    our 1997 tax sharing agreement. Nextel Communications, Inc.
    owned about 35.6% of NII Holdings issued and outstanding
    shares of new common stock as of November 12, 2002. MacKay
    Shields owned or controlled about 21.8% of NII Holdings
    common stock as of November 12, 2002. The new notes are
    senior secured obligations that accrue interest at a rate of
    approximately 13% per annum, compounded quarterly, through
    October 31, 2004, which interest is added to principal, and
    accrues interest thereafter at a rate of approximately 13% per
    annum, compounded quarterly and payable in cash quarterly. The
    new notes mature on November 1, 2009. The repayment of the
    new notes is fully, unconditionally and irrevocably guaranteed
    by NII Holdings and some of our subsidiaries and affiliates; and
|
| |  | NII Holdings entered into a new spectrum use and
    build-out agreement with Nextel Communications with respect to
    certain areas on the border between the United States and
    Mexico. As part of that agreement, we received
    $25.0 million of a total payment of $50.0 million,
    with the remaining $25.0 million placed in escrow to be
    distributed as costs are incurred during the completion of the
    network build-out.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

We also reached an agreement with the creditors
to our Argentina credit facilities to repurchase the outstanding
balance owed to such creditors by our Argentine operating
company for $5.0 million in cash and 400,000 shares of NII
Holdings new common stock.

As a result of these transactions, as of
December 31, 2002, NII Holdings had 20,000,000 shares of
new common stock outstanding.

Because our plan of reorganization was approved
by the Bankruptcy Court on October 28, 2002, for financial
reporting purposes we used an effective date of October 31,
2002 and applied fresh-start accounting to our consolidated
balance sheet as of that date in accordance with the American
Institute of Certified Public Accountants Statement of
Position, or SOP, 90-7, Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code. We adopted
fresh-start accounting because the holders of our existing
voting shares immediately before filing and confirmation of our
plan of reorganization received less than 50% of the voting
shares of the emerging company and our reorganization value,
which served as

F-62



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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



1.     Summary of
Operations and Reorganization  (Continued)


the basis for our reorganization plan approved by
the Bankruptcy Court, was less than our post petition
liabilities and allowed claims, as shown below (in thousands):

|                                                         |  |   |           |  
|-------------------------------------------------------- |  | - | --------- | -
|Post petition current liabilities                        |  | $ | 8,482     |  
|Liabilities deferred under the Chapter 11
    proceeding |  |   | 2,446,174 |  
|                                                         |  |   |           |  
|Total post petition liabilities and allowed claims       |  |   | 2,454,656 |  
|Total Reorganization value                               |  |   | (475,800  | )
|                                                         |  |   |           |  
|Excess of liabilities over reorganization value          |  | $ | 1,978,856 |  
|                                                         |  |   |           |  

Under fresh-start accounting, a new reporting
entity is considered to be created and we adjusted the recorded
amounts of assets and liabilities to reflect their estimated
fair values at the date fresh-start accounting was applied.
Accordingly, the estimated reorganization value of our company
of $475.8 million represents the total fair value that we
allocated to the assets and liabilities of our reorganized
company in conformity with Statement of Financial Accounting
Standards No. 141, Business Combinations.

Our financial advisors advised us with respect to
the estimated reorganization value of our company and the
reorganization equity value of our company of
$50.0 million. Our financial advisors used two
methodologies to derive the total estimated reorganization
value: (a) the application of comparable public company
multiples to our historical and projected financial results, and
(b) a calculation of the present value of our free cash
flows under our revised business plan using financial
projections through 2007, including an assumption for a terminal
value, discounted back at our estimated post-restructuring
weighted average cost of capital. In deriving the total
reorganization value our financial advisors considered our
market share and position, competition and general economic
considerations, projected revenue growth, potential
profitability, working capital requirements and other relevant
factors.

As a result of our reorganization and application
of fresh-start accounting, during the ten months ended
October 31, 2002, we recognized about a $2.3 billion
gain on the extinguishment of our senior notes and a
$115.9 million charge related to the revaluation of our
assets and liabilities.

The table below shows our consolidated balance
sheet that reflects reorganization and fresh-start accounting
adjustments that we recorded as of October 31, 2002. These
adjustments primarily include the following:



| |   |                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the receipt of $25.0 million of a total
    $50.0 million in proceeds from Nextel Communications on the
    effective date of our reorganization under a new spectrum use
    and build-out agreement, which we deferred and recognized as a
    liability because of our future performance obligations;                                      
|
| |  | the repayment to Motorola Credit Corporation of
    $56.7 million in outstanding principal plus accrued
    interest under our international Motorola incremental equipment
    financing facility and accrued interest under our international
    Motorola equipment financing facility and Brazil Motorola
    equipment financing facility;
|
| |  | the extinguishment of $2.3 billion of our
    senior redeemable notes plus accrued interest and some other
    unsecured, non-trade debt in exchange for the issuance of
    3,920,000 shares of our new common stock;                                                                                                                         
|
| |  | the receipt of $140.0 million in proceeds
    received through our rights offering in exchange for the
    issuance of new senior notes and 15,680,000 of new common stock,
    allocated between debt and equity based on the relative fair
    values of each;                                                                               

F-63



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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



1.     Summary of
Operations and Reorganization  (Continued)




| |   |                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the payment of $5.0 million and the issuance
    of 400,000 shares of new common stock in exchange for the
    retirement of the entire outstanding balance of
    $100.7 million under our Argentine credit facilities plus
    accrued interest;                                                                                     
|
| |  | the cancellation of all outstanding preferred
    stock, common stock and other equity interests and elimination
    of all components of stockholders equity, including
    paid-in-capital, accumulated deficit, deferred compensation and
    accumulated other comprehensive loss; and                                            
|
| |  | the $116.8 million adjustment to the
    carrying values of our property, plant and equipment and
    intangible assets based on our estimates of their relative fair
    values, which we determined in consultation with external
    valuation specialists that we hired, and the resulting
    adjustment to deferred income taxes.

F-64



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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

1.     Summary of
Operations and Reorganization  (Continued)

|                                                   |                                   |                                             |         |             |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |          |          |  
|-------------------------------------------------- | --------------------------------- | ------------------------------------------- | ------- | ----------- | ---------- | ------------------- | ------ | -------- | ------ | ---------- | ------- | ---------- | --------- | - | ------- | ------- | ------- | - | ------ | -------- | -------- | -
|                                                   |                                   | Pre                                         |         | Spectrum    |            | Debt Extinguishment |        |          |        |           
|                                                   |                                   | Reorganization                              |         | Transaction |            | and Reorganization  |        | Rights   |        | Argentina 
|                                                   |                                   | Balance                                     |         | with NCI    |            | Payments            |        | Offering |        | Settlement
|ASSETS                                             |                                   |                                             |         |             |            |                     |        |          |        |           
|                                                   |                                   |                                            
|                                                   |                                   | (in thousands)                             
|Current assets                                     |                                   |                                             |         |             |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |         
|                                                   | Cash and cash equivalents         |                                             | $       | 90,526      |            |                     | $      | 25,000   |        |            | $       | (19,504    | )         |   | $       | 140,000 |         |   | $      | (5,000   | )       
|                                                   | Restricted cash                   |                                             |         | 69,489      |            |                     |        |          |        |            |         | (69,489    | )         |   |         |         |         |   |        |          |         
|                                                   | Accounts receivable, net          |                                             |         | 97,342      |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |          |         
|                                                   | Handset and accessory inventory   |                                             |         | 19,269      |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |          |         
|                                                   | Prepaid expenses and other        |                                             |         | 63,774      |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |          |         
|                                                   |                                   |                                             |         |             |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |         
|                                                   |                                   | Total current assets                        |         |             | 340,400    |                     |        |          | 25,000 |            |         |            | (88,993   | ) |         |         | 140,000 |   |        |          | (5,000   | )
|Property, plant and equipment, net                 |                                   |                                             | 359,752 |             |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |         
|Intangible assets and other, net                   |                                   |                                             | 172,610 |             |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |         
|Other assets                                       |                                   |                                             | 46,380  |             |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |         
|                                                   |                                   |                                             |         |             |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |         
|                                                   |                                   | $                                           | 919,142 |             |            | $                   | 25,000 |          |        | $          | (88,993 | )          |           | $ | 140,000 |         |         | $ | (5,000 | )       
|                                                   |                                   |                                             |         |             |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |         
|LIABILITIES AND STOCKHOLDERS (DEFICIT)
    EQUITY |                                   |                                             |         |             |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |         
|Current liabilities                                |                                   |                                             |         |             |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |         
|Accounts payable                                   |                                   | $                                           | 36,304  |             |            | $                   |       |          |        | $          | 2,718   |            |           | $ |        |         |         | $ |       |         
|                                                   | Accrued expenses and other        |                                             |         | 209,483     |            |                     |        |          |        |            |         | (11,866    | )         |   |         |         |         |   |        |          |         
|                                                   | Deferred revenues                 |                                             |         | 46,935      |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |          |         
|                                                   | Accrued interest                  |                                             |         | 31,600      |            |                     |        |          |        |            |         | (23,670    | )         |   |         |         |         |   |        | (6,829   | )       
|                                                   | Due to related parties            |                                             |         | 50,407      |            |                     |        |          |        |            |         | 215        |           |   |         |         |         |   |        |          |         
|                                                   | Current portion of long-term debt |                                             |         | 157,419     |            |                     |        |          |        |            |         | (56,650    | )         |   |         |         |         |   |        | (100,769 | )       
|                                                   |                                   |                                             |         |             |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |         
|                                                   |                                   | Total current liabilities                   |         |             | 532,148    |                     |        |          |       |            |         |            | (89,253   | ) |         |         |        |   |        |          | (107,598 | )
|                                                   | Long-term debt                    |                                             |         | 325,000     |            |                     |        |          |        |            |         | 3,193      |           |   |         | 100,800 |         |   |        |          |         
|                                                   | Deferred income taxes             |                                             |         | 2,659       |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |          |         
|                                                   | Deferred revenues and other       |                                             |         | 33,130      |            |                     |        | 25,000   |        |            |         |            |           |   |         |         |         |   |        |          |         
|                                                   |                                   |                                             |         |             |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |         
|                                                   |                                   | Total liabilities not subject to compromise |         |             | 892,937    |                     |        |          | 25,000 |            |         |            | (86,060   | ) |         |         | 100,800 |   |        |          | (107,598 | )
|                                                   | Liabilities subject to compromise |                                             |         | 2,446,174   |            |                     |        |          |        |            |         | (2,446,174 | )         |   |         |         |         |   |        |          |         
|Stockholders (deficit) equity                     |                                   |                                             |         |             |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |         
|                                                   | Preferred stock                   |                                             |         | 1,050,300   |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |          |         
|                                                   | Common stock  old                |                                             |         | 271         |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |          |         
|                                                   | Common stock  new                |                                             |         |            |            |                     |        |          |        |            |         | 4          |           |   |         | 16      |         |   |        |          |         
|                                                   | Paid-in-capital  old             |                                             |         | 934,958     |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |          |         
|                                                   | Paid-in-capital  new             |                                             |         |            |            |                     |        |          |        |            |         | 8,994      |           |   |         | 39,184  |         |   |        | 1,000    |         
|                                                   | Treasury stock                    |                                             |         | (3,275      | )          |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |          |         
|                                                   | Deferred compensation             |                                             |         | (860        | )          |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |          |         
|                                                   | Cumulative translation adjustment |                                             |         | (161,940    | )          |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |          |         
|                                                   | Accumulated deficit               |                                             |         | (4,239,423  | )          |                     |        |          |        |            |         | 2,434,243  |           |   |         |         |         |   |        | 101,598  |         
|                                                   |                                   |                                             |         |             |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |         
|                                                   |                                   | Total stockholders (deficit) equity        |         |             | (2,419,969 | )                   |        |          |       |            |         |            | 2,443,241 |   |         |         | 39,200  |   |        |          | 102,598  |  
|                                                   |                                   |                                             |         |             |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |         
|                                                   |                                   | $                                           | 919,142 |             |            | $                   | 25,000 |          |        | $          | (88,993 | )          |           | $ | 140,000 |         |         | $ | (5,000 | )       
|                                                   |                                   |                                             |         |             |            |                     |        |          |        |            |         |            |           |   |         |         |         |   |        |         

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                   |                                   |                                             |   |                |   |                |          |          |          |   |         |         |         | 
|-------------------------------------------------- | --------------------------------- | ------------------------------------------- | - | -------------- | - | -------------- | -------- | -------- | -------- | - | ------- | ------- | ------- | 
|                                                   |                                   |                                             |   |               
|                                                   |                                   | Elimination of Equity and Fresh             |   |               
|                                                   |                                   | Start Adjustments                           |   |               
|                                                   |                                   |                                             |   |               
|                                                   |                                   |                                             |   | Allocation of  |   | Post          
|                                                   |                                   | Equity                                      |   | Reorganization |   | Reorganization
|                                                   |                                   | Elimination                                 |   | Value          |   | Balance       
|ASSETS                                             |                                   |                                             |   |                |   |               
|                                                   |                                   |                                            
|                                                   |                                   | (in thousands)                             
|Current assets                                     |                                   |                                             |   |                |   |                |          |          |          |   |         |        
|                                                   | Cash and cash equivalents         |                                             | $ |               |   |                | $        |         |          |   | $       | 231,022 |        
|                                                   | Restricted cash                   |                                             |   |                |   |                |          |          |          |   |         |         |        
|                                                   | Accounts receivable, net          |                                             |   |                |   |                |          |          |          |   |         | 97,342  |        
|                                                   | Handset and accessory inventory   |                                             |   |                |   |                |          |          |          |   |         | 19,269  |        
|                                                   | Prepaid expenses and other        |                                             |   |                |   |                |          | (26,455  | )        |   |         | 37,319  |        
|                                                   |                                   |                                             |   |                |   |                |          |          |          |   |         |        
|                                                   |                                   | Total current assets                        |   |                |  |                |          |          | (26,455  | ) |         |         | 384,952 | 
|Property, plant and equipment, net                 |                                   |                                             |   |                |   |                | (149,450 | )        |          |   | 210,302 |        
|Intangible assets and other, net                   |                                   |                                             |   |                |   |                | 32,692   |          |          |   | 205,302 |        
|Other assets                                       |                                   |                                             |   |                |   |                | (18,374  | )        |          |   | 28,006  |        
|                                                   |                                   |                                             |   |                |   |                |          |          |          |   |         |        
|                                                   |                                   | $                                           |  |                |   | $              | (161,587 | )        |          | $ | 828,562 |        
|                                                   |                                   |                                             |   |                |   |                |          |          |          |   |         |        
|LIABILITIES AND STOCKHOLDERS (DEFICIT)
    EQUITY |                                   |                                             |   |                |   |                |          |          |          |   |         |        
|Current liabilities                                |                                   |                                             |   |                |   |                |          |          |          |   |         |        
|Accounts payable                                   |                                   | $                                           |  |                |   | $              |         |          |          | $ | 39,022  |        
|                                                   | Accrued expenses and other        |                                             |   |                |   |                |          | (2,600   | )        |   |         | 195,017 |        
|                                                   | Deferred revenues                 |                                             |   |                |   |                |          | (26,455  | )        |   |         | 20,480  |        
|                                                   | Accrued interest                  |                                             |   |                |   |                |          |          |          |   |         | 1,101   |        
|                                                   | Due to related parties            |                                             |   |                |   |                |          |          |          |   |         | 50,622  |        
|                                                   | Current portion of long-term debt |                                             |   |                |   |                |          |          |          |   |         |        |        
|                                                   |                                   |                                             |   |                |   |                |          |          |          |   |         |        
|                                                   |                                   | Total current liabilities                   |   |                |  |                |          |          | (29,055  | ) |         |         | 306,242 | 
|                                                   | Long-term debt                    |                                             |   |                |   |                |          |          |          |   |         | 428,993 |        
|                                                   | Deferred income taxes             |                                             |   |                |   |                |          | 1,714    |          |   |         | 4,373   |        
|                                                   | Deferred revenues and other       |                                             |   |                |   |                |          | (18,374  | )        |   |         | 39,756  |        
|                                                   |                                   |                                             |   |                |   |                |          |          |          |   |         |        
|                                                   |                                   | Total liabilities not subject to compromise |   |                |  |                |          |          | (45,715  | ) |         |         | 779,364 | 
|                                                   | Liabilities subject to compromise |                                             |   |                |   |                |          |          |          |   |         |        |        
|Stockholders (deficit) equity                     |                                   |                                             |   |                |   |                |          |          |          |   |         |        
|                                                   | Preferred stock                   |                                             |   | (1,050,300     | ) |                |          |          |          |   |         |        |        
|                                                   | Common stock  old                |                                             |   | (271           | ) |                |          |          |          |   |         |        |        
|                                                   | Common stock  new                |                                             |   |                |   |                |          |          |          |   |         | 20      |        
|                                                   | Paid-in-capital  old             |                                             |   | (934,958       | ) |                |          |          |          |   |         |        |        
|                                                   | Paid-in-capital  new             |                                             |   |                |   |                |          |          |          |   |         | 49,178  |        
|                                                   | Treasury stock                    |                                             |   | 3,275          |   |                |          |          |          |   |         |        |        
|                                                   | Deferred compensation             |                                             |   | 860            |   |                |          |          |          |   |         |        |        
|                                                   | Cumulative translation adjustment |                                             |   | 161,940        |   |                |          |          |          |   |         |        |        
|                                                   | Accumulated deficit               |                                             |   | 1,819,454      |   |                |          | (115,872 | )        |   |         |        |        
|                                                   |                                   |                                             |   |                |   |                |          |          |          |   |         |        
|                                                   |                                   | Total stockholders (deficit) equity        |   |                |  |                |          |          | (115,872 | ) |         |         | 49,198  | 
|                                                   |                                   |                                             |   |                |   |                |          |          |          |   |         |        
|                                                   |                                   | $                                           |  |                |   | $              | (161,587 | )        |          | $ | 828,562 |        
|                                                   |                                   |                                             |   |                |   |                |          |          |          |   |         |        

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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

1.     Summary of
Operations and Reorganization  (Continued)

This balance sheet does not reflect the remaining
$25.0 million in proceeds we expect to receive under our
new spectrum use and build-out agreement with Nextel
Communications because the remaining $25.0 million will not
be paid until the sooner of when network construction costs have
been incurred or 18 months.

2. Significant Accounting
Policies

Use of Estimates.The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States requires us to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Due to the
inherent uncertainty involved in making those estimates, actual
results to be reported in future periods could differ from those
estimates.

We are subject to the laws and regulations
governing telecommunication services in effect in each of the
countries in which we operate. These laws and regulations can
have a significant influence on our results of operations and
are subject to change by the responsible governmental agencies.
The financial statements as presented reflect certain
assumptions based on laws and regulations currently in effect in
each of the countries. We cannot predict what future laws and
regulations might be passed that could have a material effect on
our results of operations. We assess the impact of significant
changes in laws and regulations on a regular basis and update
the assumptions used to prepare our financial statements
accordingly.

Principles of Consolidation.The consolidated financial statements
include the accounts of NII Holdings, Inc. and our wholly-owned
subsidiaries. Our decision to consolidate an entity is based on
our direct and indirect ownership of a majority interest in the
entity. We have eliminated all significant intercompany
transactions and balances in consolidation.

We refer to our majority owned subsidiaries with
reference to the countries in which they operate, such as Nextel
Mexico, Nextel Brazil, Nextel Peru and Nextel Argentina, as well
as Nextel Philippines, which we sold in November 2002.

We use the equity method to account for
unconsolidated investments in companies in which we exercise
significant influence over operating and financial policies but
do not have a controlling interest.

We present the accounts of our consolidated
foreign operating companies utilizing accounts as of a date one
month earlier than the accounts of our U.S. subsidiaries to
ensure timely reporting of consolidated results.

Foreign Currency.Results of operations for our
non-U.S. subsidiaries and affiliates are translated from
the designated functional currency to the U.S. dollar using
average exchange rates during the period, while assets and
liabilities are translated at the exchange rate in effect at the
reporting date. Resulting gains or losses from translating
foreign currency financial statements are reported as other
comprehensive (loss) income.

During 2001, the Brazilian currency, the real,
significantly decreased in value relative to the
U.S. dollar. As a result, during 2001, Nextel Brazil
recorded a pre-tax charge of about $62.5 million in foreign
currency transaction losses. In addition, during 2001, Nextel
Brazil recorded negative translation adjustments of about
$114.9 million as other comprehensive loss in
stockholders (deficit) equity based on the applicable
exchange rates.

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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



2. Significant Accounting
Policies  (Continued)


We report the effects of changes in exchange
rates associated with U.S. dollar-denominated intercompany
loans to our foreign subsidiaries that are of a long-term
investment nature as part of the cumulative foreign currency
translation adjustment in our consolidated financial statements.
In August 2001, we determined that a portion of the
U.S. dollar-denominated intercompany loans to Nextel Brazil
are of a long-term investment nature. We report impacts of
changes in the Brazilian real to the U.S. dollar exchange
rate on the portion of the loans determined to be long-term as
part of the cumulative foreign currency translation adjustment
in our consolidated financial statements. Prior to August 2001,
we reported the effects of changes in exchange rates on all
intercompany loans to Nextel Brazil as foreign currency
transaction (losses) gains, net in our consolidated statements
of operations.

During the ten months ended October 31,
2002, the Argentine currency, the peso, significantly decreased
in value relative to the U.S. dollar. As a result, for the
ten months ended October 31, 2002 Nextel Argentina recorded
a pre-tax charge of $137.8 million in foreign currency
transaction losses. Nextel Argentinas exposure to foreign
currency transaction losses was minimized significantly as a
result of our purchase of their U.S. dollar-denominated
credit facilities in November 2002.

Cash and Cash Equivalents.We consider all highly liquid
investments with an original maturity of three months or less at
the time of purchase to be cash equivalents. As of
December 31, 2001, a portion of our cash and cash
equivalents held by Nextel Brazil and Nextel Argentina was not
available to fund any of the cash needs of NII Holdings or any
of our other subsidiaries due to debt covenants contained in
agreements related to those operations. The portion of our cash
and cash equivalents limited for use in Nextel Brazil and Nextel
Argentina was $22.3 million as of December 31, 2001.
Since these debt covenants are not contained in the agreements
related to our new debt facilities, there were no cash and cash
equivalents limited for use as of December 31, 2002.

Restricted Cash.Restricted cash represents cash that
we placed in escrow to fund some debt obligations, which was not
available to fund any of the other cash needs of NII Holdings or
any of our subsidiaries. In connection with the reinstatement of
our Motorola credit facilities as discussed in Note 4, we
are no longer required to maintain cash in escrow for debt
service.

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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



2. Significant Accounting
Policies  (Continued)


Supplemental
Cash Flow Information.

|                                                                                                 |                                                                                                            |              |        |                     |   |                         |         |         |   |   |         |         |   |   |         |         |  
|------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------- | ------------ | ------ | ------------------- | - | ----------------------- | ------- | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                 |                                                                                                            |              |        |                    
|                                                                                                 |                                                                                                            |              |        | Predecessor Company
|                                                                                                 |                                                                                                            | Successor    |        |                    
|                                                                                                 |                                                                                                            | Company Two  |        | Ten Months          |   |                        
|                                                                                                 |                                                                                                            | Months Ended |        | Ended               |   | Year Ended December 31,
|                                                                                                 |                                                                                                            | December 31, |        | October 31,         |   |                        
|                                                                                                 |                                                                                                            | 2002         |        | 2002                |   | 2001                    |         | 2000   
|                                                                                                 |                                                                                                            |              |        |                     |   |                         |         |        
|                                                                                                 |                                                                                                            |              |        |                     |   |                        
|                                                                                                 |                                                                                                            |              |        | (in thousands)      |   |                        
|Capital expenditures                                                                             |                                                                                                            |              |        |                     |   |                         |         |         |   |   |         |         |   |   |         |        
|                                                                                                 | Cash paid for capital expenditures, including
    capitalized interest                                     |              | $      | 25,683              |   |                         | $       | 199,682 |   |   | $       | 644,977 |   |   | $       | 368,732 |  
|                                                                                                 | Change in capital expenditures accrued and unpaid
    or financed, including accreted interest capitalized |              |        | (949                | ) |                         |         | (49,860 | ) |   |         | 22,854  |   |   |         | 225,205 |  
|                                                                                                 |                                                                                                            |              |        |                     |   |                         |         |         |   |   |         |         |   |   |         |        
|                                                                                                 |                                                                                                            |              | 24,734 |                     |   |                         | 149,822 |         |   |   | 667,831 |         |   |   | 593,937 |        
|                                                                                                 | Capital expenditures from discontinued operations                                                          |              |        | (205                | ) |                         |         | (1,606  | ) |   |         | (39,110 | ) |   |         | (6,652  | )
|                                                                                                 |                                                                                                            |              |        |                     |   |                         |         |         |   |   |         |         |   |   |         |        
|                                                                                                 | Capital expenditures from continuing operations                                                            |              | $      | 24,529              |   |                         | $       | 148,216 |   |   | $       | 628,721 |   |   | $       | 587,285 |  
|                                                                                                 |                                                                                                            |              |        |                     |   |                         |         |         |   |   |         |         |   |   |         |        
|Interest costs                                                                                   |                                                                                                            |              |        |                     |   |                         |         |         |   |   |         |         |   |   |         |        
|                                                                                                 | Interest expense                                                                                           |              | $      | 10,469              |   |                         | $       | 151,579 |   |   | $       | 297,228 |   |   | $       | 237,743 |  
|                                                                                                 | Interest capitalized                                                                                       |              |        | 971                 |   |                         |         | 8,239   |   |   |         | 42,927  |   |   |         | 26,513  |  
|                                                                                                 |                                                                                                            |              |        |                     |   |                         |         |         |   |   |         |         |   |   |         |        
|                                                                                                 |                                                                                                            | $            | 11,440 |                     |   | $                       | 159,818 |         |   | $ | 340,155 |         |   | $ | 264,256 |        
|                                                                                                 |                                                                                                            |              |        |                     |   |                         |         |         |   |   |         |         |   |   |         |        
|Acquisitions                                                                                     |                                                                                                            |              |        |                     |   |                         |         |         |   |   |         |         |   |   |         |        
|                                                                                                 | Fair value of assets acquired                                                                              |              | $      |                    |   |                         | $       |        |   |   | $       |        |   |   | $       | 603,876 |  
|                                                                                                 | Less liabilities assumed                                                                                   |              |        |                    |   |                         |         |        |   |   |         |        |   |   |         | (95,866 | )
|                                                                                                 | Less cash acquired                                                                                         |              |        |                    |   |                         |         |        |   |   |         |        |   |   |         | (3,468  | )
|                                                                                                 |                                                                                                            |              |        |                     |   |                         |         |         |   |   |         |         |   |   |         |        
|                                                                                                 |                                                                                                            | $            |       |                     |   | $                       |        |         |   | $ |        |         |   | $ | 504,542 |        
|                                                                                                 |                                                                                                            |              |        |                     |   |                         |         |         |   |   |         |         |   |   |         |        
|Cash paid for interest                                                                           |                                                                                                            | $            | 1,488  |                     |   | $                       | 49,105  |         |   | $ | 142,043 |         |   | $ | 82,131  |        
|                                                                                                 |                                                                                                            |              |        |                     |   |                         |         |         |   |   |         |         |   |   |         |        
|Cash paid for income taxes                                                                       |                                                                                                            | $            | 536    |                     |   | $                       | 2,230   |         |   | $ | 2,785   |         |   | $ | 1,780   |        
|                                                                                                 |                                                                                                            |              |        |                     |   |                         |         |         |   |   |         |         |   |   |         |        
|Cash paid for reorganization items                                                               |                                                                                                            | $            | 216    |                     |   | $                       | 18,299  |         |   | $ |        |         |   | $ |        |        
|                                                                                                 |                                                                                                            |              |        |                     |   |                         |         |         |   |   |         |         |   |   |         |        
|Cash received from sales placed directly into
    escrow                                         |                                                                                                            | $            |       |                     |   | $                       |        |         |   | $ | 57,372  |         |   | $ |        |        
|                                                                                                 |                                                                                                            |              |        |                     |   |                         |         |         |   |   |         |         |   |   |         |        
|Credit for equipment purchases received in
    exchange for sale of ownership interest in NEXNET |                                                                                                            | $            |       |                     |   | $                       |        |         |   | $ | 6,500   |         |   | $ |        |        
|                                                                                                 |                                                                                                            |              |        |                     |   |                         |         |         |   |   |         |         |   |   |         |        

Prepaid Expenses and Other.Prepaid expenses and other include
refundable value added taxes of $16.5 million as of
December 31, 2002 and $20.7 million at
December 31, 2001.

Handset and Accessory Inventory.We value handsets and accessories at
the lower of cost or market. We determine cost by the weighted
average method. We expense handset costs at the time of sale.
See Customer Related Direct Costs below for
additional information.

Property, Plant and Equipment.We record property, plant and
equipment, including improvements that extend useful lives, at
cost, while maintenance and repairs are charged to operations as
incurred. We calculate depreciation using the straight-line
method based on estimated useful lives of 3 to 20 years for
digital mobile network equipment and software and 3 to
10 years for office equipment, furniture and

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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



2. Significant Accounting
Policies  (Continued)


fixtures, and other. We amortize leasehold
improvements over the shorter of the lease terms or the useful
lives of the improvements.

Construction in progress includes labor,
materials, transmission and related equipment, engineering, site
development, interest and other costs relating to the
construction and development of our digital wireless networks.
Assets under construction are not depreciated until placed into
service. We capitalize interest and other costs that are
applicable to the construction of, and significant improvements
to, our digital mobile network equipment.

We periodically review the depreciation method,
useful lives and estimated salvage value of our property, plant
and equipment and revise those estimates if current estimates
are significantly different from previous estimates.

Investments.We
classify investments in marketable equity securities as
available-for-sale as of the balance sheet date and report them
at fair value. We record unrealized gains and losses, net of
income tax, as other comprehensive (loss) income. We report
realized gains or losses, as determined on a specific
identification basis, and other-than-temporary declines in
value, if any, on available-for-sale securities in realized
(losses) gains on investments. We record investments in
privately held companies at cost, adjusted for
other-than-temporary declines in value, if any, because they do
not have readily determinable fair values.

We assess declines in the value of individual
investments to determine whether the decline is
other-than-temporary and thus the investment is impaired. We
make this assessment by considering available evidence,
including changes in general market conditions, specific
industry and individual company data, the length of time and the
extent to which the market value has been less than cost, the
financial condition and near-term prospects of the individual
company and our intent and ability to hold the investment.

Intangible Assets.We amortize our intangible assets
using the straight-line method over the estimated period
benefited. We amortize all of our licenses over their estimated
useful lives of 20 years. In the countries in which we
operate, licenses are customarily issued conditionally for
specified periods of time. The licenses are generally renewable
provided the licensee has complied with applicable rules and
policies. We believe we have complied with these standards in
all material respects.

We amortize our customer bases over their
respective estimated useful lives, generally two to three years.
We amortize the Nextel tradename in each of the countries in
which we operate over the estimated remaining useful lives of
our licenses as of October 31, 2002, generally 16 to
17 years. We amortize our debt financing costs as interest
expense over the term of the underlying obligations.

Valuation of Long-Lived Assets.We review long-lived assets such as
property, plant and equipment and identifiable intangibles 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. See Note 3, Impairment, Restructuring and
Other Charges, for a description of asset impairment
charges recognized during 2002 and 2001.

Revenue Recognition.Operating revenues primarily consist
of wireless service revenues and revenues generated from the
sale of digital handsets and accessories. Service revenues
primarily include fixed monthly access charges for digital
mobile telephone service and digital two-way radio and other
services, revenues from calling party pays programs and variable
charges for airtime and digital two-way radio usage in excess of
plan minutes and long-distance charges derived from calls placed
by our customers.

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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



2. Significant Accounting
Policies  (Continued)


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. We
recognize excess usage, calling party pays and long-distance
revenue at contractual rates per minute as minutes are used. We
recognize revenue from accessory sales when title and risk of
loss passes upon delivery of the accessory to the customer. We
establish an allowance for doubtful accounts receivable
sufficient to cover probable and reasonably estimable losses.

We bill excess usage to our customers in arrears.
In order to recognize the revenues originated from excess usage,
we estimate the unbilled portion based on the usage that the
handset had during the part of the month already billed, and we
use the actual usage to estimate the usage for the rest of the
month taking into consideration working days and seasonality.
Our estimates are based on our experience in each market. We
periodically evaluate our estimation methodology and process by
comparing our estimates to actual excess usage revenue billed
the following month. As a result, actual usage could differ from
our estimates.

Prior to January 2000, we recognized sales and
the related costs of handsets sold when title passed to the
customer. In January 2000, we changed our revenue and handset
cost recognition policy in accordance with Staff Accounting
Bulletin, or SAB, No. 101, Revenue Recognition in
Financial Statements. From January 1, 2000 through
October 31, 2002, we recognized revenue from handset sales
on a straight-line basis over the expected customer relationship
periods of up to four years, starting when the customer took
title. We accounted for the adoption of SAB No. 101 as a
change in accounting principle effective January 1, 2000.
As a result of our adoption of SAB No. 101, we recognized
revenues from digital handset sales and equal amounts of cost of
revenues during the following periods that are attributable to
handset sales previously reported prior to 2000 as follows:

|                    |       |              |  |      |       |  |  |   |        | 
|------------------- | ----- | ------------ |  | ---- | ----- |  |  | - | ------ | 
|                   
|Predecessor Company
|                   
|                    |       |             
|Ten Months          |       | Year Ended  
|Ended               |       | December 31,
|October 31,         |       |             
|2002                |       | 2001         |  | 2000
|                    |       |              |  |     
|                   
|(in thousands)     
|$                   | 1,571 |              |  | $    | 8,387 |  |  | $ | 14,357 | 
|                    |       |              |  |      |       |  |  |   |        | 

Effective November 1, 2002, in connection
with our adoption of fresh-start accounting in accordance with
SOP 90-7, we revised our revenue recognition policy for
handset sales as a result of our adoption of Emerging Issues
Task Force, or EITF, Issue No. 00-21, Accounting for
Revenue Arrangements with Multiple Deliverables. We
believe that we meet the criteria contained in EITF
No. 00-21 for separately accounting for sales of our
handsets, namely, our handsets have value to the customer on a
standalone basis; there is objective and reliable evidence of
the fair value of the wireless service that we will provide; and
delivery of wireless service is probable and substantially in
our control. As a result, we now recognize all revenue from
sales and related cost of sales of handsets when title and risk
of loss passes to the customer. This change did not impact our
operating income for the two months ended December 31, 2002
and will not change operating income in future periods.

Customer Related Direct Costs.From January 1, 2000 to
October 31, 2002, we recognized the costs of handset sales
over the expected customer relationship periods of up to four
years. Other customer related costs in excess of the revenue
generated from handset sales, such as handset subsidies,
commissions, and fulfillment costs, were expensed at the time of
sale as these amounts exceeded the minimum contractual revenues.
Minimum contractual revenues were limited to the revenue
generated from handset sales as our history of enforcing
cancellation fee provisions where contracts exist with
terminating

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



2. Significant Accounting
Policies  (Continued)


customers was insufficient. In accordance with
our change in accounting policy, on November 1, 2002, we
now recognize all costs of handset sales when title and risk of
loss passes to the customer.

Stock-Based Compensation.As of December 31, 2002, we had
one stock-based employee compensation plan, which is described
more fully in Note 14. We account for this plan under the
recognition and measurement principles of Accounting Principles
Board, or APB, Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations. 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 common stock and the
relevant exercise price. We account for stock-based compensation
to non-employees at fair value using a Black-Scholes option
pricing model in accordance with the provisions of Statement of
Financial Accounting Standards, or SFAS, No. 123,
Accounting for Stock-Based Compensation, and other
applicable accounting principles. The following table
illustrates the effect on net income (loss) and income (loss)
per share if we had applied the fair value recognition
provisions of SFAS No. 123 to all stock-based employee
compensation and recognized compensation expense ratably over
the vesting period.

|                               |                                                                                                                                             |                                       |        |                     |   |                         |           |         |   |   |            |         |   |   |          |         |  
|------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | ------ | ------------------- | - | ----------------------- | --------- | ------- | - | - | ---------- | ------- | - | - | -------- | ------- | -
|                               |                                                                                                                                             |                                       |        |                    
|                               |                                                                                                                                             | Successor                             |        | Predecessor Company
|                               |                                                                                                                                             | Company                               |        |                    
|                               |                                                                                                                                             | Two Months                            |        | Ten Months          |   |                        
|                               |                                                                                                                                             | Ended                                 |        | Ended               |   | Year Ended December 31,
|                               |                                                                                                                                             | December 31,                          |        | October 31,         |   |                        
|                               |                                                                                                                                             | 2002                                  |        | 2002                |   | 2001                    |           | 2000   
|                               |                                                                                                                                             |                                       |        |                     |   |                         |           |        
|                               |                                                                                                                                             |                                      
|                               |                                                                                                                                             | (in thousands, except per share data)
|Net income (loss), as reported |                                                                                                                                             | $                                     | 42,566 |                     |   | $                       | 1,955,043 |         |   | $ | (2,497,321 | )       |   | $ | (478,540 | )      
|Add:                           |                                                                                                                                             |                                       |        |                     |   |                         |           |         |   |   |            |         |   |   |          |        
|                               | Total stock-based employee compensation expense,
    net of related tax effects, included in net income (loss), as
    reported             |                                       |        |                    |   |                         |           |        |   |   |            |        |   |   |          |        |  
|Deduct:                        |                                                                                                                                             |                                       |        |                     |   |                         |           |         |   |   |            |         |   |   |          |        
|                               | Total stock-based employee compensation expense
    determined under fair value-based method for all awards, net of
    related tax effects |                                       |        | (812                | ) |                         |           | (23,767 | ) |   |            | (40,293 | ) |   |          | (32,092 | )
|                               |                                                                                                                                             |                                       |        |                     |   |                         |           |         |   |   |            |         |   |   |          |        
|Pro forma net income (loss)    |                                                                                                                                             | $                                     | 41,754 |                     |   | $                       | 1,931,276 |         |   | $ | (2,537,614 | )       |   | $ | (510,632 | )      
|                               |                                                                                                                                             |                                       |        |                     |   |                         |           |         |   |   |            |         |   |   |          |        
|Income (loss) per share:       |                                                                                                                                             |                                       |        |                     |   |                         |           |         |   |   |            |         |   |   |          |        
|                               | Basic  as reported                                                                                                                         |                                       | $      | 2.13                |   |                         | $         | 7.23    |   |   | $          | (9.22   | ) |   | $        | (1.93   | )
|                               |                                                                                                                                             |                                       |        |                     |   |                         |           |         |   |   |            |         |   |   |          |        
|                               | Basic  pro forma                                                                                                                           |                                       | $      | 2.09                |   |                         | $         | 7.14    |   |   | $          | (9.37   | ) |   | $        | (2.06   | )
|                               |                                                                                                                                             |                                       |        |                     |   |                         |           |         |   |   |            |         |   |   |          |        
|                               | Diluted  as reported                                                                                                                       |                                       | $      | 2.01                |   |                         | $         | 7.23    |   |   | $          | (9.22   | ) |   | $        | (1.93   | )
|                               |                                                                                                                                             |                                       |        |                     |   |                         |           |         |   |   |            |         |   |   |          |        
|                               | Diluted  pro forma                                                                                                                         |                                       | $      | 1.97                |   |                         | $         | 7.14    |   |   | $          | (9.37   | ) |   | $        | (2.06   | )
|                               |                                                                                                                                             |                                       |        |                     |   |                         |           |         |   |   |            |         |   |   |          |        

Advertising Costs.We expense costs related to
advertising and other promotional expenditures as incurred.
Advertising costs totaled about $4.7 million during the two
months ended December 31, 2002, $25.6 million during
the ten months ended October 31, 2002, $51.2 million
during 2001 and $31.1 million during 2000.

Income Taxes.We
determine deferred tax assets and liabilities based on the
temporary differences between the financial reporting and tax
bases of assets and liabilities, applying enacted statutory tax
rates in effect for the year in which the differences are
expected to reverse. Future tax benefits, such as net

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



2. Significant Accounting
Policies  (Continued)


operating loss carryforwards, are recognized to
the extent that realization of such benefits is considered to be
more likely than not.

Income (Loss) Per Share Attributable to Common
Stockholders, Basic and Diluted.Basic
income (loss) per share attributable to common stockholders
includes no dilution and is computed by dividing the income
(loss) attributable to common stockholders by the weighted
average number of common shares outstanding for the period.
Diluted income (loss) per share attributable to common
stockholders reflects the potential dilution of securities that
could participate in our earnings. As of October 31, 2002,
none of our common stock equivalents had an exercise price less
than the fair value of our common stock. As presented for the
years ended December 31, 2001 and 2000, our basic and
diluted income (loss) per share attributable to common
stockholders is based on the weighted average number of common
shares outstanding during the period and does not include other
potential common shares, including shares issuable upon exercise
of options, warrants or conversion rights, since their effect
would be antidilutive to our losses. Our weighted average number
of common shares outstanding for the ten months ended
October 31, 2002 and years ended December 31, 2001 and
2000 reflects the effect of the 4-for-1 and 3-for-2 common stock
splits described in Note 13.

The following table provides a reconciliation of
the numerators and denominators used to calculate basic and
diluted income per share as disclosed in our consolidated
statements of operations for the two months ended
December 31, 2002:

|                               |                                         |                                       |        |               |  |           |  |        |  |  |   |      | 
|------------------------------ | --------------------------------------- | ------------------------------------- | ------ | ------------- |  | --------- |  | ------ |  |  | - | ---- | 
|                               |                                         | Income                                |        | Shares        |  | Per Share
|                               |                                         | (Numerator)                           |        | (Denominator) |  | Amount   
|                               |                                         |                                       |        |               |  |          
|                               |                                         |                                      
|                               |                                         | (in thousands, except per share data)
|Net income                     |                                         | $                                     | 42,566 |               |  |           |  |        |  |  |   |     
|Basic income per share:        |                                         |                                       |        |               |  |           |  |        |  |  |   |     
|                               | Income available to common stockholders |                                       |        | 42,566        |  |           |  | 20,000 |  |  | $ | 2.13 | 
|                               |                                         |                                       |        |               |  |           |  |        |  |  |   |     
|Effect of dilutive securities: |                                         |                                       |        |               |  |           |  |        |  |  |   |     
|                               | Stock options                           |                                       |        |              |  |           |  | 1,143  |  |  |   |      | 
|                               |                                         |                                       |        |               |  |           |  |        |  |  |   |     
|Diluted income per share:      |                                         |                                       |        |               |  |           |  |        |  |  |   |     
|                               | Income available to common stockholders |                                       | $      | 42,566        |  |           |  | 21,143 |  |  | $ | 2.01 | 
|                               |                                         |                                       |        |               |  |           |  |        |  |  |   |     

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



2. Significant Accounting
Policies  (Continued)


The following table provides a reconciliation of
income (loss) from continuing operations to loss attributable to
common stockholders, which is used to calculate net income
(loss) per common share, basic and diluted:

|                                                                                                  |  |                |        |                     |  |                         |           |      |  |   |            |   |  |   |          |  
|------------------------------------------------------------------------------------------------- |  | -------------- | ------ | ------------------- |  | ----------------------- | --------- | ---- |  | - | ---------- | - |  | - | -------- | -
|                                                                                                  |  |                |        |                    
|                                                                                                  |  | Successor      |        | Predecessor Company
|                                                                                                  |  | Company        |        |                    
|                                                                                                  |  | Two Months     |        | Ten Months          |  |                        
|                                                                                                  |  | Ended          |        | Ended               |  | Year Ended December 31,
|                                                                                                  |  | December 31,   |        | October 31,         |  |                        
|                                                                                                  |  | 2002           |        | 2002                |  | 2001                    |           | 2000
|                                                                                                  |  |                |        |                     |  |                         |           |     
|                                                                                                  |  |               
|                                                                                                  |  | (in thousands)
|Income (loss) from continuing
    operations                                                      |  | $              | 22,901 |                     |  | $                       | 1,957,320 |      |  | $ | (2,309,840 | ) |  | $ | (357,782 | )
|Accretion of series A exchangeable
    redeemable preferred stock to liquidation preference value |  |                |       |                     |  |                         |          |      |  |   |           |   |  |   | (61,334  | )
|                                                                                                  |  |                |        |                     |  |                         |           |      |  |   |            |   |  |   |          |  
|Income (loss) from continuing operations
    attributable to common stockholders                  |  |                | 22,901 |                     |  |                         | 1,957,320 |      |  |   | (2,309,840 | ) |  |   | (419,116 | )
|Income (loss) from discontinued operations                                                        |  |                | 19,665 |                     |  |                         | (2,277    | )    |  |   | (187,481   | ) |  |   | (59,424  | )
|                                                                                                  |  |                |        |                     |  |                         |           |      |  |   |            |   |  |   |          |  
|Income (loss) attributable to common
    stockholders                                             |  | $              | 42,566 |                     |  | $                       | 1,955,043 |      |  | $ | (2,497,321 | ) |  | $ | (478,540 | )
|                                                                                                  |  |                |        |                     |  |                         |           |      |  |   |            |   |  |   |          |  

Reclassifications.We have reclassified some prior period
amounts to conform to our current year presentation.

Concentrations of Risk.Substantially all of our revenues are
generated from our operations located in Mexico, Brazil, Peru
and Argentina. Regulatory entities in each country regulate the
licensing, construction, acquisition, ownership and operation of
our digital mobile networks, and certain other aspects of our
business, including the rates we charge our customers. Changes
in the current telecommunications statutes or regulations in any
of these countries could adversely affect our business. In
addition, as of December 31, 2002, about
$711.3 million of our assets are owned by our operating
companies in Mexico, Brazil, Peru and Argentina. Political,
financial and economic developments in any of these countries
could impact the recoverability of our assets.

Motorola is currently our sole source for the
digital mobile network equipment, software and handsets used
throughout our markets. If Motorola fails to deliver system
infrastructure, handsets or necessary technology improvements
and enhancements on a timely, cost-effective basis, we may not
be able to adequately service our existing customers or add new
customers. We expect to rely principally on Motorola or its
licensees for the manufacture of our handsets and a substantial
portion of the equipment necessary to construct, enhance and
maintain our digital mobile networks for the next several years.

New Accounting Pronouncements.In June 2001, the Financial Accounting
Standards Board, or FASB, issued SFAS No. 141,
Business Combinations, which addresses the
accounting and reporting for business combinations and broadens
the criteria for recording intangible assets separate from
goodwill. On July 1, 2001, we adopted SFAS No. 141,
which eliminates the pooling of interest method and requires us
to use the purchase method of accounting for all business
combinations initiated after June 30, 2001. As required by
fresh-start accounting rules contained in SOP 90-7 and
further described in Note 1, we applied the provisions of
SFAS No. 141 on October 31, 2002 to adjust the
carrying values of our assets and liabilities to their estimated
fair values.

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



2. Significant Accounting
Policies  (Continued)


In June 2001, the FASB issued SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS
No. 142 requires that we no longer amortize goodwill and
intangible assets with indefinite useful lives, but rather test
them for impairment at least annually. It also requires that we
continue to amortize intangible assets that have finite lives
over their estimated useful lives and that we evaluate their
estimated remaining useful lives and residual values each
reporting period.

Effective January 1, 2002, we applied the
provisions of SFAS No. 142 to all goodwill and intangible
assets recognized on our financial statements at that date.
Since we wrote off the entire balance of our goodwill as of
December 31, 2001 and determined that our licenses and
customer bases have finite useful lives, we were not required to
and did not perform an impairment test on our intangible assets.
Further, we determined that the estimated remaining useful lives
and residual values of our intangible assets did not require
adjustments. As a result, the adoption of SFAS No. 142 on
January 1, 2002 did not have a material impact on our
financial position or results of operations.

Had we adopted SFAS No. 142 effective
January 1, 2000 and accordingly not amortized goodwill for
the years ended December 31, 2001 and 2000, our net loss
and basic and diluted consolidated loss per share attributable
to common stock would have been as follows:

|                                                  |                                               |                                          |        |                     |  |                         |           |           |  |   |            |            |   |   |          |          |  
|------------------------------------------------- | --------------------------------------------- | ---------------------------------------- | ------ | ------------------- |  | ----------------------- | --------- | --------- |  | - | ---------- | ---------- | - | - | -------- | -------- | -
|                                                  |                                               |                                          |        |                    
|                                                  |                                               | Successor                                |        | Predecessor Company
|                                                  |                                               | Company                                  |        |                    
|                                                  |                                               | Two Months                               |        | Ten Months          |  |                        
|                                                  |                                               | Ended                                    |        | Ended               |  | Year Ended December 31,
|                                                  |                                               | December 31,                             |        | October 31,         |  |                        
|                                                  |                                               | 2002                                     |        | 2002                |  | 2001                    |           | 2000     
|                                                  |                                               |                                          |        |                     |  |                         |           |          
|                                                  |                                               |                                         
|                                                  |                                               | (in thousands, except per share amounts)
|Net income (loss) as reported                     |                                               | $                                        | 42,566 |                     |  | $                       | 1,955,043 |           |  | $ | (2,497,321 | )          |   | $ | (478,540 | )       
|Add back: Amortization of goodwill                |                                               |                                          |       |                     |  |                         |          |           |  |   | 7,986      |            |   |   | 1,836    |         
|                                                  |                                               |                                          |        |                     |  |                         |           |           |  |   |            |            |   |   |          |         
|                                                  | Adjusted net income (loss)                    |                                          | $      | 42,566              |  |                         | $         | 1,955,043 |  |   | $          | (2,489,335 | ) |   | $        | (476,704 | )
|                                                  |                                               |                                          |        |                     |  |                         |           |           |  |   |            |            |   |   |          |         
|Net income (loss) per share, basic, as reported   |                                               | $                                        | 2.13   |                     |  | $                       | 7.23      |           |  | $ | (9.22      | )          |   | $ | (1.93    | )       
|Amortization of goodwill                          |                                               |                                          |       |                     |  |                         |          |           |  |   | .03        |            |   |   | .01      |         
|                                                  |                                               |                                          |        |                     |  |                         |           |           |  |   |            |            |   |   |          |         
|                                                  | Adjusted net income (loss) per share, basic   |                                          | $      | 2.13                |  |                         | $         | 7.23      |  |   | $          | (9.19      | ) |   | $        | (1.92    | )
|                                                  |                                               |                                          |        |                     |  |                         |           |           |  |   |            |            |   |   |          |         
|Net income (loss) per share, diluted, as reported |                                               | $                                        | 2.01   |                     |  | $                       | 7.23      |           |  | $ | (9.22      | )          |   | $ | (1.93    | )       
|Amortization of goodwill                          |                                               |                                          |       |                     |  |                         |          |           |  |   | .03        |            |   |   | .01      |         
|                                                  |                                               |                                          |        |                     |  |                         |           |           |  |   |            |            |   |   |          |         
|                                                  | Adjusted net income (loss) per share, diluted |                                          | $      | 2.01                |  |                         | $         | 7.23      |  |   | $          | (9.19      | ) |   | $        | (1.92    | )
|                                                  |                                               |                                          |        |                     |  |                         |           |           |  |   |            |            |   |   |          |         

In August 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143, which must be applied to
fiscal years beginning after June 15, 2002, addresses
financial accounting and reporting for obligations arising from
the retirement of tangible long-lived assets and the associated
asset retirement costs. In accordance with SOP 90-7, we
adopted SFAS No. 143 in conjunction with our application of
fresh-start accounting on October 31, 2002. The adoption of
SFAS No. 143 did not have a material impact on our
financial position or results of operations.

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which requires that one accounting
model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. It also
broadens the presentation of discontinued operations to include
more disposal transactions. We adopted SFAS No. 144 on
January 1,

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



2. Significant Accounting
Policies  (Continued)


2002. As discussed further in Note 5, we
reported the results of operations of Nextel Philippines, which
we sold in November 2002, as discontinued operations in our
consolidated statements of operations in accordance with SFAS
No. 144. In addition, as further discussed in Note 3,
we wrote down the long-lived assets of Nextel Argentina to their
estimates fair values in accordance with SFAS No. 144. The
adoption of SFAS No. 144 did not have any other impact on
our financial position or results of operations during 2002.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 requires us to classify
gains and losses from extinguishments of debt as extraordinary
items only if they meet the criteria for such classification in
Accounting Principles Board Opinion No. 30, Reporting
the Results of Operations, Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. These
provisions are effective January 1, 2003. Any gain or loss
on extinguishment of debt classified as an extraordinary item in
prior periods that does not meet the criteria for such
classification must be reclassified to other income or expense.
Additionally, SFAS No. 145 requires sale-leaseback
accounting for certain lease modifications that have economic
effects similar to sale-leaseback transactions. In accordance
with SOP 90-7, we adopted SFAS No. 145 in conjunction
with our application of fresh-start accounting on
October 31, 2002. As a result, we recognized the net gain
from the extinguishment of our senior notes as reorganization
items, net, and classified the gain we recognized on the
extinguishment of our Argentine credit facilities in other
income, rather than an extraordinary item, in our consolidated
statement of operations for the ten months ended
October 31, 2002. The adoption of SFAS No. 145 did not
have any other impact on our financial position or results of
operations during 2002.

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an
exit or disposal plan. Examples of costs covered by the standard
include lease termination costs and certain employee severance
costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity.
These provisions are effective for exit or disposal activities
initiated after December 31, 2002. In accordance with
SOP 90-7, we adopted SFAS No. 146 in conjunction with
our application of fresh-start accounting on October 31,
2002. Since we did not have any exit or disposal activities
initiated after October 31, 2002, the adoption of SFAS
No. 146 did not have a material impact on our financial
position or results of operations.

In November 2002, the FASB issued FASB
Interpretation, or FIN, No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, which we
adopted on October 31, 2002 in accordance with
SOP 90-7. FIN No. 45 elaborates on the disclosures to
be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that
it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the
guarantee. However, a liability does not have to be recognized
for a parents guarantee of its subsidiarys debt to a
third party or a subsidiarys guarantee of the debt owed to
a third party by either its parent or another subsidiary of that
parent. Since all of our guarantees are between parent and
subsidiaries, the liability recognition provisions of FIN
No. 45 did not have a material impact on our financial
position or results of operations. We have included the required
disclosures related to these guarantees in Note 4.

In November 2002, the Emerging Issues Task
Force, or EITF, reached a consensus on Issue No. 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables, addressing how to account for arrangements
that involve the delivery or performance of multiple products,
services, and/or

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



2. Significant Accounting
Policies  (Continued)


rights to use assets. Revenue arrangements with
multiple deliverables are divided into separate units of
accounting if the deliverables in the arrangement meet the
following criteria: (1) the delivered item has value to the
customer on a standalone basis; (2) there is objective and
reliable evidence of the fair value of undelivered items; and
(3) delivery of any undelivered item is probable and
substantially in the control of the vendor. Under
EITF 00-21, arrangement consideration should be allocated
among the separate units of accounting based on their relative
fair values, with the amount allocated to the delivered item
being limited to the amount that is not contingent on the
delivery of additional items or meeting other specified
performance conditions. In accordance with SOP 90-7, we
adopted EITF No. 00-21 in conjunction with our application
of fresh-start accounting on October 31, 2002. We accounted
for the adoption of EITF No. 00-21 as a change in
accounting principle. Beginning November 1, 2002, we now
recognize all revenues from handset sales and all related costs
of handsets sold when title and risk of loss passes to the
customer. This change did not impact our operating income for
the two months ended December 31, 2002 and will not change
operating income in future periods.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure 
an Amendment of FASB Statement No. 123. SFAS
No. 148 amends SFAS No. 123, Accounting for
Stock-Based Compensation to provide alternative methods of
transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. In
addition, it amends the disclosure requirements of SFAS
No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method
used on reported results. Since we did not change our method of
accounting for stock-based compensation, the adoption of SFAS
No. 148 did not have a material impact on our financial
position or results of operations. We have included the required
disclosures related to these methods of accounting for
stock-based compensation in Note 2.

In January 2003 the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities  An
Interpretation of ARB No. 51, which clarifies the
application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to certain
entities in which 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. FIN No. 46 provides guidance related to
identifying variable interest entities (previously known
generally as special purpose entities or SPEs) and determining
whether such entities should be consolidated. FIN No. 46
must be applied immediately to variable interest entities
created, or interests in variable interest entities obtained,
after January 31, 2003. For those variable interest
entities created, or interests in variable interest entities
obtained, on or before January 31, 2003, the guidance in
FIN No. 46 must be applied in the first fiscal year or
interim period beginning after June 15, 2003. We currently
do not expect the adoption of FIN No. 46 to have a material
impact on our financial position or results of operations.

3.  Impairment, Restructuring and
Other Charges

Third Quarter 2001.During the third quarter of 2001,
following our review of the economic conditions, operating
performance and other relevant factors in the Philippines, we
decided to discontinue funding our former Philippine operating
company. As a result, we performed an assessment of the carrying
values of the long-lived assets related to Nextel Philippines,
including property, plant and equipment, intangible assets and
other long-lived assets, in accordance with SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of.

SFAS No. 121 requires that long-lived assets
to be held and used be reviewed for impairment on the basis of
undiscounted future cash flows before interest and that those
assets be grouped at the lowest level for which there are
independent identifiable cash flows. To perform our review, we
grouped all of the long-

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



3.  Impairment, Restructuring and
Other Charges  (Continued)


lived assets of Nextel Philippines together. Our
review indicated that the assets related to Nextel Philippines
were impaired because the estimated undiscounted future cash
flows were less than the carrying values of the assets reviewed.

To estimate fair value of the long-lived assets
related to Nextel Philippines, we used a market value-based
approach as reviewed and determined to be reasonable by an
independent appraiser. Based on the results of the market-based
approach, we estimated the fair value of the long-lived assets
related to Nextel Philippines to be about $15.2 million. As
a result, during the third quarter of 2001 we wrote-down the
carrying values of our long-lived assets related to Nextel
Philippines to their estimated fair market values and recorded a
$147.1 million pre-tax impairment charge, which is included
in discontinued operations on our consolidated statements of
operations.

Fourth Quarter 2001.As a result of the capital
constrained environment and our lack of funding sources, during
the fourth quarter of 2001, we undertook an extensive review of
our business plan and determined to pursue a less aggressive
growth strategy that targets conservation of cash resources by
slowing enhancement and expansion of our networks and reducing
subscriber growth and operating expenses. We retained an
investment banking firm to assist us in studying various
strategic alternatives.

Our revised business plan contemplated a less
aggressive growth strategy and reflected then current
anticipated available sources of funding. Our revised business
plan included capital expenditures necessary to continue to
selectively build out some of our digital mobile networks, but
at slower rates. We were in discussions with our various lenders
regarding the restructuring of our debt obligations. We were
also advised by Nextel Communications that it was reviewing a
possible investment of up to $250.0 million. The revised
business plan contemplated the restructuring of our outstanding
indebtedness, the receipt of this $250.0 million of capital
funding to finance capital expenditures and some operating
expenses, and the continued availability of short-term handset
financing. However, any additional sources of funding were only
available under specific conditions, all of which were never
satisfied.

Under our revised business plan, we planned to
focus substantially all of our available funding towards
continuing the growth of Nextel Mexicos operations. We
made this decision based on Nextel Mexicos operating
performance, future prospects and economic conditions in Mexico,
as well as other relevant factors. We planned to provide
substantially less funding to our other markets, including
Brazil, Peru and Argentina. Further, during the fourth quarter
of 2001, we began exploring the possibility of selling Nextel
Philippines. Our primary objectives with respect to our markets
other than Mexico were to minimize operating costs and capital
expenditures and maximize cash resources and segment earnings,
as defined in Note 16.

In connection with the implementation of our
revised business plan, we reviewed the long-lived assets,
including property, plant and equipment, intangible assets and
other long-term assets, held by each of our operating companies
in accordance with SFAS No. 121. Since our receipt of
additional funding was uncertain, we did not consider in our
analysis the future cash flows expected to be generated by any
additional funding. Our analysis indicated that all of the
long-lived assets held by each of our operating companies were
impaired, primarily due to our curtailed growth projections.

With the assistance of an independent appraiser,
we estimated the fair values of the long-lived assets held by
our operating companies. Due to our unique wireless technology
and specific spectrum holdings, comparable market prices were
not readily available. As a result, fair values were derived
primarily from the estimated discounted cash flows from future
operations; however, we also took into consideration
market-based valuations of Latin American wireless
telecommunications companies to corroborate the results from the
discounted cash flows approach. Our determination of fair value
required us to make estimates and assumptions that significantly
affect the reported amounts of long-lived assets as of

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



3.  Impairment, Restructuring and
Other Charges  (Continued)


December 31, 2001 and the resulting
impairment charges. These estimates and assumptions primarily
included, but were not limited to, estimates of future cash
flows, discount rates, growth rates and terminal values. The
following describes the general methods and assumptions used to
determine fair value:

Discounted Cash Flows Approach:To determine fair value, we discounted
the cash flows included in our revised business plan. The
discount rates used represent our estimated weighted average
cost of capital in each market, which reflects the overall level
of inherent risk involved in our Latin American operations and
the rate of return an outside investor would expect to earn.

To estimate cash flows beyond the final year of
our business plan, we used a terminal value approach. Under this
approach, we used estimated earnings before interest, taxes,
depreciation and amortization, or EBITDA, in the final year of
our business plan and applied multiples to determine the
terminal value in each market. For each market, we incorporated
the present values of the resulting terminal values into our
estimates of fair value. The discount rates, EBITDA multiples
and long-term growth rates used in our discounted cash flows
approach were reviewed and determined to be reasonable by an
independent appraiser.

Market-Based Approach:To corroborate the results of the
discounted cash flows approach, we also estimated the fair
values of our long-lived assets using a market-based approach.
We obtained estimates of total subscribers, total revenues,
total EBITDA and enterprise values, defined as the market value
of equity plus net long-term debt, of similar companies in our
markets. We compared three measures of fair value to our
operating companies: enterprise value per EBITDA, enterprise
value per revenues and enterprise value per subscribers. The
results of comparing these measures to our operating companies
after making adjustments to arrive at estimated fair value of
our long-lived assets were similar to the results derived from
using the discounted cash flows approach. This approach was also
reviewed and determined to be reasonable by an independent
appraiser.

In consultation with our outside financial
advisors and an independent appraiser, we determined that the
most appropriate valuation approach was based on discounted cash
flows. Using the results from this approach, during the fourth
quarter of 2001, we wrote-down the carrying values of the
long-lived assets held by our operating companies to their
estimated fair market values and recorded pre-tax impairment
charges of about $1,578.7 million. We did not make any
adjustments to depreciation or amortization expense recorded
during the year ended December 31, 2001. The net book value
of the impaired assets of $542.7 million became the new
cost basis as of December 31, 2001. During 2002, we
depreciated and amortized the new cost bases of the long-lived
assets over their estimated remaining useful lives.

In connection with the fourth quarter
implementation of our revised business plan, Nextel Brazil and
Nextel Philippines restructured their operations to align their
objectives with our less aggressive growth strategy. The
restructurings included reductions to their workforces and
cancellations of contracts that had been required to sustain
their earlier growth expectations. As a result of these
restructurings, Nextel Brazil recorded a $0.8 million
restructuring charge, and Nextel Philippines recorded a
$3.4 million restructuring charge, which is included in
discontinued operations. In addition, we wrote off
$1.0 million related to an information technology
development project that was abandoned in connection with our
revised business plan. As of December 31, 2001, we had
$0.4 million of restructuring charges recorded in accrued
expenses and other.

During the fourth quarter of 2001, we retained an
investment banking firm and law firms to assist us in exploring
various strategic alternatives. We incurred about
$0.7 million in other costs related to these initiatives.

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



3.  Impairment, Restructuring and
Other Charges  (Continued)


Total impairment, restructuring and other charges
recorded during 2001 are as follows:

|          |  |                |           |               |  |         |       |         |  |   |     |  |  |   |           | 
|--------- |  | -------------- | --------- | ------------- |  | ------- | ----- | ------- |  | - | --- |  |  | - | --------- | 
|          |  | Impairment     |           | Restructuring |  | Other   |       | Total  
|          |  | Charges        |           | Charges       |  | Charges |       | Charges
|          |  |                |           |               |  |         |       |        
|          |  |               
|          |  | (in thousands)
|Argentina |  | $              | 262,541   |               |  | $       |      |         |  | $ |    |  |  | $ | 262,541   | 
|Brazil    |  |                | 678,672   |               |  |         | 768   |         |  |   |    |  |  |   | 679,440   | 
|Chile     |  |                | 31,953    |               |  |         |      |         |  |   |    |  |  |   | 31,953    | 
|Mexico    |  |                | 433,945   |               |  |         |      |         |  |   |    |  |  |   | 433,945   | 
|Peru      |  |                | 171,590   |               |  |         |      |         |  |   |    |  |  |   | 171,590   | 
|Corporate |  |                |          |               |  |         | 1,025 |         |  |   | 670 |  |  |   | 1,695     | 
|          |  |                |           |               |  |         |       |         |  |   |     |  |  |   |           | 
|Total     |  | $              | 1,578,701 |               |  | $       | 1,793 |         |  | $ | 670 |  |  | $ | 1,581,164 | 
|          |  |                |           |               |  |         |       |         |  |   |     |  |  |   |           | 

For the Ten Months Ended October 31,
2002.In connection with the
implementation of our revised business plan, during the ten
months ended October 31, 2002, Nextel Argentina, Nextel
Brazil and our corporate headquarters restructured their
operations to align their objectives with our less aggressive
growth strategy. These restructurings included reductions to
their workforces and cancellations of contracts that had been
required to sustain earlier growth expectations. As a result of
these restructurings, we recorded a $3.1 million
restructuring charge during the ten months ended
October 31, 2002 related to these actions. In addition,
during the second quarter of 2002, Nextel Argentina recorded a
$7.9 million impairment charge to further write down the
carrying values of its long-lived assets to their estimated fair
values. Through May 24, 2002, we also incurred
$4.8 million in other charges for legal and advisory costs
incurred related to our debt restructuring activities. Beginning
May 24, 2002, we recognized these costs in reorganization
items, net, in accordance with SOP 90-7.

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

4.  Debt

|                                                                                                                                                                                                                                                    |                                                     |              |         |              |  |   |            |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ------------ | ------- | ------------ |  | - | ---------- | ------- | 
|                                                                                                                                                                                                                                                    |                                                     | Successor    |         | Predecessor 
|                                                                                                                                                                                                                                                    |                                                     | Company      |         | Company     
|                                                                                                                                                                                                                                                    |                                                     |              |         |             
|                                                                                                                                                                                                                                                    |                                                     | December 31, |         | December 31,
|                                                                                                                                                                                                                                                    |                                                     | 2002         |         | 2001        
|                                                                                                                                                                                                                                                    |                                                     |              |         |             
|                                                                                                                                                                                                                                                    |                                                     | (dollars in  |         | (dollars in 
|                                                                                                                                                                                                                                                    |                                                     | thousands)   |         | thousands)  
|13.0% senior secured discount notes due
    2009, net of unamortized discount of
    $76,857 and $0                                                                                                                                                 |                                                     | $            | 103,964 |              |  | $ |           |        
|International Motorola Equipment Financing
    Facility,interest payable
    semiannually at an adjusted rate calculated based on 2.5% over
    the U.S. prime rate or 5.0% over LIBOR (6.39% to
    9.25%  2002; 8.71% to 11.21%  2001)          |                                                     |              | 225,000 |              |  |   | 225,000    |        
|Brazil Motorola Equipment Financing Facility,interest payable semiannually at an
    adjusted rate calculated based on 2.5% over the U.S. prime
    rate or 4.63% over LIBOR                                                                        |                                                     |              |         |              |  |   |            |        
|                                                                                                                                                                                                                                                    | (6.02% to 9.25%  2002; 8.34% to
    10.34%  2001) |              |         | 103,193      |  |   |            | 100,000 | 
|13.0% senior redeemable discount notes due
    2007, net of unamortized discount of
    $0 and $45,988                                                                                                                                              |                                                     |              |        |              |  |   | 905,475    |        
|12.125% senior serial redeemable discount
    notes due 2008, net of unamortized
    discount of $0 and $102,533                                                                                                                                    |                                                     |              |        |              |  |   | 627,467    |        
|12.75% senior serial redeemable notes due
    2010, net of unamortized discount of
    $0 and $8,262                                                                                                                                                |                                                     |              |        |              |  |   | 641,738    |        
|International Motorola Incremental Equipment
    Financing Facility,interest payable
    quarterly at an adjusted rate calculated based on 2.5% over the
    U.S. prime rate or 5.0% over LIBOR (7.25% to
    9.25%  2002; 7.25% to 10.50%  2001) |                                                     |              |        |              |  |   | 56,650     |        
|Argentina Credit Facility,interest payable quarterly at
    adjustable rates calculated either based on the Adjusted Base
    Rate (ABR) or the Eurodollar rate (7.63% to 8.75% 
    2002; 7.63% to 11.50%  2001)                                 |                                                     |              |        |              |  |   | 72,222     |        
|Motorola Argentina Incremental Facility,interest payable quarterly at adjusted
    rates calculated either based on the ABR or the Eurodollar rate
    (7.63% to 8.75%  2002; 7.63% to 11.50% 
    2001)                                          |                                                     |              |        |              |  |   | 36,112     |        
|Other                                                                                                                                                                                                                                               |                                                     |              |        |              |  |   | 480        |        
|                                                                                                                                                                                                                                                    |                                                     |              |         |              |  |   |            |        
|                                                                                                                                                                                                                                                    |                                                     |              | 432,157 |              |  |   | 2,665,144  |        
|Less current portion                                                                                                                                                                                                                                |                                                     |              |        |              |  |   | (2,665,144 | )      
|                                                                                                                                                                                                                                                    |                                                     |              |         |              |  |   |            |        
|                                                                                                                                                                                                                                                    |                                                     | $            | 432,157 |              |  | $ |           |        
|                                                                                                                                                                                                                                                    |                                                     |              |         |              |  |   |            |        

Our emergence from Chapter 11 reorganization
had the following effects on our December 31, 2001 debt
balances:



| |   |                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the entire $2.3 billion outstanding
    principal balance and accrued interest on our senior redeemable
    notes was extinguished in exchange for a pro-rata share of
    3.9 million shares of our new common stock;        
|
| |  | we repaid the $56.7 million outstanding
    principal balance, together with accrued interest, due under our
    international Motorola incremental equipment financing facility
    using restricted cash held in escrow; and

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



4.  Debt 
(Continued)




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our $225.0 million international Motorola
    equipment financing facility and $103.2 million Brazil
    Motorola equipment financing facility, including capitalized
    interest, were reinstated and refinanced in full by Motorola
    Credit Corporation, subject to deferrals of principal
    amortization, new credit agreements that include some financial
    covenants, and some structural modifications, including, in the
    case of the Brazil Motorola equipment financing facility, the
    deferral of interest payments until the earlier of 2005 or when
    our Brazilian operating company achieves excess cash flow, as
    defined in the related credit agreements.

In addition, until December 31, 2006, if our
consolidated cash balance falls below $100.0 million for
seven consecutive days, we will be eligible to borrow under our
international Motorola equipment financing facility an amount
necessary to increase our consolidated cash balance to
$100.0 million. Our aggregate cash borrowings under this
facility cannot exceed $56.7 million, interest would be due
semi-annually and principal would have to be repaid in four
equal annual installments.

In addition, in connection with our
reorganization, we issued new senior secured discount notes with
$180.8 million principal amount due at maturity, together
with 15.7 million shares of new common stock for total cash
proceeds of $140.0 million. For accounting purposes, we
allocated $100.8 million of the proceeds to debt and
$39.2 million to equity based on the relative fair values
of each, which resulted in a discount of $39.2 million on
our senior secured discount notes.

We also repurchased the outstanding balance owed
to such creditors by Nextel Argentina for $5.0 million in
cash and the issuance to them of 400,000 shares of our new
common stock. We wrote off the entire remaining balance of our
debt financing costs of $31.2 million when we filed for
reorganization and recorded $2.8 million in new debt
financing costs in connection with the issuance of our new debt
when we emerged from reorganization.

Senior Secured Notes

13.0% Senior Secured Discount Notes due
2009.Our new notes are senior secured
obligations of NII Holdings (Cayman), Ltd. a foreign subsidiary
that we wholly own, and are guaranteed by us and some of our
wholly-owned subsidiaries. These guarantees are full and
unconditional and joint and several. Subject to some exceptions,
the notes are secured by perfected second priority security
interests in the existing and future assets of NII Holdings
(Cayman) and the guarantors, subject to Motorola Credit
Corporations first lien on the basis set forth in the
intercreditor agreement entered into in connection with the
issuance of the notes and the reinstatement of our credit
facilities with Motorola Credit Corporation. The notes bear
interest at a rate of approximately 13% per year, compounded
quarterly. Interest will accrete to principal until
October 31, 2004 and be paid in cash quarterly thereafter.
The notes were issued at an original issue discount
as a result of (1) the accretion of non-cash interest for
the period through October 31, 2004 and (2) the
allocation of a portion of the purchase price of the notes and
common stock sold in the rights offering to the common stock.
The notes will mature on November 1, 2009, when the entire
principal balance of $180.8 million will be due.

The new notes are not entitled to any mandatory
redemption or sinking fund. The notes will be redeemable, at the
option of NII Holdings (Cayman), in whole or in part, at any
time on or after January 1, 2006 and prior to maturity at
the following redemption prices (expressed in percentages of
their

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



4.  Debt 
(Continued)


accreted value), plus accrued and unpaid interest
to the redemption date if redeemed during the 12-month period
commencing on January 1 of the applicable year set forth
below:

|                    |  |            |         | 
|------------------- |  | ---------- | ------- | 
|                    |  | Redemption
|Year                |  | Price     
|                    |  |           
|2006                |  |            | 106.50% | 
|2007                |  |            | 103.25% | 
|2008 and thereafter |  |            | 100.00% | 

The new notes prohibit us, NII Holdings (Cayman),
Ltd., and some of our subsidiaries from incurring new
indebtedness not contemplated by our reorganization plan or
issuing any redeemable stock. During the year following the
first anniversary of the effective date of the reorganization,
we are permitted to incur additional indebtedness if our
consolidated leverage ratio would be no greater than 5.0:1, such
ratio decreasing during each of the following three years to
4.5:1, 4.0:1 and 3.5:1 respectively. In addition, except for
McCaw International (Brazil), Ltd. and its affiliates, we are
allowed to incur debt that does not exceed $50.0 million as
well as intercompany debt to refinance existing obligations and
some other permitted debt.

As a result of some restrictive covenants
contained in the new notes, we are not allowed to purchase or
redeem any equity interest in members of our consolidated group
if the equity interest is held by Nextel Brazil, any of our
affiliates, or any 5% beneficial owner of our common stock,
except for specific exclusions. We may not make any principal
payments or redeem any debt that is subordinated in right of
payment to the notes except for specific exclusions. Our ability
to make investments in subsidiaries and other investments is
also restricted.

We would be required to repurchase all of the
outstanding notes at a purchase price equal to 101% of the
accreted value of the new notes plus accrued interest within
60 days of a change of control of our Company.

Senior Redeemable Notes

13.0% Senior Redeemable Discount Notes due
2007.In March 1997, we completed the
sale of 951,463 units, generating $482.0 million in net
proceeds. Each unit was comprised of a 13.0% senior discount
note due 2007 with a principal due at maturity of $1,000 and one
warrant to purchase about 2.3 shares of our class B
common stock at an exercise price of $1.67 per share. The
warrants were to expire April 15, 2007. Cash interest on
the 13.0% senior discount notes did not accrue until
April 15, 2002, and then was payable semiannually beginning
October 15, 2002 at a rate of 13.0% per year. The notes
were senior unsecured indebtedness and ranked equal in right of
payment with all our other unsubordinated, unsecured
indebtedness. Due to cross default provisions contained in our
debt agreements and our failure in February 2002 to make a
scheduled interest payment on our 12.75% senior serial
redeemable notes due 2010, these notes were subject to being
declared immediately due and payable, together with accrued
interest, thirty days after an acceleration had been declared.
As a result, as of December 31, 2001, we classified these
notes in current liabilities.

As a result of the effectiveness of our Revised
Third Amended Joint Plan of Reorganization on November 12,
2002, these notes were extinguished and exchanged for a pro-rata
share of 3.92 million shares of our new common stock.

12.125% Senior Serial Redeemable Discount
Notes due 2008.In March 1998, we
completed the sale of $730.0 million in principal amount at
maturity of our 12.125% senior serial redeemable discount notes
due 2008, generating about $387.0 million in net cash
proceeds. Cash interest did not accrue until

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



4.  Debt 
(Continued)


April 15, 2003, and then was payable
semiannually beginning October 15, 2003 at a rate of
12.125% per year. The notes were senior unsecured indebtedness
and ranked equal in right of payment with all our other
unsubordinated, unsecured indebtedness. Due to cross default
provisions contained in our debt arrangements and our failure in
February 2002 to make a scheduled interest payment on our 12.75%
senior serial redeemable notes due 2010, these notes were
subject to being declared immediately due and payable, together
with accrued interest, thirty days after an acceleration had
been declared. As a result, as of December 31, 2001, we
classified these notes in current liabilities.

As a result of the effectiveness of our Revised
Third Amended Joint Plan of Reorganization on November 12,
2002, these notes were extinguished and exchanged for a pro-rata
share of 3.92 million shares of our new common stock.

12.75% Senior Serial Redeemable Notes due
2010.In August 2000, we completed the
sale of $650.0 million aggregate principal amount of our
12.75% senior serial redeemable notes due 2010, generating about
$623.8 million in net cash proceeds. Cash interest was
payable semiannually at a rate of 12.75% per year. We were
required to make an interest payment on February 1, 2002,
however we did not make this payment. The notes were senior
unsecured indebtedness and ranked equal in right of payment with
all our other unsubordinated unsecured indebtedness. In February
2002 we failed to make our scheduled $41.4 million interest
payment under these notes, and as a result of the default, the
entire balance of unpaid principal under these notes was subject
to being declared immediately due and payable together with
accrued interest. Therefore, as of December 31, 2001, we
classified these notes in current liabilities.

As a result of the effectiveness of our Revised
Third Amended Joint Plan of Reorganization on November 12,
2002, these notes were extinguished and exchanged for a pro-rata
share of 3.92 million shares of our new common stock.

Bank and Vendor Credit Facilities

As of December 31, 2002, there were no
amounts available for borrowing under our vendor credit
facilities.

International Motorola Equipment Financing
Facility.In February 1999, we entered
into an equipment financing facility with Motorola Credit
Corporation providing for $225.0 million of secured term
loans primarily used to finance the cost of qualifying purchases
of digital mobile network equipment and related services. As
permitted by this facility, we used a portion of the available
funds to repay all our previously outstanding long-term debt of
Nextel Philippines. Our operating companies in Mexico, Peru, the
Philippines and Japan were eligible borrowers under this
facility. This facility was subsequently amended on
February 19, 2001 to, among other things, limit eligible
borrowers under the facility to our operating companies in
Mexico, Peru and the Philippines. Amounts borrowed under this
facility were originally payable in eight equal semiannual
installments beginning June 30, 2001 and maturing
December 31, 2004. The February 19, 2001 amendment
deferred repayment until December 31, 2002 and extended the
maturity to June 30, 2006.

As a result of the effectiveness of our Revised
Third Amended Joint Plan of Reorganization, on November 12,
2002, Motorola Credit Corporation reinstated and refinanced the
international Motorola equipment financing facility in the
amount of $225.0 million. Under the new facility, we are
required to repay the principal in consecutive semi-annual
installments equaling 12.5% of the outstanding principal
beginning on June 30, 2004 and maturing December 31,
2007. Interest payments are due semi-annually beginning on
December 31, 2002. The borrowers under this facility are
Nextel Mexico, Nextel Peru and

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



4.  Debt 
(Continued)


NII Holdings (Cayman), Inc. The new facility is
secured by all of our assets, subject to an intercreditor
agreement, and is guaranteed by the Company and certain of our
subsidiaries.

In addition, until December 31, 2006, if our
consolidated cash balance falls below $100.0 million for
seven consecutive days, we will be eligible to borrow under our
international Motorola equipment financing facility an amount
necessary to increase our consolidated cash balance to
$100.0 million. Our aggregate cash borrowings under this
facility cannot exceed $56.7 million, interest would be due
semi-annually and principal would have to be repaid in four
equal annual installments.

International Motorola Incremental Equipment
Financing Facility.In December 1999,
we entered into an agreement with Motorola Credit under which
Motorola Credit committed to provide up to $56.6 million in
incremental term loans to us. In January 2000, we borrowed the
full $56.6 million available under this facility to acquire
infrastructure equipment and related services from Motorola. We
and Motorola Credit Corporation entered into an amendment to
this facility on February 19, 2001 under which amounts
borrowed under this facility mature June 30, 2003. Before
this amendment, loans under this facility were to mature
December 31, 2001. Loans under this facility were secured
by a cash escrow account of $57.4 million, which we
classified as restricted cash in our consolidated balance sheet
as of December 31, 2001. As a result of cross-default
provisions contained in this facility, Motorola Credit
Corporation was able to pursue its remedies available under this
facility, which included seizing the $57.4 million balance
in our cash escrow account. Motorola Credit Corporation provided
notice of our continuing events of default under this facility.
This facility contained restrictive covenants similar to those
contained in our equipment financing facility from Motorola
Credit Corporation.

As a result of the effectiveness of our Revised
Third Amended Joint Plan of Reorganization, on November 12,
2002, we released to Motorola Credit Corporation from our escrow
account $56.6 million in cash collateral to repay the
outstanding balance and accrued interest due under this facility.

Brazil Motorola Equipment Financing Facility.In October 1997, McCaw International
(Brazil), the holding company through which we hold our
Brazilian operations, and Motorola Credit Corporation entered
into an equipment financing agreement under which Motorola
Credit Corporation agreed to provide up to $125.0 million
in multi-draw term loans to McCaw International (Brazil). Loans
made were used to acquire infrastructure equipment and related
services from Motorola. The financing advanced under this
agreement was originally repayable in U.S. dollars in
semiannual installments over 42 months beginning
June 30, 2000. McCaw International (Brazil) and Motorola
Credit Corporation entered into an amendment to this agreement
on February 19, 2001, which permitted installments due
after that date to be repaid beginning December 31, 2002,
with final payment due on June 30, 2005. The loans made
under this agreement were secured by a first priority lien on
substantially all of McCaw International (Brazil)s assets,
a pledge of all of the stock of McCaw International (Brazil) and
its subsidiaries, and our guarantee of the obligations.

As a result of the effectiveness of our Revised
Third Amended Joint Plan of Reorganization on November 12,
2002, we entered into a new Brazil Motorola equipment financing
facility with Motorola Credit Corporation. The new facility has
a maturity date of November 1, 2009 and a commitment amount
of $103.2 million. Under the new facility, we have to repay
principal in semi-annual payments of $12.5 million, in
arrears, on June 30 and December 31, beginning on
June 30, 2006. We have to pay interest semi-annually in
arrears on June 30 and December 31. Until
December 31, 2004, interest payments are paid only out of
positive free cash flow from our Brazilian operating
subsidiaries, as defined, to the extent that there is cash
available. Otherwise, the interest will be deferred until the
earlier of when cash is available or January 1, 2005. We
and certain of our operating subsidiaries and intermediate
parents

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



4.  Debt 
(Continued)


provide a guarantee of debts under this new
facility, and it is secured by all of our assets and the assets
of our operating subsidiaries.

Argentina Credit Facilities.In February 1998, Nextel Argentina
entered into a credit facility which, as amended, provided up to
$100.0 million in term loans. Loans under this facility
bore interest at a rate equal to, at our option, either the ABR
plus 4.0%, where ABR is the highest of the U.S. prime rate,
the base CD rate plus 1.0% or the federal funds rate plus 0.5%,
or the Eurodollar rate plus 5.0% where the Eurodollar rate is
LIBOR multiplied by the statutory reserve rate. Loans under this
facility were repayable in quarterly installments from
September 30, 2000 through March 31, 2003. The first
nine installments were equal to 1/18 of the September 30,
2000 outstanding balance and the final installment was to be in
an amount equal to the remaining balance. Borrowings under this
facility were secured by a pledge of stock of, and a first
priority lien on a substantial portion of the assets of, Nextel
Argentina.

In May 1999, and concurrent with the then current
modification of the Argentina credit facility, Motorola Credit
Corporation agreed to provide up to $50.0 million in loans
to Nextel Argentina as incremental term loans under the
Argentina credit facility for the purchase from Motorola of
qualifying network equipment and related services.

On November 12, 2002, we repurchased the
entire outstanding balance of these credit facilities and any
remaining related obligations to the lenders for
$5.0 million in cash and the issuance of 400,000 shares of
our new common stock.

5.  Significant
Transactions

Each of the acquisitions described below was
accounted for under the purchase method.

Nextel Mexico.During 2000, Nextel Mexico purchased
$118.6 million of licenses to help consolidate and
significantly expand our spectrum position in Mexico in key
cities in which we currently operate, as well as in new service
areas. During 2001, Nextel Mexico purchased an additional
$27.8 million of licenses. During 2002, Nextel Mexico
purchased licenses from two Mexican companies for a total of
$13.6 million in cash. These acquisitions are intended to
help consolidate and expand our spectrum position in Mexico.

Nextel Brazil.In
May 2000, we purchased all of the remaining equity interests of
Motorola International Development Corporation, an indirect
wholly owned subsidiary of Motorola, in Nextel S.A, which owned
Nextel Brazil, for an aggregate purchase price of about
$31.1 million in cash. This purchase increased our
ownership of Nextel Brazil, through Nextel S.A., from about
87.4% to about 92.0%.

In July 2000, we entered into a purchase, release
and settlement agreement with Telcom Ventures under which, on
August 4, 2000, we made a cash payment to Telcom Ventures
totaling $146.0 million, received all of the remaining
equity interests held by Telcom Ventures in McCaw International
(Brazil), which owned all of Nextel S.A., and exchanged mutual
releases with Telcom Ventures regarding a previous dispute. In
addition, all pending court disputes between us and Telcom
Ventures were permanently dismissed. As a result, we increased
our ownership interest in both Nextel Brazil and its parent to
100.0%. Additionally, all rights of Telcom Ventures in McCaw
International (Brazil), including their rights to put their
equity interests to us beginning in October 2001, were
terminated.

Nextel Peru.In May
2000, we purchased another stockholders interest in Nextel
Peru for about $2.8 million in cash and increased our
ownership interest from about 63.5% to about 69.4%. Also in May
2000, we purchased all of the remaining equity interests of
Motorola International in Nextel Peru. This purchase increased
our ownership from about 69.4% to 100.0%. We paid Motorola
International an aggregate purchase price of about
$30.0 million in cash for the acquisition.

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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



5.  Significant
Transactions  (Continued)


In August 2000, we purchased from Cordillera
Communications Corporation all of its equity ownership in
several specialized mobile radio companies in Peru. At closing,
we paid $20.0 million of the total purchase price of about
$36.5 million. We paid an additional $15.8 million and
accrued interest in August 2001. During 2001, we merged the
specialized mobile radio companies we purchased from Cordillera
Communications Corporation with Nextel Peru.

Chilean Operating Companies.In May 2000, we purchased three
Chilean specialized mobile radio companies from Motorola
International. We paid Motorola International an aggregate
purchase price of about $16.6 million in cash for the
acquisition.

In August 2000, we purchased from Cordillera
Communications Corporation all of its equity ownership in
several specialized mobile radio companies in Chile. At closing,
we paid $6.0 million of the total purchase price of about
$30.0 million. The remaining $24.0 million, plus
accrued interest at a rate of 8.0% per year, was due by August
2002, subject to reduction by up to $14.0 million if we
were unable to obtain, on or before August 2002, the regulatory
relief necessary to provide integrated digital mobile services
in Chile. We had accrued $10.0 million as of
December 31, 2001, representing the remaining
non-contingent amount due for this purchase. As a result of our
emergence from Chapter 11 reorganization, we issued shares
of our new common stock to Cordillera Communications Corporation
in exchange for the cancellation of the remaining amounts that
we owed them.

Nextel Philippines.In July 2000, we increased our direct
and indirect ownership interests in Nextel Philippines from
about 38.0% to about 51.1% by purchasing some of the minority
owners equity interests for about $9.8 million. As a
result of this transaction, we began consolidating Nextel
Philippines late in the third quarter of 2000. Prior to July
2000, we accounted for this investment using the equity method.

In January 2001, we increased our direct and
indirect ownership interest in Nextel Philippines from about
51.1% to about 59.1% by purchasing additional minority
owners equity interests for about $3.7 million.

In September 2002, we sold an 8% indirect
interest and a 2% direct interest in Nextel Philippines to a
third party investor. This transaction reduced our combined
direct and indirect ownership interest in Nextel Philippines to
about 49%. In November 2002, we sold our remaining direct and
indirect ownership interest in Nextel Philippines. As a result
of this sale, in accordance with SFAS No. 144, we have
presented the financial results of Nextel Philippines as
discontinued operations in our consolidated statements of
operations for all periods presented. Prior to the sale, the
results of operations reported by Nextel Philippines were
included in Corporate and other for segment
reporting purposes. At the time of sale, Nextel Philippines had
$1.5 million in net accounts receivable and
$22.3 million in accrued expenses and other current
liabilities. The amounts of operating revenues and net pre-tax
income (loss) related to the operations of Nextel Philippines
included in discontinued operations are as follows:

|                   |  |                |        |                     |  |                         |        |      |  |   |          |   |  |   |         |  
|------------------ |  | -------------- | ------ | ------------------- |  | ----------------------- | ------ | ---- |  | - | -------- | - |  | - | ------- | -
|                   |  |                |        |                    
|                   |  | Successor      |        | Predecessor Company
|                   |  | Company        |        |                    
|                   |  | Two Months     |        | Ten Months          |  |                        
|                   |  | Ended          |        | Ended               |  | Year Ended December 31,
|                   |  | December 31,   |        | October 31,         |  |                        
|                   |  | 2002           |        | 2002                |  | 2001                    |        | 2000
|                   |  |                |        |                     |  |                         |        |     
|                   |  |               
|                   |  | (in thousands)
|Operating revenues |  | $              | 997    |                     |  | $                       | 12,570 |      |  | $ | 17,149   |   |  | $ | 5,881   |  
|                   |  |                |        |                     |  |                         |        |      |  |   |          |   |  |   |         |  
|Net pre-tax loss   |  | $              | (3,810 | )                   |  | $                       | (2,025 | )    |  | $ | (170,335 | ) |  | $ | (59,973 | )
|                   |  |                |        |                     |  |                         |        |      |  |   |          |   |  |   |         |  

Acquisitions.The
total purchase price and net assets acquired for our business
acquisitions completed during 2000 are presented below. There
were no business acquisitions completed during 2002 or

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



5.  Significant
Transactions  (Continued)


2001. The direct cost of our business
acquisitions and the net assets we acquired during 2000 include
the effect of the consolidation of Nextel Philippines.

|                            |                               |                |         |          |  
|--------------------------- | ----------------------------- | -------------- | ------- | -------- | -
|                            |                               | 2000          
|                            |                               |               
|                            |                               | (in thousands)
|Direct cost of acquisitions |                               | $              | 504,542 |         
|                            |                               |                |         |         
|Net assets acquired:        |                               |                |         |         
|                            | Working capital, net          |                | $       | 3,280    |  
|                            | Property, plant and equipment |                |         | 68,030   |  
|                            | Intangible assets             |                |         | 502,846  |  
|                            | Other assets                  |                |         | 5,628    |  
|                            | Minority interest             |                |         | 24,956   |  
|                            | Deferred income taxes         |                |         | (100,198 | )
|                            |                               |                |         |         
|                            |                               | $              | 504,542 |         
|                            |                               |                |         |         

6.  Investments

We did not own any investments as of
December 31, 2002 or 2001.

Japan.In March
2000, Nichimen Corporation, a partner in NEXNET Co., Ltd., a
wireless communications services provider in Japan in which we
had a minority interest, declined to make a required capital
contribution and, as a result, transferred some of its shares of
NEXNET to the contributing stockholders, including us.
Additionally, on March 30, 2000, we purchased from Nichimen
additional shares for about $0.4 million in cash. As a
result of these share acquisitions, our equity ownership
interest in NEXNET increased from about 21.0% to about 32.1%.

During the third quarter of 2000, we engaged an
outside consultant to advise us on how to maximize the value of
our investment in NEXNET. The findings of this review were
presented to us in December 2000. The review concluded, among
other things, that a fundamental change was required in the
specialized mobile radio regulatory framework and in
NEXNETs deployment of specialized mobile radio technology
in the 1.5 GHz spectrum band. These changes were deemed
necessary given the competitive landscape in the Japanese
wireless market. During December 2000, we held several meetings
with the regulatory entities in conjunction with the Japan
Mobile Telecommunication  System Association. As a
result of these meetings, we determined that the required
regulatory changes could not be effected in a timely manner and
that the network buildout under the existing specialized mobile
radio technology would be costly and inefficient. Consequently,
we notified NEXNET that we were exercising our rights under the
shareholders agreement and the credit agreement, to which we are
a party, by declining to honor NEXNETs request for
additional funding made December 15, 2000 and any future
request to advance funds for continued investment in the
existing specialized mobile radio infrastructure in Japan. As a
result, we reached the conclusion that the value of our existing
investment in NEXNET was not recoverable. In light of this
conclusion, we recorded a one time non-cash charge included in
equity in losses of unconsolidated affiliates of about
$21.0 million in the fourth quarter of 2000 that represents
the write off of the entire amount of our investment, including
shareholder advances, in NEXNET.

In December 2001, we sold our minority interest
in NEXNET to Motorola, Inc. We received a $6.5 million
credit for equipment purchases from Motorola and cash proceeds
of $3.5 million from a partner in NEXNET, in exchange for
the forgiveness of our loans to NEXNET. We recognized a
$9.6 million net pre-tax gain during the fourth quarter of
2001 as a result of this sale.

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



6.  Investments 
(Continued)


TELUS Corporation.In October 2000, TELUS acquired
Clearnet, a publicly traded Canadian company in which we owned
an equity interest, for cash and stock. TELUS is a publicly
traded Canadian telecommunications company that, before its
acquisition of Clearnet, provided wireline, wireless data and
internet communications services to western Canada. Under
agreements among us, TELUS and Clearnet, we exchanged all of our
Clearnet stock for non-voting shares of TELUS stock. In exchange
for our 8.4 million shares of Clearnet stock, we received
13.7 million shares of TELUS stock, representing about 4.8%
of the ownership interest in TELUS. We recorded a pre-tax gain
of about $239.5 million in the fourth quarter of 2000
related to this transaction. In accordance with SFAS
No. 115, the shares of TELUS stock were recorded at their
current market value in our financial statements.

During the third quarter of 2001, in connection
with our review of our investment portfolio, we recognized a
$188.4 million reduction in fair value of our investment in
TELUS, based on its stock price as of September 30, 2001.

In November 2001, we completed the sale of our
entire investment in TELUS. This transaction resulted in
proceeds of $196.5 million to us, of which
$57.4 million is classified as restricted cash on our
consolidated balance sheet as of December 31, 2001 and was
pledged in escrow to secure the outstanding loan under the
international Motorola incremental equipment financing facility
that had been previously secured by the TELUS shares. We
recognized a $41.6 million pre-tax gain during the fourth
quarter of 2001 as a result of this sale.

Shanghai CCT McCaw.Until September 2000, we were an
investor in Shanghai CCT McCaw Telecommunications Systems Co.,
Ltd., a joint venture that participated in the development of a
Global System for Mobile Communications, or GSM, system in
Shanghai, China through a profit sharing arrangement with China
United Telecommunications Corporation, referred to as Unicom. In
September 1999, Unicom advised Shanghai CCT McCaw, and all
similarly situated investors in Unicom, that under a new policy
of the Chinese government, all existing arrangements between
Unicom and joint ventures in which foreign companies had
invested needed to be terminated. On March 17, 2000,
Shanghai CCT McCaw and Unicom executed a termination agreement
setting forth the terms and conditions for the termination of
the cooperation agreement with Unicom. In consideration for
entering into this termination agreement, Shanghai CCT McCaw
received about $61.3 million in cash, and we and the other
joint venture participants received warrants in June 2000 to
purchase shares of Unicom stock. We also received a
reimbursement of $7.5 million for advances we previously
made to Shanghai CCT McCaw. On September 29, 2000, the
joint venture was formally dissolved, and we received about
$9.8 million in cash, representing our pro rata equity
percentage interest in the joint venture. As a result, we
recorded a pre-tax gain of about $6.1 million.

7.     Fair Value of
Financial Instruments

We have estimated the fair value of our financial
instruments using available market information and appropriate
valuation methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented below are not
necessarily indicative of the amounts that we could realize in a
current market exchange. The use of different market assumptions
and estimation methodologies may have a material effect on the
estimated fair value amounts.

Cash and Cash Equivalents, Accounts
Receivable, Accounts Payable, Accrued Expenses, Accrued Interest
and Due to Related Parties.The
carrying amounts of these items are reasonable estimates of
their fair values.

Debt.The fair value
of our senior notes is based on quoted market prices. As our
vendor credit facilities do not have quoted market prices, we
estimated fair value for these facilities based on current

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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



7.     Fair Value of
Financial Instruments  (Continued)


carrying values because these agreements were
recently renegotiated and interest rates are reset periodically.
See Note 4 for more information about our debt.

|                                |  |                   |         |                     |  |          |         |            |  |   |           |  |  |   |         | 
|------------------------------- |  | ----------------- | ------- | ------------------- |  | -------- | ------- | ---------- |  | - | --------- |  |  | - | ------- | 
|                                |  |                   |         |                    
|                                |  | Successor Company |         | Predecessor Company
|                                |  | December 31, 2002 |         | December 31, 2001  
|                                |  |                   |         |                    
|                                |  | Carrying          |         | Estimated           |  | Carrying |         | Estimated 
|                                |  | Amount            |         | Fair Value          |  | Amount   |         | Fair Value
|                                |  |                   |         |                     |  |          |         |           
|                                |  |                   |         |                    
|                                |  | (in thousands)    |         | (in thousands)     
|Debt, including current portion |  | $                 | 432,157 |                     |  | $        | 463,809 |            |  | $ | 2,665,144 |  |  | $ | 613,537 | 

8.     Property,
Plant and Equipment

|                                                        |  |                |         |                |  |   |         |  
|------------------------------------------------------- |  | -------------- | ------- | -------------- |  | - | ------- | -
|                                                        |  | Successor      |         | Predecessor   
|                                                        |  | Company        |         | Company       
|                                                        |  | December 31,   |         | December 31,  
|                                                        |  | 2002           |         | 2001          
|                                                        |  |                |         |               
|                                                        |  | (in thousands) |         | (in thousands)
|Land                                                    |  | $              | 581     |                |  | $ | 1,846   |  
|Leasehold improvements                                  |  |                | 14,325  |                |  |   | 30,404  |  
|Digital network equipment                               |  |                | 153,814 |                |  |   | 139,294 |  
|Office equipment, furniture and fixtures, and
    other |  |                | 22,901  |                |  |   | 90,256  |  
|Less: Accumulated depreciation and amortization         |  |                | (5,038  | )              |  |   | (48,435 | )
|                                                        |  |                |         |                |  |   |         |  
|                                                        |  |                | 186,583 |                |  |   | 213,365 |  
|Construction in progress                                |  |                | 43,625  |                |  |   | 136,636 |  
|                                                        |  |                |         |                |  |   |         |  
|                                                        |  | $              | 230,208 |                |  | $ | 350,001 |  
|                                                        |  |                |         |                |  |   |         |  

During 2001, we wrote down substantially all of
our property, plant and equipment to their estimated fair values
and recorded pre-tax asset impairment charges of
$1,089.5 million. See Note 3 for more information
about these charges.

During 2002, as a result of our reorganization
and in accordance with fresh-start accounting requirements under
SOP 90-7, we further wrote down all of our property, plant
and equipment to their estimated fair values and recorded
charges to reorganization items of $149.5 million. See
Note 1 for more information about these adjustments.

9.     Intangible
Assets

|                               |  |                |         |                |  |   |         | 
|------------------------------ |  | -------------- | ------- | -------------- |  | - | ------- | 
|                               |  | Successor      |         | Predecessor   
|                               |  | Company        |         | Company       
|                               |  | December 31,   |         | December 31,  
|                               |  | 2002           |         | 2001          
|                               |  |                |         |               
|                               |  | (in thousands) |         | (in thousands)
|Licenses                       |  | $              | 102,040 |                |  | $ | 191,658 | 
|Customer base                  |  |                | 88,930  |                |  |   | 814     | 
|Trademark                      |  |                | 15,393  |                |  |   |        | 
|Other intangibles              |  |                | 164     |                |  |   | 177     | 
|Less: Accumulated amortization |  |                | (6,429  | )              |  |   |        | 
|                               |  |                |         |                |  |   |         | 
|                               |  | $              | 200,098 |                |  | $ | 192,649 | 
|                               |  |                |         |                |  |   |         | 

During 2001, we wrote down substantially all of
our intangible assets, except debt financing costs, to their
estimated fair values and recorded pre-tax impairment charges of
$475.6 million for licenses,

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



9.     Intangible
Assets  (Continued)


$144.4 million for goodwill,
$11.6 million for customer lists and $3.3 million for
other intangibles. See Note 3 for more information about
these charges.

During 2002, as a result of our reorganization
and in accordance with fresh-start accounting requirements under
SOP 90-7, we adjusted the carrying values of our intangible
assets to their estimated fair value. As a result, we recorded a
$68.4 million charge to reduce the carrying value of our
licenses to estimated fair value, and recognized
$88.4 million for our customer base and $15.3 million
for our trademark to record these intangible assets at their
estimated fair values.

10.     Accrued
Expenses and Other

The components of accrued expenses and other are
as follows:

|                                                |  |                |         |                |  |   |         | 
|----------------------------------------------- |  | -------------- | ------- | -------------- |  | - | ------- | 
|                                                |  | Successor      |         | Predecessor   
|                                                |  | Company        |         | Company       
|                                                |  | December 31,   |         | December 31,  
|                                                |  | 2002           |         | 2001          
|                                                |  |                |         |               
|                                                |  | (in thousands) |         | (in thousands)
|Tax related items and other contingencies       |  | $              | 66,389  |                |  | $ | 52,007  | 
|Payroll related items and commissions           |  |                | 29,364  |                |  |   | 25,810  | 
|Network system and information technology costs |  |                | 18,603  |                |  |   | 25,043  | 
|Accrued capital expenditures                    |  |                | 16,446  |                |  |   | 31,699  | 
|Customer deposits                               |  |                | 5,913   |                |  |   | 2,709   | 
|Other                                           |  |                | 12,348  |                |  |   | 34,789  | 
|                                                |  |                |         |                |  |   |         | 
|                                                |  | $              | 149,063 |                |  | $ | 172,057 | 
|                                                |  |                |         |                |  |   |         | 

11.     Income
Taxes

The components of the income tax (provision)
benefit are as follows:

|                               |         |              |        |                     |   |                         |         |         |   |   |        |         |   |   |         |         |  
|------------------------------ | ------- | ------------ | ------ | ------------------- | - | ----------------------- | ------- | ------- | - | - | ------ | ------- | - | - | ------- | ------- | -
|                               |         | Successor    |        |                    
|                               |         | Company      |        | Predecessor Company
|                               |         |              |        |                    
|                               |         | Two Months   |        | Ten Months          |   |                        
|                               |         | Ended        |        | Ended               |   | Year Ended December 31,
|                               |         | December 31, |        | October 31,         |   |                        
|                               |         | 2002         |        | 2002                |   | 2001                    |         | 2000   
|                               |         |              |        |                     |   |                         |         |        
|                               |         |              |        |                     |   |                        
|                               |         |              |        | (in thousands)      |   |                        
|Current:                       |         |              |        |                     |   |                         |         |         |   |   |        |         |   |   |         |        
|                               | Federal |              | $      | (4,375              | ) |                         | $       | (25,764 | ) |   | $      | (13,718 | ) |   | $       | (62,484 | )
|                               | State   |              |        |                    |   |                         |         |        |   |   |        | (2,503  | ) |   |         | (9,163  | )
|                               | Foreign |              |        | (174                | ) |                         |         | (869    | ) |   |        | (26,205 | ) |   |         | (2,518  | )
|Deferred:                      |         |              |        |                     |   |                         |         |         |   |   |        |         |   |   |         |        
|                               | Foreign |              |        | 100                 |   |                         |         | 448     |   |   |        | 111,176 |   |   |         | 6,505   |  
|                               |         |              |        |                     |   |                         |         |         |   |   |        |         |   |   |         |        
|Income tax (provision) benefit |         | $            | (4,449 | )                   |   | $                       | (26,185 | )       |   | $ | 68,750 |         |   | $ | (67,660 | )      
|                               |         |              |        |                     |   |                         |         |         |   |   |        |         |   |   |         |        

The tax benefits resulting from our asset
impairment charges are reflected in the deferred foreign tax
benefit.

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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



11.     Income
Taxes  (Continued)


Our income tax (provision) benefit reconciles to
the amount computed by applying the U.S. statutory rate to
income (loss) before income tax (provision) benefit as follows:

|                                                 |  |                |         |                     |  |                         |          |      |  |   |          |   |  |   |          |  
|------------------------------------------------ |  | -------------- | ------- | ------------------- |  | ----------------------- | -------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                 |  |                |         |                    
|                                                 |  |                |         | Predecessor Company
|                                                 |  | Successor      |         |                    
|                                                 |  | Company Two    |         | Ten Months          |  |                        
|                                                 |  | Months Ended   |         | Ended               |  | Year Ended December 31,
|                                                 |  | December 31,   |         | October 31,         |  |                        
|                                                 |  | 2002           |         | 2002                |  | 2001                    |          | 2000
|                                                 |  |                |         |                     |  |                         |          |     
|                                                 |  |                |         |                    
|                                                 |  | (In thousands) |         | (In thousands)     
|Income tax (provision) benefit at statutory rate |  | $              | (9,573  | )                   |  | $                       | (694,227 | )    |  | $ | 904,126  |   |  | $ | 112,171  |  
|State taxes (net of federal benefit)             |  |                | 2,117   |                     |  |                         | (7,785   | )    |  |   | 13,968   |   |  |   | (455     | )
|Foreign taxes                                    |  |                | 21,827  |                     |  |                         | (25,275  | )    |  |   | (67,699  | ) |  |   | (2,352   | )
|Non-consolidated subsidiary adjustments          |  |                | 434     |                     |  |                         | (72,541  | )    |  |   | 7,348    |   |  |   | (11,508  | )
|High yield discount obligations                  |  |                | (171    | )                   |  |                         | (215,632 | )    |  |   | (4,524   | ) |  |   | (3,985   | )
|Change in valuation allowance                    |  |                | (13,753 | )                   |  |                         | 158,191  |      |  |   | (376,194 | ) |  |   | (133,215 | )
|Loss on impairment charges                       |  |                |        |                     |  |                         |         |      |  |   | (366,492 | ) |  |   |         |  
|Intercompany transactions                        |  |                | (1,465  | )                   |  |                         | (9,775   | )    |  |   | (11,873  | ) |  |   |         |  
|Withholding tax and subpart F income             |  |                | (8,750  | )                   |  |                         | (47,638  | )    |  |   |         |   |  |   |         |  
|Reorganization items                             |  |                |        |                     |  |                         | 879,868  |      |  |   |         |   |  |   |         |  
|Other                                            |  |                | 4,885   |                     |  |                         | 8,629    |      |  |   | (29,910  | ) |  |   | (28,316  | )
|                                                 |  |                |         |                     |  |                         |          |      |  |   |          |   |  |   |          |  
|                                                 |  | $              | (4,449  | )                   |  | $                       | (26,185  | )    |  | $ | 68,750   |   |  | $ | (67,660  | )
|                                                 |  |                |         |                     |  |                         |          |      |  |   |          |   |  |   |          |  

Deferred tax assets and liabilities consist of
the following:

|                           |                    |                |          |                |  |   |          |         | 
|-------------------------- | ------------------ | -------------- | -------- | -------------- |  | - | -------- | ------- | 
|                           |                    | Successor      |          | Predecessor   
|                           |                    | Company        |          | Company       
|                           |                    | December 31,   |          | December 31,  
|                           |                    | 2002           |          | 2001          
|                           |                    |                |          |               
|                           |                    | (in thousands) |          | (in thousands)
|Deferred tax assets:       |                    |                |          |                |  |   |          |        
|                           | Loss carryforwards |                | $        | 294,955        |  |   | $        | 445,170 | 
|                           | Deferred interest  |                |          | 336            |  |   |          | 214,581 | 
|                           | Intangible assets  |                |          | 25,004         |  |   |          | 45,867  | 
|                           | Fixed assets       |                |          | 86,338         |  |   |          |        | 
|                           | Other              |                |          | 66,937         |  |   |          | 82,215  | 
|                           |                    |                |          |                |  |   |          |        
|                           |                    |                | 473,570  |                |  |   | 787,833  |        
|Valuation allowance        |                    |                | (446,842 | )              |  |   | (787,556 | )      
|                           |                    |                |          |                |  |   |          |        
|                           |                    |                | 26,728   |                |  |   | 277      |        
|                           |                    |                |          |                |  |   |          |        
|Deferred tax liabilities:  |                    |                |          |                |  |   |          |        
|                           | Intangible assets  |                |          | 5,439          |  |   |          | 14,180  | 
|                           | Other              |                |          | 25,676         |  |   |          | 1,231   | 
|                           |                    |                |          |                |  |   |          |        
|                           |                    |                | 31,115   |                |  |   | 15,411   |        
|                           |                    |                |          |                |  |   |          |        
|Net deferred tax liability |                    | $              | 4,387    |                |  | $ | 15,134   |        
|                           |                    |                |          |                |  |   |          |        

SFAS No. 109, Accounting for Income
Taxes, requires that deferred tax assets be reduced by a
valuation allowance if it is more likely than not that some
portion or all of the deferred tax asset will not be realized.
Our valuation allowance as of December 31, 2002 applies to
tax loss carryforwards, some temporary differences and tax
credit carryforwards that, in our opinion, are more likely than
not to expire

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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



11.     Income
Taxes  (Continued)


unused. Our foreign subsidiaries do not have
positive cumulative undistributed earnings and therefore no
deferred taxes have been recorded.

As of December 31, 2002, we had about
$123.4 million of net operating loss carryforwards for
U.S. federal income tax purposes that expire beginning in
2010. The timing and manner in which we will utilize the net
operating loss carryforwards in any year or in total may be
limited by the provisions of Internal Revenue Code
Section 382 regarding changes in our ownership.

As of December 31, 2002, net operating loss
carryforwards for our foreign subsidiaries were about
$177.3 million for Mexican income tax purposes,
$211.0 million for Argentine income tax purposes and
$58.3 million for Peruvian income tax purposes. These
carryforwards expire in various amounts through 2012. Our
foreign subsidiaries also had about $15.2 million of net
operating loss carryforwards for Chilean income tax purposes
that have no expiration date. In addition, our foreign
subsidiaries had about $267.9 million of net operating loss
carryforwards for Brazilian income tax purposes that have no
expiration date and that can only be utilized up to the limit of
30.0% of taxable income for the year. Our foreign subsidiaries
may be limited in their ability to use foreign tax net operating
losses in any single year depending on their ability to generate
sufficient taxable income.

As discussed in Note 1, we undertook a
reorganization under Chapter 11 of the United States
Bankruptcy Code. The primary effects of the reorganization on
our tax structure are as follows.

Nextel Communications ownership in us was
reduced below 80% in October 2002. As a result, we
deconsolidated from Nextel Communications for tax purposes and
are now required to file a separate tax return. We and our
domestic subsidiaries will elect to file a consolidated return
for business activities conducted after the deconsolidation. Our
results from operations through that date will be reported on
Nextel Communications consolidated tax return. The results
of our operations from the date of deconsolidation through the
end of the calendar year will be included in our consolidated
tax return.

As discussed in Note 1, we extinguished
approximately $2.3 billion of our secured redeemable notes
plus accrued interest and some other unsecured, non-trade debt
in exchange for the issuance of 3,920,000 shares of new common
stock. For U.S. tax purposes, this transaction caused us to
recognize cancellation of indebtedness income on the first day
of the Successor Companys new tax year. Internal Revenue
Code Section 108 provides that we are not required to
recognize taxable income with respect to the cancellation of
indebtedness.

As discussed in Note 1, certain
reorganization items were recorded for financial statement
purposes. In certain situations, these reorganization items
resulted in the adjustment of the financial statement basis of
certain assets, which resulted in the adjustment of certain
deferred tax assets and liabilities.

We had a tax sharing agreement with Nextel
Communications dated January 1, 1997, which was in effect
through November 11, 2002. On November 12, 2002, we
terminated the tax sharing agreement and entered into a tax
cooperation agreement with Nextel Communications. See
Note 15 for additional information.

12. Commitments and
Contingencies

Operating Lease Commitments.We lease various cell sites and office
facilities under operating leases. The remaining terms of our
cell site leases range from one to ten years and are generally
renewable, at our option, for additional terms. The remaining
terms of our office leases range from one to nine years. Total
rent expense under operating leases was $6.2 million during
the two months ended December 31, 2002, $35.4 million
during the ten months ended October 31, 2002,
$41.6 million during 2001 and $25.4 million during
2000.

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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



12. Commitments and
Contingencies  (Continued)


For years subsequent to December 31, 2002,
future minimum payments for all operating lease obligations that
have initial noncancelable lease terms exceeding one year, net
of rental income, are as follows (in thousands):

|           |  |   |         | 
|---------- |  | - | ------- | 
|2003       |  | $ | 31,008  | 
|2004       |  |   | 29,164  | 
|2005       |  |   | 25,839  | 
|2006       |  |   | 21,614  | 
|2007       |  |   | 20,076  | 
|Thereafter |  |   | 52,424  | 
|           |  |   |         | 
|           |  | $ | 180,125 | 
|           |  |   |         | 

Motorola Commitments.In August 2000, we entered into
agreements with Motorola, Inc. under which Motorola provides us
with infrastructure equipment and services, including
installation, implementation and training. We and Motorola have
also agreed to warranty and maintenance programs and specified
indemnity arrangements. We have also agreed to provide Motorola
with notice of our determination that Motorolas technology
is no longer suited to our needs at least six months before
publicly announcing or entering into a contract to purchase
equipment utilizing an alternate technology. In addition, if
Motorola manufactures, or elects to manufacture, the equipment
utilizing the alternate technology that we elect to deploy, we
must give Motorola the opportunity to supply 50% of our
infrastructure requirements for the equipment utilizing the
alternate technology for three years. These agreements also
contain other purchase commitments that, if not met, subject us
to payments based on a percentage of the commitment shortfall.
We met our commitment for 2000 of $230.0 million. We did
not meet our $230.0 million purchase commitment for 2001,
resulting in the payment of $8.0 million to Motorola during
2001 based on the shortfall of purchases. During 2001, we and
Motorola amended the infrastructure purchase agreements to
reduce our purchase commitments to $75.0 million for each
of 2002 and 2003. We did not meet our $75.0 million
purchase commitment for 2002, resulting in the payment of
$1.4 million to Motorola during 2002. The maximum payment
pursuant to commitment shortfall provisions under these
agreements for 2003 is $1.1 million.

Brazilian Contingencies.Nextel Brazil has received tax
assessment notices from state and federal Brazilian tax
authorities asserting deficiencies in tax payments related
primarily to value added taxes, import duties and matters
surrounding the definition and classification of equipment and
services. Nextel Brazil has filed various petitions disputing
these assessments. In some cases Nextel Brazil has received
favorable decisions, which are currently being appealed by the
respective governmental authority. In other cases Nextel
Brazils petitions have been denied and Nextel Brazil is
currently appealing those decisions. Nextel Brazil is also
disputing certain non-tax related claims. Additionally, Nextel
Brazil has filed a lawsuit against the Brazilian government
disputing the legality of an increase in certain social
contribution tax rates. Nextel Brazil believes it has
appropriately reserved for probable losses related to these tax
and non-tax matters in accordance with SFAS No. 5.
Additionally, we estimate the range of possible losses related
to these tax and non-tax matters to be between
$27.0 million and $31.0 million. From time to time,
Nextel Brazil may also receive additional tax assessment or
claim notices of a similar nature. Although we cannot currently
reasonably estimate a range of possible losses relating to these
unasserted assessments or claims, we continue to evaluate the
likelihood of possible losses, if any.

Mexican Tax Contingencies.On December 31, 2001, the Mexican
Congress created a new tax on the revenues of telecommunications
companies. Nextel Mexico, along with several other
telecommunications companies in Mexico, is currently disputing
this tax. The guidance received from legal counsel in Mexico
related to the expected outcome of this dispute had been
inconclusive. In order to minimize

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



12. Commitments and
Contingencies  (Continued)


potential penalties and interest upon resolution
of this dispute, Nextel Mexico chose to remit to the tax
authorities the new tax on some components of revenue for which
it anticipated an unfavorable resolution, and withhold payment
on other components believed to have a greater likelihood of a
favorable resolution. In November 2002, the Mexican tax
authority confirmed that Nextel Mexicos interconnection
services were exempt from payment under the telecommunications
tax. The tax authority also stated that, in its opinion,
dispatch, paging and value added services were taxable services
and had no applicable exceptions. As a result of this decision,
during the fourth quarter of 2002, Nextel Mexico recognized
$14.3 million in revenue, which represents the balance that
it had previously accrued as a tax contingency for interconnect
services from January 2002 through November 2002. In addition,
Nextel Mexico is no longer accruing taxes specifically related
to interconnection services. However, because the Mexican tax
authority did not exempt other telecommunications services,
Nextel Mexico is continuing to accrue and pay taxes related to
these services while legal proceedings continue while it
disputes this tax in court. The final outcome and related timing
of the resolution of this dispute is uncertain.

Legal Proceedings.We are subject to claims and legal
actions that may arise in the ordinary course of business. We do
not believe that any of these pending claims or legal actions
will have a material effect on our business or results of
operation. In addition, some of our competitors and others are
currently challenging in administrative or judicial proceedings
the validity of some of our licenses or the scope of services we
provide under those licenses, particularly in Mexico and Chile.
While we believe that our licenses are valid and that our
services are within the scope of our licenses, any revocation of
our licenses or limitation of our services would adversely
affect our business.

13. Capital Stock

In connection with our emergence from
Chapter 11 reorganization on November 12, 2002, we:



| |   |                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | filed a Restated Certificate of Incorporation
    authorizing an aggregate of 100,000,000 shares of new common
    stock, par value $0.001 per share, one share of special director
    preferred stock, par value $1.00 per share and 10,000,000 shares
    of undesignated preferred stock, par value $0.001 per share;
|
| |  | cancelled all shares of our preferred stock,
    common stock and other equity interests that existed prior to
    November 12, 2002; and                                                                                                                                                                                
|
| |  | issued 20,000,000 shares of our new common stock
    and one share of our special director preferred stock.                                                                                                                                                                                                              

Common Stock.Holders of our new common stock are
entitled to one vote per share on all matters submitted for
action by the stockholders and share equally, share for share,
if dividends are declared on the common stock. If our Company is
partially or completely liquidated, dissolved or wound up,
whether voluntarily or involuntarily, the holders of the common
stock are entitled to share ratably in the net assets remaining
after payment of all liquidation preferences, if any, applicable
to any outstanding preferred stock. There are no redemption or
sinking fund provisions applicable to the common stock. As of
December 31, 2002, there were 20,000,000 shares of our
common stock outstanding.

Special Director Preferred Stock.Motorola Credit Corporation is the
holder of our special director preferred stock. The special
director preferred stock gives Motorola Credit Corporation the
right to nominate, elect, remove and replace a single member of
our board of directors, provided that at the time any such
action is taken, Motorola Credit Corporation must be the holder
of a majority in principal amount of the aggregate indebtedness
outstanding under our international Motorola equipment financing
facility and our Brazil Motorola equipment financing facility.
If Motorola Credit Corporations debt position falls below
a majority interest, it will lose its right to nominate, elect,
remove or replace a member

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



13. Capital Stock 
(Continued)


of our board of directors. The special director
preferred stock has no dividend rights or other economic value,
except for a liquidation value equal to the par value of the
stock. In addition, the special director preferred stock has no
voting rights, except as described above and as may be required
by applicable law and except that the Certificate of
Incorporation may not be amended, altered or appealed so as to
change the number of directorships without the affirmative vote
of the holder of special director preferred stock. As of
December 31, 2002, there was one share of our special
director preferred stock outstanding.

Undesignated Preferred Stock.Our board of directors has the
authority to issue undesignated preferred stock of one or more
series and in connection with the creation of such series, to
fix by resolution the designation, voting powers, preferences
and relative, participating, optional and other special rights
of such series, and the qualifications, limitations and
restrictions thereof. As of December 31, 2002, we had not
issued any shares of undesignated preferred stock.

Common Stock Reserved for Issuance.As of December 31, 2002, under
our employee stock option plan, we had reserved for future
issuance 2,222,222 shares of our common stock.

The following is a discussion of capital stock
transactions that occurred prior to our reorganization:

Stock Splits and Reclassification.On June 12, 2000, we increased
the number of authorized shares of our common stock from
73,000,000 to 200,000,000, enabling us to complete a 4-for-1
common stock split.

On October 23, 2000, we amended our charter
to authorize 2,160,037,500 shares of capital stock, reclassified
our no par value common stock into class A and class B
common stock, par value $0.001 per share, and converted our
outstanding common stock to class B common stock, enabling
us to complete a 3-for-2 common stock split. Our authorized
capital stock as of that date consisted of:



| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | 1,500,000,000 shares of class A common
    stock, par value $0.001 per share;                     
|
| |  | 650,000,000 shares of class B common stock,
    par value $0.001 per share;                       
|
| |  | 12,500 shares of series A exchangeable
    redeemable preferred stock, par value $10.00 per share;
|
| |  | 25,000 shares of series B redeemable
    preferred stock, par value $10.00 per share; and         
|
| |  | 10,000,000 shares of undesignated preferred
    stock, par value $0.001 per share.                

Information for the ten months ended
October 31, 2002 and years ended December 31, 2001 and
2000 presented throughout these financial statements and related
notes has been adjusted to reflect both the 4-for-1 common stock
split and the 3-for-2 common stock split.

Preferred Stock Issuance and Conversion.Our series A preferred stock was
issued at an original liquidation preference of $100,000 per
share and thereafter, the liquidation preference on the
series A preferred stock accreted at an annual rate equal
to 13.625%. Except as required by law, the holders of the
series A preferred stock were not entitled to receive
dividends or other distributions. We had the right at any time
to redeem the series A preferred stock in full (or with the
consent of the holder of the affected shares of series A
preferred stock, in part) at a redemption price equal to 100% of
the accreted liquidation preference thereof on the redemption
date.

On April 4, 2000, we received an advance of
$77.7 million from Unrestricted Subsidiary Funding Company,
or USF Company, a wholly owned subsidiary of Nextel
Communications. This advance was received in connection with our
anticipated purchase of Motorola Internationals equity
interests in Nextel Peru and Nextel Brazil and the Chilean
specialized mobile radio companies, as discussed in Note 5.
On June 2, 2000, we issued 777 shares of our series A
preferred stock to USF Company as repayment of this

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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



13. Capital Stock 
(Continued)


intercompany advance. Additionally, on
April 7, 2000, we issued 1,500 shares of our series A
preferred stock to USF Company in exchange for cash proceeds of
$150.0 million.

Under a stock exchange agreement between us and
USF Company, on June 12, 2000, we exchanged all of the
5,266 shares of series A exchangeable redeemable preferred
stock outstanding at that time for 49,682,088 shares of our
class B common stock based on the accreted value of the
series A preferred stock at that date of
$587.9 million. Before June 12, 2000, the
series A preferred stock was not exchangeable for common
stock.

On June 29, 2000, we issued an additional
2,150 shares of our series A preferred stock to USF Company
in exchange for cash proceeds of $215.0 million. On
December 8, 2000, we issued 853 shares of our series A
preferred stock to USF Company to satisfy our tax liability
incurred on the exchange of our stock in Clearnet for stock in
TELUS to Nextel Communications and we issued 2,500 additional
shares to USF Company in exchange for cash proceeds of
$250.0 million. Under a separate stock exchange agreement
dated December 8, 2000, shares of the series A
preferred stock issued as of that date, plus dividends accreted
to the time of exchange, were exchangeable into shares of our
class B common stock at the option of the holder of those
shares of series A preferred stock at any time between
June 30, 2001 and December 1, 2002.

On April 25, 2001, we issued 2,500 shares of
our series A exchangeable redeemable preferred stock to USF
Company for cash proceeds of $250.0 million. On
July 16, 2001, we issued another 2,500 shares of our
series A exchangeable redeemable preferred stock to USF
Company for another $250.0 million in cash.

14.  Employee Stock and Benefit
Plans

NII Holdings Employee Stock Option Plans.Pursuant to our Revised Third Amended
Joint Plan of Reorganization, on November 12, 2002 we
adopted the 2002 Management Incentive Plan for the benefit of
our employees and directors. The Management Incentive Plan
provides equity and equity-related incentives to non-affiliate
directors, officers or key employees of, and consultants to, our
Company up to a maximum of 2,222,222 shares of common stock,
subject to adjustments. The Management Incentive Plan provides
for the issuance of options for the purchase of shares of common
stock, as well as grants of shares of common stock where the
recipients rights may vest upon the fulfillment of
specified performance targets or the recipients continued
employment by our Company for a specified period, or in which
the recipients rights may be subject to forfeiture upon a
termination of employment. The Management Incentive Plan also
provides for the issuance to non-affiliate directors, officers
or key employees of, and consultants to, our Company of stock
appreciation rights whose value is tied to the market value per
share, as defined in the Management Incentive Plan, of the
common stock, and performance units that entitle the recipients
to payments upon the attainment of specified performance goals.

On November 12, 2002, our Board of Directors
approved the grant of options to officers, directors and
employees to purchase 2,219,100 shares of our new common stock.
Thirty percent of the options vested on the grant date, thirty
percent will vest in November 2003, thirty percent will
vest in November 2004 and the remaining ten percent will
vest in November 2005, all subject to certain conditions.

In connection with our Revised Third Amended
Joint Plan of Reorganization, on November 12, 2002 our NII
Holdings, Inc. 1997 Employee Stock Option Plan and Nextel
International, Inc. Incentive Equity

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



14.  Employee Stock and Benefit
Plans  (Continued)


Plan were terminated and all options issued under
the plans were cancelled. The following is a description of
those plans:

In June 1997, our board of directors adopted the
Nextel International, Inc. 1997 Employee Stock Option Plan,
under which eligible employees participated. Generally, options
outstanding under this plan:



| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | were granted at fair value, based on periodic
    valuations of NII Holdings in accordance with the terms of the
    plan;
|
| |  | vested monthly over a four year service period;
    and                                                                   
|
| |  | expired ten years subsequent to the award date.                                                                           

In addition, holders of shares of our
class B common stock issued upon the exercise of options
under the 1997 Employee Stock Option Plan were entitled to put
rights which, subject to some conditions, required us to
repurchase those shares from them.

On June 12, 2000, our board of directors
ratified the Nextel International, Inc. Incentive Equity Plan
that was adopted by the plan administration committee on
May 25, 2000. The plan provided for awards of option
rights, appreciation rights, restricted shares, deferred shares
and performance shares to NII Holdings nonaffiliate
directors, officers, including officers who were members of the
board of directors, and other key employees, consultants and
advisors with respect to 30,000,000 shares of common stock.
Options to purchase shares of common stock could have been at
prices equal to or greater than market price on the date of
grant. Generally, options outstanding under this plan vested
over a four year service period and expired ten years subsequent
to the award.

On May 7, 2001, our plan administration
committee approved the grant of options to our employees under
our incentive equity plan. These options vested over a
three-year period, with 50% vesting on the first anniversary of
the grant date, 25% vesting on the second anniversary of the
grant date and 25% vesting on the third anniversary of the grant
date.

A summary of the activity under our stock option
plans is as follows:

|                               |            |         |            |                  |   |   |      |       | 
|------------------------------ | ---------- | ------- | ---------- | ---------------- | - | - | ---- | ----- | 
|                               |            |         |            | Weighted Average
|Predecessor Company            |            | Options |            | Exercise Price  
|                               |            |         |            |                 
|Outstanding, December 31, 1999 |            |         | 11,890,014 |                  |   | $ | 3.39 |      
|                               | Granted    |         |            | 11,952,750       |   |   |      | 10.85 | 
|                               | Exercised  |         |            | (1,014,198       | ) |   |      | 1.70  | 
|                               | Canceled   |         |            | (144,939         | ) |   |      | 6.78  | 
|                               |            |         |            |                  |   |   |      |      
|Outstanding, December 31, 2000 |            |         | 22,683,627 |                  |   |   | 7.35 |      
|                               | Granted    |         |            | 9,129,875        |   |   |      | 5.00  | 
|                               | Exercised  |         |            |                 |   |   |      |      | 
|                               | Canceled   |         |            | (2,826,876       | ) |   |      | 5.97  | 
|                               |            |         |            |                  |   |   |      |      
|Outstanding, December 31, 2001 |            |         | 28,986,626 |                  |   |   | 6.75 |      
|                               | Granted    |         |            |                 |   |   |      |      | 
|                               | Exercised  |         |            |                 |   |   |      |      | 
|                               | Terminated |         |            | (28,986,626      | ) |   |      | 6.75  | 
|                               |            |         |            |                  |   |   |      |      
|Outstanding, October 31, 2002  |            |         |           |                  |   |   |     |      
|                               |            |         |            |                  |   |   |      |      
|Exercisable, December 31, 2000 |            |         | 8,065,443  |                  |   |   | 3.06 |      
|                               |            |         |            |                  |   |   |      |      
|Exercisable, December 31, 2001 |            |         | 9,294,575  |                  |   |   | 3.30 |      
|                               |            |         |            |                  |   |   |      |      

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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



14.  Employee Stock and Benefit
Plans  (Continued)


|                               |           |         |           |                  |  |   |      |      | 
|------------------------------ | --------- | ------- | --------- | ---------------- |  | - | ---- | ---- | 
|                               |           |         |           | Weighted Average
|Successor Company              |           | Options |           | Exercise Price  
|                               |           |         |           |                 
|Outstanding, October 31, 2002  |           |         |          |                  |  | $ |     |     
|                               | Granted   |         |           | 2,219,100        |  |   |      | 2.50 | 
|                               | Exercised |         |           |                 |  |   |      |     | 
|                               | Canceled  |         |           |                 |  |   |      |     | 
|                               |           |         |           |                  |  |   |      |     
|Outstanding, December 31, 2002 |           |         | 2,219,100 |                  |  |   | 2.50 |     
|                               |           |         |           |                  |  |   |      |     
|Exercisable, December 31, 2002 |           |         | 665,730   |                  |  |   | 2.50 |     
|                               |           |         |           |                  |  |   |      |     

As of December 31, 2002, the weighted
average life remaining of outstanding stock options was
9.9 years.

We did not grant any options during the ten
months ended October 31, 2002. All options that we granted
during the two months ended December 31, 2002 and the year
ended December 31, 2001 had an exercise price equal to the
fair value at the date of grant. The weighted average exercise
price and weighted average fair value of options granted during
the two months ended December 31, 2002, and the years ended
December 31, 2001 and December 31, 2000 are as follows:

|                                                                                                     |  |                   |       |                  |  |   |      | 
|---------------------------------------------------------------------------------------------------- |  | ----------------- | ----- | ---------------- |  | - | ---- | 
|                                                                                                     |  | Weighted Average  |       | Weighted Average
|                                                                                                     |  | Exercise Price of |       | Fair Value of   
|                                                                                                     |  | Options Granted   |       | Options Granted 
|                                                                                                     |  |                   |       |                 
|Options granted during the two months ended
    December 31, 2002                                    |  | $                 | 2.50  |                  |  | $ | 1.67 | 
|Options granted during the year ended
    December 31, 2001                                          |  |                   | 5.00  |                  |  |   | 2.98 | 
|Options granted during the year ended
    December 31, 2000 with exercise price equal to fair value  |  |                   | 11.83 |                  |  |   | 6.45 | 
|Options granted during the year ended
    December 31, 2000 with exercise price less than fair value |  |                   | 4.01  |                  |  |   | 4.32 | 

Nextel Communications Employee Stock Option
Plan.Some of our employees
participate in the Nextel Communications, Inc. Incentive Equity
Plan. Generally, non-qualified stock options outstanding under
this Plan:



| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | are granted at prices equal to the market value
    of Nextel Communications stock on the grant date;
|
| |  | vest ratably over a four year service period; and                                                     
|
| |  | expire ten years subsequent to the award date.                                                        

If an option holders employment is
involuntarily terminated within one year after the effective
date of a change of control of Nextel Communications, then that
holders unvested options will immediately vest or
otherwise become payable, subject to certain limits.

In connection with our emergence from
Chapter 11 reorganization on November 12, 2002, we are
no longer a wholly-owned subsidiary of Nextel Communications and
our employees are no longer considered employees of Nextel
Communications. As a result, vesting of all options granted by
Nextel Communications to our employees ceased upon our emergence
and all unvested options were cancelled. In addition, all
options granted by Nextel Communications to our employees after
November 12, 1998 that were vested on November 12,
2002 are exercisable only until November 12, 2003.

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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



14.  Employee Stock and Benefit
Plans  (Continued)


A summary of the activity under the Nextel
Communications, Inc. Incentive Equity Plan related to our
employees is as follows:

|                               |             |         |           |                  |   |   |       |       | 
|------------------------------ | ----------- | ------- | --------- | ---------------- | - | - | ----- | ----- | 
|                               |             |         |           | Weighted Average
|Predecessor Company            |             | Options |           | Exercise Price  
|                               |             |         |           |                 
|Outstanding, December 31, 1999 |             |         | 2,196,742 |                  |   | $ | 15.04 |      
|                               | Granted     |         |           | 2,117,499        |   |   |       | 61.53 | 
|                               | Transferred |         |           | 1,190,217        |   |   |       | 32.14 | 
|                               | Exercised   |         |           | (1,201,564       | ) |   |       | 12.06 | 
|                               | Canceled    |         |           | (382,720         | ) |   |       | 21.35 | 
|                               |             |         |           |                  |   |   |       |      
|Outstanding, December 31, 2000 |             |         | 3,920,174 |                  |   |   | 38.13 |      
|                               | Granted     |         |           |                 |   |   |       |      | 
|                               | Transferred |         |           | 139,209          |   |   |       | 28.71 | 
|                               | Exercised   |         |           | (62,884          | ) |   |       | 12.23 | 
|                               | Canceled    |         |           | (255,661         | ) |   |       | 50.37 | 
|                               |             |         |           |                  |   |   |       |      
|Outstanding, December 31, 2001 |             |         | 3,740,838 |                  |   |   | 37.34 |      
|                               | Granted     |         |           |                 |   |   |       |      | 
|                               | Transferred |         |           | (126,463         | ) |   |       | 29.78 | 
|                               | Exercised   |         |           | (30,000          | ) |   |       | 7.56  | 
|                               | Canceled    |         |           | (1,309,822       | ) |   |       | 49.84 | 
|                               |             |         |           |                  |   |   |       |      
|Outstanding, October 31, 2002  |             |         | 2,274,553 |                  |   |   | 30.93 |      
|                               |             |         |           |                  |   |   |       |      
|Exercisable, December 31, 2000 |             |         | 623,089   |                  |   |   | 15.04 |      
|                               |             |         |           |                  |   |   |       |      
|Exercisable, December 31, 2001 |             |         | 1,619,594 |                  |   |   | 27.40 |      
|                               |             |         |           |                  |   |   |       |      

|                               |             |         |           |                  |   |   |       |       | 
|------------------------------ | ----------- | ------- | --------- | ---------------- | - | - | ----- | ----- | 
|                               |             |         |           | Weighted Average
|Successor Company              |             | Options |           | Exercise Price  
|                               |             |         |           |                 
|Outstanding, October 31, 2002  |             |         | 2,274,553 |                  |   | $ | 30.93 |      
|                               | Granted     |         |           |                 |   |   |       |      | 
|                               | Transferred |         |           |                 |   |   |       |      | 
|                               | Exercised   |         |           | (95,000          | ) |   |       | 11.80 | 
|                               | Canceled    |         |           | (155,000         | ) |   |       | 22.10 | 
|                               |             |         |           |                  |   |   |       |      
|Outstanding, December 31, 2002 |             |         | 2,024,553 |                  |   |   | 32.51 |      
|                               |             |         |           |                  |   |   |       |      
|Exercisable, December 31, 2002 |             |         | 2,024,553 |                  |   |   | 32.51 |      
|                               |             |         |           |                  |   |   |       |      

Following is a summary of the status of employee
stock options outstanding and exercisable as of
December 31, 2002:

|               |                |                                     |  |                  |           |                  |  |  |            |  |  |   |       | 
|-------------- | -------------- | ----------------------------------- |  | ---------------- | --------- | ---------------- |  |  | ---------- |  |  | - | ----- | 
|               |                |                                    
|               |                | Options Outstanding and Exercisable
|               |                |                                    
|Exercise Price |                |                                     |  | Weighted Average |           | Weighted Average
|Range          |                | Shares                              |  | Life Remaining   |           | Exercise Price  
|               |                |                                     |  |                  |           |                 
|               | $ 6.75  11.41 |                                     |  |                  | 265,799   |                  |  |  | 6.15 years |  |  | $ | 8.63  | 
|               | 13.64  35.13  |                                     |  |                  | 1,009,482 |                  |  |  | 5.94 years |  |  |   | 17.19 | 
|               | 42.69  61.94  |                                     |  |                  | 749,272   |                  |  |  | 7.13 years |  |  |   | 61.61 | 
|               |                |                                     |  |                  |           |                  |  |  |            |  |  |   |       | 
|               |                |                                     |  |                  | 2,024,553 |                  |  |  |            |  |  |   |       | 
|               |                |                                     |  |                  |           |                  |  |  |            |  |  |   |       | 

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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



14.  Employee Stock and Benefit
Plans  (Continued)


Fair Value Disclosures.The fair value of each option grant is
estimated on the date of grant using the Black-Scholes
option-pricing model as prescribed by SFAS No. 123 using
the following assumptions:

|                                |  |      |      |      |  |      |      |   |  |  |             |  
|------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ----------- | -
|                                |  | 2002 |      | 2001 |  | 2000
|                                |  |      |      |      |  |     
|Expected stock price volatility |  |      | 83   | %    |  |      | 66   | % |  |  | 51  57     | %
|Risk-free interest rate         |  |      | 2.68 | %    |  |      | 4.85 | % |  |  | 6.10  6.84 | %
|Expected life in years          |  |      | 5    |      |  |      | 5    |   |  |  | 5           |  
|Expected dividend yield         |  |      | 0.00 | %    |  |      | 0.00 | % |  |  | 0.00        | %

The Black-Scholes option-pricing model was
developed for use in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable. In
addition, option-pricing models such as the Black-Scholes model
require the input of highly subjective assumptions, including
the expected stock price volatility. Because stock options have
characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, we believe that
the existing models do not necessarily provide a reliable single
measure of the fair value of the stock options. The weighted
average estimated fair value of the stock options granted during
the two months ended December 31, 2002 was $1.67, during
the year ended December 31, 2001 was $2.98 and during the
year ended December 31, 2000 was $10.11.

Generally, our stock options are
non-transferable, except to family members or by will, as
provided for in the Management Incentive Plan, and the actual
value of the stock options that a recipient may realize, if any,
will depend on the excess of the market price on the date of
exercise over the exercise price. Since our new common stock did
not begin trading publicly until November 21, 2002, we
based our assumptions for stock price volatility on the
historical variance of weekly closing prices of Nextel
Communications class A common stock.

Employee Benefit Plan.Until October 31, 2002, some of
our officers and employees were eligible to participate in
Nextel Communications defined contribution plan
established pursuant to section 401(k) of the Internal
Revenue Code. Participants were allowed to contribute up to 15%
of their compensation and be fully vested over four years of
employment. We provided a matching contribution of 100% of the
first 4% of salary contributed by the employee. Effective with
our emergence from Chapter 11 reorganization, our officers
and employees are no longer eligible to participate in Nextel
Communications defined contribution plan.

Our contributions were about $251,000 during the
ten months ended October 31, 2002, $304,000 during 2001 and
$70,000 during 2000.

Effective January 1, 2003, we implemented a
defined contribution plan established pursuant to
section 401(k) of the Internal Revenue Code under which
some of our officers and employees are eligible to participate.
Participants may contribute up to 15% of their compensation and
be fully vested over four years of employment. We provide a
matching contribution of 100% of the first 4% of salary
contributed by the employee.

15.  Related Party
Transactions

Transactions with Nextel Communications,
Inc.

In connection with our emergence from
Chapter 11 reorganization, on November 12, 2002 Nextel
Communications purchased, through a rights offering,
$50.9 million new notes of NII Holdings (Cayman) and
5,696,521 shares of the common stock that we issued, together
with 1,422,167 shares of common stock that we issued to Nextel
Communications in connection with the cancellation of NII
Holdings senior

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



15.  Related Party
Transactions  (Continued)


redeemable notes and in satisfaction of claims by
Nextel Communications under our 1997 tax sharing agreement. As a
result, Nextel Communications owned about 35.6% of our issued
and outstanding shares of new common stock as of
December 31, 2002.

The following are descriptions of other
significant transactions consummated with Nextel Communications
on November 12, 2002 under our confirmed plan of
reorganization.

New
Spectrum Use and Build-Out Agreement

On November 12, 2002, we and Nextel
Communications entered into a new spectrum use and build-out
agreement. Under this agreement, certain of our subsidiaries
committed to complete the construction of our network in the
Baja region of Mexico, in exchange for proceeds from Nextel
Communications of $25.0 million and $25.0 million that
Nextel Communications placed in escrow to be disbursed as costs
are incurred in connection with the build-out. The balance of
the escrowed funds will be disbursed at the earlier of
18 months or completion of the build-out.

Tax
Cooperation Agreement with Nextel Communications

We had a tax sharing agreement with Nextel
Communications, dated January 1, 1997, which was in effect
through November 11, 2002. On November 12, 2002, we
terminated the tax sharing agreement and entered into a tax
cooperation agreement with Nextel Communications under which we
and Nextel Communications agreed to retain, for 20 years
following the effective date of our plan of reorganization,
books, records, accounting data and other information related to
the preparation and filing of consolidated tax returns filed for
Nextel Communications consolidated group.

Amended
and Restated Overhead Services Agreement with Nextel
Communications

We had an overhead services agreement with Nextel
Communications in effect through November 11, 2002. On
November 12, 2002, we entered into an amended and restated
overhead services agreement, under which Nextel Communications
will provide us, for agreed upon service fees, certain
(i) information technology services, (ii) payroll and
employee benefit services, (iii) procurement services,
(iv) engineering and technical services, (v) marketing
and sales services, and (vi) accounts payable services.
Either we or Nextel Communication can terminate one or more of
the other services at any time with 30 days advance notice.
Effective January 1, 2003, we no longer use Nextel
Communications payroll and employee benefit services,
procurement services or accounts payable services.

We periodically reimburse Nextel Communications
for costs incurred under the overhead services agreements, which
totaled $0.1 million during the two months ended
December 31, 2002, $2.0 million during the ten months
ended October 31, 2002, $4.0 million during 2001, and
$1.4 million during 2000. We also reimburse Nextel
Communications for some vendor payments made on our behalf. As
of December 31, 2002, our total liability due to Nextel
Communications was $0.9 million, while as of
December 31, 2001, it was $31.8 million, which
consisted primarily of amounts due under the tax sharing
agreement we had with Nextel Communications and reimbursements
for vendor payments made on our behalf.

Third
Amended and Restated Trademark License Agreement with Nextel
Communications, Inc.

On November 12, 2002, we entered into a
third amended and restated trademark license agreement with
Nextel Communications, which superseded a previous trademark
license agreement. Under the new agreement, Nextel
Communications granted to us an exclusive, royalty-free license
to use within Latin America, excluding Puerto Rico, certain
trademarks, including but not limited to the mark
Nextel. The

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NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



15.  Related Party
Transactions  (Continued)


license agreement continues indefinitely unless
terminated by Nextel Communications upon 60 days notice if
we commit one of several specified defaults and fail to cure the
default within a 60 day period.



| |                     
| | --------------------
| | Standstill Agreement

As part of our Revised Third Amended Joint Plan
of Reorganization, we, Nextel Communications and certain of our
noteholders entered into a Standstill Agreement, pursuant to
which (i) Nextel Communications and its affiliates agreed
not to purchase (or take any other action to acquire) any of our
equity securities, or other securities convertible into our
equity securities, that would result in Nextel Communications
and its affiliates holding, in the aggregate, more than 49.9% of
the equity ownership of us on a fully diluted basis without
prior approval of a majority of the non-Nextel Communications
members of the Board of Directors and (ii) we agreed not to
take any action that would cause Nextel Communications to hold
more than 49.9% of the common equity of us on a fully diluted
basis.

Transactions with Motorola, Inc.

We have a number of important strategic and
commercial relationships with Motorola. We purchase handsets and
accessories and a substantial portion of our digital mobile
network equipment from Motorola. Our equipment purchase
agreements with Motorola govern our rights and obligations
regarding purchases of digital mobile network equipment
manufactured by Motorola. We have minimum purchase commitments
under these agreements that if not met subject us to payments
based on a percentage of the commitment shortfall. We also have
various equipment agreements with Motorola. Through October
2002, and 2001 and 2000, we also had handset financing
agreements with Motorola. We and Motorola have agreed to
warranty and maintenance programs and specified indemnity
arrangements. We also pay Motorola for handset service and
repair and training and are reimbursed for costs we incur under
various marketing and promotional arrangements.

Our purchases from Motorola during the two months
ended December 31, 2002, the ten months ended
October 31, 2002, and the years ended December 31,
2001 and 2000 consisted of the following:

|                                 |  |                |        |                     |  |                         |         |      |  |   |         |  |  |   |         | 
|-------------------------------- |  | -------------- | ------ | ------------------- |  | ----------------------- | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|                                 |  |                |        |                    
|                                 |  | Successor      |        | Predecessor Company
|                                 |  | Company        |        |                    
|                                 |  | Two Months     |        | Ten Months          |  |                        
|                                 |  | Ended          |        | Ended               |  | Year Ended December 31,
|                                 |  | December 31,   |        | October 31,         |  |                        
|                                 |  | 2002           |        | 2002                |  | 2001                    |         | 2000
|                                 |  |                |        |                     |  |                         |         |     
|                                 |  |               
|                                 |  | (in thousands)
|Digital infrastructure equipment |  | $              | 1,228  |                     |  | $                       | 16,272  |      |  | $ | 200,371 |  |  | $ | 368,141 | 
|Handsets                         |  |                | 18,708 |                     |  |                         | 93,670  |      |  |   | 186,463 |  |  |   | 146,796 | 
|Software maintenance             |  |                | 2,676  |                     |  |                         | 9,550   |      |  |   | 9,148   |  |  |   | 1,353   | 
|Training                         |  |                | 24     |                     |  |                         | 174     |      |  |   | 1,120   |  |  |   | 635     | 
|                                 |  |                |        |                     |  |                         |         |      |  |   |         |  |  |   |         | 
|                                 |  | $              | 22,636 |                     |  | $                       | 119,666 |      |  | $ | 397,102 |  |  | $ | 516,925 | 
|                                 |  |                |        |                     |  |                         |         |      |  |   |         |  |  |   |         | 

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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



15.  Related Party
Transactions  (Continued)


Accounts payable due to Motorola as of
December 31, 2002 and 2001 are as follows:

|                                       |                       |                |        |                |  |   |        |         | 
|-------------------------------------- | --------------------- | -------------- | ------ | -------------- |  | - | ------ | ------- | 
|                                       |                       | Successor      |        | Predecessor   
|                                       |                       | Company        |        | Company       
|                                       |                       | December 31,   |        | December 31,  
|                                       |                       | 2002           |        | 2001          
|                                       |                       |                |        |               
|                                       |                       | (in thousands) |        | (in thousands)
|Deferred handset financing obligations |                       | $              | 44,812 |                |  | $ | 93,802 |        
|Equipment purchases                    |                       |                | 4,441  |                |  |   | 11,573 |        
|Other                                  |                       |                | 2,026  |                |  |   | 2,695  |        
|                                       |                       |                |        |                |  |   |        |        
|                                       | Total due to Motorola |                | $      | 51,279         |  |   | $      | 108,070 | 
|                                       |                       |                |        |                |  |   |        |        

In addition, we had $328.2 million and
$417.8 million in debt due to Motorola Credit Corporation
as of December 31, 2002 and 2001. As further discussed in
Note 4, on November 12, 2002, as part of our plan of
reorganization, we entered into a new master equipment financing
agreement and a new equipment financing agreement with Motorola
Credit Corporation. We also repaid $56.7 million in
outstanding principal plus accrued interest to Motorola Credit
Corporation under our international Motorola incremental
equipment financing facility.

16. Segment Information

We operate in four reportable segments:
(1) Mexico, (2) Brazil, (3) Peru and
(4) Argentina. The operations of all other businesses that
fall below the reporting thresholds are included in the
Corporate and other segment below. The Corporate and
other segment includes our Chilean operating companies, which we
purchased in May and August of 2000, and the corporate entity
that held our equity investment in Japan and our investment in
Canada prior to our sale of those investments during the fourth
quarter of 2001. We evaluate performance of these segments and
allocate resources to them based on earnings before interest,
taxes, depreciation and amortization and other charges, such as
reorganization items and impairment, restructuring and other
charges.

|                                                               |  |                |         |        |  |      |        |           |  |           |        |              |  |              |        |   |  |   |         |   |  |   |      |   |  |   |         |  
|-------------------------------------------------------------- |  | -------------- | ------- | ------ |  | ---- | ------ | --------- |  | --------- | ------ | ------------ |  | ------------ | ------ | - |  | - | ------- | - |  | - | ---- | - |  | - | ------- | -
|                                                               |  |                |         |        |  |      |        |           |  | Corporate |        | Intercompany |  |             
|                                                               |  | Mexico         |         | Brazil |  | Peru |        | Argentina |  | and other |        | Eliminations |  | Consolidated
|                                                               |  |                |         |        |  |      |        |           |  |           |        |              |  |             
|                                                               |  |               
|                                                               |  | (in thousands)
|Successor Company  Two Months Ended
    December 31, 2002     |  |                |         |        |  |      |        |           |  |           |        |              |  |              |        |  
|Operating revenues                                             |  | $              | 95,682  |        |  | $    | 21,990 |           |  | $         | 14,729 |              |  | $            | 10,727 |   |  | $ | 239     |   |  | $ | (89  | ) |  | $ | 143,278 |  
|                                                               |  |                |         |        |  |      |        |           |  |           |        |              |  |              |        |   |  |   |         |   |  |   |      |   |  |   |         |  
|Segment earnings (losses)                                      |  |                | 41,060  |        |  |      | 4,663  |           |  |           | 3,195  |              |  |              | 2,821  |   |  |   | (4,442  | ) |  |   |     |   |  |   | 47,297  |  
|Depreciation and amortization                                  |  |                | (10,256 | )      |  |      | (263   | )         |  |           | (323   | )            |  |              | (212   | ) |  |   | (367    | ) |  |   | 346  |   |  |   | (11,075 | )
|                                                               |  |                |         |        |  |      |        |           |  |           |        |              |  |              |        |   |  |   |         |   |  |   |      |   |  |   |         |  
|Operating income (loss)                                        |  |                | 30,804  |        |  |      | 4,400  |           |  |           | 2,872  |              |  |              | 2,609  |   |  |   | (4,809  | ) |  |   | 346  |   |  |   | 36,222  |  
|Interest expense                                               |  |                | (1,447  | )      |  |      | (5,747 | )         |  |           | (252   | )            |  |              | (172   | ) |  |   | (3,788  | ) |  |   | 937  |   |  |   | (10,469 | )
|Interest income                                                |  |                | 270     |        |  |      | 1,178  |           |  |           | 6      |              |  |              | 16     |   |  |   | 1,264   |   |  |   | (937 | ) |  |   | 1,797   |  
|Foreign currency transaction (losses) gains, net               |  |                | (409    | )      |  |      | 1,422  |           |  |           | 624    |              |  |              | 285    |   |  |   | 34      |   |  |   | (599 | ) |  |   | 1,357   |  
|Other (expense) income, net                                    |  |                | (1,456  | )      |  |      | (950   | )         |  |           | 6,983  |              |  |              | (60    | ) |  |   | (6,074  | ) |  |   |     |   |  |   | (1,557  | )
|                                                               |  |                |         |        |  |      |        |           |  |           |        |              |  |              |        |   |  |   |         |   |  |   |      |   |  |   |         |  
|Income (loss) from continuing operations before
    income tax |  | $              | 27,762  |        |  | $    | 303    |           |  | $         | 10,233 |              |  | $            | 2,678  |   |  | $ | (13,373 | ) |  | $ | (253 | ) |  | $ | 27,350  |  
|                                                               |  |                |         |        |  |      |        |           |  |           |        |              |  |              |        |   |  |   |         |   |  |   |      |   |  |   |         |  
|Capital expenditures from continuing operations                |  | $              | 16,195  |        |  | $    | 1,547  |           |  | $         | 4,269  |              |  | $            | 1,932  |   |  | $ | 586     |   |  | $ |     |   |  | $ | 24,529  |  
|                                                               |  |                |         |        |  |      |        |           |  |           |        |              |  |              |        |   |  |   |         |   |  |   |      |   |  |   |         |  

F-103



---



##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



16. Segment Information 
(Continued)


|                                                               |  |                |          |        |  |      |          |           |  |           |          |              |  |              |          |   |  |   |           |   |  |   |         |   |  |   |            |  
|-------------------------------------------------------------- |  | -------------- | -------- | ------ |  | ---- | -------- | --------- |  | --------- | -------- | ------------ |  | ------------ | -------- | - |  | - | --------- | - |  | - | ------- | - |  | - | ---------- | -
|                                                               |  |                |          |        |  |      |          |           |  | Corporate |          | Intercompany |  |             
|                                                               |  | Mexico         |          | Brazil |  | Peru |          | Argentina |  | and other |          | Eliminations |  | Consolidated
|                                                               |  |                |          |        |  |      |          |           |  |           |          |              |  |             
|                                                               |  |               
|                                                               |  | (in thousands)
|Predecessor Company  Ten Months
    Ended October 31, 2002    |  |                |          |        |  |      |          |           |  |           |          |              |  |              |          |  
|Operating revenues                                             |  | $              | 351,556  |        |  | $    | 152,780  |           |  | $         | 68,011   |              |  | $            | 63,790   |   |  | $ | 1,361     |   |  | $ | (403    | ) |  | $ | 637,095    |  
|                                                               |  |                |          |        |  |      |          |           |  |           |          |              |  |              |          |   |  |   |           |   |  |   |         |   |  |   |            |  
|Segment earnings (losses)                                      |  |                | 101,381  |        |  |      | 13,650   |           |  |           | 18,474   |              |  |              | 12,465   |   |  |   | (23,796   | ) |  |   |        |   |  |   | 122,174    |  
|Impairment, restructuring and other charges                    |  |                |         |        |  |      | (695     | )         |  |           | (23      | )            |  |              | (8,542   | ) |  |   | (6,548    | ) |  |   |        |   |  |   | (15,808    | )
|Depreciation and amortization                                  |  |                | (43,648  | )      |  |      | (9,977   | )         |  |           | (5,068   | )            |  |              | (2,231   | ) |  |   | (5,733    | ) |  |   | 1,680   |   |  |   | (64,977    | )
|                                                               |  |                |          |        |  |      |          |           |  |           |          |              |  |              |          |   |  |   |           |   |  |   |         |   |  |   |            |  
|Operating income (loss)                                        |  |                | 57,733   |        |  |      | 2,978    |           |  |           | 13,383   |              |  |              | 1,692    |   |  |   | (36,077   | ) |  |   | 1,680   |   |  |   | 41,389     |  
|Interest expense                                               |  |                | (2,921   | )      |  |      | (32,458  | )         |  |           | (2,253   | )            |  |              | (9,485   | ) |  |   | (128,245  | ) |  |   | 23,783  |   |  |   | (151,579   | )
|Interest income                                                |  |                | 438      |        |  |      | 22,579   |           |  |           | 30       |              |  |              | 167      |   |  |   | 8,378     |   |  |   | (27,664 | ) |  |   | 3,928      |  
|Foreign currency transaction losses, net                       |  |                | (17,194  | )      |  |      | (27,669  | )         |  |           | (1,030   | )            |  |              | (137,820 | ) |  |   | (22       | ) |  |   | 599     |   |  |   | (183,136   | )
|Reorganization items, net                                      |  |                | (46,814  | )      |  |      | (33,658  | )         |  |           | (31,030  | )            |  |              | (4,112   | ) |  |   | 2,281,829 |   |  |   | 14,008  |   |  |   | 2,180,223  |  
|Gain on extinguishment of debt, net                            |  |                |         |        |  |      |         |           |  |           |         |              |  |              |         |   |  |   | 101,598   |   |  |   |        |   |  |   | 101,598    |  
|Other (expense) income, net                                    |  |                | (3,071   | )      |  |      | (3,703   | )         |  |           | (530     | )            |  |              | (1,954   | ) |  |   | 340       |   |  |   |        |   |  |   | (8,918     | )
|                                                               |  |                |          |        |  |      |          |           |  |           |          |              |  |              |          |   |  |   |           |   |  |   |         |   |  |   |            |  
|(Loss) income from continuing operations before
    income tax |  | $              | (11,829  | )      |  | $    | (71,931  | )         |  | $         | (21,430  | )            |  | $            | (151,512 | ) |  | $ | 2,227,801 |   |  | $ | 12,406  |   |  | $ | 1,983,505  |  
|                                                               |  |                |          |        |  |      |          |           |  |           |          |              |  |              |          |   |  |   |           |   |  |   |         |   |  |   |            |  
|Capital expenditures from continuing operations                |  | $              | 100,651  |        |  | $    | 20,521   |           |  | $         | 12,883   |              |  | $            | 12,190   |   |  | $ | 1,971     |   |  | $ |        |   |  | $ | 148,216    |  
|                                                               |  |                |          |        |  |      |          |           |  |           |          |              |  |              |          |   |  |   |           |   |  |   |         |   |  |   |            |  
|Predecessor Company  Year Ended
    December 31, 2001         |  |                |          |        |  |      |          |           |  |           |          |              |  |              |          |  
|Operating revenues                                             |  | $              | 289,335  |        |  | $    | 171,138  |           |  | $         | 64,952   |              |  | $            | 135,320  |   |  | $ | 2,240     |   |  | $ | (539    | ) |  | $ | 662,446    |  
|                                                               |  |                |          |        |  |      |          |           |  |           |          |              |  |              |          |   |  |   |           |   |  |   |         |   |  |   |            |  
|Segment earnings (losses)                                      |  |                | 15,933   |        |  |      | (67,310  | )         |  |           | 5,370    |              |  |              | 2,390    |   |  |   | (44,152   | ) |  |   |        |   |  |   | (87,769    | )
|Impairment, restructuring and other charges                    |  |                | (433,945 | )      |  |      | (679,440 | )         |  |           | (171,590 | )            |  |              | (262,541 | ) |  |   | (33,648   | ) |  |   |        |   |  |   | (1,581,164 | )
|Depreciation and amortization                                  |  |                | (67,106  | )      |  |      | (73,026  | )         |  |           | (26,117  | )            |  |              | (44,507  | ) |  |   | (8,724    | ) |  |   | 918     |   |  |   | (218,562   | )
|                                                               |  |                |          |        |  |      |          |           |  |           |          |              |  |              |          |   |  |   |           |   |  |   |         |   |  |   |            |  
|Operating loss                                                 |  |                | (485,118 | )      |  |      | (819,776 | )         |  |           | (192,337 | )            |  |              | (304,658 | ) |  |   | (86,524   | ) |  |   | 918     |   |  |   | (1,887,495 | )
|Interest expense                                               |  |                | (6,398   | )      |  |      | (15,885  | )         |  |           | (4,270   | )            |  |              | (13,474  | ) |  |   | (279,344  | ) |  |   | 22,143  |   |  |   | (297,228   | )
|Interest income                                                |  |                | 1,153    |        |  |      | 26,011   |           |  |           | 129      |              |  |              | 662      |   |  |   | 20,161    |   |  |   | (34,869 | ) |  |   | 13,247     |  
|Realized losses on investments                                 |  |                |         |        |  |      |         |           |  |           |         |              |  |              |         |   |  |   | (151,291  | ) |  |   |        |   |  |   | (151,291   | )
|Equity in gains of unconsolidated affiliates                   |  |                |         |        |  |      |         |           |  |           |         |              |  |              |         |   |  |   | 9,640     |   |  |   |        |   |  |   | 9,640      |  
|Foreign currency transaction gains (losses), net               |  |                | 1,816    |        |  |      | (62,590  | )         |  |           | 573      |              |  |              | (1       | ) |  |   | (1,228    | ) |  |   | 148     |   |  |   | (61,282    | )
|Other (expense) income, net                                    |  |                | (954     | )      |  |      | (5,690   | )         |  |           | (765     | )            |  |              | (2,601   | ) |  |   | 5,829     |   |  |   |        |   |  |   | (4,181     | )
|                                                               |  |                |          |        |  |      |          |           |  |           |          |              |  |              |          |   |  |   |           |   |  |   |         |   |  |   |            |  
|Loss from continuing operations before income tax              |  | $              | (489,501 | )      |  | $    | (877,930 | )         |  | $         | (196,670 | )            |  | $            | (320,072 | ) |  | $ | (482,757  | ) |  | $ | (11,660 | ) |  | $ | (2,378,590 | )
|                                                               |  |                |          |        |  |      |          |           |  |           |          |              |  |              |          |   |  |   |           |   |  |   |         |   |  |   |            |  
|Capital expenditures from continuing operations                |  | $              | 213,191  |        |  | $    | 244,310  |           |  | $         | 75,354   |              |  | $            | 93,674   |   |  | $ | 14,918    |   |  | $ | (12,726 | ) |  | $ | 628,721    |  
|                                                               |  |                |          |        |  |      |          |           |  |           |          |              |  |              |          |   |  |   |           |   |  |   |         |   |  |   |            |  

F-104



---



##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



16. Segment Information 
(Continued)


|                                                       |  |                |         |        |  |      |          |           |  |           |         |              |  |              |         |   |  |   |           |   |  |   |          |   |  |   |           |  
|------------------------------------------------------ |  | -------------- | ------- | ------ |  | ---- | -------- | --------- |  | --------- | ------- | ------------ |  | ------------ | ------- | - |  | - | --------- | - |  | - | -------- | - |  | - | --------- | -
|                                                       |  |                |         |        |  |      |          |           |  | Corporate |         | Intercompany |  |             
|                                                       |  | Mexico         |         | Brazil |  | Peru |          | Argentina |  | and other |         | Eliminations |  | Consolidated
|                                                       |  |                |         |        |  |      |          |           |  |           |         |              |  |             
|                                                       |  |               
|                                                       |  | (in thousands)
|Predecessor Company  Year Ended
    December 31, 2000 |  |                |         |        |  |      |          |           |  |           |         |              |  |              |         |  
|Operating revenues                                     |  | $              | 112,327 |        |  | $    | 103,815  |           |  | $         | 28,469  |              |  | $            | 79,127  |   |  | $ | 590       |   |  | $ |         |   |  | $ | 324,328   |  
|                                                       |  |                |         |        |  |      |          |           |  |           |         |              |  |              |         |   |  |   |           |   |  |   |          |   |  |   |           |  
|Segment losses                                         |  |                | (28,860 | )      |  |      | (43,106  | )         |  |           | (10,004 | )            |  |              | (14,633 | ) |  |   | (33,073   | ) |  |   |         |   |  |   | (129,676  | )
|Depreciation and amortization                          |  |                | (33,090 | )      |  |      | (54,266  | )         |  |           | (15,099 | )            |  |              | (43,317 | ) |  |   | (7,632    | ) |  |   | 362      |   |  |   | (153,042  | )
|                                                       |  |                |         |        |  |      |          |           |  |           |         |              |  |              |         |   |  |   |           |   |  |   |          |   |  |   |           |  
|Operating loss                                         |  |                | (61,950 | )      |  |      | (97,372  | )         |  |           | (25,103 | )            |  |              | (57,950 | ) |  |   | (40,705   | ) |  |   | 362      |   |  |   | (282,718  | )
|Interest expense                                       |  |                | (4,372  | )      |  |      | (24,289  | )         |  |           | (4,584  | )            |  |              | (17,218 | ) |  |   | (219,768  | ) |  |   | 32,488   |   |  |   | (237,743  | )
|Interest income                                        |  |                | 426     |        |  |      | 19,778   |           |  |           | 174     |              |  |              | 1,611   |   |  |   | 23,381    |   |  |   | (23,254  | ) |  |   | 22,116    |  
|Realized gain on investment                            |  |                |        |        |  |      |         |           |  |           |        |              |  |              |        |   |  |   | 239,467   |   |  |   |         |   |  |   | 239,467   |  
|Equity in losses of unconsolidated affiliates          |  |                |        |        |  |      |         |           |  |           |        |              |  |              |        |   |  |   | (33,328   | ) |  |   |         |   |  |   | (33,328   | )
|Foreign currency transaction losses, net               |  |                | (55     | )      |  |      | (9,595   | )         |  |           | (224    | )            |  |              |        |   |  |   | (797      | ) |  |   |         |   |  |   | (10,671   | )
|Minority interest in losses of subsidiaries            |  |                |        |        |  |      | 3,721    |           |  |           | 2,783   |              |  |              |        |   |  |   |          |   |  |   |         |   |  |   | 6,504     |  
|Other (expense) income, net                            |  |                | (2,086  | )      |  |      | (349     | )         |  |           | 191     |              |  |              | (379    | ) |  |   | 8,874     |   |  |   |         |   |  |   | 6,251     |  
|                                                       |  |                |         |        |  |      |          |           |  |           |         |              |  |              |         |   |  |   |           |   |  |   |          |   |  |   |           |  
|Loss from continuing operations before income tax      |  | $              | (68,037 | )      |  | $    | (108,106 | )         |  | $         | (26,763 | )            |  | $            | (73,936 | ) |  | $ | (22,876   | ) |  | $ | 9,596    |   |  | $ | (290,122  | )
|                                                       |  |                |         |        |  |      |          |           |  |           |         |              |  |              |         |   |  |   |           |   |  |   |          |   |  |   |           |  
|Capital expenditures from continuing operations        |  | $              | 184,737 |        |  | $    | 248,257  |           |  | $         | 52,724  |              |  | $            | 96,988  |   |  | $ | 10,379    |   |  | $ | (5,800   | ) |  | $ | 587,285   |  
|                                                       |  |                |         |        |  |      |          |           |  |           |         |              |  |              |         |   |  |   |           |   |  |   |          |   |  |   |           |  
|Successor Company 
    December 31, 2002              |  |                |         |        |  |      |          |           |  |           |         |              |  |              |         |  
|Property, plant and equipment, net                     |  | $              | 207,922 |        |  | $    | 4,433    |           |  | $         | 12,668  |              |  | $            | 4,599   |   |  | $ | 241       |   |  | $ | 345      |   |  | $ | 230,208   |  
|                                                       |  |                |         |        |  |      |          |           |  |           |         |              |  |              |         |   |  |   |           |   |  |   |          |   |  |   |           |  
|Identifiable assets                                    |  | $              | 534,931 |        |  | $    | 73,353   |           |  | $         | 63,428  |              |  | $            | 39,576  |   |  | $ | 137,284   |   |  | $ | 345      |   |  | $ | 848,917   |  
|                                                       |  |                |         |        |  |      |          |           |  |           |         |              |  |              |         |   |  |   |           |   |  |   |          |   |  |   |           |  
|Predecessor Company 
    October 31, 2002             |  |                |         |        |  |      |          |           |  |           |         |              |  |              |         |  
|Property, plant and equipment, net                     |  | $              | 195,984 |        |  | $    | 3,181    |           |  | $         | 8,486   |              |  | $            | 2,651   |   |  | $ |          |   |  | $ |         |   |  | $ | 210,302   |  
|                                                       |  |                |         |        |  |      |          |           |  |           |         |              |  |              |         |   |  |   |           |   |  |   |          |   |  |   |           |  
|Identifiable assets                                    |  | $              | 514,573 |        |  | $    | 70,901   |           |  | $         | 58,698  |              |  | $            | 32,982  |   |  | $ | 151,408   |   |  | $ |         |   |  | $ | 828,562   |  
|                                                       |  |                |         |        |  |      |          |           |  |           |         |              |  |              |         |   |  |   |           |   |  |   |          |   |  |   |           |  
|Predecessor Company 
    December 31, 2001            |  |                |         |        |  |      |          |           |  |           |         |              |  |              |         |  
|Property, plant and equipment, net                     |  | $              | 243,424 |        |  | $    | 40,004   |           |  | $         | 33,869  |              |  | $            | 31,392  |   |  | $ | 17,001    |   |  | $ | (15,689  | ) |  | $ | 350,001   |  
|                                                       |  |                |         |        |  |      |          |           |  |           |         |              |  |              |         |   |  |   |           |   |  |   |          |   |  |   |           |  
|Identifiable assets                                    |  | $              | 514,198 |        |  | $    | 157,137  |           |  | $         | 98,200  |              |  | $            | 134,662 |   |  | $ | 633,386   |   |  | $ | (293,163 | ) |  | $ | 1,244,420 |  
|                                                       |  |                |         |        |  |      |          |           |  |           |         |              |  |              |         |   |  |   |           |   |  |   |          |   |  |   |           |  
|Predecessor Company 
    December 31, 2000            |  |                |         |        |  |      |          |           |  |           |         |              |  |              |         |  
|Property, plant and equipment, net                     |  | $              | 306,385 |        |  | $    | 418,439  |           |  | $         | 96,401  |              |  | $            | 185,332 |   |  | $ | 69,008    |   |  | $ | (5,438   | ) |  | $ | 1,070,127 |  
|                                                       |  |                |         |        |  |      |          |           |  |           |         |              |  |              |         |   |  |   |           |   |  |   |          |   |  |   |           |  
|Identifiable assets                                    |  | $              | 774,580 |        |  | $    | 878,160  |           |  | $         | 210,311 |              |  | $            | 355,042 |   |  | $ | 1,204,934 |   |  | $ | (229,801 | ) |  | $ | 3,193,226 |  
|                                                       |  |                |         |        |  |      |          |           |  |           |         |              |  |              |         |   |  |   |           |   |  |   |          |   |  |   |           |  

F-105



---



##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

17. Quarterly Financial Data
(Unaudited)

|     |                                                                          |                                          |   |           |   |            |   |             |   |             |   |         |   |  |   |           |  |  |   |         | 
|---- | ------------------------------------------------------------------------ | ---------------------------------------- | - | --------- | - | ---------- | - | ----------- | - | ----------- | - | ------- | - |  | - | --------- |  |  | - | ------- | 
|     |                                                                          |                                          |   |           |   |            |   |            
|     |                                                                          |                                          |   |           |   |            |   | Fourth     
|     |                                                                          |                                          |   |           |   |            |   |            
|     |                                                                          |                                          |   |           |   |            |   | Predecessor |   | Successor  
|     |                                                                          |                                          |   | Company   |   | Company   
|     |                                                                          | Predecessor Company                      |   | One Month |   | Two Months
|     |                                                                          |                                          |   | Ended     |   | Ended     
|     |                                                                          | First                                    |   | Second    |   | Third      |   | October 31  |   | December 31
|     |                                                                          |                                          |   |           |   |            |   |             |   |            
|     |                                                                          |                                         
|     |                                                                          | (in thousands, except per share amounts)
|2002 |                                                                          |                                          |   |           |   |            |   |             |   |             |   |         |   |  |   |           |  |  |   |        
|     | Total consolidated operating revenues as
    previously reported         |                                          | $ | 199,081   |   |            | $ | 193,930     |   |             | $ | 191,067 |   |  |   |           |  |  |   |         | 
|     | Less: discontinued operating revenues of Nextel
    Philippines          |                                          |   | (4,313    | ) |            |   | (3,761      | ) |             |   | (3,433  | ) |  |   |           |  |  |   |         | 
|     |                                                                          |                                          |   |           |   |            |   |             |   |             |   |         |   |  |   |           |  |  |   |        
|     | Total consolidated operating revenues from
    continuing operations     |                                          | $ | 194,768   |   |            | $ | 190,169     |   |             | $ | 187,634 |   |  | $ | 64,524    |  |  | $ | 143,278 | 
|     |                                                                          |                                          |   |           |   |            |   |             |   |             |   |         |   |  |   |           |  |  |   |        
|     | Total consolidated operating income as previously
    reported           |                                          | $ | 2,405     |   |            | $ | 6,917       |   |             | $ | 19,212  |   |  |   |           |  |  |   |         | 
|     | Less: discontinued operating loss (income) of
    Nextel Philippines     |                                          |   | 953       |   |            |   | (101        | ) |             |   | 557     |   |  |   |           |  |  |   |         | 
|     |                                                                          |                                          |   |           |   |            |   |             |   |             |   |         |   |  |   |           |  |  |   |        
|     | Total consolidated operating income from
    continuing operations       |                                          | $ | 3,358     |   |            | $ | 6,816       |   |             | $ | 19,769  |   |  | $ | 11,446    |  |  | $ | 36,222  | 
|     |                                                                          |                                          |   |           |   |            |   |             |   |             |   |         |   |  |   |           |  |  |   |        
|     | (Loss) income attributable to common stockholders                        |                                          | $ | (154,549  | ) |            | $ | (236,617    | ) |             | $ | (36,329 | ) |  | $ | 2,382,538 |  |  | $ | 42,566  | 
|     |                                                                          |                                          |   |           |   |            |   |             |   |             |   |         |   |  |   |           |  |  |   |        
|     | (Loss) income per share attributable to common
    stockholders, basic   |                                          | $ | (0.57     | ) |            | $ | (0.88       | ) |             | $ | (0.13   | ) |  | $ | 8.81      |  |  | $ | 2.13    | 
|     |                                                                          |                                          |   |           |   |            |   |             |   |             |   |         |   |  |   |           |  |  |   |        
|     | (Loss) income per share attributable to common
    stockholders, diluted |                                          | $ | (0.57     | ) |            | $ | (0.88       | ) |             | $ | (0.13   | ) |  | $ | 8.81      |  |  | $ | 2.01    | 
|     |                                                                          |                                          |   |           |   |            |   |             |   |             |   |         |   |  |   |           |  |  |   |        

|     |                                                                           |                     |   |          |   |       |   |          |   |  |   |          |   |  |   |            |  
|---- | ------------------------------------------------------------------------- | ------------------- | - | -------- | - | ----- | - | -------- | - |  | - | -------- | - |  | - | ---------- | -
|     |                                                                           |                    
|     |                                                                           | Predecessor Company
|     |                                                                           |                    
|     |                                                                           | First               |   | Second   |   | Third |   | Fourth  
|     |                                                                           |                     |   |          |   |       |   |         
|2001 |                                                                           |                     |   |          |   |       |   |          |   |  |   |          |   |  |   |           
|     | Total consolidated operating revenues as
    previously reported          |                     | $ | 139,156  |   |       | $ | 160,661  |   |  | $ | 186,002  |   |  | $ | 193,776    |  
|     | Less: discontinued operating revenues of Nextel
    Philippines           |                     |   | (3,851   | ) |       |   | (4,180   | ) |  |   | (4,198   | ) |  |   | (4,920     | )
|     |                                                                           |                     |   |          |   |       |   |          |   |  |   |          |   |  |   |           
|     | Total consolidated operating revenues from
    continuing operations      |                     | $ | 135,305  |   |       | $ | 156,481  |   |  | $ | 181,804  |   |  | $ | 188,856    |  
|     |                                                                           |                     |   |          |   |       |   |          |   |  |   |          |   |  |   |           
|     | Total consolidated operating loss as previously
    reported              |                     | $ | (89,717  | ) |       | $ | (91,379  | ) |  | $ | (235,318 | ) |  | $ | (1,664,900 | )
|     | Less: discontinued operating loss of Nextel
    Philippines               |                     |   | 7,516    |   |       |   | 7,053    |   |  |   | 148,053  |   |  |   | 31,197     |  
|     |                                                                           |                     |   |          |   |       |   |          |   |  |   |          |   |  |   |           
|     | Total consolidated operating loss from continuing
    operations          |                     | $ | (82,201  | ) |       | $ | (84,326  | ) |  | $ | (87,265  | ) |  | $ | (1,633,703 | )
|     |                                                                           |                     |   |          |   |       |   |          |   |  |   |          |   |  |   |           
|     | Loss attributable to common stockholders                                  |                     | $ | (167,264 | ) |       | $ | (213,879 | ) |  | $ | (551,718 | ) |  | $ | (1,564,460 | )
|     |                                                                           |                     |   |          |   |       |   |          |   |  |   |          |   |  |   |           
|     | Loss per share attributable to common
    stockholders, basic and diluted |                     | $ | (0.62    | ) |       | $ | (0.79    | ) |  | $ | (2.04    | ) |  | $ | (5.79      | )
|     |                                                                           |                     |   |          |   |       |   |          |   |  |   |          |   |  |   |           

F-106



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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



17. Quarterly Financial Data
(Unaudited)  (Continued)


Operating revenues and operating income for the
two months ended December 31, 2002 include a
$14.3 million non-recurring item related to the favorable
partial resolution of a telecommunications tax in Mexico as
discussed in Note 12.

As described in Note 1, during the one month
ended October 31, 2002, we recognized about
$2.3 billion in reorganization items, net, in connection
with our emergence from Chapter 11 on November 12,
2002 and the application of fresh-start accounting, and a
$101.6 million gain on the extinguishment of our Argentina
credit facilities.

As described in Note 2, effective
November 1, 2002, we changed our method of accounting for
revenues and costs recognized from digital handset sales.

Other significant events that occurred during the
one month ended October 31, 2002 and two months ended
December 31, 2002, including the sale of Nextel
Philippines, are described in Notes 1, 4 and 5.

The sum of the per share amounts do not equal the
annual amounts due to changes in the number of weighted average
number of common shares outstanding during the year.

18. Subsequent Events

Communication Towers Sale-Leaseback.On December 10, 2002, we
announced the signing of a definitive agreement with American
Tower Corporation for the sale and leaseback by certain of our
subsidiaries of at least 535 communication towers in Mexico and
Brazil for an aggregate purchase price of $100.0 million.
Rental payments on such communication towers will be made in
local currency. The transaction will close in stages subject to
customary closing conditions. American Tower has also agreed to
acquire, build or co-locate up to 250 additional cell sites to
our incremental network build-out, of which at least
100 cell sites must be co-locations on American
Towers existing towers. The remaining 150 cell sites,
if not co-located on American Towers existing towers, will
be part of a build-to-suit program, which is expected to be
completed over the next three years. As a result of provisions
in the sale-leaseback agreement that provide for some continuing
involvement by us, we will account for the sale as a financing
arrangement and not recognize a gain or loss from the sale. We
will maintain the communication tower assets on our books and
continue to depreciate them. We will treat the proceeds received
as a financing obligation that will be repaid through monthly
rent payments.

The first closing occurred on December 17,
2002 under which Nextel Mexico sold 140 towers for proceeds
of $26.2 million. Since we present the accounts of our
foreign operating companies utilizing accounts as of a date one
month earlier than the accounts of our U.S. subsidiaries,
the proceeds from the sale of towers are not reflected in our
year-end cash balance.

During 2003, additional tower sale-leaseback
closings occurred as follows:



| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | in January 2003, Nextel Mexico sold an additional
    83 towers for $15.5 million in proceeds;
|
| |  | in February 2003, Nextel Brazil sold 64 towers
    for $8.6 million in proceeds; and          
|
| |  | in March 2003, Nextel Mexico sold an additional
    83 towers for $15.5 million in proceeds.  

Interest Rate
Swap.In February 2003, we
entered into an interest rate swap agreement to hedge the
variability of future cash flows associated with our
$225.0 million variable interest rate international
Motorola equipment financing facility. Under the interest rate
swap, we agreed to exchange the difference between the variable
LIBOR-based interest rate and a fixed rate, based on a notional
amount of $225.0 million. The interest rate swap will fix
the amount of interest expense associated with our Motorola
facility commencing on June 30, 2003 and continuing over
the life of the facility based on a fixed rate of

F-107



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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



18. Subsequent Events 
(Continued)


about 7.99% per year. We expect that the interest
rate swap will qualify for cash flow hedge accounting under
SFAS No. 133.

19.  Parent Company and Condensed
Consolidating Financial Information

In preparing our condensed consolidating
financial information, we present our non-guarantor subsidiary
of Nextel Mexico using the equity method. Accordingly, our
consolidated financial statements do not agree to our condensed
consolidating financial information.




SUCCESSOR COMPANY CONDENSED CONSOLIDATING
BALANCE SHEET

As of December 31, 2002


(in thousands)


|                                                   |                                 |                           |         |                |        |                 |         |               |         |              |         |              |         |   |         |         |         |   |          |          |          |   |         |         |         | 
|-------------------------------------------------- | ------------------------------- | ------------------------- | ------- | -------------- | ------ | --------------- | ------- | ------------- | ------- | ------------ | ------- | ------------ | ------- | - | ------- | ------- | ------- | - | -------- | -------- | -------- | - | ------- | ------- | ------- | 
|                                                   |                                 |                           |         | NII Holdings   |        |                 |         |               |         |              |         |             
|                                                   |                                 | NII Holdings,             |         | (Cayman), Ltd. |        | Guarantor       |         | Non-Guarantor |         | Intercompany |         |             
|                                                   |                                 | Inc. (Parent)             |         | (Issuer)(1)    |        | Subsidiaries(2) |         | Subsidiaries  |         | Eliminations |         | Consolidated
|                                                   |                                 |                           |         |                |        |                 |         |               |         |              |         |             
|ASSETS                                             |                                 |                           |         |                |        |                 |         |               |         |              |         |              |         |   |         |         |         |   |          |          |          |   |         |        
|Current assets                                     |                                 |                           |         |                |        |                 |         |               |         |              |         |              |         |   |         |         |         |   |          |          |          |   |         |        
|                                                   | Cash and cash equivalents       |                           | $       | 9,811          |        |                 | $       | 122,499       |         |              | $       | 81,156       |         |   | $       | 17,695  |         |   | $        |         |          |   | $       | 231,161 |        
|                                                   | Accounts receivable, net        |                           |         | 56             |        |                 |         |              |         |              |         | 94,168       |         |   |         | 6,729   |         |   |          |         |          |   |         | 100,953 |        
|                                                   | Handset and accessory inventory |                           |         |               |        |                 |         |              |         |              |         | 15,255       |         |   |         | 2,699   |         |   |          |         |          |   |         | 17,954  |        
|                                                   | Prepaid expenses and other      |                           |         | 3              |        |                 |         |              |         |              |         | 37,578       |         |   |         | 5,944   |         |   |          |         |          |   |         | 43,525  |        
|                                                   |                                 |                           |         |                |        |                 |         |               |         |              |         |              |         |   |         |         |         |   |          |          |          |   |         |        
|                                                   |                                 | Total current assets      |         |                | 9,870  |                 |         |               | 122,499 |              |         |              | 228,157 |   |         |         | 33,067  |   |          |          |         |   |         |         | 393,593 | 
|Property, plant and equipment, net                 |                                 |                           | 115     |                |        |                 |        |               |         |              | 225,115 |              |         |   | 4,633   |         |         |   | 345      |          |          |   | 230,208 |        
|Investments in and advances to
    affiliates      |                                 |                           | 93,768  |                |        |                 | 89,463  |               |         |              | 434,180 |              |         |   |        |         |         |   | (488,750 | )        |          |   | 128,661 |        
|Intangible assets, net                             |                                 |                           | 154     |                |        |                 |        |               |         |              | 51,585  |              |         |   | 2,682   |         |         |   |         |          |          |   | 54,421  |        
|Other assets                                       |                                 |                           | 41,014  |                |        |                 | 2,756   |               |         |              | 48,311  |              |         |   | 704     |         |         |   | (69,796  | )        |          |   | 22,989  |        
|                                                   |                                 |                           |         |                |        |                 |         |               |         |              |         |              |         |   |         |         |         |   |          |          |          |   |         |        
|                                                   |                                 | $                         | 144,921 |                |        | $               | 214,718 |               |         | $            | 987,348 |              |         | $ | 41,086  |         |         | $ | (558,201 | )        |          | $ | 829,872 |        
|                                                   |                                 |                           |         |                |        |                 |         |               |         |              |         |              |         |   |         |         |         |   |          |          |          |   |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY
    (DEFICIT) |                                 |                           |         |                |        |                 |         |               |         |              |         |              |         |   |         |         |         |   |          |          |          |   |         |        
|Current liabilities                                |                                 |                           |         |                |        |                 |         |               |         |              |         |              |         |   |         |         |         |   |          |          |          |   |         |        
|                                                   | Accounts payable                |                           | $       | 74             |        |                 | $       |              |         |              | $       | 25,011       |         |   | $       | 2,011   |         |   | $        |         |          |   | $       | 27,096  |        
|                                                   | Accrued expenses and other      |                           |         | 26,919         |        |                 |         | 750           |         |              |         | 106,513      |         |   |         | 14,881  |         |   |          |         |          |   |         | 149,063 |        
|                                                   | Deferred revenues               |                           |         |               |        |                 |         |              |         |              |         | 20,629       |         |   |         | 134     |         |   |          |         |          |   |         | 20,763  |        
|                                                   | Accrued interest                |                           |         |               |        |                 |         |              |         |              |         | 2,587        |         |   |         |        |         |   |          |         |          |   |         | 2,587   |        
|                                                   | Due to related parties          |                           |         | 16,560         |        |                 |         | 42,581        |         |              |         | 344,315      |         |   |         | 122,409 |         |   |          | (492,155 | )        |   |         | 33,710  |        
|                                                   |                                 |                           |         |                |        |                 |         |               |         |              |         |              |         |   |         |         |         |   |          |          |          |   |         |        
|                                                   |                                 | Total current liabilities |         |                | 43,553 |                 |         |               | 43,331  |              |         |              | 499,055 |   |         |         | 139,435 |   |          |          | (492,155 | ) |         |         | 233,219 | 
|Long-term debt                                     |                                 |                           |        |                |        |                 | 173,964 |               |         |              | 258,193 |              |         |   |        |         |         |   |         |          |          |   | 432,157 |        
|Deferred income taxes                              |                                 |                           | 154     |                |        |                 |        |               |         |              | 3,964   |              |         |   | 269     |         |         |   |         |          |          |   | 4,387   |        
|Deferred revenues and other                        |                                 |                           | 9,800   |                |        |                 |        |               |         |              | 58,895  |              |         |   |        |         |         |   |         |          |          |   | 68,695  |        
|                                                   |                                 |                           |         |                |        |                 |         |               |         |              |         |              |         |   |         |         |         |   |          |          |          |   |         |        
|                                                   |                                 | Total liabilities         |         |                | 53,507 |                 |         |               | 217,295 |              |         |              | 820,107 |   |         |         | 139,704 |   |          |          | (492,155 | ) |         |         | 738,458 | 
|                                                   |                                 |                           |         |                |        |                 |         |               |         |              |         |              |         |   |         |         |         |   |          |          |          |   |         |        
|Total stockholders equity
    (deficit)           |                                 |                           | 91,414  |                |        |                 | (2,577  | )             |         |              | 167,241 |              |         |   | (98,618 | )       |         |   | (66,046  | )        |          |   | 91,414  |        
|                                                   |                                 |                           |         |                |        |                 |         |               |         |              |         |              |         |   |         |         |         |   |          |          |          |   |         |        
|                                                   |                                 | $                         | 144,921 |                |        | $               | 214,718 |               |         | $            | 987,348 |              |         | $ | 41,086  |         |         | $ | (558,201 | )        |          | $ | 829,872 |        
|                                                   |                                 |                           |         |                |        |                 |         |               |         |              |         |              |         |   |         |         |         |   |          |          |          |   |         |        



---



|    |                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | NII Holdings (Cayman), Ltd. is the issuer of our
    senior secured discount notes due 2009. See Note 4.                                                                             
|   
|(2) | Represents our subsidiaries that have provided
    guarantees of the obligations of NII Holdings (Cayman), Ltd.
    under our senior secured discount notes due 2009. See
    Note 4.

F-108



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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



19.  Parent Company and Condensed
Consolidating Financial Information 
(Continued)







SUCCESSOR CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

For the Two Months Ended December 31,
2002


(in thousands)


|                                                                         |                                                         |               |        |                |  |              |        |               |  |              |         |              |   |   |        |        |   |   |         |         |   |   |         |        | 
|------------------------------------------------------------------------ | ------------------------------------------------------- | ------------- | ------ | -------------- |  | ------------ | ------ | ------------- |  | ------------ | ------- | ------------ | - | - | ------ | ------ | - | - | ------- | ------- | - | - | ------- | ------ | 
|                                                                         |                                                         |               |        | NII Holdings   |  |              |        |               |  |              |         |             
|                                                                         |                                                         | NII Holdings, |        | (Cayman), Ltd. |  | Guarantor    |        | Non-Guarantor |  | Intercompany |         |             
|                                                                         |                                                         | Inc. (Parent) |        | (Issuer)       |  | Subsidiaries |        | Subsidiaries  |  | Eliminations |         | Consolidated
|                                                                         |                                                         |               |        |                |  |              |        |               |  |              |         |             
|Operating revenues                                                       |                                                         | $             |       |                |  | $            |       |               |  | $            | 130,010 |              |   | $ | 10,966 |        |   | $ | (89     | )       |   | $ | 140,887 |       
|Operating expenses                                                       |                                                         |               |        |                |  |              |        |               |  |              |         |              |   |   |        |        |   |   |         |         |   |   |         |       
|Cost of revenues                                                         |                                                         |               |       |                |  |              |       |               |  |              | 45,866  |              |   |   | 3,721  |        |   |   | (89     | )       |   |   | 49,498  |       
|Selling, general and administrative                                      |                                                         |               | 4,037  |                |  |              |       |               |  |              | 35,102  |              |   |   | 4,676  |        |   |   |        |         |   |   | 43,815  |       
|Depreciation and amortization                                            |                                                         |               | 13     |                |  |              |       |               |  |              | 9,938   |              |   |   | 224    |        |   |   | (346    | )       |   |   | 9,829   |       
|                                                                         |                                                         |               |        |                |  |              |        |               |  |              |         |              |   |   |        |        |   |   |         |         |   |   |         |       
|                                                                         |                                                         |               | 4,050  |                |  |              |       |               |  |              | 90,906  |              |   |   | 8,621  |        |   |   | (435    | )       |   |   | 103,142 |       
|                                                                         |                                                         |               |        |                |  |              |        |               |  |              |         |              |   |   |        |        |   |   |         |         |   |   |         |       
|Operating (loss) income                                                  |                                                         |               | (4,050 | )              |  |              |       |               |  |              | 39,104  |              |   |   | 2,345  |        |   |   | 346     |         |   |   | 37,745  |       
|                                                                         |                                                         |               |        |                |  |              |        |               |  |              |         |              |   |   |        |        |   |   |         |         |   |   |         |       
|Other income (expense)                                                   |                                                         |               |        |                |  |              |        |               |  |              |         |              |   |   |        |        |   |   |         |         |   |   |         |       
|Interest expense                                                         |                                                         |               | (105   | )              |  |              | (3,655 | )             |  |              | (7,230  | )            |   |   | (176   | )      |   |   | 937     |         |   |   | (10,229 | )     
|Interest income                                                          |                                                         |               | 574    |                |  |              | 221    |               |  |              | 1,817   |              |   |   | 16     |        |   |   | (937    | )       |   |   | 1,691   |       
|Foreign currency transaction gains, net                                  |                                                         |               | 27     |                |  |              |       |               |  |              | 1,660   |              |   |   | 293    |        |   |   | (599    | )       |   |   | 1,381   |       
|Equity in income (losses) of affiliates                                  |                                                         |               | 17,764 |                |  |              |       |               |  |              | (1,679  | )            |   |   |       |        |   |   | (17,764 | )       |   |   | (1,679  | )     
|Other (expense) income, net                                              |                                                         |               | (6,147 | )              |  |              |       |               |  |              | 4,575   |              |   |   | 13     |        |   |   |        |         |   |   | (1,559  | )     
|                                                                         |                                                         |               |        |                |  |              |        |               |  |              |         |              |   |   |        |        |   |   |         |         |   |   |         |       
|                                                                         |                                                         |               | 12,113 |                |  |              | (3,434 | )             |  |              | (857    | )            |   |   | 146    |        |   |   | (18,363 | )       |   |   | (10,395 | )     
|                                                                         |                                                         |               |        |                |  |              |        |               |  |              |         |              |   |   |        |        |   |   |         |         |   |   |         |       
|Income (Loss) from continuing operations
    before income tax provision |                                                         |               | 8,063  |                |  |              | (3,434 | )             |  |              | 38,247  |              |   |   | 2,491  |        |   |   | (18,017 | )       |   |   | 27,350  |       
|Income tax provision                                                     |                                                         |               | (4,224 | )              |  |              |       |               |  |              | (120    | )            |   |   | (105   | )      |   |   |        |         |   |   | (4,449  | )     
|                                                                         |                                                         |               |        |                |  |              |        |               |  |              |         |              |   |   |        |        |   |   |         |         |   |   |         |       
|Net income (loss) from continuing
    operations                         |                                                         |               | 3,839  |                |  |              | (3,434 | )             |  |              | 38,127  |              |   |   | 2,386  |        |   |   | (18,017 | )       |   |   | 22,901  |       
|Discontinued operations:                                                 |                                                         |               |        |                |  |              |        |               |  |              |         |              |   |   |        |        |   |   |         |         |   |   |         |       
|                                                                         | Income (loss) from operations of Nextel
    Philippines |               |        | 38,727         |  |              |        |              |  |              |         | (847         | ) |   |        | (5,071 | ) |   |         | (13,144 | ) |   |         | 19,665 | 
|                                                                         | Income tax (provision) benefit                          |               |        |               |  |              |        |              |  |              |         |             |   |   |        |       |   |   |         |        |   |   |         |       | 
|                                                                         |                                                         |               |        |                |  |              |        |               |  |              |         |              |   |   |        |        |   |   |         |         |   |   |         |       
|Income (loss) from discontinued
    operations                           |                                                         |               | 38,727 |                |  |              |       |               |  |              | (847    | )            |   |   | (5,071 | )      |   |   | (13,144 | )       |   |   | 19,665  |       
|                                                                         |                                                         |               |        |                |  |              |        |               |  |              |         |              |   |   |        |        |   |   |         |         |   |   |         |       
|Net income (loss)                                                        |                                                         | $             | 42,566 |                |  | $            | (3,434 | )             |  | $            | 37,280  |              |   | $ | (2,685 | )      |   | $ | (31,161 | )       |   | $ | 42,566  |       
|                                                                         |                                                         |               |        |                |  |              |        |               |  |              |         |              |   |   |        |        |   |   |         |         |   |   |         |       

F-109



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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



19.  Parent Company and Condensed
Consolidating Financial Information 
(Continued)


SUCCESSOR COMPANY CONDENSED CONSOLIDATING
STATEMENT OF CASH FLOWS

For the Two Months Ended December 31,
2002


(in thousands)


|                                                                 |  |               |         |                |  |              |         |               |  |              |         |              |  |   |        |   |  |   |        |   |  |   |         |  
|---------------------------------------------------------------- |  | ------------- | ------- | -------------- |  | ------------ | ------- | ------------- |  | ------------ | ------- | ------------ |  | - | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                                                 |  | NII Holdings, |         | NII Holdings   |  |              |         |               |  |              |         |             
|                                                                 |  | Inc.          |         | (Cayman), Ltd. |  | Guarantor    |         | Non-Guarantor |  | Intercompany |         |             
|                                                                 |  | (Parent)      |         | (Issuer)       |  | Subsidiaries |         | Subsidiaries  |  | Eliminations |         | Consolidated
|                                                                 |  |               |         |                |  |              |         |               |  |              |         |             
|Cash and cash equivalents, beginning of
    period               |  | $             | 25,493  |                |  | $            | 120,655 |               |  | $            | 69,052  |              |  | $ | 15,822 |   |  | $ |       |   |  | $ | 231,022 |  
|Cash flows (used in) from operating
    activities               |  |               | (14,475 | )              |  |              | 1,844   |               |  |              | 34,701  |              |  |   | 2,769  |   |  |   |       |   |  |   | 24,839  |  
|Cash flows used in investing
    activities                      |  |               | (1,207  | )              |  |              |        |               |  |              | (23,211 | )            |  |   | (1,975 | ) |  |   | 1,379  |   |  |   | (25,014 | )
|Cash flows from financing activities                             |  |               |        |                |  |              |        |               |  |              | 531     |              |  |   | 848    |   |  |   | (1,379 | ) |  |   |        |  
|Effect of exchange rate changes on cash and
    cash equivalents |  |               |        |                |  |              |        |               |  |              | 83      |              |  |   | 231    |   |  |   |       |   |  |   | 314     |  
|                                                                 |  |               |         |                |  |              |         |               |  |              |         |              |  |   |        |   |  |   |        |   |  |   |         |  
|Cash and cash equivalents, end of
    period                     |  | $             | 9,811   |                |  | $            | 122,499 |               |  | $            | 81,156  |              |  | $ | 17,695 |   |  | $ |       |   |  | $ | 231,161 |  
|                                                                 |  |               |         |                |  |              |         |               |  |              |         |              |  |   |        |   |  |   |        |   |  |   |         |  

F-110



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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



19.  Parent Company and Condensed
Consolidating Financial Information 
(Continued)


PREDECESSOR COMPANY CONDENSED CONSOLIDATING
STATEMENT OF OPERATIONS

For the Ten Months Ended October 31,
2002


(in thousands)


|                                                                         |                                            |               |           |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |        |  |   |           |        |  
|------------------------------------------------------------------------ | ------------------------------------------ | ------------- | --------- | -------------- |  | ------------ | - | ------------- |  | ------------ | -------- | ------------ |  | - | -------- | ------- | - | - | ------- | ------ |  | - | --------- | ------ | -
|                                                                         |                                            | NII Holdings, |           | NII Holdings   |  |              |   |               |  |              |          |             
|                                                                         |                                            | Inc.          |           | (Cayman), Ltd. |  | Guarantor    |   | Non-Guarantor |  | Intercompany |          |             
|                                                                         |                                            | (Parent)      |           | (Issuer)       |  | Subsidiaries |   | Subsidiaries  |  | Eliminations |          | Consolidated
|                                                                         |                                            |               |           |                |  |              |   |               |  |              |          |             
|Operating revenues                                                       |                                            | $             |          |                |  | $            |  |               |  | $            | 563,926  |              |  | $ | 65,151   |         |   | $ | (403    | )      |  | $ | 628,674   |       
|                                                                         |                                            |               |           |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |        |  |   |           |       
|Operating expenses                                                       |                                            |               |           |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |        |  |   |           |       
|Cost of revenues                                                         |                                            |               |          |                |  |              |  |               |  |              | 231,412  |              |  |   | 21,568   |         |   |   | (403    | )      |  |   | 252,577   |       
|Selling, general and administrative                                      |                                            |               | 21,581    |                |  |              |  |               |  |              | 198,451  |              |  |   | 32,657   |         |   |   |        |        |  |   | 252,689   |       
|Impairment, restructuring and other charges                              |                                            |               | 6,375     |                |  |              |  |               |  |              | 779      |              |  |   | 8,654    |         |   |   |        |        |  |   | 15,808    |       
|Depreciation and amortization                                            |                                            |               | 4,596     |                |  |              |  |               |  |              | 53,539   |              |  |   | 2,307    |         |   |   | (1,680  | )      |  |   | 58,762    |       
|                                                                         |                                            |               |           |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |        |  |   |           |       
|                                                                         |                                            |               | 32,552    |                |  |              |  |               |  |              | 484,181  |              |  |   | 65,186   |         |   |   | (2,083  | )      |  |   | 579,836   |       
|                                                                         |                                            |               |           |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |        |  |   |           |       
|Operating (loss) income                                                  |                                            |               | (32,552   | )              |  |              |  |               |  |              | 79,745   |              |  |   | (35      | )       |   |   | 1,680   |        |  |   | 48,838    |       
|                                                                         |                                            |               |           |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |        |  |   |           |       
|Other income (expense)                                                   |                                            |               |           |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |        |  |   |           |       
|Interest expense                                                         |                                            |               | (128,187  | )              |  |              |  |               |  |              | (36,957  | )            |  |   | (9,512   | )       |   |   | 23,783  |        |  |   | (150,873  | )     
|Interest income                                                          |                                            |               | 7,133     |                |  |              |  |               |  |              | 23,740   |              |  |   | 174      |         |   |   | (27,664 | )      |  |   | 3,383     |       
|Reorganization items, net                                                |                                            |               | 2,282,672 |                |  |              |  |               |  |              | (111,502 | )            |  |   | (4,955   | )       |   |   | 14,008  |        |  |   | 2,180,223 |       
|Gain on extinguishment of debt, net                                      |                                            |               |          |                |  |              |  |               |  |              | 101,598  |              |  |   |         |         |   |   |        |        |  |   | 101,598   |       
|Foreign currency transaction losses, net                                 |                                            |               | (28       | )              |  |              |  |               |  |              | (45,680  | )            |  |   | (137,813 | )       |   |   | 599     |        |  |   | (182,922  | )     
|Equity in losses of affiliates                                           |                                            |               | (159,226  | )              |  |              |  |               |  |              | (7,782   | )            |  |   |         |         |   |   | 159,226 |        |  |   | (7,782    | )     
|Other income (expense), net                                              |                                            |               | 19        |                |  |              |  |               |  |              | (7,408   | )            |  |   | (1,571   | )       |   |   |        |        |  |   | (8,960    | )     
|                                                                         |                                            |               |           |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |        |  |   |           |       
|                                                                         |                                            |               | 2,002,383 |                |  |              |  |               |  |              | (83,991  | )            |  |   | (153,677 | )       |   |   | 169,952 |        |  |   | 1,934,667 |       
|                                                                         |                                            |               |           |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |        |  |   |           |       
|Income (loss) from continuing operations
    before income tax provision |                                            |               | 1,969,831 |                |  |              |  |               |  |              | (4,246   | )            |  |   | (153,712 | )       |   |   | 171,632 |        |  |   | 1,983,505 |       
|Income tax provision                                                     |                                            |               | (14,788   | )              |  |              |  |               |  |              | (10,884  | )            |  |   | (513     | )       |   |   |        |        |  |   | (26,185   | )     
|                                                                         |                                            |               |           |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |        |  |   |           |       
|Net income (loss) from continuing
    operations                         |                                            |               | 1,955,043 |                |  |              |  |               |  |              | (15,130  | )            |  |   | (154,225 | )       |   |   | 171,632 |        |  |   | 1,957,320 |       
|Discontinued operations:                                                 |                                            |               |           |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |        |  |   |           |       
|                                                                         | Loss from operations of Nextel Philippines |               |           |               |  |              |   |              |  |              |          |             |  |   |          | (14,219 | ) |   |         | 12,194 |  |   |           | (2,025 | )
|                                                                         | Income tax provision                       |               |           |               |  |              |   |              |  |              |          |             |  |   |          | (252    | ) |   |         |       |  |   |           | (252   | )
|                                                                         |                                            |               |           |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |        |  |   |           |       
|Loss from discontinued operations                                        |                                            |               |          |                |  |              |  |               |  |              |         |              |  |   | (14,471  | )       |   |   | 12,194  |        |  |   | (2,277    | )     
|                                                                         |                                            |               |           |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |        |  |   |           |       
|Net income (loss)                                                        |                                            | $             | 1,955,043 |                |  | $            |  |               |  | $            | (15,130  | )            |  | $ | (168,696 | )       |   | $ | 183,826 |        |  | $ | 1,955,043 |       
|                                                                         |                                            |               |           |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |        |  |   |           |       

F-111



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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



19.  Parent Company and Condensed
Consolidating Financial Information 
(Continued)


PREDECESSOR COMPANY CONDENSED CONSOLIDATING
STATEMENT OF CASH FLOWS

For the Ten Months Ended October 31,
2002


(in thousands)


|                                                                 |  |               |         |                |  |              |         |               |  |              |          |              |  |   |         |   |  |   |         |   |  |   |          |  
|---------------------------------------------------------------- |  | ------------- | ------- | -------------- |  | ------------ | ------- | ------------- |  | ------------ | -------- | ------------ |  | - | ------- | - |  | - | ------- | - |  | - | -------- | -
|                                                                 |  | NII Holdings, |         | NII Holdings   |  |              |         |               |  |              |          |             
|                                                                 |  | Inc.          |         | (Cayman), Ltd. |  | Guarantor    |         | Non-Guarantor |  | Intercompany |          |             
|                                                                 |  | (Parent)      |         | (Issuer)       |  | Subsidiaries |         | Subsidiaries  |  | Eliminations |          | Consolidated
|                                                                 |  |               |         |                |  |              |         |               |  |              |          |             
|Cash and cash equivalents, beginning of
    period               |  | $             | 194,810 |                |  | $            |        |               |  | $            | 40,359   |              |  | $ | 15,081  |   |  | $ |        |   |  | $ | 250,250  |  
|Cash flows (used in) from operating
    activities               |  |               | (40,958 | )              |  |              | (2,685  | )             |  |              | 125,418  |              |  |   | 21,712  |   |  |   |        |   |  |   | 103,487  |  
|Cash flows used in investing
    activities                      |  |               | (97,244 | )              |  |              |        |               |  |              | (187,973 | )            |  |   | (23,341 | ) |  |   | 95,101  |   |  |   | (213,457 | )
|Cash flows (used in) from financing
    activities               |  |               | (31,115 | )              |  |              | 123,340 |               |  |              | 93,393   |              |  |   | 20,793  |   |  |   | (95,101 | ) |  |   | 111,310  |  
|Effect of exchange rate changes on cash and
    cash equivalents |  |               |        |                |  |              |        |               |  |              | (2,145   | )            |  |   | (18,423 | ) |  |   |        |   |  |   | (20,568  | )
|                                                                 |  |               |         |                |  |              |         |               |  |              |          |              |  |   |         |   |  |   |         |   |  |   |          |  
|Cash and cash equivalents, end of
    period                     |  | $             | 25,493  |                |  | $            | 120,655 |               |  | $            | 69,052   |              |  | $ | 15,822  |   |  | $ |        |   |  | $ | 231,022  |  
|                                                                 |  |               |         |                |  |              |         |               |  |              |          |              |  |   |         |   |  |   |         |   |  |   |          |  

F-112



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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



19.  Parent Company and Condensed
Consolidating Financial Information 
(Continued)


PREDECESSOR COMPANY CONDENSED CONSOLIDATING
BALANCE SHEET

As of December 31, 2001


(in thousands)


|                                                   |                                   |                           |            |                |           |                 |   |               |   |              |           |              |         |   |          |         |         |   |            |          |          |   |            |           |           | 
|-------------------------------------------------- | --------------------------------- | ------------------------- | ---------- | -------------- | --------- | --------------- | - | ------------- | - | ------------ | --------- | ------------ | ------- | - | -------- | ------- | ------- | - | ---------- | -------- | -------- | - | ---------- | --------- | --------- | 
|                                                   |                                   | NII Holdings,             |            | NII Holdings   |           |                 |   |               |   |              |           |             
|                                                   |                                   | Inc.                      |            | (Cayman), Ltd. |           | Guarantor       |   | Non-Guarantor |   | Intercompany |           |             
|                                                   |                                   | (Parent)                  |            | (Issuer)(1)    |           | Subsidiaries(2) |   | Subsidiaries  |   | Eliminations |           | Consolidated
|                                                   |                                   |                           |            |                |           |                 |   |               |   |              |           |             
|ASSETS                                             |                                   |                           |            |                |           |                 |   |               |   |              |           |              |         |   |          |         |         |   |            |          |          |   |            |          
|Current assets                                     |                                   |                           |            |                |           |                 |   |               |   |              |           |              |         |   |          |         |         |   |            |          |          |   |            |          
|                                                   | Cash and cash equivalents         |                           | $          | 194,810        |           |                 | $ |              |   |              | $         | 40,359       |         |   | $        | 15,081  |         |   | $          |         |          |   | $          | 250,250   |          
|                                                   | Restricted cash                   |                           |            | 80,867         |           |                 |   |              |   |              |           | 3,174        |         |   |          |        |         |   |            |         |          |   |            | 84,041    |          
|                                                   | Accounts receivable, net          |                           |            | 2,764          |           |                 |   |              |   |              |           | 92,815       |         |   |          | 21,201  |         |   |            |         |          |   |            | 116,780   |          
|                                                   | Handset and accessory inventory   |                           |            |               |           |                 |   |              |   |              |           | 15,908       |         |   |          | 8,578   |         |   |            |         |          |   |            | 24,486    |          
|                                                   | Prepaid expenses and other        |                           |            | 628            |           |                 |   |              |   |              |           | 52,288       |         |   |          | 21,540  |         |   |            |         |          |   |            | 74,456    |          
|                                                   |                                   |                           |            |                |           |                 |   |               |   |              |           |              |         |   |          |         |         |   |            |          |          |   |            |          
|                                                   |                                   | Total current assets      |            |                | 279,069   |                 |   |               |  |              |           |              | 204,544 |   |          |         | 66,400  |   |            |          |         |   |            |           | 550,013   | 
|Property, plant and equipment, net                 |                                   |                           | 13,815     |                |           |                 |  |               |   |              | 320,483   |              |         |   | 31,392   |         |         |   | (15,689    | )        |          |   | 350,001    |          
|Investments in and advances to
    affiliates      |                                   |                           | 384,719    |                |           |                 |  |               |   |              | 793,842   |              |         |   |         |         |         |   | (1,042,041 | )        |          |   | 136,520    |          
|Intangible assets, net                             |                                   |                           |           |                |           |                 |  |               |   |              | 45,057    |              |         |   | 9,085    |         |         |   |           |          |          |   | 54,142     |          
|Other assets                                       |                                   |                           | 35,538     |                |           |                 |  |               |   |              | 349,418   |              |         |   | 42,166   |         |         |   | (277,474   | )        |          |   | 149,648    |          
|                                                   |                                   |                           |            |                |           |                 |   |               |   |              |           |              |         |   |          |         |         |   |            |          |          |   |            |          
|                                                   |                                   | $                         | 713,141    |                |           | $               |  |               |   | $            | 1,713,344 |              |         | $ | 149,043  |         |         | $ | (1,335,204 | )        |          | $ | 1,240,324  |          
|                                                   |                                   |                           |            |                |           |                 |   |               |   |              |           |              |         |   |          |         |         |   |            |          |          |   |            |          
|LIABILITIES AND STOCKHOLDERS (DEFICIT)
    EQUITY |                                   |                           |            |                |           |                 |   |               |   |              |           |              |         |   |          |        
|Current liabilities                                |                                   |                           |            |                |           |                 |   |               |   |              |           |              |         |   |          |         |         |   |            |          |          |   |            |          
|                                                   | Accounts payable                  |                           | $          | 27,820         |           |                 | $ |              |   |              | $         | 84,203       |         |   | $        | 17,726  |         |   | $          |         |          |   | $          | 129,749   |          
|                                                   | Accrued expenses and other        |                           |            | 27,873         |           |                 |   |              |   |              |           | 98,571       |         |   |          | 45,613  |         |   |            |         |          |   |            | 172,057   |          
|                                                   | Deferred revenues                 |                           |            |               |           |                 |   |              |   |              |           | 40,874       |         |   |          | 9,192   |         |   |            |         |          |   |            | 50,066    |          
|                                                   | Accrued interest                  |                           |            | 47,470         |           |                 |   |              |   |              |           | 8,620        |         |   |          | 2,041   |         |   |            |         |          |   |            | 58,131    |          
|                                                   | Due to related parties            |                           |            | 31,800         |           |                 |   |              |   |              |           | 326,382      |         |   |          | 188,189 |         |   |            | (410,545 | )        |   |            | 135,826   |          
|                                                   | Current portion of long-term debt |                           |            | 2,456,329      |           |                 |   |              |   |              |           | 100,000      |         |   |          | 108,815 |         |   |            |         |          |   |            | 2,665,144 |          
|                                                   |                                   |                           |            |                |           |                 |   |               |   |              |           |              |         |   |          |         |         |   |            |          |          |   |            |          
|                                                   |                                   | Total current liabilities |            |                | 2,591,292 |                 |   |               |  |              |           |              | 658,650 |   |          |         | 371,576 |   |            |          | (410,545 | ) |            |           | 3,210,973 | 
|Long-term debt                                     |                                   |                           |           |                |           |                 |  |               |   |              |          |              |         |   |         |         |         |   |           |          |          |   |           |          
|Deferred income taxes                              |                                   |                           |           |                |           |                 |  |               |   |              | 14,393    |              |         |   | 741      |         |         |   |           |          |          |   | 15,134     |          
|Deferred revenues and other                        |                                   |                           |           |                |           |                 |  |               |   |              | 30,415    |              |         |   | 5,952    |         |         |   |           |          |          |   | 36,367     |          
|                                                   |                                   |                           |            |                |           |                 |   |               |   |              |           |              |         |   |          |         |         |   |            |          |          |   |            |          
|                                                   |                                   | Total liabilities         |            |                | 2,591,292 |                 |   |               |  |              |           |              | 703,458 |   |          |         | 378,269 |   |            |          | (410,545 | ) |            |           | 3,262,474 | 
|Total stockholders (deficit)
    equity           |                                   |                           | (1,878,151 | )              |           |                 |  |               |   |              | 1,009,886 |              |         |   | (229,226 | )       |         |   | (924,659   | )        |          |   | (2,022,150 | )        
|                                                   |                                   |                           |            |                |           |                 |   |               |   |              |           |              |         |   |          |         |         |   |            |          |          |   |            |          
|                                                   |                                   | $                         | 713,141    |                |           | $               |  |               |   | $            | 1,713,344 |              |         | $ | 149,043  |         |         | $ | (1,335,204 | )        |          | $ | 1,240,324  |          
|                                                   |                                   |                           |            |                |           |                 |   |               |   |              |           |              |         |   |          |         |         |   |            |          |          |   |            |          



---



|    |                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | NII Holdings (Cayman), Ltd. is the issuer of our
    senior secured discount notes due 2009. See Note 4.                                                                             
|   
|(2) | Represents our subsidiaries that have provided
    guarantees of the obligations of NII Holdings (Cayman), Ltd.
    under our senior secured discount notes due 2009. See
    Note 4.

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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

PREDECESSOR COMPANY

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS


For the Year Ended December 31,
2001


(in thousands)


|                                                                          |                                            |               |            |                |  |              |   |               |  |              |            |              |  |   |          |          |   |   |           |       |  |   |            |          |  
|------------------------------------------------------------------------- | ------------------------------------------ | ------------- | ---------- | -------------- |  | ------------ | - | ------------- |  | ------------ | ---------- | ------------ |  | - | -------- | -------- | - | - | --------- | ----- |  | - | ---------- | -------- | -
|                                                                          |                                            |               |            | NII Holdings   |  |              |   |               |  |              |            |             
|                                                                          |                                            | NII Holdings, |            | (Cayman), Ltd. |  | Guarantor    |   | Non-Guarantor |  | Intercompany |            |             
|                                                                          |                                            | Inc. (Parent) |            | (Issuer)       |  | Subsidiaries |   | Subsidiaries  |  | Eliminations |            | Consolidated
|                                                                          |                                            |               |            |                |  |              |   |               |  |              |            |             
|Operating revenues                                                        |                                            | $             |           |                |  | $            |  |               |  | $            | 520,563    |              |  | $ | 137,319  |          |   | $ | (539      | )     |  | $ | 657,343    |         
|                                                                          |                                            |               |            |                |  |              |   |               |  |              |            |              |  |   |          |          |   |   |           |       |  |   |            |         
|Operating expenses                                                        |                                            |               |            |                |  |              |   |               |  |              |            |              |  |   |          |          |   |   |           |       |  |   |            |         
|Cost of revenues                                                          |                                            |               | 1,055      |                |  |              |  |               |  |              | 266,206    |              |  |   | 56,574   |          |   |   | (299      | )     |  |   | 323,536    |         
|Selling, general and administrative                                       |                                            |               | 39,365     |                |  |              |  |               |  |              | 300,138    |              |  |   | 81,666   |          |   |   | (240      | )     |  |   | 420,929    |         
|Impairment, restructuring and other charges                               |                                            |               | 1,695      |                |  |              |  |               |  |              | 1,284,975  |              |  |   | 294,494  |          |   |   |          |       |  |   | 1,581,164  |         
|Depreciation and amortization                                             |                                            |               | 4,768      |                |  |              |  |               |  |              | 161,441    |              |  |   | 46,738   |          |   |   | (918      | )     |  |   | 212,029    |         
|                                                                          |                                            |               |            |                |  |              |   |               |  |              |            |              |  |   |          |          |   |   |           |       |  |   |            |         
|                                                                          |                                            |               | 46,883     |                |  |              |  |               |  |              | 2,012,760  |              |  |   | 479,472  |          |   |   | (1,457    | )     |  |   | 2,537,658  |         
|                                                                          |                                            |               |            |                |  |              |   |               |  |              |            |              |  |   |          |          |   |   |           |       |  |   |            |         
|Operating loss                                                            |                                            |               | (46,883    | )              |  |              |  |               |  |              | (1,492,197 | )            |  |   | (342,153 | )        |   |   | 918       |       |  |   | (1,880,315 | )       
|                                                                          |                                            |               |            |                |  |              |   |               |  |              |            |              |  |   |          |          |   |   |           |       |  |   |            |         
|Other income (expense)                                                    |                                            |               |            |                |  |              |   |               |  |              |            |              |  |   |          |          |   |   |           |       |  |   |            |         
|Interest expense                                                          |                                            |               | (279,342   | )              |  |              |  |               |  |              | (24,632    | )            |  |   | (13,476  | )        |   |   | 22,143    |       |  |   | (295,307   | )       
|Interest income                                                           |                                            |               | 16,229     |                |  |              |  |               |  |              | 30,060     |              |  |   | 705      |          |   |   | (34,869   | )     |  |   | 12,125     |         
|Foreign currency transaction losses, net                                  |                                            |               |           |                |  |              |  |               |  |              | (60,392    | )            |  |   | (1,229   | )        |   |   | 148       |       |  |   | (61,473    | )       
|Realized losses on investments                                            |                                            |               | (137,067   | )              |  |              |   |               |  |              | (14,224    | )            |  |   |         |          |   |   |          |       |  |   | (151,291   | )       
|Equity in (losses) income of affiliates                                   |                                            |               | (1,884,196 | )              |  |              |  |               |  |              | 2,064      |              |  |   |         |          |   |   | 1,884,196 |       |  |   | 2,064      |         
|Other income (expense), net                                               |                                            |               | 5,999      |                |  |              |  |               |  |              | (7,622     | )            |  |   | (2,770   | )        |   |   |          |       |  |   | (4,393     | )       
|                                                                          |                                            |               |            |                |  |              |   |               |  |              |            |              |  |   |          |          |   |   |           |       |  |   |            |         
|                                                                          |                                            |               | (2,278,377 | )              |  |              |  |               |  |              | (74,746    | )            |  |   | (16,770  | )        |   |   | 1,871,618 |       |  |   | (498,275   | )       
|                                                                          |                                            |               |            |                |  |              |   |               |  |              |            |              |  |   |          |          |   |   |           |       |  |   |            |         
|Loss from continuing operations before income
    tax (provision) benefit |                                            |               | (2,325,260 | )              |  |              |  |               |  |              | (1,566,943 | )            |  |   | (358,923 | )        |   |   | 1,872,536 |       |  |   | (2,378,590 | )       
|Income tax (provision) benefit                                            |                                            |               | (28,062    | )              |  |              |  |               |  |              | 89,903     |              |  |   | 6,909    |          |   |   |          |       |  |   | 68,750     |         
|                                                                          |                                            |               |            |                |  |              |   |               |  |              |            |              |  |   |          |          |   |   |           |       |  |   |            |         
|Net loss from continuing operations                                       |                                            |               | (2,353,322 | )              |  |              |  |               |  |              | (1,477,040 | )            |  |   | (352,014 | )        |   |   | 1,872,536 |       |  |   | (2,309,840 | )       
|Discontinued operations:                                                  |                                            |               |            |                |  |              |   |               |  |              |            |              |  |   |          |          |   |   |           |       |  |   |            |         
|                                                                          | Loss from operations of Nextel Philippines |               |            |               |  |              |   |              |  |              |            |             |  |   |          | (177,213 | ) |   |           | 6,878 |  |   |            | (170,335 | )
|                                                                          | Income tax provision                       |               |            |               |  |              |   |              |  |              |            |             |  |   |          | (17,146  | ) |   |           |      |  |   |            | (17,146  | )
|                                                                          |                                            |               |            |                |  |              |   |               |  |              |            |              |  |   |          |          |   |   |           |       |  |   |            |         
|Loss from discontinued operations                                         |                                            |               |           |                |  |              |  |               |  |              |           |              |  |   | (194,359 | )        |   |   | 6,878     |       |  |   | (187,481   | )       
|                                                                          |                                            |               |            |                |  |              |   |               |  |              |            |              |  |   |          |          |   |   |           |       |  |   |            |         
|Net loss                                                                  |                                            | $             | (2,353,322 | )              |  | $            |  |               |  | $            | (1,477,040 | )            |  | $ | (546,373 | )        |   | $ | 1,879,414 |       |  | $ | (2,497,321 | )       
|                                                                          |                                            |               |            |                |  |              |   |               |  |              |            |              |  |   |          |          |   |   |           |       |  |   |            |         

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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

PREDECESSOR COMPANY

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS


For the Year Ended December 31,
2001


(in thousands)


|                                                                 |  |               |          |                |  |              |   |               |  |              |          |              |  |   |          |   |  |   |          |   |  |   |          |  
|---------------------------------------------------------------- |  | ------------- | -------- | -------------- |  | ------------ | - | ------------- |  | ------------ | -------- | ------------ |  | - | -------- | - |  | - | -------- | - |  | - | -------- | -
|                                                                 |  |               |          | NII Holdings   |  |              |   |               |  |              |          |             
|                                                                 |  | NII Holdings, |          | (Cayman), Ltd. |  | Guarantor    |   | Non-Guarantor |  | Intercompany |          |             
|                                                                 |  | Inc. (Parent) |          | (Issuer)       |  | Subsidiaries |   | Subsidiaries  |  | Eliminations |          | Consolidated
|                                                                 |  |               |          |                |  |              |   |               |  |              |          |             
|Cash and cash equivalents, beginning of
    year                 |  | $             | 56,712   |                |  | $            |  |               |  | $            | 377,763  |              |  | $ | 39,232   |   |  | $ |         |   |  | $ | 473,707  |  
|Cash flows (used in) from operating
    activities               |  |               | (109,788 | )              |  |              |  |               |  |              | 20,014   |              |  |   | (42,227  | ) |  |   |         |   |  |   | (132,001 | )
|Cash flows used in investing
    activities                      |  |               | (255,010 | )              |  |              |  |               |  |              | (920,333 | )            |  |   | (137,530 | ) |  |   | 776,683  |   |  |   | (536,190 | )
|Cash flows from financing activities                             |  |               | 502,896  |                |  |              |  |               |  |              | 564,406  |              |  |   | 155,394  |   |  |   | (776,683 | ) |  |   | 446,013  |  
|Effect of exchange rate changes on cash and
    cash equivalents |  |               |         |                |  |              |  |               |  |              | (1,491   | )            |  |   | 212      |   |  |   |         |   |  |   | (1,279   | )
|                                                                 |  |               |          |                |  |              |   |               |  |              |          |              |  |   |          |   |  |   |          |   |  |   |          |  
|Cash and cash equivalents, end of
    year                       |  | $             | 194,810  |                |  | $            |  |               |  | $            | 40,359   |              |  | $ | 15,081   |   |  | $ |         |   |  | $ | 250,250  |  
|                                                                 |  |               |          |                |  |              |   |               |  |              |          |              |  |   |          |   |  |   |          |   |  |   |          |  

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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

PREDECESSOR COMPANY

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS


For the Year Ended December 31,
2000


(in thousands)


|                                                                          |                                            |               |          |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |   |  |   |          |         |  
|------------------------------------------------------------------------- | ------------------------------------------ | ------------- | -------- | -------------- |  | ------------ | - | ------------- |  | ------------ | -------- | ------------ |  | - | -------- | ------- | - | - | ------- | - |  | - | -------- | ------- | -
|                                                                          |                                            |               |          | NII Holdings   |  |              |   |               |  |              |          |             
|                                                                          |                                            | NII Holdings, |          | (Cayman), Ltd. |  | Guarantor    |   | Non-Guarantor |  | Intercompany |          |             
|                                                                          |                                            | Inc. (Parent) |          | (Issuer)       |  | Subsidiaries |   | Subsidiaries  |  | Eliminations |          | Consolidated
|                                                                          |                                            |               |          |                |  |              |   |               |  |              |          |             
|Operating revenues                                                        |                                            | $             |         |                |  | $            |  |               |  | $            | 244,108  |              |  | $ | 79,717   |         |   | $ |        |   |  | $ | 323,825  |        
|                                                                          |                                            |               |          |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |   |  |   |          |        
|Operating expenses                                                        |                                            |               |          |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |   |  |   |          |        
|Cost of revenues                                                          |                                            |               | 81       |                |  |              |  |               |  |              | 142,016  |              |  |   | 36,546   |         |   |   |        |   |  |   | 178,643  |        
|Selling, general and administrative                                       |                                            |               | 32,488   |                |  |              |  |               |  |              | 183,603  |              |  |   | 58,894   |         |   |   |        |   |  |   | 274,985  |        
|Depreciation and amortization                                             |                                            |               | 3,297    |                |  |              |  |               |  |              | 103,484  |              |  |   | 46,245   |         |   |   | (362    | ) |  |   | 152,664  |        
|                                                                          |                                            |               |          |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |   |  |   |          |        
|                                                                          |                                            |               | 35,866   |                |  |              |  |               |  |              | 429,103  |              |  |   | 141,685  |         |   |   | (362    | ) |  |   | 606,292  |        
|                                                                          |                                            |               |          |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |   |  |   |          |        
|Operating loss                                                            |                                            |               | (35,866  | )              |  |              |  |               |  |              | (184,995 | )            |  |   | (61,968  | )       |   |   | 362     |   |  |   | (282,467 | )      
|                                                                          |                                            |               |          |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |   |  |   |          |        
|Other income (expense)                                                    |                                            |               |          |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |   |  |   |          |        
|Interest expense                                                          |                                            |               | (219,769 | )              |  |              |  |               |  |              | (33,245  | )            |  |   | (17,217  | )       |   |   | 32,488  |   |  |   | (237,743 | )      
|Interest income                                                           |                                            |               | 3,852    |                |  |              |  |               |  |              | 39,870   |              |  |   | 1,626    |         |   |   | (23,254 | ) |  |   | 22,094   |        
|Realized gains on investments                                             |                                            |               | 239,467  |                |  |              |  |               |  |              |         |              |  |   |         |         |   |   |        |   |  |   | 239,467  |        
|Foreign currency transaction losses, net                                  |                                            |               |         |                |  |              |  |               |  |              | (9,983   | )            |  |   | (809     | )       |   |   |        |   |  |   | (10,792  | )      
|Equity in losses of affiliates                                            |                                            |               | (342,051 | )              |  |              |  |               |  |              | (108     | )            |  |   |         |         |   |   | 308,723 |   |  |   | (33,436  | )      
|Minority interest in losses of subsidiaries                               |                                            |               |         |                |  |              |  |               |  |              | 6,504    |              |  |   |         |         |   |   |        |   |  |   | 6,504    |        
|Other income (expense), net                                               |                                            |               | 9,283    |                |  |              |  |               |  |              | (2,254   | )            |  |   | (778     | )       |   |   |        |   |  |   | 6,251    |        
|                                                                          |                                            |               |          |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |   |  |   |          |        
|                                                                          |                                            |               | (309,218 | )              |  |              |  |               |  |              | 784      |              |  |   | (17,178  | )       |   |   | 317,957 |   |  |   | (7,655   | )      
|                                                                          |                                            |               |          |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |   |  |   |          |        
|Loss from continuing operations before income
    tax (provision) benefit |                                            |               | (345,084 | )              |  |              |  |               |  |              | (184,211 | )            |  |   | (79,146  | )       |   |   | 318,319 |   |  |   | (290,122 | )      
|Income tax (provision) benefit                                            |                                            |               | (72,122  | )              |  |              |  |               |  |              | 5,272    |              |  |   | (810     | )       |   |   |        |   |  |   | (67,660  | )      
|                                                                          |                                            |               |          |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |   |  |   |          |        
|Net loss from continuing operations                                       |                                            |               | (417,206 | )              |  |              |  |               |  |              | (178,939 | )            |  |   | (79,956  | )       |   |   | 318,319 |   |  |   | (357,782 | )      
|Discontinued operations:                                                  |                                            |               |          |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |   |  |   |          |        
|                                                                          | Loss from operations of Nextel Philippines |               |          |               |  |              |   |              |  |              |          |             |  |   |          | (59,973 | ) |   |         |  |  |   |          | (59,973 | )
|                                                                          | Income tax benefit                         |               |          |               |  |              |   |              |  |              |          |             |  |   |          | 549     |   |   |         |  |  |   |          | 549     |  
|                                                                          |                                            |               |          |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |   |  |   |          |        
|Loss from discontinued operations                                         |                                            |               |         |                |  |              |  |               |  |              |         |              |  |   | (59,424  | )       |   |   |        |   |  |   | (59,424  | )      
|                                                                          |                                            |               |          |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |   |  |   |          |        
|Net loss                                                                  |                                            | $             | (417,206 | )              |  | $            |  |               |  | $            | (178,939 | )            |  | $ | (139,380 | )       |   | $ | 318,319 |   |  | $ | (417,206 | )      
|                                                                          |                                            |               |          |                |  |              |   |               |  |              |          |              |  |   |          |         |   |   |         |   |  |   |          |        

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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

PREDECESSOR COMPANY

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS


For the Year Ended December 31,
2000


(in thousands)


|                                                                 |  |               |            |                |  |              |   |               |  |              |           |              |  |   |         |   |  |   |            |   |  |   |           |  
|---------------------------------------------------------------- |  | ------------- | ---------- | -------------- |  | ------------ | - | ------------- |  | ------------ | --------- | ------------ |  | - | ------- | - |  | - | ---------- | - |  | - | --------- | -
|                                                                 |  |               |            | NII Holdings   |  |              |   |               |  |              |           |             
|                                                                 |  | NII Holdings, |            | (Cayman), Ltd. |  | Guarantor    |   | Non-Guarantor |  | Intercompany |           |             
|                                                                 |  | Inc. (Parent) |            | (Issuer)       |  | Subsidiaries |   | Subsidiaries  |  | Eliminations |           | Consolidated
|                                                                 |  |               |            |                |  |              |   |               |  |              |           |             
|Cash and cash equivalents, beginning of
    year                 |  | $             | 21,953     |                |  | $            |  |               |  | $            | 66,087    |              |  | $ | 11,988  |   |  | $ |           |   |  | $ | 100,028   |  
|Cash flows used in operating
    activities                      |  |               | (26,996    | )              |  |              |  |               |  |              | (129,851  | )            |  |   | (54,919 | ) |  |   |           |   |  |   | (211,766  | )
|Cash flows used in investing
    activities                      |  |               | (1,327,401 | )              |  |              |  |               |  |              | (685,901  | )            |  |   | (82,927 | ) |  |   | 1,317,547  |   |  |   | (778,682  | )
|Cash flows from financing activities                             |  |               | 1,389,156  |                |  |              |  |               |  |              | 1,124,095 |              |  |   | 165,090 |   |  |   | (1,317,547 | ) |  |   | 1,360,794 |  
|Effect of exchange rate changes on cash and
    cash equivalents |  |               |           |                |  |              |  |               |  |              | 3,333     |              |  |   |        |   |  |   |           |   |  |   | 3,333     |  
|                                                                 |  |               |            |                |  |              |   |               |  |              |           |              |  |   |         |   |  |   |            |   |  |   |           |  
|Cash and cash equivalents, end of
    year                       |  | $             | 56,712     |                |  | $            |  |               |  | $            | 377,763   |              |  | $ | 39,232  |   |  | $ |           |   |  | $ | 473,707   |  
|                                                                 |  |               |            |                |  |              |   |               |  |              |           |              |  |   |         |   |  |   |            |   |  |   |           |  

F-117



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##### Table of Contents



NII HOLDINGS, INC. AND SUBSIDIARIES

SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

(in thousands)


|                                       |                                             |              |   |              |  |            |   |                |  |            |   |          |   |  |   |          |   |  |   |         | 
|-------------------------------------- | ------------------------------------------- | ------------ | - | ------------ |  | ---------- | - | -------------- |  | ---------- | - | -------- | - |  | - | -------- | - |  | - | ------- | 
|                                       |                                             | Balance at   |   | Allowance of |  | Charged to |   | Deductions     |  | Balance at
|                                       |                                             | Beginning of |   | Acquired     |  | Costs and  |   | and Other      |  | End       
|                                       |                                             | Period       |   | Companies(1) |  | Expenses   |   | Adjustments(2) |  | of Period 
|                                       |                                             |              |   |              |  |            |   |                |  |           
|Two Months Ended December 31,
    2002 |                                             |              |   |              |  |            |   |                |  |            |   |          |   |  |   |          |   |  |   |        
|                                       | Allowance for doubtful accounts             |              | $ | 10,659       |  |            | $ |               |  |            | $ | 634      |   |  | $ | (4,150   | ) |  | $ | 7,143   | 
|                                       |                                             |              |   |              |  |            |   |                |  |            |   |          |   |  |   |          |   |  |   |        
|                                       | Reserve for inventory obsolescence          |              | $ | 5,669        |  |            | $ |               |  |            | $ | 149      |   |  | $ | (280     | ) |  | $ | 5,538   | 
|                                       |                                             |              |   |              |  |            |   |                |  |            |   |          |   |  |   |          |   |  |   |        
|                                       | Valuation allowance for deferred tax assets |              | $ | 738,122      |  |            | $ |               |  |            | $ | 13,753   |   |  | $ | (305,033 | ) |  | $ | 446,842 | 
|                                       |                                             |              |   |              |  |            |   |                |  |            |   |          |   |  |   |          |   |  |   |        
|Ten Months Ended October 31,
    2002  |                                             |              |   |              |  |            |   |                |  |            |   |          |   |  |   |          |   |  |   |        
|                                       | Allowance for doubtful accounts             |              | $ | 24,277       |  |            | $ |               |  |            | $ | 17,484   |   |  | $ | (31,102  | ) |  | $ | 10,659  | 
|                                       |                                             |              |   |              |  |            |   |                |  |            |   |          |   |  |   |          |   |  |   |        
|                                       | Reserve for inventory obsolescence          |              | $ | 9,370        |  |            | $ |               |  |            | $ | 3,884    |   |  | $ | (7,585   | ) |  | $ | 5,669   | 
|                                       |                                             |              |   |              |  |            |   |                |  |            |   |          |   |  |   |          |   |  |   |        
|                                       | Valuation allowance for deferred tax assets |              | $ | 787,556      |  |            | $ |               |  |            | $ | (158,191 | ) |  | $ | 108,757  |   |  | $ | 738,122 | 
|                                       |                                             |              |   |              |  |            |   |                |  |            |   |          |   |  |   |          |   |  |   |        
|                                       | Accrued restructuring charges               |              | $ | 406          |  |            | $ |               |  |            | $ | 7,933    |   |  | $ | (8,339   | ) |  | $ |        | 
|                                       |                                             |              |   |              |  |            |   |                |  |            |   |          |   |  |   |          |   |  |   |        
|Year Ended December 31, 2001           |                                             |              |   |              |  |            |   |                |  |            |   |          |   |  |   |          |   |  |   |        
|                                       | Allowance for doubtful accounts             |              | $ | 22,163       |  |            | $ |               |  |            | $ | 40,902   |   |  | $ | (38,788  | ) |  | $ | 24,277  | 
|                                       |                                             |              |   |              |  |            |   |                |  |            |   |          |   |  |   |          |   |  |   |        
|                                       | Reserve for inventory obsolescence          |              | $ | 8,240        |  |            | $ |               |  |            | $ | 1,441    |   |  | $ | (311     | ) |  | $ | 9,370   | 
|                                       |                                             |              |   |              |  |            |   |                |  |            |   |          |   |  |   |          |   |  |   |        
|                                       | Valuation allowance for deferred tax assets |              | $ | 395,272      |  |            | $ |               |  |            | $ | 411,793  |   |  | $ | (19,509  | ) |  | $ | 787,556 | 
|                                       |                                             |              |   |              |  |            |   |                |  |            |   |          |   |  |   |          |   |  |   |        
|                                       | Accrued restructuring charges               |              | $ |             |  |            | $ |               |  |            | $ | 5,230    |   |  | $ | (4,824   | ) |  | $ | 406     | 
|                                       |                                             |              |   |              |  |            |   |                |  |            |   |          |   |  |   |          |   |  |   |        
|Year Ended December 31, 2000           |                                             |              |   |              |  |            |   |                |  |            |   |          |   |  |   |          |   |  |   |        
|                                       | Allowance for doubtful accounts             |              | $ | 8,815        |  |            | $ | 6,221          |  |            | $ | 16,115   |   |  | $ | (8,988   | ) |  | $ | 22,163  | 
|                                       |                                             |              |   |              |  |            |   |                |  |            |   |          |   |  |   |          |   |  |   |        
|                                       | Reserve for inventory obsolescence          |              | $ | 4,368        |  |            | $ | 507            |  |            | $ | 3,632    |   |  | $ | (267     | ) |  | $ | 8,240   | 
|                                       |                                             |              |   |              |  |            |   |                |  |            |   |          |   |  |   |          |   |  |   |        
|                                       | Valuation allowance for deferred tax assets |              | $ | 243,228      |  |            | $ |               |  |            | $ | 154,970  |   |  | $ | (2,926   | ) |  | $ | 395,272 | 
|                                       |                                             |              |   |              |  |            |   |                |  |            |   |          |   |  |   |          |   |  |   |        




|    |                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents allowance of majority-owned
    subsidiaries acquired during the year ended December 31,
    2000.                                                                         
|   
|(2) | Includes the impact of foreign currency
    translation adjustments and, for the two months ended
    December 31, 2002, the elimination of amounts related to
    Nextel Philippines.

F-118