##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

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

NEXTEL COMMUNICATIONS, INC.

(Exact name of registrant as specified in its
charter)


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

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

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

|                                                     |  |                              |             | 
|---------------------------------------------------- |  | ---------------------------- | ----------- | 
|                                                     |  | Number of Shares Outstanding
|Title of Class                                       |  | on October 31, 2002         
|                                                     |  |                             
|Class A Common Stock, $0.001 par value               |  |                              | 927,457,114 | 
|Class B Nonvoting Common Stock, $0.001 par
    value |  |                              | 35,660,000  | 



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TABLE OF CONTENTS



|                                         |                                                                                                |                                                                                 |  |  |  |  |  | 
|---------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I -- FINANCIAL INFORMATION.        
|                                         | Item 1. Financial Statements -- Unaudited.                                                    
|                                         |                                                                                                | Condensed Consolidated Balance Sheets                                          
|                                         |                                                                                                | Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
|                                         |                                                                                                | Condensed Consolidated Statement of Changes in Stockholders Equity (Deficit)  
|                                         |                                                                                                | Condensed Consolidated Statements of Cash Flows                                
|                                         |                                                                                                | Notes to Condensed Consolidated Financial Statements                           
|                                         |                                                                                                | Independent Accountants Review Report                                         
|                                         | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|                                         | Item 3. Quantitative and Qualitative Disclosures about Market Risk.                           
|                                         | Item 4. Controls and Procedures.                                                              
|PART II -- OTHER INFORMATION.           
|                                         | Item 1. Legal Proceedings.                                                                    
|                                         | Item 2. Changes in Securities and Use of Proceeds.                                            
|                                         | Item 5. Other Information.                                                                    
|                                         | Item 6. Exhibits and Reports on Form 8-K.                                                     
|First Amendment,dated Sept 19,2002      
|Separation and Non-competition Agreement
|Release Agreement                       
|Certifications of CEO & CFO             



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

INDEX

| |         |  |  |                        |  |                                                                                                                                                         |  |  |    | 
| | ------- |  |  | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
| |         |  |  |                        |  | Page                                                                                                                                                   
| |         |  |  |                        |  |                                                                                                                                                        
| | Part  I |  |  | Financial Information.
| |         |  |  | Item 1.                |  | Financial Statements  Unaudited.                                                                                                                       |  |  |    | 
| |         |  |  |                        |  | Condensed Consolidated Balance Sheets As of
    September 30, 2002 and December 31, 2001                                                                |  |  | 3  | 
| |         |  |  |                        |  | Condensed Consolidated Statements of Operations
    and Comprehensive (Loss) Income For the Nine and Three Months
    Ended September 30, 2002 and 2001 |  |  | 4  | 
| |         |  |  |                        |  | Condensed Consolidated Statement of Changes in
    Stockholders Equity (Deficit) For the Nine Months Ended
    September 30, 2002                      |  |  | 5  | 
| |         |  |  |                        |  | Condensed Consolidated Statements of Cash Flows
    For the Nine Months Ended September 30, 2002 and 2001                                               |  |  | 6  | 
| |         |  |  |                        |  | Notes to Condensed Consolidated Financial
    Statements                                                                                                |  |  | 7  | 
| |         |  |  |                        |  | Independent Accountants Review Report                                                                                                                  |  |  | 17 | 
| |         |  |  | Item 2.                |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                                               |  |  | 18 | 
| |         |  |  | Item 3.                |  | Quantitative and Qualitative Disclosures about
    Market Risk                                                                                          |  |  | 41 | 
| |         |  |  | Item 4.                |  | Controls and Procedures                                                                                                                                 |  |  | 42 | 
| | Part II |  |  | Other Information.    
| |         |  |  | Item 1.                |  | Legal Proceedings                                                                                                                                       |  |  | 43 | 
| |         |  |  | Item 2.                |  | Changes in Securities and Use of Proceeds                                                                                                               |  |  | 43 | 
| |         |  |  | Item 5.                |  | Other Information                                                                                                                                       |  |  | 43 | 
| |         |  |  | Item 6.                |  | Exhibits and Reports on Form 8-K                                                                                                                        |  |  | 45 | 



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##### Table of Contents






PART I  FINANCIAL INFORMATION.




Item 1.     Financial
Statements  Unaudited.

NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES






Condensed Consolidated Balance
Sheets


As of September 30, 2002 and
December 31, 2001


(in millions)


Unaudited


|                                                                                        |                                                                                           |                                      |        |        |        |   |        |        |        |  
|--------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------ | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|                                                                                        |                                                                                           | 2002                                 |        | 2001  
|                                                                                        |                                                                                           |                                      |        |       
|ASSETS                                                                                 
|Current assets                                                                          |                                                                                           |                                      |        |        |        |   |        |       
|                                                                                        | Cash and cash equivalents, of which $0 and $250
    is restricted                         |                                      | $      | 1,221  |        |   | $      | 2,481  |       
|                                                                                        | Restricted cash of NII Holdings held in escrow                                            |                                      |        |       |        |   |        | 84     |       
|                                                                                        | Short-term investments                                                                    |                                      |        | 1,193  |        |   |        | 1,236  |       
|                                                                                        | Accounts and notes receivable, less allowance for
    doubtful accounts of $175 and $167. |                                      |        | 1,303  |        |   |        | 1,129  |       
|                                                                                        | Handset and accessory inventory                                                           |                                      |        | 286    |        |   |        | 260    |       
|                                                                                        | Prepaid expenses and other current assets                                                 |                                      |        | 558    |        |   |        | 533    |       
|                                                                                        |                                                                                           |                                      |        |        |        |   |        |       
|                                                                                        |                                                                                           | Total current assets                 |        |        | 4,561  |   |        |        | 5,723  |  
|Investments                                                                             |                                                                                           |                                      | 71     |        |        |   | 188    |       
|Property, plant and equipment,net of accumulated depreciation of
    $4,777 and $3,667. |                                                                                           |                                      | 9,115  |        |        |   | 9,274  |       
|Intangible assets and other,net of accumulated amortization of $69
    and $1,121.      |                                                                                           |                                      | 6,745  |        |        |   | 6,067  |       
|Other assets                                                                            |                                                                                           |                                      | 921    |        |        |   | 812    |       
|                                                                                        |                                                                                           |                                      |        |        |        |   |        |       
|                                                                                        |                                                                                           | $                                    | 21,413 |        |        | $ | 22,064 |       
|                                                                                        |                                                                                           |                                      |        |        |        |   |        |       
|LIABILITIES AND STOCKHOLDERS
    DEFICIT                                              
|Current liabilities                                                                     |                                                                                           |                                      |        |        |        |   |        |       
|                                                                                        | Accounts payable                                                                          |                                      | $      | 429    |        |   | $      | 756    |       
|                                                                                        | Accrued expenses and other                                                                |                                      |        | 1,565  |        |   |        | 1,470  |       
|                                                                                        | Due to related parties                                                                    |                                      |        | 222    |        |   |        | 341    |       
|                                                                                        | Current portion of long-term debt, capital lease
    and finance obligations              |                                      |        | 301    |        |   |        | 145    |       
|                                                                                        | Debt of NII Holdings, nonrecourse to and not held
    by parent                           |                                      |        |       |        |   |        | 1,865  |       
|                                                                                        |                                                                                           |                                      |        |        |        |   |        |       
|                                                                                        |                                                                                           | Total current liabilities            |        |        | 2,517  |   |        |        | 4,577  |  
|Long-term debt                                                                          |                                                                                           |                                      | 12,265 |        |        |   | 13,815 |       
|Capital lease and finance
    obligations                                               |                                                                                           |                                      | 839    |        |        |   | 905    |       
|Deferred income taxes                                                                   |                                                                                           |                                      | 1,594  |        |        |   | 669    |       
|Deferred revenues and other                                                             |                                                                                           |                                      | 688    |        |        |   | 566    |       
|Losses in excess of investment in NII Holdings
    (note 1)                             |                                                                                           |                                      | 1,408  |        |        |   |       |       
|                                                                                        |                                                                                           |                                      |        |        |        |   |        |       
|                                                                                        |                                                                                           | Total liabilities                    |        |        | 19,311 |   |        |        | 20,532 |  
|                                                                                        |                                                                                           |                                      |        |        |        |   |        |       
|Commitments and contingencies (note
    7)                                              |                                                                                           |                                      |        |        |        |   |        |       
|Mandatorily redeemable preferred
    stock                                              |                                                                                           |                                      | 1,358  |        |        |   | 2,114  |       
|Stockholders equity (deficit)                                                          |                                                                                           |                                      |        |        |        |   |        |       
|                                                                                        | Convertible preferred stock, class A, 5 and 8
    shares issued and outstanding           |                                      |        | 183    |        |   |        | 283    |       
|                                                                                        | Common stock, class A, 926 and 763 shares issued
    and outstanding                      |                                      |        | 1      |        |   |        | 1      |       
|                                                                                        | Common stock, class B, nonvoting convertible, 36
    shares issued and outstanding        |                                      |        |       |        |   |        |       |       
|                                                                                        | Paid-in capital                                                                           |                                      |        | 10,051 |        |   |        | 8,581  |       
|                                                                                        | Accumulated deficit                                                                       |                                      |        | (9,264 | )      |   |        | (9,179 | )     
|                                                                                        | Deferred compensation, net                                                                |                                      |        | (9     | )      |   |        | (17    | )     
|                                                                                        | Accumulated other comprehensive loss                                                      |                                      |        | (218   | )      |   |        | (251   | )     
|                                                                                        |                                                                                           |                                      |        |        |        |   |        |       
|                                                                                        |                                                                                           | Total stockholders equity (deficit) |        |        | 744    |   |        |        | (582   | )
|                                                                                        |                                                                                           |                                      |        |        |        |   |        |       
|                                                                                        |                                                                                           | $                                    | 21,413 |        |        | $ | 22,064 |       
|                                                                                        |                                                                                           |                                      |        |        |        |   |        |       

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

3



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES






Condensed Consolidated Statements of
Operations and Comprehensive (Loss) Income


For the Nine and Three Months Ended
September 30, 2002 and 2001


(in millions, except per share
amounts)


Unaudited


|                                                         |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |       |      |  
|-------------------------------------------------------- | --------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ----- | ------------------ | --- | ---- | ------ | ------ | ---- | - | ----- | ----- | -- | - | ----- | ----- | ---- | -
|                                                         |                                                                                         |                                                                             |       |                   
|                                                         |                                                                                         | Nine Months Ended                                                           |       | Three Months Ended
|                                                         |                                                                                         | September 30,                                                               |       | September 30,     
|                                                         |                                                                                         |                                                                             |       |                   
|                                                         |                                                                                         | 2002                                                                        |       | 2001               |     | 2002 |        | 2001  
|                                                         |                                                                                         |                                                                             |       |                    |     |      |        |       
|Operating expenses                                       |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|                                                         | Service revenues                                                                        |                                                                             | $     | 6,002              |     |      | $      | 5,270  |      |   | $     | 2,139 |    |   | $     | 1,870 |     
|                                                         | Handset and accessory revenues                                                          |                                                                             |       | 388                |     |      |        | 345    |      |   |       | 140   |    |   |       | 122   |     
|                                                         |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|                                                         |                                                                                         |                                                                             | 6,390 |                    |     |      | 5,615  |        |      |   | 2,279 |       |    |   | 1,992 |      
|                                                         |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|Operating expenses                                       |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|                                                         | Cost of service (exclusive of depreciation
    included below)                          |                                                                             |       | 1,100              |     |      |        | 1,107  |      |   |       | 383   |    |   |       | 395   |     
|                                                         | Cost of handset and accessory revenues                                                  |                                                                             |       | 759                |     |      |        | 1,007  |      |   |       | 235   |    |   |       | 337   |     
|                                                         | Selling, general and administrative                                                     |                                                                             |       | 2,251              |     |      |        | 2,236  |      |   |       | 783   |    |   |       | 763   |     
|                                                         | Restructuring and impairment charges                                                    |                                                                             |       | 35                 |     |      |        | 169    |      |   |       |      |    |   |       | 147   |     
|                                                         | Depreciation                                                                            |                                                                             |       | 1,159              |     |      |        | 1,089  |      |   |       | 398   |    |   |       | 389   |     
|                                                         | Amortization                                                                            |                                                                             |       | 40                 |     |      |        | 181    |      |   |       | 14    |    |   |       | 60    |     
|                                                         |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|                                                         |                                                                                         |                                                                             | 5,344 |                    |     |      | 5,789  |        |      |   | 1,813 |       |    |   | 2,091 |      
|                                                         |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|Operating income (loss)                                  |                                                                                         |                                                                             | 1,046 |                    |     |      | (174   | )      |      |   | 466   |       |    |   | (99   | )    
|                                                         |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|Other income (expense)                                   |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|                                                         | Interest expense                                                                        |                                                                             |       | (813               | )   |      |        | (1,071 | )    |   |       | (271  | )  |   |       | (354  | )   
|                                                         | Interest income                                                                         |                                                                             |       | 45                 |     |      |        | 178    |      |   |       | 14    |    |   |       | 43    |     
|                                                         | Gain on retirement of debt, net of debt
    conversion expense of $134, $0, $87 and $0. |                                                                             |       | 347                |     |      |        | 469    |      |   |       | 208   |    |   |       | 469   |     
|                                                         | Equity in losses of NII Holdings (note 1)                                               |                                                                             |       | (226               | )   |      |        |       |      |   |       |      |    |   |       |      |     
|                                                         | Equity in losses of unconsolidated affiliates                                           |                                                                             |       | (72                | )   |      |        | (69    | )    |   |       | (23   | )  |   |       | (24   | )   
|                                                         | Reduction in fair value of investment                                                   |                                                                             |       | (38                | )   |      |        | (188   | )    |   |       | (3    | )  |   |       | (188  | )   
|                                                         | Foreign currency transaction losses, net                                                |                                                                             |       |                   |     |      |        | (71    | )    |   |       |      |    |   |       | (16   | )   
|                                                         | Other, net                                                                              |                                                                             |       | (1                 | )   |      |        | (12    | )    |   |       |      |    |   |       | (1    | )   
|                                                         |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|                                                         |                                                                                         |                                                                             | (758  | )                  |     |      | (764   | )      |      |   | (75   | )     |    |   | (71   | )    
|                                                         |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|Income(loss) before income tax (provision)
    benefit   |                                                                                         |                                                                             | 288   |                    |     |      | (938   | )      |      |   | 391   |       |    |   | (170  | )    
|Income tax (provision) benefit(note 1)                   |                                                                                         |                                                                             | (373  | )                  |     |      | 47     |        |      |   | (8    | )     |    |   | 20    |      
|                                                         |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|Net (loss) income                                        |                                                                                         |                                                                             | (85   | )                  |     |      | (891   | )      |      |   | 383   |       |    |   | (150  | )    
|                                                         | Gain on retirement of mandatorily redeemable
    preferred stock                        |                                                                             |       | 457                |     |      |        |       |      |   |       | 193   |    |   |       |      |     
|                                                         | Mandatorily redeemable preferred stock dividends
    and accretion                      |                                                                             |       | (175               | )   |      |        | (172   | )    |   |       | (50   | )  |   |       | (59   | )   
|                                                         |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|Income (loss) available to common
    stockholders       |                                                                                         | $                                                                           | 197   |                    |     | $    | (1,063 | )      |      | $ | 526   |       |    | $ | (209  | )    
|                                                         |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|Earnings (loss) per common share                         |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|                                                         | Basic                                                                                   |                                                                             | $     | 0.23               |     |      | $      | (1.38  | )    |   | $     | 0.58  |    |   | $     | (0.27 | )   
|                                                         |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|                                                         | Diluted                                                                                 |                                                                             | $     | 0.22               |     |      | $      | (1.38  | )    |   | $     | 0.55  |    |   | $     | (0.27 | )   
|                                                         |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|Weighted average number of common shares
    outstanding |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|                                                         | Basic                                                                                   |                                                                             |       | 851                |     |      |        | 771    |      |   |       | 911   |    |   |       | 783   |     
|                                                         |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|                                                         | Diluted                                                                                 |                                                                             |       | 888                |     |      |        | 771    |      |   |       | 988   |    |   |       | 783   |     
|                                                         |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|Comprehensive (loss) income, net of income
    tax       |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|                                                         | Unrealized (loss) gain on available-for-sale
    securities:                            |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |       |     
|                                                         |                                                                                         | Net unrealized holding losses arising during the
    period                 |       | $                  | (45 | )    |        | $      | (282 | ) |       | $     | (3 | ) |       | $     | (172 | )
|                                                         |                                                                                         | Reclassification adjustment for loss included in
    net (loss) income      |       |                    | 38  |      |        |        | 188  |   |       |       | 3  |   |       |       | 188  |  
|                                                         | Foreign currency translation adjustment                                                 |                                                                             |       | 44                 |     |      |        | (91    | )    |   |       |      |    |   |       | (32   | )   
|                                                         | Cash flow hedge:                                                                        |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |       |     
|                                                         |                                                                                         | Cumulative effect of accounting change for cash
    flow hedge              |       |                    |    |      |        |        | (20  | ) |       |       |   |   |       |       |     |  
|                                                         |                                                                                         | Reclassification of transition adjustment
    included in net (loss) income |       |                    | 6   |      |        |        | 6    |   |       |       | 2  |   |       |       | 2    |  
|                                                         |                                                                                         | Unrealized loss on cash flow hedge                                          |       |                    | (10 | )    |        |        | (29  | ) |       |       | (3 | ) |       |       | (26  | )
|                                                         |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|                                                         | Other comprehensive income (loss)                                                       |                                                                             |       | 33                 |     |      |        | (228   | )    |   |       | (1    | )  |   |       | (40   | )   
|                                                         | Net (loss) income                                                                       |                                                                             |       | (85                | )   |      |        | (891   | )    |   |       | 383   |    |   |       | (150  | )   
|                                                         |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      
|Comprehensive (loss) income, net of income
    tax       |                                                                                         | $                                                                           | (52   | )                  |     | $    | (1,119 | )      |      | $ | 382   |       |    | $ | (190  | )    
|                                                         |                                                                                         |                                                                             |       |                    |     |      |        |        |      |   |       |       |    |   |       |      

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

4



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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




Condensed Consolidated Statement of Changes in
Stockholders Equity (Deficit)


For the Nine Months Ended September 30,
2002


(in millions)


Unaudited


|                                                                      |                                                                         |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |  |   |        |     |   |   |     |   |  |   |      |    |  |   |      |     |  
|--------------------------------------------------------------------- | ----------------------------------------------------------------------- | --------------- | - | ------------ | - | ------------ | --- | ------- | - | ----------- | --- | -------- |  | ------------- | - | ------- |  | ------------ | -- | ------------- |  | ----- | - |  |  | - | ------ | --- |  | - | ------ | --- | - | - | --- | - |  | - | ---- | -- |  | - | ---- | --- | -
|                                                                      |                                                                         |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |        
|                                                                      |                                                                         | Convertible     |   | Class A      |   | Class B      |     |         |   |             |     |          |  | Accumulated   |   |        
|                                                                      |                                                                         | Preferred Stock |   | Common Stock |   | Common Stock |     |         |   |             |     |          |  | Other         |   |        
|                                                                      |                                                                         |                 |   |              |   |              |     | Paid-in |   | Accumulated |     | Deferred |  | Comprehensive |   |        
|                                                                      |                                                                         | Shares          |   | Amount       |   | Shares       |     | Amount  |   | Shares      |     | Amount   |  | Capital       |   | Deficit |  | Compensation |    | (Loss) Income |  | Total
|                                                                      |                                                                         |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |      
|Balance, January 1, 2002                                              |                                                                         |                 | 8 |              |   | $            | 283 |         |   |             | 763 |          |  | $             | 1 |         |  |              | 36 |               |  | $     |  |  |  | $ | 8,581  |     |  | $ | (9,179 | )   |   | $ | (17 | ) |  | $ | (251 | )  |  | $ | (582 | )  
|                                                                      | Net loss                                                                |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |  |   |        | (85 | ) |   |     |   |  |   |      |    |  |   |      | (85 | )
|                                                                      | Other comprehensive income                                              |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |  |   |        |     |   |   |     |   |  |   |      | 33 |  |   |      | 33  |  
|                                                                      | Conversion of preferred stock into common stock                         |                 |   | (3           | ) |              |     | (100    | ) |             |     | 16       |  |               |   |        |  |              |    |               |  |       |   |  |  |   |        | 100 |  |   |        |     |   |   |     |   |  |   |      |    |  |   |      |    |  
|                                                                      | Exchange of debt securities for common stock                            |                 |   |              |   |              |     |         |   |             |     | 92       |  |               |   |        |  |              |    |               |  |       |   |  |  |   |        | 767 |  |   |        |     |   |   |     |   |  |   |      |    |  |   |      | 767 |  
|                                                                      | Exchange of mandatorily redeemable preferred
    stock for common stock |                 |   |              |   |              |     |         |   |             |     | 52       |  |               |   |        |  |              |    |               |  |       |   |  |  |   |        | 305 |  |   |        |     |   |   |     |   |  |   |      |    |  |   |      | 305 |  
|                                                                      | Common stock issued under equity plans                                  |                 |   |              |   |              |     |         |   |             |     | 3        |  |               |   |        |  |              |    |               |  |       |   |  |  |   |        | 12  |  |   |        |     |   |   |     |   |  |   |      |    |  |   |      | 12  |  
|                                                                      | Deferred compensation and other                                         |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        | 4   |  |   |        |     |   |   |     | 8 |  |   |      |    |  |   |      | 12  |  
|                                                                      | Gain on retirement of mandatorily redeemable
    preferred stock        |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        | 457 |  |   |        |     |   |   |     |   |  |   |      |    |  |   |      | 457 |  
|Dividends and accretion on mandatorily redeemable
    preferred stock |                                                                         |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   | (175   | )   |  |   |        |     |   |   |     |   |  |   |      |    |  |   | (175 | )  
|                                                                      |                                                                         |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |  |   |        |     |   |   |     |   |  |   |      |    |  |   |      |    
|Balance, September 30, 2002                                           |                                                                         |                 | 5 |              |   | $            | 183 |         |   |             | 926 |          |  | $             | 1 |         |  |              | 36 |               |  | $     |  |  |  | $ | 10,051 |     |  | $ | (9,264 | )   |   | $ | (9  | ) |  | $ | (218 | )  |  | $ | 744  |    
|                                                                      |                                                                         |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |  |   |        |     |   |   |     |   |  |   |      |    |  |   |      |    

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

5



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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES




Condensed Consolidated Statements of Cash
Flows


For the Nine Months Ended September 30,
2002 and 2001


(in millions)


Unaudited


|                                                                 |                                                                                                   |                                                                                            |                                              |                                                         |       |      |        |        |       |      |        |  
|---------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | -------------------------------------------- | ------------------------------------------------------- | ----- | ---- | ------ | ------ | ----- | ---- | ------ | -
|                                                                 |                                                                                                   | 2002                                                                                       |                                              | 2001                                                   
|                                                                 |                                                                                                   |                                                                                            |                                              |                                                        
|Cash flows from operating activities                             |                                                                                                   |                                                                                            |                                              |                                                         |       |      |        |       
|                                                                 | Net loss                                                                                          |                                                                                            | $                                            | (85                                                     | )     |      | $      | (891   | )    
|                                                                 | Adjustments to reconcile net loss to net cash
    provided by operating activities:               |                                                                                            |                                              |                                                         |       |      |        |        |      
|                                                                 |                                                                                                   | Amortization of debt financing costs and
    accretion of senior redeemable discount notes |                                              |                                                         | 267   |      |        |        | 384   |     
|                                                                 |                                                                                                   | Provision for losses on accounts receivable                                                |                                              |                                                         | 260   |      |        |        | 268   |     
|                                                                 |                                                                                                   | Restructuring and impairment charges                                                       |                                              |                                                         | 26    |      |        |        | 147   |     
|                                                                 |                                                                                                   | Stock-based compensation                                                                   |                                              |                                                         | 13    |      |        |        | 16    |     
|                                                                 |                                                                                                   | Depreciation and amortization                                                              |                                              |                                                         | 1,199 |      |        |        | 1,270 |     
|                                                                 |                                                                                                   | Gain on retirement of debt                                                                 |                                              |                                                         | (481  | )    |        |        | (469  | )   
|                                                                 |                                                                                                   | Debt conversion expense                                                                    |                                              |                                                         | 134   |      |        |        |      |     
|                                                                 |                                                                                                   | Equity in losses of unconsolidated affiliates                                              |                                              |                                                         | 298   |      |        |        | 69    |     
|                                                                 |                                                                                                   | Foreign currency transaction losses, net                                                   |                                              |                                                         |      |      |        |        | 71    |     
|                                                                 |                                                                                                   | Reduction in fair value of investment                                                      |                                              |                                                         | 38    |      |        |        | 188   |     
|                                                                 |                                                                                                   | Income tax provision (benefit)                                                             |                                              |                                                         | 373   |      |        |        | (47   | )   
|                                                                 |                                                                                                   | Other                                                                                      |                                              |                                                         | 22    |      |        |        | 7     |     
|                                                                 |                                                                                                   | Change in assets and liabilities, net of effects
    from acquisitions:                    |                                              |                                                         |       |      |        |        |       |     
|                                                                 |                                                                                                   |                                                                                            | Accounts and notes receivable                |                                                         |       | (608 | )      |        |       | (460 | )     
|                                                                 |                                                                                                   |                                                                                            | Handset and accessory inventory              |                                                         |       | (62  | )      |        |       | (69  | )     
|                                                                 |                                                                                                   |                                                                                            | Prepaid expenses and other assets            |                                                         |       | 17   |        |        |       | 211  |       
|                                                                 |                                                                                                   |                                                                                            | Accounts payable, accrued expenses and other |                                                         |       | 102  |        |        |       | 77   |       
|                                                                 |                                                                                                   |                                                                                            |                                              |                                                         |       |      |        |       
|                                                                 |                                                                                                   |                                                                                            |                                              | Net cash provided by operating activities               |       |      | 1,513  |        |       |      | 772    |  
|                                                                 |                                                                                                   |                                                                                            |                                              |                                                         |       |      |        |       
|Cash flows from investing activities                             |                                                                                                   |                                                                                            |                                              |                                                         |       |      |        |       
|                                                                 | Capital expenditures                                                                              |                                                                                            |                                              | (1,408                                                  | )     |      |        | (2,671 | )    
|                                                                 | Proceeds from maturities and sales of short-term
    investments                                  |                                                                                            |                                              | 2,538                                                   |       |      |        | 4,121  |      
|                                                                 | Purchases of short-term investments                                                               |                                                                                            |                                              | (2,476                                                  | )     |      |        | (3,190 | )    
|                                                                 | Payments for licenses, acquisitions, investments
    and other, net of cash acquired              |                                                                                            |                                              | (416                                                    | )     |      |        | (902   | )    
|                                                                 | Cash relinquished as a result of changing to the
    equity method of accounting for NII Holdings |                                                                                            |                                              | (250                                                    | )     |      |        |       |      
|                                                                 |                                                                                                   |                                                                                            |                                              |                                                         |       |      |        |       
|                                                                 |                                                                                                   |                                                                                            |                                              | Net cash used in investing activities                   |       |      | (2,012 | )      |       |      | (2,642 | )
|                                                                 |                                                                                                   |                                                                                            |                                              |                                                         |       |      |        |       
|Cash flows from financing activities                             |                                                                                                   |                                                                                            |                                              |                                                         |       |      |        |       
|                                                                 | Issuance of debt securities                                                                       |                                                                                            |                                              |                                                        |       |      |        | 2,250  |      
|                                                                 | Purchase and retirement of debt securities and
    mandatorily redeemable preferred stock         |                                                                                            |                                              | (689                                                    | )     |      |        |       |      
|                                                                 | Repayments under capital lease and finance
    obligations                                        |                                                                                            |                                              | (77                                                     | )     |      |        | (66    | )    
|                                                                 | Repayments under long-term credit facilities                                                      |                                                                                            |                                              | (1                                                      | )     |      |        | (26    | )    
|                                                                 | Borrowings under long-term credit facilities                                                      |                                                                                            |                                              |                                                        |       |      |        | 19     |      
|                                                                 | Proceeds from exercise of stock options                                                           |                                                                                            |                                              | 1                                                       |       |      |        | 124    |      
|                                                                 | Proceeds from sale-leaseback transactions                                                         |                                                                                            |                                              | 5                                                       |       |      |        | 39     |      
|                                                                 | Debt financing costs and other                                                                    |                                                                                            |                                              |                                                        |       |      |        | (36    | )    
|                                                                 |                                                                                                   |                                                                                            |                                              |                                                         |       |      |        |       
|                                                                 |                                                                                                   |                                                                                            |                                              | Net cash (used in) provided by financing
    activities |       |      | (761   | )      |       |      | 2,304  |  
|                                                                 |                                                                                                   |                                                                                            |                                              |                                                         |       |      |        |       
|Effect of exchange rate changes on cash and
    cash equivalents |                                                                                                   |                                                                                            |                                             |                                                         |       |      | (3     | )     
|                                                                 |                                                                                                   |                                                                                            |                                              |                                                         |       |      |        |       
|Net (decrease) increase in cash and cash
    equivalents         |                                                                                                   |                                                                                            | (1,260                                       | )                                                       |       |      | 431    |       
|Cash and cash equivalents, beginning of
    period               |                                                                                                   |                                                                                            | 2,481                                        |                                                         |       |      | 2,609  |       
|                                                                 |                                                                                                   |                                                                                            |                                              |                                                         |       |      |        |       
|Cash and cash equivalents, end of
    period                     |                                                                                                   | $                                                                                          | 1,221                                        |                                                         |       | $    | 3,040  |       
|                                                                 |                                                                                                   |                                                                                            |                                              |                                                         |       |      |        |       
|Other non-cash investing and financing
    activities            |                                                                                                   |                                                                                            |                                              |                                                         |       |      |        |       
|                                                                 | Net decrease in fair value of marketable equity
    securities                                    |                                                                                            | $                                            | (12                                                     | )     |      | $      | (162   | )    
|                                                                 | Increase in capital lease obligation for digital
    mobile network equipment                     |                                                                                            |                                              |                                                        |       |      |        | 84     |      

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

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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES






Notes to Condensed Consolidated Financial
Statements


Unaudited


Note 1.  Basis of
Presentation

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

NII Holdings.NII Holdings, Inc. provides
wireless communications services primarily in selected Latin
American markets and was our substantially wholly owned
subsidiary. On October 28, 2002, the U.S. Bankruptcy Court
confirmed NII Holdings plan of reorganization. On
November 12, 2002, NII Holdings consummated its
reorganization under Chapter 11 of the U.S. Bankruptcy
Code. All previously outstanding equity interests in NII
Holdings were cancelled in the reorganization. As of
November 14, 2002, we owned about 36% of the outstanding
common stock of NII Holdings. You should read NII Holdings,
Inc.s annual report on Form 10-K for the year ended
December 31, 2001 and its subsequent quarterly reports on
Form 10-Q for matters related to NII Holdings.

The reorganization of NII Holdings included a new
infusion of capital into NII Holdings of $190 million,
$140 million of which was provided by existing creditors in
exchange for about $181 million in aggregate principal
amount at maturity of a new series of 13% senior secured notes
of NII Holdings and shares of NII Holdings class A common
stock. We contributed $51 million of this $140 million
and received in exchange about $66 million in aggregate
principal amount at maturity of these new notes and shares of
NII Holdings class A common stock. We also provided
$50 million of additional funding to NII Holdings in
exchange for a U.S.-Mexico cross border spectrum sharing
arrangement ($25 million of which remains in escrow pending
the completion of NII Holdings obligations under this
arrangement).

Our condensed consolidated financial statements
include the consolidated results of NII Holdings through
December 31, 2001. As a result of its bankruptcy filing in
May 2002, we began accounting for our investment in NII
Holdings, effective May 2002, using the equity method in
accordance with Accounting Principles Board, or APB, Opinion
No. 18, The Equity Method of Accounting for
Investments in Common Stock. We use the equity method to
account for our investment given our ability to exercise
significant influence over the operating and financial policies
of NII Holdings. In accordance with the equity method, we
stopped recognizing equity in losses of NII Holdings effective
in May 2002 as we had recognized $1,408 million of losses
in excess of our investment in NII Holdings through that date.
We have reflected these excess losses on the accompanying
balance sheet in other long-term liabilities.

We have classified the 2002 net operating results
of NII Holdings as equity in losses of NII Holdings in the
accompanying statement of operations as permitted under the
accounting rules governing a mid-year change from consolidating
a subsidiary to accounting for the investment using the equity
method. However, the presentation of NII Holdings in the
financial statements as a consolidated subsidiary in 2001 and
prior periods has not changed from the prior presentation. We
expect to record a substantial non-cash pre-tax gain in excess
of $1.0 billion in the fourth quarter consisting of a
$1,408 million reversal of equity losses in excess of our
investment in NII Holdings, partially offset by charges recorded
when we consolidated NII Holdings, including among other items,
$185 million of cumulative foreign currency translation
losses. Based on our ownership interest as of November 14,
we expect to account for our new investment in NII Holdings
using the equity method beginning in the fourth quarter of 2002,
which will require us to record our proportionate share of NII
Holdings results of operations. The following table
reflects the results of operations as reported by NII Holdings
for the nine-month and three-month periods ended
September 30, 2002 and 2001. The table

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

also reflects the year-to-date results of
operations of NII Holdings through May 2002 prior to any
intercompany eliminations as we did not record equity in losses
for NII Holdings subsequent to that point as discussed above.

|                        |  |               |      |               |  |         |      |      |  |      |     |   |  |   |      |   |  |   |      |  
|----------------------- |  | ------------- | ---- | ------------- |  | ------- | ---- | ---- |  | ---- | --- | - |  | - | ---- | - |  | - | ---- | -
|                        |  |               |      |               |  |        
|                        |  | Nine Months   |      | Three Months  |  |        
|                        |  | Ended         |      | Ended         |  |        
|                        |  | September 30, |      | September 30, |  | Through
|                        |  |               |      |               |  | May    
|                        |  | 2002          |      | 2001          |  | 2002    |      | 2001 |  | 2002
|                        |  |               |      |               |  |         |      |      |  |     
|                        |  |              
|                        |  | (in millions)
|Operating revenues      |  | $             | 584  |               |  | $       | 486  |      |  | $    | 191 |   |  | $ | 186  |   |  | $ | 393  |  
|Operating income (loss) |  |               | 29   |               |  |         | (416 | )    |  |      | 19  |   |  |   | (235 | ) |  |   | 4    |  
|Net loss                |  |               | (427 | )             |  |         | (933 | )    |  |      | (36 | ) |  |   | (552 | ) |  |   | (276 | )

Accumulated
Other Comprehensive Loss.

|                                                               |  |               |      |              |  |   |      |  
|-------------------------------------------------------------- |  | ------------- | ---- | ------------ |  | - | ---- | -
|                                                               |  | September 30, |      | December 31,
|                                                               |  | 2002          |      | 2001        
|                                                               |  |               |      |             
|                                                               |  |              
|                                                               |  | (in millions)
|Unrealized gain on available-for-sale securities,
    net      |  | $             |     |              |  | $ | 7    |  
|Cumulative foreign currency translation
    adjustments        |  |               | (185 | )            |  |   | (229 | )
|Cumulative effect of accounting change for cash
    flow hedge |  |               | (6   | )            |  |   | (12  | )
|Unrealized loss on cash flow hedge                             |  |               | (27  | )            |  |   | (17  | )
|                                                               |  |               |      |              |  |   |      |  
|                                                               |  | $             | (218 | )            |  | $ | (251 | )
|                                                               |  |               |      |              |  |   |      |  

Earnings Per Common Share.In accordance with Statement of
Financial Accounting Standards, or SFAS, No. 128,
Earnings Per Share, basic earnings 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 issuable upon
the conversion of our convertible senior notes and convertible
preferred stock computed using the if-converted method.

For the nine months ended September 30,
2002, 96 million shares issuable under our incentive equity
plans and 52 million shares issuable upon the assumed
conversion of 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 current
antidilutive effects. For the three months ended
September 30, 2002, 93 million shares issuable under
our incentive equity plans and 10 million shares issuable
upon the assumed conversion of our 5.25% convertible senior
notes could potentially dilute earnings per share in the future
but were excluded from the calculation of diluted earnings per
common share due to their current antidilutive effects. Because
we reported losses in 2001, the calculation of diluted earnings
per common share for the nine months and three months ended
September 30, 2001 excludes the effects of all potentially
dilutive common shares due to their antidilutive effects.

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

|                                                                   |                                                                 |                                                                         |     |               |    |      |        |       |   |   |     |      |    |   |      |       |   | 
|------------------------------------------------------------------ | --------------------------------------------------------------- | ----------------------------------------------------------------------- | --- | ------------- | -- | ---- | ------ | ----- | - | - | --- | ---- | -- | - | ---- | ----- | - | 
|                                                                   |                                                                 |                                                                         |     |              
|                                                                   |                                                                 | Nine Months                                                             |     | Three Months 
|                                                                   |                                                                 | Ended                                                                   |     | Ended        
|                                                                   |                                                                 | September 30,                                                           |     | September 30,
|                                                                   |                                                                 |                                                                         |     |              
|                                                                   |                                                                 | 2002                                                                    |     | 2001          |    | 2002 |        | 2001 
|                                                                   |                                                                 |                                                                         |     |               |    |      |        |      
|                                                                   |                                                                 |                                                                        
|                                                                   |                                                                 | (in millions, except per share amounts)                                
|Income (loss) available to common
    stockholders  basic         |                                                                 | $                                                                       | 197 |               |    | $    | (1,063 | )     |   | $ | 526 |      |    | $ | (209 | )    
|                                                                   | Interest expense eliminated upon the assumed
    conversion of: |                                                                         |     |               |    |      |        |       |   |   |     |      |    |   |      |       |  
|                                                                   |                                                                 | 4.75% convertible senior notes due 2007.                                |     |               |   |      |        |       |  |   |     |      | 4  |   |      |       |  | 
|                                                                   |                                                                 | 6% convertible senior notes due 2011.                                   |     |               |   |      |        |       |  |   |     |      | 9  |   |      |       |  | 
|                                                                   |                                                                 | Zero coupon convertible preferred stock
    mandatorily redeemable 2013 |     |               |   |      |        |       |  |   |     |      | 2  |   |      |       |  | 
|                                                                   |                                                                 |                                                                         |     |               |    |      |        |       |   |   |     |      |    |   |      |      
|Income (loss) available to common
    stockholders  diluted       |                                                                 | $                                                                       | 197 |               |    | $    | (1,063 | )     |   | $ | 541 |      |    | $ | (209 | )    
|                                                                   |                                                                 |                                                                         |     |               |    |      |        |       |   |   |     |      |    |   |      |      
|Weighted average number of common shares
    outstanding  basic   |                                                                 |                                                                         | 851 |               |    |      | 771    |       |   |   | 911 |      |    |   | 783  |      
|                                                                   | Effect of dilutive securities:                                  |                                                                         |     |               |    |      |        |       |   |   |     |      |    |   |      |       |  
|                                                                   |                                                                 | Class A convertible preferred stock                                     |     |               | 35 |      |        |       |  |   |     |      | 30 |   |      |       |  | 
|                                                                   |                                                                 | Incentive equity plans                                                  |     |               | 2  |      |        |       |  |   |     |      | 4  |   |      |       |  | 
|                                                                   |                                                                 | 4.75% convertible senior notes due 2007.                                |     |               |   |      |        |       |  |   |     |      | 12 |   |      |       |  | 
|                                                                   |                                                                 | 6% convertible senior notes due 2011.                                   |     |               |   |      |        |       |  |   |     |      | 26 |   |      |       |  | 
|                                                                   |                                                                 | Zero coupon convertible preferred stock
    mandatorily redeemable 2013 |     |               |   |      |        |       |  |   |     |      | 5  |   |      |       |  | 
|                                                                   |                                                                 |                                                                         |     |               |    |      |        |       |   |   |     |      |    |   |      |      
|Weighted average number of common shares
    outstanding  diluted |                                                                 |                                                                         | 888 |               |    |      | 771    |       |   |   | 988 |      |    |   | 783  |      
|                                                                   |                                                                 |                                                                         |     |               |    |      |        |       |   |   |     |      |    |   |      |      
|Earnings (loss) per common
    share                               |                                                                 |                                                                         |     |               |    |      |        |       |   |   |     |      |    |   |      |      
|                                                                   | Basic                                                           |                                                                         | $   | 0.23          |    |      | $      | (1.38 | ) |   | $   | 0.58 |    |   | $    | (0.27 | )
|                                                                   |                                                                 |                                                                         |     |               |    |      |        |       |   |   |     |      |    |   |      |      
|                                                                   | Diluted                                                         |                                                                         | $   | 0.22          |    |      | $      | (1.38 | ) |   | $   | 0.55 |    |   | $    | (0.27 | )
|                                                                   |                                                                 |                                                                         |     |               |    |      |        |       |   |   |     |      |    |   |      |      

Supplemental
Cash Flow Information.

|                                                         |                                                                 |               |       |       |   |   |       |       |  
|-------------------------------------------------------- | --------------------------------------------------------------- | ------------- | ----- | ----- | - | - | ----- | ----- | -
|                                                         |                                                                 |              
|                                                         |                                                                 | Nine Months  
|                                                         |                                                                 | Ended        
|                                                         |                                                                 | September 30,
|                                                         |                                                                 |              
|                                                         |                                                                 | 2002          |       | 2001 
|                                                         |                                                                 |               |       |      
|                                                         |                                                                 |              
|                                                         |                                                                 | (in millions)
|Capital expenditures, including capitalized
    interest |                                                                 |               |       |       |   |   |       |      
|                                                         | Cash paid for capital expenditures                              |               | $     | 1,408 |   |   | $     | 2,671 |  
|                                                         | Changes in capital expenditures accrued, unpaid
    or financed |               |       | (49   | ) |   |       | (280  | )
|                                                         |                                                                 |               |       |       |   |   |       |      
|                                                         |                                                                 | $             | 1,359 |       |   | $ | 2,391 |      
|                                                         |                                                                 |               |       |       |   |   |       |      
|Interest costs                                           |                                                                 |               |       |       |   |   |       |      
|                                                         | Interest expense                                                |               | $     | 813   |   |   | $     | 1,071 |  
|                                                         | Interest capitalized                                            |               |       | 36    |   |   |       | 101   |  
|                                                         |                                                                 |               |       |       |   |   |       |      
|                                                         |                                                                 | $             | 849   |       |   | $ | 1,172 |      
|                                                         |                                                                 |               |       |       |   |   |       |      
|Cash paid for interest, net of amounts
    capitalized   |                                                                 | $             | 531   |       |   | $ | 629   |      
|                                                         |                                                                 |               |       |       |   |   |       |      
|Cash paid for income taxes                               |                                                                 | $             | 10    |       |   | $ | 6     |      
|                                                         |                                                                 |               |       |       |   |   |       |      

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

Supplemental
Accrued Expenses and Other.

|                           |                                       |               |       |              |  |   |       |     | 
|-------------------------- | ------------------------------------- | ------------- | ----- | ------------ |  | - | ----- | --- | 
|                           |                                       | September 30, |       | December 31,
|                           |                                       | 2002          |       | 2001        
|                           |                                       |               |       |             
|                           |                                       |              
|                           |                                       | (in millions)
|Accrued expenses and other |                                       |               |       |              |  |   |       |    
|                           | Deferred revenues                     |               | $     | 690          |  |   | $     | 578 | 
|                           | Accrued interest and dividends        |               |       | 178          |  |   |       | 211 | 
|                           | Payroll related items and commissions |               |       | 161          |  |   |       | 197 | 
|                           | Other                                 |               |       | 536          |  |   |       | 484 | 
|                           |                                       |               |       |              |  |   |       |    
|                           |                                       | $             | 1,565 |              |  | $ | 1,470 |    
|                           |                                       |               |       |              |  |   |       |    

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

As of January 1, 2002, we tested all of our
Federal Communications Commission, or FCC, licenses and goodwill
for impairment and concluded that there was no impairment as the
fair values of these intangible assets were greater than their
carrying values. We concluded, based on the guidance in Emerging
Issues Task Force, or EITF, Issue No. 02-7, Unit of
Accounting for Testing Impairment of Indefinite-Lived Intangible
Assets, that the unit of accounting for our 800 MHz and
900 MHz FCC licenses is our nationwide footprint. Using a
residual value approach, we measured the fair value of these
licenses by deducting the fair values of our domestic net
assets, other than FCC licenses, from our domestic reporting
units fair value, which was determined based on discounted
cash flows.

In connection with the adoption of SFAS
No. 142, we ceased amortizing FCC license costs, as we
believe that our portfolio of FCC licenses represents an
intangible asset with an indefinite useful life. As a result, in
the first quarter of 2002, we incurred a one-time cumulative
non-cash charge to the income tax provision of $335 million
to increase the valuation allowance related to our net operating
losses. This cumulative charge was required since we have
significant deferred tax liabilities related to our FCC licenses
that have a significantly lower tax basis than book basis.
Historically, we did not need a valuation allowance for the
portion of our net operating loss equal to deferred tax
liabilities related to FCC licenses expected to reverse during
our net operating loss carryforward period. Since we ceased
amortizing FCC licenses, we can no longer estimate the amount,
if any, of deferred tax liabilities related to our FCC licenses
that will reverse during the carryforward period. Accordingly,
we increased our valuation allowance. During the nine months
ended September 30, 2002, we have recorded an incremental
$38 million non-cash charge to the income tax provision
related to FCC licenses for which we have a tax basis. As these
FCC licenses are no longer amortized for book purposes but are
amortized for tax purposes, we are recording additional deferred
tax liabilities as amortization occurs.

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

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

Income Taxes. The offsetting increase
related to recognizing this deferred tax liability was recorded
to FCC licenses, consistent with the approach of treating FCC
licenses as the residual in the purchase price allocations for
transactions in which the predominant assets acquired were FCC
licenses. On January 1, 2002, we also adjusted the gross
carrying values of our FCC licenses and goodwill by the
accumulated amortization amounts in accordance with SFAS
No. 142. During the nine months ended September 30,
2002, we acquired about $388 million of FCC licenses. The
table below summarizes our intangible assets. Based only on the
amortized intangible assets existing at September 30, 2002,
we estimate the amortization expense to be $12 million during
the remainder of 2002, $47 million during 2003,
$26 million during 2004, $4 million during 2005 and
$2 million during 2006. 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.

|                                  |                                             |              |                |                    |       |                   |  |          |   |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |       | 
|--------------------------------- | ------------------------------------------- | ------------ | -------------- | ------------------ | ----- | ----------------- |  | -------- | - | -------- |  | ------------ | ----- | -------- |  | - | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                                  |                                             |              |                |                    |       |                  
|                                  |                                             |              |                | September 30, 2002 |       | December 31, 2001
|                                  |                                             |              |                |                    |       |                  
|                                  |                                             |              |                | Gross              |       |                   |  | Net      |   | Gross    |  |              |       | Net     
|                                  |                                             |              |                | Carrying           |       | Accumulated       |  | Carrying |   | Carrying |  | Accumulated  |       | Carrying
|                                  |                                             | Useful Lives |                | Value              |       | Amortization      |  | Value    |   | Value    |  | Amortization |       | Value   
|                                  |                                             |              |                |                    |       |                   |  |          |   |          |  |              |       |         
|Amortized intangible assets       |                                             |              |                |                    |       |                   |  |          |   |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |      
|                                  | Customer lists                              |              | 2 to 3 years   |                    | $     | 128               |  |          | $ | 55       |  |              | $     | 73       |  |   | $     | 114   |  |   | $     | 25    |  |   | $     | 89    | 
|                                  | International licenses                      |              | 20 years       |                    |       |                  |  |          |   |         |  |              |       |         |  |   |       | 192   |  |   |       |      |  |   |       | 192   | 
|                                  | Noncompete agreements, trademarks and other |              | Up to 20 years |                    |       | 37                |  |          |   | 14       |  |              |       | 23       |  |   |       | 24    |  |   |       | 9     |  |   |       | 15    | 
|                                  |                                             |              |                |                    |       |                   |  |          |   |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |      
|                                  |                                             |              |                |                    |       | 165               |  |          | $ | 69       |  |              |       | 96       |  |   |       | 330   |  |   |       | 34    |  |   |       | 296   | 
|                                  |                                             |              |                |                    |       |                   |  |          |   |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |      
|Unamortized intangible assets     |                                             |              |                |                    |       |                   |  |          |   |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |      
|                                  | FCC licenses                                |              |                |                    |       | 6,423             |  |          |   |          |  |              |       | 6,423    |  |   |       | 6,547 |  |   |       | 1,086 |  |   |       | 5,461 | 
|                                  | Goodwill                                    |              |                |                    |       | 21                |  |          |   |          |  |              |       | 21       |  |   |       | 22    |  |   |       | 1     |  |   |       | 21    | 
|                                  |                                             |              |                |                    |       |                   |  |          |   |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |      
|                                  |                                             |              |                |                    |       | 6,444             |  |          |   |          |  |              |       | 6,444    |  |   |       | 6,569 |  |   |       | 1,087 |  |   |       | 5,482 | 
|                                  |                                             |              |                |                    |       |                   |  |          |   |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |      
|Total intangible assets           |                                             |              |                | $                  | 6,609 |                   |  |          |   |          |  |              | 6,540 |          |  | $ | 6,899 |       |  | $ | 1,121 |       |  |   | 5,778 |      
|                                  |                                             |              |                |                    |       |                   |  |          |   |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |      
|                                  | Debt financing costs, net                   |              |                |                    |       |                   |  |          |   |          |  |              |       | 205      |  |   |       |       |  |   |       |       |  |   |       | 289   | 
|                                  |                                             |              |                |                    |       |                   |  |          |   |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |      
|Total intangible assets and other |                                             |              |                |                    |       |                   |  |          |   |          |  | $            | 6,745 |          |  |   |       |       |  |   |       |       |  | $ | 6,067 |      
|                                  |                                             |              |                |                    |       |                   |  |          |   |          |  |              |       |          |  |   |       |       |  |   |       |       |  |   |       |      

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

|                                                       |                                                    |                                |        |              |   |   |       |       |  
|------------------------------------------------------ | -------------------------------------------------- | ------------------------------ | ------ | ------------ | - | - | ----- | ----- | -
|                                                       |                                                    | Nine Months                    |        | Three Months
|                                                       |                                                    | Ended                          |        | Ended       
|                                                       |                                                    |                                |        |             
|                                                       |                                                    |                               
|                                                       |                                                    | September 30, 2001            
|                                                       |                                                    |                               
|                                                       |                                                    |                               
|                                                       |                                                    | (in millions, except per share
|                                                       |                                                    | amounts)                      
|Loss available to common stockholders, as
    reported |                                                    | $                              | (1,063 | )            |   | $ | (209  | )    
|                                                       | Amortization of goodwill and FCC licenses recorded |                                |        | 109          |   |   |       | 38    |  
|                                                       | Income tax provision adjustments                   |                                |        | (355         | ) |   |       | (9    | )
|                                                       |                                                    |                                |        |              |   |   |       |      
|Pro forma loss available to common
    stockholders    |                                                    | $                              | (1,309 | )            |   | $ | (180  | )    
|                                                       |                                                    |                                |        |              |   |   |       |      
|Loss per share, basic and diluted, as
    reported     |                                                    | $                              | (1.38  | )            |   | $ | (0.27 | )    
|                                                       | Amortization of goodwill and FCC licenses recorded |                                |        | 0.14         |   |   |       | 0.05  |  
|                                                       | Income tax provision adjustments                   |                                |        | (0.46        | ) |   |       | (0.01 | )
|                                                       |                                                    |                                |        |              |   |   |       |      
|Pro forma loss per share, basic and
    diluted        |                                                    | $                              | (1.70  | )            |   | $ | (0.23 | )    
|                                                       |                                                    |                                |        |              |   |   |       |      

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

New Accounting Pronouncements.On April 1, 2002, we adopted
SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections. SFAS No. 145 requires us
to classify gains and losses from extinguishments of debt as
extraordinary items only if they meet the criteria for such
classification in APB Opinion No. 30, Reporting the
Results of Operations, Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions.
Additionally, SFAS No. 145 requires sale-leaseback
accounting for certain lease modifications that have economic
effects similar to sale-leaseback transactions. We adopted the
provisions of SFAS No. 145 during the second quarter of
2002. Accordingly, gains and losses on the retirement of debt
for all periods presented have been classified as other income
(expense) in the accompanying statements of operations
rather than as extraordinary items.

In July 2001, the Financial Accounting Standards
Board, or FASB, issued SFAS No. 143, Accounting for
Asset Retirement Obligations, which provides accounting
guidance for legal obligations associated with the retirement of
long-lived assets. SFAS No. 143 requires companies to
recognize the fair value of a liability for the asset retirement
obligation in the period in which it is incurred and to
capitalize that amount as part of the carrying value of the
related long-lived asset. The liability is then accreted to its
present value each period and the capitalized costs are
depreciated over the useful life of the associated asset. We are
currently assessing our legal obligations and, accordingly, have
not yet determined the expected impact, if any, of adopting this
standard. We are required to adopt the provisions of SFAS
No. 143 by January 1, 2003.

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

|                                |  |               |     |      |  |   |     | 
|------------------------------- |  | ------------- | --- | ---- |  | - | --- | 
|                                |  | 2002          |     | 2001
|                                |  |               |     |     
|                                |  |              
|                                |  | (in millions)
|Three months ended September 30 |  | $             | 24  |      |  | $ | 61  | 
|Nine months ended September 30  |  |               | 109 |      |  |   | 196 | 

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

Note 2.  2002 Transactions

Restructuring.In January 2002, we announced a
five-year information technology outsourcing agreement with
Electronic Data Systems Corp., or EDS, under which EDS manages
our corporate data center, database administration, helpdesk,
desktop services and other technical functions. Additionally, in
January 2002, we announced an eight-year customer
relationship management agreement with International Business
Machines Corporation, or IBM, and TeleTech Holdings, Inc. to
manage our customer care centers. In connection with these
outsourcing agreements, we recorded a $35 million
restructuring charge in the first quarter of 2002, which
primarily represents the future lease payments related to
facilities we plan to vacate net of estimated sublease income.
The restructuring charge also includes employee separation costs
associated with the involuntary termination of about 700
employees throughout the organization. As of September 30,

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

2002, substantially all of these employee
separations have been completed. The following table presents
the activities related to the restructuring.

|                    |  |                |    |            |  |            |    |                    |  |           |    |   |  |   |    |   |  |   |    | 
|------------------- |  | -------------- | -- | ---------- |  | ---------- | -- | ------------------ |  | --------- | -- | - |  | - | -- | - |  | - | -- | 
|                    |  |                |    |            |  |            |    |                   
|                    |  | Restructuring  |    |            |  | Deductions |    | September 30, 2002
|                    |  | and Impairment |    |            |  |            |    | Restructuring     
|                    |  | Charges        |    | Adjustment |  | Payments   |    | Noncash            |  | Liability
|                    |  |                |    |            |  |            |    |                    |  |          
|                    |  |               
|                    |  | (in millions) 
|Facilities          |  | $              | 29 |            |  | $          | (4 | )                  |  | $         | (1 | ) |  | $ |   |   |  | $ | 24 | 
|Employee separation |  |                | 4  |            |  |            | 4  |                    |  |           | (8 | ) |  |   |   |   |  |   |   | 
|Asset impairments   |  |                | 2  |            |  |            |   |                    |  |           |   |   |  |   | (2 | ) |  |   |   | 
|                    |  |                |    |            |  |            |    |                    |  |           |    |   |  |   |    |   |  |   |    | 
|                    |  | $              | 35 |            |  | $          |   |                    |  | $         | (9 | ) |  | $ | (2 | ) |  | $ | 24 | 
|                    |  |                |    |            |  |            |    |                    |  |           |    |   |  |   |    |   |  |   |    | 

The decrease to our facilities charge estimate
results from our ability to utilize some of the vacated
facilities in our ongoing business. The increase to the employee
separation charge results from the continuation of a reduction
in force initiative we began in the first quarter of 2002 and
continued into the second quarter of 2002.

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

Preferred Stock Conversion.During the nine months ended
September 30, 2002, Digital Radio, L.L.C., an affiliate of
Craig O. McCaw, converted 2.7 million shares of class A
convertible preferred stock into 16.2 million shares of
class A common stock.

Reduction in Fair Value of Investment.During 2002, we recognized a $38
million other-than temporary reduction in the fair value of our
investment in SpectraSite Holdings, Inc.

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

|                                                                                                             |                               |                               |        |              |      |   |        |        |     |  
|------------------------------------------------------------------------------------------------------------ | ----------------------------- | ----------------------------- | ------ | ------------ | ---- | - | ------ | ------ | --- | -
|                                                                                                             |                               | September 30,                 |        | December 31,
|                                                                                                             |                               | 2002                          |        | 2001        
|                                                                                                             |                               |                               |        |             
|                                                                                                             |                               |                              
|                                                                                                             |                               | (dollars in millions)        
|Long-Term Debt                                                                                               |                               |                               |        |              |      |   |        |       
|10.65% senior redeemable discount notes due
    2007, net of unamortized discount of
    $0 and $59          |                               | $                             | 776    |              |      | $ | 781    |       
|9.75% senior serial redeemable discount notes
    due 2007, net of unamortized discount
    of $8 and $86.   |                               |                               | 1,093  |              |      |   | 1,043  |       
|4.75% convertible senior notes due
    2007                                                                  |                               |                               | 284    |              |      |   | 354    |       
|9.95% senior serial redeemable discount notes
    due 2008, net of unamortized discount
    of $50 and $168  |                               |                               | 1,351  |              |      |   | 1,459  |       
|12% senior serial redeemable notes due
    2008, net of unamortized discount of
    $3 and $3                |                               |                               | 297    |              |      |   | 297    |       
|9.375% senior serial redeemable notes due
    2009                                                           |                               |                               | 1,829  |              |      |   | 2,000  |       
|5.25% convertible senior notes due
    2010                                                                  |                               |                               | 724    |              |      |   | 1,150  |       
|9.5% senior serial redeemable notes due
    2011, including a fair value hedge
    adjustment of $56 and $11 |                               |                               | 982    |              |      |   | 1,261  |       
|6% convertible senior notes due 2011                                                                         |                               |                               | 608    |              |      |   | 1,000  |       
|Bank credit facility                                                                                         |                               |                               | 4,500  |              |      |   | 4,500  |       
|Other                                                                                                        |                               |                               | 18     |              |      |   | 19     |       
|                                                                                                             |                               |                               |        |              |      |   |        |       
|                                                                                                             | Total domestic long-term debt |                               |        | 12,462       |      |   |        | 13,864 |    
|                                                                                                             |                               | Less domestic current portion |        |              | (197 | ) |        |        | (49 | )
|                                                                                                             |                               |                               |        |              |      |   |        |       
|                                                                                                             |                               | $                             | 12,265 |              |      | $ | 13,815 |       
|                                                                                                             |                               |                               |        |              |      |   |        |       

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

|                                          |                                                 |                       |     |              |      |   |     |       |     |  
|----------------------------------------- | ----------------------------------------------- | --------------------- | --- | ------------ | ---- | - | --- | ----- | --- | -
|                                          |                                                 | September 30,         |     | December 31,
|                                          |                                                 | 2002                  |     | 2001        
|                                          |                                                 |                       |     |             
|                                          |                                                 |                      
|                                          |                                                 | (dollars in millions)
|Capital Lease and Finance
    Obligations |                                                 |                       |     |              |      |   |     |      
|Capital lease obligations                 |                                                 | $                     | 270 |              |      | $ | 308 |      
|Finance obligation                        |                                                 |                       | 673 |              |      |   | 693 |      
|                                          |                                                 |                       |     |              |      |   |     |      
|                                          | Total capital lease and finance
    obligations |                       |     | 943          |      |   |     | 1,001 |    
|                                          |                                                 | Less current portion  |     |              | (104 | ) |     |       | (96 | )
|                                          |                                                 |                       |     |              |      |   |     |      
|                                          |                                                 | $                     | 839 |              |      | $ | 905 |      
|                                          |                                                 |                       |     |              |      |   |     |      

The above table reflects the purchase and
retirement, during the nine months ended September 30,
2002, of a total of $1,701 million in aggregate principal
amount at maturity, or $1,685 million in book value, of our
outstanding senior notes. See note 5.

Note 4.  Mandatorily Redeemable
Preferred Stock

|                                                                                                                                                                                                                                                                                  |  |                       |       |              |  |   |       | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | ----- | ------------ |  | - | ----- | 
|                                                                                                                                                                                                                                                                                  |  | September 30,         |       | December 31,
|                                                                                                                                                                                                                                                                                  |  | 2002                  |       | 2001        
|                                                                                                                                                                                                                                                                                  |  |                       |       |             
|                                                                                                                                                                                                                                                                                  |  |                      
|                                                                                                                                                                                                                                                                                  |  | (dollars in millions)
|Series D exchangeable preferred stock
    mandatorily redeemable 2009, 13%
    cumulative annual dividend; 580,619 and 859,391 shares issued;
    580,608 and 859,380 shares outstanding; stated at liquidation
    value                                                         |  | $                     | 581   |              |  | $ | 883   | 
|Series E exchangeable preferred stock
    mandatorily redeemable 2010, 11.125%
    cumulative annual dividend; 680,543 and 1,133,161 shares issued;
    680,529 and 1,133,147 shares outstanding; stated at liquidation
    value                                                 |  |                       | 690   |              |  |   | 1,149 | 
|Zero coupon convertible preferred stock
    mandatorily redeemable 2013, no
    dividend; convertible into 4,779,386 shares of class A common
    stock; 245,245 shares issued and outstanding; stated at accreted
    liquidation preference value at 9.25% compounded quarterly |  |                       | 87    |              |  |   | 82    | 
|                                                                                                                                                                                                                                                                                  |  |                       |       |              |  |   |       | 
|                                                                                                                                                                                                                                                                                  |  | $                     | 1,358 |              |  | $ | 2,114 | 
|                                                                                                                                                                                                                                                                                  |  |                       |       |              |  |   |       | 

The above table reflects the purchase and
retirement, during the nine months ended September 30,
2002, of a total of $897 million in aggregate face amount, or
$909 million in book value, of our outstanding mandatorily
redeemable preferred stock. See note 5.

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

For the nine months ended September 30,
2002, we purchased and retired a total of $1,701 million in
aggregate principal amount at maturity of our outstanding senior
notes and $897 million in aggregate face amount of our
outstanding mandatorily redeemable preferred stock in exchange
for 144 million shares of class A common stock valued at
$840 million and $689 million in cash. During the
third quarter of 2002, we purchased and retired a total of
$1,048 million in aggregate principal amount at maturity of our
outstanding senior notes and $457 million of aggregate face
amount of our outstanding mandatorily redeemable preferred stock
in exchange for 83 million shares of class A common stock
valued at $547 million and $394 million in cash.

As a result of the purchase and retirement of the
senior notes, excluding the convertible senior notes retired in
exchange for shares of class A common stock, we recognized a
gain in other income (expense) in the accompanying
statements of operations, representing the excess of the
carrying value over the purchase price of the purchased and
retired notes and the write-off of unamortized debt financing
costs. We retired some of our outstanding convertible senior
notes by issuing more shares of our class A common stock than
the noteholders were entitled to under the original terms of
these notes. In accordance with SFAS No. 84,

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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

Induced Conversions of Convertible
Debt, we recorded debt conversion expense in other income
(expense) equivalent to the fair value of the additional
shares issued as measured on the transaction date. As a result
of the mandatorily redeemable preferred stock transactions, we
recognized gains, representing the excess of the carrying value
over the purchase price of the purchased and retired mandatorily
redeemable preferred stock and the write-off of unamortized
financing costs. We may, from time to time, as we deem
appropriate, enter into similar transactions that in the
aggregate may be material.

Note 6.  Derivative Instruments and
Hedging Activities

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

In July 2001, we entered into interest rate swap
agreements to hedge the risk of changes in fair value of a
portion of our long-term fixed rate debt, which are attributable
to changes in the London Interbank Offered Rate, or LIBOR, as
the benchmark interest rate. These fair value hedges qualify for
hedge accounting using the short-cut method since the swap terms
match the critical terms of the hedged debt. Accordingly, there
was no net effect on our results of operations for the nine- and
three-month periods ended September 30, 2002 relating to
the ineffectiveness of these fair value hedges. As of
September 30, 2002, we have recognized the interest rate
swaps at their fair values of $60 million, consisting of
$4 million in interest receivable and $56 million in other
assets, with an offsetting $56 million adjustment to the
carrying value of our hedged debt.

We also use interest rate swaps to hedge the
variability of future cash flows, which are caused by changes in
LIBOR, as the benchmark interest rate, associated with some of
our long-term variable rate debt. As of September 30, 2002,
we have recognized all of our cash flow hedges at their fair
values of $120 million in other current liabilities on our
balance sheet. For our interest rate swap that qualifies for
cash flow hedge accounting, an unrealized loss of
$33 million, representing the effective portion of the
change in its fair value as of September 30, 2002, is
reported in other comprehensive loss and will be reclassified to
interest expense in the same period during which our hedged debt
affects interest expense. The ineffective portion of the change
in fair value of our swap qualifying for cash flow hedge
accounting, and changes in the fair values of our swaps not
qualifying for hedge accounting, are recognized in our statement
of operations in the period of the change. Interest expense
includes gains of $7 million and $3 million for the
nine months and three months ended September 30, 2002,
respectively, and losses of $8 million and $2 million
for the nine months and three months ended September 30, 2001,
respectively, representing changes in the fair values of our
swaps not qualifying for hedge accounting. Interest expense
includes a loss of $20 million for the nine-and three-month
periods ended September 30, 2002 and a loss of
$3 million for the nine-and three-month periods ended
September 30, 2001 relating to the ineffective portion of
the change in fair value of our swap qualifying for cash flow
hedge accounting.

Note 7.  Commitments and
Contingencies

Commitments.In July 2002, we amended our
agreement to acquire all of the stock of NeoWorld
Communications, Inc., and the equity interests of specified
entities owned by NeoWorld Communications, which collectively
own and operate 900 MHz specialized mobile radio systems.
Pursuant to the agreement, as amended, we have made cash
payments for NeoWorld Communications totaling $79 million
through September 30, 2002, including $40 million paid
in 2002. We expect to pay the balance of the purchase price,
which we estimate to be up to $197 million, prior to the
end of the first quarter of 2003. Such payment may be made at
our election, subject to certain limitations, in cash and/or
shares of our class A common stock. We

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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

have filed a registration statement to ensure our
ability to pay the balance of the purchase price in shares of
our class A common stock in the event we elect to pay in shares
of class A common stock.

Contingencies.In April 2001, a purported class
action lawsuit was filed in the Circuit Court in Baltimore,
Maryland by the Law Offices of Peter Angelos, and subsequently
in other state courts in Pennsylvania, New York and Georgia by
Mr. Angelos and other firms, alleging that wireless
telephones pose a health risk to users of those telephones and
that the defendants failed to disclose these risks. We, along
with numerous other companies, are defendants in these cases.
The defendants have removed the cases to federal court, and the
plaintiffs have filed motions to remand back to state court in
some of the cases. Mr. Angelos firm has also
participated in the filing of an amended complaint in a similar
suit pending in federal court in Louisiana, in which we are also
named. These suits seek to require the defendants to provide
headsets, or reimburse the cost of headsets, for use with
wireless telephones, as well as attorneys fees and
punitive damages. The cases have been transferred to federal
court in Baltimore, Maryland by the judicial panel on
Multi-district Litigation and that court has denied
plaintiffs motion to remand the cases back to state court.
Motions to dismiss are pending. While we cannot predict the
outcome of this litigation, we believe that the claims against
us are without merit and intend to vigorously defend against
them.

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##### Table of Contents



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)






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 September 30, 2002,
and the related condensed consolidated statements of operations,
changes in stockholders (deficit) equity, and cash flows
for the three-month and nine-month periods ended
September 30, 2002 and 2001. 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,
2001, and the related consolidated statements of operations,
stockholders (deficit) equity, and cash flows for the year
then ended (not presented herein); and in our report dated
March 19, 2002, 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, 2001 is fairly stated, in
all material respects, in relation to the consolidated balance
sheet from which it has been derived.

DELOITTE & TOUCHE LLP

McLean, Virginia

November 14, 2002


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##### Table of Contents






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

Overview

The following is a discussion and analysis of:



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

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

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

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



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

As of September 30, 2002:



| |   |                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we had about 10.1 million handsets in
    service in the United States; and                                                                                                                        
|
| |  | our digital mobile network or the compatible
    digital mobile network of Nextel Partners, Inc. was operational
    in 197 of the top 200 metropolitan statistical areas in the
    United States.

Officer Developments.James F. Mooney, our former
Executive Vice President and Chief Operating Officer, left
Nextel effective September 30, 2002. Timothy M. Donahue,
our President and Chief Executive Officer, has assumed the added
role of chief operating officer on an interim basis while we
conduct a search for Mr. Mooneys successor.

NII Holdings.NII Holdings, Inc. provides
wireless communications services primarily in selected Latin
American markets and was our substantially wholly owned
subsidiary. On October 28, 2002, the U.S. Bankruptcy Court
confirmed NII Holdings plan of reorganization. On
November 12, 2002, NII Holdings consummated its
reorganization under Chapter 11 of the U.S. Bankruptcy
Code. All previously outstanding equity interests in NII
Holdings were cancelled in the reorganization. As of
November 14, 2002, we owned about 36% of the outstanding
common stock of NII Holdings. You should read NII Holdings,
Inc.s annual report on Form 10-K for the year ended
December 31, 2001 and its subsequent quarterly reports on
Form 10-Q for matters related to NII Holdings.

The reorganization of NII Holdings included a new
infusion of capital into NII Holdings of $190 million,
$140 million of which was provided by existing creditors in
exchange for about $181 million in aggregate principal
amount at maturity of a new series of 13% senior secured notes
of NII Holdings and shares of NII Holdings class A common
stock. We contributed $51 million of this $140 million
and received in exchange about $66 million in aggregate
principal amount at maturity of these new notes and shares of
NII Holdings

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class A common stock. We also provided
$50 million of additional funding to NII Holdings in
exchange for a U.S.-Mexico cross border spectrum sharing
arrangement ($25 million of which remains in escrow pending
the completion of NII Holdings obligations under this
arrangement). Our condensed consolidated financial statements
include the consolidated results of NII Holdings through
December 31, 2001. As a result of its bankruptcy filing in
May 2002, we began accounting for our investment in NII
Holdings, effective May 2002, using the equity method in
accordance with APB Opinion No. 18, The Equity Method
of Accounting for Investments in Common Stock. We use the
equity method to account for our investment given our ability to
exercise significant influence over the operating and financial
policies of NII Holdings. In accordance with the equity method,
we stopped recognizing equity in losses of NII Holdings
effective in May 2002 as we had recognized $1,408 million
of losses in excess of our investment in NII Holdings through
that date. We have reflected these excess losses on the
accompanying balance sheet in other long-term liabilities.


We have classified the 2002 net operating results
of NII Holdings as equity in losses of NII Holdings in the
accompanying statement of operations as permitted under the
accounting rules governing a mid-year change from consolidating
a subsidiary to accounting for the investment using the equity
method. However, the presentation of NII Holdings in the
financial statements as a consolidated subsidiary in 2001 and
prior periods has not changed from the prior presentation. We
expect to record a substantial non-cash pre-tax gain in excess
of $1.0 billion in the fourth quarter consisting of a
$1,408 million reversal of equity losses in excess of our
investment in NII Holdings, partially offset by charges recorded
when we consolidated NII Holdings, including, among other items,
$185 million of cumulative foreign currency translation
losses. Based on our ownership interest as of November 14,
we expect to account for our new investment in NII Holdings
using the equity method beginning in the fourth quarter of 2002,
which will require us to record our proportionate share of NII
Holdings results of operations.

Boost Mobile.In the third quarter of 2002, in
association with the Australian founders of the Boost
brand, we launched a lifestyle-based mobile telecommunications
test program, providing Boost Mobile branded wireless
services exclusively targeting the California and Nevada youth
markets. Based upon the results of this test, Boost Mobile may
consider a broader rollout of this program in 2003.

Nextel Partners.Nextel Partners provides digital
wireless communication services under the Nextel name in
mid-sized and tertiary U.S. markets. We owned about 32% of the
common stock of Nextel Partners as of September 30, 2002.
Nextel Partners has the right to operate in 57 of the top 200
metropolitan statistical areas in the United States ranked by
population. More detailed information relating specifically to
Nextel Partners may be found in the reports filed by Nextel
Partners under the Securities Exchange Act of 1934. We account
for our investment in Nextel Partners using the equity method,
which requires us to record our proportionate share of Nextel
Partners results of operations.

In 1999, we entered into agreements relating to
the capitalization, governance, financing and operation of
Nextel Partners. As previously disclosed, these agreements
establish circumstances in which we will have the right or
obligation to purchase the outstanding shares of class A common
stock of Nextel Partners at specified prices. We may pay the
consideration for any such purchase in cash, shares of our class
A common stock, or a combination of both. Subject to various
limitations and conditions, we will have the right to purchase
the outstanding shares of Nextel Partners class A common
stock on January 29, 2008 or earlier if we elect to
terminate the relationship with Nextel Partners because of its
breach of the operating agreements. Subject to various
limitations and conditions, we may be required to purchase
Nextel Partners class A common stock, if we experience a
change of control or we breach the operating agreements. We may
not transfer our interest in Nextel Partners to a third party
before January 29, 2011, and Nextel Partners class A
common stockholders have the right, and in specified instances,
the obligation to participate in any sale of our interest. For a
more detailed description of these rights and obligations, see
exhibit 10.15 to our 2001 annual report on Form 10-K.

Results of Operations

Operating revenues primarily consist of wireless
service revenues and revenues generated from the sale of
handsets and accessories. Service revenues primarily include
fixed monthly access charges for digital mobile

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telephone, digital two-way radio and other
wireless services, variable charges for airtime and digital
two-way radio usage in excess of plan minutes and long-distance
charges derived from calls placed by our customers and
activation fees. We recognize revenue for access charges and
other services charged at fixed amounts ratably over the service
period, net of credits and adjustments for service discounts,
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 over the expected customer relationship periods of up to
four 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 periods of up to four
years, starting when the customer takes title. 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 digital
mobile network. Therefore, in accordance with SAB No. 101,
Revenue Recognition in Financial Statements, we do
not account for our multiple element arrangement separately.

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

Cost of handset and accessory revenues consists
primarily of the cost of the handsets and accessories sold,
order fulfillment related expenses and write-downs of handset
and related accessory inventory for shrinkage. We recognize the
costs of handset revenue over the expected customer relationship
periods of up to four years in amounts equivalent to revenues
recognized from handset sales. Costs in excess of the revenue
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 product development, along
with the related payroll and facilities costs.

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##### Table of Contents



Selected domestic financial and operating
data.

|                                                             |  |                     |        |                      |  |      |        |      |  |   |        |  |  |   |        |  
|------------------------------------------------------------ |  | ------------------- | ------ | -------------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | -
|                                                             |  |                     |        |                     
|                                                             |  | For the Nine Months |        | For the Three Months
|                                                             |  | Ended               |        | Ended               
|                                                             |  | September 30,       |        | September 30,       
|                                                             |  |                     |        |                     
|                                                             |  | 2002                |        | 2001                 |  | 2002 |        | 2001
|                                                             |  |                     |        |                      |  |      |        |     
|Average monthly revenue per handset in
    service(1)(2)     |  |                     | $70    |                      |  | $    | 71     |      |  | $ | 71     |  |  | $ | 71     |  
|Handsets in service, end of period (in
    thousands)(2)(3)  |  |                     | 10,116 |                      |  |      | 8,166  |      |  |   | 10,116 |  |  |   | 8,166  |  
|Net handset additions (in thousands)(2)                      |  |                     | 1,453  |                      |  |      | 1,487  |      |  |   | 480    |  |  |   | 481    |  
|Transmitter and receiver sites in service, end of
    period |  |                     | 16,080 |                      |  |      | 14,500 |      |  |   | 16,080 |  |  |   | 14,500 |  
|Net transmitter and receiver sites placed in
    service     |  |                     | 580    |                      |  |      | 1,800  |      |  |   | 130    |  |  |   | 500    |  
|Switches in service, end of period                           |  |                     | 82     |                      |  |      | 78     |      |  |   | 82     |  |  |   | 78     |  
|System minutes of use (in billions)                          |  |                     | 53.5   |                      |  |      | 37.6   |      |  |   | 19.3   |  |  |   | 13.9   |  
|Average monthly billable minutes of use per
    handset      |  |                     | 630    |                      |  |      | 560    |      |  |   | 650    |  |  |   | 580    |  
|                                                            
|Domestic EBITDA (in millions)(4)                             |  |                     | $2,280 |                      |  | $    | 1,362  |      |  | $ | 878    |  |  | $ | 526    |  
|NII Holdings EBITDA (in millions)                            |  |                     |       |                      |  |      | (97    | )    |  |   |       |  |  |   | (29    | )
|Restructuring and impairment charges (in millions)           |  |                     | 35     |                      |  |      | 169    |      |  |   |       |  |  |   | 147    |  
|Depreciation and amortization (in millions)                  |  |                     | 1,199  |                      |  |      | 1,270  |      |  |   | 412    |  |  |   | 449    |  
|                                                             |  |                     |        |                      |  |      |        |      |  |   |        |  |  |   |        |  
|Operating income (loss) (in millions)                        |  |                     | $1,046 |                      |  | $    | (174   | )    |  | $ | 466    |  |  | $ | (99    | )
|                                                             |  |                     |        |                      |  |      |        |      |  |   |        |  |  |   |        |  



---

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Average monthly revenue per handset in service is
    not a measurement under accounting principles generally accepted
    in the United States and may not be calculated in the same
    manner as similar measures used by other companies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(2) | Amount excludes the impact of test markets, such
    as the Boost Mobile program.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(3) | The subscriber base as of April 1, 2002, has
    been reduced by about two thousand as a result of our conversion
    of our billing systems in the second quarter of 2002. We are
    presently evaluating whether any additional minimal adjustment
    is necessary in connection with our completion of the conversion
    in the third quarter.                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(4) | We define EBITDA as operating income before
    depreciation, amortization and restructuring and impairment
    charges. It is a measure commonly used by analysts, investors
    and other interested parties in the telecommunications industry
    and is presented to assist in understanding our operating
    results. However, EBITDA is not a measurement of financial
    performance under accounting principles generally accepted in
    the United States and should not be considered an alternative to
    operating income or (loss) as a measure of performance, or to
    cash flows from operating activities as a measure of liquidity.
    EBITDA is not necessarily comparable with similarly titled
    measures for other companies.

Average monthly revenue per handset in service,
or ARPU, is an industry term that measures service revenues per
month from our customers divided by the weighted average number
of handsets in commercial service during that month.

One of the measurements 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 quarter ended September 30, 2002 was about 2% as compared to
2.1% during the quarter ended June 30, 2002. We attribute
the improvement in customer churn to customer retention
initiatives that we began implementing in the first quarter of
2001 and have continued into the third quarter of 2002. These
initiatives include customer focused programs such as strategic
care provided to customers with certain calling attributes and
efforts to migrate customers to more optimal service pricing
plans. Also, we believe that our customer churn reflects our
focus on acquiring high quality

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subscribers, including add-on subscribers from
existing customer accounts, and the attractiveness of our
differentiated products and services.


We believe EBITDA is a primary measure of
operating performance. We believe that growth in EBITDA is an
indicator of future profitability, especially in a capital
intensive industry, such as wireless telecommunications.
Domestic EBITDA has increased primarily due to:



| |   |                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |  | increased service revenues from a larger customer
    base combined with economies of scale experienced in cost of
    service;
|
| |  | decreased subsidies from sales of handsets as a
    result of increasing handset prices; and                                   
|
| |  | decreased general and administrative costs as a
    percentage of domestic operating revenues.                                 

We expect annual domestic EBITDA to increase as a
result of, among other things, cost savings we expect to achieve
through economies of scale and increased operating efficiencies.
However, if general economic conditions worsen, if competitive
conditions in the wireless telecommunications industry intensify
or if our new handset or service offerings are not well
received, we may see declines in demand for our product and
service offerings, which may adversely affect our results of
operations. See Forward Looking Statements.

Service revenues and cost of
service.

Consolidated
service revenues and cost of service.

Consolidated service revenues increased from
$5,270 million for the nine months ended September 30,
2001 to $6,002 million for the comparable period in 2002.
The $732 million increase in service revenues reflects
primarily a $1,192 million increase attributable to our
domestic operations as discussed below, as well as the impact of
the deconsolidation of our international operations, which
contributed $460 million to service revenues in our
consolidated results in 2001. Consolidated service revenues
increased from $1,870 million for the three months ended
September 30, 2001 to $2,139 million for the
comparable period in 2002. The $269 million increase in
service revenues consists primarily of a $446 million
increase attributable to our domestic operations as discussed
below, as well as the impact of the deconsolidation of our
international operations, which contributed $177 million to
service revenues in our consolidated results in 2001.

Consolidated cost of service decreased from
$1,107 million for the nine months ended September 30,
2001 to $1,100 million for the comparable period in 2002.
The $7 million decrease in cost of service reflects a
$121 million increase attributable to our domestic
operations as discussed below, as well as the impact of the
deconsolidation of our international operations, which
contributed $128 million to cost of service in our
consolidated results in 2001. Consolidated cost of service
decreased from $395 million for the three months ended
September 30, 2001 to $383 million for the comparable
period in 2002. The $12 million decrease in cost of service
reflects a $36 million increase attributable to our
domestic operations as discussed below, as well as the impact of
the deconsolidation of our international operations, which
contributed $48 million to cost of service in our
consolidated results in 2001. The following section provides a
more detailed analysis of our domestic service revenues and cost
of service. As described in note 1 to our condensed consolidated
financial statements appearing at the beginning of this
quarterly report on Form 10-Q, our consolidated results for
2001 include the results of operations of NII Holdings. As
further described in note 1, we no longer consolidate NII
Holdings and its 2002 results of operations are accounted for
using the equity method.

22



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Domestic
service revenues and cost of service.

|                   |                                 |                       |       |           |   |               |     |           |  |               |       |         |   |  |     |  |  |   |       |       |  |  |     |     | 
|------------------ | ------------------------------- | --------------------- | ----- | --------- | - | ------------- | --- | --------- |  | ------------- | ----- | ------- | - |  | --- |  |  | - | ----- | ----- |  |  | --- | --- | 
|                   |                                 |                       |       |           |   |               |     |           |  |              
|                   |                                 |                       |       | % of      |   |               |     | % of      |  | Changes from 
|                   |                                 |                       |       | Domestic  |   |               |     | Domestic  |  | Previous Year
|                   |                                 | September 30,         |       | Operating |   | September 30, |     | Operating |  |              
|                   |                                 | 2002                  |       | Revenues  |   | 2001          |     | Revenues  |  | Dollars       |       | Percent
|                   |                                 |                       |       |           |   |               |     |           |  |               |       |        
|                   |                                 |                      
|                   |                                 | (dollars in millions)
|Nine Months Ended  |                                 |                       |       |           |   |               |     |           |  |               |       |         |   |  |     |  |  |   |       |       |  |  |     |    
|Service revenues   |                                 | $                     | 6,002 |           |   |               | 94% |           |  | $             | 4,810 |         |   |  | 94% |  |  | $ | 1,192 |       |  |  | 25% |    
|Cost of service    |                                 |                       | 1,100 |           |   |               | 17% |           |  |               | 979   |         |   |  | 19% |  |  |   | 121   |       |  |  | 12% |    
|                   |                                 |                       |       |           |   |               |     |           |  |               |       |         |   |  |     |  |  |   |       |       |  |  |     |    
|                   | Service gross margin            |                       | $     | 4,902     |   |               |     |           |  |               | $     | 3,831   |   |  |     |  |  |   | $     | 1,071 |  |  |     | 28% | 
|                   |                                 |                       |       |           |   |               |     |           |  |               |       |         |   |  |     |  |  |   |       |       |  |  |     |    
|                   | Service gross margin percentage |                       |       | 82        | % |               |     |           |  |               |       | 80      | % |  |     |  |  |   |       |       |  |  |     |     | 
|                   |                                 |                       |       |           |   |               |     |           |  |               |       |         |   |  |     |  |  |   |       |       |  |  |     |    
|Three Months Ended |                                 |                       |       |           |   |               |     |           |  |               |       |         |   |  |     |  |  |   |       |       |  |  |     |    
|Service revenues   |                                 | $                     | 2,139 |           |   |               | 94% |           |  | $             | 1,693 |         |   |  | 94% |  |  | $ | 446   |       |  |  | 26% |    
|Cost of service    |                                 |                       | 383   |           |   |               | 17% |           |  |               | 347   |         |   |  | 19% |  |  |   | 36    |       |  |  | 10% |    
|                   |                                 |                       |       |           |   |               |     |           |  |               |       |         |   |  |     |  |  |   |       |       |  |  |     |    
|                   | Service gross margin            |                       | $     | 1,756     |   |               |     |           |  |               | $     | 1,346   |   |  |     |  |  |   | $     | 410   |  |  |     | 30% | 
|                   |                                 |                       |       |           |   |               |     |           |  |               |       |         |   |  |     |  |  |   |       |       |  |  |     |    
|                   | Service gross margin percentage |                       |       | 82        | % |               |     |           |  |               |       | 80      | % |  |     |  |  |   |       |       |  |  |     |     | 
|                   |                                 |                       |       |           |   |               |     |           |  |               |       |         |   |  |     |  |  |   |       |       |  |  |     |    

Domestic service revenues.Service revenues increased 25%
from the nine months ended September 30, 2001 to the nine
months ended September 30, 2002 and 26% from the three
months ended September 30, 2001 to the three months ended
September 30, 2002. Our service revenues are impacted by
both the number of handsets in service (volume) and average
monthly revenue per handset in service (rate).

From a volume perspective, our service revenues
increased principally as a result of a 24% increase in handsets
in service. The growth in the number of handsets in service from
September 30, 2001 to September 30, 2002 is the result
of a number of factors, principally:



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

From a rate perspective, ARPU decreased from
about $71 for the nine months ended September 30, 2001 to
about $70 for the nine months ended September 30, 2002. We
attribute the slight decrease in ARPU to:



| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the introduction of more competitive pricing
    plans in 2002, which provide more minutes of use with a lower
    monthly access charge to the customer; partially offset by
|
| |  | the following revenue enhancement initiatives
    during 2002:                                                                                                               



| |   |                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | in the first quarter of 2002, we began charging
    many of our customers a fee to recover a portion of the costs
    associated with government mandated telecommunications services
    such as Enhanced 911 and number portability; and                                                               
|
| |  | in the second quarter of 2002, for many of our
    customer accounts, we implemented the industry-wide practice of
    full minute rounding, raised the excess usage rate for some
    customer accounts and decreased the off-peak hours, which are
    generally billed at lower rates than peak hours.

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##### Table of Contents



ARPU was $71 for both the quarters ended
September 30, 2001 and 2002 due to revenue enhancement
initiatives implemented in the first and second quarters of
2002, offset by the impact of lower pricing plans with higher
plan minutes.

Our ARPU could be adversely affected in the
future:



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



| |   |                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | further restructure our service offering packages
    to offer more value;                                                                                                                                                                                      
|
| |  | reduce our service offering prices; or                                                                                                                                                                                                                          
|
| |  | respond to particular short-term, market specific
    situations, such as special introductory pricing or packages
    that may be offered by providers launching their service, or
    particular new product or service offerings, in a particular
    market.

Domestic cost of service.Cost of service increased 12% from
the nine months ended September 30, 2001 to the nine months
ended September 30, 2002, primarily as a result of:



| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | increased handsets in service and resulting
    increased minutes of use;                                                                   
|
| |  | a 14% increase in costs incurred in the operation
    and maintenance of our digital mobile network and fixed
    interconnection costs and;
|
| |  | a 3% increase in variable interconnection fees.                                                                                             

The costs related to the operation and
maintenance of our digital mobile network increased 14%
primarily due to an 11% increase in the number of transmitter
and receiver sites placed in service, a 5% increase in switches
placed in service and additional network capacity added to
existing sites from September 30, 2001 to
September 30, 2002. Variable interconnection fees increased
3% while total system minutes of use increased 42% from the nine
months ended September 30, 2001 to the nine months ended
September 30, 2002, principally due to a 24% increase in
the number of handsets in service as well as a 13% increase in
the average monthly billable minutes of use per handset over the
same period. We attribute this modest increase in variable
interconnection fees as compared to the higher total system
minutes of use to favorable settlements of rate disputes with
our service providers, rate savings achieved through new
agreements with long distance providers signed in mid-2001 as
well as efforts implemented during the second quarter of 2002 to
move long distance traffic to the facilities of lower cost
carriers.

Cost of service increased 10% from the three
months ended September 30, 2001 to the three months ended
September 30, 2002. Cost of service increased primarily as
a result of:



| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increased handsets in service and resulting
    increased minutes of use;                                                                                                    
|
| |  | a 15% increase in costs incurred in the operation
    and maintenance of our digital mobile network and costs related
    to fixed interconnection costs; partially offset by
|
| |  | a 13% decrease in costs incurred related to
    variable interconnection fees.                                                                                               

The costs related to the operation and
maintenance of our digital mobile network increased 15%
primarily due to an 11% increase in the number of transmitter
and receiver sites placed in service, a 5% increase in switches
placed in service and additional network capacity added to
existing physical sites from September 30, 2001 to
September 30, 2002. Variable interconnection fees decreased
13% while total system minutes of use increased 39% from the
three months ended September 30, 2001 to the three months
ended September 30, 2002. This decrease is principally due
to favorable settlements of rate disputes with our service
providers, rate savings achieved though new agreements with long
distance providers signed in mid-2001, as well as efforts
implemented during the second quarter of 2002 to move long
distance traffic to the facilities of lower cost carriers,
partially offset by a 24% increase in the number of handsets in
service as well as a 12% increase in the average monthly
billable minutes of use per handset over the same period.

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We expect the aggregate amount of cost of service
to increase as customer usage of our digital mobile network
increases and as we add more sites, switches and capacity to
meet our customers needs. However, we expect that the rate
of increase will be less than that experienced in 2001 due to
improvements in network operating efficiencies and a reduced
digital mobile network build. See Liquidity and Capital
Resources and Future Capital Needs and
Resources  Capital Expenditures.

Domestic service gross margin.Service gross margin increased 28%
from the nine months ended September 30, 2001 to the nine
months ended September 30, 2002 and 30% from the three
months ended September 30, 2001 to the three months ended
September 30, 2002. While the service gross margin in
recent years has increased in the aggregate, our service gross
margin as a percentage of service revenues has generally
remained flat. However, during 2002, service gross margin as a
percentage of service revenues has improved from 80% for the
nine and three months ended September 30, 2001 to 82% for
the nine and three months ended September 30, 2002.

Handset and accessory revenues and cost of
handset and accessory revenues.

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

Consolidated handset and accessory revenues
increased from $345 million for the nine months ended
September 30, 2001 to $388 million for the comparable
period in 2002. The $43 million increase in handset and
accessory revenues consists of a $66 million increase
attributable to our domestic operations as discussed below, as
well as the impact of the deconsolidation of our international
operations, which contributed $23 million to handset and
accessory revenues in our consolidated results in 2001.
Consolidated handset and accessory revenues increased from
$122 million for the three months ended September 30,
2001 to $140 million for the comparable period in 2002. The
$18 million increase in handset and accessory revenues reflects
a $26 million increase attributable to our domestic
operations as discussed below, as well as the impact of the
deconsolidation of our international operations, which
contributed $8 million to handset and accessory revenues in
our consolidated results in 2001.

Consolidated cost of handset and accessory
revenues decreased from $1,007 million for the nine months
ended September 30, 2001 to $759 million for the
comparable period in 2002. The $248 million decrease in
cost of handset and accessory revenues reflects a
$130 million decrease attributable to our domestic
operations as discussed below, as well as the impact of the
deconsolidation of our international operations, which
contributed $118 million to cost of handset and accessory
revenues in our consolidated results in 2001. Consolidated cost
of handset and accessory revenues decreased from
$337 million for the three months ended September 30,
2001 to $235 million for the comparable period in 2002. The
$102 million decrease in cost of handset and accessory
revenues reflects a $57 million decrease attributable to
our domestic operations as discussed below, as well as the
impact of the deconsolidation of our international operations,
which contributed $45 million to cost of handset and
accessory revenues in our consolidated results in 2001. The
table in the following section provides a more detailed analysis
of our domestic handset and accessory revenues and cost of
handset and accessory revenues.

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

During the nine and three months ended
September 30, 2002, we recorded $388 million and
$140 million of handset and accessory revenues, an increase
of $66 million and $26 million over the comparable
periods in 2001. During the nine and three months ended
September 30, 2002, we recorded $759 million and

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$235 million of cost and accessory
revenues, a decrease of $130 million and $57 million over
the comparable periods in 2001. These results are summarized in
the table below.


|                                                   |                                            |                       |       |           |  |               |    |           |   |               |      |         |  |  |     |     |  |   |      |      |   |  |    |     |   
|-------------------------------------------------- | ------------------------------------------ | --------------------- | ----- | --------- |  | ------------- | -- | --------- | - | ------------- | ---- | ------- |  |  | --- | --- |  | - | ---- | ---- | - |  | -- | --- | --
|                                                   |                                            |                       |       |           |  |               |    |           |   |              
|                                                   |                                            |                       |       | % of      |  |               |    | % of      |   | Change from  
|                                                   |                                            |                       |       | Domestic  |  |               |    | Domestic  |   | Previous Year
|                                                   |                                            | September 30,         |       | Operating |  | September 30, |    | Operating |   |              
|                                                   |                                            | 2002                  |       | Revenues  |  | 2001          |    | Revenues  |   | Dollars       |      | Percent
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |      |        
|                                                   |                                            |                      
|                                                   |                                            | (dollars in millions)
|Nine Months Ended                                  |                                            |                       |       |           |  |               |    |           |   |               |      |         |  |  |     |     |  |   |      |      |   |  |    |    
|Current period handset and accessory sales         |                                            | $                     | 645   |           |  |               | 10 | %         |   | $             | 352  |         |  |  | 7%  |     |  | $ | 293  |      |   |  | 83 | %  
|Net effect of SAB No. 101 handset deferrals        |                                            |                       | (257  | )         |  |               | (4 | )%        |   |               | (30  | )       |  |  | (1  | )%  |  |   | (227 | )    |   |  | NM |    
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |      |         |  |  |     |     |  |   |      |      |   |  |    |    
|                                                   | Handset and accessory revenues             |                       |       | 388       |  |               |    | 6         | % |               |      | 322     |  |  |     | 6%  |  |   |      | 66   |   |  |    | 20  | % 
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |      |         |  |  |     |     |  |   |      |      |   |  |    |    
|Current period cost of handset and accessory sales |                                            |                       | 1,016 |           |  |               | 16 | %         |   |               | 919  |         |  |  | 18% |     |  |   | 97   |      |   |  | 11 | %  
|Net effect of SAB No. 101 handset deferrals        |                                            |                       | (257  | )         |  |               | (4 | )%        |   |               | (30  | )       |  |  | (1  | )%  |  |   | (227 | )    |   |  | NM |    
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |      |         |  |  |     |     |  |   |      |      |   |  |    |    
|                                                   | Cost of handset and accessory
    revenues |                       |       | 759       |  |               |    | 12        | % |               |      | 889     |  |  |     | 17% |  |   |      | (130 | ) |  |    | (15 | )%
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |      |         |  |  |     |     |  |   |      |      |   |  |    |    
|Handset and accessory gross subsidy                |                                            | $                     | (371  | )         |  |               |    |           |   | $             | (567 | )       |  |  |     |     |  | $ | 196  |      |   |  | 35 | %  
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |      |         |  |  |     |     |  |   |      |      |   |  |    |    
|Three Months Ended                                 |                                            |                       |       |           |  |               |    |           |   |               |      |         |  |  |     |     |  |   |      |      |   |  |    |    
|Current period handset and accessory sales         |                                            | $                     | 232   |           |  |               | 10 | %         |   | $             | 123  |         |  |  | 7%  |     |  | $ | 109  |      |   |  | 89 | %  
|Net effect of SAB No. 101 handset deferrals        |                                            |                       | (92   | )         |  |               | (4 | )%        |   |               | (9   | )       |  |  | (1  | )%  |  |   | (83  | )    |   |  | NM |    
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |      |         |  |  |     |     |  |   |      |      |   |  |    |    
|                                                   | Handset and accessory revenues             |                       |       | 140       |  |               |    | 6         | % |               |      | 114     |  |  |     | 6%  |  |   |      | 26   |   |  |    | 23  | % 
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |      |         |  |  |     |     |  |   |      |      |   |  |    |    
|Current period cost of handset and accessory sales |                                            |                       | 327   |           |  |               | 14 | %         |   |               | 301  |         |  |  | 17% |     |  |   | 26   |      |   |  | 9  | %  
|Net effect of SAB No. 101 handset deferrals        |                                            |                       | (92   | )         |  |               | (4 | )%        |   |               | (9   | )       |  |  | (1  | )%  |  |   | (83  | )    |   |  | NM |    
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |      |         |  |  |     |     |  |   |      |      |   |  |    |    
|                                                   | Cost of handset and accessory
    revenues |                       |       | 235       |  |               |    | 10        | % |               |      | 292     |  |  |     | 16% |  |   |      | (57  | ) |  |    | (20 | )%
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |      |         |  |  |     |     |  |   |      |      |   |  |    |    
|Handset and accessory gross subsidy                |                                            | $                     | (95   | )         |  |               |    |           |   | $             | (178 | )       |  |  |     |     |  | $ | 83   |      |   |  | 47 | %  
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |      |         |  |  |     |     |  |   |      |      |   |  |    |    



---

NMNot Meaningful


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

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|                                             |                                                 |               |      |               |   |               |      |     |   |   |      |      |  
|-------------------------------------------- | ----------------------------------------------- | ------------- | ---- | ------------- | - | ------------- | ---- | --- | - | - | ---- | ---- | -
|                                             |                                                 | September 30, |      | September 30, |   | Change from  
|SAB No. 101 Effect                           |                                                 | 2002          |      | 2001          |   | Previous Year
|                                             |                                                 |               |      |               |   |              
|                                             |                                                 |              
|                                             |                                                 | (in millions)
|Nine Months Ended                            |                                                 |               |      |               |   |               |      |     |   |   |      |     
|Handset sales deferred                       |                                                 | $             | (540 | )             |   | $             | (297 | )   |   | $ | (243 | )   
|Previously deferred handset sales recognized |                                                 |               | 283  |               |   |               | 267  |     |   |   | 16   |     
|                                             |                                                 |               |      |               |   |               |      |     |   |   |      |     
|                                             | Net effect of SAB No. 101 handset
    deferrals |               | $    | (257          | ) |               | $    | (30 | ) |   | $    | (227 | )
|                                             |                                                 |               |      |               |   |               |      |     |   |   |      |     
|Three Months Ended                           |                                                 |               |      |               |   |               |      |     |   |   |      |     
|Handset sales deferred                       |                                                 | $             | (205 | )             |   | $             | (110 | )   |   | $ | (95  | )   
|Previously deferred handset sales recognized |                                                 |               | 113  |               |   |               | 101  |     |   |   | 12   |     
|                                             |                                                 |               |      |               |   |               |      |     |   |   |      |     
|                                             | Net effect of SAB No. 101 handset
    deferrals |               | $    | (92           | ) |               | $    | (9  | ) |   | $    | (83  | )
|                                             |                                                 |               |      |               |   |               |      |     |   |   |      |     

Current period handset and accessory sales
increased $293 million for the nine months ended
September 30, 2002 compared to the same period in 2001.
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 $227 million. The increase in the SAB
No. 101 net deferrals reflects increasing revenues from
handset sales in 2002 primarily due to increased handset prices.

Current period handset and accessory sales
increased $109 million for the three months ended
September 30, 2002 compared to the same period in 2001.
This increase reflects an increase in the number of handsets
sold of about 23% 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 $83 million. The increase in the SAB
No. 101 net deferrals reflects increasing revenues from
handset sales in 2002 primarily due to increased handset prices.

Domestic cost of handset and accessory
revenues.Reported cost of handset
and accessory revenues are influenced by the number of handsets
sold, the cost of the handsets sold and the effect of SAB
No. 101. With respect to the cost of handset and accessory
revenues, the SAB No. 101 effect is recorded in amounts
equivalent to handset revenues deferred and recognized.

|                                                         |                                                 |               |      |               |   |               |      |     |   |   |      |      |  
|-------------------------------------------------------- | ----------------------------------------------- | ------------- | ---- | ------------- | - | ------------- | ---- | --- | - | - | ---- | ---- | -
|                                                         |                                                 | September 30, |      | September 30, |   | Change from  
|SAB No. 101 Effect                                       |                                                 | 2002          |      | 2001          |   | Previous Year
|                                                         |                                                 |               |      |               |   |              
|Nine Months Ended                                        |                                                 |               |      |               |   |               |      |     |   |   |      |     
|Cost of handset sales deferred                           |                                                 | $             | (540 | )             |   | $             | (297 | )   |   | $ | (243 | )   
|Previously deferred cost of handset sales
    recognized |                                                 |               | 283  |               |   |               | 267  |     |   |   | 16   |     
|                                                         |                                                 |               |      |               |   |               |      |     |   |   |      |     
|                                                         | Net effect of SAB No. 101 handset
    deferrals |               | $    | (257          | ) |               | $    | (30 | ) |   | $    | (227 | )
|                                                         |                                                 |               |      |               |   |               |      |     |   |   |      |     
|Three Months Ended                                       |                                                 |               |      |               |   |               |      |     |   |   |      |     
|Cost of handset sales deferred                           |                                                 | $             | (205 | )             |   | $             | (110 | )   |   | $ | (95  | )   
|Previously deferred handset sales recognized             |                                                 |               | 113  |               |   |               | 101  |     |   |   | 12   |     
|                                                         |                                                 |               |      |               |   |               |      |     |   |   |      |     
|                                                         | Net effect of SAB No. 101 handset
    deferrals |               | $    | (92           | ) |               | $    | (9  | ) |   | $    | (83  | )
|                                                         |                                                 |               |      |               |   |               |      |     |   |   |      |     

Current period cost of handset and accessory
sales increased $97 million for the nine months ended
September 30, 2002 compared to the same period in 2001.
This increase reflects an increase in the number of handsets
sold of about 14% partially offset by a slight reduction in the
cost we pay for handsets. This increase in the cost of handset
and accessory sales was more than offset by the increase in the
SAB No. 101 net deferrals of $227 million.

Current period cost of handset and accessory
sales increased $26 million for the three months ended
September 30, 2002 compared to the same period in 2001.
This increase reflects an increase in the number of handsets
sold of about 23% partially offset by a slight reduction in the
cost we pay for handsets. This increase

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in the cost of handset and accessory sales was
more than offset by the increase in the SAB No. 101 net
deferrals of $83 million.


Domestic handset and accessory gross
subsidy.We generally sell
handsets at prices below our cost in response to competition, to
attract new customers and as retention inducements for existing
customers. While we expect to continue the industry practice of
selling handsets at prices below cost, we experienced
improvements in our handset and accessory gross subsidy during
2002. Handset and accessory gross subsidy decreased 35% from the
nine months ended September 30, 2001 to the same period in
2002 even though we experienced about a 14% increase in the
number of handsets sold. From the three months ended
September 30, 2001 to the same period in 2002, the handset
and accessory gross subsidy decreased 47% even though we
experienced about a 23% 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;                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | a decline in the average cost that we pay for our
    handsets; and                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | increased handset prices charged to our indirect
    dealers beginning in the second quarter of 2002 in return for
    higher commissions to be paid to the dealers upon activation of
    new handsets, which resulted in an improvement in the gross
    subsidy of about $ 97 million from the nine months ended
    September 30, 2001 to the nine months ended
    September 30, 2002 and about $37 million during the
    comparable three month period.

While we may vary the amount of handset subsidy
to respond to market conditions, we anticipate that for the
fourth quarter of 2002 the average per-unit amount of handset
and accessory gross subsidy will continue to be lower than we
have experienced in the comparable prior year periods.

Selling, general and administrative
expenses.

Consolidated
selling, general and administrative expenses.

Consolidated selling, general and administrative
expenses increased from $2,236 million for the nine months
ended September 30, 2001 to $2,251 million for the
comparable period in 2002. The $15 million increase in
selling, general and administrative expenses primarily reflects
a $349 million increase attributable to our domestic
operations as discussed below, as well as the impact of the
deconsolidation of our international operations, which
contributed $334 million to selling, general and
administrative expenses in our consolidated results in 2001.

Consolidated selling, general and administrative
expenses increased from $763 million for the three months
ended September 30, 2001 to $783 million for the
comparable period in 2002. The $20 million increase in
selling, general and administrative reflects a $141 million
increase attributable to our domestic operations as discussed
below, as well as the impact of the deconsolidation of our
international operations, which contributed $121 million to
selling, general and administrative expenses in our consolidated
results in 2001. The following section provides a more detailed
analysis of our domestic selling, general and administrative
expenses.

28



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##### Table of Contents



Domestic
selling, general and administrative expenses.

|                           |                                     |                       |       |           |  |               |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |    |  
|-------------------------- | ----------------------------------- | --------------------- | ----- | --------- |  | ------------- | -- | --------- | - | ------------- | --- | ------- |  |  | -- | -- | - | - | --- | --- |  |  | -- | -- | -
|                           |                                     |                       |       |           |  |               |    |           |   |              
|                           |                                     |                       |       | % of      |  |               |    | % of      |   | Change from  
|                           |                                     |                       |       | Domestic  |  |               |    | Domestic  |   | Previous Year
|                           |                                     | September 30,         |       | Operating |  | September 30, |    | Operating |   |              
|                           |                                     | 2002                  |       | Revenues  |  | 2001          |    | Revenues  |   | Dollars       |     | Percent
|                           |                                     |                       |       |           |  |               |    |           |   |               |     |        
|                           |                                     |                      
|                           |                                     | (dollars in millions)
|Nine Months Ended          |                                     |                       |       |           |  |               |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   
|Selling and marketing      |                                     | $                     | 1,138 |           |  |               | 18 | %         |   | $             | 930 |         |  |  | 18 | %  |   | $ | 208 |     |  |  | 22 | % 
|General and administrative |                                     |                       | 1,113 |           |  |               | 17 | %         |   |               | 972 |         |  |  | 19 | %  |   |   | 141 |     |  |  | 15 | % 
|                           |                                     |                       |       |           |  |               |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   
|                           | Selling, general and administrative |                       | $     | 2,251     |  |               |    | 35        | % |               | $   | 1,902   |  |  |    | 37 | % |   | $   | 349 |  |  |    | 18 | %
|                           |                                     |                       |       |           |  |               |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   
|Three Months Ended         |                                     |                       |       |           |  |               |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   
|Selling and marketing      |                                     | $                     | 412   |           |  |               | 18 | %         |   | $             | 298 |         |  |  | 17 | %  |   | $ | 114 |     |  |  | 38 | % 
|General and administrative |                                     |                       | 371   |           |  |               | 16 | %         |   |               | 344 |         |  |  | 19 | %  |   |   | 27  |     |  |  | 8  | % 
|                           |                                     |                       |       |           |  |               |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   
|                           | Selling, general and administrative |                       | $     | 783       |  |               |    | 34        | % |               | $   | 642     |  |  |    | 36 | % |   | $   | 141 |  |  |    | 22 | %
|                           |                                     |                       |       |           |  |               |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   

Domestic selling and marketing.The increase in domestic selling
and marketing expenses from the nine and three months ended
September 30, 2001 to the nine and three months ended
September 30, 2002 reflects:



| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $116 million and $66 million, or 30%
    and 53%, increase in commissions and residuals earned by
    indirect dealers and distributors;
|
| |  | a $32 million and $13 million, or 12%
    and 13%, increase in direct sales and marketing payroll and
    related expenses;               
|
| |  | a $40 million and $26 million, or 20%
    and 45%, increase in advertising expenses; and                                                  
|
| |  | a $20 million and $9 million, or 30%
    and 45%, increase in other general selling and marketing
    expenses.                           

Indirect dealers and distributors earn
commissions for new handset activations. In addition, we pay
some indirect dealers and distributors residuals to encourage
ongoing customer support and to promote handset sales to high
value customers who are more likely to generate higher monthly
service revenues and less likely to deactivate service. About
$84 million and $44 million of the increase in commissions
for the nine- and three-month periods ended September 30,
2002 is due to the changes in dealer compensation plans effected
in the second quarter of 2002 that provide increased commissions
upon the activation of new handsets. See Domestic handset
and accessory revenues and cost of handset and accessory
revenues  Domestic handset and accessory gross
subsidy for a more detailed description of the change in
the commission plan. The remaining increase is primarily related
to increasing dealer residuals along with increasing dealer
commissions designed to motivate sales of data applications and
the activation of new handsets on higher priced service plans.

The increase in sales and marketing payroll and
related expenses is primarily associated with additional
employees hired for our Nextel retail stores. From May 2001 to
September 30, 2002 the number of operational Nextel retail
stores has increased from 203 to 339.

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

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

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##### Table of Contents



Domestic general and administrative.The increase in general and
administrative expenses from the nine and three months ended
September 30, 2001 to the nine and three months ended
September 30, 2002, reflects:



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $70 million and $22 million, or 19%
    and 17%, increase in expenses related to billing, collection,
    customer retention and customer care activities;
|
| |  | a $21 million and $(12) million, or 9% and
    (12)%, change in bad debt expense; and                                                                       
|
| |  | a $50 million and $17 million, or 14%
    and 15%, increase in personnel, facilities and general corporate
    expenses.                                    

Billing, collection, customer retention and
customer care related costs increased due to the costs to
support a larger customer base, including increased postage
costs, as well as costs associated with the implementation of
our new billing and customer care system, implementation of
which began in the first quarter of 2002 and was completed in
the third quarter of 2002. However, these costs are increasing
at a slower rate than our customer growth rate in part due to
cost savings we are realizing as a result of outsourcing many
aspects of our customer care function during the first quarter
of 2002.

Although bad debt expense increased from the nine
months ended September 30, 2002 to the comparable 2001 period,
it has decreased as a percentage of domestic operating revenues
from 4.7% in 2001 to 4.1% in 2002. From the three months ended
September 30, 2002 to the three months ended
September 30, 2001, bad debt expense has decreased as a
percentage of domestic operating revenues from 5.5% to 3.8%.
During 2001, bad debt expense increased as a percentage of
domestic operating revenues primarily due to the impact of a
slow economy and aggressive sales promotions during 2001. As a
result of this increase in bad debt, we focused on strengthening
our credit policies and procedures, specifically in the area of
compliance with our deposit policy, increased our collection
staffing, limited account sizes for designated high risk
accounts, suspended accounts earlier than in the past and
implemented a new credit and billing software tool which enables
us to better screen and monitor the credit quality of our
customers.

Personnel, facilities and general corporate
expenses increased primarily as a result of increases in general
corporate expenses, including professional fees relating to our
public safety and other initiatives, product development
expenses and employee compensation costs.

We expect the aggregate amount of domestic
selling, general and administrative expenses to continue to
increase 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 dealer commissions as a result of the
    changes in the dealer compensation plans effected in the second
    quarter of 2002;                                                              
|
| |  | increased costs associated with expanding our
    retail operations by opening additional retail stores; and                                                                                          
|
| |  | increased costs to support a growing customer
    base, including costs associated with billing, collection,
    customer retention and customer care activities and bad debt;
    partially offset by
|
| |  | savings expected from our outsourcing
    arrangements and our billing and customer care system.                                                                                                      

We expect our information and technology
outsourcing arrangement will result in about $140 million
of reduced costs over a five-year period relative to our
previous run-rate, primarily in the form of lower capital
spending. We also expect our customer care outsourcing
arrangement will result in more than $1 billion of reduced
costs over an eight-year period relative to our previous
run-rate. Our actual experience through September 30, 2002
indicates that we are beginning to realize these cost savings.
While we believe our aggregate customer care related costs will
continue to increase due to our anticipated subscriber growth,
we believe these increases will be less than we would have
experienced without the outsourcing arrangement.

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##### Table of Contents



Depreciation and
amortization.

Consolidated
depreciation and amortization

Consolidated depreciation increased from
$1,089 million for the nine months ended September 30,
2001 to $1,159 million for the comparable period in 2002.
The $70 million increase in depreciation reflects a
$193 million increase attributable to our domestic
operations as discussed below, as well as the impact of the
deconsolidation of our international operations, which
contributed $123 million to depreciation in our
consolidated results in 2001. Consolidated depreciation
increased from $389 million for the three months ended
September 30, 2001 to $398 million for the comparable
period in 2002. The $9 million increase in depreciation
reflects a $53 million increase attributable to our
domestic operations as discussed below, as well as the impact of
the deconsolidation of our international operations, which
contributed $44 million to depreciation in our consolidated
results in 2001.

Consolidated amortization decreased from
$181 million for the nine months ended September 30,
2001 to $40 million for the comparable period in 2002. The
$141 million decrease in amortization reflects a
$91 million decrease attributable to our domestic
operations as discussed below, as well as the impact of the
deconsolidation of our international operations, which
contributed $50 million to amortization in our consolidated
results in 2001. Consolidated amortization decreased from
$60 million for the three months ended September 30,
2001 to $14 million for the comparable period in 2002. The
$46 million decrease in amortization reflects a $31 million
decrease attributable to our domestic operations as discussed
below, as well as the impact of the deconsolidation of our
international operations, which contributed $15 million to
amortization in our consolidated results in 2001. The table in
the following section provides a more detailed analysis of our
domestic depreciation and amortization expense.

Domestic
depreciation and amortization.

|                   |                               |                       |       |           |  |               |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |     |    |  
|------------------ | ----------------------------- | --------------------- | ----- | --------- |  | ------------- | -- | --------- | - | ------------- | --- | ------- |  |  | -- | -- | - | - | --- | --- |  |  | --- | -- | -
|                   |                               |                       |       |           |  |               |    |           |   |              
|                   |                               |                       |       | % of      |  |               |    | % of      |   | Change from  
|                   |                               |                       |       | Domestic  |  |               |    | Domestic  |   | Previous Year
|                   |                               | September 30,         |       | Operating |  | September 30, |    | Operating |   |              
|                   |                               | 2002                  |       | Revenues  |  | 2001          |    | Revenues  |   | Dollars       |     | Percent
|                   |                               |                       |       |           |  |               |    |           |   |               |     |        
|                   |                               |                      
|                   |                               | (dollars in millions)
|Nine Months Ended  |                               |                       |       |           |  |               |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |     |   
|Depreciation       |                               | $                     | 1,159 |           |  |               | 18 | %         |   | $             | 966 |         |  |  | 19 | %  |   | $ | 193 |     |  |  | 20  | % 
|Amortization       |                               |                       | 40    |           |  |               | 1  | %         |   |               | 131 |         |  |  | 2  | %  |   |   | (91 | )   |  |  | (69 | )%
|                   |                               |                       |       |           |  |               |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |     |   
|                   | Depreciation and amortization |                       | $     | 1,199     |  |               |    | 19        | % |               | $   | 1,097   |  |  |    | 21 | % |   | $   | 102 |  |  |     | 9  | %
|                   |                               |                       |       |           |  |               |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |     |   
|Three Months Ended |                               |                       |       |           |  |               |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |     |   
|Depreciation       |                               | $                     | 398   |           |  |               | 17 | %         |   | $             | 345 |         |  |  | 19 | %  |   | $ | 53  |     |  |  | 15  | % 
|Amortization       |                               |                       | 14    |           |  |               | 1  | %         |   |               | 45  |         |  |  | 2  | %  |   |   | (31 | )   |  |  | (69 | )%
|                   |                               |                       |       |           |  |               |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |     |   
|                   | Depreciation and amortization |                       | $     | 412       |  |               |    | 18        | % |               | $   | 390     |  |  |    | 21 | % |   | $   | 22  |  |  |     | 6  | %
|                   |                               |                       |       |           |  |               |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |     |   

The $193 million and $53 million
increase in depreciation expense from the nine and three months
ended September 30, 2001 to the nine and three months ended
September 30, 2002 was primarily a result of an 11%
increase in transmitter and receiver sites in service and a 5%
increase in switches in service, as well as costs to modify
existing switches and transmitter and receiver sites in existing
markets primarily to enhance the capacity of our digital mobile
network. Additionally, depreciation increased as a result of our
shortening the useful lives of some of our network assets in the
fourth quarter of 2001 in response to technology upgrades. We
periodically review the useful lives of our fixed assets as
circumstances warrant, and it is possible that depreciation
expense may increase in future periods.

The $91 million and $31 million
decrease in amortization expense from the nine and three months
ended September 30, 2001 to the nine and three months ended
September 30, 2002 is primarily attributable to the
adoption of SFAS No. 142, Goodwill and Other Intangible
Assets, which required us to cease amortizing goodwill and
FCC licenses effective January 1, 2002.

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##### Table of Contents



Consolidated
restructuring and impairment charges, interest and
other.

|                                                   |  |               |      |               |  |               |        |         |  |   |       |   |  |  |      |   
|-------------------------------------------------- |  | ------------- | ---- | ------------- |  | ------------- | ------ | ------- |  | - | ----- | - |  |  | ---- | --
|                                                   |  |               |      |               |  |              
|                                                   |  |               |      |               |  | Change from  
|                                                   |  |               |      |               |  | Previous Year
|                                                   |  | September 30, |      | September 30, |  |              
|                                                   |  | 2002          |      | 2001          |  | Dollars       |        | Percent
|                                                   |  |               |      |               |  |               |        |        
|                                                   |  |              
|                                                   |  | (in millions)
|Nine Months Ended                                  |  |               |      |               |  |               |        |         |  |   |       |   |  |  |      |   
|Restructuring and impairment charges               |  | $             | (35  | )             |  | $             | (169   | )       |  | $ | 134   |   |  |  | 79   | % 
|Interest expense                                   |  |               | (813 | )             |  |               | (1,071 | )       |  |   | 258   |   |  |  | 24   | % 
|Interest income                                    |  |               | 45   |               |  |               | 178    |         |  |   | (133  | ) |  |  | (75  | )%
|Gain on retirement of debt, net                    |  |               | 347  |               |  |               | 469    |         |  |   | (122  | ) |  |  | (26  | )%
|Equity in losses of NII Holdings                   |  |               | (226 | )             |  |               |       |         |  |   | (226  | ) |  |  |     |   
|Equity in losses of unconsolidated affiliates      |  |               | (72  | )             |  |               | (69    | )       |  |   | (3    | ) |  |  | (4   | )%
|Reduction in fair value of investment              |  |               | (38  | )             |  |               | (188   | )       |  |   | 150   |   |  |  | 80   | % 
|Foreign currency transaction losses, net           |  |               |     |               |  |               | (71    | )       |  |   | 71    |   |  |  |     |   
|Other, net                                         |  |               | (1   | )             |  |               | (12    | )       |  |   | 11    |   |  |  | 92   | % 
|Income tax (provision) benefit                     |  |               | (373 | )             |  |               | 47     |         |  |   | (420  | ) |  |  | NM   |   
|Income (loss) available to common
    stockholders |  |               | 197  |               |  |               | (1,063 | )       |  |   | 1,260 |   |  |  | 119  | % 
|Three Months Ended                                 |  |               |      |               |  |               |        |         |  |   |       |   |  |  |      |   
|Restructuring and impairment charges               |  | $             |     |               |  | $             | (147   | )       |  | $ | 147   |   |  |  |     |   
|Interest expense                                   |  |               | (271 | )             |  |               | (354   | )       |  |   | 83    |   |  |  | 23   | % 
|Interest income                                    |  |               | 14   |               |  |               | 43     |         |  |   | (29   | ) |  |  | (67  | )%
|Gain on retirement of debt, net                    |  |               | 208  |               |  |               | 469    |         |  |   | (261  | ) |  |  | (56  | )%
|Equity in losses of unconsolidated affiliates      |  |               | (23  | )             |  |               | (24    | )       |  |   | 1     |   |  |  | 4    | % 
|Reduction in fair value of investment              |  |               | (3   | )             |  |               | (188   | )       |  |   | 185   |   |  |  | 98   | % 
|Foreign currency transaction losses, net           |  |               |     |               |  |               | (16    | )       |  |   | 16    |   |  |  |     |   
|Other, net                                         |  |               |     |               |  |               | (1     | )       |  |   | 1     |   |  |  |     |   
|Income tax (provision) benefit                     |  |               | (8   | )             |  |               | 20     |         |  |   | (28   | ) |  |  | (140 | )%
|Income (loss) available to common
    stockholders |  |               | 526  |               |  |               | (209   | )       |  |   | 735   |   |  |  | NM   |   



---

NMNot Meaningful

In January 2002, we announced a five-year
information technology outsourcing agreement with EDS, under
which EDS manages our corporate data center, database
administration, helpdesk, desktop services and other technical
functions. Additionally, in January 2002, we announced an
eight-year customer relationship management agreement with IBM
and TeleTech to manage our customer care centers. In connection
with these outsourcing agreements, we recorded a
$35 million domestic restructuring charge in the first
quarter of 2002, which primarily represents the future lease
payments related to facilities we plan to vacate net of
estimated sublease income. In the third quarter 2001, NII
Holdings decided to discontinue funding to its Philippine
operating company and recognized a pre-tax impairment charge of
$147 million. In May 2001, we recorded a $22 million
restructuring charge to reduce domestic payroll and other
operating costs by implementing a 5% workforce reduction and
streamlining our operations.

Consolidated interest expense decreased from
$1,071 million for the nine months ended September 30,
2001 to $813 million for the comparable period in 2002. The
$258 million decrease in interest expense primarily
reflects a $49 million decrease attributable to our
domestic operations as discussed below, as well as the impact of
the deconsolidation of our international operations, which
contributed $220 million to interest expense in our
consolidated results in 2001, offset by an $11 million
elimination included in our consolidated results in 2001.
Consolidated interest expense decreased from $354 million
for the three months ended September 30, 2001 to
$271 million for the comparable period in 2002. The
$83 million decrease in interest expense reflects a $21
million decrease attributable to our domestic operations as
discussed below, as well as the impact of the deconsolidation of
our international operations, which contributed $73 million
to interest expense in our consolidated results in 2001, offset
by an $11 million elimination included in our consolidated
results in 2001. The $49 million and $21 million
decrease in domestic interest expense from the nine and three

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months ended September 30, 2001 to the nine
and three months ended September 30, 2002 primarily relates
to:




| |   |                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $108 million and $25 million decrease
    due to a reduction in the weighted average interest rates
    related to our bank credit facility from 7.8% during the nine
    months ended September 30, 2001 to 4.8% during the nine
    months ended September 30, 2002; partially offset by
|
| |  | a $28 million and $11 million decrease
    in capitalized interest due to a decrease in our capital
    expenditures as well as the reduction in our average interest
    rates;                                                                                                            
|
| |  | a $2 million and $12 million increase
    due to the changes in fair values of our interest rate swaps; and                                                                                                                                                                                 
|
| |  | a $29 million increase and a
    $19 million decrease primarily related to our senior notes,
    as discussed below.                                                                                                                                                                        

Interest expense related to our senior notes
increased from the nine months ended September 30, 2001 to
the comparable 2002 period primarily due to the issuance of our
9.5% senior notes in February 2001 and our 6% convertible
senior notes in May 2001, partially offset by the
retirement of $1,701 million in aggregate principal amount
of our senior notes during 2002. Interest expense related to our
senior notes decreased from the three months ended
September 30, 2001 to the comparable 2002 period primarily
due to the retirement of these senior notes during 2002. As of
December 31, 2001, we had outstanding indebtedness and
mandatorily redeemable preferred stock obligations of
$15,978 million. Due principally to repurchases of these
securities, as of September 30, 2002, we had outstanding
indebtedness and mandatorily redeemable preferred stock
obligations of $13,820 million.

Consolidated interest income decreased from
$178 million for the nine months ended September 30,
2001 to $45 million for the comparable period in 2002. The
$133 million decrease in interest income primarily reflects
a $133 million decrease attributable to our domestic operations
as discussed below, as well as the impact of the deconsolidation
of our international operations, which contributed
$11 million to interest income in our consolidated results
in 2001, offset by an $11 million elimination included in
our consolidated results in 2001. Consolidated interest income
decreased from $43 million for the three months ended
September 30, 2001 to $14 million for the comparable
period in 2002. The $29 million decrease in interest income
reflects a $37 million decrease attributable to our
domestic operations as discussed below, as well as the impact of
the deconsolidation of our international operations, which
contributed $3 million to interest income in our
consolidated results in 2001, offset by an $11 million
elimination included in our consolidated results in 2001. The
$133 million and $37 million decrease in interest
income from the nine and three months ended September 30,
2001 to the nine and three months ended September 30, 2002
is primarily due to a general decrease in interest rates as well
as a lower average cash and short-term investments balances in
2002.

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

The equity in losses of NII Holdings of
$226 million for the nine months ended September 30,
2002 represents our share of NII Holdings losses through
May 2002. As discussed in note 1 to our consolidated
financial statements, this line item relates to the
reclassification of our investment in NII Holdings to the equity
method in 2002. Our consolidated results for the nine months
ended September 30, 2001 include $875 million of
losses attributable to NII Holdings. The $649 million
decrease in equity in losses is due primarily to the following:



| |   |                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the 2002 equity in losses of NII Holdings
    represents our share of NII Holdings losses through May
    2002, while the 2001 amount represents our share of NII
    Holdings losses through September 2001;
|
| |  | increasing revenues of NII Holdings together with
    cost savings primarily attributable to NII Holdings
    decreased selling activities;                                                                   
|
| |  | NII Holdings results of operations for the
    nine months ended September 30, 2002 reflect decreased
    depreciation and amortization expense due to fixed asset and
    intangible asset impairment charges

33



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| |   |                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | taken during the third and fourth quarters of
    2001, which reduced the carrying value of those assets
    significantly; and                                                                                                                                          
|
| |  | NII Holdings results of operations for the
    nine months ended September 30, 2001 reflect an asset
    impairment charge related to its Philippine operations and
    charges for a reduction in fair value related to its
    available-for-sale security investment.

The $(3) million and $1 million change in
equity in losses of unconsolidated affiliates from the nine and
three months ended September 30, 2001 to the same periods
in 2002 is primarily due to changes in losses attributable to
our equity method investment in Nextel Partners.

On June 30, 2002, we recognized a
$35 million reduction in the fair value of our investment
in SpectraSite Holdings, Inc., as we determined the decline in
fair value of this investment to be other-than-temporary. On
September 30, 2002, we recognized an additional
$3 million reduction in the fair value of our investment in
SpectraSite. On September 30, 2001, NII Holdings recognized
a $188 million reduction in fair value of its investment in
TELUS Corporation, as NII Holdings determined the decline in
value of this investment to be other-than-temporary.

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

The increase in the income tax provision in 2002
is primarily attributable to the adoption of SFAS No. 142,
Goodwill and Other Intangible Assets, as a result of
which we incurred non-cash charges of $373 million to the
income tax provision. For more detailed information, see note 1,
Basis of PresentationNew Accounting
Pronouncements, to our condensed consolidated financial
statements appearing in this quarterly report on Form 10-Q.

Liquidity and Capital Resources

As of September 30, 2002, we had total
liquidity of $3.9 billion available to fund our operations
including $2.4 billion of cash, cash equivalents and
short-term investments and about $1.5 billion under the
revolving loan commitment of our bank credit facility. Until
recently, total cash used in investing activities, primarily for
capital expenditures and spectrum acquisitions associated with
developing, enhancing and operating our digital mobile network
have more than offset our cash flows provided by operating
activities. With respect to our domestic operations, for the
nine months ended September 30, 2002, total cash used in
investing activities exceeded cash flows provided by operating
activities by $499 million as compared to
$1,870 million for the same period in 2001. We have
historically used external sources of funds, primarily from debt
incurrences and equity issuances, to fund capital expenditures,
acquisitions and other nonoperating needs.

As of September 30, 2002, we had working
capital for domestic operations of $2,044 million compared
to $2,340 million at June 30, 2002. A significant
portion of our current assets, in addition to cash, consists of
trade accounts receivable and handset inventory. Net trade
accounts receivable and handset inventory increased
$162 million and $58 million from June 30, 2002
to September 30, 2002, respectively. This increase in net
trade accounts receivable of 14% is largely attributable to a 6%
increase in revenue during the quarter ended September 30,
2002 and billing system conversion and billing software upgrade
issues we experienced in the third quarter of 2002 which
resulted in a delay in the mailing of customer bills. Our
differentiated customer base, which includes government
agencies, large corporations, mid sized businesses and high-end
individual users, has different paying habits and invoicing
requirements. These requirements can affect our level of
receivables at a given point in time. Inventory levels have
increased primarily as a result of the need to meet handset
inventory levels for all distribution channels, including
additional retail stores to be opened in the fourth quarter. A
significant portion of our current liabilities consists of trade
payables, current portion of long-term debt and other accrued
liabilities. At September 30, 2002, accounts payable declined
$29 million and the current portion of long-term debt and
capital lease and finance obligations increased $52 million
over

34



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##### Table of Contents



balances at June 30, 2002. Accrued expenses
and other increased $199 million and consists largely of
liabilities that are not typically settled with cash payments.
For example, other accrued liabilities consists of
$690 million of liabilities associated with deferred
revenues and deferred equipment revenue as required under SAB
No. 101.


Cash flows.

|                                                |  |                           |        |               |  |         |        |         |  |   |        |   |  |  |      |   
|----------------------------------------------- |  | ------------------------- | ------ | ------------- |  | ------- | ------ | ------- |  | - | ------ | - |  |  | ---- | --
|                                                |  |                           |        |              
|                                                |  | For the Nine Months Ended |        | Change from  
|                                                |  | September 30,             |        | Previous Year
|                                                |  |                           |        |              
|                                                |  | 2002                      |        | 2001          |  | Dollars |        | Percent
|                                                |  |                           |        |               |  |         |        |        
|                                                |  |                          
|                                                |  | (dollars in millions)    
|Cash provided by operating activities           |  | $                         | 1,513  |               |  | $       | 772    |         |  | $ | 741    |   |  |  | 96   | % 
|Cash used in investing activities               |  |                           | (2,012 | )             |  |         | (2,642 | )       |  |   | 630    |   |  |  | 24   | % 
|Cash (used in) provided by financing activities |  |                           | (761   | )             |  |         | 2,304  |         |  |   | (3,065 | ) |  |  | (133 | )%

Net cash provided by operating activities in the
nine months ended September 30, 2002 improved by
$741 million over the same period in 2001 primarily
reflecting the improved performance of our domestic operations
from our achievement of certain economies of scale and from the
growth in our domestic customer base.

Net cash used in investing activities in the nine
months ended September 30, 2002 decreased by
$630 million over the same period in 2001 due to:



| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | a $1,263 million decrease in cash paid for
    capital expenditures; and                                                                 
|
| |  | a $486 million decrease in cash paid for
    purchases of licenses, acquisitions, investments and other;
    offset by                   
|
| |  | a $869 million increase in net cash used to
    purchase short term investments; and                                                     
|
| |  | a $250 million decrease in cash and cash
    equivalents as a result of changing to the equity method of
    accounting for NII Holdings.

Capital expenditures to fund the continued
enhancement of our digital mobile network to provide greater
capacity continued to represent the largest use of our funds for
investing activities. Cash payments for capital expenditures
include payments made during the period for capital expenditures
that were accrued at the beginning of the period and included in
capital expenditures during the prior year. Cash payments for
capital expenditures totaled $1,408 million for the nine
months ended September 30, 2002 and $2,671 million
(including $489 million of international capital
expenditures) for the nine months ended September 30, 2001.
Domestic capital expenditures decreased primarily due to a 68%
decrease in the number of transmitter and receiver sites placed
into service during the nine months ended September 30,
2002 as compared the same period in 2001. We attribute this
decrease to several factors, including:



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

We made cash payments during the nine months
ended September 30, 2002 totaling $416 million for
licenses, acquisitions, investments and other, including
$111 million in payments related to the acquisition of 800
MHz and 900 MHz licenses and related assets from Chadmoore
Wireless Group and $40 million in cash payments for NeoWorld
Communications.

35



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Net cash used in financing activities during the
nine months ended September 30, 2002 consisted primarily of
$689 million paid for the purchase of our outstanding debt
securities and mandatorily redeemable preferred stock and
$78 million for repayments under capital lease and finance
obligations and long-term credit facilities. Net cash provided
by financing activities during the nine months ended
September 30, 2001 consisted primarily of
$2,250 million in gross proceeds from the private
placements of our 9.5% senior serial redeemable notes due 2011
and our 6% convertible senior notes due 2011.

As of December 31, 2001, we had
$13,864 million of total domestic long-term debt
outstanding, including $9,345 million of senior notes,
$4,500 million of indebtedness under our bank credit
facility, as well as $1,001 million of capital lease and
finance obligations, and $2,114 million of mandatorily
redeemable preferred stock obligations. For the nine months
ended September 30, 2002, we purchased and retired a total
of $1,701 million in aggregate principal amount at maturity
of our outstanding senior notes and $897 million in
aggregate face amount of our outstanding preferred stock
obligations in exchange for $689 million in cash and
144 million shares of our class A common stock valued
at $840 million. Based upon, among other things, the
current terms of the relevant agreements and certain
assumptions, such as future interest rates, the following table
reflects our best estimate as to the future obligations relating
to the instruments listed (including principal, interest and
dividend payments). Future events, including additional
purchases of our securities and refinancing of these securities,
could cause actual payments to differ significantly from these
amounts. See Forward Looking Statements.

|                              |  |               |        |      |  |      |     |      |  |      |       |      |  |      |       |            |  |   |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|----------------------------- |  | ------------- | ------ | ---- |  | ---- | --- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---------- |  | - | ----- |  |  | - | ----- |  |  | - | ----- |  |  | - | ------ | 
|                              |  |               |        |      |  |      |     |      |  |      |       |      |  |      |       | 2008 and  
|                              |  | Total         |        | 2002 |  | 2003 |     | 2004 |  | 2005 |       | 2006 |  | 2007 |       | Thereafter
|                              |  |               |        |      |  |      |     |      |  |      |       |      |  |      |       |           
|                              |  |              
|                              |  | (in millions)
|Public senior notes           |  | $             | 12,546 |      |  | $    | 122 |      |  | $    | 643   |      |  | $    | 713   |            |  | $ | 713   |  |  | $ | 713   |  |  | $ | 2,875 |  |  | $ | 6,767  | 
|Domestic bank facility(1)     |  |               | 5,948  |      |  |      | 102 |      |  |      | 406   |      |  |      | 556   |            |  |   | 693   |  |  |   | 703   |  |  |   | 621   |  |  |   | 2,867  | 
|Capital lease obligations     |  |               | 320    |      |  |      | 11  |      |  |      | 66    |      |  |      | 69    |            |  |   | 71    |  |  |   | 63    |  |  |   | 40    |  |  |   |       | 
|Tower finance obligation      |  |               | 809    |      |  |      | 17  |      |  |      | 68    |      |  |      | 70    |            |  |   | 72    |  |  |   | 74    |  |  |   | 76    |  |  |   | 432    | 
|Preferred stock cash payments |  |               | 2,631  |      |  |      | 19  |      |  |      | 135   |      |  |      | 155   |            |  |   | 155   |  |  |   | 155   |  |  |   | 155   |  |  |   | 1,857  | 
|                              |  |               |        |      |  |      |     |      |  |      |       |      |  |      |       |            |  |   |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|Total                         |  | $             | 22,254 |      |  | $    | 271 |      |  | $    | 1,318 |      |  | $    | 1,563 |            |  | $ | 1,704 |  |  | $ | 1,708 |  |  | $ | 3,767 |  |  | $ | 11,923 | 
|                              |  |               |        |      |  |      |     |      |  |      |       |      |  |      |       |            |  |   |       |  |  |   |       |  |  |   |       |  |  |   |        | 



---



|    |                                                                                  
|--- | ---------------------------------------------------------------------------------
|(1) | These amounts include principal amortization and
    estimated interest payments.

Further information regarding our other future
contractual obligations can be found in our 2001 annual report
on Form 10-K.

Future Capital Needs and Resources

Capital Resources.

As of September 30, 2002, our capital
resources included:



| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | $2.4 billion of cash, cash equivalents and
    short-term investments; and                                 
|
| |  | about $1.5 billion of the revolving loan
    commitment under our bank credit facility, as discussed below.

Therefore, our resulting total amount of
liquidity to fund our operations was about $3.9 billion as
of September 30, 2002.

Our ongoing capital needs depend on a variety of
factors, including the extent to which we are able to fund the
cash needs of our business from earnings. Until recently, we
have been unable to fund our capital expenditures, spectrum
acquisition costs and business acquisitions with the cash
generated by our operating activities. Therefore, we have met
the cash needs of our business principally by raising capital
from issuances of debt and equity securities. To the extent we
can generate greater earnings from our business operations, we
will be able to use less of our available liquidity and will
have less need to raise capital, if any, from the

36



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##### Table of Contents



capital markets. To the extent we generate less
earnings from our business operations, we will be required to
use more of our available liquidity to fund operations or raise
additional capital from the capital markets. We may be unable to
raise additional capital on acceptable terms, if at all. Our
ability to generate earnings is dependent upon, among other
things:




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

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

The bank credit agreement requires compliance
with financial ratio tests, including total indebtedness to
operating cash flow, secured indebtedness to operating cash
flow, operating cash flow to interest expense and operating cash
flow to specified charges, each as defined under the bank credit
agreement, as amended. Some of these ratios become more
stringent into 2003, at which time they become fixed. As of
September 30, 2002, we were in compliance with all
financial ratio tests under our bank credit facility and we
expect to remain in full compliance with these ratio tests.
Borrowings under the bank credit facility are secured by liens
on assets of substantially all of our domestic 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 bank credit
facility can accelerate if the aggregate amount of our public
notes that mature within the succeeding six months of any date
before June 30, 2009, or if the aggregate amount of our
redeemable stock that is mandatorily redeemable within the
succeeding six months of any date before June 30, 2009,
exceed amounts specified in our bank credit facility. However,
no such acceleration is permitted if the long-term rating for
our public notes is at least BBB- by Standard & Poors
Ratings Services or Baa3 by Moodys Investors Service, Inc.
There is no provision under any of our indebtedness that
requires repayment in the event of a downgrade by any ratings
service.

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

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

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##### Table of Contents



Capital Needs.

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



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

Capital Expenditures.Our domestic capital expenditures
in the third quarter of 2002 were $412 million, including
capitalized interest. In the future, we expect our domestic
capital spending to be driven by several factors including:



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

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

NII Holdings.On October 28, 2002, the U.S.
Bankruptcy Court confirmed NII Holdings plan of
reorganization. On November 12, 2002, NII Holdings
consummated its reorganization under Chapter 11 of the U.S.
Bankruptcy Code. All of the previously outstanding equity
interests in NII Holdings were cancelled in the reorganization.
As of November 14, 2002, we owned about 36% of the
outstanding common stock of

38



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##### Table of Contents



NII Holdings. The reorganization of NII Holdings
included a new infusion of capital into NII Holdings of
$190 million, $140 million of which was provided by
existing creditors in exchange for about $181 million in
aggregate principal amount at maturity of a new series 13%
senior secured notes of NII Holdings and shares of NII
Holdings class A common stock. We contributed $51 million
of this $140 million and received in exchange about
$66 million in aggregate principal amount at maturity of
these new notes and shares of NII Holdings class A common stock.
We also provided $50 million of additional funding to NII
Holdings in exchange for a U.S.-Mexico cross border spectrum
sharing arrangement ($25 million of which remains in escrow
pending the completion of NII Holdings obligations under
this arrangement).


NII Holdings previously had outstanding an
aggregate of $2.7 billion of debt that it incurred to
construct its digital mobile network and fund its operations,
including $825 million in carrying amount, or
$857 million in aggregate principal amount, of notes held
by Nextel Communications. The obligations under this debt were
solely those of NII Holdings and its subsidiaries, and Nextel
Communications was not a party to any of the obligations in
respect of that debt. As a result of the reorganization, all of
this debt has been cancelled. For additional information, see
note 1, Basis of Presentation, NII Holdings, in our
condensed consolidated financial statements appearing at the
beginning of this quarterly report on Form 10-Q.

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

In making these assessments, we have considered:



| |   |                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | cash, cash equivalents and short-term investments
    on hand and available as of September 30, 2002 of
    $2.4 billion;                                                                                                                   
|
| |  | the availability of incremental funding over the
    amounts outstanding under our bank credit facility, which
    currently totals about $1.5 billion;                                                                                     
|
| |  | the anticipated level of domestic capital
    expenditures, including an expected significant positive impact
    associated with the 6:1 voice coder software upgrade which
    Motorola is developing for our expected deployment in 2003;
|
| |  | our scheduled domestic debt service requirements;
    and                                                                                                                                                                                   
|
| |  | cash payments of up to $197 million for the
    acquisition of the equity of NeoWorld Communications in the
    event we elect to pay in cash.                                                                                              

If our business plans change, including as a
result of changes in technology, or if economic conditions in
any of our markets generally or competitive practices in the
mobile wireless telecommunications industry change materially
from those currently prevailing or from those now anticipated,
or if other presently unexpected circumstances arise that have a
material effect on the cash flow or profitability of our mobile
wireless business, the anticipated cash needs of our business as
well as the conclusions as to the adequacy of the available
sources and timing or ability to achieve free cash flow
positive status, could change significantly.

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



| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the impact of our participation in any future
    auctions for the purchase of spectrum licenses;                                                            
|
| |  | any significant acquisition transactions or the
    pursuit of any significant new business opportunities other than
    those currently being pursued by us;

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##### Table of Contents





| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | deployment of next generation technologies;                                                                                                 
|
| |  | potential 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 proposed public safety spectrum
    realignment, if effected.

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



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

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

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

Forward Looking Statements

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



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

40



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##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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
    nationwide Direct Connect;                      
|
| |  | 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 monthly handset revenue levels sufficient to provide
    financial viability to our digital mobile network business;                                                                                                                                                                                         
|
| |  | the impact on our cost structure or service
    levels of the general downturn in the telecommunications sector,
    including the adverse effect of any bankruptcy of any of our
    tower providers or telecommunications suppliers;                                                                                                                                 
|
| |  | our ability to successfully scale, in some
    instances in conjunction with third parties under our
    outsourcing arrangements, our billing, collection, customer care
    and similar back-office operations to keep pace with customer
    growth, increased system usage rates and growth in levels of
    accounts receivables being generated by our customers;
|
| |  | access to sufficient debt or equity capital to
    meet operating and financing needs;                                                                                                                                                                                                                                                                                 
|
| |  | the quality and price of similar or comparable
    wireless communications services offered or to be offered by our
    competitors, including providers of cellular and personal
    communications services;                                                                                                                                                         
|
| |  | future legislation or regulatory actions relating
    to specialized mobile radio services, other wireless
    communications services or telecommunications generally;                                                                                                                                                                                                
|
| |  | the 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, 2001 and our subsequent
    quarterly reports on Form 10-Q.                                                                                           




Item 3. Quantitative and Qualitative
Disclosures about Market Risk.

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

As of September 30, 2002, we held
$1,193 million of short-term investments consisting of debt
securities in the form of commercial paper and corporate bonds.
As the weighted average maturity from the date of purchase was
less than six months, these short-term investments do not expose
us to a significant amount of interest rate risk.

The table below summarizes our market risk and
presents principal cash flows and related interest rates by year
of maturity for our senior notes, bank credit facility, capital
lease and finance obligations and mandatorily redeemable
preferred stock in effect at September 30, 2002. In the
case of the mandatorily redeemable preferred stock and senior
notes, the table excludes the potential exercise of the relevant

41



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##### Table of Contents



redemption or conversion features. Additionally,
the table assumes that we will refinance our indebtedness to
levels necessary to avoid an earlier repayment obligation with
respect to our domestic bank credit agreement. See Item 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 senior notes and
    mandatorily redeemable preferred stock;                                                            
|
| |  | estimates from bankers for our domestic bank
    credit facility;                                                                                
|
| |  | present value of future cash flows for capital
    lease and finance obligations using a discount rate available
    for similar obligations; and
|
| |  | estimates from bankers to settle interest rate
    swap agreements.                                                                              

Notes 7, 8 and 11 to the consolidated
financial statements included in our 2001 annual report on
Form 10-K contain descriptions of our senior notes, bank
and vendor credit facilities, capital lease and finance
obligations, interest rate swap agreements and mandatorily
redeemable preferred stock and should be read together with the
following table.

|                                                                                                         |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |     |   |  |   |       |   |  |   |        |   |  |   |       |  
|-------------------------------------------------------------------------------------------------------- | --------------------- | --------------------- | - | ---- | - | ---- | - | ---- | - | ---- | - | ---------- | - | ----- | - | ----- | - |  | - | --- | - |  | - | ----- | - |  | - | ------ | - |  | - | ----- | -
|                                                                                                         |                       |                       |   |      |   |     
|                                                                                                         |                       | Year of Maturity      |   |      |   |     
|                                                                                                         |                       |                       |   |      |   | Fair
|                                                                                                         |                       | 2002                  |   | 2003 |   | 2004 |   | 2005 |   | 2006 |   | Thereafter |   | Total |   | Value
|                                                                                                         |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |      
|                                                                                                         |                       |                      
|                                                                                                         |                       | (dollars in millions)
|Interest Rate Sensitivity                                                                                |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |     |   |  |   |       |   |  |   |        |   |  |   |      
|Long-Term Debt, Capital Lease and Finance
    Obligations and Mandatorily Redeemable Preferred
    Stock |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |     |   |  |   |       |   |  |   |        |   |  |   |      
|                                                                                                         | Fixed Rate            |                       | $ | 21   |   |      | $ | 107  |   |      | $ | 115        |   |       | $ | 121   |   |  | $ | 114 |   |  | $ | 9,959 |   |  | $ | 10,437 |   |  | $ | 7,859 |  
|                                                                                                         | Average Interest Rate |                       |   | 9    | % |      |   | 9    | % |      |   | 9          | % |       |   | 9     | % |  |   | 9   | % |  |   | 9     | % |  |   | 9      | % |  |   |       |  
|                                                                                                         | Variable Rate         |                       | $ | 47   |   |      | $ | 199  |   |      | $ | 327        |   |       | $ | 433   |   |  | $ | 466 |   |  | $ | 3,045 |   |  | $ | 4,517  |   |  | $ | 3,833 |  
|                                                                                                         | Average Interest Rate |                       |   | 3    | % |      |   | 3    | % |      |   | 3          | % |       |   | 3     | % |  |   | 3   | % |  |   | 5     | % |  |   | 4      | % |  |   |       |  
|Interest Rate Swaps                                                                                      |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |     |   |  |   |       |   |  |   |        |   |  |   |      
|                                                                                                         | Variable to Fixed(1)  |                       | $ |     |   |      | $ |     |   |      | $ |           |   |       | $ |      |   |  | $ | 570 |   |  | $ |      |   |  | $ | 570    |   |  | $ | (114  | )
|                                                                                                         | Average Pay Rate      |                       |   |     |   |      |   |     |   |      |   |           |   |       |   |      |   |  |   | 8   | % |  |   |      |   |  |   | 8      | % |  |   |       |  
|                                                                                                         | Average Receive Rate  |                       |   |     |   |      |   |     |   |      |   |           |   |       |   |      |   |  |   | 2   | % |  |   |      |   |  |   | 2      | % |  |   |       |  
|                                                                                                         | Variable to Variable  |                       | $ |     |   |      | $ | 400  |   |      | $ |           |   |       | $ |      |   |  | $ |    |   |  | $ |      |   |  | $ | 400    |   |  | $ | (6    | )
|                                                                                                         | Average Pay Rate      |                       |   |     |   |      |   | 5    | % |      |   |           |   |       |   |      |   |  |   |    |   |  |   |      |   |  |   | 5      | % |  |   |       |  
|                                                                                                         | Average Receive Rate  |                       |   |     |   |      |   | 2    | % |      |   |           |   |       |   |      |   |  |   |    |   |  |   |      |   |  |   | 2      | % |  |   |       |  
|                                                                                                         | Fixed to Variable     |                       | $ |     |   |      | $ |     |   |      | $ |           |   |       | $ |      |   |  | $ |    |   |  | $ | 500   |   |  | $ | 500    |   |  | $ | 60    |  
|                                                                                                         | 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 under the Securities
Exchange Act is recorded, processed, summarized and reported in
a timely manner under the Securities Exchange Act. Within
90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of
management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based upon
that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures
are effective. There have been no significant changes in our
internal controls or in other factors that could significantly
affect internal controls subsequent to our most recent
evaluation.

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##### Table of Contents






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 U.S. Bankruptcy Code.




Item 2.     Changes
in Securities and Use of Proceeds.

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




Item 5.     Other
Information.

Regulatory Update.On June 6, 2002, the
California Public Utilities Commission, or PUC, proposed
extensive consumer protection and privacy regulations for all
telecommunications carriers. If adopted, the rules will
significantly alter our business practices in California with
respect to nearly every aspect of the carrier-customer
relationship, including solicitations, marketing, activations,
billing and customer care, and will impose significant
additional costs on us as well as other wireless carriers
operating in California. Efforts to amend these rules remain
ongoing. It is uncertain when the final rules will be adopted.

The California PUC has also filed two petitions
with the Federal Communications Commission, or FCC, that would
impact our ability to access telephone numbering resources and
assign telephone numbers to our customers. The first petition
requests FCC authority to implement a technology-specific area
code overlay in the Los Angeles and Orange County areas that
would require wireless carriers to assign new numbers to their
existing customers in those areas. The second California PUC
petition requests a waiver of the FCCs contamination
threshold rule, which requires carriers to return blocks
of one thousand telephone numbers under certain circumstances
when no more than 10% of the numbers in that block have been
assigned to customers. The California PUC would change this
threshold to 25%. We plan to oppose both petitions.

The National Telecommunications and Information
Administration announced that 90 MHz of spectrum, including
1710-1755 MHz used by the Department of Defense and 45 MHz
of 2110-2170 MHz which is occupied by non-government users, will
be made available for third generation wireless services in the
United States. The FCC has adopted an order confirming this
allocation of 90 MHz for advanced mobile services. The FCC
has also adopted a Notice of Proposed Rulemaking, seeking
comment on the appropriate licensing, technical and operational
rules for the use of this spectrum.

Pursuant to a 1996 FCC order, wireless carriers,
including Nextel, are required to provide Enhanced 911, or E911,
services to their customers. Pursuant to an October 2001 FCC
order, Phase II of our E911 deployment was required to
begin October 1, 2002. On that date, we complied with the
FCCs requirement that we begin selling an assisted global
positioning satellite, or AGPS, handset that would generate
location information, by latitude and longitude, about the
caller.

Additionally, Phase II E911 requirements
include deploying the infrastructure, facilities and
interconnectivity necessary to enable the transmission of
latitude and longitude information from the AGPS handset to a
public safety answering point, or PSAP, which is the E911
dispatch center. Before we can successfully transmit this
location information from its network to a PSAP, the local
exchange carrier, and the PSAP, as well as third party database
providers, must have the necessary infrastructure and compatible
software in place to connect with our network. We continue to
deploy Phase II service in various parts of the country.

Because our Phase II E 911 services can only
be accessed with an AGPS handset, the FCC also required that we
sell and activate AGPS handsets pursuant to interim benchmarks
between January 1, 2003 and December 31, 2005, when we
are required to have 95% of our total customer base using
AGPS-capable handsets. Depending on our rate of customer churn,
customers decisions to upgrade (or not) their handsets,

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##### Table of Contents



the percentage of new customers added to our
network who purchase an AGPS handset and overall wireless
marketplace conditions, achieving these benchmarks could impose
significant costs on Nextel. We cannot predict with certainty at
this time the impact of this E911 initiative on our results of
operations.


On July 25, 2002, the FCC clarified its
privacy rules governing carriers use and disclosure of
other forms of customer proprietary network information. The FCC
allowed wireless carriers and their affiliated entities
providing communications-related services to use customer
information after notifying customers and giving them an
opportunity to disapprove, or opt-out, of the given
use. Disclosure of customer information to unrelated third
parties or carrier affiliates that do not provide
communications-related services requires express consumer
approval, or opt-in consent. The FCC, did not adopt
specific privacy rules for location-based information.
Specifically, in an order released on July 24, 2002, the
FCC declined to commence a rulemaking procedure to adopt rules
to implement the wireless location information privacy
amendments to Section 222 of the Communications Act of
1934, as amended. The Cellular Telecommunications and Internet
Association had requested that the FCC adopt safe
harbor rules for location privacy. The FCC, however,
concluded that the statute was sufficiently plain that a
customer must give express consent before the carrier can use
customer location information obtained in connection with a
customers use of wireless services, except in specified
emergencies.

On July 26, 2002, the FCC delayed the
implementation of wireless number portability for one year until
November 24, 2003. The FCC did not, however, grant a
similar delay of the wireless number pooling requirement, which
is a telephone number assignment mechanism designed to conserve
telephone numbers and reduce the number of area code splits and
overlays. Wireless number pooling goes into effect on
November 24, 2002. Pooling has required, and number
portability is expected to require, significant upgrades to our
network and infrastructure.

On May 6, 2002, we filed comments with the
FCC relating to the proposed 800 MHz spectrum realignment
(WT Docket No. 02-55). Over 150 parties also filed comments
in this proceeding, which seeks to resolve interference
experienced by public safety communications systems in the 800
MHz band. After comments were filed, a coalition of private
wireless industry associations, public safety associations and
we initiated discussions to attempt to present a Consensus
Plan to the FCC for its consideration. On August 7,
2002, a Consensus Plan was filed by numerous parties
that, together with Nextel, represent over 80% of the 800 MHz
licensees impacted by the proposed realignment. Under the
Consensus Plan, we would exchange certain portions of our
spectrum with public safety operators in the lower portion of
the 800 MHz band and would vacate our other operations in the
lower half of the 800 MHz band. If a reorganization of the 800
MHz band takes place as contemplated by the Consensus Plan, we
would occupy 16 MHz of contiguous spectrum in the 800 MHz band
between 816-824 and 861-869 MHz and would relinquish our 700 MHz
guard band licenses and eventually our 900 MHz spectrum. Because
we would be giving up spectrum at 700 MHz, 900 MHz, as well
as 800 MHz, under the Consensus Plan, we would receive a
contiguous 10 MHz block of replacement spectrum adjacent to
personal communications services spectrum (1910-1915 MHz and
1990-1995 MHz). If the Consensus Plan is adopted, we would
contribute up to $500 million over the next several years
towards the cost of public safety relocation. We would also be
required to fund our own relocation costs. On September 6,
2002, the FCC issued a Public Notice soliciting comments on the
Consensus Plan. In response, over fifty parties filed comments.
On September 23, 2002, Nextel and the Consensus Plan
coalition parties filed comments in support of the Consensus
Plan and attempted to rebut the concerns of other parties. We
are in discussions with the consensus parties about various
issues including the potential payments that will be required to
facilitate the public safety spectrum realignment. We cannot
predict the outcome of these discussions at this time and there
is no assurance that the FCC will adopt the Consensus Plan.

Under the FCCs rules, wireless providers
are required to contribute to the federal universal service fund
and, where applicable, state universal service funds. A pending
rulemaking could substantially alter the manner by which the FCC
calculates carrier contributions to the federal fund, which is
used to fund affordable telecommunications services for high
cost and rural areas, as well as for schools and libraries. If
adopted, the proposal could increase our mandatory contribution
to the federal universal service fund, as well as those of other
wireless carriers.

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Over the past several months, various incumbent
local exchange carriers have filed modifications to their
existing FCC tariffs to require carrier customers like us to pay
various forms of deposits in those instances when a carrier has
a history of late payments or where a carriers credit
rating is downgraded. The FCC has suspended these tariffs and is
in the process of investigating them, stating its concern that
the proposed deposits are potentially ambiguous, unreasonably
discriminatory and anti-competitive. We have challenged the
legal and policy basis for these tariff revisions. Should the
FCC permit the proposed tariff modifications, we might be
subject to additional deposits based on the new requirements.

The FCC has issued a Notice of Proposed
Rulemaking regarding the telemarketing practices used by
carriers and their agents to market goods and services. The FCC
is seeking comment on the extent to which telemarketing to
wireless consumers exists today and asks whether consumers
receive solicitations on their wireless phones, and, if so, the
nature and frequency of such solicitations. The FCC will
reexamine the scope of implied consumer consent to telemarketing
solicitation, which could impact some of our marketing
practices. There is no indication how the FCC will decide this
proceeding, and whether more restrictive or additional
obligations will be imposed on wireless carriers concerning
telemarketing solicitation to wireless handsets or to wireless
customers by other means. Comments are due on November 22,
2002.




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

(a) List of Exhibits.

|        |      |                     |  |                                                                                                                                                                                                                                                                         
|------- | ---- | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                    
|Number  |      | Exhibit Description
|        |      |                    
|        | 10.1 |                     |  | First Amendment, dated September 19, 2002,
    to Nextels Change of Control Retention Bonus and Severance
    Pay Plan.                                                                                                                                                
|        | 10.2 |                     |  | Separation and Non-competition Agreement, dated
    September 19, 2002, between Nextel and James F. Mooney.                                                                                                                                                             
|        | 10.3 |                     |  | Release Agreement, dated October 1, 2002,
    between Nextel and James F. Mooney.                                                                                                                                                                                       
|        | 10.4 |                     |  | Loan Agreement, dated April 27, 2001,
    between Unrestricted Subsidiary Funding Company and
    James F. Mooney (incorporated by reference to Exhibit 99.1
    to Nextels registration statement on Form S-3 (file
    no. 333-98261), as filed on October 11, 2002).
|        | 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 July 16, 2002 reporting under Item 5 our financial
    results and other data for the quarter ended June 30, 2002.                                                                                                                          
|
| | 2. | Current report on Form 8-K dated and filed
    on August 14, 2002 reporting under Item 5 certain
    expectations for 2002 and other information for the third
    quarter of 2002 and reporting under Item 9 the
    Sarbanes-Oxley Act of 2002 Certifications and Statements under
    Oath.
|
| | 3. | Current report on Form 8-K dated and filed
    on September 10, 2002 reporting under Item 5 certain
    expectations for 2002 and other information for the third
    quarter of 2002.                                                                                                        
|
| | 4. | Current report on Form 8-K dated and filed
    on September 19, 2002 reporting under Item 5 that
    James F. Mooney, our former chief operating officer, would be
    leaving Nextel and other information.                                                                                  

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SIGNATURE

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



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



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

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

Date: November 14, 2002


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##### Table of Contents



CERTIFICATIONS

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



| |                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. I have reviewed this 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
    officers 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
    officers 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
    officers 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: November 14, 2002 |  | /s/ TIMOTHY M. DONAHUE
    --------------------------------------------------------
    Timothy M. Donahue
    President & Chief Executive Officer

47



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##### Table of Contents



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
    officers 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
    officers 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
    officers 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: November 14, 2002 |  | /s/ PAUL N. SALEH
    --------------------------------------------------------
    Paul N. Saleh
    Executive Vice President & Chief Financial Officer

48



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##### Table of Contents



EXHIBIT INDEX

|        |      |                     |  |                                                                                                                                                                                                                                                                        
|------- | ---- | ------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                    
|Number  |      | Exhibit Description
|        |      |                    
|        | 10.1 |                     |  | First Amendment, dated September 19, 2002,
    to Nextels Change of Control Retention Bonus and Severance
    Pay Plan                                                                                                                                                
|        | 10.2 |                     |  | Separation and Non-competition Agreement, dated
    September 19, 2002, between Nextel and James F. Mooney                                                                                                                                                             
|        | 10.3 |                     |  | Release Agreement, dated October 1, 2002,
    between Nextel and James F. Mooney                                                                                                                                                                                       
|        | 10.4 |                     |  | Loan Agreement, dated April 27, 2001,
    between Unrestricted Subsidiary Funding Company and James F.
    Mooney (incorporated by reference to Exhibit 99.1 to
    Nextels registration statement on Form S-3 (file
    no. 333-98261), as filed on October 11, 2002)
|        | 99.1 |                     |  | Sarbanes-Oxley Act of 2002 Certifications