##### 















Washington, D.C. 20549




FORM 10-Q


(Mark One)

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



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 April 30, 2003           
|                                                     |  |                             
|Class A Common Stock, $0.001 par value               |  |                              | 992,411,328 | 
|Class B Nonvoting Common Stock, $0.001 par
    value |  |                              | 35,660,000  | 



---






---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

INDEX

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



---



##### 



PART I  FINANCIAL INFORMATION.

Item 1.     Financial
Statements  Unaudited.

NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES



Condensed Consolidated Balance
Sheets


As of March 31, 2003 and
December 31, 2002


(in millions)


Unaudited


|                                                                                        |                                                                                           |                            |        |        |        |   |        |        |        | 
|--------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | -------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                                        |                                                                                           | 2003                       |        | 2002  
|                                                                                        |                                                                                           |                            |        |       
|ASSETS                                                                                 
|Current assets                                                                          |                                                                                           |                            |        |        |        |   |        |       
|                                                                                        | Cash and cash equivalents                                                                 |                            | $      | 1,356  |        |   | $      | 1,846  |       
|                                                                                        | Short-term investments                                                                    |                            |        | 921    |        |   |        | 840    |       
|                                                                                        | Accounts and notes receivable, less allowance for
    doubtful accounts of $123 and $127. |                            |        | 996    |        |   |        | 1,077  |       
|                                                                                        | Handset and accessory inventory                                                           |                            |        | 194    |        |   |        | 245    |       
|                                                                                        | Prepaid expenses and other current assets                                                 |                            |        | 672    |        |   |        | 642    |       
|                                                                                        |                                                                                           |                            |        |        |        |   |        |       
|                                                                                        |                                                                                           | Total current assets       |        |        | 4,139  |   |        |        | 4,650  | 
|Investments                                                                             |                                                                                           |                            | 147    |        |        |   | 145    |       
|Property, plant and equipment,net of accumulated depreciation of
    $5,406 and $5,007. |                                                                                           |                            | 8,828  |        |        |   | 8,918  |       
|Intangible assets,net of accumulated amortization of $89
    and $76.                   |                                                                                           |                            | 6,903  |        |        |   | 6,607  |       
|Other assets                                                                            |                                                                                           |                            | 1,106  |        |        |   | 1,164  |       
|                                                                                        |                                                                                           |                            |        |        |        |   |        |       
|                                                                                        |                                                                                           | $                          | 21,123 |        |        | $ | 21,484 |       
|                                                                                        |                                                                                           |                            |        |        |        |   |        |       
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                               
|Current liabilities                                                                     |                                                                                           |                            |        |        |        |   |        |       
|                                                                                        | Accounts payable                                                                          |                            | $      | 426    |        |   | $      | 515    |       
|                                                                                        | Accrued expenses and other                                                                |                            |        | 1,849  |        |   |        | 1,749  |       
|                                                                                        | Due to related parties                                                                    |                            |        | 206    |        |   |        | 241    |       
|                                                                                        | Current portion of long-term debt, capital lease
    and finance obligations              |                            |        | 236    |        |   |        | 251    |       
|                                                                                        |                                                                                           |                            |        |        |        |   |        |       
|                                                                                        |                                                                                           | Total current liabilities  |        |        | 2,717  |   |        |        | 2,756  | 
|Long-term debt                                                                          |                                                                                           |                            | 11,624 |        |        |   | 12,079 |       
|Capital lease and finance
    obligations                                               |                                                                                           |                            | 165    |        |        |   | 220    |       
|Deferred income taxes                                                                   |                                                                                           |                            | 1,632  |        |        |   | 1,619  |       
|Deferred revenues and other                                                             |                                                                                           |                            | 960    |        |        |   | 949    |       
|                                                                                        |                                                                                           |                            |        |        |        |   |        |       
|                                                                                        |                                                                                           | Total liabilities          |        |        | 17,098 |   |        |        | 17,623 | 
|                                                                                        |                                                                                           |                            |        |        |        |   |        |       
|Commitments and contingencies (note
    7)                                              |                                                                                           |                            |        |        |        |   |        |       
|Mandatorily redeemable preferred
    stock                                              |                                                                                           |                            | 947    |        |        |   | 1,015  |       
|Stockholders equity                                                                    |                                                                                           |                            |        |        |        |   |        |       
|                                                                                        | Convertible preferred stock, 0 and 4 shares
    issued and outstanding                    |                            |        |       |        |   |        | 136    |       
|                                                                                        | Common stock, class A, 992 and 968 shares issued
    and outstanding                      |                            |        | 1      |        |   |        | 1      |       
|                                                                                        | Common stock, class B, nonvoting convertible, 36
    shares issued and outstanding        |                            |        |       |        |   |        |       |       
|                                                                                        | Paid-in capital                                                                           |                            |        | 10,648 |        |   |        | 10,530 |       
|                                                                                        | Accumulated deficit                                                                       |                            |        | (7,553 | )      |   |        | (7,793 | )     
|                                                                                        | Deferred compensation, net                                                                |                            |        | (5     | )      |   |        | (7     | )     
|                                                                                        | Accumulated other comprehensive loss                                                      |                            |        | (13    | )      |   |        | (21    | )     
|                                                                                        |                                                                                           |                            |        |        |        |   |        |       
|                                                                                        |                                                                                           | Total stockholders equity |        |        | 3,078  |   |        |        | 2,846  | 
|                                                                                        |                                                                                           |                            |        |        |        |   |        |       
|                                                                                        |                                                                                           | $                          | 21,123 |        |        | $ | 21,484 |       
|                                                                                        |                                                                                           |                            |        |        |        |   |        |       

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

3



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES



Condensed Consolidated Statements of
Operations and Comprehensive Income (Loss)


For the Three Months Ended March 31, 2003
and 2002


(in millions, except per share
amounts)


Unaudited


|                                                         |                                                                    |                                                                             |       |       |   |   |       |       |    | 
|-------------------------------------------------------- | ------------------------------------------------------------------ | --------------------------------------------------------------------------- | ----- | ----- | - | - | ----- | ----- | -- | 
|                                                         |                                                                    | 2003                                                                        |       | 2002 
|                                                         |                                                                    |                                                                             |       |      
|Operating revenues                                       |                                                                    |                                                                             |       |       |   |   |       |      
|                                                         | Service revenues                                                   |                                                                             | $     | 2,210 |   |   | $     | 1,831 |   
|                                                         | Handset and accessory revenues                                     |                                                                             |       | 161   |   |   |       | 126   |   
|                                                         |                                                                    |                                                                             |       |       |   |   |       |      
|                                                         |                                                                    |                                                                             | 2,371 |       |   |   | 1,957 |      
|                                                         |                                                                    |                                                                             |       |       |   |   |       |      
|Operating expenses                                       |                                                                    |                                                                             |       |       |   |   |       |      
|                                                         | Cost of service (exclusive of depreciation
    included below)     |                                                                             |       | 369   |   |   |       | 351   |   
|                                                         | Cost of handset and accessory revenues                             |                                                                             |       | 310   |   |   |       | 305   |   
|                                                         | Selling, general and administrative                                |                                                                             |       | 786   |   |   |       | 715   |   
|                                                         | Restructuring and impairment charges                               |                                                                             |       |      |   |   |       | 35    |   
|                                                         | Depreciation                                                       |                                                                             |       | 399   |   |   |       | 371   |   
|                                                         | Amortization                                                       |                                                                             |       | 14    |   |   |       | 11    |   
|                                                         |                                                                    |                                                                             |       |       |   |   |       |      
|                                                         |                                                                    |                                                                             | 1,878 |       |   |   | 1,788 |      
|                                                         |                                                                    |                                                                             |       |       |   |   |       |      
|Operating income                                         |                                                                    |                                                                             | 493   |       |   |   | 169   |      
|                                                         |                                                                    |                                                                             |       |       |   |   |       |      
|Other income (expense)                                   |                                                                    |                                                                             |       |       |   |   |       |      
|                                                         | Interest expense                                                   |                                                                             |       | (225  | ) |   |       | (273  | ) 
|                                                         | Interest income                                                    |                                                                             |       | 12    |   |   |       | 15    |   
|                                                         | Loss on retirement of debt                                         |                                                                             |       | (5    | ) |   |       |      |   
|                                                         | Equity in losses of unconsolidated affiliates, net                 |                                                                             |       | (13   | ) |   |       | (152  | ) 
|                                                         |                                                                    |                                                                             |       |       |   |   |       |      
|                                                         |                                                                    |                                                                             | (231  | )     |   |   | (410  | )    
|                                                         |                                                                    |                                                                             |       |       |   |   |       |      
|Income (loss) before income tax
    provision            |                                                                    |                                                                             | 262   |       |   |   | (241  | )    
|Income tax provision                                     |                                                                    |                                                                             | (22   | )     |   |   | (350  | )    
|                                                         |                                                                    |                                                                             |       |       |   |   |       |      
|Net income (loss)                                        |                                                                    |                                                                             | 240   |       |   |   | (591  | )    
|                                                         | Loss on retirement of mandatorily redeemable
    preferred stock   |                                                                             |       | (2    | ) |   |       |      |   
|                                                         | Mandatorily redeemable preferred stock dividends
    and accretion |                                                                             |       | (30   | ) |   |       | (63   | ) 
|                                                         |                                                                    |                                                                             |       |       |   |   |       |      
|Income (loss) available to common
    stockholders       |                                                                    | $                                                                           | 208   |       |   | $ | (654  | )    
|                                                         |                                                                    |                                                                             |       |       |   |   |       |      
|Earnings (loss) per common
    share                     |                                                                    |                                                                             |       |       |   |   |       |      
|                                                         | Basic                                                              |                                                                             | $     | 0.21  |   |   | $     | (0.82 | ) 
|                                                         |                                                                    |                                                                             |       |       |   |   |       |      
|                                                         | Diluted                                                            |                                                                             | $     | 0.20  |   |   | $     | (0.82 | ) 
|                                                         |                                                                    |                                                                             |       |       |   |   |       |      
|Weighted average number of common shares
    outstanding |                                                                    |                                                                             |       |       |   |   |       |      
|                                                         | Basic                                                              |                                                                             |       | 1,010 |   |   |       | 801   |   
|                                                         |                                                                    |                                                                             |       |       |   |   |       |      
|                                                         | Diluted                                                            |                                                                             |       | 1,047 |   |   |       | 801   |   
|                                                         |                                                                    |                                                                             |       |       |   |   |       |      
|Comprehensive income (loss), net of income
    tax       |                                                                    |                                                                             |       |       |   |   |       |      
|                                                         | Unrealized loss on available-for-sale securities,
    net          |                                                                             | $     |      |   |   | $     | (20   | ) 
|                                                         | Foreign currency translation adjustment                            |                                                                             |       | 1     |   |   |       | 26    |   
|                                                         | Cash flow hedge:                                                   |                                                                             |       |       |   |   |       |       |   
|                                                         |                                                                    | Reclassification of transition adjustment
    included in net income (loss) |       |       | 2 |   |       |       | 2  | 
|                                                         |                                                                    | Unrealized gain on cash flow hedge                                          |       |       | 5 |   |       |       | 10 | 
|                                                         |                                                                    |                                                                             |       |       |   |   |       |      
|                                                         | Other comprehensive income                                         |                                                                             |       | 8     |   |   |       | 18    |   
|                                                         | Net income (loss)                                                  |                                                                             |       | 240   |   |   |       | (591  | ) 
|                                                         |                                                                    |                                                                             |       |       |   |   |       |      
|Comprehensive income (loss), net of income
    tax       |                                                                    | $                                                                           | 248   |       |   | $ | (573  | )    
|                                                         |                                                                    |                                                                             |       |       |   |   |       |      

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

4



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

Condensed Consolidated Statement of Changes in
Stockholders Equity


For the Three Months Ended March 31,
2003


(in millions)


Unaudited


|                          |                                                                       |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |   |   |        |     |  |   |    |   |  |   |     |   |  |   |       |     |  
|------------------------- | --------------------------------------------------------------------- | --------------- | - | ------------ | - | ------------ | --- | ------- | - | ----------- | --- | -------- |  | ------------- | - | ------- |  | ------------ | -- | ------------- |  | ----- | - |  |  | - | ------ | --- | - | - | ------ | --- |  | - | -- | - |  | - | --- | - |  | - | ----- | --- | -
|                          |                                                                       |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |        
|                          |                                                                       | Convertible     |   | Class A      |   | Class B      |     |         |   |             |     |          |  | Accumulated   |   |        
|                          |                                                                       | Preferred Stock |   | Common Stock |   | Common Stock |     |         |   |             |     |          |  | Other         |   |        
|                          |                                                                       |                 |   |              |   |              |     | Paid-in |   | Accumulated |     | Deferred |  | Comprehensive |   |        
|                          |                                                                       | Shares          |   | Amount       |   | Shares       |     | Amount  |   | Shares      |     | Amount   |  | Capital       |   | Deficit |  | Compensation |    | (Loss) Income |  | Total
|                          |                                                                       |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |      
|Balance, January 1, 2003. |                                                                       |                 | 4 |              |   | $            | 136 |         |   |             | 968 |          |  | $             | 1 |         |  |              | 36 |               |  | $     |  |  |  | $ | 10,530 |     |   | $ | (7,793 | )   |  | $ | (7 | ) |  | $ | (21 | ) |  | $ | 2,846 |    
|                          | Net income                                                            |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |   |   |        | 240 |  |   |    |   |  |   |     |   |  |   |       | 240 |  
|                          | Other comprehensive income                                            |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |   |   |        |     |  |   |    |   |  |   |     | 8 |  |   |       | 8   |  
|                          | Conversion of preferred stock into common stock                       |                 |   | (4           | ) |              |     | (136    | ) |             |     | 22       |  |               |   |        |  |              |    |               |  |       |   |  |  |   |        | 136 |   |   |        |     |  |   |    |   |  |   |     |   |  |   |       |    |  
|                          | Common stock issued under equity plans                                |                 |   |              |   |              |     |         |   |             |     | 2        |  |               |   |        |  |              |    |               |  |       |   |  |  |   |        | 13  |   |   |        |     |  |   |    |   |  |   |     |   |  |   |       | 13  |  
|                          | Deferred compensation and other                                       |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        | 1   |   |   |        |     |  |   |    | 2 |  |   |     |   |  |   |       | 3   |  
|                          | Loss on retirement of mandatorily redeemable
    preferred stock      |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        | (2  | ) |   |        |     |  |   |    |   |  |   |     |   |  |   |       | (2  | )
|                          | Dividends and accretion on mandatorily redeemable
    preferred stock |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        | (30 | ) |   |        |     |  |   |    |   |  |   |     |   |  |   |       | (30 | )
|                          |                                                                       |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |   |   |        |     |  |   |    |   |  |   |     |   |  |   |       |    
|Balance, March 31, 2003.  |                                                                       |                 |  |              |   | $            |    |         |   |             | 992 |          |  | $             | 1 |         |  |              | 36 |               |  | $     |  |  |  | $ | 10,648 |     |   | $ | (7,553 | )   |  | $ | (5 | ) |  | $ | (13 | ) |  | $ | 3,078 |    
|                          |                                                                       |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |   |   |        |     |  |   |    |   |  |   |     |   |  |   |       |    

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

5



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

Condensed Consolidated Statements of Cash
Flows


For the Three Months Ended March 31, 2003
and 2002


(in millions)


Unaudited


|                                                   |                                                                                              |                                                                         |                                              |                                           |     |    |       |        |     |     |        |  
|-------------------------------------------------- | -------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------- | --- | -- | ----- | ------ | --- | --- | ------ | -
|                                                   |                                                                                              | 2003                                                                    |                                              | 2002                                     
|                                                   |                                                                                              |                                                                         |                                              |                                          
|Cash flows from operating activities               |                                                                                              |                                                                         |                                              |                                           |     |    |       |       
|                                                   | Net income (loss)                                                                            |                                                                         | $                                            | 240                                       |     |    | $     | (591   | )  
|                                                   | Adjustments to reconcile net income
    (loss) to net cash provided by operating activities: |                                                                         |                                              |                                           |     |    |       |        |    
|                                                   |                                                                                              | Amortization of debt financing costs and
    accretion of senior notes  |                                              |                                           | 23  |    |       |        | 92  |    
|                                                   |                                                                                              | Provision for losses on accounts receivable                             |                                              |                                           | 56  |    |       |        | 93  |    
|                                                   |                                                                                              | Restructuring and impairment charges                                    |                                              |                                           |    |    |       |        | 31  |    
|                                                   |                                                                                              | Depreciation and amortization                                           |                                              |                                           | 413 |    |       |        | 382 |    
|                                                   |                                                                                              | Loss on retirement of debt                                              |                                              |                                           | 5   |    |       |        |    |    
|                                                   |                                                                                              | Equity in losses of unconsolidated affiliates, net                      |                                              |                                           | 13  |    |       |        | 152 |    
|                                                   |                                                                                              | Income tax provision                                                    |                                              |                                           | 12  |    |       |        | 350 |    
|                                                   |                                                                                              | Other, net                                                              |                                              |                                           | (28 | )  |       |        | 2   |    
|                                                   |                                                                                              | Change in assets and liabilities, net of effects
    from acquisitions: |                                              |                                           |     |    |       |        |     |    
|                                                   |                                                                                              |                                                                         | Accounts and notes receivable                |                                           |     | 18 |       |        |     | (96 | )     
|                                                   |                                                                                              |                                                                         | Handset and accessory inventory              |                                           |     | 49 |       |        |     | 12  |       
|                                                   |                                                                                              |                                                                         | Prepaid expenses and other assets            |                                           |     | 16 |       |        |     | (15 | )     
|                                                   |                                                                                              |                                                                         | Accounts payable, accrued expenses and other |                                           |     | (4 | )     |        |     | 60  |       
|                                                   |                                                                                              |                                                                         |                                              |                                           |     |    |       |       
|                                                   |                                                                                              |                                                                         |                                              | Net cash provided by operating activities |     |    | 813   |        |     |     | 472    |  
|                                                   |                                                                                              |                                                                         |                                              |                                           |     |    |       |       
|Cash flows from investing activities               |                                                                                              |                                                                         |                                              |                                           |     |    |       |       
|                                                   | Capital expenditures                                                                         |                                                                         |                                              | (386                                      | )   |    |       | (599   | )  
|                                                   | Purchases of short-term investments                                                          |                                                                         |                                              | (728                                      | )   |    |       | (1,037 | )  
|                                                   | Proceeds from maturities and sales of short-term
    investments                             |                                                                         |                                              | 650                                       |     |    |       | 974    |    
|                                                   | Payments for purchases of licenses, investments
    and other, net of cash acquired          |                                                                         |                                              | (214                                      | )   |    |       | (143   | )  
|                                                   | Payments for acquisitions, net of cash acquired                                              |                                                                         |                                              |                                          |     |    |       | (109   | )  
|                                                   | Cash relinquished as a result of deconsolidation
    of NII Holdings                         |                                                                         |                                              |                                          |     |    |       | (250   | )  
|                                                   |                                                                                              |                                                                         |                                              |                                           |     |    |       |       
|                                                   |                                                                                              |                                                                         |                                              | Net cash used in investing activities     |     |    | (678  | )      |     |     | (1,164 | )
|                                                   |                                                                                              |                                                                         |                                              |                                           |     |    |       |       
|Cash flows from financing activities               |                                                                                              |                                                                         |                                              |                                           |     |    |       |       
|                                                   | Purchase and retirement of debt securities and
    mandatorily redeemable preferred stock    |                                                                         |                                              | (570                                      | )   |    |       |       |    
|                                                   | Borrowings under long-term credit facility                                                   |                                                                         |                                              | 69                                        |     |    |       |       |    
|                                                   | Repayments under long-term credit facility                                                   |                                                                         |                                              | (49                                       | )   |    |       |       |    
|                                                   | Payment for capital lease buy-out                                                            |                                                                         |                                              | (54                                       | )   |    |       |       |    
|                                                   | Repayments under capital lease and finance
    obligations                                   |                                                                         |                                              | (16                                       | )   |    |       | (28    | )  
|                                                   | Mandatorily redeemable preferred stock dividends
    paid                                    |                                                                         |                                              | (15                                       | )   |    |       |       |    
|                                                   | Other                                                                                        |                                                                         |                                              | 10                                        |     |    |       | 1      |    
|                                                   |                                                                                              |                                                                         |                                              |                                           |     |    |       |       
|                                                   |                                                                                              |                                                                         |                                              | Net cash used in financing activities     |     |    | (625  | )      |     |     | (27    | )
|                                                   |                                                                                              |                                                                         |                                              |                                           |     |    |       |       
|Net decrease in cash and cash
    equivalents      |                                                                                              |                                                                         | (490                                         | )                                         |     |    | (719  | )     
|Cash and cash equivalents, beginning of
    period |                                                                                              |                                                                         | 1,846                                        |                                           |     |    | 2,481 |       
|                                                   |                                                                                              |                                                                         |                                              |                                           |     |    |       |       
|Cash and cash equivalents, end of
    period       |                                                                                              | $                                                                       | 1,356                                        |                                           |     | $  | 1,762 |       
|                                                   |                                                                                              |                                                                         |                                              |                                           |     |    |       |       

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

6



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES



Notes to Condensed Consolidated Financial
Statements


Unaudited


Note 1.     Basis of
Presentation

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

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

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

|                                                                       |                                |                                     |       |      |    |   |      |       |   | 
|---------------------------------------------------------------------- | ------------------------------ | ----------------------------------- | ----- | ---- | -- | - | ---- | ----- | - | 
|                                                                       |                                |                                    
|                                                                       |                                | Three Months                       
|                                                                       |                                | Ended March 31,                    
|                                                                       |                                |                                    
|                                                                       |                                | 2003                                |       | 2002
|                                                                       |                                |                                     |       |     
|                                                                       |                                |                                    
|                                                                       |                                | (in millions, except               
|                                                                       |                                | per share amounts)                 
|Income (loss) available to common
    stockholders  basic and diluted |                                | $                                   | 208   |      |    | $ | (654 | )    
|                                                                       |                                |                                     |       |      |    |   |      |      
|Weighted average number of common shares
    outstanding  basic       |                                |                                     | 1,010 |      |    |   | 801  |      
|                                                                       | Effect of dilutive securities: |                                     |       |      |    |   |      |       |  
|                                                                       |                                | Equity plans                        |       |      | 20 |   |      |       |  | 
|                                                                       |                                | Class A convertible preferred stock |       |      | 17 |   |      |       |  | 
|                                                                       |                                |                                     |       |      |    |   |      |      
|Weighted average number of common shares
    outstanding  diluted     |                                |                                     | 1,047 |      |    |   | 801  |      
|                                                                       |                                |                                     |       |      |    |   |      |      
|Earnings (loss) per common
    share                                   |                                |                                     |       |      |    |   |      |      
|                                                                       | Basic                          |                                     | $     | 0.21 |    |   | $    | (0.82 | )
|                                                                       |                                |                                     |       |      |    |   |      |      
|                                                                       | Diluted                        |                                     | $     | 0.20 |    |   | $    | (0.82 | )
|                                                                       |                                |                                     |       |      |    |   |      |      

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

7



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

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

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

|                              |                                                          |               |                |                |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |    |    |  |   |       |       | 
|----------------------------- | -------------------------------------------------------- | ------------- | -------------- | -------------- | ----- | ----------------- |  | -------- | -- | -------- |  | ------------ | ----- | -------- |  | - | ----- | ----- |  | - | -- | -- |  | - | ----- | ----- | 
|                              |                                                          |               |                |                |       |                  
|                              |                                                          |               |                | March 31, 2003 |       | December 31, 2002
|                              |                                                          |               |                |                |       |                  
|                              |                                                          |               |                | Gross          |       |                   |  | Net      |    | Gross    |  |              |       | Net     
|                              |                                                          |               |                | Carrying       |       | Accumulated       |  | Carrying |    | Carrying |  | Accumulated  |       | Carrying
|                              |                                                          | Useful Lives  |                | Value          |       | Amortization      |  | Value    |    | Value    |  | Amortization |       | Value   
|                              |                                                          |               |                |                |       |                   |  |          |    |          |  |              |       |         
|                              |                                                          |              
|                              |                                                          | (in millions)
|Amortized intangible assets   |                                                          |               |                |                |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |    |    |  |   |       |      
|                              | Customer lists                                           |               | 2 to 3 years   |                | $     | 129               |  |          | $  | 76       |  |              | $     | 53       |  |   | $     | 129   |  |   | $  | 66 |  |   | $     | 63    | 
|                              | Noncompete and spectrum sharing agreements and
    other |               | Up to 20 years |                |       | 59                |  |          |    | 13       |  |              |       | 46       |  |   |       | 58    |  |   |    | 10 |  |   |       | 48    | 
|                              |                                                          |               |                |                |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |    |    |  |   |       |      
|                              |                                                          |               |                |                | 188   |                   |  |          | 89 |          |  |              | 99    |          |  |   | 187   |       |  |   | 76 |    |  |   | 111   |      
|                              |                                                          |               |                |                |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |    |    |  |   |       |      
|Unamortized intangible assets |                                                          |               |                |                |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |    |    |  |   |       |      
|                              | FCC licenses                                             |               |                |                |       | 6,783             |  |          |    |          |  |              |       | 6,783    |  |   |       | 6,475 |  |   |    |    |  |   |       | 6,475 | 
|                              | Goodwill                                                 |               |                |                |       | 21                |  |          |    |          |  |              |       | 21       |  |   |       | 21    |  |   |    |    |  |   |       | 21    | 
|                              |                                                          |               |                |                |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |    |    |  |   |       |      
|                              |                                                          |               |                |                | 6,804 |                   |  |          |    |          |  |              | 6,804 |          |  |   | 6,496 |       |  |   |    |    |  |   | 6,496 |      
|                              |                                                          |               |                |                |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |    |    |  |   |       |      
|Total intangible assets       |                                                          |               |                | $              | 6,992 |                   |  | $        | 89 |          |  | $            | 6,903 |          |  | $ | 6,683 |       |  | $ | 76 |    |  | $ | 6,607 |      
|                              |                                                          |               |                |                |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |    |    |  |   |       |      

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

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

Accumulated
Other Comprehensive Loss.

|                                                               |  |               |     |              |  |   |     |  
|-------------------------------------------------------------- |  | ------------- | --- | ------------ |  | - | --- | -
|                                                               |  | March 31,     |     | December 31,
|                                                               |  | 2003          |     | 2002        
|                                                               |  |               |     |             
|                                                               |  |              
|                                                               |  | (in millions)
|Unrealized gain on available-for-sale securities,
    net      |  | $             | 7   |              |  | $ | 7   |  
|Cumulative foreign currency translation adjustment             |  |               |    |              |  |   | (1  | )
|Cumulative effect of accounting change for cash
    flow hedge |  |               | (2  | )            |  |   | (4  | )
|Unrealized loss on cash flow hedge                             |  |               | (18 | )            |  |   | (23 | )
|                                                               |  |               |     |              |  |   |     |  
|                                                               |  | $             | (13 | )            |  | $ | (21 | )
|                                                               |  |               |     |              |  |   |     |  

8



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

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

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

|                                                                |                                  |                  |     |      |      |   |      |     |       |  
|--------------------------------------------------------------- | -------------------------------- | ---------------- | --- | ---- | ---- | - | ---- | --- | ----- | -
|                                                                |                                  |                 
|                                                                |                                  | Three Months    
|                                                                |                                  | Ended March 31, 
|                                                                |                                  |                 
|                                                                |                                  | 2003             |     | 2002
|                                                                |                                  |                  |     |     
|                                                                |                                  |                 
|                                                                |                                  | (in millions,   
|                                                                |                                  | except per share
|                                                                |                                  | amounts)        
|Income (loss) available to common
    stockholders, as reported |                                  | $                | 208 |      |      | $ | (654 | )  
|                                                                | Stock-based compensation expense |                  |     | (80  | )    |   |      | (86 | )    
|                                                                |                                  |                  |     |      |      |   |      |    
|Income (loss) available to common
    stockholders, pro forma   |                                  | $                | 128 |      |      | $ | (740 | )  
|                                                                |                                  |                  |     |      |      |   |      |    
|Earnings (loss) per common
    share                            |                                  |                  |     |      |      |   |      |    
|                                                               
|                                                                | As reported                      |                  |     |      |      |   |      |     |      
|                                                                |                                  | Basic            |     | $    | 0.21 |   |      | $   | (0.82 | )
|                                                                |                                  |                  |     |      |      |   |      |    
|                                                                |                                  | Diluted          |     | $    | 0.20 |   |      | $   | (0.82 | )
|                                                                |                                  |                  |     |      |      |   |      |    
|                                                                | Pro forma                        |                  |     |      |      |   |      |     |      
|                                                                |                                  | Basic            |     | $    | 0.13 |   |      | $   | (0.92 | )
|                                                                |                                  |                  |     |      |      |   |      |    
|                                                                |                                  | Diluted          |     | $    | 0.12 |   |      | $   | (0.92 | )
|                                                                |                                  |                  |     |      |      |   |      |    

9



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

Supplemental
Cash Flow Information.

|                                                         |                                                                 |               |     |      |   |   |     |      |  
|-------------------------------------------------------- | --------------------------------------------------------------- | ------------- | --- | ---- | - | - | --- | ---- | -
|                                                         |                                                                 |              
|                                                         |                                                                 | Three Months 
|                                                         |                                                                 | Ended        
|                                                         |                                                                 | March 31,    
|                                                         |                                                                 |              
|                                                         |                                                                 | 2003          |     | 2002
|                                                         |                                                                 |               |     |     
|                                                         |                                                                 |              
|                                                         |                                                                 | (in millions)
|Capital expenditures, including capitalized
    interest |                                                                 |               |     |      |   |   |     |     
|                                                         | Cash paid for capital expenditures                              |               | $   | 386  |   |   | $   | 599  |  
|                                                         | Changes in capital expenditures accrued, unpaid
    or financed |               |     | (70  | ) |   |     | (113 | )
|                                                         |                                                                 |               |     |      |   |   |     |     
|                                                         |                                                                 | $             | 316 |      |   | $ | 486 |     
|                                                         |                                                                 |               |     |      |   |   |     |     
|Interest costs                                           |                                                                 |               |     |      |   |   |     |     
|                                                         | Interest expense                                                |               | $   | 225  |   |   | $   | 273  |  
|                                                         | Interest capitalized                                            |               |     | 11   |   |   |     | 12   |  
|                                                         |                                                                 |               |     |      |   |   |     |     
|                                                         |                                                                 | $             | 236 |      |   | $ | 285 |     
|                                                         |                                                                 |               |     |      |   |   |     |     
|Cash paid for interest, net of amounts
    capitalized   |                                                                 | $             | 154 |      |   | $ | 152 |     
|                                                         |                                                                 |               |     |      |   |   |     |     
|Cash received for interest                               |                                                                 | $             | 9   |      |   | $ | 15  |     
|                                                         |                                                                 |               |     |      |   |   |     |     
|Cash paid for income taxes                               |                                                                 | $             | 14  |      |   | $ | 2   |     
|                                                         |                                                                 |               |     |      |   |   |     |     

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

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

|                       |  |               |     |              |  |   |     | 
|---------------------- |  | ------------- | --- | ------------ |  | - | --- | 
|                       |  | March 31,     |     | December 31,
|                       |  | 2003          |     | 2002        
|                       |  |               |     |             
|                       |  |              
|                       |  | (in millions)
|Current assets         |  | $             | 457 |              |  | $ | 396 | 
|Noncurrent assets      |  |               | 465 |              |  |   | 453 | 
|Total assets           |  |               | 922 |              |  |   | 849 | 
|Current liabilities    |  |               | 275 |              |  |   | 252 | 
|Noncurrent liabilities |  |               | 567 |              |  |   | 505 | 

|                                             |  |                    |     |                     |  |   |      |  
|-------------------------------------------- |  | ------------------ | --- | ------------------- |  | - | ---- | -
|                                             |  | Successor Company  |     | Predecessor Company
|                                             |  | Three Months Ended |     | Three Months Ended 
|                                             |  | March 31, 2003     |     | March 31, 2002     
|                                             |  |                    |     |                    
|                                             |  |                   
|                                             |  | (in millions)     
|Operating revenues                           |  | $                  | 203 |                     |  | $ | 195  |  
|Cost of revenues                             |  |                    | 74  |                     |  |   | 78   |  
|Net income (loss) from continuing operations |  |                    | 9   |                     |  |   | (157 | )
|Net income (loss)                            |  |                    | 9   |                     |  |   | (155 | )

10



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

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

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

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

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

11



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

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

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

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

|                            |  |               |    |      |  |   |    | 
|--------------------------- |  | ------------- | -- | ---- |  | - | -- | 
|                            |  | 2003          |    | 2002
|                            |  |               |    |     
|                            |  |              
|                            |  | (in millions)
|Three Months Ended March 31 |  | $             | 14 |      |  | $ | 50 | 

Note 2.     2003
Developments

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

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

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

12



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

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

|                                                                                                             |                                                 |                       |        |              |      |   |        |        |      |  
|------------------------------------------------------------------------------------------------------------ | ----------------------------------------------- | --------------------- | ------ | ------------ | ---- | - | ------ | ------ | ---- | -
|                                                                                                             |                                                 | March 31,             |        | December 31,
|                                                                                                             |                                                 | 2003                  |        | 2002        
|                                                                                                             |                                                 |                       |        |             
|                                                                                                             |                                                 |                      
|                                                                                                             |                                                 | (dollars in millions)
|Long-Term Debt                                                                                               |                                                 |                       |        |              |      |   |        |       
|10.65% senior redeemable discount notes
    due 2007                                                         |                                                 | $                     | 691    |              |      | $ | 756    |       
|9.75% senior serial redeemable discount notes
    due 2007                                                   |                                                 |                       | 932    |              |      |   | 1,086  |       
|4.75% convertible senior notes due
    2007                                                                  |                                                 |                       | 284    |              |      |   | 284    |       
|9.95% senior serial redeemable discount notes
    due 2008, net of unamortized discount
    of $0 and $16    |                                                 |                       | 1,301  |              |      |   | 1,364  |       
|12% senior serial redeemable notes due
    2008, net of unamortized discount of
    $3 and $3.               |                                                 |                       | 271    |              |      |   | 297    |       
|9.375% senior serial redeemable notes
    due 2009                                                           |                                                 |                       | 1,670  |              |      |   | 1,796  |       
|5.25% convertible senior notes due
    2010                                                                  |                                                 |                       | 607    |              |      |   | 622    |       
|9.5% senior serial redeemable notes due
    2011, including a fair value hedge
    adjustment of $58 and $58 |                                                 |                       | 922    |              |      |   | 948    |       
|6% convertible senior notes due 2011                                                                         |                                                 |                       | 608    |              |      |   | 608    |       
|Bank credit facility                                                                                         |                                                 |                       | 4,520  |              |      |   | 4,500  |       
|Other                                                                                                        |                                                 |                       | 17     |              |      |   | 17     |       
|                                                                                                             |                                                 |                       |        |              |      |   |        |       
|                                                                                                             | Total long-term debt                            |                       |        | 11,823       |      |   |        | 12,278 |     
|                                                                                                             |                                                 | Less current portion  |        |              | (199 | ) |        |        | (199 | )
|                                                                                                             |                                                 |                       |        |              |      |   |        |       
|                                                                                                             |                                                 | $                     | 11,624 |              |      | $ | 12,079 |       
|                                                                                                             |                                                 |                       |        |              |      |   |        |       
|Capital Lease and Finance
    Obligations                                                                    |                                                 |                       |        |              |      |   |        |       
|Capital lease obligations                                                                                    |                                                 | $                     | 192    |              |      | $ | 262    |       
|Finance obligation                                                                                           |                                                 |                       | 10     |              |      |   | 10     |       
|                                                                                                             |                                                 |                       |        |              |      |   |        |       
|                                                                                                             | Total capital lease and finance
    obligations |                       |        | 202          |      |   |        | 272    |     
|                                                                                                             |                                                 | Less current portion  |        |              | (37  | ) |        |        | (52  | )
|                                                                                                             |                                                 |                       |        |              |      |   |        |       
|                                                                                                             |                                                 | $                     | 165    |              |      | $ | 220    |       
|                                                                                                             |                                                 |                       |        |              |      |   |        |       

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

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

Note
4.     Mandatorily Redeemable Preferred
Stock

|                                                                                                                                                                                                                                                                                  |  |                       |     |              |  |   |       | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | --- | ------------ |  | - | ----- | 
|                                                                                                                                                                                                                                                                                  |  | March 31,             |     | December 31,
|                                                                                                                                                                                                                                                                                  |  | 2003                  |     | 2002        
|                                                                                                                                                                                                                                                                                  |  |                       |     |             
|                                                                                                                                                                                                                                                                                  |  |                      
|                                                                                                                                                                                                                                                                                  |  | (dollars in millions)
|Series D exchangeable preferred stock
    mandatorily redeemable 2009, 13%
    cumulative annual dividend; 462,764 and 470,753 shares issued;
    462,753 and 470,742 shares outstanding; stated at liquidation
    value                                                         |  | $                     | 463 |              |  | $ | 471   | 
|Series E exchangeable preferred stock
    mandatorily redeemable 2010, 11.125%
    cumulative annual dividend; 391,968 and 447,796 shares issued;
    391,954 and 447,782 shares outstanding; stated at liquidation
    value                                                     |  |                       | 392 |              |  |   | 454   | 
|Zero coupon convertible preferred stock
    mandatorily redeemable 2013, no
    dividend; convertible into 4,779,386 shares of class A common
    stock; 245,245 shares issued and outstanding; stated at accreted
    liquidation preference value at 9.25% compounded quarterly |  |                       | 92  |              |  |   | 90    | 
|                                                                                                                                                                                                                                                                                  |  |                       |     |              |  |   |       | 
|                                                                                                                                                                                                                                                                                  |  | $                     | 947 |              |  | $ | 1,015 | 
|                                                                                                                                                                                                                                                                                  |  |                       |     |              |  |   |       | 

13



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

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

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

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

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

|                                                                              |  |                       |       |             |  |              |     |           |  |             |    |  |  |   |       |  |  |   |     | 
|----------------------------------------------------------------------------- |  | --------------------- | ----- | ----------- |  | ------------ | --- | --------- |  | ----------- | -- |  |  | - | ----- |  |  | - | --- | 
|                                                                              |  |                       |       |             |  | Accretion of |     |           |  |            
|                                                                              |  | Balance               |       | Book Value  |  | Unamortized  |     | Balance   |  | Principal  
|                                                                              |  | December 31,          |       | of          |  | Discount or  |     | March 31, |  | Value of   
|                                                                              |  | 2002                  |       | Retirements |  | Dividends    |     | 2003      |  | Retirements
|                                                                              |  |                       |       |             |  |              |     |           |  |            
|                                                                              |  |                      
|                                                                              |  | (dollars in millions)
|10.65% senior redeemable discount notes
    due 2007                          |  | $                     | 756   |             |  | $            | 65  |           |  | $           |   |  |  | $ | 691   |  |  | $ | 65  | 
|9.75% senior serial redeemable discount notes
    due 2007                    |  |                       | 1,086 |             |  |              | 154 |           |  |             |   |  |  |   | 932   |  |  |   | 154 | 
|9.95% senior serial redeemable discount notes
    due 2008                    |  |                       | 1,364 |             |  |              | 79  |           |  |             | 16 |  |  |   | 1,301 |  |  |   | 79  | 
|12% senior serial redeemable discount notes
    due 2008                      |  |                       | 297   |             |  |              | 26  |           |  |             |   |  |  |   | 271   |  |  |   | 26  | 
|9.375% senior serial redeemable notes
    due 2009                            |  |                       | 1,796 |             |  |              | 126 |           |  |             |   |  |  |   | 1,670 |  |  |   | 126 | 
|5.25% convertible senior notes
    due 2010                                   |  |                       | 622   |             |  |              | 15  |           |  |             |   |  |  |   | 607   |  |  |   | 15  | 
|9.5% senior serial redeemable notes
    due 2011                              |  |                       | 948   |             |  |              | 26  |           |  |             |   |  |  |   | 922   |  |  |   | 26  | 
|13% series D exchangeable preferred stock
    mandatorily redeemable 2009     |  |                       | 471   |             |  |              | 8   |           |  |             |   |  |  |   | 463   |  |  |   | 8   | 
|11.125% series E exchangeable preferred stock
    mandatorily redeemable 2010 |  |                       | 454   |             |  |              | 69  |           |  |             | 7  |  |  |   | 392   |  |  |   | 69  | 
|                                                                              |  |                       |       |             |  |              |     |           |  |             |    |  |  |   |       |  |  |   |     | 
|Total retirements                                                             |  |                       |       |             |  | $            | 568 |           |  |             |    |  |  |   |       |  |  | $ | 568 | 
|                                                                              |  |                       |       |             |  |              |     |           |  |             |    |  |  |   |       |  |  |   |     | 

Note
6.     Derivative Instruments and
Hedging Activities

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

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

14



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

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

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

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

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

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 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.

15



---



##### 



Independent Accountants Review
Report

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 March 31,
2003, the related condensed consolidated statements of
operations and comprehensive income (loss) and cash flows for
the three-month periods ended March 31, 2003 and 2002 and
the condensed consolidated statement of changes in
stockholders equity for the three-month period ended
March 31, 2003. These financial statements are the
responsibility of the Companys management.

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

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

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

DELOITTE & TOUCHE LLP

McLean, Virginia

May 14, 2003


16



---



##### 





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

Overview

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

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

As of March 31, 2003,



| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | we had about 11.1 million handsets in
    service in the United States; and                                               
|
| |  | our network or the compatible network of Nextel
    Partners, Inc. was operational in 197 of the top 200 U.S.
    markets.

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

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

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

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

Critical Accounting Policies and
Estimates

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

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

17



---



##### 



Nextel Direct Connect usage in excess of plan
minutes, long-distance charges derived from calls placed by our
customers and activation fees.


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

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

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

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

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

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

18



---



##### 



flow analysis. The analysis was based on our
long-term cash flow projections, discounted at our corporate
weighted average cost of capital.


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

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

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

Results of Operations

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

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

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

19



---



##### 



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

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

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

Selected Financial and Operating
Data.

|                                                             |  |                 |        |      |  |  |        | 
|------------------------------------------------------------ |  | --------------- | ------ | ---- |  |  | ------ | 
|                                                             |  |                
|                                                             |  | Three Months   
|                                                             |  | Ended March 31,
|                                                             |  |                
|                                                             |  | 2003            |        | 2002
|                                                             |  |                 |        |     
|Handsets in service, end of period (in
    thousands)(1)     |  |                 | 11,092 |      |  |  | 9,167  | 
|Net handset additions (in thousands)(1)                      |  |                 | 480    |      |  |  | 502    | 
|Average monthly billable minutes of use per
    handset      |  |                 | 650    |      |  |  | 590    | 
|System minutes of use (in billions)(1)                       |  |                 | 21.2   |      |  |  | 15.9   | 
|Transmitter and receiver sites in service, end of
    period |  |                 | 16,400 |      |  |  | 15,900 | 
|Net transmitter and receiver sites placed in
    service     |  |                 | 100    |      |  |  | 400    | 
|Switches in service, end of period                           |  |                 | 84     |      |  |  | 84     | 



---

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

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

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

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

20



---



##### 



Service Revenues and Cost of
Service.

|                                            |                                 |                       |       |           |   |           |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |    |    |  
|------------------------------------------- | ------------------------------- | --------------------- | ----- | --------- | - | --------- | -- | --------- |  | ------------- | ----- | ------- | - |  | -- | - |  | - | --- | --- |  |  | -- | -- | -
|                                            |                                 |                       |       |           |   |           |    |           |  |              
|                                            |                                 |                       |       |           |   |           |    |           |  | Change from  
|                                            |                                 |                       |       | % of      |   |           |    | % of      |  | Previous Year
|                                            |                                 | March 31,             |       | Operating |   | March 31, |    | Operating |  |              
|                                            |                                 | 2003                  |       | Revenues  |   | 2002      |    | Revenues  |  | Dollars       |       | Percent
|                                            |                                 |                       |       |           |   |           |    |           |  |               |       |        
|                                            |                                 |                      
|                                            |                                 | (dollars in millions)
|Three Months Ended                          |                                 |                       |       |           |   |           |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |    |   
|Service revenues                            |                                 | $                     | 2,210 |           |   |           | 93 | %         |  | $             | 1,831 |         |   |  | 94 | % |  | $ | 379 |     |  |  | 21 | % 
|Cost of service (exclusive of depreciation) |                                 |                       | 369   |           |   |           | 16 | %         |  |               | 351   |         |   |  | 18 | % |  |   | 18  |     |  |  | 5  | % 
|                                            |                                 |                       |       |           |   |           |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |    |   
|                                            | Service gross margin            |                       | $     | 1,841     |   |           |    |           |  |               | $     | 1,480   |   |  |    |   |  |   | $   | 361 |  |  |    | 24 | %
|                                            |                                 |                       |       |           |   |           |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |    |   
|                                            | Service gross margin percentage |                       |       | 83        | % |           |    |           |  |               |       | 81      | % |  |    |   |  |   |     |     |  |  |    |    |  
|                                            |                                 |                       |       |           |   |           |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |    |   

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

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



| |   |                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our differentiated products and services,
    including enhanced Nextel Direct Connect and Nextel Online;                                                                                                                                    
|
| |  | increased brand name recognition through
    increased advertising and marketing campaigns;                                                                                                                                                  
|
| |  | the introduction of more competitive service
    pricing plans targeted at meeting more of our customers
    needs, including a variety of fixed-rate plans offering bundled
    monthly minutes and other integrated services and features;
|
| |  | selected handset pricing promotions and improved
    handset choices; and                                                                                                                                                                    
|
| |  | increased sales force and marketing staff,
    including staff associated with our Nextel stores, and selling
    efforts targeted at specific vertical markets.                                                                             

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



| |   |                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the introduction of more competitive pricing
    plans in 2002, which affected our overage revenues; and                                                                                                                                      
|
| |  | to a lesser extent, growth in our government
    accounts which generally have lower access charges than other
    segments of our business; partially offset by                                                                              
|
| |  | the increased fees that we began charging many of
    our customers in October 2002 to recover a portion of the costs
    associated with government mandated telecommunications services
    such as enhanced 911 and number portability; and
|
| |  | the benefit of full-minute rounding that was
    implemented in the second quarter 2002.                                                                                                                                                      

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

21



---



##### 



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



| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | a 5% increase in costs incurred in the operation
    and maintenance of our network and fixed interconnection costs;
    and
|
| |  | a 7% increase in variable interconnection fees.                                                                             

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



| |   |                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a net increase in transmitter and receiver site
    related expenses as a result of a 3% increase in the number of
    transmitter and receiver sites placed in service and additional
    network enhancements added to existing sites from March 31,
    2002 to March 31, 2003;
|
| |  | increases in frequency leasing costs and roaming
    fees paid to Nextel Partners as our growing subscriber base
    roamed onto Nextel Partners compatible network; and                                                                                                         
|
| |  | increases in service and repair due to an
    increased number of replacement handsets being shipped to
    customers.                                                                                                                                                            

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

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

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

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

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

22



---



##### 



handset and accessory revenues, an increase of
$5 million from the first quarter 2002. These results are
summarized in the table below.


|                                                   |                                            |                       |      |           |  |           |    |           |   |               |      |         |  |  |    |    |   |   |     |    |  |  |    |    |  
|-------------------------------------------------- | ------------------------------------------ | --------------------- | ---- | --------- |  | --------- | -- | --------- | - | ------------- | ---- | ------- |  |  | -- | -- | - | - | --- | -- |  |  | -- | -- | -
|                                                   |                                            |                       |      |           |  |           |    |           |   |              
|                                                   |                                            |                       |      |           |  |           |    |           |   | Change from  
|                                                   |                                            |                       |      | % of      |  |           |    | % of      |   | Previous Year
|                                                   |                                            | March 31,             |      | Operating |  | March 31, |    | Operating |   |              
|                                                   |                                            | 2003                  |      | Revenues  |  | 2002      |    | Revenues  |   | Dollars       |      | Percent
|                                                   |                                            |                       |      |           |  |           |    |           |   |               |      |        
|                                                   |                                            |                      
|                                                   |                                            | (dollars in millions)
|Three Months Ended                                 |                                            |                       |      |           |  |           |    |           |   |               |      |         |  |  |    |    |   |   |     |    |  |  |    |   
|Current period handset and accessory sales         |                                            | $                     | 250  |           |  |           | 11 | %         |   | $             | 183  |         |  |  | 9  | %  |   | $ | 67  |    |  |  | 37 | % 
|Net effect of SAB No. 101 handset deferrals        |                                            |                       | (89  | )         |  |           | (4 | )%        |   |               | (57  | )       |  |  | (3 | )% |   |   | (32 | )  |  |  | NM |   
|                                                   |                                            |                       |      |           |  |           |    |           |   |               |      |         |  |  |    |    |   |   |     |    |  |  |    |   
|                                                   | Handset and accessory revenues             |                       |      | 161       |  |           |    | 7         | % |               |      | 126     |  |  |    | 6  | % |   |     | 35 |  |  |    | 28 | %
|                                                   |                                            |                       |      |           |  |           |    |           |   |               |      |         |  |  |    |    |   |   |     |    |  |  |    |   
|Current period cost of handset and accessory sales |                                            |                       | 399  |           |  |           | 17 | %         |   |               | 362  |         |  |  | 19 | %  |   |   | 37  |    |  |  | 10 | % 
|Net effect of SAB No. 101 handset deferrals        |                                            |                       | (89  | )         |  |           | (4 | )%        |   |               | (57  | )       |  |  | (3 | )% |   |   | (32 | )  |  |  | NM |   
|                                                   |                                            |                       |      |           |  |           |    |           |   |               |      |         |  |  |    |    |   |   |     |    |  |  |    |   
|                                                   | Cost of handset and accessory
    revenues |                       |      | 310       |  |           |    | 13        | % |               |      | 305     |  |  |    | 16 | % |   |     | 5  |  |  |    | 2  | %
|                                                   |                                            |                       |      |           |  |           |    |           |   |               |      |         |  |  |    |    |   |   |     |    |  |  |    |   
|Handset and accessory gross subsidy                |                                            | $                     | (149 | )         |  |           |    |           |   | $             | (179 | )       |  |  |    |    |   | $ | 30  |    |  |  | 17 | % 
|                                                   |                                            |                       |      |           |  |           |    |           |   |               |      |         |  |  |    |    |   |   |     |    |  |  |    |   



---

NM  Not Meaningful


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

|                                             |                                                 |                 |      |             |   |               |      |     |   |   |     |     |  
|-------------------------------------------- | ----------------------------------------------- | --------------- | ---- | ----------- | - | ------------- | ---- | --- | - | - | --- | --- | -
|                                             |                                                 |                 |      |            
|                                             |                                                 | Three Months    |      |            
|                                             |                                                 | Ended March 31, |      |            
|                                             |                                                 |                 |      | Change from
|SAB No. 101 Effect                           |                                                 | 2003            |      | 2002        |   | Previous Year
|                                             |                                                 |                 |      |             |   |              
|                                             |                                                 |                
|                                             |                                                 | (in millions)  
|Handset sales deferred                       |                                                 | $               | (218 | )           |   | $             | (165 | )   |   | $ | (53 | )  
|Previously deferred handset sales recognized |                                                 |                 | 129  |             |   |               | 108  |     |   |   | 21  |    
|                                             |                                                 |                 |      |             |   |               |      |     |   |   |     |    
|                                             | Net effect of SAB No. 101 handset
    deferrals |                 | $    | (89         | ) |               | $    | (57 | ) |   | $   | (32 | )
|                                             |                                                 |                 |      |             |   |               |      |     |   |   |     |    

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

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

23



---



##### 



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


|                                                         |                                                 |                 |      |             |   |               |      |     |   |   |     |     |  
|-------------------------------------------------------- | ----------------------------------------------- | --------------- | ---- | ----------- | - | ------------- | ---- | --- | - | - | --- | --- | -
|                                                         |                                                 |                 |      |            
|                                                         |                                                 | Three Months    |      |            
|                                                         |                                                 | Ended March 31, |      |            
|                                                         |                                                 |                 |      | Change from
|SAB No. 101 Effect                                       |                                                 | 2003            |      | 2002        |   | Previous Year
|                                                         |                                                 |                 |      |             |   |              
|                                                         |                                                 |                
|                                                         |                                                 | (in millions)  
|Cost of handset sales deferred                           |                                                 | $               | (218 | )           |   | $             | (165 | )   |   | $ | (53 | )  
|Previously deferred cost of handset sales
    recognized |                                                 |                 | 129  |             |   |               | 108  |     |   |   | 21  |    
|                                                         |                                                 |                 |      |             |   |               |      |     |   |   |     |    
|                                                         | Net effect of SAB No. 101 handset
    deferrals |                 | $    | (89         | ) |               | $    | (57 | ) |   | $   | (32 | )
|                                                         |                                                 |                 |      |             |   |               |      |     |   |   |     |    

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

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



| |   |                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increased sales of our feature rich, higher
    priced and lower subsidy handsets, including the effect of
    increased handset prices charged to some of our indirect dealers
    beginning in the second quarter of 2002 in return for higher
    commissions to be paid to the dealers upon activation of
    handsets for new subscribers; and
|
| |  | a decline in the average cost that we pay for our
    portfolio of handsets.                                                                                                                                                                                                                                                                       

Selling, General and Administrative
Expenses.

|                           |                                     |                       |     |           |  |           |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |    |    |  
|-------------------------- | ----------------------------------- | --------------------- | --- | --------- |  | --------- | -- | --------- | - | ------------- | --- | ------- |  |  | -- | -- | - | - | -- | -- |  |  | -- | -- | -
|                           |                                     |                       |     |           |  |           |    |           |   |              
|                           |                                     |                       |     |           |  |           |    |           |   | Change from  
|                           |                                     |                       |     | % of      |  |           |    | % of      |   | Previous Year
|                           |                                     | March 31,             |     | Operating |  | March 31, |    | Operating |   |              
|                           |                                     | 2003                  |     | Revenues  |  | 2002      |    | Revenues  |   | Dollars       |     | Percent
|                           |                                     |                       |     |           |  |           |    |           |   |               |     |        
|                           |                                     |                      
|                           |                                     | (dollars in millions)
|Three Months Ended         |                                     |                       |     |           |  |           |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |    |   
|Selling and marketing      |                                     | $                     | 411 |           |  |           | 17 | %         |   | $             | 346 |         |  |  | 18 | %  |   | $ | 65 |    |  |  | 19 | % 
|General and administrative |                                     |                       | 375 |           |  |           | 16 | %         |   |               | 369 |         |  |  | 19 | %  |   |   | 6  |    |  |  | 2  | % 
|                           |                                     |                       |     |           |  |           |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |    |   
|                           | Selling, general and administrative |                       | $   | 786       |  |           |    | 33        | % |               | $   | 715     |  |  |    | 37 | % |   | $  | 71 |  |  |    | 10 | %
|                           |                                     |                       |     |           |  |           |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |    |   

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



| |   |                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $25 million increase in direct sales and
    marketing payroll and other related expenses primarily
    associated with our opening an additional 242 Nextel stores
    between March 31, 2002 and March 31, 2003;                                                                                                          
|
| |  | a $14 million increase in advertising
    expenses as a result of our marketing campaigns directed at
    increasing brand awareness and promoting our differentiated
    services, as well as advertising costs related to the Boost
    Mobile test program, which launched in the quarter ended
    September 30, 2002; and
|
| |  | a $26 million increase in commissions and
    residuals earned by indirect dealers and distributors despite a
    decrease in the percentage of handset activations for new
    subscribers coming from the indirect                                                                                                          

24



---



##### 



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

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



| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | a $21 million increase in expenses related
    to billing, collection, customer retention and customer care
    activities;
|
| |  | a $22 million increase in personnel,
    facilities and general corporate expenses; offset by                              
|
| |  | a $37 million decrease in bad debt expense.                                                                                

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

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

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

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



| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increased marketing and advertising in connection
    with advertising campaigns designed to increase brand awareness
    in our markets;                                                   
|
| |  | increased costs associated with expanding our
    retail operations by opening additional Nextel stores; and                                                                                
|
| |  | increased costs to support a growing customer
    base, including costs associated with billing, collection,
    customer retention and customer care activities; partially
    offset by   
|
| |  | savings expected from our outsourcing
    arrangements, our billing and customer care system and obtaining
    an increasing percentage of sales from our customer convenience
    channels.

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

25



---



##### 



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


Depreciation and
Amortization.

|                   |                               |                       |     |           |  |           |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |    |   |  
|------------------ | ----------------------------- | --------------------- | --- | --------- |  | --------- | -- | --------- | - | ------------- | --- | ------- |  |  | -- | -- | - | - | -- | -- |  |  | -- | - | -
|                   |                               |                       |     |           |  |           |    |           |   |              
|                   |                               |                       |     |           |  |           |    |           |   | Change from  
|                   |                               |                       |     | % of      |  |           |    | % of      |   | Previous Year
|                   |                               | March 31,             |     | Operating |  | March 31, |    | Operating |   |              
|                   |                               | 2003                  |     | Revenues  |  | 2002      |    | Revenues  |   | Dollars       |     | Percent
|                   |                               |                       |     |           |  |           |    |           |   |               |     |        
|                   |                               |                      
|                   |                               | (dollars in millions)
|Three Months Ended |                               |                       |     |           |  |           |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |    |  
|Depreciation       |                               | $                     | 399 |           |  |           | 17 | %         |   | $             | 371 |         |  |  | 19 | %  |   | $ | 28 |    |  |  | 8  | %
|Amortization       |                               |                       | 14  |           |  |           | 1  | %         |   |               | 11  |         |  |  | 1  | %  |   |   | 3  |    |  |  | 27 | %
|                   |                               |                       |     |           |  |           |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |    |  
|                   | Depreciation and amortization |                       | $   | 413       |  |           |    | 18        | % |               | $   | 382     |  |  |    | 20 | % |   | $  | 31 |  |  |    | 8 | %
|                   |                               |                       |     |           |  |           |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |    |  

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

Restructuring and Impairment Charges,
Interest and Other.

|                                                   |  |                       |      |               |  |         |      |         |  |   |     |   |  |  |     |   
|-------------------------------------------------- |  | --------------------- | ---- | ------------- |  | ------- | ---- | ------- |  | - | --- | - |  |  | --- | --
|                                                   |  |                       |      |               |  |        
|                                                   |  |                       |      | Change from  
|                                                   |  | March 31,             |      | Previous Year
|                                                   |  |                       |      |              
|                                                   |  | 2003                  |      | 2002          |  | Dollars |      | Percent
|                                                   |  |                       |      |               |  |         |      |        
|                                                   |  |                      
|                                                   |  | (dollars in millions)
|Three Months Ended                                 |  |                       |      |               |  |         |      |         |  |   |     |   |  |  |     |   
|Restructuring and impairment charges               |  | $                     |     |               |  | $       | (35  | )       |  | $ | 35  |   |  |  | 100 | % 
|Interest expense                                   |  |                       | (225 | )             |  |         | (273 | )       |  |   | 48  |   |  |  | 18  | % 
|Interest income                                    |  |                       | 12   |               |  |         | 15   |         |  |   | (3  | ) |  |  | (20 | )%
|Loss on retirement of debt, net                    |  |                       | (5   | )             |  |         |     |         |  |   | (5  | ) |  |  | NM  |   
|Equity in losses of unconsolidated affiliates, net |  |                       | (13  | )             |  |         | (152 | )       |  |   | 139 |   |  |  | 91  | % 
|Income tax provision                               |  |                       | (22  | )             |  |         | (350 | )       |  |   | 328 |   |  |  | 94  | % 
|Income (loss) available to common
    stockholders |  |                       | 208  |               |  |         | (654 | )       |  |   | 862 |   |  |  | 132 | % 



---

NM  Not Meaningful

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

26



---



##### 



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



| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $34 million decrease resulting from the
    purchase and retirement of our senior notes, as discussed below;                                                                                                     
|
| |  | a $10 million decrease due to a reduction in
    the weighted average interest rates related to our bank credit
    facility from 5.1% during the first quarter 2002 to 3.9% during
    the first quarter 2003; and
|
| |  | a $4 million decrease related to the
    SpectraSite tower lease agreements, which are accounted for as
    operating leases beginning in the first quarter 2003.                                                  

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

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

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

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

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

Liquidity and Capital Resources

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

27



---



##### 



Cash Flows.

|                                      |  |                       |      |               |  |         |        |         |  |   |      |   |  |  |    |  
|------------------------------------- |  | --------------------- | ---- | ------------- |  | ------- | ------ | ------- |  | - | ---- | - |  |  | -- | -
|                                      |  |                       |      |              
|                                      |  | Three Months Ended    |      | Change from  
|                                      |  | March 31,             |      | Previous Year
|                                      |  |                       |      |              
|                                      |  | 2003                  |      | 2002          |  | Dollars |        | Percent
|                                      |  |                       |      |               |  |         |        |        
|                                      |  |                      
|                                      |  | (dollars in millions)
|Cash provided by operating activities |  | $                     | 813  |               |  | $       | 472    |         |  | $ | 341  |   |  |  | 72 | %
|Cash used in investing activities     |  |                       | (678 | )             |  |         | (1,164 | )       |  |   | 486  |   |  |  | 42 | %
|Cash used in financing activities     |  |                       | (625 | )             |  |         | (27    | )       |  |   | (598 | ) |  |  | NM |  

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

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



| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $213 million decrease in cash paid for
    capital expenditures;                                                                             
|
| |  | a $38 million decrease in cash paid for
    purchases of licenses, acquisitions, investments and other; and                                    
|
| |  | a $250 million increase related to the
    relinquishment of NII Holdings cash upon the
    deconsolidation of NII Holdings in 2002; offset by
|
| |  | a $15 million increase in net cash purchases
    of short-term investments.                                                                    

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



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

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

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



| |   |                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $570 million paid for the purchase and
    retirement of $491 million in aggregate principal amount at
    maturity of our outstanding senior notes and $77 million in
    aggregate face amount of our outstanding mandatorily redeemable
    preferred stock;
|
| |  | $70 million for repayments under capital
    lease and finance obligations, including a payment of
    $54 million associated with the early buy-out option under
    one of our capital lease agreements; partially offset by                                 
|
| |  | $20 million of net borrowings under the
    long-term credit facility.                                                                                                                                                                                         

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

28



---



##### 



Future Capital Needs and Resources

Capital Resources.

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

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



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

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

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

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

29



---



##### 



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

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

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

Capital Needs.

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



| |   |                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | capital expenditures to expand and enhance our
    network, as discussed immediately below under
     Capital expenditures;                                                          
|
| |  | operating expenses relating to our network;                                                                                                                                             
|
| |  | future investments, including potential spectrum
    purchases and investments in new business opportunities;                                                                           
|
| |  | potential substantial payments in connection with
    the Consensus Plan relating to the proposed public safety
    spectrum realignment (see Part II, Item 5. Other
    Information);
|
| |  | debt service requirements related to our
    long-term debt, capital lease and financing obligations and
    mandatorily redeemable preferred stock;                                    
|
| |  | potential material increases in the cost of
    compliance with regulatory mandates; and                                                                                                
|
| |  | other general corporate expenditures.                                                                                                                                                   

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



| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the construction of additional transmitter and
    receiver sites to maintain system quality and the installation
    of related switching equipment in existing market coverage areas;
|
| |  | the enhancement of our network coverage;                                                                                                                                               
|
| |  | the enhancements to our existing iDEN technology
    to increase voice capacity and to offer nationwide Direct
    Connect in 2003; and                                               

30



---



##### 





| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | any potential future enhancement of our network
    through the deployment of next generation technologies.

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

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

|                                      |  |               |        |      |  |      |       |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|------------------------------------- |  | ------------- | ------ | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---------- | ----- |  |  | - | ----- |  |  | - | ----- |  |  | - | ------ | 
|                                      |  |               |        |      |  |      |       |      |  |      |       |      |  | 2008 and  
|Future Contractual Obligations        |  | Total         |        | 2003 |  | 2004 |       | 2005 |  | 2006 |       | 2007 |  | Thereafter
|                                      |  |               |        |      |  |      |       |      |  |      |       |      |  |           
|                                      |  |              
|                                      |  | (in millions)
|Public senior notes                   |  | $             | 11,206 |      |  | $    | 482   |      |  | $    | 647   |      |  | $          | 647   |  |  | $ | 647   |  |  | $ | 2,554 |  |  | $ | 6,229  | 
|Bank credit facility(1)               |  |               | 5,904  |      |  |      | 288   |      |  |      | 525   |      |  |            | 674   |  |  |   | 708   |  |  |   | 749   |  |  |   | 2,960  | 
|Capital lease and finance obligations |  |               | 235    |      |  |      | 35    |      |  |      | 49    |      |  |            | 51    |  |  |   | 53    |  |  |   | 47    |  |  |   |       | 
|Preferred stock cash payments         |  |               | 1,797  |      |  |      | 78    |      |  |      | 104   |      |  |            | 104   |  |  |   | 104   |  |  |   | 104   |  |  |   | 1,303  | 
|Operating leases(2)                   |  |               | 1,512  |      |  |      | 336   |      |  |      | 400   |      |  |            | 300   |  |  |   | 188   |  |  |   | 106   |  |  |   | 182    | 
|Other                                 |  |               | 1,837  |      |  |      | 415   |      |  |      | 379   |      |  |            | 295   |  |  |   | 232   |  |  |   | 172   |  |  |   | 344    | 
|                                      |  |               |        |      |  |      |       |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|Total                                 |  | $             | 22,491 |      |  | $    | 1,634 |      |  | $    | 2,104 |      |  | $          | 2,071 |  |  | $ | 1,932 |  |  | $ | 3,732 |  |  | $ | 11,018 | 
|                                      |  |               |        |      |  |      |       |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 



---



|    |                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | These amounts include principal amortization and
    estimated interest payments based on managements
    expectation as to future interest rates, assume the current
    payment schedule and exclude any additional future drawdown
    under the revolving loan commitment.
|   
|(2) | These amounts principally include future lease
    costs relating to transmitter and receiver sites and switches
    and office facilities.                                                                                                                                    

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

31



---



##### 



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


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

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



| |   |                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | if (i) we elect to cease using iDEN
    technology on a nationwide basis; (ii) such change means
    that Nextel Partners cannot offer nationwide roaming comparable
    to that available to its subscribers before our change; and
    (iii) we elect not to pay for the equipment necessary to
    permit Nextel Partners to make a technology change;
|
| |  | if we elect to terminate the relationship with
    Nextel Partners because of its breach of the operating
    agreements;                                                                                                                                                                                                                                
|
| |  | if we experience a change of control; or                                                                                                                                                                                                                                                                                                                 
|
| |  | if we breach the operating agreements.                                                                                                                                                                                                                                                                                                                   

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

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

In making this assessment, we have considered:



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

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

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

32



---



##### 



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


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



| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the impact of our participation in any future
    auctions for the purchase of spectrum licenses;                                                            
|
| |  | any significant acquisition transactions or the
    pursuit of any significant new business opportunities other than
    those currently being pursued by us;
|
| |  | deployment of next generation technologies;                                                                                                                  
|
| |  | potential material additional purchases of our
    outstanding debt securities and mandatorily redeemable preferred
    stock for cash;                      
|
| |  | potential material increases in the cost of
    compliance with regulatory mandates; and                                                                     
|
| |  | potential material changes to our business plan
    that could result from the FCCs action on the proposed
    public safety spectrum realignment.          

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



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

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

Forward-Looking Statements

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



| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | general economic conditions in the geographic
    areas and occupational market segments that we are targeting for
    our digital mobile network service;                       
|
| |  | the availability of adequate quantities of system
    infrastructure and handset equipment and components to meet
    service deployment and marketing plans and customer demand;
|
| |  | the availability and cost of acquiring additional
    spectrum;                                                                                                                  

33



---



##### 





| |   |                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the timely development and availability of new
    handsets with expanded applications and features;                                                                                                                                                                                                                                                                       
|
| |  | the success of efforts to improve, and
    satisfactorily address any issues relating to, our digital
    mobile network performance;                                                                                                                                                                                                                                      
|
| |  | the successful implementation and performance of
    the technology being deployed or to be deployed in our various
    market areas, including the expected 6:1 voice coder software
    upgrade being developed by Motorola and technologies to be
    implemented in connection with our contemplated launch of our
    nationwide Direct Connect service;              
|
| |  | market acceptance of our new line of Java
    embedded handsets and service offerings, including our Nextel
    Online services;                                                                                                                                                                                                                                          
|
| |  | the timely delivery and successful implementation
    of new technologies deployed in connection with any future
    enhanced iDEN or next generation or other advanced services we
    may offer;                                                                                                                                                                         
|
| |  | the ability to achieve market penetration and
    average subscriber revenue levels sufficient to provide
    financial viability to our digital mobile network business;                                                                                                                                                                                                  
|
| |  | the impact on our cost structure or service
    levels of the general downturn in the telecommunications sector,
    including the adverse effect of any bankruptcy of any of our
    tower providers or telecommunications suppliers;                                                                                                                                     
|
| |  | our ability to successfully scale, in some
    circumstances in conjunction with third parties under our
    outsourcing arrangements, our billing, collection, customer care
    and similar back-office operations to keep pace with customer
    growth, increased system usage rates and growth in levels of
    accounts receivables being generated by our customers;
|
| |  | access to sufficient debt or equity capital to
    meet operating and financing needs;                                                                                                                                                                                                                                                                                     
|
| |  | the quality and price of similar or comparable
    wireless communications services offered or to be offered by our
    competitors, including providers of cellular and personal
    communication services including, for example, two-way radio
    services;                                                                                                           
|
| |  | the impact of legislation or regulatory actions
    relating to specialized mobile radio services, wireless
    communications services or telecommunications generally,
    including, for example, the impact of number portability on our
    business;                                                                                                                 
|
| |  | the costs of compliance with regulatory mandates,
    particularly the requirement to deploy location-based 911
    capabilities; and                                                                                                                                                                                                                                      
|
| |  | other risks and uncertainties described from time
    to time in our reports filed with the Securities and Exchange
    Commission, including our annual report on Form 10-K for
    the year ended December 31, 2002.                                                                                                                                                     

Item 3.     Quantitative
and Qualitative Disclosures about Market Risk.

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

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

34



---



##### 



was less than five months, these short-term
investments do not expose us to a significant amount of interest
rate risk.


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

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



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

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

|                                                                                                         |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |       |   |  |   |       |   |  |   |       |   |  |   |       |  
|-------------------------------------------------------------------------------------------------------- | --------------------- | --------------------- | - | ---- | - | ---- | - | ---- | - | ---- | - | ---------- | - | ----- | - | ----- | - |  | - | ----- | - |  | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|                                                                                                         |                       |                       |   |      |   |      |   |     
|                                                                                                         |                       | Year of Maturity      |   |      |   |      |   |     
|                                                                                                         |                       |                       |   |      |   |      |   | Fair
|                                                                                                         |                       | 2003                  |   | 2004 |   | 2005 |   | 2006 |   | 2007 |   | Thereafter |   | Total |   | Value
|                                                                                                         |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |      
|                                                                                                         |                       |                      
|                                                                                                         |                       | (dollars in millions)
|I. Interest Rate Sensitivity                                                                             |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |       |   |  |   |       |   |  |   |       |   |  |   |      
|Mandatorily Redeemable Preferred Stock,
    Long-term Debt and Capital Lease and Finance
    Obligations |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |       |   |  |   |       |   |  |   |       |   |  |   |      
|                                                                                                         | Fixed Rate            |                       | $ | 27   |   |      | $ | 39   |   |      | $ | 43         |   |       | $ | 48    |   |  | $ | 1,951 |   |  | $ | 6,424 |   |  | $ | 8,532 |   |  | $ | 8,612 |  
|                                                                                                         | Average Interest Rate |                       |   | 10   | % |      |   | 10   | % |      |   | 10         | % |       |   | 10    | % |  |   | 9     | % |  |   | 9     | % |  |   | 9     | % |  |   |       |  
|                                                                                                         | Variable Rate         |                       | $ | 149  |   |      | $ | 327  |   |      | $ | 433        |   |       | $ | 466   |   |  | $ | 505   |   |  | $ | 2,656 |   |  | $ | 4,536 |   |  | $ | 4,366 |  
|                                                                                                         | Average Interest Rate |                       |   | 3    | % |      |   | 3    | % |      |   | 3          | % |       |   | 3     | % |  |   | 3     | % |  |   | 5     | % |  |   | 4     | % |  |   |       |  
|                                                                                                        
|Interest Rate Swaps                                                                                      |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |       |   |  |   |       |   |  |   |       |   |  |   |      
|                                                                                                         | Variable to Fixed(1)  |                       | $ |     |   |      | $ |     |   |      | $ |           |   |       | $ | 570   |   |  | $ |      |   |  | $ |      |   |  | $ | 570   |   |  | $ | (108  | )
|                                                                                                         | Average Pay Rate      |                       |   |     |   |      |   |     |   |      |   |           |   |       |   | 8     | % |  |   |      |   |  |   |      |   |  |   | 8     | % |  |   |       |  
|                                                                                                         | Average Receive Rate  |                       |   |     |   |      |   |     |   |      |   |           |   |       |   | 2     | % |  |   |      |   |  |   |      |   |  |   | 2     | % |  |   |       |  
|                                                                                                         | Fixed to Variable     |                       | $ |     |   |      | $ |     |   |      | $ |           |   |       | $ |      |   |  | $ |      |   |  | $ | 500   |   |  | $ | 500   |   |  | $ | 62    |  
|                                                                                                         | Average Pay Rate      |                       |   |     |   |      |   |     |   |      |   |           |   |       |   |      |   |  |   |      |   |  |   | 5     | % |  |   | 5     | % |  |   |       |  
|                                                                                                         | Average Receive Rate  |                       |   |     |   |      |   |     |   |      |   |           |   |       |   |      |   |  |   |      |   |  |   | 10    | % |  |   | 10    | % |  |   |       |  



---



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

Item 4.     Controls
and Procedures.

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

35



---



##### 



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


36



---



##### 



PART II  OTHER INFORMATION.

Item 1.     Legal
Proceedings.

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

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

Item 5.     Other
Information.

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

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

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

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

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

37



---



##### 



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

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

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

(a) List of Exhibits.

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

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



| |    |                                                                                                                                                                                                                              
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Current report on Form 8-K dated and filed
    on January 8, 2003 reporting under Item 5 certain
    financial results and other data for the year ended
    December 31, 2002.                                              
|
| | 2. | Current report on Form 8-K dated and filed
    on January 16, 2003 reporting under Item 9 our
    acquisition of all of the stock of Neoworld Communications, Inc.                                                           
|
| | 3. | Current report on Form 8-K dated and filed
    on February 14, 2003 reporting under Item 9 certain
    management changes.                                                                                                   
|
| | 4. | Current report on Form 8-K dated and filed
    on February 20, 2003 reporting under Item 9 our
    financial results and other data for the quarter and year ended
    December 31, 2002.                                    
|
| | 5. | Current report on Form 8-K dated and filed
    on March 6, 2003 reporting under Item 5 certain
    changes to our board of directors and the execution of an
    agreement with Craig O. McCaw and Digital
    Radio, L.L.C..

38



---



##### 



SIGNATURE

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



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



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

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

Date: May 14, 2003


39



---



##### 



CERTIFICATIONS

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



| |                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. I have reviewed this quarterly report on
    Form 10-Q of Nextel Communications, Inc.;                                                                                                                                                                                                                                                            
|
| | 2. Based on my knowledge, this quarterly
    report does not contain any untrue statement of a material fact
    or omit to state a material fact necessary to make the
    statements made, in light of the circumstances under which such
    statements were made, not misleading with respect to the period
    covered by this quarterly report;
|
| | 3. Based on my knowledge, the financial
    statements, and other financial information included in this
    quarterly report, fairly present in all material respects the
    financial condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this
    quarterly report;                   
|
| | 4. The registrants other certifying
    officer and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                              



| |    |                                                                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this quarterly report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



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



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



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

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

40



---



##### 



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



| |                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. I have reviewed this quarterly report on
    Form 10-Q of Nextel Communications, Inc.;                                                                                                                                                                                                                                                            
|
| | 2. Based on my knowledge, this quarterly
    report does not contain any untrue statement of a material fact
    or omit to state a material fact necessary to make the
    statements made, in light of the circumstances under which such
    statements were made, not misleading with respect to the period
    covered by this quarterly report;
|
| | 3. Based on my knowledge, the financial
    statements, and other financial information included in this
    quarterly report, fairly present in all material respects the
    financial condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this
    quarterly report;                   
|
| | 4. The registrants other certifying
    officer and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                              



| |    |                                                                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this quarterly report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



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



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



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

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

41



---



##### 



EXHIBIT INDEX

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