##### 









UNITED STATES





FORM 10-Q

(Mark One)

|                                                  |  |                                                                                                
|------------------------------------------------- |  | -----------------------------------------------------------------------------------------------
|[X]                                               |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934
|                                                 
|For the quarterly period ended March 31,
    2004
|                                                 
|OR                                               
|                                                 
|[  ]                                              |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   
|                                                 
|For the transition period
    from           to  
|                                                 
|Commission file number 0-19656                   

NEXTEL COMMUNICATIONS, INC.

(Exact name of registrant as specified in its
charter)


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

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

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

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

|                                                     |  |                              |               | 
|---------------------------------------------------- |  | ---------------------------- | ------------- | 
|                                                     |  | Number of Shares Outstanding
|Title of Class                                       |  | on April 30, 2004           
|                                                     |  |                             
|Class A Common Stock, $0.001 par value               |  |                              | 1,074,142,865 | 
|Class B Nonvoting Common Stock, $0.001 par
    value |  |                              | 35,660,000    | 



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

INDEX

| |          |  |  |                        |  |                                                                                                                                     |  |  |    | 
| | -------- |  |  | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
| |          |  |  |                        |  | Page                                                                                                                               
| |          |  |  |                        |  |                                                                                                                                    
| | Part  I  |  |  | Financial Information.
| |          |  |  | Item 1.                |  | Financial Statements  Unaudited.                                                                                                   |  |  |    | 
| |          |  |  |                        |  | Condensed Consolidated Balance Sheets As of March
    31, 2004 and December 31, 2003                                                |  |  | 3  | 
| |          |  |  |                        |  | Condensed Consolidated Statements of Operations
    and Comprehensive Income For the Three Months Ended March 31,
    2004 and 2003 |  |  | 4  | 
| |          |  |  |                        |  | Condensed Consolidated Statement of Changes in
    Stockholders Equity For the Three Months Ended
    March 31, 2004               |  |  | 5  | 
| |          |  |  |                        |  | Condensed Consolidated Statements of Cash Flows
    For the Three Months Ended March 31, 2004 and 2003                              |  |  | 6  | 
| |          |  |  |                        |  | Notes to Condensed Consolidated Financial
    Statements                                                                            |  |  | 7  | 
| |          |  |  |                        |  | Independent Accountants Review Report                                                                                              |  |  | 15 | 
| |          |  |  | Item 2.                |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                           |  |  | 16 | 
| |          |  |  | Item 3.                |  | Quantitative and Qualitative Disclosures About
    Market Risk                                                                      |  |  | 37 | 
| |          |  |  | Item 4.                |  | Controls and Procedures                                                                                                             |  |  | 38 | 
| | Part  II |  |  | Other Information.    
| |          |  |  | Item 1.                |  | Legal Proceedings                                                                                                                   |  |  | 39 | 
| |          |  |  | Item 5.                |  | Other Information                                                                                                                   |  |  | 39 | 
| |          |  |  | Item 6.                |  | Exhibits and Reports on Form 8-K                                                                                                    |  |  | 40 | 



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##### 



PART I  FINANCIAL INFORMATION.

Item 1.     Financial
Statements  Unaudited.

NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

Condensed Consolidated Balance
Sheets

As of March 31, 2004 and
December 31, 2003


(in millions)


Unaudited


|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |        |       |        |       | 
|------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | -------------------------- | ------------------------- | -------------------- | ----- | ------ | ------ | ------ | ----- | ------ | ----- | 
|                                                                                                              |                                                                                        | 2004                       |                           | 2003                
|                                                                                                              |                                                                                        |                            |                           |                     
|ASSETS                                                                                                       
|Current assets                                                                                                |                                                                                        |                            |                           |                      |       |        |        |       
|                                                                                                              | Cash and cash equivalents                                                              |                            | $                         | 1,687                |       |        | $      | 806    |      
|                                                                                                              | Short-term investments                                                                 |                            |                           | 1,026                |       |        |        | 1,165  |      
|                                                                                                              | Accounts and notes receivable, less allowance for
    doubtful accounts of $78 and $86 |                            |                           | 1,243                |       |        |        | 1,276  |      
|                                                                                                              | Due from related parties                                                               |                            |                           | 83                   |       |        |        | 70     |      
|                                                                                                              | Handset and accessory inventory                                                        |                            |                           | 306                  |       |        |        | 223    |      
|                                                                                                              | Prepaid expenses and other current assets                                              |                            |                           | 271                  |       |        |        | 148    |      
|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |       
|                                                                                                              |                                                                                        |                            |                           | Total current assets |       |        | 4,616  |        |       |        | 3,688 | 
|Investments                                                                                                   |                                                                                        |                            | 477                       |                      |       |        | 408    |       
|Property, plant and equipment,net of accumulated depreciation of
    $5,994 and $5,562                        |                                                                                        |                            | 9,191                     |                      |       |        | 9,093  |       
|Intangible assets,net of accumulated amortization of
    $103 and $92                                         |                                                                                        |                            | 7,044                     |                      |       |        | 7,038  |       
|Other assets                                                                                                  |                                                                                        |                            | 293                       |                      |       |        | 283    |       
|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |       
|                                                                                                              |                                                                                        | $                          | 21,621                    |                      |       | $      | 20,510 |       
|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |       
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                     
|Current liabilities                                                                                           |                                                                                        |                            |                           |                      |       |        |        |       
|                                                                                                              | Accounts payable                                                                       |                            | $                         | 725                  |       |        | $      | 663    |      
|                                                                                                              | Accrued expenses and other                                                             |                            |                           | 1,267                |       |        |        | 1,382  |      
|                                                                                                              | Due to related parties                                                                 |                            |                           | 564                  |       |        |        | 285    |      
|                                                                                                              | Current portion of long-term debt and capital
    lease obligation                     |                            |                           | 364                  |       |        |        | 487    |      
|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |       
|                                                                                                              |                                                                                        |                            | Total current liabilities |                      |       | 2,920  |        |        |       | 2,817  |      
|Long-term debt                                                                                                |                                                                                        |                            | 9,953                     |                      |       |        | 9,725  |       
|Deferred income taxes                                                                                         |                                                                                        |                            | 1,917                     |                      |       |        | 1,867  |       
|Other liabilities                                                                                             |                                                                                        |                            | 144                       |                      |       |        | 166    |       
|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |       
|                                                                                                              |                                                                                        |                            | Total liabilities         |                      |       | 14,934 |        |        |       | 14,575 |      
|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |       
|Commitments and contingencies
    (note 7)                                                                    |                                                                                        |                            |                           |                      |       |        |        |       
|Zero coupon mandatorily redeemable preferred
    stock,convertible, 245,245 shares
    issued and outstanding |                                                                                        |                            | 101                       |                      |       |        | 99     |       
|Stockholders equity                                                                                          |                                                                                        |                            |                           |                      |       |        |        |       
|                                                                                                              | Common stock, class A, 1,073 and 1,068 shares
    issued and outstanding               |                            |                           | 1                    |       |        |        | 1      |      
|                                                                                                              | Common stock, class B, nonvoting convertible, 36
    shares issued and outstanding     |                            |                           |                     |       |        |        |       |      
|                                                                                                              | Paid-in capital                                                                        |                            |                           | 12,031               |       |        |        | 11,942 |      
|                                                                                                              | Accumulated deficit                                                                    |                            |                           | (5,663               | )     |        |        | (6,256 | )    
|                                                                                                              | Deferred compensation, net                                                             |                            |                           | (15                  | )     |        |        | (16    | )    
|                                                                                                              | Accumulated other comprehensive income                                                 |                            |                           | 232                  |       |        |        | 165    |      
|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |       
|                                                                                                              |                                                                                        | Total stockholders equity |                           |                      | 6,586 |        |        |        | 5,836 |       
|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |       
|                                                                                                              |                                                                                        | $                          | 21,621                    |                      |       | $      | 20,510 |       
|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |       

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

integral part of these condensed consolidated
financial statements.


3



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

Condensed Consolidated Statements of
Operations and Comprehensive Income

For the Three Months Ended March 31, 2004
and 2003


(in millions, except per share
amounts)


Unaudited


|                                                         |                                                                    |                                                                      |       |       |     |   |       |       |   | 
|-------------------------------------------------------- | ------------------------------------------------------------------ | -------------------------------------------------------------------- | ----- | ----- | --- | - | ----- | ----- | - | 
|                                                         |                                                                    | 2004                                                                 |       | 2003 
|                                                         |                                                                    |                                                                      |       |      
|Operating revenues                                       |                                                                    |                                                                      |       |       |     |   |       |      
|                                                         | Service revenues                                                   |                                                                      | $     | 2,776 |     |   | $     | 2,210 |  
|                                                         | Handset and accessory revenues                                     |                                                                      |       | 327   |     |   |       | 161   |  
|                                                         |                                                                    |                                                                      |       |       |     |   |       |      
|                                                         |                                                                    |                                                                      | 3,103 |       |     |   | 2,371 |      
|                                                         |                                                                    |                                                                      |       |       |     |   |       |      
|Operating expenses                                       |                                                                    |                                                                      |       |       |     |   |       |      
|                                                         | Cost of service (exclusive of depreciation
    included below)     |                                                                      |       | 438   |     |   |       | 369   |  
|                                                         | Cost of handset and accessory revenues                             |                                                                      |       | 489   |     |   |       | 310   |  
|                                                         | Selling, general and administrative                                |                                                                      |       | 971   |     |   |       | 786   |  
|                                                         | Depreciation                                                       |                                                                      |       | 432   |     |   |       | 399   |  
|                                                         | Amortization                                                       |                                                                      |       | 11    |     |   |       | 14    |  
|                                                         |                                                                    |                                                                      |       |       |     |   |       |      
|                                                         |                                                                    |                                                                      | 2,341 |       |     |   | 1,878 |      
|                                                         |                                                                    |                                                                      |       |       |     |   |       |      
|Operating income                                         |                                                                    |                                                                      | 762   |       |     |   | 493   |      
|                                                         |                                                                    |                                                                      |       |       |     |   |       |      
|Other (expense) income                                   |                                                                    |                                                                      |       |       |     |   |       |      
|                                                         | Interest expense                                                   |                                                                      |       | (154  | )   |   |       | (225  | )
|                                                         | Interest income                                                    |                                                                      |       | 8     |     |   |       | 12    |  
|                                                         | Loss on retirement of debt                                         |                                                                      |       | (17   | )   |   |       | (5    | )
|                                                         | Equity in losses of unconsolidated affiliates, net                 |                                                                      |       |      |     |   |       | (13   | )
|                                                         | Realized gain on sale of investments                               |                                                                      |       | 26    |     |   |       |      |  
|                                                         | Other, net                                                         |                                                                      |       | 1     |     |   |       |      |  
|                                                         |                                                                    |                                                                      |       |       |     |   |       |      
|                                                         |                                                                    |                                                                      | (136  | )     |     |   | (231  | )    
|                                                         |                                                                    |                                                                      |       |       |     |   |       |      
|Income before income tax provision                       |                                                                    |                                                                      | 626   |       |     |   | 262   |      
|Income tax provision                                     |                                                                    |                                                                      | (33   | )     |     |   | (22   | )    
|                                                         |                                                                    |                                                                      |       |       |     |   |       |      
|Net income                                               |                                                                    |                                                                      | 593   |       |     |   | 240   |      
|                                                         | Loss on retirement of mandatorily redeemable
    preferred stock   |                                                                      |       |      |     |   |       | (2    | )
|                                                         | Mandatorily redeemable preferred stock dividends
    and accretion |                                                                      |       | (2    | )   |   |       | (30   | )
|                                                         |                                                                    |                                                                      |       |       |     |   |       |      
|Income available to common
    stockholders              |                                                                    | $                                                                    | 591   |       |     | $ | 208   |      
|                                                         |                                                                    |                                                                      |       |       |     |   |       |      
|Earnings per common share                                |                                                                    |                                                                      |       |       |     |   |       |      
|                                                         | Basic                                                              |                                                                      | $     | 0.53  |     |   | $     | 0.21  |  
|                                                         |                                                                    |                                                                      |       |       |     |   |       |      
|                                                         | Diluted                                                            |                                                                      | $     | 0.51  |     |   | $     | 0.20  |  
|                                                         |                                                                    |                                                                      |       |       |     |   |       |      
|Weighted average number of common shares
    outstanding |                                                                    |                                                                      |       |       |     |   |       |      
|                                                         | Basic                                                              |                                                                      |       | 1,106 |     |   |       | 1,010 |  
|                                                         |                                                                    |                                                                      |       |       |     |   |       |      
|                                                         | Diluted                                                            |                                                                      |       | 1,172 |     |   |       | 1,047 |  
|                                                         |                                                                    |                                                                      |       |       |     |   |       |      
|Comprehensive income, net of income
    tax              |                                                                    |                                                                      |       |       |     |   |       |      
|                                                         | Unrealized gain on available-for-sale securities:                  |                                                                      |       |       |     |   |       |       |  
|                                                         |                                                                    | Net unrealized holding gains arising during the
    period           |       | $     | 77  |   |       | $     |  | 
|                                                         |                                                                    | Reclassification adjustment for gain included in
    net income      |       |       | (12 | ) |       |       |  | 
|                                                         | Foreign currency translation adjustment                            |                                                                      |       | 2     |     |   |       | 1     |  
|                                                         | Cash flow hedge:                                                   |                                                                      |       |       |     |   |       |       |  
|                                                         |                                                                    | Reclassification of transition adjustment
    included in net income |       |       |    |   |       |       | 2 | 
|                                                         |                                                                    | Unrealized gain on cash flow hedge                                   |       |       |    |   |       |       | 5 | 
|                                                         |                                                                    |                                                                      |       |       |     |   |       |      
|                                                         | Other comprehensive income                                         |                                                                      |       | 67    |     |   |       | 8     |  
|                                                         | Net income                                                         |                                                                      |       | 593   |     |   |       | 240   |  
|                                                         |                                                                    |                                                                      |       |       |     |   |       |      
|Comprehensive income, net of income
    tax              |                                                                    | $                                                                    | 660   |       |     | $ | 248   |      
|                                                         |                                                                    |                                                                      |       |       |     |   |       |      

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

integral part of these condensed consolidated
financial statements.


4



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

Condensed Consolidated Statement of Changes in
Stockholders Equity

For the Three Months Ended March 31,
2004


(in millions)


Unaudited


|                         |                                                                     |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |            |        |       |   |   |        |     |  |   |     |   |  |   |     |    |  |   |    |   |  |   |       |     |  
|------------------------ | ------------------------------------------------------------------- | ------------ | ----- | ------------ |  | ------- | - | ----------- |  | -------- | -- | -------------------- |  | ------------ | - | ----------------- |  | ---------- | ------ | ----- | - | - | ------ | --- |  | - | --- | - |  | - | --- | -- |  | - | -- | - |  | - | ----- | --- | -
|                         |                                                                     |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |           
|                         |                                                                     |              |       |              |  |         |   |             |  |          |    |                      |  |              |   | Accumulated Other |  |           
|                         |                                                                     |              |       |              |  |         |   |             |  |          |    | Comprehensive Income |  |             
|                         |                                                                     | Class A      |       | Class B      |  |         |   |             |  |          |    |                      |  |             
|                         |                                                                     | Common Stock |       | Common Stock |  |         |   |             |  |          |    | Unrealized           |  | Cumulative   |   |                  
|                         |                                                                     |              |       |              |  | Paid-in |   | Accumulated |  | Deferred |    | Gain on              |  | Translation  |   |                  
|                         |                                                                     | Shares       |       | Amount       |  | Shares  |   | Amount      |  | Capital  |    | Deficit              |  | Compensation |   | Investments       |  | Adjustment |        | Total
|                         |                                                                     |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |            |        |      
|Balance, January 1, 2004 |                                                                     |              | 1,068 |              |  | $       | 1 |             |  |          | 36 |                      |  | $            |  |                   |  | $          | 11,942 |       |   | $ | (6,256 | )   |  | $ | (16 | ) |  | $ | 170 |    |  | $ | (5 | ) |  | $ | 5,836 |    
|                         | Net income                                                          |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |            |        |       |   |   |        | 593 |  |   |     |   |  |   |     |    |  |   |    |   |  |   |       | 593 |  
|                         | Other comprehensive income                                          |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |            |        |       |   |   |        |     |  |   |     |   |  |   |     | 65 |  |   |    | 2 |  |   |       | 67  |  
|                         | Common stock issued under equity plans                              |              |       | 5            |  |         |   |            |  |          |    |                      |  |              |   |                   |  |            |        | 91    |   |   |        |     |  |   |     |   |  |   |     |    |  |   |    |   |  |   |       | 91  |  
|                         | Deferred compensation                                               |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |            |        |       |   |   |        |     |  |   |     | 1 |  |   |     |    |  |   |    |   |  |   |       | 1   |  
|                         | Accretion on zero coupon mandatorily redeemable
    preferred stock |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |            |        | (2    | ) |   |        |     |  |   |     |   |  |   |     |    |  |   |    |   |  |   |       | (2  | )
|                         |                                                                     |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |            |        |       |   |   |        |     |  |   |     |   |  |   |     |    |  |   |    |   |  |   |       |    
|Balance, March 31, 2004  |                                                                     |              | 1,073 |              |  | $       | 1 |             |  |          | 36 |                      |  | $            |  |                   |  | $          | 12,031 |       |   | $ | (5,663 | )   |  | $ | (15 | ) |  | $ | 235 |    |  | $ | (3 | ) |  | $ | 6,586 |    
|                         |                                                                     |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |            |        |       |   |   |        |     |  |   |     |   |  |   |     |    |  |   |    |   |  |   |       |    

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

integral part of these condensed consolidated
financial statements.


5



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

Condensed Consolidated Statements of Cash
Flows

For the Three Months Ended March 31, 2004
and 2003


(in millions)


Unaudited


|                                                         |                                                                                           |                                                                         |                                              |                                                         |     |      |       |      |     |    |      |  
|-------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------------------------- | --- | ---- | ----- | ---- | --- | -- | ---- | -
|                                                         |                                                                                           | 2004                                                                    |                                              | 2003                                                   
|                                                         |                                                                                           |                                                                         |                                              |                                                        
|Cash flows from operating activities                     |                                                                                           |                                                                         |                                              |                                                         |     |      |       |     
|                                                         | Net income                                                                                |                                                                         | $                                            | 593                                                     |     |      | $     | 240  |    
|                                                         | Adjustments to reconcile net income to net cash
    provided by operating activities:     |                                                                         |                                              |                                                         |     |      |       |      |    
|                                                         |                                                                                           | Amortization of debt financing costs and
    accretion of senior notes  |                                              |                                                         | 5   |      |       |      | 23  |   
|                                                         |                                                                                           | Provision for losses on accounts receivable                             |                                              |                                                         | 34  |      |       |      | 56  |   
|                                                         |                                                                                           | Amortization of deferred gain from sale of towers                       |                                              |                                                         | (26 | )    |       |      | (26 | ) 
|                                                         |                                                                                           | Depreciation and amortization                                           |                                              |                                                         | 443 |      |       |      | 413 |   
|                                                         |                                                                                           | Loss on retirement of debt                                              |                                              |                                                         | 17  |      |       |      | 5   |   
|                                                         |                                                                                           | Equity in losses of unconsolidated affiliates, net                      |                                              |                                                         |    |      |       |      | 13  |   
|                                                         |                                                                                           | Realized gain on investments                                            |                                              |                                                         | (26 | )    |       |      |    |   
|                                                         |                                                                                           | Income tax provision                                                    |                                              |                                                         | 16  |      |       |      | 12  |   
|                                                         |                                                                                           | Other, net                                                              |                                              |                                                         | 4   |      |       |      | (2  | ) 
|                                                         |                                                                                           | Change in assets and liabilities, net of effects
    from acquisitions: |                                              |                                                         |     |      |       |      |     |   
|                                                         |                                                                                           |                                                                         | Accounts and notes receivable                |                                                         |     | (5   | )     |      |     | 18 |     
|                                                         |                                                                                           |                                                                         | Handset and accessory inventory              |                                                         |     | (87  | )     |      |     | 51 |     
|                                                         |                                                                                           |                                                                         | Prepaid expenses and other assets            |                                                         |     | (130 | )     |      |     | 16 |     
|                                                         |                                                                                           |                                                                         | Accounts payable, accrued expenses and other |                                                         |     | 406  |       |      |     | (6 | )   
|                                                         |                                                                                           |                                                                         |                                              |                                                         |     |      |       |     
|                                                         |                                                                                           |                                                                         |                                              | Net cash provided by operating activities               |     |      | 1,244 |      |     |    | 813  |  
|                                                         |                                                                                           |                                                                         |                                              |                                                         |     |      |       |     
|Cash flows from investing activities                     |                                                                                           |                                                                         |                                              |                                                         |     |      |       |     
|                                                         | Capital expenditures                                                                      |                                                                         |                                              | (684                                                    | )   |      |       | (386 | )  
|                                                         | Purchases of short-term investments                                                       |                                                                         |                                              | (553                                                    | )   |      |       | (728 | )  
|                                                         | Proceeds from maturities and sales of short-term
    investments                          |                                                                         |                                              | 695                                                     |     |      |       | 650  |    
|                                                         | Payments for purchases of licenses, investments
    and other, net of cash acquired       |                                                                         |                                              | (56                                                     | )   |      |       | (229 | )  
|                                                         | Proceeds from sale of investments and other                                               |                                                                         |                                              | 77                                                      |     |      |       | 15   |    
|                                                         |                                                                                           |                                                                         |                                              |                                                         |     |      |       |     
|                                                         |                                                                                           |                                                                         |                                              | Net cash used in investing activities                   |     |      | (521  | )    |     |    | (678 | )
|                                                         |                                                                                           |                                                                         |                                              |                                                         |     |      |       |     
|Cash flows from financing activities                     |                                                                                           |                                                                         |                                              |                                                         |     |      |       |     
|                                                         | Proceeds from issuance of debt securities                                                 |                                                                         |                                              | 494                                                     |     |      |       |     |    
|                                                         | Purchase and retirement of debt securities and
    mandatorily redeemable preferred stock |                                                                         |                                              | (191                                                    | )   |      |       | (570 | )  
|                                                         | Proceeds from issuance of stock                                                           |                                                                         |                                              | 68                                                      |     |      |       | 10   |    
|                                                         | Repayments under long-term credit facility                                                |                                                                         |                                              | (48                                                     | )   |      |       | (49  | )  
|                                                         | Borrowings under long-term credit facility                                                |                                                                         |                                              |                                                        |     |      |       | 69   |    
|                                                         | Payment for capital lease buy-out                                                         |                                                                         |                                              | (156                                                    | )   |      |       | (54  | )  
|                                                         | Repayments under capital lease and finance
    obligations                                |                                                                         |                                              | (9                                                      | )   |      |       | (16  | )  
|                                                         | Mandatorily redeemable preferred stock dividends
    paid                                 |                                                                         |                                              |                                                        |     |      |       | (15  | )  
|                                                         |                                                                                           |                                                                         |                                              |                                                         |     |      |       |     
|                                                         |                                                                                           |                                                                         |                                              | Net cash provided by (used in) financing
    activities |     |      | 158   |      |     |    | (625 | )
|                                                         |                                                                                           |                                                                         |                                              |                                                         |     |      |       |     
|Net increase (decrease) in cash and cash
    equivalents |                                                                                           |                                                                         | 881                                          |                                                         |     |      | (490  | )   
|Cash and cash equivalents, beginning of
    period       |                                                                                           |                                                                         | 806                                          |                                                         |     |      | 1,846 |     
|                                                         |                                                                                           |                                                                         |                                              |                                                         |     |      |       |     
|Cash and cash equivalents, end of
    period             |                                                                                           | $                                                                       | 1,687                                        |                                                         |     | $    | 1,356 |     
|                                                         |                                                                                           |                                                                         |                                              |                                                         |     |      |       |     

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

integral part of these condensed consolidated
financial statements.


6



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

Notes to Condensed Consolidated Financial
Statements

Unaudited


Note 1.     Basis of
Presentation

Our unaudited condensed consolidated financial
statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission 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, 2003.

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

|                                                                   |                                                                                               |                                                                         |       |      |    |   |       |      |    | 
|------------------------------------------------------------------ | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ----- | ---- | -- | - | ----- | ---- | -- | 
|                                                                   |                                                                                               |                                                                        
|                                                                   |                                                                                               | Three Months Ended                                                     
|                                                                   |                                                                                               | March 31,                                                              
|                                                                   |                                                                                               |                                                                        
|                                                                   |                                                                                               | 2004                                                                    |       | 2003
|                                                                   |                                                                                               |                                                                         |       |     
|                                                                   |                                                                                               |                                                                        
|                                                                   |                                                                                               | (in millions, except                                                   
|                                                                   |                                                                                               | per share amounts)                                                     
|Income available to common
    stockholders  basic                |                                                                                               | $                                                                       | 591   |      |    | $ | 208   |     
|                                                                   | Interest expense and preferred stock accretion
    eliminated upon the assumed conversion of: |                                                                         |       |      |    |   |       |      |   
|                                                                   |                                                                                               | 6% convertible senior notes due 2011.                                   |       |      | 10 |   |       |      |   | 
|                                                                   |                                                                                               | Zero coupon convertible preferred stock
    mandatorily redeemable 2013 |       |      | 2  |   |       |      |   | 
|                                                                   |                                                                                               |                                                                         |       |      |    |   |       |     
|Income available to common
    stockholders  diluted              |                                                                                               | $                                                                       | 603   |      |    | $ | 208   |     
|                                                                   |                                                                                               |                                                                         |       |      |    |   |       |     
|Weighted average number of common shares
    outstanding  basic   |                                                                                               |                                                                         | 1,106 |      |    |   | 1,010 |     
|                                                                   | Effect of dilutive securities:                                                                |                                                                         |       |      |    |   |       |      |   
|                                                                   |                                                                                               | Equity plans                                                            |       |      | 35 |   |       |      | 20 | 
|                                                                   |                                                                                               | 6% convertible senior notes due 2011                                    |       |      | 26 |   |       |      |   | 
|                                                                   |                                                                                               | Zero coupon convertible preferred stock
    mandatorily redeemable 2013 |       |      | 5  |   |       |      |   | 
|                                                                   |                                                                                               | Class A convertible preferred stock                                     |       |      |   |   |       |      | 17 | 
|                                                                   |                                                                                               |                                                                         |       |      |    |   |       |     
|Weighted average number of common shares
    outstanding  diluted |                                                                                               |                                                                         | 1,172 |      |    |   | 1,047 |     
|                                                                   |                                                                                               |                                                                         |       |      |    |   |       |     
|Earnings per common share                                          |                                                                                               |                                                                         |       |      |    |   |       |     
|                                                                   | Basic                                                                                         |                                                                         | $     | 0.53 |    |   | $     | 0.21 |   
|                                                                   |                                                                                               |                                                                         |       |      |    |   |       |     
|                                                                   | Diluted                                                                                       |                                                                         | $     | 0.51 |    |   | $     | 0.20 |   
|                                                                   |                                                                                               |                                                                         |       |      |    |   |       |     

About 8 million shares issuable upon the
assumed conversion of our convertible senior notes could
potentially dilute earnings per share in the future but were
excluded from the calculation of diluted earnings per common
share for the three months ended March 31, 2004 due to
their antidilutive effects. Additionally, about 59 million
shares issuable under our equity plans that could also
potentially dilute earnings per share in the future were
excluded from the calculation of diluted earnings per common
share for the three months ended March 31, 2004 as the
exercise prices exceeded the average market price of our class A
common stock.

7



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

About 50 million shares issuable upon the
assumed conversion of our convertible senior notes and zero
coupon convertible preferred stock could potentially dilute
earnings per share in the future but were excluded from the
calculation of diluted earnings per common share for the three
months ended March 31, 2003 due to their antidilutive
effects. Additionally, about 77 million shares issuable under
our equity plans that could also potentially dilute earnings per
share in the future were excluded from the calculation of
diluted earnings per common share for the three months ended
March 31, 2003 as the exercise prices exceeded the average
market price of our class A common stock.

Stock-Based Compensation.We account for stock-based
compensation for employees and non-employee members of our board
of directors in accordance with Accounting Principles Board, or
APB, Opinion No. 25, Accounting for Stock Issued to
Employees. Under APB Opinion No. 25, compensation
expense is based on the intrinsic value on the measurement date,
calculated as the difference between the fair value of the class
A common stock and the relevant exercise price. We account for
stock-based compensation for non-employees, who are not members
of our board of directors, at fair value using a Black-Scholes
option-pricing model in accordance with the provisions of
Statement of Financial Accounting Standards, or SFAS,
No. 123, Accounting for Stock-Based
Compensation and other applicable accounting principles.
We recorded stock-based compensation expense of $1 million
for the three months ended March 31, 2004 and
$2 million for the three months ended March 31, 2003.

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

|                                                         |                                                                               |                      |     |      |      |   |     |     |      | 
|-------------------------------------------------------- | ----------------------------------------------------------------------------- | -------------------- | --- | ---- | ---- | - | --- | --- | ---- | 
|                                                         |                                                                               |                     
|                                                         |                                                                               | Three Months Ended  
|                                                         |                                                                               | March 31,           
|                                                         |                                                                               |                     
|                                                         |                                                                               | 2004                 |     | 2003
|                                                         |                                                                               |                      |     |     
|                                                         |                                                                               |                     
|                                                         |                                                                               | (in millions, except
|                                                         |                                                                               | per share amounts)  
|Income available to common stockholders, as
    reported |                                                                               | $                    | 591 |      |      | $ | 208 |    
|                                                         | Stock-based compensation expense included in
    reported net income          |                      |     | 1    |      |   |     | 2   |     
|                                                         | Stock-based compensation expense determined under
    fair value based method |                      |     | (55  | )    |   |     | (82 | )   
|                                                         |                                                                               |                      |     |      |      |   |     |    
|Income available to common stockholders, pro
    forma   |                                                                               | $                    | 537 |      |      | $ | 128 |    
|                                                         |                                                                               |                      |     |      |      |   |     |    
|Earnings per common share                                |                                                                               |                      |     |      |      |   |     |    
|                                                         | As reported                                                                   |                      |     |      |      |   |     |     |     
|                                                         |                                                                               | Basic                |     | $    | 0.53 |   |     | $   | 0.21 | 
|                                                         |                                                                               |                      |     |      |      |   |     |    
|                                                         |                                                                               | Diluted              |     | $    | 0.51 |   |     | $   | 0.20 | 
|                                                         |                                                                               |                      |     |      |      |   |     |    
|                                                         | Pro forma                                                                     |                      |     |      |      |   |     |     |     
|                                                         |                                                                               | Basic                |     | $    | 0.49 |   |     | $   | 0.13 | 
|                                                         |                                                                               |                      |     |      |      |   |     |    
|                                                         |                                                                               | Diluted              |     | $    | 0.47 |   |     | $   | 0.12 | 
|                                                         |                                                                               |                      |     |      |      |   |     |    

8



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

Supplemental
Cash Flow Information.

|                                                         |                                                                 |                    |     |      |   |   |     |     |  
|-------------------------------------------------------- | --------------------------------------------------------------- | ------------------ | --- | ---- | - | - | --- | --- | -
|                                                         |                                                                 |                   
|                                                         |                                                                 | Three Months Ended
|                                                         |                                                                 | March 31,         
|                                                         |                                                                 |                   
|                                                         |                                                                 | 2004               |     | 2003
|                                                         |                                                                 |                    |     |     
|                                                         |                                                                 |                   
|                                                         |                                                                 | (in millions)     
|Capital expenditures, including capitalized
    interest |                                                                 |                    |     |      |   |   |     |    
|                                                         | Cash paid for capital expenditures                              |                    | $   | 684  |   |   | $   | 386 |  
|                                                         | Changes in capital expenditures accrued, unpaid
    or financed |                    |     | (144 | ) |   |     | (70 | )
|                                                         |                                                                 |                    |     |      |   |   |     |    
|                                                         |                                                                 | $                  | 540 |      |   | $ | 316 |    
|                                                         |                                                                 |                    |     |      |   |   |     |    
|Interest costs                                           |                                                                 |                    |     |      |   |   |     |    
|                                                         | Interest expense                                                |                    | $   | 154  |   |   | $   | 225 |  
|                                                         | Interest capitalized                                            |                    |     | 3    |   |   |     | 11  |  
|                                                         |                                                                 |                    |     |      |   |   |     |    
|                                                         |                                                                 | $                  | 157 |      |   | $ | 236 |    
|                                                         |                                                                 |                    |     |      |   |   |     |    
|Cash paid for interest, net of amounts
    capitalized   |                                                                 | $                  | 169 |      |   | $ | 154 |    
|                                                         |                                                                 |                    |     |      |   |   |     |    
|Cash received for interest                               |                                                                 | $                  | 6   |      |   | $ | 9   |    
|                                                         |                                                                 |                    |     |      |   |   |     |    
|Cash paid for income taxes                               |                                                                 | $                  | 7   |      |   | $ | 7   |    
|                                                         |                                                                 |                    |     |      |   |   |     |    

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

We were required to apply the provisions of
Interpretation No. 46R in the first quarter 2004. As we did
not have any VIEs as of March 31, 2004, the adoption of
this new method of accounting for VIEs did not affect our
financial condition or results of operations.

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

9



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

Note
2.     Intangible Assets

|                              |                                                          |              |  |                 |  |                   |       |          |  |          |     |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |       | 
|----------------------------- | -------------------------------------------------------- | ------------ |  | --------------- |  | ----------------- | ----- | -------- |  | -------- | --- | ------------ |  | -------- | ----- | ----- |  | - | ----- | ----- |  | - | -- | -- |  | - | ----- | ----- | 
|                              |                                                          |              |  |                 |  |                  
|                              |                                                          |              |  | March 31, 2004  |  | December 31, 2003
|                              |                                                          |              |  |                 |  |                  
|                              |                                                          |              |  | Gross           |  |                   |       | Net      |  | Gross    |     |              |  | Net     
|                              |                                                          |              |  | Carrying        |  | Accumulated       |       | Carrying |  | Carrying |     | Accumulated  |  | Carrying
|                              |                                                          | Useful Lives |  | Value           |  | Amortization      |       | Value    |  | Value    |     | Amortization |  | Value   
|                              |                                                          |              |  |                 |  |                   |       |          |  |          |     |              |  |         
|                              |                                                          |              |  |                
|                              |                                                          |              |  | (in millions)  
|Amortized intangible assets   |                                                          |              |  |                 |  |                   |       |          |  |          |     |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              | Customer lists                                           |              |  | 3 years         |  |                   | $     | 98       |  |          | $   | 83           |  |          | $     | 15    |  |   | $     | 98    |  |   | $  | 75 |  |   | $     | 23    | 
|                              | Spectrum sharing and noncompete agreements
    and other |              |  | Up to 20  years |  |                   |       | 82       |  |          |     | 20           |  |          |       | 62    |  |   |       | 82    |  |   |    | 17 |  |   |       | 65    | 
|                              |                                                          |              |  |                 |  |                   |       |          |  |          |     |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              |                                                          |              |  |                 |  |                   | 180   |          |  |          | 103 |              |  |          | 77    |       |  |   | 180   |       |  |   | 92 |    |  |   | 88    |      
|                              |                                                          |              |  |                 |  |                   |       |          |  |          |     |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|Unamortized intangible assets |                                                          |              |  |                 |  |                   |       |          |  |          |     |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              | FCC licenses                                             |              |  | Indefinite      |  |                   |       | 6,939    |  |          |     |              |  |          |       | 6,939 |  |   |       | 6,922 |  |   |    |    |  |   |       | 6,922 | 
|                              | Goodwill                                                 |              |  | Indefinite      |  |                   |       | 28       |  |          |     |              |  |          |       | 28    |  |   |       | 28    |  |   |    |    |  |   |       | 28    | 
|                              |                                                          |              |  |                 |  |                   |       |          |  |          |     |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              |                                                          |              |  |                 |  |                   | 6,967 |          |  |          |     |              |  |          | 6,967 |       |  |   | 6,950 |       |  |   |    |    |  |   | 6,950 |      
|                              |                                                          |              |  |                 |  |                   |       |          |  |          |     |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|Total intangible assets       |                                                          |              |  |                 |  | $                 | 7,147 |          |  | $        | 103 |              |  | $        | 7,044 |       |  | $ | 7,130 |       |  | $ | 92 |    |  | $ | 7,038 |      
|                              |                                                          |              |  |                 |  |                   |       |          |  |          |     |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      

During the three months ended March 31,
2004, we acquired Federal Communications Commission, or FCC,
licenses for an aggregate purchase price of $25 million,
which included deposits for licenses paid prior to 2004 that
were recorded in other assets until we acquired the relevant
licenses.

For intangible assets with finite lives, we
recorded aggregate amortization expense of $11 million for
the three months ended March 31, 2004 and $13 million
for the three months ended March 31, 2003. Based only on
the amortized intangible assets existing at March 31, 2004,
we estimate the amortization expense to be $23 million for
the remainder of 2004, $9 million during 2005,
$5 million during 2006, $4 million during 2007 and
$3 million during 2008. Actual amortization expense to be
reported in future periods could differ from these estimates as
a result of new intangible asset acquisitions, changes in useful
lives and other relevant factors.

In connection with the adoption of SFAS
No. 142, Goodwill and Other Intangible Assets,
we ceased amortizing FCC license costs, as we believe that our
portfolio of FCC licenses represents an intangible asset with an
indefinite useful life. As these FCC licenses are no longer
amortized for book purposes but are amortized for tax purposes,
we record additional deferred tax liabilities only as such
licenses are amortized for tax purposes. We have recorded an
incremental non-cash charge of $16 million and
$12 million for the three months ended March 31, 2004
and 2003, respectively, to the income tax provision related to
FCC licenses for which we have a tax basis.

We have about $350 million in 700 Megahertz,
or MHz, FCC licenses that we have agreed to exchange, along with
other licenses, in our proposal regarding the realignment of the
spectrum in the 800 MHz band filed with the FCC. These 700 MHz
licenses are not currently used in our network.

10



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)



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

Long-Term
Debt and Mandatorily Redeemable Preferred Stock.

|                                                                                                                                                                            |                      |                       |       |             |      |           |     |           |  |   |     |     |  |   |       |        |      |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | --------------------- | ----- | ----------- | ---- | --------- | --- | --------- |  | - | --- | --- |  | - | ----- | ------ | ---- | -
|                                                                                                                                                                            |                      |                       |       | Book and    |      | New       |     |          
|                                                                                                                                                                            |                      | December 31,          |       | Principal   |      | Debt      |     | March 31,
|                                                                                                                                                                            |                      | 2003                  |       | Value of    |      | Issuance  |     | 2004     
|                                                                                                                                                                            |                      | Balance               |       | Retirements |      | and Other |     | Balance  
|                                                                                                                                                                            |                      |                       |       |             |      |           |     |          
|                                                                                                                                                                            |                      |                      
|                                                                                                                                                                            |                      | (dollars in millions)
|9.375% senior serial redeemable notes due
    2009                                                                                                                          |                      | $                     | 1,599 |             |      | $         |    |           |  | $ |    |     |  | $ | 1,599 |       
|5.25% convertible senior notes due
    2010                                                                                                                                 |                      |                       | 607   |             |      |           |    |           |  |   |    |     |  |   | 607   |       
|9.5% senior serial redeemable notes due
    2011, including a deferred premium of
    $36 and $28                                                                           |                      |                       | 895   |             |      |           | 167 |           |  |   | (8  | )   |  |   | 720   |       
|6% convertible senior notes due 2011                                                                                                                                        |                      |                       | 608   |             |      |           |    |           |  |   |    |     |  |   | 608   |       
|6.875% senior serial redeemable notes due
    2013                                                                                                                          |                      |                       | 500   |             |      |           |    |           |  |   |    |     |  |   | 500   |       
|5.95% senior serial redeemable notes due
    2014, net of unamortized discount of
    $0 and $6                                                                             |                      |                       |      |             |      |           |    |           |  |   | 494 |     |  |   | 494   |       
|7.375% senior serial redeemable notes due
    2015, including unamortized premium of
    $8 and $8                                                                          |                      |                       | 2,008 |             |      |           |    |           |  |   |    |     |  |   | 2,008 |       
|Bank credit facility                                                                                                                                                        |                      |                       | 3,804 |             |      |           |    |           |  |   | (48 | )   |  |   | 3,756 |       
|Other                                                                                                                                                                       |                      |                       | 25    |             |      |           |    |           |  |   |    |     |  |   | 25    |       
|                                                                                                                                                                            |                      |                       |       |             |      |           |     |           |  |   |     |     |  |   |       |       
|                                                                                                                                                                            | Total long-term debt |                       |       | 10,046      |      |           | $   | 167       |  |   | $   | 438 |  |   |       | 10,317 |     
|                                                                                                                                                                            |                      |                       |       |             |      |           |     |           |  |   |     |     |  |   |       |       
|                                                                                                                                                                            |                      | Less current portion  |       |             | (321 | )         |     |           |  |   |     |     |  |   |       |        | (364 | )
|                                                                                                                                                                            |                      |                       |       |             |      |           |     |           |  |   |     |     |  |   |       |       
|                                                                                                                                                                            |                      | $                     | 9,725 |             |      |           |     |           |  |   |     |     |  | $ | 9,953 |       
|                                                                                                                                                                            |                      |                       |       |             |      |           |     |           |  |   |     |     |  |   |       |       
|Zero coupon convertible preferred stock
    mandatorily redeemable 2013, no
    dividend; stated at accreted liquidation preference value at
    9.25% compounded quarterly |                      | $                     | 99    |             |      | $         |    |           |  | $ | 2   |     |  | $ | 101   |       

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

Debt and Preferred Stock Retirements.During March 2004, we made a
cash tender offer for the outstanding principal amount of our
9.5% senior notes. As a result, we purchased and retired a total
of $167 million in aggregate principal amount at maturity
of our outstanding 9.5% senior notes in exchange for
$191 million in cash. As part of this transaction, we
recognized a $17 million loss in other (expense) income in
the accompanying condensed consolidated statements of
operations, representing the excess of the purchase price over
the carrying value of the purchased and retired notes and the
write-off of unamortized debt financing costs, net of the
recognition of a portion of the deferred premium associated with
the termination of some of our interest rate swaps. Additional
information regarding our interest rate swaps and the deferred
premium can be found in note 6.

11



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

During the three months ended March 31,
2003, we purchased and retired a total of $491 million in
aggregate principal amount at maturity of our outstanding senior
notes in exchange for $491 million in cash. As a result, we
recognized a $5 million loss in other (expense) income in
the accompanying condensed consolidated statements of
operations, representing the excess of the purchase price over
the carrying value of the purchased and retired notes and the
write-off of unamortized debt financing costs. We also purchased
and retired a total of $77 million in aggregate face amount
of our outstanding mandatorily redeemable preferred stock in
exchange for about $79 million in cash. As a result, we
recognized a $2 million loss in the accompanying condensed
consolidated statements of operations, representing the excess
of the purchase price over the carrying value of the purchased
and retired preferred stock and the write-off of unamortized
financing costs.

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

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

Note 4.     2004
Developments

In April 2004, the FCC approved both our
$144 million bid to purchase certain multichannel
multipoint distribution service, or MMDS, FCC licenses,
interests in certain other MMDS FCC licenses and other
immaterial network assets of WorldCom, Inc. and our
$51 million bid to purchase certain MMDS FCC licenses and
other immaterial network assets of Nucentrix Broadband Networks,
Inc. These transactions are expected to close by mid-2004 and
will be accounted for as asset purchases. These licenses relate
to spectrum that we may use in connection with the deployment of
certain broadband or other wireless services.

Note 5.     Related
Party Transactions

We have a number of strategic and commercial
relationships with third parties that have had a significant
impact on our business, operations and financial results and
have the potential to have such an impact in the future. Of
these, we believe that our operating and other arrangements with
Motorola, Inc., Nextel Partners, Inc., and NII Holdings, Inc.,
all of which are related parties of ours for purposes of
financial reporting, are the most significant. We and Motorola
have extended through 2004 the terms of our handset and
infrastructure supply agreements and are in the process of
negotiating a long-term master supply agreement. We paid a total
of $708 million during the three months ended
March 31, 2004 and $394 million during the three
months ended March 31, 2003 to these related parties, net
of discounts and rebates, for infrastructure, handsets and
related costs, net roaming charges and other costs. We received
a total of $16 million during the three months ended
March 31, 2004 and $15 million during the three months
ended March 31, 2003 from these related parties for
providing telecommunication switch, engineering and technology,
marketing and administrative services, and also in 2003 from the
sale of FCC licenses and some network assets. As of
March 31, 2004, we had $83 million due from these
related parties and $564 million due to these related parties.
We also had a $104 million prepayment recorded in prepaid
expenses on our condensed consolidated balance sheet related to
handset and network infrastructure to be provided by Motorola in
the future. As of December 31, 2003, we had
$70 million due from these related parties and
$284 million due to these related parties.

12



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

As of March 31, 2004, we owned about 18% of
the outstanding common stock of NII Holdings. In
March 2004, we completed the sale of our NII Holdings 13%
senior notes to NII Holdings in exchange for $77 million in
cash resulting in a $28 million realized gain in other
(expense) income in the accompanying condensed consolidated
statements of operations.

As of March 31, 2004, we owned about 30% of
the outstanding common stock of Nextel Partners.

Note
6.     Derivative Instruments and
Hedging Activities

From time to time, we hedge the cash flows and
fair values of some of our long-term debt using interest rate
swaps. We enter into these derivative contracts to manage our
exposure to interest rate changes by achieving a desired
proportion of fixed rate versus variable rate debt. In an
interest rate swap, we agree to exchange the difference between
a variable interest rate and either a fixed or another variable
interest rate, multiplied by a notional principal amount. As of
March 31, 2004 we did not have any material derivative
instruments.

In July 2001, we entered into three interest rate
swap agreements to hedge the risk of changes in fair value of a
portion of our long-term fixed rate debt, which were
attributable to changes in the London Interbank Offered Rate, or
LIBOR, as the benchmark interest rate. These fair value hedges
qualified for hedge accounting using the short-cut method since
the swap terms matched the critical terms of the hedged debt.
Accordingly, there was no net effect on our results of
operations for the three months ended March 31, 2003
relating to the ineffectiveness of these fair value hedges.
During the third quarter 2003, we terminated all three swap
agreements. As a result of the terminations, we recorded a
premium, which we recognize as an adjustment to interest expense
over the remaining life of the hedged debt. As described in note
3, a portion of this premium associated with our purchase and
retirement of a portion of the hedged debt was written off.

We have used interest rate swaps to hedge the
variability of future cash flows, which are caused by changes in
LIBOR, as the benchmark interest rate, associated with some of
our long-term variable rate debt. In February 2003, we
terminated a variable-to-variable interest rate swap in the
notional amount of $400 million in accordance with its
original terms. There was no realized gain or loss associated
with this termination. Since this swap did not qualify for cash
flow hedge accounting, we recognized changes in its fair value
up to the termination date in our statement of operations in the
period of the change. Interest expense includes a gain of
$2 million for the three months ended March 31, 2003,
representing changes in the fair value of this swap. As of
March 31, 2003, we had one cash flow hedge remaining. Since
this interest rate swap qualified for cash flow hedge
accounting, an unrealized loss of $20 million, representing
the effective portion of the change in its fair value as of
March 31, 2003, was reported in accumulated other
comprehensive loss. The ineffective portion of the change in
fair value of this swap was recognized in our statement of
operations in the period of the change. Interest expense
includes a loss of $2 million for the three months ended
March 31, 2003 relating to the ineffective portion of the change
in fair value of this swap.

Interest expense related to the periodic net cash
settlements on all swaps was $6 million for the three
months ended March 31, 2003.

Note
7.     Commitments and
Contingencies

In April 2001, a purported class action lawsuit
was filed in the Circuit Court in Baltimore, Maryland by the Law
Offices of Peter Angelos, and subsequently in other state courts
in Pennsylvania, New York and Georgia by Mr. Angelos and other
firms, alleging that wireless telephones pose a health risk to
users of those telephones and that the defendants failed to
disclose these risks. We, along with numerous other companies,
were named as defendants in these cases. The cases, together
with a similar case filed earlier in Louisiana state

13



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

court, were ultimately transferred to federal
court in Baltimore, Maryland. On March 5, 2003, the court
granted the defendants motions to dismiss. The plaintiffs
have appealed this decision.

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

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

Note
8.     Subsequent Event

During the second quarter 2004, we announced that
we will redeem for cash the entire $608 million in
outstanding principal amount at March 31, 2004 of our 6%
convertible senior notes due 2011 at a redemption price of 104%.
The holders of these notes have the right to convert the
principal amount of their notes into shares of our class A
common stock at a conversion price of $23.8375.

14



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##### 



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 March 31,
2004, and the related condensed consolidated statements of
operations and comprehensive income and cash flows for the
three-month periods ended March 31, 2004 and 2003, and the
condensed consolidated statement of changes in
stockholders equity for the three-month period ended
March 31, 2004. These interim 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 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 interim financial statements for them to be in
conformity with accounting principles generally accepted in the
United States of America.

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

DELOITTE & TOUCHE LLP

McLean, Virginia 
 May 6, 2004

15



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##### 





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

A. Overview

Company Overview.

The following is a discussion and analysis of our
consolidated financial condition and results of operations for
the three-month periods ended March 31, 2004 and 2003, and
significant factors that could affect our prospective financial
condition and results of operations. Historical results may not
be indicative of future performance. See 
Forward-Looking Statements.

We are a leading provider of wireless
communications services in the United States. We provide a
comprehensive suite of advanced wireless services, including
digital wireless mobile telephone service, walkie-talkie
services including our Nextel Nationwide Direct
ConnectSM walkie-talkie service, and wireless data
transmission services. As of March 31, 2004, we provided
service to about 13.4 million subscribers, other than about
537,000 subscribers who purchase pre-paid services under our
Boost Mobile brand. For the first quarter 2004, we had
$3,103 million in operating revenues and income available
to common stockholders of $591 million. We ended the first
quarter 2004 with over 17,000 employees.

Our all-digital packet data network is based on
integrated Digital Enhanced Network, or iDEN®, wireless
technology provided by Motorola, Inc. We, together with Nextel
Partners, Inc., currently utilize the iDEN technology to serve
294 of the top 300 U.S. markets where about 251 million
people live or work. Nextel Partners provides digital wireless
communications services under the Nextel brand name in mid-sized
and tertiary U.S. markets, and has the right to operate in 97 of
the top 300 metropolitan statistical areas in the United
States ranked by population. As of March 31, 2004, we owned
about 30% of the outstanding common stock of Nextel Partners. In
addition, as of March 31, 2004, we also owned about 18% of
the outstanding common stock of NII Holdings, Inc., which
provides wireless communications services primarily in selected
Latin American markets.

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

Managements Summary.

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



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

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

We believe that the wireless communications
industry has been and will continue to be highly competitive on
the basis of price, the types of services offered and quality of
service. Past and expected

16



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##### 



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




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

We continually seek the appropriate balance
between our cost to acquire a new customer and the lifetime
value for that customer. We focus our marketing efforts
principally on identifying and targeting high-value customers
that recognize the value of our unique service offerings, and
focus our advertising efforts on communicating the benefits of
our services to those targeted groups. We are the title sponsor
of the NASCAR NEXTEL Cup Series, the premier racing series
of the National Association of Stock Car Auto Racing, or
NASCAR®, and one of the most popular sports in the United
States. Our marketing and advertising initiatives associated
with this 10-year sponsorship provide unique exposure for our
products and services to an estimated 75 million loyal
NASCAR racing fans throughout the United States, many of whom
fall within our targeted customer groups. We continue to build
upon our Nextel. Done. branding and related
advertising initiatives launched in 2003, which focus attention
on productivity, speed, and getting things done. We are also
exploring other markets and customers that have the potential to
support future profitable growth. Our 2004 initiatives include
the expansion of markets where we will offer pre-paid services
under our Boost Mobile brand, which targets the youth and
pre-paid calling wireless markets, beyond the initial test
markets in California and Nevada.

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

17



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Because the wireless communications industry
continues to be highly competitive, particularly with regard to
customer pricing plans, we are continually seeking new ways to
create or improve capital and operating efficiencies in our
business in order to maintain our operating margins. In 2004, we
also have continued to expand our customer convenient, and
cost-efficient, distribution channels by opening additional
retail stores. We had nearly 650 Nextel stores as of
March 31, 2004.

We continually seek to cost-efficiently optimize
the performance of our nationwide network. As described in more
detail in our 2003 annual report on Form 10-K, we have
installed a software upgrade in our network infrastructure that
supports deployment of the 6:1 voice coder that is designed to
more efficiently utilize radio spectrum and, thereby,
significantly increase the capacity of our network. We will
realize the benefits of this upgrade as handsets that operate
using the 6:1 voice coder for wireless interconnection are
introduced into our customer base. We have not yet sold handsets
that operate in both the 6:1 and current 3:1 modes pending our
implementation and evaluation of modifications to the 6:1 voice
coder that are designed to meet our customers expectations
for voice quality. Based on the results of these efforts, we
plan to begin to roll out our first handset model that operates
in both 6:1 and 3:1 modes, and activate the 6:1 voice coder
software in our network infrastructure in selected markets, in
mid 2004. As we complete further modifications and testing, we
expect to roll out additional handset models that operate in
both modes and activate the network software in other markets.
We also plan to implement modifications to the network that will
allow handsets to shift between 3:1 and 6:1 modes, which are
designed to improve the overall audio experience while realizing
significant expected gains in network capacity. If there are
substantial delays in the deployment of these modifications or
handsets, or if we are unable to deploy them, the related
capacity benefits would be delayed or reduced, and over time we
could be required to invest additional capital in our
infrastructure to satisfy our network capacity needs. We rely on
Motorola to provide us with handsets and the infrastructure and
software enhancements discussed above and others that are
designed to improve the quality of our network. Motorola is and
is expected to continue to be our sole source supplier of iDEN
infrastructure and all of our handsets except the BlackBerry
7510, which is manufactured by Research In Motion.

We also continue to focus on reducing our
financing expenses by taking steps to reduce both the amount of
our overall debt and our interest costs. The first quarter 2004
was the first full quarter in which we realized the benefit of
our 2003 debt and preferred stock retirement and financing
activities, which consisted of retirements of an aggregate of
$7,755 million in principal amount of long-term debt and
preferred stock and issuances of $4,700 million in lower
cost debt. In the first quarter 2004, we also retired
$167 million in principal amount of our 9.5% senior notes
due 2011 and issued $500 million in principal amount of
5.95% senior notes due 2014. During the second quarter 2004, we
announced that we will redeem for cash the entire principal
amount of our 6% convertible senior notes due 2011 that
noteholders have not elected to convert into shares of our
class A common stock prior to the redemption date, at a
redemption price of 104%. We may, from time to time, as we deem
appropriate, enter into additional refinancing and similar
transactions, including exchanges of our common stock or other
securities for our debt obligations, and redemption, repurchase
or retirement transactions that in the aggregate may be material.

We have agreed to contribute up to
$850 million over several years towards the cost of
spectrum relocation of public safety and private wireless users
as part of a proposed realignment of the spectrum in which we
principally operate to resolve interference experienced by
public safety communications systems. This plan, which we refer
to as the Consensus Plan, remains subject to FCC approval, but
we have notified the FCC that, if the plan is approved, we will
deposit $100 million in cash in an escrow account to be
available to pay these relocation costs, and will secure the
remaining $750 million commitment through one or more
irrevocable stand-by letters of credit, which would provide
payments for relocation cost should we fail to meet our funding
obligations under the Consensus Plan. We also have agreed to
fund the cost of relocating broadcast auxiliary service
operations, which broadcast officials estimate could be as much
as $512 million. We cannot predict whether, or under what
terms, the FCC would approve the proposed realignment plan, and
there is no assurance that the FCC will adopt any realignment
plan. In addition, if the FCC approves a realignment plan, we
will incur our own spectrum relocation costs over time, the
amount of which is dependent on the terms of such plan, but
could be significant in certain circumstances. Additional
information regarding the proposed realignment of the spectrum
and the Consensus Plan can be found in Part II
Item 5.

18



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##### 



Other Information  Proposed Public
Safety Spectrum Realignment of this report and our 2003
annual report on Form 10-K.


Critical Accounting Policies and
Estimates.

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

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

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

Allowance for Doubtful Accounts.We establish an allowance for
doubtful accounts receivable sufficient to cover probable and
reasonably estimable losses. Because we have well over one
million accounts, it is not practical to review the
collectibility of each account individually when we determine
the amount of our allowance for doubtful accounts receivable
each period. Therefore, we consider a number of factors in
establishing the allowance for our portfolio of customers,
including historical collection experience, current economic
trends, estimates of forecasted write-offs, agings of the
accounts receivable portfolio and other factors. When collection
efforts on individual accounts have been exhausted, the account
is written off by reducing the allowance for doubtful accounts.
Our allowance for doubtful accounts was $78 million as of
March 31, 2004. Since the first quarter 2003, we
experienced increased collections, an improvement in our
accounts receivable agings, and a reduction in write-offs. As a
result, our allowance for doubtful accounts as of March 31,
2004 was lower than it was at March 31, 2003. Write-offs in
the future could be impacted by general economic and business
conditions that are difficult to predict. In addition, it is
difficult to predict with certainty the impact that recent
events, such as number portability, could have on our account
write-offs because we have limited experience with actual
results from these events.

Valuation and Recoverability of Long-Lived
Assets.Long-lived assets such as
property, plant, and equipment represented about
$9,191 million of our $21,621 million in total assets
as of March 31, 2004. We calculate depreciation on these
assets using the straight-line method based on estimated
economic useful lives as follows:

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

19



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##### 



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

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

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

Valuation and Recoverability of Intangible
Assets.Intangible assets with
indefinite useful lives represented about $6,967 million of
our $21,621 million in total assets as of March 31,
2004. Intangible assets with indefinite useful lives primarily
consist of our FCC licenses. We performed our annual impairment
tests of FCC licenses as of October 1, 2003 and concluded
that there was no impairment as the fair values of these
intangible assets were greater than their carrying values. Using
a residual value approach, we measured the fair value of our 800
and 900 Megahertz, or MHz, licenses in our national footprint by
deducting the fair values of our net assets as well as the fair
values of certain unrecorded identified intangible assets, other
than these FCC licenses, from our reporting units, that is
our companys, fair value, which was determined using a
discounted cash flow analysis. The analysis was based on our
long-term cash flow projections, discounted at our corporate
weighted average cost of capital. The residual value approach
yielded a value substantially in excess of the recorded balance
of our 800 and 900 MHz licenses in the first quarter 2004.

We have invested about $350 million in 700
MHz FCC licenses that are currently not used in our network.
Under the terms of the proposed Consensus Plan filed with the
FCC, we would exchange these licenses along with other licenses
in connection with the proposed realignment of spectrum licenses
to resolve certain interference problems with a number of public
safety communications systems. If we do not exchange these
licenses as part of this proposal or otherwise, we have an
alternative business plan for use of these licenses. If the
alternative business plan is not realized, some portion of or
the entire recorded asset could become impaired.

Recoverability of Capitalized Software.As of March 31, 2004, we have
about $88 million in net unamortized costs for software
that will be sold, leased, or otherwise marketed and/or used in
our network. Our current plans indicate that we will recover the
value of the assets; however, to the extent there are changes in
economic conditions, technology or the regulatory environment,
or demand for the software, our plans could change and some or
all of these assets could become impaired.

20



---



##### 



Net Operating Loss Valuation Allowance.As of December 31, 2003, we had a
valuation allowance of $2,341 million. This valuation allowance
includes a reserve for net operating loss carryforwards, as well
as for capital loss carryforwards and separate return net
operating loss carryforwards. Because we do not have a
sufficient history of taxable income at this time to conclude
that it is more likely than not that the tax benefit of the net
operating loss carryforwards will be realized, the valuation
allowance includes a full reserve against the benefit of these
carryforwards. We reached this conclusion after reviewing our
complete history of financial statement and tax net operating
losses and our recent generation of earnings and taxable income.

We believe that our cumulative losses, when
evaluated in connection with other qualitative factors and
uncertainties concerning our business and industry, provide
substantial negative evidence regarding the eventual
realizability of the tax benefit of our net operating loss
carryforwards as of March 31, 2004, which outweighs the
positive evidence available. However, under certain conditions,
we believe that it is possible that our results will yield
sufficient positive evidence to support the conclusion that it
is more likely than not that we will realize the tax benefit of
our net operating losses and that such a conclusion may be
reached as early as mid-2004. If that is the case, subject to
review of other qualitative factors and uncertainties, we would
expect to start reversing some or all of the remaining net
operating loss valuation allowance into income as a credit to
tax expense except for a portion of the net operating loss
valuation allowance associated with stock option transactions
that will be reversed with a credit to stockholders equity.

B. Results of Operations

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

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

Cost of providing wireless service consists
primarily of:



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

21



---



##### 





| |   |                                                                 
| | - | ----------------------------------------------------------------
| |  | costs to operate our handset service and repair
    program; and
|
| |  | the costs to activate service for new subscribers.              

Cost of handset and accessory revenues consists
primarily of the cost of the handsets and accessories sold,
order fulfillment related expenses and write-downs of handset
and related accessory inventory for shrinkage. We recognize cost
of accessory revenues when title to the accessory passes to the
customer. Consistent with the related handset revenue
recognition policy described above, effective July 1, 2003,
we began to recognize the cost of handset revenues, including
the handset costs in excess of the revenues generated from
handset sales, when title to the handset passes to the customer,
pursuant to EITF Issue No. 00-21. Prior to July 1,
2003, in accordance with SAB No. 101, we recognized cost of
handset revenues in amounts equivalent to revenues recognized
from handset sales on a straight-line basis over the expected
customer relationship period of 3.5 years and handset costs
in excess of the revenues generated from handset sales, or
subsidies, were expensed at the time of sale.

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

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

Selected Financial and Operating
Data.

|                                                             |  |                    |        |      |  |  |        | 
|------------------------------------------------------------ |  | ------------------ | ------ | ---- |  |  | ------ | 
|                                                             |  |                   
|                                                             |  | Three Months Ended
|                                                             |  | March 31,         
|                                                             |  |                   
|                                                             |  | 2004               |        | 2003
|                                                             |  |                    |        |     
|Handsets in service, end of period (in
    thousands)(1)     |  |                    | 13,356 |      |  |  | 11,092 | 
|Net handset additions (in thousands)(1)                      |  |                    | 474    |      |  |  | 480    | 
|Average monthly minutes of use per handset(1)                |  |                    | 750    |      |  |  | 650    | 
|System minutes of use (in billions)(1)                       |  |                    | 29.6   |      |  |  | 21.2   | 
|Net transmitter and receiver sites placed in
    service     |  |                    | 400    |      |  |  | 100    | 
|Transmitter and receiver sites in service, end of
    period |  |                    | 17,900 |      |  |  | 16,400 | 
|Switches in service, end of period                           |  |                    | 82     |      |  |  | 84     | 
|Nextel stores in service, end of period                      |  |                    | 649    |      |  |  | 470    | 



---



|    |                                                                     
|--- | --------------------------------------------------------------------
|(1) | Excludes amounts attributable to Boost Mobile
    pre-paid services.

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

Our average monthly customer churn rate during
the first quarter 2004 was about 1.7% as compared to about 1.9%
during the first quarter 2003. We believe that this decline in
the churn rate is attributable to our ongoing focus on customer
retention through our Touch Point strategy, acquiring high
quality subscribers,

22



---



##### 



including add-on subscribers from existing
customer accounts, and the attractiveness of our differentiated
products and services. These customer retention initiatives
include such programs as strategic care provided to customers
with certain attributes and efforts to migrate customers to more
optimal service pricing plans, as well as targeted handset
upgrade programs. The improvement in churn also reflects the
strengthening of our credit policies and procedures and the
ongoing optimization of our integrated billing, customer care
and collections system, which allow us to better manage our
customer relationships.


If general economic conditions worsen, if our
products or services are not well received by prospective or
existing customers, or if competitive conditions in the wireless
telecommunications industry intensify, including, for example,
as a result of the impact of actions taken by our competitors in
response to the implementation of wireless number portability or
the introduction of competitive services, demand for our
products and services may decline, which could adversely affect
our ability to attract and retain customers and our results of
operations. See  Forward-Looking
Statements.

Service Revenues and Cost of
Service.

|                                            |                                 |                       |       |           |   |           |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |    |    |  
|------------------------------------------- | ------------------------------- | --------------------- | ----- | --------- | - | --------- | -- | --------- |  | ------------- | ----- | ------- | - |  | -- | - |  | - | --- | --- |  |  | -- | -- | -
|                                            |                                 |                       |       |           |   |           |    |           |  |              
|                                            |                                 |                       |       |           |   |           |    |           |  | Change from  
|                                            |                                 |                       |       | % of      |   |           |    | % of      |  | Previous Year
|                                            |                                 | March 31,             |       | Operating |   | March 31, |    | Operating |  |              
|                                            |                                 | 2004                  |       | Revenues  |   | 2003      |    | Revenues  |  | Dollars       |       | Percent
|                                            |                                 |                       |       |           |   |           |    |           |  |               |       |        
|                                            |                                 |                      
|                                            |                                 | (dollars in millions)
|Three Months Ended                          |                                 |                       |       |           |   |           |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |    |   
|Service revenues                            |                                 | $                     | 2,776 |           |   |           | 89 | %         |  | $             | 2,210 |         |   |  | 93 | % |  | $ | 566 |     |  |  | 26 | % 
|Cost of service (exclusive of depreciation) |                                 |                       | 438   |           |   |           | 14 | %         |  |               | 369   |         |   |  | 16 | % |  |   | 69  |     |  |  | 19 | % 
|                                            |                                 |                       |       |           |   |           |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |    |   
|                                            | Service gross margin            |                       | $     | 2,338     |   |           |    |           |  |               | $     | 1,841   |   |  |    |   |  |   | $   | 497 |  |  |    | 27 | %
|                                            |                                 |                       |       |           |   |           |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |    |   
|                                            | Service gross margin percentage |                       |       | 84        | % |           |    |           |  |               |       | 83      | % |  |    |   |  |   |     |     |  |  |    |    |  
|                                            |                                 |                       |       |           |   |           |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |    |   

Service Revenues.Service revenues increased 26%
from the three months ended March 31, 2003 to the three
months ended March 31, 2004. This increase was primarily
attributable to the increase in the number of handsets in
service (volume) and, to a lesser extent, the slight increase in
the average monthly revenue per handset in service
(rate) in 2004.

From a volume perspective, our service revenues
increased principally as a result of a 20% increase in handsets
in service from March 31, 2003 to March 31, 2004. We
believe that the growth in the number of handsets in service is
the result of a number of factors, principally:



| |   |                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our differentiated products and services,
    including our Direct Connect walkie-talkie service, including
    the impact of the launch of our Nationwide Direct Connect
    service in July 2003, and our Nextel Online services;          
|
| |  | increased brand name recognition as a result of
    increased advertising and marketing campaigns;                                                                                                                                           
|
| |  | the high quality of our network;                                                                                                                                                                                                             
|
| |  | the improvement in subscriber retention that we
    attribute to our ongoing focus on customer care and other
    retention efforts and our focus on attracting high quality
    subscribers;                                                
|
| |  | the introduction of more competitive service
    pricing plans targeted at meeting more of our customers
    needs, including a variety of fixed-rate plans offering bundled
    monthly minutes and other integrated services and features;
|
| |  | selected handset pricing promotions and improved
    handset choices; and                                                                                                                                                                    
|
| |  | increased sales and marketing staff, including
    staff associated with our Nextel stores, and selling efforts
    targeted at specific vertical markets.                                                                                   

23



---



##### 



From a rate perspective, our average monthly
revenue per handset increased slightly from the three months
ended March 31, 2003 to the three months ended
March 31, 2004 due to:



| |   |                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | changes in our service price plans in effect in
    the first quarter 2004 as compared to those in effect during the
    first quarter 2003, which generally included lower access
    charges and a higher level of bundled minutes;
|
| |  | the revenues associated with our Nationwide
    Direct Connect service implemented in July 2003; and                                                                                                                                 
|
| |  | the increase in fees charged to customers for
    non-recurring services.                                                                                                                                                            

Cost of Service.Cost of service increased 19% from
March 31, 2003 to March 31, 2004, primarily due to
increased minutes of use resulting from the combined effect of
the increase in handsets in service and an increase in the
average monthly minutes of use per handset. Specifically, we
experienced:



| |   |                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |  | a 21% net increase in costs incurred in the
    operation and maintenance of our network and fixed
    interconnection costs; and
|
| |  | a 33% increase in costs incurred to operate our
    handset service and repair program; partially offset by                      
|
| |  | a 4% decrease in variable interconnection fees.                                                                                  

Costs related to the operation and maintenance of
our network and fixed interconnection fees increased 21%
primarily due to:



| |   |                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase in roaming fees paid to Nextel
    Partners due to the increase in our customer base and the launch
    of Nationwide Direct Connect service in July 2003;                                                                                                                                        
|
| |  | an increase in transmitter and receiver and
    switch related operational costs due to a 9% increase in
    transmitter and receiver sites placed into service from
    March 31, 2003 to March 31, 2004; and                                                                                                
|
| |  | an increase in headcount and related employee
    costs to support our expanding network; partially offset by                                                                                                                                                                                                 
|
| |  | a decrease in fixed interconnection costs as a
    result of initiatives implemented to gain efficiencies in our
    network by taking advantage of lower facility fees and more
    technologically advanced network equipment that provides for
    additional capacity but requires less leased facilities.

The 33% increase in costs to operate our handset
service and repair program from March 31, 2003 to
March 31, 2004 is primarily the result of growth in the
subscriber base electing handset insurance and participating in
service and repair programs.

The decrease in variable interconnection fees
from March 31, 2003 to March 31, 2004 was principally
due to a lower cost per minute of use, partially offset by an
increase in total system minutes of use. Our lower variable
interconnection cost per minute of use was primarily the result
of rate savings achieved through efforts to move long distance
traffic to lower cost carriers. Total system minutes of use
increased 40% from March 31, 2003 to March 31, 2004
principally due to a 20% increase in the number of handsets in
service as well as a 15% increase in the average monthly
billable minutes of use per handset between the periods.

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

24



---



##### 



Service Gross Margin.Service gross margin, exclusive of
depreciation expense, as a percentage of service revenues
increased from 83% for the three months ended March 31,
2003 to 84% for the three months ended March 31, 2004. Our
service gross margin percentage improved primarily due to the
combination of increased service revenues due to subscriber
growth and achievement of economies of scale, such as our
interconnection fee rate savings.

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

During the three months ended March 31,
2004, we recorded $327 million of handset and accessory
revenues, an increase of $166 million over the three months
ended March 31, 2003. During the three months ended
March 31, 2004, we recorded $489 million of cost of
handset and accessory revenues, an increase of $179 million
over the three months ended March 31, 2003. These results
are summarized in the table below.

|                                                   |                                            |                       |      |           |  |           |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |     |  
|-------------------------------------------------- | ------------------------------------------ | --------------------- | ---- | --------- |  | --------- | -- | --------- | - | ------------- | ---- | ------- |  |  | -- | -- | - | - | --- | --- |  |  | --- | --- | -
|                                                   |                                            |                       |      |           |  |           |    |           |   |              
|                                                   |                                            |                       |      |           |  |           |    |           |   | Change from  
|                                                   |                                            |                       |      | % of      |  |           |    | % of      |   | Previous Year
|                                                   |                                            | March 31,             |      | Operating |  | March 31, |    | Operating |   |              
|                                                   |                                            | 2004                  |      | Revenues  |  | 2003      |    | Revenues  |   | Dollars       |      | Percent
|                                                   |                                            |                       |      |           |  |           |    |           |   |               |      |        
|                                                   |                                            |                      
|                                                   |                                            | (dollars in millions)
|Three Months Ended                                 |                                            |                       |      |           |  |           |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    
|Current period handset and accessory sales         |                                            | $                     | 327  |           |  |           | 11 | %         |   | $             | 250  |         |  |  | 11 | %  |   | $ | 77  |     |  |  | 31  | %  
|SAB No. 101.                                       |                                            |                       |     |           |  |           |   | %         |   |               | (89  | )       |  |  | (4 | )% |   |   | 89  |     |  |  | 100 | %  
|                                                   |                                            |                       |      |           |  |           |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    
|                                                   | Handset and accessory revenues             |                       |      | 327       |  |           |    | 11        | % |               |      | 161     |  |  |    | 7  | % |   |     | 166 |  |  |     | 103 | %
|                                                   |                                            |                       |      |           |  |           |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    
|Current period cost of handset and accessory sales |                                            |                       | 489  |           |  |           | 16 | %         |   |               | 399  |         |  |  | 17 | %  |   |   | 90  |     |  |  | 23  | %  
|SAB No. 101.                                       |                                            |                       |     |           |  |           |   | %         |   |               | (89  | )       |  |  | (4 | )% |   |   | 89  |     |  |  | 100 | %  
|                                                   |                                            |                       |      |           |  |           |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    
|                                                   | Cost of handset and accessory
    revenues |                       |      | 489       |  |           |    | 16        | % |               |      | 310     |  |  |    | 13 | % |   |     | 179 |  |  |     | 58  | %
|                                                   |                                            |                       |      |           |  |           |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    
|Handset and accessory net subsidy                  |                                            | $                     | (162 | )         |  |           |    |           |   | $             | (149 | )       |  |  |    |    |   | $ | (13 | )   |  |  | 9   | %  
|                                                   |                                            |                       |      |           |  |           |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    

Handset and Accessory Revenues.Handset and accessory revenues are
influenced by the number of handsets sold and the sales prices
of the handsets sold. Current period handset and accessory sales
increased $77 million or 31%, excluding the impact of SAB
No. 101, for the three months ended March 31, 2004 as
compared to the same period in 2003. This increase reflects an
increase of about 45% in the number of handsets sold and, to a
lesser extent, an increase in revenues from accessory sales due
to the larger subscriber base, partially offset by about a 10%
decrease in the average sales price of the handsets. Additional
information regarding SAB No. 101 and our adoption of EITF
Issue No. 00-21 can be found in note 1 to the consolidated
financial statements of our 2003 annual report on Form 10-K.

Cost of Handset and Accessory Revenues.Cost of handset and accessory
revenues are influenced by the number of handsets sold and the
cost of the handsets sold. Current period cost of handset and
accessory sales increased $90 million or 23%, excluding the
impact of SAB No. 101, for the three months ended
March 31, 2004 as compared to the same period in 2003. This
increase reflects an increase of about 45% in the number of
handsets sold, partially offset by about a 15% decrease in the
average cost we paid for handsets.

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

Handset and accessory net subsidy increased 9%
for the three months ended March 31, 2004 as compared to
the same period in 2003. We attribute the increase in handset
and accessory net subsidy to:



| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | an increase in the number of handsets sold of
    about 45%; partially offset by
|
| |  | a decrease in the average subsidy per handset of
    about 20%; and             
|
| |  | an increase in the gross margin from accessory
    sales.                       

25



---



##### 



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

Selling, General and Administrative
Expenses.

|                           |                                     |                       |     |           |  |           |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |    |  
|-------------------------- | ----------------------------------- | --------------------- | --- | --------- |  | --------- | -- | --------- | - | ------------- | --- | ------- |  |  | -- | -- | - | - | --- | --- |  |  | -- | -- | -
|                           |                                     |                       |     |           |  |           |    |           |   |              
|                           |                                     |                       |     |           |  |           |    |           |   | Change from  
|                           |                                     |                       |     | % of      |  |           |    | % of      |   | Previous Year
|                           |                                     | March 31,             |     | Operating |  | March 31, |    | Operating |   |              
|                           |                                     | 2004                  |     | Revenues  |  | 2003      |    | Revenues  |   | Dollars       |     | Percent
|                           |                                     |                       |     |           |  |           |    |           |   |               |     |        
|                           |                                     |                      
|                           |                                     | (dollars in millions)
|Three Months Ended         |                                     |                       |     |           |  |           |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   
|Selling and marketing      |                                     | $                     | 495 |           |  |           | 16 | %         |   | $             | 411 |         |  |  | 17 | %  |   | $ | 84  |     |  |  | 20 | % 
|General and administrative |                                     |                       | 476 |           |  |           | 15 | %         |   |               | 375 |         |  |  | 16 | %  |   |   | 101 |     |  |  | 27 | % 
|                           |                                     |                       |     |           |  |           |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   
|                           | Selling, general and administrative |                       | $   | 971       |  |           |    | 31        | % |               | $   | 786     |  |  |    | 33 | % |   | $   | 185 |  |  |    | 24 | %
|                           |                                     |                       |     |           |  |           |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   

Selling and Marketing.The increase in selling and
marketing expenses from the three months ended March 31,
2003 to the three months ended March 31, 2004 reflects:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $36 million increase in advertising
    expenses as a result of general marketing campaigns directed at
    increasing brand awareness and promoting our differentiated
    services, such as our new branding campaign launched in the
    third quarter 2003, our affiliation with NASCAR beginning in the
    first quarter 2004, the promotion of Nationwide Direct Connect
    services and advertising and promotional costs related to our
    planned expansion of the areas in which we offer Boost Mobile
    pre-paid services beginning in the first quarter 2004;
|
| |  | a $35 million increase in marketing payroll
    and related expenses primarily associated with our opening an
    additional 180 Nextel stores between March 31, 2003 and
    March 31, 2004, and increased employee commissions; and                                                                                                                                                                                                                                                                                                                                           
|
| |  | a $13 million increase primarily reflecting
    an increase in the rate of commissions and residuals earned by
    indirect dealers and distributors in the first quarter 2004 as
    compared to the same period in 2003, partially offset by the
    decrease in commissions paid with respect to handset sales as
    more handsets were delivered through our direct handset
    fulfillment system.                                                                                                                                                                        

General and Administrative.The increase in general and
administrative expenses from the three months ended
March 31, 2004 to the three months ended March 31,
2003 reflects:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $73 million increase in personnel,
    facilities and general corporate expenses due to increases in
    information technology initiatives, headcount and related
    facility costs, legal and professional fees, and our enterprise
    resource planning, or ERP, system implementation; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | a $50 million increase in expenses related
    to billing, collection, customer retention and customer care
    activities primarily due to the costs to support a larger
    customer base in addition to increased costs associated with the
    implementation of wireless number portability in the fourth
    quarter 2003; partially offset by                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | a $22 million decrease in bad debt expense.
    Bad debt expense decreased from $56 million, or 2.4% of
    operating revenues, for the first quarter 2003 to
    $34 million, or 1.1% of operating revenues, for the first
    quarter 2004. The decrease in both the aggregate amount of the
    bad debt expense and bad debt expense as a percentage of
    operating revenues reflects the results of our policies
    implemented over the past two years that were focused on
    strengthening our credit policies and procedures, limiting the
    account sizes for high-risk accounts and strengthening identity
    verification processes at the point of credit applications. The
    credit and collection software tools that we have implemented
    now enable us to better screen and monitor the credit quality
    and delinquency levels of our customers. We have also

26



---



##### 



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | benefited from improvements in recoveries of past
    due accounts handled by third party collection agencies. These
    factors and others have resulted in increased collections, an
    improvement in the accounts receivable agings and a reduction in
    the write-offs for fraud-related accounts. Therefore, our
    allowance for doubtful accounts as a percentage of accounts
    receivable has also improved from March 31, 2003 to
    March 31, 2004. Bad debt expense in the future could be
    adversely affected by general economic conditions and
    competitive conditions within the wireless industry, including
    those related to wireless number portability or to the extent we
    adjust our credit standards to be more competitive. See
     Forward-Looking Statements.

Our selling, general and administrative expenses
as a percentage of operating revenues decreased from the three
months ended March 31, 2003 to the three months ended
March 31, 2004 primarily as a result of the increase in
service revenues due to subscriber growth and improvement in bad
debt expense as described above.

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



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

Depreciation and
Amortization.

|                   |                               |                       |     |           |  |           |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |     |    |  
|------------------ | ----------------------------- | --------------------- | --- | --------- |  | --------- | -- | --------- | - | ------------- | --- | ------- |  |  | -- | -- | - | - | -- | -- |  |  | --- | -- | -
|                   |                               |                       |     |           |  |           |    |           |   |              
|                   |                               |                       |     |           |  |           |    |           |   | Change from  
|                   |                               |                       |     | % of      |  |           |    | % of      |   | Previous Year
|                   |                               | March 31,             |     | Operating |  | March 31, |    | Operating |   |              
|                   |                               | 2004                  |     | Revenues  |  | 2003      |    | Revenues  |   | Dollars       |     | Percent
|                   |                               |                       |     |           |  |           |    |           |   |               |     |        
|                   |                               |                      
|                   |                               | (dollars in millions)
|Three Months Ended |                               |                       |     |           |  |           |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |     |   
|Depreciation       |                               | $                     | 432 |           |  |           | 14 | %         |   | $             | 399 |         |  |  | 17 | %  |   | $ | 33 |    |  |  | 8   | % 
|Amortization       |                               |                       | 11  |           |  |           |   | %         |   |               | 14  |         |  |  | 1  | %  |   |   | (3 | )  |  |  | (21 | )%
|                   |                               |                       |     |           |  |           |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |     |   
|                   | Depreciation and amortization |                       | $   | 443       |  |           |    | 14        | % |               | $   | 413     |  |  |    | 18 | % |   | $  | 30 |  |  |     | 7  | %
|                   |                               |                       |     |           |  |           |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |     |   

Depreciation expense increased $33 million
from the three months ended March 31, 2003 to the three
months ended March 31, 2004. Depreciation increased as a
result of a 9% increase in transmitter and receiver sites in
service, as well as costs to modify existing switches and
transmitter and receiver sites in existing markets primarily to
enhance the capacity of our network. We periodically review the
estimated useful lives of our property, plant and equipment
assets as circumstances warrant. Events that would likely cause
us to review the useful lives of our property, plant and
equipment assets include decisions made by regulatory agencies
and our decisions surrounding strategic or technology matters.
It is possible that depreciation expense may increase in future
periods as a result of one or a combination of these decisions.
Variances in depreciation expense recorded between periods can
also be impacted by several factors, including the effect of
fully depreciated assets, the timing between when capital assets
are purchased and when they are deployed into service, which is
when depreciation commences, company-wide decisions surrounding
levels of capital

27



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##### 



spending and the level of spending on non-network
assets, which generally have much shorter depreciable lives as
compared to network assets.


Interest and Other.

|                                                   |  |                       |      |               |  |         |      |         |  |   |     |   |  |  |     |   
|-------------------------------------------------- |  | --------------------- | ---- | ------------- |  | ------- | ---- | ------- |  | - | --- | - |  |  | --- | --
|                                                   |  |                       |      |               |  |        
|                                                   |  |                       |      | Change from  
|                                                   |  | March 31,             |      | Previous Year
|                                                   |  |                       |      |              
|                                                   |  | 2004                  |      | 2003          |  | Dollars |      | Percent
|                                                   |  |                       |      |               |  |         |      |        
|                                                   |  |                      
|                                                   |  | (dollars in millions)
|Three Months Ended                                 |  |                       |      |               |  |         |      |         |  |   |     |   |  |  |     |   
|Interest expense                                   |  | $                     | (154 | )             |  | $       | (225 | )       |  | $ | 71  |   |  |  | 32  | % 
|Interest income                                    |  |                       | 8    |               |  |         | 12   |         |  |   | (4  | ) |  |  | (33 | )%
|Loss on retirement of debt, net                    |  |                       | (17  | )             |  |         | (5   | )       |  |   | (12 | ) |  |  | NM  |   
|Equity in losses of unconsolidated affiliates, net |  |                       |     |               |  |         | (13  | )       |  |   | 13  |   |  |  | 100 | % 
|Realized gain on sale of investment                |  |                       | 26   |               |  |         |     |         |  |   | 26  |   |  |  | 100 | % 
|Other, net                                         |  |                       | 1    |               |  |         |     |         |  |   | 1   |   |  |  | 100 | % 
|Income tax provision                               |  |                       | (33  | )             |  |         | (22  | )       |  |   | (11 | ) |  |  | (50 | )%
|Income available to common stockholders            |  |                       | 591  |               |  |         | 208  |         |  |   | 383 |   |  |  | 184 | % 



---

NM  Not Meaningful

Interest Expense.The $71 million decrease in
interest expense for the three months ended March 31, 2004
compared to the same period in 2003 primarily relates to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $95 million decrease in interest expense
    attributable to the reductions in the aggregate outstanding
    principal amount of our senior notes, as discussed below; and                                                                                                                                                                                                                                                       
|
| |  | a $17 million decrease in interest expense
    resulting primarily from the combined effect of the reduction in
    the weighted average interest rates related to our bank credit
    facility from 3.9% during the three months ended March 31,
    2003 to 3.0% during the three months ended March 31, 2004
    and the lower average principal amount of the bank credit
    facility outstanding in 2004; partially offset by
|
| |  | a $47 million increase in interest expense
    attributable to our new senior notes issued since the third
    quarter 2003.                                                                                                                                                                                                                                                                                                       

Interest expense related to our senior notes
decreased for the three months ended March 31, 2004
primarily due to the purchase and retirement of
$4,216 million in aggregate principal amount at maturity of
our senior notes and convertible senior notes since the
beginning of 2003. This decrease was partially offset by the
interest expense associated with the additional $3,000 million
in aggregate principal amount of new senior notes issued since
the beginning of the third quarter 2003, which have lower
interest rates and longer maturity periods than the retired
senior notes. In December 2003, we reduced the principal amount
of outstanding term loans under our credit facility by
$574 million by repaying $2,774 million of term loans
under that facility with cash on hand and the proceeds from the
syndication of a new $2,200 million term loan under that
facility that matures in December 2010. We expect our interest
expense to continue to decrease in 2004 as we realize the
benefit of a full year of the debt redemptions and retirements
consummated during 2003. See  Forward-Looking
Statements.

Interest Income.The $4 million decrease in
interest income for the three months ended March 31, 2004
compared to the three months ended March 31, 2003 is due to
a decrease in the average cash and short-term investments
balances and lower average interest rates during the three
months ended March 31, 2004 compared to the three months
ended March 31, 2003.

Loss on Retirement of Debt.For the three months ended
March 31, 2004, we recognized a loss of $17 million on
the retirement of some of our 9.5% senior notes representing the
excess of the purchase prices over the carrying value of the
purchased and retired notes and the write-off of the related
unamortized debt financing costs, net of the recognition of a
portion of the deferred premium associated with the termination
of

28



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##### 



some of our interest rate swaps. For the three
months ended March 31, 2003, we recognized a loss of
$5 million on the retirement of some of our senior notes
representing the excess of the purchase price over the carrying
value of the purchased and retired notes and the write-off of
unamortized debt financing costs.


Equity in Losses of Unconsolidated
Affiliates.The $13 million
in equity in losses of unconsolidated affiliates for the three
months ended March 31, 2003 is due to losses attributable
to our equity method investment in Nextel Partners of
$16 million partially offset by our equity in earnings of
NII Holdings of $3 million. In 2003, our investments in
Nextel Partners common stock and 12% nonvoting mandatorily
redeemable preferred stock were written down to zero through the
application of the equity method of accounting. During the
fourth quarter 2003, we sold shares of NII Holdings common
stock, thereby decreasing our ownership percentage, and now
account for our interest in NII Holdings as an
available-for-sale cost method investment.

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

Income Tax Provision.The income tax provision increased
$11 million from the three months ended March 31, 2003
to the three months ended March 31, 2004 primarily due to
higher state income taxes as our taxable income has increased.
Because we do not have a sufficient history of taxable income to
conclude that it is more likely than not that the tax benefit of
the net operating losses will be realized, we have provided a
full reserve against the tax benefit of our net operating loss
carryforwards. However, under certain conditions, we believe
that it is possible that our results will yield sufficient
positive evidence to support the conclusion that it is more
likely than not that we will release at least a portion of the
reserve as early as mid-2004.

C. Liquidity and Capital
Resources

As of March 31, 2004, we had total liquidity
of $3,846 million available to fund our operations
including $2,713 million of cash, cash equivalents and
short-term investments and $1,133 million available under
the revolving loan commitment of our bank credit facility,
subject to the terms and conditions of that facility.

During the first quarter 2004, we raised
$494 million from the issuance of our 5.95% senior notes
due 2014 and used $404 million in cash to reduce our
long-term debt and capital lease and finance obligations by a
total of $380 million, retiring $167 million of our 9.5%
senior notes due 2011, exercising the early buyout option on a
$165 million capital lease obligation and paying
$48 million of scheduled maturities on our bank credit
facility. For the first quarter 2004, total cash provided by
operating activities exceeded cash flows used in investing
activities by $723 million as compared to $135 million
for the same period in 2003. Prior to 2003, we had used external
sources of funds, primarily from issuances of debt and equity
securities, to fund capital expenditures, acquisitions and other
nonoperating needs.

Cash Flows.

|                                                |  |                       |       |               |  |         |      |         |  |   |     |  |  |  |     |  
|----------------------------------------------- |  | --------------------- | ----- | ------------- |  | ------- | ---- | ------- |  | - | --- |  |  |  | --- | -
|                                                |  |                       |       |              
|                                                |  | Three Months Ended    |       | Change from  
|                                                |  | March 31,             |       | Previous Year
|                                                |  |                       |       |              
|                                                |  | 2004                  |       | 2003          |  | Dollars |      | Percent
|                                                |  |                       |       |               |  |         |      |        
|                                                |  |                      
|                                                |  | (dollars in millions)
|Cash provided by operating activities           |  | $                     | 1,244 |               |  | $       | 813  |         |  | $ | 431 |  |  |  | 53  | %
|Cash used in investing activities               |  |                       | (521  | )             |  |         | (678 | )       |  |   | 157 |  |  |  | 23  | %
|Cash provided by (used in) financing activities |  |                       | 158   |               |  |         | (625 | )       |  |   | 783 |  |  |  | 125 | %

Net cash provided by operating activities for the
first quarter 2004 improved by $431 million over the first
quarter 2003 primarily due to a $721 million increase in
cash received from our customers as a result of growth in our
customer base, partially offset by a $269 million increase
in cash paid to our suppliers and employees in order to support
the larger customer base.

29



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##### 



Net cash used in investing activities for the
first quarter 2004 decreased by $157 million over the first
quarter 2003 due to:



| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | a $220 million decrease in net cash
    purchases of short-term investments;                                
|
| |  | a $173 million decrease in cash paid for
    purchases of licenses, acquisitions, investments and other; and
|
| |  | a $62 million increase in proceeds from
    sales of investments and other assets; offset by                
|
| |  | a $298 million increase in cash paid for
    capital expenditures.                                          

Capital expenditures to fund the ongoing
investment in our network continued to represent the largest use
of our funds for investing activities. Cash payments for capital
expenditures totaled $684 million for the first quarter
2004 and $386 million for the first quarter 2003. Capital
expenditures increased for the first quarter 2004 as compared to
the same period in 2003 primarily due to:



| |   |                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase in amounts expended to construct new
    cell sites and network improvements in 2004 as compared to 2003
    reflecting our 2004 plans to improve the coverage and capacity
    of our network; and
|
| |  | costs incurred in connection with WiDEN.                                                                                                                                                                       

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

We made cash payments during the first quarter
2004 totaling $56 million for licenses, investments and
other. We made cash payments during the first quarter 2003
totaling $229 million for licenses, investments and other,
including $201 million related to the acquisition of FCC
licenses of NeoWorld Communications, Inc.

Net cash provided by financing activities of
$158 million during the first quarter 2004 consisted
primarily of:



| |   |                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $494 million of net proceeds from the sale
    of newly issued 5.95% senior notes; and                                                                                                                     
|
| |  | $68 million of net proceeds from the
    issuance of shares of our class A common stock primarily
    under our equity plans; partially offset by                                                          
|
| |  | $191 million paid for the purchase and
    retirement of our 9.5% senior notes;                                                                                                                            
|
| |  | $165 million in repayments related to our
    remaining capital lease obligation, including a payment of
    $156 million associated with the early buy-out option of
    this capital lease agreement; and
|
| |  | $48 million in repayments under our bank
    credit facility.                                                                                                                                              

In the first quarter 2003, we used cash of
$625 million for financing activities, primarily due to
$570 million paid for the purchase and retirement of some
of our senior notes and preferred stock and $70 million for
net repayments under our capital lease and finance obligations,
partially offset by $20 million of net borrowings under our
long-term credit facility.

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

30



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##### 



D. Future Capital Needs and
Resources

Capital Resources.

As of March 31, 2004, our capital resources
included $2,713 million of cash, cash equivalents and
short-term investments and $1,133 million of the revolving
loan commitment under our credit facility, as discussed below,
resulting in a total amount of liquidity to fund our operating,
investing and financing activities of $3,846 million as of
March 31, 2004. During the second quarter 2004, we
announced that we will redeem for cash the entire
$608 million in outstanding principal amount at
March 31, 2004 of our 6% convertible senior notes due 2011
at a redemption price of 104%.

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



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

As of March 31, 2004, our bank credit
facility provided for total secured financing capacity of up to
$4,915 million, subject to the satisfaction or waiver of
applicable borrowing conditions, which consisted of a
$1,275 million revolving loan commitment, of which
$116 million has been borrowed and $26 million has
been committed under letters of credit, and $3,640 million
in two classes of term loans, all of which has been borrowed.

The term loans mature on December 31, 2007
and December 15, 2010. Beginning April 1, 2004, the
amount of the revolving loan commitment available to us will be
reduced by $75 million every quarter continuing through
March 31, 2005, at which time the quarterly reductions will
increase to $93.75 million continuing through
March 31, 2007. Starting April 1, 2007, the quarterly
reductions decrease to $75 million

31



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##### 



continuing through December 31, 2007, at
which time no amounts will be available under the revolving
credit facility.


The credit facility requires compliance with
financial ratio tests, including total indebtedness to operating
cash flow, secured indebtedness to operating cash flow,
operating cash flow to interest expense and operating cash flow
to specified charges, each as defined under the credit facility.
The maturity dates of the loans may accelerate if we do not
comply with the financial ratio tests, which could have a
material adverse effect on our financial condition. We are also
obligated to repay the loans if certain change of control events
occur. As of March 31, 2004, we were in compliance with all
financial ratio tests under our credit facility and we expect to
remain in full compliance with these ratio tests for the
foreseeable future. See  Forward-Looking
Statements. Borrowings under the credit facility are
secured by liens on substantially all of our assets, and are
guaranteed by us and substantially all of our subsidiaries.
There is no provision under any of our indebtedness that
requires repayment in the event of a downgrade by any ratings
service.

Our ability to borrow additional amounts under
the credit facility may be restricted by provisions included in
some of our public notes and mandatorily redeemable preferred
stock that limit the incurrence of additional indebtedness in
certain circumstances. The availability of borrowings under this
facility also is subject to the satisfaction or waiver of
specified borrowing conditions. As of March 31, 2004, the
applicable provisions of our senior notes and mandatorily
redeemable preferred stock did not restrict our ability, and we
had satisfied the conditions under this facility, to borrow the
remaining $1,133 million revolving credit commitment that
is currently available.

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

Capital Needs.

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



| |   |                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | operating expenses relating to our network;                                                                                                                                                                                                                 
|
| |  | capital expenditures, as discussed immediately
    below under  Capital Expenditures;                                                                                                                                                                    
|
| |  | future investments, including the purchase of
    certain multichannel multipoint distribution service, or MMDS,
    FCC licenses and related assets, other potential spectrum
    purchases and investments in new business opportunities;                 
|
| |  | potential payments to the FCC or other third
    parties and potential costs to reconfigure our spectrum in
    connection with the FCCs action on the Consensus Plan or
    other similar FCC actions relating to the realignment of the 800
    MHz band;
|
| |  | scheduled principal and interest payments related
    to our long-term debt, redemption of our 6% convertible senior
    notes due 2011 and any additional amounts that we choose to
    redeem;                                                            
|
| |  | potential material increases in the cost of
    compliance with regulatory mandates; and                                                                                                                                                                    
|
| |  | other general corporate expenditures including
    the potential of becoming a full taxpayer in the next few years.                                                                                                                                         

32



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##### 



Capital Expenditures.Our capital expenditures during
the first quarter 2004 totaled $684 million, including
capitalized interest. In the future, we expect our capital
spending to be driven by several factors including:



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

Our future capital expenditures are affected by
future technology improvements and technology choices. As
described in more detail above and in our 2003 annual report on
Form 10-K, in October 2003, we began deploying network software
relating to the implementation of the 6:1 voice coder that is
designed to allow us to more efficiently use our spectrum and
reduce our network capital expenditures. These network
efficiencies are dependent on use of handsets operating in the
6:1 mode, so our plans assume that the realization of the
capacity and related financial benefits is timed to coincide
with the deployment and use of those handsets. Because our
current plans contemplate that we will not begin offering
handsets operating in the 6:1 mode until mid-2004, it is our
expectation that most of these benefits will not begin to be
realized until after 2004. If there are substantial delays in
the deployment of handsets operating in the 6:1 mode, those
benefits would also be delayed and our capital expenditures
could increase in order to meet our network capacity needs. See
 Forward-Looking Statements. Development of
technology enhancements like the 6:1 voice coder would allow us
to reduce the amount of capital expenditures we would need to
make to enhance our network voice capacity in future years.
However, any anticipated reductions in capital expenditures
could be offset to the extent we incur additional capital
expenditures to deploy next generation technologies. We will
deploy a next generation technology only when deployment is
warranted by expected customer demand and when the anticipated
benefits of services requiring this technology outweigh the
costs of providing those services.

Future Contractual Obligations.The following table sets forth our
best estimates as to the amounts and timing of contractual
payments for our most significant contractual obligations as of
March 31, 2004. The information in the table reflects
future unconditional payments and is based upon, among other
things, the terms of the relevant agreements, appropriate
classification of items under generally accepted accounting
principles currently in effect and certain assumptions, such as
future interest rates. Future events, including additional
purchases of our securities and refinancing of those securities,
could cause actual payments to differ significantly from these
amounts. See  Forward-Looking Statements.

|                               |  |               |        |           |  |      |       |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |     |  |  |   |        | 
|------------------------------ |  | ------------- | ------ | --------- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---------- | ----- |  |  | - | ----- |  |  | - | --- |  |  | - | ------ | 
|Future                         |  |               |        | Remainder |  |      |       |      |  |      |       |      |  | 2009 and  
|Contractual Obligations        |  | Total         |        | of 2004   |  | 2005 |       | 2006 |  | 2007 |       | 2008 |  | Thereafter
|                               |  |               |        |           |  |      |       |      |  |      |       |      |  |           
|                               |  |              
|                               |  | (in millions)
|Public senior notes(1)         |  | $             | 10,608 |           |  | $    | 359   |      |  | $    | 496   |      |  | $          | 496   |  |  | $ | 496   |  |  | $ | 496 |  |  | $ | 8,265  | 
|Bank credit facility(2)        |  |               | 4,621  |           |  |      | 368   |      |  |      | 575   |      |  |            | 598   |  |  |   | 635   |  |  |   | 134 |  |  |   | 2,311  | 
|Preferred stock cash payments  |  |               | 245    |           |  |      |      |      |  |      |      |      |  |            |      |  |  |   |      |  |  |   |    |  |  |   | 245    | 
|Operating leases               |  |               | 1,511  |           |  |      | 325   |      |  |      | 399   |      |  |            | 289   |  |  |   | 210   |  |  |   | 131 |  |  |   | 157    | 
|Purchase obligations and other |  |               | 2,368  |           |  |      | 525   |      |  |      | 498   |      |  |            | 436   |  |  |   | 267   |  |  |   | 221 |  |  |   | 421    | 
|                               |  |               |        |           |  |      |       |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |     |  |  |   |        | 
|Total                          |  | $             | 19,353 |           |  | $    | 1,577 |      |  | $    | 1,968 |      |  | $          | 1,819 |  |  | $ | 1,608 |  |  | $ | 982 |  |  | $ | 11,399 | 
|                               |  |               |        |           |  |      |       |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |     |  |  |   |        | 



---



|    |                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | These amounts do not include the effect of our
    May 2004 announcement of the redemption of the entire
    $608 million in outstanding principal amount of our 6%
    convertible senior notes due 2011.                                                              
|   
|(2) | These amounts include principal amortization and
    estimated interest payments based on managements
    expectation as to future interest rates, assume the current
    payment schedule and exclude any additional drawdown under the
    revolving loan commitment.

33



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##### 



In addition, we have about $2 billion of
open purchase orders for goods or services as of March 31,
2004 that are enforceable and legally binding and that specify
all significant terms, but are not recorded as liabilities as of
March 31, 2004. We expect these commitments to become due
in 2004. The above table excludes amounts that may be paid or
will be paid in connection with spectrum acquisitions. We have
committed, subject to certain conditions which may not be met,
to pay up to about $318 million for spectrum leasing agreements
and acquisitions, including about $195 million for the
pending acquisition of certain MMDS FCC licenses, interests in
certain MMDS FCC licenses and other network assets of WorldCom
and Nucentrix, entered into and outstanding as of March 31,
2004. These acquisitions are expected to close in mid-2004.
Included in the Purchase obligations and other
caption are minimum amounts due under some of our most
significant service contracts, including agreements for
telecommunications and customer billing services, advertising
services and contracts related to our information and technology
and customer care outsourcing arrangements. Amounts actually
paid under some of these other agreements will
likely be higher due to variable components of these agreements.
The more significant variable components that determine the
ultimate obligation owed include items such as hours contracted,
subscribers, and other factors. In addition, we are party to
various arrangements that are conditional in nature and obligate
us to make payments only upon the occurrence of certain events,
such as the delivery of functioning software or products.
Because it is not possible to predict the timing or amounts that
may be due under these conditional arrangements, no such amounts
have been included in the table above. Significant amounts
expected to be paid to Motorola for infrastructure, handsets and
related services are not shown above due to the uncertainty
surrounding the timing and extent of these payments. The minimum
contractual amounts under our agreements with Motorola have been
included in the table above. We and Motorola have extended
through 2004 the terms of our handset and infrastructure supply
agreements and are in the process of negotiating a long-term
master supply agreement.

In addition, the table above excludes amounts
that we may be required to or elect to pay with respect to the
purchase of equity interests in Nextel Partners. In January
1999, we entered into agreements with Nextel Partners and other
parties, including Motorola, relating to the formation,
capitalization, governance, financing and operation of Nextel
Partners. Nextel Partners is constructing and operating a
network utilizing the iDEN technology used in our network. In
addition, the certificate of incorporation of Nextel Partners
establishes circumstances in which we will have the right or
obligation to purchase the outstanding shares of class A
common stock of Nextel Partners at specified prices. We may pay
the consideration for such a purchase in cash, shares of our
stock, or a combination of both. Subject to certain limitations
and conditions, including possible deferrals by Nextel Partners,
we will have the right to purchase the outstanding shares of
Nextel Partners class A common stock on
January 29, 2008. We may not transfer our interest in
Nextel Partners to a third party before January 29, 2011,
and Nextel Partners class A common stockholders have
the right, and in specified instances the obligation, to
participate in any sale of our interest. Additional information
regarding the circumstances in which we may be required to
purchase the outstanding shares of Nextel Partners
class A common stock can be found in our 2003 annual report
on Form 10-K.

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

In making this assessment, we have considered:



| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | the anticipated level of capital expenditures;                           
|
| |  | our scheduled debt service requirements;                                 
|
| |  | the announced redemption of our 6% convertible
    senior notes due 2011;

34



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##### 





| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | consummation of existing agreements to purchase
    spectrum, including those with WorldCom and Nucentrix; and
|
| |  | other future contractual obligations.                                                                         

Additionally, we have the ability to use existing
cash, cash equivalents and short-term investments on hand and
available of $2,713 million as of March 31, 2004, or
drawdown on the available revolving loan commitment under our
credit facility of about $1,133 million as of
March 31, 2004 to fund our capital needs.

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

Our conclusion that we will be able to meet our
funding needs for at least the next twelve months by using cash
generated from operations does not take into account potential
payments to the FCC or other third parties in connection with
the FCCs action on the Consensus Plan or other similar FCC
actions relating to the realignment of the 800 MHz band. We
cannot predict whether, or under what terms, the FCC would
approve the proposed realignment plan, and there is no assurance
that the FCC will adopt any realignment plan. In addition, if
the FCC approves a realignment plan, we will incur our own
spectrum relocations costs over time, the amount of which is
dependent on the terms of such plan, but could be significant in
certain circumstances. That conclusion also does not take into
account:



| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the impact of our participation in any future
    auctions for the purchase of significant amounts of spectrum
    licenses;                                 
|
| |  | any significant acquisition transactions or the
    pursuit of any significant new business opportunities other than
    those currently being pursued by us;
|
| |  | the funding required in connection with a
    deployment of next generation technologies;                                                                    
|
| |  | potential material additional purchases or
    redemptions of our outstanding debt securities and preferred
    stock for cash beyond those noted above; and 
|
| |  | potential material increases in the cost of
    compliance with regulatory mandates.                                                                         

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



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

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

35



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##### 



Forward-Looking Statements

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



| |   |                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the success of efforts to improve, and
    satisfactorily address any issues relating to, our network
    performance;                                                                                                                                                                                                                                                     
|
| |  | the timely development and availability of new
    handsets with expanded applications and features, including
    those that operate using the 6:1 voice coder;                                                                                                                                                                                                           
|
| |  | the timely development and deployment of higher
    speed data infrastructure and software designed to significantly
    increase the data speeds of our network;                                                                                                                                                                                                          
|
| |  | market acceptance of our data service offerings,
    including our Nextel Online services;                                                                                                                                                                                                                                                                                 
|
| |  | the timely delivery and successful implementation
    of new technologies deployed in connection with any future
    enhanced iDEN or next generation or other advanced services we
    may offer;                                                                                                                                                                         
|
| |  | no significant adverse change in Motorolas
    ability or willingness to provide handsets and related equipment
    and software applications or to develop new technologies or
    features for us, or in our relationship with it, as a result of
    the proposed spin-off of its semiconductor unit, recent changes
    in its senior management team or otherwise;   
|
| |  | the ability to achieve market penetration and
    average subscriber revenue levels sufficient to provide
    financial viability to our network business;                                                                                                                                                                                                                 
|
| |  | the impact on our cost structure or service
    levels of the general downturn in the telecommunications sector,
    including the adverse effect of any bankruptcy of any of our
    tower providers or telecommunications suppliers;                                                                                                                                     
|
| |  | our ability to successfully scale, in some
    circumstances in conjunction with third parties under our
    outsourcing arrangements, our billing, collection, customer care
    and similar back-office operations to keep pace with customer
    growth, increased system usage rates and growth in levels of
    accounts receivables being generated by our customers;
|
| |  | access to sufficient debt or equity capital to
    meet any operating and financing needs;                                                                                                                                                                                                                                                                                 
|
| |  | the quality and price of similar or comparable
    wireless communications services offered or to be offered by our
    competitors, including providers of cellular and personal
    communication services including, for example, two-way
    walkie-talkie services first introduced by several of our
    competitors in 2003;                                        
|
| |  | future legislation or regulatory actions relating
    to specialized mobile radio services, other wireless
    communications services or telecommunications generally;                                                                                                                                                                                                    

36



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##### 





| |   |                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the costs of compliance with regulatory mandates,
    particularly the requirement to deploy location-based E911
    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, 2003.



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

We primarily use senior notes, credit facilities,
mandatorily redeemable preferred stock and issuances of common
stock to finance our obligations. We are exposed to market risk
from changes in interest rates and equity prices. Our primary
interest rate risk results from changes in the London Interbank
Offered Rate, or LIBOR, and U.S. prime and Eurodollar rates,
which are used to determine the interest rates applicable to our
borrowings under our bank credit facility. Interest rate changes
expose our fixed rate long-term borrowings to changes in fair
value and expose our variable rate long-term borrowings to
changes in future cash flows. From time to time, we use
derivative instruments primarily consisting of interest rate
swap agreements to manage this interest rate exposure by
achieving a desired proportion of fixed rate versus variable
rate borrowings. All of our derivative transactions are entered
into for non-trading purposes. As of March 31, 2004, we did
not have any material derivative instruments.

As of March 31, 2004, we held
$1,026 million of short-term investments and
$1,687 million of cash and cash equivalents primarily
consisting of investment grade commercial paper, government
securities and money market deposits. Our primary interest rate
risk on these short-term investments and cash and cash
equivalents results from changes in short-term (less than six
months) interest rates. However, this risk is largely offset by
the fact that interest on our bank credit facility borrowings is
variable and is reset over periods of less than six months.

The table below summarizes our remaining interest
rate risks as of March 31, 2004 in U.S. dollars. Since our
financial instruments expose us to interest rate risks, these
instruments are presented within each market risk category. The
table presents principal cash flows and related interest rates
by year of maturity for our senior notes, bank credit
facilities, finance obligations and mandatorily redeemable
preferred stock in effect at March 31, 2004. In the case of
the mandatorily redeemable preferred stock and senior notes, the
table excludes the potential exercise of the relevant redemption
or conversion features. Fair values included in this section
have been determined based on:



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

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

|                                                                                   |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |    |   |  |   |       |   |  |   |       |   |  |   |       | 
|---------------------------------------------------------------------------------- | --------------------- | --------------------- | - | ---- | - | ---- | - | ---- | - | ---- | - | ---------- | - | ----- | - | ----- | - |  | - | -- | - |  | - | ----- | - |  | - | ----- | - |  | - | ----- | 
|                                                                                   |                       |                       |   |      |   |      |   |     
|                                                                                   |                       | Year of Maturity      |   |      |   |      |   |     
|                                                                                   |                       |                       |   |      |   |      |   | Fair
|                                                                                   |                       | 2004                  |   | 2005 |   | 2006 |   | 2007 |   | 2008 |   | Thereafter |   | Total |   | Value
|                                                                                   |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |      
|                                                                                   |                       |                      
|                                                                                   |                       | (dollars in millions)
|I. Interest Rate Sensitivity                                                       |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |    |   |  |   |       |   |  |   |       |   |  |   |      
|Mandatorily Redeemable Preferred Stock,
    Long-term Debt and Finance Obligations |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |    |   |  |   |       |   |  |   |       |   |  |   |      
|                                                                                   | Fixed Rate            |                       | $ | 1    |   |      | $ | 1    |   |      | $ | 1          |   |       | $ | 7     |   |  | $ |   |   |  | $ | 6,751 |   |  | $ | 6,761 |   |  | $ | 7,163 | 
|                                                                                   | Average Interest Rate |                       |   | 8    | % |      |   | 8    | % |      |   | 8          | % |       |   | 8     | % |  |   |   |   |  |   | 8     | % |  |   | 8     | % |  |   |       | 
|                                                                                   | Variable Rate         |                       | $ | 273  |   |      | $ | 427  |   |      | $ | 460        |   |       | $ | 499   |   |  | $ | 22 |   |  | $ | 2,090 |   |  | $ | 3,771 |   |  | $ | 3,794 | 
|                                                                                   | Average Interest Rate |                       |   | 2    | % |      |   | 2    | % |      |   | 2          | % |       |   | 2     | % |  |   | 3  | % |  |   | 3     | % |  |   | 3     | % |  |   |       | 

37



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##### 



Item 4.     Controls
and Procedures.

We maintain a set of disclosure controls and
procedures that are designed to ensure that information relating
to Nextel Communications, Inc. (including its consolidated
subsidiaries) required to be disclosed in our periodic filings
under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported in a timely manner under the
Securities Exchange Act. We carried out an evaluation, under the
supervision and with the participation of management, including
our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of
March 31, 2004.

We completed the implementation of an ERP system
in the first quarter 2004. The implementation was part of a
company-wide initiative to improve business processes and
efficiency. As a matter of course in such implementations, we
have updated our internal controls over financial reporting as
necessary to accommodate any modifications to our business
processes or accounting procedures. There have been no other
changes in our internal controls over financial reporting that
occurred during the quarter ended March 31, 2004 that have
materially affected, or are reasonably likely to materially
affect, Nextels internal controls over financial reporting.

38



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##### 



PART II  OTHER INFORMATION.

Item 1.     Legal
Proceedings.

We are involved in certain legal proceedings that
are described in our annual report on Form 10-K for the
year ended December 31, 2003. During the three months ended
March 31, 2004, there were no material developments in the
status of those legal proceedings that have not been previously
disclosed in those reports, except as set forth below.

The court has approved our previously-reported
settlement with plaintiffs who purport to represent a nationwide
class of affected customers in a lawsuit that has been filed
against us challenging the manner by which we recover the costs
(including costs to implement changes to our network) to comply
with federal regulatory requirements to provide E911, telephone
number pooling and telephone number portability. In general,
these plaintiffs claim that our rate structure that breaks out
and assesses federal program cost recovery fees on monthly
customer bills is misleading and unlawful. The settlement, if
not appealed successfully, would render moot a majority of these
lawsuits, and would not have a material effect on our business
or results of operations.

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

Item 5.     Other
Information.

Proposed Public Safety Spectrum
Realignment.As part of the
ongoing FCC proceeding to eliminate interference with public
safety operators in the 800 MHz band discussed in more
detail in our 2003 annual report on Form 10-K, on
May 3, 2004, we submitted a joint filing to the FCC with
two leading television broadcaster associations related to the
funding of the costs of relocating broadcast auxiliary service
(BAS) operations from the 1.9 GHz spectrum on
which they operate, a portion of which would be granted to us
under the Consensus Plan. Broadcast officials estimate these
relocation costs to be about $512 million. Pursuant to FCC
regulations governing such relocations, the initial licensee
operating in the band would fund the entire cost of relocation
and seek reimbursement from each ensuing licensee for its
portion of the cost of relocation as it commences operation in
the band. To ensure that affected BAS operations are properly
relocated, we now have agreed to fund the entire cost of the BAS
relocation without contribution or reimbursement by other
licensees, so long as the FCC approves the Consensus Plan and
credits us for the full amount of such costs as part of our
contributions under the Consensus Plan. This funding commitment
would be in addition to the $850 million that we already
have committed to fund for the relocation of public safety and
private wireless licensees in the 800 MHz band under the
Consensus Plan.

Local Number Portability.In November 2003, wireless
providers launched telephone number portability in the
nations top 100 markets. Portability enables customers to
keep their telephone numbers when they change carriers within
established geographic markets. On May 24, 2004, number
portability is scheduled to become effective in all remaining
markets among all carriers. Several landline and wireless
providers operating outside of the top 100 markets have filed
petitions with the FCC and various state public utility
commissions requesting waivers of their number portability
obligations. Any grant of these petitions will inhibit the
nationwide roll-out of local number portability and the ability
of consumers in the service areas of the petitioners to port
their telephone numbers, including potentially to wireless
carriers, like us.

39



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##### 



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

(a) List of Exhibits.

|        |    |                     |  |                                                                                                                                                                                                                  
|------- | -- | ------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                    
|Number  |    | Exhibit Description
|        |    |                    
|        | 4  | .1                  |  | Form of Series C 5.95% senior serial
    redeemable note due 2014                                                                                                                                                
|        | 10 | .1.1*               |  | Extension Amendment to the iDEN Infrastructure 5
    Year Supply Agreement and Term Sheet for Subscriber Units and
    Services, dated March 16, 2004, between Motorola, Inc. and
    Nextel Communications, Inc.
|        | 10 | .1.2*               |  | Term Sheet Subscriber Units and Services, dated
    December 31, 2003, between Nextel Communications, Inc. and
    Motorola, Inc.                                                                                
|        | 10 | .1.3*               |  | Amendment One to the Term Sheet for Subscriber
    Units and Services Agreement, dated March 31, 2004, between
    Motorola Inc. and Nextel Communications, Inc.                                                 
|        | 10 | .2.1**              |  | Employment Agreement, dated April 1, 2004,
    between Nextel Communications, Inc. and Thomas N. Kelly, Jr.                                                                                                      
|        | 10 | .2.2**              |  | Employment Agreement, dated April 1, 2004,
    between Nextel Communications, Inc. and Paul N. Saleh                                                                                                             
|        | 10 | .2.3**              |  | Employment Agreement, dated April 1, 2004,
    between Nextel Communications, Inc. and Barry J. West                                                                                                             
|        | 10 | .2.4**              |  | Employment Agreement, dated April 1, 2004,
    between Nextel Communications, Inc. and Leonard J. Kennedy                                                                                                        
|        | 15 |                     |  | Letter in Lieu of Consent for Review Report                                                                                                                                                                      
|        | 31 |                     |  | Rule 13a-14(a)/15d-14(a) Certifications                                                                                                                                                                          
|        | 32 |                     |  | Section 1350 Certifications                                                                                                                                                                                      



---



|  |                                                                                                                                              
|- | ---------------------------------------------------------------------------------------------------------------------------------------------
|* | Portions of this exhibit have been omitted and
    filed separately with the Commission pursuant to a request for
    confidential treatment.



|   |                                                             
|-- | ------------------------------------------------------------
|** | Management contract or compensatory plan or
    arrangement.

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



| |    |                                                                                                                                                                                                                                                           
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Current report on Form 8-K dated and filed
    January 5, 2004, furnishing a press release announcing that
    financial guidance would be reaffirmed at a conference under
    Item 9.                                                                   
|
| | 2. | Current report on Form 8-K dated and filed
    February 19, 2004, reporting certain financial and
    operating results under Item 5 and furnishing a press
    release announcing certain financial and operating results for
    2003 under Item 9.     
|
| | 3. | Current report on Form 8-K dated and filed
    March 18, 2004, reporting under Item 5 the filing of
    the Underwriting Agreement, dated March 16, 2004, and an
    opinion of counsel relating to our 5.95% senior serial
    redeemable notes due 2014.

40



---



##### 



SIGNATURE

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



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



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

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

Date: May 7, 2004


41



---



##### 



EXHIBIT INDEX

|        |    |                     |  |                                                                                                                                                                                                                  
|------- | -- | ------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                    
|Number  |    | Exhibit Description
|        |    |                    
|        | 4  | .1                  |  | Form of Series C 5.95% senior serial
    redeemable note due 2014                                                                                                                                                
|        | 10 | .1.1*               |  | Extension Amendment to the iDEN Infrastructure 5
    Year Supply Agreement and Term Sheet for Subscriber Units and
    Services, dated March 16, 2004, between Motorola, Inc. and
    Nextel Communications, Inc.
|        | 10 | .1.2*               |  | Term Sheet Subscriber Units and Services, dated
    December 31, 2003, between Nextel Communications, Inc. and
    Motorola, Inc.                                                                                
|        | 10 | .1.3*               |  | Amendment One to the Term Sheet for Subscriber
    Units and Services Agreement, dated March 31, 2004, between
    Motorola Inc. and Nextel Communications, Inc.                                                 
|        | 10 | .2.1**              |  | Employment Agreement, dated April 1, 2004,
    between Nextel Communications, Inc. and Thomas N. Kelly, Jr.                                                                                                      
|        | 10 | .2.2**              |  | Employment Agreement, dated April 1, 2004,
    between Nextel Communications, Inc. and Paul N. Saleh                                                                                                             
|        | 10 | .2.3**              |  | Employment Agreement, dated April 1, 2004,
    between Nextel Communications, Inc. and Barry J. West                                                                                                             
|        | 10 | .2.4**              |  | Employment Agreement, dated April 1, 2004,
    between Nextel Communications, Inc. and Leonard J. Kennedy                                                                                                        
|        | 15 |                     |  | Letter in Lieu of Consent for Review Report                                                                                                                                                                      
|        | 31 |                     |  | Rule 13a-14(a)/15d-14(a) Certifications                                                                                                                                                                          
|        | 32 |                     |  | Section 1350 Certifications                                                                                                                                                                                      



---



|  |                                                                                                                                              
|- | ---------------------------------------------------------------------------------------------------------------------------------------------
|* | Portions of this exhibit have been omitted and
    filed separately with the Commission pursuant to a request for
    confidential treatment.



|   |                                                             
|-- | ------------------------------------------------------------
|** | Management contract or compensatory plan or
    arrangement.