##### 



















FORM 10-Q


(Mark One)

|                                                           |  |                                                                                                 
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------
|[X]                                                        |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934 
|                                                          
|For the quarterly period ended
    September 30, 2003     
|                                                          
|OR                                                        
|                                                          
|[  ]                                                       |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934
|                                                          
|For the transition period
    from                      to
|                                                          
|Commission file number 0-19656                            



NEXTEL COMMUNICATIONS, INC.


(Exact name of registrant as specified in its
charter)


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

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

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

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

|                                                     |  |                              |               | 
|---------------------------------------------------- |  | ---------------------------- | ------------- | 
|                                                     |  | Number of Shares Outstanding
|Title of Class                                       |  | on October 31, 2003         
|                                                     |  |                             
|Class A Common Stock, $0.001 par value               |  |                              | 1,063,866,950 | 
|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
    September 30, 2003 and December 31, 2002                                                                |  |  | 3  | 
| |          |  |  |                        |  | Condensed Consolidated Statements of Operations
    and Comprehensive Income (Loss) For the Nine and Three Months
    Ended September 30, 2003 and 2002 |  |  | 4  | 
| |          |  |  |                        |  | Condensed Consolidated Statement of Changes in
    Stockholders Equity For the Nine Months Ended
    September 30, 2003                                |  |  | 5  | 
| |          |  |  |                        |  | Condensed Consolidated Statements of Cash Flows
    For the Nine Months Ended September 30, 2003 and 2002                                               |  |  | 6  | 
| |          |  |  |                        |  | Notes to Condensed Consolidated Financial
    Statements                                                                                                |  |  | 7  | 
| |          |  |  |                        |  | Independent Accountants Review Report                                                                                                                  |  |  | 20 | 
| |          |  |  | Item 2.                |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                                               |  |  | 21 | 
| |          |  |  | Item 3.                |  | Quantitative and Qualitative Disclosures about
    Market Risk                                                                                          |  |  | 43 | 
| |          |  |  | Item 4.                |  | Controls and Procedures                                                                                                                                 |  |  | 44 | 
| | Part  II |  |  | Other Information.    
| |          |  |  | Item 1.                |  | Legal Proceedings                                                                                                                                       |  |  | 45 | 
| |          |  |  | Item 2.                |  | Changes in Securities and Use of Proceeds                                                                                                               |  |  | 45 | 
| |          |  |  | Item 5.                |  | Other Information                                                                                                                                       |  |  | 45 | 
| |          |  |  | Item 6.                |  | Exhibits and Reports on Form 8-K                                                                                                                        |  |  | 46 | 



---



##### 



PART I  FINANCIAL INFORMATION.

Item 1.     Financial
Statements  Unaudited.

NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES



Condensed Consolidated Balance
Sheets


As of September 30, 2003 and
December 31, 2002


(in millions)


Unaudited


|                                                                                       |                                                                                         |                            |        |        |        |   |        |        |        | 
|-------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | -------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                                       |                                                                                         | 2003                       |        | 2002  
|                                                                                       |                                                                                         |                            |        |       
|ASSETS                                                                                
|Current assets                                                                         |                                                                                         |                            |        |        |        |   |        |       
|                                                                                       | Cash and cash equivalents                                                               |                            | $      | 2,535  |        |   | $      | 1,846  |       
|                                                                                       | Short-term investments                                                                  |                            |        | 1,028  |        |   |        | 840    |       
|                                                                                       | Accounts and notes receivable, less allowance for
    doubtful accounts of $91 and $127 |                            |        | 1,217  |        |   |        | 1,077  |       
|                                                                                       | Due from related parties                                                                |                            |        | 53     |        |   |        | 33     |       
|                                                                                       | Handset and accessory inventory                                                         |                            |        | 213    |        |   |        | 245    |       
|                                                                                       | Prepaid expenses and other current assets                                               |                            |        | 150    |        |   |        | 609    |       
|                                                                                       |                                                                                         |                            |        |        |        |   |        |       
|                                                                                       |                                                                                         | Total current assets       |        |        | 5,196  |   |        |        | 4,650  | 
|Investments                                                                            |                                                                                         |                            | 178    |        |        |   | 145    |       
|Property, plant and equipment,net of accumulated depreciation of
    $5,935 and $5,007 |                                                                                         |                            | 8,802  |        |        |   | 8,918  |       
|Intangible assets,net of accumulated amortization of $96
    and $76                   |                                                                                         |                            | 6,937  |        |        |   | 6,607  |       
|Other assets                                                                           |                                                                                         |                            | 327    |        |        |   | 1,164  |       
|                                                                                       |                                                                                         |                            |        |        |        |   |        |       
|                                                                                       |                                                                                         | $                          | 21,440 |        |        | $ | 21,484 |       
|                                                                                       |                                                                                         |                            |        |        |        |   |        |       
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                              
|Current liabilities                                                                    |                                                                                         |                            |        |        |        |   |        |       
|                                                                                       | Accounts payable                                                                        |                            | $      | 571    |        |   | $      | 515    |       
|                                                                                       | Accrued expenses and other                                                              |                            |        | 1,354  |        |   |        | 1,749  |       
|                                                                                       | Due to related parties                                                                  |                            |        | 232    |        |   |        | 241    |       
|                                                                                       | Current portion of long-term debt, capital lease
    and finance obligations (note 2)   |                            |        | 1,587  |        |   |        | 251    |       
|                                                                                       |                                                                                         |                            |        |        |        |   |        |       
|                                                                                       |                                                                                         | Total current liabilities  |        |        | 3,744  |   |        |        | 2,756  | 
|Long-term debt                                                                         |                                                                                         |                            | 10,655 |        |        |   | 12,079 |       
|Capital lease and finance
    obligations                                              |                                                                                         |                            | 146    |        |        |   | 220    |       
|Deferred income taxes                                                                  |                                                                                         |                            | 1,672  |        |        |   | 1,619  |       
|Other liabilities                                                                      |                                                                                         |                            | 192    |        |        |   | 949    |       
|                                                                                       |                                                                                         |                            |        |        |        |   |        |       
|                                                                                       |                                                                                         | Total liabilities          |        |        | 16,409 |   |        |        | 17,623 | 
|                                                                                       |                                                                                         |                            |        |        |        |   |        |       
|Commitments and contingencies
    (note 6)                                             |                                                                                         |                            |        |        |        |   |        |       
|Mandatorily redeemable preferred
    stock                                             |                                                                                         |                            | 96     |        |        |   | 1,015  |       
|Stockholders equity                                                                   |                                                                                         |                            |        |        |        |   |        |       
|                                                                                       | Convertible preferred stock, 0 and 4 shares
    issued and outstanding                  |                            |        |       |        |   |        | 136    |       
|                                                                                       | Common stock, class A, 1,060 and 968 shares
    issued and outstanding                  |                            |        | 1      |        |   |        | 1      |       
|                                                                                       | Common stock, class B, nonvoting convertible, 36
    shares issued and outstanding      |                            |        |       |        |   |        |       |       
|                                                                                       | Paid-in capital                                                                         |                            |        | 11,841 |        |   |        | 10,530 |       
|                                                                                       | Accumulated deficit                                                                     |                            |        | (6,896 | )      |   |        | (7,793 | )     
|                                                                                       | Deferred compensation, net                                                              |                            |        | (19    | )      |   |        | (7     | )     
|                                                                                       | Accumulated other comprehensive income (loss)                                           |                            |        | 8      |        |   |        | (21    | )     
|                                                                                       |                                                                                         |                            |        |        |        |   |        |       
|                                                                                       |                                                                                         | Total stockholders equity |        |        | 4,935  |   |        |        | 2,846  | 
|                                                                                       |                                                                                         |                            |        |        |        |   |        |       
|                                                                                       |                                                                                         | $                          | 21,440 |        |        | $ | 21,484 |       
|                                                                                       |                                                                                         |                            |        |        |        |   |        |       

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

3



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES



Condensed Consolidated Statements of
Operations and Comprehensive Income (Loss)


For the Nine and Three Months Ended
September 30, 2003 and 2002


(in millions, except per share
amounts)


Unaudited


|                                                         |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |       |    |  
|-------------------------------------------------------- | -------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ----- | ------------------ | -- | ---- | ----- | ----- | --- | - | ----- | ----- | -- | - | ----- | ----- | -- | -
|                                                         |                                                                                              |                                                                             |       |                   
|                                                         |                                                                                              | Nine Months Ended                                                           |       | Three Months Ended
|                                                         |                                                                                              | September 30,                                                               |       | September 30,     
|                                                         |                                                                                              |                                                                             |       |                   
|                                                         |                                                                                              | 2003                                                                        |       | 2002               |    | 2003 |       | 2002 
|                                                         |                                                                                              |                                                                             |       |                    |    |      |       |      
|Operating revenues                                       |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|                                                         | Service revenues                                                                             |                                                                             | $     | 7,194              |    |      | $     | 6,002 |     |   | $     | 2,599 |    |   | $     | 2,139 |   
|                                                         | Handset and accessory revenues                                                               |                                                                             |       | 620                |    |      |       | 388   |     |   |       | 288   |    |   |       | 140   |   
|                                                         |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|                                                         |                                                                                              |                                                                             | 7,814 |                    |    |      | 6,390 |       |     |   | 2,887 |       |    |   | 2,279 |      
|                                                         |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|Operating expenses                                       |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|                                                         | Cost of service (exclusive of depreciation
    included below)                               |                                                                             |       | 1,218              |    |      |       | 1,100 |     |   |       | 441   |    |   |       | 383   |   
|                                                         | Cost of handset and accessory revenues                                                       |                                                                             |       | 1,040              |    |      |       | 759   |     |   |       | 415   |    |   |       | 235   |   
|                                                         | Selling, general and administrative                                                          |                                                                             |       | 2,517              |    |      |       | 2,251 |     |   |       | 902   |    |   |       | 783   |   
|                                                         | Restructuring and impairment charge                                                          |                                                                             |       |                   |    |      |       | 35    |     |   |       |      |    |   |       |      |   
|                                                         | Depreciation                                                                                 |                                                                             |       | 1,223              |    |      |       | 1,159 |     |   |       | 416   |    |   |       | 398   |   
|                                                         | Amortization                                                                                 |                                                                             |       | 41                 |    |      |       | 40    |     |   |       | 13    |    |   |       | 14    |   
|                                                         |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|                                                         |                                                                                              |                                                                             | 6,039 |                    |    |      | 5,344 |       |     |   | 2,187 |       |    |   | 1,813 |      
|                                                         |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|Operating income                                         |                                                                                              |                                                                             | 1,775 |                    |    |      | 1,046 |       |     |   | 700   |       |    |   | 466   |      
|                                                         |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|Other income (expense)                                   |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|                                                         | Interest expense                                                                             |                                                                             |       | (664               | )  |      |       | (813  | )   |   |       | (220  | )  |   |       | (271  | ) 
|                                                         | Interest income                                                                              |                                                                             |       | 32                 |    |      |       | 45    |     |   |       | 10    |    |   |       | 14    |   
|                                                         | (Loss) gain on retirement of debt, net of debt
    conversion costs of $0, $134, $0 and $87. |                                                                             |       | (139               | )  |      |       | 347   |     |   |       | (132  | )  |   |       | 208   |   
|                                                         | Equity in (losses) earnings of
    unconsolidated affiliates, net                            |                                                                             |       | (39                | )  |      |       | (298  | )   |   |       | 9     |    |   |       | (23   | ) 
|                                                         | Reduction in fair value of investments                                                       |                                                                             |       | (2                 | )  |      |       | (38   | )   |   |       |      |    |   |       | (3    | ) 
|                                                         | Other, net                                                                                   |                                                                             |       | 4                  |    |      |       | (1    | )   |   |       | 2     |    |   |       |      |   
|                                                         |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|                                                         |                                                                                              |                                                                             | (808  | )                  |    |      | (758  | )     |     |   | (331  | )     |    |   | (75   | )    
|                                                         |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|Income before income tax provision                       |                                                                                              |                                                                             | 967   |                    |    |      | 288   |       |     |   | 369   |       |    |   | 391   |      
|Income tax provision                                     |                                                                                              |                                                                             | (70   | )                  |    |      | (373  | )     |     |   | (21   | )     |    |   | (8    | )    
|                                                         |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|Net income (loss)                                        |                                                                                              |                                                                             | 897   |                    |    |      | (85   | )     |     |   | 348   |       |    |   | 383   |      
|                                                         | (Loss) gain on retirement of mandatorily
    redeemable preferred stock                      |                                                                             |       | (7                 | )  |      |       | 457   |     |   |       |      |    |   |       | 193   |   
|                                                         | Mandatorily redeemable preferred stock dividends
    and accretion                           |                                                                             |       | (55                | )  |      |       | (175  | )   |   |       | (2    | )  |   |       | (50   | ) 
|                                                         |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|Income available to common
    stockholders              |                                                                                              | $                                                                           | 835   |                    |    | $    | 197   |       |     | $ | 346   |       |    | $ | 526   |      
|                                                         |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|Earnings per common share                                |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|                                                         | Basic                                                                                        |                                                                             | $     | 0.81               |    |      | $     | 0.23  |     |   | $     | 0.33  |    |   | $     | 0.58  |   
|                                                         |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|                                                         | Diluted                                                                                      |                                                                             | $     | 0.79               |    |      | $     | 0.22  |     |   | $     | 0.32  |    |   | $     | 0.55  |   
|                                                         |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|Weighted average number of common shares
    outstanding |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|                                                         | Basic                                                                                        |                                                                             |       | 1,030              |    |      |       | 851   |     |   |       | 1,050 |    |   |       | 911   |   
|                                                         |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|                                                         | Diluted                                                                                      |                                                                             |       | 1,060              |    |      |       | 888   |     |   |       | 1,091 |    |   |       | 988   |   
|                                                         |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|Comprehensive income (loss), net of income
    tax       |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|                                                         | Unrealized gain (loss) on available-for-sale
    securities:                                 |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |       |   
|                                                         |                                                                                              | Net unrealized holding gains
    (losses) arising during the period         |       | $                  | 7  |      |       | $     | (45 | ) |       | $     | 3  |   |       | $     | (3 | )
|                                                         |                                                                                              | Reclassification adjustment for loss included in
    net income (loss)      |       |                    |   |      |       |       | 38  |   |       |       |   |   |       |       | 3  |  
|                                                         | Foreign currency translation adjustment                                                      |                                                                             |       | (5                 | )  |      |       | 44    |     |   |       | (2    | )  |   |       |      |   
|                                                         | Cash flow hedge:                                                                             |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |       |   
|                                                         |                                                                                              | Reclassification of transition adjustment
    included in net income (loss) |       |                    | 4  |      |       |       | 6   |   |       |       | 1  |   |       |       | 2  |  
|                                                         |                                                                                              | Unrealized gain (loss) on cash flow hedge                                   |       |                    | 23 |      |       |       | (10 | ) |       |       | 12 |   |       |       | (3 | )
|                                                         |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|                                                         | Other comprehensive income (loss)                                                            |                                                                             |       | 29                 |    |      |       | 33    |     |   |       | 14    |    |   |       | (1    | ) 
|                                                         | Net income (loss)                                                                            |                                                                             |       | 897                |    |      |       | (85   | )   |   |       | 348   |    |   |       | 383   |   
|                                                         |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      
|Comprehensive income (loss), net of income
    tax       |                                                                                              | $                                                                           | 926   |                    |    | $    | (52   | )     |     | $ | 362   |       |    | $ | 382   |      
|                                                         |                                                                                              |                                                                             |       |                    |    |      |       |       |     |   |       |       |    |   |       |      

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

4



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

Condensed Consolidated Statement of Changes in
Stockholders Equity

For the Nine Months Ended September 30,
2003


(in millions)


Unaudited


|                            |                                                                                 |                 |   |              |   |              |     |         |   |             |       |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |   |   |        |     |  |   |     |     |   |   |     |    |  |   |       |     |  
|--------------------------- | ------------------------------------------------------------------------------- | --------------- | - | ------------ | - | ------------ | --- | ------- | - | ----------- | ----- | -------- |  | ------------- | - | ------- |  | ------------ | -- | ------------- |  | ----- | - |  |  | - | ------ | --- | - | - | ------ | --- |  | - | --- | --- | - | - | --- | -- |  | - | ----- | --- | -
|                            |                                                                                 |                 |   |              |   |              |     |         |   |             |       |          |  |               |   |        
|                            |                                                                                 | Convertible     |   | Class A      |   | Class B      |     |         |   |             |       |          |  | Accumulated   |   |        
|                            |                                                                                 | Preferred Stock |   | Common Stock |   | Common Stock |     |         |   |             |       |          |  | Other         |   |        
|                            |                                                                                 |                 |   |              |   |              |     | Paid-in |   | Accumulated |       | Deferred |  | Comprehensive |   |        
|                            |                                                                                 | Shares          |   | Amount       |   | Shares       |     | Amount  |   | Shares      |       | Amount   |  | Capital       |   | Deficit |  | Compensation |    | (Loss) Income |  | Total
|                            |                                                                                 |                 |   |              |   |              |     |         |   |             |       |          |  |               |   |         |  |              |    |               |  |      
|Balance, January 1, 2003    |                                                                                 |                 | 4 |              |   | $            | 136 |         |   |             | 968   |          |  | $             | 1 |         |  |              | 36 |               |  | $     |  |  |  | $ | 10,530 |     |   | $ | (7,793 | )   |  | $ | (7  | )   |   | $ | (21 | )  |  | $ | 2,846 |    
|                            | Net income                                                                      |                 |   |              |   |              |     |         |   |             |       |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |   |   |        | 897 |  |   |     |     |   |   |     |    |  |   |       | 897 |  
|                            | Other comprehensive income                                                      |                 |   |              |   |              |     |         |   |             |       |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |   |   |        |     |  |   |     |     |   |   |     | 29 |  |   |       | 29  |  
|                            | Conversion of preferred stock into common stock                                 |                 |   | (4           | ) |              |     | (136    | ) |             |       | 22       |  |               |   |        |  |              |    |               |  |       |   |  |  |   |        | 136 |   |   |        |     |  |   |     |     |   |   |     |    |  |   |       |    |  
|                            | Common stock issued under direct stock purchase
    plan and other equity plans |                 |   |              |   |              |     |         |   |             |       | 40       |  |               |   |        |  |              |    |               |  |       |   |  |  |   |        | 614 |   |   |        |     |  |   |     |     |   |   |     |    |  |   |       | 614 |  
|                            | Exchange of debt securities for common stock                                    |                 |   |              |   |              |     |         |   |             |       | 30       |  |               |   |        |  |              |    |               |  |       |   |  |  |   |        | 584 |   |   |        |     |  |   |     |     |   |   |     |    |  |   |       | 584 |  
|                            | Deferred compensation                                                           |                 |   |              |   |              |     |         |   |             |       |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        | 19  |   |   |        |     |  |   |     | (12 | ) |   |     |    |  |   |       | 7   |  
|                            | Increase on issuance of equity by affiliates, net
    of deferred income tax    |                 |   |              |   |              |     |         |   |             |       |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        | 20  |   |   |        |     |  |   |     |     |   |   |     |    |  |   |       | 20  |  
|                            | Loss on retirement of mandatorily redeemable
    preferred stock                |                 |   |              |   |              |     |         |   |             |       |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        | (7  | ) |   |        |     |  |   |     |     |   |   |     |    |  |   |       | (7  | )
|                            | Dividends and accretion on mandatorily redeemable
    preferred stock           |                 |   |              |   |              |     |         |   |             |       |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        | (55 | ) |   |        |     |  |   |     |     |   |   |     |    |  |   |       | (55 | )
|                            |                                                                                 |                 |   |              |   |              |     |         |   |             |       |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |   |   |        |     |  |   |     |     |   |   |     |    |  |   |       |    
|Balance, September 30, 2003 |                                                                                 |                 |  |              |   | $            |    |         |   |             | 1,060 |          |  | $             | 1 |         |  |              | 36 |               |  | $     |  |  |  | $ | 11,841 |     |   | $ | (6,896 | )   |  | $ | (19 | )   |   | $ | 8   |    |  | $ | 4,935 |    
|                            |                                                                                 |                 |   |              |   |              |     |         |   |             |       |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |   |   |        |     |  |   |     |     |   |   |     |    |  |   |       |    

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

5



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

Condensed Consolidated Statements of Cash
Flows


For the Nine Months Ended September 30,
2003 and 2002


(in millions)


Unaudited


|                                                         |                                                                                              |                                                                         |                                              |                                           |       |      |        |        |       |      |        |  
|-------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------- | ----- | ---- | ------ | ------ | ----- | ---- | ------ | -
|                                                         |                                                                                              | 2003                                                                    |                                              | 2002                                     
|                                                         |                                                                                              |                                                                         |                                              |                                          
|Cash flows from operating activities                     |                                                                                              |                                                                         |                                              |                                           |       |      |        |       
|                                                         | Net income (loss)                                                                            |                                                                         | $                                            | 897                                       |       |      | $      | (85    | )    
|                                                         | Adjustments to reconcile net income
    (loss) to net cash provided by operating activities: |                                                                         |                                              |                                           |       |      |        |        |      
|                                                         |                                                                                              | Amortization of debt financing costs and
    accretion of senior notes  |                                              |                                           | 39    |      |        |        | 267   |     
|                                                         |                                                                                              | Provision for losses on accounts receivable                             |                                              |                                           | 101   |      |        |        | 260   |     
|                                                         |                                                                                              | Amortization of deferred gain from sale of towers                       |                                              |                                           | (79   | )    |        |        |      |     
|                                                         |                                                                                              | Restructuring and impairment charge                                     |                                              |                                           |      |      |        |        | 26    |     
|                                                         |                                                                                              | Depreciation and amortization                                           |                                              |                                           | 1,264 |      |        |        | 1,199 |     
|                                                         |                                                                                              | Loss (gain) on retirement of debt                                       |                                              |                                           | 139   |      |        |        | (481  | )   
|                                                         |                                                                                              | Debt conversion expense                                                 |                                              |                                           |      |      |        |        | 134   |     
|                                                         |                                                                                              | Equity in losses of unconsolidated affiliates, net                      |                                              |                                           | 39    |      |        |        | 298   |     
|                                                         |                                                                                              | Reduction in fair value of investments                                  |                                              |                                           | 2     |      |        |        | 38    |     
|                                                         |                                                                                              | Income tax provision                                                    |                                              |                                           | 39    |      |        |        | 373   |     
|                                                         |                                                                                              | Other, net                                                              |                                              |                                           | 39    |      |        |        | 35    |     
|                                                         |                                                                                              | Change in assets and liabilities, net of effects
    from acquisitions: |                                              |                                           |       |      |        |        |       |     
|                                                         |                                                                                              |                                                                         | Accounts and notes receivable                |                                           |       | (271 | )      |        |       | (626 | )     
|                                                         |                                                                                              |                                                                         | Handset and accessory inventory              |                                           |       | 27   |        |        |       | (62  | )     
|                                                         |                                                                                              |                                                                         | Prepaid expenses and other assets            |                                           |       | (75  | )      |        |       | 24   |       
|                                                         |                                                                                              |                                                                         | Accounts payable, accrued expenses and other |                                           |       | 233  |        |        |       | 113  |       
|                                                         |                                                                                              |                                                                         |                                              |                                           |       |      |        |       
|                                                         |                                                                                              |                                                                         |                                              | Net cash provided by operating activities |       |      | 2,394  |        |       |      | 1,513  |  
|                                                         |                                                                                              |                                                                         |                                              |                                           |       |      |        |       
|Cash flows from investing activities                     |                                                                                              |                                                                         |                                              |                                           |       |      |        |       
|                                                         | Capital expenditures                                                                         |                                                                         |                                              | (1,158                                    | )     |      |        | (1,408 | )    
|                                                         | Purchases of short-term investments                                                          |                                                                         |                                              | (2,019                                    | )     |      |        | (2,476 | )    
|                                                         | Proceeds from maturities and sales of short-term
    investments                             |                                                                         |                                              | 1,840                                     |       |      |        | 2,538  |      
|                                                         | Payments for purchase of licenses, investments
    and other, net of cash acquired           |                                                                         |                                              | (263                                      | )     |      |        | (305   | )    
|                                                         | Payments for acquisitions, net of cash acquired                                              |                                                                         |                                              |                                          |       |      |        | (111   | )    
|                                                         | Cash relinquished as a result of the
    deconsolidation of NII Holdings                     |                                                                         |                                              |                                          |       |      |        | (250   | )    
|                                                         |                                                                                              |                                                                         |                                              |                                           |       |      |        |       
|                                                         |                                                                                              |                                                                         |                                              | Net cash used in investing activities     |       |      | (1,600 | )      |       |      | (2,012 | )
|                                                         |                                                                                              |                                                                         |                                              |                                           |       |      |        |       
|Cash flows from financing activities                     |                                                                                              |                                                                         |                                              |                                           |       |      |        |       
|                                                         | Purchase and retirement of debt securities and
    mandatorily redeemable preferred stock    |                                                                         |                                              | (2,466                                    | )     |      |        | (689   | )    
|                                                         | Proceeds from issuance of debt securities                                                    |                                                                         |                                              | 1,983                                     |       |      |        |       |      
|                                                         | Proceeds from issuance of stock                                                              |                                                                         |                                              | 605                                       |       |      |        | 1      |      
|                                                         | Borrowings under long-term credit facility                                                   |                                                                         |                                              | 69                                        |       |      |        |       |      
|                                                         | Repayments under long-term credit facility                                                   |                                                                         |                                              | (148                                      | )     |      |        |       |      
|                                                         | Payment for capital lease buy-out                                                            |                                                                         |                                              | (54                                       | )     |      |        |       |      
|                                                         | Repayments under capital lease and finance
    obligations                                   |                                                                         |                                              | (35                                       | )     |      |        | (77    | )    
|                                                         | Mandatorily redeemable preferred stock dividends
    paid                                    |                                                                         |                                              | (57                                       | )     |      |        |       |      
|                                                         | Other                                                                                        |                                                                         |                                              | (2                                        | )     |      |        | 4      |      
|                                                         |                                                                                              |                                                                         |                                              |                                           |       |      |        |       
|                                                         |                                                                                              |                                                                         |                                              | Net cash used in financing activities     |       |      | (105   | )      |       |      | (761   | )
|                                                         |                                                                                              |                                                                         |                                              |                                           |       |      |        |       
|Net increase (decrease) in cash and cash
    equivalents |                                                                                              |                                                                         | 689                                          |                                           |       |      | (1,260 | )     
|Cash and cash equivalents, beginning of
    period       |                                                                                              |                                                                         | 1,846                                        |                                           |       |      | 2,481  |       
|                                                         |                                                                                              |                                                                         |                                              |                                           |       |      |        |       
|Cash and cash equivalents, end of
    period             |                                                                                              | $                                                                       | 2,535                                        |                                           |       | $    | 1,221  |       
|                                                         |                                                                                              |                                                                         |                                              |                                           |       |      |        |       

The accompanying notes 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, 2002 and our subsequent quarterly reports on
Form 10-Q.

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

|                                                                   |                                                                               |                                                                         |       |                    |    |      |     |      |    |   |       |      |    |   |     |      |    | 
|------------------------------------------------------------------ | ----------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ----- | ------------------ | -- | ---- | --- | ---- | -- | - | ----- | ---- | -- | - | --- | ---- | -- | 
|                                                                   |                                                                               |                                                                         |       |                   
|                                                                   |                                                                               | Nine Months Ended                                                       |       | Three Months Ended
|                                                                   |                                                                               | September 30,                                                           |       | September 30,     
|                                                                   |                                                                               |                                                                         |       |                   
|                                                                   |                                                                               | 2003                                                                    |       | 2002               |    | 2003 |     | 2002
|                                                                   |                                                                               |                                                                         |       |                    |    |      |     |     
|                                                                   |                                                                               |                                                                        
|                                                                   |                                                                               | (in millions, except per share amounts)                                
|Income available to common
    stockholders  basic                |                                                                               | $                                                                       | 835   |                    |    | $    | 197 |      |    | $ | 346   |      |    | $ | 526 |     
|                                                                   | Interest expense and accretion eliminated upon
    the assumed conversion of: |                                                                         |       |                    |    |      |     |      |    |   |       |      |    |   |     |      |   
|                                                                   |                                                                               | 4.75% convertible senior notes due 2007                                 |       |                    |   |      |     |      |   |   |       |      | 4  |   |     |      | 4  | 
|                                                                   |                                                                               | 6% convertible senior notes due 2011                                    |       |                    |   |      |     |      |   |   |       |      |   |   |     |      | 9  | 
|                                                                   |                                                                               | Zero coupon convertible preferred stock
    mandatorily redeemable 2013 |       |                    |   |      |     |      |   |   |       |      |   |   |     |      | 2  | 
|                                                                   |                                                                               |                                                                         |       |                    |    |      |     |      |    |   |       |      |    |   |     |     
|Income available to common
    stockholders  diluted              |                                                                               | $                                                                       | 835   |                    |    | $    | 197 |      |    | $ | 350   |      |    | $ | 541 |     
|                                                                   |                                                                               |                                                                         |       |                    |    |      |     |      |    |   |       |      |    |   |     |     
|Weighted average number of common shares
    outstanding  basic   |                                                                               |                                                                         | 1,030 |                    |    |      | 851 |      |    |   | 1,050 |      |    |   | 911 |     
|                                                                   | Effect of dilutive securities:                                                |                                                                         |       |                    |    |      |     |      |    |   |       |      |    |   |     |      |   
|                                                                   |                                                                               | Class A convertible preferred stock                                     |       |                    | 6  |      |     |      | 35 |   |       |      |   |   |     |      | 30 | 
|                                                                   |                                                                               | Equity plans                                                            |       |                    | 24 |      |     |      | 2  |   |       |      | 29 |   |     |      | 4  | 
|                                                                   |                                                                               | 4.75% convertible senior notes due 2007                                 |       |                    |   |      |     |      |   |   |       |      | 12 |   |     |      | 12 | 
|                                                                   |                                                                               | 6% convertible senior notes due 2011                                    |       |                    |   |      |     |      |   |   |       |      |   |   |     |      | 26 | 
|                                                                   |                                                                               | Zero coupon convertible preferred stock
    mandatorily redeemable 2013 |       |                    |   |      |     |      |   |   |       |      |   |   |     |      | 5  | 
|                                                                   |                                                                               |                                                                         |       |                    |    |      |     |      |    |   |       |      |    |   |     |     
|Weighted average number of common shares
    outstanding  diluted |                                                                               |                                                                         | 1,060 |                    |    |      | 888 |      |    |   | 1,091 |      |    |   | 988 |     
|                                                                   |                                                                               |                                                                         |       |                    |    |      |     |      |    |   |       |      |    |   |     |     
|Earnings per common share                                          |                                                                               |                                                                         |       |                    |    |      |     |      |    |   |       |      |    |   |     |     
|                                                                   | Basic                                                                         |                                                                         | $     | 0.81               |    |      | $   | 0.23 |    |   | $     | 0.33 |    |   | $   | 0.58 |   
|                                                                   |                                                                               |                                                                         |       |                    |    |      |     |      |    |   |       |      |    |   |     |     
|                                                                   | Diluted                                                                       |                                                                         | $     | 0.79               |    |      | $   | 0.22 |    |   | $     | 0.32 |    |   | $   | 0.55 |   
|                                                                   |                                                                               |                                                                         |       |                    |    |      |     |      |    |   |       |      |    |   |     |     

7



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

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

About 52 million and 10 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 nine and three months ended September 30,
2002 due to their antidilutive effects. Additionally, about
95 million and 93 million shares issuable under our
incentive and other equity plans that could also potentially
dilute earnings per share in the future were excluded from the
calculation of diluted earnings per common share for the nine
and three months ended September 30, 2002 as the exercise
prices exceeded the average market price of our class A common
stock during those periods.

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

During the nine months ended September 30,
2003, we acquired Federal Communications Commission, or FCC,
licenses at a cost of $339 million, which includes both the
licenses of NeoWorld Communications, Inc. and deposits for
licenses paid prior to 2003 that were recorded in other assets
until we acquired the relevant licenses. The table below
summarizes our intangible assets.

|                              |                                                          |               |  |                    |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |       | 
|----------------------------- | -------------------------------------------------------- | ------------- |  | ------------------ |  | ----------------- | ----- | -------- |  | -------- | -- | ------------ |  | -------- | ----- | ----- |  | - | ----- | ----- |  | - | -- | -- |  | - | ----- | ----- | 
|                              |                                                          |               |  |                    |  |                  
|                              |                                                          |               |  | September 30, 2003 |  | December 31, 2002
|                              |                                                          |               |  |                    |  |                  
|                              |                                                          |               |  | Gross              |  |                   |       | Net      |  | Gross    |    |              |  | Net     
|                              |                                                          |               |  | Carrying           |  | Accumulated       |       | Carrying |  | Carrying |    | Accumulated  |  | Carrying
|                              |                                                          | Useful Lives  |  | Value              |  | Amortization      |       | Value    |  | Value    |    | Amortization |  | Value   
|                              |                                                          |               |  |                    |  |                   |       |          |  |          |    |              |  |         
|                              |                                                          |              
|                              |                                                          | (in millions)
|Amortized intangible assets   |                                                          |               |  |                    |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              | Customer lists                                           |               |  | 3 years            |  |                   | $     | 114      |  |          | $  | 81           |  |          | $     | 33    |  |   | $     | 129   |  |   | $  | 66 |  |   | $     | 63    | 
|                              | Noncompete and spectrum sharing agreements and
    other |               |  | Up to 20 years     |  |                   |       | 82       |  |          |    | 15           |  |          |       | 67    |  |   |       | 58    |  |   |    | 10 |  |   |       | 48    | 
|                              |                                                          |               |  |                    |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              |                                                          |               |  |                    |  |                   | 196   |          |  |          | 96 |              |  |          | 100   |       |  |   | 187   |       |  |   | 76 |    |  |   | 111   |      
|                              |                                                          |               |  |                    |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|Unamortized intangible assets |                                                          |               |  |                    |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              | FCC licenses                                             |               |  | Indefinite         |  |                   |       | 6,809    |  |          |    |              |  |          |       | 6,809 |  |   |       | 6,475 |  |   |    |    |  |   |       | 6,475 | 
|                              | Goodwill                                                 |               |  | Indefinite         |  |                   |       | 28       |  |          |    |              |  |          |       | 28    |  |   |       | 21    |  |   |    |    |  |   |       | 21    | 
|                              |                                                          |               |  |                    |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              |                                                          |               |  |                    |  |                   | 6,837 |          |  |          |    |              |  |          | 6,837 |       |  |   | 6,496 |       |  |   |    |    |  |   | 6,496 |      
|                              |                                                          |               |  |                    |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|Total intangible assets       |                                                          |               |  |                    |  | $                 | 7,033 |          |  | $        | 96 |              |  | $        | 6,937 |       |  | $ | 6,683 |       |  | $ | 76 |    |  | $ | 6,607 |      
|                              |                                                          |               |  |                    |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      

For intangible assets with finite lives, we
recorded aggregate amortization expense of $38 million for
the nine months ended September 30, 2003 and
$37 million for the nine months ended September 30,
2002. Based only on the amortized intangible assets existing at
September 30, 2003, we estimate the amortization expense to
be $11 million for the remainder of 2003, $30 million
during 2004, $6 million during 2005, $2 million during
2006 and about $1 million during 2007. Actual amortization
expense to be reported in future

8



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

periods could differ from these estimates as a
result of acquisitions of new intangible assets, changes in
useful lives or other relevant factors.

In connection with the adoption of SFAS
No. 142, we ceased amortizing FCC license costs, as we
believe that our portfolio of FCC licenses represents an
intangible asset with an indefinite useful life. As a result, in
the first quarter 2002, we incurred a one-time cumulative
non-cash charge to the income tax provision of $335 million
to increase the valuation allowance related to our net operating
losses. As these FCC licenses are no longer amortized for book
purposes but are amortized for tax purposes, we are recording
additional deferred tax liabilities only as such licenses are
amortized for tax purposes. We have recorded income tax
provision and deferred tax liabilities of $39 million and
$38 million for the nine months ended September 30,
2003 and 2002 related to these temporary differences.

Accumulated
Other Comprehensive Income (Loss).

|                                                               |  |               |    |              |  |   |     |  
|-------------------------------------------------------------- |  | ------------- | -- | ------------ |  | - | --- | -
|                                                               |  | September 30, |    | December 31,
|                                                               |  | 2003          |    | 2002        
|                                                               |  |               |    |             
|                                                               |  |              
|                                                               |  | (in millions)
|Unrealized gain on available-for-sale securities,
    net      |  | $             | 14 |              |  | $ | 7   |  
|Cumulative foreign currency translation adjustment             |  |               | (6 | )            |  |   | (1  | )
|Cumulative effect of accounting change for cash
    flow hedge |  |               |   |              |  |   | (4  | )
|Unrealized loss on cash flow hedge                             |  |               |   |              |  |   | (23 | )
|                                                               |  |               |    |              |  |   |     |  
|                                                               |  | $             | 8  |              |  | $ | (21 | )
|                                                               |  |               |    |              |  |   |     |  

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 SFAS
No. 123 and other applicable accounting principles. We
recorded stock-based compensation expense of $7 million and
$13 million for the nine months ended September 30,
2003 and 2002, respectively, and $3 million and
$4 million for the three months ended September 30,
2003 and 2002, respectively.

We comply with the disclosure provisions of SFAS
No. 123, Accounting for Stock-Based
Compensation and SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and
Disclosure. Consistent with the provisions of SFAS
No. 123, had compensation costs been determined based on
the fair

9



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

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

|                                                              |                                  |                                         |     |                    |      |      |     |      |       |   |     |     |      |   |     |     |      | 
|------------------------------------------------------------- | -------------------------------- | --------------------------------------- | --- | ------------------ | ---- | ---- | --- | ---- | ----- | - | --- | --- | ---- | - | --- | --- | ---- | 
|                                                              |                                  |                                         |     |                   
|                                                              |                                  | Nine Months Ended                       |     | Three Months Ended
|                                                              |                                  | September 30,                           |     | September 30,     
|                                                              |                                  |                                         |     |                   
|                                                              |                                  | 2003                                    |     | 2002               |      | 2003 |     | 2002
|                                                              |                                  |                                         |     |                    |      |      |     |     
|                                                              |                                  |                                        
|                                                              |                                  | (in millions, except per share amounts)
|Income available to common stockholders, as
    reported      |                                  | $                                       | 835 |                    |      | $    | 197 |      |       | $ | 346 |     |      | $ | 526 |    
|                                                              | Stock-based compensation expense |                                         |     | (240               | )    |      |     | (258 | )     |   |     | (81 | )    |   |     | (86 | )   
|                                                              |                                  |                                         |     |                    |      |      |     |      |       |   |     |     |      |   |     |    
|Income (loss) available to common
    stockholders, pro forma |                                  | $                                       | 595 |                    |      | $    | (61 | )    |       | $ | 265 |     |      | $ | 440 |    
|                                                              |                                  |                                         |     |                    |      |      |     |      |       |   |     |     |      |   |     |    
|Earnings (loss) per common
    share                          |                                  |                                         |     |                    |      |      |     |      |       |   |     |     |      |   |     |    
|                                                              | As reported                      |                                         |     |                    |      |      |     |      |       |   |     |     |      |   |     |     |     
|                                                              |                                  | Basic                                   |     | $                  | 0.81 |      |     | $    | 0.23  |   |     | $   | 0.33 |   |     | $   | 0.58 | 
|                                                              |                                  |                                         |     |                    |      |      |     |      |       |   |     |     |      |   |     |    
|                                                              |                                  | Diluted                                 |     | $                  | 0.79 |      |     | $    | 0.22  |   |     | $   | 0.32 |   |     | $   | 0.55 | 
|                                                              |                                  |                                         |     |                    |      |      |     |      |       |   |     |     |      |   |     |    
|                                                              | Pro forma                        |                                         |     |                    |      |      |     |      |       |   |     |     |      |   |     |     |     
|                                                              |                                  | Basic                                   |     | $                  | 0.58 |      |     | $    | (0.07 | ) |     | $   | 0.25 |   |     | $   | 0.48 | 
|                                                              |                                  |                                         |     |                    |      |      |     |      |       |   |     |     |      |   |     |    
|                                                              |                                  | Diluted                                 |     | $                  | 0.56 |      |     | $    | (0.07 | ) |     | $   | 0.25 |   |     | $   | 0.46 | 
|                                                              |                                  |                                         |     |                    |      |      |     |      |       |   |     |     |      |   |     |    

Supplemental
Cash Flow Information.

|                                                         |                                                                 |                   |       |       |   |   |       |       |  
|-------------------------------------------------------- | --------------------------------------------------------------- | ----------------- | ----- | ----- | - | - | ----- | ----- | -
|                                                         |                                                                 |                  
|                                                         |                                                                 | Nine Months Ended
|                                                         |                                                                 | September 30,    
|                                                         |                                                                 |                  
|                                                         |                                                                 | 2003              |       | 2002 
|                                                         |                                                                 |                   |       |      
|                                                         |                                                                 |                  
|                                                         |                                                                 | (in millions)    
|Capital expenditures, including capitalized
    interest |                                                                 |                   |       |       |   |   |       |      
|                                                         | Cash paid for capital expenditures                              |                   | $     | 1,158 |   |   | $     | 1,408 |  
|                                                         | Changes in capital expenditures accrued, unpaid
    or financed |                   |       | (21   | ) |   |       | (49   | )
|                                                         |                                                                 |                   |       |       |   |   |       |      
|                                                         |                                                                 | $                 | 1,137 |       |   | $ | 1,359 |      
|                                                         |                                                                 |                   |       |       |   |   |       |      
|Interest costs                                           |                                                                 |                   |       |       |   |   |       |      
|                                                         | Interest expense                                                |                   | $     | 664   |   |   | $     | 813   |  
|                                                         | Interest capitalized                                            |                   |       | 27    |   |   |       | 36    |  
|                                                         |                                                                 |                   |       |       |   |   |       |      
|                                                         |                                                                 | $                 | 691   |       |   | $ | 849   |      
|                                                         |                                                                 |                   |       |       |   |   |       |      
|Cash paid for interest, net of amounts
    capitalized   |                                                                 | $                 | 583   |       |   | $ | 519   |      
|                                                         |                                                                 |                   |       |       |   |   |       |      
|Cash received for interest                               |                                                                 | $                 | 22    |       |   | $ | 41    |      
|                                                         |                                                                 |                   |       |       |   |   |       |      
|Cash paid for income taxes                               |                                                                 | $                 | 50    |       |   | $ | 10    |      
|                                                         |                                                                 |                   |       |       |   |   |       |      

New
Accounting Pronouncements.

SFAS No. 143.In June 2001, the Financial
Accounting Standards Board, or FASB, issued SFAS No. 143,
Accounting for Asset Retirement Obligations. We
adopted the provisions of SFAS No. 143 during 2003. Under
the provisions of SFAS No. 143, we record an asset
retirement obligation and an associated asset retirement cost
when we have a legal obligation in connection with the
retirement of tangible long-lived assets. Our obligations under
SFAS No. 143 arise from certain of our leases and relate
primarily to the cost of

10



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

removing our equipment from such leased sites.
The effect of implementing the provisions of SFAS No. 143
was not material.

FASB Interpretation No. 45.In November 2002, the FASB issued
FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. The
interpretation addresses disclosures to be made by a guarantor
in its interim and annual financial statements about its
obligations under guarantees and clarifies that a guarantor is
required to recognize a liability for the fair value of the
obligations undertaken in issuing certain guarantees at
inception. The initial recognition and measurement provisions of
the interpretation are applicable on a prospective basis to
certain guarantees issued or modified on or after
January 1, 2003. The provisions that require recognition of
a liability do not apply to guarantees by one member of a
consolidated group of entities of the debt of other members of
the same group to third parties. We currently do not guarantee
the debt of any entity outside our consolidated group, and
therefore, the implementation of FASB Interpretation No. 45
did not have a material impact on our financial position or
results of operations. In certain limited circumstances, our
operating subsidiaries have entered into executory agreements
with third parties that require a guarantee of Nextel
Communications, Inc., or NCI, and/or another of its
subsidiaries. These guarantees relate to certain equipment and
facility leases and vendor/promotional arrangements and range in
duration from two to ten years. In addition, NCI and
substantially all of its operating subsidiaries are guarantors
of the borrowings of another of NCIs subsidiaries under
our bank credit facility, which obligations are secured by liens
on substantially all of our assets. As of September 30,
2003, these guarantees aggregated about $5.0 billion, of which
about $4.4 billion related to our bank credit facility. We
believe that the likelihood of NCI and/or another of its
subsidiaries having to make any payments under the guarantees is
remote since our operating subsidiaries have been, and we
believe they will continue to be, able to pay their obligations
with cash flows from their operations or cash balances on hand.
From time to time, we may enter into other agreements with third
parties that require a guarantee of NCI and/or another of its
subsidiaries.

EITF Issue
No. 00-21.In
November 2002, the Emerging Issues Task Force, or EITF,
issued a final consensus on EITF Issue No. 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables. EITF Issue No. 00-21 provides guidance
on when and how an arrangement involving multiple deliverables
should be divided into separate units of accounting. EITF Issue
No. 00-21 is effective prospectively for arrangements
entered into in fiscal periods beginning after June 15,
2003, and may be applied to existing arrangements, with any
impact recorded as a cumulative effect of a change in accounting
principle in the statement of operations.

Under the provisions of Staff Accounting
Bulletin, or SAB, No. 101, Revenue Recognition in
Financial Statements, we accounted for the sale of our
handsets and the subsequent service to the customer as a single
unit of accounting due to the fact that our wireless service is
essential to the functionality of our handsets. Accordingly, we
recognized revenue from handset sales and an equal amount of
cost of handset revenues over the expected customer relationship
period, beginning when title to the handset passed to the
customer. Under EITF Issue No. 00-21, we no longer need to
consider whether a customer is able to realize utility from the
handset in the absence of the undelivered service. Based on this
fact and that we meet the criteria stipulated in EITF Issue
No. 00-21, we have concluded that EITF Issue No. 00-21
requires us to account for the sale of a handset as a unit of
accounting separate from the subsequent service to the customer.
Accordingly, for all arrangements entered into beginning in the
third quarter 2003, we recognize revenue from handset sales and
the related cost of handset revenues when title to the handset
passes to the customer. In addition, we recognize the portion of
the activation fees allocated to the handset unit of accounting
in the statement of operations when title to the handset passes
to the customer. We defer the portion of the activation fees
allocated to the service unit of accounting, together with an
equal amount of costs, and recognize such deferred fees and
costs on a straight line basis over the contract life in the
statement of operations.

11



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

We elected to apply the provisions of EITF Issue
No. 00-21 to our existing customer arrangements.
Accordingly, on July 1, 2003, we reduced our current assets
and liabilities by about $563 million and our noncurrent
assets and liabilities by about $783 million, representing
substantially all of the revenues and costs associated with the
original sale of handsets that were deferred under SAB
No. 101. The cumulative effect of adopting EITF Issue
No. 00-21 did not materially impact the statement of
operations.

FASB Interpretation
No. 46.In January 2003,
the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities. The
Interpretation clarifies the application of Accounting Research
Bulletin No. 51, Consolidated Financial
Statements, to certain entities in which the equity
investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. In
October 2003, the FASB issued FASB Staff Position,
Interpretation No. 46-6 Effective Date of FASB
Interpretation No. 46, Consolidation of Variable Interest
Entities which provides that FASB Interpretation
No. 46 is effective for an entitys first reporting
period ending after December 15, 2003 for variable interest
entities created before February 1, 2003. The
Interpretation applies immediately to variable interest entities
created after January 31, 2003, or in which we obtain an
interest after that date. Based on existing guidance, we do not
have any material variable interest entity arrangements as of
September 30, 2003.

SFAS
No. 149.In April 2003,
the FASB issued SFAS No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging
Activities. This statement amends and clarifies financial
accounting and reporting for derivative instruments, including
derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. In
particular, this statement clarifies the circumstances in which
a contract with an initial net investment meets the
characteristic of a derivative, clarifies when a derivative
contains a financing component, amends the definition of an
underlying to conform it to language used in FASB Interpretation
No. 45, and amends certain other existing pronouncements.
SFAS No. 149 is applied prospectively to all contracts
entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003.
However, the provisions of this statement that relate to
SFAS 133 Implementation Issues, which have been
effective for fiscal quarters beginning prior to June 15,
2003, continue to be applied in accordance with their respective
effective dates. The implementation of SFAS No. 149 did not
have a material impact on our financial position or results of
operations.

SFAS
No. 150.In May 2003,
the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity. This statement establishes standards for how
an issuer classifies and measures certain financial instruments
with characteristics of both liabilities and equity. It requires
the issuer to classify a financial instrument that is within the
scope of the standard as a liability if such financial
instrument embodies an obligation of the issuer. The adoption of
SFAS No. 150 required us to reclassify and account for our
series D and series E mandatorily redeemable preferred
stock as liabilities effective July 1, 2003 prospectively,
as these mandatorily redeemable financial instruments embodied
an unconditional obligation that required us to redeem the
instrument at a specified date and/or upon an event certain to
occur. As discussed in note 2, we redeemed all of our
series D preferred stock in July 2003 and all of our
series E preferred stock in August 2003. Accordingly, the
implementation of SFAS No. 150 did not have a material
impact on our financial position or results of operations. The
balance sheet classification of our zero coupon convertible
preferred stock will remain the same, as this preferred stock is
convertible into a fixed number of shares of our class A
common stock. We have not reclassified the series D and
series E preferred stock balances and related amounts for
dividends and gains (losses) on retirement for periods
prior to July 1, 2003.

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

12



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)



|        |                                                                                                     
|------- | ----------------------------------------------------------------------------------------------------
|Note 2. | Long-Term Debt, Capital Lease and Finance
    Obligations and Mandatorily Redeemable Preferred Stock

During the second quarter 2002 and continuing
into 2003, we began deleveraging our balance sheet through the
redemption, purchase and retirement of some of our senior notes,
convertible senior notes and preferred stock. Some of the
proceeds of newly issued senior notes with lower interest rates
and longer maturity periods were used to redeem and retire
certain senior notes and preferred stock. We may, from time to
time, as we deem appropriate, enter into similar or other
redemption, repurchase or retirement transactions that in the
aggregate may be material.

Long-Term
Debt.

|                                                                                                                  |                      |                       |        |             |      |           |     |                    |  |                |       |       |  |   |        |        |        |   |        |        |      |  
|----------------------------------------------------------------------------------------------------------------- | -------------------- | --------------------- | ------ | ----------- | ---- | --------- | --- | ------------------ |  | -------------- | ----- | ----- |  | - | ------ | ------ | ------ | - | ------ | ------ | ---- | -
|                                                                                                                  |                      |                       |        | Book and    |      | New       |     |                   
|                                                                                                                  |                      | December 31,          |        | Principal   |      | Debt      |     | September 30, 2003
|                                                                                                                  |                      | 2002                  |        | Value of    |      | Issuance  |     |                   
|                                                                                                                  |                      | Balance               |        | Retirements |      | and Other |     | Balance            |  | As Adjusted(d)
|                                                                                                                  |                      |                       |        |             |      |           |     |                    |  |               
|                                                                                                                  |                      |                      
|                                                                                                                  |                      | (dollars in millions)
|10.65% senior redeemable discount notes due
    2007                                                              |                      | $                     | 756    |             |      | $         | 756 |                    |  | $              |      |       |  | $ |       |        |        | $ |       |       
|9.75% senior serial redeemable discount notes
    due 2007                                                        |                      |                       | 1,086  |             |      |           | 589 |                    |  |                |      |       |  |   | 497    |        |        |   |       |       
|4.75% convertible senior notes due
    2007                                                                       |                      |                       | 284    |             |      |           |    |                    |  |                |      |       |  |   | 284    |        |        |   |       |       
|9.95% senior serial redeemable discount notes
    due 2008, net of unamortized discount
    of $16, $0 and $0     |                      |                       | 1,364  |             |      |           | 381 |                    |  |                | 16    | (a)   |  |   | 999    |        |        |   |       |       
|12% senior serial redeemable notes due
    2008, net of unamortized discount of
    $3, $3 and $0                 |                      |                       | 297    |             |      |           | 29  |                    |  |                |      |       |  |   | 268    |        |        |   |       |       
|9.375% senior serial redeemable notes due
    2009                                                                |                      |                       | 1,796  |             |      |           | 197 |                    |  |                |      |       |  |   | 1,599  |        |        |   | 1,599  |       
|5.25% convertible senior notes due
    2010                                                                       |                      |                       | 622    |             |      |           | 15  |                    |  |                |      |       |  |   | 607    |        |        |   | 607    |       
|9.5% senior serial redeemable notes due
    2011, including a fair value hedge
    adjustment of $58, $37 and $37 |                      |                       | 948    |             |      |           | 31  |                    |  |                | (21   | )(b)  |  |   | 896    |        |        |   | 896    |       
|6% convertible senior notes due 2011                                                                              |                      |                       | 608    |             |      |           |    |                    |  |                |      |       |  |   | 608    |        |        |   | 608    |       
|6.875% senior serial redeemable notes due
    2013                                                                |                      |                       |       |             |      |           |    |                    |  |                |      |       |  |   |       |        |        |   | 500    |       
|7.375% senior serial redeemable notes due
    2015, including unamortized premium of
    $0, $8 and $8            |                      |                       |       |             |      |           |    |                    |  |                | 2,008 |       |  |   | 2,008  |        |        |   | 2,008  |       
|Bank credit facility                                                                                              |                      |                       | 4,500  |             |      |           |    |                    |  |                | (79   | )(c)  |  |   | 4,421  |        |        |   | 4,421  |       
|Other                                                                                                             |                      |                       | 17     |             |      |           |    |                    |  |                |      |       |  |   | 17     |        |        |   | 17     |       
|                                                                                                                  |                      |                       |        |             |      |           |     |                    |  |                |       |       |  |   |        |        |        |   |        |       
|                                                                                                                  | Total long-term debt |                       |        | 12,278      |      |           | $   | 1,998              |  |                | $     | 1,924 |  |   |        | 12,204 |        |   |        | 10,656 |     
|                                                                                                                  |                      |                       |        |             |      |           |     |                    |  |                |       |       |  |   |        |        |        |   |        |       
|                                                                                                                  |                      | Less current portion  |        |             | (199 | )         |     |                    |  |                |       |       |  |   |        |        | (1,549 | ) |        |        | (284 | )
|                                                                                                                  |                      |                       |        |             |      |           |     |                    |  |                |       |       |  |   |        |        |        |   |        |       
|                                                                                                                  |                      | $                     | 12,079 |             |      |           |     |                    |  |                |       |       |  | $ | 10,655 |        |        | $ | 10,372 |       
|                                                                                                                  |                      |                       |        |             |      |           |     |                    |  |                |       |       |  |   |        |        |        |   |        |       



---



|    |                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Represents accretion of unamortized discounts.                                                                                                                                 
|   
|(b) | Represents the non-cash decrease to the fair
    value hedge adjustment.                                                                                                       
|   
|(c) | Represents net payments under the bank credit
    facility.                                                                                                                    
|   
|(d) | Represents the effect of the debt transactions
    occurring subsequent to September 30, 2003 as described in
    Subsequent Debt Retirements and Senior Notes
    Offering.

13



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

2002 Debt
Retirements.During the nine
months ended September 30, 2002, we purchased and retired a
total of $1,701 million in aggregate principal amount at
maturity of our outstanding senior notes and convertible senior
notes in exchange for 92 million shares of class A
common stock valued at $535 million and about $549 million
in cash. As a result of these senior note transactions, we
recognized a $347 million gain in other income
(expense) in the accompanying condensed consolidated
statement of operations, representing the excess of the carrying
value over the purchase price of the purchased and retired notes
and the write-off of unamortized debt financing costs. In
accordance with SFAS No. 84, Induced Conversions of
Convertible Debt, the shares of our class A common
stock issued in excess of the shares that the holders would have
been entitled had they converted under the original terms of the
convertible notes are multiplied by the fair value of the shares
on the transaction date and the result is recorded as debt
conversion expense of $134 million in other income
(expense) in the accompanying condensed consolidated
statement of operations.

2003 Debt
Retirements.During the nine
months ended September 30, 2003, we purchased and retired a
total of $1,998 million in aggregate principal amount at
maturity of our outstanding senior notes and convertible senior
notes in exchange for 30 million shares of class A
common stock valued at $584 million and about
$1,494 million in cash. As a result of these senior note
transactions, we recognized a $98 million loss in other
income (expense) in the accompanying condensed consolidated
statements of operations, representing the excess of the
purchase price over the carrying value of the purchased and
retired notes and the write-off of unamortized debt financing
costs. During the three months ended September 30, 2003, we
purchased and retired a total of $1,464 million in
aggregate principal amount at maturity of our outstanding senior
notes in exchange for 30 million shares of class A common
stock valued at $584 million and about $958 million in
cash. As a result of these senior note transactions, we
recognized a $91 million loss in other income (expense) in
the accompanying condensed consolidated statement 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.

7.375% Senior Notes
Offering.In July 2003, we
completed the sale of $1,000 million in principal amount of
our 7.375% senior serial redeemable notes due 2015, which
generated about $983 million in net cash proceeds to us. In
September 2003, we completed the sale of an additional
$1,000 million in principal amount of our 7.375% senior
notes due 2015, which generated about $1,000 million in net
cash proceeds to us. The senior notes issued in July 2003
and September 2003 are a single series of notes. Cash
interest on these notes is payable semiannually in arrears on
February 1 and August 1 commencing February 1,
2004, at an annual rate of 7.375%. We may choose to redeem some
or all of these notes commencing on August 1, 2008 at an
initial redemption price of 103.688% of the aggregate principal
amount of these notes, plus accrued and unpaid interest. On or
before August 1, 2006, 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 107.375% of the notes principal
amount, plus accrued and unpaid interest to the date of
redemption, so long as a specified amount of the 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.

Subsequent Debt Retirements and Senior
Notes Offering.The above table
summarizes our long-term debt as of September 30, 2003 on
an actual basis and on an adjusted basis after giving effect to
the transactions occurring subsequent to September 30,
2003, described below.

14



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

During the third quarter 2003, we announced that
we would redeem about $1,268 million in principal amount
($1,265 million in net book value) of the following senior notes
in the fourth quarter 2003, all of which have been completed and
are reflected as current liabilities in our condensed
consolidated balance sheet as of September 30, 2003:



| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $500 million in outstanding aggregate
    principal amount of our 9.95% senior notes due 2008 at a
    redemption price of 104.975% for about $525 million in cash;                    
|
| |  | the entire $497 million in outstanding
    aggregate principal amount of our 9.75% senior notes due 2007 at
    a redemption price of 102.4375% for about $509 million in
    cash; and
|
| |  | the entire $271 million in outstanding
    aggregate principal amount of our 12% senior notes due 2008 at a
    redemption price of 106% for about $287 million in cash.               

During the fourth quarter 2003, we announced that
we will also redeem about $783 million in principal amount
of the following senior notes and convertible senior notes in
November 2003, all of which are reflected as long-term debt
in our condensed consolidated balance sheet as of
September 30, 2003:



| |   |                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the remaining $499 million in outstanding
    aggregate principal amount of our 9.95% senior notes due 2008 at
    a redemption price of 104.975% for about $524 million in
    cash; and                           
|
| |  | the entire $284 million in outstanding
    aggregate principal amount at September 30, 2003 of our
    4.75% convertible senior notes due 2007 at a redemption price of
    102.036% for about $290 million in cash.

In October 2003, we completed the sale of
$500 million in principal amount of our 6.875% senior
serial redeemable notes due 2013, which generated about
$500 million in net cash proceeds to us. Cash interest on
these notes is payable semiannually in arrears on April 30
and October 31 commencing April 30, 2004, at an annual
rate of 6.875%. We may choose to redeem some or all of these
notes commencing October 31, 2008 at an initial redemption
price of 103.438% of the aggregate principal amount of these
notes, plus accrued and unpaid interest. On or before
October 31, 2006, 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 106.875% of the notes principal amount, plus
accrued and unpaid interest to the date of redemption, so long
as specified amounts of the principal amount of notes remain
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.



| |                                           
| | ------------------------------------------
| | Capital Lease and Finance
    Obligations.

|                          |                                                 |                      |     |              |     |   |     |     |     |  
|------------------------- | ----------------------------------------------- | -------------------- | --- | ------------ | --- | - | --- | --- | --- | -
|                          |                                                 | September 30,        |     | December 31,
|                          |                                                 | 2003                 |     | 2002        
|                          |                                                 |                      |     |             
|                          |                                                 |                     
|                          |                                                 | (in millions)       
|Capital lease obligations |                                                 | $                    | 174 |              |     | $ | 262 |    
|Finance obligation        |                                                 |                      | 10  |              |     |   | 10  |    
|                          |                                                 |                      |     |              |     |   |     |    
|                          | Total capital lease and finance
    obligations |                      |     | 184          |     |   |     | 272 |    
|                          |                                                 | Less current portion |     |              | (38 | ) |     |     | (52 | )
|                          |                                                 |                      |     |              |     |   |     |    
|                          |                                                 | $                    | 146 |              |     | $ | 220 |    
|                          |                                                 |                      |     |              |     |   |     |    

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

15



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

Mandatorily
Redeemable Preferred Stock.

|                                                                                                                                                                                                                                                                                  |  |                       |       |             |  |           |     |               |  |   |    |  |  |   |    | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | ----- | ----------- |  | --------- | --- | ------------- |  | - | -- |  |  | - | -- | 
|                                                                                                                                                                                                                                                                                  |  |                       |       | Book and    |  |           |     |              
|                                                                                                                                                                                                                                                                                  |  | Balance               |       | Principal   |  | Dividends |     | Balance      
|                                                                                                                                                                                                                                                                                  |  | December 31,          |       | Value of    |  | and       |     | September 30,
|                                                                                                                                                                                                                                                                                  |  | 2002                  |       | Retirements |  | Accretion |     | 2003         
|                                                                                                                                                                                                                                                                                  |  |                       |       |             |  |           |     |              
|                                                                                                                                                                                                                                                                                  |  |                      
|                                                                                                                                                                                                                                                                                  |  | (dollars in millions)
|Series D exchangeable preferred stock
    mandatorily redeemable 2009, 13%
    cumulative annual dividend; 470,753 and 0 shares issued; 470,742
    and 0 shares outstanding; stated at liquidation value                                                                         |  | $                     | 471   |             |  | $         | 471 |               |  | $ |   |  |  | $ |   | 
|Series E exchangeable preferred stock
    mandatorily redeemable 2010, 11.125%
    cumulative annual dividend; 447,796 and 0 shares issued; 447,782
    and 0 shares outstanding; stated at liquidation value                                                                     |  |                       | 454   |             |  |           | 461 |               |  |   | 7  |  |  |   |   | 
|Zero coupon convertible preferred stock
    mandatorily redeemable 2013, no
    dividend; convertible into 4,779,386 shares of class A common
    stock; 245,245 shares issued and outstanding; stated at accreted
    liquidation preference value at 9.25% compounded quarterly |  |                       | 90    |             |  |           |    |               |  |   | 6  |  |  |   | 96 | 
|                                                                                                                                                                                                                                                                                  |  |                       |       |             |  |           |     |               |  |   |    |  |  |   |    | 
|                                                                                                                                                                                                                                                                                  |  | $                     | 1,015 |             |  | $         | 932 |               |  | $ | 13 |  |  | $ | 96 | 
|                                                                                                                                                                                                                                                                                  |  |                       |       |             |  |           |     |               |  |   |    |  |  |   |    | 

2002 Preferred Stock
Retirements.During the nine
months ended September 30, 2002, we purchased and retired a
total of $897 million in aggregate face amount of our
outstanding mandatorily redeemable preferred stock in exchange
for 52 million shares of class A common stock valued
at $305 million and about $140 million in cash. As a
result of these preferred stock transactions, we recognized a
$457 million gain in the accompanying condensed
consolidated statement of operations, representing the excess of
the carrying value over the purchase price of the purchased and
retired preferred stock and the write-off of unamortized
financing costs.

2003 Preferred Stock
Retirements.During the nine
months ended September 30, 2003, we purchased and retired a
total of $932 million in aggregate face amount of our
outstanding mandatorily redeemable preferred stock in exchange
for about $972 million in cash. As a result of these
preferred stock transactions, we recognized a $48 million
loss in the accompanying condensed consolidated statements of
operations, representing the excess of the purchase price over
the carrying value of the purchased and retired preferred stock
and the write-off of unamortized financing costs. During the
three months ended September 30, 2003, we purchased and
retired a total of $767 million in aggregate face amount of
our outstanding mandatorily redeemable preferred stock in
exchange for about $801 million in cash. As a result of
these preferred stock transactions, we recognized a
$41 million loss in the accompanying condensed consolidated
statement 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. Pursuant to SFAS No. 150, the losses associated with
our third quarter 2003 series D and series E preferred
stock retirements are included in other income (expense) in
the accompanying condensed consolidated statements of
operations. Additional information regarding our adoption of
SFAS No. 150 can be found in note 1.

Note 3.     2003
Developments

Change in Asset
Life.We shortened the estimated
useful lives of some of our network assets in the first quarter
2003. As a result of these changes in estimates, we recorded
about $61 million or $0.06 per common share of
additional depreciation expense in the nine months ended
September 30, 2003.

16



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

Asset
Acquisitions.In January 2003, we
purchased the 900 megahertz FCC licenses of NeoWorld
Communications through the acquisition of all of its stock.
Pursuant to our agreements, we paid an aggregate cash purchase
price of $280 million, of which $201 million was paid
in 2003 and the remainder was paid prior to 2003.

In July 2003, the U.S. Bankruptcy Court for the
Southern District of New York approved our $144 million bid
to purchase certain FCC licenses and other network assets of
WorldCom, Inc. These licenses relate to spectrum that can be
used to provide multipoint distribution, multichannel multipoint
distribution and institutional television fixed services. The
closing of the transaction is subject to approval by the FCC.

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

Shelf Registration Statement and Related
Financing Activities.In July
2003, the Securities and Exchange Commission declared effective
our shelf registration statement, under which we may offer from
time to time up to $5 billion of a variety of securities,
including debt securities, preferred stock and our class A
common stock. Of the $5 billion, we initially designated
$500 million for issuance of shares of class A common stock
under our direct stock purchase plan. We from time to time may
increase the aggregate dollar amount of shares of class A
common stock that are available for issuance under the plan.
Details of the plan are described in the related prospectus,
included as part of the shelf registration statement that was
distributed to our existing stockholders in July 2003.

During the third quarter 2003, we received net
cash proceeds of about $499 million from the issuance of
shares of our class A common stock under our direct stock
purchase and we completed the sale of $2,000 million in
principal amount of our 7.375% senior notes. In October 2003, we
also completed the sale of $500 million in principal amount
of our 6.875% senior notes due 2013. Additional information
regarding these senior notes and other transactions under the
shelf registration can be found in note 2.

Note 4.     Related
Party Transactions

We consider Motorola, Inc., NII Holdings, Inc.
and Nextel Partners, Inc. to be related parties with whom we
have had significant transactions. For the nine months ended
September 30, 2003, we paid a total of about
$1.8 billion to these related parties, net of discounts and
rebates, for infrastructure, handsets and related costs, roaming
charges and other costs. For the nine months ended
September 30, 2003, we received a total of $44 million
from these related parties for providing telecommunication
switch, engineering and technology, marketing and administrative
services, and the sale of FCC licenses and some network assets.
As of September 30, 2003, we had $53 million due from
these related parties and $231 million due to these related
parties. As of December 31, 2002, we had $33 million
due from these related parties and $241 million due to
these related parties.

In 2002, we provided $50 million to NII
Holdings in exchange for a U.S.-Mexico cross border spectrum
sharing arrangement under which we are able to provide our
Direct Connect® walkie-talkie service between the United
States and select regions in Mexico. During the third quarter
2003, NII Holdings fulfilled its network construction obligation
pursuant to this arrangement. Also, during the third quarter
2003, NII Holdings completed a public offering of its common
stock and as a result, we recorded an increase of
$19 million in paid-in capital in our stockholders
equity in accordance with SAB No. 51, Accounting for
Sales of Stock by a Subsidiary.

17



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

In May 2002, NII Holdings filed a voluntary
petition for reorganization under Chapter 11 of the United
States Bankruptcy Code. In November 2002, NII Holdings emerged
from bankruptcy. Before its reorganization, NII Holdings was our
substantially wholly owned subsidiary. As a result of NII
Holdings bankruptcy filing in May 2002, we began
accounting for our investment in NII Holdings using the equity
method and accordingly, have presented NII Holdings net
operating results through May 2002 as equity in losses of
unconsolidated affiliates. Upon NII Holdings emergence
from bankruptcy in November 2002, we began accounting for our
new ownership interest in NII Holdings using the equity method
and resumed recording our proportionate share of NII
Holdings results of operations. As of September 30,
2003, we owned about 31% of the outstanding stock of NII
Holdings. Summarized unaudited financial information as provided
by NII Holdings as of its October 2003 earnings release date is
presented below.

|                       |  |               |       |              |  |   |     | 
|---------------------- |  | ------------- | ----- | ------------ |  | - | --- | 
|                       |  | September 30, |       | December 31,
|                       |  | 2003          |       | 2002        
|                       |  |               |       |             
|                       |  |              
|                       |  | (in millions)
|Current assets         |  | $             | 594   |              |  | $ | 396 | 
|Noncurrent assets      |  |               | 566   |              |  |   | 453 | 
|Total assets           |  |               | 1,160 |              |  |   | 849 | 
|Current liabilities    |  |               | 275   |              |  |   | 252 | 
|Noncurrent liabilities |  |               | 626   |              |  |   | 505 | 

|                                             |  |                    |     |                     |  |   |      |  
|-------------------------------------------- |  | ------------------ | --- | ------------------- |  | - | ---- | -
|                                             |  | Successor Company  |     | Predecessor Company
|                                             |  | Nine Months Ended  |     | Nine Months Ended  
|                                             |  | September 30, 2003 |     | September 30, 2002 
|                                             |  |                    |     |                    
|                                             |  |                   
|                                             |  | (in millions)     
|Operating revenues                           |  | $                  | 675 |                     |  | $ | 573  |  
|Cost of revenues                             |  |                    | 261 |                     |  |   | 229  |  
|Net income (loss) from continuing operations |  |                    | 89  |                     |  |   | (429 | )
|Net income (loss)                            |  |                    | 89  |                     |  |   | (428 | )

In October 2003, Nextel Partners notified us of
its intent to redeem its 12% nonvoting preferred stock in
exchange for $39 million in cash during the fourth quarter
2003. During the second quarter 2003, our investment in Nextel
Partners 12% preferred stock was written down to zero
through the application of the equity method of accounting.
Therefore, we expect to record a gain during the fourth quarter
2003 of about $39 million.

Note 5.     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.

In July 2001, we entered into three interest rate
swap agreements to hedge the risk of changes in fair value of a
portion of our long-term fixed rate debt, which are attributable
to changes in the London Interbank 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 match the critical terms of the hedged debt. Accordingly,
there was no net effect on our results of operations for the
nine months and three months ended September 30, 2003 and
2002 relating to the ineffectiveness of these fair value hedges.
During the third quarter 2003, we terminated all three swap
agreements in exchange for cash received of about
$38 million. As a result of the terminations, we recorded a
premium of about $38 million, which will be recognized as
an adjustment to interest expense in our statement of operations
over the remaining life of the hedged debt.

18



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

Additionally, from time to time, we use interest
rate swaps to hedge the variability of future cash flows, which
are caused by changes in LIBOR, as the benchmark interest rate,
associated with some of our long-term variable rate debt. During
the third quarter 2003, we terminated our remaining cash flow
hedge, which was recorded at its fair value, and paid about
$91 million in cash to satisfy our obligations under it. As
a result of the termination, unrealized losses of about
$10 million, representing the effective portion of the
change in fair value reported in accumulated other comprehensive
loss, were recognized in our statement of operations. The
ineffective portion of the change in fair value of this swap
qualifying for cash flow hedge accounting was recognized in our
statement of operations up to the termination date in the period
of the change. Interest expense includes a loss of
$8 million for the nine months ended September 30,
2003 relating to the ineffective portion of the change in fair
value, offset by a gain of $3 million relating to the
termination of the swap. Interest expense includes a loss of
$20 million for the nine and three-month periods ended
September 30, 2002 relating to the ineffective portion of
the change in fair value of this swap.

In February 2003, we terminated a
variable-to-variable interest rate swap in the notional amount
of $400 million in accordance with its original terms.
There was no realized gain or loss associated with this
termination. Since this swap did not qualify for cash flow hedge
accounting, 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 nine months ended September 30, 2003 and a gain of
$7 million and $3 million for the nine and three
months ended September 30, 2002, representing changes in
the fair value of this swap.

Interest expense related to the periodic net cash
settlements on all swaps was $12 million and
$3 million for the nine months and three months ended
September 30, 2003, respectively, and $20 million and
$7 million for the nine and three months ended
September 30, 2002, respectively. As of September 30,
2003, we do not have any derivative instruments.

Note 6.     Commitments
and Contingencies

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

Beginning primarily in the spring 2003, 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 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 in one of these lawsuits who purports to
represent a nationwide class of affected customers. The
settlement, if found to be fair and finally approved by the
court, 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 pending claims or legal actions will have a
material effect on our business or results of operations.

19



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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 September 30,
2003, and the related condensed consolidated statements of
operations and comprehensive income (loss) for the
three-month and nine-month periods ended September 30, 2003
and 2002, and cash flows for the nine-month periods ended
September 30, 2003 and 2002 and of the condensed
consolidated statement of changes in stockholders equity
for the nine-month period ended September 30, 2003. These
interim financial statements are the responsibility of the
Companys management.

We conducted our reviews 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.

As discussed in Note 1 to the condensed
consolidated interim financial statements, the Company adopted
the provisions of Emerging Issues Task Force (EITF) 00-21,
Revenue Arrangements with Multiple Deliverables in
the third quarter of 2003.

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

We have previously audited, in accordance with
auditing standards generally accepted in the United States of
America, the consolidated balance sheet of Nextel
Communications, Inc. and subsidiaries as of December 31,
2002, and the related consolidated statements of operations,
stockholders equity, and cash flows for the year then
ended (not presented herein); and in our report dated
February 20, 2003; March 5, 2003 as to notes 11, 13
and 15, we expressed an unqualified opinion on those
consolidated financial statements (such report includes an
explanatory paragraph relating to the adoption of Statement of
Financial Accounting Standards (SFAS) No. 142
Goodwill and Other Intangible Assets, 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, and Staff Accounting Bulletin
No. 101 Revenue Recognition in Financial
Statements). In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of
December 31, 2002 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from
which it has been derived.

DELOITTE & TOUCHE LLP

McLean, Virginia

November 10, 2003


20



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##### 





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

Overview

The following is a discussion and analysis of our
consolidated financial condition and results of operations for
the nine- and three-month periods ended September 30, 2003
and 2002, and significant factors that could affect our
prospective financial condition and results of operations. You
should read this discussion in conjunction with our consolidated
financial statements and notes contained in our annual report on
Form 10-K for the year ended December 31, 2002 and our
subsequent quarterly reports on Form 10-Q. Historical
results may not indicate future performance. See
 Forward-Looking Statements.

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

As of September 30, 2003,



| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | we had about 12.3 million handsets in
    service; and                                                                    
|
| |  | our network or the compatible network of Nextel
    Partners, Inc. was operational in 293 of the top 300 U.S.
    markets.

We owned about 31% of the common stock of Nextel
Partners as of September 30, 2003. Nextel Partners provides
digital wireless telecommunications services under the Nextel
brand name in mid-sized and tertiary U.S. markets. Nextel
Partners has the right to operate in 57 of the top 200
metropolitan statistical areas in the United States ranked by
population. In addition, as of September 30, 2003, we owned
about 31% of the outstanding common stock of NII Holdings, Inc.
NII Holdings provides wireless communications services primarily
in selected Latin American markets.

From 1987, when we began operations, through
2001, we were unable to generate sufficient cash flow from
operations to fund our business and its expansion. Due to our
history of losses and negative cash flow through 2001, we have
incurred substantial indebtedness to finance our operations.
While we had income available to common stockholders of
$835 million for the nine months ended September 30,
2003, there can be no assurance that we will continue to operate
profitably, and if we cannot operate profitably, we may not be
able to meet our debt service, working capital, capital
expenditure or other cash needs. Our accumulated deficit was
$6,896 million at September 30, 2003.

Asset Acquisitions.In January 2003, we purchased the
900 megahertz, or MHz, Federal Communications Commission, or
FCC, licenses of NeoWorld Communications, Inc. through the
acquisition of all of its stock. Pursuant to our agreements, we
paid an aggregate cash purchase price of $280 million, of
which $201 million was paid in 2003 and the remainder was
paid prior to 2003. In July 2003, the U.S. Bankruptcy Court
approved our $144 million bid to purchase the FCC licenses
and other network assets of WorldCom, Inc. The closing of the
transaction is subject to approval by the FCC.

Debt and Preferred Stock Retirements.During the nine months ended
September 30, 2003, we purchased and retired a total of
$1,998 million in aggregate principal amount at maturity of
our outstanding senior notes and convertible senior notes and
$932 million in aggregate face amount of our outstanding
mandatorily redeemable preferred stock in exchange for
30 million shares of class A common stock valued at
$584 million and about $2,466 million in cash. During
the third and fourth quarters 2003, we announced that we will
purchase and retire about $2,051 million in outstanding
aggregate principal amount of our senior notes and convertible
senior notes in the fourth quarter 2003 in exchange for about
$2,135 million in cash. Additional information regarding
these retirements can be found in note 2 to the condensed
consolidated financial statements.

We may, from time to time, as we deem
appropriate, enter into similar or other repurchase or
retirement transactions that in the aggregate may be material.

21



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##### 



Shelf Registration Statement and Related
Financing Activities.In July
2003, the Securities and Exchange Commission declared effective
our shelf registration statement, under which we may offer from
time to time up to $5 billion of a variety of securities,
including debt securities, preferred stock and our class A
common stock. Of the $5 billion, we initially designated
$500 million for issuance of shares of class A common
stock under our direct stock purchase plan. We from time to time
may increase the aggregate dollar amount of shares of
class A common stock that are available for issuance under
the plan.

During the third quarter 2003, we received net
cash proceeds of about $499 million from the issuance of
shares of our class A common stock under our direct stock
purchase plan. In addition, we completed the sale of
$2,000 million in principal amount of our 7.375% senior
notes due 2015, which generated about $1,983 million in net
cash proceeds to us.

In October 2003, we completed the sale of
$500 million in principal amount of our 6.875% senior notes
due 2013, which generated about $500 million in net cash
proceeds to us.

Network Technology Upgrade and New
Handsets.In July 2003, we
completed the roll-out of the Nationwide Direct
ConnectSM digital walkie-talkie service, which allows
Nextel customers to use the Direct Connect walkie-talkie
feature to instantly connect with any other Nextel customer
anywhere on our national network.

In October 2003, we began deploying the 6:1 voice
coder technology that is designed to allow us to use our
spectrum and our existing infrastructure more efficiently when
compared to our current 3:1 voice coder technology and to reduce
our network-related capital expenditures. The first step in this
effort involves the installation of software in our network
infrastructure on a market-by-market basis. We expect to
complete that installation throughout our network in the first
quarter 2004.

In October 2003, we introduced the i205 and
the i730 handsets designed and manufactured by Motorola.
Both handsets feature assisted global positioning capabilities
for location based services and E911, expanded phone books that
store more entries, and sleek new designs. These new handsets
have been designed to operate using both our existing 3:1 and
the new 6:1 voice coder technologies. The versions of these
handset models that are currently being sold are only 3:1
enabled, but we expect to begin selling versions that operate in
both 3:1 and 6:1 modes in selected markets in the fourth quarter
2003 and in all of our markets in the first quarter 2004. When
deployed and operating in both modes, these handsets, in
combination with the modified network, will use only about half
of the network capacity used by handsets that operate only in
3:1 mode for wireless interconnection calls. Because the
capacity and related financial benefits will be realized
gradually as the new network software and handsets operating in
both modes are deployed and used by our customers, it has been
and continues to be our expectation that significant benefits of
the new technology will begin to be realized in the latter half
2004 based on our current deployment schedule. If there are
substantial delays in the deployment of the network software or
handsets operating in both modes, those benefits would also be
delayed, and we could be required to invest additional capital
in our infrastructure to meet customer demand.

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

22



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##### 



rates per minute as minutes are used. As a result
of the cutoff times of our multiple billing cycles each month,
we are required to estimate the amount of subscriber revenues
earned but not billed from the end of each billing cycle to the
end of each reporting period. These estimates are based
primarily on rate plans in effect and historical minutes of use.


Allowance for Doubtful Accounts.We establish an allowance for
doubtful accounts receivable sufficient to cover probable and
reasonably estimated losses. Since we have well over one million
accounts, it is impracticable to review the collectibility of
all individual accounts when we determine the amount of our
allowance for doubtful accounts receivable each period.
Therefore, we consider a number of factors in establishing the
allowance 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 $91 million as of
September 30, 2003.

Valuation and Recoverability of Long-Lived
Assets.Long-lived assets such as
property, plant and equipment represented about
$8,802 million of our $21,440 million in total assets
as of September 30, 2003. Our nationwide network is highly
complex and, due to constant innovation and enhancements, some
network assets may lose their utility faster than anticipated.
We periodically reassess the economic lives of these components
and make adjustments to their expected lives after considering
historical experience and capacity requirements, consulting with
the vendor and assessing new product and market demands and
other factors. When these factors indicate network assets may
not be useful for as long as anticipated, we depreciate the
remaining book values over the remaining estimated useful lives.
We currently calculate depreciation using the straight-line
method based on estimated useful lives of up to 31 years
for buildings, 3 to 20 years for network equipment and
network software and 3 to 12 years for non-network
software, office equipment and other assets. In the first
quarter 2003, we reassessed the estimated useful lives of some
of our network assets and have recorded about $61 million
in additional depreciation expense in the nine months ended
September 30, 2003 as a result of these changes in
estimates.

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

Valuation and Recoverability of Intangible
Assets.Intangible assets with
indefinite useful lives represented about $6,837 million of
our $21,440 million in total assets as of
September 30, 2003. Intangible assets with indefinite
useful lives consist of our FCC licenses and goodwill. In 2002,
we ceased amortizing our FCC licenses and goodwill in accordance
with Statement of Financial Accounting Standards, or SFAS,
No. 142 Goodwill and Other Intangible Assets.
We performed an annual impairment test of these assets as of
October 1, 2002. We concluded that there was no impairment
as the fair values of these intangible assets were greater than
their carrying values. Using a residual value approach, we
measured the fair value of our 800 MHz and 900 MHz
licenses by deducting the fair values of our net assets as well
as the fair values of certain unrecorded identified intangible
assets, other than these FCC licenses, from our reporting
units fair value, which was determined using a discounted
cash flow analysis. The analysis was based on our long-term cash
flow projections, discounted at our corporate weighted average
cost of capital.

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

Recoverability of Capitalized Software to
be Sold, Leased, or Otherwise
Marketed.As of September 30,
2003, we have about $73 million in unamortized costs for
software that will be sold, leased, or otherwise

23



---



##### 



marketed. We begin amortizing costs when the
software is ready for its intended use. Our current plans
indicate that we will recover the value of the assets; however,
to the extent there are changes in economic conditions,
technology or the regulatory environment, or our strategic
partners associated with the development and marketing of the
software elect not to participate to the extent we expect, our
plans could change and some or all of these assets could become
impaired.


Net Operating Loss Valuation Allowance.We have provided a full reserve
against our net operating loss carryforwards as of
September 30, 2003. This reserve is established due to the
fact that we do not have a sufficient history of taxable income
at this time to conclude that it is more likely than not that
the net operating loss will be realized. To the extent that we
have taxable income in future periods, we would expect to
realize the benefits of at least some of the net operating loss
carryforwards.

Significant New Accounting
Pronouncements

In November 2002, the Emerging Issues Task Force,
or EITF, issued a final consensus on EITF Issue No. 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables. EITF Issue No. 00-21 provides guidance
on when and how an arrangement involving multiple deliverables
should be divided into separate units of accounting. EITF Issue
No. 00-21 is effective prospectively for arrangements
entered into in fiscal periods beginning after June 15,
2003, and may be applied to existing arrangements, with any
impact recorded as a cumulative effect of a change in accounting
principle in the statement of operations.

Under the provisions of Staff Accounting
Bulletin, or SAB, No. 101, Revenue Recognition in
Financial Statements, we accounted for the sale of our
handsets and the subsequent service to the customer as a single
unit of accounting due to the fact that our wireless service is
essential to the functionality of our handsets. Accordingly, we
recognized revenue from handset sales and an equal amount of
cost of handset revenues over the expected customer relationship
period, beginning when title to the handset passed to the
customer. Under EITF Issue No. 00-21, we no longer need to
consider whether a customer is able to realize utility from the
handset in the absence of the undelivered service. Based on this
fact and that we meet the criteria stipulated in EITF Issue
No. 00-21, we have concluded that EITF Issue No. 00-21
requires us to account for the sale of a handset as a unit of
accounting separate from the subsequent service to the customer.
Accordingly, for all arrangements entered into beginning in the
third quarter 2003, we recognize revenue from handset sales and
the related cost of handset revenues when title to the handset
passes to the customer.

We elected to apply the provisions of EITF Issue
No. 00-21 to our existing customer arrangements.
Accordingly, on July 1, 2003, we reduced our current assets
and liabilities by about $563 million and our noncurrent
assets and liabilities by about $783 million, representing
substantially all of the revenues and costs associated with the
original sale of handsets that were deferred under SAB
No. 101. The cumulative effect of adopting EITF Issue
No. 00-21 did not materially impact the statement of
operations.

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 passes upon delivery of the accessory to the customer.
Prior to July 1, 2003, 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.
Upon adoption of EITF Issue No. 00-21, effective
July 1, 2003, we recognize revenues from handset sales when
title to the handset passes to the customer.

24



---



##### 



Cost of providing wireless service consists
primarily of:



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

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. Prior to
July 1, 2003, we recognized the costs of handset revenues
over the expected customer relationship period of 3.5 years
in amounts equivalent to revenues recognized from handset sales.
Handset costs in excess of the revenues generated from handset
sales, or subsidies, were expensed at the time of sale. Upon
adoption of EITF Issue No. 00-21, effective July 1,
2003, we recognize the cost of handset revenues when title to
the handset passes to the customer.

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

|                                                             |  |                   |        |                    |  |      |        |      |  |  |        |  |  |  |        | 
|------------------------------------------------------------ |  | ----------------- | ------ | ------------------ |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|                                                             |  |                   |        |                   
|                                                             |  | Nine Months Ended |        | Three Months Ended
|                                                             |  | September 30,     |        | September 30,     
|                                                             |  |                   |        |                   
|                                                             |  | 2003              |        | 2002               |  | 2003 |        | 2002
|                                                             |  |                   |        |                    |  |      |        |     
|Handsets in service, end of period (in
    thousands)(1)     |  |                   | 12,329 |                    |  |      | 10,116 |      |  |  | 12,329 |  |  |  | 10,116 | 
|Net handset additions (in thousands)(1)                      |  |                   | 1,717  |                    |  |      | 1,453  |      |  |  | 646    |  |  |  | 480    | 
|Average monthly minutes of use per handset(1)                |  |                   | 700    |                    |  |      | 630    |      |  |  | 740    |  |  |  | 650    | 
|System minutes of use (in billions)(1)                       |  |                   | 72.6   |                    |  |      | 53.5   |      |  |  | 26.9   |  |  |  | 19.3   | 
|Net transmitter and receiver sites placed in
    service     |  |                   | 480    |                    |  |      | 580    |      |  |  | 210    |  |  |  | 130    | 
|Transmitter and receiver sites in service, end of
    period |  |                   | 16,780 |                    |  |      | 16,080 |      |  |  | 16,780 |  |  |  | 16,080 | 
|Switches in service, end of period                           |  |                   | 82     |                    |  |      | 84     |      |  |  | 82     |  |  |  | 84     | 
|Nextel stores in service, end of period                      |  |                   | 563    |                    |  |      | 339    |      |  |  | 563    |  |  |  | 339    | 



---



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

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

25



---



##### 



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 customers generally
is higher than the cost of our efforts to retain existing
customers.


Our average monthly customer churn rate during
the quarter ended September 30, 2003 declined to about 1.4%
as compared to about 1.6% during the quarter ended June 30,
2003. We believe that this decline in the churn rate is
attributable to our ongoing focus on customer retention. We have
implemented a customer touch-point strategy to proactively
identify and address major points of potential customer
dissatisfaction over the customer life cycle. These initiatives
include such programs as strategic care provided to customers
with certain attributes and efforts to migrate customers to more
optimal service pricing plans. The improvement also reflects the
strengthening of our credit policies and procedures and the
completion of our integrated billing, customer care and
collections system in 2002, which allow us to better manage our
customer relationships. Finally, we believe that our rate of
customer churn reflects our focus on acquiring high quality
subscribers, including add-on subscribers from existing customer
accounts, and the attractiveness of our differentiated products
and services.

If general economic conditions worsen, if our new
handset or service offerings being launched beginning in the
fourth quarter 2003 are not well received, 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 number portability requirements that will
become effective in the fourth quarter 2003, we may experience
changes in demand for our product and service offerings, which
may adversely affect our ability to attract and retain customers
and our results of operations. See
 Forward-Looking Statements.

Service Revenues and Cost of
Service.

|                                            |                                 |                       |       |           |   |               |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |    |  
|------------------------------------------- | ------------------------------- | --------------------- | ----- | --------- | - | ------------- | -- | --------- |  | ------------- | ----- | ------- | - |  | -- | - |  | - | ----- | ----- |  |  | -- | -- | -
|                                            |                                 |                       |       |           |   |               |    |           |  |              
|                                            |                                 |                       |       |           |   |               |    |           |  | Change from  
|                                            |                                 |                       |       | % of      |   |               |    | % of      |  | Previous Year
|                                            |                                 | September 30,         |       | Operating |   | September 30, |    | Operating |  |              
|                                            |                                 | 2003                  |       | Revenues  |   | 2002          |    | Revenues  |  | Dollars       |       | Percent
|                                            |                                 |                       |       |           |   |               |    |           |  |               |       |        
|                                            |                                 |                      
|                                            |                                 | (dollars in millions)
|Nine Months Ended                           |                                 |                       |       |           |   |               |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|Service revenues                            |                                 | $                     | 7,194 |           |   |               | 92 | %         |  | $             | 6,002 |         |   |  | 94 | % |  | $ | 1,192 |       |  |  | 20 | % 
|Cost of service (exclusive of depreciation) |                                 |                       | 1,218 |           |   |               | 16 | %         |  |               | 1,100 |         |   |  | 17 | % |  |   | 118   |       |  |  | 11 | % 
|                                            |                                 |                       |       |           |   |               |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|                                            | Service gross margin            |                       | $     | 5,976     |   |               |    |           |  |               | $     | 4,902   |   |  |    |   |  |   | $     | 1,074 |  |  |    | 22 | %
|                                            |                                 |                       |       |           |   |               |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|                                            | Service gross margin percentage |                       |       | 83        | % |               |    |           |  |               |       | 82      | % |  |    |   |  |   |       |       |  |  |    |    |  
|                                            |                                 |                       |       |           |   |               |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|Three Months Ended                          |                                 |                       |       |           |   |               |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|Service revenues                            |                                 | $                     | 2,599 |           |   |               | 90 | %         |  | $             | 2,139 |         |   |  | 94 | % |  | $ | 460   |       |  |  | 22 | % 
|Cost of service (exclusive of depreciation) |                                 |                       | 441   |           |   |               | 15 | %         |  |               | 383   |         |   |  | 17 | % |  |   | 58    |       |  |  | 15 | % 
|                                            |                                 |                       |       |           |   |               |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|                                            | Service gross margin            |                       | $     | 2,158     |   |               |    |           |  |               | $     | 1,756   |   |  |    |   |  |   | $     | 402   |  |  |    | 23 | %
|                                            |                                 |                       |       |           |   |               |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|                                            | Service gross margin percentage |                       |       | 83        | % |               |    |           |  |               |       | 82      | % |  |    |   |  |   |       |       |  |  |    |    |  
|                                            |                                 |                       |       |           |   |               |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   

Service
revenues.Service revenues
increased 20% from the nine months ended September 30, 2002
to the nine months ended September 30, 2003 and 22% from
the three months ended September 30, 2002 to the three
months ended September 30, 2003. This increase was
attributable to the increase in the number of handsets in
service (volume), partially offset by the decline in the average
monthly service revenue per handset in service (rate) in
2003.

26



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##### 



From a volume perspective, our service revenues
increased in 2003 principally as a result of a 22% increase in
handsets in service from September 30, 2002 to
September 30, 2003. We believe that the growth in the
number of handsets in service is the result of a number of
factors, including principally:



| |   |                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our differentiated products and services,
    including Nextel Direct Connect and Nextel Online;                                                                                                                                             
|
| |  | increased brand name recognition through
    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 force and marketing staff,
    including staff associated with our Nextel stores, and selling
    efforts targeted at specific vertical markets.                                                                             

From a rate perspective, our average monthly
service revenue per handset decreased 2% from the nine months
ended September 30, 2002 to the nine months ended
September 30, 2003 and stayed relatively flat from the
three months ended September 30, 2002 to the three months
ended September 30, 2003. We attribute the change in
average monthly service revenue per handset to:



| |   |                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the introduction of more competitive pricing
    plans in the latter half of 2002; and                                                                                                                                                                                                                                                                       
|
| |  | to a lesser extent, growth in our government
    accounts which generally have lower access charges than other
    segments of our business; partially offset by                                                                                                                                                                                             
|
| |  | the benefit of changes in billing practices,
    including full-minute rounding, that were implemented in the
    second quarter 2002;                                                                                                                                                                                                                       
|
| |  | the improvement in credit and adjustment levels
    in 2003 as compared to 2002, which were higher in 2002 due to
    service discounts and billing disputes as a result of issues
    experienced by customers during the billing system conversion
    and the changes in billing practices implemented in the second
    quarter 2002, as discussed above;
|
| |  | the increased fees that we began charging many of
    our customers in October 2002 to recover a portion of the costs
    associated with government mandated telecommunications services
    such as enhanced 911 and number portability;                                                                                                                   
|
| |  | the growth in the subscriber base electing
    handset insurance and participating in service and repair
    programs; and                                                                                                                                                                                                                                   
|
| |  | the revenues associated with the introduction of
    Nationwide Direct Connect service beginning July 2003.                                                                                                                                                                                                                                                  

Cost of
service.Cost of service increased
11% from the nine months ended September 30, 2002 to the
nine months ended September 30, 2003 and 15% from the three
months ended September 30, 2002 to the three months ended
September 30, 2003, primarily due to increased minutes of
use resulting from the combined effect of the increase in
handsets in service and an increase in the average monthly
minutes of use per handset. Specifically, from the nine and
three months ended September 30, 2002 to the nine and three
months ended September 30, 2003, we experienced:



| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | a 10% and 13% net increase in costs incurred for
    the operation and maintenance of our network and fixed
    interconnection fees; and
|
| |  | a 15% and 33% increase in variable
    interconnection fees.                                                                             

27



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##### 



The increase in costs related to the operation
and maintenance of our network and fixed interconnection fees
primarily was due to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase in costs to operate our handset
    service and repair program;                                                                                                                                                                                                                                                                                                                                            
|
| |  | an increase in transmitter and receiver and
    switch related operational costs due to an increase in
    transmitter and receiver sites placed into service from
    September 30, 2002 to September 30, 2003;                                                                                                                                                                                                       
|
| |  | an increase in roaming fees paid to Nextel
    Partners due to the increase in our customer base; and                                                                                                                                                                                                                                                                                                                  
|
| |  | charges recorded in the second and third quarters
    2003 for obsolete network equipment and accretion expense
    related to certain asset retirement obligations; partially
    offset by                                                                                                                                                                                                                           
|
| |  | a decrease in fixed interconnection costs as a
    result of initiatives implemented over the past year 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; and                                                                              
|
| |  | a net benefit recorded in 2003 in connection with
    the towers leased from SpectraSite Holdings, Inc. In 2003, tower
    lease payments, previously recorded as a reduction of financing
    obligation, are now classified as tower rent expense. This tower
    rent expense is more than offset by the deferred gain
    amortization recorded in connection with the tower sale
    transaction with SpectraSite.

The increase in variable interconnection fees was
principally due to an increase in total system minutes of use,
partially offset by a lower cost per minute of use.
Additionally, during the third quarter 2002, we recognized
savings from the favorable settlements of rate disputes with our
service providers. Our lower variable interconnection cost per
minute of use was primarily the result of rate savings achieved
through efforts implemented beginning in the second quarter 2002
to move long distance traffic to lower cost carriers. Total
system minutes of use increased 36% from the nine months ended
September 30, 2002 to the nine months ended
September 30, 2003 due to a 22% increase in the number of
handsets in service as well as an 11% increase in the average
monthly minutes of use per handset over the same period. Total
system minutes of use also increased 39% from the three months
ended September 30, 2002 to the three months ended
September 30, 2003 due to a 22% increase in the number of
handsets in service as well as a 14% increase in the average
monthly minutes of use per handset over the same period.

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

Service gross
margin.Service gross margin,
exclusive of depreciation expense, as a percentage of service
revenues increased from 82% for the nine and three months ended
September 30, 2002 to 83% for the nine and three months
ended September 30, 2003. 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 and network operating efficiencies.

28



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##### 



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

During the nine and three months ended
September 30, 2003, we recorded $620 million and
$288 million of handset and accessory revenues, an increase
of $232 million and $148 million over the comparable
periods in 2002. During the nine and three months ended
September 30, 2003, we recorded $1,040 million and
$415 million of cost of handset and accessory revenues, an
increase of $281 million and $180 million over the
comparable periods in 2002. These results are summarized in the
table below.

|                                                   |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |     |  
|-------------------------------------------------- | ------------------------------------------ | --------------------- | ----- | --------- |  | ------------- | -- | --------- | - | ------------- | ----- | ------- |  |  | -- | -- | - | - | --- | --- |  |  | --- | --- | -
|                                                   |                                            |                       |       |           |  |               |    |           |   |              
|                                                   |                                            |                       |       |           |  |               |    |           |   | Change from  
|                                                   |                                            |                       |       | % of      |  |               |    | % of      |   | Previous Year
|                                                   |                                            | September 30,         |       | Operating |  | September 30, |    | Operating |   |              
|                                                   |                                            | 2003                  |       | Revenues  |  | 2002          |    | Revenues  |   | Dollars       |       | Percent
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |       |        
|                                                   |                                            |                      
|                                                   |                                            | (dollars in millions)
|Nine Months Ended                                  |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |    
|Current period handset and accessory sales         |                                            | $                     | 790   |           |  |               | 10 | %         |   | $             | 645   |         |  |  | 10 | %  |   | $ | 145 |     |  |  | 22  | %  
|SAB No. 101                                        |                                            |                       | (170  | )         |  |               | (2 | )%        |   |               | (257  | )       |  |  | (4 | )% |   |   | 87  |     |  |  | 34  | %  
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |    
|                                                   | Handset and accessory revenues             |                       |       | 620       |  |               |    | 8         | % |               |       | 388     |  |  |    | 6  | % |   |     | 232 |  |  |     | 60  | %
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |    
|Current period cost of handset and accessory sales |                                            |                       | 1,210 |           |  |               | 15 | %         |   |               | 1,016 |         |  |  | 16 | %  |   |   | 194 |     |  |  | 19  | %  
|SAB No. 101                                        |                                            |                       | (170  | )         |  |               | (2 | )%        |   |               | (257  | )       |  |  | (4 | )% |   |   | 87  |     |  |  | 34  | %  
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |    
|                                                   | Cost of handset and accessory
    revenues |                       |       | 1,040     |  |               |    | 13        | % |               |       | 759     |  |  |    | 12 | % |   |     | 281 |  |  |     | 37  | %
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |    
|Handset and accessory net subsidy                  |                                            | $                     | (420  | )         |  |               |    |           |   | $             | (371  | )       |  |  |    |    |   | $ | (49 | )   |  |  | (13 | )% 
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |    
|Three Months Ended                                 |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |    
|Current period handset and accessory sales         |                                            | $                     | 288   |           |  |               | 10 | %         |   | $             | 232   |         |  |  | 10 | %  |   | $ | 56  |     |  |  | 24  | %  
|SAB No. 101                                        |                                            |                       |      |           |  |               |   | %         |   |               | (92   | )       |  |  | (4 | )% |   |   | 92  |     |  |  | 100 | %  
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |    
|                                                   | Handset and accessory revenues             |                       |       | 288       |  |               |    | 10        | % |               |       | 140     |  |  |    | 6  | % |   |     | 148 |  |  |     | 106 | %
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |    
|Current period cost of handset and accessory sales |                                            |                       | 415   |           |  |               | 14 | %         |   |               | 327   |         |  |  | 14 | %  |   |   | 88  |     |  |  | 27  | %  
|SAB No. 101                                        |                                            |                       |      |           |  |               |   | %         |   |               | (92   | )       |  |  | (4 | )% |   |   | 92  |     |  |  | 100 | %  
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |    
|                                                   | Cost of handset and accessory
    revenues |                       |       | 415       |  |               |    | 14        | % |               |       | 235     |  |  |    | 10 | % |   |     | 180 |  |  |     | 77  | %
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |    
|Handset and accessory net subsidy                  |                                            | $                     | (127  | )         |  |               |    |           |   | $             | (95   | )       |  |  |    |    |   | $ | (32 | )   |  |  | (34 | )% 
|                                                   |                                            |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |     |    

Handset and accessory revenues.Reported handset and accessory
revenues are influenced by the number of handsets sold, the
sales prices of the handsets sold and the effects of SAB
No. 101 and EITF Issue No. 00-21. Prior to
July 1, 2003, in accordance with SAB No. 101, the
handset revenue generated from sales to customers was required
to be recognized over the estimated life of the customer
relationship period rather than recognizing handset revenues at
the time of sale. Therefore, the effect of SAB No. 101 in
the table above is the net effect of current period sales being
deferred to future periods, offset by the benefit of handset
sales deferred in previous periods that are being recognized as
revenue. Upon adoption of EITF Issue No. 00-21, effective
July 1, 2003, we recognize revenues from handset sales when
title to the handset passes to the customer. Therefore, the
adoption of EITF Issue No. 00-21 results in increased
reported handset revenues. See  Significant New
Accounting Pronouncements for a discussion of the impact
of our adoption of EITF Issue No. 00-21.

Current period handset and accessory sales
increased $145 million or 22% for the nine months ended
September 30, 2003 compared to the same period in 2002.
This increase reflects an increase of about 24% in

29



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##### 



the number of handsets sold and, to a lesser
extent, an increase in revenues from accessory sales due to the
accessory needs of a larger subscriber base, partially offset by
about a 5% decrease in the average sales price of the handsets.
Current period handset and accessory sales increased
$56 million or 24% for the three months ended
September 30, 2003 compared to the same period in 2002.
This increase reflects an increase of about 34% in the number of
handsets sold and, to a lesser extent, an increase in revenues
from accessory sales due to the accessory needs of a larger
subscriber base, partially offset by about a 10% decrease in the
average sales price of the handsets.


Cost of handset and accessory revenues.Reported cost of handset and
accessory revenues are primarily influenced by the number of
handsets sold, the cost of the handsets sold and the effects of
SAB No. 101 and EITF Issue No. 00-21. Upon adoption of
EITF Issue No. 00-21, effective July 1, 2003, we
recognize the cost of handset revenues when title to the handset
passes to the customer. Therefore, the adoption of EITF Issue
No. 00-21 results in increased reported cost of handset
revenues. See  Significant New Accounting
Pronouncements for a discussion of the impact of our
adoption of EITF Issue No. 00-21.

Current period cost of handset and accessory
sales increased $194 million or 19% for the nine months
ended September 30, 2003 compared to the same period in
2002. This increase primarily reflects an increase of about 24%
in the number of handsets sold, partially offset by a reduction
in the average cost we paid for handsets. Current period cost of
handset and accessory sales increased $88 million or 27%
for the three months ended September 30, 2003 compared to
the same period in 2002. This increase primarily reflects an
increase of about 34% in the number of handsets sold, partially
offset by a reduction 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. We expect to continue the
industry practice of selling handsets at prices below cost.

Handset and accessory net subsidy increased 13%
from the nine months ended September 30, 2002 to the nine
months ended September 30, 2003. We attribute the increase
in handset and accessory net subsidy to:



| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | an increase in the number of handsets sold of
    about 24%; partially offset by
|
| |  | a decrease in the average subsidy per handset of
    about 3%; and              
|
| |  | an increase in the gross margin from accessory
    sales.                       

Handset and accessory net subsidy increased 34%
from the three months ended September 30, 2002 to the three
months ended September 30, 2003. We attribute the increase
in handset and accessory net subsidy to:



| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| |  | an increase in the number of handsets sold of
    about 34%; and                   
|
| |  | an increase in the average subsidy per handset of
    about 6%; partially offset by
|
| |  | an increase in the gross margin from accessory
    sales.                          

30



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##### 



Selling, General and
Administrative.

|                           |                                     |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |    |  
|-------------------------- | ----------------------------------- | --------------------- | ----- | --------- |  | ------------- | -- | --------- | - | ------------- | ----- | ------- |  |  | -- | -- | - | - | --- | --- |  |  | -- | -- | -
|                           |                                     |                       |       |           |  |               |    |           |   |              
|                           |                                     |                       |       |           |  |               |    |           |   | Change from  
|                           |                                     |                       |       | % of      |  |               |    | % of      |   | Previous Year
|                           |                                     | September 30,         |       | Operating |  | September 30, |    | Operating |   |              
|                           |                                     | 2003                  |       | Revenues  |  | 2002          |    | Revenues  |   | Dollars       |       | Percent
|                           |                                     |                       |       |           |  |               |    |           |   |               |       |        
|                           |                                     |                      
|                           |                                     | (dollars in millions)
|Nine Months Ended          |                                     |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |   
|Selling and marketing      |                                     | $                     | 1,337 |           |  |               | 17 | %         |   | $             | 1,138 |         |  |  | 18 | %  |   | $ | 199 |     |  |  | 17 | % 
|General and administrative |                                     |                       | 1,180 |           |  |               | 15 | %         |   |               | 1,113 |         |  |  | 17 | %  |   |   | 67  |     |  |  | 6  | % 
|                           |                                     |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |   
|                           | Selling, general and administrative |                       | $     | 2,517     |  |               |    | 32        | % |               | $     | 2,251   |  |  |    | 35 | % |   | $   | 266 |  |  |    | 12 | %
|                           |                                     |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |   
|Three Months Ended         |                                     |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |   
|Selling and marketing      |                                     | $                     | 482   |           |  |               | 17 | %         |   | $             | 412   |         |  |  | 18 | %  |   | $ | 70  |     |  |  | 17 | % 
|General and administrative |                                     |                       | 420   |           |  |               | 14 | %         |   |               | 371   |         |  |  | 16 | %  |   |   | 49  |     |  |  | 13 | % 
|                           |                                     |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |   
|                           | Selling, general and administrative |                       | $     | 902       |  |               |    | 31        | % |               | $     | 783     |  |  |    | 34 | % |   | $   | 119 |  |  |    | 15 | %
|                           |                                     |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |     |     |  |  |    |   

Selling and marketing.The increase in selling and
marketing expenses from the nine and three months ended
September 30, 2002 to the nine and three months ended
September 30, 2003 reflects:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $130 million and $53 million increase
    in marketing payroll and related expenses primarily associated
    with our opening an additional 224 Nextel stores between
    September 30, 2002 and September 30, 2003, and
    increased employee commissions and other marketing activities;                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | a $49 million and $22 million increase
    in advertising expenses as a result of our new branding campaign
    launched in third quarter 2003, general marketing campaigns
    directed at increasing brand awareness and promoting our
    differentiated services, including Nationwide Direct Connect, as
    well as advertising costs related to the Boost Mobile test
    program, which launched in the quarter ended September 30,
    2002; and                                                                                                                                                                                                                                                                                                                  
|
| |  | a $20 million increase and $5 million
    decrease in dealer compensation. During the nine months ended
    September 30, 2003, we have experienced an increase in the
    volume of handset sales delivered through our direct handset
    fulfillment system, resulting in a decrease in commissions paid
    to dealers due to their participation in this direct handset
    fulfillment system. The $20 million increase for the nine
    months ended September 30, 2003 as compared to the same
    period in 2002 is due to increased dealer residuals and higher
    levels of commissions paid for new subscriber additions offset
    by the decrease in commissions paid as more handset sales are
    delivered through our direct handset fulfillment system.

General and administrative.The increase in general and
administrative expenses from the nine and three months ended
September 30, 2002 to the nine and three months ended
September 30, 2003, reflects:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $79 million and $32 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; and                                                                                                                                                                                                                                                                                                                               
|
| |  | a $147 million and $84 million increase
    in personnel, facilities and general corporate expenses due to
    increases in headcount and employee compensation costs, and to a
    lesser extent, technology initiatives, professional fees, legal
    expenses, our financial systems software upgrade project and
    other expenses relating to our public safety programs; partially
    offset by                                                                                                                                        
|
| |  | a $159 million and $67 million decrease
    in bad debt expense. Bad debt expense decreased
    $159 million from $260 million, or 4.1% of operating
    revenues, for the nine months ended September 30, 2002, to
    $101 million, or 1.3% of operating revenues, for the nine
    months ended September 30, 2003. Bad debt expense decreased
    $67 million from $87 million, or 3.8% of operating
    revenues for the three months ended September 30, 2002 to
    $20 million, or 0.7% of operating revenues, for the three
    months

31



---



##### 



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | ended September 30, 2003. The decrease in
    both bad debt expense and bad debt expense as a percentage of
    operating revenues reflects the results of system and strategic
    initiatives implemented over the past two years. With the
    completion of our integrated billing, customer care and
    collections system in 2002, productivity of various departments,
    including collections, has improved. Further, we made strategic
    decisions to strengthen our credit policies and procedures
    specifically in the area of compliance with our deposit policy,
    limiting the account sizes for high risk accounts and fraud
    pre-screening. The credit and collection software tools that we
    implemented now enable us to better screen and monitor the
    credit quality and delinquency levels of our customers. We have
    also benefited from improvements in recoveries of past due
    accounts handled by third party agencies. These factors and
    others have resulted in 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 December 31, 2002 to September 30, 2003.
    If these trends continue, bad debt expense could continue to
    improve; however bad debt expense in the future could be
    adversely affected by general economic and business conditions
    and other factors such as the effect of the implementation of
    number portability in the fourth quarter 2003. See
     Forward-Looking Statements.

Selling, general and administrative.Our selling, general and
administrative expenses as a percentage of operating revenues
decreased from the nine months ended September 30, 2002 to
the nine months ended September 30, 2003 primarily as a
result of increased 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 to increase in
the future as a result of a number of factors, including but not
limited to:



| |   |                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increased marketing and advertising in connection
    with our new branding campaign launched in third quarter 2003
    and sponsorships designed to increase brand awareness in our
    markets;                     
|
| |  | increased costs associated with expanding our
    retail operations by opening additional Nextel stores; and                                                                                                          
|
| |  | increased costs to acquire new customers and to
    support a growing customer base, including costs associated with
    billing, collection, customer retention and customer care
    activities; partially offset by
|
| |  | savings expected from our outsourcing
    arrangements, our billing and customer care system and obtaining
    an increasing percentage of sales from our customer convenience
    channels.                          

We expect our information and technology
outsourcing arrangement entered into in 2002 will result in
about $140 million of reduced costs over the five year
period from contract inception relative to our previous
run-rate, primarily in the form of lower capital spending. We
also expect our customer care outsourcing arrangement entered
into in 2002 will result in more than $1,000 million of
reduced costs over an eight-year period from contract inception
relative to our run-rate in 2001. Our actual experience through
September 30, 2003 indicates that we are realizing the
benefits of these outsourcing arrangements. While we believe our
aggregate customer care related costs will continue to increase
in order to support the growth in our customer base, we believe
these increases will be less than we would have experienced
without the outsourcing arrangement. See
 Forward-Looking Statements.

32



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##### 



Depreciation and
Amortization.

|                   |                               |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |    |    |  |  |    |    |  
|------------------ | ----------------------------- | --------------------- | ----- | --------- |  | ------------- | -- | --------- | - | ------------- | ----- | ------- |  |  | -- | -- | - | - | -- | -- |  |  | -- | -- | -
|                   |                               |                       |       |           |  |               |    |           |   |              
|                   |                               |                       |       |           |  |               |    |           |   | Change from  
|                   |                               |                       |       | % of      |  |               |    | % of      |   | Previous Year
|                   |                               | September 30,         |       | Operating |  | September 30, |    | Operating |   |              
|                   |                               | 2003                  |       | Revenues  |  | 2002          |    | Revenues  |   | Dollars       |       | Percent
|                   |                               |                       |       |           |  |               |    |           |   |               |       |        
|                   |                               |                      
|                   |                               | (dollars in millions)
|Nine Months Ended  |                               |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |    |    |  |  |    |   
|Depreciation       |                               | $                     | 1,223 |           |  |               | 15 | %         |   | $             | 1,159 |         |  |  | 18 | %  |   | $ | 64 |    |  |  | 6  | % 
|Amortization       |                               |                       | 41    |           |  |               | 1  | %         |   |               | 40    |         |  |  | 1  | %  |   |   | 1  |    |  |  | 3  | % 
|                   |                               |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |    |    |  |  |    |   
|                   | Depreciation and amortization |                       | $     | 1,264     |  |               |    | 16        | % |               | $     | 1,199   |  |  |    | 19 | % |   | $  | 65 |  |  |    | 5  | %
|                   |                               |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |    |    |  |  |    |   
|Three Months Ended |                               |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |    |    |  |  |    |   
|Depreciation       |                               | $                     | 416   |           |  |               | 14 | %         |   | $             | 398   |         |  |  | 17 | %  |   | $ | 18 |    |  |  | 5  | % 
|Amortization       |                               |                       | 13    |           |  |               | 1  | %         |   |               | 14    |         |  |  | 1  | %  |   |   | (1 | )  |  |  | (7 | )%
|                   |                               |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |    |    |  |  |    |   
|                   | Depreciation and amortization |                       | $     | 429       |  |               |    | 15        | % |               | $     | 412     |  |  |    | 18 | % |   | $  | 17 |  |  |    | 4  | %
|                   |                               |                       |       |           |  |               |    |           |   |               |       |         |  |  |    |    |   |   |    |    |  |  |    |   

Depreciation expense increased $64 million
and $18 million from the nine and three months ended
September 30, 2002 to the nine and three months ended
September 30, 2003. During the nine months ended
September 30, 2003, we recorded $61 million, or $0.06
per common share, in depreciation expense as a result of
shortening the estimated useful lives of some of our network
assets in the first quarter 2003. Further, depreciation
increased primarily as a result of a 4% increase in transmitter
and receiver sites in service and 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 useful lives of our fixed assets as
circumstances warrant. Events that would likely cause us to
review the useful lives of our fixed assets include decisions
made by regulatory agencies and our decisions surrounding
strategic or technology matters. It is possible that
depreciation expense may increase in future periods as a result
of one or a combination of these decisions. Depreciation expense
recorded in a period can also be impacted by several factors,
including the effect of fully depreciated assets, the timing
between when capital assets are purchased and when they are
deployed into service which is when depreciation commences,
company-wide decisions surrounding levels of capital spending
and the level of spending on non-network assets which generally
have much shorter depreciable lives as compared to network
assets.

Restructuring and Impairment Charge,
Interest and Other.

|                                                                                      |  |                       |      |               |  |               |      |         |  |   |      |   |  |  |      |   
|------------------------------------------------------------------------------------- |  | --------------------- | ---- | ------------- |  | ------------- | ---- | ------- |  | - | ---- | - |  |  | ---- | --
|                                                                                      |  |                       |      |               |  |              
|                                                                                      |  |                       |      |               |  | Change from  
|                                                                                      |  |                       |      |               |  | Previous Year
|                                                                                      |  | September 30,         |      | September 30, |  |              
|                                                                                      |  | 2003                  |      | 2002          |  | Dollars       |      | Percent
|                                                                                      |  |                       |      |               |  |               |      |        
|                                                                                      |  |                      
|                                                                                      |  | (dollars in millions)
|Nine Months Ended                                                                     |  |                       |      |               |  |               |      |         |  |   |      |   |  |  |      |   
|Restructuring and impairment charge                                                   |  | $                     |     |               |  | $             | (35  | )       |  | $ | 35   |   |  |  | 100  | % 
|Interest expense                                                                      |  |                       | (664 | )             |  |               | (813 | )       |  |   | 149  |   |  |  | 18   | % 
|Interest income                                                                       |  |                       | 32   |               |  |               | 45   |         |  |   | (13  | ) |  |  | (29  | )%
|(Loss) gain on retirement of debt and mandatorily
    redeemable preferred stock, net |  |                       | (146 | )             |  |               | 804  |         |  |   | (950 | ) |  |  | (118 | )%
|Equity in losses of unconsolidated affiliates, net                                    |  |                       | (39  | )             |  |               | (298 | )       |  |   | 259  |   |  |  | 87   | % 
|Reduction in fair value of investments                                                |  |                       | (2   | )             |  |               | (38  | )       |  |   | 36   |   |  |  | 95   | % 
|Other, net                                                                            |  |                       | 4    |               |  |               | (1   | )       |  |   | 5    |   |  |  | 500  | % 
|Income tax provision                                                                  |  |                       | (70  | )             |  |               | (373 | )       |  |   | 303  |   |  |  | 81   | % 
|Income available to common stockholders                                               |  |                       | 835  |               |  |               | 197  |         |  |   | 638  |   |  |  | 324  | % 

33



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##### 



|                                                                                      |  |                       |      |               |  |               |      |         |  |   |      |   |  |  |      |   
|------------------------------------------------------------------------------------- |  | --------------------- | ---- | ------------- |  | ------------- | ---- | ------- |  | - | ---- | - |  |  | ---- | --
|                                                                                      |  |                       |      |               |  |              
|                                                                                      |  |                       |      |               |  | Change from  
|                                                                                      |  |                       |      |               |  | Previous Year
|                                                                                      |  | September 30,         |      | September 30, |  |              
|                                                                                      |  | 2003                  |      | 2002          |  | Dollars       |      | Percent
|                                                                                      |  |                       |      |               |  |               |      |        
|                                                                                      |  |                      
|                                                                                      |  | (dollars in millions)
|Three Months Ended                                                                    |  |                       |      |               |  |               |      |         |  |   |      |   |  |  |      |   
|Interest expense                                                                      |  | $                     | (220 | )             |  | $             | (271 | )       |  | $ | 51   |   |  |  | 19   | % 
|Interest income                                                                       |  |                       | 10   |               |  |               | 14   |         |  |   | (4   | ) |  |  | (29  | )%
|(Loss) gain on retirement of debt and mandatorily
    redeemable preferred stock, net |  |                       | (132 | )             |  |               | 401  |         |  |   | (533 | ) |  |  | (133 | )%
|Equity in earnings (losses) of
    unconsolidated affiliates                          |  |                       | 9    |               |  |               | (23  | )       |  |   | 32   |   |  |  | 139  | % 
|Reduction in fair value of investments                                                |  |                       |     |               |  |               | (3   | )       |  |   | 3    |   |  |  | 100  | % 
|Other, net                                                                            |  |                       | 2    |               |  |               |     |         |  |   | 2    |   |  |  |     |   
|Income tax provision                                                                  |  |                       | (21  | )             |  |               | (8   | )       |  |   | (13  | ) |  |  | (163 | )%
|Income available to common stockholders                                               |  |                       | 346  |               |  |               | 526  |         |  |   | (180 | ) |  |  | (34  | )%

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

Interest
expense.The $149 million and
$51 million decrease in interest expense from the nine and
three months ended September 30, 2002 to the nine and three
months ended September 30, 2003 relates to:



| |   |                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $120 million and $37 million decrease
    primarily resulting from the purchase and retirement of our
    senior notes, as discussed below;                                                                                                                                                                                       
|
| |  | a $31 million and $11 million decrease
    due to a reduction in the weighted average interest rates
    related to our bank credit facility from 4.8% during the nine
    months ended September 30, 2002 to 4.0% during the nine
    months ended September 30, 2003;                                                             
|
| |  | a $16 million and $24 million decrease
    due to the ineffective portion of the change in fair value of
    the derivative qualifying for hedge accounting; and                                                                                                                                                                    
|
| |  | a $13 million and $5 million decrease
    related to the SpectraSite tower lease agreements, accounted for
    as a financing obligation prior to 2003; partially offset by                                                                                                                                                         
|
| |  | a $14 million increase due to the issuance
    of our 7.375% senior notes in the third quarter 2003;                                                                                                                                                                                                                                
|
| |  | a $9 million and $4 million decrease in
    capitalized interest; and                                                                                                                                                                                                                                                               
|
| |  | an $8 million increase related to the third
    quarter dividends of our series D and series E
    preferred stock being classified as interest expense effective
    July 1, 2003 as a result of adopting SFAS No. 150,
    Accounting for Certain Financial Instruments with
    Characteristics of both Liabilities and Equity.

Interest expense related to our senior notes
decreased from the nine and three months ended
September 30, 2002 to the nine and three months ended
September 30, 2003 primarily due the purchase and
retirement of $3,926 million in aggregate principal amount
at maturity of our senior notes since the beginning of the
second quarter 2002. This decrease is partially offset by the
interest expense associated with the additional
$2,000 million in new debt issued during the third quarter
2003. We expect our interest expense to continue to decrease as
a result of the debt redemptions and retirements consummated in
the third quarter 2003 and those expected to be completed in the
fourth quarter 2003. See  Forward-Looking
Statements.

Interest
income.The $13 million and
$4 million decrease in interest income from the nine months
and three months ended September 30, 2002 to the nine
months and three months ended September 30, 2003 is due to
a decrease in the average cash and short-term investments
balances and lower average interest rates during the nine months
ended September 30, 2003 as compared to the same period in
2002.

34



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##### 



(Loss) gain on retirement of debt and
mandatorily redeemable preferred
stock.For the nine and three
months ended September 30, 2003, we recognized a loss of
$146 million and $132 million on the retirement of
some of our senior notes and preferred stock representing the
redemption premium paid and the write-off of the unamortized
debt financing costs. For the nine and three months ended
September 30, 2002, we recognized a gain of
$804 million and $401 million on the retirement of some of
our senior notes and preferred stock representing the excess of
the carrying value over the purchase price of the purchased and
retired notes and the write-off of the unamortized debt
financing costs.

Equity in earnings (losses) of
unconsolidated affiliates.The
$39 million in equity in losses of unconsolidated
affiliates and the $9 million in equity in gains of
unconsolidated affiliates for the nine and three months ended
September 30, 2003 is primarily due to losses attributable
to our equity method investment in Nextel Partners of
$64 million through June 2003 partially offset by our
equity in earnings of NII Holdings of $26 million and
$10 million. During the second quarter 2003, our
investments in Nextel Partners common stock and 12%
nonvoting preferred stock were written down to zero through the
application of the equity method of accounting. The
$298 million and $23 million equity in losses of
unconsolidated affiliates for the nine and three months ended
September 30, 2002 includes a $226 million loss
representing our share through May 2002 of NII Holdings
operating results before it emerged from bankruptcy and a
$72 million and $23 million loss primarily
attributable to our equity method investment in Nextel Partners.

In October 2003, Nextel Partners notified us of
its intent to redeem its 12% preferred stock in exchange for
$39 million in cash during the fourth quarter 2003. As our
investment in Nextel Partners 12% preferred stock was
written down to zero, we expect to record a gain during the
fourth quarter 2003 of about $39 million.

Reduction in fair value of
investments.The decrease of
$36 million in the reduction in fair value of investments
from the nine months ended September 30, 2002 to the nine
months ended September 30, 2003 is primarily due to the
$35 million charge recognized on June 30, 2002 when we
determined the decline in fair value of our investment in
SpectraSite to be other-than-temporary.

Income tax provision.The decrease in the income tax
provision of $303 million from the nine months ended
September 30, 2002 to the nine months ended
September 30, 2003 is primarily attributable to the
adoption of SFAS No. 142, Goodwill and Other
Intangible Assets in the first quarter 2002. As a result
of this adoption, we incurred a one-time cumulative non-cash
charge to the income tax provision of $335 million
resulting in an increase in the valuation allowance related to
our net operating losses. We have provided a full reserve
against our net operating loss carryforwards as of
September 30, 2003. This reserve was established because we
do not have a sufficient history of taxable income to conclude
that it is more likely than not that the net operating losses
will be realized. To the extent that we have taxable income in
future periods, we will realize the benefits of at least some of
the net operating loss carryforwards. The increase of
$13 million from the three months ended September 30,
2002 to the three months ended September 30, 2003 is
primarily due to an increase in our provision for state taxes
because various states have suspended or limited the utilization
of our net operating losses.

Liquidity and Capital Resources

As of September 30, 2003, we had total
liquidity of about $4.8 billion available to fund our
operations including $3.6 billion of cash, cash equivalents
and short-term investments and about $1.2 billion available
under the revolving loan commitment of our bank credit facility.
During the fourth quarter 2003, we raised $500 million from
the issuance of our 6.875% senior notes and, during the third
and fourth quarters 2003, we announced that we will redeem about
$2.1 billion in senior notes and convertible senior notes
in exchange for about $2.1 billion of cash. Until the third
quarter 2002, total cash used in investing activities, primarily
for capital expenditures and spectrum acquisitions associated
with developing, enhancing and operating our network, more than
offset our cash flows provided by operating activities. For the
nine months ended September 30, 2003, total cash provided
by operating activities exceeded cash flows used in investing
activities by $794 million as compared to a deficit of
$499 million for the same period in 2002. We have
historically

35



---



##### 



used external sources of funds, primarily from
debt incurrences and equity issuances, to fund capital
expenditures, acquisitions and other nonoperating needs.


Cash Flows.

|                                      |  |                       |        |               |  |         |        |         |  |   |     |  |  |  |    |  
|------------------------------------- |  | --------------------- | ------ | ------------- |  | ------- | ------ | ------- |  | - | --- |  |  |  | -- | -
|                                      |  |                       |        |              
|                                      |  | Nine Months Ended     |        | Change from  
|                                      |  | September 30,         |        | Previous Year
|                                      |  |                       |        |              
|                                      |  | 2003                  |        | 2002          |  | Dollars |        | Percent
|                                      |  |                       |        |               |  |         |        |        
|                                      |  |                      
|                                      |  | (dollars in millions)
|Cash provided by operating activities |  | $                     | 2,394  |               |  | $       | 1,513  |         |  | $ | 881 |  |  |  | 58 | %
|Cash used in investing activities     |  |                       | (1,600 | )             |  |         | (2,012 | )       |  |   | 412 |  |  |  | 20 | %
|Cash used in financing activities     |  |                       | (105   | )             |  |         | (761   | )       |  |   | 656 |  |  |  | 86 | %

Net cash provided by operating activities for the
nine months ended September 30, 2003 improved by
$881 million over the same period in 2002 primarily
reflecting the improved performance of our operations from our
achievement of certain economies of scale and from the growth in
our customer base.

Net cash used in investing activities for the
nine months ended September 30, 2003 decreased by
$412 million over the same period in 2002 due to:



| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | a $250 million decrease in cash paid for
    capital expenditures;                                                          
|
| |  | a $153 million decrease in cash paid for
    purchases of licenses, acquisitions, investments and other; and                
|
| |  | the relinquishment of $250 million of NII
    Holdings cash upon the deconsolidation of NII Holdings in
    2002; offset by
|
| |  | a $241 million increase in net cash
    purchases of short-term investments.                                                

Capital expenditures to fund the ongoing
investment in our network continued to represent the largest use
of our funds for investing activities. Cash payments for capital
expenditures totaled $1,158 million for the nine months
ended September 30, 2003 and $1,408 million for the
nine months ended September 30, 2002. Capital expenditures
decreased for the nine months ended September 30, 2003
compared with the same period in 2002 primarily due to several
factors, including:



| |   |                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | implementation of enhanced processes and tools
    that allow us to more efficiently deploy and utilize network
    assets;                                                                                         
|
| |  | our improved spectrum utilization, which allows
    us to add enhancements to existing transmitter and receiver
    sites rather than building additional sites;                                                    
|
| |  | technological advances in network software and
    equipment which provide us with more capacity at a lower cost;
    see  Future Capital Needs and
    Resources  Capital Needs  Capital
    expenditures; and
|
| |  | the outsourcing of our site development work and
    the resulting delay in our construction activities during the
    first half of 2003.                                                                          

We expect that our site development activities
and related capital expenditures will increase in the fourth
quarter 2003 now that our outsourcing agreements have been
consummated. See  Forward-Looking
Statements.

Also, we made cash payments during the nine
months ended September 30, 2003 totaling $263 million
for licenses, investments and other, including $201 million
related to the acquisition of FCC licenses of NeoWorld
Communications. We made cash payments during the nine months
ended September 30, 2002 totaling $305 million for
acquisitions, licenses, investments and other, including $111
million for the assets of Chadmoore Wireless Group, Inc and
$40 million in cash payments for NeoWorld Communications.

36



---



##### 



Net cash used in financing activities of
$105 million during the nine months ended
September 30, 2003 consisted primarily of:



| |   |                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $2,466 million paid for the purchase and
    retirement of some of our senior notes and our series D and
    series E preferred stock;                                                                    
|
| |  | $89 million for repayments under capital
    lease and finance obligations, including a payment of
    $54 million associated with the early buy-out option under
    one of our capital lease agreements;
|
| |  | $79 million of net payments under the
    long-term credit facility; and                                                                                                                                  
|
| |  | $57 million paid for mandatorily redeemable
    preferred stock dividends; partially offset by                                                                                                            
|
| |  | $1,983 million of net proceeds from the sale
    of our 7.375% senior serial notes due 2015;                                                                                                              
|
| |  | $499 million of net proceeds from the
    issuance of shares of our class A common stock under our direct
    stock purchase plan; and                                                                    
|
| |  | $106 million of proceeds received in
    connection with the exercise of stock options granted under our
    incentive equity plan.                                                                       

Net cash used in financing activities of
$761 million during the nine months ended
September 30, 2002 consisted primarily of cash paid for the
purchase and retirement of debt securities and mandatorily
redeemable preferred stock of $689 million and repayments
of $77 million under capital lease and finance obligations.

Future Capital Needs and Resources

Capital Resources.

As of September 30, 2003, our capital
resources included $3.6 billion of cash, cash equivalents
and short-term investments and about $1.2 billion of the
revolving loan commitment under our credit facility, as
discussed below. Therefore, our resulting total amount of
liquidity to fund our operations was about $4.8 billion as
of September 30, 2003. During the fourth quarter 2003, we
raised $500 million from the issuance of our 6.875% senior
notes and we announced that we will redeem about
$2.1 billion in senior notes and convertible senior notes
in exchange for about $2.1 billion of cash.

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
the third quarter 2002, we were unable to fund our capital
expenditures, spectrum acquisition costs and business
acquisitions with the cash generated by our operating
activities. Therefore, we have met the cash needs of our
business principally by raising capital from issuances of debt
and equity securities. To the extent we can generate sufficient
cash flow from our operating activities, we will be able to use
less of our available liquidity and will have less, if any, need
to raise incremental capital from the capital markets. To the
extent we generate less cash flow from our operating activities,
we will be required to use more of our available liquidity to
fund operations or raise additional capital from the capital
markets. We may be unable to raise additional capital on
acceptable terms, if at all. Our ability to generate cash flow
from operating activities is dependent upon, among other things:



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

As of September 30, 2003, our credit
facility provided for total secured financing capacity of up to
$5.7 billion, subject to the satisfaction or waiver of
applicable borrowing conditions. As of September 30, 2003,
this facility consisted of a $1.4 billion revolving loan
commitment, of which $116 million has been borrowed, and
about $4.3 billion in four classes of term loans, all of
which have been borrowed. We made mandatory

37



---



##### 



principal repayments on the term loans in the
amount of $148 million for nine months ended
September 30, 2003. We are required to repay about
$49 million of term loans each quarter through
March 31, 2004. Our required term loan repayments will
increase to about $92 million every quarter beginning
April 1, 2004 through March 31, 2005. The term loan
matures over a period from December 31, 2007 to
March 31, 2009. On September 30, 2003, the amount of
the revolving loan commitment available to us was reduced by
$38 million and will continue to be reduced by
$38 million every quarter through March 31, 2004. The
reductions in the revolving loan commitment will increase to
$75 million every quarter beginning April 1, 2004 and
continuing through March 31, 2005. Starting April 1,
2005, the reductions become more significant until 2007 when no
amounts will be available under the revolving credit facility.
Pursuant to amendments to the facility that we entered into in
the fourth quarter 2003, up to $750 million of the
revolving loans may be used to support letters of credit issued
on our behalf by certain lenders under the facility. These
amendments also allow us to prepay outstanding principal amounts
under any class of term loan without concurrently being required
to prepay outstanding principal amounts of other classes of term
loans as was required prior to the amendment.


The credit facility requires compliance with
financial ratio tests, including total indebtedness to operating
cash flow, secured indebtedness to operating cash flow,
operating cash flow to interest expense and operating cash flow
to specified charges, each as defined under the credit facility.
Some of these ratios became more stringent effective
March 31, 2003, at which time they became fixed. As of
September 30, 2003, we were in compliance with all
financial ratio tests under our credit facility, and we expect
to remain in full compliance with these ratio tests. See
 Forward-Looking Statements. Borrowings under
the credit facility are secured by liens on substantially all of
our assets, and are guaranteed by our parent company and
substantially all of our subsidiaries. The maturity dates of the
loans may accelerate if we do not comply with the financial
ratio tests, which could have a material adverse effect on our
financial condition.

In addition, the loans under the credit facility
can accelerate if the aggregate amount of our public notes that
mature within the succeeding six months of any date before
June 30, 2009, or if the aggregate amount of our redeemable
stock that is mandatorily redeemable within the succeeding six
months of any date before June 30, 2009, exceeds amounts
specified in our credit facility. As of September 30, 2003,
the maturities of our public notes and preferred stock do not
exceed the amounts specified in our credit facility. Upon
completion of our announced debt retirements in the fourth
quarter 2003, there will be no scheduled maturities of our
remaining public notes and preferred stock occurring before
June 30, 2009. 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 September 30, 2003,
the applicable provisions of our senior notes and mandatorily
redeemable preferred stock did not restrict our ability, and we
had satisfied the borrowing conditions under this facility, to
borrow substantially all of the remaining $1.2 billion
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.

Additionally, from April 1, 2002 to
September 30, 2003, we have purchased and retired about
$6,116 million in principal amount of our senior notes and
convertible notes and in face amount of our preferred stock in
exchange for cash and shares of our class A common stock. We
have also announced that we will redeem about
$2,051 million in principal amount of our senior notes and
convertible senior notes in exchange for cash in the fourth
quarter 2003. During the third quarter 2003, we completed the
sale of

38



---



##### 



$2,000 million in aggregate principal amount
of our 7.375% senior notes, which generated about
$1,983 million in net cash proceeds. In October 2003, we
completed the sale of $500 million in principal amount of
our 6.875% senior notes, which generated about $500 million
in net cash proceeds. We expect annualized interest and dividend
savings from these redemptions and retirements, net of
additional interest incurred from the issuance of the 7.375% and
6.875% senior notes, of about $621 million for the next
several years. See  Future contractual
obligations for further information about future cash
payments related to our long-term debt and preferred securities.


We may, from time to time, as we deem
appropriate, enter into similar or other repurchase or
retirement transactions that in the aggregate may be material.

Capital Needs.

We currently anticipate that our future capital
needs, subsequent to September 30, 2003, will principally
consist of funds required for:



| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | capital expenditures, as discussed immediately
    below under  Capital expenditures;                                                                                                          
|
| |  | operating expenses relating to our network;                                                                                                                                                       
|
| |  | future investments, including the purchase of
    certain of WorldComs FCC licenses and other network
    assets, potential spectrum purchases and investments in new
    business opportunities;
|
| |  | potential substantial payments in connection with
    the Consensus Plan relating to the proposed public safety
    spectrum realignment (see Part II, Item 5. Other
    Information);          
|
| |  | purchase and retirement of our 9.95% senior
    notes, our 9.75% senior notes, our 12% senior notes and our
    4.75% convertible senior notes;                                                   
|
| |  | debt service requirements related to our
    long-term debt, capital lease and financing obligations and
    mandatorily redeemable preferred stock;                                              
|
| |  | potential material increases in the cost of
    compliance with regulatory mandates; and                                                                                                          
|
| |  | other general corporate expenditures.                                                                                                                                                             

Capital
expenditures.Our capital
expenditures during the nine months ended September 30,
2003 were $1,158 million, including capitalized interest.
In the future, we expect our capital spending to be driven by
several factors including:



| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the construction of additional transmitter and
    receiver sites to maintain system quality and the installation
    of related switching equipment in existing market coverage areas;
|
| |  | the enhancement of our network coverage;                                                                                                                                               
|
| |  | the enhancements to our existing iDEN technology
    to increase voice capacity;                                                                                                       
|
| |  | 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 significantly
affected by future technology improvements and technology
choices. In October 2003, we began deploying the 6:1 voice coder
technology that is designed to allow us to more efficiently use
our spectrum and reduce our network capital expenditures.
Because the network efficiencies relating to the 6:1 voice coder
technology are dependent on use of handsets operating in the 6:1
mode, 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. We currently anticipate
beginning to realize meaningful benefits beginning in the latter
half 2004. If there are substantial delays in the deployment of
handsets operating in the 6:1 mode, those benefits would also be
delayed. See  Forward-Looking

39



---



##### 



Statements. Technological developments like
this would allow us to significantly reduce the amount of
capital expenditures we would need to make for our current
network in future years. However, any anticipated reductions in
capital expenditures could be more than offset to the extent we
incur additional capital expenditures to deploy new
technologies, such as high-speed data technology. We will deploy
a new technology only when deployment is warranted by expected
customer demand, when we have sufficient capital available and
when the anticipated benefits of services requiring the next
generation technology outweigh the costs of providing those
services.


Future contractual
obligations.The table below sets
forth our best estimates as to the amounts and timing of future
contractual payments for our most significant contractual
obligations as of September 30, 2003. The information in
the table reflects future unconditional payments and is based
upon, among other things, the terms of the relevant agreements,
appropriate classification of items under generally accepted
accounting principles currently in effect and certain
assumptions, such as future interest rates. Future events,
including additional purchases of our securities and refinancing
of those securities, could cause actual payments to differ
significantly from these amounts. See
 Forward-Looking Statements.

|                                      |  |       |        |           |  |      |       |               |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|------------------------------------- |  | ----- | ------ | --------- |  | ---- | ----- | ------------- |  | ---- | ----- | ---- |  | ---------- | ----- |  |  | - | ----- |  |  | - | ----- |  |  | - | ------ | 
|                                      |  |       |        | Remainder |  |      |       |               |  |      |       |      |  | 2008 and  
|Future Contractual Obligations        |  | Total |        | of 2003   |  | 2004 |       | 2005          |  | 2006 |       | 2007 |  | Thereafter
|                                      |  |       |        |           |  |      |       |               |  |      |       |      |  |           
|                                      |  |       |        |           |  |      |       |               |  |      |       |     
|                                      |  |       |        |           |  |      |       | (in millions) |  |      |       |     
|Public senior notes (1)(2)(3)         |  | $     | 11,900 |           |  | $    | 1,465 |               |  | $    | 511   |      |  | $          | 511   |  |  | $ | 511   |  |  | $ | 795   |  |  | $ | 8,107  | 
|Bank credit facility (4)              |  |       | 5,662  |           |  |      | 95    |               |  |      | 505   |      |  |            | 647   |  |  |   | 701   |  |  |   | 749   |  |  |   | 2,965  | 
|Capital lease and finance obligations |  |       | 211    |           |  |      | 12    |               |  |      | 49    |      |  |            | 51    |  |  |   | 53    |  |  |   | 46    |  |  |   |       | 
|Preferred stock cash payments         |  |       | 245    |           |  |      |      |               |  |      |      |      |  |            |      |  |  |   |      |  |  |   |      |  |  |   | 245    | 
|Operating leases                      |  |       | 1,536  |           |  |      | 121   |               |  |      | 448   |      |  |            | 347   |  |  |   | 236   |  |  |   | 157   |  |  |   | 227    | 
|Other                                 |  |       | 2,105  |           |  |      | 107   |               |  |      | 464   |      |  |            | 381   |  |  |   | 316   |  |  |   | 214   |  |  |   | 623    | 
|                                      |  |       |        |           |  |      |       |               |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|Total                                 |  | $     | 21,659 |           |  | $    | 1,800 |               |  | $    | 1,977 |      |  | $          | 1,937 |  |  | $ | 1,817 |  |  | $ | 1,961 |  |  | $ | 12,167 | 
|                                      |  |       |        |           |  |      |       |               |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 



---



|    |                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | These amounts include the effect of our third
    quarter announcements to redeem $500 million in outstanding
    aggregate principal amount of our 9.95% senior notes and the
    entire outstanding aggregate principal amounts of our 9.75% and
    12% senior notes.                       
|   
|(2) | These amounts do not include the effect of our
    October 2003 announcements to redeem the remaining
    $499 million in outstanding aggregate principal amount of
    our 9.95% senior notes and the entire outstanding aggregate
    principal amount of our 4.75% convertible senior notes.
|   
|(3) | These amounts do not include the sale of our
    6.875% senior notes, which was completed in October 2003.                                                                                                                                                                                     
|   
|(4) | These amounts include principal and estimated
    interest payments based on managements expectation as to
    future interest rates, assume the current payment schedule and
    exclude any additional future drawdown under the revolving loan
    commitment.                             

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 $303 million for spectrum
acquisitions, including about $144 million for the pending
acquisition of certain FCC licenses and other network assets of
WorldCom, and leasing agreements entered into and outstanding as
of September 30, 2003. Included in the Other
caption are minimum amounts due under 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, interest
rates and other factors. In addition, we are party to various
arrangements that are conditional in nature and obligate us to
make payments only upon the occurrence of certain events, such
as the delivery of functioning software or products. Because it
is not possible to predict the timing or amounts that may be due
under these conditional arrangements, no amounts have been
included in the table above. Significant amounts expected to be
paid to Motorola for infrastructure, handsets and related
services are not shown above due to the uncertainty surrounding
the timing and extent of these payments and because minimum
contractual amounts under our

40



---



##### 



agreements with Motorola are not significant. See
note 15 of the consolidated financial statements contained in
our 2002 annual report on Form 10-K.


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

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



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

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

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

In making this assessment, we have considered:



| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the anticipated level of capital expenditures,
    including an expected positive impact associated with the
    network efficiencies relating to the deployment of
    6:1 voice coder technology;     
|
| |  | our scheduled debt service requirements; and                                                                                                                                                            
|
| |  | cash used or required, subsequent to
    September 30, 2003, to purchase and retire our 9.95% senior
    notes, our 9.75% senior notes, our 12% senior notes and our
    4.75% convertible senior notes.

Additionally, we have the ability to use existing
cash, cash equivalents and short-term investments on hand and
available of $3.6 billion as of September 30, 2003, or
drawdown on the available revolving loan commitment under our
credit facility of about $1.2 billion as of
September 30, 2003 to fund our capital needs.

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

41



---



##### 



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


Our above conclusion that we will be able to fund
our capital requirements for the next twelve months by using
existing cash balances and cash generated from operations does
not take into account:



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

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



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

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

Forward-Looking Statements

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



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

42



---



##### 





| |   |                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the timely development and availability of new
    handsets with expanded applications and features, including
    those that operate using 6:1 voice coder software;                                                                                                                                                                                                      
|
| |  | the success of efforts to improve, and
    satisfactorily address any issues relating to, our digital
    mobile network performance;                                                                                                                                                                                                                                      
|
| |  | the successful implementation and performance of
    the technology being deployed in our various market areas,
    including the 6:1 voice coder software upgrade;                                                                                                                                                                                                        
|
| |  | market acceptance of our JavaTM
    embedded handsets and service offerings, including our Nextel
    Online services;                                                                                                                                                                                                                                                     
|
| |  | the timely delivery and successful implementation
    of new technologies deployed in connection with any future
    enhanced iDEN or next generation or other advanced services we
    may offer;                                                                                                                                                                         
|
| |  | no significant adverse change in Motorolas
    ability or willingness to provide handsets and related equipment
    and software applications or to develop new technologies 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 digital mobile network business;                                                                                                                                                                                                  
|
| |  | the impact on our cost structure or service
    levels of the general downturn in the telecommunications sector,
    including the adverse effect of any bankruptcy of any of our
    tower providers or telecommunications suppliers;                                                                                                                                     
|
| |  | our ability to successfully scale, in some
    circumstances in conjunction with third parties under our
    outsourcing arrangements, our billing, collection, customer care
    and similar back-office operations to keep pace with customer
    growth, increased system usage rates and growth in levels of
    accounts receivables being generated by our customers;
|
| |  | access to sufficient debt or equity capital to
    meet operating and financing needs;                                                                                                                                                                                                                                                                                     
|
| |  | the quality and price of similar or comparable
    wireless communications services offered or to be offered by our
    competitors, including providers of cellular and personal
    communication services including, for example, two-way radio
    services first introduced by one of our competitors in the third
    quarter of 2003;                               
|
| |  | the impact of legislation or regulatory actions
    relating to specialized mobile radio services, wireless
    communications services or telecommunications generally,
    including, for example, the impact of number portability on our
    business;                                                                                                                 
|
| |  | the costs of compliance with regulatory mandates,
    particularly the requirement to deploy location-based 911
    capabilities; and                                                                                                                                                                                                                                      
|
| |  | other risks and uncertainties described from time
    to time in our reports filed with the Securities and Exchange
    Commission, including our annual report on Form 10-K for
    the year ended December 31, 2002 and our subsequent
    quarterly reports on Form 10-Q.                                                                                               



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

We primarily use senior notes, bank credit
facilities and mandatorily redeemable preferred stock to finance
our obligations. We are exposed to market risk from changes in
interest rates and equity prices. Our primary interest rate risk
results from changes in the London Interbank Offered Rate, or
LIBOR, U.S. prime and Eurodollar rates, which are used to
determine the interest rates applicable to our borrowings.
Interest rate changes expose our fixed rate long-term borrowings
to changes in fair value and expose our variable rate long-term
borrowings to changes in future cash flows. From time to time,
we use derivative instruments primarily consisting of interest
rate swap agreements to manage this interest rate exposure by
achieving a desired proportion of fixed rate versus variable
rate borrowings. All of our derivative transactions are entered
into for non-trading purposes. As of September 30, 2003, we
did not have any derivative instruments. Additional information
regarding our derivative transactions can be found in note 5 to
the condensed consolidated financial statements.

43



---



##### 



As of September 30, 2003, we held
$1,028 million of short-term investments consisting of debt
securities in the form of commercial paper and corporate bonds.
As the weighted average maturity from the date of purchase was
less than five months, these short-term investments do not
expose us to a significant amount of interest rate risk.

As of September 30, 2003, the fair value of
our investment in NII Holdings 13% senior secured notes,
which was determined based on quoted market prices of the notes,
totaled $67 million. This investment is reported at its
fair value in our financial statements.

The table below summarizes our remaining interest
rate risks as of September 30, 2003 in U.S. dollars. The
table presents principal cash flows and related interest rates
by year of maturity for our senior notes, bank credit
facilities, capital lease and finance obligations and
mandatorily redeemable preferred stock in effect at
September 30, 2003. In the case of the mandatorily
redeemable preferred stock and senior notes, the table excludes
the potential exercise of the relevant redemption or conversion
features. This table also assumes that we will refinance our
indebtedness to levels necessary to avoid an earlier repayment
obligation with respect to our bank credit agreement. See
Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations  Future
Capital Needs and Resources. Fair values included in this
section have been determined based on:



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

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

|                                                                                                         |                       |                       |   |       |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |     |   |  |   |       |   |  |   |       |   |  |   |       | 
|-------------------------------------------------------------------------------------------------------- | --------------------- | --------------------- | - | ----- | - | ---- | - | ---- | - | ---- | - | ---------- | - | ----- | - | ----- | - |  | - | --- | - |  | - | ----- | - |  | - | ----- | - |  | - | ----- | 
|                                                                                                         |                       |                       |   |       |   |      |   |     
|                                                                                                         |                       | Year of Maturity      |   |       |   |      |   |     
|                                                                                                         |                       |                       |   |       |   |      |   | Fair
|                                                                                                         |                       | 2003                  |   | 2004  |   | 2005 |   | 2006 |   | 2007 |   | Thereafter |   | Total |   | Value
|                                                                                                         |                       |                       |   |       |   |      |   |      |   |      |   |            |   |       |   |      
|                                                                                                         |                       |                      
|                                                                                                         |                       | (dollars in millions)
|I. Interest Rate Sensitivity                                                                             |                       |                       |   |       |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |     |   |  |   |       |   |  |   |       |   |  |   |      
|Mandatorily Redeemable Preferred Stock,
    Long-term Debt and Capital Lease and Finance
    Obligations |                       |                       |   |       |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |     |   |  |   |       |   |  |   |       |   |  |   |      
|                                                                                                         | Fixed Rate            |                       | $ | 1,277 |   |      | $ | 39   |   |      | $ | 43         |   |       | $ | 48    |   |  | $ | 328 |   |  | $ | 6,418 |   |  | $ | 8,153 |   |  | $ | 8,430 | 
|                                                                                                         | Average Interest Rate |                       |   | 10    | % |      |   | 10   | % |      |   | 10         | % |       |   | 10    | % |  |   | 5   | % |  |   | 9     | % |  |   | 8     | % |  |   |       | 
|                                                                                                         | Variable Rate         |                       | $ | 50    |   |      | $ | 327  |   |      | $ | 433        |   |       | $ | 466   |   |  | $ | 505 |   |  | $ | 2,656 |   |  | $ | 4,437 |   |  | $ | 4,394 | 
|                                                                                                         | Average Interest Rate |                       |   | 3     | % |      |   | 3    | % |      |   | 3          | % |       |   | 3     | % |  |   | 3   | % |  |   | 5     | % |  |   | 4     | % |  |   |       | 

Item 4.     Controls
and Procedures.

We maintain a set of disclosure controls and
procedures that are designed to ensure that information relating
to Nextel Communications, Inc. (including its consolidated
subsidiaries) required to be disclosed in our periodic filings
under the Securities Exchange Act is recorded, processed,
summarized and reported in a timely manner under the Securities
Exchange Act of 1934. 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
September 30, 2003. There have been no changes in our
internal control over financial reporting that occurred during
the quarter ended September 30, 2003 that has materially
affected, or is reasonably likely to materially affect,
Nextels internal control over financial reporting.

44



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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, 2002, or our 2002 Form 10-K,
and our subsequent quarterly reports on Form 10-Q. During
the three months ended September 30, 2003, 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.

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 have been filed
against us in several state and federal courts around the United
States, 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
found to be fair and finally approved by the court, 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 pending claims or legal actions will have a
material effect on our business or results of operations.

Item 2.     Changes
in Securities and Use of Proceeds.

During the third quarter 2003, we issued
30 million shares of our class A common stock to
existing security holders in connection with the exchange of
debt securities discussed under Part I, note 2,
Long-Term Debt, Capital Lease and Finance Obligations and
Mandatorily Redeemable Preferred Stock. These shares were
issued pursuant to the exemption from registration requirements
of the Securities Act of 1933 provided by Section 3(a)(9).

In connection with various consulting services
provided by Giuliani Partners, LLC beginning in May 2002, we
issued 1.2 million shares of our class A common stock to
Giuliani Partners in the third and fourth quarters 2003,
pursuant to the terms of the nonqualified stock option
agreement, dated as of May 30, 2002, for an aggregate
exercise price of about $5.4 million. The shares were
issued pursuant to the exemption from registration requirements
of the Securities Act of 1933 provided by Section 4(2).

Item 5.     Other
Information.

We described certain regulatory proceedings that
may have an effect on our business in our 2002 Form 10-K
and our subsequent quarterly reports on Form 10-Q. The
following is a summary of certain developments since our last
quarterly report.

800 MHz Realignment
Plan.We, along with the leading
public safety and private wireless organizations, have proposed
a comprehensive Consensus Plan for mitigating interference to
800 MHz public safety licensees through a realignment of
the 800 MHz land mobile radio spectrum to separate public
safety and private wireless operations from cellularized
operations. Under the Consensus Plan, we would exchange certain
portions of our spectrum in the 800 MHz band to relocate
public safety and private wireless operators to the lower
portion of the 800 MHz band, as well as relinquish all of
our spectrum in the 700 MHz and 900 MHz bands in
exchange for 10 MHz of contiguous spectrum in the
1.9 GHz band. As part of the Consensus Plan, we have
committed to provide up to $850 million to pay the
relocation expenses incurred by public safety and private
wireless incumbent licensees that are required to relocate under
the Consensus Plan. In November 2003, we notified the FCC that,
to reinforce our financial commitment, upon adoption of the
Consensus Plan, we will deposit $100 million in cash in an
escrow account to be available to pay these relocation expenses,
and will secure the remaining $750 million commitment
through one or more irrevocable

45



---



##### 



stand-by letters of credit issued by
internationally recognized commercial lending institutions. It
is uncertain what solutions to these interference problems, if
any, may be adopted by the FCC.


Wireless Local Number
Portability.The FCCs
wireless local number portability implementation deadline is
November 24, 2003. We have implemented the operational and
technical changes necessary to facilitate porting in and out of
our network, and have reached agreements with several wireless
carriers that define the process to be followed when porting
phone numbers. However, given the interdependence of other
carrier operations and processes to facilitate a port, and the
lack of clear FCC guidance on those processes, the wireless
number portability process initially may be subject to errors
and delays.

911 Services.Pursuant to FCC requirements, wireless carriers, including us,
are required to provide E911 services to their customers.
Customers will be able to access our E911 services only with
Assisted Global Positioning Satellite, or AGPS, handsets.
Pursuant to specific FCC benchmarks, we must make these handsets
available to our customers, ultimately ensuring that 95% of our
entire customer base has an AGPS handset by December 31,
2005. In October 2003, the FCC denied our petition in which we
sought reconsideration of the FCC order stating that we would be
solely responsible for meeting the Phase II handset penetration
deadlines, even in the event that Motorola, our sole supplier
for substantially all of our handsets, is unable to produce the
necessary handsets and associated infrastructure on a timely
basis. The FCC, however, clarified that potential fines or
forfeitures for failure to comply with the waiver deadlines
could be mitigated by demonstrating that our vendors were unable
to supply the necessary equipment.

Telemarketing.In August 2003, the FCCs revised telemarketing rules
implemented under the Telephone Consumer Protection Act went
into effect. Among other things, the rules provide consumers
with different options for avoiding unwanted telephone
solicitations and establish, in conjunction with the Federal
Trade Commission, a national do-not-call registry for consumers
who wish to avoid receiving unwanted telemarketing calls. The
FCC determined that this national database will allow wireless
subscribers to register their wireless telephone numbers on this
registry if they no longer wish to receive telemarketing calls
from companies with which they do not have an existing business
relationship.

New Spectrum Opportunities, Spectrum
Auctions, and Third Generation Wireless
Services.The FCC will be
auctioning blocks of spectrum that can be used for wireless
services in the near and distant future. In one auction,
scheduled for February 11, 2004, the FCC intends to auction
60 Major Trading Area specialized mobile radio licenses in
the 900 MHz band in various parts of the country. The
second auction, which has not yet been scheduled, includes
90 MHz (in the 1710-1755 MHz and 2110-2155 MHz
bands) of spectrum that will be made available for broadband and
advanced wireless service deployment.

Secondary Spectrum Markets
Proceeding.In October 2003, the
FCC released new rules that will increase the flexibility for
licensees to engage in various forms of spectrum leasing
arrangements.

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

(a) List of Exhibits.

|        |    |                     |  |                                                                   
|------- | -- | ------------------- |  | ------------------------------------------------------------------
|Exhibit |    |                    
|Number  |    | Exhibit Description
|        |    |                    
|        | 4  |                     |  | Form of Series B 6.875% senior serial
    redeemable note due 2013
|        | 15 |                     |  | Letter in Lieu of Consent for Review Report                       
|        | 31 |                     |  | Rule 13a-14(a)/15d-14(a) Certifications                           
|        | 32 |                     |  | Section 1350 Certifications                                       

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



| |    |                                                                                                                                                                                                                          
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Current report on Form 8-K dated
    July 16, 2003 and filed on July 17, 2003, reporting
    under Item 5, and furnishing under Item 9, our
    financial results and other data for the quarter ended
    June 30, 2003.

46



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##### 





| |    |                                                                                                                                                                                                                                                                               
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | Current report on Form 8-K dated
    July 16, 2003, and filed on July 17, 2003, furnishing
    under Item 9 a press release that announced our intention
    to offer $1 billion of senior notes and to redeem certain
    preferred stock and all of our 10.65% senior notes.
|
| | 3. | Current report on Form 8-K dated
    July 23, 2003, and filed on July 24, 2003, reporting
    under Item 5, our offering of $1 billion of our 7.375%
    senior notes and filing a statement of the eligibility of the
    trustee for such notes.                            
|
| | 4. | Current report on Form 8-K dated and filed
    on July 30, 2003, reporting under Item 5, the
    Underwriting Agreement, dated as of July 22, 2003, and
    Indenture for $1 billion of our 7.375% senior notes.                                                              
|
| | 5. | Current report on Form 8-K dated
    September 8, 2003, and filed on September 9, 2003
    furnishing under Item 9 a press release that announced that
    our Chief Executive Officer would be re-affirming financial
    guidance at a conference.                          
|
| | 6. | Current report on Form 8-K dated and filed
    September 19, 2003, reporting under Item 5, the
    Underwriting Agreement, dated as of September 17, 2003, for
    $1 billion of our 7.375% senior notes.                                                                     

47



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##### 



SIGNATURE

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



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



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

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

Date: November 10 , 2003


48



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##### 



EXHIBIT INDEX

|        |    |                     |  |                                                                   
|------- | -- | ------------------- |  | ------------------------------------------------------------------
|Exhibit |    |                    
|Number  |    | Exhibit Description
|        |    |                    
|        | 4  |                     |  | Form of Series B 6.875% senior serial
    redeemable note due 2013
|        | 15 |                     |  | Letter in Lieu of Consent for Review Report                       
|        | 31 |                     |  | Rule 13a-14(a)/15d-14(a) Certifications                           
|        | 32 |                     |  | Section 1350 Certifications