##### Table of Contents









UNITED STATES



Washington, D.C. 20549


FORM 10-Q

(Mark One)

|                                                 |  |                                                                                                 
|------------------------------------------------ |  | ------------------------------------------------------------------------------------------------
|[X]                                              |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended June 30,
    2002
|OR                                              
|[  ]                                             |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934
|                                                 |  | For the transition period
    from                      to                                      
|Commission file number 0-19656                  

NEXTEL COMMUNICATIONS, INC.

(Exact name of registrant as specified in its
charter)


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

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past 90 days. Yes [X]     No
[  ]

Indicate the number of shares outstanding of each
of the issuers classes of common stock, as of the latest
practicable date.

|                                                     |  |                              |             | 
|---------------------------------------------------- |  | ---------------------------- | ----------- | 
|                                                     |  | Number of Shares Outstanding
|Title of Class                                       |  | on August 13, 2002          
|                                                     |  |                             
|Class A Common Stock, $0.001 par value               |  |                              | 875,017,502 | 
|Class B Nonvoting Common Stock, $0.001 par
    value |  |                              | 35,660,000  | 



---






---

TABLE OF CONTENTS



|                                                   |                                                                                                |                                                                                 |  |  |  |  |  | 
|-------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I -- FINANCIAL INFORMATION.                  
|                                                   | Item 1. Financial Statements -- Unaudited.                                                    
|                                                   |                                                                                                | Condensed Consolidated Balance Sheets                                          
|                                                   |                                                                                                | Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
|                                                   |                                                                                                | Condensed Consolidated Statement of Changes in Stockholders Deficit           
|                                                   |                                                                                                | Condensed Consolidated Statements of Cash Flows                                
|                                                   |                                                                                                | Notes to Condensed Consolidated Financial Statements                           
|                                                   | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|                                                   | Item 3. Quantitative and Qualitative Disclosures about Market Risk.                           
|PART II -- OTHER INFORMATION.                     
|                                                   | Item 1. Legal Proceedings.                                                                    
|                                                   | Item 2. Changes in Securities and Use of Proceeds.                                            
|                                                   | Item 3. Defaults Upon NII Holdings Senior Securities.                                         
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders.                                  
|                                                   | Item 5. Other Information.                                                                    
|                                                   | Item 6. Exhibits and Reports on Form 8-K.                                                     
|Description of the Nextel Long-Term Incentive Plan



---



##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

INDEX

| |         |  |  |                        |  |                                                                                                                                                   |  |  |    | 
| | ------- |  |  | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
| |         |  |  |                        |  | Page                                                                                                                                             
| |         |  |  |                        |  |                                                                                                                                                  
| | Part  I |  |  | Financial Information.
| |         |  |  | Item 1.                |  | Financial Statements  Unaudited.                                                                                                                 |  |  |    | 
| |         |  |  |                        |  | Condensed Consolidated Balance Sheets As of
    June 30, 2002 and December 31, 2001                                                               |  |  | 3  | 
| |         |  |  |                        |  | Condensed Consolidated Statements of Operations
    and Comprehensive (Loss) Income For the Six and Three Months
    Ended June 30, 2002 and 2001 |  |  | 4  | 
| |         |  |  |                        |  | Condensed Consolidated Statement of Changes in
    Stockholders Deficit For the Six Months Ended
    June 30, 2002                               |  |  | 5  | 
| |         |  |  |                        |  | Condensed Consolidated Statements of Cash Flows
    For the Six Months Ended June 30, 2002 and 2001                                               |  |  | 6  | 
| |         |  |  |                        |  | Notes to Condensed Consolidated Financial
    Statements                                                                                          |  |  | 7  | 
| |         |  |  | Item 2.                |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                                         |  |  | 16 | 
| |         |  |  | Item 3.                |  | Quantitative and Qualitative Disclosures about
    Market Risk                                                                                    |  |  | 32 | 
| | Part II |  |  | Other Information.    
| |         |  |  | Item 1.                |  | Legal Proceedings                                                                                                                                 |  |  | 34 | 
| |         |  |  | Item 2.                |  | Changes in Securities and Use of Proceeds                                                                                                         |  |  | 34 | 
| |         |  |  | Item 3.                |  | Defaults Upon NII Holdings Senior Securities                                                                                                      |  |  | 34 | 
| |         |  |  | Item 4.                |  | Submission of Matters to a Vote of Security
    Holders                                                                                           |  |  | 34 | 
| |         |  |  | Item 5.                |  | Other Information                                                                                                                                 |  |  | 35 | 
| |         |  |  | Item 6.                |  | Exhibits and Reports on Form 8-K                                                                                                                  |  |  | 36 | 



---



##### Table of Contents






PART I  FINANCIAL INFORMATION.




Item 1.     Financial
Statements  Unaudited.

NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES






Condensed Consolidated Balance
Sheets


As of June 30, 2002 and December 31,
2001


(in millions)


Unaudited


|                                                                                       |                                                                                          |                             |        |        |        |   |        |        |        |  
|-------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | --------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|                                                                                       |                                                                                          | 2002                        |        | 2001  
|                                                                                       |                                                                                          |                             |        |       
|ASSETS                                                                                
|Current assets                                                                         |                                                                                          |                             |        |        |        |   |        |       
|                                                                                       | Cash and cash equivalents, of which $0 and $250
    is restricted                        |                             | $      | 1,299  |        |   | $      | 2,481  |       
|                                                                                       | Restricted cash of NII Holdings held in escrow                                           |                             |        |       |        |   |        | 84     |       
|                                                                                       | Short-term investments                                                                   |                             |        | 1,388  |        |   |        | 1,236  |       
|                                                                                       | Accounts and notes receivable, less allowance for
    doubtful accounts of $158 and $167 |                             |        | 1,153  |        |   |        | 1,129  |       
|                                                                                       | Handset and accessory inventory                                                          |                             |        | 228    |        |   |        | 260    |       
|                                                                                       | Prepaid expenses and other current assets                                                |                             |        | 517    |        |   |        | 533    |       
|                                                                                       |                                                                                          |                             |        |        |        |   |        |       
|                                                                                       |                                                                                          | Total current assets        |        |        | 4,585  |   |        |        | 5,723  |  
|Investments                                                                            |                                                                                          |                             | 92     |        |        |   | 188    |       
|Property, plant and equipment,net of accumulated depreciation of
    $4,381 and $3,667 |                                                                                          |                             | 9,103  |        |        |   | 9,274  |       
|Intangible assets and other,net of accumulated amortization of $57
    and $1,121      |                                                                                          |                             | 6,729  |        |        |   | 6,067  |       
|Other assets                                                                           |                                                                                          |                             | 816    |        |        |   | 812    |       
|                                                                                       |                                                                                          |                             |        |        |        |   |        |       
|                                                                                       |                                                                                          | $                           | 21,325 |        |        | $ | 22,064 |       
|                                                                                       |                                                                                          |                             |        |        |        |   |        |       
|LIABILITIES AND STOCKHOLDERS
    DEFICIT                                             
|Current liabilities                                                                    |                                                                                          |                             |        |        |        |   |        |       
|                                                                                       | Accounts payable                                                                         |                             | $      | 458    |        |   | $      | 756    |       
|                                                                                       | Accrued expenses and other                                                               |                             |        | 1,366  |        |   |        | 1,470  |       
|                                                                                       | Due to related parties                                                                   |                             |        | 172    |        |   |        | 341    |       
|                                                                                       | Current portion of long-term debt, capital lease
    and finance obligations             |                             |        | 249    |        |   |        | 145    |       
|                                                                                       | Debt of NII Holdings, nonrecourse to and not held
    by parent                          |                             |        |       |        |   |        | 1,865  |       
|                                                                                       |                                                                                          |                             |        |        |        |   |        |       
|                                                                                       |                                                                                          | Total current liabilities   |        |        | 2,245  |   |        |        | 4,577  |  
|Long-term debt                                                                         |                                                                                          |                             | 13,250 |        |        |   | 13,815 |       
|Capital lease and finance
    obligations                                              |                                                                                          |                             | 865    |        |        |   | 905    |       
|Deferred income taxes                                                                  |                                                                                          |                             | 1,588  |        |        |   | 669    |       
|Deferred revenues and other                                                            |                                                                                          |                             | 656    |        |        |   | 566    |       
|Losses in excess of investment in NII Holdings
    (note 1)                            |                                                                                          |                             | 1,408  |        |        |   |       |       
|                                                                                       |                                                                                          |                             |        |        |        |   |        |       
|                                                                                       |                                                                                          | Total liabilities           |        |        | 20,012 |   |        |        | 20,532 |  
|                                                                                       |                                                                                          |                             |        |        |        |   |        |       
|Commitments and contingencies (note
    7)                                             |                                                                                          |                             |        |        |        |   |        |       
|Mandatorily redeemable preferred
    stock                                             |                                                                                          |                             | 1,792  |        |        |   | 2,114  |       
|Stockholders deficit                                                                  |                                                                                          |                             |        |        |        |   |        |       
|                                                                                       | Convertible preferred stock, 5 and 8 shares
    issued and outstanding                   |                             |        | 191    |        |   |        | 283    |       
|                                                                                       | Common stock, class A, 840 and 763 shares issued
    and outstanding                     |                             |        | 1      |        |   |        | 1      |       
|                                                                                       | Common stock, class B, nonvoting convertible, 36
    shares issued and outstanding       |                             |        |       |        |   |        |       |       
|                                                                                       | Paid-in capital                                                                          |                             |        | 9,205  |        |   |        | 8,581  |       
|                                                                                       | Accumulated deficit                                                                      |                             |        | (9,647 | )      |   |        | (9,179 | )     
|                                                                                       | Deferred compensation, net                                                               |                             |        | (12    | )      |   |        | (17    | )     
|                                                                                       | Accumulated other comprehensive loss                                                     |                             |        | (217   | )      |   |        | (251   | )     
|                                                                                       |                                                                                          |                             |        |        |        |   |        |       
|                                                                                       |                                                                                          | Total stockholders deficit |        |        | (479   | ) |        |        | (582   | )
|                                                                                       |                                                                                          |                             |        |        |        |   |        |       
|                                                                                       |                                                                                          | $                           | 21,325 |        |        | $ | 22,064 |       
|                                                                                       |                                                                                          |                             |        |        |        |   |        |       

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

3



---



##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES






Condensed Consolidated Statements of
Operations and Comprehensive (Loss) Income


For the Six and Three Months Ended
June 30, 2002 and 2001


(in millions, except per share
amounts)


Unaudited


|                                                                  |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |       |   | 
|----------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ----- | ------------------ | -- | ---- | ----- | ----- | --- | - | ----- | ---- | --- | - | ----- | ----- | - | 
|                                                                  |                                                                                                |                                                                             |       |                   
|                                                                  |                                                                                                | Six Months Ended                                                            |       | Three Months Ended
|                                                                  |                                                                                                | June 30,                                                                    |       | June 30,          
|                                                                  |                                                                                                |                                                                             |       |                   
|                                                                  |                                                                                                | 2002                                                                        |       | 2001               |    | 2002 |       | 2001 
|                                                                  |                                                                                                |                                                                             |       |                    |    |      |       |      
|Operating revenues                                                |                                                                                                | $                                                                           | 4,111 |                    |    | $    | 3,623 |       |     | $ | 2,154 |      |     | $ | 1,881 |      
|                                                                  |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|Operating expenses                                                |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|                                                                  | Cost of revenues                                                                               |                                                                             |       | 1,241              |    |      |       | 1,382 |     |   |       | 585  |     |   |       | 684   |  
|                                                                  | Selling, general and administrative                                                            |                                                                             |       | 1,468              |    |      |       | 1,473 |     |   |       | 753  |     |   |       | 747   |  
|                                                                  | Restructuring and impairment charges                                                           |                                                                             |       | 35                 |    |      |       | 22    |     |   |       |     |     |   |       | 22    |  
|                                                                  | Depreciation                                                                                   |                                                                             |       | 761                |    |      |       | 700   |     |   |       | 390  |     |   |       | 365   |  
|                                                                  | Amortization                                                                                   |                                                                             |       | 26                 |    |      |       | 121   |     |   |       | 15   |     |   |       | 62    |  
|                                                                  |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|                                                                  |                                                                                                |                                                                             | 3,531 |                    |    |      | 3,698 |       |     |   | 1,743 |      |     |   | 1,880 |      
|                                                                  |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|Operating income (loss)                                           |                                                                                                |                                                                             | 580   |                    |    |      | (75   | )     |     |   | 411   |      |     |   | 1     |      
|                                                                  |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|Other income (expense)                                            |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|                                                                  | Interest expense                                                                               |                                                                             |       | (542               | )  |      |       | (717  | )   |   |       | (269 | )   |   |       | (359  | )
|                                                                  | Interest income                                                                                |                                                                             |       | 31                 |    |      |       | 135   |     |   |       | 16   |     |   |       | 56    |  
|                                                                  | Gain on retirement of debt, net of debt
    conversion expense of $47, $0, $47 and $0 (note 5) |                                                                             |       | 139                |    |      |       |      |     |   |       | 139  |     |   |       |      |  
|                                                                  | Equity in losses of NII Holdings (note 1)                                                      |                                                                             |       | (226               | )  |      |       |      |     |   |       | (99  | )   |   |       |      |  
|                                                                  | Equity in losses of unconsolidated affiliates                                                  |                                                                             |       | (49                | )  |      |       | (45   | )   |   |       | (24  | )   |   |       | (24   | )
|                                                                  | Reduction in fair value of investment                                                          |                                                                             |       | (35                | )  |      |       |      |     |   |       | (35  | )   |   |       |      |  
|                                                                  | Foreign currency transaction losses, net                                                       |                                                                             |       |                   |    |      |       | (55   | )   |   |       |     |     |   |       | (45   | )
|                                                                  | Other, net                                                                                     |                                                                             |       | (1                 | )  |      |       | (11   | )   |   |       | (1   | )   |   |       | (11   | )
|                                                                  |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|                                                                  |                                                                                                |                                                                             | (683  | )                  |    |      | (693  | )     |     |   | (273  | )    |     |   | (383  | )    
|                                                                  |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|(Loss) income before income tax
    (provision) benefit           |                                                                                                |                                                                             | (103  | )                  |    |      | (768  | )     |     |   | 138   |      |     |   | (382  | )    
|Income tax (provision) benefit
    (note 1)                       |                                                                                                |                                                                             | (365  | )                  |    |      | 27    |       |     |   | (15   | )    |     |   | 13    |      
|                                                                  |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|Net (loss) income                                                 |                                                                                                |                                                                             | (468  | )                  |    |      | (741  | )     |     |   | 123   |      |     |   | (369  | )    
|                                                                  | Gain on retirement of mandatorily redeemable
    preferred stock (note 5)                      |                                                                             |       | 264                |    |      |       |      |     |   |       | 264  |     |   |       |      |  
|                                                                  | Mandatorily redeemable preferred stock dividends                                               |                                                                             |       | (125               | )  |      |       | (113  | )   |   |       | (62  | )   |   |       | (57   | )
|                                                                  |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|(Loss) income attributable to common
    stockholders             |                                                                                                | $                                                                           | (329  | )                  |    | $    | (854  | )     |     | $ | 325   |      |     | $ | (426  | )    
|                                                                  |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|(Loss) earnings per share attributable to
    common stockholders |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|                                                                  | Basic                                                                                          |                                                                             | $     | (0.40              | )  |      | $     | (1.12 | )   |   | $     | 0.39 |     |   | $     | (0.56 | )
|                                                                  |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|                                                                  | Diluted                                                                                        |                                                                             | $     | (0.40              | )  |      | $     | (1.12 | )   |   | $     | 0.37 |     |   | $     | (0.56 | )
|                                                                  |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|Weighted average number of common shares
    outstanding          |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|                                                                  | Basic                                                                                          |                                                                             |       | 821                |    |      |       | 765   |     |   |       | 841  |     |   |       | 765   |  
|                                                                  |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|                                                                  | Diluted                                                                                        |                                                                             |       | 821                |    |      |       | 765   |     |   |       | 927  |     |   |       | 765   |  
|                                                                  |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|Comprehensive (loss) income, net of
    income tax                |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|                                                                  | Unrealized (loss) gain on available-for-sale
    securities, net                               |                                                                             | $     | (7                 | )  |      | $     | (110  | )   |   | $     | 13   |     |   | $     | 52    |  
|                                                                  | Foreign currency translation adjustment                                                        |                                                                             |       | 44                 |    |      |       | (59   | )   |   |       | 18   |     |   |       | (13   | )
|                                                                  | Cash flow hedge:                                                                               |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |       |  
|                                                                  |                                                                                                | Cumulative effect of accounting change for cash
    flow hedge              |       |                    |   |      |       |       | (20 | ) |       |      |    |   |       |       |  | 
|                                                                  |                                                                                                | Reclassification of transition adjustment
    included in net (loss) income |       |                    | 4  |      |       |       | 4   |   |       |      | 2   |   |       |       | 2 | 
|                                                                  |                                                                                                | Unrealized (loss) gain on cash flow hedge                                   |       |                    | (7 | )    |       |       | (3  | ) |       |      | (17 | ) |       |       | 9 | 
|                                                                  |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|                                                                  | Other comprehensive income (loss)                                                              |                                                                             |       | 34                 |    |      |       | (188  | )   |   |       | 16   |     |   |       | 50    |  
|                                                                  | Net (loss) income                                                                              |                                                                             |       | (468               | )  |      |       | (741  | )   |   |       | 123  |     |   |       | (369  | )
|                                                                  |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      
|                                                                  |                                                                                                | $                                                                           | (434  | )                  |    | $    | (929  | )     |     | $ | 139   |      |     | $ | (319  | )    
|                                                                  |                                                                                                |                                                                             |       |                    |    |      |       |       |     |   |       |      |     |   |       |      

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

4



---



##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES






Condensed Consolidated Statement of Changes in
Stockholders Deficit


For the Six Months Ended June 30,
2002


(in millions)


Unaudited


|                         |                                         |                                                                         |   |              |    |              |     |         |     |             |     |          |    |               |   |         |   |              |    |               |  |       |   |  |  |   |       |   |      |   |        |      |   |   |     |   |  |   |      |    |  |   |      |      |      |  
|------------------------ | --------------------------------------- | ----------------------------------------------------------------------- | - | ------------ | -- | ------------ | --- | ------- | --- | ----------- | --- | -------- | -- | ------------- | - | ------- | - | ------------ | -- | ------------- |  | ----- | - |  |  | - | ----- | - | ---- | - | ------ | ---- | - | - | --- | - |  | - | ---- | -- |  | - | ---- | ---- | ---- | -
|                         |                                         |                                                                         |   |              |    |              |     |         |     |             |     |          |    |               |   |        
|                         |                                         | Convertible                                                             |   | Class A      |    | Class B      |     |         |     |             |     |          |    | Accumulated   |   |        
|                         |                                         | Preferred Stock                                                         |   | Common Stock |    | Common Stock |     |         |     |             |     |          |    | Other         |   |        
|                         |                                         |                                                                         |   |              |    |              |     | Paid-in |     | Accumulated |     | Deferred |    | Comprehensive |   |        
|                         |                                         | Shares                                                                  |   | Amount       |    | Shares       |     | Amount  |     | Shares      |     | Amount   |    | Capital       |   | Deficit |   | Compensation |    | (Loss) Income |  | Total
|                         |                                         |                                                                         |   |              |    |              |     |         |     |             |     |          |    |               |   |         |   |              |    |               |  |      
|Balance, January 1, 2002 |                                         |                                                                         | 8 |              |    | $            | 283 |         |     |             | 763 |          |    | $             | 1 |         |   |              | 36 |               |  | $     |  |  |  | $ | 8,581 |   |      | $ | (9,179 | )    |   | $ | (17 | ) |  | $ | (251 | )  |  | $ | (582 | )   
|                         | Net loss                                |                                                                         |   |              |    |              |     |         |     |             |     |          |    |               |   |         |   |              |    |               |  |       |   |  |  |   |       |   |      |   |        | (468 | ) |   |     |   |  |   |      |    |  |   |      | (468 | )   
|                         | Other comprehensive income              |                                                                         |   |              |    |              |     |         |     |             |     |          |    |               |   |         |   |              |    |               |  |       |   |  |  |   |       |   |      |   |        |      |   |   |     |   |  |   |      | 34 |  |   |      | 34   |     
|                         | Issuance of common stock:               |                                                                         |   |              |    |              |     |         |     |             |     |          |    |               |   |         |   |              |    |               |  |       |   |  |  |   |       |   |      |   |        |      |   |   |     |   |  |   |      |    |  |   |      |      |     
|                         |                                         | Conversion of preferred stock into common stock                         |   |              | (3 | )            |     |         | (92 | )           |     |          | 15 |               |   |         |  |              |    |               |  |       |   |  |  |   |       |   | 92   |   |        |      |   |   |     |   |  |   |      |    |  |   |      |      |     |  
|                         |                                         | Employee stock purchase plan                                            |   |              |    |              |     |         |     |             |     |          | 1  |               |   |         |  |              |    |               |  |       |   |  |  |   |       |   | 9    |   |        |      |   |   |     |   |  |   |      |    |  |   |      |      | 9    |  
|                         |                                         | Exchange of debt securities for common stock                            |   |              |    |              |     |         |     |             |     |          | 47 |               |   |         |  |              |    |               |  |       |   |  |  |   |       |   | 317  |   |        |      |   |   |     |   |  |   |      |    |  |   |      |      | 317  |  
|                         |                                         | Exchange of mandatorily redeemable preferred
    stock for common stock |   |              |    |              |     |         |     |             |     |          | 14 |               |   |         |  |              |    |               |  |       |   |  |  |   |       |   | 63   |   |        |      |   |   |     |   |  |   |      |    |  |   |      |      | 63   |  
|                         | Deferred compensation and other         |                                                                         |   |              |    |              |     |         |     |             |     |          |    |               |   |         |   |              |    |               |  |       |   |  |  |   |       | 4 |      |   |        |      |   |   |     | 5 |  |   |      |    |  |   |      | 9    |     
|                         | Mandatorily redeemable preferred stock: |                                                                         |   |              |    |              |     |         |     |             |     |          |    |               |   |         |   |              |    |               |  |       |   |  |  |   |       |   |      |   |        |      |   |   |     |   |  |   |      |    |  |   |      |      |     
|                         |                                         | Dividends                                                               |   |              |    |              |     |         |     |             |     |          |    |               |   |         |   |              |    |               |  |       |   |  |  |   |       |   | (125 | ) |        |      |   |   |     |   |  |   |      |    |  |   |      |      | (125 | )
|                         |                                         | Gain on retirement of mandatorily redeemable
    preferred stock        |   |              |    |              |     |         |     |             |     |          |    |               |   |         |   |              |    |               |  |       |   |  |  |   |       |   | 264  |   |        |      |   |   |     |   |  |   |      |    |  |   |      |      | 264  |  
|                         |                                         |                                                                         |   |              |    |              |     |         |     |             |     |          |    |               |   |         |   |              |    |               |  |       |   |  |  |   |       |   |      |   |        |      |   |   |     |   |  |   |      |    |  |   |      |     
|Balance, June 30, 2002   |                                         |                                                                         | 5 |              |    | $            | 191 |         |     |             | 840 |          |    | $             | 1 |         |   |              | 36 |               |  | $     |  |  |  | $ | 9,205 |   |      | $ | (9,647 | )    |   | $ | (12 | ) |  | $ | (217 | )  |  | $ | (479 | )   
|                         |                                         |                                                                         |   |              |    |              |     |         |     |             |     |          |    |               |   |         |   |              |    |               |  |       |   |  |  |   |       |   |      |   |        |      |   |   |     |   |  |   |      |    |  |   |      |     

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

5



---



##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES






Condensed Consolidated Statements of Cash
Flows


For the Six Months Ended June 30, 2002
and 2001


(in millions)


Unaudited


|                                                         |                                                                                                                                    |                                                                                            |                                              |                                                         |      |      |        |        |     |      |        |  
|-------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | -------------------------------------------- | ------------------------------------------------------- | ---- | ---- | ------ | ------ | --- | ---- | ------ | -
|                                                         |                                                                                                                                    | 2002                                                                                       |                                              | 2001                                                   
|                                                         |                                                                                                                                    |                                                                                            |                                              |                                                        
|Cash flows from operating activities                     |                                                                                                                                    |                                                                                            |                                              |                                                         |      |      |        |       
|                                                         | Net loss                                                                                                                           |                                                                                            | $                                            | (468                                                    | )    |      | $      | (741   | )  
|                                                         | Adjustments to reconcile net loss to net cash
    provided by operating activities:                                                |                                                                                            |                                              |                                                         |      |      |        |        |    
|                                                         |                                                                                                                                    | Amortization of debt financing costs and
    accretion of senior redeemable discount notes |                                              |                                                         | 182  |      |        |        | 258 |     
|                                                         |                                                                                                                                    | Provision for losses on accounts receivable                                                |                                              |                                                         | 173  |      |        |        | 157 |     
|                                                         |                                                                                                                                    | Restructuring and impairment charges                                                       |                                              |                                                         | 29   |      |        |        |    |     
|                                                         |                                                                                                                                    | Stock-based compensation                                                                   |                                              |                                                         | 9    |      |        |        | 11  |     
|                                                         |                                                                                                                                    | Other                                                                                      |                                              |                                                         | (11  | )    |        |        | 6   |     
|                                                         |                                                                                                                                    | Depreciation and amortization                                                              |                                              |                                                         | 787  |      |        |        | 821 |     
|                                                         |                                                                                                                                    | Gain on retirement of debt                                                                 |                                              |                                                         | (186 | )    |        |        |    |     
|                                                         |                                                                                                                                    | Debt conversion expense                                                                    |                                              |                                                         | 47   |      |        |        |    |     
|                                                         |                                                                                                                                    | Equity in losses of unconsolidated affiliates                                              |                                              |                                                         | 275  |      |        |        | 45  |     
|                                                         |                                                                                                                                    | Foreign currency transaction losses, net                                                   |                                              |                                                         |     |      |        |        | 55  |     
|                                                         |                                                                                                                                    | Reduction in fair value of investment                                                      |                                              |                                                         | 35   |      |        |        |    |     
|                                                         |                                                                                                                                    | Income tax provision (benefit)                                                             |                                              |                                                         | 365  |      |        |        | (27 | )   
|                                                         |                                                                                                                                    | Change in assets and liabilities, net of effects
    from acquisitions:                    |                                              |                                                         |      |      |        |        |     |     
|                                                         |                                                                                                                                    |                                                                                            | Accounts and notes receivable                |                                                         |      | (361 | )      |        |     | (277 | )     
|                                                         |                                                                                                                                    |                                                                                            | Handset and accessory inventory              |                                                         |      | 6    |        |        |     | (86  | )     
|                                                         |                                                                                                                                    |                                                                                            | Prepaid expenses and other assets            |                                                         |      | (5   | )      |        |     | 175  |       
|                                                         |                                                                                                                                    |                                                                                            | Accounts payable, accrued expenses and other |                                                         |      | 32   |        |        |     | 61   |       
|                                                         |                                                                                                                                    |                                                                                            |                                              |                                                         |      |      |        |       
|                                                         |                                                                                                                                    |                                                                                            |                                              | Net cash provided by operating activities               |      |      | 909    |        |     |      | 458    |  
|                                                         |                                                                                                                                    |                                                                                            |                                              |                                                         |      |      |        |       
|Cash flows from investing activities                     |                                                                                                                                    |                                                                                            |                                              |                                                         |      |      |        |       
|                                                         | Capital expenditures                                                                                                               |                                                                                            |                                              | (1,041                                                  | )    |      |        | (1,912 | )  
|                                                         | Proceeds from maturities and sales of short-term
    investments                                                                   |                                                                                            |                                              | 1,640                                                   |      |      |        | 2,979  |    
|                                                         | Purchases of short-term investments                                                                                                |                                                                                            |                                              | (1,779                                                  | )    |      |        | (2,154 | )  
|                                                         | Payments for licenses, acquisitions, investments
    and other, net of cash acquired                                               |                                                                                            |                                              | (317                                                    | )    |      |        | (739   | )  
|                                                         | Cash relinquished as a result of changing to the
    equity method of accounting for NII Holdings                                  |                                                                                            |                                              | (250                                                    | )    |      |        |       |    
|                                                         |                                                                                                                                    |                                                                                            |                                              |                                                         |      |      |        |       
|                                                         |                                                                                                                                    |                                                                                            |                                              | Net cash used in investing activities                   |      |      | (1,747 | )      |     |      | (1,826 | )
|                                                         |                                                                                                                                    |                                                                                            |                                              |                                                         |      |      |        |       
|Cash flows from financing activities                     |                                                                                                                                    |                                                                                            |                                              |                                                         |      |      |        |       
|                                                         | Issuance of debt securities                                                                                                        |                                                                                            |                                              |                                                        |      |      |        | 2,250  |    
|                                                         | Purchase and retirement of debt securities and
    mandatorily redeemable preferred stock                                          |                                                                                            |                                              | (295                                                    | )    |      |        |       |    
|                                                         | Repayments under capital lease and finance
    obligations                                                                         |                                                                                            |                                              | (49                                                     | )    |      |        | (36    | )  
|                                                         | Repayments under long-term credit facilities                                                                                       |                                                                                            |                                              | (1                                                      | )    |      |        | (17    | )  
|                                                         | Proceeds from exercise of stock options                                                                                            |                                                                                            |                                              |                                                        |      |      |        | 15     |    
|                                                         | Proceeds from sale-leaseback transactions                                                                                          |                                                                                            |                                              | 1                                                       |      |      |        | 33     |    
|                                                         | Debt financing costs and other                                                                                                     |                                                                                            |                                              |                                                        |      |      |        | (30    | )  
|                                                         |                                                                                                                                    |                                                                                            |                                              |                                                         |      |      |        |       
|                                                         |                                                                                                                                    |                                                                                            |                                              | Net cash (used in) provided by financing
    activities |      |      | (344   | )      |     |      | 2,215  |  
|                                                         |                                                                                                                                    |                                                                                            |                                              |                                                         |      |      |        |       
|Net (decrease) increase in cash and cash
    equivalents |                                                                                                                                    |                                                                                            | (1,182                                       | )                                                       |      |      | 847    |       
|Cash and cash equivalents, beginning of
    period       |                                                                                                                                    |                                                                                            | 2,481                                        |                                                         |      |      | 2,609  |       
|                                                         |                                                                                                                                    |                                                                                            |                                              |                                                         |      |      |        |       
|Cash and cash equivalents, end of
    period             |                                                                                                                                    | $                                                                                          | 1,299                                        |                                                         |      | $    | 3,456  |       
|                                                         |                                                                                                                                    |                                                                                            |                                              |                                                         |      |      |        |       
|Non-cash investing and financing
    activities          |                                                                                                                                    |                                                                                            |                                              |                                                         |      |      |        |       
|                                                         | Decrease in fair value of marketable equity
    securities                                                                         |                                                                                            | $                                            |                                                        |      |      | $      | (152   | )  
|                                                         | Issuance of class A common stock for retirement
    and exchange of debt securities and mandatorily redeemable
    preferred stock |                                                                                            |                                              | 380                                                     |      |      |        |       |    
|                                                         | Increase in finance obligation for digital mobile
    network equipment                                                            |                                                                                            |                                              | 14                                                      |      |      |        |       |    

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

6



---



##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES






Notes to Condensed Consolidated Financial
Statements


Unaudited


Note 1.  Basis of
Presentation

Our unaudited condensed consolidated financial
statements have been prepared under the rules and regulations of
the Securities and Exchange Commission and reflect all
adjustments that are necessary for a fair presentation of the
results for interim periods. All adjustments made were normal
recurring accruals. You should not expect the results of
operations of interim periods to be an indication of the results
for a full year. You should read the condensed consolidated
financial statements in conjunction with the consolidated
financial statements and notes contained in our annual report on
Form 10-K for the year ended December 31, 2001 and our
subsequent quarterly report on Form 10-Q for the quarter
ended March 31, 2002.

NII Holdings.You should also read NII Holdings,
Inc.s annual report on Form 10-K for the year ended
December 31, 2001 and its subsequent quarterly reports on
Form 10-Q for matters related to the operations of NII
Holdings, our substantially wholly owned subsidiary that
provides wireless communications services primarily in selected
Latin American markets. On May 24, 2002, NII Holdings
announced that it had reached an agreement in principle with its
main creditors and filed a voluntary case to restructure its
obligations under Chapter 11 of the U.S. Bankruptcy Code in
the State of Delaware. On August 8, 2002, NII Holdings
began soliciting its existing creditors for approval of a plan
of reorganization based on this agreement in principle which
contemplates a new infusion of capital into NII Holdings of
$190 million, $140 million of which will be in the
form of a rights offering of new senior secured notes and equity
to existing creditors. Subject to certain conditions, we have
agreed to backstop up to $65 million of the rights offering
and also to provide $50 million of additional funding in
exchange for a U.S.-Mexico cross border spectrum sharing
arrangement. Other creditors of NII Holdings have agreed to
backstop the remaining $75 million of the rights offering,
subject to certain conditions. If the NII Holdings plan of
reorganization as presented is approved by NII Holdings
creditors and the U.S. Bankruptcy Court, we anticipate that our
ownership interest in NII Holdings will be reduced to between
37% and 45%. We cannot assure you that the NII Holdings plan of
reorganization will be approved or that NII Holdings will
successfully complete the proposed restructuring.

Our condensed consolidated financial statements
include the consolidated results of NII Holdings through
December 31, 2001. As a result of its bankruptcy filing, we
no longer maintain the ability to unilaterally control the
operations of NII Holdings. Accordingly, we began accounting for
our investment in NII Holdings, effective May 2002, using the
equity method in accordance with Accounting Principles Board
Opinion No. 18, The Equity Method of Accounting for
Investments in Common Stock. We believe the equity method
is appropriate given our ability to exercise significant
influence over the operating and financial policies of NII
Holdings. In accordance with the equity method, we stopped
recognizing equity in losses of NII Holdings effective in May
2002 as we had recognized $1.4 billion of losses in excess
of our investment in NII Holdings through that date. We have
reflected these excess losses on the accompanying balance sheet
in other long-term liabilities.

As we presently own substantially all of the
equity interests in NII Holdings, we recorded 100% of their
operating results through May 2002. We have classified the 2002
net operating results of NII Holdings as equity in losses of NII
Holdings in the accompanying statement of operations as
permitted under the accounting rules governing a mid-year change
from consolidating a subsidiary to accounting for the investment
using the equity method. However, the presentation of NII
Holdings in the financial statements as a consolidated
subsidiary in 2001 and prior periods has not changed from the
prior presentation. Assuming NII Holdings emerges from
bankruptcy under its proposed plan of reorganization, we would
expect to record a substantial non-cash gain in excess of
$1.0 billion at that time. Following emergence from
bankruptcy, we expect to account for our new investment in NII
Holdings using the equity method which will require us to record
our proportionate share of NII Holdings results of
operations.

7



---



##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

Accumulated
Other Comprehensive Loss.

|                                                               |  |               |      |              |  |   |      |  
|-------------------------------------------------------------- |  | ------------- | ---- | ------------ |  | - | ---- | -
|                                                               |  | June 30,      |      | December 31,
|                                                               |  | 2002          |      | 2001        
|                                                               |  |               |      |             
|                                                               |  |              
|                                                               |  | (in millions)
|Cumulative foreign currency translation adjustment             |  | $             | (185 | )            |  | $ | (229 | )
|Unrealized loss on cash flow hedge                             |  |               | (24  | )            |  |   | (17  | )
|Cumulative effect of accounting change for cash
    flow hedge |  |               | (8   | )            |  |   | (12  | )
|Unrealized gain on available-for-sale securities,
    net      |  |               |     |              |  |   | 7    |  
|                                                               |  |               |      |              |  |   |      |  
|                                                               |  | $             | (217 | )            |  | $ | (251 | )
|                                                               |  |               |      |              |  |   |      |  

Earnings Per Share.Basic earnings per share is
calculated by dividing net income available to common
stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is
calculated by using the weighted average number of common shares
outstanding and potentially issuable during the period.
Potentially issuable common stock, for purposes of determining
diluted earnings per share, includes the dilutive effects of
stock options, restricted stock, warrants, stock purchase plans,
deferred compensation arrangements and convertible securities.
The effect of such potentially issuable common stock is computed
using the treasury stock method or the if-converted method, in
accordance with Statement of Financial Accounting Standards, or
SFAS, No. 128, Earnings Per Share and its
interpretations. The calculation of diluted earnings per common
share for the three months ended June 30, 2002 excludes the
assumed conversion of the 5.25% convertible senior notes due
2010, the zero coupon convertible preferred stock mandatorily
redeemable 2013, a portion of the 6% convertible senior notes
due 2011, restricted stock, warrants and substantially all stock
options. These shares were excluded due to their antidilutive
effect.

|                                                        |                                         |                                         |     |               |  |          |     |    |  |   |      |       |  
|------------------------------------------------------- | --------------------------------------- | --------------------------------------- | --- | ------------- |  | -------- | --- | -- |  | - | ---- | ----- | -
|                                                        |                                         |                                        
|                                                        |                                         | Three Months Ended                     
|                                                        |                                         | June 30, 2002                          
|                                                        |                                         |                                        
|                                                        |                                         |                                         |     | Weighted      |  |         
|                                                        |                                         |                                         |     | Average       |  | Earnings
|                                                        |                                         | Income                                  |     | Shares        |  | Per     
|                                                        |                                         | (Numerator)                             |     | (Denominator) |  | Share   
|                                                        |                                         |                                         |     |               |  |         
|                                                        |                                         |                                        
|                                                        |                                         | (in millions, except per share amounts)
|Income available to common
    stockholders             |                                         | $                                       | 325 |               |  |          | 841 |    |  | $ | 0.39 |      
|Effect of assumed conversion of dilutive
    securities |                                         |                                         |     |               |  |          |     |    |  |   |      |      
|                                                        | Convertible preferred stock             |                                         |     |              |  |          |     | 31 |  |   |      | (0.02 | )
|                                                        | 4.75% convertible senior notes due 2007 |                                         |     | 4             |  |          |     | 15 |  |   |      |      |  
|                                                        | 6.0% convertible senior notes due 2011  |                                         |     | 15            |  |          |     | 40 |  |   |      |      |  
|                                                        |                                         |                                         |     |               |  |          |     |    |  |   |      |      
|                                                        |                                         | $                                       | 344 |               |  |          | 927 |    |  | $ | 0.37 |      
|                                                        |                                         |                                         |     |               |  |          |     |    |  |   |      |      

Supplemental
Cash Flow Information.

|                                                         |                                                                    |                  |     |       |   |   |       |       |  
|-------------------------------------------------------- | ------------------------------------------------------------------ | ---------------- | --- | ----- | - | - | ----- | ----- | -
|                                                         |                                                                    |                 
|                                                         |                                                                    | Six Months Ended
|                                                         |                                                                    | June 30,        
|                                                         |                                                                    |                 
|                                                         |                                                                    | 2002             |     | 2001 
|                                                         |                                                                    |                  |     |      
|                                                         |                                                                    |                 
|                                                         |                                                                    | (in millions)   
|Capital expenditures, including capitalized
    interest |                                                                    |                  |     |       |   |   |       |      
|                                                         | Cash paid for capital expenditures                                 |                  | $   | 1,041 |   |   | $     | 1,912 |  
|                                                         | Changes in capital expenditures accrued and
    unpaid or financed |                  |     | (94   | ) |   |       | (220  | )
|                                                         |                                                                    |                  |     |       |   |   |       |      
|                                                         |                                                                    | $                | 947 |       |   | $ | 1,692 |      
|                                                         |                                                                    |                  |     |       |   |   |       |      
|Interest costs                                           |                                                                    |                  |     |       |   |   |       |      
|                                                         | Interest expense                                                   |                  | $   | 542   |   |   | $     | 717   |  
|                                                         | Interest capitalized                                               |                  |     | 25    |   |   |       | 68    |  
|                                                         |                                                                    |                  |     |       |   |   |       |      
|                                                         |                                                                    | $                | 567 |       |   | $ | 785   |      
|                                                         |                                                                    |                  |     |       |   |   |       |      
|Cash paid for interest, net of amounts
    capitalized   |                                                                    | $                | 373 |       |   | $ | 404   |      
|                                                         |                                                                    |                  |     |       |   |   |       |      

8



---



##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

Adoption of SFAS No. 142.Effective January 1, 2002, we
adopted SFAS No. 142, Goodwill and Other Intangible
Assets. Under SFAS No. 142 we are no longer required
to amortize goodwill and intangible assets with indefinite
useful lives, but we are required to test goodwill and
intangible assets with indefinite useful lives for impairment at
least annually. We will continue to amortize intangible assets
that have finite lives over their useful lives.

As of January 1, 2002, we tested all of our
Federal Communications Commission, or FCC, licenses and goodwill
for impairment 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 Emerging
Issues Task Force, or 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 these
licenses by deducting the fair values of our domestic net
assets, other than FCC licenses, from our domestic reporting
units fair value, which was determined based on discounted
cash flows.

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 the reversal of
deferred tax liabilities related to FCC licenses expected to
occur 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. Additionally,
during the first half of 2002, we incurred an incremental
$30 million non-cash charge to the income tax provision
related to FCC licenses for which we have a tax basis. As these
FCC licenses are no longer amortized for book purposes but are
amortized for tax purposes, we are recording additional deferred
tax liabilities as amortization occurs.

On January 1, 2002, we reclassified
$898 million of the net carrying value of our goodwill
(consisting of a gross carrying value of $1.16 billion and
accumulated amortization of $264 million as of
December 31, 2001) to 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. 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. Prior to January 1, 2002, we
amortized both FCC licenses and related goodwill over the same
periods, using the same straight-line method. In connection with
this reclassification, we recorded an additional deferred tax
liability of $574 million as of January 1, 2002, in
accordance with the provisions of SFAS No. 109, Accounting
for Income Taxes. The offsetting increase related to
recognizing this deferred tax liability was recorded to FCC
licenses, consistent with the approach of treating FCC licenses
as the residual in the purchase price allocations for
transactions in which the predominant assets acquired were FCC
licenses. On January 1, 2002, we also adjusted the gross
carrying values of our FCC licenses and goodwill by the
accumulated amortization amounts in accordance with SFAS
No. 142.

We acquired about $330 million of FCC
licenses during the six months ended June 30, 2002. The table
below summarizes our intangible assets as of June 30, 2002,
after the reclassifications discussed above, and as of
December 31, 2001. Based only on the amortized intangible
assets existing at June 30, 2002, we estimate the
amortization expense for each of the succeeding five years
ending December 31 to be: $48 million for 2002,
$46 million for 2003, $26 million for 2004,
$4 million for 2005 and $2 million for 2006. Actual

9



---



##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed 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.

|                                  |                           |               |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |       | 
|--------------------------------- | ------------------------- | ------------- | ----- | ----------------- |  | -------- | -- | -------- |  | ------------ | ----- | -------- |  | - | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                                  |                           |               |       |                  
|                                  |                           | June 30, 2002 |       | December 31, 2001
|                                  |                           |               |       |                  
|                                  |                           | Gross         |       |                   |  | Net      |    | Gross    |  |              |       | Net     
|                                  |                           | Carrying      |       | Accumulated       |  | Carrying |    | Carrying |  | Accumulated  |       | Carrying
|                                  |                           | Value         |       | Amortization      |  | Value    |    | Value    |  | Amortization |       | Value   
|                                  |                           |               |       |                   |  |          |    |          |  |              |       |         
|                                  |                           |              
|                                  |                           | (in millions)
|Amortized intangible assets       |                           |               |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |      
|                                  | Customer lists            |               | $     | 131               |  |          | $  | 45       |  |              | $     | 86       |  |   | $     | 114   |  |   | $     | 25    |  |   | $     | 89    | 
|                                  | International licenses    |               |       |                  |  |          |    |         |  |              |       |         |  |   |       | 192   |  |   |       |      |  |   |       | 192   | 
|                                  | Other                     |               |       | 36                |  |          |    | 12       |  |              |       | 24       |  |   |       | 24    |  |   |       | 9     |  |   |       | 15    | 
|                                  |                           |               |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |      
|                                  |                           |               | 167   |                   |  | $        | 57 |          |  |              | 110   |          |  |   | 330   |       |  |   | 34    |       |  |   | 296   |      
|                                  |                           |               |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |      
|Unamortized intangible assets     |                           |               |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |      
|                                  | FCC licenses              |               |       | 6,365             |  |          |    |          |  |              |       | 6,365    |  |   |       | 6,547 |  |   |       | 1,086 |  |   |       | 5,461 | 
|                                  | Goodwill                  |               |       | 21                |  |          |    |          |  |              |       | 21       |  |   |       | 22    |  |   |       | 1     |  |   |       | 21    | 
|                                  |                           |               |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |      
|                                  |                           |               | 6,386 |                   |  |          |    |          |  |              | 6,386 |          |  |   | 6,569 |       |  |   | 1,087 |       |  |   | 5,482 |      
|                                  |                           |               |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |      
|Total intangible assets           |                           | $             | 6,553 |                   |  |          |    |          |  |              | 6,496 |          |  | $ | 6,899 |       |  | $ | 1,121 |       |  |   | 5,778 |      
|                                  |                           |               |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |      
|                                  | Debt financing costs, net |               |       |                   |  |          |    |          |  |              |       | 233      |  |   |       |       |  |   |       |       |  |   |       | 289   | 
|                                  |                           |               |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |      
|Total intangible assets and other |                           |               |       |                   |  |          |    |          |  | $            | 6,729 |          |  |   |       |       |  |   |       |       |  | $ | 6,067 |      
|                                  |                           |               |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |      

The table below reflects our financial results
for the specified periods as if we had adopted SFAS No. 142
effective January 1, 1999 and accordingly not amortized our
FCC licenses and goodwill during 1999, 2000 and 2001. The income
tax provision adjustments are similar in nature to the actual
income tax charges recorded in 2002, which are discussed above.

|                                                                                       |                                                    |                                         |       |               |   |                          |       |       |   |      |        |       |   |   |        |       |   |   |        |       |  
|-------------------------------------------------------------------------------------- | -------------------------------------------------- | --------------------------------------- | ----- | ------------- | - | ------------------------ | ----- | ----- | - | ---- | ------ | ----- | - | - | ------ | ----- | - | - | ------ | ----- | -
|                                                                                       |                                                    |                                         |       |               |   |                         
|                                                                                       |                                                    | Six Months                              |       | Three Months  |   | Years Ended December 31,
|                                                                                       |                                                    | Ended                                   |       | Ended         |   |                         
|                                                                                       |                                                    | June 30, 2001                           |       | June 30, 2001 |   | 2001                     |       | 2000  |   | 1999
|                                                                                       |                                                    |                                         |       |               |   |                          |       |       |   |     
|                                                                                       |                                                    |                                        
|                                                                                       |                                                    | (in millions, except per share amounts)
|Loss before income tax benefit, as
    reported                                        |                                                    | $                                       | (768  | )             |   | $                        | (382  | )     |   | $    | (3,229 | )     |   | $ | (744   | )     |   | $ | (1,298 | )    
|                                                                                       | Amortization of goodwill and FCC licenses recorded |                                         |       | 71            |   |                          |       | 36    |   |      |        | 147   |   |   |        | 126   |   |   |        | 122   |  
|                                                                                       |                                                    |                                         |       |               |   |                          |       |       |   |      |        |       |   |   |        |       |   |   |        |      
|Pro forma loss before income tax
    benefit                                           |                                                    | $                                       | (697  | )             |   | $                        | (346  | )     |   | $    | (3,082 | )     |   | $ | (618   | )     |   | $ | (1,176 | )    
|                                                                                       |                                                    |                                         |       |               |   |                          |       |       |   |      |        |       |   |   |        |       |   |   |        |      
|Loss attributable to common stockholders, as
    reported                              |                                                    | $                                       | (854  | )             |   | $                        | (426  | )     |   | $    | (2,858 | )     |   | $ | (1,024 | )     |   | $ | (1,530 | )    
|                                                                                       | Amortization of goodwill and FCC licenses recorded |                                         |       | 71            |   |                          |       | 36    |   |      |        | 147   |   |   |        | 126   |   |   |        | 122   |  
|                                                                                       | Income tax provision adjustment                    |                                         |       | (46           | ) |                          |       | (21   | ) |      |        | (70   | ) |   |        | (51   | ) |   |        | (324  | )
|                                                                                       |                                                    |                                         |       |               |   |                          |       |       |   |      |        |       |   |   |        |       |   |   |        |      
|Pro forma loss attributable to common
    stockholders                                 |                                                    | $                                       | (829  | )             |   | $                        | (411  | )     |   | $    | (2,781 | )     |   | $ | (949   | )     |   | $ | (1,732 | )    
|                                                                                       |                                                    |                                         |       |               |   |                          |       |       |   |      |        |       |   |   |        |       |   |   |        |      
|Loss per share attributable to common
    stockholders, basic and diluted, as reported |                                                    | $                                       | (1.12 | )             |   | $                        | (0.56 | )     |   | $    | (3.67  | )     |   | $ | (1.35  | )     |   | $ | (2.39  | )    
|                                                                                       | Amortization of goodwill and FCC licenses recorded |                                         |       | 0.09          |   |                          |       | 0.05  |   |      |        | 0.19  |   |   |        | 0.17  |   |   |        | 0.19  |  
|                                                                                       | Income tax provision adjustment                    |                                         |       | (0.06         | ) |                          |       | (0.03 | ) |      |        | (0.09 | ) |   |        | (0.07 | ) |   |        | (0.51 | )
|                                                                                       |                                                    |                                         |       |               |   |                          |       |       |   |      |        |       |   |   |        |       |   |   |        |      
|Pro forma loss per share attributable to
    common stockholders, basic and diluted    |                                                    | $                                       | (1.09 | )             |   | $                        | (0.54 | )     |   | $    | (3.57  | )     |   | $ | (1.25  | )     |   | $ | (2.71  | )    
|                                                                                       |                                                    |                                         |       |               |   |                          |       |       |   |      |        |       |   |   |        |       |   |   |        |      

10



---



##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

New Accounting Pronouncements.In June 2002, the Financial
Accounting Standards Board, or FASB, issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities which supersedes EITF Issue No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity. SFAS
No. 146 requires recognition of a liability for costs
associated with an exit or disposal activity when the liability
is incurred, rather than when the entity commits to an exit plan
under EITF Issue No. 94-3. We are required to adopt the
provisions of SFAS No. 146 by January 1, 2003. We do
not believe that the implementation of these provisions will
have a material impact on our financial position or results of
operations.

On April 1, 2002, we adopted SFAS
No. 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. SFAS No. 145 requires us to
classify gains and losses from extinguishments of debt as
extraordinary items only if they meet the criteria for such
classification in Accounting Principles Board Opinion
No. 30, Reporting the Results of Operations,
Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. Additionally, SFAS No. 145 requires
sale-leaseback accounting for certain lease modifications that
have economic effects similar to sale-leaseback transactions.
The adoption of SFAS No. 145 resulted in the classification
of our gain on the retirement of debt for the quarter ended
June 30, 2002 as other income (expense) in the accompanying
statement of operations rather than as an extraordinary item.

In July 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations. The
objective of this statement is to provide accounting guidance
for legal obligations associated with the retirement of
long-lived assets by requiring the fair value of a liability for
the asset retirement obligation to be recognized in the period
in which it is incurred. When the liability is recognized, the
asset retirement costs should also be capitalized by increasing
the carrying amount of the related long-lived asset. The
liability is then accreted to its present value each period and
the capitalized costs are depreciated over the useful life of
the associated asset. We are currently assessing our legal
obligations and, accordingly, have not yet determined the
expected impact, if any, of adopting this standard. This
statement is effective for fiscal years beginning after
June 15, 2002.

As a result of our adoption in January 2000 of
Staff Accounting Bulletin, or SAB, No. 101, Revenue
Recognition in Financial Statements, we recognized
revenues from handset sales and activation fees and equal
amounts of cost of revenues during the following periods that
are attributable to handset sales and activation fees previously
reported in periods prior to 2000 as follows.

|                           |  |               |    |      |  |   |     | 
|-------------------------- |  | ------------- | -- | ---- |  | - | --- | 
|                           |  | 2002          |    | 2001
|                           |  |               |    |     
|                           |  |              
|                           |  | (in millions)
|Three months ended June 30 |  | $             | 35 |      |  | $ | 62  | 
|Six months ended June 30   |  |               | 85 |      |  |   | 135 | 

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

Note 2.  2002 Transactions

Restructuring.In January 2002, we announced a
five-year information technology outsourcing agreement with
Electronic Data Systems Corp., or EDS, under which EDS manages
our corporate data center, database administration, helpdesk,
desktop services and other technical functions. Additionally, in
January 2002, we announced an eight-year customer relationship
management agreement with IBM and TeleTech Holdings, Inc. to
manage our customer care centers. In connection with these
outsourcing agreements, we recorded a $35 million restructuring
charge in the first quarter of 2002, which primarily represents
the future lease payments related to our planned vacating of
unneeded facilities. The following table presents the activities
related to the restructuring.

11



---



##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

|                    |  |                   |   |               |  |            |    |            |  |               |    |           |  |   |    |   |  |   |    |   |  |   |    | 
|------------------- |  | ----------------- | - | ------------- |  | ---------- | -- | ---------- |  | ------------- | -- | --------- |  | - | -- | - |  | - | -- | - |  | - | -- | 
|                    |  |                   |   |               |  |            |    |            |  |              
|                    |  | December 31, 2001 |   |               |  |            |    | Deductions |  | June 30, 2002
|                    |  | Restructuring     |   | Restructuring |  |            |    |            |  | Restructuring
|                    |  | Liability         |   | Charge        |  | Adjustment |    | Payments   |  | Noncash       |    | Liability
|                    |  |                   |   |               |  |            |    |            |  |               |    |          
|                    |  |                  
|                    |  | (in millions)    
|Facilities          |  | $                 |  |               |  | $          | 29 |            |  | $             | (4 | )         |  | $ |   |   |  | $ |   |   |  | $ | 25 | 
|Employee separation |  |                   |  |               |  |            | 4  |            |  |               | 4  |           |  |   | (6 | ) |  |   |   |   |  |   | 2  | 
|Asset impairments   |  |                   |  |               |  |            | 2  |            |  |               |   |           |  |   |   |   |  |   | (2 | ) |  |   |   | 
|                    |  |                   |   |               |  |            |    |            |  |               |    |           |  |   |    |   |  |   |    |   |  |   |    | 
|                    |  | $                 |  |               |  | $          | 35 |            |  | $             |   |           |  | $ | (6 | ) |  | $ | (2 | ) |  | $ | 27 | 
|                    |  |                   |   |               |  |            |    |            |  |               |    |           |  |   |    |   |  |   |    |   |  |   |    | 

During the second quarter of 2002, we decreased
our facilities charge estimate as a result of our ability to
utilize some of the vacated facilities in our ongoing business.
The increase to the employee separation charge results from the
continuation of a reduction in force initiative started in the
first quarter of 2002.

Chadmoore Acquisition.In February 2002, we purchased
from Chadmoore Wireless Group, Inc. 800 MHz and
900 MHz specialized mobile radio licenses and related
assets for an aggregate cash purchase price of
$130 million, most of which was paid to Chadmoore in 2002.

Preferred Stock Conversion.In March 2002, Digital Radio,
L.L.C., an affiliate of Craig O. McCaw, converted
2.5 million shares of class A preferred stock into
15.0 million shares of class A common stock.

Reduction in Fair Value of Investment.In June 2002, we recognized a $35
million other-than-temporary reduction in the fair value of our
investment in SpectraSite Holdings, Inc. based on its stock
price at June 30, 2002.

Note 3.  Long-Term Debt, Capital
Lease and Finance Obligations

|                                                                                                            |                               |                               |        |              |      |   |        |        |     |  
|----------------------------------------------------------------------------------------------------------- | ----------------------------- | ----------------------------- | ------ | ------------ | ---- | - | ------ | ------ | --- | -
|                                                                                                            |                               | June 30,                      |        | December 31,
|                                                                                                            |                               | 2002                          |        | 2001        
|                                                                                                            |                               |                               |        |             
|                                                                                                            |                               |                              
|                                                                                                            |                               | (dollars in millions)        
|Long-Term Debt                                                                                              |                               |                               |        |              |      |   |        |       
|10.65% senior redeemable discount notes due
    2007, net of unamortized discount of
    $16 and $59        |                               | $                             | 760    |              |      | $ | 781    |       
|9.75% senior serial redeemable discount notes
    due 2007, net of unamortized discount
    of $34 and $86  |                               |                               | 1,079  |              |      |   | 1,043  |       
|4.75% convertible senior notes due
    2007                                                                 |                               |                               | 334    |              |      |   | 354    |       
|9.95% senior serial redeemable discount notes
    due 2008, net of unamortized discount
    of $91 and $168 |                               |                               | 1,450  |              |      |   | 1,459  |       
|12% senior serial redeemable notes due
    2008, net of unamortized discount of
    $3 and $3               |                               |                               | 297    |              |      |   | 297    |       
|9.375% senior serial redeemable notes due
    2009                                                          |                               |                               | 1,901  |              |      |   | 2,000  |       
|5.25% convertible senior notes due
    2010                                                                 |                               |                               | 961    |              |      |   | 1,150  |       
|9.5% senior serial redeemable notes due 2011,including a fair value hedge
    adjustment of $26 and $11     |                               |                               | 1,140  |              |      |   | 1,261  |       
|6% convertible senior notes due 2011                                                                        |                               |                               | 957    |              |      |   | 1,000  |       
|Bank credit facility                                                                                        |                               |                               | 4,500  |              |      |   | 4,500  |       
|Other                                                                                                       |                               |                               | 18     |              |      |   | 19     |       
|                                                                                                            |                               |                               |        |              |      |   |        |       
|                                                                                                            | Total domestic long-term debt |                               |        | 13,397       |      |   |        | 13,864 |    
|                                                                                                            |                               | Less domestic current portion |        |              | (147 | ) |        |        | (49 | )
|                                                                                                            |                               |                               |        |              |      |   |        |       
|                                                                                                            |                               | $                             | 13,250 |              |      | $ | 13,815 |       
|                                                                                                            |                               |                               |        |              |      |   |        |       

12



---



##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

|                                          |                                                 |                       |     |              |      |   |     |       |     |  
|----------------------------------------- | ----------------------------------------------- | --------------------- | --- | ------------ | ---- | - | --- | ----- | --- | -
|                                          |                                                 | June 30,              |     | December 31,
|                                          |                                                 | 2002                  |     | 2001        
|                                          |                                                 |                       |     |             
|                                          |                                                 |                      
|                                          |                                                 | (dollars in millions)
|Capital Lease and Finance
    Obligations |                                                 |                       |     |              |      |   |     |      
|Capital lease obligations                 |                                                 | $                     | 285 |              |      | $ | 308 |      
|Finance obligation                        |                                                 |                       | 682 |              |      |   | 693 |      
|                                          |                                                 |                       |     |              |      |   |     |      
|                                          | Total capital lease and finance
    obligations |                       |     | 967          |      |   |     | 1,001 |    
|                                          |                                                 | Less current portion  |     |              | (102 | ) |     |       | (96 | )
|                                          |                                                 |                       |     |              |      |   |     |      
|                                          |                                                 | $                     | 865 |              |      | $ | 905 |      
|                                          |                                                 |                       |     |              |      |   |     |      

The above table reflects the purchase and
retirement, during the second quarter of 2002, of a total of
$653 million in aggregate principal amount at maturity, or
$644 million in book value, of our outstanding senior
notes. See note 5.

Note 4.  Mandatorily Redeemable
Preferred Stock

|                                                                                                                                                                                                                                                                                  |  |                       |       |              |  |   |       | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | ----- | ------------ |  | - | ----- | 
|                                                                                                                                                                                                                                                                                  |  | June 30,              |       | December 31,
|                                                                                                                                                                                                                                                                                  |  | 2002                  |       | 2001        
|                                                                                                                                                                                                                                                                                  |  |                       |       |             
|                                                                                                                                                                                                                                                                                  |  |                      
|                                                                                                                                                                                                                                                                                  |  | (dollars in millions)
|Series D exchangeable preferred stock
    mandatorily redeemable 2009, 13%
    cumulative annual dividend; 780,150 and 859,391 shares issued;
    780,139 and 859,380 shares outstanding; stated at liquidation
    value                                                         |  | $                     | 801   |              |  | $ | 883   | 
|Series E exchangeable preferred stock
    mandatorily redeemable 2010, 11.125%
    cumulative annual dividend; 892,216 and 1,133,161 shares issued;
    892,202 and 1,133,147 shares outstanding; stated at liquidation
    value                                                 |  |                       | 905   |              |  |   | 1,149 | 
|Zero coupon convertible preferred stock
    mandatorily redeemable 2013, no
    dividend; convertible into 4,779,386 shares of class A common
    stock; 245,245 shares issued and outstanding; stated at accreted
    liquidation preference value at 9.25% compounded quarterly |  |                       | 86    |              |  |   | 82    | 
|                                                                                                                                                                                                                                                                                  |  |                       |       |              |  |   |       | 
|                                                                                                                                                                                                                                                                                  |  | $                     | 1,792 |              |  | $ | 2,114 | 
|                                                                                                                                                                                                                                                                                  |  |                       |       |              |  |   |       | 

The above table reflects the purchase and
retirement, during the second quarter of 2002, of a total of
$440 million of aggregate face amount, or $447 million
in book value, of our outstanding mandatorily redeemable
preferred stock. See note 5.

Note 5.  Retirement of Debt and
Mandatorily Redeemable Preferred Stock

During the second quarter of 2002, we purchased
and retired a total of $653 million in aggregate principal
amount at maturity of our outstanding senior notes and
$440 million of aggregate face amount of our outstanding
mandatorily redeemable preferred stock in exchange for
61 million shares of class A common stock and
$295 million in cash. As a result of the early retirement
of these senior notes, we recognized a gain of $186 million
in other income (expense) in the accompanying statement of
operations, representing the excess of the carrying values over
the purchase price of the purchased and retired notes and the
write-off of $6 million 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 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 $47 million in other income (expense)
in the accompanying statement of operations. As a result of the
preferred stock transactions, we recognized a gain of
$264 million, representing the excess of the carrying value
over the purchase price of the purchased and retired preferred
stock and the write-off of $5 million of unamortized
financing costs.

13



---



##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

Note 6.  Derivative Instruments
and Hedging Activities

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 interest rate swap
agreements to hedge the risk of changes in fair value of a
portion of our long-term fixed rate debt, which are attributable
to changes in the London Interbank Offered Rate, or LIBOR, as
the benchmark interest rate. These fair value hedges qualify for
hedge accounting using the short-cut method since the swap terms
match the critical terms of the hedged debt. Accordingly, there
was no net effect on our results of operations for the three
months and six months ended June 30, 2002 relating to the
ineffectiveness of these fair value hedges. As of June 30,
2002, we have recognized the interest rate swaps at their fair
values of $41 million, consisting of $15 million in
interest receivable and $26 million in other assets, with
an offsetting $26 million adjustment to the carrying value
of our hedged debt.

We also use interest rate swaps to hedge the
variability of future cash flows, which are caused by changes in
LIBOR, as the benchmark interest rate, associated with some of
our long-term variable rate debt. As of June 30, 2002, we
have recognized all of our cash flow hedges at their fair values
of $100 million in other current and other noncurrent
liabilities on our balance sheet. For our interest rate swap
that qualifies for cash flow hedge accounting, an unrealized
loss of $24 million, representing the effective portion of
the change in its fair value as of June 30, 2002, is
reported in other comprehensive loss and will be reclassified to
interest expense in the same period during which our hedged debt
affects interest expense. The ineffective portion of the change
in fair value of our swap qualifying for cash flow hedge
accounting, and changes in the fair values of our swaps not
qualifying for hedge accounting, are recognized in our statement
of operations in the period of the change. Interest expense
includes a gain of $1 million and $3 million for the
three months and six months ended June 30, 2002,
respectively, and a loss of $2 million and $6 million
for the three months and six months ended June 30, 2001,
respectively, representing changes in the fair values of our
swaps not qualifying for hedge accounting. There was no net
effect on interest expense for the six months ended
June 30, 2002 and 2001 relating to the ineffective portion
of the change in fair value of our swap qualifying for cash flow
hedge accounting.

Note 7.  Commitments and
Contingencies

Commitments.In July 2002, we amended our
agreement to acquire all of the stock of NeoWorld
Communications, Inc., and the equity interests of specified
entities owned by NeoWorld, which collectively own and operate
900 MHz specialized mobile radio systems. Pursuant to the
agreement, as amended, we have made cash payments to NeoWorld
totaling $43 million as of the date hereof and during the
latter half of 2002 or the first quarter of 2003 we expect to
pay the balance of the purchase price, which is anticipated to
range from $220 million to $230 million. Such payment
may be made at our election, subject to certain limitations, in
cash and/or shares of our class A common stock; however,
under certain circumstances, we may be required to make this
payment in shares of class A common stock as early as
August 29, 2002. We intend to file a registration statement
to ensure our ability to pay the balance of the purchase price
in shares of our class A common stock in the event we
elect, or are required, to pay in shares of class A common
stock.

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, are defendants
in these cases. The defendants have removed the cases to federal

14



---



##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

court, and the plaintiffs have filed motions to
remand back to state court in some of the cases.
Mr. Angelos firm has also participated in the filing
of an amended complaint in a similar suit pending in federal
court in Louisiana, in which we are also named. These suits seek
to require the defendants to provide headsets, or reimburse the
cost of headsets, for use with wireless telephones, as well as
attorneys fees and punitive damages. The cases have been
transferred to federal court in Baltimore, Maryland by the
judicial panel on Multi-district Litigation and that court has
denied plaintiffs motion to remand the cases back to state
court. Motions to dismiss are pending. While we cannot predict
the outcome of this litigation, we believe that the claims
against us are without merit and intend to vigorously defend
against them.

Note 8.  Subsequent
Events

Preferred Stock Conversion.In July 2002, Digital Radio
converted 0.2 million shares of class A preferred stock
into 1.2 million shares of class A common stock.

Purchase of Securities.From July 1, 2002 through the
date hereof, we have purchased $507 million in aggregate
principal amount at maturity, or $500 million in book
value, of our senior notes and $226 million in aggregate
face value, or $229 million in book value, of our
mandatorily redeemable preferred stock in exchange for
$205 million in cash and 33 million shares of our
class A common stock. As a result, we expect to record a
significant gain in the third quarter relating to these
transactions. We may, from time to time, as we deem appropriate,
enter into similar transactions which in the aggregate may be
material.

15



---



##### Table of Contents






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

Overview

The following is a discussion and analysis of:



| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | our consolidated financial condition and results
    of operations for the six- and three-month periods ended
    June 30, 2002 and 2001; and
|
| |  | significant factors that could affect our
    prospective financial condition and results of operations.                                     

You should read this discussion in conjunction
with our 2001 annual report on Form 10-K and our quarterly
report on Form 10-Q for the quarter ended March 31, 2002,
including the discussion regarding our critical accounting
policies and our future identified domestic contractual
obligations. Historical results may not indicate future
performance. See Forward Looking Statements.

We provide digital mobile communications
throughout the United States by offering integrated wireless
services under the Nextel® brand name, primarily to
business users. Our digital mobile network constitutes one of
the largest integrated wireless communications systems utilizing
a single transmission technology in the United States. This
digital technology, developed by Motorola, Inc., is referred to
as integrated Digital Enhanced Network, or iDEN®,
technology.

A customer using our digital mobile network is
able to access:



| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | digital mobile telephone service, including
    advanced calling features such as speakerphone, conference
    calling, voicemail, call forwarding and additional line service;  
|
| |  | Nextel Direct Connect® service, which allows
    subscribers in the same local calling area to contact each other
    instantly, on a private one-to-one call or on a group call;
|
| |  | Internet services, mobile messaging services,
    e-mail and advanced Java enabled business applications,
    which are marketed as Nextel Wireless Web services;
    and     
|
| |  | international roaming capabilities, which are
    marketed as Nextel WorldwideSM.                                                                                              

As of June 30, 2002:



| |   |                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we had about 9.6 million handsets in service
    in the United States; and                                                                                                                         
|
| |  | our digital mobile network or the compatible
    digital mobile network of Nextel Partners, Inc. was operational
    in 197 of the top 200 metropolitan statistical areas in the
    United States.

NII Holdings.NII Holdings, Inc., currently a
substantially wholly-owned subsidiary of ours, provides wireless
communications services through its operating subsidiaries,
targeted at meeting the needs of business customers principally
in selected Latin American markets. On May 24, 2002, NII
Holdings announced that it had reached an agreement in principle
with its main creditors and filed a voluntary case to
restructure its obligations under Chapter 11 of the U.S.
Bankruptcy Code in the State of Delaware. On August 8,
2002, NII Holdings began soliciting its existing creditors for
approval of a plan of reorganization based on this agreement in
principle. We cannot assure you that the NII Holdings plan of
reorganization will be approved or that NII Holdings will
successfully complete the proposed restructuring.

Our condensed consolidated financial statements
include the consolidated results of NII Holdings through
December 31, 2001. As a result of its bankruptcy filing, we
no longer maintain the ability to unilaterally control the
operations of NII Holdings. Accordingly, we began accounting for
our investment in NII Holdings, effective May 2002, using the
equity method in accordance with Accounting Principles Board
Opinion No. 18, The Equity Method of Accounting for
Investments in Common Stock. We believe the equity method
is appropriate given our ability to exercise significant
influence over the operating and financial policies of NII
Holdings. In accordance with the equity method, we stopped
recognizing equity in losses of NII Holdings effective in May
2002 as we had recognized $1.4 billion of losses in excess
of our investment in NII Holdings through that date. We have
reflected these excess losses on the accompanying balance sheet
in other long-term liabilities.

16



---



##### Table of Contents



As we presently own substantially all of the
equity interests in NII Holdings, we recorded 100% of their
operating results through May 2002. We have classified the 2002
net operating results of NII Holdings as equity in losses of NII
Holdings in the accompanying statement of operations as
permitted under the accounting rules governing a mid-year change
from consolidating a subsidiary to accounting for the investment
using the equity method. However, the presentation of NII
Holdings in the financial statements as a consolidated
subsidiary in 2001 and prior periods has not changed from the
prior presentation. Assuming NII Holdings emerges from
bankruptcy under its proposed plan of reorganization, we would
expect to record a substantial non-cash gain in excess of
$1.0 billion at that time. Following emergence from
bankruptcy, we expect to account for our new investment in NII
Holdings using the equity method which will require us to record
our proportionate share of NII Holdings results of
operations. For additional information, see note 1, Basis
of Presentation, NII Holdings, to our condensed
consolidated financial statements appearing in this quarterly
report on Form 10-Q. More detailed information relating
specifically to NII Holdings may be found in the reports filed
by NII Holdings under the Securities and Exchange Act of 1934.

Boost Mobile.In association with the Australian
founders of the Boost brand, we will soon launch a
lifestyle-based telecommunications test program, providing Boost
Mobilebranded wireless services that will exclusively
target the California and Nevada youth markets. Based upon the
results of this test, Boost Mobile may consider a broader
rollout of this program in 2003.

Nextel Partners.Nextel Partners provides digital
wireless communication services under the Nextel name in
mid-sized and tertiary U.S. markets. We owned about 32% of the
common stock of Nextel Partners as of June 30, 2002. Nextel
Partners has the right to operate in 55 of the top 200
metropolitan statistical areas in the United States ranked by
population. More detailed information relating specifically to
Nextel Partners may be found in the reports filed by Nextel
Partners under the Securities and Exchange Act of 1934.

In 1999, we entered into agreements relating to
the capitalization, governance, financing and operation of
Nextel Partners. As previously disclosed, these agreements
establish 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 any such a purchase in cash, shares of our
stock, or a combination of both. Subject to various limitations
and conditions, we will have the right to purchase the
outstanding shares of Nextel Partners class A common stock
on January 29, 2008 or if we elect to terminate the
relationship with Nextel Partners because of its breach of the
operating agreements. Subject to various limitations and
conditions, we may be required to purchase Nextel Partners
class A common stock, if we experience a change of control or we
breach the operating agreements. 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. For a
more detailed description of these rights and obligations, see
exhibits 10.15 to our 2001 annual report on Form 10-K.

Results of Operations

As described in note 1 to our condensed
consolidated financial statements appearing at the beginning of
this Form 10-Q, our consolidated results for 2001 include
the results of operations of NII Holdings. As further described
in note 1, NII Holdings 2002 results of operations are
accounted for using the equity method. To facilitate a better
understanding of our operations, the comparative discussion of
2002 and 2001 in the following results of operations is limited
to our domestic operations.

17



---



##### Table of Contents



The following table illustrates the difference
between the results of our domestic operations in 2001 and our
actual consolidated results in 2001, which include the results
of operations of NII Holdings.

|                                              |  |               |       |              |  |              |      |              |  |   |    |   |  |   |       |  
|--------------------------------------------- |  | ------------- | ----- | ------------ |  | ------------ | ---- | ------------ |  | - | -- | - |  | - | ----- | -
|                                              |  |               |       |              |  | Intercompany |      |             
|                                              |  | Domestic      |       | NII Holdings |  | Eliminations |      | Consolidated
|                                              |  |               |       |              |  |              |      |             
|                                              |  |              
|                                              |  | (in millions)
|Six Months Ended June 30,
    2001            |  |               |       |              |  |              |      |              |  |   |    |   |  |   |       |  
|Operating revenues                            |  | $             | 3,325 |              |  | $            | 300  |              |  | $ | (2 | ) |  | $ | 3,623 |  
|Cost of revenues                              |  |               | 1,229 |              |  |              | 155  |              |  |   | (2 | ) |  |   | 1,382 |  
|Selling, general and administrative           |  |               | 1,260 |              |  |              | 212  |              |  |   | 1  |   |  |   | 1,473 |  
|Restructuring charge                          |  |               | 22    |              |  |              |     |              |  |   |   |   |  |   | 22    |  
|Depreciation and amortization                 |  |               | 707   |              |  |              | 114  |              |  |   |   |   |  |   | 821   |  
|Interest expense                              |  |               | 570   |              |  |              | 147  |              |  |   |   |   |  |   | 717   |  
|Interest income                               |  |               | 127   |              |  |              | 8    |              |  |   |   |   |  |   | 135   |  
|Equity in losses of unconsolidated affiliates |  |               | (45   | )            |  |              |     |              |  |   |   |   |  |   | (45   | )
|Foreign currency transaction losses, net      |  |               |      |              |  |              | (55  | )            |  |   |   |   |  |   | (55   | )
|Other expense, net                            |  |               | (5    | )            |  |              | (6   | )            |  |   |   |   |  |   | (11   | )
|Income tax benefit                            |  |               | 24    |              |  |              |     |              |  |   | 3  |   |  |   | 27    |  
|Loss attributable to common stockholders      |  |               | (475  | )            |  |              | (381 | )            |  |   | 2  |   |  |   | (854  | )
|Three Months Ended June 30,
    2001          |  |               |       |              |  |              |      |              |  |   |    |   |  |   |       |  
|Operating revenues                            |  | $             | 1,722 |              |  | $            | 161  |              |  | $ | (2 | ) |  | $ | 1,881 |  
|Cost of revenues                              |  |               | 602   |              |  |              | 84   |              |  |   | (2 | ) |  |   | 684   |  
|Selling, general and administrative           |  |               | 637   |              |  |              | 110  |              |  |   |   |   |  |   | 747   |  
|Restructuring charge                          |  |               | 22    |              |  |              |     |              |  |   |   |   |  |   | 22    |  
|Depreciation and amortization                 |  |               | 369   |              |  |              | 58   |              |  |   |   |   |  |   | 427   |  
|Interest expense                              |  |               | 284   |              |  |              | 75   |              |  |   |   |   |  |   | 359   |  
|Interest income                               |  |               | 53    |              |  |              | 3    |              |  |   |   |   |  |   | 56    |  
|Equity in losses of unconsolidated affiliates |  |               | (24   | )            |  |              |     |              |  |   |   |   |  |   | (24   | )
|Foreign currency transaction losses, net      |  |               |      |              |  |              | (45  | )            |  |   |   |   |  |   | (45   | )
|Other expense, net                            |  |               | (5    | )            |  |              | (6   | )            |  |   |   |   |  |   | (11   | )
|Income tax benefit                            |  |               | 10    |              |  |              |     |              |  |   | 3  |   |  |   | 13    |  
|Loss attributable to common stockholders      |  |               | (215  | )            |  |              | (214 | )            |  |   | 3  |   |  |   | (426  | )

Operating revenues primarily consist of wireless
service revenues and revenues generated from the sale of
handsets and accessories as follows:

|                               |  |                  |       |             |  |               |       |             |  |      |     |               |  |   |       |  |  |   |       |  |  |   |     | 
|------------------------------ |  | ---------------- | ----- | ----------- |  | ------------- | ----- | ----------- |  | ---- | --- | ------------- |  | - | ----- |  |  | - | ----- |  |  | - | --- | 
|                               |  |                  |       |             |  |               |       |             |  |     
|                               |  |                  |       |             |  | Three Months  |       |            
|                               |  | Six Months Ended |       |             |  | Ended         |       |            
|                               |  | June 30,         |       |             |  | June 30,      |       |            
|                               |  |                  |       | Change from |  |               |       | Change from
|                               |  | 2002             |       | 2001        |  | Previous Year |       | 2002        |  | 2001 |     | Previous Year
|                               |  |                  |       |             |  |               |       |             |  |      |     |              
|                               |  |                 
|                               |  | (in millions)   
|Service revenues               |  | $                | 3,863 |             |  | $             | 3,111 |             |  | $    | 752 |               |  | $ | 2,032 |  |  | $ | 1,616 |  |  | $ | 416 | 
|Handset and accessory revenues |  |                  | 248   |             |  |               | 214   |             |  |      | 34  |               |  |   | 122   |  |  |   | 106   |  |  |   | 16  | 
|                               |  |                  |       |             |  |               |       |             |  |      |     |               |  |   |       |  |  |   |       |  |  |   |     | 
|Operating revenues             |  | $                | 4,111 |             |  | $             | 3,325 |             |  | $    | 786 |               |  | $ | 2,154 |  |  | $ | 1,722 |  |  | $ | 432 | 
|                               |  |                  |       |             |  |               |       |             |  |      |     |               |  |   |       |  |  |   |       |  |  |   |     | 

Service revenues primarily include fixed monthly
access charges for digital mobile telephone, digital two-way
radio and other services, variable charges for airtime and
digital two-way radio usage in excess of plan minutes and
long-distance charges derived from calls placed by our
customers, 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. We
recognize excess usage and long distance revenue at contractual
rates per minute as minutes are used. We recognize revenue from
activation fees over the expected customer relationship periods
of up to four years, starting when wireless service is activated.

18



---



##### Table of Contents



We recognize revenue from accessory sales when
title passes upon delivery of the accessory to the customer. We
recognize revenue from handset sales on a straight-line basis
over the expected customer relationship periods of up to four
years, starting when the customer has taken title. Therefore,
recorded handset revenues in the current period largely reflect
the recognition of handset sales that occurred and were deferred
in prior periods. Our wireless service is essential to the
functionality of our handsets due to the fact that the handsets
can, with very limited exceptions, only be used on our digital
mobile network. Accordingly, this multiple element arrangement
is not accounted for separately in accordance with
SAB No. 101, Revenue Recognition in Financial
Statements.

Cost of revenues primarily consists of the cost
of providing wireless service and the cost of handset and
accessory revenues as follows:

|                                           |  |                  |       |             |  |                |       |             |  |      |     |               |  |   |     |  |  |   |     |  |  |   |     |  
|------------------------------------------ |  | ---------------- | ----- | ----------- |  | -------------- | ----- | ----------- |  | ---- | --- | ------------- |  | - | --- |  |  | - | --- |  |  | - | --- | -
|                                           |  |                  |       |             |  |                |       |            
|                                           |  | Six Months Ended |       |             |  | Three Months   |       |            
|                                           |  | June 30,         |       |             |  | Ended June 30, |       |            
|                                           |  |                  |       | Change from |  |                |       | Change from
|                                           |  | 2002             |       | 2001        |  | Previous Year  |       | 2002        |  | 2001 |     | Previous Year
|                                           |  |                  |       |             |  |                |       |             |  |      |     |              
|                                           |  |                 
|                                           |  | (in millions)   
|Cost of service                            |  | $                | 717   |             |  | $              | 614   |             |  | $    | 103 |               |  | $ | 366 |  |  | $ | 317 |  |  | $ | 49  |  
|Cost of handset and accessory
    revenues |  |                  | 524   |             |  |                | 615   |             |  |      | (91 | )             |  |   | 219 |  |  |   | 285 |  |  |   | (66 | )
|                                           |  |                  |       |             |  |                |       |             |  |      |     |               |  |   |     |  |  |   |     |  |  |   |     |  
|Cost of revenues                           |  | $                | 1,241 |             |  | $              | 1,229 |             |  | $    | 12  |               |  | $ | 585 |  |  | $ | 602 |  |  | $ | (17 | )
|                                           |  |                  |       |             |  |                |       |             |  |      |     |               |  |   |     |  |  |   |     |  |  |   |     |  

Cost of providing wireless service consists
primarily of direct switch and transmitter and receiver site
costs, such as rent, utilities, property taxes and maintenance
for the network switches and sites used to operate our digital
mobile networks, and the cost of interconnection with local
exchange carrier facilities. Interconnection costs have fixed
and variable components. The fixed component of interconnection
costs consists of monthly flat-rate fees for facilities leased
from local exchange carriers. The variable component of
interconnection costs, which fluctuates in relation to the level
and duration of wireless calls, generally consists of per-minute
use fees charged by wireline and wireless providers for wireless
calls terminating on their networks. Cost of handset and
accessory revenues consists primarily of the cost of the
handsets and accessories sold, order fulfillment related
expenses and write-downs of handset and related accessory
inventory for shrinkage. We recognize the costs of activation
and handset sales over the expected customer relationship
periods of up to four years in amounts equivalent to revenues
recognized from activation fees and handset sales. Costs in
excess of the revenue generated by activation fees and handset
sales, or subsidies, are expensed at the time of sale.

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

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

One of the measurements we use to monitor our
business is the rate of customer churn. Customer churn
represents the monthly percentage of the customer base that
disconnects from service. Churn consists of both involuntary
churn and voluntary churn. Involuntary churn occurs when we have
taken action to disconnect the handset from service usually due
to lack of payment. Voluntary churn occurs when the subscriber
elects to disconnect service. Our average monthly customer churn
rate during the quarter ended June 30, 2002 was about 2.1%.
Customer churn is calculated by dividing the number of handsets
disconnected from service during the period by the average
number of handsets in service during the period. Churn levels,
in combination with other more traditional financial measures,
sometimes are considered in evaluating the results of operations.

19



---



##### Table of Contents



Domestic operating revenues and cost of
operating revenues.

|                                        |                                     |                       |       |           |   |          |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |      |    |  
|--------------------------------------- | ----------------------------------- | --------------------- | ----- | --------- | - | -------- | -- | --------- |  | ------------- | ----- | ------- | - |  | -- | - |  | - | --- | --- |  |  | ---- | -- | -
|                                        |                                     |                       |       |           |   |          |    |           |  |              
|                                        |                                     |                       |       | % of      |   |          |    | % of      |  | Change from  
|                                        |                                     |                       |       | Domestic  |   |          |    | Domestic  |  | Previous Year
|                                        |                                     | June 30,              |       | Operating |   | June 30, |    | Operating |  |              
|                                        |                                     | 2002                  |       | Revenues  |   | 2001     |    | Revenues  |  | Dollars       |       | Percent
|                                        |                                     |                       |       |           |   |          |    |           |  |               |       |        
|                                        |                                     |                      
|                                        |                                     | (dollars in millions)
|Six Months Ended                        |                                     |                       |       |           |   |          |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |      |   
|Service revenues                        |                                     | $                     | 3,863 |           |   |          | 94 | %         |  | $             | 3,111 |         |   |  | 94 | % |  | $ | 752 |     |  |  | 24   | % 
|Cost of service                         |                                     |                       | 717   |           |   |          | 17 | %         |  |               | 614   |         |   |  | 18 | % |  |   | 103 |     |  |  | 17   | % 
|                                        |                                     |                       |       |           |   |          |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |      |   
|                                        | Service gross margin                |                       |       | 3,146     |   |          |    |           |  |               |       | 2,497   |   |  |    |   |  |   |     | 649 |  |  |      | 26 | %
|Handset and accessory revenues          |                                     |                       | 248   |           |   |          | 6  | %         |  |               | 214   |         |   |  | 6  | % |  |   | 34  |     |  |  | 16   | % 
|Cost of handset and accessory revenues  |                                     |                       | 524   |           |   |          | 13 | %         |  |               | 615   |         |   |  | 18 | % |  |   | (91 | )   |  |  | (15) | % 
|                                        |                                     |                       |       |           |   |          |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |      |   
|                                        | Handset and accessory gross subsidy |                       |       | (276      | ) |          |    |           |  |               |       | (401    | ) |  |    |   |  |   |     | 125 |  |  |      | 31 | %
|                                        |                                     |                       |       |           |   |          |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |      |   
|Gross margin                            |                                     | $                     | 2,870 |           |   |          |    |           |  | $             | 2,096 |         |   |  |    |   |  | $ | 774 |     |  |  | 37   | % 
|                                        |                                     |                       |       |           |   |          |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |      |   
|Three Months Ended                      |                                     |                       |       |           |   |          |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |      |   
|Service revenues                        |                                     | $                     | 2,032 |           |   |          | 94 | %         |  | $             | 1,616 |         |   |  | 94 | % |  | $ | 416 |     |  |  | 26   | % 
|Cost of service                         |                                     |                       | 366   |           |   |          | 17 | %         |  |               | 317   |         |   |  | 18 | % |  |   | 49  |     |  |  | 15   | % 
|                                        |                                     |                       |       |           |   |          |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |      |   
|                                        | Service gross margin                |                       |       | 1,666     |   |          |    |           |  |               |       | 1,299   |   |  |    |   |  |   |     | 367 |  |  |      | 28 | %
|Handset and accessory revenues          |                                     |                       | 122   |           |   |          | 6  | %         |  |               | 106   |         |   |  | 6  | % |  |   | 16  |     |  |  | 15   | % 
|Cost of handsets and accessory revenues |                                     |                       | 219   |           |   |          | 10 | %         |  |               | 285   |         |   |  | 17 | % |  |   | (66 | )   |  |  | (23) | % 
|                                        |                                     |                       |       |           |   |          |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |      |   
|                                        | Handset and accessory gross subsidy |                       |       | (97       | ) |          |    |           |  |               |       | (179    | ) |  |    |   |  |   |     | 82  |  |  |      | 46 | %
|                                        |                                     |                       |       |           |   |          |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |      |   
|Gross margin                            |                                     | $                     | 1,569 |           |   |          |    |           |  | $             | 1,120 |         |   |  |    |   |  | $ | 449 |     |  |  | 40   | % 
|                                        |                                     |                       |       |           |   |          |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |      |   

|                                         |               |  |        |       |  |  |   |   |  |       |        |         |  |  |   |   |  |  |       |       |  |  |    |    |  
|---------------------------------------- | ------------- |  | ------ | ----- |  |  | - | - |  | ----- | ------ | ------- |  |  | - | - |  |  | ----- | ----- |  |  | -- | -- | -
|                                         |               |  |        |       |  |  |   |   |  | Units |        | Percent
|                                         |               |  |        |       |  |  |   |   |  |       |        |        
|End of Period                            |               |  |        |       |  |  |   |   |  |       |        |         |  |  |   |   |  |  |       |       |  |  |    |   
|Digital handsets in service (handsets in |               |  |        |       |  |  |   |   |  |       |        |         |  |  |   |   |  |  |       |       |  |  |    |   
|                                         | thousands)(1) |  |        | 9,636 |  |  |   |  |  |       |        | 7,684   |  |  |   |  |  |  |       | 1,952 |  |  |    | 25 | %
|Digital cell sites in service            |               |  | 15,950 |       |  |  |  |   |  |       | 14,000 |         |  |  |  |   |  |  | 1,950 |       |  |  | 14 | % 
|Digital switches in service              |               |  | 82     |       |  |  |  |   |  |       | 77     |         |  |  |  |   |  |  | 5     |       |  |  | 6  | % 




|    |                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The subscriber base as of April 1, 2002 has
    been reduced by about two thousand as a result of our conversion
    of our billing systems in the second quarter of 2002. We may
    experience a similar minor adjustment in connection with the
    final conversion of our billing systems in the third quarter of
    2002.

Service revenues.Service revenues increased 24%
from the six months ended June 30, 2001 to the six months
ended June 30, 2002 and 26% from the three months ended
June 30, 2001 to the three months ended June 30, 2002.
Our service revenues are impacted by both the number of handsets
in service (volume) and average monthly revenue per handset
in service (rate). Our service revenue increased principally as
a result of a 25% increase in handsets in service. The 25%
growth in the number of handsets in service from June 30,
2001 to June 30, 2002 is the result of a number of factors,
principally:



| |   |                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our differentiated products and services,
    including enhanced Nextel Direct Connect and Nextel Wireless Web;                                                                                                                              
|
| |  | 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.                                                                             

20



---



##### Table of Contents



Average monthly revenue per unit, or ARPU, is an
industry term that measures net service revenues per month from
our subscribers divided by the weighted average number of
handsets in commercial service for that month. From a rate
perspective, the reduction in ARPU from about $72 to about $70
for the six months ended June 30, 2001 to the same period
in 2002, was primarily attributable to the introduction of more
competitive pricing plans in 2002 which provide more minutes of
use with a lower access charge to the customer. In 2001, we
generally were offering pricing plans with higher monthly access
fees.

The reduction in ARPU from about $72 to about $71
for the quarter ended June 30, 2001 to the same period in
2002 was primarily attributable to these more competitive
pricing plans offered in 2002 that had lower monthly access
fees, offset partially by several changes in pricing plans
introduced in the second quarter of 2002 for some of our
customers. Specifically, in the second quarter of 2002, we
implemented the industry-wide practice of full minute rounding,
raised the excess usage rate for some customer accounts and
decreased off-peak hours, which generally are billed at lower
rates than peak hours. These changes, along with an increase in
the minutes of use per handset of approximately 12% from the
quarter ended June 30, 2001 to the same period in 2002,
increased usage revenue, and, along with an additional fee
implemented in the first quarter of 2002 to some of our
customers to recover a portion of costs associated with
government mandated telecommunications services such as Enhanced
911 and number portability, helped to partially offset the
impact of lower access pricing plans in 2002. This increase in
revenues was partially offset by a reduction to revenue for
estimated customer credits and adjustments recorded at
June 30, 2002 relating to our billing system conversion and
the changes to selected pricing plans as discussed above. We
used historical trending data and various assumptions as a basis
for this estimate. Based on data through the date hereof, we do
not expect any significant adjustments to this amount.

For the full year of 2002, we currently expect
our ARPU to remain at a similar level to that experienced in the
first half of 2002 due to the revenue enhancement initiatives
being implemented during the year. However, our ARPU could be
adversely affected in the future:



| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | as we continue to migrate existing customers to
    lower priced service offering packages; or
|
| |  | if competitive pressures require us to:                                                       



| |   |                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | further 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 packages
    that may be offered by providers launching their service, or
    particular new product or service offerings, in a particular
    market.

Cost of service.Cost of service increased 17% from
the six months ended June 30, 2001 to the six months ended
June 30, 2002 and 15% from the three months ended
June 30, 2001 to the three months ended June 30, 2002.
Cost of service increased primarily as a result of an 18%
increase in costs incurred related to fixed interconnection
costs and direct switch and transmitter and receiver site costs
and a 13% increase in costs incurred related to variable
interconnection fees. The direct switch and transmitter and
receiver site costs increased primarily due to a 14% increase in
the number of transmitter and receiver sites, a 6% increase in
the number of switches we placed in service and additional
capacity added to existing sites from June 30, 2001 to
June 30, 2002. Variable interconnection fees increased 13%
as the total system minutes of use increased 44% from the first
half of 2001 to the first half of 2002 principally due to the
larger number of handsets in service as well as the 14% increase
in average monthly minutes of use per handset over the same
periods. This increase in variable interconnection cost from
increased total system minutes of use was partially offset by
rate savings achieved through new agreements with long distance
service providers signed in mid-2001 as well as efforts
implemented during the second quarter of 2002 to move long
distance traffic to the facilities of lower cost carriers. Cost
of service decreased as a percentage of domestic operating
revenues for the six- and three-month periods ended
June 30, 2002 as compared to the same periods in 2001 due
to increasing service revenues, a slower network build plan and
economies of scale achieved through network operating
efficiencies and variable interconnection rate savings.

We expect the aggregate cost of service in 2002
to increase as customer usage of our digital mobile network
increases and as we place more sites and switches into service
to add capacity and coverage to our

21



---



##### Table of Contents



network. However, we expect the rate of increase
in 2002 to be less than that experienced in 2001 due to
improvements in network operating efficiencies and a slower
network build plan as a result of anticipated technological
enhancements. See Future Capital Needs and
Resources  Capital Expenditures.


Handset and accessory revenues.During the six and three months
ended June 30, 2002, we recorded $248 million and
$122 million of handset and accessory revenues, an increase
of $34 million and $16 million over the comparable
periods in 2001, as summarized below.

|                                               |  |               |      |             |  |               |     |             |  |      |      |               |  |   |      |   |  |   |     |   |  |   |     |  
|---------------------------------------------- |  | ------------- | ---- | ----------- |  | ------------- | --- | ----------- |  | ---- | ---- | ------------- |  | - | ---- | - |  | - | --- | - |  | - | --- | -
|                                               |  |               |      |             |  |               |     |            
|                                               |  | Six Months    |      |             |  | Three Months  |     |            
|                                               |  | Ended         |      |             |  | Ended         |     |            
|                                               |  | June 30,      |      |             |  | June 30,      |     |            
|                                               |  |               |      | Change from |  |               |     | Change from
|                                               |  | 2002          |      | 2001        |  | Previous Year |     | 2002        |  | 2001 |      | Previous Year
|                                               |  |               |      |             |  |               |     |             |  |      |      |              
|                                               |  |              
|                                               |  | (in millions)
|Current period handset and accessory
    sales |  | $             | 413  |             |  | $             | 242 |             |  | $    | 171  |               |  | $ | 230  |   |  | $ | 139 |   |  | $ | 91  |  
|SAB No. 101 net effect                         |  |               | (165 | )           |  |               | (28 | )           |  |      | (137 | )             |  |   | (108 | ) |  |   | (33 | ) |  |   | (75 | )
|                                               |  |               |      |             |  |               |     |             |  |      |      |               |  |   |      |   |  |   |     |   |  |   |     |  
|Handset and accessory revenues                 |  | $             | 248  |             |  | $             | 214 |             |  | $    | 34   |               |  | $ | 122  |   |  | $ | 106 |   |  | $ | 16  |  
|                                               |  |               |      |             |  |               |     |             |  |      |      |               |  |   |      |   |  |   |     |   |  |   |     |  

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

Current period handset and accessory sales
increased $171 million for the six months ended
June 30, 2002 compared to the same period in 2001. This
increase consists of both an increase in the number of handsets
sold of about 10% and an overall increase in the sales prices of
the handsets. This increase was partially offset by the increase
in the net effect of SAB No. 101 of $137 million.
Current period handset and accessory sales increased
$91 million for the three months ended June 30, 2002
compared to the same period in 2001. This increase consists of
both an increase in the number of handsets sold of about 15% and
an overall increase in the sale prices of the handsets. This
increase was partially offset by the increase in the net effect
of SAB No. 101 of $75 million.

Cost of handset and accessory revenues.During the six months and three
months ended June 30, 2002, we recorded $524 million
and $219 million of cost of handset and accessory revenues,
a decrease of $91 million and $66 million over the
comparable periods in 2001, as summarized below.

|                                                       |  |               |      |             |  |               |     |             |  |      |      |               |  |   |      |   |  |   |     |   |  |   |     |  
|------------------------------------------------------ |  | ------------- | ---- | ----------- |  | ------------- | --- | ----------- |  | ---- | ---- | ------------- |  | - | ---- | - |  | - | --- | - |  | - | --- | -
|                                                       |  |               |      |             |  |               |     |            
|                                                       |  | Six Months    |      |             |  | Three Months  |     |            
|                                                       |  | Ended         |      |             |  | Ended         |     |            
|                                                       |  | June 30,      |      |             |  | June 30,      |     |            
|                                                       |  |               |      | Change from |  |               |     | Change from
|                                                       |  | 2002          |      | 2001        |  | Previous Year |     | 2002        |  | 2001 |      | Previous Year
|                                                       |  |               |      |             |  |               |     |             |  |      |      |              
|                                                       |  |              
|                                                       |  | (in millions)
|Current period cost of handset and accessory
    sales |  | $             | 689  |             |  | $             | 643 |             |  | $    | 46   |               |  | $ | 327  |   |  | $ | 318 |   |  | $ | 9   |  
|SAB No. 101 net effect                                 |  |               | (165 | )           |  |               | (28 | )           |  |      | (137 | )             |  |   | (108 | ) |  |   | (33 | ) |  |   | (75 | )
|                                                       |  |               |      |             |  |               |     |             |  |      |      |               |  |   |      |   |  |   |     |   |  |   |     |  
|Cost of handset and accessory
    revenues             |  | $             | 524  |             |  | $             | 615 |             |  | $    | (91  | )             |  | $ | 219  |   |  | $ | 285 |   |  | $ | (66 | )
|                                                       |  |               |      |             |  |               |     |             |  |      |      |               |  |   |      |   |  |   |     |   |  |   |     |  

Recorded cost of handset and accessory revenues
are impacted by the cost of the handsets sold, the number of
handsets sold and the effect of SAB No. 101. The SAB
No. 101 effect in the table above is the net effect of the
current period cost of handset sales being deferred to future
periods offset by the cost of the handset sales deferred in the
previous period that are now being recognized as cost of handset
revenues. However, the SAB No. 101 net effect for cost of
handset revenues is recorded only in an amount equivalent to the
SAB No. 101 net effect for handset revenues.

The current period cost of handsets and accessory
sales increased $46 million for the six months ended
June 30, 2002 compared to the same period in 2001. This
increase is due to increases in the number of handsets sold
partially offset by a slight reduction in our cost of the
handset. This overall increase in the cost of handset and
accessory sales was more than offset by the increase in the net
effect of SAB No. 101 of

22



---



##### Table of Contents



$137 million. The current period cost of
handsets and accessory sales increased $9 million for the
three months ended June 30, 2002 compared to the same
period in 2001. This increase is due to increases in the number
of handsets sold partially offset by a slight reduction in our
cost of the handset. This overall increase in the current period
cost of handset and accessory sales was more than offset by the
increase in the net effect of SAB No. 101 of
$75 million.


Handset and accessory gross
subsidy.Handset and accessory
gross subsidy improved $125 million or 31% from the six
months ended June 30, 2001 to the six months ended
June 30, 2002 even though we experienced about a 10%
increase in the number of handsets sold as compared to the same
period in the prior year. We attribute both the increase in
handsets sold and the improvement in handset and accessory gross
subsidy to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increased sales of our feature rich, higher
    priced and lower subsidy handsets;                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | a decline in the average cost that we pay for our
    handsets; and                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | increased handset prices charged to our indirect
    dealers in the second quarter of 2002 in return for higher
    commissions to be paid to the dealers upon activation of new
    subscribers, which resulted in about a $60 million improvement
    in the gross subsidy. As noted below under Domestic
    selling, general and administrative expenses, the subsidy
    improvement was partially offset by an increase in dealer
    commission expense of about $40 million.

Handset and accessory gross subsidy improved
$82 million or 46% from the three months ended
June 30, 2001 to the three months ended June 30, 2002
even though we experienced about a 15% increase in the volume of
handsets sold as compared to the same period in the prior year.
The improvement in the handset and accessory gross subsidy is
primarily due to the changes in handset pricing to our indirect
dealers in the second quarter of 2002 as discussed above.

Domestic selling, general and
administrative expenses.

|                                    |  |                       |       |           |  |          |    |           |  |               |       |         |  |  |    |   |  |   |     |  |  |  |    |  
|----------------------------------- |  | --------------------- | ----- | --------- |  | -------- | -- | --------- |  | ------------- | ----- | ------- |  |  | -- | - |  | - | --- |  |  |  | -- | -
|                                    |  |                       |       |           |  |          |    |           |  |              
|                                    |  |                       |       | % of      |  |          |    | % of      |  | Change from  
|                                    |  |                       |       | Domestic  |  |          |    | Domestic  |  | Previous Year
|                                    |  | June 30,              |       | Operating |  | June 30, |    | Operating |  |              
|                                    |  | 2002                  |       | Revenues  |  | 2001     |    | Revenues  |  | Dollars       |       | Percent
|                                    |  |                       |       |           |  |          |    |           |  |               |       |        
|                                    |  |                      
|                                    |  | (dollars in millions)
|Six Months Ended                    |  |                       |       |           |  |          |    |           |  |               |       |         |  |  |    |   |  |   |     |  |  |  |    |  
|Selling and marketing               |  | $                     | 726   |           |  |          | 18 | %         |  | $             | 632   |         |  |  | 19 | % |  | $ | 94  |  |  |  | 15 | %
|General and administrative          |  |                       | 742   |           |  |          | 18 | %         |  |               | 628   |         |  |  | 19 | % |  |   | 114 |  |  |  | 18 | %
|                                    |  |                       |       |           |  |          |    |           |  |               |       |         |  |  |    |   |  |   |     |  |  |  |    |  
|Selling, general and administrative |  | $                     | 1,468 |           |  |          | 36 | %         |  | $             | 1,260 |         |  |  | 38 | % |  | $ | 208 |  |  |  | 17 | %
|                                    |  |                       |       |           |  |          |    |           |  |               |       |         |  |  |    |   |  |   |     |  |  |  |    |  
|Three Months Ended                  |  |                       |       |           |  |          |    |           |  |               |       |         |  |  |    |   |  |   |     |  |  |  |    |  
|Selling and marketing               |  | $                     | 380   |           |  |          | 18 | %         |  | $             | 306   |         |  |  | 18 | % |  | $ | 74  |  |  |  | 24 | %
|General and administrative          |  |                       | 373   |           |  |          | 17 | %         |  |               | 331   |         |  |  | 19 | % |  |   | 42  |  |  |  | 13 | %
|                                    |  |                       |       |           |  |          |    |           |  |               |       |         |  |  |    |   |  |   |     |  |  |  |    |  
|Selling, general and administrative |  | $                     | 753   |           |  |          | 35 | %         |  | $             | 637   |         |  |  | 37 | % |  | $ | 116 |  |  |  | 18 | %
|                                    |  |                       |       |           |  |          |    |           |  |               |       |         |  |  |    |   |  |   |     |  |  |  |    |  

Selling and marketing.The increase in domestic selling
and marketing expenses from the six and three months ended
June 30, 2001 to the six and three months ended
June 30, 2002 primarily reflects increased costs incurred
in connection with growing our customer base, as discussed below.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Commissions and residuals earned by indirect
    dealers and distributors for new subscriber activations
    increased $51 million and $57 million, or 19% and 47%,
    of which about $40 million is due to the changes in dealer
    compensation plans effected in the second quarter of 2002 that
    provide increased compensation for activation of new
    subscribers. Accordingly, the additional dealer commission
    expense relating to some of these second quarter handset sales
    will be recorded in future periods when earned as part of a new
    subscriber activation.
|
| |  | Sales and marketing payroll and related expenses
    increased $19 million and $6 million, or 11% and 7%, which
    consisted primarily of costs associated with additional
    employees of our Nextel stores acquired and opened beginning in
    May 2001.                                                                                                                                                                                                                                                                                                                                  

23



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Advertising expenses increased $14 million
    and $10 million, or 10% and 14%, due to aggressive
    marketing campaigns, including sports-related sponsorships and
    television commercials directed at increasing brand awareness,
    as well as promoting our differentiated services, including
    Nextel Direct Connect and Nextel Wireless Web.
|
| |  | Other general selling and marketing expenses
    increased $10 million and $1 million, or 23% and 5%,
    consisting primarily of facilities costs related to our Nextel
    stores.                                                                                                                                                                      

General and administrative.General and administrative
expenses increased from the six and three months ended
June 30, 2001 to the six and three months ended
June 30, 2002, as discussed below.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Expenses related to billing, collection, customer
    retention and customer care activities increased
    $48 million and $18 million, or 20% and 14%, due to
    the costs to support a larger customer base, as well as costs
    associated with the implementation of our new billing and
    customer care system, which was put into operation beginning in
    the first quarter 2002 and is expected to become fully
    operational in the third quarter of 2002. The increase was
    partially offset by savings achieved as a result of our customer
    care outsourcing arrangement implemented during the first
    quarter of 2002.                                                                                                                                                                                                                                                                                                           
|
| |  | Bad debt expense increased $33 million and
    decreased $5 million, or 24% and 5%. Bad debt has decreased
    as a percentage of domestic operating revenues from 4.9% in the
    second quarter 2001 to 3.7% in the second quarter 2002. During
    the second and third quarters of 2001, bad debt expense
    increased as a percentage of domestic operating revenues
    primarily due to the impact of a slow economy and aggressive
    promotions during 2001. As a result of this increase in bad
    debt, we focused on strengthening our credit policies and
    procedures, specifically in the area of compliance with our
    deposit policy, increased our collection staffing, limited
    account sizes for designated high risk accounts, suspended
    accounts earlier than in the past and implemented a new credit
    and billing software tool which enables us to better screen and
    monitor the credit quality of our customers.
|
| |  | Personnel, facilities and general corporate
    expenses increased $33 million and $29 million, or 13% and
    23%. These increases were primarily the result of increases in
    general corporate expenses, including professional fees relating
    to our public safety initiative and other initiatives, product
    development expenses and employee compensation costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

We expect the aggregate amount of domestic
selling, general and administrative expenses in 2002 to continue
to increase as a result of a number of factors, including but
not limited to:



| |   |                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increased marketing and advertising as we
    introduce and continue strategic television product placement
    and national print advertising campaigns designed to increase
    brand awareness in our markets;                                                                                                                       
|
| |  | costs associated with operating our Nextel stores
    acquired and opened beginning in May 2001; and                                                                                                                                                                                                                                    
|
| |  | costs associated with billing, including
    increased postage and subscriber levels, collection, bad debt,
    customer retention and customer care activities to support a
    growing customer base, partially offset by savings expected from
    our new outsourcing arrangements and our new billing and
    customer care system.

24



---



##### Table of Contents



Domestic depreciation and
amortization.

|                   |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |    |  |  |      |    |  
|------------------ | ----------------------------- | --------------------- | --- | --------- |  | -------- | -- | --------- | - | ------------- | --- | ------- |  |  | -- | -- | - | - | --- | -- |  |  | ---- | -- | -
|                   |                               |                       |     |           |  |          |    |           |   |              
|                   |                               |                       |     | % of      |  |          |    | % of      |   | Change from  
|                   |                               |                       |     | Domestic  |  |          |    | Domestic  |   | Previous Year
|                   |                               | June 30,              |     | Operating |  | June 30, |    | Operating |   |              
|                   |                               | 2002                  |     | Revenues  |  | 2001     |    | Revenues  |   | Dollars       |     | Percent
|                   |                               |                       |     |           |  |          |    |           |   |               |     |        
|                   |                               |                      
|                   |                               | (dollars in millions)
|Six Months Ended   |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |    |  |  |      |   
|Depreciation       |                               | $                     | 761 |           |  |          | 18 | %         |   | $             | 621 |         |  |  | 19 | %  |   | $ | 140 |    |  |  | 23   | % 
|Amortization       |                               |                       | 26  |           |  |          | 1  | %         |   |               | 86  |         |  |  | 2  | %  |   |   | (60 | )  |  |  | (70) | % 
|                   |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |    |  |  |      |   
|                   | Depreciation and amortization |                       | $   | 787       |  |          |    | 19        | % |               | $   | 707     |  |  |    | 21 | % |   | $   | 80 |  |  |      | 11 | %
|                   |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |    |  |  |      |   
|Three Months Ended |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |    |  |  |      |   
|Depreciation       |                               | $                     | 390 |           |  |          | 18 | %         |   | $             | 324 |         |  |  | 19 | %  |   | $ | 66  |    |  |  | 20   | % 
|Amortization       |                               |                       | 15  |           |  |          | 1  | %         |   |               | 45  |         |  |  | 2  | %  |   |   | (30 | )  |  |  | (67) | % 
|                   |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |    |  |  |      |   
|                   | Depreciation and amortization |                       | $   | 405       |  |          |    | 19        | % |               | $   | 369     |  |  |    | 21 | % |   | $   | 36 |  |  |      | 10 | %
|                   |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |    |  |  |      |   

The $140 million and $66 million
increase in depreciation expense from the six and three months
ended June 30, 2001 to the six and three months ended June
30, 2002 was primarily a result of placing into service
additional, as well as modifying existing, switches and
transmitter and receiver sites in existing markets primarily to
enhance the capacity of our digital mobile network and increased
depreciation as a result of our shortening the useful lives of
some of our network assets in the fourth quarter of 2001. This
increase is slightly offset by the impact of fully depreciated
assets.

The $60 million and $30 million
decrease in amortization expense from the six and three months
ended June 30, 2001 to the six and three months ended June
30, 2002 is primarily attributable to the adoption of SFAS
No. 142, Goodwill and Other Intangible Assets,
under which goodwill and FCC licenses are no longer amortized
effective January 1, 2002.

Domestic restructuring and impairment
charges, interest and other.

|                                                                             |  |                       |      |           |  |          |     |           |  |               |      |         |  |  |     |    |  |   |      |   |  |  |     |   
|---------------------------------------------------------------------------- |  | --------------------- | ---- | --------- |  | -------- | --- | --------- |  | ------------- | ---- | ------- |  |  | --- | -- |  | - | ---- | - |  |  | --- | --
|                                                                             |  |                       |      |           |  |          |     |           |  |              
|                                                                             |  |                       |      | % of      |  |          |     | % of      |  | Change from  
|                                                                             |  |                       |      | Domestic  |  |          |     | Domestic  |  | Previous Year
|                                                                             |  | June 30,              |      | Operating |  | June 30, |     | Operating |  |              
|                                                                             |  | 2002                  |      | Revenues  |  | 2001     |     | Revenues  |  | Dollars       |      | Percent
|                                                                             |  |                       |      |           |  |          |     |           |  |               |      |        
|                                                                             |  |                      
|                                                                             |  | (dollars in millions)
|Six Months Ended                                                             |  |                       |      |           |  |          |     |           |  |               |      |         |  |  |     |    |  |   |      |   |  |  |     |   
|Restructuring and impairment charges                                         |  | $                     | (35  | )         |  |          | (1  | )%        |  | $             | (22  | )       |  |  | (1  | )% |  | $ | (13  | ) |  |  | (59 | )%
|Interest expense                                                             |  |                       | (542 | )         |  |          | (13 | )%        |  |               | (570 | )       |  |  | (17 | )% |  |   | 28   |   |  |  | 5   | % 
|Interest income                                                              |  |                       | 31   |           |  |          | 1   | %         |  |               | 127  |         |  |  | 4   | %  |  |   | (96  | ) |  |  | (76 | )%
|Gain on retirement of debt, net of debt
    conversion expense of $47 and $0 |  |                       | 139  |           |  |          | 3   | %         |  |               |     |         |  |  |    |    |  |   | 139  |   |  |  |    |   
|Equity in losses of NII Holdings                                             |  |                       | (226 | )         |  |          | (5  | )%        |  |               |     |         |  |  |    |    |  |   | (226 | ) |  |  |    |   
|Equity in losses of unconsolidated affiliates                                |  |                       | (49  | )         |  |          | (1  | )%        |  |               | (45  | )       |  |  | (1  | )% |  |   | (4   | ) |  |  | (9  | )%
|Reduction in fair value of investment                                        |  |                       | (35  | )         |  |          | (1  | )%        |  |               |     |         |  |  |    |    |  |   | (35  | ) |  |  |    |   
|Other, net                                                                   |  |                       | (1   | )         |  |          |    |           |  |               | (5   | )       |  |  |    |    |  |   | 4    |   |  |  | 80  | % 
|Income tax (provision) benefit                                               |  |                       | (365 | )         |  |          | (9  | )%        |  |               | 24   |         |  |  | 1   | %  |  |   | (389 | ) |  |  | NM  |   
|Loss attributable to common stockholders                                     |  |                       | (329 | )         |  |          | (8  | )%        |  |               | (475 | )       |  |  | (14 | )% |  |   | 146  |   |  |  | 31  | % 

25



---



##### Table of Contents



|                                                                             |  |                       |      |           |  |          |     |           |  |               |      |         |  |  |     |    |  |   |     |   |  |  |     |   
|---------------------------------------------------------------------------- |  | --------------------- | ---- | --------- |  | -------- | --- | --------- |  | ------------- | ---- | ------- |  |  | --- | -- |  | - | --- | - |  |  | --- | --
|                                                                             |  |                       |      |           |  |          |     |           |  |              
|                                                                             |  |                       |      | % of      |  |          |     | % of      |  | Change from  
|                                                                             |  |                       |      | Domestic  |  |          |     | Domestic  |  | Previous Year
|                                                                             |  | June 30,              |      | Operating |  | June 30, |     | Operating |  |              
|                                                                             |  | 2002                  |      | Revenues  |  | 2001     |     | Revenues  |  | Dollars       |      | Percent
|                                                                             |  |                       |      |           |  |          |     |           |  |               |      |        
|                                                                             |  |                      
|                                                                             |  | (dollars in millions)
|Three Months Ended                                                           |  |                       |      |           |  |          |     |           |  |               |      |         |  |  |     |    |  |   |     |   |  |  |     |   
|Restructuring and impairment charges                                         |  | $                     |     |           |  |          |    |           |  | $             | (22  | )       |  |  | (1  | )% |  | $ | 22  |   |  |  |    |   
|Interest expense                                                             |  |                       | (269 | )         |  |          | (12 | )%        |  |               | (284 | )       |  |  | (16 | )% |  |   | 15  |   |  |  | 5   | % 
|Interest income                                                              |  |                       | 16   |           |  |          | 1   | %         |  |               | 53   |         |  |  | 3   | %  |  |   | (37 | ) |  |  | (70 | )%
|Gain on retirement of debt, net of debt
    conversion expense of $47 and $0 |  |                       | 139  |           |  |          | 6   | %         |  |               |     |         |  |  |    |    |  |   | 139 |   |  |  |    |   
|Equity in losses of NII Holdings                                             |  |                       | (99  | )         |  |          | (5  | )%        |  |               |     |         |  |  |    |    |  |   | (99 | ) |  |  |    |   
|Equity in losses of unconsolidated affiliates                                |  |                       | (24  | )         |  |          | (1  | )%        |  |               | (24  | )       |  |  | (1  | )% |  |   |    |   |  |  |    |   
|Reduction in fair value of investment                                        |  |                       | (35  | )         |  |          | (2  | )%        |  |               |     |         |  |  |    |    |  |   | (35 | ) |  |  |    |   
|Other, net                                                                   |  |                       | (1   | )         |  |          |    |           |  |               | (5   | )       |  |  |    |    |  |   | 4   |   |  |  | 80  | % 
|Income tax (provision) benefit                                               |  |                       | (15  | )         |  |          | (1  | )%        |  |               | 10   |         |  |  | 1   | %  |  |   | (25 | ) |  |  | NM  |   
|Income (loss) attributable to common
    stockholders                        |  |                       | 325  |           |  |          | 15  | %         |  |               | (215 | )       |  |  | (12 | )% |  |   | 540 |   |  |  | NM  |   





---

NMNot Meaningful


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

The $28 million and $15 million
decrease in interest expense from the six and three months ended
June 30, 2001 to the six and three months ended
June 30, 2002 resulted primarily from a reduction in the
weighted average interest rate for our bank credit facility.
Interest expense also decreased as a result of the purchase and
retirement of some of our debt securities in the second quarter
of 2002. This decrease in interest expense is partially offset
by the issuance in May 2001 of our 6% convertible notes.

The $96 million and $37 million
decrease in interest income from the six and three months ended
June 30, 2001 to the six and three months ended
June 30, 2002 is primarily due to a decrease in interest
rates as well as a lower average cash and short-term investments
balance in 2002.

The gain on retirement of debt, net of debt
conversion expense relates to the purchase and retirement of
some of our senior notes during the second quarter of 2002.

The equity in losses of NII Holdings of
$226 million for the six months ended June 30, 2002
and $99 million for the three months ended June 30,
2002 relates to the reclassification of our investment in NII
Holdings to the equity method in 2002.

The $4 million increase in equity in losses
of unconsolidated affiliates from the first half of 2001 to the
first half of 2002 is due to increased losses attributable to
our equity method investment in Nextel Partners.

On June 30, 2002, we recognized a
$35 million reduction in fair value of our investment in
SpectraSite Holdings, Inc., as we determined the decline in fair
value of this investment to be other-than-temporary.

The increase in the income tax provision in 2002
is primarily attributable to the adoption of SFAS No. 142,
as a result of which we incurred non-cash charges of
$365 million to the income tax provision. For more detailed
information, see note 1 to the condensed consolidated financial
statements appearing at the beginning of this quarterly report
on Form 10-Q.

We expect results of operations to improve in
2002 as compared to 2001 as a result of, among other things,
cost savings we expect to achieve through economies of scale and
increased operating efficiencies. However, if general economic
conditions worsen, if competitive conditions in the wireless
telecommunications industry intensifies or if our new handset or
service offerings are not well received, we may see declines in

26



---



##### Table of Contents



demand for our product and service offerings,
which may adversely affect our results of operations. See
Forward Looking Statements.


Liquidity and Capital Resources

For the quarter ended June 30, 2002, we had
income attributable to common stockholders of $325 million
and basic earnings per share of $0.39. For the six months ended
June 30, 2002, we had losses attributable to common
stockholders of $329 million and basic loss per share of
$0.40. Historically, total operating expenses and capital
expenditures associated with developing, enhancing and operating
our digital mobile network have more than offset operating
revenues. With respect to our domestic operations, for the
quarter ended June 30, 2002, total operating expenses,
including depreciation and amortization, and capital
expenditures exceeded operating revenues by $50 million as
compared to $546 million for the same period in 2001. We
have consistently used external sources of funds, primarily from
debt incurrences and equity issuances, to fund operations,
capital expenditures, acquisitions and other nonoperating needs.

Cash flows.Net cash provided by operating
activities of $909 million during the six months ended
June 30, 2002 improved by $451 million compared to net
cash provided by operating activities of $458 million
during the six months ended June 30, 2001. This improvement
in net cash provided by operating activities reflects the
improved performance of our domestic operations from our
achievement of certain economies of scale and from the growth in
our domestic customer base.

Net cash used in investing activities of
$1.75 billion during the six months ended June 30,
2002 decreased by $79 million as compared to $1.83 billion
during the six months ended June 30, 2001 due to:



| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | a $871 million decrease in cash paid for
    capital expenditures; and                                                
|
| |  | a $422 million decrease in cash paid for
    purchases of licenses, acquisitions, investments and other;
    offset by
|
| |  | a $964 million increase in net cash used to
    purchase short term investments; and                                  
|
| |  | a $250 million decrease in cash as a result
    of changing to the equity method of accounting for NII Holdings.      

Capital expenditures to fund the continued
expansion and enhancement of our digital mobile network
continued to represent the largest use of our funds for
investing activities. For the six months ended June 30,
2002, cash payments for capital expenditures totaled
$1.04 billion which includes payments made in 2002 for
capital expenditures that were accrued at December 31, 2001
and reported as capital expenditures in 2001. For the six months
ended June 30, 2001, cash payments for capital expenditures
totaled $1.91 billion (including $365 million of
international capital expenditures) which includes payments made
in 2001 for capital expenditures that were accrued at
December 31, 2000 and reported as capital expenditures in
2000. Cash payments for domestic capital expenditures decreased
primarily due to a 65% decrease in the number of transmitter and
receiver sites placed into service during the first half of 2002
as compared to the first half of 2001. We attribute this
decrease to several factors, including:



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

Cash payments for licenses, acquisitions,
investments and other totaled $317 million during the six months
ended June 30, 2002, including $109 million in
payments related to the acquisition of 800 MHz and
900 MHz licenses and related assets from Chadmoore Wireless
Group.

27



---



##### Table of Contents



Net cash used in financing activities of
$344 million during the six months ended June 30, 2002
consisted primarily of cash paid for the purchase of debt
securities and preferred stock of $295 million and
repayments under capital lease and finance obligations and
long-term credit facilities. Net cash provided by financing
activities of $2.2 billion during the six months ended
June 30, 2001 consisted primarily of $2.2 billion in
net proceeds from the private placements of our 9.5% senior
serial redeemable notes due 2011 and our 6% convertible senior
notes due 2011.

Future Capital Needs and Resources

Capital Resources.

As of June 30, 2002, our capital resources
included $2.7 billion of cash, cash equivalents and
short-term investments. At June 30, 2002, we also had
available to us about $1.5 billion of the revolving loan
commitment under our bank credit facility as discussed below.
Our resulting total amount of liquidity to fund our operations
at June 30, 2002 was about $4.2 billion. Subsequent to
June 30, 2002, as discussed in note 8,
Subsequent Events, we used $205 million in cash
to purchase and retire outstanding debt securities.

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



| |   |                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the amount of revenue we are able to generate
    from our customers;                                                                                  
|
| |  | the amount of operating expenses required to
    provide our services;                                                                                 
|
| |  | the cost of acquiring and retaining customers,
    including the subsidies we incur to provide handsets to both our
    new and existing customers; and
|
| |  | our ability to continue to grow our customer base.                                                                                                     

As of June 30, 2002, our bank credit
facility provided for total secured financing capacity of up to
$6.0 billion, subject to the satisfaction or waiver of
applicable borrowing conditions. This facility consists of a
$1.5 billion revolving loan commitment and
$4.5 billion in term loans that have already been fully
accessed. Principal repayment begins on the term loans in
limited amounts in late 2002, and the several tranches that make
up the term loans mature over a period from December 31,
2007 to March 31, 2009. The amounts available under the
revolving loan commitment decrease in limited amounts beginning
at the end of 2002 and continuing until late 2007, when no
amounts will remain available under the revolving loan
commitment. On December 31, 2002, the amount of the
revolving loan commitment available to us will be reduced by
$38 million and will continue to be reduced by
$38 million every quarter through March 31, 2004.

The bank credit agreement 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 bank credit
agreement. While some of these ratios become more stringent
through 2003, as of June 30, 2002, we were in compliance
with all financial ratio tests under our bank credit facility
and we expect to remain in full compliance with these ratio
tests. However, 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.
Borrowings under the bank credit facility are secured by liens
on assets of substantially all of our domestic subsidiaries.

In addition, the loans under the bank credit
facility can accelerate if the aggregate amount of our public
notes that mature within the succeeding six months of any date
before June 30, 2009, or if the aggregate

28



---



##### Table of Contents



amount of our redeemable stock that is
mandatorily redeemable within the succeeding six months of any
date before June 30, 2009, exceed amounts specified in our
bank credit facility. However, no such acceleration is permitted
if the long-term rating for our public notes is at least BBB- by
Standard & Poors Ratings Services or Baa3 by
Moodys Investors Service, Inc. There is no provision under
any of our indebtedness that requires repayment in the event of
a downgrade by any ratings service.


Our ability to access additional amounts under
the bank credit facility may be restricted by provisions
included in some of our public notes and 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 June 30, 2002, we
were able to access substantially all of the remaining $1.5
billion available under the bank credit facility.

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

Capital Needs.

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



| |   |                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | capital expenditures to expand and enhance our
    digital mobile network, as discussed immediately below under
    Capital Expenditures;                                                                                                                                                                                                                
|
| |  | operating expenses relating to our digital mobile
    network;                                                                                                                                                                                                                                                                                             
|
| |  | future investments, including potential spectrum
    purchases and investments in new business opportunities;                                                                                                                                                                                                                                              
|
| |  | up to $500 million in potential payments in
    connection with the currently proposed public safety spectrum
    realignment;                                                                                                                                                                                                                             
|
| |  | up to $115 million in potential investments
    relating to NII Holdings;                                                                                                                                                                                                                                                                                  
|
| |  | debt service requirements;                                                                                                                                                                                                                                                                                                                                 
|
| |  | potential increases in the cost of compliance
    with regulatory mandates, including rules governing customer
    proprietary network information, compliance with the FCCs
    requirement to deploy location-based 911 capabilities, and
    proposed California Public Utilities Commission
    telecommunications consumer protection regulation; and
|
| |  | other general corporate expenditures.                                                                                                                                                                                                                                                                                                                      

Capital
Expenditures.Our domestic capital
expenditures in the second quarter 2002 were $461 million,
including capitalized interest. In the future, our domestic
capital spending is expected to be driven by several factors
including:



| |   |                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the contemplated construction of additional
    transmitter and receiver sites to increase system capacity and
    maintain system quality and the installation of related
    switching equipment in the existing domestic market coverage
    areas;                            
|
| |  | the contemplated enhancement of our digital
    mobile network coverage around most major domestic market areas;                                                                                                                                                                  
|
| |  | the contemplated enhancements to our existing
    iDEN technology to increase voice capacity and deliver packet
    data service at higher speeds, and improve our Direct Connect
    service to offer traveling Direct Connect and, in
    2003, nationwide Direct Connect; and

29



---



##### Table of Contents





| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | any potential future enhancement of our digital
    mobile network by deploying next generation technologies.

Our future capital expenditures are significantly
affected by future technology improvements and technology
choices. In October 2001, Motorola and we announced an
anticipated significant technology upgrade to our iDEN digital
mobile network, the 6:1 voice coder software upgrade, which
Motorola is developing for our expected deployment in 2003. We
expect that this software upgrade will nearly double our voice
capacity for interconnect calls and leverage our investment in
our existing infrastructure. See Forward Looking
Statements. Technological developments like this would
allow us to significantly reduce the amount of capital
expenditures we would need to make for our current digital
mobile network in future years. However, any anticipated
reductions in capital expenditures could be more than offset to
the extent we incur additional capital expenditures to deploy
new technologies. We will only deploy a new technology when
deployment is warranted by expected customer demand, we have
sufficient capital available and the anticipated benefits of
services requiring the new technology outweigh the costs of
providing those services.

NII Holdings.On May 24, 2002, NII Holdings
announced that it had reached an agreement in principle with its
main creditors and filed a voluntary case to restructure its
obligations under Chapter 11 of the U.S. Bankruptcy Code in
the State of Delaware. On August 8, 2002, NII Holdings
began soliciting its existing creditors for approval of a plan
of reorganization based on this agreement in principle which
contemplates our investing up to $65 million in NII
Holdings. In addition, we would provide $50 million of
additional funding in exchange for a U.S.-Mexico cross border
spectrum sharing arrangement. We cannot assure you that the NII
Holdings plan of reorganization will be approved or that NII
Holdings will successfully complete the proposed restructuring.

NII Holdings currently has outstanding an
aggregate of $2.7 billion of debt that it incurred to
construct its network and fund its operations, including
$825 million in carrying amount, or $857 million in
aggregate principal amount, of notes held by Nextel
Communications. The obligations under this debt are solely those
of NII Holdings and its subsidiaries, and Nextel Communications
is not a party to any of the obligations in respect of that
debt. As a result of the bankruptcy filing and payment defaults,
NII Holdings entire debt balance is in default. Assuming
NII Holdings emerges from bankruptcy under its proposed plan of
reorganization, we would expect to record a substantial non-cash
gain in excess of $1.0 billion at that time and continue to
account for our investment using the equity method. For
additional information, see note 1, Basis of
Presentation, NII Holdings, in our condensed consolidated
financial statements appearing at the beginning of this
quarterly report on Form 10-Q.

Future Outlook.Based on our available cash
resources and our anticipated cash needs as outlined above and
our anticipated earnings, under our current business plan, we
believe that we will be able to fully fund our domestic
operations through 2003. See Forward Looking
Statements. In addition, based on these same factors, we
believe that our operations will become free cash flow
positive in 2004 or earlier. In other words, we believe
our anticipated earnings from operating activities will be
sufficient to fund our anticipated capital expenditures,
spectrum acquisition costs, currently expected investment
activities and scheduled debt service payments in 2004. See
Forward Looking Statements.

In making these assessments, we have considered:



| |   |                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | cash, cash equivalents and short-term investments
    on hand and available as of June 30, 2002 of
    $2.7 billion, and the $205 million of cash
    subsequently used to purchase our outstanding securities;                                              
|
| |  | the availability of incremental funding over the
    amounts outstanding under our bank credit facility, which
    currently totals about $1.5 billion;                                                                                                      
|
| |  | the anticipated level of domestic capital
    expenditures through 2004, including an expected significant
    positive impact associated with the 6:1 voice coder software
    upgrade which Motorola is developing for our expected deployment
    in 2003;
|
| |  | our scheduled domestic debt service requirements
    through 2004;                                                                                                                                                                                           

30



---



##### Table of Contents





| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | up to $115 million in potential investments
    relating to NII Holdings; and                                                                 
|
| |  | cash payments of up to $230 million for the
    acquisition of the equity of NeoWorld Communications in the
    event we elect to pay in cash.

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 as
well as the conclusions as to the adequacy of the available
sources and timing or ability to achieve free cash flow
positive status, could change significantly.

Our conclusions that we will be able to fully
fund our domestic operations through 2003 and that our domestic
operations will achieve free cash flow positive
status in 2004 or earlier also do not take into account:



| |   |                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the impact of our participation in any future
    auctions for the purchase of spectrum licenses;                                                                                                                                                                                                                                                          
|
| |  | any significant acquisition transactions or the
    pursuit of any significant new business opportunities other than
    those currently being pursued by us;                                                                                                                                                                                              
|
| |  | deployment of next generation technologies;                                                                                                                                                                                                                                                                                                                
|
| |  | potential additional purchases of our outstanding
    debt securities and preferred stock for cash;                                                                                                                                                                                                                                                        
|
| |  | potential increases in the cost of compliance
    with regulatory mandates, including rules governing customer
    proprietary network information, compliance with the FCCs
    requirement to deploy location-based 911 capabilities, and
    proposed California Public Utilities Commission
    telecommunications consumer protection regulation; and
|
| |  | potential material changes to our business plan
    which could result from the public safety spectrum realignment
    proposal we originally filed with the FCC in November 2001, if
    effected, including potential related payments of up to
    $500 million.                                                                                        

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



| |   |                                                          
| | - | ---------------------------------------------------------
| |  | the commercial success of our operations;                
|
| |  | the volatility and demand of the capital markets;
    and
|
| |  | the market prices of our securities.                     

We have had and may in the future have
discussions with third parties regarding potential sources of
new capital to satisfy actual or anticipated financing needs. At
present, other than the existing arrangements that have been
consummated or are described in this quarterly report, we have
no legally binding commitments or understandings with any third
parties to obtain any material amount of additional capital.

Finally, the above discussion concerning adequacy
of financing and our achievement of free cash flow
positive status is premised on and considers only the cash
on hand and available under our existing financing facilities,
and anticipated earnings over the relevant periods.
Additionally, the achievement of free cash flow
positive status does not imply that we will choose or be
able to maintain such status for any particular period, nor does
it imply the presence or likelihood of accounting profits,
reported earnings, taxable income or other measures of financial
performance, substantially all of which are calculated by taking
into consideration non-cash charges, such as depreciation and
amortization. The entirety of the above discussion also is
subject to the risks and other cautionary and qualifying factors
set forth under Forward Looking Statements.

31



---



##### Table of Contents



Forward Looking Statements

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | general economic conditions in the geographic
    areas and occupational market segments that we are targeting for
    our digital mobile network service;                                                                                                                                                                                                                                      
|
| |  | the availability of adequate quantities of system
    infrastructure and handset equipment and components to meet
    service deployment and marketing plans and customer demand;                                                                                                                                                                                                               
|
| |  | the availability and cost of acquiring additional
    spectrum;                                                                                                                                                                                                                                                                                                                                 
|
| |  | the timely development and availability of new
    handsets with expanded applications and features;                                                                                                                                                                                                                                                                                            
|
| |  | the success of efforts to improve, and
    satisfactorily address any issues relating to, our digital
    mobile network performance;                                                                                                                                                                                                                                                           
|
| |  | the successful implementation and performance of
    the technology being deployed or to be deployed in our various
    market areas, including the expected 6:1 voice coder software
    upgrade being developed by Motorola and technologies to be
    implemented in connection with our contemplated launches of
    traveling Direct Connect and, in 2003, nationwide
    Direct Connect;
|
| |  | market acceptance of our new line of Java
    embedded handsets and service offerings, including our Nextel
    Wireless Web services and Nextel Worldwide;                                                                                                                                                                                                                                     
|
| |  | the timely delivery and successful implementation
    of new technologies deployed in connection with any future
    enhanced iDEN or next generation or other advanced services we
    may offer;                                                                                                                                                                                              
|
| |  | the ability to achieve market penetration and
    average subscriber revenue levels sufficient to provide
    financial viability to our digital mobile network business;                                                                                                                                                                                                                       
|
| |  | the impact on our cost structure or service
    levels of the general downturn in the telecommunications sector,
    including the adverse effect of any bankruptcy of any of our
    tower providers or telecommunications suppliers;                                                                                                                                                          
|
| |  | our ability to successfully scale, in some
    instances in conjunction with third parties under our
    outsourcing arrangements, our billing, collection, customer care
    and similar back-office operations to keep pace with customer
    growth, increased system usage rates and growth in levels of
    accounts receivables being generated by our customers;                         
|
| |  | access to sufficient debt or equity capital to
    meet operating and financing needs;                                                                                                                                                                                                                                                                                                          
|
| |  | the quality and price of similar or comparable
    wireless communications services offered or to be offered by our
    competitors, including providers of cellular and personal
    communications services;                                                                                                                                                                                  
|
| |  | future legislation or regulatory actions relating
    to specialized mobile radio services, other wireless
    communications services or telecommunications generally;                                                                                                                                                                                                                         
|
| |  | the success of NII Holdings efforts to
    restructure its indebtedness and obtain additional financing; and                                                                                                                                                                                                                                                                                   

32



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | other risks and uncertainties described from time
    to time in our reports and, with specific reference to risk
    factors relating to international operations, in NII
    Holdings reports, filed with the Securities and Exchange
    Commission, including our respective annual reports on
    Form 10-K for the year ended December 31, 2001 and our
    subsequent quarterly reports on Form 10-Q.




Item 3.  Quantitative and
Qualitative Disclosures about Market Risk.

We are exposed to market risk from changes in
interest rates and equity prices. Our primary interest rate risk
results from changes in the U.S. LIBOR, U.S. prime and
Eurodollar rates, which are used to determine the interest rates
applicable to our borrowings. Interest rate changes expose our
fixed rate long-term borrowings to changes in fair values and
expose our variable rate long-term borrowings to changes in
future cash flows. We use derivative instruments primarily
consisting of interest rate swap agreements to manage this
interest rate exposure by achieving a desired proportion of
fixed rate versus variable rate borrowings. All of our
derivative transactions are entered into for non-trading
purposes.

As of June 30, 2002, we held
$1.39 billion of short-term investments consisting of debt
securities in the form of commercial paper and corporate bonds.
As the weighted average maturity from the date of purchase was
less than six months, these short-term investments do not expose
us to a significant amount of interest rate risk.

As of June 30, 2002, the fair value of our
investment in the common stock of SpectraSite Holdings, a
publicly traded company, totaled $3 million. This
investment is reported at its fair value in our condensed
consolidated financial statements. Negative fluctuations in the
stock price of SpectraSite expose us to equity price risk.

The table below summarizes our market risks as of
June 30, 2002 in U.S. dollars. The table presents principal
cash flows and related interest rates by year of maturity for
our senior notes, bank and vendor credit facilities, capital
lease and finance obligations and mandatorily redeemable
preferred stock in effect at June 30, 2002. In the case of
the mandatorily redeemable preferred stock and senior notes, the
table excludes the potential exercise of the relevant redemption
or conversion features. This table also assumes that we will
refinance our indebtedness to levels necessary to avoid an
earlier repayment obligation with respect to our domestic bank
credit agreement. See Future Capital Needs and
Resources. For interest rate swap agreements, the table
presents notional amounts and the related interest rates by year
of maturity. Fair values included in this section have been
determined based on:



| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | quoted market prices for senior notes and
    mandatorily redeemable preferred stock;                                                            
|
| |  | estimates from bankers for our domestic bank
    credit facility;                                                                                
|
| |  | present value of future cash flows for capital
    lease and finance obligations using a discount rate available
    for similar obligations; and
|
| |  | estimates from bankers to settle interest rate
    swap agreements.                                                                              

Notes 7, 8 and 11 to the consolidated
financial statements included in our 2001 annual report on
Form 10-K contain descriptions of our senior notes, bank
and vendor credit facilities, capital lease and finance

33



---



##### Table of Contents



obligations, interest rate swap agreements and
mandatorily redeemable preferred stock and should be read
together with the following table.


|                                                                                                         |                       |                            |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |     |   |  |   |        |   |  |   |        |   |  |   |       |  
|-------------------------------------------------------------------------------------------------------- | --------------------- | -------------------------- | - | ---- | - | ---- | - | ---- | - | ---- | - | ---------- | - | ----- | - | ----- | - |  | - | --- | - |  | - | ------ | - |  | - | ------ | - |  | - | ----- | -
|                                                                                                         |                       |                            |   |      |   |     
|                                                                                                         |                       | Year of Maturity           |   |      |   |     
|                                                                                                         |                       |                            |   |      |   | Fair
|                                                                                                         |                       | 2002                       |   | 2003 |   | 2004 |   | 2005 |   | 2006 |   | Thereafter |   | Total |   | Value
|                                                                                                         |                       |                            |   |      |   |      |   |      |   |      |   |            |   |       |   |      
|                                                                                                         |                       |                           
|                                                                                                         |                       | (U.S. dollars in millions)
|Interest Rate Sensitivity                                                                                |                       |                            |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |     |   |  |   |        |   |  |   |        |   |  |   |      
|Long-Term Debt, Capital Lease and Finance
    Obligations and Mandatorily Redeemable Preferred
    Stock |                       |                            |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |     |   |  |   |        |   |  |   |        |   |  |   |      
|                                                                                                         | Fixed Rate            |                            | $ | 49   |   |      | $ | 107  |   |      | $ | 115        |   |       | $ | 121   |   |  | $ | 114 |   |  | $ | 11,510 |   |  | $ | 12,016 |   |  | $ | 5,468 |  
|                                                                                                         | Average Interest Rate |                            |   | 9    | % |      |   | 9    | % |      |   | 9          | % |       |   | 9     | % |  |   | 9   | % |  |   | 9      | % |  |   | 9      | % |  |   |       |  
|                                                                                                         | Variable Rate         |                            | $ | 48   |   |      | $ | 199  |   |      | $ | 327        |   |       | $ | 433   |   |  | $ | 466 |   |  | $ | 3,045  |   |  | $ | 4,518  |   |  | $ | 3,429 |  
|                                                                                                         | Average Interest Rate |                            |   | 4    | % |      |   | 4    | % |      |   | 4          | % |       |   | 4     | % |  |   | 4   | % |  |   | 5      | % |  |   | 5      | % |  |   |       |  
|Interest Rate Swaps                                                                                      |                       |                            |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |     |   |  |   |        |   |  |   |        |   |  |   |      
|                                                                                                         | Variable to Fixed(1)  |                            | $ |     |   |      | $ |     |   |      | $ |           |   |       | $ |      |   |  | $ | 570 |   |  | $ |       |   |  | $ | 570    |   |  | $ | (90   | )
|                                                                                                         | Average Pay Rate      |                            |   |     |   |      |   |     |   |      |   |           |   |       |   |      |   |  |   | 8   | % |  |   |       |   |  |   | 8      | % |  |   |       |  
|                                                                                                         | Average Receive Rate  |                            |   |     |   |      |   |     |   |      |   |           |   |       |   |      |   |  |   | 2   | % |  |   |       |   |  |   | 2      | % |  |   |       |  
|                                                                                                         | Variable to Variable  |                            | $ |     |   |      | $ | 400  |   |      | $ |           |   |       | $ |      |   |  | $ |    |   |  | $ |       |   |  | $ | 400    |   |  | $ | (10   | )
|                                                                                                         | Average Pay Rate      |                            |   |     |   |      |   | 5    | % |      |   |           |   |       |   |      |   |  |   |    |   |  |   |       |   |  |   | 5      | % |  |   |       |  
|                                                                                                         | Average Receive Rate  |                            |   |     |   |      |   | 2    | % |      |   |           |   |       |   |      |   |  |   |    |   |  |   |       |   |  |   | 2      | % |  |   |       |  
|                                                                                                         | Fixed to Variable     |                            | $ |     |   |      | $ |     |   |      | $ |           |   |       | $ |      |   |  | $ |    |   |  | $ | 500    |   |  | $ | 500    |   |  | $ | 41    |  
|                                                                                                         | Average Pay Rate      |                            |   |     |   |      |   |     |   |      |   |           |   |       |   |      |   |  |   |    |   |  |   | 5      | % |  |   | 5      | % |  |   |       |  
|                                                                                                         | Average Receive Rate  |                            |   |     |   |      |   |     |   |      |   |           |   |       |   |      |   |  |   |    |   |  |   | 10     | % |  |   | 10     | % |  |   |       |  



---



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

34



---



##### Table of Contents






PART II  OTHER INFORMATION.




Item 1.     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, are defendants in these cases. The
defendants have removed the cases to federal court, and the
plaintiffs have filed motions to remand back to state court in
some of the cases. Mr. Angelos firm has also
participated in the filing of an amended complaint in a similar
suit pending in federal court in Louisiana, in which we are also
named. These suits seek to require the defendants to provide
headsets, or reimburse the cost of headsets, for use with
wireless telephones, as well as attorneys fees and
punitive damages. The cases have been transferred to federal
court in Baltimore, Maryland by the judicial panel on
Multi-district Litigation and that court has denied
plaintiffs motion to remand the cases back to state court.
Motions to dismiss are pending. While we cannot predict the
outcome of this litigation, we believe that the claims against
us are without merit and intend to vigorously defend against
them. See Item 3 for a discussion of NII Holdings
voluntary filing under Chapter 11 of the U.S. Bankruptcy
Code.




Item 2.     Changes
in Securities and Use of Proceeds.

In the second quarter of 2002, we issued
61 million shares of our class A common stock to
existing security holders in connection with the exchange of
securities discussed under Part I, note 5,
Retirement of Debt and Mandatorily Redeemable Preferred
Stock. These shares were issued pursuant to the exemption
from registration requirements of the Securities Act of 1933
provided by Section 3(a)(9).




Item 3.     Defaults
Upon NII Holdings Senior Securities.

On May 24, 2002, NII Holdings announced
that it had reached an agreement in principle with its main
creditors and filed a voluntary case to restructure its
obligations under Chapter 11 of the U.S. Bankruptcy Code in
the State of Delaware. On August 8, 2002, NII Holdings
began soliciting its existing creditors for approval of a plan
of reorganization based on this agreement in principle. We
cannot assure you that the NII Holdings plan of
reorganization will be approved or that NII Holdings will
successfully complete the proposed restructuring.
NII Holdings currently has outstanding an aggregate of $2.7
billion of debt that it incurred to construct its network and
fund its operations, including $825 million in carrying
amount, or $857 million in aggregate principal amount, of
notes held by Nextel Communications. The obligations under this
debt are solely those of NII Holdings and its subsidiaries,
and Nextel Communications is not a party to any of the
obligations in respect of that debt. As a result of the
bankruptcy filing and payment defaults, NII Holdings
entire debt balance is in default. For additional information,
see Part 1, note 1, Basis of Presentation,
NII Holdings in our condensed consolidated financial
statements appearing in this quarterly report on Form 10-Q.




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

On May 30, 2002, we held our 2002 annual
meeting of stockholders in Reston, Virginia. Only holders of
record of our class A common stock and class A convertible
redeemable preferred stock on the record date of April 5,
2002 were entitled to vote at the annual meeting. The holder of
record of the class A preferred stock was entitled to the number
of votes into which its shares of class A preferred stock
were convertible on the record date. The holders of class A
common stock and the class A preferred stock were entitled
to vote as single class on all matters, except for the
election of directors. Only the holders of class A common
stock were entitled to vote on the election of Timothy M.
Donahue, Frank M. Drendel and William E. Kennard, while only the
holder of the class A preferred stock was entitled to vote
on the election of Dennis M. Weibling. As of the record
date, there were 778,373,917 shares of class A common stock
outstanding and 5,187,293 shares of class A preferred stock
outstanding, convertible into 31,123,758 shares of class A
common stock.

35



---



##### Table of Contents



The following matters were submitted for a vote
at our annual meeting:

Proposal
1To elect directors to hold office for a three-year term ending
on the date of our annual meeting of stockholders in 2005 or                       
until their respective successors have been duly elected and
qualified.

Set forth below is information regarding the
688,949,432 shares of class A common stock voted in the
election of the following three directors and regarding all of
the shares of class A preferred stock voted in the election
of the class A preferred stock director.

|                   |  |     |             |          |  |  |            | 
|------------------ |  | --- | ----------- | -------- |  |  | ---------- | 
|Name               |  | For |             | Withheld
|                   |  |     |             |         
|Timothy M. Donahue |  |     | 674,329,519 |          |  |  | 14,619,913 | 
|Frank M. Drendel   |  |     | 656,879,006 |          |  |  | 32,070,426 | 
|William E. Kennard |  |     | 677,516,983 |          |  |  | 11,432,449 | 

Class A preferred stock
director

|                   |  |     |            |          |  |  |   | 
|------------------ |  | --- | ---------- | -------- |  |  | - | 
|Name               |  | For |            | Withheld
|                   |  |     |            |         
|Dennis M. Weibling |  |     | 31,123,758 |          |  |  | 0 | 

The following are the names of each of our other
directors whose term of office continued after the meeting:

Directors Holding Office Until 2003: J. Timothy
Bryan, William E. Conway, Jr. and Morgan E. OBrien

Directors Holding Office Until 2004: Keith J.
Bane, V. Janet Hill and Craig O. McCaw



|           |                                                                                                                                                                                    
|---------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Proposal 2 | To ratify the appointment of
    Deloitte & Touche LLP as our independent auditors to
    audit our consolidated financial statements for fiscal year
    ending December 31, 2002.

Set forth below is information regarding the
720,073,190 aggregate common stock equivalents, representing
shares of class A common stock and class A preferred
stock, voted on this matter.

|      |  |     |             |         |  |                |            |            |  |  |   |  |  |  |           | 
|----- |  | --- | ----------- | ------- |  | -------------- | ---------- | ---------- |  |  | - |  |  |  | --------- | 
|      |  | For |             | Against |  | Broker Nonvote |            | Abstention
|      |  |     |             |         |  |                |            |           
|Total |  |     | 699,495,649 |         |  |                | 17,750,271 |            |  |  | 0 |  |  |  | 2,827,270 | 




Item 5.     Other
Information.

Regulatory Update.On June 6, 2002, the
California Public Utilities Commission proposed extensive
consumer protection and privacy regulations for all
telecommunications carriers. If adopted, the rules will
significantly alter our business practices in California with
respect to nearly every aspect of the carrier-customer
relationship, including solicitations, marketing, activations,
billing and customer care. If these regulations are adopted in
California as currently proposed, they would impose significant
additional costs on us as well as other wireless carriers.

On May 24, 2002, the FCC again postponed,
until January 14, 2003, the auction for spectrum in the
upper portion of the 700 MHz band. On July 26, 2002,
the FCC stated that this auction will be further rescheduled
with a new date to be set in the future. On June 26, 2002,
the FCC also postponed the auction for spectrum in the lower
portion of the 700 MHz band until August 27, 2002.

On June 25, 2002, we filed a request with
the FCC for an extension of time until November 15, 2002,
to meet mandates imposed by the Communications Assistance for
Law Enforcement Act. Numerous other wireless carriers have filed
similar requests.

On July 24, 2002, the FCC ruled that a
wireless carrier must obtain customer consent before the carrier
can use, access or disclose customer location information
obtained in connection with a customers use of wireless
services. On July 25, 2002, the FCC issued and clarified
its privacy rules governing carriers use and disclosure of
other forms of customer proprietary network information. The FCC
allowed wireless carriers and their affiliated entities
providing communications-related services to use customer
information after notifying customers and giving them an
opportunity to disapprove, or opt-out, of the given
use. Disclosure of

36



---



##### Table of Contents



customer information to unrelated third parties
or carrier affiliates that do not provide communications-related
services requires express consumer approval, or
opt-in consent.


On July 26, 2002, the FCC granted a one-year
delay of the mandatory implementation date for wireless number
portability requirements until November 24, 2003.

On May 6, 2002, we filed comments with the
FCC relating to the proposed 800 MHz spectrum realignment.
Over 150 parties also filed comments in this proceeding, which
seeks to resolve interference experienced by public safety
communications systems in the 800 MHz band. After comments
were filed, a coalition of private wireless industry
associations, public safety associations and Nextel initiated
discussions to attempt to present a Consensus Plan
to the FCC for its consideration. On August 7, 2002, a
Consensus Plan was filed by numerous parties which,
together with Nextel, represent over 80% of the 800 MHz
licensees impacted by the proposed realignment. Under the
Consensus Plan, we would exchange certain portions of our
spectrum with public safety operators in the lower portion of
the 800 MHz band and would vacate our other operations in
the lower half of the 800 MHz band. If a reorganization of
the 800 MHz band takes place as contemplated by the
Consensus Plan, we would occupy 16 MHz of contiguous
spectrum in the 800 MHz band between 861869 MHz
and would relinquish our 700 MHz guard band licenses and
eventually our 900 MHz spectrum. Because we would be giving
up spectrum at 700 MHz, 900 MHz, as well as
800 MHz, under the Consensus Plan, we would receive a
contiguous 10 MHz block of replacement spectrum adjacent to
personal communications services spectrum (19101915 MHz
and 19901995 MHz). If the Consensus Plan is adopted, we
would contribute up to $500 million over the next several
years towards the cost of public safety relocation. We would
also be required to fund our own relocation costs. There is no
assurance that the FCC will adopt the Consensus Plan or that the
plan, if adopted without additional enhancements, will mitigate
the 800 MHz public safety interference issue.




Item 6.     Exhibits
and Reports on Form 8-K.

(a) List of Exhibits.

|        |      |                     |  |                                                                             
|------- | ---- | ------------------- |  | ----------------------------------------------------------------------------
|Exhibit |      |                    
|Number  |      | Exhibit Description
|        |      |                    
|        | 10.1 |                     |  | Description of the Nextel Communications, Inc.
    Long-Term Incentive Plan.

(b) Reports on Form 8-K filed with the
Securities and Exchange Commission.



| |    |                                                                                                                                                                                                                                                                    
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Current report on Form 8-K dated and filed
    on April 17, 2002 reporting under Item 5 the
    successful testing of new voice coder software that is expected
    to nearly double our wireless voice capacity and certain
    preliminary financial information.
|
| | 2. | Current report on Form 8-K dated
    May 24, 2002 and filed on May 28, 2002 reporting under
    Item 5 the announcement by NII Holdings that it had reached
    an agreement in principle with its main creditors for a
    restructuring of its outstanding debt. 
|
| | 3. | Current report on Form 8-K dated and filed
    on June 11, 2002 reporting under Item 5 the
    announcement of certain preliminary financial and other
    information for the second quarter of 2002.                                                             

37



---



##### Table of Contents



SIGNATURE

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.



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



| |     |                      
| | --- | ---------------------
| | By: | /s/ WILLIAM G. ARENDT

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

Date: August 14, 2002


38



---



##### Table of Contents



EXHIBIT INDEX

|        |      |                     |  |                                                                             
|------- | ---- | ------------------- |  | ----------------------------------------------------------------------------
|Exhibit |      |                    
|Number  |      | Exhibit Description
|        |      |                    
|        | 10.1 |                     |  | Description of the Nextel Communications, Inc.
    Long-Term Incentive Plan.