##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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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,
    2003
|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 30,
2003, the aggregate market value of the voting and nonvoting
common stock held by nonaffiliates of the registrant was about
$16,283,571,014.

On February 27, 2004, 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 1,071,946,360 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 27,
2004 are incorporated in Part III, Items 10, 11, 12,
13 and 14.



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TABLE OF CONTENTS

|               |  |                                                                                                                      |  |      |    | 
|-------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|Item           |  |                                                                                                                      |  | Page
|               |  |                                                                                                                      |  |     
|PART I        
|              
|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, Related Stockholder Matters and Issuer Purchases
    of Equity Securities |  |      | 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                                                       |  |      | 72 | 
|8.             |  | Financial Statements and
    Supplementary Data                                                                      |  |      | 73 | 
|9.             |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure                             |  |      | 74 | 
|9A.            |  | Controls and Procedures                                                                                              |  |      | 74 | 
|              
|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
    Stockholder Matters               |  |      | 75 | 
|13.            |  | Certain Relationships and
    Related Transactions                                                                   |  |      | 75 | 
|14.            |  | Principal Accountant Fees
    and Services                                                                           |  |      | 75 | 
|              
|PART IV       
|              
|15.            |  | Exhibits, Financial
    Statement Schedules, and Reports on Form 8-K                                                 |  |      | 76 | 
|Exhibit 3.1.1 
|Exhibit 3.1.2 
|Exhibit 3.2   
|Exhibit 4.6.4 
|Exhibit 4.6.5 
|Exhibit 4.6.6 
|Exhibit 10.6.9
|Exhibit 10.7.4
|Exhibit 21    
|Exhibit 23    
|Exhibit 31    
|Exhibit 32    



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. We provide a
comprehensive suite of advanced wireless services that include:
digital wireless mobile telephone service; Nextel Nationwide
Direct ConnectSM walkie-talkie service; and a number
of wireless data applications, including email, mobile messaging
and Nextel Online® services, which provide wireless access
to the Internet, an organizations internal databases and
other applications. For 2003, we had $10.8 billion in
operating revenues and income available to common stockholders
of $1.47 billion. As of December 31, 2003, we provided
service to about 12.9 million subscribers, excluding subscribers
who purchase pre-paid services under our Boost Mobile
brand, and had total assets of $20.5 billion, long-term
debt of $10.0 billion, and stockholders equity of
$5.8 billion, including an accumulated deficit of
$6.3 billion.

Our all-digital packet data network is based on
integrated Digital Enhanced Network, or iDEN®, wireless
technology provided by Motorola, Inc. We, together with Nextel
Partners, Inc., currently utilize the iDEN technology to serve
293 of the top 300 U.S. markets where about 250 million
people live or work. Nextel Partners provides digital wireless
communications services under the Nextel brand name in mid-sized
and tertiary U.S. markets, and has the right to operate in 97 of
the top 300 metropolitan statistical areas in the United States
ranked by population. As of December 31, 2003, we owned
about 30% of the outstanding common stock of Nextel Partners.

As of December 31, 2003, we also owned about
18% of the outstanding common stock of NII Holdings, Inc., which
provides wireless communications services primarily in selected
Latin American markets. In November 2002, NII Holdings completed
a reorganization under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the District of
Delaware. Prior to the completion of that reorganization, NII
Holdings was our substantially wholly-owned subsidiary.

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 drive greater
operating efficiencies in our business and optimize the
performance of our network while minimizing costs. The wireless
communications industry is highly competitive. Although we
believe competitive pricing is often an important factor in
potential customers purchase decisions, we also believe
that many users, including businesses, government agencies and
high-value individuals who utilize premium mobile communications
features and services base their purchase decisions on quality
of service and the availability of differentiated features and
services that make it easier for them to get things done quickly
and efficiently.

1. Provide differentiated products and
services.We seek to provide the
most advanced suite of differentiated products and services in
the wireless industry. For over 10 years, our customers
have been able to communicate instantly within their coverage
area using our Nextel Direct Connect® walkie-talkie
service. In 2003, we expanded this unique service with the
introduction of our Nationwide Direct Connect walkie-talkie
service, giving our customers the ability to communicate
instantly with the over 14 million Nextel and Nextel
Partners subscribers on our networks across the continental
United States and to and from Hawaii. In September 2003, we also
expanded Nationwide Direct Connect service internationally

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through an agreement with NII Holdings into the
northern region of the Mexican state of Baja California and, in
2004, we plan to further extend the reach of Nationwide Direct
Connect service in other areas of North America and into Latin
America.


Our nationwide, all-packet data network supports
a comprehensive suite of services that allows our customers to
send and receive wireless email messages and communicate through
sophisticated business applications using Nextel wireless phones
in addition to laptop computers and handheld computing devices.
In the latter half of 2004, we plan to begin the deployment of
an enhancement to our existing iDEN technology, known as
WiDENSM, designed to increase the data speeds of our
network by up to four times the current speeds. We also are
conducting a field trial of Nextel Wireless
BroadbandSM, an easy-to-use and secure service that
connects customers to the Internet at broadband speeds with the
full mobility of wireless service.

We believe that we differentiate ourselves from
our competition by focusing on the quality of our customer care.
We have designed and implemented our customer Touch Point
strategy to improve our customer relationships by focusing on
eliminating situations that create customer dissatisfaction at
each point where we interact with, or touch, our
customers, including sales, fulfillment, activation, billing,
network quality, collections and overall customer care.

2. Acquire and retain the most
valuable customers in the wireless
industry.Our differentiated
products and services allow us to target the most valuable
customer groups in the wireless industry: small, medium and
large businesses; government agencies; and high-value
individuals. Our focus on these customer groups has resulted in
our acquiring what we believe to be 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 of any national service provider in the
wireless industry. To complement our efforts to acquire and
retain these valuable customers and to further expand our
customer base, in 2003, we introduced our new logo and the
Nextel. Done. branding and related advertising
programs, and, in 2004, we embarked on our 10-year title
sponsorship of the NASCAR NEXTEL Cup Series, the National
Association of Stock Car Auto Racing, or NASCAR®, season
championship series, providing unique exposure for our products
and services to an estimated 75 million loyal NASCAR racing
fans throughout the United States.

We have also been exploring other markets that
may present further opportunities for profitable growth,
including through our Boost Mobile brand, which targets the
youth and pre-paid calling wireless markets in California and
Nevada. In 2004, we plan to expand the Boost Mobile brand and
services into several additional markets.

3. Seek greater operating
efficiencies.We continually seek
new ways to create operating efficiencies in our business. In
2003, we outsourced our cell site development functions to
several vendors. In 2003, we also continued to expand our
customer convenient, and cost-efficient, distribution channels,
primarily through the opening of over 200 additional Nextel
stores, bringing our total to over 600 stores at
December 31, 2003. In 2003, we also continued to realize
the benefits of earlier cost reduction initiatives, including
the integration of our customer data bases and outsourcing of
significant portions of our information technology and customer
care operations.

4. Optimize the performance of our
nationwide network at a minimum
cost.We have built the largest
guaranteed all digital wireless network in the United States,
which we designed and constructed to support the full complement
of our wireless services. In 2003, we continued to implement
enhanced processes and technologies designed to allow us to more
efficiently utilize our network and monitor its performance.
These efforts have allowed us to maintain sufficient capacity on
our network while constructing fewer additional transmitter and
receiver sites than otherwise would have been necessary to
maintain network quality. In 2004, we will seek to continue to
improve our network by building additional sites where necessary
to expand our networks geographic coverage and capacity to
meet the growing demand of our customers. In addition, we plan
to introduce handsets that, together with software that we
recently installed in our network infrastructure, are designed
to more efficiently utilize radio spectrum to significantly
increase our network capacity once these handsets are in use.

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C.     2003 and
Year-to-Date 2004 Significant Developments

During 2003 and continuing into 2004, we took a
number of actions designed to advance our overall business
strategy of providing differentiated products and services to
high-value customers, as well as to improve our operations and
overall financial condition including the following:

1. Nationwide Direct
ConnectSM service
launch.In July 2003, we completed
the implementation of our Nationwide Direct Connect
walkie-talkie service, which allows our customers to communicate
instantly with the over 14 million Nextel, Nextel Partners
and Boost Mobile subscribers on our networks across the
continental United States and to and from Hawaii. In September
2003, we also expanded Nationwide Direct Connect service
internationally through an agreement with NII Holdings into the
northern region of the Mexican state of Baja California. See
 D. Products and Solutions 
1. Nextel Direct Connect.

2. New
handsets.In the third quarter
2003, we introduced the i205 and the i730 handsets designed
and manufactured by Motorola. Both handsets feature assisted
global positioning capabilities for location-based services and
enhanced 911, or E911, capability, expanded phone books that
store more entries, and sleek new designs. In December 2003, we
introduced the i305 and i530 handsets, our first
all-weather mobile phones, which have been designed with a focus
on durability to meet the needs of customers in industrial
sectors, as well as others who demand a phone that can resist
dust, shock, vibration, and extreme weather. In January 2004, we
introduced the BlackBerry 7510TM wireless handheld
device designed and manufactured by Research In Motion, or RIM.
The BlackBerry 7510 provides integrated access to one or
multiple corporate and personal email accounts. It also features
a built-in cell phone with a speakerphone, personal organizer
and web browser, and supports Nextel Online and our Direct
Connect services. See  D. Products and
Solutions  3. Handsets.

3. Brand strategy and NASCAR
sponsorship.In June 2003, we
refined our marketing and brand strategy to more closely align
it with the elements of our business strategy that focus
attention on productivity, speed, and getting things done. Two
significant components of this initiative included our
June 2003 announcement that we had become the title sponsor
of one of the most popular sports in the United States, the
NASCAR premier national series, now known as the NASCAR NEXTEL
Cup Series, beginning with the NASCAR® Daytona 500® in
February 2004, and the September 2003 introduction of our new
Nextel. Done. branding and related advertising
initiatives. See  G. Marketing.

4. Expanded retail distribution
channels.In 2003, we opened over
200 additional Nextel stores, bringing our total to over 600
stores at December 31, 2003, to generate new customers and
brand awareness and to serve as additional points of contact for
existing and new customers. In 2003, we also expanded the use of
our web sales and telesales. Together, these new customer
convenient distribution channels accounted for over 30% of our
new subscribers in 2003. See  F. Sales and
Distribution.

5. Boost
Mobile.As of December 31,
2003, we had about 405,000 subscribers of our Boost Mobile
pre-paid wireless service, which is designed for the youth and
pre-paid calling wireless markets and was launched in late 2002
in California and Nevada. In 2004, we plan to expand the Boost
Mobile brand into several additional markets. See
 F. Sales and Distribution.

6. New data
applications.In November 2003, we
announced that, in the latter half of 2004, we plan to begin the
deployment of WiDEN network infrastructure equipment and
software that is designed to increase the data speeds of our
network by up to four times the current speeds. In 2004, we
began a field trial of Nextel Wireless Broadband, an
easy-to-use, completely mobile, and secure service that connects
customers to the Internet at broadband speeds. See
 D. Products and Solutions 
5. Broadband wireless data initiative.

7. Debt and preferred stock
retirements and financing
activities.During 2003, we
retired $7.8 billion in long-term debt and preferred stock
and issued $4.7 billion in new lower cost debt, resulting
in net principal retirements of $3.1 billion. Specifically,
we:



| |   |                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | purchased and retired over $4.0 billion in
    aggregate principal amount at maturity of outstanding senior
    notes and convertible senior notes, and $932 million in
    aggregate face amount of outstanding

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| |   |                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | mandatorily redeemable preferred stock, in
    exchange for about 30.6 million shares of class A common stock
    valued at $588 million and $4.6 billion in cash;                                                                                                                                                                        
|
| |  | reduced the principal amount of outstanding term
    loans under our bank credit facility by $574 million by
    prepaying about $2.8 billion of term loans under that
    facility with cash on hand and the proceeds from the syndication
    of a new $2.2 billion term loan under that facility that
    matures in December 2010; and
|
| |  | sold $2.5 billion in aggregate principal
    amount of new senior notes, consisting of $2.0 billion of
    7.375% senior notes due 2015, and $500 million of 6.875% senior
    notes due 2013, which generated nearly $2.5 billion in net cash
    proceeds.                                                                              

In addition, during 2003, we issued about
27 million shares of class A common stock under our direct
stock purchase plan, which generated net cash proceeds of
$499 million.

See notes 6 and 11 to the consolidated
financial statements appearing at the end of this annual report
on Form 10-K.

8. Proposed public safety spectrum
realignment.We, along with a
coalition of private wireless industry associations and public
safety associations, have proposed to resolve interference
experienced by public safety communications systems through the
realignment of the 700, 800 and 900 megahertz, or MHz,
spectrum, in which we principally operate or own significant
licenses. If approved by the Federal Communications Commission,
or FCC, we would vacate certain portions of our spectrum
holdings, and exchange certain portions of our spectrum for
other spectrum. We also would contribute up to $850 million
over several years towards the cost of spectrum relocation of
public safety and private wireless users. In November 2003, we
notified the FCC that if our proposed realignment plan is
approved, to satisfy our relocation commitment under the plan,
we would deposit $100 million in cash in an escrow account
to be available to pay relocation costs, and would secure the
remaining $750 million commitment through one or more
irrevocable stand-by letters of credit issued by internationally
recognized commercial lending institutions. The letters of
credit would provide payments for relocation costs should we
fail to meet our funding obligations under the plan. We cannot
predict whether, or under what terms, the FCC would approve the
proposed realignment plan, and there is no assurance that the
FCC will adopt any realignment plan. See
 K. Regulation 
2. Proposed public safety spectrum realignment.

9. Spectrum
acquisitions.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, or SMR, systems, for which we paid an
aggregate cash purchase price of $280 million, of which
$201 million was paid in 2003 and the remainder was paid
prior to 2003. In July 2003, the U.S. Bankruptcy Court approved
our $144 million bid to purchase certain FCC licenses and
other network assets of WorldCom, Inc., and, in November 2003,
the U.S. Bankruptcy Court approved our $51 million bid to
purchase certain FCC licenses, interests in certain
FCC licenses and other network assets of Nucentrix
Broadband Networks, Inc. The WorldCom and Nucentrix licenses
relate to spectrum that we may use in connection with the
deployment of certain broadband services. The closing of each of
these transactions is subject to approval by the FCC and is
currently expected to occur in 2004. See
 E. Our Network and Technology 
2. Network enhancement.

D.     Products and
Solutions

We offer a wide range of wireless communications
services and related subscriber equipment designed to meet the
needs of our targeted customer groups, including small, medium
and large businesses, government workers and individuals who
utilize premium mobile communications features and services.
These services and equipment have been designed to provide
innovative features that meet those customers need for
fast and reliable voice and data communications that allow them
to get things done quickly and efficiently.

1. Nextel Direct
Connect®.One of our key
competitive differentiators is Nextel Direct Connect, the
long-range walkie-talkie service that allows communication at
the touch of one button. Nextel Direct

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Connect gives customers the ability to instantly
set up a conference  either privately (one-to-one)
nationwide or with a group (one-to-many) within their local
calling area  which allows our customers to initiate
and complete communications much more quickly than is possible
using a traditional wireless call. Nextel Direct Connect service
greatly enhances the instant communication abilities of business
users within their organization and with suppliers, vendors and
customers, and provides individuals the ability to contact
business colleagues, friends and family instantly.


In 2003, we significantly expanded our Direct
Connect service by introducing Nationwide Direct Connect, which
allows any two Nextel customers to instantly contact one another
from anywhere on the Nextel National Network, regardless of the
senders or receivers location. We completed the
introduction of Nationwide Direct Connect in July 2003. In
September 2003, we also expanded Nationwide Direct Connect
service internationally through an agreement with NII Holdings
into the northern region of the Mexican state of Baja
California. In 2004, we plan to further extend the reach of
Nationwide Direct Connect in other areas of North America and
into Latin America.

Although a number of our competitors have
launched or announced plans to launch services that are designed
to compete with Direct Connect, we do not believe that the
current versions of these services compare favorably with our
service in terms of latency, quality, reliability or ease of use.

2. Wireless business solutions and
Nextel Online®.We offer a
variety of wireless business solutions that are designed to help
companies increase productivity through the delivery of
real-time information to mobile workers anytime and anywhere,
including remote email access and mobile messaging services
using two-way text communications capabilities from their
handsets. Accessible via our wireless handsets, in addition to
laptop computers and handheld computing devices, 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 design wireless
business solutions to meet the needs of specific customers based
on their industry and individualized business needs, including a
wide array of fleet and workforce management services that
leverage the unique capabilities of our data network, such as
the ability to accurately and in real time, locate handsets
using assisted global positioning system, or A-GPS. Wireless
business services are backed by a comprehensive customer support
service center and what we believe is the widest range of tools
available to help customers build, distribute, and manage
wireless applications. In addition, we offer our customers
always-on connectivity to the Internet directly from their
handset through Nextel Online, which combines the vast resources
of the Internet with convenient mobile content services, all
from their handset.

In the latter half of 2004, we plan to begin the
deployment of an enhancement to our existing iDEN technology,
known as WiDEN, that is designed to increase the data speeds of
our network by up to four times the current speeds. We believe
that this enhancement will allow us to meet our customers
needs for faster wireless data communications.

We believe that our wireless business solutions
will contribute to customer retention and generate incremental
revenue by providing companies a comprehensive framework for
creating end-to-end wireless value.

3. Handsets.We offer all of our voice and data communications features and
services through handsets we sell that incorporate
Motorolas 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 7510 device, which is manufactured by RIM. Our
handsets range from basic models, like the i205 designed to
serve the needs of customers who require basic wireless services
without sacrificing the essential features they depend upon to
do their jobs, to the recently introduced BlackBerry 7510,
which provides integrated access to one or multiple corporate
and personal email accounts, in addition to many of the features
of digital wireless and Nextel Direct Connect services. Our
handsets offer a wide range of features, and many include a
built-in speakerphone, additional line service, conference
calling, an external screen that lets customers view caller ID,
voice-activated dialing for hands-

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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. Many of
our handsets include pre-installed Java applications and
games. Java enables users to create and execute a number of
mobile applications, and supports a wide range of downloadable
digital media capabilities, such as ring tones and wallpaper
that allow customers to personalize their handset.


In 2003, we introduced a number of new handsets.
In October 2003, we introduced the i205, designed not only to
serve the needs of specific business customers, such as field
services, construction and transportation employees, but also
the price conscious customer. The i205 features A-GPS
capabilities for location-based services and E911 and
personalization features, such as downloadable ring tones.

In November 2003, we introduced the i730, the
most advanced handset that we have offered to date. The i730
features A-GPS capabilities for location-based services and E911
and numerous other features, such as Java applications, speaker
phone, voice recorder, voice-activated dialing and audio caller
identification through user-assigned ring tones, and an expanded
phone book that stores up to 600 entries.

In December 2003, we introduced the i305 and i530
handsets, both of which feature A-GPS capabilities. These
handsets are our first all-weather mobile phones, and have been
designed with a focus on durability to meet the needs of
customers in industrial sectors such as construction and public
service, as well as others who demand a phone that can resist
dust, shock, vibration, and extreme weather. The i305 features a
rubber encasing and sculpted grip for comfort, and has an
interior lining and seals that protect against exposure to rain,
sleet, humidity, salt, fog and snow intrusion. It adheres to
military standards, for both rugged construction and
rain-resistance, and can withstand temperatures ranging from
minus 14 to 248 degrees Fahrenheit. The i530 features a
flip-style design that is covered in a protective rubber casing
for a non-slip grip and extra durability, and meets military
standards for resistance to dust, shock, vibration and humidity.

In January 2004, we introduced the
BlackBerry 7510 designed and manufactured by RIM. The
BlackBerry 7510 offers the combination of a wireless
handset, personal data assistant, color display and
always-on wireless access to business email
capability, which allows customers to automatically and
wirelessly receive and answer email as they would on their
computers with a standard typewriter keyboard. It features a
built-in cell phone with a speakerphone, personal organizer and
web browser, and supports Nextel Online and our Direct Connect
walkie-talkie services.

In February 2004, in connection with our
sponsorship of the NASCAR NEXTEL Cup Series, we introduced the
NASCAR NEXTEL Cup Series Phone and ten NASCAR NEXTEL Cup Series
Driver Phones. These handsets include all of the features of the
i730 handsets and a number of unique NASCAR-related features.
The NASCAR NEXTEL Cup Series Phone displays a checkered
flag and a NASCAR NEXTEL Cup Series logo, and the NASCAR NEXTEL
Cup Series Driver Phones each feature the number and unique
design, colors and signature of the particular driver. These
handsets also are pre-loaded with content especially designed
for NASCAR fans, including: wallpaper of the series logo, photos
of cars on the track, and the drivers car number and a
photo of the driver; ring tones of familiar tunes, such as the
national anthem, as well as sounds from the track; a digital
racing stopwatch; and, for Nextel Online subscribers, access,
directly from a special icon on the handsets main menu, to
information such as a live leader board, a race schedule and
driver biographies and statistics.

We also offer the Motorola i88s and i58sr, both
of which feature A-GPS capability and Java applications. The
i58sr was designed with a focus on durability in order to meet
the needs of customers in industrial sectors, such as
construction and public safety, offers a non-slip rubber grip
and adheres to certain military standards for resistance to
dust, shock and vibration, for additional protection in harsh
working environments.

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We also offer handsets designed specifically for
local, state and federal public safety and law enforcement
agencies and organizations. These handsets enable us to offer
services specifically designed for public safety and law
enforcement officials, such as priority access and emergency
group connect.

In 2004, we plan to introduce several new phones
including: the i830, our smallest and sleekest phone ever; the
i860, our first of several camera phones that we expect to
introduce; the i315, our first phone to feature off
network two-way radio service for business and public
safety users; and a dual-mode, iDEN and global system for mobile
communications, or GSM, Smart Phone equipped with the
Microsoft® Windows® Smartphone Operating System and an
integrated camera.

4. Digital media
services.In 2003, we began
offering customers the ability to easily and conveniently
personalize selected phones through the purchase and download of
digital media such as wallpaper patterns and musical ring tones.
Through the handset and our Nextel Online web portal, customers
can select from a large and growing catalog of digital media and
applications.

5. Broadband wireless data
initiative.In 2004, we began a
field trial of Nextel Wireless Broadband, an easy-to-use and
secure service that connects customers to the Internet at
broadband speeds, with the full mobility of wireless service.
Participants in the trial include employees from select Nextel
enterprise customers. Nextel Wireless Broadband is expected to
offer average downlink speeds of 0.75 to 1.5 megabits per
second, or mbps, with burst rates of up to 3.0 mbps, which would
make the service comparable to digital subscriber line, or DSL,
and cable broadband services. The service will be up to 50 times
faster than dial-up connections with the added benefit of the
freedom to connect without the constraints of being tethered to
the home or office or needing to search for wireless fidelity,
or WiFi, hot spots. This mobile broadband technology is
Internet-protocol-friendly, which will allow trial participants
to easily connect to their main databases and run applications.
This field trial, which is expected to be completed in 2004, is
designed both to evaluate the quality and performance of the
technology being used to provide the service and to assess
customer demand, preferences and feature requirements associated
with the service.

E.     Our Network
and Technology

1. Our iDEN network
technology.Our handsets and
network infrastructure employ the iDEN technology developed and
designed by Motorola. iDEN technology is able to operate on
non-contiguous spectrum frequencies, which previously were
usable only for two-way radio calls, such as those used to
dispatch taxis and delivery vehicles. We currently are the only
national U.S. wireless service provider that utilizes iDEN
technology, and the iDEN handsets that we offer are not
currently designed to roam onto non-iDEN domestic national
wireless networks. Although iDEN offers a number of advantages
in relation to other technology platforms, including the ability
to operate on non-contiguous spectrum and to offer the Nextel
Direct Connect service, 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. We also rely on Motorola to provide us with
technology improvements designed to expand our wireless voice
capacity and improve our services. Motorola is and is expected
to continue to be our sole source supplier of iDEN
infrastructure and all of our handsets except the
BlackBerry 7510, which is manufactured by RIM. See
 M. Risk Factors  If Motorola
is unable or unwilling to provide us with equipment and
handsets, as well as anticipated handset and infrastructure
improvements, our operations will be adversely affected.

The iDEN technology shares many common components
with the 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

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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 TDMA technology format and shares many common
features and components of GSM technology, it differs in a
number of significant respects from the versions of TDMA and GSM
technology used by other wireless service 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, or 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
    SMR in channel utilization capacity. We also currently achieve
    about three times improvement over analog SMR in channel
    utilization capacity for channels used for mobile telephone
    service. We have plans to implement enhancements to the voice
    coder and related technology used in our iDEN-based network that
    is designed to significantly increase the overall capacity of
    our network by increasing the 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 agreements that set 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. In 2003, the terms of the primary supply agreements for
Motorola handsets and iDEN infrastructure expired. We are in the
process of renegotiating new long-term supply agreements with
Motorola for the purchase of network infrastructure equipment
and subscriber handsets, and currently are purchasing equipment
and supplies from Motorola under interim arrangements and
purchase orders under economic terms substantially similar to
those of the expired agreements.

Motorola also provides integration services in
connection with the deployment of our iDEN network elements. We
and Motorola have also agreed to warranty and maintenance
programs and specified indemnity arrangements.

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In addition to the extensive domestic coverage
provided on our network and the network operated by Nextel
Partners, our customers are able to travel outside the United
States 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 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. Later this year, we plan to introduce the i930, a
new dual-mode iDEN/ GSM phone, which will further enhance our
international roaming capabilities.

2. Network
enhancement.During 2003, we
expanded the geographic coverage of our network by adding nearly
1,200 transmitter and receiver sites to our network, bringing
the total number of sites as of December 31, 2003 to nearly
17,500. We increased the number of additional sites built in
2003 as compared to 2002, as we embarked on a long-term plan to
expand our networks geographic coverage and capacity where
necessary to meet the growing demand of our customers and to
meet competition. In 2004, we plan to continue to pursue this
goal by building an additional 2,200 transmitter and receiver
sites to improve both our geographic coverage and to meet the
capacity needs of our growing customer base and by implementing
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 completed, 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, in 2003, we entered into agreements to
outsource our site development functions. Currently, we lease
substantially all of our communications towers and other
transmitter and receiver sites.

Another key component in our effort to improve
the coverage and capacity of our network and the quality of our
services is ensuring that we have sufficient radio spectrum in
the geographic areas in which we operate. During 2003, we
completed the purchase of additional spectrum in the 800 and 900
MHz bands, in particular the purchase of the stock of NeoWorld
Communications, Inc., which owned and operated 900 MHz SMR
systems. 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, which spectrum is not currently in use. In addition, in
July 2003, the U.S. Bankruptcy Court approved our
$144 million bid to purchase certain FCC licenses and other
network assets of WorldCom, and, in November 2003, the U.S.
Bankruptcy Court approved our $51 million bid to purchase
certain FCC licenses, interests in certain FCC licenses and
other network assets of Nucentrix. The WorldCom and Nucentrix
licenses relate to spectrum in the 2.1 gigahertz, or GHz,
and 2.5 GHz bands that we believe can be adapted to provide
broadband wireless data and other services. Upon completion of
these transactions, we will hold licenses to a portion of this
spectrum in 60 of the top 100 markets in the United States. The
closing of each of these transactions is subject to approval by
the FCC. Finally, we are seeking to resolve interference
experienced by public safety communications systems through the
realignment of the 700, 800 and 900 MHz spectrum. See
 4. Proposed public safety spectrum
realignment.

Another goal of our network enhancement efforts
is to continue to optimize our network to increase the
efficiency of our existing network equipment. We have
implemented a number of initiatives to achieve this goal and
improve the capital efficiency of our network, including a
network software upgrade that redirects traffic from more
heavily burdened cell sites to other available sites and a
software application

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that enables us to better manage our use of
frequency in the network. As a result of these efforts, we
reduced capital expended on our network during 2003 while
providing over 100 billion total system minutes of use on
our network, an increase of 37% from 2002.


3. Our technology
plans.In October 2003, we began
deploying in our network a significant upgrade to the iDEN
technology, the 6:1 voice coder, which is designed to
significantly increase the overall capacity of our network and
specifically our networks capacity to carry mobile
telephone calls. This voice coder is designed to allow us to use
our spectrum and our existing infrastructure more efficiently
when compared to our current 3:1 voice coder that is used
for mobile telephone service and to reduce capital expenditures
that otherwise would be necessary to increase the capacity of
our network. We completed the first step in this effort, the
installation of software in our network infrastructure on a
market-by-market basis, in the first quarter 2004. The increase
in network capacity will be realized as handsets that operate
using the 6:1 voice coder for both wireless interconnection
and Direct Connect services are introduced into our customer
base.

In October 2003, we introduced the i205 and the
i730 handsets, both of which have been designed to operate using
both our existing 3:1 and the new 6:1 voice coders for
mobile telephone calls. Although the performance and
functionality of these handsets has met or exceeded our
expectations in many respects, we have not been satisfied with
the voice quality when the handsets operate in the 6:1 mode in
some operating conditions. Specifically, we have found that
additional filtering is required to improve the voice quality of
calls using the 6:1 voice coder when the call involves other
voice compression technologies as is the case, for example, for
certain voice mail and conference call services and for
international calls. Consequently, the versions of these handset
models that are currently being sold operate only in the 3:1
mode, and commercial introduction of handsets that operate in
the 6:1 mode has been delayed until we are satisfied that the
voice quality will meet our customers expectations in all
operating conditions. Based on the results of these efforts to
date and our most recent testing, we currently expect to begin
selling dual mode handsets that operate in both 3:1 and 6:1
modes in mid-2004. When deployed and operating in both modes,
these handsets, in combination with the modified network, are
expected to use substantially less network capacity than is used
by our current handsets that operate only in 3:1 mode for
mobile telephone calls and 6:1 mode for Nextel Direct Connect
calls.

In the event that we are not able to improve the
performance of the 6:1 voice coder so that we are satisfied
with the voice quality of the handsets when operating in
6:1 mode in all operating conditions, we may implement
modifications to the network and handset technology that will
allow the dual mode handsets to shift between 3:1 and 6:1 modes
so that handsets operate in 6:1 mode only under conditions where
we are satisfied with the voice quality. If these types of
modifications are implemented, we anticipate that we would be
able to achieve a significant increase in network capacity, but
that increase would be more limited than if the dual mode
handsets could operate in the 6:1 mode under all operating
conditions. The extent of the increase in network capacity would
depend on the amount of voice traffic carried using the 6:1
voice coder.

Regardless of our approach, because any capacity
increase and the related financial benefits will be realized
gradually as these handsets are deployed and used by our
customers, it is our expectation that most of these benefits
will not begin to be realized until after 2004. If there are
substantial delays in the deployment of handsets operating in
both modes in all operating conditions, or if we are unable to
timely implement network and handset modifications that allow us
to achieve the increased network capacity benefits of the 6:1
voice coder for some portion of the calls on our network, those
benefits also would be delayed or reduced, and we could be
required to invest additional capital in our infrastructure to
satisfy our network capacity needs.

In the latter half of 2004, we plan to begin the
deployment of an enhancement to our existing iDEN technology,
known as WiDEN, which is designed to increase the data speeds of
our network by up to four times the current speeds. We are also
evaluating potential future technology choices, which include
CDMA, evolution data only (EvDO) and orthagonal frequency
division multiplexing (OFDM), among others.

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We continuously review alternate technologies as
they are developed, but currently do not believe that it is
necessary to migrate to a next generation technology platform
either to provide competitive features or services or to meet
our voice capacity needs given the capacity enhancements
expected later in 2004 and in subsequent years for the existing
iDEN technology, as discussed above. Nevertheless, we continue
to evaluate new technologies and their ability to meet our
customers requirements. We will deploy a new technology
only when it is warranted by expected customer demand 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; and
|
| |  | developments relating to the spectrum realignment
    now before the FCC. See  4. Proposed
    public safety spectrum realignment.  

Our consideration of alternative technologies
would likely be materially affected by a number of factors,
including our need to continue to provide iDEN-based services
for our existing customer base.

We have entered into a development agreement with
QUALCOMM, Inc. to develop, subject to certain conditions and
limitations, our Direct Connect service on various CDMA
platforms. Development of the technology that will support this
service continues, and we and QUALCOMM are in the process of
marketing this service to wireless operators that have deployed
advanced CDMA platforms outside the United States. We may enter
into additional development agreements of this nature with other
infrastructure or handset vendors. Several of our wireless
competitors, some with the support of large infrastructure
vendors, including Motorola, have introduced features and
services that are designed to compete with our Direct Connect
service on other technology platforms including CDMA and GSM.
See  I. Competition. While these
services could ultimately prove to be competitive alternatives
to Direct Connect, their development also has the potential to
broaden the technology alternatives available to us for future
deployment if those services are capable of meeting our
customers expectations. We are developing with Motorola a
gateway that would permit a variety of data
communications, including walkie-talkie style communications,
between devices based on iDEN technology and those based on
other technologies.

4. Proposed public safety spectrum
realignment.In recent years, a
number of public safety communications systems have experienced
interference in the 800 MHz block of spectrum. In November 2001,
we filed an initial 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 and, thereby, resolve many of these interference
problems. This proposal was modified in August 2002 in
cooperation with public safety associations and private wireless
interests to form a Consensus Plan for the
FCCs consideration. Under the Consensus Plan proposal, we
would exchange certain portions of our spectrum and relinquish
other portions of our spectrum in exchange for other spectrum.
If the FCC approves this plan as submitted, we have committed to
contribute up to $850 million over the next several years
primarily towards the cost of public safety relocation, and to
satisfy this commitment by depositing $100 million in cash
in an escrow account to be available to pay relocation costs,
and securing the remaining $750 million commitment through
one or more irrevocable stand-by letters of credit, which would
provide payments for relocation costs should we fail to meet our
funding obligations under the plan. We cannot predict whether,
or under what terms, the FCC would approve the proposed
realignment plan, and there is no assurance that the FCC will
adopt any realignment plan. See
 K. Regulation 
2. Proposed public safety spectrum realignment.

F.     Sales and
Distribution

Our differentiated products and services allow us
to target the most valuable customers in the wireless industry:
small, medium and large businesses; government agencies; and
high-value individuals. Our focus

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on these customers has resulted in our acquiring
what we believe to be the most valuable customer base in the
wireless industry, with the highest customer loyalty rate, the
highest monthly average revenue per customer and the highest
lifetime revenue per customer of any national service provider
in the wireless industry. We use a variety of sales channels as
part of our strategy to increase our customer base: direct sales
representatives; indirect sales agents; and customer-convenient
channels, including web sales, telesales and Nextel stores.


We employ direct sales representatives who market
our services 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, as well as our
ability to develop custom communications capabilities that meet
the specific needs of these larger customers.

We also utilize indirect sales agents, 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 residual commissions. Dealers participate with
us in all the markets we serve including corporate, government,
general business and individual sales. We have established a
direct handset fulfillment system in which dealers may order
handsets directly from Motorola and Motorola delivers them
directly to the customer.

In 2003, we continued to expand distribution
through customer-convenient channels, including web sales,
telesales and sales through our Nextel stores. These channels
generally allow us to acquire customers at a lower cost than our
traditional direct and indirect sales. Together, these channels
accounted for nearly one-third of our new subscribers in 2003.
We have expanded the number of new subscribers garnered through
our web sales and telesales, and our customers willingness
to buy through these customer-convenient channels has driven
significant growth 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. In 2003, we opened over 200 additional Nextel stores,
bringing our total to over 600 stores at December 31, 2003,
which not only generate new customers and brand awareness, but
also serve as additional points of contact for existing and new
customers. As we increase brand awareness through our expanded
advertising and marketing efforts, we believe our Nextel stores,
web sales and telesales will be increasingly useful distribution
channels for all of our services.

We have also been exploring other markets that
may present further opportunities for profitable growth,
including through our Boost Mobile brand, which targets the
youth and pre-paid calling wireless markets in California and
Nevada. Through Boost Mobile, we offer pay-as-you-go wireless
service and products including our Nationwide Direct Connect
service, marketed as Boost Walkie-Talkie service, as well as a
wide range of accessories, Java games for wireless phones, ring
tones and other mobile services, all of which have been designed
for todays youth. In 2004, we plan to expand the Boost
Mobile brand into several additional markets.

G.     Marketing

Our marketing strategy focuses principally on:



| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | identifying and targeting high-value customers
    that will benefit from the unique features offered by our full
    line of integrated voice and data mobile communications services;
|
| |  | developing and bringing to market innovative
    products and services that differentiate us from other wireless
    communications service providers; and                             
|
| |  | focusing our advertising efforts on communicating
    the benefits of those services to our targeted groups of
    potential customers.                                                

To complement these efforts and to further expand
our customer base, in 2003, we introduced our new logo and the
Nextel. Done. branding and related advertising
programs, which are designed to focus

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attention on productivity, speed, and getting
things done. In 2004, we embarked on our 10-year title
sponsorship of the NASCAR NEXTEL Cup Series, the NASCAR season
championship series, which provides unique exposure for our
products and services to an estimated 75 million loyal
NASCAR fans throughout the United States. Under this
sponsorship, we are NASCARs Official Telecommunications
Sponsor, which entitles us to a variety of branding,
advertising, merchandising and technology-related opportunities,
many of which are exclusive with NASCAR, its drivers and teams,
and the racetrack facilities, subject to specified existing
relationships. The goal of these initiatives, together with our
other marketing initiatives that include affiliations with most
major sports leagues, is not only to increase brand awareness in
our targeted customer base, but also to expand the use of our
customer-convenient distribution channels: web sales, telesales
and Nextel stores.


We offer pricing options that we also 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 minutes for all handsets on their
account and reallocate the aggregate minutes among those
handsets.

H.     Customer
Care

We believe that we are able to differentiate
ourselves from our competition by focusing on the quality of our
customer care. In late 2002, we 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 that
provides 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
software modules included in the system. Through the Ensemble
system, we have been able to better interact with our customers
while reducing our costs.

We have retained International Business Machines
Corporation, or IBM, and Teletech Holdings, Inc. to manage our
customer care centers. 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, we designed and implemented our customer
Touch Point strategy to improve our customer relationships by
focusing on eliminating situations that create customer
dissatisfaction at each point where we interact with, or
touch, our customers, including sales, fulfillment,
activation, billing, network quality, collections and overall
customer care.

I.     Competition

Since the introduction of mobile communications
technology, growth in the industry has been rapid. As of June
2003, the Cellular Telecommunications and Internet Association,
or CTIA, estimated that there were 148 million wireless
handsets in service in the United States, providing analog
cellular, digital cellular, enhanced SMR and PCS. We believe
that the wireless communications industry has been and will
continue to be characterized by intense competition on the basis
of price, the types of services offered and quality of service.

We compete principally with five other national
providers of mobile wireless voice communications: Verizon
Wireless, AT&T Wireless, Cingular Wireless (which, as
described below, has recently announced plans to acquire
AT&T Wireless), Sprint PCS 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.

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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.
Because some of our competitors are affiliated with wireline
telecommunications service providers, they are able to offer
bundled sets of wireline and wireless services, which we
currently are not able to offer.


Although competitive pricing is often an
important factor in potential customers purchase
decisions, we believe that our targeted customer base of
business users, government agencies and high-value individuals
are also likely to base their purchase decisions on quality of
service and the availability of differentiated features and
services that make it easier for them to get things done quickly
and efficiently. In particular, we believe we compete based on
our differentiated service offerings and products, including
Direct Connect. Several of our competitors, including Verizon
Wireless, Sprint PCS and Alltel, have introduced services that
are designed to compete with Nationwide Direct Connect, and
others have announced plans to introduce similar services.
Although we do not believe that the current versions of these
competing services compare favorably with Nationwide Direct
Connect in terms of latency, quality, reliability or ease of
use, in the event that our competitors are able to provide
walkie-talkie service comparable to ours, one of our key
competitive advantages would be reduced. Because the wireless
industry often has competed based on price, to the extent that
the competitive environment requires us to decrease prices or
increase service and product offerings, our revenue could
decline or our costs could increase. 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. For
example, on February 17, 2004, AT&T Wireless and
Cingular Wireless, which is a joint venture of SBC
Communications Inc. and BellSouth Corporation, announced that
they had reached agreement on the terms of a merger of the two
companies in a transaction that would create the largest
wireless services provider based on the number of subscribers.
Our larger competitors, like Verizon Wireless and the combined
Cingular/ AT&T Wireless, have the additional potential
advantages of size and scale that could allow them to deliver
services in a more cost efficient manner. Some of our
competitors are also creating joint ventures that will fund and
construct a shared infrastructure that the venture participants
will use to provide advanced services and entering into roaming
arrangements that provide similar benefits. By using joint
ventures and roaming arrangements, 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 wireline telephone services and, potentially,
energy companies, utility companies and cable operators that
expand their services to offer communications services. We also
expect that we will face competition from other technologies and
services developed and introduced in the future, including
potentially those using unlicensed spectrum, including WiFi.

J.     Our Strategic
Relationships

We have a number of strategic and commercial
relationships with third parties that have had a significant
impact on our business, operations and financial results in 2003
and prior years and have the potential to have such an impact in
the future. Of these, we believe that our operating and other
arrangements with Motorola, Nextel Partners and NII Holdings are
the most significant. In addition, for many years we also had a
strategic relationship with Craig O. McCaw, who resigned
from our board in late 2003. See Part II, Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operation  E. Related Party
Transactions.

1. 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 devices, which are
manufactured by RIM. As discussed

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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  E. 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 February 27, 2004, Motorola owned
47.5 million shares of our class A common stock and
35.7 million shares of our nonvoting class B common
stock, all of which can be converted into shares of class A
common stock at Motorolas election, representing about 8%
of our class A common stock assuming that conversion. In
addition, under the terms of the agreement relating to that
acquisition, Motorola has the right to nominate two persons for
election as members of our board of directors, but is not
currently exercising this right.

2. Nextel
Partners.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 97 of the top 300 metropolitan
statistical areas in the United States ranked by population. In
January 1999, we entered into agreements with Nextel Partners
and other parties, including Motorola, relating to the
formation, capitalization, governance, financing and operation
of Nextel Partners. In those transactions in 1999, we sold
assets and transferred specified FCC licenses to Nextel Partners
in exchange for equity interests in Nextel Partners having a
total agreed value of $140 million and cash of
$142 million, which also included the reimbursement of
costs and net operating expenses.

As a result of Nextel Partners initial
public offering in February 2000, our equity interest was
converted into voting class B common stock and our total
ownership interest was diluted. As a result of the initial
public offering and subsequent transactions, we owned about 30%
of the outstanding common stock of Nextel Partners as of
December 31, 2003. In November 2003, Nextel Partners
redeemed its nonvoting mandatorily redeemable preferred stock
that we held for $39 million. At December 31, 2003,
our investment in Nextel Partners was recorded at zero, as our
share of Nextel Partners losses exceeded the book value of
our investment.

We entered into the relationships with Nextel
Partners principally to accelerate the build-out of our network
outside the largest metropolitan market areas that initially
were 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.

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) this technology 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;

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| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | we elect to terminate the relationship with
    Nextel Partners because of its breach of the operating
    agreements;                 
|
| |  | we experience a change of control;                                                                                                     
|
| |  | we breach the operating agreements; or                                                                                                 
|
| |  | 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 that a buyer would be willing to
    pay for all of Nextel Partners outstanding capital stock
    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.

As of December 31, 2003, Timothy M. Donahue,
a member of our board of directors and our President and Chief
Executive Officer, and Dennis M. Weibling, a member of our board
of directors, each were directors of Nextel Partners.

3. NII
Holdings.NII Holdings provides
wireless communications services using iDEN technology primarily
in selected Latin American markets. In November 2002, NII
Holdings, which prior to that time was our substantially
wholly-owned subsidiary, completed its reorganization under
Chapter 11 of the U.S. Bankruptcy Code, having filed a
voluntary petition for reorganization in May 2002 in the United
States Bankruptcy Court for the District of Delaware, after it
and one of its subsidiaries defaulted on credit and vendor
finance facilities. Under the plan of reorganization, we
received 1.4 million shares of NII Holdings new class
A common stock in settlement of claims held by us. In addition,
as part of the plan of reorganization, we contributed about $51
million in cash and received in exchange about $66 million
in aggregate principal amount at maturity of NII Holdings
13% senior secured notes and 5.7 million additional shares of
NII Holdings class A common stock. As part of the
reorganization, we also provided NII Holdings with an additional
$50 million in connection with a U.S.-Mexico cross border
spectrum sharing arrangement between them and us.

In November 2003, we sold 3.0 million shares
of NII Holdings common stock, which generated $209 million
in net proceeds and a gain of $174 million. As of
December 31, 2003, we owned about 18% of the outstanding
common stock of NII Holdings. In February 2004, we tendered the
13% notes to NII Holdings in exchange for $77 million in
cash representing a tender price of $1,165 for each $1,000 in
principal amount at maturity of the tendered notes.

Mr. Donahue was a director of NII Holdings
until March 2004.

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4. Craig O.
McCaw.In December 2003, Craig O.
McCaw resigned from our board, on which he had served since
1995. In 1995, Mr. McCaw acquired significant equity
interests in Nextel, and we agreed to certain arrangements
related to our corporate governance, including terms relating to
the election of directors selected by Digital Radio, L.L.C., an
affiliate of Mr. McCaw, the approval of specified
transactions and corporate actions and the formulation of
specified aspects of our business strategy. In connection with
these equity investments, we also reached an agreement with
Mr. McCaw and Digital Radio on a number of matters relating
to the ownership, acquisition and disposition of our securities
and limitations on Mr. McCaws and Digital
Radios participation in two-way terrestrial based mobile
wireless systems in North America and South America. In March
2003, we, Digital Radio and Mr. McCaw entered into an
agreement revising these arrangements and terminated
substantially all corporate governance and other rights
originally granted to Digital Radio.

K.     Regulation

We are an SMR licensee regulated by the FCC. The
FCC also 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 commercial mobile radio
service, or CMRS, providers.

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 and manufactured by Motorola to deliver these
services. Unlike some other digital transmission technologies,
iDEN can be deployed on non-contiguous frequency holdings, which
benefits us because our 800 MHz channel holdings are
non-contiguous.

In addition to being subject to FCC regulation,
we are subject to certain state requirements. The Communications
Act of 1934, as amended, preempts state and local regulation of
the entry of, or the rates charged by, any CMRS provider, but 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 for use of those
rights of way 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 E911 services programs, to protect the
public safety and welfare, and to safeguard the rights of
customers.

1. Licensing.Although we currently hold an average of about 26 MHz of
spectrum in the 700, 800 and 900 MHz bands in our
geographic markets, we primarily utilize 800 MHz, and to a
lesser extent 900 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. 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 also require the FCCs
prior approval of the assignment or transfer of control of an
FCC license although new rules adopted late last year permit
spectrum lease arrangements for a range of wireless radio
service licenses, including our licenses, with minimal FCC
oversight. 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 within specified
geographic areas. Because SMR spectrum was originally licensed
in small groups of channels, we hold

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thousands of these licenses, which together allow
us to provide coverage across much of the continental U.S. Our
700, 800 and 900 MHz licenses are subject to requirements
that we meet population coverage benchmarks tied to the initial
license grant dates. 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 with the Communications Act.


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

Our business also 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. Proposed public safety spectrum
realignment.In recent years, a
number of public safety communications systems operating on
high-site systems in the 800 MHz block of spectrum have
experienced interference that is believed to be a result of the
low-site operations of CMRS providers in adjacent frequencies.

In November 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 and, thereby,
resolve many of these interference problems. 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. In
August 2002, we, together with a number of parties that,
together with us, represent over 90% of the 800 MHz
licensees affected by the proposed realignment, filed a
Consensus Plan with the FCC. If adopted by the FCC, the proposal
would establish separate channel blocks for low-site cellular
and commercial SMR licensees from the channel blocks used by
high-site public safety and private wireless licensees, which in
conjunction with proposed technical requirements, would
virtually eliminate interference to the non-cellular licenses.
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 an average of 2.5 MHz in
the 800 MHz band in our markets for 16 MHz of
contiguous spectrum in the 800 MHz band and 10 MHz of
contiguous spectrum in the 1.9 GHz band.

In December 2002, we and the other proponents of
the Consensus Plan filed a supplement to that plan relating to
the funding of certain relocation costs associated with the
spectrum realignment. Under our funding proposal, if the FCC
approves the Consensus Plan as submitted, we would contribute up
to $850 million over the next several years primarily
towards the cost of public safety relocation. In November 2003,
we notified the FCC that, to satisfy our relocation commitment
under the plan, we would deposit $100 million in cash in an
escrow account to be available to pay relocation costs, and
would secure the remaining $750 million commitment through
one or more irrevocable stand-by letters of credit issued by
internationally recognized commercial lending institutions. The
letters of credit would provide payments for relocation costs
should we fail to meet our funding obligations under the plan.
The $850 million commitment does not include our own
relocation costs that we would incur over several years if the
Consensus Plan were approved. The amount of such costs is not
readily estimatable because of the numerous factors on which
they are dependent, but they could be significant in certain
circumstances.

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. The FCC

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has received several alternative proposals. In
May 2003, a group of large utility companies, cellular
competitors of Nextel and small SMR providers filed an
alternative proposal to the Consensus Plan, proposing to solve
ongoing public safety interference through best
practices and technical measures among 800 MHz licensees,
with no realignment of the spectrum bands. We and the other
Consensus Plan members do not believe that any of the
alternative proposals adequately address the interference
problems and therefore, we have opposed all alternative
proposals to the Consensus Plan.


Opponents of the Consensus Plan including, in
particular, a number of our competitors, have also objected to
its implementation on the grounds that the spectrum reallocation
provisions of the Consensus Plan would disproportionately
benefit Nextel. We and the other proponents of the Consensus
Plan have opposed these objections on the grounds that they are
based solely on the objecting parties commercial interests
and do nothing to address the public safety interference
problem. Consistent with this approach, Verizon Wireless has
recently requested in filings with the FCC that the FCC withhold
approval of the Consensus Plan and auction the 1.9 GHz
spectrum that would be issued to us pursuant to the Consensus
Plan. Verizon Wireless also has separately asserted that the FCC
should defer its consideration of the Consensus Plan in light of
reports that the staff of the United States Department of
Justice has requested certain information from us and others,
including Verizon Wireless, related to wireless communications
services that incorporate walkie-talkie features and related
technologies. While we are cooperating fully with that
information request, we do not believe that it is relevant to
the public safety system interference issues that are intended
to be addressed by the Consensus Plan.

The Consensus Plan proposal, as well as the
alternative proposals, continue to remain pending at the FCC,
and could be impacted by other FCC actions, including the
allocation of replacement spectrum under the Consensus Plan
described below. See  3. New spectrum
opportunities, spectrum auctions, and next generation wireless
services. We cannot predict whether, or under what terms,
the FCC would approve the proposed realignment plan, and there
is no assurance that the FCC will adopt any realignment plan.
Although 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 not be able 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.

3. New spectrum opportunities,
spectrum auctions, and next 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 these
licenses, we plan to meet all requirements necessary to secure
their retention and renewal.

In February 2004, the FCC conducted an auction
that included 60 Major Trading Area SMR licenses in the
900 MHz band in various parts of the country. We were the
high bidder on 46 licenses, with a net total high bid of
about $5 million.

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. In November 2003, the FCC adopted the service
rules for 3G wireless services in the 1710-1755 and
2110-2155 MHz bands, including provisions for application,
licensing, operating and technical rules, and for competitive
bidding.

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Licensees in these bands will be provided with
the flexibility to provide any fixed or mobile service that is
consistent with the allocations for this spectrum which will
include both localized and regional geographic service areas.
The auction for this spectrum has not yet been scheduled.


In January 2002, the FCC reallocated 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 to acquire
additional spectrum that could be used for advanced wireless
services. In February 2002, the FCC proposed a flexible
licensing, technical and operating framework, as well as
competitive bidding and interference standards for the
27 MHz of reallocated spectrum. Generally, this spectrum is
encumbered by existing governmental or commercial users, and
there are substantial unresolved transitional issues related to
the relocation of these incumbents. In April 2003, the FCC
auctioned one nationwide 5 MHz license in the
1670-1675 MHz band, but we did not participate.

In January 2003, the FCC reallocated 30 MHz
of spectrum from the 2 GHz mobile satellite service, or
MSS, including the 1990-2000 MHz band, to fixed and mobile
terrestrial services. The reallocated spectrum includes
5 MHz originally identified as replacement spectrum under
the Consensus Plan. It is unclear how and to what extent this
reallocation will affect the Consensus Plan. The satellite
industry filed petitions for reconsideration of the FCCs
reallocation decision. A rulemaking proceeding also was
initiated to identify how the 30 MHz of reallocated
spectrum can be used and how it will be assigned for wireless
services. Comments and reply comments were filed in April 2003.
In November 2003, the FCC released its third report and order
and third memorandum opinion and order responding to these
petitions and modifying its rules that MSS licensees are to
follow when relocating incumbent Broadcast Auxiliary Service
licensees in the 1990-2025 MHz band and Fixed Service
microwave licensees in the 2180-2200 MHz band and petitions
for reconsideration have been filed.

In February 2003, the FCC commenced a rulemaking
proceeding seeking comment on the relocation of the Multipoint
Distribution Service, or MDS. In that proceeding, the FCC
addressed relocation issues for the MDS channels in the
2150-2162 MHz band and found that MDS incumbents would be
entitled to comparable facilities and/or adequate replacement
spectrum. In April 2003, the FCC proposed a comprehensive
overhaul of certain wireless spectrum, including MDS and
Multichannel Multipoint Distribution Service, or MMDS, the
spectrum that we successfully bid to acquire from WorldCom and
Nucentrix. The FCC has proposed to substantially change its
rules governing services in the MMDS band and to provide
additional flexibility to make it potentially available for
advanced wireless services, certain aspects of which we support.
These proceedings remain pending.

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.

4. Spectrum caps and secondary
spectrum markets.Prior to 2003,
the FCC imposed specified limits, known as spectrum caps, on the
amount of spectrum that a single licensee may hold in a market.
These limits have largely been eliminated. Although there is no
longer a specified limit on the amount of spectrum a single
licensee may hold in a market, the FCC has retained a rural
market cross-ownership restriction and 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 not clear
what procedures the FCC will use to evaluate commercial wireless
transactions.

In October 2003, the FCC released new rules that
provide additional flexibility for licensees to engage in
various forms of spectrum leasing arrangements. The FCC released
for comment a further notice of proposed rulemaking, which
proposed additional steps the FCC could take to further
facilitate the growth of secondary markets for spectrum,
including whether to extend flexible leasing policies to
additional spectrum, including to public safety spectrum. It is
not known whether any spectrum initiatives adopted by the FCC
will facilitate secondary markets for spectrum trading or
leasing.

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The FCC has initiated a number of
spectrum-related inquiries and proposed rulemaking proceeding.
The FCC has a task force to recommend changes in spectrum policy
to increase spectrum efficiency, which task force is considering
interference issues, use of unlicensed spectrum by frequency
agile radios and spectrum swaps. The FCC continues to make
spectrum available for use by unlicensed devices, including WiFi
devices. As recently as June 2003, the FCC made available
255 MHz of spectrum in the 5 GHz band.

5. 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 both (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 FCC order, we launched
Phase II service in October 2002 by deploying Phase II
service to our first PSAP and by beginning the sale and
activation of handsets equipped with A-GPS capabilities.

In addition to selling A-GPS capable handsets,
Phase II E911 requires that we 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.

Because our Phase II E911 services can be
accessed only with an A-GPS capable handset, the FCC also
required that a certain percentage of our new handset
activations be A-GPS capable pursuant to interim benchmarks
between January 1, 2003 and December 31, 2005, when we
are required to have 95% of our total subscriber base using
A-GPS capable handsets. We anticipate that, by the end of the
first quarter 2004, substantially all of the handsets that we
offer new subscribers, other than the BlackBerry 7510, will be
A-GPS capable. The vast majority of handsets currently in use by
our existing subscribers, however, are not A-GPS capable.

We may incur significant additional costs in
order to satisfy the Phase II E911 requirement,
particularly if our rate of churn remains low, because our
compliance requires that 95% of our non-A-GPS capable handsets
in our subscriber base be replaced with A-GPS capable handsets.
The amount of such costs is highly dependent on both the number
of new subscribers added to our network who purchase A-GPS
capable handsets and the number of existing subscribers who
upgrade from non-GPS capable handsets to A-GPS capable handsets.

Motorola is our sole supplier for all of our
handsets except the BlackBerry 7510 and we are dependent on
Motorola to provide A-GPS capable handsets in sufficient
quantities. 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.

6. 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. In addition, over
twenty states have commenced inquiries to examine the billing
and advertising practices of certain nationwide wireless
carriers and we have been requested to provide, and we have
provided, information relating to billing and advertising
practices in some of these proceedings.

The California Public Utilities Commission has
proposed extensive consumer protection and privacy regulations
for all telecommunications carriers, and service quality
standards and reporting requirements for wireless carriers, that
could significantly increase the cost of providing wireless
service in California. In addition, federal legislation has been
proposed that calls for a wireless subscriber bill of
rights, which, if

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enacted, could significantly increase the cost to
us and other wireless providers of providing wireless services,
and would, among other things, authorize the FCC to monitor cell
phone service quality.


7. Hearing aid compatibility.The Communications Act requires
telecommunications carriers, such as us, and manufacturers of
telecommunications equipment, such as Motorola, to make their
products and services 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 August 2003, the FCC released an order
modifying the statutory exemption for wireless phones from
hearing aid compatibility requirements under the Hearing Aid
Compatibility Act of 1988 and establishing compatibility rules
for wireless service providers and handset manufacturers. As a
result, wireless manufacturers and service providers will be
required to make digital wireless phones accessible to a greater
number of hearing aid users. We, together with Motorola, our
primary handset supplier, are participating in various industry
efforts to arrive at an acceptable solution to help meet the
policy goals of the FCC in this arena. Any such solution could
result in significant costs to us.

8. Motor vehicle restrictions.A number of states and localities
have banned or are considering banning or restricting the use of
wireless phones while driving a motor vehicle. New York and New
Jersey have enacted statewide bans on handheld phone use while
operating a motor vehicle, and the District of Columbia City
Council has passed a similar ban. Similar legislation is pending
in other states. Several localities also have enacted ordinances
banning or restricting the use of handheld wireless phones by
drivers. Such bans could cause a decline in the number of
minutes of use by subscribers.

9. Local number portability.In November 2003, wireless
providers launched telephone number portability in the
nations top 100 markets. Portability enables customers to
keep their telephone numbers when they change carriers within
established geographic markets. We have implemented the
operational and technical changes necessary to facilitate
porting in and out of our network. Given the interdependence of
other carrier operations and processes required to effectuate a
port, the wireless number portability process was initially
subject to certain errors, and ports required more time to
complete than had been predicted. The wireless industry since
has greatly improved the porting process and continues to work
cooperatively to further reduce the time required to complete
most ports.

10. Electronic surveillance.In 1994, Congress enacted the
Communications Assistance for Law Enforcement Act, or CALEA,
which requires telecommunications carriers, including us, to
upgrade their networks to provide certain surveillance
capabilities to law enforcement agencies. We have signed two
cooperative agreements with the Federal Bureau of Investigation,
or FBI, to meet the surveillance needs of law enforcement
agencies. The agreements essentially validate our surveillance
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 requisite surveillance capabilities in our interconnect and
digital dispatch networks and are now CALEA-compliant with
respect to traditional voice communications.

In September 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. Having received
several extensions from the FBI, we are working with our primary
equipment vendor, Motorola, to design and implement a packet
mode surveillance solution. Cost recovery for developing,
installing and deploying this solution will depend to a large
extent on the governments and industrys
interpretation of CALEA requirements and the publication of safe
harbor compliance standards.

11. Voice over Internet protocol.In February 2004, the FCC
initiated a rulemaking proceeding to examine the appropriate
regulatory treatment for voice services provided using Internet
protocol, or VoIP,

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services. The growth of VoIP service and their
currently unregulated status is causing concern as carriers,
including wireless carriers, begin to migrate their networks
towards Internet protocol, or IP, platforms and can flexibly
deliver a range of service applications to consumers. The notice
of proposed rulemaking recognizes that Internet services should
continue to be subject to minimal regulation but will examine
the means by which social polices supported by regulation, such
as the Universal Service Fund, can be maintained. In connection
with this proceeding, the FCC will initiate a separate CALEA
rulemaking proceeding to address the technical issues associated
with law-enforcement access to VoIP. The result of this
rulemaking proceeding could significantly affect compensation
among carriers for interconnection to their networks.


12. Health concerns.FCC rules limit the permissible
human exposure to radio frequency radiation from wireless
transmission equipment. 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. A 2002 study in Italy affirmatively
linked mobile phone radiation to cancer growth, although the
National Cancer Institute has cautioned that these and similar
studies have limitations, given the relatively short amount of
time cellular phones have been widely available. Various other
studies, however, have found no evidence that cell phones cause
cancer. In January 2004, for instance, a British government
advisory panel released a report indicating that mobile phones
and base stations do not pose health risks to citizens, but
urged particular caution for children. 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, including us, 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. Concerns over radio frequency emissions
may have the effect of discouraging the use of wireless
handsets, which would decrease demand for our services.

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

Certain 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. These new charges, imposed via state tariffs,
feature high termination rates that are not based on the rural
ILECs cost of terminating the traffic we send to them, and
they are not reciprocal. The rural ILECs generally justify these
tariffs as a legitimate means of recovering their costs for
transport and termination of wireless traffic. In September
2002, we, along with other wireless carriers, filed a petition
with the FCC to have these tariffs declared unlawful. In
addition, several rural ILECs, in conjunction with Regional Bell
Operating Companies, or RBOCs, have initiated state proceedings
seeking to require CMRS carriers to pay access-type charges for
local traffic that originates on a CMRS carriers network,
travels over a RBOCs network and terminates on a rural
ILECs network. If any of these commissions rule in the
rural ILECs favor, CMRS carrier interconnection costs in
those markets, including ours, could increase.

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 we also are
required to contribute to some state universal service programs.

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In December 2002, the FCC released an order that
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. In January 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 outcome of this
proceeding could substantially alter the manner by which the FCC
calculates carrier contributions to the federal fund, and could
increase our mandatory contribution to the federal universal
service fund, as well as those of other wireless carriers. This
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.

In July 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. In addition, the
FCC has concluded that a customer must give express consent
before the carrier can use or disclose call location information
concerning the user of a CMRS service obtained in connection
with a customers use of wireless services, except in
specified emergencies or if mandated by the court.

In December 2003, the President signed into law
new legislation (the Controlling the Assault of Non-Solicited
Pornography and Marketing Act of 2003, or CAN Spam
Act) that includes provisions relating to wireless SPAM. These
provisions generally bar the sending of any commercial
electronic mail messages without affording a commercial e-mail
message recipient the chance to opt-out of future
commercial email messages. Moreover, it requires the FCC, in
consultation with the Federal Trade Commission, to develop rules
that would provide mobile phone users with greater control over
commercial messages sent to their mobile phones. It is unclear
whether wireless carriers will be responsible for monitoring and
policing all commercial email messages sent to a
subscribers handset.

In September 2002, the FCC issued a Notice of
Proposed Rulemaking regarding telemarketing practices seeking
comment on the extent to which telemarketing to wireless
consumers exists today, and asking 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.

In June 2003, the FCC released a notice of
proposed rulemaking regarding the procedures for review of tower
site construction and construction of other communications
facilities under the existing Federal statutes and FCC rules.
The proposed rules may result in complicating the review
process, as the siting approval process would require reviews by
state governments, Indian tribes, and interested third parties.
The FCC also is conducting an inquiry into the effect that
communications towers may have on migratory birds.

L.     Employees

As of February 27, 2004, we had over 17,000
employees. None of our employees is covered by a collective
bargaining agreement, and we believe that our relationship with
our employees is good.

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M.     Risk
Factors



|   |                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | We have substantial indebtedness, which may
    limit how we conduct our business or limit our growth, which in
    turn could be a competitive disadvantage.

We currently have substantial indebtedness, which
could affect the way in which we conduct our business, as
follows:



|   |                                                                                                                                                                           
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a. | We have substantial indebtedness and
    long-term obligations, which greatly exceed the total of our
    cash on hand and annual cash flow from operating
    activities.

As of December 31, 2003, we had
$10,311 million of outstanding indebtedness, including
$6,217 million of senior notes and $3,804 million of
indebtedness under our secured bank credit facility, as well as
$175 million of capital lease and other financing
obligations and $99 million in mandatorily redeemable
preferred stock obligations. The schedule for the repayment of
these outstanding obligations as of December 31, 2003 was
as follows: $487 million for 2004, $428 million for
2005, $462 million for 2006, $506 million for 2007,
$22 million for 2008 and $8,508 million after 2008.

The level of our outstanding indebtedness greatly
exceeds our cash on hand and our annual cash flows from
operating activities. At December 31, 2003, we had
$1,971 million of cash, cash equivalents and short-term
investments on hand, and we had $1,172 million in revolving
credit borrowings available under our secured credit facility,
which availability declines over time, and the continued
availability of which is subject to our satisfaction of various
financial covenants and ratios set forth in the facility. During
2003, our operating activities provided $3,312 million of
cash, and we used $2,061 million in investing (i.e., expansion
and strategic acquisitions) activities, and, during 2002, our
operating activities provided $2,523 million of cash, and
we used $2,236 million in investing activities. Prior to
that time, however, our operating activities did not provide
sufficient cash flow to fund our investing activities.

Unless our operating activities continue to
generate sufficient cash, we will not be able to continue to
expand our business and satisfy our long-term obligations.
Because required repayments of our outstanding obligations
increase significantly in future years, unless our operating
activities can generate significantly more cash in the future,
we will have to decrease cash used for investing activities,
refinance our debt or access the capital markets, or some
combination thereof.

Our ability to access the capital markets for
additional funds may be limited by:



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



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

The indentures under which our senior notes have
been issued and our secured bank credit facility contain
covenants that restrict, among other things, our ability to
borrow money, grant additional liens on our assets, make
particular types of investments or other restricted payments,
sell assets or merge or

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consolidate. These restrictions could limit or
interfere with our ability to take advantage of various business
opportunities or otherwise effectively compete by restricting
our ability to:




| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | incur or guarantee additional indebtedness,
    including amounts available under our bank credit facility, or
    assume the indebtedness of parties that we may wish to acquire;
|
| |  | make investments in or acquire other companies or
    businesses;                                                                                                                 
|
| |  | pre-pay or redeem any of our indebtedness;                                                                                                                                        
|
| |  | sell assets other than in the ordinary course of
    our business; and                                                                                                            
|
| |  | pay dividends and make other distributions.                                                                                                                                       

Our bank credit facility also requires us to
maintain specified financial ratios and satisfy financial tests.
If we are not able to meet these ratios and satisfy other tests,
we will be in default of the bank credit facility, which in turn
would result in defaults under our indentures, and would give
our banks and note holders the right to require us to repay all
amounts then outstanding, unless we were able to negotiate an
amendment or waiver. In the first quarter 2001, we were able to
amend the covenants under our bank credit facility to avert a
likely covenant violation, but 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.



|   |                                                                                                                                   
|-- | ----------------------------------------------------------------------------------------------------------------------------------
|c. | 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 FCC. The value of these licenses
will depend significantly upon the success of our business and
the growth of the wireless communications and telecommunications
industries in general. We had a net tangible book value deficit
of $1,347 million as of December 31, 2003.



|   |                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | 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 as compared to the networks of our competitors. 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 network capacity and coverage and address
    increased demands on our business systems and processes as
    needed.

Our subscriber base continues to grow rapidly. To
continue to successfully increase our number of subscribers and
pursue our business plan, we must economically:



| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | expand the capacity and coverage of our network;                         
|
| |  | potentially obtain additional spectrum in some or
    all of our markets;

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| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                   

If we are unable to achieve the increased network
capacity benefits of the 6:1 voice coder, or there are
substantial delays in doing so, we could be required to invest
additional capital in our infrastructure to satisfy our network
capacity needs and otherwise may not be able to successfully
increase our number of subscribers.

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 any increased demands on our customer service, billing
and other back-office functions. We have outsourced many aspects
of our customer care function to third parties and cannot be
sure that this outsourcing will not heighten these risks.



|   |                                                                                                                             
|-- | ----------------------------------------------------------------------------------------------------------------------------
|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 are
financially stronger than we are, which may enable them to offer
services to customers at prices that are below the prices at
which we can offer 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 time, 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 in the wireless industry overall, which
may continue. Competition in pricing and service and product
offerings may also adversely impact customer retention, and
these trends could be exacerbated by the FCCs recently
enacted wireless number portability rules that reduce the
barriers to customer movements between carriers. 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. | Several of our competitors now provide or
    plan to provide two-way walkie-talkie services, and if those
    service become comparable to ours, we would lose a competitive
    advantage.

One of the primary ways in which we differentiate
ourselves is through our two-way walkie-talkie services,
marketed as Nextel Nationwide Direct Connect. Until the latter
half of 2003, traditional cellular or personal communication
services providers did not offer walkie-talkie services. A
number of wireless equipment vendors, including Motorola, have
begun to offer, or announced plans to offer, wireless equipment
that is capable of providing walkie-talkie services that are
designed to compete with our Nationwide Direct Connect services.
In 2003, several of our competitors introduced, or announced
plans to introduce, these walkie-talkie services. If these
walkie-talkie services are perceived to be or become, or if

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any such services introduced in the future are,
comparable to our Nationwide Direct Connect walkie-talkie
service, our competitive advantage would be reduced, which in
turn could adversely affect our business.




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

With the exception of the BlackBerry 7510, which
is available only from RIM, we currently market multi-function
digital handsets available from only one supplier, Motorola. The
higher cost of these handsets, as compared to analog handsets
and digital handsets that do not incorporate a similar
multi-function capability, 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.



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

Our network uses non-contiguous spectrum
frequencies, which 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 that
utilize other technologies. Because iDEN technology is a
proprietary technology that is not standards-based, it is not as
widely adopted as, and currently has fewer subscribers on a
worldwide basis than, other wireless technologies. Accordingly,
it is less likely that manufacturers other than Motorola will be
willing to make the significant financial commitment required to
license, develop and manufacture iDEN infrastructure equipment
and handsets.

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                                                                            
|
| |  | 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.



|   |                                                                                                                                         
|-- | ----------------------------------------------------------------------------------------------------------------------------------------
|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, the wireless
data and Internet services that we currently offer are
significantly limited compared to those services offered by some
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

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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.

If we were to deploy next generation digital
technologies that would allow high capacity wireless voice and
higher speed data transmission, significant capital requirements
would be required, and could increase in the event of unforeseen
delays, cost overruns, unanticipated expenses, regulatory
changes, engineering design changes, network or systems
compatibility, equipment unavailability 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. 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
were to 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, including the
obligation to purchase the outstanding shares of Nextel
Partners class A common stock at its then-current fair
value. Finally, there can be no guarantee that any such
technology will provide the advantages that we expect.



|   |                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|j. | 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 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.



|   |                                                                                                                                 
|-- | --------------------------------------------------------------------------------------------------------------------------------
|3. | We may not be able to obtain the spectrum
    necessary to implement new technologies or pursue 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 would participate or whether we will be a successful
bidder. In addition, we cannot predict the outcome or terms of
the spectrum realignment plan that we and others have proposed
to the FCC in connection with the FCCs effort to address
interference experienced by public safety communications
systems, which plan could result in us obtaining additional
contiguous spectrum.

Certain next generation technologies that we may
deploy in the future would require that we hold contiguous
spectrum before those technologies could be deployed on our
network, making it necessary for

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us to acquire contiguous spectrum before we could
provide additional products or services to our customers or
provide other benefits that can only be provided with these
technologies. We may not be able to accomplish any spectrum
acquisition or obtain the additional capital necessary to
acquire that spectrum. 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 deploy new network technologies or support or
provide next generation wireless services. Additional capital
may not be available on acceptable terms, if at all.




|   |                                                                                                                                 
|-- | --------------------------------------------------------------------------------------------------------------------------------
|4. | Government regulations determine how we
    operate, which could increase our costs and limit our growth and
    strategy plans.

The FCC regulates the licensing, operation,
acquisition and sale of the licensed spectrum that is essential
to our business. Future changes in regulation or legislation and
Congress and the FCC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
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.

We are required by December 31, 2005 to have
95% of our total subscriber base using A-GPS capable handsets.
We may incur significant additional costs in order to satisfy
the Phase II E911 requirement because our compliance
requires that the non-A-GPS capable handsets in our subscriber
base be replaced with A-GPS capable handsets. The amount of the
costs we would incur is highly dependent on both the number of
new subscribers added to our network who purchase an A-GPS
capable handset, and the number of existing subscribers who
upgrade from non-GPS capable handsets to A-GPS capable handsets.
If our rate of churn remains low, unless substantial numbers of
subscribers upgrade their handsets, we may have to incur
significant costs to get a sufficient number of A-GPS capable
handsets into our network.

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 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.

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
States of New York and New Jersey have laws restricting or
prohibiting the use of portable communications devices while
driving motor vehicles, and the District of Columbia City
Council has passed a similar ban. 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.

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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.



|   |                                                                                         
|-- | ----------------------------------------------------------------------------------------
|5. | We are susceptible to influence by
    Motorola, whose interests may conflict with ours.

Motorola holds a significant block of our
outstanding stock and, as long as it owns 5% or more of our
outstanding shares of common stock, it has the right to nominate
up to two people for election to our board of directors.
Motorola and its affiliates engage in wireless communications
businesses, and may in the future engage in additional
businesses, and offer products, and may in the future offer
additional products, all of which compete with some or all of
the services we offer. Motorola is not currently exercising its
right to designate board nominees. If it were to do so, members
of our board nominated by Motorola would be able to influence
the management of our business, which could create conflicts of
interest.



|   |                                                                                                                                                                                                     
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | If Motorola is unable or unwilling 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 offer except
the BlackBerry 7510. Accordingly, we must rely on Motorola to
develop handsets and equipment capable of supporting the
features and services we plan to offer to our customers. In
addition, because we are one of a limited number of wireless
carriers that have deployed iDEN technology, we bear a
substantially greater portion of the costs associated with the
development of new equipment and features than would be the case
if our network utilized a more widely adopted technology
platform. Motorola has recently announced plans for the proposed
spin-off of its semiconductor unit and has made a number of
changes in its senior management team. If these or other factors
affecting our relationship with Motorola were to result in a
significant adverse change in Motorolas ability or
willingness to provide handsets and related equipment and
software applications, or to develop new technologies or
features for us, or in Motorolas ability or willingness to
do so on a timely, cost-effective basis, we may not be able to
adequately service our existing subscribers or add new
subscribers and may not be able to offer competitive services.
Accordingly, a decision by Motorola to discontinue
manufacturing, supporting or enhancing our iDEN-based
infrastructure and handsets would have a material adverse effect
on us.

Motorola is also a significant supplier of
wireless communications equipment to each of our competitors.
Consequently, Motorola may elect to focus a greater amount of
its financial and other resources on the development of enhanced
features functionality of standards-based wireless equipment
used by our competitors rather than the proprietary iDEN
equipment due to the larger potential market for that equipment.
In such event, we would be materially adversely affected unless
alternative sources are licensed by Motorola to manufacture
iDEN-based equipment or we have the ability to transition to a
different technology. Because iDEN technology is not as widely
adopted and currently has fewer subscribers on a worldwide basis
than other wireless technologies, it is less likely that
manufacturers other than Motorola will be willing to make the
significant financial commitment required to license, develop
and manufacture iDEN infrastructure equipment and handsets.

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 at least for the
next several years. For instance, we rely on Motorola to provide
us with technology improvements designed to expand our wireless
voice capacity and improve our services, such as the 6:1 voice
coder software upgrade, and the handset-based A-GPS location
technology solution necessary for us to comply with the
FCCs E911 requirements. The failure by Motorola to deliver
these improvements and solutions, or its inability to do so
within our anticipated timeframe, could impose significant
additional costs on us. With respect to the FCCs E911
requirements, we are responsible for timely meeting these
requirements, whether or not Motorola is able to produce the
necessary handsets and infrastructure.

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|   |                                                                                                                              
|-- | -----------------------------------------------------------------------------------------------------------------------------
|7. | Agreements with Motorola reduce our
    operational flexibility and may adversely affect our growth or
    operating results.

Motorola provides the iDEN infrastructure
equipment and substantially all of the handsets throughout our
markets under agreements that set 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. In 2003, the terms of the primary supply agreements for
Motorola handsets and the iDEN infrastructure expired. We are in
the process of renegotiating new long-term supply agreements
with Motorola for the purchase of network infrastructure
equipment and subscriber handsets, and currently are purchasing
equipment and supplies from Motorola under interim arrangements
and purchase orders under economic terms substantially similar
to those of the expired agreements. Certain of our agreements
with Motorola, including those that have expired, reduce our
operational flexibility. Our arrangements with Motorola,
together with the fact that our existing customer base is
utilizing iDEN technology, may 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 generally as well as those
that arise under the Motorola agreements. For example, the
recently expired agreements with Motorola required 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, those agreements provided that if Motorola
manufactured, or elected to manufacture, the equipment utilizing
the alternate technology that we elect to deploy, we were
required to give Motorola the opportunity to supply 50% of our
infrastructure requirements for the alternate technology for
three years. To the extent that we are subject to these or
similar obligations in the future, our ability to negotiate with
or obtain an alternate equipment supplier may be limited.



|   |                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------
|8. | 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 plaintiffs have appealed, and we cannot be sure of the
outcome or if 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 additional studies will not demonstrate a
link between radio frequency emissions and health concerns.



|   |                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------
|9. | Our equity investment in Nextel Partners is
    subject to numerous limitations, conditions and
    covenants.

The certificate of incorporation of Nextel
Partners sets forth various 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. In
certain circumstances, the price at which we would be required
to purchase such shares is based on pricing formulas that imply
a premium or a specified rate of return. We may pay the
consideration of any such purchase in cash, shares of our class
A common stock, or a combination of both. We may need to obtain
additional capital if we were to use cash to satisfy a
significant portion of any purchase of Nextel Partners shares.
We could issue a significant number of shares of our class A
common stock if we were to use our stock to satisfy a
significant portion of any purchase of Nextel Partners shares,
which could affect the market price of our stock. We may not
transfer our interest in Nextel Partners to a third party before
January 29, 2011.

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|    |                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10. | 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. As of December 31, 2003, we had commitments
to issue 35.7 million shares upon conversion of
class B nonvoting common stock, 38.4 million shares
upon conversion of convertible senior notes and zero coupon
convertible preferred stock and 89.4 million shares upon
exercise of options or in connection with other awards
outstanding under our incentive and other equity plans. All of
these in the aggregate represent 163.5 million shares, or
13% of our class A common stock outstanding on
December 31, 2003 assuming these shares issuable had been
outstanding on that date. An additional $1 billion in
aggregate dollar amount of shares of our class A common stock is
available for issuance and sale under the direct stock purchase
plan. In addition, we may elect in some circumstances to issue
equity to satisfy obligations otherwise payable in cash or to
make acquisitions, and we have issued and may continue to issue
common stock in exchange for 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.
Some of the shares subject to issuance are, or may become,
freely tradable, without regard to the volume limitations of
Rule 144 under the Securities Act of 1933.



|    |                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|11. | 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:



| |   |                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the success of efforts to improve, and
    satisfactorily address any issues relating to, our network
    performance;                                                                                                                                                                                                                                                  
|
| |  | the timely development and availability of new
    handsets with expanded applications and features, including
    those that operate using the 6:1 voice coder;                                                                                                                                                                                                        
|
| |  | the timely development and deployment of higher
    speed data infrastructure and software designed to significantly
    increase the data speeds of our network;                                                                                                                                                                                                       
|
| |  | market acceptance of our data 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;                                                                                                                                                                      
|
| |  | no significant adverse change in Motorolas
    ability or willingness to provide handsets and related equipment
    and software applications or to develop new technologies or
    features for us, or in our relationship with it, as a result of
    the proposed spin-off of its semiconductor unit, recent changes
    in its senior management team or otherwise;
|
| |  | the ability to achieve market penetration and
    average subscriber revenue levels sufficient to provide
    financial viability to our network business;                                                                                                                                                                                                              

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| |   |                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the impact on our cost structure or service
    levels of the general downturn in the telecommunications sector,
    including the adverse effect of any bankruptcy of any of our
    tower providers or telecommunications suppliers;                                                                                                                                     
|
| |  | our ability to successfully scale, in some
    circumstances in conjunction with third parties under our
    outsourcing arrangements, our billing, collection, customer care
    and similar back-office operations to keep pace with customer
    growth, increased system usage rates and growth in levels of
    accounts receivables being generated by our customers;
|
| |  | access to sufficient debt or equity capital to
    meet any operating and financing needs;                                                                                                                                                                                                                                                                                 
|
| |  | the quality and price of similar or comparable
    wireless communications services offered or to be offered by our
    competitors, including providers of cellular and personal
    communication services including, for example, two-way
    walkie-talkie services first introduced by several of our
    competitors in 2003;                                        
|
| |  | 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 E911
    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 Edmund Halley
Drive, in Reston, Virginia. This facility is about 164,000
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:

|                           |  |             |         |                    |  |  |                     | 
|-------------------------- |  | ----------- | ------- | ------------------ |  |  | ------------------- | 
|Locations                  |  | Square feet |         | Year of Expiration
|                           |  |             |         |                   
|Reston, Virginia           |  |             | 745,000 |                    |  |  | 2009, 2010 and 2014 | 
|Denver, Colorado           |  |             | 114,000 |                    |  |  | 2004                | 
|Englewood, Colorado        |  |             | 140,000 |                    |  |  | 2008                | 
|Hampton Roads, Virginia    |  |             | 157,000 |                    |  |  | 2009 and 2010       | 
|Herndon, Virginia          |  |             | 217,000 |                    |  |  | 2008 and 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 the leases
disclosed above includes potential extensions related to the
exercise of renewal options.We also lease smaller office
facilities for sales, maintenance and administrative operations
in our markets. We have over 200 of these leases in effect at
December 31, 2003, generally with terms ranging from 1 to
15 years, not including extensions related to the exercise
of renewal options.

As of December 31, 2003, 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 5,000 and 70,000

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square feet. In 2003, we initiated operations in
over 200 retail locations and had in place over 600 outlets at
December 31, 2003. 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, 2003, we had about 17,500 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.




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,
together with a similar case filed earlier in Louisiana state
court, were ultimately transferred to federal court in
Baltimore, Maryland. On March 5, 2003, the court granted
the defendants motions to dismiss. The plaintiffs have
appealed this decision.

A number of lawsuits have been filed against us
in several state and federal courts around the United States,
challenging the manner by which we recover the costs to us of
federally mandated universal service, Telecommunications Relay
Service payment requirements imposed by the FCC, and the costs
(including costs to implement changes to our network) to comply
with federal regulatory requirements to provide E911, telephone
number pooling and telephone number portability. In general,
these plaintiffs claim that our rate structure that breaks out
and assesses federal program cost recovery fees on monthly
customer bills is misleading and unlawful. The plaintiffs
generally seek injunctive relief and damages on behalf of a
class of customers, including a refund of amounts collected
under these regulatory line item assessments. We have reached a
preliminary settlement with the plaintiff, who purports to
represent a nationwide class of affected customers, in one
lawsuit that challenges the manner by which we recover the costs
to comply with federal regulatory requirements to provide E911,
telephone number pooling and telephone number portability. The
settlement, if found to be fair and finally approved by the
court, would render moot a majority of these lawsuits, and would
not have a material effect on our business or results of
operations.

See Part II, Item 6. Selected
Financial Data 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 2003.

Executive Officers of the Registrant

The following people are serving as our executive
officers as of March 1, 2004. 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 55 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

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positions with AT&T Wireless Services, Inc.,
including Regional President for the Northeast. Mr. Donahue
serves as a director of Nextel Partners and Eastman Kodak
Company.


Paul N. Saleh.Mr. Saleh is 47 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.

Thomas N. Kelly, Jr.Mr. Kelly is 56 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 58 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, which was a
cellular communications subsidiary of British Telecom.

Leonard J. Kennedy.Mr. Kennedy is 52 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 46 years old
and has served as our Senior Vice President since
February 2004 and as our Controller since May 1997. From
May 1997 to February 2004, he also served as our Vice President.
From June 1996 until May 1997, 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 40 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,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities.

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
sales 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,            
|              |  |                                    
|              |  |                                     |       |     
|              |  | 2003                                |       | 2002
|              |  |                                     |       |     
|Quarter Ended |  | High                                |       | Low  |  | High |       | Low
|              |  |                                     |       |      |  |      |       |    
|March 31      |  | $                                   | 14.66 |      |  | $    | 10.89 |     |  | $ | 12.08 |  |  | $ | 3.35 | 
|June 30       |  |                                     | 19.09 |      |  |      | 11.75 |     |  |   | 6.75  |  |  |   | 2.50 | 
|September 30  |  |                                     | 20.83 |      |  |      | 16.86 |     |  |   | 8.69  |  |  |   | 2.57 | 
|December 31   |  |                                     | 28.17 |      |  |      | 18.80 |     |  |   | 14.67 |  |  |   | 6.85 | 

B.     Number of
Stockholders of Record

As of February 27, 2004, there were about
4,100 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 February 27, 2004, Motorola was the
sole stockholder of record 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, Inc. 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 including the repayment of existing debt
obligations. 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     |  |                            | 89,374,037 |                               |  | $                         | 21.06 |  |  |  | 34,943,373 | 
|Equity compensation plans not approved by
    security holders |  |                            | 1,068      | (1)                           |  |                           | 11.55 |  |  |  | N/A        | 
|                                                               |  |                            |            |                               |  |                           |       |  |  |  |            | 
|Total                                                          |  |                            | 89,375,105 |                               |  |                           |       |  |  |  | 34,943,373 | 
|                                                               |  |                            |            |                               |  |                           |       |  |  |  |            | 



---



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




Item 6.     Selected
Financial Data.

|                                                                        |         |                                         |        |       |  |      |       |      |  |      |        |       |   |   |        |       |   |   |        |       |  
|----------------------------------------------------------------------- | ------- | --------------------------------------- | ------ | ----- |  | ---- | ----- | ---- |  | ---- | ------ | ----- | - | - | ------ | ----- | - | - | ------ | ----- | -
|                                                                        |         |                                        
|                                                                        |         | Year Ended December 31,                
|                                                                        |         |                                        
|                                                                        |         | 2003                                    |        | 2002  |  | 2001 |       | 2000 |  | 1999
|                                                                        |         |                                         |        |       |  |      |       |      |  |     
|                                                                        |         |                                        
|                                                                        |         | (in millions, except per share amounts)
|STATEMENT OF OPERATIONS DATA                                            |         |                                         |        |       |  |      |       |      |  |      |        |       |   |   |        |       |   |   |        |      
|Operating revenues                                                      |         | $                                       | 10,820 |       |  | $    | 8,721 |      |  | $    | 7,689  |       |   | $ | 5,714  |       |   | $ | 3,786  |      
|Cost of revenues (exclusive of depreciation
    included below)         |         |                                         | 3,151  |       |  |      | 2,516 |      |  |      | 2,869  |       |   |   | 2,172  |       |   |   | 1,579  |      
|Selling, general and administrative                                     |         |                                         | 3,453  |       |  |      | 3,039 |      |  |      | 3,020  |       |   |   | 2,278  |       |   |   | 1,672  |      
|Restructuring and impairment charges                                    |         |                                         |       |       |  |      | 35    |      |  |      | 1,769  |       |   |   |       |       |   |   |       |      
|Depreciation and amortization                                           |         |                                         | 1,694  |       |  |      | 1,595 |      |  |      | 1,746  |       |   |   | 1,265  |       |   |   | 1,004  |      
|                                                                        |         |                                         |        |       |  |      |       |      |  |      |        |       |   |   |        |       |   |   |        |      
|Operating income (loss)                                                 |         |                                         | 2,522  |       |  |      | 1,536 |      |  |      | (1,715 | )     |   |   | (1     | )     |   |   | (469   | )    
|Interest expense, net                                                   |         |                                         | (802   | )     |  |      | (990  | )    |  |      | (1,196 | )     |   |   | (849   | )     |   |   | (782   | )    
|(Loss) gain on retirement of debt, net of debt
    conversion costs     |         |                                         | (245   | )     |  |      | 354   |      |  |      | 469    |       |   |   | (127   | )     |   |   | (68    | )    
|Gain on deconsolidation of NII Holdings                                 |         |                                         |       |       |  |      | 1,218 |      |  |      |       |       |   |   |       |       |   |   |       |      
|Equity in losses of unconsolidated affiliates, net                      |         |                                         | (40    | )     |  |      | (302  | )    |  |      | (95    | )     |   |   | (152   | )     |   |   | (73    | )    
|Other (expense) income, net                                             |         |                                         | 215    |       |  |      | (39   | )    |  |      | (223   | )     |   |   | 281    |       |   |   | 26     |      
|Income tax (provision) benefit                                          |         |                                         | (113   | )     |  |      | (391  | )    |  |      | 135    |       |   |   | 33     |       |   |   | 28     |      
|                                                                        |         |                                         |        |       |  |      |       |      |  |      |        |       |   |   |        |       |   |   |        |      
|Net income (loss)                                                       |         |                                         | 1,537  |       |  |      | 1,386 |      |  |      | (2,625 | )     |   |   | (815   | )     |   |   | (1,338 | )    
|(Loss) gain on retirement of mandatorily
    redeemable preferred stock |         |                                         | (7     | )     |  |      | 485   |      |  |      |       |       |   |   |       |       |   |   |       |      
|Mandatorily redeemable preferred stock dividends
    and accretion      |         |                                         | (58    | )     |  |      | (211  | )    |  |      | (233   | )     |   |   | (209   | )     |   |   | (192   | )    
|                                                                        |         |                                         |        |       |  |      |       |      |  |      |        |       |   |   |        |       |   |   |        |      
|Income (loss) available to common
    stockholders                      |         | $                                       | 1,472  |       |  | $    | 1,660 |      |  | $    | (2,858 | )     |   | $ | (1,024 | )     |   | $ | (1,530 | )    
|                                                                        |         |                                         |        |       |  |      |       |      |  |      |        |       |   |   |        |       |   |   |        |      
|Earnings (loss) per common share                                        |         |                                         |        |       |  |      |       |      |  |      |        |       |   |   |        |       |   |   |        |      
|                                                                        | Basic   |                                         | $      | 1.41  |  |      | $     | 1.88 |  |      | $      | (3.67 | ) |   | $      | (1.35 | ) |   | $      | (2.39 | )
|                                                                        |         |                                         |        |       |  |      |       |      |  |      |        |       |   |   |        |       |   |   |        |      
|                                                                        | Diluted |                                         | $      | 1.36  |  |      | $     | 1.78 |  |      | $      | (3.67 | ) |   | $      | (1.35 | ) |   | $      | (2.39 | )
|                                                                        |         |                                         |        |       |  |      |       |      |  |      |        |       |   |   |        |       |   |   |        |      
|Weighted average number of common shares
    outstanding                |         |                                         |        |       |  |      |       |      |  |      |        |       |   |   |        |       |   |   |        |      
|                                                                        | Basic   |                                         |        | 1,047 |  |      |       | 884  |  |      |        | 778   |   |   |        | 756   |   |   |        | 639   |  
|                                                                        |         |                                         |        |       |  |      |       |      |  |      |        |       |   |   |        |       |   |   |        |      
|                                                                        | Diluted |                                         |        | 1,089 |  |      |       | 966  |  |      |        | 778   |   |   |        | 756   |   |   |        | 639   |  
|                                                                        |         |                                         |        |       |  |      |       |      |  |      |        |       |   |   |        |       |   |   |        |      

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|                                                                                              |  |               |        |      |  |      |        |      |  |      |        |   |  |   |        |  |  |   |        | 
|--------------------------------------------------------------------------------------------- |  | ------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ |  |  | - | ------ | 
|                                                                                              |  |              
|                                                                                              |  | December 31, 
|                                                                                              |  |              
|                                                                                              |  | 2003          |        | 2002 |  | 2001 |        | 2000 |  | 1999
|                                                                                              |  |               |        |      |  |      |        |      |  |     
|                                                                                              |  |              
|                                                                                              |  | (in millions)
|BALANCE SHEET DATA                                                                            |  |               |        |      |  |      |        |      |  |      |        |   |  |   |        |  |  |   |        | 
|Cash, cash equivalents and short-term
    investments, including restricted portion           |  | $             | 1,971  |      |  | $    | 2,686  |      |  | $    | 3,801  |   |  | $ | 4,674  |  |  | $ | 5,808  | 
|Property, plant and equipment, net                                                            |  |               | 9,093  |      |  |      | 8,918  |      |  |      | 9,274  |   |  |   | 8,791  |  |  |   | 6,152  | 
|Intangible assets, net                                                                        |  |               | 7,038  |      |  |      | 6,607  |      |  |      | 5,778  |   |  |   | 5,671  |  |  |   | 4,551  | 
|Total assets                                                                                  |  |               | 20,510 |      |  |      | 21,484 |      |  |      | 22,064 |   |  |   | 22,686 |  |  |   | 18,410 | 
|Domestic long-term debt, capital lease and
    finance obligations, including current portion |  |               | 10,212 |      |  |      | 12,550 |      |  |      | 14,865 |   |  |   | 12,212 |  |  |   | 9,954  | 
|Debt of NII Holdings, nonrecourse to and not held
    by parent                               |  |               |       |      |  |      |       |      |  |      | 1,865  |   |  |   | 2,519  |  |  |   | 1,549  | 
|Mandatorily redeemable preferred stock                                                        |  |               | 99     |      |  |      | 1,015  |      |  |      | 2,114  |   |  |   | 1,881  |  |  |   | 1,770  | 
|Stockholders equity (deficit)                                                                |  |               | 5,836  |      |  |      | 2,846  |      |  |      | (582   | ) |  |   | 2,028  |  |  |   | 2,574  | 

The tables above set forth selected consolidated
financial data for the periods or as of the 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. We
have also highlighted below certain transactions and factors
that may be significant to an understanding of our financial
condition and comparability of results of operations.

NII Holdings.The information presented above
that is derived from our consolidated financial statements
includes the consolidated results of NII Holdings through
December 31, 2001.

During 2001, NII Holdings recorded a non-cash
pre-tax restructuring and impairment charge of
$1,747 million in connection with its decision to
discontinue funding one of its operating companies and the
implementation of its revised business plan.

In November 2002, NII Holdings, which prior to
that time had been our substantially wholly-owned subsidiary,
completed its reorganization under Chapter 11 of the U.S.
Bankruptcy Code. NII Holdings filed a voluntary petition for
reorganization in May 2002 in the United States Bankruptcy Court
for the District of Delaware after it and one of its
subsidiaries defaulted on credit and vendor finance facilities.
Prior to its bankruptcy filing, NII Holdings was accounted for
as one of our consolidated subsidiaries. As a result of NII
Holdings bankruptcy filing in May 2002, we began
accounting for our investment in NII Holdings using the equity
method. In accordance with the equity method, we did not
recognize equity 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
presented NII Holdings net operating results 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 has not changed from 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
|                   |  |               |       |      |  |     
|                   |  |              
|                   |  | (in millions)
|Operating revenues |  | $             | 680   |      |  | $    | 330 |  |  | $ | 124 | 
|Net loss           |  |               | 2,497 |      |  |      | 417 |  |  |   | 520 | 

Upon NII Holdings emergence from bankruptcy
in November 2002, 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,
under which we recorded our proportionate share of NII
Holdings results of operations.

In November 2003, we sold 3.0 million shares
of NII Holdings common stock, which generated $209 million
in net proceeds and a gain of $174 million. We now account
for the 4.1 million shares of NII Holdings common stock
that we still hold as an available-for-sale cost method
investment. Additional

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information regarding our investment in NII
Holdings can be found in notes 3 and 4 to the consolidated
financial statements appearing at the end of this annual report
on Form 10-K.


Operating Revenues and Cost of Revenues.Effective July 1, 2003, we
adopted the provisions of Emerging Issues Task Force, or 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. Accordingly, for all handset sale arrangements
entered into beginning in the third quarter 2003, we recognize
revenue and the related cost of revenue when title to the
handset passes to the customer. Prior to July 1, 2003, in
accordance with Staff Accounting Bulletin, or SAB, No. 101,
Revenue Recognition in Financial Statements, we
recognized revenue from handset sales and an equal amount of the
related cost of revenue on a straight-line basis over the
expected customer relationship period of 3.5 years,
beginning when title to the handset passed to the customer.
Therefore, the adoption of EITF 00-21 resulted in increased
handset revenues and cost of handset revenues in 2003 as
compared to 2002. See  Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations  B. Results of
Operations  1. Year Ended December 31, 2003
vs. Year Ended December 31, 2002  Handset and
Accessory Revenues and Cost of Handset and Accessory
Revenues.

We elected to apply the provisions of EITF Issue
No. 00-21 to our existing customer arrangements.
Accordingly, on July 1, 2003, we reduced our current assets
and liabilities by about $563 million and our noncurrent
assets and liabilities by about $783 million, representing
substantially all of the revenues and costs associated with the
original sale of handsets that were deferred under SAB
No. 101. Additional information regarding our adoption of
EITF Issue No. 00-21 can be found in note 1 to the
consolidated financial statements appearing at the end of this
annual report on Form 10-K.

In January 2000, we changed our handset revenue
and related cost recognition policy in accordance with SAB
No. 101. Under the prior method of accounting, we
recognized revenues and the related cost of handset sales when
title to the handset passed to the customer. We accounted for
the adoption of SAB No. 101 as a change in accounting
principle and therefore did not restate the financial statements
for years prior to 2000.

Adoption of SFAS No. 142.Effective January 1, 2002, we
adopted the provisions of 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, which consist of our FCC licenses. In
the first quarter 2002, we incurred a one-time cumulative
non-cash charge to the income tax provision of $335 million
to increase the valuation allowance related to our net operating
losses. 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 5 to the consolidated
financial statements appearing at the end of this annual report
on Form 10-K.

Long-Term Debt, Preferred Stock and Finance
Obligation.During the second
quarter 2002 and continuing throughout 2003, we began reducing
our outstanding debt obligations through the redemption,
purchase and retirement of some of our long-term debt and
preferred stock. We used some of the proceeds from newly issued
senior notes and a new term loan under the bank credit facility,
together with our existing cash resources, to redeem and retire
certain senior notes, then-existing term loans under the
facility and preferred stock. These newly issued senior notes
and the new term loan have lower interest rates and longer
maturity periods than the notes and loans that were retired. We
also issued shares of our class A common stock in exchange for
some of our outstanding debt securities. Additional information
can be found in note 6 to the consolidated financial statements
appearing at the end of this annual report on Form 10-K.

Other income (expense), net.As discussed in note 3 to the
consolidated financial statements appearing at the end of this
annual report on Form 10-K, other income (expense), net in
2003 includes a $174 million gain on our sale of common
stock in NII Holdings and a $39 million gain related to the
redemption of the redeemable preferred stock that we held in
Nextel Partners. Other income (expense),

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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 $188 million other-than-temporary reduction
in the fair value of NII Holdings investment in TELUS.







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

A.     Overview

Company
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,
2003 and significant factors that could affect our prospective
financial condition and results of operations. Historical
results may not be indicative of future performance. For a
complete listing of all of our risk factors, please see Part I,
Item 1. Business  M. Risk Factors and
 Forward-Looking Statements.

We are a leading provider of wireless
communications services in the United States providing a
comprehensive suite of advanced wireless services, including
digital wireless mobile telephone service, our wireless
walkie-talkie service known as Nextel Direct Connect and
wireless data transmission services. As of December 31,
2003, we provided service to about 12.9 million subscribers,
excluding subscribers who purchase pre-paid services under our
Boost Mobile brand. For 2003, we had $10.8 billion in
operating revenues and income available to common stockholders
of $1.47 billion. We ended 2003 with over 17,000 employees.

Our all-digital packet data network is based on
iDEN wireless technology provided by Motorola. We, together with
Nextel Partners, currently utilize the iDEN technology to serve
293 of the top 300 U.S. markets where about 250 million people
live or work. Nextel Partners provides digital wireless
communications services under the Nextel brand name in mid-sized
and tertiary U.S. markets, and has the right to operate in 97 of
the top 300 metropolitan statistical areas in the United States
ranked by population. As of December 31, 2003, we owned
about 30% of the outstanding common stock of Nextel Partners. In
addition, as of December 31, 2003, we also owned about 18%
of the outstanding common stock of NII Holdings, which provides
wireless communications services primarily in selected Latin
American markets.

The FCC regulates the licensing, operation,
acquisition and sale of the licensed spectrum that is essential
to our business. Future changes in FCC regulation or
Congressional legislation related to spectrum licensing or other
matters related to our business could impose significant
additional costs on us either in the form of direct
out-of-pocket costs or additional compliance obligations.

Managements
Summary.

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. Our services include:



| |   |                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Nationwide Direct Connect, the long-range
    walkie-talkie service that allows communication at the touch of
    one button;                                                                                                                                                       
|
| |  | mobile telephone services including advanced
    digital features such as speakerphones, additional line service,
    conference calling, voice-activated dialing for hands-free
    operation, a voice recorder for calls and memos, advanced
    phonebook and datebook tools; and
|
| |  | data services, including email, mobile messaging
    services and our Nextel Online services.                                                                                                                                                                                       

We offer a variety of handsets that support all
of our services. We believe that we also differentiate ourselves
from our competition by focusing on the quality of our customer
care, in large part through our customer Touch Point strategy
designed to improve our customer relationship by focusing on
eliminating

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situations that create customer dissatisfaction
at each point where we interact with, or touch, our
customers.


We believe that the wireless communications
industry has been and will continue to be highly competitive on
the basis of price, the types of services offered and quality of
service. Past and expected consolidation within the industry has
created and will continue to create large, well-capitalized
competitors with substantial financial and other resources,
increasing the level of competition. Although competitive
pricing is often an important factor in potential
customers purchase decisions, we believe that our targeted
customer base of business users, government agencies and
high-value individuals who utilize premium mobile communications
features and services are also likely to base their purchase
decisions on quality of service and the availability of
differentiated features and services that make it easier for
them to get things done quickly and efficiently. A number of our
competitors have launched or announced plans to launch services
that are designed to compete with Direct Connect. Although we do
not believe that the current versions of these services compare
favorably with our service in terms of latency, quality,
reliability or ease of use, in the event that our competitors
are able to provide walkie-talkie service comparable to ours,
one of our key competitive advantages would be reduced.
Consequently, in an effort to continue to provide differentiated
products and services that are attractive to this targeted
customer base, and to enhance the quality of our service in
2004, we plan to:



| |   |                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | further extend the reach of Direct Connect
    service in North America and into selected markets in Latin
    America;                                                                                                                                             
|
| |  | begin the deployment of an enhancement to our
    existing iDEN technology, known as WiDEN, designed to increase
    the data speeds of our network by up to four times the current
    speeds;                                                                     
|
| |  | build an additional 2,200 transmitter and
    receiver sites to improve both our geographic coverage and to
    meet the capacity needs of our growing customer base;                                                                                               
|
| |  | introduce handsets that, together with software
    that we recently installed in our network infrastructure, are
    designed to more efficiently utilize radio spectrum to
    significantly increase our network capacity once these handsets
    are in use; and
|
| |  | complete a field trial of Nextel Wireless
    Broadband, an easy-to-use and secure service that connects
    customers to the Internet at broadband speeds, with the full
    mobility of wireless service.                                                         

We continually seek the appropriate balance
between our cost to acquire a new customer and the lifetime
value for that customer. We focus our marketing efforts
principally on identifying and targeting high-value customers
that recognize the value of our unique service offerings, and
focus our advertising efforts on communicating the benefits of
our services to those targeted groups. In June 2003, we
announced that we had become the title sponsor of one of the
most popular sports in the United States, the NASCAR premier
national series, now known as the NASCAR NEXTEL Cup Series,
beginning with the NASCAR Daytona 500 in February 2004. In
September 2003, we introduced our new Nextel. Done.
branding and related advertising initiatives, which focus
attention on productivity, speed, and getting things done. We
are also exploring other markets and customers that have the
potential to support future profitable growth in other markets.
In 2002, we launched our Boost Mobile brand, which targets the
youth and pre-paid calling wireless markets, in test markets in
California and Nevada. In 2004, we plan to expand the Boost
Mobile brand offering pre-paid services in several additional
markets.

Our focus on offering innovative and
differentiated services requires that we continue to invest in,
evaluate and, if appropriate, deploy new services and
enhancements to our existing services. See Part I,
Item 1. Business  E. Our Network and
Technology. We have expended, and will continue to expend,
significant amounts of capital on the development and evaluation
of these services and enhancements. In addition, we have
acquired, and will continue to acquire, licenses for spectrum
that we may use to deploy some of these new services and
enhancements. For instance, in 2003, we agreed to purchase
spectrum licenses from WorldCom and Nucentrix that we may use in
connection with the deployment of certain broadband services.
The total purchase price for this spectrum is $195 million,
and we expect each of these transactions to close by the end of
2004. If we were to determine that any of these services,

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enhancements or spectrum licenses will not
provide sufficient returns to support continued investment of
financial or other resources, we would have to write-off the
assets associated with them.


Because the wireless communications industry
continues to be highly competitive, particularly with regard to
customer pricing plans, we are continually seeking new ways to
create or improve capital and operating efficiencies in our
business in order to maintain our operating margins. We continue
to experience savings from outsourcing arrangements entered into
in prior years for significant portions of customer support and
information technology. In 2003, we outsourced our cell site
development functions to several vendors. In 2003, we also
continued to expand our customer convenient, and cost-efficient,
distribution channels, primarily through the opening of over 200
additional Nextel stores, bringing our total to over 600 stores
at December 31, 2003.

We continually seek to cost-efficiently optimize
the performance of our nationwide network, including through our
planned introduction of handsets designed to more efficiently
utilize radio spectrum and increase our network capacity. If
there are substantial delays in the deployment of these
handsets, or if we are unable to deploy them, the related
benefits would be delayed or reduced, and we could be required
to invest additional capital in our infrastructure to satisfy
our network capacity needs. See Part I,
Business  E. Our Network and
Technology  3. Our technology plans. We
rely on Motorola to provide us with handsets and infrastructure
and software enhancements that are designed to improve the
quality of our network. Motorola is and is expected to continue
to be our sole source supplier of iDEN infrastructure and all of
our handsets except the BlackBerry 7510, which is manufactured
by RIM.

We also continue to focus on generating greater
cash flow from operations, and, during 2003, we continued to
make significant progress in our effort to reduce our total
debt. During 2003, we retired $7.8 billion in long-term
debt and preferred stock and issued $4.7 billion in new
lower cost debt, resulting in net principal retirements of
$3.1 billion. We may, from time to time, as we deem
appropriate, enter into additional refinancing and similar
transactions, including exchanges of our common stock or other
securities for our debt obligations, and redemption, repurchase
or retirement transactions that in the aggregate may be material.

We have agreed to contribute up to
$850 million over several years towards the cost of
spectrum relocation of public safety and private wireless users
as part of a proposed realignment of the spectrum in which we
principally operate to resolve interference experienced by
public safety communications systems. This plan remains subject
to FCC approval, but we have notified the FCC that, if the plan
is approved, we will deposit $100 million in cash in an
escrow account to be available to pay these relocation costs,
and will secure the remaining $750 million commitment
through one or more irrevocable stand-by letters of credit,
which would provide payments for relocation cost should we fail
to meet our funding obligations under the plan. See Part I
Item 1. Business 
K. Regulation  2. Proposed public safety
spectrum realignment.

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

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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 and
represented less than 1% of our operating revenues and less than
10% of our accounts receivable balance in 2003. Our estimates
have been consistent with our actual results.


Allowance for doubtful accounts.We establish an allowance for
doubtful accounts receivable sufficient to cover probable and
reasonably estimable losses. Because we have well over one
million accounts, it is not practical to review the
collectibility of each account individually 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 for our portfolio of customers,
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 $86 million as of
December 31, 2003. During 2003, we experienced increased
collections, an improvement in our accounts receivable agings,
and a reduction in write-offs. As a result, our allowance for
doubtful accounts as of December 31, 2003 was lower than it was
at December 31, 2002 even though our total accounts
receivable balance increased. Write-offs in the future could be
impacted by general economic and business conditions that are
difficult to predict. In addition, it is difficult to predict
with certainty the impact that recent events, such as number
portability, could have on our account write-offs due to the
fact that we have limited experience with actual results from
the event.

Valuation and recoverability of long-lived
assets.Long-lived assets such as
property, plant, and equipment represented about
$9,093 million of our $20,510 million in total assets
as of December 31, 2003. We calculate depreciation on these
assets using the straight-line method based on estimated
economic useful lives of up to 31 years for buildings, 3 to
20 years for network equipment and internal-use software
and 3 to 12 years for non-network internal-use software,
office equipment and other assets. The substantial majority of
property, plant, and equipment represents our iDEN network
equipment and software. Our iDEN nationwide network is highly
complex and, due to constant innovation and enhancements, some
network assets may lose their utility faster than anticipated.
We periodically review the estimated useful lives and salvage
value of these assets and make adjustments to those estimates
after considering historical experience and capacity
requirements, consulting with the vendor, and assessing new
product and market demands. During 2003, we recorded $79 million
or $0.08 per common share of additional depreciation expense as
a result of adjusting the useful lives of certain of our network
assets in the first quarter 2003. While the remaining useful
lives for iDEN network equipment and software represent our best
estimate at this time, we recognize that at some point in the
future we may migrate to a next generation technology, which
could impact the lives of our iDEN network equipment and
software.

As of December 31, 2003, we have
$798 million of costs associated with construction in
progress activities and communication assets in warehouses not
yet deployed into our network. About 27% of this amount
represents costs for activities incurred in connection with the
early phase of cell site construction. Such activities include,
among others, engineering studies, design layout and zoning.
Because we need to be able to respond quickly to business needs,
we incur these costs well in advance of when the cell site asset
is placed into service. Our current plan is to use all of these
cell sites for expansion and quality improvements, future
capacity demands and other strategic reasons; however, to the
extent there are changes in economic conditions, technology or
the regulatory environment, our plans could change and some of
these assets could be abandoned and written off.

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 our assets, a loss, if any, is recognized for
the difference between the fair value and carrying value of the
assets. Impairment analyses, when performed, 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.
For purposes of recognition and measurement of impairment
losses, we group our domestic long-lived assets with other
assets and liabilities at the domestic enterprise level, which
for us is the lowest level for which identifiable cash flows are

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largely independent of the cash flows of other
assets and liabilities. We did not perform an impairment
analysis for our domestic long-lived assets in any of the
periods presented as there were no indicators of impairment;
however, we may have to perform such analyses in the future to
the extent there are changes in our industry, economic
conditions, technology or the regulatory environment.


Valuation and recoverability of intangible
assets.Intangible assets with
indefinite useful lives represented about $6,950 million of
our $20,510 million in total assets as of December 31,
2003. Intangible assets with indefinite useful lives primarily
consist of our FCC licenses. We performed our annual impairment
tests of FCC licenses as of October 1, 2003 and 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
and 900 MHz licenses in our national footprint by deducting the
fair values of our net assets as well as the fair values of
certain unrecorded identified intangible assets, other than
these FCC licenses, from our reporting units, that is our
company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. The residual value approach
yielded a value substantially in excess of the recorded balance
of our 800 and 900 MHz licenses in 2003 and 2002.

We have invested about $350 million in 700
MHz FCC licenses that are currently not used in our network. We
have agreed to exchange these licenses along with other licenses
in our Consensus Plan 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 portion of or the entire
recorded asset could become impaired.

Recoverability of capitalized software.As of December 31, 2003, we
have about $74 million in net unamortized costs for software
that will be sold, leased, or otherwise marketed and/or used in
our network. 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 demand for the software, our plans could change and some or
all of these assets could become impaired.

Net operating loss valuation allowance.As of December 31, 2003, we
had about $6 billion of consolidated net operating loss
carryforwards for federal income tax purposes. We have provided
a full reserve against the tax benefit of our net operating loss
carryforwards as of December 31, 2003. This reserve is
established because we do not have a sufficient history of
taxable income at this time to conclude that it is more likely
than not that the tax benefit of the net operating loss
carryforwards will be realized. We reached this conclusion after
reviewing our complete history of financial statement and tax
net operating losses and our recent generation of earnings and
taxable income.

We believe that our cumulative losses, when
evaluated in connection with other qualitative factors and
uncertainties concerning our business and industry, provide
substantial negative evidence regarding the eventual
realizability of the tax benefit of our net operating loss
carryforwards as of December 31, 2003, which outweighs any
of the positive evidence available. However, if current trends
continue, it is possible that the results of our cumulative
historical test will yield positive evidence that it is more
likely than not that we will realize the tax benefit of our net
operating losses sometime in 2004. If that is the case, subject
to review of other qualitative factors and uncertainties, we
would expect to start reversing some or all of the remaining net
operating loss valuation allowance into income as a credit to
tax expense except for about $350 million of the net operating
loss valuation allowance associated with stock option
transactions that will be reversed with a credit to
stockholders equity.

Significant
New Accounting Pronouncements.

In November 2002, the EITF issued a final
consensus on EITF Issue No. 00-21, which provides guidance on
when and how an arrangement involving multiple deliverables
should be divided into separate units of accounting.

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Previously, under the provisions of SAB
No. 101, we accounted for the sale of our handsets and the
subsequent service to the customer as a single unit of
accounting due to the fact that our wireless service is
essential to the functionality of our handsets. Accordingly, we
recognized revenue from handset sales and an equal amount of
cost of handset revenues over the expected customer relationship
period, beginning when title to the handset passed 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. Based on this
fact and that we meet the criteria stipulated in EITF Issue
No. 00-21, we have concluded that EITF Issue No. 00-21
requires us to account for the sale of a handset as a unit of
accounting separate from the subsequent service to the customer.
Accordingly, for all arrangements entered into beginning in the
third quarter 2003, we recognize revenue from handset sales and
the related cost of handset revenues when title to the handset
passes to the customer. In addition, we recognize the portion of
the activation fees allocated to the handset unit of accounting
in the statement of operations when title to the handset passes
to the customer. We defer the portion of the activation fees
allocated to the service unit of accounting, together with an
equal amount of costs, and recognize such deferred fees and
costs on a straight-line basis over the contract life in the
statement of operations.

EITF Issue No. 00-21 became effective
prospectively for all arrangements entered into beginning in the
third quarter 2003. In addition, as permitted, we elected to
apply the provisions of EITF Issue No. 00-21 to our
existing customer arrangements, with any impact recorded as a
cumulative effect of a change in accounting principle in the
statement of operations. Accordingly, on July 1, 2003, we
reduced our current assets and liabilities by about $563 million
and our non-current assets and liabilities by about
$783 million, representing substantially all of the
revenues and costs associated with the original sale of handsets
that were deferred under SAB No. 101. The cumulative effect
of adopting EITF Issue No. 00-21 did not materially impact
our statement of operations.

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 handset and accessory
sales when title passes to the customer.

Cost of providing wireless service consists
primarily of:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | costs to operate and maintain our network,
    primarily including 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, frequency leasing costs and roaming fees paid to
    other carriers;                                                                                                                                                                                                               
|
| |  | fixed and variable interconnection costs, the
    fixed component of which consists of monthly flat-rate fees for
    facilities leased from local exchange carriers based on the
    number of transmitter and receiver sites and switches in service
    in a particular period and the related equipment installed at
    each site, and the variable component of which generally
    consists of per-minute use fees charged by wireline and wireless
    providers for wireless calls terminating on their networks and
    fluctuates in relation to the level and duration of wireless
    calls;
|
| |  | costs to operate our handset service and repair
    program; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | the costs to activate service for new subscribers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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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
cost of handset and accessory revenues when title passes to the
customer.

Selling and marketing costs primarily consist of
customer acquisition costs, including residual payments to our
indirect 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, Nextel stores and marketing employees,
telemarketing, advertising, media programs and sponsorships,
including costs related to branding.

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,       
|                                                             |  |                    
|                                                             |  | 2003                |        | 2002 |  | 2001
|                                                             |  |                     |        |      |  |     
|Handsets in service, end of period (in
    thousands)(1)     |  |                     | 12,882 |      |  |      | 10,612 |  |  |  | 8,667  | 
|Net handset additions (in thousands)(1)                      |  |                     | 2,270  |      |  |      | 1,956  |  |  |  | 1,988  | 
|Average monthly minutes of use per handset(1)                |  |                     | 710    |      |  |      | 630    |  |  |  | 565    | 
|System minutes of use (in billions)(1)                       |  |                     | 100.6  |      |  |      | 73.5   |  |  |  | 52.5   | 
|Net transmitter and receiver sites placed in
    service     |  |                     | 1,200  |      |  |      | 800    |  |  |  | 2,800  | 
|Transmitter and receiver sites in service, end of
    period |  |                     | 17,500 |      |  |      | 16,300 |  |  |  | 15,500 | 
|Switches in service, end of period                           |  |                     | 82     |      |  |      | 84     |  |  |  | 81     | 
|Nextel stores in service, end of period                      |  |                     | 636    |      |  |      | 417    |  |  |  | 210    | 



---



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

An additional measurement we use to manage our
business is the rate of customer churn, which is an indicator of
customer retention and represents the monthly percentage of the
customer base that disconnects from service. The churn rate
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. We focus our efforts on retaining customers, and
keeping our churn rate low, because the cost to acquire
customers generally is higher than the cost to retain existing
customers.

Our average monthly customer churn rate during
2003 declined to about 1.6% as compared to about 2.1% during
2002. We believe that this decline in the churn rate is
attributable to our ongoing focus on customer retention,
acquiring high quality subscribers, including add-on subscribers
from existing customer accounts, and the attractiveness of our
differentiated products and services. We have implemented a
customer Touch Point strategy designed to proactively identify
and address major points of potential customer dissatisfaction
over the customer life cycle. These initiatives include such
programs as strategic care provided to customers with certain
attributes and efforts to migrate customers to more optimal
service pricing plans. The improvement in churn also reflects
the strengthening of our credit policies and procedures and the
completion of our integrated billing, customer care and
collections system in 2002, which allow us to better manage our
customer relationships.

If general economic conditions worsen, if our
products or services are not well received by prospective or
existing customers, or if competitive conditions in the wireless
telecommunications industry intensify, including, for example,
as a result of the impact of actions taken by our competitors in
response to the implementation of wireless number portability or
the introduction of competitive services, particularly services
that compete with our Direct Connect service, demand for our
products and services may decline,

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which could adversely affect our ability to
attract and retain customers and our results of operations. See
 Forward-Looking Statements.


1. Year
Ended December 31, 2003 vs. Year Ended December 31,
2002.



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

|                 |                                 |                       |       |           |   |              |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |    |  
|---------------- | ------------------------------- | --------------------- | ----- | --------- | - | ------------ | -- | --------- |  | ------------- | ----- | ------- | - |  | -- | - |  | - | ----- | ----- |  |  | -- | -- | -
|                 |                                 |                       |       |           |   |              |    |           |  |              
|                 |                                 |                       |       |           |   |              |    |           |  | Change from  
|                 |                                 | Year Ended            |       | % of      |   | Year Ended   |    | % of      |  | Previous Year
|                 |                                 | December 31,          |       | Operating |   | December 31, |    | Operating |  |              
|                 |                                 | 2003                  |       | Revenues  |   | 2002         |    | Revenues  |  | Dollars       |       | Percent
|                 |                                 |                       |       |           |   |              |    |           |  |               |       |        
|                 |                                 |                      
|                 |                                 | (dollars in millions)
|Service revenues |                                 | $                     | 9,892 |           |   |              | 91 | %         |  | $             | 8,186 |         |   |  | 94 | % |  | $ | 1,706 |       |  |  | 21 | % 
|Cost of service  |                                 |                       | 1,656 |           |   |              | 15 | %         |  |               | 1,469 |         |   |  | 17 | % |  |   | 187   |       |  |  | 13 | % 
|                 |                                 |                       |       |           |   |              |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|                 | Service gross margin            |                       | $     | 8,236     |   |              |    |           |  |               | $     | 6,717   |   |  |    |   |  |   | $     | 1,519 |  |  |    | 23 | %
|                 |                                 |                       |       |           |   |              |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|                 | Service gross margin percentage |                       |       | 83        | % |              |    |           |  |               |       | 82      | % |  |    |   |  |   |       |       |  |  |    |    |  
|                 |                                 |                       |       |           |   |              |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   

Service revenues.Service revenues increased 21%
from 2002 to 2003. This increase was attributable to the
increase in the number of handsets in service (volume),
partially offset by the decline in the average monthly revenue
per handset in service (rate) in 2003.

From a volume perspective, our service revenues
increased principally as a result of a 21% increase in handsets
in service at the end of 2003 compared to 2002. We believe that
the growth in the number of handsets in service is the result of
a number of factors, principally:



| |   |                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our differentiated products and services,
    including our Direct Connect walkie-talkie service, including
    the impact of the launch of our Nationwide Direct Connect
    service, and our Nextel Online services;                       
|
| |  | increased brand name recognition as a result of
    increased advertising and marketing campaigns;                                                                                                                                           
|
| |  | the high quality of our network;                                                                                                                                                                                                             
|
| |  | the improvement in subscriber retention that we
    attribute to our ongoing focus on customer care and other
    retention efforts and our focus on attracting high quality
    subscribers;                                                
|
| |  | 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 and marketing staff, including
    staff associated with our Nextel stores, and selling efforts
    targeted at specific vertical markets.                                                                                   

From a rate perspective, our average monthly
service revenue per handset decreased slightly from 2002 to
2003. We attribute the slight decrease in average monthly
service revenue per handset to the introduction of more
competitive pricing plans in the latter half of 2002, partially
offset by:



| |   |                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the benefit of changes in billing practices,
    including full-minute rounding, that were implemented in the
    second quarter 2002;                                                                                                                                                                                                   
|
| |  | the improvement in credit and adjustment levels
    in 2003 as compared to 2002, which were higher in 2002 due to
    service discounts and billing disputes as a result of issues
    experienced by customers during the billing system conversion
    and the changes in billing practices implemented in the second
    quarter 2002;
|
| |  | the revenues associated with the introduction of
    Nationwide Direct Connect service beginning July 2003;                                                                                                                                                                                                                              
|
| |  | the growth in the subscriber base electing
    handset insurance and participating in service and repair
    programs; and                                                                                                                                                                                                               

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| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the increased fees that we began charging many of
    our customers in October 2002 to recover a portion of the costs
    associated with government mandated telecommunications services
    such as E911 and number portability.

Cost of service.Cost of service increased 13% from
2002 to 2003, primarily due to increased minutes of use
resulting from the combined effect of the increase in handsets
in service and an increase in the average monthly minutes of use
per handset. Specifically, we experienced:



| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | a 13% increase in costs incurred in the operation
    and maintenance of our network and fixed interconnection costs;
    and
|
| |  | a 13% increase in variable interconnection fees.                                                                             

Costs related to the operation and maintenance of
our network and fixed interconnection fees increased
$217 million primarily due to:



| |   |                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase in costs to operate our handset
    service and repair program as a result of the growth in the
    subscriber base electing handset insurance and participating in
    service and repair programs;
|
| |  | an increase in transmitter and receiver and
    switch related operational costs due to a 7% increase in
    transmitter and receiver sites placed into service during 2003;
    and                            
|
| |  | an increase in roaming fees paid to Nextel
    Partners due to the increase in our customer base and the launch
    of Nationwide Direct Connect service in 2003.                                               

These increased costs were partially offset by
$58 million of cost benefits consisting of:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a net benefit recorded in 2003 in connection with
    the towers leased from SpectraSite Holdings, Inc. Tower lease
    payments, previously recorded as a reduction of financing
    obligation, are classified as tower rent expense in 2003. This
    tower rent expense was more than offset by the deferred gain
    amortization recorded in connection with the tower sale
    transaction with SpectraSite; and
|
| |  | a decrease in fixed interconnection costs as a
    result of initiatives implemented over the past year to gain
    efficiencies in our network by taking advantage of lower
    facility fees and more technologically advanced network
    equipment that provides for additional capacity but requires
    less leased facilities.                                                                                  

The increase in variable interconnection fees in
2003 was principally due to an increase in total system minutes
of use, partially offset by a lower cost per minute of use.
Total system minutes of use increased 37% from 2002 to 2003,
principally due to a 21% increase in the number of handsets in
service, as well as a 13% increase in the average monthly
billable minutes of use per handset over the same period. Our
lower variable interconnection cost per minute of use was
primarily the result of rate savings achieved through efforts
implemented beginning in the second quarter 2002 to move long
distance traffic to lower cost carriers.

We expect the aggregate amount of cost of service
to increase as customer usage of our network increases and as we
add more sites, switches and other equipment to expand the
coverage and capacity of our network. However, we expect the
cost per minute of use in 2004 to decline as compared to 2003
due to improvements in network operating efficiencies. See
 Forward-Looking Statements.
Additionally, annual rent expense will benefit through 2007 from
the amortization of the deferred gain that we recorded in
connection with the lease transactions with SpectraSite.
Additional information regarding the SpectraSite lease
transactions can be found in note 3 to the consolidated
financial statements appearing at the end of this annual report
on Form 10-K. See also  C. Liquidity
and Capital Resources and  D. Future
Capital Needs and Resources  Capital
Needs  Capital Expenditures.

Service gross margin.Service gross margin, exclusive of
depreciation expense, as a percentage of service revenues
increased from 82% for 2002 to 83% for 2003. Our service gross
margin percentage improved primarily due to the combination of
increased service revenues due to subscriber growth and
achievement of economies of scale, such as our interconnection
fee rate savings and network operating efficiencies.

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

During 2003, we recorded $928 million of
handset and accessory revenues, an increase of $393 million
over 2002. During 2003, we recorded $1,495 million of cost
of handset and accessory revenues, an increase of
$448 million over 2002. These results are summarized in the
table below.

|                                                   |                                            |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |    |  
|-------------------------------------------------- | ------------------------------------------ | --------------------- | ----- | --------- |  | ------------ | -- | --------- | - | ------------- | ----- | ------- |  |  | -- | -- | - | - | --- | --- |  |  | --- | -- | -
|                                                   |                                            |                       |       |           |  |              |    |           |   |              
|                                                   |                                            |                       |       |           |  |              |    |           |   | Change from  
|                                                   |                                            | Year Ended            |       | % of      |  | Year Ended   |    | % of      |   | Previous Year
|                                                   |                                            | December 31,          |       | Operating |  | December 31, |    | Operating |   |              
|                                                   |                                            | 2003                  |       | Revenues  |  | 2002         |    | Revenues  |   | Dollars       |       | Percent
|                                                   |                                            |                       |       |           |  |              |    |           |   |               |       |        
|                                                   |                                            |                      
|                                                   |                                            | (dollars in millions)
|Current period handset and accessory sales         |                                            | $                     | 1,098 |           |  |              | 10 | %         |   | $             | 892   |         |  |  | 10 | %  |   | $ | 206 |     |  |  | 23  | % 
|SAB No. 101                                        |                                            |                       | (170  | )         |  |              | (1 | )%        |   |               | (357  | )       |  |  | (4 | )% |   |   | 187 |     |  |  | 52  | % 
|                                                   |                                            |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   
|                                                   | Handset and accessory revenues             |                       |       | 928       |  |              |    | 9         | % |               |       | 535     |  |  |    | 6  | % |   |     | 393 |  |  |     | 73 | %
|                                                   |                                            |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   
|Current period cost of handset and accessory sales |                                            |                       | 1,665 |           |  |              | 15 | %         |   |               | 1,404 |         |  |  | 16 | %  |   |   | 261 |     |  |  | 19  | % 
|SAB No. 101                                        |                                            |                       | (170  | )         |  |              | (1 | )%        |   |               | (357  | )       |  |  | (4 | )% |   |   | 187 |     |  |  | 52  | % 
|                                                   |                                            |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   
|                                                   | Cost of handset and accessory
    revenues |                       |       | 1,495     |  |              |    | 14        | % |               |       | 1,047   |  |  |    | 12 | % |   |     | 448 |  |  |     | 43 | %
|                                                   |                                            |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   
|Handset and accessory net subsidy                  |                                            | $                     | (567  | )         |  |              |    |           |   | $             | (512  | )       |  |  |    |    |   | $ | (55 | )   |  |  | (11 | )%
|                                                   |                                            |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   

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 effects of SAB
No. 101 and EITF Issue No. 00-21. Prior to
July 1, 2003, in accordance with SAB No. 101, we
recognized revenue from handset sales on a straight-line basis
over the expected customer relationship period of 3.5 years,
rather than when title to the handset passed to the customer.
Therefore, 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 being recognized as revenue. With the
adoption of EITF Issue No. 00-21, effective July 1,
2003, we recognize revenues from handset sales when title to the
handset passes to the customer. Therefore, the adoption of EITF
Issue No. 00-21 resulted in increased handset revenues in
2003 as compared to 2002. Additional information regarding our
adoption of EITF Issue No. 00-21 can be found in
 A. Overview  Significant New
Accounting Pronouncements.

Current period handset and accessory sales
increased $206 million or 23% for 2003 compared to 2002.
This increase reflects an increase of about 23% in the number of
handsets sold and, to a lesser extent, an increase in revenues
from accessory sales due to the larger subscriber base,
partially offset by about a 3% decrease in the average sales
price of the handsets.

Cost of handset and accessory revenues.Reported cost of handset and
accessory revenues are primarily influenced by the number of
handsets sold, the cost of the handsets sold and the effects of
SAB No. 101 and EITF Issue No. 00-21. Prior to July 1,
2003, we recognized the cost of handset revenues on a
straight-line basis over the expected customer relationship
period of 3.5 years in amounts equivalent to the revenues
recognized from handset sales. With the adoption of EITF Issue
No. 00-21, effective July 1, 2003, we recognize the
cost of handset revenues when title to the handset passes to the
customer. Therefore, the adoption of EITF Issue No. 00-21
resulted in increased cost of handset revenues in 2003 as
compared to 2002. Additional information regarding our adoption
of EITF Issue No. 00-21 can be found in
 A. Overview  Significant New Accounting
Pronouncements.

Current period cost of handset and accessory
sales increased $261 million or 19% for 2003 compared to
2002. This increase primarily reflects an increase of about 23%
in the number of handsets sold, partially offset by about a 4%
decrease in the average cost we paid for handsets.

Handset and accessory net subsidy.The handset and accessory net
subsidy consists of handset subsidy as we generally sell our
handsets at prices below cost in response to competition, to
attract new customers and as retention inducements for existing
customers; and gross margin on accessory sales, which are
generally higher margin products.

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Handset and accessory net subsidy increased 11%
for 2003 compared to 2002. We attribute the increase in handset
and accessory net subsidy to:



| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | an increase in the number of handsets sold of
    about 23%; partially offset by
|
| |  | a decrease in the average subsidy per handset of
    about 6%; and              
|
| |  | an increase in the gross margin from accessory
    sales.                       

We expect to continue the industry practice of
selling handsets at prices below cost. In addition, we may
increase handset subsidies in response to the competitive
environment. See  Forward-Looking
Statements.

Selling,
General and Administrative Expenses.

|                           |                                     |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |    |  
|-------------------------- | ----------------------------------- | --------------------- | ----- | --------- |  | ------------ | -- | --------- | - | ------------- | ----- | ------- |  |  | -- | -- | - | - | --- | --- |  |  | -- | -- | -
|                           |                                     |                       |       |           |  |              |    |           |   |              
|                           |                                     |                       |       |           |  |              |    |           |   | Change from  
|                           |                                     | Year Ended            |       | % of      |  | Year Ended   |    | % of      |   | Previous Year
|                           |                                     | December 31,          |       | Operating |  | December 31, |    | Operating |   |              
|                           |                                     | 2003                  |       | Revenues  |  | 2002         |    | Revenues  |   | Dollars       |       | Percent
|                           |                                     |                       |       |           |  |              |    |           |   |               |       |        
|                           |                                     |                      
|                           |                                     | (dollars in millions)
|Selling and marketing      |                                     | $                     | 1,814 |           |  |              | 17 | %         |   | $             | 1,543 |         |  |  | 18 | %  |   | $ | 271 |     |  |  | 18 | % 
|General and administrative |                                     |                       | 1,639 |           |  |              | 15 | %         |   |               | 1,496 |         |  |  | 17 | %  |   |   | 143 |     |  |  | 10 | % 
|                           |                                     |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |   
|                           | Selling, general and administrative |                       | $     | 3,453     |  |              |    | 32        | % |               | $     | 3,039   |  |  |    | 35 | % |   | $   | 414 |  |  |    | 14 | %
|                           |                                     |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |   

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $149 million increase in marketing payroll
    and related expenses primarily associated with our opening an
    additional 219 Nextel stores between December 31, 2002 and
    December 31, 2003, and increased employee commissions; and                                                                                                                                                                               
|
| |  | a $102 million increase in advertising
    expenses as a result of our new branding campaign launched in
    the third quarter 2003, as well as general marketing campaigns
    directed at increasing brand awareness and promoting our
    differentiated services, including Nationwide Direct Connect and
    advertising costs related to the Boost Mobile test program,
    which launched in the third quarter 2002.

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an $80 million increase in expenses related
    to billing, collection, customer retention and customer care
    activities primarily due to the costs to support a larger
    customer base; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | a $268 million increase in personnel,
    facilities and general corporate expenses due to increases in
    headcount and employee compensation costs, and to a lesser
    extent, technology initiatives, our financial systems software
    upgrade project, legal costs and professional fees; partially
    offset by                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | a $205 million decrease in bad debt expense.
    Bad debt expense decreased from $334 million, or 4% of
    operating revenues, for 2002 to $129 million, or 1% of
    operating revenues, for 2003. The decrease in both bad debt
    expense and bad debt expense as a percentage of operating
    revenues reflects the results of system and strategic
    initiatives implemented over the past two years. With the
    completion of our integrated billing, customer care and
    collections system in 2002, productivity of various departments,
    including collections, has improved. Further, we made strategic
    decisions to strengthen our credit policies and procedures
    specifically in the area of compliance with our deposit policy,
    limiting the account sizes for high-risk accounts and
    strengthening identity verification processes at the point of
    credit applications. The credit and collection software tools
    that we implemented now enable us to better screen and monitor
    the credit quality and delinquency levels of our customers. We
    have also benefited from improvements in recoveries of past due
    accounts handled by third party collection agencies. These
    factors and others have resulted in increased collections, an
    improvement in the accounts receivable agings and a reduction in
    the write-offs for fraud-related accounts. Therefore, our
    allowance for doubtful accounts as a percentage of accounts
    receivable has

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | also improved from December 31, 2002 to
    December 31, 2003. Bad debt expense in the future could be
    adversely affected by general economic conditions and
    competitive conditions within the wireless industry, including
    those related to wireless number portability or to the extent we
    adjust our credit standards to be more competitive. See
     Forward-Looking Statements.

Our selling, general and administrative expenses
as a percentage of operating revenues decreased from 2002 to
2003 primarily as a result of increased service revenues due to
subscriber growth and improvement in bad debt expense as
described above.

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



| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increased costs to acquire new customers and to
    support a growing customer base, including costs associated with
    billing, collection, customer retention and customer care
    activities;
|
| |  | increased marketing and advertising in connection
    with sponsorships designed to increase brand awareness in our
    markets including our NASCAR sponsorship;                                 
|
| |  | increased costs for the expansion of our Boost
    Mobile service into new markets;                                                                                                               
|
| |  | increased costs associated with opening
    additional Nextel stores; and                                                                                                                         
|
| |  | increased costs related to the field trial of
    Nextel Wireless Broadband, which we account for as research and
    development expense; partially offset by                                    
|
| |  | additional savings expected from 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 entered into in 2002 will result in
about $140 million of reduced costs over the five year
period from contract inception relative to our previous
run-rate, primarily in the form of lower capital spending. We
also expect our customer care outsourcing arrangement entered
into in 2002 will result in more than $1,000 million of
reduced costs over an eight-year period from contract inception
relative to our run-rate in 2001. Our actual experience through
December 31, 2003 indicates that we are realizing the
benefits of these outsourcing arrangements. While we believe our
aggregate customer care related costs will continue to increase
in order to support the growth in our customer base, we believe
these increases will be less than we would have experienced
without the outsourcing arrangement. See
 Forward-Looking Statements.

Depreciation
and Amortization.

|             |                               |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |     |    |  |  |    |    |  
|------------ | ----------------------------- | --------------------- | ----- | --------- |  | ------------ | -- | --------- | - | ------------- | ----- | ------- |  |  | -- | -- | - | - | --- | -- |  |  | -- | -- | -
|             |                               |                       |       |           |  |              |    |           |   |              
|             |                               |                       |       |           |  |              |    |           |   | Change from  
|             |                               | Year Ended            |       | % of      |  | Year Ended   |    | % of      |   | Previous Year
|             |                               | December 31,          |       | Operating |  | December 31, |    | Operating |   |              
|             |                               | 2003                  |       | Revenues  |  | 2002         |    | Revenues  |   | Dollars       |       | Percent
|             |                               |                       |       |           |  |              |    |           |   |               |       |        
|             |                               |                      
|             |                               | (dollars in millions)
|Depreciation |                               | $                     | 1,643 |           |  |              | 15 | %         |   | $             | 1,541 |         |  |  | 17 | %  |   | $ | 102 |    |  |  | 7  | % 
|Amortization |                               |                       | 51    |           |  |              | 1  | %         |   |               | 54    |         |  |  | 1  | %  |   |   | (3  | )  |  |  | (6 | )%
|             |                               |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |     |    |  |  |    |   
|             | Depreciation and amortization |                       | $     | 1,694     |  |              |    | 16        | % |               | $     | 1,595   |  |  |    | 18 | % |   | $   | 99 |  |  |    | 6  | %
|             |                               |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |     |    |  |  |    |   

Depreciation expense increased $102 million
from 2002 to 2003. During 2003, we recorded $79 million, or
$0.08 per common share, in depreciation expense as a result of
shortening the estimated useful lives of some of our network
assets in the first quarter 2003. Further, depreciation
increased primarily as a result of a 7% increase in transmitter
and receiver sites in service and costs to modify existing
switches and transmitter and receiver sites in existing markets
primarily to enhance the capacity of our network. We
periodically review the estimated useful lives of our property,
plant and equipment assets as circumstances warrant. Events that
would likely cause us to review the useful lives of our
property, plant and equipment assets include decisions made by
regulatory agencies and our decisions surrounding strategic or
technology matters. It is possible that depreciation expense may
increase in future periods as a result of one or a combination
of these decisions. Variances in depreciation expense recorded
between periods can also be impacted by several factors,
including the effect of fully depreciated assets, the timing

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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.


Restructuring
and Impairment Charges, Interest and Other.

|                                                                                      |  |                       |       |               |  |         |        |         |  |   |        |   |  |  |      |   
|------------------------------------------------------------------------------------- |  | --------------------- | ----- | ------------- |  | ------- | ------ | ------- |  | - | ------ | - |  |  | ---- | --
|                                                                                      |  |                       |       |              
|                                                                                      |  | Year Ended            |       | Change from  
|                                                                                      |  | December 31,          |       | Previous Year
|                                                                                      |  |                       |       |              
|                                                                                      |  | 2003                  |       | 2002          |  | Dollars |        | Percent
|                                                                                      |  |                       |       |               |  |         |        |        
|                                                                                      |  |                      
|                                                                                      |  | (dollars in millions)
|Restructuring and impairment charges                                                  |  | $                     |      |               |  | $       | (35    | )       |  | $ | 35     |   |  |  | 100  | % 
|Interest expense                                                                      |  |                       | (844  | )             |  |         | (1,048 | )       |  |   | 204    |   |  |  | 19   | % 
|Interest income                                                                       |  |                       | 42    |               |  |         | 58     |         |  |   | (16    | ) |  |  | (28  | )%
|(Loss) gain on retirement of debt and mandatorily
    redeemable preferred stock, net |  |                       | (252  | )             |  |         | 839    |         |  |   | (1,091 | ) |  |  | (130 | )%
|Gain on deconsolidation of NII Holdings                                               |  |                       |      |               |  |         | 1,218  |         |  |   | (1,218 | ) |  |  | (100 | )%
|Equity in losses of unconsolidated affiliates, net                                    |  |                       | (40   | )             |  |         | (302   | )       |  |   | 262    |   |  |  | 87   | % 
|Realized gain on investments                                                          |  |                       | 213   |               |  |         |       |         |  |   | 213    |   |  |  |     |   
|Reduction in fair value of investments                                                |  |                       | (2    | )             |  |         | (37    | )       |  |   | 35     |   |  |  | 95   | % 
|Other, net                                                                            |  |                       | 4     |               |  |         | (2     | )       |  |   | 6      |   |  |  | 300  | % 
|Income tax provision                                                                  |  |                       | (113  | )             |  |         | (391   | )       |  |   | 278    |   |  |  | 71   | % 
|Income available to common stockholders                                               |  |                       | 1,472 |               |  |         | 1,660  |         |  |   | (188   | ) |  |  | (11  | )%

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

Interest expense.The $204 million decrease in
interest expense from 2002 to 2003 relates to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $207 million decrease primarily resulting
    from the purchase and retirement of our senior notes, as
    discussed below;                                                                                                                                                                                                                                                              
|
| |  | a $39 million decrease primarily due to a
    reduction in the weighted average interest rates related to our
    bank credit facility from 4.7% during 2002 to 3.9% during 2003;
    and                                                                                                                                                                                                  
|
| |  | a $19 million decrease due to the
    ineffective portion of the change in fair value of the
    derivative qualifying for hedge accounting and a
    $17 million decrease related to the SpectraSite tower lease
    agreements, accounted for as a financing obligation prior to
    2003; partially offset by                                                                           
|
| |  | a $57 million increase due to the issuance
    of our new senior notes during the third and fourth quarters
    2003; and                                                                                                                                                                                                                                                                  
|
| |  | a $13 million decrease in capitalized
    interest and an $8 million increase related to the third
    quarter dividends on our series D and series E preferred stock
    being classified as interest expense effective July 1, 2003
    as a result of adopting SFAS No. 150, Accounting for
    Certain Financial Instruments with Characteristics of both
    Liabilities and Equity.

Interest expense related to our senior notes
decreased in 2003 primarily due to the purchase and retirement
of $5,977 million in aggregate principal amount at maturity
of our senior notes and convertible senior notes since the
beginning of the second quarter 2002. This decrease was
partially offset by the interest expense associated with the
additional $2,500 million in aggregate principal amount of
new senior notes issued during 2003. In December 2003, we
reduced the principal amount of outstanding term loans under our
credit facility by $574 million by repaying
$2,774 million of term loans under that facility with cash
on hand and the proceeds from the syndication of a new
$2,200 million term loan under that facility that matures
in December 2010. We expect our interest expense to continue to
decrease in 2004 as we

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realize the benefit for a full year of the debt
redemptions and retirements consummated during 2003. See
 Forward-Looking Statements.


Interest income.The $16 million decrease in
interest income from 2002 to 2003 is due to a decrease in the
average cash and short-term investments balances and lower
average interest rates during 2003 as compared to 2002.

(Loss) gain on retirement of debt and
mandatorily redeemable preferred stock.For 2003, we recognized a loss of
$252 million on the retirement of some of our senior notes,
convertible senior notes and preferred stock representing the
redemption premium paid and the write-off of the related
unamortized debt financing costs. For 2002, we recognized a gain
of $839 million on the retirement of some of our senior
notes, convertible senior notes and preferred stock representing
the excess of the carrying value over the purchase price of the
purchased and retired notes and preferred stock and the
write-off of the unamortized debt financing costs.

Equity in losses of unconsolidated
affiliates, net.The
$40 million in equity in losses of unconsolidated
affiliates for 2003 is primarily due to losses attributable to
our equity method investment in Nextel Partners of $71 million
partially offset by our equity in earnings of NII Holdings of
$31 million during the portion of the year that we accounted for
NII Holdings using the equity method of accounting. During the
second quarter 2003, our investments in Nextel Partners
common stock and 12% nonvoting mandatorily redeemable preferred
stock were written down to zero through the application of the
equity method of accounting. During the fourth quarter 2003, we
sold 3.0 million shares of NII Holdings common stock, thereby
decreasing our ownership percentage to 18% of the outstanding
common stock and now account for our interest as an
available-for-sale cost method investment.

The $302 million equity in losses of
unconsolidated affiliates for 2002 includes:



| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | a $210 million loss representing our share
    of NII Holdings operating results; and           
|
| |  | a $92 million loss primarily attributable to
    our equity method investment in Nextel Partners.

Realized gain on investments.In November 2003, we sold
3.0 million shares of NII Holdings common stock, which
generated $209 million in net proceeds and a gain of
$174 million. In November 2003, Nextel Partners redeemed
its 12% nonvoting mandatorily redeemable preferred stock that we
held for $39 million. Because we had written down our investment
in Nextel Partners to zero during the second quarter 2003
through the application of the equity method of accounting, we
recorded a gain equal to the entire $39 million of net
proceeds received in connection with this redemption.

Reduction in fair value of investments.The decrease of $35 million
in the reduction in fair value of investments from 2002 to 2003
is primarily due to the $37 million charge recognized in
June 2002 when we determined the decline in fair value of our
investment in SpectraSite to be other-than-temporary.

Income tax provision.The decrease in the income tax
provision of $278 million from 2002 to 2003 is primarily
attributable to the adoption of SFAS No. 142 in the first
quarter 2002. As a result of this adoption, 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. We have provided a full reserve against our net
operating loss carryforwards as of December 31, 2003. This
reserve was established because we do not have a sufficient
history of taxable income to conclude that it is more likely
than not that the net operating losses will be realized. To the
extent that we continue to have taxable income in future
periods, we would expect to realize at least a portion of the
benefits of the net operating loss carryforwards.

2. Year
Ended December 31, 2002 vs. Year Ended December 31,
2001.

As described in note 3 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.

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As further described in note 3, 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 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 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 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 (exclusive of depreciation) |                                 |                       | 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 2001 to 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, our average monthly
service revenue per handset increased 2% from 2001 to 2002. We
attribute the increase in average monthly service revenue per
handset to:



| |   |                                                               
| | - | --------------------------------------------------------------
| |  | the following revenue enhancement initiatives
    during 2002:



| |   |                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | in the first quarter 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

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| |   |                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | in the second quarter 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; offset by



| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.

Domestic cost of service.Cost of service increased 11% from
2001 to 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 2001 to 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.

Domestic service gross margin.Service gross margin as a
percentage of service revenues increased from 80% for 2001 to
82% for 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 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 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 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

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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 2002, we recorded
$535 million of handset and accessory revenues, an increase
of $96 million from 2001. During 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 net 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 required 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 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
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.

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|                                                         |                                                 |               |      |             |   |               |      |     |   |   |      |      |  
|-------------------------------------------------------- | ----------------------------------------------- | ------------- | ---- | ----------- | - | ------------- | ---- | --- | - | - | ---- | ---- | -
|                                                         |                                                 |               |      |            
|                                                         |                                                 | 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 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 net 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 net subsidy during 2002. Handset and
accessory net subsidy decreased 34% from 2001 to 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 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
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 | %
|                           |                                     |                       |       |           |  |              |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |   

Domestic selling and marketing.The increase in domestic selling
and marketing expenses from 2001 to 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;                   

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| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | 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 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 2001 to 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 increased at a slower rate than our customer growth rate
in part due to cost savings we realized as a result of
outsourcing many aspects of our customer care function.

Although bad debt expense increased
$5 million from 2001 to 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 enabled us to better screen and monitor the credit quality
and delinquency levels of our customers.

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.

Depreciation
and Amortization.

Consolidated depreciation and amortization.Consolidated depreciation
increased from $1,508 million for 2001 to
$1,541 million for 2002. The $33 million increase in
depreciation reflects a $204 million

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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 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 2001 to 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 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 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 2001 to 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.

|                                                             |  |                       |        |               |  |         |        |         |  |   |       |   |  |  |      |   
|------------------------------------------------------------ |  | --------------------- | ------ | ------------- |  | ------- | ------ | ------- |  | - | ----- | - |  |  | ---- | --
|                                                             |  |                       |        |              
|                                                             |  | Year Ended            |        | Change from  
|                                                             |  | 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    |   |  |  | 100  | % 
|Realized gain on investment                                  |  |                       |       |               |  |         | 47     |         |  |   | (47   | ) |  |  | (100 | )%
|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

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Restructuring and impairment charges.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 4 to the consolidated financial statements
appearing at the end of this annual report on Form 10-K.

Interest expense.Consolidated interest expense
decreased from $1,403 million for 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 2001
to 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 2001 to 4.7% during 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 2001 to 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.

Interest income.Consolidated interest income
decreased from $207 million for 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 2001 to 2002
is primarily due to a general decrease in interest rates as well
as lower average cash and short-term investments balances in
2002.

Gain on retirement of debt.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.

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

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$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.


Equity in losses of unconsolidated
affiliates.The $302 million
equity in losses of unconsolidated affiliates for 2002 includes:



| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $226 million loss representing our share
    through May 2002 of NII Holdings operating results before
    it emerged from bankruptcy; and
|
| |  | a $92 million loss primarily attributable to
    our equity method investment in Nextel Partners; offset by                                  
|
| |  | a $16 million gain representing our share of
    NII Holdings post-emergence results from November to
    December 2002.                    

The $95 million equity in losses of
unconsolidated affiliates for 2001 is primarily due to our
losses attributable to our equity method investment in Nextel
Partners.

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

Realized gain on investment.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.

Income tax (provision) benefit.The increase in the income tax
provision in 2002 is primarily attributable to the adoption of
SFAS No. 142, 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 5 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.

C.     Liquidity and
Capital Resources

As of December 31, 2003, we had total
liquidity of $3.2 billion available to fund our operations
including $2.0 billion of cash, cash equivalents and
short-term investments and $1.2 billion available under the
revolving loan commitment of our bank credit facility. Our
liquidity has declined from December 31, 2002, when we had
total liquidity of $4.1 billion comprised of
$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, primarily
as a result of the purchase and retirement of long-term debt and
preferred stock obligations.

Until the third quarter 2002, total cash used in
investing activities, primarily for capital expenditures and
spectrum acquisitions associated with developing, enhancing and
operating our network, more than offset our cash flows provided
by operating activities. For 2003, total cash provided by
operating activities exceeded cash flows used in investing
activities by $1,251 million as compared to $287 million
for the same period in 2002. Prior to 2003, we had used external
sources of funds, primarily from issuances of debt and equity
securities, to fund capital expenditures, acquisitions and other
nonoperating needs.

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

|                                      |  |                       |        |               |  |         |        |         |  |   |        |   |  |  |      |   
|------------------------------------- |  | --------------------- | ------ | ------------- |  | ------- | ------ | ------- |  | - | ------ | - |  |  | ---- | --
|                                      |  |                       |        |              
|                                      |  | Year Ended            |        | Change from  
|                                      |  | December 31,          |        | Previous Year
|                                      |  |                       |        |              
|                                      |  | 2003                  |        | 2002          |  | Dollars |        | Percent
|                                      |  |                       |        |               |  |         |        |        
|                                      |  |                      
|                                      |  | (dollars in millions)
|Cash provided by operating activities |  | $                     | 3,312  |               |  | $       | 2,523  |         |  | $ | 789    |   |  |  | 31   | % 
|Cash used in investing activities     |  |                       | (2,061 | )             |  |         | (2,236 | )       |  |   | 175    |   |  |  | 8    | % 
|Cash used in financing activities     |  |                       | (2,291 | )             |  |         | (922   | )       |  |   | (1,369 | ) |  |  | (148 | )%

Net cash provided by operating activities for
2003 improved by $789 million over 2002 primarily due to a
$2,241 million increase in cash received from our customers
as a result of growth in our customer base, partially offset by
a $1,305 million increase in cash paid to our suppliers and
employees in order to support the larger customer base and a
$106 million increase in net cash paid for interest as cash
interest on some of our senior discount notes began to accrue in
late 2002 and early 2003.

Net cash used in investing activities for 2003
decreased by $175 million over 2002 due to:



| |   |                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $264 million decrease in cash paid for
    purchases of licenses, acquisitions, investments and other;                                                                                                       
|
| |  | the relinquishment of $250 million of NII
    Holdings cash upon the deconsolidation of NII Holdings in
    2002;                                                                                             
|
| |  | a $246 million increase in proceeds from
    sales of investments, primarily as a result of the sale of NII
    Holdings common stock and the redemption of preferred stock by
    Nextel Partners in 2003; and
|
| |  | a $147 million decrease in cash paid for
    capital expenditures; offset by                                                                                                                                   
|
| |  | a $732 million increase in net cash
    purchases of short-term investments.                                                                                                                                   

Capital expenditures to fund the ongoing
investment in our network continued to represent the largest use
of our funds for investing activities. Cash payments for capital
expenditures totaled $1,716 million for 2003 and
$1,863 million for 2002. Capital expenditures decreased for
2003 as compared to 2002 primarily due to:



| |   |                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the implementation of enhanced processes and
    tools that allow us to more efficiently deploy and utilize
    network assets, which will allow us to defer or avoid capital
    expenditures for additional network assets;
|
| |  | our improved spectrum utilization, which allows
    us to add enhancements to existing transmitter and receiver
    sites rather than building additional sites; and                                                         
|
| |  | technological advances in network equipment,
    which provide us with more capacity at a lower cost; see
     D. Future Capital Needs and
    Resources  Capital Needs  Capital
    expenditures.                      

We expect that our capital expenditures will
increase in 2004 due to the deployment of the 6:1 voice coder
and the implementation of information technology enhancements
and as we improve and expand the geographic coverage of our iDEN
network through the addition of new transmitter and receiver
sites, the implementation of new applications and features such
as WiDEN and the development of dispatch technologies and
services. See  Forward-Looking Statements.

We made cash payments during 2003 totaling
$279 million for licenses, investments and other, including
$201 million related to the acquisition of FCC licenses of
NeoWorld Communications. We made cash payments during 2002
totaling $543 million for acquisitions, licenses,
investments and other, including $111 million for the
assets of Chadmoore Wireless Group, Inc., $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 Communications.

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Net cash used in financing activities of
$2,291 million during 2003 consisted primarily of:



| |   |                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $4,598 million paid for the purchase and
    retirement of some of our senior notes, convertible senior notes
    and our series D and series E preferred stock;                                              
|
| |  | $696 million in net repayments under our
    long-term credit facility;                                                                                                                                       
|
| |  | $98 million for repayments under capital
    lease and finance obligations, including a payment of
    $54 million associated with the early buy-out option under
    one of our capital lease agreements; and
|
| |  | $57 million paid for mandatorily redeemable
    preferred stock dividends; partially offset by                                                                                                                
|
| |  | $2,483 million of net proceeds from the sale
    of newly issued senior notes; and                                                                                                                            
|
| |  | $689 million of net proceeds from the
    issuance of shares of our class A common stock primarily
    under our direct stock purchase plan.                                                                  

Net cash used in financing activities during 2002
consisted primarily of $843 million paid for the purchase and
retirement of some of our senior notes, convertible senior notes
and preferred stock and $100 million for net repayments
under our capital lease and finance obligations and bank credit
facility. We may, from time to time, as we deem appropriate,
purchase more of our outstanding debt securities and mandatorily
redeemable preferred stock, which transactions in the aggregate
may be material.

D.     Future Capital
Needs and Resources

Capital
Resources.

As of December 31, 2003, our capital
resources included $2.0 billion of cash, cash equivalents
and short-term investments and $1.2 billion of the
revolving loan commitment under our credit facility, as
discussed below, resulting in a total amount of liquidity to
fund our operating, investing and financing activities of
$3.2 billion as of December 31, 2003.

Our ongoing capital needs depend on a variety of
factors, including the extent to which we are able to fund the
cash needs of our business from operating activities. Prior to
the third quarter 2002, we were unable to fund our capital
expenditures, spectrum acquisition costs and business
acquisitions with the cash generated by our operating
activities. Therefore, prior to that time, we met the cash needs
of our business principally by raising capital from issuances of
debt and equity securities. To the extent we continue to
generate sufficient cash flow from our operating activities to
fund these investing activities, we will use less of our
available liquidity and will have less of a need to raise
additional capital from the capital markets to fund these types
of expenditures. If, however, our cash flow from operating
activities declines, we may be required to fund our investing
activities by using our available liquidity, to the extent
available, or by raising additional capital from the capital
markets, which may not be available on acceptable terms, if at
all. If we become unable to generate cash flow from our
operating activities, our available liquidity would be
sufficient to fund investing activities for only a limited
period of time. Our ability to generate cash flow from operating
activities is dependent upon, among other things:



| |   |                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the amount of revenue we are able to generate
    from our customers, which in turn is dependent on our ability to
    attract new and retain existing customers;
|
| |  | the cost of acquiring and retaining customers,
    including the subsidies we incur to provide handsets to both our
    new and existing customers;              
|
| |  | the amount of operating expenses required to
    provide our services; and                                                                                       
|
| |  | the amount of non-operating expenses required to
    operate our company, consisting primarily of interest expense.                                              

As of December 31, 2003, our bank credit
facility provided for total secured financing capacity of up to
$5 billion, subject to the satisfaction or waiver of
applicable borrowing conditions, representing a reduction in the
total financing capacity from $6 billion at
December 31, 2002 as a result of scheduled

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reductions in capacity and the prepayments
described below. As of December 31, 2003, this facility
consisted of a $1.3 billion revolving loan commitment, of
which $116 million has been borrowed, and $3.7 billion
in two classes of term loans, all of which has been borrowed.


In October 2003, we amended our credit facility
to:



| |   |                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increase the amount of revolving loans that may
    be used to support letters of credit from $150 million to
    $750 million to provide for the potential letters of credit
    associated with our relocation commitment under the Consensus
    Plan; and
|
| |  | obtain the ability to prepay outstanding
    principal amounts under any class of term loan without
    concurrently being required to prepay outstanding principal
    amounts of other classes of term loans, as was required prior to
    the amendment.  

In December 2003, we reduced the principal amount
of outstanding term loans under our credit facility by
$574 million by prepaying $2.8 billion of term loans
under that facility with cash on hand and the proceeds from the
syndication of a new $2.2 billion term loan under that
facility that matures in December 2010. At the same time, we
amended the facility to permit us at some future time to
establish one or more series of incremental revolving loan
commitments that would replace the existing revolving loan
commitment as it is reduced or terminated, and to include a
prospective consent of the lenders to certain possible future
extensions of the existing revolving credit commitments.

The term loans mature on December 31, 2007
and December 15, 2010. On March 31, 2004, the amount of the
revolving loan commitment available to us will be reduced by
$38 million and such reductions will increase to
$75 million every quarter beginning April 1, 2004 and
continuing through March 31, 2005. Starting April 1,
2005, the reductions become more significant until 2007 when no
amounts will be available under the revolving 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.
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. We are also
obligated to repay the loans if certain change of control events
occur. As of December 31, 2003, we were in compliance with
all financial ratio tests under our credit facility and we
expect to remain in full compliance with these ratio tests for
the foreseeable future. See  Forward-Looking
Statements. Borrowings under the credit facility are
secured by liens on substantially all of our assets, and are
guaranteed by us and substantially all of our subsidiaries.
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 borrow 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, 2003,
the applicable provisions of our senior notes and mandatorily
redeemable preferred stock did not restrict our ability, and we
had satisfied the conditions under this facility, to borrow
substantially all of the remaining $1.2 billion revolving
credit commitment that is currently available.

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

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##### Table of Contents



In addition to the retirements under our credit
facility described above, from April 1, 2002 to
December 31, 2003, we purchased and retired about
$8,167 million in principal amount of our senior notes and
convertible notes and in face amount of our preferred stock. We
expect annualized interest and dividend savings from these
senior and convertible note, preferred stock and credit facility
redemptions and retirements, net of additional interest
resulting from the newly issued 7.375% and 6.875% senior notes
and the new term loan under the credit facility all incurred in
2003, of about $669 million for the next several years. See
 Future contractual obligations for
further information about future cash payments related to our
long-term debt and preferred securities. We may, from time to
time, as we deem appropriate, enter into additional refinancing
and similar transactions, including exchanges of our common
stock or other securities for our debt and other long-term
obligations and redemption, repurchase or retirement
transactions that in the aggregate may be material.

For the years subsequent to December 31,
2003, scheduled annual maturities of long-term debt, including
our bank credit facility, capital lease and finance obligations
outstanding as of December 31, 2003 are as follows:

|                        |  |               |        |             |  |       |     |  |  |   |        | 
|----------------------- |  | ------------- | ------ | ----------- |  | ----- | --- |  |  | - | ------ | 
|                        |  |               |        | Capital     |  |      
|                        |  |               |        | Lease and   |  |      
|                        |  | Long-Term     |        | Finance     |  |      
|                        |  | Debt          |        | Obligations |  | Total
|                        |  |               |        |             |  |      
|                        |  |              
|                        |  | (in millions)
|2004                    |  | $             | 321    |             |  | $     | 166 |  |  | $ | 487    | 
|2005                    |  |               | 427    |             |  |       | 1   |  |  |   | 428    | 
|2006                    |  |               | 461    |             |  |       | 1   |  |  |   | 462    | 
|2007                    |  |               | 499    |             |  |       | 7   |  |  |   | 506    | 
|2008                    |  |               | 22     |             |  |       |    |  |  |   | 22     | 
|Thereafter              |  |               | 8,263  |             |  |       |    |  |  |   | 8,263  | 
|                        |  |               |        |             |  |       |     |  |  |   |        | 
|                        |  |               | 9,993  |             |  |       | 175 |  |  |   | 10,168 | 
|Add unamortized premium |  |               | 8      |             |  |       |    |  |  |   | 8      | 
|Add deferred premium    |  |               | 36     |             |  |       |    |  |  |   | 36     | 
|                        |  |               |        |             |  |       |     |  |  |   |        | 
|                        |  | $             | 10,037 |             |  | $     | 175 |  |  | $ | 10,212 | 
|                        |  |               |        |             |  |       |     |  |  |   |        | 

Capital
Needs.

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



| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | operating expenses relating to our network;                                                                                                                                                                                            
|
| |  | capital expenditures, as discussed immediately
    below under  Capital expenditures;                                                                                                                                               
|
| |  | future investments, including the purchase of
    certain MMDS FCC licenses and related assets, other potential
    spectrum purchases and investments in new business opportunities;                                                  
|
| |  | potential payments in connection with the
    Consensus Plan relating to the proposed public safety spectrum
    realignment (see Part I, Item 1. Business 
    K. Regulation  2. Proposed public safety spectrum
    realignment);
|
| |  | scheduled principal and interest payments related
    to our long-term debt and any amounts that we choose to redeem;                                                                                                                  
|
| |  | potential material increases in the cost of
    compliance with regulatory mandates (see Part I, Item
    1. Business  K. Regulation); and                                                                                          
|
| |  | other general corporate expenditures including
    the potential of becoming a full taxpayer in the next few years.                                                                                                                    

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Capital expenditures.Our capital expenditures during
2003 totaled $1,716 million, including capitalized interest. In
the future, we expect our capital spending to be driven by
several factors including:



| |   |                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the purchase and construction of additional
    transmitter, receiver sites and related switching equipment to
    enhance our networks geographic coverage and to maintain
    our network quality;
|
| |  | the enhancements to our existing iDEN technology
    to increase data speed and voice capacity;                                                                                                      
|
| |  | any potential future enhancement of our network
    through the deployment of next generation technologies; and                                                                                      
|
| |  | capital expenditures required to support our back
    office operations and additional Nextel stores.                                                                                                

Our future capital expenditures are affected by
future technology improvements and technology choices. In
October 2003, we began deploying the 6:1 voice coder that is
designed to allow us to more efficiently use our spectrum and
reduce our network capital expenditures. Because the network
efficiencies relating to the 6:1 voice coder are dependent on
use of handsets operating in the 6:1 mode, our plans assume that
the realization of the capacity and related financial benefits
is timed to coincide with the deployment and use of those
handsets. It is our expectation that most of these benefits will
not begin to be realized until after 2004. If there are
substantial delays in the deployment of handsets operating in
the 6:1 mode, those benefits would also be delayed and our
capital expenditures could increase in order to meet our network
capacity needs. See Part I, Item 1. Business  E. Our
Network and Technology  3. Our technology plans and
 Forward-Looking Statements. Development
of technology enhancements like the 6:1 voice coder would allow
us to reduce the amount of capital expenditures we would need to
make for our network voice capacity in future years. However,
any anticipated reductions in capital expenditures could be
offset to the extent we incur additional capital expenditures to
deploy next generation technologies. We will deploy a next
generation technology only when deployment is warranted by
expected customer demand and when the anticipated benefits of
services requiring this technology outweigh the costs of
providing those services.

Future contractual obligations.The following table sets forth our
best estimates as to the amounts and timing of contractual
payments for our most significant contractual obligations as of
December 31, 2003. The information in the table reflects
future unconditional payments and is based upon, among other
things, the terms of the relevant agreements, appropriate
classification of items under generally accepted accounting
principles currently in effect and certain assumptions, such as
future interest rates. Future events, including additional
purchases of our securities and refinancing of those securities,
could cause actual payments to differ significantly from these
amounts. See  Forward-Looking Statements.

|                                      |  |               |        |      |  |      |       |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|------------------------------------- |  | ------------- | ------ | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---------- | ----- |  |  | - | ----- |  |  | - | ----- |  |  | - | ------ | 
|Future                                |  |               |        |      |  |      |       |      |  |      |       |      |  | 2009 and  
|Contractual Obligations               |  | Total         |        | 2004 |  | 2005 |       | 2006 |  | 2007 |       | 2008 |  | Thereafter
|                                      |  |               |        |      |  |      |       |      |  |      |       |      |  |           
|                                      |  |              
|                                      |  | (in millions)
|Public senior notes                   |  | $             | 10,219 |      |  | $    | 482   |      |  | $    | 482   |      |  | $          | 482   |  |  | $ | 482   |  |  | $ | 482   |  |  | $ | 7,809  | 
|Bank credit facility(1)               |  |               | 4,961  |      |  |      | 444   |      |  |      | 596   |      |  |            | 629   |  |  |   | 684   |  |  |   | 187   |  |  |   | 2,421  | 
|Capital lease and finance obligations |  |               | 213    |      |  |      | 204   |      |  |      | 1     |      |  |            | 1     |  |  |   | 7     |  |  |   |      |  |  |   |       | 
|Preferred stock cash payments         |  |               | 245    |      |  |      |      |      |  |      |      |      |  |            |      |  |  |   |      |  |  |   |      |  |  |   | 245    | 
|Operating leases                      |  |               | 1,575  |      |  |      | 442   |      |  |      | 380   |      |  |            | 268   |  |  |   | 188   |  |  |   | 110   |  |  |   | 187    | 
|Purchase obligations and other        |  |               | 2,455  |      |  |      | 685   |      |  |      | 468   |      |  |            | 405   |  |  |   | 256   |  |  |   | 221   |  |  |   | 420    | 
|                                      |  |               |        |      |  |      |       |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|Total                                 |  | $             | 19,668 |      |  | $    | 2,257 |      |  | $    | 1,927 |      |  | $          | 1,785 |  |  | $ | 1,617 |  |  | $ | 1,000 |  |  | $ | 11,082 | 
|                                      |  |               |        |      |  |      |       |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 



---



|    |                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

In addition, we have less than $1.5 billion
of open purchase orders for goods or services as of
December 31, 2003 that are enforceable and legally binding
and that specify all significant terms, but are not recorded as
liabilities as of December 31, 2003. We expect these commitments
to become due in 2004. The above table excludes amounts that may
be paid or will be paid in connection with spectrum

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acquisitions. We have committed, subject to
certain conditions which may not be met, to pay up to about
$334 million for spectrum leasing agreements and
acquisitions, including about $195 million for the pending
acquisition of certain MMDS FCC licenses, interests in certain
MMDS FCC licenses and other network assets of WorldCom and
Nucentrix, entered into and outstanding as of December 31,
2003. Included in the Purchase obligations and other
caption are minimum amounts due under some of our most
significant service contracts, including agreements for
telecommunications and customer billing services, advertising
services and contracts related to our information and technology
and customer care outsourcing arrangements. Amounts actually
paid under some of these Other agreements will
likely be higher due to variable components of these agreements.
The more significant variable components that determine the
ultimate obligation owed include items such as hours contracted,
subscribers, interest rates and other factors. In addition, we
are party to various arrangements that are conditional in nature
and obligate us to make payments only upon the occurrence of
certain events, such as the delivery of functioning software or
products. Because it is not possible to predict the timing or
amounts that may be due under these conditional arrangements, no
such 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 13 of the
consolidated financial statements appearing at the end of this
annual report on Form 10-K for amounts paid to Motorola in
2003.


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

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



| |   |                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (i) we elect to cease using iDEN technology
    on a nationwide basis; (ii) this technology 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;
|
| |  | we elect to terminate the relationship with
    Nextel Partners because of its breach of the operating
    agreements;                                                                                                                                                                                                                                           
|
| |  | we experience a change of control;                                                                                                                                                                                                                                                                                                                               
|
| |  | we breach the operating agreements; or                                                                                                                                                                                                                                                                                                                           
|
| |  | 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 a breach by Nextel Partners, the
    purchase price could involve a discount based on a pricing
    formula.   

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 that a buyer would be willing to
    pay for all of Nextel Partners outstanding capital stock
    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.

Future outlook.Since the third quarter 2002, our
total cash flows provided by operating activities have exceeded
our total cash flows used in investing and financing activities.
We expect to fund our capital needs for at least the next twelve
months by using our anticipated cash flows from operating
activities. See  Forward-Looking
Statements.

In making this assessment, we have considered:



| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | the anticipated level of capital expenditures;                                                                
|
| |  | our scheduled debt service requirements;                                                                      
|
| |  | consummation of existing agreements to purchase
    spectrum, including those with WorldCom and Nucentrix; and
|
| |  | other future contractual obligations.                                                                         

Additionally, we have the ability to use existing
cash, cash equivalents and short-term investments on hand and
available of $2.0 billion as of December 31, 2003, or
drawdown on the available revolving loan commitment under our
credit facility of about $1.2 billion as of
December 31, 2003 to fund our capital needs.

If our business plans change, including as a
result of changes in technology, or if economic conditions in
any of our markets generally or competitive practices in the
mobile wireless telecommunications industry change materially
from those currently prevailing or from those now anticipated,
or if other presently unexpected circumstances arise that have a
material effect on the cash flow or profitability of our mobile
wireless business, the anticipated cash needs of our business
could change significantly.

Our above conclusion that we will be able to fund
our capital requirements for at least the next twelve months by
using cash generated from operations does not take into account:



| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the impact of our participation in any future
    auctions for the purchase of significant amounts 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 or
    redemptions of our outstanding debt securities and preferred
    stock for cash;                              
|
| |  | potential material increases in the cost of
    compliance with regulatory mandates (see Part I,
    Item 1. Business  K. Regulation); and                
|
| |  | potential payments in connection with the
    FCCs action on the Consensus Plan.                                                                            

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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. 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 in the past 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 Part I,
Item 1. Business  M. Risk Factors.

E.     Related Party
Transactions.

Motorola.As
of February 27, 2004, 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
provider of the iDEN infrastructure equipment and all the
handsets except the BlackBerry devices. We paid Motorola
$2,155 million during 2003 for these goods and services and
net payables to Motorola were $230 million at
December 31, 2003. We also work closely with Motorola to
improve existing products and develop new technologies for use
in our network. We rely on Motorola for network maintenance and
enhancements. Additional information can be found in
note 13 of the consolidated financial statements at the end
of this annual report on Form 10-K. See Part I,
Item 1. Business  E. Our Network and
Technology and  J. Our Strategic
Relationships  1. Motorola.

Nextel Partners.In January 1999, we entered into
agreements with Nextel Partners, and other parties, including
Motorola, relating to the formation, 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. Additional information can be found in
note 3 of the consolidated financial statements at the end
of this annual report on Form 10-K. See
 D. Future Capital Needs and
Resources  Future contractual obligations.

During 2003, we received $15 million for the
sale of FCC licenses and network assets to Nextel Partners.
Additionally, Nextel Partners completed an offering of its
common stock and as a result, we recorded an increase of
$5 million in paid-in capital in our stockholders
equity. As a result, as of December 31, 2003, we owned
about 30% of the outstanding common stock of Nextel Partners. In
November 2003, Nextel Partners redeemed its 12% nonvoting
mandatorily redeemable preferred stock that we held for
$39 million. As our investment in Nextel Partners was
written down to zero during the second quarter 2003 through the
application of the equity method of accounting, we recorded a
gain of $39 million.

Under our roaming agreement with Nextel Partners,
we were charged $51 million during 2003 for our customers
roaming on Nextel Partners network, net of roaming
revenues earned. We also provide telecommunications switching
services to Nextel Partners under a switch sharing agreement.
For these services, we earned $44 million in 2003, which we
recorded as a reduction to cost of service. We also charged
Nextel Partners $11 million in 2003 for administrative
services provided under a services agreement. We recorded these
amounts as a reduction to selling, general and administrative
expenses. We earned $4 million in 2003 in royalty fees,
which we recorded as other income (expense). We have a net
receivable due from Nextel Partners of $16 million as of
December 31, 2003.

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As of December 31, 2003, Mr. Donahue
and Mr. Weibling were directors of Nextel Partners. See
Part I, Item 1. Business  J. Our
Strategic Relationships  2. Nextel Partners.

NII Holdings.NII Holdings provides wireless
communications services using iDEN technology primarily in
selected Latin American markets. In November 2002, NII Holdings,
which prior to that time was our substantially wholly-owned
subsidiary, completed its reorganization under Chapter 11
of the U.S. Bankruptcy Code, having filed a voluntary petition
for reorganization in May 2002 in the United States Bankruptcy
Court for the District of Delaware, after it and one of its
subsidiaries defaulted on credit and vendor finance facilities.

As a result of the completion 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 under the terms of NII
Holdings plan of reorganization. These extinguishments
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, some of which was
provided by existing creditors including us, in exchange for a
new series of 13% senior secured discount notes of NII Holdings
and shares of NII Holdings new class A common stock. We
contributed about $51 million in cash 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. 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 under the terms of NII Holdings plan of
reorganization, in satisfaction of the outstanding debt
obligations of NII holdings that we held prior to the bankruptcy
filing. We also provided $50 million of additional funding
to NII Holdings in exchange for a U.S.-Mexico cross border
spectrum sharing arrangement. In 2003, NII Holdings fulfilled
its network construction obligation pursuant to this arrangement.

Upon NII Holdings emergence from bankruptcy
in November 2002, 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,
under which we recorded our proportionate share of NII
Holdings results of operations.

During the third quarter 2003, NII Holdings
completed a public offering of its common stock and as a result,
we recorded an increase of $17 million in paid-in capital
in our stockholders equity. Also, in November 2003, we
sold 3.0 million shares of NII Holdings common stock, which
generated $209 million in net proceeds and a gain of
$174 million. As a result, as of December 31, 2003, we
owned about 18% of the outstanding common stock of NII Holdings,
and now account for our interest in NII Holdings as an
available-for-sale cost method investment. In addition, in
February 2004, we tendered our $66 million of the NII
Holdings 13% senior notes to NII Holdings in exchange for
$77 million in cash. As of December 31, 2003, we have
no future funding commitment to 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. Under roaming
agreements with NII Holdings, we were charged
$7 million during 2003 for our customers roaming on
NII Holdings network, net of roaming revenues earned.
We have a net receivable due from NII Holdings of
$1 million as of December 31, 2003.

Mr. Donahue was a director of NII Holdings
until March 2004. See Part I, Item 1.
Business  J. Our Strategic
Relationships  3. NII Holdings.

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Our Related Party TransactionsOne of our directors is chairman
of the board and chief executive officer of CommScope, Inc. We
paid CommScope $4 million during 2003 for coaxial cables
and related equipment for our transmitter and receiver sites. We
had amounts payable to CommScope outstanding of less than
$1 million at December 31, 2003. One of our executive
officers was a member of the board of directors of RadioFrame
Networks, Inc. through December 31, 2003. We paid
RadioFrame $9 million during 2003 for network equipment and
software. We had amounts payable to RadioFrame outstanding of
about $1 million as of December 31, 2003.

F.     Effect of
Inflation.

Inflation is not a material factor affecting our
domestic business. General operating expenses such as salaries,
employee benefits, utilities 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.

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, credit facilities,
mandatorily redeemable preferred stock and issuances of common
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 London Interbank
Offered Rate, or LIBOR, and U.S. prime and Eurodollar rates,
which are used to determine the interest rates applicable to our
borrowings under our bank credit facility. 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. From time to time, 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, 2003, we
did not have any derivative instruments. Additional information
regarding our historical derivative transactions can be found in
note 8 to the condensed consolidated financial statements.

As of December 31, 2003, we held
$1.2 billion of short-term investments and
$0.8 billion of cash and cash equivalents primarily
consisting of investment grade commercial paper, government
securities and money market deposits. Our primary interest rate
risk on these short-term investments and cash and cash
equivalents results from changes in short-term (less than six
months) interest rates. However, this risk is largely offset by
the fact that interest on our bank credit facility borrowings is
variable and is reset over periods of less than six months.

As of December 31, 2003, the fair value of
our investment in NII Holdings 13% senior secured notes,
which was determined based on quoted market prices of the notes,
totaled $67 million. This investment is

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reported at its fair value in our financial
statements. In February 2004, we tendered our NII Holdings 13%
senior notes to NII Holdings in exchange for $77 million in
cash.


The table below summarizes our remaining market
risks as of December 31, 2003 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 credit facility,
capital lease and finance obligations and mandatorily redeemable
preferred stock in effect at December 31, 2003. In the case
of the mandatorily redeemable preferred stock and senior notes,
the table excludes the potential exercise of the relevant
redemption or conversion features. Fair values included in this
section have been determined based on:



| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | quoted market prices for senior notes, loans
    under our bank credit facility and mandatorily redeemable
    preferred stock; and          
|
| |  | present value of future cash flows for capital
    lease and finance obligations using a discount rate available
    for similar obligations.

Notes 6, 7 and 8 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 notes, bank credit
facility, 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      |     | 2003 |  | 2002
|                                                                                                         |  |                       |     |      |  |     
|                                                                                                         |  |                       |     |      |  | Fair |     |      |  | Fair
|                                                                                                         |  | 2004                  |     | 2005 |  | 2006 |     | 2007 |  | 2008 |     | Thereafter |  | Total |     | Value |  | Total |    | Value
|                                                                                                         |  |                       |     |      |  |      |     |      |  |      |     |            |  |       |     |       |  |       |    |      
|                                                                                                         |  |                      
|                                                                                                         |  | (dollars in millions)
|Interest Rate Sensitivity                                                                                |  |                       |     |      |  |      |     |      |  |      |     |            |  |       |     |       |  |       |    |       |  |   |       |   |  |   |       |   |  |   |       |  |  |   |       |   |  |   |       |  
|Mandatorily Redeemable Preferred Stock,
    Long-term Debt and Capital Lease and Finance
    Obligations |  |                       |     |      |  |      |     |      |  |      |     |            |  |       |     |       |  |       |    |       |  |   |       |   |  |   |       |   |  |   |       |  |  |   |       |   |  |   |       |  
|Fixed Rate                                                                                               |  | $                     | 166 |      |  | $    | 1   |      |  | $    | 1   |            |  | $     | 7   |       |  | $     |   |       |  | $ | 6,418 |   |  | $ | 6,593 |   |  | $ | 7,119 |  |  | $ | 9,170 |   |  | $ | 8,140 |  
|Average Interest Rate                                                                                    |  |                       | 10  | %    |  |      | 8   | %    |  |      | 8   | %          |  |       | 8   | %     |  |       |   |       |  |   | 8     | % |  |   | 8     | % |  |   |       |  |  |   | 9     | % |  |   |       |  
|Variable Rate                                                                                            |  | $                     | 321 |      |  | $    | 427 |      |  | $    | 461 |            |  | $     | 499 |       |  | $     | 22 |       |  | $ | 2,090 |   |  | $ | 3,820 |   |  | $ | 3,813 |  |  | $ | 4,517 |   |  | $ | 4,085 |  
|Average Interest Rate                                                                                    |  |                       | 3   | %    |  |      | 3   | %    |  |      | 3   | %          |  |       | 3   | %     |  |       | 3  | %     |  |   | 3     | % |  |   | 3     | % |  |   |       |  |  |   | 4     | % |  |   |       |  
|Interest Rate Swaps                                                                                      |  |                       |     |      |  |      |     |      |  |      |     |            |  |       |     |       |  |       |    |       |  |   |       |   |  |   |       |   |  |   |       |  |  |   |       |   |  |   |       |  
|Variable to Fixed                                                                                        |  | $                     |    |      |  | $    |    |      |  | $    |    |            |  | $     |    |       |  | $     |   |       |  | $ |      |   |  | $ |      |   |  | $ |      |  |  | $ | 570   |   |  | $ | (112  | )
|Available Pay Rate                                                                                       |  |                       |    |      |  |      |    |      |  |      |    |            |  |       |    |       |  |       |   |       |  |   |      |   |  |   |      |   |  |   |      |  |  |   | 8     | % |  |   |       |  
|Average Receive Rate                                                                                     |  |                       |    |      |  |      |    |      |  |      |    |            |  |       |    |       |  |       |   |       |  |   |      |   |  |   |      |   |  |   |      |  |  |   | 2     | % |  |   |       |  
|Variable to Variable                                                                                     |  | $                     |    |      |  | $    |    |      |  | $    |    |            |  | $     |    |       |  | $     |   |       |  | $ |      |   |  | $ |      |   |  | $ |      |  |  | $ | 400   |   |  | $ | (3    | )
|Average Pay Rate                                                                                         |  |                       |    |      |  |      |    |      |  |      |    |            |  |       |    |       |  |       |   |       |  |   |      |   |  |   |      |   |  |   |      |  |  |   | 5     | % |  |   |       |  
|Average Receive Rate                                                                                     |  |                       |    |      |  |      |    |      |  |      |    |            |  |       |    |       |  |       |   |       |  |   |      |   |  |   |      |   |  |   |      |  |  |   | 1     | % |  |   |       |  
|Fixed to Variable                                                                                        |  | $                     |    |      |  | $    |    |      |  | $    |    |            |  | $     |    |       |  | $     |   |       |  | $ |      |   |  | $ |      |   |  | $ |      |  |  | $ | 500   |   |  | $ | 74    |  
|Average Pay Rate                                                                                         |  |                       |    |      |  |      |    |      |  |      |    |            |  |       |    |       |  |       |   |       |  |   |      |   |  |   |      |   |  |   |      |  |  |   | 5     | % |  |   |       |  
|Average Receive Rate                                                                                     |  |                       |    |      |  |      |    |      |  |      |    |            |  |       |    |       |  |       |   |       |  |   |      |   |  |   |      |   |  |   |      |  |  |   | 10    | % |  |   |       |  




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.

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

None.




Item 9A.     Controls
and Procedures.

We maintain a set of disclosure controls and
procedures that are designed to ensure that information relating
to Nextel Communications, Inc. (including its 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. 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 were effective as of
December 31, 2003. There have been no changes in our
internal control over financial reporting that occurred during
the quarter ended December 31, 2003 that have materially
affected, or are reasonably likely to materially affect,
Nextels internal control over financial reporting.




PART III






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

The information required by this item 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 2004 annual meeting of
stockholders, which will be filed with the Securities and
Exchange Commission. The information required by this item
regarding our executive officers is incorporated by reference to
Part I of this report under the caption Executive
Officers of the Registrant. The information required by
this item regarding compliance with Section 16(a) of the
Securities 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 2004 annual meeting of stockholders, which will be filed
with the Securities and Exchange Commission.

We have adopted the Nextel Communications, Inc.
Code of Corporate Conduct, which applies to all of our
directors, officers and employees. The Code of Corporate Conduct
is publicly available on our website at http://www.nextel.com in
the Corporate Governance section of the About
Nextel tab. If we make any amendment to our Code of
Corporate Conduct, other than a technical, administrative or
non-substantive amendment, or we grant any waiver, including any
implicit waiver, from a provision of the Code of Corporate
Conduct, that applies to our principal executive officer,
principal financial officer, principal accounting officer or
controller, we will disclose the nature of the amendment or
waiver on our website at the same location. Also, we may elect
to disclose the amendment or waiver in a report on Form 8-K
filed with the Securities and Exchange Commission.






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

The information required by this item 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,
Election of Directors  Director
Compensation, and Executive Compensation in
our proxy statement relating to our 2004 annual meeting of
stockholders, which will be filed with the Securities and
Exchange Commission.

74



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##### Table of Contents








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

The information required by this item is
incorporated by reference to Part II, Item 5.
Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities  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 2004 annual meeting of stockholders,
which will be filed with the Securities and Exchange Commission.






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

The 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 2004
annual meeting of stockholders, which will be filed with the
Securities and Exchange Commission.






|         |                                            
|-------- | -------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services.

The information required by this item is
incorporated by reference to the information set forth under the
caption Proposal 2  Ratification of
Appointment of Deloitte & Touche, LLP as Independent
Auditors for 2004 in our proxy statement relating to our
2004 annual meeting of stockholders, which will be filed with
the Securities and Exchange Commission.

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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, 2003 and 2002                                                        |  |      | F-3 | 
|Consolidated Statements of Operations for the
    Years Ended December 31, 2003, 2002 and 2001                          |  |      | F-4 | 
|Consolidated Statements of Changes in
    Stockholders Equity for the Years Ended December 31,
    2003, 2002 and 2001 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2003, 2002 and 2001                          |  |      | 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-45 | 
|Schedule II  Valuation and
    Qualifying Accounts            |  |  | F-50 | 



| |     |                                                                                                                           
| | --- | --------------------------------------------------------------------------------------------------------------------------
| | (3) | List of Exhibits: The exhibits filed as part of
    this report are listed in the Exhibit Index, beginning on
    page 78.

(b) Reports on Form 8-K:



| |     |                                                                                                                                                                                                                                                                                 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Current Report on Form 8-K dated and filed
    with the Commission on October 16, 2003, reporting under
    Item 5 our financial results and other data, and furnishing
    under Item 9 the foregoing and additional information, for
    the quarter ended September 30, 2003.
|
| | (2) | Current Report on Form 8-K dated and filed
    with the Commission on October 20, 2003, reporting under
    Item 5, the filing of the Underwriting Agreement, dated as
    of October 16, 2003, and an opinion of counsel relating to
    our 6.875% senior notes.              

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SIGNATURES

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



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



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

| | 
| | 
| | 

March 11, 2004


| |                                                         
| | --------------------------------------------------------
| | 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 below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                                                 |  |                                                                                        |  |                |  | 
|------------------------------------------------ |  | -------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                        |  | Title                                                                                  |  | Date          
|                                                 |  |                                                                                        |  |               
|                                                
|/s/ WILLIAM E. CONWAY, JR.William E. Conway, Jr. |  | Chairman of the Board of Directors                                                     |  | March 11, 2004
|                                                
|/s/ TIMOTHY M. DONAHUETimothy M. Donahue         |  | President, Chief Executive Officer and Director                                        |  | March 11, 2004
|                                                
|/s/ PAUL N. SALEHPaul N. Saleh                   |  | Executive Vice President and Chief Financial
    Officer (principal financial officer) |  | March 11, 2004
|                                                
|/s/ WILLIAM G. ARENDTWilliam G. Arendt           |  | Senior Vice President and Controller (principal
    accounting officer)                |  | March 11, 2004
|                                                
|Morgan E. OBrien                                |  | Vice Chairman of the Board                                                             |  | March   , 2004
|                                                
|/s/ KEITH J. BANEKeith J. Bane                   |  | Director                                                                               |  | March 11, 2004
|                                                
|/s/ FRANK M. DRENDELFrank M. Drendel             |  | Director                                                                               |  | March 11, 2004
|                                                
|/s/ V. JANET HILLV. Janet Hill                   |  | Director                                                                               |  | March 11, 2004
|                                                
|/s/ WILLIAM E. KENNARDWilliam E. Kennard         |  | Director                                                                               |  | March 11, 2004
|                                                
|/s/ STEPHANIE M. SHERNStephanie M. Shern         |  | Director                                                                               |  | March 11, 2004
|                                                
|/s/ DENNIS M. WEIBLINGDennis M. Weibling         |  | Director                                                                               |  | March 11, 2004

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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 |  |  | Amended Certificate of
        Incorporation of Nextel.                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 3.1.2 |  |  | Certificate Eliminating
        Reference to Series D and Series E Exchangeable Preferred Stock
        from the Certificate of Incorporation of Nextel.                                                                                                                                                                                                                                                                                                                                    
|        | 3.1.3 |  |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 4.1   |  |  | 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).                                                                               
|        | 4.2   |  |  | 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).                                                                                                                                                                 
|        | 4.3   |  |  | 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).                                                                                                                                                                          
|        | 4.4   |  |  | 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).                                                                                                                                                                             
|        | 4.5.1 |  |  | Indenture, dated as of
        July 31, 2003, between Nextel Communications, Inc. and BNY Midwest
        Trust Company, as Trustee (filed August 8, 2003 as Exhibit 4.1
        to Nextels quarterly report on Form 10-Q for the quarter ended
        June 30, 2003 (the 2003 Second Quarter 10-Q) and incorporated
        herein by reference).                                                                                                                                      
|        | 4.5.2 |  |  | Form of Series A 7.375%
        senior serial redeemable note due 2015 (filed August 8, 2003 as Exhibit 4.2
        to the 2003 Second Quarter 10-Q and incorporated herein by reference).                                                                                                                                                                                                                                                                                                  
|        | 4.5.3 |  |  | Form of Series B 6.875%
        senior serial redeemable note due 2013 (filed November 10, 2003 as Exhibit 4
        to Nextels quarterly report on Form 10-Q for the quarter ended
        September 30, 2003 and incorporated herein by reference).                                                                                                                                                                                                                                      
|        | 4.6.1 |  |  | 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).                                                  
|        | 4.6.2 |  |  | 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).

78



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|        |         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------- | ------- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         | 
|Number  |         | 
|        |         | 
|        | 4.6.3   |  |  | 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).                         
|        | 4.6.4   |  |  | Amendment No. 3 dated
        October 29, 2003 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,
        and Toronto Dominion (Texas), as Administrative Agent.                                                                                                                                                                                                                                                        
|        | 4.6.5   |  |  | Amendment No. 4 dated
        December 3, 2003 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,
        and Toronto Dominion (Texas), as Administrative Agent.                                                                                                                                                                                                                                                        
|        | 4.6.6   |  |  | Tranche E Term Loan Agreement
        dated December 3, 2003 among Nextel, Nextel Finance Company, the
        other Restricted Companies party thereto, the Lenders Party thereto, Toronto
        Dominion (Texas), as Administrative Agent, and JPMorgan Chase Bank, formerly
        known as The Chase Manhattan Bank as Collateral Agent.                                                                                                                                                                                                                                      
|        | 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).
|        | 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).                                                                                                                                                                                                                                                    

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|        |          |  |  |                                                                                                                                                                                                                                                                                                                                                                                        
|------- | -------- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          | 
|Number  |          | 
|        |          | 
|        | 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).                                                          
|        | 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   |  |  | 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).                                                                            
|        | 10.4.2   |  |  | 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).                                                                           
|        | 10.4.3   |  |  | 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).                                                                                                                                        
|        | 10.4.4   |  |  | 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).                                                                                                                                         

80



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|        |          |  |  |                                                                                                                                                                                                                                                                                                                   
|------- | -------- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          | 
|Number  |          | 
|        |          | 
|        | 10.4.5   |  |  | 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).                                                                                 
|        | 10.5.1   |  |  | 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).                                                                                 
|        | 10.6.1** |  |  | 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).                             
|        | 10.6.2** |  |  | 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).                                                                                 
|        | 10.6.3** |  |  | 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).                                                                                                   
|        | 10.6.4** |  |  | 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).                                                                                                              
|        | 10.6.5** |  |  | 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).                                                                                                        
|        | 10.6.6** |  |  | 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).                                      
|        | 10.6.7** |  |  | 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 and incorporated herein by reference).
|        | 10.6.8** |  |  | Nextel Communications,
        Inc. 2002/2003 Long-Term Incentive Plan (filed March 27, 2003 as
        Exhibit 10.19 to Nextels annual report on Form 10-K for
        the year ended December 31, 2002 (the 2002 Form 10-K)
        and incorporated herein by reference).                                   
|        | 10.6.9** |  |  | Nextel Communications,
        Inc. 2004/2005 Long-Term Incentive Plan.                                                                                                                                                                                                                                           
|        | 10.7.1** |  |  | Employment Agreement, effective
        as of July 1, 2003, by and between Nextel Communications, Inc. and
        Timothy M. Donahue (filed August 8, 2003 as Exhibit 10.1 to the 2003
        Second Quarter 10-Q and incorporated herein by reference)                                                         
|        | 10.7.2** |  |  | 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).                                                      
|        | 10.7.3** |  |  | Employment Agreement, dated
        as of January 1, 2001, between Leonard J. Kennedy and Nextel (filed
        March 27, 2003 as Exhibit 10.24 to the 2002 Form 10-K and
        incorporated herein by reference).                                                                                              
|        | 10.7.4** |  |  | Resignation and Non-Competition
        Agreement, dated November 11, 2003, between Morgan E. OBrien
        and Nextel.                                                                                                                                                                                         
|        | 10.8.1   |  |  | 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).                           

81



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##### Table of Contents



|        |         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | ------- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         | 
|Number  |         | 
|        |         | 
|        | 10.8.2  |  |  | 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).
|        | 10.8.3  |  |  | 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).                                                                                                                      
|        | 10.8.4  |  |  | 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).                                                                                                                                   
|        | 10.8.5  |  |  | 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).                                                                                                                                   
|        | 10.8.6  |  |  | 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).                                                                                                                               
|        | 10.8.7  |  |  | Amendment No. 5 dated
        June 13, 2002 to the Nextel Partners Shareholders Agreement (filed
        by Nextel Partners on May 13, 2003 as Exhibit 10.2(e) to Nextel
        Partners quarterly report on Form 10-Q for the quarterly period ended
        March 31, 2003 (the Nextel Partners 2003 First Quarter Form 10-Q)).                                                            
|        | 10.8.8  |  |  | Amendment No. 6 dated
        July 24, 2002 to the Nextel Partners Shareholders Agreement (filed by
        Nextel Partners on May 13, 2003 as Exhibit 10.2(f) to the Nextel
        Partners 2003 First Quarter Form 10-Q).                                                                                                                                                                    
|        | 10.8.9  |  |  | Amendment No. 7 dated
        October 18, 2002 to the Nextel Partners Shareholders Agreement (filed
        by Nextel Partners on May 13, 2003 as Exhibit 10.2(g) to the
        Nextel Partners 2003 First Quarter Form 10-Q).                                                                                                                                                                 
|        | 10.8.10 |  |  | Amendment No. 8 dated
        May 12, 2003 to the Nextel Partners Shareholders Agreement (filed
        by Nextel Partners on May 13, 2003 as Exhibit 10.2(h) to the
        Nextel Partners 2003 First Quarter Form 10-Q).                                                                                                                                                                     
|        | 10.8.11 |  |  | 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).                                                                                                                                       
|        | 21      |  |  | Subsidiaries of Nextel.                                                                                                                                                                                                                                                                                                                                                                         
|        | 23      |  |  | Consent of Deloitte &
        Touche LLP.                                                                                                                                                                                                                                                                                                                                                       
|        | 31      |  |  | Rule 13a-14(a)/15d-14(a)
        Certifications.                                                                                                                                                                                                                                                                                                                                                
|        | 32      |  |  | Section 1350 Certifications.                                                                                                                                                                                                                                                                                                                                                                    
|        | 99      |  |  | 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).                                                                                                                                                                                         



---



|   |                                                                                                                                              
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------
|*  | 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.                                                                                 

82



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##### Table of Contents



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, 2003 and 2002                                                                  |      |     | F-3  | 
|                                  | Consolidated Statements of Operations for the
    Years Ended December 31, 2003, 2002 and 2001                                    |      |     | F-4  | 
|                                  | Consolidated Statements of Changes in
    Stockholders Equity (Deficit) for the Years Ended
    December 31, 2003, 2002 and 2001 |      |     | F-5  | 
|                                  | Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2003, 2002 and 2001                                    |      |     | F-6  | 
|                                  | Notes to Consolidated Financial Statements                                                                                        |      |     | F-7  | 
|FINANCIAL STATEMENT SCHEDULES     |                                                                                                                                   |      |     |     
|                                  | Schedule I  Condensed Financial
    Information of Registrant                                                                    |      |     | F-46 | 
|                                  | Schedule II  Valuation and
    Qualifying Accounts                                                                               |      |     | F-51 | 

F-1



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholdersof
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, 2003 and 2002,
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, 2003.
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, 2003 and 2002, and the results
of their operations and their cash flows for each of the three
years in the period ended December 31, 2003, 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
Emerging Issues Task Force Issue No. 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables, in 2003. 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 note 1 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.

/s/ DELOITTE & TOUCHE LLP

McLean, Virginia

March 10, 2004


F-2



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of December 31, 2003 and
2002


(in millions)


|                                                    |                                                                                    |                            |        |        |        |   |        |        |        | 
|--------------------------------------------------- | ---------------------------------------------------------------------------------- | -------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                    |                                                                                    | 2003                       |        | 2002  
|                                                    |                                                                                    |                            |        |       
|ASSETS                                             
|Current assets                                      |                                                                                    |                            |        |        |        |   |        |       
|                                                    | Cash and cash equivalents                                                          |                            | $      | 806    |        |   | $      | 1,846  |       
|                                                    | Short-term investments                                                             |                            |        | 1,165  |        |   |        | 840    |       
|                                                    | Accounts and notes receivable, net                                                 |                            |        | 1,276  |        |   |        | 1,077  |       
|                                                    | Due from related parties                                                           |                            |        | 70     |        |   |        | 33     |       
|                                                    | Handset and accessory inventory                                                    |                            |        | 223    |        |   |        | 245    |       
|                                                    | Prepaid expenses and other current assets                                          |                            |        | 148    |        |   |        | 609    |       
|                                                    |                                                                                    |                            |        |        |        |   |        |       
|                                                    |                                                                                    | Total current assets       |        |        | 3,688  |   |        |        | 4,650  | 
|Investments                                         |                                                                                    |                            | 408    |        |        |   | 145    |       
|Property, plant and equipment, net                  |                                                                                    |                            | 9,093  |        |        |   | 8,918  |       
|Intangible assets, net                              |                                                                                    |                            | 7,038  |        |        |   | 6,607  |       
|Other assets                                        |                                                                                    |                            | 283    |        |        |   | 1,164  |       
|                                                    |                                                                                    |                            |        |        |        |   |        |       
|                                                    |                                                                                    | $                          | 20,510 |        |        | $ | 21,484 |       
|                                                    |                                                                                    |                            |        |        |        |   |        |       
|LIABILITIES AND STOCKHOLDERS
    EQUITY           
|Current liabilities                                 |                                                                                    |                            |        |        |        |   |        |       
|                                                    | Accounts payable                                                                   |                            | $      | 663    |        |   | $      | 515    |       
|                                                    | Accrued expenses and other                                                         |                            |        | 1,382  |        |   |        | 1,749  |       
|                                                    | Due to related parties                                                             |                            |        | 285    |        |   |        | 241    |       
|                                                    | Current portion of long-term debt, capital lease
    and finance obligations       |                            |        | 487    |        |   |        | 251    |       
|                                                    |                                                                                    |                            |        |        |        |   |        |       
|                                                    |                                                                                    | Total current liabilities  |        |        | 2,817  |   |        |        | 2,756  | 
|Long-term debt                                      |                                                                                    |                            | 9,716  |        |        |   | 12,079 |       
|Capital lease and finance
    obligations           |                                                                                    |                            | 9      |        |        |   | 220    |       
|Deferred income taxes                               |                                                                                    |                            | 1,867  |        |        |   | 1,619  |       
|Other liabilities                                   |                                                                                    |                            | 166    |        |        |   | 949    |       
|                                                    |                                                                                    |                            |        |        |        |   |        |       
|                                                    |                                                                                    | Total liabilities          |        |        | 14,575 |   |        |        | 17,623 | 
|                                                    |                                                                                    |                            |        |        |        |   |        |       
|Commitments and contingencies (notes 6
    and 10)  |                                                                                    |                            |        |        |        |   |        |       
|Mandatorily redeemable preferred stock
    (note 6) |                                                                                    |                            | 99     |        |        |   | 1,015  |       
|Stockholders equity                                |                                                                                    |                            |        |        |        |   |        |       
|                                                    | Convertible preferred stock, 0 and 4 shares
    issued and outstanding             |                            |        |       |        |   |        | 136    |       
|                                                    | Common stock, class A, 1,068 and 968 shares
    issued and outstanding             |                            |        | 1      |        |   |        | 1      |       
|                                                    | Common stock, class B, nonvoting convertible, 36
    shares issued and outstanding |                            |        |       |        |   |        |       |       
|                                                    | Paid-in capital                                                                    |                            |        | 11,942 |        |   |        | 10,530 |       
|                                                    | Accumulated deficit                                                                |                            |        | (6,256 | )      |   |        | (7,793 | )     
|                                                    | Deferred compensation, net                                                         |                            |        | (16    | )      |   |        | (7     | )     
|                                                    | Accumulated other comprehensive income (loss)                                      |                            |        | 165    |        |   |        | (21    | )     
|                                                    |                                                                                    |                            |        |        |        |   |        |       
|                                                    |                                                                                    | Total stockholders equity |        |        | 5,836  |   |        |        | 2,846  | 
|                                                    |                                                                                    |                            |        |        |        |   |        |       
|                                                    |                                                                                    | $                          | 20,510 |        |        | $ | 21,484 |       
|                                                    |                                                                                    |                            |        |        |        |   |        |       

The accompanying notes including note 13
 Related Party Transactions 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, 2003,
2002 and 2001


(in millions, except per share
amounts)


|                                                         |                                                                                        |      |        |       |   |      |       |        |   |   |        |        |  
|-------------------------------------------------------- | -------------------------------------------------------------------------------------- | ---- | ------ | ----- | - | ---- | ----- | ------ | - | - | ------ | ------ | -
|                                                         |                                                                                        | 2003 |        | 2002  |   | 2001
|                                                         |                                                                                        |      |        |       |   |     
|Operating revenues                                       |                                                                                        |      |        |       |   |      |       |        |   |   |        |       
|                                                         | Service revenues                                                                       |      | $      | 9,892 |   |      | $     | 8,186  |   |   | $      | 7,221  |  
|                                                         | Handset and accessory revenues                                                         |      |        | 928   |   |      |       | 535    |   |   |        | 468    |  
|                                                         |                                                                                        |      |        |       |   |      |       |        |   |   |        |       
|                                                         |                                                                                        |      | 10,820 |       |   |      | 8,721 |        |   |   | 7,689  |       
|                                                         |                                                                                        |      |        |       |   |      |       |        |   |   |        |       
|Operating expenses                                       |                                                                                        |      |        |       |   |      |       |        |   |   |        |       
|                                                         | Cost of service (exclusive of depreciation
    included below)                         |      |        | 1,656 |   |      |       | 1,469  |   |   |        | 1,499  |  
|                                                         | Cost of handset and accessory revenues                                                 |      |        | 1,495 |   |      |       | 1,047  |   |   |        | 1,370  |  
|                                                         | Selling, general and administrative                                                    |      |        | 3,453 |   |      |       | 3,039  |   |   |        | 3,020  |  
|                                                         | Restructuring and impairment charges                                                   |      |        |      |   |      |       | 35     |   |   |        | 1,769  |  
|                                                         | Depreciation                                                                           |      |        | 1,643 |   |      |       | 1,541  |   |   |        | 1,508  |  
|                                                         | Amortization                                                                           |      |        | 51    |   |      |       | 54     |   |   |        | 238    |  
|                                                         |                                                                                        |      |        |       |   |      |       |        |   |   |        |       
|                                                         |                                                                                        |      | 8,298  |       |   |      | 7,185 |        |   |   | 9,404  |       
|                                                         |                                                                                        |      |        |       |   |      |       |        |   |   |        |       
|Operating income (loss)                                  |                                                                                        |      | 2,522  |       |   |      | 1,536 |        |   |   | (1,715 | )     
|                                                         |                                                                                        |      |        |       |   |      |       |        |   |   |        |       
|Other income (expense)                                   |                                                                                        |      |        |       |   |      |       |        |   |   |        |       
|                                                         | Interest expense                                                                       |      |        | (844  | ) |      |       | (1,048 | ) |   |        | (1,403 | )
|                                                         | Interest income                                                                        |      |        | 42    |   |      |       | 58     |   |   |        | 207    |  
|                                                         | (Loss) gain on retirement of debt, net of debt
    conversion costs of $0, $160 and $0 |      |        | (245  | ) |      |       | 354    |   |   |        | 469    |  
|                                                         | Gain on deconsolidation of NII Holdings                                                |      |        |      |   |      |       | 1,218  |   |   |        |       |  
|                                                         | Equity in losses of unconsolidated affiliates, net                                     |      |        | (40   | ) |      |       | (302   | ) |   |        | (95    | )
|                                                         | Foreign currency transaction losses, net                                               |      |        |      |   |      |       |       |   |   |        | (70    | )
|                                                         | Realized gain on investments, net                                                      |      |        | 213   |   |      |       |       |   |   |        | 47     |  
|                                                         | Reduction in fair value of investments                                                 |      |        | (2    | ) |      |       | (37    | ) |   |        | (188   | )
|                                                         | Other, net                                                                             |      |        | 4     |   |      |       | (2     | ) |   |        | (12    | )
|                                                         |                                                                                        |      |        |       |   |      |       |        |   |   |        |       
|                                                         |                                                                                        |      | (872   | )     |   |      | 241   |        |   |   | (1,045 | )     
|                                                         |                                                                                        |      |        |       |   |      |       |        |   |   |        |       
|Income (loss) before income tax
    (provision) benefit  |                                                                                        |      | 1,650  |       |   |      | 1,777 |        |   |   | (2,760 | )     
|Income tax (provision) benefit                           |                                                                                        |      | (113   | )     |   |      | (391  | )      |   |   | 135    |       
|                                                         |                                                                                        |      |        |       |   |      |       |        |   |   |        |       
|Net income (loss)                                        |                                                                                        |      | 1,537  |       |   |      | 1,386 |        |   |   | (2,625 | )     
|                                                         | (Loss) gain on retirement of mandatorily
    redeemable preferred stock                |      |        | (7    | ) |      |       | 485    |   |   |        |       |  
|                                                         | Mandatorily redeemable preferred stock dividends
    and accretion                     |      |        | (58   | ) |      |       | (211   | ) |   |        | (233   | )
|                                                         |                                                                                        |      |        |       |   |      |       |        |   |   |        |       
|Income (loss) available to common
    stockholders       |                                                                                        | $    | 1,472  |       |   | $    | 1,660 |        |   | $ | (2,858 | )     
|                                                         |                                                                                        |      |        |       |   |      |       |        |   |   |        |       
|Earnings (loss) per common
    share                     |                                                                                        |      |        |       |   |      |       |        |   |   |        |       
|                                                         | Basic                                                                                  |      | $      | 1.41  |   |      | $     | 1.88   |   |   | $      | (3.67  | )
|                                                         |                                                                                        |      |        |       |   |      |       |        |   |   |        |       
|                                                         | Diluted                                                                                |      | $      | 1.36  |   |      | $     | 1.78   |   |   | $      | (3.67  | )
|                                                         |                                                                                        |      |        |       |   |      |       |        |   |   |        |       
|Weighted average number of common shares
    outstanding |                                                                                        |      |        |       |   |      |       |        |   |   |        |       
|                                                         | Basic                                                                                  |      |        | 1,047 |   |      |       | 884    |   |   |        | 778    |  
|                                                         |                                                                                        |      |        |       |   |      |       |        |   |   |        |       
|                                                         | Diluted                                                                                |      |        | 1,089 |   |      |       | 966    |   |   |        | 778    |  
|                                                         |                                                                                        |      |        |       |   |      |       |        |   |   |        |       

The accompanying notes including note 13
 Related Party Transactions are an
integral part of these consolidated financial statements.

F-4



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY (DEFICIT)

For the Years Ended December 31, 2003,
2002 and 2001


(in millions)


|                           |                                                                                 |                                                |                                                             |                                                                      |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        |      |   |   |        |        |   |  |  | 
|-------------------------- | ------------------------------------------------------------------------------- | ---------------------------------------------- | ----------------------------------------------------------- | -------------------------------------------------------------------- | - | ------------ | --- | ------- | - | ----------- | ----- | ------ |  | ------- | - | ------- |  |  | -- |  |  | - | - |  |  | - | ------ | ---- | - | - | ------ | ------ | - |  |  | 
|                           |                                                                                 |                                                |                                                             |                                                                      |   |              |     |         |   |            
|                           |                                                                                 | Convertible                                    |                                                             | Class A                                                              |   | Class B      |     |         |   |            
|                           |                                                                                 | Preferred Stock                                |                                                             | Common Stock                                                         |   | Common Stock |     |         |   |            
|                           |                                                                                 |                                                |                                                             |                                                                      |   |              |     | Paid-in |   | Accumulated
|                           |                                                                                 | Shares                                         |                                                             | Amount                                                               |   | Shares       |     | Amount  |   | Shares      |       | Amount |  | Capital |   | Deficit
|                           |                                                                                 |                                                |                                                             |                                                                      |   |              |     |         |   |             |       |        |  |         |   |        
|Balance, December 31, 2000 |                                                                                 |                                                | 8                                                           |                                                                      |   | $            | 283 |         |   |             | 727   |        |  | $       | 1 |         |  |  | 36 |  |  | $ |  |  |  | $ | 8,370  |      |   | $ | (6,554 | )     
|                           | 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                                            |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        |      |   |   |        |        |   |  |  | 
|                           |                                                                                 |                                                |                                                             | 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  |   |   |        |        |  
|                           | Exchange of debt securities for common stock                                    |                                                |                                                             |                                                                      |   |              |     |         |   |             |       | 22     |  |         |   |        |  |  |    |  |  |   |   |  |  |   |        | 292  |   |   |        |        |  
|                           | Deferred compensation and other                                                 |                                                |                                                             |                                                                      |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        | 10   |   |   |        |        |  
|                           | Dividends and accretion on mandatorily redeemable
    preferred stock           |                                                |                                                             |                                                                      |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        | (233 | ) |   |        |        |  
|                           |                                                                                 |                                                |                                                             |                                                                      |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        |      |   |   |        |       
|Balance, December 31, 2001 |                                                                                 |                                                | 8                                                           |                                                                      |   |              | 283 |         |   |             | 763   |        |  |         | 1 |         |  |  | 36 |  |  |   |  |  |  |   | 8,581  |      |   |   | (9,179 | )     
|                           | 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                                            |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        |      |   |   |        |        |   |  |  | 
|                           |                                                                                 |                                                |                                                             | 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   |   |   |        |        |  
|                           | 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 | )     
|                           | Net income                                                                      |                                                |                                                             |                                                                      |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        |      |   |   |        | 1,537  |  
|                           |                                                                                 | Other comprehensive income, net of income tax: |                                                             |                                                                      |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        |      |   |   |        |        |   | 
|                           |                                                                                 |                                                | Foreign currency translation adjustment                     |                                                                      |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        |      |   |   |        |        |   |  | 
|                           |                                                                                 |                                                | Unrealized holding gains                                    |                                                                      |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        |      |   |   |        |        |   |  | 
|                           |                                                                                 |                                                | Cash flow hedge:                                            |                                                                      |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        |      |   |   |        |        |   |  | 
|                           |                                                                                 |                                                |                                                             | Reclassification of transition adjustment
    included in net income |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        |      |   |   |        |        |   |  |  | 
|                           |                                                                                 |                                                |                                                             | Unrealized gain on cash flow hedge                                   |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        |      |   |   |        |        |   |  |  | 
|                           | Total comprehensive income                                                      |                                                |                                                             |                                                                      |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        |      |   |   |        |        |  
|                           | Common stock issued under direct stock purchase
    plan and other equity plans |                                                |                                                             |                                                                      |   |              |     |         |   |             |       | 47     |  |         |   |        |  |  |    |  |  |   |   |  |  |   |        | 707  |   |   |        |        |  
|                           | Conversion of preferred stock into common stock                                 |                                                |                                                             | (4                                                                   | ) |              |     | (136    | ) |             |       | 22     |  |         |   |        |  |  |    |  |  |   |   |  |  |   |        | 136  |   |   |        |        |  
|                           | Exchange of debt securities for common stock                                    |                                                |                                                             |                                                                      |   |              |     |         |   |             |       | 31     |  |         |   |        |  |  |    |  |  |   |   |  |  |   |        | 588  |   |   |        |        |  
|                           | Deferred compensation and other                                                 |                                                |                                                             |                                                                      |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        | 24   |   |   |        |        |  
|                           | Increase on issuance of equity by affiliates, net
    of deferred income tax    |                                                |                                                             |                                                                      |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        | 22   |   |   |        |        |  
|                           | Loss on retirement of mandatorily redeemable
    preferred stock                |                                                |                                                             |                                                                      |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        | (7   | ) |   |        |        |  
|                           | Dividends and accretion on mandatorily redeemable
    preferred stock           |                                                |                                                             |                                                                      |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        | (58  | ) |   |        |        |  
|                           |                                                                                 |                                                |                                                             |                                                                      |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        |      |   |   |        |       
|Balance, December 31, 2003 |                                                                                 |                                                |                                                            |                                                                      |   | $            |    |         |   |             | 1,068 |        |  | $       | 1 |         |  |  | 36 |  |  | $ |  |  |  | $ | 11,942 |      |   | $ | (6,256 | )     
|                           |                                                                                 |                                                |                                                             |                                                                      |   |              |     |         |   |             |       |        |  |         |   |         |  |  |    |  |  |   |   |  |  |   |        |      |   |   |        |       

[Additional columns below]

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

|                           |                                                                                 |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       |        |   |     |      |  
|-------------------------- | ------------------------------------------------------------------------------- | ---------------------------------------------- | ----------------------------------------------------------- | -------------------------------------------------------------------- |  | ------------ | -- | --------------------------- |  | ---------- | --- | ----- | - | ----- | --- |  |  | --- | ---- | - |  | --- | --- | - |  | - | ----- | ------ | - | --- | ---- | -
|                           |                                                                                 |                                                |                                                             |                                                                      |  |              |    |                             |  |           
|                           |                                                                                 |                                                |                                                             |                                                                      |  |              |    | Accumulated Other           |  |           
|                           |                                                                                 |                                                |                                                             |                                                                      |  |              |    | Comprehensive Income (Loss) |  |           
|                           |                                                                                 |                                                |                                                             |                                                                      |  |              |    |                             |  |           
|                           |                                                                                 |                                                |                                                             |                                                                      |  | Unrealized   |    |                             |  |           
|                           |                                                                                 | Treasury Stock                                 |                                                             |                                                                      |  | Gain         |    | Cumulative                  |  | Cash       |     |      
|                           |                                                                                 |                                                |                                                             | Deferred                                                             |  | (Loss) on    |    | Translation                 |  | Flow       |     |      
|                           |                                                                                 | Shares                                         |                                                             | Amount                                                               |  | Compensation |    | Investments                 |  | Adjustment |     | Hedge |   | Total
|                           |                                                                                 |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |      
|Balance, December 31, 2000 |                                                                                 |                                                |                                                            |                                                                      |  | $            | (2 | )                           |  | $          | (28 | )     |   | $     | 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                                            |  |              |    |                             |  |            |     |       |   |       |     |  |  |     | (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                                          |                                                |                                                             |                                                                     |  |              |    | 2                           |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       | 144    |  
|                           | Exchange of debt securities for common stock                                    |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       | 292    |  
|                           | Deferred compensation and other                                                 |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     | 11    |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       | 21     |  
|                           | Dividends and accretion on mandatorily redeemable
    preferred stock           |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       | (233   | )
|                           |                                                                                 |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       |       
|Balance, December 31, 2001 |                                                                                 |                                                |                                                            |                                                                      |  |              |   |                             |  |            | (17 | )     |   |       | 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                                            |  |              |    |                             |  |            |     |       |   |       |     |  |  |     | (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                                                 |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     | 10    |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       | 21     |  
|                           | Gain on retirement of mandatorily redeemable
    preferred stock                |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       | 485    |  
|                           | Dividends and accretion on mandatorily redeemable
    preferred stock           |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       | (211   | )
|                           |                                                                                 |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       |       
|Balance, December 31, 2002 |                                                                                 |                                                |                                                            |                                                                      |  |              |   |                             |  |            | (7  | )     |   |       | 7   |  |  |     | (1   | ) |  |     | (27 | ) |  |   | 2,846 |       
|                           |                                                                                 |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       |       
|                           | Net income                                                                      |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       | 1,537  |  
|                           |                                                                                 | Other comprehensive income, net of income tax: |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       |        |   |    
|                           |                                                                                 |                                                | Foreign currency translation adjustment                     |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  | (4  | )   |   |  |   |       |        |   | (4  | )   
|                           |                                                                                 |                                                | Unrealized holding gains                                    |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  | 163 |      |   |  |     |     |   |  |   |       |        |   | 163 |     
|                           |                                                                                 |                                                | Cash flow hedge:                                            |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       |        |   |     |     
|                           |                                                                                 |                                                |                                                             | Reclassification of transition adjustment
    included in net income |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   | 4     |        |   |     | 4    |  
|                           |                                                                                 |                                                |                                                             | Unrealized gain on cash flow hedge                                   |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   | 23    |        |   |     | 23   |  
|                           |                                                                                 |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       |       
|                           | Total comprehensive income                                                      |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       | 1,723  |  
|                           |                                                                                 |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       |       
|                           | Common stock issued under direct stock purchase
    plan and other equity plans |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       | 707    |  
|                           | Conversion of preferred stock into common stock                                 |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       |       |  
|                           | Exchange of debt securities for common stock                                    |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       | 588    |  
|                           | Deferred compensation and other                                                 |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     | (9    | ) |       |     |  |  |     |      |   |  |     |     |   |  |   |       | 15     |  
|                           | Increase on issuance of equity by affiliates, net
    of deferred income tax    |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       | 22     |  
|                           | Loss on retirement of mandatorily redeemable
    preferred stock                |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       | (7     | )
|                           | Dividends and accretion on mandatorily redeemable
    preferred stock           |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       | (58    | )
|                           |                                                                                 |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       |       
|Balance, December 31, 2003 |                                                                                 |                                                |                                                            |                                                                      |  | $            |   |                             |  | $          | (16 | )     |   | $     | 170 |  |  | $   | (5   | ) |  | $   |    |   |  | $ | 5,836 |       
|                           |                                                                                 |                                                |                                                             |                                                                      |  |              |    |                             |  |            |     |       |   |       |     |  |  |     |      |   |  |     |     |   |  |   |       |       

The accompanying notes including note 13
 Related Party Transactions are an
integral part of these consolidated financial statements.

F-5



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Years Ended December 31, 2003,
2002 and 2001


(in millions)


|                                                                 |                                                                                              |                                                                        |                                              |                                                         |       |      |        |        |        |      |        |        |       |      |        |  
|---------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------------------------- | ----- | ---- | ------ | ------ | ------ | ---- | ------ | ------ | ----- | ---- | ------ | -
|                                                                 |                                                                                              | 2003                                                                   |                                              | 2002                                                    |       | 2001
|                                                                 |                                                                                              |                                                                        |                                              |                                                         |       |     
|Cash flows from operating activities                             |                                                                                              |                                                                        |                                              |                                                         |       |      |        |        |        |      |        |       
|                                                                 | Net income (loss)                                                                            |                                                                        | $                                            | 1,537                                                   |       |      | $      | 1,386  |        |      | $      | (2,625 | )    
|                                                                 | Adjustments to reconcile net income
    (loss) to net cash provided by operating activities: |                                                                        |                                              |                                                         |       |      |        |        |        |      |        |        |      
|                                                                 |                                                                                              | Amortization of debt financing costs and
    accretion of senior notes |                                              |                                                         | 46    |      |        |        | 316    |      |        |        | 504   |     
|                                                                 |                                                                                              | Provision for losses on accounts receivable                            |                                              |                                                         | 129   |      |        |        | 334    |      |        |        | 370   |     
|                                                                 |                                                                                              | Amortization of deferred gain from sale of towers                      |                                              |                                                         | (105  | )    |        |        |       |      |        |        |      |     
|                                                                 |                                                                                              | Restructuring and impairment charges                                   |                                              |                                                         |      |      |        |        | 24     |      |        |        | 1,741 |     
|                                                                 |                                                                                              | Depreciation and amortization                                          |                                              |                                                         | 1,694 |      |        |        | 1,595  |      |        |        | 1,746 |     
|                                                                 |                                                                                              | Loss (gain) on retirement of debt                                      |                                              |                                                         | 245   |      |        |        | (514   | )    |        |        | (469  | )   
|                                                                 |                                                                                              | Debt conversion expense                                                |                                              |                                                         |      |      |        |        | 160    |      |        |        |      |     
|                                                                 |                                                                                              | Gain on deconsolidation of NII Holdings                                |                                              |                                                         |      |      |        |        | (1,228 | )    |        |        |      |     
|                                                                 |                                                                                              | Equity in losses of unconsolidated affiliates, net                     |                                              |                                                         | 40    |      |        |        | 302    |      |        |        | 95    |     
|                                                                 |                                                                                              | Foreign currency transaction losses, net                               |                                              |                                                         |      |      |        |        |       |      |        |        | 70    |     
|                                                                 |                                                                                              | Realized gain on investments, net                                      |                                              |                                                         | (213  | )    |        |        |       |      |        |        | (47   | )   
|                                                                 |                                                                                              | Reduction in fair value of investments                                 |                                              |                                                         | 2     |      |        |        | 37     |      |        |        | 188   |     
|                                                                 |                                                                                              | Income tax provision (benefit)                                         |                                              |                                                         | 62    |      |        |        | 391    |      |        |        | (135  | )   
|                                                                 |                                                                                              | Other, net                                                             |                                              |                                                         | 57    |      |        |        | 34     |      |        |        | 28    |     
|                                                                 |                                                                                              | Change in assets and liabilities, net of effects
    from acquisitions |                                              |                                                         |       |      |        |        |        |      |        |        |       |     
|                                                                 |                                                                                              |                                                                        | Accounts and notes receivable                |                                                         |       | (350 | )      |        |        | (492 | )      |        |       | (638 | )     
|                                                                 |                                                                                              |                                                                        | Handset and accessory inventory              |                                                         |       | 29   |        |        |        | (21  | )      |        |       | (79  | )     
|                                                                 |                                                                                              |                                                                        | Prepaid expenses and other assets            |                                                         |       | (65  | )      |        |        | (21  | )      |        |       | 196  |       
|                                                                 |                                                                                              |                                                                        | Accounts payable, accrued expenses and other |                                                         |       | 204  |        |        |        | 220  |        |        |       | 184  |       
|                                                                 |                                                                                              |                                                                        |                                              |                                                         |       |      |        |        |        |      |        |       
|                                                                 |                                                                                              |                                                                        |                                              | Net cash provided by operating activities               |       |      | 3,312  |        |        |      | 2,523  |        |       |      | 1,129  |  
|                                                                 |                                                                                              |                                                                        |                                              |                                                         |       |      |        |        |        |      |        |       
|Cash flows from investing activities                             |                                                                                              |                                                                        |                                              |                                                         |       |      |        |        |        |      |        |       
|                                                                 | Capital expenditures                                                                         |                                                                        |                                              | (1,716                                                  | )     |      |        | (1,863 | )      |      |        | (3,418 | )    
|                                                                 | Proceeds from maturities and sales of short-term
    investments                             |                                                                        |                                              | 2,511                                                   |       |      |        | 3,486  |        |      |        | 4,879  |      
|                                                                 | Purchases of short-term investments                                                          |                                                                        |                                              | (2,825                                                  | )     |      |        | (3,068 | )      |      |        | (3,987 | )    
|                                                                 | Payments for purchases of licenses, investments
    and other, net of cash acquired          |                                                                        |                                              | (279                                                    | )     |      |        | (432   | )      |      |        | (883   | )    
|                                                                 | Proceeds from sales of investments                                                           |                                                                        |                                              | 248                                                     |       |      |        | 2      |        |      |        | 142    |      
|                                                                 | Cash relinquished as a result of the
    deconsolidation of NII Holdings                     |                                                                        |                                              |                                                        |       |      |        | (250   | )      |      |        |       |      
|                                                                 | Payments for acquisitions, net of cash acquired                                              |                                                                        |                                              |                                                        |       |      |        | (111   | )      |      |        | (245   | )    
|                                                                 |                                                                                              |                                                                        |                                              |                                                         |       |      |        |        |        |      |        |       
|                                                                 |                                                                                              |                                                                        |                                              | Net cash used in investing activities                   |       |      | (2,061 | )      |        |      | (2,236 | )      |       |      | (3,512 | )
|                                                                 |                                                                                              |                                                                        |                                              |                                                         |       |      |        |        |        |      |        |       
|Cash flows from financing activities                             |                                                                                              |                                                                        |                                              |                                                         |       |      |        |        |        |      |        |       
|                                                                 | Purchase and retirement of debt securities and
    mandatorily redeemable preferred stock    |                                                                        |                                              | (4,598                                                  | )     |      |        | (843   | )      |      |        |       |      
|                                                                 | Proceeds from issuance of debt securities                                                    |                                                                        |                                              | 2,483                                                   |       |      |        |       |        |      |        | 2,250  |      
|                                                                 | Repayments under long-term credit facility                                                   |                                                                        |                                              | (2,965                                                  | )     |      |        | (47    | )      |      |        |       |      
|                                                                 | Borrowings under long-term credit facility                                                   |                                                                        |                                              | 2,269                                                   |       |      |        | 47     |        |      |        |       |      
|                                                                 | Proceeds from issuance of stock                                                              |                                                                        |                                              | 689                                                     |       |      |        | 35     |        |      |        | 124    |      
|                                                                 | Repayments under capital lease and finance
    obligations                                   |                                                                        |                                              | (44                                                     | )     |      |        | (100   | )      |      |        | (83    | )    
|                                                                 | Payment for capital lease buy-out                                                            |                                                                        |                                              | (54                                                     | )     |      |        |       |        |      |        |       |      
|                                                                 | Mandatorily redeemable preferred stock dividends
    paid                                    |                                                                        |                                              | (57                                                     | )     |      |        | (19    | )      |      |        |       |      
|                                                                 | Debt financing costs and other                                                               |                                                                        |                                              | (14                                                     | )     |      |        | (1     | )      |      |        | (50    | )    
|                                                                 | Proceeds from sale-leaseback transactions                                                    |                                                                        |                                              |                                                        |       |      |        | 6      |        |      |        | 42     |      
|                                                                 | Increase in restricted cash held in escrow                                                   |                                                                        |                                              |                                                        |       |      |        |       |        |      |        | (27    | )    
|                                                                 |                                                                                              |                                                                        |                                              |                                                         |       |      |        |        |        |      |        |       
|                                                                 |                                                                                              |                                                                        |                                              | Net cash (used in) provided by financing
    activities |       |      | (2,291 | )      |        |      | (922   | )      |       |      | 2,256  |  
|                                                                 |                                                                                              |                                                                        |                                              |                                                         |       |      |        |        |        |      |        |       
|Effect of exchange rate changes on cash and
    cash equivalents |                                                                                              |                                                                        |                                             |                                                         |       |      |       |        |        |      | (1     | )     
|Net decrease in cash and cash
    equivalents                    |                                                                                              |                                                                        | (1,040                                       | )                                                       |       |      | (635   | )      |        |      | (128   | )     
|Cash and cash equivalents, beginning of
    period               |                                                                                              |                                                                        | 1,846                                        |                                                         |       |      | 2,481  |        |        |      | 2,609  |       
|                                                                 |                                                                                              |                                                                        |                                              |                                                         |       |      |        |        |        |      |        |       
|Cash and cash equivalents, end of
    period                     |                                                                                              | $                                                                      | 806                                          |                                                         |       | $    | 1,846  |        |        | $    | 2,481  |       
|                                                                 |                                                                                              |                                                                        |                                              |                                                         |       |      |        |        |        |      |        |       

The accompanying notes including note 13
 Related Party Transactions are an
integral part of these consolidated financial statements.

F-6



---



##### 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. We
provide a comprehensive suite of advanced wireless services that
include: digital wireless mobile telephone service; Nextel
Nationwide Direct ConnectSM walkie-talkie service;
and a number of wireless data applications, including email,
mobile messaging and Nextel Online® services, which provide
wireless access to the Internet, an organizations internal
databases and other applications. As of December 31, 2003,
we provided service to about 12.9 million subscribers
excluding subscribers who purchase pre-paid services under our
Boost Mobile brand.

Our all-digital packet data network is based on
integrated Digital Enhanced Network, or iDEN®, wireless
technology provided by Motorola, Inc. We, together with Nextel
Partners, Inc., currently utilize the iDEN technology to serve
293 of the top 300 U.S. markets where about 250 million people
live or work. Nextel Partners provides digital wireless
communications services under the Nextel brand name in mid-sized
and tertiary U.S. markets, and has the right to operate in 97 of
the top 300 metropolitan statistical areas in the United States
ranked by population. As of December 31, 2003, we owned
about 30% of the outstanding common stock of Nextel Partners.

As of December 31, 2003, we also owned about
18% of the outstanding common stock of NII Holdings, Inc. NII
Holdings provides wireless communications services primarily in
selected Latin American markets.

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 all 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. Additional
information regarding our equity investments can be found in
note 3.

Use of Estimates.We prepare our financial
statements in conformity with accounting principles generally
accepted in the United States which require 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 could differ from those estimates.

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.

F-7



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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,
|                                                         |                                                                   |                        
|                                                         |                                                                   | 2003                    |       | 2002  |  | 2001
|                                                         |                                                                   |                         |       |       |  |     
|                                                         |                                                                   |                        
|                                                         |                                                                   | (in millions)          
|Capital expenditures, including capitalized
    interest |                                                                   |                         |       |       |  |      |       |       |  |   |       |      
|                                                         | Cash paid for capital expenditures                                |                         | $     | 1,716 |  |      | $     | 1,863 |  |   | $     | 3,418 |  
|                                                         | Change in capital expenditures accrued and unpaid
    or financed |                         |       | 140   |  |      |       | 41    |  |   |       | (282  | )
|                                                         |                                                                   |                         |       |       |  |      |       |       |  |   |       |      
|                                                         |                                                                   | $                       | 1,856 |       |  | $    | 1,904 |       |  | $ | 3,136 |      
|                                                         |                                                                   |                         |       |       |  |      |       |       |  |   |       |      
|Interest costs                                           |                                                                   |                         |       |       |  |      |       |       |  |   |       |      
|                                                         | Interest expense                                                  |                         | $     | 844   |  |      | $     | 1,048 |  |   | $     | 1,403 |  
|                                                         | Interest capitalized                                              |                         |       | 35    |  |      |       | 48    |  |   |       | 127   |  
|                                                         |                                                                   |                         |       |       |  |      |       |       |  |   |       |      
|                                                         |                                                                   | $                       | 879   |       |  | $    | 1,096 |       |  | $ | 1,530 |      
|                                                         |                                                                   |                         |       |       |  |      |       |       |  |   |       |      
|Cash paid for interest, net of amounts
    capitalized   |                                                                   | $                       | 794   |       |  | $    | 712   |       |  | $ | 845   |      
|                                                         |                                                                   |                         |       |       |  |      |       |       |  |   |       |      
|Cash received for interest                               |                                                                   | $                       | 30    |       |  | $    | 54    |       |  | $ | 226   |      
|                                                         |                                                                   |                         |       |       |  |      |       |       |  |   |       |      
|Cash paid for income taxes                               |                                                                   | $                       | 50    |       |  | $    | 7     |       |  | $ | 3     |      
|                                                         |                                                                   |                         |       |       |  |      |       |       |  |   |       |      

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. Debt
securities that we have the ability and intent to hold until
maturity are accounted for as held-to-maturity securities and
recorded at amortized cost. As of December 31, 2003 and
2002, our short-term investments consisted of commercial paper
and corporate and government 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. Because we have well over one
million accounts, it is not practical to review the
collectibility of each account individually 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 for our portfolio of customers,
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.

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


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. 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. We account for rebates received from vendors in
accordance with Emerging Issues Task Force, or EITF, Issue
No. 02-16, Accounting by a Reseller for Cash
Consideration Received by a Vendor. Additional information
can be found in  Customer Related Direct
Costs.

Property, Plant and Equipment.We record property, plant and
equipment, including improvements that extend useful lives, at
cost. We capitalize costs for network and non-network software,
which are included in property, plant and equipment, developed
or obtained for internal use when incurred during the
application development stage. For those software projects that
are under development, we periodically assess the probability of
deployment into the business to determine if an impairment
charge is required. The gross amount of assets recorded under
capital lease and finance obligations included in property,
plant and equipment is $276 million as of December 31,
2003 and $360 million as of December 31, 2002.
Maintenance and repairs are charged to operations as incurred.
Gains or losses from the sale or disposal of our property, plant
and equipment are also charged to operations as realized or
incurred.

Network asset inventory and construction in
progress includes materials, transmission and related equipment,
labor, 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 calculate depreciation using the straight-line
method based on estimated economic useful lives of up to
31 years for buildings, 3 to 20 years for network
equipment and internal-use 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. We periodically review the
estimated economic useful lives and salvage value of our
property, plant and equipment and make adjustments to those
estimates after considering historical experience, capacity
requirements, consulting with the vendor and assessing new
product and market demands, strategic decisions or technology
matters and other factors. When these factors indicate property,
plant and equipment assets may not be useful for as long as
originally anticipated, we depreciate the remaining book values
over the remaining estimated useful lives. In the first quarter
2003, we shortened the estimated useful lives of some of our
network assets. As a result of these changes in estimates, we
recorded about $79 million or $0.08 per common share of
additional depreciation expense for the year ended
December 31, 2003.

Capitalized Software to be Sold, Leased or
Otherwise Marketed.We capitalize
costs for software products that will be sold, leased or
otherwise marketed when technological feasibility has been
established. At each balance sheet date, we evaluate the
recoverability of the unamortized capitalized costs of these
software products. We classify software products to be sold,
leased or otherwise marketed as noncurrent other assets.

Intangible Assets.Effective January 1, 2002, we
adopted Statement of Financial Accounting Standards, or SFAS,
No. 142, Goodwill and Other Intangible Assets.
Under SFAS No. 142, we are no longer required to amortize
goodwill and intangible assets with indefinite useful lives,
which consist of our Federal Communications Commission, or FCC,
licenses. We are required to test these assets for impairment at
least annually or whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. We
perform our annual review for impairment on October 1 of each
year

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


using a residual value approach. We measure the
fair value of our 800 and 900 megahertz, or MHz, licenses by
deducting the fair values of our net assets as well as the fair
values of certain unrecorded identified intangible assets, other
than these FCC licenses, from our reporting units fair
value, which was determined using a discounted cash flow
analysis. The analysis was based on our long-term cash flow
projections, discounted at our corporate weighted average cost
of capital. If the fair value of the goodwill or intangible
asset 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. For those
intangible assets that have finite useful lives, we continue to
amortize them over their estimated useful lives using the
straight-line method. Additional information regarding our
intangible assets and the adoption of SFAS No. 142 can be
found in note 5.

Valuation of Long-Lived Assets.We review our 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.
Impairment analyses, when performed, 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. For purposes
of recognition and measurement of impairment losses, we group
our domestic long-lived assets with other assets and liabilities
at the domestic enterprise level, which for us is the lowest
level for which identifiable cash flows are largely independent
of the cash flows of other assets and liabilities.

Derivative Instruments and Hedging
Activities.From time to time, we
use derivative instruments, consisting primarily of interest
rate swap 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 fluctuations. 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 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 income (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 our results of operations.

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

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


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 the results of
operations.

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
mobile telephone 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 accessory sales when
title passes upon delivery of the accessory to the customer.
Effective July 1, 2003, we adopted EITF Issue
No. 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables. Accordingly, for all handset sale
arrangements entered into beginning in the third quarter 2003,
we recognize revenue when title to the handset passes to the
customer. Prior to July 1, 2003, in accordance with Staff
Accounting Bulletin, or SAB, No. 101, Revenue
Recognition in Financial Statements, we recognized revenue
from handset sales on a straight-line basis over the expected
customer relationship period of 3.5 years, beginning when
title to the handset passed to the customer. Additional
information regarding the adoption of EITF Issue No. 00-21
can be found in  New Accounting
Pronouncements.

Customer Related Direct Costs.Upon the adoption of EITF Issue
No. 00-21 effective July 1, 2003, we recognize the
cost of handset revenues when title to the handset passes to the
customer. Other customer related direct costs such as
commissions are expensed as incurred. Prior to July 1,
2003, we recognized the costs of handset revenues over the
expected customer relationship period of 3.5 years in amounts
equivalent to revenues recognized from handset sales. Handset
costs in excess of the revenues generated from handset sales, or
subsidies, were expensed at the time of sale.

Stock-Based Compensation.We account for stock-based
compensation for employees and non-employee members of our board
of directors in accordance with Accounting Principles Board, or
APB, Opinion No. 25, Accounting for Stock Issued to
Employees. Under APB Opinion No. 25, compensation
expense is based on the intrinsic value on the measurement date,
calculated as the difference between the fair value of our class
A common stock and the relevant exercise price. We account for
stock-based compensation for non-employees, who are not members
of our board of directors, at fair value using a Black-Scholes
option-pricing model in accordance with the provisions of SFAS
No. 123, Accounting for Stock-Based
Compensation and other applicable accounting principles.
We recorded stock-based compensation expense of $15 million
during 2003, $13 million during 2002 and $16 million
during 2001. In addition, in February 2004, we elected to settle
$21 million of obligations under our long-term incentive
plan with deferred shares as permitted by that plan. See
note 12.

We comply with the disclosure provisions of SFAS
No. 123 and SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and
Disclosure. Consistent with the provisions of SFAS
No. 123, had compensation costs been determined based on
the fair value of the awards granted since

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


1995, our income (loss) available to common
stockholders and earnings (loss) per common share would have
been as follows:

|                                                                |                                                                               |                         |       |      |      |      |       |      |      |   |        |      |       |  
|--------------------------------------------------------------- | ----------------------------------------------------------------------------- | ----------------------- | ----- | ---- | ---- | ---- | ----- | ---- | ---- | - | ------ | ---- | ----- | -
|                                                                |                                                                               |                        
|                                                                |                                                                               | Year Ended December 31,
|                                                                |                                                                               |                        
|                                                                |                                                                               | 2003                    |       | 2002 |      | 2001
|                                                                |                                                                               |                         |       |      |      |     
|                                                                |                                                                               |                        
|                                                                |                                                                               | (in millions, except   
|                                                                |                                                                               | per share amounts)     
|Income (loss) available to common
    stockholders, as reported |                                                                               | $                       | 1,472 |      |      | $    | 1,660 |      |      | $ | (2,858 | )   
|                                                                | Stock-based compensation expense included in
    reported net income          |                         |       | 35   |      |      |       | 8    |      |   |        | 15   |      
|                                                                | Stock-based compensation expense determined under
    fair value based method |                         |       | (360 | )    |      |       | (350 | )    |   |        | (344 | )    
|                                                                |                                                                               |                         |       |      |      |      |       |      |      |   |        |     
|Income (loss) available to common
    stockholders, pro forma   |                                                                               | $                       | 1,147 |      |      | $    | 1,318 |      |      | $ | (3,187 | )   
|                                                                |                                                                               |                         |       |      |      |      |       |      |      |   |        |     
|Earnings (loss) per common
    share                            |                                                                               |                         |       |      |      |      |       |      |      |   |        |     
|                                                                | As reported                                                                   |                         |       |      |      |      |       |      |      |   |        |      |      
|                                                                |                                                                               | Basic                   |       | $    | 1.41 |      |       | $    | 1.88 |   |        | $    | (3.67 | )
|                                                                |                                                                               |                         |       |      |      |      |       |      |      |   |        |     
|                                                                |                                                                               | Diluted                 |       | $    | 1.36 |      |       | $    | 1.78 |   |        | $    | (3.67 | )
|                                                                |                                                                               |                         |       |      |      |      |       |      |      |   |        |     
|                                                                | Pro forma                                                                     |                         |       |      |      |      |       |      |      |   |        |      |      
|                                                                |                                                                               | Basic                   |       | $    | 1.10 |      |       | $    | 1.49 |   |        | $    | (4.10 | )
|                                                                |                                                                               |                         |       |      |      |      |       |      |      |   |        |     
|                                                                |                                                                               | Diluted                 |       | $    | 1.07 |      |       | $    | 1.43 |   |        | $    | (4.10 | )
|                                                                |                                                                               |                         |       |      |      |      |       |      |      |   |        |     

Additional information regarding the assumptions
used in our calculation of the fair value of the awards can be
found in note 12.

Advertising Costs.Costs related to advertising and
other promotional expenditures are expensed as incurred except
where the benefit occurs over the year, in which case the
expense is recognized on a straight-line basis over that year in
accordance with APB Opinion No. 28, Interim Financial
Reporting. Advertising costs totaled $462 million
during 2003, $345 million during 2002 and $340 million
during 2001.

Foreign Currency.In May 2002, we began accounting
for our investment in NII Holdings and its non-U.S. subsidiaries
and affiliates under the equity method and in November 2003, we
began accounting for our investment in NII Holdings under the
cost method. Prior to the change to the equity method, 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). We no longer
have other significant non-U.S. subsidiaries and affiliates.

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. Additional information
regarding income taxes can be found in note 9.

Earnings (Loss) Per Common Share.Basic earnings (loss) per
common share is calculated by dividing income
(loss) available to common stockholders by the weighted
average number of common shares outstanding during the period.
Diluted earnings per common share adjusts basic earnings per
common share for the effects of potentially dilutive common
shares. Potentially dilutive common shares

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


primarily include the dilutive effects of shares
issuable under our 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.

|                                                                   |                                                                               |                                                                         |       |      |    |      |       |      |    |   |        |       |   | 
|------------------------------------------------------------------ | ----------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ----- | ---- | -- | ---- | ----- | ---- | -- | - | ------ | ----- | - | 
|                                                                   |                                                                               |                                                                        
|                                                                   |                                                                               | Year Ended December 31,                                                
|                                                                   |                                                                               |                                                                        
|                                                                   |                                                                               | 2003                                                                    |       | 2002 |    | 2001
|                                                                   |                                                                               |                                                                         |       |      |    |     
|                                                                   |                                                                               |                                                                        
|                                                                   |                                                                               | (in millions, except per share                                         
|                                                                   |                                                                               | amounts)                                                               
|Income (loss) available to common
    stockholders  basic         |                                                                               | $                                                                       | 1,472 |      |    | $    | 1,660 |      |    | $ | (2,858 | )    
|                                                                   | Interest expense and accretion eliminated upon
    the assumed conversion of: |                                                                         |       |      |    |      |       |      |    |   |        |       |  
|                                                                   |                                                                               | 4.75% convertible senior notes due 2007                                 |       |      | 13 |      |       |      | 15 |   |        |       |  | 
|                                                                   |                                                                               | 6% convertible senior notes due 2011                                    |       |      |   |      |       |      | 37 |   |        |       |  | 
|                                                                   |                                                                               | Zero coupon convertible preferred stock
    mandatorily redeemable 2013 |       |      |   |      |       |      | 8  |   |        |       |  | 
|                                                                   |                                                                               |                                                                         |       |      |    |      |       |      |    |   |        |      
|Income (loss) available to common
    stockholders  diluted       |                                                                               | $                                                                       | 1,485 |      |    | $    | 1,720 |      |    | $ | (2,858 | )    
|                                                                   |                                                                               |                                                                         |       |      |    |      |       |      |    |   |        |      
|Weighted average number of common shares
    outstanding  basic   |                                                                               |                                                                         | 1,047 |      |    |      | 884   |      |    |   | 778    |      
|                                                                   | Effect of dilutive securities:                                                |                                                                         |       |      |    |      |       |      |    |   |        |       |  
|                                                                   |                                                                               | Class A convertible preferred stock                                     |       |      | 4  |      |       |      | 33 |   |        |       |  | 
|                                                                   |                                                                               | Equity plans                                                            |       |      | 27 |      |       |      | 6  |   |        |       |  | 
|                                                                   |                                                                               | 4.75% convertible senior notes due 2007                                 |       |      | 11 |      |       |      | 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 |                                                                               |                                                                         | 1,089 |      |    |      | 966   |      |    |   | 778    |      
|                                                                   |                                                                               |                                                                         |       |      |    |      |       |      |    |   |        |      
|Earnings (loss) per common
    share                               |                                                                               |                                                                         |       |      |    |      |       |      |    |   |        |      
|                                                                   | Basic                                                                         |                                                                         | $     | 1.41 |    |      | $     | 1.88 |    |   | $      | (3.67 | )
|                                                                   |                                                                               |                                                                         |       |      |    |      |       |      |    |   |        |      
|                                                                   | Diluted                                                                       |                                                                         | $     | 1.36 |    |      | $     | 1.78 |    |   | $      | (3.67 | )
|                                                                   |                                                                               |                                                                         |       |      |    |      |       |      |    |   |        |      

About 38.5 million shares issuable upon the
assumed conversion of our convertible senior notes and zero
coupon convertible preferred stock could potentially dilute
earnings per share in the future but were excluded from the
calculation of diluted earnings per common share for the year
ended December 31, 2003 due to their antidilutive effects.
Additionally, about 62.7 million shares issuable under our
incentive and other equity plans that could also potentially
dilute earnings per share in the future were excluded from the
calculation of diluted earnings per common share for the year
ended December 31, 2003 as the exercise prices exceeded the
average market price of our class A common stock.

About 8.4 million shares issuable upon the
assumed conversion of our convertible senior notes could
potentially dilute earnings per share in the future but were
excluded from the calculation of diluted earnings per common
share for the year ended December 31, 2002 due to their
antidilutive effects. Additionally, about 84.3 million
shares issuable under our incentive and other equity plans that
could also potentially dilute earnings per share in the future
were excluded from the calculation of diluted earnings per
common share for the year ended December 31, 2002 as the
exercise prices exceeded the average market price of our
class A common stock.

Because we recorded losses in 2001, the
calculation of diluted earnings per common share for the year
ended December 31, 2001 excludes the effects of all
potentially dilutive shares due to their antidilutive effects.

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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


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 currently our sole source for most of
the network equipment and all but one of the handsets we use and
we expect to continue to rely principally on Motorola or its
licensees for the manufacture of handsets and much of the
equipment necessary to construct, enhance and maintain our iDEN
network. Accordingly, we must rely on Motorola to develop
handsets and equipment capable of supporting the features and
services we plan to offer to our customers. In addition, because
we are one of a limited number of wireless carriers that have
deployed iDEN technology, we bear a substantially greater
portion of the costs associated with the development of new
equipment and features than would be the case if our network
utilized a more widely adopted technology platform. If Motorola
fails or refuses to develop and deliver system infrastructure
and handsets or enhancements that we require on a timely,
cost-effective basis, we may not be able to adequately service
our existing subscribers or add new subscribers and may not be
able to offer competitive services and our results could be
materially and adversely affected. If Motorola is unable or
unwilling to provide handsets and related equipment and software
applications, or to develop new technologies or features for us,
due to changes in our relationship as a result of the proposed
spin-off of its semiconductor unit, recent changes in its senior
management team or otherwise, or if Motorola failed or refused
to do so on a timely, cost-effective basis, we may not be able
to adequately service our existing subscribers or add new
subscribers and may not be able to offer competitive services.

We operate in a highly regulated environment
subject to rapid technological and competitive changes. To the
extent that there are changes in economic conditions, technology
or the regulatory environment, our business plans could change
which could affect the recoverability of certain assets.

New
Accounting Pronouncements.

SFAS No. 143.In June 2001, the Financial
Accounting Standards Board, or FASB, issued SFAS No. 143,
Accounting for Asset Retirement Obligations. We
adopted the provisions of SFAS No. 143 during 2003. Under
the provisions of SFAS No. 143, we record an asset
retirement obligation and an associated asset retirement cost
when we have a legal obligation in connection with the
retirement of tangible long-lived assets. Our obligations under
SFAS No. 143 arise from certain of our leases and relate
primarily to the cost of removing our equipment from such leased
sites. The effect of implementing the provisions of SFAS
No. 143 was not material.

FASB Interpretation No. 45.In November 2002, the 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 and clarifies that a guarantor is
required to recognize a liability for the fair value of the
obligations undertaken in issuing certain guarantees at
inception. The initial recognition and measurement provisions of
the interpretation are applicable on a prospective basis to
certain guarantees issued or modified on or after
January 1, 2003. The provisions that require recognition of
a liability do not apply to guarantees by one member of a
consolidated group of entities of the debt of other members of
the same group to third parties. We currently do not guarantee
the debt of any entity outside our consolidated group, and
therefore, the implementation of FASB Interpretation No. 45
did not have a material impact on our financial position or
results of operations.

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


EITF Issue No. 00-21.In November 2002, the EITF issued
a final consensus on EITF Issue No. 00-21, Accounting
for Revenue Arrangements with Multiple Deliverables, which
provides guidance on when and how an arrangement involving
multiple deliverables should be divided into separate units of
accounting.

Previously, under the provisions of SAB
No. 101, Revenue Recognition in Financial
Statements, we accounted for the sale of our handsets and
the subsequent service to the customer as a single unit of
accounting due to the fact that our wireless service is
essential to the functionality of our handsets. Accordingly, we
recognized revenue from handset sales and an equal amount of
cost of handset revenues over the expected customer relationship
period, beginning when title to the handset passed 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. Based on this
fact and that we meet the criteria stipulated in EITF Issue
No. 00-21, we have concluded that EITF Issue No. 00-21
requires us to account for the sale of a handset as a unit of
accounting separate from the subsequent sale of service to the
customer. Accordingly, for all arrangements entered into
beginning in the third quarter 2003, we recognize revenue from
handset sales and the related cost of handset revenues when
title to the handset passes to the customer. In addition, we
recognize the portion of the activation fees allocated to the
handset unit of accounting in the statement of operations when
title to the handset passes to the customer. We defer the
portion of the activation fees allocated to the service unit of
accounting, together with an equal amount of costs, and
recognize such deferred fees and costs on a straight-line basis
over the contract life in the statement of operations.

EITF Issue No. 00-21 became effective
prospectively for arrangements entered into beginning in the
third quarter 2003. In addition, as permitted, we elected to
apply the provisions of EITF Issue No. 00-21 to our
existing customer arrangements, with any impact recorded as a
cumulative effect of a change in accounting principle in the
statement of operations. Accordingly, on July 1, 2003, we
reduced our current assets and liabilities by about
$563 million and our noncurrent assets and liabilities by
about $783 million, representing substantially all of the
revenues and costs associated with the original sale of handsets
that were deferred under SAB No. 101. The cumulative effect
of adopting EITF Issue No. 00-21 did not materially impact
our statement of operations.

FASB Interpretation No. 46.In January 2003, the FASB
issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities  an interpretation of
ARB No. 51, to address perceived weaknesses in
accounting for entities commonly known as special-purpose or
off-balance-sheet. In addition to numerous FASB Staff Positions
written to clarify and improve the application of Interpretation
No. 46, the FASB recently announced a deferral for certain
entities, and an amendment to Interpretation No. 46
entitled FASB Interpretation No. 46R, Consolidation
of Variable Interest Entities. Interpretation No. 46
establishes consolidation criteria for entities for which
control is not easily discernable under Accounting
Research Bulletin No. 51, Consolidated Financial
Statements, which is based on the premise that holders of
the equity of an entity control the entity by virtue of voting
rights. Interpretation No. 46 provides guidance for
identifying the party with a controlling financial interest
resulting from arrangements or financial interests rather than
from voting interests. Interpretation No. 46 defines the
term variable interest entity, or VIE, and is based on the
premise that if a business enterprise absorbs a majority of the
VIEs expected losses and/or receives a majority of its
expected residual returns (measures of risk and reward), that
enterprise (the primary beneficiary) has a controlling financial
interest in the VIE. The assets, liabilities, and results of the
activities of the VIE should be included in the consolidated
financial statements of the primary beneficiary.

We applied Interpretation No. 46R to our
interests in special purpose entities, or SPEs, as of the first
interim or annual period ending after December 15, 2003. We
must apply Interpretation No. 46R to our interests in all
entities subject to the interpretation as of the first interim
or annual period ending after

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


March 15, 2004. Adoption of this new method
of accounting for variable interest entities did not and is not
expected to have a material impact on our financial condition or
results of operations.

SFAS No. 149.In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This
statement amends and clarifies financial accounting and
reporting for derivative instruments, including derivative
instruments embedded in other contracts and for hedging
activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. In
particular, this statement clarifies the circumstances in which
a contract with an initial net investment meets the
characteristic of a derivative, clarifies when a derivative
contains a financing component, amends the definition of an
underlying to conform it to language used in FASB Interpretation
No. 45, and amends certain other existing pronouncements.
SFAS No. 149 is applied prospectively to all contracts
entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003.
However, the provisions of this statement that relate to
SFAS 133 Implementation Issues, which have been
effective for fiscal quarters beginning prior to June 15,
2003, continue to be applied in accordance with their respective
effective dates. The implementation of SFAS No. 149 did not
have a material impact on our financial position or results of
operations.

SFAS No. 150.In May 2003, the FASB issued SFAS
No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity. This
statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of
both liabilities and equity. It requires the issuer to classify
a financial instrument that is within the scope of the standard
as a liability if such financial instrument embodies an
obligation of the issuer. The adoption of SFAS No. 150
required us to reclassify and account for our series D and
series E mandatorily redeemable preferred stock as liabilities
effective July 1, 2003 prospectively, as these mandatorily
redeemable financial instruments embodied an unconditional
obligation that required us to redeem the instrument at a
specified date and/or upon an event certain to occur. As
discussed in note 6, we redeemed all outstanding shares of
our series D preferred stock in July 2003 and all
outstanding shares of our series E preferred stock in
August 2003. We have not reclassified the series D and
series E preferred stock balances and related amounts for
dividends and gains (losses) on retirement for periods
prior to July 1, 2003. Accordingly, the implementation of
SFAS No. 150 did not have a material impact on our
financial position or results of operations. The balance sheet
classification of our zero coupon convertible preferred stock
does not change under SFAS No. 150 because it is
convertible into a fixed number of shares of our class A common
stock.

2.     Supplemental
Balance Sheet Information

|                                              |                                                             |               |       |       |   |   |       |       |  
|--------------------------------------------- | ----------------------------------------------------------- | ------------- | ----- | ----- | - | - | ----- | ----- | -
|                                              |                                                             |              
|                                              |                                                             | December 31, 
|                                              |                                                             |              
|                                              |                                                             | 2003          |       | 2002 
|                                              |                                                             |               |       |      
|                                              |                                                             |              
|                                              |                                                             | (in millions)
|Accounts and notes receivable                 |                                                             |               |       |       |   |   |       |      
|                                              | Trade                                                       |               | $     | 1,336 |   |   | $     | 1,170 |  
|                                              | Other receivables                                           |               |       | 26    |   |   |       | 34    |  
|                                              | Less allowance for doubtful accounts                        |               |       | (86   | ) |   |       | (127  | )
|                                              |                                                             |               |       |       |   |   |       |      
|                                              |                                                             | $             | 1,276 |       |   | $ | 1,077 |      
|                                              |                                                             |               |       |       |   |   |       |      
|Prepaid expenses and other current
    assets |                                                             |               |       |       |   |   |       |      
|                                              | Prepaid expenses                                            |               | $     | 120   |   |   | $     | 104   |  
|                                              | Deferred costs of handset sales and activation
    (note 1) |               |       | 28    |   |   |       | 505   |  
|                                              |                                                             |               |       |       |   |   |       |      
|                                              |                                                             | $             | 148   |       |   | $ | 609   |      
|                                              |                                                             |               |       |       |   |   |       |      

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


|                              |                                                                   |               |       |        |   |   |       |        |  
|----------------------------- | ----------------------------------------------------------------- | ------------- | ----- | ------ | - | - | ----- | ------ | -
|                              |                                                                   |              
|                              |                                                                   | December 31, 
|                              |                                                                   |              
|                              |                                                                   | 2003          |       | 2002  
|                              |                                                                   |               |       |       
|                              |                                                                   |              
|                              |                                                                   | (in millions)
|Property, plant and equipment |                                                                   |               |       |        |   |   |       |       
|                              | Land                                                              |               | $     |       |   |   | $     | 1      |  
|                              | Buildings and improvements                                        |               |       | 221    |   |   |       | 190    |  
|                              | Network equipment and software                                    |               |       | 12,541 |   |   |       | 11,043 |  
|                              | Non-network internal use software, office
    equipment and other |               |       | 1,095  |   |   |       | 1,318  |  
|                              | Less accumulated depreciation and amortization                    |               |       | (5,562 | ) |   |       | (5,007 | )
|                              |                                                                   |               |       |        |   |   |       |       
|                              |                                                                   |               | 8,295 |        |   |   | 7,545 |       
|                              | Network asset inventory and construction in
    progress          |               |       | 798    |   |   |       | 1,373  |  
|                              |                                                                   |               |       |        |   |   |       |       
|                              |                                                                   | $             | 9,093 |        |   | $ | 8,918 |       
|                              |                                                                   |               |       |        |   |   |       |       
|Other assets                  |                                                                   |               |       |        |   |   |       |       
|                              | Debt financing costs, net                                         |               | $     | 145    |   |   | $     | 183    |  
|                              | Software to be sold, leased or marketed, net                      |               |       | 74     |   |   |       | 53     |  
|                              | Deposits on future acquisitions                                   |               |       | 36     |   |   |       | 158    |  
|                              | Deferred costs of handset sales and activation
    (note 1)       |               |       |       |   |   |       | 678    |  
|                              | Other                                                             |               |       | 28     |   |   |       | 92     |  
|                              |                                                                   |               |       |        |   |   |       |       
|                              |                                                                   | $             | 283   |        |   | $ | 1,164 |       
|                              |                                                                   |               |       |        |   |   |       |       
|Accrued expenses and other    |                                                                   |               |       |        |   |   |       |       
|                              | Payroll related                                                   |               | $     | 288    |   |   | $     | 172    |  
|                              | Deferred access revenues                                          |               |       | 310    |   |   |       | 229    |  
|                              | Accrued interest                                                  |               |       | 148    |   |   |       | 165    |  
|                              | Accrued telecommunication costs                                   |               |       | 108    |   |   |       | 92     |  
|                              | Deferred gain from sale of towers                                 |               |       | 94     |   |   |       | 106    |  
|                              | Customer deposits                                                 |               |       | 84     |   |   |       | 98     |  
|                              | Deferred handset sales and activation fees (note
    1)           |               |       | 28     |   |   |       | 505    |  
|                              | Derivative liability                                              |               |       |       |   |   |       | 104    |  
|                              | Other                                                             |               |       | 322    |   |   |       | 278    |  
|                              |                                                                   |               |       |        |   |   |       |       
|                              |                                                                   | $             | 1,382 |        |   | $ | 1,749 |       
|                              |                                                                   |               |       |        |   |   |       |       
|Other liabilities             |                                                                   |               |       |        |   |   |       |       
|                              | Deferred handset sales and activation fees (note
    1)           |               | $     |       |   |   | $     | 678    |  
|                              | Deferred gain from sale of towers                                 |               |       | 92     |   |   |       | 185    |  
|                              | Deferred rent                                                     |               |       | 35     |   |   |       | 44     |  
|                              | Other                                                             |               |       | 39     |   |   |       | 42     |  
|                              |                                                                   |               |       |        |   |   |       |       
|                              |                                                                   | $             | 166   |        |   | $ | 949   |       
|                              |                                                                   |               |       |        |   |   |       |       

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


3.     Investments

|                                                                                                                                              |                                                           |               |     |      |  |   |     |    | 
|--------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | ------------- | --- | ---- |  | - | --- | -- | 
|                                                                                                                                              |                                                           |              
|                                                                                                                                              |                                                           | December 31, 
|                                                                                                                                              |                                                           |              
|                                                                                                                                              |                                                           | 2003          |     | 2002
|                                                                                                                                              |                                                           |               |     |     
|                                                                                                                                              |                                                           |              
|                                                                                                                                              |                                                           | (in millions)
|Marketable equity
    securities, NII Holdings                                                                                                |                                                           | $             | 307 |      |  | $ |    |   
|Marketable debt
    securities, NII Holdings                                                                                                  |                                                           |               | 67  |      |  |   | 49  |   
|Equity method
    investments, at cost net of equity in
    earnings (loss) Nextel Partners, net of equity in net losses of
    $346 and $315 |                                                           |               |    |      |  |   | 17  |   
|                                                                                                                                              | NII Holdings, net of equity in earnings of $0 and
    $16 |               |     |     |  |   |     | 32 | 
|                                                                                                                                              | Other                                                     |               |     | 4    |  |   |     | 2  | 
|Nonvoting mandatorily redeemable preferred
    stock, at accreted liquidation
    preference value, Nextel Partners                           |                                                           |               |    |      |  |   | 35  |   
|Nonmarketable equity
    securities, at cost                                                                                                  |                                                           |               | 30  |      |  |   | 10  |   
|                                                                                                                                              |                                                           |               |     |      |  |   |     |   
|                                                                                                                                              |                                                           | $             | 408 |      |  | $ | 145 |   
|                                                                                                                                              |                                                           |               |     |      |  |   |     |   

NII Holdings.NII Holdings provides wireless
communications services using iDEN technology primarily in
selected Latin American markets. In November 2002, NII Holdings,
which prior to that time had been our substantially wholly-owned
subsidiary, completed its reorganization under Chapter 11
of the U.S. Bankruptcy Code. NII Holdings filed a voluntary
petition for reorganization in May 2002 in the United States
Bankruptcy Court for the District of Delaware, after it and one
of its subsidiaries defaulted on credit and vendor finance
facilities.

Prior to its bankruptcy filing, NII Holdings was
accounted for as one of our consolidated subsidiaries. As a
result of NII Holdings bankruptcy filing in May 2002, we began
accounting for our investment in NII Holdings using the equity
method. In accordance with the equity method, we did not
recognize equity 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
presented NII Holdings net operating results 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 has not changed from prior presentation.

As a result of the completion 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 under the terms of NII
Holdings plan of reorganization. These extinguishments
included the $857 million aggregate principal amount of
notes of NII Holdings that we purchased in August 2001.

The reorganization plan of NII Holdings also
provided for a new infusion of capital into NII Holdings, some
of which was provided by existing creditors including us, in
exchange for a new series of 13% senior secured discount notes
of NII Holdings and shares of NII Holdings new class A
common stock. We contributed about $51 million in cash 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. 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 under the terms of NII Holdings plan of
reorganization, in satisfaction of the outstanding debt
obligations of NII Holdings that we held prior to the bankruptcy
filing. We also provided $50 million of additional funding
to NII Holdings in exchange for a

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


U.S.-Mexico cross border spectrum sharing
arrangement. In 2003, NII Holdings fulfilled its network
construction obligation pursuant to this arrangement.

Upon NII Holdings emergence from bankruptcy
in November 2002, 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,
under which we recorded our proportionate share of NII
Holdings results of operations.

During the third quarter 2003, NII Holdings
completed a public offering of its common stock and as a result,
we recorded an increase of $17 million in paid-in capital
in our stockholders equity in accordance with SAB
No. 51, Accounting for Sales of Stock by a
Subsidiary. Also, in November 2003, we sold
3.0 million shares of NII Holdings common stock, which
generated $209 million in net proceeds and a gain of
$174 million. As a result, as of December 31, 2003, we
owned about 18% of the outstanding common stock of NII Holdings.
As we do not exercise significant influence over the operating
or financial policies of NII Holdings, we account for our
interest in NII Holdings as an available-for-sale cost method
investment. In addition, in February 2004, we tendered our
$66 million of the NII Holdings 13% senior notes to NII
Holdings in exchange for $77 million in cash. As of
December 31, 2003, we have no future funding commitment to
NII Holdings.

Under roaming agreements with NII Holdings, we
were charged $8 million during 2003 and $7 million
during 2002 for our subscribers roaming on NII Holdings
networks, net of roaming revenues earned of $1 million
during 2003 and 2002 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, 2003 and 2002.

Timothy M. Donahue, a member of our board of
directors and our President and Chief Executive Officer, was a
director of NII Holdings until March 2004.

Nextel Partners.In January 1999, we entered into
agreements with Nextel Partners and other parties, including
Motorola, relating to the formation, capitalization, governance,
financing and operation of Nextel Partners. In those
transactions in 1999, we sold assets and transferred specified
FCC licenses to Nextel Partners in exchange for equity interests
in Nextel Partners having a total agreed value of
$140 million and cash of $142 million, which also
included the reimbursement of costs and net operating expenses.
As a result of Nextel Partners initial public offering in
February 2000, our equity interest was converted into voting
class B common stock and our total ownership interest was
diluted.

We entered into the relationships with Nextel
Partners principally to accelerate the build-out of our network
outside the largest metropolitan market areas that initially
were 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 interconnection 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.

As of December 31, 2003, we have no future
funding commitment to Nextel Partners. However, 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


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) this technology 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;
|
| |  | we elect to terminate the relationship with
    Nextel Partners because of its breach of the operating
    agreements;                                                                                                                                                                                                                                           
|
| |  | we experience a change of control;                                                                                                                                                                                                                                                                                                                               
|
| |  | we breach the operating agreements; or                                                                                                                                                                                                                                                                                                                           
|
| |  | 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 a 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 that a buyer would be willing to
    pay for all of Nextel Partners outstanding capital stock
    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.

During 2003, we received $15 million for the
sale of FCC licenses and network assets to Nextel Partners.
Additionally, Nextel Partners completed an offering of its
common stock and as a result, we recorded an increase of
$5 million in paid-in capital in our stockholders
equity in accordance with SAB No. 51. As a result, as of
December 31, 2003, we owned about 30% of the outstanding
common stock of Nextel Partners. In November 2003, Nextel
Partners redeemed its 12% nonvoting mandatorily redeemable
preferred stock that we held for $39 million. As our
investment in Nextel Partners was written down to

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SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


zero during the second quarter 2003 through the
application of the equity method of accounting, we recorded a
gain of $39 million.

Under our roaming agreement with Nextel Partners,
we were charged $51 million during 2003, $40 million during
2002 and $36 million during 2001 for our customers roaming
on Nextel Partners network, net of roaming revenues
earned. We also provide telecommunications switching services to
Nextel Partners under a switch sharing agreement. For these
services, we earned $44 million in 2003, $52 million in
2002 and $49 million in 2001, which we recorded as a
reduction to cost of service. We also charged Nextel Partners
$11 million in 2003, $6 million in 2002 and
$5 million in 2001 for administrative services provided
under a services agreement. We recorded these amounts as a
reduction to selling, general and administrative expenses. We
earned $4 million in 2003 in royalty fees, which we
recorded as other income (expense). We have a net receivable due
from Nextel Partners of $16 million as of December 31,
2003 and $16 million as of December 31, 2002.

As of December 31, 2003, Mr. Donahue
and Dennis M. Weibling, a member of our board of directors, each
were directors of Nextel Partners.

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, which we subsequently
fulfilled during 2001, to lease space on at least 1,700
additional towers in the United States 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 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 ended our continuing involvement
in SpectraSite for substantially all of our tower leases.
Accordingly, 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 represented the deferred gain
as of December 31, 2002 from the sale of the towers assets,
which we recognize over the remainder of the initial lease term
of each tower lease, ranging from 2003 to 2007. Subsequent
payments under the leasebacks are accounted for as operating
leases and are included in rent expense in cost of service. As
of December 31, 2003, we had a remaining finance obligation
balance of $10 million and deferred gain of
$186 million.

TELUS.NII
Holdings had an investment in TELUS Corporation, a publicly
traded Canadian telecommunications company. 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.

4.     Significant
Transactions

Acquisitions.In January 2003, we purchased the
900 MHz FCC licenses of NeoWorld Communications, Inc. through
the acquisition of all of its stock. Pursuant to our agreements,
we paid an aggregate cash purchase price of $280 million, of
which $201 million was paid in 2003 and the remainder was
paid prior to 2003. We accounted for this transaction as an
asset purchase because we purchased FCC licenses that were not
being used to generate revenues and we did not acquire any
employees or customers.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


In July 2003, the U.S. Bankruptcy Court approved
our $144 million bid to purchase certain multichannel
multipoint distribution system, or MMDS, FCC licenses, interests
in certain MMDS FCC licenses and other network assets of
WorldCom, Inc. and in November 2003, the U.S. Bankruptcy Court
approved our $51 million bid to purchase certain MMDS FCC
licenses and other network assets of Nucentrix Broadband
Networks, Inc. These licenses relate to spectrum that we may use
in connection with the deployment of certain broadband services.
The closing of each of these transactions is subject to approval
by the FCC, which we expect to occur in 2004.

In February 2002, we purchased from Chadmoore
Wireless Group, Inc. 800 MHz and 900 MHz FCC 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 and
substantially all of the purchase price was allocated to
licenses.

In May 2001, we purchased from Arch Wireless,
Inc. 900 MHz FCC 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 FCC 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 FCC licenses and related assets for
a cash purchase price of $58 million. In December 2001, we
purchased from Pacific Wireless Technologies, Inc. 800 MHz FCC
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.

The total purchase price and net assets acquired
for significant business combinations completed during 2002 and
2001 are presented below. Since the results of operations for
the years ended December 31, 2002 and 2001 were not
materially affected by the business combinations consummated in
2002 and 2001, 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.

|                                     |                                                         |               |     |      |  |   |     |     | 
|------------------------------------ | ------------------------------------------------------- | ------------- | --- | ---- |  | - | --- | --- | 
|                                     |                                                         |              
|                                     |                                                         | Year Ended   
|                                     |                                                         | December 31, 
|                                     |                                                         |              
|                                     |                                                         | 2002          |     | 2001
|                                     |                                                         |               |     |     
|                                     |                                                         |              
|                                     |                                                         | (in millions)
|Direct cost of business combinations |                                                         |               |     |      |  |   |     |    
|                                     | Cash paid, net of cash acquired                         |               | $   | 111  |  |   | $   | 245 | 
|                                     | Cash paid in prior periods                              |               |     | 25   |  |   |     | 22  | 
|                                     | Accrued acquisition and transaction costs and
    other |               |     | 6    |  |   |     | 7   | 
|                                     |                                                         |               |     |      |  |   |     |    
|                                     |                                                         | $             | 142 |      |  | $ | 274 |    
|                                     |                                                         |               |     |      |  |   |     |    
|Net assets acquired                  |                                                         |               |     |      |  |   |     |    
|                                     | Working capital  net                                   |               | $   |     |  |   | $   | 4   | 
|                                     | Property, plant and equipment                           |               |     |     |  |   |     | 11  | 
|                                     | Intangible assets                                       |               |     | 142  |  |   |     | 256 | 
|                                     | Other assets                                            |               |     |     |  |   |     | 3   | 
|                                     |                                                         |               |     |      |  |   |     |    
|                                     |                                                         | $             | 142 |      |  | $ | 274 |    
|                                     |                                                         |               |     |      |  |   |     |    

Restructuring and Impairment Charges.In January 2002, we announced a
five-year information technology outsourcing agreement with
Electronic Data Systems Corp., or EDS, under which EDS

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


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 and TeleTech
Holdings, Inc. to manage our customer care centers. In
connection with these outsourcing agreements, we recorded a
$35 million restructuring and impairment charge in the
first quarter 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 and the write-off of impaired assets. The employee
separations were completed by the end of 2002. As of December
2003, our restructuring liability was $12 million.

In May 2001, we announced a restructuring to
reduce our 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.

During the third quarter 2001, NII Holdings
decided to discontinue funding its Philippine operating company.
Accordingly, NII Holdings performed an assessment of the
carrying values of the long-lived assets related to its
Philippine operating company and the review indicated that these
assets were impaired. To estimate the fair value of the
long-lived assets, NII Holdings used a market-value-based
approach. Based on the results of its assessment, NII Holdings
recorded a $147 million pre-tax impairment charge. During
the fourth quarter 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 and
reflected the anticipated available sources of funding. 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 as each is a
separate group under SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. Since the receipt of funds contemplated in
the revised business plan was uncertain, NII holdings did not
consider in its analyses the future cash flows generated by any
additional funding. NII Holdings review indicated that all
of the long-lived assets held by each of its operating
subsidiaries were impaired. In consultation with an independent
consultant and outside financial advisors, NII Holdings
estimated the fair values of the long-lived assets based on
estimated discounted cash flows from future operations and also
considered the market-based valuations of Latin American
wireless telecommunications companies to corroborate the results
from the discounted cash flow approach. NII Holdings
determination of fair value required it to make estimates and
assumptions that significantly affect the reported impairment
charges in 2001. 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. Based on the results of its analyses, NII
Holdings wrote-down the carrying values of its long-lived assets
held by its operating companies to their estimated fair market
values and recorded non-cash pre-tax impairment charges of about
$1,594 million. NII Holdings also recorded a $6 million
pre-tax restructuring and other charge related to the
restructuring of its operating companies in Brazil and the
Philippines and the write-off of an information technology
development project that was abandoned as part of the revised
business plan.

Shelf Registration Statement and Related
Financing Activities.In July
2003, the Securities and Exchange Commission declared effective
our shelf registration statement, under which we could offer up
to $5 billion of a variety of securities, including debt
securities, preferred stock and our class A common

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


stock. Of the $5 billion, we initially
designated $500 million for issuance of shares of class A
common stock under our direct stock purchase plan. Details of
the plan are described in the related prospectus, included as
part of the shelf registration statement that was distributed to
our existing stockholders in July 2003.

During 2003, we received net cash proceeds of
about $499 million from the issuance of shares of our class
A common stock under our direct stock purchase plan and we
completed the sale of $2,500 million in aggregate principal
amount of new senior notes. Additional information regarding
these senior notes and other transactions under the shelf
registration can be found in note 6.

5.     Intangible
Assets

|                              |                                                          |              |  |                   |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |       | 
|----------------------------- | -------------------------------------------------------- | ------------ |  | ----------------- |  | ----------------- | ----- | -------- |  | -------- | -- | ------------ |  | -------- | ----- | ----- |  | - | ----- | ----- |  | - | -- | -- |  | - | ----- | ----- | 
|                              |                                                          |              |  |                   |  |                  
|                              |                                                          |              |  | December 31, 2003 |  | December 31, 2002
|                              |                                                          |              |  |                   |  |                  
|                              |                                                          |              |  | Gross             |  |                   |       | Net      |  | Gross    |    |              |  | Net     
|                              |                                                          |              |  | Carrying          |  | Accumulated       |       | Carrying |  | Carrying |    | Accumulated  |  | Carrying
|                              |                                                          | Useful Lives |  | Value             |  | Amortization      |       | Value    |  | Value    |    | Amortization |  | Value   
|                              |                                                          |              |  |                   |  |                   |       |          |  |          |    |              |  |         
|                              |                                                          |              |  |                  
|                              |                                                          |              |  | (in millions)    
|Amortized intangible assets   |                                                          |              |  |                   |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              | Customer lists                                           |              |  | 3 years           |  |                   | $     | 98       |  |          | $  | 75           |  |          | $     | 23    |  |   | $     | 129   |  |   | $  | 66 |  |   | $     | 63    | 
|                              | Spectrum sharing and noncompete agreements and
    other |              |  | Up to 20 years    |  |                   |       | 82       |  |          |    | 17           |  |          |       | 65    |  |   |       | 58    |  |   |    | 10 |  |   |       | 48    | 
|                              |                                                          |              |  |                   |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              |                                                          |              |  |                   |  |                   | 180   |          |  |          | 92 |              |  |          | 88    |       |  |   | 187   |       |  |   | 76 |    |  |   | 111   |      
|                              |                                                          |              |  |                   |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|Unamortized intangible assets |                                                          |              |  |                   |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              | FCC licenses                                             |              |  | Indefinite        |  |                   |       | 6,922    |  |          |    |              |  |          |       | 6,922 |  |   |       | 6,475 |  |   |    |    |  |   |       | 6,475 | 
|                              | Goodwill                                                 |              |  | Indefinite        |  |                   |       | 28       |  |          |    |              |  |          |       | 28    |  |   |       | 21    |  |   |    |    |  |   |       | 21    | 
|                              |                                                          |              |  |                   |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              |                                                          |              |  |                   |  |                   | 6,950 |          |  |          |    |              |  |          | 6,950 |       |  |   | 6,496 |       |  |   |    |    |  |   | 6,496 |      
|                              |                                                          |              |  |                   |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|Total intangible assets       |                                                          |              |  |                   |  | $                 | 7,130 |          |  | $        | 92 |              |  | $        | 7,038 |       |  | $ | 6,683 |       |  | $ | 76 |    |  | $ | 6,607 |      
|                              |                                                          |              |  |                   |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      

FCC licenses, our most significant intangible
assets, authorize wireless carriers to use radio frequency
spectrum, and 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 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.

During the year ended December 31, 2003, we
acquired FCC licenses for an aggregate purchase price of
$366 million, which included both the licenses of NeoWorld
Communications and deposits for other licenses paid prior to
2003 that were recorded in other assets until we acquired the
relevant licenses. In connection with the NeoWorld
Communications acquisition, we recorded an additional deferred
tax liability of $86 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.

For intangible assets with finite lives, we
recorded aggregate amortization expense of $51 million for
the year ended December 31, 2003. Based only on the
amortized intangible assets existing at December 31, 2003,
we estimate the amortization expense to be $34 million
during 2004, $10 million during 2005, $5 million
during 2006, $4 million during 2007 and $3 million
during 2008. Actual

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


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.

We performed our annual impairment test of FCC
licenses and goodwill as of October 1, 2003 and 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 MHz and 900 MHz FCC licenses
by deducting the fair values of our net assets as well as the
fair values of certain unrecorded identified intangible assets,
other than these FCC licenses, from our reporting units
fair value, which was determined using a discounted cash flow
analysis that was based on our long-term cash flow projections,
discounted at our corporate weighted average cost of capital.

We have about $350 million in 700 MHz
FCC licenses that we have agreed to exchange, along with other
licenses, in our proposal filed with the FCC. These 700 MHz
licenses are not currently used in our network.

Adoption of SFAS No. 142.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. We have recorded an
incremental non-cash charge of $62 million during 2003 and
$51 million during 2002 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 $574 million to FCC licenses and deferred tax
liability in accordance with the provisions of SFAS
No. 109. 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.

The table below reflects our financial results
for the specified period as if we had adopted SFAS No. 142
effective January 1, 2001 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.

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


|                                                          |                                                    |                   |        |       |  
|--------------------------------------------------------- | -------------------------------------------------- | ----------------- | ------ | ----- | -
|                                                          |                                                    | Year Ended       
|                                                          |                                                    | December 31, 2001
|                                                          |                                                    |                  
|                                                          |                                                    | (in millions,    
|                                                          |                                                    | except per share 
|                                                          |                                                    | amounts)         
|Loss attributable to common stockholders, as
    reported |                                                    | $                 | (2,858 | )    
|                                                          | Amortization of goodwill and FCC licenses recorded |                   |        | 147   |  
|                                                          | Income tax provision adjustments                   |                   |        | (370  | )
|                                                          |                                                    |                   |        |      
|Loss attributable to common stockholders, pro
    forma   |                                                    | $                 | (3,081 | )    
|                                                          |                                                    |                   |        |      
|Loss per common share, basic and diluted, as
    reported |                                                    | $                 | (3.67  | )    
|                                                          | Amortization of goodwill and FCC licenses recorded |                   |        | 0.19  |  
|                                                          | Income tax provision adjustments                   |                   |        | (0.48 | )
|                                                          |                                                    |                   |        |      
|Loss per common share, basic and diluted, pro
    forma   |                                                    | $                 | (3.96  | )    
|                                                          |                                                    |                   |        |      



|   |                                                                                                           
|-- | ----------------------------------------------------------------------------------------------------------
|6. | Long-Term Debt, Capital Lease and Finance
    Obligations and 
     Mandatorily Redeemable Preferred Stock

During the second quarter 2002 and continuing
throughout 2003, we began reducing our outstanding debt
obligations through the redemption, purchase and retirement of
some of our long-term debt and preferred stock. We used some of
the proceeds from newly issued senior notes and a new term loan
under the bank credit facility, together with our existing cash
resources, to redeem and retire certain senior notes,
then-existing term loans under the facility and preferred stock.
These newly issued senior notes and the new term loan have lower
interest rates and longer maturity periods than the notes and
loans that were retired. We also issued shares of our class A
common stock in exchange for some of our outstanding debt
securities. We may, from time to time, as we deem appropriate,
enter into additional refinancing and similar transactions,
including exchanges of our common stock or other securities for
our debt and other long-term obligations and redemption,
repurchase or retirement transactions that in the aggregate may
be material.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


Long-Term Debt

|                                                                                                                                                                                                                          |                      |                       |        |             |   |           |       |              |  |   |       |      |  |   |        |      |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | --------------------- | ------ | ----------- | - | --------- | ----- | ------------ |  | - | ----- | ---- |  | - | ------ | ---- | -
|                                                                                                                                                                                                                          |                      |                       |        | Book and    |   | New       |       |             
|                                                                                                                                                                                                                          |                      | Balance               |        | Principal   |   | Debt      |       | Balance     
|                                                                                                                                                                                                                          |                      | December 31,          |        | Value of    |   | Issuance  |       | December 31,
|                                                                                                                                                                                                                          |                      | 2002                  |        | Retirements |   | and Other |       | 2003        
|                                                                                                                                                                                                                          |                      |                       |        |             |   |           |       |             
|                                                                                                                                                                                                                          |                      |                      
|                                                                                                                                                                                                                          |                      | (dollars in millions)
|10.65% senior redeemable discount notes due
    2007                                                                                                                                                                      |                      | $                     | 756    |             |   | $         | 756   |              |  | $ |      |      |  | $ |       |     
|9.75% senior serial redeemable discount notes
    due 2007                                                                                                                                                                |                      |                       | 1,086  |             |   |           | 1,086 |              |  |   |      |      |  |   |       |     
|4.75% convertible senior notes due
    2007                                                                                                                                                                               |                      |                       | 284    |             |   |           | 284   |              |  |   |      |      |  |   |       |     
|9.95% senior serial redeemable discount notes
    due 2008, net of unamortized discount
    of $16 and $0                                                                                                                 |                      |                       | 1,364  |             |   |           | 1,380 |              |  |   | 16    | (a)  |  |   |       |     
|12% senior serial redeemable notes due
    2008, net of unamortized discount of
    $3 and $0                                                                                                                             |                      |                       | 297    |             |   |           | 297   |              |  |   |      |      |  |   |       |     
|9.375% senior serial redeemable notes due
    2009                                                                                                                                                                        |                      |                       | 1,796  |             |   |           | 197   |              |  |   |      |      |  |   | 1,599  |     
|5.25% convertible senior notes due
    2010                                                                                                                                                                               |                      |                       | 622    |             |   |           | 15    |              |  |   |      |      |  |   | 607    |     
|9.5% senior serial redeemable notes due
    2011, including fair value hedge
    adjustment of $58 and deferred premium of $36                                                                                            |                      |                       | 948    |             |   |           | 31    |              |  |   | (22   | )(b) |  |   | 895    |     
|6% convertible senior notes due 2011                                                                                                                                                                                      |                      |                       | 608    |             |   |           |      |              |  |   |      |      |  |   | 608    |     
|6.875% senior serial redeemable notes due
    2013                                                                                                                                                                        |                      |                       |       |             |   |           |      |              |  |   | 500   |      |  |   | 500    |     
|7.375% senior serial redeemable notes due
    2015, including unamortized premium of
    $0 and $8                                                                                                                        |                      |                       |       |             |   |           |      |              |  |   | 2,008 |      |  |   | 2,008  |     
|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 (2.4% to
    6.9%  2003; 2.7% to 5.9%  2002) |                      |                       | 4,500  |             |   |           | 2,774 |              |  |   | 2,078 | (c)  |  |   | 3,804  |     
|Other                                                                                                                                                                                                                     |                      |                       | 17     |             |   |           |      |              |  |   | (1    | )(d) |  |   | 16     |     
|                                                                                                                                                                                                                          |                      |                       |        |             |   |           |       |              |  |   |       |      |  |   |        |     
|Total long-term debt                                                                                                                                                                                                      |                      |                       | 12,278 |             |   | $         | 6,820 |              |  | $ | 4,579 |      |  |   | 10,037 |     
|                                                                                                                                                                                                                          |                      |                       |        |             |   |           |       |              |  |   |       |      |  |   |        |     
|                                                                                                                                                                                                                          | Less current portion |                       |        | (199        | ) |           |       |              |  |   |       |      |  |   |        | (321 | )
|                                                                                                                                                                                                                          |                      |                       |        |             |   |           |       |              |  |   |       |      |  |   |        |     
|                                                                                                                                                                                                                          |                      | $                     | 12,079 |             |   |           |       |              |  |   |       |      |  | $ | 9,716  |     
|                                                                                                                                                                                                                          |                      |                       |        |             |   |           |       |              |  |   |       |      |  |   |        |     



---



|    |                                                                                               
|--- | ----------------------------------------------------------------------------------------------
|(a) | Represents the accretion of unamortized discounts.                                            
|   
|(b) | Represents the non-cash decrease to the fair
    value hedge adjustment during the year.      
|   
|(c) | Represents borrowings of $2,269 million less
    scheduled principal payments of $191 million.
|   
|(d) | Represents scheduled principal payments.                                                      

10.65% Senior Notes.Cash interest on the 10.65% senior
redeemable discount notes due 2007 began to accrue
September 15, 2002, at an annual rate of 10.65%. These
notes were senior unsecured indebtedness of ours and ranked
equal in right of payment with all our other unsubordinated,
unsecured indebtedness. These senior notes were retired in 2003.
See  Senior Notes Retirements.

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SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


9.75% Senior Notes.Cash interest on the 9.75% senior
serial redeemable discount notes due 2007 began to accrue
October 31, 2002 at an annual rate of 9.75%. These notes
were senior unsecured indebtedness of ours and ranked equal in
right of payment with all our other unsubordinated, unsecured
indebtedness. These senior notes were retired in 2003. See
 Senior Notes Retirements.

4.75% Convertible Senior Notes.Cash interest on the 4.75%
convertible senior notes due 2007 was payable semiannually on
January 1 and July 1 at an annual rate of 4.75%. These notes
were senior unsecured indebtedness of ours and ranked equal in
right of payment with all our other unsubordinated, unsecured
indebtedness. These convertible senior notes were retired in
2003. See  Senior Notes Retirements.

9.95% Senior Notes.Cash interest on the 9.95% senior
serial redeemable discount notes due 2008 did not accrue prior
to February 15, 2003, and was payable semiannually
beginning August 15, 2003 at an annual rate of 9.95%. These
notes were senior unsecured indebtedness of ours and ranked
equal in right of payment with all our other unsubordinated,
unsecured indebtedness. These senior notes were retired in 2003.
See  Senior Notes Retirements.

12% Senior Notes.Cash interest on the 12% senior
serial redeemable notes due 2008 was payable semiannually on May
1 and November 1 at an annual rate of 12%. These notes were
senior unsecured indebtedness of ours and ranked equal in right
of payment with all our other unsubordinated, unsecured
indebtedness. These senior notes were retired in 2003. See
 Senior Notes Retirements.

9.375% Senior Notes.Cash interest on the 9.375% senior
serial redeemable notes due 2009 is payable semiannually in
arrears on May 15 and November 15, at an annual rate
of 9.375%. We may choose to redeem some or all of these notes
commencing November 15, 2004 at a redemption price of
104.688% of the aggregate principal amount of these notes, plus
accrued and unpaid interest. These notes are senior unsecured
indebtedness and rank equal in right of payment with all our
other unsubordinated, unsecured indebtedness.

5.25% Convertible Senior Notes.Cash interest on the 5.25%
convertible senior notes due 2010 is payable semiannually in
arrears on January 15 and July 15, at an annual rate of
5.25%. We may choose to redeem some or all of these notes at a
redemption price that currently is 102.917% 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 and rank equal in right of payment with
all our other unsubordinated, unsecured indebtedness.

9.5% Senior Notes.In January 2001, we completed the
sale of $1,250 million in principal amount of our 9.5% senior
serial redeemable notes due 2011, which generated about
$1,245 million in net cash proceeds to us. Cash interest on
these notes is payable semiannually in arrears on February 1 and
August 1, at an annual rate of 9.5%. We may choose to
redeem some or all of these notes commencing on February 1,
2006 at an initial redemption price of 104.75% of the aggregate
principal amount of these notes, plus accrued and unpaid
interest. These notes are senior unsecured indebtedness and rank
equal in right of payment with all 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 recognized an
increase to the carrying value of these notes. During the third
quarter 2003, we terminated all three swap agreements in
exchange for cash received of about $38 million. As a
result of the terminations, we recorded a premium of about
$38 million, which will be recognized as an adjustment

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


to interest expense in our statement of
operations over the remaining life of the hedged debt.
Additional information regarding our hedging activities can be
found in note 8.

6% Convertible Senior Notes.In May 2001, we completed the sale
of $1,000 million in principal amount of our 6% convertible
senior notes due 2011, which generated about $980 million
in net cash proceeds to us. Cash interest on these notes is
payable semiannually in arrears on June 1 and December 1,
at an annual rate of 6%. We may choose to redeem some or all of
these notes commencing on 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 indebtedness and
rank equal in right of payment with all our other
unsubordinated, unsecured indebtedness.

6.875% Senior Notes.In October 2003, we completed the
sale of $500 million in principal amount of our 6.875% senior
serial redeemable notes due 2013, which generated about
$500 million in net cash proceeds to us. Cash interest on
these notes is payable semiannually in arrears on April 30
and October 31 commencing April 30, 2004, at an annual
rate of 6.875%. We may choose to redeem some or all of these
notes commencing on October 31, 2008 at an initial
redemption price of 103.438% of the aggregate principal amount
of these notes, plus accrued and unpaid interest. On or before
October 31, 2006, we may choose to redeem a portion of the
principal amount of the outstanding notes using the proceeds of
one or more sales of qualified equity securities at a redemption
price of 106.875% of the notes principal amount, plus
accrued and unpaid interest to the date of redemption, so long
as a specified principal amount of notes remains outstanding
immediately following the redemption. These notes are senior
unsecured indebtedness and rank equal in right of payment with
all our other unsubordinated, unsecured indebtedness.

7.375% Senior Notes.In July 2003, we completed the
sale of $1,000 million in principal amount of our 7.375% senior
serial redeemable notes due 2015, which generated about
$983 million in net cash proceeds to us. In September 2003,
we completed the sale of an additional $1,000 million in
principal amount of our 7.375% senior notes due 2015, which
generated about $1,000 million in net cash proceeds to us.
The senior notes issued in July 2003 and September 2003 are a
single series of notes. Cash interest on these notes is payable
semiannually in arrears on February 1 and August 1, at an
annual rate of 7.375%. We may choose to redeem some or all of
these notes commencing on August 1, 2008 at an initial
redemption price of 103.688% of the aggregate principal amount
of these notes, plus accrued and unpaid interest. On or before
August 1, 2006, we may choose to redeem a portion of the
principal amount of the outstanding notes using the proceeds of
one or more sales of qualified equity securities at a redemption
price of 107.375% of the notes principal amount, plus
accrued and unpaid interest to the date of redemption, so long
as a specified principal amount of notes remains outstanding
immediately following the redemption. These notes are senior
unsecured indebtedness and rank equal in right of payment with
all our other unsubordinated, unsecured indebtedness.

Senior Notes Retirements.For the year ended
December 31, 2003, we purchased and retired a total of
$4,049 million in aggregate principal amount at maturity of
our outstanding senior notes and convertible senior notes in
exchange for 30.6 million shares of class A common stock
valued at $588 million and about $3,626 million in cash. As
a result, we recognized a $204 million loss in other income
(expense) in the statements of operations, representing the
excess of the purchase price over the carrying value of the
purchased and retired notes and the write-off of unamortized
debt financing costs.

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 convertible senior notes in exchange for
97.7 million shares of class A common stock valued at
$596 million and about $666 million

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


in cash. As a result, we recognized a
$514 million gain in other income (expense) in the
statement 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. In
accordance with SFAS No. 84, Induced Conversions of
Convertible Debt, the shares of our class A common stock
issued in excess of the shares that the holders would have been
entitled to had they converted under the original terms of the
convertible notes are multiplied by the fair value of the shares
on the transaction date and the result is recorded as debt
conversion expense of $160 million in other income
(expense) in the statement of operations.

In August 2001, Nextel Communications purchased
in private placement transactions an aggregate of
$857 million in principal amount of NII Holdings
senior notes in exchange for 21.6 million shares of our
class A common stock. Although Nextel Communications held these
notes, these transactions were recorded as an early retirement
of debt in our consolidated financial statements in accordance
with generally accepted accounting principles. 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 date of the
exchanges.

Bank Credit Facility.As of December 31, 2003, our
bank credit facility provided for total secured financing
capacity of up to $5 billion, subject to the satisfaction
or waiver of applicable borrowing conditions, representing a
reduction in the total financing capacity from $6 billion
at December 31, 2002 as a result of scheduled reductions in
capacity and the amendments to and restructuring of the facility
described below. As of December 31, 2003, this facility
consisted of a $1.3 billion revolving loan commitment, of
which $116 million has been borrowed, and $3.7 billion in
two classes of term loans, all of which have been borrowed.

In October 2003, we amended our credit facility
to:



| |   |                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increase the amount of revolving loans that may
    be used to support letters of credit from $150 million to
    $750 million; and                                                                                                                        
|
| |  | obtain the ability to prepay outstanding
    principal amounts under any class of term loan without
    concurrently being required to prepay outstanding principal
    amounts of other classes of term loans, as was required prior to
    the amendment.

In December 2003, we reduced the principal amount
of outstanding term loans under the facility by
$574 million by prepaying $2.8 billion of term loans
under that facility with cash on hand and the proceeds from the
syndication of a new $2.2 billion term loan under that
facility that matures in December 2010. At the same time, we
amended the facility to permit us at some future time to
establish one or more series of incremental revolving loan
commitments that would replace the existing revolving loan
commitment as it is reduced or terminated, and to include a
prospective consent of the lenders to certain possible future
extensions of the existing revolving credit commitments.

The term loans mature on December 31, 2007
and December 15, 2010. On March 31, 2004, the amount of the
revolving loan commitment available to us will be reduced by
$38 million every quarter and such reductions will increase
to $75 million every quarter beginning April 1, 2004 and
continuing through March 31, 2005. Starting April 1,
2005, the reductions become more significant until 2007 when no
amounts will be available under the revolving 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.
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. We are also
obligated to repay the loans if certain change of

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SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


control events occur. As of December 31,
2003, we were in compliance with all financial ratio tests under
our credit facility. Borrowings under the credit facility are
secured by liens on substantially all of our assets, and are
guaranteed by our parent company and substantially all of our
subsidiaries. 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 borrow 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, 2003,
the applicable provisions of our senior notes and mandatorily
redeemable preferred stock did not restrict our ability, and we
had satisfied the borrowing conditions under this facility, to
borrow substantially all of the remaining $1.2 billion
revolving credit commitment that is currently available.

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

Capital Lease and Finance
Obligations

|                                                |                      |              |     |      |   |   |     |     |  
|----------------------------------------------- | -------------------- | ------------ | --- | ---- | - | - | --- | --- | -
|                                                |                      |             
|                                                |                      | December 31,
|                                                |                      |             
|                                                |                      | 2003         |     | 2002
|                                                |                      |              |     |     
|                                                |                      |             
|                                                |                      | (dollars in 
|                                                |                      | millions)   
|Capital lease obligations                       |                      | $            | 165 |      |   | $ | 262 |    
|Finance obligation                              |                      |              | 10  |      |   |   | 10  |    
|                                                |                      |              |     |      |   |   |     |    
|Total capital lease and finance
    obligations |                      |              | 175 |      |   |   | 272 |    
|                                                | Less current portion |              |     | (166 | ) |   |     | (52 | )
|                                                |                      |              |     |      |   |   |     |    
|                                                |                      | $            | 9   |      |   | $ | 220 |    
|                                                |                      |              |     |      |   |   |     |    

Effective April 2001, a switch equipment sale
leaseback transaction, previously accounted for as an operating
lease, was accounted for as a capital lease in the amount of
$84 million due to a modification to the lease provisions.
In March 2003, we paid $69 million in cash related to the
exercise of the early buy-out option provided for in this switch
equipment capital lease agreement, $54 million of which
related to the reduction of the capital lease obligation and
recorded the $15 million difference as an adjustment to the
book basis of the switch asset.

In November 2003, we notified the lessor of our
intent to exercise the early buy out option provided for in our
remaining switch equipment capital lease, the amount of which is
reflected as current liabilities in our balance sheet as of
December 31, 2003. In February 2004, we completed the early
buy out option and paid $191 million in cash,
$156 million of which related to the reduction of the
capital lease obligation and recorded the $35 million
difference as an adjustment to the book basis of the switch
assets.

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


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

For the years subsequent to December 31,
2003, scheduled annual maturities of long-term debt, capital
lease and finance obligations outstanding as of
December 31, 2003 are as follows:

|                        |  |               |        |               |  |       |     |  |  |   |        | 
|----------------------- |  | ------------- | ------ | ------------- |  | ----- | --- |  |  | - | ------ | 
|                        |  |               |        | Capital Lease |  |      
|                        |  | Long-Term     |        | and Finance   |  |      
|                        |  | Debt          |        | Obligations   |  | Total
|                        |  |               |        |               |  |      
|                        |  |              
|                        |  | (in millions)
|2004                    |  | $             | 321    |               |  | $     | 166 |  |  | $ | 487    | 
|2005                    |  |               | 427    |               |  |       | 1   |  |  |   | 428    | 
|2006                    |  |               | 461    |               |  |       | 1   |  |  |   | 462    | 
|2007                    |  |               | 499    |               |  |       | 7   |  |  |   | 506    | 
|2008                    |  |               | 22     |               |  |       |    |  |  |   | 22     | 
|Thereafter              |  |               | 8,263  |               |  |       |    |  |  |   | 8,263  | 
|                        |  |               |        |               |  |       |     |  |  |   |        | 
|                        |  |               | 9,993  |               |  |       | 175 |  |  |   | 10,168 | 
|Add unamortized premium |  |               | 8      |               |  |       |    |  |  |   | 8      | 
|Add deferred premium    |  |               | 36     |               |  |       |    |  |  |   | 36     | 
|                        |  |               |        |               |  |       |     |  |  |   |        | 
|                        |  | $             | 10,037 |               |  | $     | 175 |  |  | $ | 10,212 | 
|                        |  |               |        |               |  |       |     |  |  |   |        | 

Mandatorily Redeemable Preferred
Stock

|                                                                                                                                                                                                                                                                                  |  |                       |       |             |  |           |     |              |  |   |    |  |  |   |    | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | ----- | ----------- |  | --------- | --- | ------------ |  | - | -- |  |  | - | -- | 
|                                                                                                                                                                                                                                                                                  |  |                       |       | Book and    |  |           |     |             
|                                                                                                                                                                                                                                                                                  |  | Balance               |       | Principal   |  | Dividends |     | Balance     
|                                                                                                                                                                                                                                                                                  |  | December 31,          |       | Value of    |  | and       |     | December 31,
|                                                                                                                                                                                                                                                                                  |  | 2002                  |       | Retirements |  | Accretion |     | 2003        
|                                                                                                                                                                                                                                                                                  |  |                       |       |             |  |           |     |             
|                                                                                                                                                                                                                                                                                  |  |                      
|                                                                                                                                                                                                                                                                                  |  | (dollars in millions)
|Series D exchangeable preferred stock
    mandatorily redeemable 2009, 13%
    cumulative annual dividend; 470,753 and 0 shares issued; 470,742
    and 0 shares outstanding; stated at liquidation value                                                                         |  | $                     | 471   |             |  | $         | 471 |              |  | $ |   |  |  | $ |   | 
|Series E exchangeable preferred stock
    mandatorily redeemable 2010, 11.125%
    cumulative annual dividend; 447,796 and 0 shares issued; 447,782
    and 0 shares outstanding; stated at liquidation value                                                                     |  |                       | 454   |             |  |           | 461 |              |  |   | 7  |  |  |   |   | 
|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    |             |  |           |    |              |  |   | 9  |  |  |   | 99 | 
|                                                                                                                                                                                                                                                                                  |  |                       |       |             |  |           |     |              |  |   |    |  |  |   |    | 
|                                                                                                                                                                                                                                                                                  |  | $                     | 1,015 |             |  | $         | 932 |              |  | $ | 16 |  |  | $ | 99 | 
|                                                                                                                                                                                                                                                                                  |  |                       |       |             |  |           |     |              |  |   |    |  |  |   |    | 

Series D Preferred Stock.Shares of our series D
exchangeable preferred stock due 2009 had a liquidation
preference of $1,000 per share. Dividends on the series D
preferred stock accrued at an annual rate of 13% of the
liquidation preference, were cumulative from the date of
issuance and were payable quarterly in cash. These shares of
preferred stock were retired in 2003.

Series E Preferred Stock.Shares of our series E
exchangeable preferred stock due 2010 had a liquidation
preference of $1,000 per share. Dividends on the series E
preferred stock accrued at an annual rate of 11.125% of the
liquidation preference, were cumulative from the date of
issuance and were payable quarterly in cash or, on or prior to
February 15, 2003 at our option, in additional shares of
series E preferred stock. These shares of preferred stock were
retired in 2003.

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


Zero Coupon Preferred Stock.No dividends are payable with
respect to the zero coupon convertible preferred stock due 2013;
however, the liquidation preference accretes from the initial
liquidation preference of $253.675 per share at issuance date at
an annual rate of 9.25% compounded quarterly to a liquidation
preference of $1,000 per share at maturity in 2013. 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.

Preferred Stock Retirements.For the year ended
December 31, 2003, we purchased and retired a total of
$932 million in aggregate face amount of our outstanding
mandatorily redeemable preferred stock in exchange for about
$972 million in cash. As a result, we recognized a
$48 million loss in the statement of operations,
representing the excess of the purchase price over the carrying
value of the purchased and retired preferred stock and the
write-off of unamortized financing costs. Pursuant to SFAS
No. 150, the losses associated with our third quarter 2003
series D and series E preferred stock retirements are included
in other income (expense) in the statement of operations.
Additional information regarding our adoption of SFAS
No. 150 can be found in note 1.

For the year ended December 31, 2002, we
purchased and retired a total of $1,258 million in
aggregate face amount at maturity of our outstanding mandatorily
redeemable preferred stock in exchange for 74.8 million
shares of class A common stock valued at $601 million and
about $177 million in cash. As a result, we recognized a
$485 million gain in paid-in capital, representing the
excess of the carrying value over the purchase price of the
purchased and retired preferred stock and the write-off of
unamortized financing costs.

7.     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, 
|                                                                          |  |              
|                                                                          |  |               |        |           
|                                                                          |  | 2003          |        | 2002      
|                                                                          |  |               |        |           
|                                                                          |  | Carrying      |        | Estimated  |  | Carrying |        | Estimated 
|                                                                          |  | Amount        |        | Fair Value |  | Amount   |        | Fair Value
|                                                                          |  |               |        |            |  |          |        |           
|                                                                          |  |              
|                                                                          |  | (in millions)
|Marketable equity
    securities, NII Holdings                            |  | $             | 307    |            |  | $        | 307    |            |  | $ |       |   |  | $ |       |  
|Marketable debt securities,NII Holdings                                   |  |               | 67     |            |  |          | 67     |            |  |   | 49     |   |  |   | 49     |  
|Nonmarketable mandatorily redeemable preferred
    stock, Nextel Partners |  |               |       |            |  |          |       |            |  |   | 35     |   |  |   | 17     |  
|Long-term debt,
    including current portion                             |  |               | 10,037 |            |  |          | 10,556 |            |  |   | 12,278 |   |  |   | 11,033 |  
|Derivative
    instruments, net                                           |  |               |       |            |  |          |       |            |  |   | (41    | ) |  |   | (41    | )
|Mandatorily redeemable preferred
    stock                                |  |               | 99     |            |  |          | 146    |            |  |   | 1,015  |   |  |   | 912    |  
|Finance obligation                                                        |  |               | 10     |            |  |          | 9      |            |  |   | 10     |   |  |   | 8      |  

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


Cash and Cash Equivalents, 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.

Marketable Debt and Equity Securities.We estimate the fair value of
these securities based on quoted market prices. At
December 31, 2003 and 2002, marketable debt and equity
securities included within investments consist of the following:

|     |                                      |               |   |            |  |            |   |            |  |  |   |   |  |  |   |     | 
|---- | ------------------------------------ | ------------- | - | ---------- |  | ---------- | - | ---------- |  |  | - | - |  |  | - | --- | 
|     |                                      |               |   | Gross      |  | Gross      |   |           
|     |                                      | Amortized     |   | Unrealized |  | Unrealized |   |           
|     |                                      | Cost          |   | Gain       |  | Loss       |   | Fair Value
|     |                                      |               |   |            |  |            |   |           
|     |                                      |              
|     |                                      | (in millions)
|2003 |                                      |               |   |            |  |            |   |            |  |  |   |   |  |  |   |    
|     | Available-for-sale equity securities |               | $ | 48         |  |            | $ | 259        |  |  | $ |  |  |  | $ | 307 | 
|     | Available-for-sale debt securities   |               |   | 47         |  |            |   | 20         |  |  |   |  |  |  |   | 67  | 
|2002 |                                      |               |   |            |  |            |   |            |  |  |   |   |  |  |   |    
|     | Available-for-sale debt securities   |               | $ | 38         |  |            | $ | 11         |  |  | $ |  |  |  | $ | 49  | 

Long-Term Debt.We estimate the fair value of
these securities based on quoted market prices of our senior
notes and loans under our bank credit facility.

Derivative Instruments.The fair value of these
instruments is based on estimates obtained from bankers to
settle the agreements. See note 8.

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

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.

Letters of Credit.We use letters of credit to back
some lease guarantees. Outstanding letters of credit totaled
$24 million at December 31, 2003 and $30 million
at December 31, 2002. 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.

8.     Derivative
Instruments and Hedging Activities

We use derivative instruments, consisting
primarily of interest rate swap 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
fluctuations. 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

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


or liabilities denominated in foreign currencies
or foreign currency transactions. The following table summarizes
our interest rate swap agreements as of December 31, 2002.

|                                         |  |                       |     |       |  |          |      |      |  |         |           |  |  |  |     |   |  |  |     |  
|---------------------------------------- |  | --------------------- | --- | ----- |  | -------- | ---- | ---- |  | ------- | --------- |  |  |  | --- | - |  |  | --- | -
|                                         |  | Notional              |     | Fair  |  |          |      | Pay  |  | Receive
|                                         |  | Amount                |     | Value |  | Maturity |      | Rate |  | Rate   
|                                         |  |                       |     |       |  |          |      |      |  |        
|                                         |  |                      
|                                         |  | (dollars in millions)
|Pay fixed rate, receive variable rate    |  | $                     | 570 |       |  | $        | (112 | )    |  |         | 3.3 years |  |  |  | 8.1 | % |  |  | 1.8 | %
|Pay variable rate, receive fixed rate    |  |                       | 500 |       |  |          | 74   |      |  |         | 8.1 years |  |  |  | 4.8 | % |  |  | 9.5 | %
|Pay variable rate, receive variable rate |  |                       | 400 |       |  |          | (3   | )    |  |         | 0.1 year  |  |  |  | 4.7 | % |  |  | 1.4 | %

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

In July 2001, we entered into three interest rate
swap agreements to hedge the risk of changes in the fair value
of a portion of our long-term fixed rate debt, which are
attributable to changes in LIBOR as the benchmark interest rate.
These fair value hedges qualified for hedge accounting using the
short-cut method since the swap terms match the critical terms
of the hedged debt. Accordingly, there was no net effect on our
results of operations for the twelve months ended
December 31, 2003 and 2002 relating to the ineffectiveness
of these fair value hedges. During the third quarter 2003, we
terminated all three swap agreements in exchange for cash
received of about $38 million. As a result of the
terminations, we recorded a premium of about $38 million,
which we recognize as an adjustment to interest expense in our
statement of operations over the remaining life of the hedged
debt.

Additionally, from time to time, we use interest
rate swaps to hedge the variability of future cash flows, which
are caused by changes in LIBOR, as the benchmark interest rate,
associated with some of our long-term variable rate debt. In
February 2003, we terminated a variable-to-variable interest
rate swap in the notional amount of $400 million in
accordance with its original terms. There was no realized gain
or loss associated with this termination. Since this swap did
not qualify for cash flow hedge accounting, we recognized
changes in its fair value up to the termination date in our
statement of operations in the period of the change. Interest
expense includes a gain of $2 million in 2003, a gain of
$10 million in 2002 and a loss of $7 million in 2001,
representing changes in the fair value of this swap. During the
third quarter 2003, we terminated our remaining cash flow hedge,
which was recorded at its fair value, and paid $91 million
in cash to satisfy our obligations under it. As a result of the
termination, unrealized losses of about $10 million,
representing the effective portion of the change in fair value
reported in accumulated other comprehensive loss, were
recognized in our statement of operations. The ineffective
portion of the change in fair value of our swap qualifying for
cash flow hedge accounting was recognized in our statement of
operations up to the termination date in the period of the
change. Interest expense includes a loss of $8 million for
the year ended December 31, 2003, related to the
ineffective portion of the change in the fair value, offset by a
gain of $3 million relating to the termination of the swap.
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, related to the
ineffective portion of the change in the fair value of this swap.

Interest expense related to the periodic net cash
settlements on all swaps was $12 million in 2003,
$26 million in 2002 and $22 million in 2001. As of
December 31, 2003, we did not have any significant
derivative instruments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


9.     Income
Taxes

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

|                               |         |                         |      |      |   |      |      |      |   |   |     |     |  
|------------------------------ | ------- | ----------------------- | ---- | ---- | - | ---- | ---- | ---- | - | - | --- | --- | -
|                               |         |                        
|                               |         | Year Ended December 31,
|                               |         |                        
|                               |         | 2003                    |      | 2002 |   | 2001
|                               |         |                         |      |      |   |     
|                               |         |                        
|                               |         | (in millions)          
|Current                        |         |                         |      |      |   |      |      |      |   |   |     |    
|                               | State   |                         | $    | (51  | ) |      | $    | (5   | ) |   | $   |    |  
|                               | Foreign |                         |      |     |   |      |      |     |   |   |     | (26 | )
|                               |         |                         |      |      |   |      |      |      |   |   |     |    
|                               |         |                         | (51  | )    |   |      | (5   | )    |   |   | (26 | )  
|                               |         |                         |      |      |   |      |      |      |   |   |     |    
|Deferred                       |         |                         |      |      |   |      |      |      |   |   |     |    
|                               | Federal |                         |      | (51  | ) |      |      | (325 | ) |   |     | 33  |  
|                               | State   |                         |      | (11  | ) |      |      | (61  | ) |   |     |    |  
|                               | Foreign |                         |      |     |   |      |      |     |   |   |     | 128 |  
|                               |         |                         |      |      |   |      |      |      |   |   |     |    
|                               |         |                         | (62  | )    |   |      | (386 | )    |   |   | 161 |    
|                               |         |                         |      |      |   |      |      |      |   |   |     |    
|Income tax (provision) benefit |         | $                       | (113 | )    |   | $    | (391 | )    |   | $ | 135 |    
|                               |         |                         |      |      |   |      |      |      |   |   |     |    

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,
|                                                     |  |                        
|                                                     |  | 2003                    |      | 2002 |  | 2001
|                                                     |  |                         |      |      |  |     
|                                                     |  |                        
|                                                     |  | (in millions)          
|Income tax (provision) benefit at statutory
    rate |  | $                       | (577 | )    |  | $    | (622 | ) |  | $ | 1,132 |  
|State tax (provision) benefit, net                   |  |                         | (57  | )    |  |      | (81  | ) |  |   | 51    |  
|Amortization and depreciation                        |  |                         |     |      |  |      |     |   |  |   | (10   | )
|Gain on deconsolidation of NII Holdings              |  |                         |     |      |  |      | 482  |   |  |   |      |  
|Gain on retirement of debt                           |  |                         |     |      |  |      | (109 | ) |  |   |      |  
|Decrease (increase) in valuation allowance           |  |                         | 538  |      |  |      | 41   |   |  |   | (592  | )
|Equity in losses of unconsolidated affiliates        |  |                         | (16  | )    |  |      | (86  | ) |  |   | (49   | )
|Loss on impairment charge                            |  |                         |     |      |  |      |     |   |  |   | (377  | )
|Other                                                |  |                         | (1   | )    |  |      | (16  | ) |  |   | (20   | )
|                                                     |  |                         |      |      |  |      |      |   |  |   |       |  
|                                                     |  | $                       | (113 | )    |  | $    | (391 | ) |  | $ | 135   |  
|                                                     |  |                         |      |      |  |      |      |   |  |   |       |  

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


Deferred tax assets and liabilities consist of
the following:

|                         |                                  |               |        |       |  |  |        |       | 
|------------------------ | -------------------------------- | ------------- | ------ | ----- |  |  | ------ | ----- | 
|                         |                                  |              
|                         |                                  | December 31, 
|                         |                                  |              
|                         |                                  | 2003          |        | 2002 
|                         |                                  |               |        |      
|                         |                                  |              
|                         |                                  | (in millions)
|Deferred tax assets      |                                  |               |        |       |  |  |        |      
|                         | Net operating loss carryforwards |               | $      | 2,428 |  |  | $      | 2,535 | 
|                         | Capital loss carryforward        |               |        | 707   |  |  |        | 790   | 
|                         | Accruals and other liabilities   |               |        | 54    |  |  |        | 17    | 
|                         | Federal AMT                      |               |        | 14    |  |  |        |      | 
|                         |                                  |               |        |       |  |  |        |      
|                         |                                  |               | 3,203  |       |  |  | 3,342  |      
|Valuation allowance      |                                  |               | (2,341 | )     |  |  | (2,879 | )    
|                         |                                  |               |        |       |  |  |        |      
|                         |                                  |               | 862    |       |  |  | 463    |      
|                         |                                  |               |        |       |  |  |        |      
|Deferred tax liabilities |                                  |               |        |       |  |  |        |      
|                         | Property, plant and equipment    |               |        | 881   |  |  |        | 462   | 
|                         | Intangibles                      |               |        | 1,722 |  |  |        | 1,576 | 
|                         | Investments                      |               |        | 125   |  |  |        | 10    | 
|                         | Other                            |               |        | 1     |  |  |        | 34    | 
|                         |                                  |               |        |       |  |  |        |      
|                         |                                  |               | 2,729  |       |  |  | 2,082  |      
|                         |                                  |               |        |       |  |  |        |      
|                         | Net deferred tax liability       |               | $      | 1,867 |  |  | $      | 1,619 | 
|                         |                                  |               |        |       |  |  |        |      

At December 31, 2003, we had about
$6 billion of consolidated net operating loss carryforwards
for federal income tax purposes which expire through 2021. We
believe that our cumulative losses, when evaluated in connection
with other qualitative factors and uncertainties concerning our
business and industry, provide substantial negative evidence
regarding the eventual realizability of the tax benefit of our
net operating loss carryforwards as of December 31, 2003,
which outweighs any of the positive evidence available. However,
if current trends continue, it is possible that the results of
our cumulative historical test will yield positive evidence that
it is more likely than not that we will realize the tax benefit
of our net operating losses sometime in 2004. If that is the
case, subject to review of other qualitative factors and
uncertainties, we would expect to start reversing some or all of
the remaining net operating loss valuation allowance into income
as a credit to tax expense except for about $350 million of
the net operating loss valuation allowance associated with stock
option transactions that will be reversed with a credit to
stockholders equity.

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 these net operating losses
may be subject to certain limitations.

In connection with 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 and other deferred tax assets. For
additional information regarding the adoption of SFAS
No. 142, see note 5.

As a result of NII Holdings bankruptcy
reorganization in the fourth quarter 2002, 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.

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


10.     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.

For years subsequent to December 31, 2003,
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):

|           |  |   |       | 
|---------- |  | - | ----- | 
|2004       |  | $ | 442   | 
|2005       |  |   | 380   | 
|2006       |  |   | 268   | 
|2007       |  |   | 188   | 
|2008       |  |   | 110   | 
|Thereafter |  |   | 187   | 
|           |  |   |       | 
|           |  | $ | 1,575 | 
|           |  |   |       | 

Total rental expense, net of rental income, was
$482 million during 2003, $371 million during 2002 and
$370 million during 2001.

Other Commitments.We are a party to service and
other contracts in connection with conducting our business.
Minimum amounts due under some of the more significant
agreements are $683 million in 2004, $466 million in
2005, $391 million in 2006, $256 million in 2007,
$221 million in 2008 and $420 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, and other factors. We also have
committed, subject to certain conditions which may not be met,
to pay up to about $334 million for spectrum acquisitions,
including $195 million for the pending acquisition of
certain FCC licenses, interests in certain FCC licenses and
other network assets of WorldCom and Nucentrix, and leasing
agreements entered into and outstanding as of December 31,
2003. 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 13 with respect
to amounts paid to Motorola in 2003, 2002 and 2001.

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, together with a similar
case filed earlier in Louisiana state court, were ultimately
transferred to federal court in Baltimore, Maryland. On
March 5, 2003, the court granted the defendants
motions to dismiss. The plaintiffs have appealed this decision.

A number of lawsuits have been filed against us
in several state and federal courts around the United States,
challenging the manner by which we recover the costs to us of
federally mandated universal service, Telecommunications Relay
Service payment requirements imposed by the FCC, and the costs

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


(including costs to implement changes to our
network) to comply with federal regulatory requirements to
provide E911, telephone number pooling and telephone number
portability. In general, these plaintiffs claim that our rate
structure that breaks out and assesses federal program cost
recovery fees on monthly customer bills is misleading and
unlawful. The plaintiffs generally seek injunctive relief and
damages on behalf of a class of customers, including a refund of
amounts collected under these regulatory line item assessments.
We have reached a preliminary settlement with the plaintiff, who
purports to represent a nationwide class of affected customers,
in one of the lawsuits that challenged the manner by which we
recover the costs to comply with federal regulatory requirements
to provide E911, telephone number pooling and telephone number
portability. The settlement, if found to be fair and finally
approved by the court, would render moot a majority of these
lawsuits, and would not have a material effect on our business
or results of operations.

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.

11.     Capital Stock
and Stock Rights

Under our certificate of incorporation, we have
the authority to issue 2,180,000,000 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; and                                                                                                             
|
| |  | 20,000,000 shares of preferred stock, par value
    $0.01 per share, 800,000 shares of which have been designated at
    the zero coupon convertible preferred stock due 2013 described
    in note 6.

The following is a summary description of our
common 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.

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


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, 2003, we had reserved
class A common stock for future issuance as detailed below
(in millions).

|                                              |  |  |       | 
|--------------------------------------------- |  |  | ----- | 
|5.25% convertible debt conversion rights      |  |  | 8.1   | 
|6% convertible debt conversion rights         |  |  | 25.5  | 
|Zero coupon preferred stock conversion rights |  |  | 4.8   | 
|Class B common stock conversion rights        |  |  | 35.7  | 
|Incentive equity plan                         |  |  | 122.3 | 
|Other options outstanding                     |  |  | 2.0   | 
|Employee stock purchase plan                  |  |  | 0.4   | 
|Acquisitions and other                        |  |  | 39.6  | 
|                                              |  |  |       | 
|                                              |  |  | 238.4 | 
|                                              |  |  |       | 

We also have reserved shares of class A
common stock for issuance under our direct stock purchase plan,
under which we designated an additional $1 billion for
issuance of shares under the plan in February 2004.

12.     Stock and
Employee Benefit Plans

Incentive Equity Plan.Our Incentive Equity Plan provides
for the issuance to our directors, officers, employees and
consultants of up to 180.0 million shares of class A
common stock upon the exercise or issuance of a variety of forms
of equity rights, including grants of options to purchase stock
and deferred shares. Typically, we grant nonqualified stock
options to purchase stock under our equity incentive plan, and
such options that currently are outstanding generally have:



| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | been granted at prices equal to or exceeding the
    market value of the stock on the grant date;
|
| |  | vest over periods up to four years; and                                                          
|
| |  | 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. 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.

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


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

|                               |           |        |      |                  |   |   |       |       | 
|------------------------------ | --------- | ------ | ---- | ---------------- | - | - | ----- | ----- | 
|                               |           |        |      | Weighted Average
|                               |           | Shares |      | Exercise Price  
|                               |           |        |      |                 
|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 |      
|                               | Granted   |        |      | 20.9             |   |   |       | 16.87 | 
|                               | Exercised |        |      | (16.9            | ) |   |       | 11.23 | 
|                               | Canceled  |        |      | (6.1             | ) |   |       | 30.02 | 
|                               |           |        |      |                  |   |   |       |      
|Outstanding, December 31, 2003 |           |        | 86.1 |                  |   |   | 21.70 |      
|                               |           |        |      |                  |   |   |       |      
|Exercisable, December 31, 2001 |           |        | 33.9 |                  |   |   | 21.93 |      
|                               |           |        |      |                  |   |   |       |      
|Exercisable, December 31, 2002 |           |        | 46.2 |                  |   |   | 23.51 |      
|                               |           |        |      |                  |   |   |       |      
|Exercisable, December 31, 2003 |           |        | 46.0 |                  |   |   | 25.73 |      
|                               |           |        |      |                  |   |   |       |      

Following is a summary of the status of
employees stock options outstanding and exercisable at
December 31, 2003 (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  $ 6.99  |                     |  |                     | 18.7 |          |  |        | 8.24 years |          |  | $ | 5.23  |  |  |  | 6.2  |  |  | $ | 5.21  | 
|            | 7.01   13.94  |                     |  |                     | 18.5 |          |  |        | 7.15 years |          |  |   | 11.29 |  |  |  | 9.2  |  |  |   | 10.98 | 
|            | 14.06   20.62 |                     |  |                     | 17.2 |          |  |        | 7.61 years |          |  |   | 16.56 |  |  |  | 9.2  |  |  |   | 15.91 | 
|            | 22.31   29.75 |                     |  |                     | 17.1 |          |  |        | 7.77 years |          |  |   | 23.25 |  |  |  | 10.2 |  |  |   | 22.67 | 
|            | 30.94   49.16 |                     |  |                     | 1.0  |          |  |        | 6.32 years |          |  |   | 39.59 |  |  |  | 0.8  |  |  |   | 39.63 | 
|            | 50.00   79.59 |                     |  |                     | 13.6 |          |  |        | 6.15 years |          |  |   | 61.78 |  |  |  | 10.4 |  |  |   | 61.77 | 
|            |                |                     |  |                     |      |          |  |        |            |          |  |   |       |  |  |  |      |  |  |   |       | 
|            |                |                     |  |                     | 86.1 |          |  |        |            |          |  |   |       |  |  |  | 46.0 |  |  |   |       | 
|            |                |                     |  |                     |      |          |  |        |            |          |  |   |       |  |  |  |      |  |  |   |       | 

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 service period ranging from several
months to four years. 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: 2003  1.1 million shares at $17.37;
2002  0.2 million shares at $6.59 and
2001  0.3 million shares at $14.41.

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 last trading day preceding
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

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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


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: 2003 
1.3 million shares at $11.06, 2002 
3.9 million shares at $3.79 and 2001 
1.7 million shares at $11.75.

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:

|                                                               |  |      |             |      |  |      |             |  |  |  |             | 
|-------------------------------------------------------------- |  | ---- | ----------- | ---- |  | ---- | ----------- |  |  |  | ----------- | 
|                                                               |  | 2003 |             | 2002 |  | 2001
|                                                               |  |      |             |      |  |     
|Expected stock price volatility                                |  |      | 82%  84%   |      |  |      | 69%  83%   |  |  |  | 59%  69%   | 
|Risk-free interest rates                                       |  |      | 2.2%  3.6% |      |  |      | 2.5%  5.1% |  |  |  | 3.6%  5.2% | 
|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. See note 1
for the effect on our income (loss) available to common
stockholders and earnings (loss) per common share had we
recorded compensation costs determined based on the fair value
of the awards granted. The weighted average estimated fair value
of our stock options granted during 2003 was $11.35, during 2002
was $3.40 and during 2001 was $10.59.

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 80% 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. Our contributions were $22 million during 2003,
$18 million during 2002 and $18 million during 2001.

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, but have made no such contributions to date.
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
$6 million as of December 31, 2003 and $4 million
as of December 31, 2002, 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 related to the long-term incentive plan of
$26 million in 2003 and $22 million in 2002. In 2003,
we adopted a similar 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, 2004.

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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


13.     Related Party
Transactions

We have a number of strategic and commercial
relationships with third parties that have had a significant
impact on our business, operations and financial results and
have the potential to have such an impact in the future. Of
these, we believe that our operating and other arrangements with
Motorola, Nextel Partners, NII Holdings and Craig O.
McCaw, all of which are or have been related parties of ours,
are the most significant. See note 3 for discussions of our
transactions with NII Holdings and Nextel Partners.

Motorola.We
have a number of important strategic and commercial
relationships with Motorola. Motorola is the sole supplier of
the iDEN infrastructure equipment and all but two of the
handsets used throughout our network. We 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.

In July 1995, we acquired all of Motorolas
800 MHz FCC 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 February 27, 2004, Motorola owned
47.5 million shares of our class A common stock and
35.7 million shares of our nonvoting class B common
stock, all of which can be converted into shares of class A
common stock at Motorolas election, representing about 8%
of our class A common stock assuming that conversion. In
addition, under the terms of the agreement relating to that
acquisition, Motorola has the right to nominate two persons for
election as members of our board of directors, but is not
currently exercising this right.

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. We
entered into a new funding model for the purchase of handset
models that we introduced in late 2003 and for other new models
to be introduced throughout 2004 and 2005. Under this model, we
will prepay for a certain quantity of handsets in exchange for
discounts on all future handset purchases.

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


Net payables to Motorola were $230 million
at December 31, 2003 and $225 million at December 31,
2002. Net amounts paid to Motorola by us during the years ended
December 31, 2003, 2002 and 2001 consisted of the following:

|     |                                           |               |       |              |  |       |     |     |  |   |       |       | 
|---- | ----------------------------------------- | ------------- | ----- | ------------ |  | ----- | --- | --- |  | - | ----- | ----- | 
|     |                                           | Domestic      |       | NII Holdings |  | Total
|     |                                           |               |       |              |  |      
|     |                                           |              
|     |                                           | (in millions)
|2003 |                                           |               |       |              |  |       |     |     |  |   |       |      
|     | Handsets and accessory inventory          |               | $     | 1,461        |  |       |     |     |  |   | $     | 1,461 | 
|     | Network equipment and software            |               |       | 528          |  |       |     |     |  |   |       | 528   | 
|     | Warranty, maintenance, training and other |               |       | 166          |  |       |     |     |  |   |       | 166   | 
|     |                                           |               |       |              |  |       |     |     |  |   |       |      
|     |                                           | $             | 2,155 |              |  |       |     |     |  | $ | 2,155 |      
|     |                                           |               |       |              |  |       |     |     |  |   |       |      
|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 |      
|     |                                           |               |       |              |  |       |     |     |  |   |       |      

In June 2001, we purchased from
Motorola, Inc. 900 MHz FCC licenses and related assets
for a cash purchase price of $58 million.

McCaw Affiliates.In December 2003, Mr. McCaw
resigned from our board, on which he had served since 1995. In
1995, Mr. McCaw acquired significant equity interests in
Nextel, and we agreed to certain arrangements related to our
corporate governance, including terms relating to the election
of directors selected by Digital Radio, L.L.C., an
affiliate of Mr. McCaw, and the approval of specified
transactions and corporate actions and the formulation of
specified aspects of our business strategy. In connection with
these equity investments, we also reached an agreement with
Mr. McCaw and Digital Radio on a number of matters relating
to the ownership, acquisition and disposition of our securities
and limitations on Mr. McCaw and Digital Radios
participation in two-way terrestrial-based mobile wireless
systems in North America and South America. 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 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 and terminated substantially all corporate
governance and other rights originally granted to Digital Radio.
As a result, all of the outstanding 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
March 2003. In October 2003, we further amended these
arrangements to clarify the scope of the restrictions on
Mr. McCaws participation in specified wireless
businesses to allow Mr. McCaw to acquire interests in MMDS
spectrum licenses subject to his granting us certain options to
purchase any such interests in excess of specified minimum
amounts.

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


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. During 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.

Other Related Party Transactions.One of our directors is chairman
of the board and chief executive officer of CommScope, Inc.
We paid CommScope $4 million during 2003, $1 million during
2002 and $7 million during 2001 for coaxial cables and
related equipment for our transmitter and receiver sites. We had
amounts payable to CommScope outstanding of less than
$1 million at December 31, 2003 and 2002. One of our
officers was a member of the board directors of RadioFrame
Networks, Inc. through December 31, 2003. We paid
RadioFrame $9 million during 2003 and $6 million
during 2002 for network equipment and software. We had amounts
payable to RadioFrame outstanding of about $1 million as of
December 31, 2003 and 2002.

14.     Quarterly
Financial Data (Unaudited)

|     |                                                |                                         |   |        |       |       |   |        |      |  |   |       |      |  |   |       |      | 
|---- | ---------------------------------------------- | --------------------------------------- | - | ------ | ----- | ----- | - | ------ | ---- |  | - | ----- | ---- |  | - | ----- | ---- | 
|     |                                                | First                                   |   | Second |       | Third |   | Fourth
|     |                                                |                                         |   |        |       |       |   |       
|     |                                                |                                        
|     |                                                | (in millions, except per share amounts)
|2003 |                                                |                                         |   |        |       |       |   |        |      |  |   |       |      |  |   |      
|     | Operating revenues                             |                                         | $ | 2,371  |       |       | $ | 2,556  |      |  | $ | 2,887 |      |  | $ | 3,006 |     
|     | Operating income                               |                                         |   | 493    |       |       |   | 582    |      |  |   | 700   |      |  |   | 747   |     
|     | Income tax provision                           |                                         |   | (22    | )     |       |   | (27    | )    |  |   | (21   | )    |  |   | (43   | )   
|     | Net income                                     |                                         |   | 240    |       |       |   | 309    |      |  |   | 348   |      |  |   | 640   |     
|     | Income available to common stockholders        |                                         |   | 208    |       |       |   | 281    |      |  |   | 346   |      |  |   | 637   |     
|     | Earnings per common share                      |                                         |   |        |       |       |   |        |      |  |   |       |      |  |   |       |     
|     |                                                | Basic                                   |   | $      | 0.21  |       |   | $      | 0.27 |  |   | $     | 0.33 |  |   | $     | 0.58 | 
|     |                                                |                                         |   |        |       |       |   |        |      |  |   |       |      |  |   |      
|     |                                                | Diluted                                 |   | $      | 0.20  |       |   | $      | 0.27 |  |   | $     | 0.32 |  |   | $     | 0.56 | 
|     |                                                |                                         |   |        |       |       |   |        |      |  |   |       |      |  |   |      
|2002 |                                                |                                         |   |        |       |       |   |        |      |  |   |       |      |  |   |      
|     | Operating revenues                             |                                         | $ | 1,957  |       |       | $ | 2,154  |      |  | $ | 2,279 |      |  | $ | 2,331 |     
|     | Operating 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 common share               |                                         |   |        |       |       |   |        |      |  |   |       |      |  |   |       |     
|     |                                                | Basic                                   |   | $      | (0.82 | )     |   | $      | 0.39 |  |   | $     | 0.58 |  |   | $     | 1.49 | 
|     |                                                |                                         |   |        |       |       |   |        |      |  |   |       |      |  |   |      
|     |                                                | Diluted                                 |   | $      | (0.82 | )     |   | $      | 0.37 |  |   | $     | 0.55 |  |   | $     | 1.38 | 
|     |                                                |                                         |   |        |       |       |   |        |      |  |   |       |      |  |   |      

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.

As described in note 3, in November 2003, we
sold 3.0 million shares of NII Holdings common stock, which
generated $209 million in net proceeds and a gain of
$174 million. Also, in November 2003, Nextel Partners
redeemed its 12% nonvoting mandatorily redeemable preferred
stock that we held and we recorded a gain of $39 million.
We recorded a $1,218 million gain on the deconsolidation of
NII Holdings in November 2002 upon NII Holdings emergence
from bankruptcy.

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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, 2003 and
2002


(in millions)


|                                                    |                           |                      |        |       |       |   |        |     |       | 
|--------------------------------------------------- | ------------------------- | -------------------- | ------ | ----- | ----- | - | ------ | --- | ----- | 
|                                                    |                           | 2003                 |        | 2002 
|                                                    |                           |                      |        |      
|ASSETS                                             
|Current assets                                      |                           |                      |        |       |       |   |        |    
|                                                    | Cash and cash equivalents |                      | $      | 457   |       |   | $      | 837 |      
|                                                    | Short-term investments    |                      |        | 1,135 |       |   |        | 840 |      
|                                                    | Other current assets      |                      |        | 21    |       |   |        | 30  |      
|                                                    |                           |                      |        |       |       |   |        |    
|                                                    |                           | Total current assets |        |       | 1,613 |   |        |     | 1,707 | 
|Due from subsidiaries (note 4)                      |                           |                      | 2,216  |       |       |   |       |    
|Investments in subsidiaries (notes 2 and
    4)     |                           |                      | 8,552  |       |       |   | 10,072 |    
|Property, plant and equipment, net                  |                           |                      | 24     |       |       |   | 195    |    
|Deferred income taxes                               |                           |                      | 128    |       |       |   | 124    |    
|Other assets                                        |                           |                      | 66     |       |       |   | 155    |    
|                                                    |                           |                      |        |       |       |   |        |    
|                                                    |                           | $                    | 12,599 |       |       | $ | 12,253 |    
|                                                    |                           |                      |        |       |       |   |        |    
|LIABILITIES AND STOCKHOLDERS
    EQUITY           
|Current liabilities                                 |                           | $                    | 447    |       |       | $ | 353    |    
|Due to subsidiaries                                 |                           |                      |       |       |       |   | 278    |    
|Long-term debt (note 7)                             |                           |                      | 6,217  |       |       |   | 7,761  |    
|Mandatorily redeemable preferred stock
    (note 7) |                           |                      | 99     |       |       |   | 1,015  |    
|Stockholders equity                                |                           |                      | 5,836  |       |       |   | 2,846  |    
|                                                    |                           |                      |        |       |       |   |        |    
|                                                    |                           | $                    | 12,599 |       |       | $ | 12,253 |    
|                                                    |                           |                      |        |       |       |   |        |    

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

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NEXTEL COMMUNICATIONS, INC.

(Parent Only)


SCHEDULE I  CONDENSED
FINANCIAL INFORMATION OF REGISTRANT (continued)

Condensed Statements of Operations and
Comprehensive Income (Loss)


For the Years Ended December 31, 2003,
2002 and 2001


(in millions)


|                                                   |                                                                                        |                                                                             |       |       |     |      |      |      |     |   |        |        |      |  
|-------------------------------------------------- | -------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ----- | ----- | --- | ---- | ---- | ---- | --- | - | ------ | ------ | ---- | -
|                                                   |                                                                                        | 2003                                                                        |       | 2002  |     | 2001
|                                                   |                                                                                        |                                                                             |       |       |     |     
|Operating expenses                                 |                                                                                        |                                                                             |       |       |     |      |      |      |     |   |        |       
|                                                   | Selling, general and administrative                                                    |                                                                             | $     | 140   |     |      | $    | 124  |     |   | $      | 126    |     
|                                                   | Restructuring and impairment charges                                                   |                                                                             |       |      |     |      |      | 35   |     |   |        | 22     |     
|                                                   | Depreciation and amortization                                                          |                                                                             |       | 10    |     |      |      | 41   |     |   |        | 83     |     
|                                                   |                                                                                        |                                                                             |       |       |     |      |      |      |     |   |        |       
|                                                   |                                                                                        |                                                                             | 150   |       |     |      | 200  |      |     |   | 231    |       
|                                                   |                                                                                        |                                                                             |       |       |     |      |      |      |     |   |        |       
|Other income (expense)                             |                                                                                        |                                                                             |       |       |     |      |      |      |     |   |        |       
|                                                   | Interest expense                                                                       |                                                                             |       | (634  | )   |      |      | (753 | )   |   |        | (766   | )   
|                                                   | Interest income (note 6)                                                               |                                                                             |       | 16    |     |      |      | 44   |     |   |        | 202    |     
|                                                   | Intercompany income (note 5)                                                           |                                                                             |       | 758   |     |      |      | 753  |     |   |        | 770    |     
|                                                   | (Loss) gain on retirement of debt, net of
    debt conversion costs of $0, $160 and $0 |                                                                             |       | (245  | )   |      |      | 354  |     |   |        |       |     
|                                                   | Intercompany management fee (note 3)                                                   |                                                                             |       | 140   |     |      |      | 124  |     |   |        | 126    |     
|                                                   | Equity in net income (losses) of subsidiaries
    (note 2)                             |                                                                             |       | 1,652 |     |      |      | (684 | )   |   |        | (1,262 | )   
|                                                   |                                                                                        |                                                                             |       |       |     |      |      |      |     |   |        |       
|                                                   |                                                                                        |                                                                             | 1,687 |       |     |      | (162 | )    |     |   | (930   | )     
|                                                   |                                                                                        |                                                                             |       |       |     |      |      |      |     |   |        |       
|Net income (loss)                                  |                                                                                        |                                                                             | 1,537 |       |     |      | (362 | )    |     |   | (1,161 | )     
|                                                   | (Loss) gain on retirement of mandatorily
    redeemable preferred stock                |                                                                             |       | (7    | )   |      |      | 485  |     |   |        |       |     
|                                                   | Mandatorily redeemable preferred stock dividends
    and accretion                     |                                                                             |       | (58   | )   |      |      | (211 | )   |   |        | (233   | )   
|                                                   |                                                                                        |                                                                             |       |       |     |      |      |      |     |   |        |       
|Income (loss) available to common
    stockholders |                                                                                        | $                                                                           | 1,472 |       |     | $    | (88  | )    |     | $ | (1,394 | )     
|                                                   |                                                                                        |                                                                             |       |       |     |      |      |      |     |   |        |       
|Comprehensive income (loss), net of income
    tax |                                                                                        |                                                                             |       |       |     |      |      |      |     |   |        |       
|                                                   | Net income (loss)                                                                      |                                                                             | $     | 1,537 |     |      | $    | (362 | )   |   | $      | (1,161 | )   
|                                                   | Net unrealized gain (loss) on
    available-for-sale securities:                       |                                                                             |       |       |     |      |      |      |     |   |        |        |     
|                                                   |                                                                                        | Unrealized holding gains (losses) arising
    during the period (note 2)    |       |       | 163 |      |      |      | (37 | ) |        |        | (189 | )
|                                                   |                                                                                        | Reclassification adjustment for (loss) gain
    included in net loss        |       |       |    |      |      |      | (8  | ) |        |        | 149  |  
|                                                   | Foreign currency translation adjustment                                                |                                                                             |       | (4    | )   |      |      | 228  |     |   |        | (95    | )   
|                                                   | Cash flow hedge:                                                                       |                                                                             |       |       |     |      |      |      |     |   |        |        |     
|                                                   |                                                                                        | Cumulative effect of accounting change                                      |       |       |    |      |      |      |    |   |        |        | (20  | )
|                                                   |                                                                                        | Reclassification of transition adjustment
    included in net income (loss) |       |       | 4   |      |      |      | 8   |   |        |        | 8    |  
|                                                   |                                                                                        | Unrealized gain (loss) on cash flow hedge                                   |       |       | 23  |      |      |      | (6  | ) |        |        | (17  | )
|                                                   |                                                                                        |                                                                             |       |       |     |      |      |      |     |   |        |       
|Comprehensive income (loss)                        |                                                                                        | $                                                                           | 1,723 |       |     | $    | (177 | )    |     | $ | (1,325 | )     
|                                                   |                                                                                        |                                                                             |       |       |     |      |      |      |     |   |        |       

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

F-47



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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, 2003,
2002 and 2001


(in millions)


|                                                         |                                                                                           |                                                         |      |        |        |      |        |        |      |   |       |        |        |  
|-------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------------------- | ---- | ------ | ------ | ---- | ------ | ------ | ---- | - | ----- | ------ | ------ | -
|                                                         |                                                                                           | 2003                                                    |      | 2002   |        | 2001
|                                                         |                                                                                           |                                                         |      |        |        |     
|Cash flows from operating activities                     |                                                                                           |                                                         |      |        |        |      |        |        |      |   |       |       
|                                                         | Net income (loss)                                                                         |                                                         | $    | 1,537  |        |      | $      | (362   | )    |   | $     | (1,161 | )     
|                                                         | Adjustment to reconcile net loss to net cash used
    in operating activities             |                                                         |      | (1,966 | )      |      |        | 283    |      |   |       | 713    |       
|                                                         |                                                                                           |                                                         |      |        |        |      |        |        |      |   |       |       
|                                                         |                                                                                           | Net cash used in operating activities                   |      |        | (429   | )    |        |        | (79  | ) |       |        | (448   | )
|                                                         |                                                                                           |                                                         |      |        |        |      |        |        |      |   |       |       
|Cash flows from investing activities                     |                                                                                           |                                                         |      |        |        |      |        |        |      |   |       |       
|                                                         | Purchases of short-term investments                                                       |                                                         |      | (2,738 | )      |      |        | (3,068 | )    |   |       | (3,987 | )     
|                                                         | Proceeds from maturities and sales of short-term
    investments                          |                                                         |      | 2,454  |        |      |        | 3,486  |      |   |       | 4,829  |       
|                                                         | Other investments and advances to affiliates                                              |                                                         |      | (784   | )      |      |        | (780   | )    |   |       | (2,327 | )     
|                                                         | Cash dividend from subsidiary                                                             |                                                         |      | 2,604  |        |      |        |       |      |   |       |       |       
|                                                         | Capital expenditures and other                                                            |                                                         |      | (4     | )      |      |        |       |      |   |       | (132   | )     
|                                                         |                                                                                           |                                                         |      |        |        |      |        |        |      |   |       |       
|                                                         |                                                                                           | Net cash provided by (used in) investing
    activities |      |        | 1,532  |      |        |        | (362 | ) |       |        | (1,617 | )
|                                                         |                                                                                           |                                                         |      |        |        |      |        |        |      |   |       |       
|Cash flows from financing activities                     |                                                                                           |                                                         |      |        |        |      |        |        |      |   |       |       
|                                                         | Issuance of debt securities                                                               |                                                         |      | 2,483  |        |      |        |       |      |   |       | 2,250  |       
|                                                         | Purchase and retirement of debt securities and
    mandatorily redeemable preferred stock |                                                         |      | (4,598 | )      |      |        | (843   | )    |   |       |       |       
|                                                         | Proceeds from exercise of stock options, warrants
    and other                           |                                                         |      | 689    |        |      |        | 35     |      |   |       | 124    |       
|                                                         | Debt financing costs and other                                                            |                                                         |      | (57    | )      |      |        | (19    | )    |   |       | (28    | )     
|                                                         |                                                                                           |                                                         |      |        |        |      |        |        |      |   |       |       
|                                                         |                                                                                           | Net cash (used in) provided by financing
    activities |      |        | (1,483 | )    |        |        | (827 | ) |       |        | 2,346  |  
|                                                         |                                                                                           |                                                         |      |        |        |      |        |        |      |   |       |       
|Net (decrease) increase in cash and cash
    equivalents |                                                                                           |                                                         | (380 | )      |        |      | (1,268 | )      |      |   | 281   |       
|Cash and cash equivalents, beginning of
    period       |                                                                                           |                                                         | 837  |        |        |      | 2,105  |        |      |   | 1,824 |       
|                                                         |                                                                                           |                                                         |      |        |        |      |        |        |      |   |       |       
|Cash and cash equivalents, end of
    period             |                                                                                           | $                                                       | 457  |        |        | $    | 837    |        |      | $ | 2,105 |       
|                                                         |                                                                                           |                                                         |      |        |        |      |        |        |      |   |       |       

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

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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 pre-tax impairment, 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 did not
    have a legal or constructive obligation to provide NII Holdings
    additional capital. As discussed in note 6 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 were 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 3 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. | In 1997 the parent company entered into a tax
    sharing agreement with each of its wholly owned subsidiaries,
    pursuant to which the parties have agreed to share the Federal,
    state and local income tax liabilities incurred by the parties
    to the agreement under the parent companys consolidated
    returns. Prior to 2003, the parent company waived the
    obligations of its subsidiaries to make tax-related payments to
    it under the agreement. In 2003, the parent company elected not
    to waive its right to receive such payments, and, as of
    December 31, 2003, has recorded a receivable from its
    subsidiaries associated with this tax sharing arrangement in the
    amount of $2,160 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | 5. | The parent company allocated interest expense to
    its subsidiaries in the amount of $634 million in 2003,
    $753 million in 2002, and $766 million in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | 6. | As more fully described in note 3 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | 7. | For the year ended December 31, 2003, we
    purchased and retired a total of $4,049 million in
    aggregate principal amount at maturity of our outstanding senior
    notes and convertible senior notes and $932 million in
    aggregate face amount of our outstanding mandatorily redeemable
    preferred stock in exchange for 30.6 million shares of
    class A common stock valued at $588 million and
    $4,598 million in cash. In addition, we issued a total of
    $2,500 million in principal amount of new senior notes,
    consisting of $500 million of 6.875% senior serial
    redeemable notes due 2013 and $2,000 million of 7.375%
    senior serial redeemable notes due 2015. See note 6 to the
    consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 8. | 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 172.5 million shares of class A common stock valued at
    $1,197 million and $843 million in cash. See
    note 6 to the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | 9. | In certain limited circumstances, our operating
    subsidiaries have entered into executory agreements with third
    parties that require a parent company guarantee. These
    guarantees relate to certain equipment and facility leases and
    vendor/promotional arrangements and range in duration from two
    to ten years. In addition, the parent company and substantially
    all of its operating subsidiaries are guarantors of the
    borrowings of one of its wholly owned subsidiaries under that
    subsidiarys bank credit facility, which obligations are
    secured by liens on substantially all of our assets. As of
    December 31, 2003, these guarantees aggregated about
    $4.4 billion, of which about $3.8 billion related to
    the subsidiarys bank credit facility. We believe that the
    likelihood of the parent 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 or cash
    balances on hand. From time to time, we may enter into other
    agreements with third parties that require a parent company
    guarantee.

F-50



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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 to  |   |            |     | Balance  
|                             |                                             | Beginning  |   | Costs and  |  | Other       |   |            |     | at End of
|                             |                                             | of Period  |   | Expenses   |  | Accounts(1) |   | Deductions |     | Period   
|                             |                                             |            |   |            |  |             |   |            |     |          
|Year Ended December 31, 2003 |                                             |            |   |            |  |             |   |            |     |           |   |      |   |  |   |      |   |  |   |      
|                             | Allowance for doubtful accounts             |            | $ | 127        |  |             | $ | 129        |     |           | $ |     |   |  | $ | (170 | ) |  | $ | 86    | 
|                             |                                             |            |   |            |  |             |   |            |     |           |   |      |   |  |   |      |   |  |   |      
|                             | Reserve for inventory obsolescence          |            | $ | 8          |  |             | $ | 2          |     |           | $ |     |   |  | $ | (4   | ) |  | $ | 6     | 
|                             |                                             |            |   |            |  |             |   |            |     |           |   |      |   |  |   |      |   |  |   |      
|                             | Valuation allowance for deferred tax assets |            | $ | 2,879      |  |             | $ | (538       | )   |           | $ |     |   |  | $ |     |   |  | $ | 2,341 | 
|                             |                                             |            |   |            |  |             |   |            |     |           |   |      |   |  |   |      |   |  |   |      
|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 |            | $ | 2,865      |  |             | $ | 766        | (2) |           | $ | (711 | ) |  | $ | (41  | ) |  | $ | 2,879 | 
|                             |                                             |            |   |            |  |             |   |            |     |           |   |      |   |  |   |      |   |  |   |      
|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 |            | $ | 2,429      |  |             | $ | 436        |     |           | $ |     |   |  | $ |     |   |  | $ | 2,865 | 
|                             |                                             |            |   |            |  |             |   |            |     |           |   |      |   |  |   |      |   |  |   |      



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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-51