##### Table of Contents









UNITED STATES





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
    September 30, 2004
|                                                     
|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 by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange
Act). Yes [X]     No [  ]

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

|                                                     |  |                              |               | 
|---------------------------------------------------- |  | ---------------------------- | ------------- | 
|                                                     |  | Number of Shares Outstanding
|Title of Class                                       |  | on October 29, 2004         
|                                                     |  |                             
|Class A Common Stock, $0.001 par value               |  |                              | 1,081,627,428 | 
|Class B Nonvoting Common Stock, $0.001 par
    value |  |                              | 29,660,000    | 



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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

INDEX

|        |  |                            |  |                                                                                                                                                  |  |      |    | 
|------- |  | -------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|        |  |                            |  |                                                                                                                                                  |  | Page
|        |  |                            |  |                                                                                                                                                  |  |     
|Part I  |  | Financial
    Information.
|        |  | Item 1.                    |  | Financial
    Statements  Unaudited.                                                                                                            |  |      |    | 
|        |  |                            |  | Condensed Consolidated
    Balance Sheets As of September 30, 2004 and
    December 31, 2003                                                     |  |      | 3  | 
|        |  |                            |  | Condensed Consolidated
    Statements of Operations and Comprehensive Income For the Nine
    and Three Months Ended September 30, 2004 and 2003 |  |      | 4  | 
|        |  |                            |  | Condensed Consolidated
    Statement of Changes in Stockholders Equity For the Nine
    Months Ended September 30, 2004                         |  |      | 5  | 
|        |  |                            |  | Condensed Consolidated
    Statements of Cash Flows For the Nine Months Ended
    September 30, 2004 and 2003                                    |  |      | 6  | 
|        |  |                            |  | Notes to Condensed
    Consolidated Financial Statements                                                                                         |  |      | 7  | 
|        |  |                            |  | Report of Independent
    Registered Public Accounting Firm                                                                                      |  |      | 18 | 
|        |  | Item 2.                    |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                                                        |  |      | 19 | 
|        |  | Item 3.                    |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                                                   |  |      | 45 | 
|        |  | Item 4.                    |  | Controls and Procedures                                                                                                                          |  |      | 45 | 
|Part II |  | Other
    Information.    
|        |  | Item 1.                    |  | Legal Proceedings                                                                                                                                |  |      | 47 | 
|        |  | Item 2.                    |  | Unregistered Sales of Equity
    Securities and Use of Proceeds                                                                                  |  |      | 47 | 
|        |  | Item 6.                    |  | Exhibits                                                                                                                                         |  |      | 47 | 
|EX-10.1
|EX-10.2
|EX-10.3
|EX-10.4
|EX-15  
|EX-31  
|EX-32  





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##### Table of Contents






PART I  FINANCIAL INFORMATION.




Item 1.     Financial
Statements  Unaudited.

NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES



Condensed Consolidated Balance
Sheets


As of September 30, 2004 and
December 31, 2003


(in millions)


Unaudited


|                                                                                                              |                                                                                                  |                            |                           |        |       |        |        |        |       |        | 
|------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | -------------------------- | ------------------------- | ------ | ----- | ------ | ------ | ------ | ----- | ------ | 
|                                                                                                              |                                                                                                  | 2004                       |                           | 2003  
|                                                                                                              |                                                                                                  |                            |                           |       
|ASSETS                                                                                                       
|Current assets                                                                                                |                                                                                                  |                            |                           |        |       |        |        |       
|                                                                                                              | Cash and cash equivalents                                                                        |                            | $                         | 988    |       |        | $      | 806    |      
|                                                                                                              | Short-term investments                                                                           |                            |                           | 703    |       |        |        | 1,165  |      
|                                                                                                              | Accounts and notes receivable, less allowance for
    doubtful accounts of $71 and $86           |                            |                           | 1,410  |       |        |        | 1,276  |      
|                                                                                                              | Due from related parties                                                                         |                            |                           | 306    |       |        |        | 70     |      
|                                                                                                              | Handset and accessory inventory                                                                  |                            |                           | 483    |       |        |        | 223    |      
|                                                                                                              | Prepaid expenses                                                                                 |                            |                           | 240    |       |        |        | 119    |      
|                                                                                                              | Other current assets                                                                             |                            |                           | 302    |       |        |        | 29     |      
|                                                                                                              |                                                                                                  |                            |                           |        |       |        |        |       
|                                                                                                              |                                                                                                  |                            | Total current assets      |        |       | 4,432  |        |        |       | 3,688  | 
|Investments                                                                                                   |                                                                                                  |                            | 306                       |        |       |        | 408    |       
|Property, plant and equipment,net of accumulated depreciation of
    $6,897 and $5,562                        |                                                                                                  |                            | 9,526                     |        |       |        | 9,093  |       
|Intangible assets,net of accumulated amortization of $61
    and $92.                                         |                                                                                                  |                            | 7,216                     |        |       |        | 7,038  |       
|Other assets                                                                                                  |                                                                                                  |                            | 331                       |        |       |        | 283    |       
|                                                                                                              |                                                                                                  |                            |                           |        |       |        |        |       
|                                                                                                              |                                                                                                  | $                          | 21,811                    |        |       | $      | 20,510 |       
|                                                                                                              |                                                                                                  |                            |                           |        |       |        |        |       
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                     
|Current liabilities                                                                                           |                                                                                                  |                            |                           |        |       |        |        |       
|                                                                                                              | Accounts payable                                                                                 |                            | $                         | 842    |       |        | $      | 663    |      
|                                                                                                              | Accrued expenses and other                                                                       |                            |                           | 1,272  |       |        |        | 1,382  |      
|                                                                                                              | Due to related parties                                                                           |                            |                           | 701    |       |        |        | 285    |      
|                                                                                                              | Current portion of long-term debt and capital
    lease obligation                               |                            |                           | 24     |       |        |        | 487    |      
|                                                                                                              |                                                                                                  |                            |                           |        |       |        |        |       
|                                                                                                              |                                                                                                  |                            | Total current liabilities |        |       | 2,839  |        |        |       | 2,817  | 
|Long-term debt                                                                                                |                                                                                                  |                            | 9,102                     |        |       |        | 9,725  |       
|Deferred income taxes (note 4)                                                                                |                                                                                                  |                            | 735                       |        |       |        | 1,867  |       
|Other liabilities                                                                                             |                                                                                                  |                            | 222                       |        |       |        | 166    |       
|                                                                                                              |                                                                                                  |                            |                           |        |       |        |        |       
|                                                                                                              |                                                                                                  |                            | Total liabilities         |        |       | 12,898 |        |        |       | 14,575 | 
|                                                                                                              |                                                                                                  |                            |                           |        |       |        |        |       
|Commitments and contingencies (note
    7)                                                                    |                                                                                                  |                            |                           |        |       |        |        |       
|Zero coupon mandatorily redeemable preferred
    stock,convertible, 245,245 shares
    issued and outstanding |                                                                                                  |                            | 105                       |        |       |        | 99     |       
|Stockholders equity                                                                                          |                                                                                                  |                            |                           |        |       |        |        |       
|                                                                                                              | Common stock, class A, 1,080 and 1,068 shares
    issued and outstanding                         |                            |                           | 1      |       |        |        | 1      |      
|                                                                                                              | Common stock, class B, nonvoting convertible, 36
    shares issued; 30 and 36 shares outstanding |                            |                           |       |       |        |        |       |      
|                                                                                                              | Paid-in capital                                                                                  |                            |                           | 12,477 |       |        |        | 11,942 |      
|                                                                                                              | Accumulated deficit                                                                              |                            |                           | (3,773 | )     |        |        | (6,256 | )    
|                                                                                                              | Treasury stock, at cost                                                                          |                            |                           | (141   | )     |        |        |       |      
|                                                                                                              | Deferred compensation, net                                                                       |                            |                           | (34    | )     |        |        | (16    | )    
|                                                                                                              | Accumulated other comprehensive income                                                           |                            |                           | 278    |       |        |        | 165    |      
|                                                                                                              |                                                                                                  |                            |                           |        |       |        |        |       
|                                                                                                              |                                                                                                  | Total stockholders equity |                           |        | 8,808 |        |        |        | 5,836 |       
|                                                                                                              |                                                                                                  |                            |                           |        |       |        |        |       
|                                                                                                              |                                                                                                  | $                          | 21,811                    |        |       | $      | 20,510 |       
|                                                                                                              |                                                                                                  |                            |                           |        |       |        |        |       

The accompanying notes, including note 5
 Related Party Transactions, are an

integral part of these condensed consolidated
financial statements.


3



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES



Condensed Consolidated Statements of
Operations and Comprehensive Income


For the Nine and Three Months Ended
September 30, 2004 and 2003


(in millions, except per share
amounts)


Unaudited


|                                                         |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |       |    | 
|-------------------------------------------------------- | ------------------------------------------------------------------ | -------------------------------------------------------------------- | ----- | ------------- | --- | ---- | ----- | ----- | -- | - | ----- | ----- | -- | - | ----- | ----- | -- | 
|                                                         |                                                                    |                                                                      |       |              
|                                                         |                                                                    | Nine Months                                                          |       | Three Months 
|                                                         |                                                                    | Ended                                                                |       | Ended        
|                                                         |                                                                    | September 30,                                                        |       | September 30,
|                                                         |                                                                    |                                                                      |       |              
|                                                         |                                                                    | 2004                                                                 |       | 2003          |     | 2004 |       | 2003 
|                                                         |                                                                    |                                                                      |       |               |     |      |       |      
|Operating revenues                                       |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|                                                         | Service revenues                                                   |                                                                      | $     | 8,768         |     |      | $     | 7,194 |    |   | $     | 3,053 |    |   | $     | 2,599 |   
|                                                         | Handset and accessory revenues                                     |                                                                      |       | 1,022         |     |      |       | 620   |    |   |       | 345   |    |   |       | 288   |   
|                                                         |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|                                                         |                                                                    |                                                                      | 9,790 |               |     |      | 7,814 |       |    |   | 3,398 |       |    |   | 2,887 |      
|                                                         |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|Operating expenses                                       |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|                                                         | Cost of service (exclusive of depreciation
    included below)     |                                                                      |       | 1,407         |     |      |       | 1,218 |    |   |       | 512   |    |   |       | 441   |   
|                                                         | Cost of handset and accessory revenues                             |                                                                      |       | 1,489         |     |      |       | 1,040 |    |   |       | 504   |    |   |       | 415   |   
|                                                         | Selling, general and administrative                                |                                                                      |       | 3,108         |     |      |       | 2,517 |    |   |       | 1,059 |    |   |       | 902   |   
|                                                         | Depreciation                                                       |                                                                      |       | 1,337         |     |      |       | 1,223 |    |   |       | 463   |    |   |       | 416   |   
|                                                         | Amortization                                                       |                                                                      |       | 29            |     |      |       | 41    |    |   |       | 7     |    |   |       | 13    |   
|                                                         |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|                                                         |                                                                    |                                                                      | 7,370 |               |     |      | 6,039 |       |    |   | 2,545 |       |    |   | 2,187 |      
|                                                         |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|Operating income                                         |                                                                    |                                                                      | 2,420 |               |     |      | 1,775 |       |    |   | 853   |       |    |   | 700   |      
|                                                         |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|Other income (expense)                                   |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|                                                         | Interest expense                                                   |                                                                      |       | (455          | )   |      |       | (664  | )  |   |       | (146  | )  |   |       | (220  | ) 
|                                                         | Interest income                                                    |                                                                      |       | 21            |     |      |       | 32    |    |   |       | 6     |    |   |       | 10    |   
|                                                         | Loss on retirement of debt                                         |                                                                      |       | (85           | )   |      |       | (139  | )  |   |       | (34   | )  |   |       | (132  | ) 
|                                                         | Equity in earnings (losses) of
    unconsolidated affiliates, net  |                                                                      |       | 4             |     |      |       | (39   | )  |   |       | 6     |    |   |       | 9     |   
|                                                         | Realized gain on sale of investments                               |                                                                      |       | 26            |     |      |       |      |    |   |       |      |    |   |       |      |   
|                                                         | Other, net                                                         |                                                                      |       | 4             |     |      |       | 2     |    |   |       | 1     |    |   |       | 2     |   
|                                                         |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|                                                         |                                                                    |                                                                      | (485  | )             |     |      | (808  | )     |    |   | (167  | )     |    |   | (331  | )    
|                                                         |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|Income before income tax benefit
    (provision)         |                                                                    |                                                                      | 1,935 |               |     |      | 967   |       |    |   | 686   |       |    |   | 369   |      
|Income tax benefit (provision)
    (note 4)              |                                                                    |                                                                      | 548   |               |     |      | (70   | )     |    |   | (98   | )     |    |   | (21   | )    
|                                                         |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|Net income                                               |                                                                    |                                                                      | 2,483 |               |     |      | 897   |       |    |   | 588   |       |    |   | 348   |      
|                                                         | Loss on retirement of mandatorily redeemable
    preferred stock   |                                                                      |       |              |     |      |       | (7    | )  |   |       |      |    |   |       |      |   
|                                                         | Mandatorily redeemable preferred stock dividends
    and accretion |                                                                      |       | (6            | )   |      |       | (55   | )  |   |       | (2    | )  |   |       | (2    | ) 
|                                                         |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|Income available to common
    stockholders              |                                                                    | $                                                                    | 2,477 |               |     | $    | 835   |       |    | $ | 586   |       |    | $ | 346   |      
|                                                         |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|Earnings per common share                                |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|                                                         | Basic                                                              |                                                                      | $     | 2.23          |     |      | $     | 0.81  |    |   | $     | 0.53  |    |   | $     | 0.33  |   
|                                                         |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|                                                         | Diluted                                                            |                                                                      | $     | 2.16          |     |      | $     | 0.79  |    |   | $     | 0.52  |    |   | $     | 0.32  |   
|                                                         |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|Weighted average number of common shares
    outstanding |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|                                                         | Basic                                                              |                                                                      |       | 1,110         |     |      |       | 1,030 |    |   |       | 1,114 |    |   |       | 1,050 |   
|                                                         |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|                                                         | Diluted                                                            |                                                                      |       | 1,158         |     |      |       | 1,060 |    |   |       | 1,136 |    |   |       | 1,091 |   
|                                                         |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|Comprehensive income, net of income
    tax              |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|                                                         | Unrealized gains on available-for-sale securities:                 |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |       |   
|                                                         |                                                                    | Net unrealized holding gains arising during the
    period           |       | $             | 123 |      |       | $     | 7  |   |       | $     | 56 |   |       | $     | 3  | 
|                                                         |                                                                    | Reclassification adjustment for gain included in
    net income      |       |               | (12 | )    |       |       |   |   |       |       |   |   |       |       |   | 
|                                                         | Foreign currency translation adjustment                            |                                                                      |       | 2             |     |      |       | (5    | )  |   |       |      |    |   |       | (2    | ) 
|                                                         | Cash flow hedge:                                                   |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |       |   
|                                                         |                                                                    | Reclassification of transition adjustment
    included in net income |       |               |    |      |       |       | 4  |   |       |       |   |   |       |       | 1  | 
|                                                         |                                                                    | Unrealized gain on cash flow hedge                                   |       |               |    |      |       |       | 23 |   |       |       |   |   |       |       | 12 | 
|                                                         |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|                                                         | Other comprehensive income                                         |                                                                      |       | 113           |     |      |       | 29    |    |   |       | 56    |    |   |       | 14    |   
|                                                         | Net income                                                         |                                                                      |       | 2,483         |     |      |       | 897   |    |   |       | 588   |    |   |       | 348   |   
|                                                         |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      
|Comprehensive income, net of income
    tax              |                                                                    | $                                                                    | 2,596 |               |     | $    | 926   |       |    | $ | 644   |       |    | $ | 362   |      
|                                                         |                                                                    |                                                                      |       |               |     |      |       |       |    |   |       |       |    |   |       |      

The accompanying notes, including note 5
 Related Party Transactions, are an

integral part of these condensed consolidated
financial statements.


4



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




Condensed Consolidated Statement of Changes in
Stockholders Equity

For the Nine Months Ended September 30,
2004


(in millions)


Unaudited


|                            |                                                                           |              |       |              |  |         |   |             |  |                |    |          |   |            |   |                      |  |              |        |                   |   |            |        |       |  |  |   |   |  |   |      |      |   |   |     |     |   |   |     |     |  |   |    |   |  |   |       |       |  
|--------------------------- | ------------------------------------------------------------------------- | ------------ | ----- | ------------ |  | ------- | - | ----------- |  | -------------- | -- | -------- | - | ---------- | - | -------------------- |  | ------------ | ------ | ----------------- | - | ---------- | ------ | ----- |  |  | - | - |  | - | ---- | ---- | - | - | --- | --- | - | - | --- | --- |  | - | -- | - |  | - | ----- | ----- | -
|                            |                                                                           |              |       |              |  |         |   |             |  |                |    |          |   |            |   |                      |  |              |        |                   |   |           
|                            |                                                                           |              |       |              |  |         |   |             |  |                |    |          |   |            |   |                      |  |              |        | Accumulated Other |   |           
|                            |                                                                           |              |       |              |  |         |   |             |  |                |    |          |   |            |   | Comprehensive Income |  |             
|                            |                                                                           | Class A      |       | Class B      |  |         |   |             |  |                |    |          |   |            |   |                     
|                            |                                                                           | Common Stock |       | Common Stock |  |         |   |             |  | Treasury Stock |    |          |   | Unrealized |   | Cumulative           |  |             
|                            |                                                                           |              |       |              |  | Paid-in |   | Accumulated |  |                |    | Deferred |   | Gain on    |   | Translation          |  |             
|                            |                                                                           | Shares       |       | Amount       |  | Shares  |   | Amount      |  | Capital        |    | Deficit  |   | Shares     |   | Amount               |  | Compensation |        | Investments       |   | Adjustment |        | Total
|                            |                                                                           |              |       |              |  |         |   |             |  |                |    |          |   |            |   |                      |  |              |        |                   |   |            |        |      
|Balance, January 1, 2004    |                                                                           |              | 1,068 |              |  | $       | 1 |             |  |                | 36 |          |   | $          |  |                      |  | $            | 11,942 |                   |   | $          | (6,256 | )     |  |  |  |   |  | $ |     |      |   | $ | (16 | )   |   | $ | 170 |     |  | $ | (5 | ) |  | $ | 5,836 |      
|                            | Net income                                                                |              |       |              |  |         |   |             |  |                |    |          |   |            |   |                      |  |              |        |                   |   |            |        | 2,483 |  |  |   |   |  |   |      |      |   |   |     |     |   |   |     |     |  |   |    |   |  |   |       | 2,483 |  
|                            | Other comprehensive income                                                |              |       |              |  |         |   |             |  |                |    |          |   |            |   |                      |  |              |        |                   |   |            |        |       |  |  |   |   |  |   |      |      |   |   |     |     |   |   |     | 111 |  |   |    | 2 |  |   |       | 113   |  
|                            | Common stock issued under equity plans and other                          |              |       | 12           |  |         |   |            |  |                |    |          |   |            |   |                      |  |              |        | 156               |   |            |        |       |  |  |   |   |  |   |      |      |   |   |     |     |   |   |     |     |  |   |    |   |  |   |       | 156   |  
|                            | Deferred compensation                                                     |              |       |              |  |         |   |             |  |                |    |          |   |            |   |                      |  |              |        | 29                |   |            |        |       |  |  |   |   |  |   |      |      |   |   |     | (18 | ) |   |     |     |  |   |    |   |  |   |       | 11    |  
|                            | Purchase of treasury stock (note 1)                                       |              |       |              |  |         |   |             |  |                |    | (6       | ) |            |   |                      |  |              |        |                   |   |            |        |       |  |  |   | 6 |  |   |      | (141 | ) |   |     |     |   |   |     |     |  |   |    |   |  |   |       | (141  | )
|                            | Release of valuation allowance attributable to
    stock options (note 4) |              |       |              |  |         |   |             |  |                |    |          |   |            |   |                      |  |              |        | 401               |   |            |        |       |  |  |   |   |  |   |      |      |   |   |     |     |   |   |     |     |  |   |    |   |  |   |       | 401   |  
|                            | Adjustment to equity method investment, net of
    deferred income tax    |              |       |              |  |         |   |             |  |                |    |          |   |            |   |                      |  |              |        | (45               | ) |            |        |       |  |  |   |   |  |   |      |      |   |   |     |     |   |   |     |     |  |   |    |   |  |   |       | (45   | )
|                            | Accretion on zero coupon mandatorily redeemable
    preferred stock       |              |       |              |  |         |   |             |  |                |    |          |   |            |   |                      |  |              |        | (6                | ) |            |        |       |  |  |   |   |  |   |      |      |   |   |     |     |   |   |     |     |  |   |    |   |  |   |       | (6    | )
|                            |                                                                           |              |       |              |  |         |   |             |  |                |    |          |   |            |   |                      |  |              |        |                   |   |            |        |       |  |  |   |   |  |   |      |      |   |   |     |     |   |   |     |     |  |   |    |   |  |   |       |      
|Balance, September 30, 2004 |                                                                           |              | 1,080 |              |  | $       | 1 |             |  |                | 30 |          |   | $          |  |                      |  | $            | 12,477 |                   |   | $          | (3,773 | )     |  |  | 6 |   |  | $ | (141 | )    |   | $ | (34 | )   |   | $ | 281 |     |  | $ | (3 | ) |  | $ | 8,808 |      
|                            |                                                                           |              |       |              |  |         |   |             |  |                |    |          |   |            |   |                      |  |              |        |                   |   |            |        |       |  |  |   |   |  |   |      |      |   |   |     |     |   |   |     |     |  |   |    |   |  |   |       |      

The accompanying notes, including note 5
 Related Party Transactions, are an

integral part of these condensed consolidated
financial statements.


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##### Table of Contents






NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

Condensed Consolidated Statements of Cash
Flows

For the Nine Months Ended September 30,
2004 and 2003


(in millions)


Unaudited


|                                                   |                                                                                           |                                                                         |                                              |                                           |       |      |        |        |       |      |        |  
|-------------------------------------------------- | ----------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------- | ----- | ---- | ------ | ------ | ----- | ---- | ------ | -
|                                                   |                                                                                           | 2004                                                                    |                                              | 2003                                     
|                                                   |                                                                                           |                                                                         |                                              |                                          
|Cash flows from operating activities               |                                                                                           |                                                                         |                                              |                                           |       |      |        |       
|                                                   | Net income                                                                                |                                                                         | $                                            | 2,483                                     |       |      | $      | 897    |      
|                                                   | Adjustments to reconcile net income to net cash
    provided by operating activities      |                                                                         |                                              |                                           |       |      |        |        |      
|                                                   |                                                                                           | Amortization of debt financing costs and
    accretion of senior notes  |                                              |                                           | 18    |      |        |        | 39    |     
|                                                   |                                                                                           | Provision for losses on accounts receivable                             |                                              |                                           | 98    |      |        |        | 101   |     
|                                                   |                                                                                           | Amortization of deferred gain from sale of towers                       |                                              |                                           | (75   | )    |        |        | (79   | )   
|                                                   |                                                                                           | Depreciation and amortization                                           |                                              |                                           | 1,366 |      |        |        | 1,264 |     
|                                                   |                                                                                           | Loss on retirement of debt                                              |                                              |                                           | 85    |      |        |        | 139   |     
|                                                   |                                                                                           | Equity in (earnings) losses of
    unconsolidated affiliates, net       |                                              |                                           | (4    | )    |        |        | 39    |     
|                                                   |                                                                                           | Realized gain on sale of investments                                    |                                              |                                           | (26   | )    |        |        |      |     
|                                                   |                                                                                           | Net tax benefit from the release of valuation
    allowance             |                                              |                                           | (901  | )    |        |        |      |     
|                                                   |                                                                                           | Income tax provision                                                    |                                              |                                           | 279   |      |        |        | 39    |     
|                                                   |                                                                                           | Other, net                                                              |                                              |                                           | 37    |      |        |        | 41    |     
|                                                   |                                                                                           | Change in assets and liabilities, net of effects
    from acquisitions: |                                              |                                           |       |      |        |        |       |     
|                                                   |                                                                                           |                                                                         | Accounts and notes receivable                |                                           |       | (249 | )      |        |       | (271 | )     
|                                                   |                                                                                           |                                                                         | Handset and accessory inventory              |                                           |       | (270 | )      |        |       | 30   |       
|                                                   |                                                                                           |                                                                         | Prepaid expenses and other assets            |                                           |       | (349 | )      |        |       | (75  | )     
|                                                   |                                                                                           |                                                                         | Accounts payable, accrued expenses and other |                                           |       | 499  |        |        |       | 230  |       
|                                                   |                                                                                           |                                                                         |                                              |                                           |       |      |        |       
|                                                   |                                                                                           |                                                                         |                                              | Net cash provided by operating activities |       |      | 2,991  |        |       |      | 2,394  |  
|                                                   |                                                                                           |                                                                         |                                              |                                           |       |      |        |       
|Cash flows from investing activities               |                                                                                           |                                                                         |                                              |                                           |       |      |        |       
|                                                   | Capital expenditures                                                                      |                                                                         |                                              | (1,845                                    | )     |      |        | (1,158 | )    
|                                                   | Proceeds from maturities and sales of short-term
    investments                          |                                                                         |                                              | 2,094                                     |       |      |        | 1,840  |      
|                                                   | Purchases of short-term investments                                                       |                                                                         |                                              | (1,633                                    | )     |      |        | (2,019 | )    
|                                                   | Payments for purchases of licenses, investments
    and other                             |                                                                         |                                              | (341                                      | )     |      |        | (263   | )    
|                                                   | Proceeds from sale of investments and other                                               |                                                                         |                                              | 77                                        |       |      |        |       |      
|                                                   |                                                                                           |                                                                         |                                              |                                           |       |      |        |       
|                                                   |                                                                                           |                                                                         |                                              | Net cash used in investing activities     |       |      | (1,648 | )      |       |      | (1,600 | )
|                                                   |                                                                                           |                                                                         |                                              |                                           |       |      |        |       
|Cash flows from financing activities               |                                                                                           |                                                                         |                                              |                                           |       |      |        |       
|                                                   | Repayments under bank credit facility                                                     |                                                                         |                                              | (1,620                                    | )     |      |        | (148   | )    
|                                                   | Borrowings under bank credit facility                                                     |                                                                         |                                              | 1,000                                     |       |      |        | 69     |      
|                                                   | Purchase and retirement of debt securities and
    mandatorily redeemable preferred stock |                                                                         |                                              | (827                                      | )     |      |        | (2,466 | )    
|                                                   | Proceeds from issuance of debt securities                                                 |                                                                         |                                              | 494                                       |       |      |        | 1,983  |      
|                                                   | Proceeds from issuance of stock                                                           |                                                                         |                                              | 129                                       |       |      |        | 605    |      
|                                                   | Payment for capital lease buy-out                                                         |                                                                         |                                              | (156                                      | )     |      |        | (54    | )    
|                                                   | Repayments under capital lease obligation                                                 |                                                                         |                                              | (9                                        | )     |      |        | (34    | )    
|                                                   | Purchase of treasury stock                                                                |                                                                         |                                              | (141                                      | )     |      |        |       |      
|                                                   | Mandatorily redeemable preferred stock dividends
    paid                                 |                                                                         |                                              |                                          |       |      |        | (57    | )    
|                                                   | Debt financing costs and other                                                            |                                                                         |                                              | (31                                       | )     |      |        | (3     | )    
|                                                   |                                                                                           |                                                                         |                                              |                                           |       |      |        |       
|                                                   |                                                                                           |                                                                         |                                              | Net cash used in financing activities     |       |      | (1,161 | )      |       |      | (105   | )
|                                                   |                                                                                           |                                                                         |                                              |                                           |       |      |        |       
|Net increase in cash and cash
    equivalents      |                                                                                           |                                                                         | 182                                          |                                           |       |      | 689    |       
|Cash and cash equivalents, beginning of
    period |                                                                                           |                                                                         | 806                                          |                                           |       |      | 1,846  |       
|                                                   |                                                                                           |                                                                         |                                              |                                           |       |      |        |       
|Cash and cash equivalents, end of
    period       |                                                                                           | $                                                                       | 988                                          |                                           |       | $    | 2,535  |       
|                                                   |                                                                                           |                                                                         |                                              |                                           |       |      |        |       

The accompanying notes, including note 5
 Related Party Transactions, are an

integral part of these condensed consolidated
financial statements.


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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 in accordance with the rules and
regulations of the Securities and Exchange Commission, or SEC,
and reflect all adjustments that are necessary for a fair
presentation of the results for interim periods. All adjustments
made were of a normal recurring nature, except as described in
the notes below. 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, 2003 and our
subsequent quarterly reports on Form 10-Q.

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

|                                                                   |                                                                 |                                                                          |       |                    |    |      |       |      |    |   |       |      |    |   |       |      |    | 
|------------------------------------------------------------------ | --------------------------------------------------------------- | ------------------------------------------------------------------------ | ----- | ------------------ | -- | ---- | ----- | ---- | -- | - | ----- | ---- | -- | - | ----- | ---- | -- | 
|                                                                   |                                                                 |                                                                          |       |                   
|                                                                   |                                                                 | Nine Months Ended                                                        |       | Three Months Ended
|                                                                   |                                                                 | September 30,                                                            |       | September 30,     
|                                                                   |                                                                 |                                                                          |       |                   
|                                                                   |                                                                 | 2004                                                                     |       | 2003               |    | 2004 |       | 2003
|                                                                   |                                                                 |                                                                          |       |                    |    |      |       |     
|                                                                   |                                                                 |                                                                         
|                                                                   |                                                                 | (in millions, except per share amounts)                                 
|Income available to common
    stockholders  basic                |                                                                 | $                                                                        | 2,477 |                    |    | $    | 835   |      |    | $ | 586   |      |    | $ | 346   |     
|                                                                   | Interest expense eliminated upon the assumed
    conversion of: |                                                                          |       |                    |    |      |       |      |    |   |       |      |    |   |       |      |   
|                                                                   |                                                                 | 6% convertible senior notes due 2011.                                    |       |                    | 17 |      |       |      |   |   |       |      |   |   |       |      |   | 
|                                                                   |                                                                 | Zero coupon convertible preferred stock
    mandatorily redeemable 2013. |       |                    | 7  |      |       |      |   |   |       |      | 2  |   |       |      |   | 
|                                                                   |                                                                 | 4.75% convertible senior notes due 2007.                                 |       |                    |   |      |       |      |   |   |       |      |   |   |       |      | 4  | 
|                                                                   |                                                                 |                                                                          |       |                    |    |      |       |      |    |   |       |      |    |   |       |     
|Income available to common
    stockholders  diluted              |                                                                 | $                                                                        | 2,501 |                    |    | $    | 835   |      |    | $ | 588   |      |    | $ | 350   |     
|                                                                   |                                                                 |                                                                          |       |                    |    |      |       |      |    |   |       |      |    |   |       |     
|Weighted average number of common shares
    outstanding  basic   |                                                                 |                                                                          | 1,110 |                    |    |      | 1,030 |      |    |   | 1,114 |      |    |   | 1,050 |     
|                                                                   | Effect of dilutive securities:                                  |                                                                          |       |                    |    |      |       |      |    |   |       |      |    |   |       |      |   
|                                                                   |                                                                 | Equity plans                                                             |       |                    | 28 |      |       |      | 24 |   |       |      | 17 |   |       |      | 29 | 
|                                                                   |                                                                 | 6% convertible senior notes due 2011.                                    |       |                    | 15 |      |       |      |   |   |       |      |   |   |       |      |   | 
|                                                                   |                                                                 | Zero coupon convertible preferred stock
    mandatorily redeemable 2013. |       |                    | 5  |      |       |      |   |   |       |      | 5  |   |       |      |   | 
|                                                                   |                                                                 | Class A convertible preferred stock                                      |       |                    |   |      |       |      | 6  |   |       |      |   |   |       |      |   | 
|                                                                   |                                                                 | 4.75% convertible senior notes due 2007.                                 |       |                    |   |      |       |      |   |   |       |      |   |   |       |      | 12 | 
|                                                                   |                                                                 |                                                                          |       |                    |    |      |       |      |    |   |       |      |    |   |       |     
|Weighted average number of common shares
    outstanding  diluted |                                                                 |                                                                          | 1,158 |                    |    |      | 1,060 |      |    |   | 1,136 |      |    |   | 1,091 |     
|                                                                   |                                                                 |                                                                          |       |                    |    |      |       |      |    |   |       |      |    |   |       |     
|Earnings per common share                                          |                                                                 |                                                                          |       |                    |    |      |       |      |    |   |       |      |    |   |       |     
|                                                                   | Basic                                                           |                                                                          | $     | 2.23               |    |      | $     | 0.81 |    |   | $     | 0.53 |    |   | $     | 0.33 |   
|                                                                   |                                                                 |                                                                          |       |                    |    |      |       |      |    |   |       |      |    |   |       |     
|                                                                   | Diluted                                                         |                                                                          | $     | 2.16               |    |      | $     | 0.79 |    |   | $     | 0.52 |    |   | $     | 0.32 |   
|                                                                   |                                                                 |                                                                          |       |                    |    |      |       |      |    |   |       |      |    |   |       |     

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

About 8 million shares issuable upon the
assumed conversion of our convertible senior notes could
potentially dilute earnings per share in the future but were
excluded from the calculation of diluted earnings per common
share for the nine and three months ended September 30,
2004 due to their antidilutive effects. Additionally, about
69 million and 80 million shares issuable under our
equity plans that could also potentially dilute earnings per
share in the future were excluded from the calculation of
diluted earnings per common share for the nine and three months
ended September 30, 2004 as the exercise prices exceeded
the average market price of our class A common stock during
those periods.

About 50 million and 38 million shares
issuable upon the assumed conversion of our convertible senior
notes and zero coupon convertible preferred stock could have
potentially diluted earnings per share in the future but were
excluded from the calculation of diluted earnings per common
share for the nine and three months ended September 30,
2003 due to their antidilutive effects. Additionally, about
70 million and 65 million shares issuable under our
equity plans that could also have potentially diluted earnings
per share in the future were excluded from the calculation of
diluted earnings per common share for the nine and three months
ended September 30, 2003 as the exercise prices exceeded
the average market price of our class A common stock during
those periods.

Treasury Stock.During the third quarter 2004, we
purchased from Motorola, Inc. 6 million shares of our
class B common stock for $141 million in cash. We
account for treasury stock under the cost method. We anticipate
converting these shares into shares of our class A common
stock pursuant to the terms of our certificate of incorporation
and using them for stock issuances under our equity plans.

Stock-Based Compensation.We account for stock-based
compensation for employees and non-employee members of our board
of directors in accordance with Accounting Principles Board, or
APB, Opinion No. 25, Accounting for Stock Issued to
Employees. Under APB Opinion No. 25, compensation
expense is based on the intrinsic value on the measurement date,
calculated as the difference between the fair value of the class
A common stock and the relevant exercise price. We account for
stock-based compensation for non-employees, who are not members
of our board of directors, at fair value using a Black-Scholes
option-pricing model in accordance with the provisions of
Statement of Financial Accounting Standards, or SFAS,
No. 123, Accounting for Stock-Based
Compensation and other applicable accounting principles.
We recorded stock-based compensation expense of $11 million
and $7 million for the nine months ended September 30,
2004 and 2003, and $6 million and $3 million for the
three months ended September 30, 2004 and 2003.

We comply with the disclosure provisions of SFAS
No. 123 and SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and
Disclosure. Consistent with the provisions of SFAS
No. 123, had

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

compensation costs been determined based on the
fair value of the awards granted since 1995, our income
available to common stockholders and earnings per common share
would have been as follows:

|                                                         |                                                                                                  |                                         |       |                    |      |      |     |      |      |   |     |     |      |   |     |     |      | 
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | --------------------------------------- | ----- | ------------------ | ---- | ---- | --- | ---- | ---- | - | --- | --- | ---- | - | --- | --- | ---- | 
|                                                         |                                                                                                  |                                         |       |                   
|                                                         |                                                                                                  | Nine Months Ended                       |       | Three Months Ended
|                                                         |                                                                                                  | September 30,                           |       | September 30,     
|                                                         |                                                                                                  |                                         |       |                   
|                                                         |                                                                                                  | 2004                                    |       | 2003               |      | 2004 |     | 2003
|                                                         |                                                                                                  |                                         |       |                    |      |      |     |     
|                                                         |                                                                                                  |                                        
|                                                         |                                                                                                  | (in millions, except per share amounts)
|Income available to common stockholders, as
    reported |                                                                                                  | $                                       | 2,477 |                    |      | $    | 835 |      |      | $ | 586 |     |      | $ | 346 |    
|                                                         | Stock-based compensation expense included in
    reported net income, net of income tax          |                                         |       | 9                  |      |      |     | 7    |      |   |     | 4   |      |   |     | 3   |     
|                                                         | Stock-based compensation expense determined under
    fair value based method, net of income tax |                                         |       | (161               | )    |      |     | (247 | )    |   |     | (43 | )    |   |     | (84 | )   
|                                                         |                                                                                                  |                                         |       |                    |      |      |     |      |      |   |     |     |      |   |     |    
|Income available to common stockholders, pro
    forma   |                                                                                                  | $                                       | 2,325 |                    |      | $    | 595 |      |      | $ | 547 |     |      | $ | 265 |    
|                                                         |                                                                                                  |                                         |       |                    |      |      |     |      |      |   |     |     |      |   |     |    
|Earnings per common share                                |                                                                                                  |                                         |       |                    |      |      |     |      |      |   |     |     |      |   |     |    
|                                                         | As reported                                                                                      |                                         |       |                    |      |      |     |      |      |   |     |     |      |   |     |     |     
|                                                         |                                                                                                  | Basic                                   |       | $                  | 2.23 |      |     | $    | 0.81 |   |     | $   | 0.53 |   |     | $   | 0.33 | 
|                                                         |                                                                                                  |                                         |       |                    |      |      |     |      |      |   |     |     |      |   |     |    
|                                                         |                                                                                                  | Diluted                                 |       | $                  | 2.16 |      |     | $    | 0.79 |   |     | $   | 0.52 |   |     | $   | 0.32 | 
|                                                         |                                                                                                  |                                         |       |                    |      |      |     |      |      |   |     |     |      |   |     |    
|                                                         | Pro Forma                                                                                        |                                         |       |                    |      |      |     |      |      |   |     |     |      |   |     |     |     
|                                                         |                                                                                                  | Basic                                   |       | $                  | 2.09 |      |     | $    | 0.58 |   |     | $   | 0.49 |   |     | $   | 0.25 | 
|                                                         |                                                                                                  |                                         |       |                    |      |      |     |      |      |   |     |     |      |   |     |    
|                                                         |                                                                                                  | Diluted                                 |       | $                  | 2.03 |      |     | $    | 0.56 |   |     | $   | 0.48 |   |     | $   | 0.25 | 
|                                                         |                                                                                                  |                                         |       |                    |      |      |     |      |      |   |     |     |      |   |     |    

Supplemental
Cash Flow Information.

|                                                         |                                                                 |                   |       |       |   |   |       |       |  
|-------------------------------------------------------- | --------------------------------------------------------------- | ----------------- | ----- | ----- | - | - | ----- | ----- | -
|                                                         |                                                                 |                  
|                                                         |                                                                 | Nine Months Ended
|                                                         |                                                                 | September 30,    
|                                                         |                                                                 |                  
|                                                         |                                                                 | 2004              |       | 2003 
|                                                         |                                                                 |                   |       |      
|                                                         |                                                                 |                  
|                                                         |                                                                 | (in millions)    
|Capital expenditures, including capitalized
    interest |                                                                 |                   |       |       |   |   |       |      
|                                                         | Cash paid for capital expenditures                              |                   | $     | 1,845 |   |   | $     | 1,158 |  
|                                                         | Changes in capital expenditures accrued, unpaid
    or financed |                   |       | (61   | ) |   |       | (21   | )
|                                                         |                                                                 |                   |       |       |   |   |       |      
|                                                         |                                                                 | $                 | 1,784 |       |   | $ | 1,137 |      
|                                                         |                                                                 |                   |       |       |   |   |       |      
|Interest costs                                           |                                                                 |                   |       |       |   |   |       |      
|                                                         | Interest expense                                                |                   | $     | 455   |   |   | $     | 664   |  
|                                                         | Interest capitalized                                            |                   |       | 7     |   |   |       | 27    |  
|                                                         |                                                                 |                   |       |       |   |   |       |      
|                                                         |                                                                 | $                 | 462   |       |   | $ | 691   |      
|                                                         |                                                                 |                   |       |       |   |   |       |      
|Cash paid for interest, net of amounts
    capitalized   |                                                                 | $                 | 479   |       |   | $ | 583   |      
|                                                         |                                                                 |                   |       |       |   |   |       |      
|Cash received for interest                               |                                                                 | $                 | 18    |       |   | $ | 22    |      
|                                                         |                                                                 |                   |       |       |   |   |       |      
|Cash paid for income taxes                               |                                                                 | $                 | 73    |       |   | $ | 50    |      
|                                                         |                                                                 |                   |       |       |   |   |       |      

New Accounting Pronouncements.In January 2003, the Financial
Accounting Standards Board, or FASB, issued FASB Interpretation
No. 46, Consolidation of Variable Interest
Entities  an interpretation of ARB No. 51,
to address perceived weaknesses in accounting for entities
commonly known as special-purpose or off-balance-sheet. In
addition to numerous FASB Staff Positions written to clarify and
improve the application of Interpretation No. 46, the FASB
announced a deferral for certain entities, and an amendment to
Interpretation No. 46 entitled FASB Interpretation
No. 46R, Consolidation of Variable Interest
Entities. Interpretation No. 46 establishes
consolidation criteria for entities for which
control is not easily discernable under Accounting
Research Bulletin No. 51, Consolidated Financial
Statements, which is based on the premise that holders of
the equity of an entity control the entity by virtue of voting
rights.

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

Interpretation No. 46 provides guidance for
identifying the party with a controlling financial interest
resulting from arrangements or financial interests rather than
from voting interests. Interpretation No. 46 defines the
term variable interest entity, or VIE, and is based on the
premise that if a business enterprise absorbs a majority of the
VIEs expected losses and/or receives a majority of its
expected residual returns (measures of risk and reward), that
enterprise (the primary beneficiary) has a controlling financial
interest in the VIE. Under Interpretation No. 46, the
assets, liabilities, and results of the activities of the VIE
should be included in the consolidated financial statements of
the primary beneficiary. We were required to apply the
provisions of Interpretation No. 46R in the first quarter
2004. As we did not have any VIEs during the nine months ended
September 30, 2004, the adoption of this new method of
accounting for VIEs did not affect our financial condition or
results of operations.

At the September 2004 meeting of the Emerging
Issues Task Force, the SEC staff announced that companies must
use the direct value method to determine the fair value of their
intangible assets acquired in business combinations completed
after September 29, 2004. The SEC staff also announced that
companies that currently apply the residual value approach for
valuing intangible assets with indefinite useful lives for
purposes of impairment testing, must use the direct value method
by no later than the beginning of their first fiscal year after
December 15, 2004. As of October 1, 2004, we will
perform our annual impairment test to measure the fair value of
our 800 and 900 megahertz, or MHz, Federal Communications
Commissions, or FCC, licenses in our national footprint using
the residual value approach. Under this new accounting guidance,
we must perform an impairment test to measure the fair value of
our 800 and 900 MHz licenses as of January 1, 2005 using
the direct value method. As we have not performed an impairment
test using the direct value method, we are unable to assess the
impact on our financial statements of adopting this requirement.
We will reflect an impairment charge, if any, resulting from the
change to a direct value method as a cumulative effect of a
change in accounting principle in our first quarter 2005
results. However, for the impairment testing as of
October 1, 2004 of our multichannel multipoint distribution
service, or MMDS, FCC licenses acquired during the second
quarter 2004, we will use the direct value method.

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

Note
2.     Intangible Assets

|                              |                                                          |              |  |                    |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |       | 
|----------------------------- | -------------------------------------------------------- | ------------ |  | ------------------ |  | ----------------- | ----- | -------- |  | -------- | -- | ------------ |  | -------- | ----- | ----- |  | - | ----- | ----- |  | - | -- | -- |  | - | ----- | ----- | 
|                              |                                                          |              |  |                    |  |                  
|                              |                                                          |              |  | September 30, 2004 |  | December 31, 2003
|                              |                                                          |              |  |                    |  |                  
|                              |                                                          |              |  | Gross              |  |                   |       | Net      |  | Gross    |    |              |  | Net     
|                              |                                                          |              |  | Carrying           |  | Accumulated       |       | Carrying |  | Carrying |    | Accumulated  |  | Carrying
|                              |                                                          | Useful Lives |  | Value              |  | Amortization      |       | Value    |  | Value    |    | Amortization |  | Value   
|                              |                                                          |              |  |                    |  |                   |       |          |  |          |    |              |  |         
|                              |                                                          |              |  |                   
|                              |                                                          |              |  | (in millions)     
|Amortized intangible assets   |                                                          |              |  |                    |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              | Customer lists                                           |              |  | 3 years            |  |                   | $     | 44       |  |          | $  | 39           |  |          | $     | 5     |  |   | $     | 98    |  |   | $  | 75 |  |   | $     | 23    | 
|                              | Spectrum sharing and noncompete agreements and
    other |              |  | Up to 20  years    |  |                   |       | 77       |  |          |    | 22           |  |          |       | 55    |  |   |       | 82    |  |   |    | 17 |  |   |       | 65    | 
|                              |                                                          |              |  |                    |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              |                                                          |              |  |                    |  |                   | 121   |          |  |          | 61 |              |  |          | 60    |       |  |   | 180   |       |  |   | 92 |    |  |   | 88    |      
|                              |                                                          |              |  |                    |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|Unamortized intangible assets |                                                          |              |  |                    |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              | FCC licenses                                             |              |  | Indefinite         |  |                   |       | 7,128    |  |          |    |              |  |          |       | 7,128 |  |   |       | 6,922 |  |   |    |    |  |   |       | 6,922 | 
|                              | Goodwill                                                 |              |  | Indefinite         |  |                   |       | 28       |  |          |    |              |  |          |       | 28    |  |   |       | 28    |  |   |    |    |  |   |       | 28    | 
|                              |                                                          |              |  |                    |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              |                                                          |              |  |                    |  |                   | 7,156 |          |  |          |    |              |  |          | 7,156 |       |  |   | 6,950 |       |  |   |    |    |  |   | 6,950 |      
|                              |                                                          |              |  |                    |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|Total intangible assets       |                                                          |              |  |                    |  | $                 | 7,277 |          |  | $        | 61 |              |  | $        | 7,216 |       |  | $ | 7,130 |       |  | $ | 92 |    |  | $ | 7,038 |      
|                              |                                                          |              |  |                    |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      

During the nine months ended September 30,
2004, we acquired FCC licenses for an aggregate purchase price
of $214 million, including deposits for licenses paid prior
to 2004 that were recorded in other assets until we acquired the
relevant licenses. These acquisitions consisted primarily of two
transactions. In May 2004, we purchased certain MMDS FCC
licenses, interests in certain other MMDS FCC licenses and other

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Notes to Condensed Consolidated Financial
Statements  (Continued)

immaterial network assets of WorldCom, Inc. We
paid an aggregate cash purchase price of $144 million, of
which $137 million was paid in 2004 and the remainder was
paid prior to 2004. Also, in June 2004, we purchased certain
MMDS FCC licenses and other immaterial network assets of
Nucentrix Broadband Networks, Inc. We paid an aggregate cash
purchase price of $51 million, of which $49 million
was paid in 2004 and the remainder was paid prior to 2004. Both
of these transactions were accounted for as asset purchases.
These licenses relate to spectrum that we may use in connection
with the deployment of certain broadband or other wireless
services. During the nine months ended September 30, 2004,
we also wrote off $54 million of fully amortized customer
lists, which did not have an impact on our results of operations
or financial condition.

For intangible assets with finite lives, we
recorded aggregate amortization expense of $29 million and
$7 million for the nine months and three months ended
September 30, 2004. We recorded aggregate amortization
expense of $38 million and $12 million for the nine
months and three months ended September 30, 2003. Based
only on the amortized intangible assets existing at
September 30, 2004, we estimate amortization expense to be
$5 million for the remainder of 2004, $9 million during
2005, $5 million during 2006, $4 million during 2007
and $3 million during 2008. Actual amortization expense to
be reported in future periods could differ from these estimates
as a result of new intangible asset acquisitions, changes in
useful lives and other relevant factors.

In connection with the adoption of SFAS
No. 142, Goodwill and Other Intangible Assets,
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 these FCC licenses are no longer
amortized for book purposes but are amortized for tax purposes,
we record additional deferred tax liabilities only as such
licenses are amortized for tax purposes. We have recorded an
incremental non-cash charge of $33 million and
$39 million for the nine months ended September 30,
2004 and 2003, to the income tax provision related to FCC
licenses for which we have a tax basis.

Spectrum Realignment Plan.As part of the ongoing FCC
proceeding to eliminate interference with public safety
operators in the 800 MHz band discussed in more detail in our
2003 annual report on Form 10-K, on August 6, 2004,
the FCC released a Report and Order under which modifications
would be made to some of our FCC licenses and related rules
would be implemented in order to realign spectrum in the
800 MHz band to resolve the problem of interference with
public safety systems operating in that band. The Report and
Order calls for a band realignment plan similar to the joint
proposals submitted by the leading public safety associations
and us, including our receipt of a nationwide license for 10 MHz
of spectrum in the 1.9 gigahertz, or GHz, band.

The FCC stated in its Report and Order that it
has determined the value of the license for the 1.9 GHz spectrum
to be $4.9 billion, less the cost of relocating incumbent
users, and that it would credit us against that net value both
the value of licenses for spectrum in the 700 MHz and 800 MHz
bands that we will relinquish under the decision and the actual
costs that we are required to incur under the Report and Order
in connection with the relocation of all incumbents in the 800
MHz band. In addition, the Report and Order requires us to make
an anti-windfall payment to the United States
Department of the Treasury at the conclusion of the relocation
process to the extent that these combined credits total less
than the determined net value of the license for the 1.9 GHz
spectrum. Currently, the licenses for spectrum in the
700 MHz band have a book value of $350 million and are
not being used in our network. In the third quarter 2004 we
performed a direct method valuation of our 700 MHz licenses
and determined that the 700 MHz licenses were not impaired.

The FCC also stated in its Report and Order that,
to ensure that the band reconfiguration process will be
completed, it will require us to establish certain escrow
accounts and a letter of credit in the amount of
$2,500 million to provide assurance that funds will be
available to pay specified costs relating to the relocation

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NEXTEL COMMUNICATIONS, INC. AND
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Notes to Condensed Consolidated Financial
Statements  (Continued)

of the incumbent users of the 800 MHz
spectrum. We currently have sufficient capacity to issue the
required letter of credit under our amended credit facility as
discussed in note 3.

In October 2004, the FCC issued a public notice
in which it seeks comment on issues raised in ex parte
presentations that we have filed with the FCC that summarize
various meetings that we have had with the FCC Staff and
Commissioners. In November 2004, we jointly announced with
Verizon Wireless that we had entered into an agreement under
which Verizon Wireless has agreed not to oppose the FCCs
decision regarding resolution of the 800 MHz public safety
interference issue, including our receiving replacement spectrum
at 1.9 GHz as contemplated by the Report and Order. The two
companies also have dismissed pending lawsuits against each
other, and have released each other from all other existing
claims. In addition, we have agreed to forego certain trademark
and other related ownership rights.

Note 3.     Long-Term
Debt, Capital Lease Obligation and Mandatorily Redeemable
Preferred Stock

|                                                                                                                                                                            |                      |                       |       |              |      |               |        |               |   |   |       |       |  |   |       |       |     |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | --------------------- | ----- | ------------ | ---- | ------------- | ------ | ------------- | - | - | ----- | ----- |  | - | ----- | ----- | --- | -
|                                                                                                                                                                            |                      |                       |       | Retirements  |      | Borrowings,   |        |              
|                                                                                                                                                                            |                      | December 31,          |       | and          |      | Debt-for-Debt |        | September 30,
|                                                                                                                                                                            |                      | 2003                  |       | Repayments   |      | Exchange and  |        | 2004         
|                                                                                                                                                                            |                      | Balance               |       | of Principal |      | Other         |        | Balance      
|                                                                                                                                                                            |                      |                       |       |              |      |               |        |              
|                                                                                                                                                                            |                      |                      
|                                                                                                                                                                            |                      | (dollars in millions)
|9.375% senior serial redeemable notes due
    2009                                                                                                                          |                      | $                     | 1,599 |              |      | $             |       |               |   | $ | (776  | )     |  | $ | 823   |      
|5.25% convertible senior notes due
    2010                                                                                                                                 |                      |                       | 607   |              |      |               |       |               |   |   |      |       |  |   | 607   |      
|9.5% senior serial redeemable notes due
    2011, including a deferred premium of
    $36 and $24                                                                           |                      |                       | 895   |              |      |               | (171   | )             |   |   | (79   | )     |  |   | 645   |      
|6% convertible senior notes due 2011                                                                                                                                        |                      |                       | 608   |              |      |               | (608   | )             |   |   |      |       |  |   |      |      
|6.875% senior serial redeemable notes due
    2013, including a deferred premium of
    $0 and $3 and net of an unamortized discount of $0 and $48                          |                      |                       | 500   |              |      |               |       |               |   |   | 718   |       |  |   | 1,218 |      
|5.95% senior serial redeemable notes due
    2014, net of an unamortized discount
    of $0 and $6                                                                          |                      |                       |      |              |      |               |       |               |   |   | 494   |       |  |   | 494   |      
|7.375% senior serial redeemable notes due
    2015, net of unamortized premium of $8
    and unamortized discount of $3                                                     |                      |                       | 2,008 |              |      |               |       |               |   |   | 126   |       |  |   | 2,134 |      
|Bank credit facility                                                                                                                                                        |                      |                       | 3,804 |              |      |               | (1,620 | )             |   |   | 1,000 |       |  |   | 3,184 |      
|Capital lease obligation                                                                                                                                                    |                      |                       | 165   |              |      |               | (165   | )             |   |   |      |       |  |   |      |      
|Other                                                                                                                                                                       |                      |                       | 26    |              |      |               | (2     | )             |   |   | (3    | )     |  |   | 21    |      
|                                                                                                                                                                            |                      |                       |       |              |      |               |        |               |   |   |       |       |  |   |       |      
|                                                                                                                                                                            | Total long-term debt |                       |       | 10,212       |      |               | $      | (2,566        | ) |   | $     | 1,480 |  |   |       | 9,126 |    
|                                                                                                                                                                            |                      |                       |       |              |      |               |        |               |   |   |       |       |  |   |       |      
|                                                                                                                                                                            |                      | Less current portion  |       |              | (487 | )             |        |               |   |   |       |       |  |   |       |       | (24 | )
|                                                                                                                                                                            |                      |                       |       |              |      |               |        |               |   |   |       |       |  |   |       |      
|                                                                                                                                                                            |                      | $                     | 9,725 |              |      |               |        |               |   |   |       |       |  | $ | 9,102 |      
|                                                                                                                                                                            |                      |                       |       |              |      |               |        |               |   |   |       |       |  |   |       |      
|Zero coupon convertible preferred stock
    mandatorily redeemable 2013, no
    dividend, stated at accreted liquidation preference value at
    9.25% compounded quarterly |                      | $                     | 99    |              |      | $             |       |               |   | $ | 6     |       |  | $ | 105   |      

5.95% Senior Notes.In March 2004, we completed the
sale of $500 million in principal amount of our 5.95%
senior serial redeemable notes due 2014, which generated about
$494 million in net cash proceeds to us. Cash interest on
these notes is payable semiannually in arrears on March 15
and September 15 commencing September 15, 2004, at an
annual rate of 5.95%. We may choose to redeem some or all of
these notes commencing on March 15, 2009 at an initial
redemption price of 102.975% of the aggregate principal amount
of these notes, plus accrued and unpaid interest. On or before
March 15, 2007, we may choose to redeem a portion of the
principal amount of the outstanding notes using the proceeds of
one or more sales of qualified equity securities at a redemption
price of 105.95% of the notes principal amount, plus
accrued and unpaid interest to the date of redemption, so long
as a specified principal amount of notes remains

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Notes to Condensed Consolidated Financial
Statements  (Continued)

outstanding immediately following the redemption.
These notes are senior unsecured indebtedness and rank equal in
right of payment with all our other unsubordinated, unsecured
indebtedness.

2004 Debt Retirements.During the nine months ended
September 30, 2004, we purchased and retired a total of
$779 million in aggregate principal amount at maturity of
our outstanding senior notes and convertible senior notes in
exchange for $827 million in cash. As part of these
transactions, we recognized a $51 million loss in other
income (expense) in the accompanying condensed consolidated
statements of operations, representing the excess of the
purchase price over the carrying value of the purchased and
retired notes and the write-off of unamortized debt financing
costs, net of the recognition of a portion of the deferred
premium associated with the termination of some of our interest
rate swaps. Additional information regarding our interest rate
swaps and the deferred premium can be found in note 6.

2004 Debt-for-Debt Exchanges.During the nine months ended
September 30, 2004, we entered into several non-cash
debt-for-debt exchange transactions with holders of our
securities. As a result, we exchanged $776 million in
principal amount of the 9.375% senior notes and $67 million
in principal amount of our 9.5% senior notes for a total of
$900 million in principal amount of new senior notes. The
new senior notes consist of $763 million in principal
amount of 6.875% senior notes issued at a $49 million
discount to their principal amount, and $137 million in
principal amount of 7.375% senior notes issued at an
$11 million discount to their principal amount. These
transactions were accounted for as debt modifications. As a
result, the $3 million of the deferred premium resulting
from the settlement of a fair value hedge associated with the
9.5% senior notes is now associated with the 6.875% senior notes
and will be recognized as an adjustment to interest expense over
the remaining life of the 6.875% senior notes. Additional
information regarding our interest rate swaps and the related
deferred premium can be found in note 6.

Bank Credit Facility.During the nine months ended
September 30, 2004, we made scheduled principal payments of
$144 million on our term loans under the terms of our
credit facility as in effect at the beginning of 2004. During
the three months ended September 30, 2004, we amended our
bank credit facility to create a new $4,000 million
revolving credit facility that replaced our then-existing
revolving credit facility and one of our existing term loans. In
connection with the amendment, we borrowed $1,000 million
of this new facility and used $476 million of cash on hand
to repay the entire outstanding balance of one of our
then-existing term loans in the amount of $1,360 million
and our then-outstanding revolving loan in the amount of
$116 million. The other term loan that was outstanding
under the credit facility at the time of the amendment remains
outstanding, with a balance of $2,184 million as of
September 30, 2004. This transaction was accounted for as
an extinguishment of debt in accordance with SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities. Thus, we recognized a
$34 million loss in other income (expense) in the
accompanying condensed consolidated statements of operations,
representing the write-off of unamortized debt financing costs
associated with the old credit facility. The new revolving
credit facility can be used to secure letters of credit for the
full amount available under the facility.

Capital Lease Obligation.In February 2004, we exercised the
early buy out option for our remaining capital lease in which we
paid $191 million in cash, $156 million of which
related to the reduction of the capital lease obligation and
recorded the $35 million difference as an adjustment to the
book basis of the switch assets that were being leased.

2003 Debt and Preferred Stock Retirements.During the nine months ended
September 30, 2003, we purchased and retired a total of
$1,998 million in aggregate principal amount at maturity of
our outstanding senior notes and convertible senior notes in
exchange for 30 million shares of class A common stock
valued at $584 million and $1,494 million in cash. As
part of these transactions, we recognized a $98 million
loss in other income (expense) in the accompanying
condensed consolidated statements of operations, representing
the excess of the purchase price over the carrying value of the
purchased and retired notes and the write-off of unamortized
debt financing costs. During the same period, we also purchased
and retired a total of

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Notes to Condensed Consolidated Financial
Statements  (Continued)

$932 million in aggregate face amount of our
outstanding mandatorily redeemable preferred stock in exchange
for $972 million in cash. As part of these transactions, we
recognized a $48 million loss in the accompanying condensed
consolidated statements of operations, representing the excess
of the purchase price over the carrying value of the purchased
and retired preferred stock and the write-off of unamortized
financing costs.

During the three months ended September 30,
2003, we purchased and retired a total of $1,464 million in
aggregate principal amount at maturity of our outstanding senior
notes in exchange for 30 million shares of class A
common stock valued at $584 million and $958 million
in cash. As part of these transactions, we recognized a
$91 million loss in other income (expense) in the
accompanying condensed consolidated statements of operations,
representing the excess of the purchase price over the carrying
value of the purchased and retired notes and the write-off of
unamortized debt financing costs. During the same period, we
also purchased and retired a total of $767 million in
aggregate face amount of our outstanding mandatorily redeemable
preferred stock in exchange for $801 million in cash. As
part of these transactions, we recognized a $41 million
loss in the accompanying condensed consolidated statements of
operations, representing the excess of the purchase price over
the carrying value of the purchased and retired preferred stock
and the write-off of unamortized financing costs. In connection
with the implementation of SFAS No. 150, Accounting
for Certain Financial Instruments with Characteristics of both
Liabilities and Equity effective July 1, 2003, the
losses associated with our third quarter 2003 preferred stock
retirements are included in other income (expense) in the
accompanying condensed consolidated statements of operations.

See note 8 regarding the redemption of our 9.375%
senior notes subsequent to September 30, 2004. We may, from
time to time, as we deem appropriate, enter into additional
refinancing and similar transactions, including exchanges of our
common stock or other securities for our debt and other
long-term obligations, and redemption, repurchase or retirement
transactions involving our outstanding debt and equity
securities, that in the aggregate may be material.

Note 4.     Income
Taxes

We maintain a valuation allowance that includes
reserves against certain of our deferred tax asset amounts in
instances where we determine that it is more likely than not
that a tax benefit will not be realized. Our valuation allowance
has historically included reserves primarily for the tax benefit
of net operating loss carryforwards, as well as for capital loss
carryforwards, separate return net operating loss carryforwards
and the tax benefit of stock option deductions relating to
employee compensation. Prior to June 30, 2004, we had
recorded a full reserve against the tax benefits relating to our
net operating loss carryforwards because, at that time, we did
not have a sufficient history of taxable income to conclude that
it was more likely than not that we would be able to realize the
tax benefits of the net operating loss carryforwards.
Accordingly, we recorded in our income statement only a small
provision for income taxes, as our net operating loss
carryforwards resulting from losses generated in prior years
offset virtually all of the taxes that we would have otherwise
incurred.

Based on our cumulative operating results through
June 30, 2004 and an assessment of our expected future
operations, we concluded as of June 30, 2004, that it was
more likely than not that we would be able to realize the tax
benefits of our net operating loss carryforwards. Therefore, we
decreased the valuation allowance attributable to our net
operating loss carryforwards by $866 million as a credit to
tax expense in the second quarter 2004. Additionally, in the
second quarter 2004, we decreased the valuation allowance
attributable to the tax benefit of stock option deductions
related to employee compensation and credited paid-in capital by
$389 million.

As of June 30, 2004, we had recorded a full
reserve against the tax benefits relating to our capital loss
carryforwards because, at that time, we did not believe that we
would be able to realize the tax benefits of

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Notes to Condensed Consolidated Financial
Statements  (Continued)

these carryforwards. During the three months
ended September 30, 2004, we determined that it was more
likely than not that we would utilize a portion of our capital
loss carryforwards before their expiration. Accordingly, we
decreased the valuation allowance primarily attributable to
capital loss carryforwards by $175 million as a credit to
tax expense during the three months ended September 30, 2004.
Significant changes in our assessment of the future realization
of our deferred tax assets would require us to reconsider the
need for a valuation allowance associated with the deferred tax
assets in amounts that could be material. The valuation
allowance balance as of September 30, 2004 of about
$600 million is comprised primarily of the tax effect of
capital losses incurred in prior years for which an allowance is
still required.

Income tax provisions for interim periods are
based on estimated effective annual tax rates. Income tax
expense varies from federal statutory rates primarily because of
state taxes. On our condensed consolidated balance sheet as of
September 30, 2004, all deferred tax assets and deferred
tax liabilities are reflected as a net deferred tax liability.

For the three months ended September 30,
2004, we recorded our income tax provision based on the combined
federal and state estimated statutory rate of 39.8%. Our income
tax benefit (provision) is as follows:

|                                                              |                                |               |       |               |  |      |     |      |   |   |      |     |   |   |     |     |  
|------------------------------------------------------------- | ------------------------------ | ------------- | ----- | ------------- |  | ---- | --- | ---- | - | - | ---- | --- | - | - | --- | --- | -
|                                                              |                                |               |       |              
|                                                              |                                | Nine Months   |       | Three Months 
|                                                              |                                | Ended         |       | Ended        
|                                                              |                                | September 30, |       | September 30,
|                                                              |                                |               |       |              
|                                                              |                                | 2004          |       | 2003          |  | 2004 |     | 2003
|                                                              |                                |               |       |               |  |      |     |     
|                                                              |                                |              
|                                                              |                                | (in millions)
|Federal and state current and deferred income tax
    expense |                                | $             | (493  | )             |  | $    | (70 | )    |   | $ | (273 | )   |   | $ | (21 | )  
|Valuation allowance release                                   |                                |               | 1,041 |               |  |      |    |      |   |   | 175  |     |   |   |    |    
|                                                              |                                |               |       |               |  |      |     |      |   |   |      |     |   |   |     |    
|                                                              | Income tax benefit (provision) |               | $     | 548           |  |      | $   | (70  | ) |   | $    | (98 | ) |   | $   | (21 | )
|                                                              |                                |               |       |               |  |      |     |      |   |   |      |     |   |   |     |    

Note 5.     Related
Party Transactions

We have a number of strategic and commercial
contractual relationships with third parties that have had a
significant impact on our business, operations and financial
results and have the potential to have such an impact in the
future. Of these, we believe that our operating and other
arrangements with Motorola, Nextel Partners, Inc., and NII
Holdings, Inc., all of which are related parties of ours for
purposes of financial reporting, are the most significant. We
have extended the terms of our handset and infrastructure supply
agreements with Motorola through 2004 and are in the process of
negotiating a long-term master supply agreement. In the event we
are not able to reach an agreement with Motorola on a new
long-term master supply agreement by the end of 2004, we may
have to seek an extension of our existing agreement. We paid a
total of $2,436 million during the nine months ended
September 30, 2004 and $1,757 million during the nine
months ended September 30, 2003 to these related parties,
net of discounts and rebates, for infrastructure, handsets and
related costs, net roaming charges and other costs. We received
a total of $48 million during the nine months ended
September 30, 2004 and $45 million during the nine
months ended September 30, 2003 from these related parties
for providing telecommunication switch, engineering and
technology, marketing and administrative services, and also in
2003 from the sale of FCC licenses and some network assets. As
of September 30, 2004, we had $306 million due from
these related parties and $698 million due to these related
parties. We also had a $165 million prepayment recorded in
prepaid expenses and other current assets and other assets on
our condensed consolidated balance sheet related to handset,
network infrastructure and other services to be provided by
Motorola in the future. As of December 31, 2003, we had
$70 million due from these related parties and
$284 million due to these related parties.

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

During the three months ended September 30,
2004, we purchased 6 million shares of Nextel Partners
class A common stock from Motorola for an aggregate cash
purchase price of $77 million. As of September 30,
2004, we owned about 32% of the outstanding common stock of
Nextel Partners.

In March 2004, NII Holdings completed the
redemption of the NII Holdings 13% senior notes that we held, in
exchange for $77 million in cash resulting in a
$28 million realized gain in other (expense) income in
the accompanying condensed consolidated statements of
operations. As of September 30, 2004, we owned about 18% of
the outstanding common stock of NII Holdings, which is accounted
for as an available-for-sale investment and recorded in other
current assets and investments on our condensed consolidated
balance sheet at the current market value of that common stock.

As described in note 1, we purchased
6 million shares of our class B common stock from
Motorola during the third quarter 2004. As a result of the
reduction in Motorolas ownership of our common stock, it
is no longer entitled to nominate any persons for election as
members of our board of directors. Motorola continues to hold a
significant interest in our common stock.

Note
6.     Derivative Instruments and
Hedging Activities

From time to time, we hedge the cash flows and
fair values of some of our long-term debt using interest rate
swaps. We enter into these derivative contracts to manage our
exposure to interest rate changes by achieving a desired
proportion of fixed rate versus variable rate debt. In an
interest rate swap, we agree to exchange the difference between
a variable interest rate and either a fixed or another variable
interest rate, multiplied by a notional principal amount. During
the third quarter 2003, we terminated all of our interest rate
swap agreements, which are described in further detail below.
From that time through September 30, 2004, we have not been
a party to any material derivative instruments.

In July 2001, we entered into three interest rate
swap agreements to hedge the risk of changes in fair value of a
portion of our long-term fixed rate debt, which were
attributable to changes in the London Interbank Offered Rate, or
LIBOR, as the benchmark interest rate. These fair value hedges
qualified for hedge accounting using the short-cut method since
the swap terms matched the critical terms of the hedged debt.
Accordingly, there was no net effect on our results of
operations for the nine months and three months ended
September 30, 2003 relating to the ineffectiveness of these
fair value hedges. During the third quarter 2003, we terminated
all three swap agreements. As a result of the terminations, we
recorded a deferred premium of $38 million, which we
recognize as an adjustment to interest expense over the
remaining life of the hedged debt. As described in note 3,
a portion of this deferred premium associated with our purchase
and retirement of a portion of the hedged debt was written off.
Additionally, a portion of this deferred premium has been
transferred from one series of senior notes to another series of
senior notes as a result of debt-for-debt exchanges entered into
during the third quarter 2004. As a result, the portion of the
deferred premium that was transferred to the different series of
notes will now be recognized as an adjustment to the interest
expense over the remaining life of that series.

We have used interest rate swaps to hedge the
variability of future cash flows, which are caused by changes in
LIBOR, as the benchmark interest rate, associated with some of
our long-term variable rate debt. In February 2003, we
terminated a variable-to-variable interest rate swap in the
notional amount of $400 million in accordance with its
original terms. There was no realized gain or loss associated
with this termination. Since this swap did not qualify for cash
flow hedge accounting, we recognized changes in its fair value
up to the termination date in our statements of operations in
the period of the change. Interest expense includes a gain of
$2 million for the nine months ended September 30,
2003, representing changes in the fair value of this swap.
During the third quarter 2003, we terminated our remaining cash
flow hedge, which was recorded at fair value, and paid
$91 million in cash to satisfy our obligations under it. As
a result, and because this interest rate swap qualified for cash
flow hedge accounting, an unrealized loss of $10 million,

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

representing the effective portion of the change
in its fair value reported in accumulated other comprehensive
loss, was recognized in our statement of operations. The
ineffective portion of the change in fair value of this swap was
recognized in our statements of operations up to the termination
date in the period of the change. Interest expense includes a
loss of $8 million for the nine months ended
September 30, 2003 related to the ineffective portion of
the change in fair value, offset by a gain of $3 million
related to the termination of the swap.

Interest expense related to the periodic net cash
settlements on all swaps was $12 million and
$3 million for the nine and three months ended
September 30, 2003.

Note
7.     Commitments and
Contingencies

In April 2001, a purported class action lawsuit
was filed in the Circuit Court in Baltimore, Maryland by the Law
Offices of Peter Angelos, and subsequently in other state courts
in Pennsylvania, New York and Georgia by Mr. Angelos and other
firms, alleging that wireless telephones pose a health risk to
users of those telephones and that the defendants failed to
disclose these risks. We, along with numerous other companies,
were named as defendants in these cases. The cases, together
with a similar case filed earlier in Louisiana state court, were
ultimately transferred to federal court in Baltimore, Maryland.
On March 5, 2003, the court granted the defendants
motions to dismiss. The plaintiffs have appealed this decision,
and the court heard arguments on appeal in October 2004, but has
yet to issue a decision.

A number of lawsuits have been filed against us
in several state and federal courts around the United States,
challenging the manner by which we recover the costs to us of
federally mandated universal service, Telecommunications Relay
Service payment requirements imposed by the FCC, and the costs
(including costs to implement changes to our network) to comply
with federal regulatory requirements to provide enhanced 911, or
E911, telephone number pooling and telephone number portability.
In general, these plaintiffs claim that our rate structure that
breaks out and assesses federal program cost recovery fees on
monthly customer bills is misleading and unlawful. The
plaintiffs generally seek injunctive relief and damages on
behalf of a class of customers, including a refund of amounts
collected under these regulatory line item assessments. We have
reached a preliminary settlement with the plaintiff, who
purports to represent a nationwide class of affected customers,
in one of the lawsuits that challenged the manner by which we
recover the costs to comply with federal regulatory requirements
to provide E911, telephone number pooling and telephone number
portability. The settlement, for which we accrued an expense in
2003, has been approved by the court, but that approval is being
appealed by other plaintiffs. The court heard oral arguments on
appeal in October 2004. If the courts approval of the
settlement were upheld, it would render moot a majority of these
lawsuits, and would not have a material effect on our business
or results of operations.

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

Note
8.     Subsequent Events

9.375% Senior Notes.In October 2004, we announced
that, on November 15, 2004, we will redeem for cash the
principal amount of our 9.375% senior notes due 2009 outstanding
on that date at a redemption price of 104.688%. As of
September 30, 2004, $823 million in principal amount
of the 9.375% senior notes was outstanding.

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)



Report of Independent Registered Public
Accounting Firm

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

We have reviewed the accompanying condensed
consolidated balance sheet of Nextel Communications, Inc. and
subsidiaries (the Company) as of September 30,
2004, and the related condensed consolidated statements of
operations and comprehensive income for the three-month and
nine-month periods ended September 30, 2004 and 2003, and
of cash flows for the nine-month periods ended
September 30, 2004 and 2003, and the condensed consolidated
statement of changes in stockholders equity for the
nine-month period ended September 30, 2004. These interim
financial statements are the responsibility of the
Companys management.

We conducted our reviews in accordance with
standards of the Public Company Accounting Oversight Board
(United States). A review of interim financial information
consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with standards of the Public
Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not
express such an opinion.

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

We have previously audited, in accordance with
standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheet of Nextel
Communications, Inc. and subsidiaries as of December 31,
2003, and the related consolidated statements of operations,
changes in stockholders equity, and cash flows for the
year then ended (not presented herein); and in our report dated
March 10, 2004, we expressed an unqualified opinion on
those consolidated financial statements (such report includes an
explanatory paragraph relating to the adoption of the provisions
of Emerging Issues Task Force Issue No. 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables, in 2003, Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets, in 2002, and SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain
Hedging Activities, in 2001). In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 2003 is fairly stated, in
all material respects, in relation to the consolidated balance
sheet from which it has been derived.

DELOITTE & TOUCHE LLP

McLean, Virginia

November 5, 2004


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

A. Overview

Company Overview.

The following is a discussion and analysis of our
consolidated financial condition and results of operations for
the three and nine-month periods ended September 30, 2004
and 2003, and significant factors that could affect our
prospective financial condition and results of operations.
Historical results may not be indicative of future performance.
See  Forward-Looking Statements.

We are a leading provider of wireless
communications services in the United States. We provide a
comprehensive suite of advanced wireless services, including
digital wireless mobile telephone service, walkie-talkie
services including our Nextel Nationwide Direct
ConnectSM and Nextel International Direct
ConnectSM walkie-talkie services, and wireless data
transmission services. As of September 30, 2004, we
provided service to about 15.3 million subscribers, which
consisted of 14.5 million subscribers of Nextel-branded
service and 800,000 subscribers of Boost
Mobilebranded pre-paid service. For the three months
ended September 30, 2004, we had operating revenues of
$3,398 million and income available to common stockholders
of $586 million. For the nine months ended
September 30, 2004, we had operating revenues of
$9,790 million and income available to common stockholders
of $2,477 million, which included a net tax benefit of
$548 million that was primarily the result of the reversal
of a significant portion of the valuation allowance attributable
to our net operating loss and capital loss carryforwards in
excess of our tax provision for the period. We ended the third
quarter 2004 with about 18,600 employees.

Our all-digital packet data network is based on
integrated Digital Enhanced Network, or iDEN®, wireless
technology provided by Motorola, Inc. We, together with Nextel
Partners, Inc., currently utilize the iDEN technology to serve
297 of the top 300 United States markets where about
259 million people live or work. Nextel Partners provides
digital wireless communications services under the Nextel brand
name in mid-sized and tertiary U.S. markets, and has the
right to operate in 98 of the top 300 metropolitan
statistical areas in the United States ranked by population. As
of September 30, 2004, we owned about 32% of the
outstanding common stock of Nextel Partners. In addition, as of
September 30, 2004, we also owned about 18% of the
outstanding common stock of NII Holdings, Inc., which
provides wireless communications services primarily in selected
Latin American markets. We have agreements with
NII Holdings that enable our subscribers to use our Direct
Connect® services in the Latin American markets that it
serves as well as between the United States and those markets.

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

Managements Summary.

Our business strategy is to provide
differentiated products and services in order to acquire and
retain the most valuable customers in the wireless
telecommunications industry. Our services include:



| |   |                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Direct Connect long-range walkie-talkie services
    that allow communication at the touch of one button, including
    our Nationwide Direct Connect and International Direct Connect
    walkie-talkie services;                                                                    
|
| |  | mobile telephone services, including advanced
    digital features such as speakerphones, additional line service,
    conference calling, voice-activated dialing for hands-free
    operation, a voice recorder for calls and memos, advanced
    phonebook and date book tools; and
|
| |  | data services, including email, mobile messaging,
    location-based, Nextel Online® and Multimedia Messaging
    services, which allows Nextel subscribers to exchange images and
    audio memos.                                                                                   

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We offer a variety of handsets that support all
of our services and that are designed to meet the particular
needs of various target customer groups. We believe that we also
differentiate ourselves from our competition by focusing on the
quality of our customer care, in large part through our customer
Touch Point strategy designed to improve our customer
relationship by focusing on eliminating situations that create
customer dissatisfaction at each point where we interact with,
or touch, our customers.

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we extended the reach of Direct Connect service
    in North America and into selected markets in Latin America in
    the second quarter 2004;                                                                                                                                                                                                                                                                                            
|
| |  | we have introduced several new handsets,
    including the i830, the smallest handset that we have ever
    offered, the i730, a compact handset that delivers powerful
    performance at a moderate cost, the i860, a camera phone with
    multimedia messaging capabilities, and the i315 and i325, two
    handset models with off-network walkie-talkie capabilities
    designed for industrial, government and public safety users;
|
| |  | we placed 1,475 transmitter and receiver sites in
    service in the first nine months of 2004 to improve both our
    geographic coverage and to meet the capacity needs of our
    growing customer base, and plan to place additional sites in
    service by the end of the year;                                                                                                                                                      
|
| |  | we have begun to introduce handsets that,
    together with software that has been installed in our network
    infrastructure, are designed to more efficiently utilize radio
    spectrum to significantly increase our network capacity once
    these handsets are in use and the network software is activated;                                                                                                                       
|
| |  | we plan to begin the deployment of an enhancement
    to our existing iDEN technology, known as WiDENSM,
    designed to increase the data speeds of our network by up to
    four times the current speeds by the end of the year; and                                                                                                                                                                                                    
|
| |  | we are continuing the field trial of Nextel
    Wireless BroadbandSM, an easy-to-use and secure
    service that connects customers to the Internet at broadband
    speeds, with the full mobility of wireless service.                                                                                                                                                                                                                   

We continually seek the appropriate balance
between our cost to acquire a new customer and the lifetime
value for that customer. We focus our marketing efforts
principally on identifying and targeting high-value customers
that recognize the value of our unique service offerings, and
focus our advertising efforts on communicating the benefits of
our services to those targeted groups. We are the title sponsor
of the NASCAR NEXTEL Cup SeriesTM, the premier racing
series of the National Association for Stock Car Auto Racing, or
NASCAR®, and one of the most popular sports in the United
States. Our marketing and advertising initiatives associated
with this 10-year sponsorship provide unique exposure for our
products and services to an estimated 75 million loyal
NASCAR racing fans throughout the United States, many of whom
fall within our targeted customer groups. We continue to build
upon our Nextel. Done. branding and related
advertising initiatives launched in 2003, which focus attention
on productivity, speed, and getting things done. We are also
exploring other markets and customers that have the potential to
support future profitable growth.

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For example, we offer pre-paid wireless services
marketed under our Boost Mobile brand as a means to target the
youth and pre-paid calling wireless markets. In the second
quarter 2004, we expanded Boost Mobile-branded service from the
southern California and Nevada markets, where it was originally
offered, into seven new markets. We are in the process of
expanding the Boost Mobile-branded service into three additional
markets, and we will continue to evaluate its performance. In
addition, we are currently conducting a request for proposal
process with several vendors that is designed to provide us with
a better understanding of the technical performance and service
capabilities of certain broadband wireless technologies and the
related costs and returns that would be expected to be generated
if we were to deploy those technologies in a nationwide wireless
broadband network.


Our focus on offering innovative and
differentiated services requires that we continue to invest in,
evaluate and, if appropriate, deploy new services and
enhancements to our existing services as well as, in some cases,
to acquire spectrum licenses to deploy these services. If we
were to determine that any of these services, enhancements or
spectrum licenses will not provide sufficient returns to support
continued investment of financial or other resources, we would
have to write-off the assets associated with them. We have
expended, and will continue to expend, significant amounts of
capital resources on the development and evaluation of these
services and enhancements. In addition, we have acquired, and
will continue to acquire, licenses for spectrum that we may use
to deploy some of these new services and enhancements. For
instance, in the second quarter 2004, we completed the purchase
of spectrum licenses from WorldCom, Inc. and Nucentrix Broadband
Networks, Inc. that we may use in connection with the deployment
of broadband or other wireless services, for a total purchase
price of $195 million.

Because the wireless communications industry
continues to be highly competitive, particularly with regard to
customer pricing plans, we are continually seeking new ways to
create or improve capital and operating efficiencies in our
business in order to maintain our operating margins. In 2004, we
also have continued to expand our customer convenient, and
cost-efficient, distribution channels by opening additional
retail stores. We owned and operated over 740 Nextel stores as
of September 30, 2004.

We continually seek to cost-efficiently optimize
the performance of our nationwide network. As described in more
detail in our 2003 annual report on Form 10-K, we have
implemented modifications to our handsets and network
infrastructure software necessary to support deployment of the
6:1 voice coder that is designed to more efficiently utilize
radio spectrum and, thereby, significantly increase the capacity
of our network. We will realize the benefits of this upgrade as
handsets that operate using the 6:1 voice coder for wireless
interconnection are introduced into our customer base and the
related network infrastructure software is activated. In the
third quarter 2004, we began selling new handset models that
operate in both the 6:1 and current 3:1 modes. Handsets that
operate in both modes now make up the majority of handsets that
we sell. In the third quarter 2004, in several of our markets,
we activated 6:1 voice coder software in our network that allows
handsets to shift between 3:1 and 6:1 modes, and is designed to
provide us with the increased network capacity made available by
the 6:1 voice coder. We currently expect to activate this
network software in substantially all of our other markets by
the first quarter 2005. If there are substantial delays in the
activation of the network software, the related network capacity
benefits would be delayed or reduced, and over time we would be
required to invest additional capital in our infrastructure to
satisfy our network capacity needs. We rely on Motorola to
provide us with handsets and the infrastructure and software
enhancements discussed above and others that are designed to
improve the capacity and quality of our network. Motorola is and
is expected to continue to be our sole source supplier of iDEN
infrastructure and all of our handsets except the BlackBerry
devices, which are manufactured by Research In Motion. See
 Forward-Looking Statements.

We also continue to focus on reducing our
financing expenses by taking steps to reduce both the amount of
our overall debt and our borrowing costs while extending our
debt maturities and maintaining or increasing our overall
liquidity. The first quarter 2004 was the first full quarter in
which we realized the benefit of our 2003 long-term debt and
preferred stock retirement and financing activities, which
consisted of retirements of an aggregate of $7,755 million
in principal amount of long-term debt and preferred stock and
issuances of $4,700 million in principal amount of
long-term debt with lower interest rates and longer maturities.
During the nine-month period ended September 30, 2004, we
retired or repaid an aggregate of $2,401 million in
principal amount of long-term debt, exercised the early buyout
option on a $165 million capital lease

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obligation and issued $1,500 million in
aggregate principal amount of long-term debt with lower interest
rates and longer maturities than the debt we retired. In
addition, during that same period, we issued $900 million
in principal amount of our 6.875% and 7.375% senior notes in
exchange for $843 million in principal amount of our 9.375%
and 9.5% senior notes, which had the effect of reducing our
borrowing costs and extending maturities. We may, from time to
time, as we deem appropriate, enter into additional refinancing
and similar transactions, including exchanges of our common
stock or other securities for our debt and other long-term
obligations, and redemption, repurchase or retirement
transactions involving our outstanding debt and equity
securities, that in the aggregate may be material.


As part of the ongoing FCC proceeding to
eliminate interference with public safety operators in the 800
megahertz, or MHz, band discussed in more detail in our 2003
annual report on Form 10-K, on August 6, 2004, the FCC
released a Report and Order under which modifications would be
made to some of our FCC licenses and related rules would be
implemented in order to realign spectrum in the 800 MHz band to
resolve the problem of interference with public safety systems
operating in that band. The Report and Order calls for a band
realignment plan similar to the joint proposals submitted by the
leading public safety associations and us, including our receipt
of a nationwide license for 10 MHz of spectrum in the
1.9 gigahertz, or GHz, band.

The FCC stated in its Report and Order that it
has determined the value of the license for the 1.9 GHz
spectrum to be $4.9 billion, less the cost of relocating
incumbent users, and that it would credit us against that net
value both the value of licenses for spectrum in the
700 MHz and 800 MHz bands that we will relinquish
under the decision and the actual costs that we are required to
incur under the Report and Order in connection with the
relocation of all incumbents in the 800 MHz band. In
addition, the Report and Order requires us to make an
anti-windfall payment to the United States
Department of the Treasury at the conclusion of the relocation
process to the extent that these combined credits total less
than the determined net value of the license for the
1.9 GHz spectrum. The FCC also stated in its Report and
Order that, to ensure that the band reconfiguration process will
be completed, it will require us to establish certain escrow
accounts and a letter of credit in the amount of
$2,500 million to provide assurance that funds will be
available to pay specified costs relating to the relocation of
the incumbent users of the 800 MHz spectrum. We currently
have sufficient capacity to issue the required letter of credit
under our amended credit facility discussed below. See
 D. Future Capital Needs and
Resources  Capital Resources.

In October 2004, the FCC issued a public notice
in which it seeks comment on issues raised in ex parte
presentations that we have filed with the FCC that summarize
various meetings that we have had with the FCC Staff and
Commissioners. In November 2004, we jointly announced with
Verizon Wireless that we had entered into an agreement under
which Verizon Wireless has agreed not to oppose the FCCs
decision regarding resolution of the 800 MHz public safety
interference issue, including our receiving replacement spectrum
at 1.9 GHz as contemplated by the Report and Order. The two
companies also have dismissed pending lawsuits against each
other, and have released each other from all other existing
claims. In addition, we have agreed to forego certain trademark
and other related ownership rights.

Global Positioning System and Enhanced 911
Services.

In July 2004, we discovered a latent software
design defect that impaired capabilities related to both
assisted global positioning system, or A-GPS, location and
certain enhanced 911, or E911, services of a number of recently
introduced handsets manufactured by Motorola that incorporate
the A-GPS technology. Emergency 911 calls from these handsets
generally continued to meet current E911 FCC requirements, and
the handsets were and continue to be fully operational with
regard to all other services, including cellular phone, Direct
Connect walkie-talkie, and wireless data services. Motorola, as
the manufacturer of the handsets, has taken and continues to
take all appropriate actions in response to this issue. Motorola
has indicated in discussions with our senior management that it
is assuming responsibility for, and will reimburse our costs to
remedy, the A-GPS software issue and to date, Motorola has been
reimbursing us for those costs. Consequently, the effect of this
matter on our results of operations for the quarter ended, or
our financial condition as of, September 30, 2004 was not
material, and we do not expect it to materially impact our
results of operations or financial condition in future periods.

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We have described the impact of the software
design defect in our periodic reports to the FCC that have
summarized our progress to date with regard to meeting the
FCCs E911 requirements. Based on our assessment of the
impact of the design defect and our estimates regarding the rate
at which our customer base is expected to transition to handsets
equipped with A-GPS technology, we have notified the FCC that we
may be unable to satisfy by December 31, 2005 the
requirement that 95% of our total subscriber base use handsets
that enable us to transmit location information that meets the
Phase II requirements of the E911 regulations, and that the
A-GPS software design defect has exacerbated the situation.

Our ability to meet the Phase II requirements on
the schedule currently contemplated by the E911 regulations and
the costs we may incur in an effort to accelerate our
customers transition to A-GPS capable handsets to meet
these requirements could be significant, and will be dependent
on a number of factors, including the number of new subscribers
added to our network who purchase A-GPS capable handsets, the
number of existing subscribers who upgrade from non-A-GPS
capable handsets to A-GPS capable handsets, the rate of our
customer churn and the cost of A-GPS capable handsets.

Critical Accounting Policies and
Estimates.

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

Revenue Recognition.Operating revenues primarily
consist of wireless service revenues and revenues generated from
handset and accessory sales. Service revenues primarily include
fixed monthly access charges for mobile telephone, Nextel Direct
Connect and other wireless services, variable charges for mobile
telephone and Nextel Direct Connect usage in excess of plan
minutes, long-distance charges derived from calls placed by our
customers and activation fees. We recognize revenue for access
charges and other services charged at fixed amounts ratably over
the service period, net of credits and adjustments for service
discounts, billing disputes and fraud or unauthorized usage. We
recognize excess usage and long distance revenue at contractual
rates per minute as minutes are used. As a result of the cutoff
times of our multiple billing cycles each month, we are required
to estimate the amount of subscriber revenues earned but not
billed from the end of each billing cycle to the end of each
reporting period. These estimates are based primarily on rate
plans in effect and historical minutes and represented less than
10% of our accounts receivable balance as of September 30,
2004. Our estimates have been consistent with our actual results.

Cost of Handsets.Under our handset supply agreement
with Motorola, we receive various discounts based on purchases
of specified numbers and models of handsets and specified
expenditures for the purchase of handsets. In addition, we have
made purchase advances to Motorola, which are recoverable based
on future purchases of certain handset models. If we do not
achieve specified minimum purchases, a portion of the advances
may not be recovered. Each month, we estimate future handset
purchases and related discounts. To the extent that such
estimates change period to period, adjustments would be made to
our estimates of discounts earned and could impact our cost of
handset revenues. The amount of these discounts recorded as of
September 30, 2004 approximated 5% of our cost of handset
and accessory revenues recorded for that period.

Allowance for Doubtful Accounts.We establish an allowance for
doubtful accounts receivable sufficient to cover probable and
reasonably estimable losses. Because we have over four million
accounts, it is not practical to review the collectibility of
each account individually when we determine the amount of our
allowance for doubtful accounts receivable each period.
Therefore, we consider a number of factors in establishing the
allowance for our portfolio of customers, including historical
collection experience, current economic trends, estimates of
forecasted write-offs, agings of the accounts receivable
portfolio and other factors. When collection efforts on
individual accounts have been exhausted, the account is written
off by reducing the allowance for doubtful accounts. Our
allowance for doubtful accounts was $71 million as of
September 30, 2004. Since the three months ended
September 30, 2003, we experienced increased collections,
an improvement in our accounts receivable aging, and a reduction
in write-offs. As a result, our allowance for

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doubtful accounts as of September 30, 2004
was lower than it was at September 30, 2003. Write-offs in
the future could be impacted by general economic and business
conditions that are difficult to predict. In addition, it is
difficult to predict with certainty the impact that recent
events, such as number portability, could have on our account
write-offs because we have limited experience with actual
results from these events.


Valuation and Recoverability of Long-Lived
Assets.Long-lived assets such as
property, plant, and equipment represented $9,526 million
of our $21,811 million in total assets as of
September 30, 2004. We calculate depreciation on these
assets using the straight-line method based on estimated
economic useful lives as follows:

|                                                                         |  |             |                | 
|------------------------------------------------------------------------ |  | ----------- | -------------- | 
|                                                                         |  | Estimated  
|Long-Lived Assets                                                        |  | Useful Life
|                                                                         |  |            
|Buildings                                                                |  |             | 31 years       | 
|Network equipment and internal-use software                              |  |             | 3 to 20  years | 
|Non-network internal-use software, office
    equipment and other assets |  |             | 3 to 12  years | 

The substantial majority of property, plant, and
equipment is comprised of our iDEN network equipment and
software. Our iDEN nationwide network is highly complex and, due
to constant innovation and enhancements, some network assets may
lose their utility faster than anticipated. We periodically
review the estimated useful lives and salvage value of these
assets and make adjustments to those estimates after considering
historical experience and capacity requirements, consulting with
the vendor, and assessing new product and market demands. While
the remaining useful lives for iDEN network equipment and
software represent our best estimate at this time, we recognize
that at some point in the future we may migrate to a next
generation technology, which could impact the remaining economic
lives of our iDEN network equipment and software.

Included in our property, plant and equipment
balance are costs for activities incurred in connection with the
early phase of cell site construction. Such activities include,
among others, engineering studies, design layout and zoning.
Because we need to be able to respond quickly to business needs,
we incur these costs well in advance of when the cell site asset
is placed into service. Our current plan is to use all of these
cell sites for expansion and quality improvements, future
capacity demands and other strategic reasons; however, to the
extent there are changes in economic conditions, technology or
the regulatory environment, our plans could change and some of
these assets could be abandoned and written off.

We review our long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the total of the
expected undiscounted future cash flows is less than the
carrying amount of our assets, a loss, if any, is recognized for
the difference between the fair value and carrying value of the
assets. Impairment analyses, when performed, are based on our
current business and technology strategy, our views of growth
rates for our business, anticipated future economic and
regulatory conditions and expected technological availability.
For purposes of recognition and measurement of impairment
losses, we group our domestic long-lived assets with other
assets and liabilities at the domestic enterprise level, which
for us is the lowest level for which identifiable cash flows are
largely independent of the cash flows of other assets and
liabilities. We did not perform an impairment analysis for our
domestic long-lived assets in any of the periods presented as
there were no indicators of impairment; however, we may have to
perform such analyses in the future to the extent there are
changes in our industry, economic conditions, technology or the
regulatory environment.

Valuation and Recoverability of Intangible
Assets.Intangible assets with
indefinite useful lives represented $7,156 million of our
$21,811 million in total assets as of September 30,
2004. Intangible assets with indefinite useful lives primarily
consist of our FCC licenses. We performed our annual impairment
test of FCC licenses as of October 1, 2003 and concluded
that there was no impairment as the fair values of these
intangible assets were greater than their carrying values. Using
a residual value approach, we measured the fair value of our 800
and 900 MHz licenses in our national footprint by deducting the
fair values of our net assets as well as the fair values of
certain unrecorded identified intangible assets, other than
these FCC licenses, from our reporting units, that is, our
companys fair value, which was determined using a
discounted

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cash flow analysis. The analysis was based on
our long-term cash flow projections, discounted at our corporate
weighted average cost of capital. The residual value approach
yielded a value substantially in excess of the recorded balance
of our 800 and 900 MHz licenses as of September 30, 2004.
Under new accounting guidance announced by the Securities and
Exchange Commission, or SEC, staff at the September 2004
Emerging Issues Task Force, or EITF, meeting, we must perform an
impairment test to measure the fair value of our 800 and
900 MHz licenses as of January 1, 2005 using the
direct value method. As we have not performed an impairment test
using the direct value method, we are unable to assess the
impact on our financial statements of adopting this requirement.
We will reflect an impairment charge, if any, resulting from the
change to a direct value method as a cumulative effect of a
change in accounting principle in our first quarter 2005
results.


We have invested about $350 million in 700
MHz licenses that are currently not used in our network. We
engaged an independent appraiser to assist us in determining the
fair value of our 700 MHz licenses because the FCC, as part
of its Report and Order to resolve the problem of interference
with public safety systems operating in the 800 MHz band,
gave us minimal credit for our 700 MHz licenses against our
total obligation under the Report and Order. In consultation
with the independent appraiser, we determined that the
700 MHz licenses were not impaired. See
 Managements Summary.

Recoverability of Capitalized Software.As of September 30, 2004, we
had $87 million in net unamortized costs for software
accounted for under SFAS No. 86, Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed. Our current plans indicate that we will recover
the value of the assets; however, to the extent there are
changes in economic conditions, technology or the regulatory
environment, or demand for the software, our plans could change
and some or all of these assets could become impaired.

Income Tax Valuation Allowance.We maintain a valuation allowance
that includes reserves against certain of our deferred tax asset
amounts in instances where we determine that it is more likely
than not that a tax benefit will not be realized. Our valuation
allowance has historically included reserves primarily for the
tax benefit of net operating loss carryforwards, as well as for
capital loss carryforwards, separate return net operating loss
carryforwards and the tax benefit of stock option deductions
relating to employee compensation. Prior to June 30, 2004,
we had recorded a full reserve against the tax benefits relating
to our net operating loss carryforwards because, at that time,
we did not have a sufficient history of taxable income to
conclude that it was more likely than not that we would be able
to realize the tax benefits of the net operating loss
carryforwards. Accordingly, we recorded in our income statement
only a small provision for income taxes, as our net operating
loss carryforwards resulting from losses generated in prior
years offset virtually all of the taxes that we would have
otherwise incurred.

Based on our cumulative operating results through
June 30, 2004 and an assessment of our expected future
operations, we concluded as of June 30, 2004, that it was
more likely than not that we would be able to realize the tax
benefits of our net operating loss carryforwards. Therefore, we
decreased the valuation allowance attributable to our net
operating loss carryforwards by $866 million as a credit to
tax expense in the second quarter 2004. Additionally, in the
second quarter 2004, we decreased the valuation allowance
attributable to the tax benefit of stock option deductions
related to employee compensation and credited paid-in capital by
$389 million.

As of June 30, 2004, we had recorded a full
reserve against the tax benefits relating to our capital loss
carryforwards because, at that time, we did not believe that we
would be able to realize the tax benefits of these
carryforwards. During the three months ended September 30,
2004, we determined that it was more likely than not that we
would utilize a portion of our capital loss carryforwards before
their expiration. Accordingly, we decreased the valuation
allowance primarily attributable to capital loss carryforwards
by $175 million as a credit to tax expense during the three
months ended September 30, 2004. Significant changes in our
assessment of the future realization of our deferred tax assets
would require us to reconsider the need for a valuation
allowance associated with the deferred tax assets in amounts
that could be material. The

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valuation allowance balance as of
September 30, 2004 of about $600 million is comprised
primarily of the tax effect of capital losses incurred in prior
years for which an allowance is still required.


Income tax provisions for interim periods are
based on estimated effective annual tax rates. Income tax
expense varies from federal statutory rates primarily because of
state taxes. On our condensed consolidated balance sheet as of
September 30, 2004, all deferred tax assets and deferred
tax liabilities are reflected as a net deferred tax liability.

B. Results of Operations

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

We recognize revenues from handset sales when
title to the handset passes to the customer pursuant to EITF
Issue No. 00-21, Accounting for Revenue Arrangements
with Multiple Deliverables. However, prior to July 1,
2003, in accordance with Staff Accounting Bulletin, or SAB,
No. 101, Revenue Recognition in Financial
Statements, we recognized revenue from handset sales on a
straight-line basis over the expected customer relationship
period, beginning when title to the handset passed to the
customer. Therefore, handset revenues, prior to July 1,
2003, largely reflected the recognition of handset sales that
occurred and were deferred in prior periods. We recognize
revenue from accessory sales when title to the accessory passes
to the customer.

Cost of providing wireless service consists
primarily of:



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

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. Consistent with
the related handset revenue recognition policy described above,
we recognize the cost of handset revenues, including the handset
costs in excess of the revenues generated from handset sales,
when title to the handset passes to the customer, pursuant to
EITF Issue No. 00-21. Prior to July 1, 2003, in
accordance with SAB No. 101, we recognized cost of handset
revenues, in amounts equivalent to revenues recognized from
handset sales, on a straight-line basis over the expected
customer relationship period and handset costs in excess of the
revenues generated from handset sales, or subsidies, were
expensed at the time of sale. We recognize cost of accessory
revenues, other than costs related to write-downs of handset and
related accessory inventory for shrinkage, when title to the
accessory passes to the customer.

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

General and administrative costs primarily
consist of fees paid for billing, customer care and information
technology operations, bad debt expense and back office support
activities including customer retention, collections, legal,
finance, human resources, strategic planning and technology and
product development, along with the related payroll and
facilities costs. Also included in general and administrative
costs are research and development costs associated with our
Nextel Wireless Broadband initiatives.

Selected Financial and Operating
Data.

|                                                                   |  |                   |        |                    |  |      |        |      |  |  |        |  |  |  |        | 
|------------------------------------------------------------------ |  | ----------------- | ------ | ------------------ |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|                                                                   |  |                   |        |                   
|                                                                   |  | Nine Months Ended |        | Three Months Ended
|                                                                   |  | September 30,     |        | September 30,     
|                                                                   |  |                   |        |                   
|                                                                   |  | 2004              |        | 2003               |  | 2004 |        | 2003
|                                                                   |  |                   |        |                    |  |      |        |     
|Handsets in service, end of period (in
    thousands)(1)           |  |                   | 14,452 |                    |  |      | 12,329 |      |  |  | 14,452 |  |  |  | 12,329 | 
|Net handset additions (in thousands)(1)                            |  |                   | 1,570  |                    |  |      | 1,717  |      |  |  | 550    |  |  |  | 646    | 
|Average monthly minutes of use per handset(1)                      |  |                   | 770    |                    |  |      | 700    |      |  |  | 790    |  |  |  | 740    | 
|System minutes of use (in billions)(1)                             |  |                   | 95.1   |                    |  |      | 72.6   |      |  |  | 33.6   |  |  |  | 26.9   | 
|Boost Mobile handsets in service, end of period
    (in thousands) |  |                   | 800    |                    |  |      | 245    |      |  |  | 800    |  |  |  | 245    | 
|Boost Mobile net handset additions (in thousands)                  |  |                   | 395    |                    |  |      | 224    |      |  |  | 195    |  |  |  | 102    | 
|Net transmitter and receiver sites placed in
    service           |  |                   | 1,450  |                    |  |      | 480    |      |  |  | 630    |  |  |  | 210    | 
|Transmitter and receiver sites in service, end of
    period       |  |                   | 18,950 |                    |  |      | 16,780 |      |  |  | 18,950 |  |  |  | 16,780 | 
|Nextel stores in service, end of period                            |  |                   | 741    |                    |  |      | 563    |      |  |  | 741    |  |  |  | 563    | 



---



|    |                                                                       
|--- | ----------------------------------------------------------------------
|(1) | Excludes amounts attributable to the Boost
    Mobile-branded service.

An additional measurement we use to manage our
business is the rate of customer churn, which is an indicator of
customer retention and represents the monthly percentage of the
customer base that disconnects from service. The churn rate
consists of both involuntary churn and voluntary churn.
Involuntary churn occurs when we have taken action to disconnect
the handset from service, usually due to lack of payment.
Voluntary churn occurs when a customer elects to disconnect
service. Customer churn is calculated by dividing the number of
handsets disconnected from commercial service during the period
by the average number of handsets in commercial service during
the period. We focus our efforts on retaining customers, and
keeping our churn rate low, because the cost to acquire new
customers generally is higher than the cost to retain existing
customers.

Our average monthly customer churn rate,
excluding handsets sold under our Boost Mobile brand, was about
1.5% during the third quarter 2004 as compared to 1.4% during
the third quarter 2003. We believe that the relative stability
in our churn rate is attributable to our ongoing focus on
customer retention efforts through our Touch Point strategy,
acquiring high quality subscribers, including add-on subscribers
from existing customer accounts, and the attractiveness of our
differentiated products and services. These customer retention
initiatives include such programs as strategic care provided to
customers with certain attributes and efforts to migrate
customers to more optimal service pricing plans, as well as
targeted handset upgrade programs. Our churn also reflects the
strength of our credit policies and procedures and the ongoing
optimization of our integrated billing, customer care and
collections system, which allow us to better manage our customer
relationships.

If general economic conditions worsen, if our
products or services are not well received by prospective or
existing customers or if competitive conditions in the wireless
telecommunications industry intensify, including, for example,
the introduction of competitive services, demand for our
products and services may

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


Service Revenues and Cost of
Service.

|                                            |                                 |                       |       |           |   |               |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |    |  
|------------------------------------------- | ------------------------------- | --------------------- | ----- | --------- | - | ------------- | -- | --------- |  | ------------- | ----- | ------- | - |  | -- | - |  | - | ----- | ----- |  |  | -- | -- | -
|                                            |                                 |                       |       |           |   |               |    |           |  |              
|                                            |                                 |                       |       |           |   |               |    |           |  | Change from  
|                                            |                                 |                       |       | % of      |   |               |    | % of      |  | Previous Year
|                                            |                                 | September 30,         |       | Operating |   | September 30, |    | Operating |  |              
|                                            |                                 | 2004                  |       | Revenues  |   | 2003          |    | Revenues  |  | Dollars       |       | Percent
|                                            |                                 |                       |       |           |   |               |    |           |  |               |       |        
|                                            |                                 |                      
|                                            |                                 | (dollars in millions)
|Nine Months Ended                           |                                 |                       |       |           |   |               |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|Service revenues                            |                                 | $                     | 8,768 |           |   |               | 90 | %         |  | $             | 7,194 |         |   |  | 92 | % |  | $ | 1,574 |       |  |  | 22 | % 
|Cost of service (exclusive of depreciation) |                                 |                       | 1,407 |           |   |               | 14 | %         |  |               | 1,218 |         |   |  | 16 | % |  |   | 189   |       |  |  | 16 | % 
|                                            |                                 |                       |       |           |   |               |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|                                            | Service gross margin            |                       | $     | 7,361     |   |               |    |           |  |               | $     | 5,976   |   |  |    |   |  |   | $     | 1,385 |  |  |    | 23 | %
|                                            |                                 |                       |       |           |   |               |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|                                            | Service gross margin percentage |                       |       | 84        | % |               |    |           |  |               |       | 83      | % |  |    |   |  |   |       |       |  |  |    |    |  
|                                            |                                 |                       |       |           |   |               |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|Three Months Ended                          |                                 |                       |       |           |   |               |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|Service revenues                            |                                 | $                     | 3,053 |           |   |               | 90 | %         |  | $             | 2,599 |         |   |  | 90 | % |  | $ | 454   |       |  |  | 17 | % 
|Cost of service (exclusive of depreciation) |                                 |                       | 512   |           |   |               | 15 | %         |  |               | 441   |         |   |  | 15 | % |  |   | 71    |       |  |  | 16 | % 
|                                            |                                 |                       |       |           |   |               |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|                                            | Service gross margin            |                       | $     | 2,541     |   |               |    |           |  |               | $     | 2,158   |   |  |    |   |  |   | $     | 383   |  |  |    | 18 | %
|                                            |                                 |                       |       |           |   |               |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|                                            | Service gross margin percentage |                       |       | 83        | % |               |    |           |  |               |       | 83      | % |  |    |   |  |   |       |       |  |  |    |    |  
|                                            |                                 |                       |       |           |   |               |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   

Service Revenues.Service revenues increased 22%
from the nine months ended September 30, 2003 compared to
the nine months ended September 30, 2004. This increase was
primarily attributable to the increase in the number of handsets
in service. Service revenues increased 17% from the three months
ended September 30, 2003 compared to the three months ended
September 30, 2004. This increase was primarily
attributable to the increase in the number of handsets in
service; partially offset by the slight decrease in the average
monthly revenue per handset in service during the three months
ended September 30, 2004 as compared to the same period in
2003.

The number of handsets in service, including
Boost Mobile-branded handsets in service, increased 21% from
September 30, 2003 to September 30, 2004. We believe
that the growth in the number of handsets in service is the
result of a number of factors, principally:



| |   |                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increased brand name recognition as a result of
    increased advertising and marketing campaigns, including
    advertising and marketing related to our sponsorship of NASCAR;                                                             
|
| |  | our differentiated products and services,
    including our Direct Connect walkie-talkie service, including
    the impact of the launch of our Nationwide Direct Connect
    service in July 2003, and our Nextel Online services;          
|
| |  | the market expansion of our Boost Mobile-branded
    service in 2004;                                                                                                                                                                        
|
| |  | increased sales and marketing staff, including
    staff associated with our Nextel stores, and selling efforts
    targeted at specific vertical markets;                                                                                   
|
| |  | 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;                                                                                                                                                                        
|
| |  | the high quality of our network; and                                                                                                                                                                                                         
|
| |  | add-on subscribers from existing customer
    accounts.                                                                                                                                                                                      

Cost of Service.Cost of service increased 16% from
the nine months ended September 30, 2003 compared to the
nine months ended September 30, 2004 and from the three
months ended September 30,

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2003 compared to the three months ended
September 30, 2004, primarily due to increased minutes of
use resulting from the combined effect of the increase in
handsets in service and an increase in the average monthly
minutes of use per handset. Specifically, from the nine and
three months ended September 30, 2003 compared to the nine
and three months ended September 30, 2004, we experienced:




| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | a 19% and 23% net increase in costs incurred in
    the operation and maintenance of our network and fixed
    interconnection costs; and
|
| |  | a 23% and 15% increase in costs incurred to
    operate our handset service and repair program; partially offset
    by                  
|
| |  | a 10% and 17% decrease in variable
    interconnection fees.                                                                             

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase in transmitter and receiver and
    switch related operational costs due to a 13% increase in
    transmitter and receiver sites placed into service from
    September 30, 2003 to September 30, 2004, including a
    one-time, $23 million charge to adjust certain of our
    deferred liabilities associated with our cell site leases due to
    a change in estimate during the three months ended
    September 30, 2004;
|
| |  | an increase in roaming fees paid to Nextel
    Partners due to the increase in our customer base and the launch
    of Nationwide Direct Connect service in July 2003;                                                                                                                                                                                                                                                                       
|
| |  | an increase in royalties paid to online service
    providers as we increase the data services available to
    subscribers, such as wireless email, ring-tones and wallpaper
    applications; and                                                                                                                                                                                                                                          
|
| |  | an increase in headcount and related employee
    costs to support our expanding network and customer base;
    partially offset by                                                                                                                                                                                                                                                                                                          
|
| |  | a decrease in fixed interconnection costs as a
    result of initiatives implemented to gain efficiencies in our
    network by taking advantage of lower facilities fees and more
    technologically advanced network equipment that provides for
    additional capacity but requires less leased facilities.                                                                                                                             

The increase in costs to operate our handset
service and repair program from the nine months ended
September 30, 2003 to the nine months ended
September 30, 2004 is primarily the result of growth in the
subscriber base. Costs for the third quarter 2004 as compared to
the third quarter 2003 increased primarily as a result of the
growth of the subscriber base partially offset by the reduction
in the cost of replacement handsets used in the service and
repair program.

The decrease in variable interconnection fees
from the nine months ended September 30, 2003 compared to
the nine months ended September 30, 2004 and from the three
months ended September 30, 2003 compared to the three
months ended September 30, 2004 was principally due to a
lower cost per minute of use, partially offset by an increase in
total system minutes of use. Our lower variable interconnection
cost per minute of use was primarily the result of rate savings
achieved through efforts to move long distance traffic to lower
cost carriers in addition to renegotiated lower rates with
existing vendors. Total system minutes of use increased 31% and
25% from the nine and three months ended September 30, 2003
compared to the nine and three months ended September 30,
2004 principally due to an increase in the number of handsets in
service as well as an increase in the average monthly minutes of
use per handset between the periods.

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

29



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Service Gross Margin.Service gross margin, exclusive of
depreciation expense, as a percentage of service revenues
increased slightly from 83% for the nine months ended
September 30, 2003 to 84% for the nine months ended
September 30, 2004 primarily due to the combination of
increased service revenues from subscriber growth and
achievement of economies of scale, such as our interconnection
fee rate savings. Our service gross margin, exclusive of
depreciation expense, as a percentage of service revenues
remained flat at 83% for the three months ended
September 30, 2003 and for the three months ended
September 30, 2004.

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

During the nine and three months ended
September 30, 2004, we recorded $1,022 million and
$345 million of handset and accessory revenues, an increase
of $402 million and $57 million over the nine and
three months ended September 30, 2003. During the nine and
three months ended September 30, 2004, we recorded
$1,489 million and $504 million of cost of handset and
accessory revenues, an increase of $449 million and
$89 million over the nine and three months ended
September 30, 2003. These results are summarized in the
table below.

|                                                                                      |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |    |  
|------------------------------------------------------------------------------------- | ------------------------------------------ | --------------------- | ----- | --------- |  | ------------- | -- | --------- | - | ------------- | ----- | ------- |  |  | -- | -- | - | - | --- | --- |  |  | --- | -- | -
|                                                                                      |                                            |                       |       |           |  |               |    |           |   |              
|                                                                                      |                                            |                       |       |           |  |               |    |           |   | Change from  
|                                                                                      |                                            |                       |       | % of      |  |               |    | % of      |   | Previous Year
|                                                                                      |                                            | September 30,         |       | Operating |  | September 30, |    | Operating |   |              
|                                                                                      |                                            | 2004                  |       | Revenues  |  | 2003          |    | Revenues  |   | Dollars       |       | Percent
|                                                                                      |                                            |                       |       |           |  |               |    |           |   |               |       |        
|                                                                                      |                                            |                      
|                                                                                      |                                            | (dollars in millions)
|Nine Months Ended                                                                     |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   
|Current period handset and accessory sales                                            |                                            | $                     | 1,022 |           |  |               | 10 | %         |   | $             | 790   |         |  |  | 10 | %  |   | $ | 232 |     |  |  | 29  | % 
|SAB No. 101.                                                                          |                                            |                       |      |           |  |               |   | %         |   |               | (170  | )       |  |  | (2 | )% |   |   | 170 |     |  |  | 100 | % 
|                                                                                      |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   
|                                                                                      | Handset and accessory revenues             |                       |       | 1,022     |  |               |    | 10        | % |               |       | 620     |  |  |    | 8  | % |   |     | 402 |  |  |     | 65 | %
|                                                                                      |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   
|Current period cost of handset and accessory sales                                    |                                            |                       | 1,489 |           |  |               | 15 | %         |   |               | 1,210 |         |  |  | 15 | %  |   |   | 279 |     |  |  | 23  | % 
|SAB No. 101.                                                                          |                                            |                       |      |           |  |               |   | %         |   |               | (170  | )       |  |  | (2 | )% |   |   | 170 |     |  |  | 100 | % 
|                                                                                      |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   
|                                                                                      | Cost of handset and accessory
    revenues |                       |       | 1,489     |  |               |    | 15        | % |               |       | 1,040   |  |  |    | 13 | % |   |     | 449 |  |  |     | 43 | %
|                                                                                      |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   
|Handset and accessory net subsidy                                                     |                                            | $                     | (467  | )         |  |               |    |           |   | $             | (420  | )       |  |  |    |    |   | $ | (47 | )   |  |  | 11  | % 
|                                                                                      |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   
|Handset and accessory net subsidy percentage,excluding the impact of SAB
    No. 101. |                                            |                       | (46   | )%        |  |               |    |           |   |               | (53   | )%      |  |  |    |    |   |   |     |     |  |  |     |   
|                                                                                      |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   
|Three Months Ended                                                                    |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   
|                                                                                      | Handset and accessory revenues             |                       | $     | 345       |  |               |    | 10        | % |               | $     | 288     |  |  |    | 10 | % |   | $   | 57  |  |  |     | 20 | %
|                                                                                      | Cost of handset and accessory
    revenues |                       |       | 504       |  |               |    | 15        | % |               |       | 415     |  |  |    | 14 | % |   |     | 89  |  |  |     | 21 | %
|                                                                                      |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   
|Handset and accessory net subsidy                                                     |                                            | $                     | (159  | )         |  |               |    |           |   | $             | (127  | )       |  |  |    |    |   | $ | (32 | )   |  |  | 25  | % 
|                                                                                      |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   
|Handset and accessory net subsidy
    percentage                                      |                                            |                       | (46   | )%        |  |               |    |           |   |               | (44   | )%      |  |  |    |    |   |   |     |     |  |  |     |   
|                                                                                      |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   

Handset and Accessory Revenues.The number of handsets sold and
the sales prices of the handsets sold influence handset and
accessory revenues. Current period handset and accessory sales
increased $232 million or 29%, for the nine months ended
September 30, 2004 as compared to the same period in 2003,
excluding the impact of SAB No. 101. This increase reflects
an increase of about 42% in the number of handsets sold and, to
a lesser extent, an increase in revenues from accessory sales
due to the larger subscriber base, partially offset by about a
9% decrease in the average sales price of the handsets.
Additional information regarding SAB No. 101 and our
adoption of EITF Issue No. 00-21 can be found in note 1 to
the consolidated financial statements in our 2003 annual report
on Form 10-K.

Handset and accessory sales increased
$57 million or 20%, for the three months ended
September 30, 2004 as compared to the same period in 2003.
This increase reflects an increase of about 37% in the number of

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##### Table of Contents



handsets sold and, to a lesser extent, an
increase in revenues from accessory sales due to the larger
subscriber base, partially offset by about a 14% decrease in the
average sales price of the handsets.


Cost of Handset and Accessory Revenues.The number of handsets sold and
the cost of the handsets sold influence cost of handset and
accessory revenues. Current period cost of handset and accessory
sales increased $279 million or 23%, for the nine months
ended September 30, 2004 as compared to the same period in
2003, excluding the impact of SAB No. 101. This increase
reflects an increase of about 42% in the number of handsets
sold, partially offset by about a 13% decrease in the average
cost of handsets.

Cost of handset and accessory sales increased
$89 million or 21% for the three months ended
September 30, 2004 as compared to the same period in 2003.
This increase reflects an increase of about 37% in the number of
handsets sold, partially offset by about an 11% decrease in the
average cost of handsets.

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

Handset and accessory net subsidy as a percentage
of handset and accessory revenues improved from 53% for the nine
months ended September 30, 2003 to 46% for the nine months
ended September 30, 2004 even as the number of handsets
sold increased about 42%. This improvement for the nine months
ended September 30, 2004 compared to the same period in
2003 was due to a decrease in the average subsidy per handset of
about 18% and an increase in the gross margin on accessory sales.

Handset and accessory net subsidy as a percentage
of handset and accessory revenues stayed relatively flat for the
three months ended September 30, 2003 compared to the three
months ended September 30, 2004 even as the number of
handsets sold increased about 37%. This is due primarily to a
decrease in the average cost of handsets in the third quarter
2003 as compared to the first half of 2003.

We expect to continue the industry practice of
selling handsets at prices below cost. Our retention efforts may
cause our handset subsidies to increase as our customer base
continues to grow. In addition, we may increase handset
subsidies in response to the competitive environment. See
 Forward-Looking Statements.

Selling, General and Administrative
Expenses.

|                           |                                     |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |    |  
|-------------------------- | ----------------------------------- | --------------------- | ----- | --------- |  | ------------- | -- | --------- | - | ------------- | ----- | ------- |  |  | -- | -- | - | - | --- | --- |  |  | -- | -- | -
|                           |                                     |                       |       |           |  |               |    |           |   |              
|                           |                                     |                       |       |           |  |               |    |           |   | Change from  
|                           |                                     |                       |       | % of      |  |               |    | % of      |   | Previous Year
|                           |                                     | September 30,         |       | Operating |  | September 30, |    | Operating |   |              
|                           |                                     | 2004                  |       | Revenues  |  | 2003          |    | Revenues  |   | Dollars       |       | Percent
|                           |                                     |                       |       |           |  |               |    |           |   |               |       |        
|                           |                                     |                      
|                           |                                     | (dollars in millions)
|Nine Months Ended          |                                     |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |   
|Selling and marketing      |                                     | $                     | 1,557 |           |  |               | 16 | %         |   | $             | 1,337 |         |  |  | 17 | %  |   | $ | 220 |     |  |  | 16 | % 
|General and administrative |                                     |                       | 1,551 |           |  |               | 16 | %         |   |               | 1,180 |         |  |  | 15 | %  |   |   | 371 |     |  |  | 31 | % 
|                           |                                     |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |   
|                           | Selling, general and administrative |                       | $     | 3,108     |  |               |    | 32        | % |               | $     | 2,517   |  |  |    | 32 | % |   | $   | 591 |  |  |    | 23 | %
|                           |                                     |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |   
|Three Months Ended         |                                     |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |   
|Selling and marketing      |                                     | $                     | 528   |           |  |               | 15 | %         |   | $             | 482   |         |  |  | 17 | %  |   | $ | 46  |     |  |  | 10 | % 
|General and administrative |                                     |                       | 531   |           |  |               | 16 | %         |   |               | 420   |         |  |  | 14 | %  |   |   | 111 |     |  |  | 26 | % 
|                           |                                     |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |   
|                           | Selling, general and administrative |                       | $     | 1,059     |  |               |    | 31        | % |               | $     | 902     |  |  |    | 31 | % |   | $   | 157 |  |  |    | 17 | %
|                           |                                     |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |   

Selling and Marketing.The increase in selling and
marketing expenses reflects:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $110 million and $28 million increase
    for the nine and three months ended September 30, 2004
    compared to the nine and three months ended September 30,
    2003 in advertising expenses as a result of general marketing
    campaigns directed at increasing brand awareness and promoting
    our differentiated services, such as our new branding campaign
    launched in the third quarter 2003, our affiliation

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | with NASCAR beginning in the first quarter 2004,
    the promotion of Nationwide Direct Connect services and
    advertising and promotional costs related to our expansion of
    the areas in which we offer Boost Mobile-branded service that
    began in the first quarter 2004;                                                                                                                                                                                                                                                                                                                                     
|
| |  | an $84 million and $20 million increase
    for the nine and three months ended September 30, 2004
    compared to the nine and three months ended September 30,
    2003 in marketing payroll and related expenses primarily
    associated with our opening an additional 178 Nextel stores
    between September 30, 2003 and September 30, 2004 and
    increased employee commissions primarily in the first half of
    2004 compared to the same period in 2003; and                                                                                                                                               
|
| |  | a $26 million increase in dealer
    compensation for the nine months ended September 30, 2004
    compared to the nine months ended September 30, 2003. This
    primarily reflects an increase in the rate of commissions and
    residuals earned by indirect dealers and distributors due to
    improved subscriber retention for subscribers added through
    indirect channels, partially offset by the decrease in volume of
    indirect sales and the decrease in commissions paid with respect
    to handset sales as more handsets were delivered through our
    direct handset fulfillment system in 2004.

General and Administrative.The increase in general and
administrative expenses from the nine and three months ended
September 30, 2003 compared to the nine and three months
ended September 30, 2004 reflects:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $215 million and $50 million increase
    in personnel, facilities and general corporate expenses due to
    increases in headcount and related facility costs, information
    technology initiatives, professional fees, and research and
    development costs, including those related to the Nextel
    Wireless Broadband field trial; and                                                                                                                
|
| |  | a $159 million and $52 million increase
    in expenses related to billing, collection, customer retention
    and customer care activities primarily due to the costs to
    support a larger customer base, including those of our Boost
    Mobile-branded service, and the focus on our customer Touch
    Point strategy in addition to increased costs associated with
    the implementation of wireless number portability in the fourth
    quarter 2003.

Our general and administrative expenses as a
percentage of operating revenues increased from the three months
ended September 30, 2003 to the three months ended
September 30, 2004 primarily as a result of the increases
in billing, collection, customer retention and customer care
activities, employee and related facility costs and information
technology initiatives.

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



| |   |                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increased costs to support a growing customer
    base, including costs associated with billing, collection,
    customer retention and customer care activities;                                                                
|
| |  | increased marketing and advertising expenses in
    connection with sponsorships and branding and promotional
    initiatives that are designed to increase brand awareness in our
    markets, including our NASCAR sponsorship;
|
| |  | increased costs relating to the expansion of our
    Boost Mobile-branded service into new markets;                                                                                                                              
|
| |  | increased costs associated with opening
    additional Nextel stores; and                                                                                                                                                        
|
| |  | increased costs related to the Nextel Wireless
    Broadband initiatives, which we account for as research and
    development expense; partially offset by                                                                      
|
| |  | additional savings expected from obtaining an
    increasing percentage of sales from our lower-cost customer
    convenient channels, such as web sales, telesales and Nextel
    stores.                                       

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Depreciation and
Amortization.

|                   |                               |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |    |  
|------------------ | ----------------------------- | --------------------- | ----- | --------- |  | ------------- | -- | --------- | - | ------------- | ----- | ------- |  |  | -- | -- | - | - | --- | --- |  |  | --- | -- | -
|                   |                               |                       |       |           |  |               |    |           |   |              
|                   |                               |                       |       |           |  |               |    |           |   | Change from  
|                   |                               |                       |       | % of      |  |               |    | % of      |   | Previous Year
|                   |                               | September 30,         |       | Operating |  | September 30, |    | Operating |   |              
|                   |                               | 2004                  |       | Revenues  |  | 2003          |    | Revenues  |   | Dollars       |       | Percent
|                   |                               |                       |       |           |  |               |    |           |   |               |       |        
|                   |                               |                      
|                   |                               | (dollars in millions)
|Nine Months Ended  |                               |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   
|Depreciation       |                               | $                     | 1,337 |           |  |               | 13 | %         |   | $             | 1,223 |         |  |  | 15 | %  |   | $ | 114 |     |  |  | 9   | % 
|Amortization       |                               |                       | 29    |           |  |               | 1  | %         |   |               | 41    |         |  |  | 1  | %  |   |   | (12 | )   |  |  | (29 | )%
|                   |                               |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   
|                   | Depreciation and amortization |                       | $     | 1,366     |  |               |    | 14        | % |               | $     | 1,264   |  |  |    | 16 | % |   | $   | 102 |  |  |     | 8  | %
|                   |                               |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   
|Three Months Ended |                               |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   
|Depreciation       |                               | $                     | 463   |           |  |               | 13 | %         |   | $             | 416   |         |  |  | 14 | %  |   | $ | 47  |     |  |  | 11  | % 
|Amortization       |                               |                       | 7     |           |  |               | 1  | %         |   |               | 13    |         |  |  | 1  | %  |   |   | (6  | )   |  |  | (46 | )%
|                   |                               |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   
|                   | Depreciation and amortization |                       | $     | 470       |  |               |    | 14        | % |               | $     | 429     |  |  |    | 15 | % |   | $   | 41  |  |  |     | 10 | %
|                   |                               |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |   

Depreciation expense increased $114 million
and $47 million from the nine and three months ended
September 30, 2003 when compared to the nine and three
months ended September 30, 2004. Depreciation increased as
a result of a 13% increase in transmitter and receiver sites in
service, as well as costs to modify existing switches and
transmitter and receiver sites in existing markets primarily to
enhance the capacity of our network. We periodically review the
estimated useful lives of our property, plant and equipment
assets as circumstances warrant. Events that would likely cause
us to review the useful lives of our property, plant and
equipment assets include decisions made by regulatory agencies
and our decisions surrounding strategic or technology matters.
It is possible that depreciation expense may increase in future
periods as a result of one or a combination of these decisions.
Variances in depreciation expense recorded between periods can
also be impacted by several factors, including the effect of
fully depreciated assets, the timing between when capital assets
are purchased and when they are deployed into service, which is
when depreciation commences, company-wide decisions surrounding
levels of capital spending and the level of spending on
non-network assets that generally have much shorter depreciable
lives as compared to network assets.

Amortization expense decreased $12 million
and $6 million from the nine and three months ended
September 30, 2003 when compared to the nine and three
months ended September 30, 2004. This decrease is related
to intangible assets, primarily customer lists, which have
become fully amortized throughout the first nine months of 2004.

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Interest and Other.

|                                                                          |  |                       |       |               |  |         |      |         |  |   |       |   |  |  |     |   
|------------------------------------------------------------------------- |  | --------------------- | ----- | ------------- |  | ------- | ---- | ------- |  | - | ----- | - |  |  | --- | --
|                                                                          |  |                       |       |               |  |        
|                                                                          |  |                       |       | Change from  
|                                                                          |  | September 30,         |       | Previous Year
|                                                                          |  |                       |       |              
|                                                                          |  | 2004                  |       | 2003          |  | Dollars |      | Percent
|                                                                          |  |                       |       |               |  |         |      |        
|                                                                          |  |                      
|                                                                          |  | (dollars in millions)
|Nine Months Ended                                                         |  |                       |       |               |  |         |      |         |  |   |       |   |  |  |     |   
|Interest expense                                                          |  | $                     | (455  | )             |  | $       | (664 | )       |  | $ | 209   |   |  |  | 31  | % 
|Interest income                                                           |  |                       | 21    |               |  |         | 32   |         |  |   | (11   | ) |  |  | (34 | )%
|Loss on retirement of debt and mandatorily
    redeemable preferred stock |  |                       | (85   | )             |  |         | (146 | )       |  |   | 61    |   |  |  | 42  | % 
|Equity in earnings (losses) of
    unconsolidated affiliates, net         |  |                       | 4     |               |  |         | (39  | )       |  |   | 43    |   |  |  | 110 | % 
|Realized gain on sale of investments                                      |  |                       | 26    |               |  |         |     |         |  |   | 26    |   |  |  | NM  |   
|Other, net                                                                |  |                       | 4     |               |  |         | 2    |         |  |   | 2     |   |  |  | 100 | % 
|Income tax benefit (provision)                                            |  |                       | 548   |               |  |         | (70  | )       |  |   | 618   |   |  |  | NM  |   
|Income available to common stockholders                                   |  |                       | 2,477 |               |  |         | 835  |         |  |   | 1,642 |   |  |  | 197 | % 
|Three Months Ended                                                        |  |                       |       |               |  |         |      |         |  |   |       |   |  |  |     |   
|Interest expense                                                          |  | $                     | (146  | )             |  | $       | (220 | )       |  | $ | 74    |   |  |  | 34  | % 
|Interest income                                                           |  |                       | 6     |               |  |         | 10   |         |  |   | (4    | ) |  |  | (40 | )%
|Loss on retirement of debt and mandatorily
    redeemable preferred stock |  |                       | (34   | )             |  |         | (132 | )       |  |   | 98    |   |  |  | 74  | % 
|Equity in earnings of unconsolidated affiliates,
    net                  |  |                       | 6     |               |  |         | 9    |         |  |   | (3    | ) |  |  | (33 | )%
|Other, net                                                                |  |                       | 1     |               |  |         | 2    |         |  |   | (1    | ) |  |  | (50 | )%
|Income tax provision                                                      |  |                       | (98   | )             |  |         | (21  | )       |  |   | (77   | ) |  |  | 367 | % 
|Income available to common stockholders                                   |  |                       | 586   |               |  |         | 346  |         |  |   | 240   |   |  |  | 69  | % 



---



| |                    
| | -------------------
| | NM  Not Meaningful

Interest Expense.The $209 million and
$74 million decrease in interest expense for the nine and
three months ended September 30, 2004 compared to the same
period in 2003 primarily relates to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $289 million and $100 million
    decrease in interest expense attributable to the retirements of
    our senior notes, discussed below;                                                                                                                                                                                                                                                                                     
|
| |  | a $47 million and $15 million decrease
    in interest expense resulting from the combined effect of the
    reduction in the weighted average interest rates related to our
    bank credit facility from 4.0% during the nine months ended
    September 30, 2003 to 3.1% during the nine months ended
    September 30, 2004 and the lower average principal amount
    of the bank credit facility outstanding in 2004; and
|
| |  | a $23 million and $2 million decrease
    resulting from interest expense recorded in prior years related
    to the derivatives that were settled in the third quarter 2003;
    partially offset by                                                                                                                                                                                                                          
|
| |  | a $153 million and $51 million increase
    in interest expense attributable to our new senior notes issued
    since the third quarter 2003.                                                                                                                                                                                                                                                                                  

From the beginning of 2003 through
September 30, 2004, we purchased and retired or redeemed
$5,671 million in aggregate principal amount at maturity of
our senior notes and convertible senior notes. During that
period, we issued an additional $3,900 million in aggregate
principal amount of new senior notes with lower interest rates
and longer maturity periods than the retired senior notes,
resulting in a net reduction of $1,771 million in the
aggregate principal amount of our senior notes. In December
2003, we reduced the principal amount of outstanding term loans
under our credit facility by $574 million by repaying
$2,774 million of term loans under that facility with cash
on hand and the proceeds from the syndication of a new
$2,200 million term loan under that facility that matures
in December 2010. During the three months ended
September 30, 2004, we also amended our bank credit
facility to create a new $4,000 million revolving credit
facility and concurrently borrowed $1,000 million of this
new facility and used $476 million of cash on hand to repay
the entire outstanding balance of one of our then-existing term
loans in the amount of $1,360 million and our
then-outstanding revolving loan in the amount of
$116 million. The other term loan that was outstanding
under the credit facility at the time of the amendment remains
outstanding, with a balance of

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$2,184 million as of September 30,
2004. We expect our interest expense to continue to decrease in
the remainder of 2004 as we realize the benefit of the debt
retirements, exchanges and lower borrowing costs as a result of
the transactions consummated during 2003 and 2004, as well as
the redemption of the 9.375% senior notes in November 2004. See
 Forward-Looking Statements.


Interest Income.The $11 million and
$4 million decrease in interest income for the nine and
three months ended September 30, 2004 compared to the nine
and three months ended September 30, 2003 is due to the
redemption of our Nextel Partners preferred stock during
the fourth quarter 2003, the redemption of our NII
Holdings senior notes in the first quarter 2004, and a
decrease in the average investment balance during the nine
months ended September 30, 2004 as compared to the same
period in 2003.

Loss on Retirement of Debt and Mandatorily
Redeemable Preferred Stock.For
the nine months ended September 30, 2004, we recognized a
loss of $85 million on the retirement of some of our senior
notes, convertible senior notes and a portion of our bank credit
facility, representing the redemption premium paid and the
write-off of the respective unamortized debt financing costs.
For the nine months ended September 30, 2003, we recognized
a loss of $146 million on the retirement of some of our
senior notes and preferred stock, representing the redemption
premium paid and the write-off of the unamortized debt financing
costs. For the three months ended September 30, 2004, we
recognized a loss of $34 million on the extinguishment of a
portion of our credit facility, representing the write-off of
the unamortized debt financing costs, as compared to the same
period in 2003 in which we recognized a $132 million loss
on the retirement of some of our senior notes and preferred
stock, representing the redemption premium paid and the
write-off of the unamortized debt financing costs.

Equity in Earnings (Losses) of
Unconsolidated Affiliates.The
$4 million and $6 million in equity in earnings of
unconsolidated affiliates for the nine and three months ended
September 30, 2004 was primarily due to earnings
attributable to our equity method investment in Nextel Partners.
The $39 million in equity in losses of unconsolidated affiliates
and the $9 million in equity in earnings of unconsolidated
affiliates for the nine and three months ended
September 30, 2003, was primarily due to losses
attributable to our equity method investment in Nextel Partners
of $64 million through June 2003 partially offset by our
equity in earnings of NII Holdings of $26 million and
$10 million during that period.

In the second quarter 2003, our investments in
Nextel Partners common stock and 12% nonvoting mandatorily
redeemable preferred stock were written down to zero through the
application of the equity method of accounting. During the three
months ended September 30, 2004 we purchased 6 million
shares of Nextel Partners class A common stock from
Motorola at an aggregate cash purchase price of
$77 million. Additionally, during the nine months ended
September 30, 2004, Nextel Partners began reporting net
income, thereby allowing us to recover our unrecorded losses and
begin recognizing equity in earnings on our investment.

During the fourth quarter 2003, we sold shares of
NII Holdings common stock, thereby decreasing our
ownership percentage such that we no longer exercise significant
influence over the operating and financial policies of NII
Holdings. We therefore account for our interest in NII Holdings
as an available-for-sale investment.

Realized Gain on Investments.In the first quarter 2004, we
tendered our NII Holdings senior notes in exchange for
$77 million, resulting in a $28 million gain.

Income Tax Benefit (Provision).The income tax benefit for the
nine months ended September 30, 2004 was $548 million
and the income tax provision was $98 million for the three
months ended September 30, 2004. During the nine months
ended September 30, 2004, we decreased the valuation
allowance attributable to our net operating loss and capital
loss carryforwards by $1,041 million as a credit to tax expense.
During the three months ended September 30, 2004, we
decreased the valuation allowance attributable to our capital
loss carryforwards by $175 million as a credit to tax
expense.

In 2003, our net operating loss carryforwards
resulting from losses generated in prior years had offset
virtually all of the taxes that we would have otherwise
incurred. Therefore, excluding the tax benefit of the release of
our valuation allowance, our income tax provision of
$493 million and $273 million for the nine and

35



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##### Table of Contents



three months ended September 30, 2004
increased compared to the income tax provision of
$70 million and $21 million for the nine and three
months ended September 30, 2003.


C. Liquidity and Capital
Resources

As of September 30, 2004, we had total
liquidity of $4,674 million available to fund our
operating, investing and financing activities, including
$1,691 million of cash, cash equivalents and short-term
investments and $2,983 million in undrawn revolving loan
commitments under our credit facility, the availability of which
is subject to the terms and conditions of that facility. In
October 2004, we announced that, on November 15, 2004, we
will redeem for cash the principal amount of our 9.375% senior
notes due 2009 outstanding on that date at a redemption price of
104.688%, the balance of which was $823 million as of
September 30, 2004.

During the nine months ended September 30,
2004, we raised $494 million from the issuance of our 5.95%
senior notes due 2014. We also amended our bank credit facility
to provide for a new $4,000 million revolving credit
facility that replaced our then-existing revolving credit
facility and one of our then-existing term loans. We immediately
borrowed $1,000 million of this new facility and used
$476 million of cash on hand to repay the entire
outstanding balance of one of our then-existing term loans in
the amount of $1,360 million and our outstanding revolving
loan in the amount of $116 million. In addition, we used
$1,162 million of cash to reduce our long-term debt and
capital lease obligations by a total of $1,088 million,
retiring $779 million of our senior notes, exercising the
early buyout option on a $165 million capital lease
obligation and paying $144 million of scheduled maturities
on our bank credit facility that were payable prior to the
amendment of that facility. For the nine months ended
September 30, 2004, total cash provided by operating
activities exceeded cash flows used in investing activities by
$1,343 million compared to $794 million for the same
period in 2003.

As of September 30, 2004, we had working
capital of $1,593 million compared to $871 million as
of December 31, 2003. In addition to cash, cash equivalents
and short-term investments, a significant portion of our working
capital consists of accounts receivable, handset inventory,
prepaid expenses and other current assets, net of accounts
payable and accrued expenses. The increase in working capital is
primarily due to increases in accounts receivable, inventory,
prepaid expenses and other current assets, partially offset by
increases in accounts payable and accrued expenses. Accounts
receivable increased $134 million or 11% primarily due to
the increase in trade receivables resulting from the 12%
increase in the subscriber base since December 31, 2003 and
the related increase in revenues. Amounts due from related
parties increased $236 million as a result of receivables
recorded for various handset inventory discounts under our
handset supply agreement and, to a lesser extent, as a result of
amounts due to us under an infrastructure discount agreement
reached during the third quarter 2004. Inventory increased
$260 million due to greater handset purchases as we
prepared for the launch of a number of new handset models and
increased the distribution of Boost Mobile-branded handsets. The
$121 million increase in prepaid expenses is primarily the
result of prepayments made to Motorola for the future purchase
of handsets, network infrastructure or other services. The
$273 million increase in other current assets is primarily
due to the reclassification of a portion of our investment in
NII Holdings to current assets. Accounts payable and accrued
expenses, including amounts due to related parties, increased
$485 million due to the timing of payments and increased
levels of handset purchases as described above.

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##### Table of Contents



Cash Flows.

|                                      |  |                       |        |               |  |         |        |         |  |   |        |   |  |  |    |   
|------------------------------------- |  | --------------------- | ------ | ------------- |  | ------- | ------ | ------- |  | - | ------ | - |  |  | -- | --
|                                      |  |                       |        |              
|                                      |  | Nine Months Ended     |        | Change from  
|                                      |  | September 30,         |        | Previous Year
|                                      |  |                       |        |              
|                                      |  | 2004                  |        | 2003          |  | Dollars |        | Percent
|                                      |  |                       |        |               |  |         |        |        
|                                      |  |                      
|                                      |  | (dollars in millions)
|Cash provided by operating activities |  | $                     | 2,991  |               |  | $       | 2,394  |         |  | $ | 597    |   |  |  | 25 | % 
|Cash used in investing activities     |  |                       | (1,648 | )             |  |         | (1,600 | )       |  |   | (48    | ) |  |  | (3 | )%
|Cash used in financing activities     |  |                       | (1,161 | )             |  |         | (105   | )       |  |   | (1,056 | ) |  |  | NM |   



---



| |                    
| | -------------------
| | NM  Not Meaningful

Net cash provided by operating activities for the
nine months ended September 30, 2004 improved by
$597 million over the same period in 2003 primarily due to
a $2,007 million increase in cash received from our
customers as a result of growth in our customer base, partially
offset by a $1,473 million increase in cash paid to our
suppliers and employees in order to support the larger customer
base.

Net cash used in investing activities for the
nine months ended September 30, 2004 increased by
$48 million over the same period in 2003 primarily due to:



| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | a $687 million increase in cash paid for
    capital expenditures, and                                            
|
| |  | a $78 million increase in cash paid for
    licenses, acquisitions, investments and other; partially offset
    by
|
| |  | a $640 million increase in net proceeds from
    short term investments, and                                      
|
| |  | a $77 million increase in proceeds from the
    sale of investments.                                              

Capital expenditures to fund the ongoing
investment in our network continued to represent the largest use
of our funds for investing activities. Cash payments for capital
expenditures totaled $1,845 million for the nine months
ended September 30, 2004 and $1,158 million for the
nine months ended September 30, 2003. Capital expenditures
increased for the nine months ended September 30, 2004
compared to the same period in 2003 primarily due to:



| |   |                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase in amounts expended to construct new
    cell sites and network improvements in 2004 compared to 2003,
    reflecting our 2004 plans to improve the coverage and capacity
    of our network;
|
| |  | the outsourcing of our site development work and
    the resulting delay in our construction activities during the
    first half of 2003; and                                                           
|
| |  | costs incurred in connection with WiDEN.                                                                                                                                                                 

We will incur capital expenditures as we continue
to expand the geographic coverage of our iDEN network through
the addition of new transmitter and receiver sites, the
implementation of new applications and features and the
development of dispatch technologies and services. See D.
Future Capital Needs and Resources  Capital
Needs  Capital Expenditures and
 Forward-Looking Statements.

We made cash payments during the nine months
ended September 30, 2004 totaling $341 million for
licenses, investments and other, including $205 million,
primarily related to the acquisition of multichannel multipoint
distribution service, or MMDS, FCC licenses from WorldCom and
Nucentrix and $77 million for shares of Nextel
Partners class A common stock. We made cash payments
during the nine months ended September 30, 2003 totaling
$263 million for licenses, investments and other, including
$201 million related to the acquisition of FCC licenses of
NeoWorld Communications, Inc.

Net cash used for financing activities of
$1,161 million during the nine months ended
September 30, 2004 consisted primarily of:



| |   |                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $827 million paid for the purchase and
    retirement of our senior notes and convertible senior notes;                                                                                                
|
| |  | $165 million in repayments related to our
    remaining capital lease obligation, including a payment of
    $156 million associated with the early buy-out option of
    this capital lease agreement;

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##### Table of Contents





| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | $141 million paid to Motorola for the
    purchase of shares of our class B common stock;                                              
|
| |  | $31 million paid for debt financing costs
    and other; and                                                                           
|
| |  | $620 million in net repayments under our
    bank credit facility; partially offset by                                                 
|
| |  | $494 million of net proceeds from the sale
    of our 5.95% senior notes; and                                                          
|
| |  | $129 million of net proceeds from the
    issuance of shares of our class A common stock primarily under
    our incentive equity plan.

During the nine months ended September 30,
2003, we used cash of $105 million for financing activities,
primarily due to $2,466 million paid for the purchase and
retirement of some of our senior notes, convertible senior notes
and preferred stock, $89 million for net repayments under
our capital lease and finance obligations, $79 million for
net payments under our bank credit facility and $57 million
for preferred stock dividends; partially offset by
$1,983 million of net proceeds from the sale of our 7.375%
senior serial notes due 2015, $499 million of net proceeds
from the issuance of shares of our class A common stock under
our direct stock purchase plan, and $106 million of
proceeds received in connection with the exercise of stock
options granted under our incentive equity plan.

We may, from time to time, as we deem
appropriate, enter into additional refinancing and similar
transactions, including exchanges of our common stock or other
securities for our debt and other long-term obligations and
redemption, repurchase or retirement transactions involving our
outstanding debt and equity securities that in the aggregate may
be material.

D. Future Capital Needs and
Resources

Capital Resources.

As of September 30, 2004, our capital
resources included $1,691 million of cash, cash equivalents
and short-term investments and $2,983 million in undrawn
revolving loan commitments under our credit facility, as
discussed below, resulting in a total amount of liquidity to
fund our operating, investing and financing activities of
$4,674 million as of September 30, 2004. In October
2004, we announced that, on November 15, 2004, we will
redeem for cash the principal amount of our 9.375% senior notes
due 2009 outstanding on that date at a redemption price of
104.688%, the balance of which was $823 million on
September 30, 2004.

Our ongoing capital needs depend on a variety of
factors, including the extent to which we are able to fund the
cash needs of our business from operating activities. Prior to
2003, we were unable to fund our capital expenditures, spectrum
acquisition costs and business acquisitions with the cash
generated by our operating activities. Therefore, we met the
cash needs of our business principally by raising capital from
issuances of debt and equity securities. To the extent we
continue to generate sufficient cash flow from our operating
activities to fund these investing activities, we will use less
of our available liquidity and will have less of a need to raise
additional capital from the capital markets to fund these types
of expenditures. If, however, our cash flow from operating
activities declines or if significant additional funding is
required for our investing activities, including for example,
funding in connection with the FCCs recently announced
Report and Order relating to the realignment of spectrum in the
800 MHz band or for deployment of next generation technologies,
we may be required to fund our investing activities by using our
existing liquidity, to the extent available, or by raising
additional capital from the capital markets, which may not be
available on acceptable terms, if at all. If we become unable to
generate cash flow from our operating activities, our available
liquidity would be sufficient to fund investing activities for
only a limited period of time. Our ability to generate cash flow
from operating activities is dependent upon, among other things:



| |   |                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the amount of revenue we are able to generate
    from our customers, which in turn is dependent on our ability to
    attract new and retain existing customers;
|
| |  | the cost of acquiring and retaining customers,
    including the subsidies we incur to provide handsets to both our
    new and existing customers;              

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##### Table of Contents





| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | the amount of operating expenses required to
    provide our services; and                                         
|
| |  | the amount of non-operating expenses required to
    operate our company, consisting primarily of interest expense.

In July 2004, we amended our bank credit facility
to create a new $4,000 million revolving credit facility
that replaced our then-existing revolving credit facility and
one of our then-existing term loans. In connection with the
amendment, we borrowed $1,000 million of this new facility
and used $476 million of cash on hand to repay the entire
outstanding balance of one of our then-existing term loans in
the amount of $1,360 million and our then-outstanding
revolving loan in the amount of $116 million. The other
term loan that was outstanding under the credit facility at the
time of the amendment remains outstanding, with a balance of
$2,184 million as of September 30, 2004. Under this
new facility, we have increased our borrowing capacity by
$1,440 million, reduced our borrowing costs on both the
drawn and undrawn portions, and provided for further reductions
in borrowing costs to the extent that our debt ratings improve.

As a result of these amendments, as of
September 30, 2004, our bank credit facility provided for
total secured financing capacity of up to $6,184 million,
subject to the satisfaction or waiver of applicable borrowing
conditions. The secured financing capacity consisted of a
$4,000 million revolving loan commitment that matures on
July 31, 2009, of which $1,000 million had been
borrowed and $17 million had been committed under letters
of credit, and a $2,184 million term loan that matures on
December 15, 2010.

Our revolving credit facility can be used to
secure letters of credit for the full amount available under the
facility. The FCC stated in its Report and Order related to the
proceeding to eliminate interference with public safety
operators in the 800 MHz band that, to ensure that the band
reconfiguration process will be completed, it will require us to
establish certain escrow accounts and a letter of credit in the
amount of $2,500 million in order to provide assurance that
funds will be available to pay specified costs relating to the
relocation of the incumbent users of the 800 MHz spectrum. To
the extent that we provide the letter of credit contemplated by
the Report and Order, the available revolving loan commitments
under our credit facility would be reduced by a corresponding
amount. The Report and Order also provides for a reduction in
the amount of the letter of credit as, and to the extent that,
payments of the specified costs are made by us, which would have
the effect of increasing the amount of available revolving loan
commitments by a corresponding amount.

Our credit facility requires compliance with two
financial ratio tests: total indebtedness to operating cash flow
and operating cash flow to interest expense, each as defined
under the credit agreement. 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. As of September 30, 2004, we were in compliance
with all financial ratio tests under our credit facility and we
expect to remain in full compliance with these ratio tests for
the foreseeable future. See  Forward-Looking
Statements. We are also obligated to repay the loans if
certain change of control events occur. Borrowings under the
facility are currently secured by liens on substantially all of
our assets, and are guaranteed by us and by substantially all of
our subsidiaries. Our credit facility provides for the
termination of these liens and subsidiary guarantees upon
satisfaction of certain conditions, including improvements in
debt ratings and the repayment of our remaining outstanding term
loan. There is no provision under any of our indebtedness that
requires repayment in the event of a downgrade by any ratings
service.

Our ability to borrow additional amounts under
the credit facility may be restricted by provisions included in
some of our public notes and mandatorily redeemable preferred
stock that limit the incurrence of additional indebtedness in
certain circumstances. The availability of borrowings under this
facility also is subject to the satisfaction or waiver of
specified borrowing conditions. We have satisfied the conditions
under this facility and the applicable provisions of our senior
notes and mandatorily redeemable preferred stock currently do
not restrict our ability to borrow the remaining $2,983 million
that is currently available under the revolving credit
commitment.

39



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##### Table of Contents



The credit facility also contains covenants which
limit our ability and the ability of some of our subsidiaries to
incur additional indebtedness; create liens; pay dividends or
make distributions in respect of our or their capital stock or
make specified other restricted payments; consolidate, merge or
sell all or substantially all of our or their assets; guarantee
obligations of other entities; enter into hedging agreements;
enter into transactions with affiliates or related persons or
engage in any business other than the telecommunications
business. Although these covenants are similar to those
contained in our previous credit facility, they have been
revised under the amended credit facility to provide us with
greater operating flexibility.

Capital Needs.

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



| |   |                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | operating expenses relating to our network;                                                                                                                                                                                                        
|
| |  | capital expenditures, as discussed immediately
    below under  Capital Expenditures;                                                                                                                                                           
|
| |  | potential spectrum purchases and investments in
    new business opportunities;                                                                                                                                                                    
|
| |  | potential payments to the FCC and other third
    parties and potential costs to reconfigure our spectrum in
    connection with the FCCs recently announced Report and
    Order relating to the realignment of spectrum in the 800 MHz
    band;
|
| |  | potential material increases in the cost of
    compliance with regulatory mandates, particularly the
    requirement to deploy location-based Phase II E911 capabilities;                                                                         
|
| |  | scheduled principal and interest payments related
    to our long-term debt, the redemption of our 9.375% senior notes
    due 2009 and any of our other securities that we choose to
    purchase or redeem; and                                  
|
| |  | other general corporate expenditures, including
    the anticipated impact of becoming a full federal cash taxpayer
    in mid-2006, at the earliest.                                                                                              

Capital Expenditures.Our capital expenditures during
the nine months ended September 30, 2004 totaled
$1,845 million, including capitalized interest. In the
future, we expect our capital spending to be driven by several
factors including:



| |   |                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the purchase and construction of additional
    transmitter and receiver sites and related equipment to enhance
    our existing iDEN networks geographic coverage and to
    maintain our network quality;           
|
| |  | the enhancements to our existing iDEN technology
    to increase data speeds and voice capacity, including
    enhancements that may be made in connection with the
    implementation of the 800 MHz realignment plan;
|
| |  | any potential future enhancement of our network
    through the deployment of next generation technologies; and                                                                                                        
|
| |  | capital expenditures required to support our back
    office operations and additional Nextel stores.                                                                                                                  

Our future capital expenditures are affected by
our decisions with respect to the deployment of new technologies
and the performance of future technology improvements. As
described in more detail in our 2003 annual report on Form 10-K,
we have implemented modifications to our handsets and network
infrastructure software necessary to support deployment of the
6:1 voice coder that is designed to more efficiently utilize
radio spectrum and, thereby, significantly increase the capacity
of our network. We will realize the benefits of this upgrade as
handsets that operate using the 6:1 voice coder for wireless
interconnection are introduced into our customer base and the
related network infrastructure software is activated. In the
third quarter 2004, we began selling new handset models that
operate in both the 6:1 and current 3:1 modes. Handsets that
operate in both modes now make up the majority of handsets that
we sell. In the third quarter 2004, in several of our markets,
we activated 6:1 voice coder software in our network that allows
handsets to shift between 3:1 and 6:1 modes, and is designed to
provide us with the increased network capacity made available by
the 6:1 voice coder. We currently expect to activate the network
software in substantially

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##### Table of Contents



all of our other markets by the first quarter
2005. If there are substantial delays in the activation of the
network software, the related network capacity benefits would be
delayed or reduced, and over time we would be required to invest
additional capital in our infrastructure to satisfy our network
capacity needs. Development of technology enhancements like the
6:1 voice coder would allow us to reduce the amount of capital
expenditures we would need to make to enhance our network voice
capacity in future years. However, any anticipated reductions in
capital expenditures could be offset to the extent we incur
additional capital expenditures to deploy next generation
technologies. We will deploy a next generation technology only
when deployment is warranted by expected customer demand and
when the anticipated benefits of services requiring this
technology outweigh the costs of providing those services. We
currently are working with several vendors, as part of a
request-for-proposal process, in order to better understand the
potential costs and returns of a nationwide wireless broadband
network. See  Forward-Looking Statements.


Future Contractual Obligations.The following table sets forth our
best estimates as to the amounts and timing of contractual
payments for our most significant contractual obligations as of
September 30, 2004. The information in the table reflects
future unconditional payments and is based upon, among other
things, the terms of the relevant agreements, appropriate
classification of items under generally accepted accounting
principles currently in effect and certain assumptions, such as
future interest rates. Future events, including additional
purchases of our securities and refinancing of those securities,
could cause actual payments to differ significantly from these
amounts. See  Forward-Looking Statements.

|                                  |  |               |        |           |  |      |     |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|--------------------------------- |  | ------------- | ------ | --------- |  | ---- | --- | ---- |  | ---- | ----- | ---- |  | ---------- | ----- |  |  | - | ----- |  |  | - | ----- |  |  | - | ------ | 
|                                  |  |               |        | Remainder |  |      |     |      |  |      |       |      |  | 2009 and  
|Future Contractual Obligations    |  | Total         |        | of 2004   |  | 2005 |     | 2006 |  | 2007 |       | 2008 |  | Thereafter
|                                  |  |               |        |           |  |      |     |      |  |      |       |      |  |           
|                                  |  |              
|                                  |  | (in millions)
|Public senior notes(1)            |  | $             | 9,776  |           |  | $    | 82  |      |  | $    | 442   |      |  | $          | 442   |  |  | $ | 442   |  |  | $ | 442   |  |  | $ | 7,926  | 
|Bank credit facility(2)           |  |               | 4,322  |           |  |      | 38  |      |  |      | 194   |      |  |            | 210   |  |  |   | 220   |  |  |   | 228   |  |  |   | 3,432  | 
|Preferred stock cash payments     |  |               | 245    |           |  |      |    |      |  |      |      |      |  |            |      |  |  |   |      |  |  |   |      |  |  |   | 245    | 
|Operating leases                  |  |               | 1,743  |           |  |      | 100 |      |  |      | 491   |      |  |            | 378   |  |  |   | 297   |  |  |   | 214   |  |  |   | 263    | 
|Purchase obligations and other(3) |  |               | 2,375  |           |  |      | 149 |      |  |      | 514   |      |  |            | 452   |  |  |   | 283   |  |  |   | 241   |  |  |   | 736    | 
|                                  |  |               |        |           |  |      |     |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|Total                             |  | $             | 18,461 |           |  | $    | 369 |      |  | $    | 1,641 |      |  | $          | 1,482 |  |  | $ | 1,242 |  |  | $ | 1,125 |  |  | $ | 12,602 | 
|                                  |  |               |        |           |  |      |     |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 



---



|    |                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | These amounts do not include the effect of our
    October 2004 announced plan to redeem the principal amount of
    our 9.375% senior notes outstanding on November 15, 2004.                                                                                             
|   
|(2) | These amounts include principal amortization and
    estimated interest payments based on managements
    expectation as to future interest rates, assume the current
    payment schedule and exclude any additional drawdown under the
    revolving loan commitment.   
|   
|(3) | These amounts do not take into account any
    potential payments to the FCC or other third parties in
    connection with the Report and Order adopted by the FCC to
    resolve the problem of interference with public safety systems
    operating in the 800 MHz band.

In addition, we have about $2 billion of
open purchase orders for goods or services as of
September 30, 2004 that are enforceable and legally binding
and that specify all significant terms, but are not recorded as
liabilities as of September 30, 2004. We expect
substantially all of these commitments to become due in the next
twelve months. The above table excludes amounts that may be paid
or will be paid in connection with spectrum acquisitions. We
have committed, subject to certain conditions which may not be
met, to pay up to about $304 million for spectrum leasing
agreements and acquisitions. Included in the Purchase
obligations and other caption are minimum amounts due
under some of our most significant service contracts, including
agreements for telecommunications and customer billing services,
advertising services and contracts related to our information
and technology and customer care outsourcing arrangements.
Amounts actually paid under some of these other
agreements will likely be higher due to variable components of
these agreements. The more significant variable components that
determine the ultimate obligation owed include items such as
hours contracted, subscribers, and other factors. In addition,
we are party to various arrangements that are conditional in
nature and obligate us to make payments only upon the occurrence
of certain events, such as the delivery of functioning software
or products. Because it is not possible to predict the timing or
amounts that may be due under these conditional arrangements, no
such amounts have been included in the table above.

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Significant amounts expected to be paid to
Motorola for infrastructure, handsets and related services are
not shown above due to the uncertainty surrounding the timing
and extent of these payments. The minimum contractual amounts
under our agreements with Motorola have been included in the
table above. Motorola and we have extended through 2004 the
terms of our handset and infrastructure supply agreements and
are in the process of negotiating a long-term master supply
agreement. In the event we are not able to reach an agreement
with Motorola on a new long-term master supply agreement by the
end of 2004, we may have to seek an extension of our existing
agreement.


In addition, the table above excludes amounts
that we may be required to or elect to pay with respect to the
purchase of equity interests in Nextel Partners. Nextel Partners
provides digital wireless communications services under the
Nextel brand name utilizing iDEN technology in mid-sized and
tertiary U.S. markets, and has the right to operate in 98 of the
top 300 metropolitan statistical areas in the United States
ranked by population. In January 1999, we entered into
agreements with Nextel Partners and other parties, including
Motorola, relating to the formation, capitalization, governance,
financing and operation of Nextel Partners. In addition, the
certificate of incorporation of Nextel Partners establishes
circumstances in which we will have the right or obligation to
purchase the outstanding shares of class A common stock of
Nextel Partners at specified prices. We may pay the
consideration for such a purchase in cash, shares of our stock,
or a combination of both. Subject to certain limitations and
conditions, including possible deferrals by Nextel Partners, we
will have the right to purchase the outstanding shares of Nextel
Partners class A common stock on January 29, 2008. 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. Additional information regarding the circumstances in
which we may be required to purchase the outstanding shares of
Nextel Partners class A common stock can be found in our
2003 annual report on Form 10-K.

Future Outlook.Since the third quarter 2002, our
total cash flows provided by operating activities have exceeded
our total cash flows used in investing activities and scheduled
debt repayment obligations. We expect to meet our funding needs
for at least the next twelve months by using our cash balances
on hand, funds available under our credit facility and
anticipated cash flows from operating activities. See
 Forward-Looking Statements.

In making this assessment, we have considered:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the anticipated level of capital expenditures
    related to our existing iDEN network;                                                                                                                                                                                                                                                                                                                             
|
| |  | our scheduled debt service requirements, and the
    announced redemption of our 9.375% senior notes due 2009 in the
    fourth quarter 2004;                                                                                                                                                                                                                                                                       
|
| |  | our current expectations regarding the
    anticipated timing and amount of our funding obligations, and
    the related requirement that we deliver letters of credit in the
    amount of $2,500 million securing those obligations,
    pursuant to the FCCs recently announced Report and Order
    relating to the realignment of spectrum in the 800 MHz band as
    described in the FCCs news release; and
|
| |  | other future contractual obligations.                                                                                                                                                                                                                                                                                                                                                                               

We have existing cash, cash equivalents and
short-term investments on hand and available of
$1,691 million as of September 30, 2004. Pursuant to
the FCCs Report and Order relating to the spectrum
realignment, $2,500 million of the availability under our
amended credit facility would be used to obtain a letter of
credit to secure certain of our obligations relating to that
decision. To the extent that we provide the letter of credit
contemplated by the Report and Order, the available revolving
loan commitments under our credit facility would be reduced by a
corresponding amount. The Report and Order also provides for a
reduction in the amount of the letter of credit as, and to the
extent that, payments of the specified costs are made by us,
which would have the effect of increasing the amount of
available revolving loan commitments by a corresponding amount.

If we deploy next generation technologies, our
anticipated cash needs could increase significantly. If our
business plans change, including as a result of changes in
technology, or if economic conditions in any of our

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


The conclusion that we expect to meet our funding
needs for at least the next twelve months as described above
does not take into account:



| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the impact of our participation in any future
    auctions for the purchase of licenses for significant amounts of
    spectrum;                             
|
| |  | any significant acquisition transactions or the
    pursuit of any significant new business opportunities other than
    those currently being pursued by us;
|
| |  | the funding required in connection with a
    deployment of next generation technologies;                                                                    
|
| |  | potential material additional purchases or
    redemptions of our outstanding debt and equity securities for
    cash; and                                   
|
| |  | potential material increases in the cost of
    compliance with regulatory mandates, including regulations
    related to Phase II E911 service.             

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



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

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

Regulatory Update

Consumer Protection Rules.On May 27, 2004, the
California Public Utilities Commission, or CPUC, adopted
consumer protection rules that govern virtually every aspect of
the relationship between telecommunications carriers, including
us, and their customers, relating to, among other things,
advertising and marketing of carrier services, the initiation
and provisioning of services, including a mandatory 30-day
return policy, billing and collection for services and customer
care. With a few exceptions, the CPUC has required
implementation of the rules by December 6, 2004, but has
permitted carriers to request extensions of time for
implementation. In September 2004, we filed a complaint in
federal district court, which remains pending, that alleges that
the rules are unlawful and contravene federal law and policy.

Cell Site Tower Construction.In October 2004, the FCC released
a report and order modifying the procedures for review of tower
site construction and construction of other communications
facilities. These new rules may result in complicating the
review process due to required reviews by state governments,
Native American tribes and other interested parties, as well as
the FCC. In a separate pending proceeding that could impact the
tower siting process, the FCC is conducting an inquiry into the
effect that communications towers may have on migratory birds.

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Forward-Looking Statements

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the success of efforts to improve, and
    satisfactorily address any issues relating to, our network
    performance;                                                                                                                                                                                                                                                                                                                         
|
| |  | the timely development, availability and
    deployment of new handsets with expanded applications and
    features, including those that operate using the 6:1 voice coder;                                                                                                                                                                                                                                                                   
|
| |  | the timely development and deployment of higher
    speed data infrastructure and software designed to significantly
    increase the data speeds of our network;                                                                                                                                                                                                                                                                              
|
| |  | market acceptance of our data service offerings,
    including our Nextel Online services;                                                                                                                                                                                                                                                                                                                                                     
|
| |  | the timely delivery and successful implementation
    of new technologies deployed in connection with any future
    enhanced iDEN or next generation or other advanced services we
    may offer;                                                                                                                                                                                                                                             
|
| |  | no significant adverse change in Motorolas
    ability or willingness to provide handsets and related equipment
    and software applications, to develop new technologies or
    features for us, or to reimburse us for our costs related to the
    A-GPS software design defect, or in our relationship with it, as
    a result of the spin-off of its semiconductor unit, recent
    changes in its senior management team or otherwise;
|
| |  | the ability to achieve and maintain market
    penetration and subscriber revenue levels sufficient to provide
    financial viability to our network business;                                                                                                                                                                                                                                                                                
|
| |  | our ability to successfully scale, in some
    circumstances in conjunction with third parties under our
    outsourcing arrangements, our billing, collection, customer care
    and similar back-office operations to keep pace with customer
    growth, increased system usage rates and growth in levels of
    accounts receivable being generated by our customers;                                                                     
|
| |  | access to sufficient debt or equity capital to
    meet any operating and financing needs;                                                                                                                                                                                                                                                                                                                                                     
|
| |  | the quality and price of similar or comparable
    wireless communications services offered or to be offered by our
    competitors, including providers of cellular and personal
    communication services including, for example, two-way
    walkie-talkie services first introduced by several of our
    competitors in 2003;                                                                                                            
|
| |  | future legislation or regulatory actions relating
    to specialized mobile radio services, other wireless
    communications services or telecommunications generally;                                                                                                                                                                                                                                                                        
|
| |  | the costs of compliance with regulatory mandates,
    particularly requirements related to the FCCs Report and
    Order relating to the realignment of spectrum in the 800 MHz
    band and the requirement to deploy Phase II location-based E911
    capabilities; and                                                                                                                                                                     
|
| |  | other risks and uncertainties described from time
    to time in our reports filed with the SEC, including our annual
    report on Form 10-K for the year ended December 31,
    2003 and our subsequent quarterly reports on Form 10-Q.                                                                                                                                                                                                      

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|        |                                                                
|------- | ---------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About
    Market Risk.

We primarily use senior notes, credit facilities,
mandatorily redeemable preferred stock and issuances of common
stock to finance our obligations. We are exposed to market risk
from changes in interest rates and equity prices. Our primary
interest rate risk results from changes in the London Interbank
Offered Rate, or LIBOR, and U.S. prime and Eurodollar rates,
which are used to determine the interest rates applicable to our
borrowings under our bank credit facility. Interest rate changes
expose our fixed rate long-term borrowings to changes in fair
value and expose our variable rate long-term borrowings to
changes in future cash flows. From time to time, we use
derivative instruments primarily consisting of interest rate
swap agreements to manage this interest rate exposure by
achieving a desired proportion of fixed rate versus variable
rate borrowings. All of our derivative transactions are entered
into for non-trading purposes. As of September 30, 2004, we
were not a party to any material derivative instruments.

As of September 30, 2004, we held
$703 million of short-term investments and
$988 million of cash and cash equivalents primarily
consisting of investment grade commercial paper, government
securities and money market deposits. Our primary interest rate
risk on these short-term investments and cash and cash
equivalents results from changes in short-term (less than six
months) interest rates. However, this risk is largely offset by
the fact that interest on our bank credit facility borrowings is
variable and is reset over periods of less than six months.

The table below summarizes our remaining interest
rate risks as of September 30, 2004 in U.S. dollars. Since
our financial instruments expose us to interest rate risks,
these instruments are presented within each market risk
category. The table presents principal cash flows and related
interest rates by year of maturity for our senior notes, bank
credit facilities, finance obligations and mandatorily
redeemable preferred stock in effect at September 30, 2004. In
the case of the mandatorily redeemable preferred stock and
senior notes, the table excludes the potential exercise of the
relevant redemption or conversion features. Fair values included
in this section have been determined based on:



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

Notes 6, 7, and 8 to the consolidated financial
statements included in our 2003 annual report on Form 10-K
contain descriptions and significant changes in outstanding
amounts of our senior notes, bank credit facility, capital lease
and finance obligations, interest rate swap agreements and
mandatorily redeemable preferred stock and should be read
together with the following table.

|                                                                                  |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |    |   |  |   |       |   |  |   |       |   |  |   |       | 
|--------------------------------------------------------------------------------- | --------------------- | --------------------- | - | ---- | - | ---- | - | ---- | - | ---- | - | ---------- | - | ----- | - | ----- | - |  | - | -- | - |  | - | ----- | - |  | - | ----- | - |  | - | ----- | 
|                                                                                  |                       |                       |   |      |   |      |   |     
|                                                                                  |                       | Year of Maturity      |   |      |   |      |   |     
|                                                                                  |                       |                       |   |      |   |      |   | Fair
|                                                                                  |                       | 2004                  |   | 2005 |   | 2006 |   | 2007 |   | 2008 |   | Thereafter |   | Total |   | Value
|                                                                                  |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |      
|                                                                                  |                       |                      
|                                                                                  |                       | (dollars in millions)
|I. Interest Rate Sensitivity                                                      |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |    |   |  |   |       |   |  |   |       |   |  |   |      
|Mandatorily Redeemable Preferred Stock,
    Long-term Debt and Finance Obligation |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |    |   |  |   |       |   |  |   |       |   |  |   |      
|                                                                                  | Fixed rate            |                       | $ |     |   |      | $ | 1    |   |      | $ | 1          |   |       | $ | 5     |   |  | $ |   |   |  | $ | 6,196 |   |  | $ | 6,203 |   |  | $ | 6,421 | 
|                                                                                  | Average interest rate |                       |   | 8    | % |      |   | 8    | % |      |   | 8          | % |       |   | 8     | % |  |   |   |   |  |   | 8     | % |  |   | 8     | % |  |   |       | 
|                                                                                  | Variable rate         |                       | $ | 6    |   |      | $ | 23   |   |      | $ | 36         |   |       | $ | 22    |   |  | $ | 22 |   |  | $ | 3,090 |   |  | $ | 3,199 |   |  | $ | 3,195 | 
|                                                                                  | Average interest rate |                       |   | 4    | % |      |   | 4    | % |      |   | 4          | % |       |   | 4     | % |  |   | 4  | % |  |   | 4     | % |  |   | 4     | % |  |   |       | 






|        |                         
|------- | ------------------------
|Item 4. | Controls and Procedures.

We maintain a set of disclosure controls and
procedures that are designed to ensure that information relating
to Nextel Communications, Inc. (including its consolidated
subsidiaries) required to be disclosed in our periodic filings
under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported in a timely manner under the
Securities Exchange Act. We carried out an evaluation, under the
supervision and with the participation of management, including
our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures.

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##### Table of Contents



Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of
September 30, 2004.


We completed the implementation of an Enterprise
Resource Planning system in the first quarter 2004. The
implementation was part of a company-wide initiative to improve
business processes and efficiency. As a matter of course in such
implementations, we continue to update our internal controls
over financial reporting as necessary to accommodate any
modifications to our business processes or accounting
procedures. There have been no other changes in our internal
controls over financial reporting that occurred during the three
months ended September 30, 2004 that have materially
affected, or are reasonably likely to materially affect,
Nextels internal controls over financial reporting.

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##### Table of Contents






PART II  OTHER INFORMATION.




Item 1.     Legal
Proceedings.

We are involved in certain legal proceedings that
are described in our annual report on Form 10-K for the
year ended December 31, 2003, and our subsequent quarterly
reports on Form 10-Q. During the three months ended
September 30, 2004, there were no material developments in
the status of those legal proceedings that have not been
previously disclosed in those reports.

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




Item 2.     Unregistered
Sales of Equity Securities and Use of Proceeds.

In September 2004, we purchased from Motorola,
Inc. 6 million shares of our class B common stock for
$141 million in cash, or about $23.50 per share. We account
for treasury stock under the cost method. We anticipate
converting these shares into shares of our class A common stock
pursuant to the terms of our certificate of incorporation and
using them for stock issuances under our equity plans.




Item 6.     Exhibits.

List of Exhibits.

|        |    |                     |  |                                                                                                                                                              
|------- | -- | ------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                    
|Number  |    | Exhibit Description
|        |    |                    
|        | 10 | .1                  |  | Form of Deferred Share Agreement (Employee) under
    the Nextel Communications, Inc. Amended and Restated Incentive
    Equity Plan                         
|        | 10 | .2                  |  | Form of Deferred Share Agreement (Non-Affiliate
    Director) under the Nextel Communications, Inc. Amended and
    Restated Incentive Equity Plan           
|        | 10 | .3                  |  | Form of Nonqualified Stock Option Agreement
    (Employee) under the Nextel Communications, Inc. Amended and
    Restated Incentive Equity Plan              
|        | 10 | .4                  |  | Form of Nonqualified Stock Option Agreement
    (Non-Affiliate Director) under the Nextel Communications, Inc.
    Amended and Restated Incentive Equity Plan
|        | 15 |                     |  | Letter in Lieu of Consent for Review Report                                                                                                                  
|        | 31 |                     |  | Rule 13a-14(a)/15d-14(a) Certifications                                                                                                                      
|        | 32 |                     |  | Section 1350 Certifications                                                                                                                                  

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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                   
| | Senior Vice President and Controller
| | (Principal Accounting Officer)      

Date: November 5, 2004


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EXHIBIT INDEX

|        |    |                     |  |                                                                                                                                                              
|------- | -- | ------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                    
|Number  |    | Exhibit Description
|        |    |                    
|        | 10 | .1                  |  | Form of Deferred Share Agreement (Employee) under
    the Nextel Communications, Inc. Amended and Restated Incentive
    Equity Plan                         
|        | 10 | .2                  |  | Form of Deferred Share Agreement (Non-Affiliate
    Director) under the Nextel Communications, Inc. Amended and
    Restated Incentive Equity Plan           
|        | 10 | .3                  |  | Form of Nonqualified Stock Option Agreement
    (Employee) under the Nextel Communications, Inc. Amended and
    Restated Incentive Equity Plan              
|        | 10 | .4                  |  | Form of Nonqualified Stock Option Agreement
    (Non-Affiliate Director) under the Nextel Communications, Inc.
    Amended and Restated Incentive Equity Plan
|        | 15 |                     |  | Letter in Lieu of Consent for Review Report                                                                                                                  
|        | 31 |                     |  | Rule 13a-14(a)/15d-14(a) Certifications                                                                                                                      
|        | 32 |                     |  | Section 1350 Certifications                                                                                                                                  

49