##### 















FORM 10-Q


(Mark One)


|                                                |  |                                                                                             
|----------------------------------------------- |  | --------------------------------------------------------------------------------------------
|[X]                                             |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934 
|                                               
|For the quarterly period ended March 31, 2005  
|                                               
|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.




|                                                                                   |  |                                               
|---------------------------------------------------------------------------------- |  | ----------------------------------------------
|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            







|                                                 |  |                              |               | 
|------------------------------------------------ |  | ---------------------------- | ------------- | 
|                                                 |  | Number of Shares Outstanding |              
|Title of Class                                   |  | on April 29, 2005            |              
|                                                 |  |                              |              
|Class A Common Stock, $0.001 par value           |  |                              | 1,095,723,962 | 
|Class B Nonvoting Common Stock, $0.001 par value |  |                              | 29,660,000    | 









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##### 



NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES


INDEX


| |          |  |  |                        |  |                                                                                                                                     |  |  |    | 
| | -------- |  |  | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
| |          |  |  |                        |  | Page                                                                                                                                | 
| |          |  |  |                        |  |                                                                                                                                     | 
| | Part  I  |  |  | Financial Information.
| |          |  |  | Item 1.                |  | Financial Statements  Unaudited.                                                                                                   |  |  |    | 
| |          |  |  |                        |  | Condensed Consolidated Balance Sheets As of March 31, 2005
    and December 31, 2004                                                |  |  | 3  | 
| |          |  |  |                        |  | Condensed Consolidated Statements of Operations and
    Comprehensive Income For the Three Months Ended March 31,
    2005 and 2004 |  |  | 4  | 
| |          |  |  |                        |  | Condensed Consolidated Statement of Changes in
    Stockholders Equity For the Three Months Ended
    March 31, 2005               |  |  | 5  | 
| |          |  |  |                        |  | Condensed Consolidated Statements of Cash Flows For the Three
    Months Ended March 31, 2005 and 2004                              |  |  | 6  | 
| |          |  |  |                        |  | Notes to Condensed Consolidated Financial Statements                                                                                |  |  | 7  | 
| |          |  |  |                        |  | Report of Independent Registered Public Accounting Firm                                                                             |  |  | 15 | 
| |          |  |  | Item 2.                |  | Managements Discussion and Analysis of Financial Condition
    and Results of Operations                                           |  |  | 16 | 
| |          |  |  | Item 3.                |  | Quantitative and Qualitative Disclosures About Market Risk                                                                          |  |  | 37 | 
| |          |  |  | Item 4.                |  | Controls and Procedures                                                                                                             |  |  | 38 | 
| | Part  II |  |  | Other Information.    
| |          |  |  | Item 1.                |  | Legal Proceedings                                                                                                                   |  |  | 39 | 
| |          |  |  | Item 6.                |  | Exhibits                                                                                                                            |  |  | 39 | 



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##### 



PART I  FINANCIAL INFORMATION.


Item 1.     Financial
Statements  Unaudited.


NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES


Condensed Consolidated Balance Sheets


As of March 31, 2005 and December 31, 2004


(in millions)


Unaudited


|                                                                                       |                                                                                                  |                            |                           |                      |        |        |        |        |       |        |       | 
|-------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | -------------------------- | ------------------------- | -------------------- | ------ | ------ | ------ | ------ | ----- | ------ | ----- | 
|                                                                                       |                                                                                                  | 2005                       |                           |                      | 2004   |       
|                                                                                       |                                                                                                  |                            |                           |                      |        |       
|ASSETS                                                                                
|Current assets                                                                         |                                                                                                  |                            |                           |                      |        |        |        |       
|                                                                                       | Cash and cash equivalents                                                                        |                            | $                         | 2,195                |        |        | $      | 1,479  |      
|                                                                                       | Short-term investments                                                                           |                            |                           | 266                  |        |        |        | 335    |      
|                                                                                       | Accounts and notes receivable, less allowance for doubtful
    accounts of $61 and $64.          |                            |                           | 1,444                |        |        |        | 1,452  |      
|                                                                                       | Due from related parties                                                                         |                            |                           | 222                  |        |        |        | 132    |      
|                                                                                       | Handset and accessory inventory                                                                  |                            |                           | 318                  |        |        |        | 322    |      
|                                                                                       | Deferred tax assets                                                                              |                            |                           | 936                  |        |        |        | 882    |      
|                                                                                       | Prepaid expenses and other current assets                                                        |                            |                           | 694                  |        |        |        | 605    |      
|                                                                                       |                                                                                                  |                            |                           |                      |        |       
|                                                                                       |                                                                                                  |                            |                           | Total current assets |        |        | 6,075  |        |       |        | 5,207 | 
|Investments                                                                            |                                                                                                  |                            | 439                       |                      |        |        | 360    |       
|Property, plant and equipment,net of accumulated
    depreciation of $7,839 and $7,340 |                                                                                                  |                            | 9,886                     |                      |        |        | 9,613  |       
|Intangible assets,net of accumulated amortization of $29
    and $62.                  |                                                                                                  |                            | 7,670                     |                      |        |        | 7,223  |       
|Other assets                                                                           |                                                                                                  |                            | 322                       |                      |        |        | 341    |       
|                                                                                       |                                                                                                  |                            |                           |                      |        |       
|                                                                                       |                                                                                                  | $                          | 24,392                    |                      |        | $      | 22,744 |       
|                                                                                       |                                                                                                  |                            |                           |                      |        |       
|LIABILITIES AND STOCKHOLDERS EQUITY                                                  
|Current liabilities                                                                    |                                                                                                  |                            |                           |                      |        |        |        |       
|                                                                                       | Accounts payable                                                                                 |                            | $                         | 984                  |        |        | $      | 986    |      
|                                                                                       | Accrued expenses and other                                                                       |                            |                           | 1,427                |        |        |        | 1,304  |      
|                                                                                       | Due to related parties                                                                           |                            |                           | 662                  |        |        |        | 297    |      
|                                                                                       | Current portion of long-term debt                                                                |                            |                           |                     |        |        |        | 22     |      
|                                                                                       |                                                                                                  |                            |                           |                      |        |       
|                                                                                       |                                                                                                  |                            | Total current liabilities |                      |        | 3,073  |        |        |       | 2,609  |      
|Long-term debt                                                                         |                                                                                                  |                            | 8,574                     |                      |        |        | 8,527  |       
|Deferred income taxes                                                                  |                                                                                                  |                            | 1,861                     |                      |        |        | 1,781  |       
|Other liabilities                                                                      |                                                                                                  |                            | 610                       |                      |        |        | 311    |       
|                                                                                       |                                                                                                  |                            |                           |                      |        |       
|                                                                                       |                                                                                                  |                            | Total liabilities         |                      |        | 14,118 |        |        |       | 13,228 |      
|                                                                                       |                                                                                                  |                            |                           |                      |        |       
|Commitments and contingencies (note 6)                                                 |                                                                                                  |                            |                           |                      |        |        |        |       
|Zero coupon mandatorily redeemable convertible preferred
    stock                     |                                                                                                  |                            | 110                       |                      |        |        | 108    |       
|Stockholders equity                                                                   |                                                                                                  |                            |                           |                      |        |        |        |       
|                                                                                       | Common stock, class A, 1,099 and 1,088 shares issued; 1,093 and
    1,088 shares outstanding     |                            |                           | 1                    |        |        |        | 1      |      
|                                                                                       | Common stock, class B, nonvoting convertible, 30 and 36 shares
    issued; 30 shares outstanding |                            |                           |                     |        |        |        |       |      
|                                                                                       | Paid-in capital                                                                                  |                            |                           | 12,705               |        |        |        | 12,610 |      
|                                                                                       | Accumulated deficit                                                                              |                            |                           | (2,768               | )      |        |        | (3,363 | )    
|                                                                                       | Treasury stock, at cost                                                                          |                            |                           | (141                 | )      |        |        | (141   | )    
|                                                                                       | Deferred compensation, net                                                                       |                            |                           | (43                  | )      |        |        | (33    | )    
|                                                                                       | Accumulated other comprehensive income                                                           |                            |                           | 410                  |        |        |        | 334    |      
|                                                                                       |                                                                                                  |                            |                           |                      |        |       
|                                                                                       |                                                                                                  | Total stockholders equity |                           |                      | 10,164 |        |        |        | 9,408 |       
|                                                                                       |                                                                                                  |                            |                           |                      |        |       
|                                                                                       |                                                                                                  | $                          | 24,392                    |                      |        | $      | 22,744 |       
|                                                                                       |                                                                                                  |                            |                           |                      |        |       





3



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##### 



NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES


Condensed Consolidated Statements of Operations and
Comprehensive Income


For the Three Months Ended March 31, 2005 and 2004


(in millions, except per share amounts)


Unaudited


|                                                     |                                                                |                                                             |       |       |      |   |       |       |     |  
|---------------------------------------------------- | -------------------------------------------------------------- | ----------------------------------------------------------- | ----- | ----- | ---- | - | ----- | ----- | --- | -
|                                                     |                                                                | 2005                                                        |       |       | 2004 |  
|                                                     |                                                                |                                                             |       |       |      |  
|Operating revenues                                   |                                                                |                                                             |       |       |      |   |       |      
|                                                     | Service revenues                                               |                                                             | $     | 3,256 |      |   | $     | 2,776 |    
|                                                     | Handset and accessory revenues                                 |                                                             |       | 352   |      |   |       | 327   |    
|                                                     |                                                                |                                                             |       |       |      |  
|                                                     |                                                                |                                                             | 3,608 |       |      |   | 3,103 |      
|                                                     |                                                                |                                                             |       |       |      |  
|Operating expenses                                   |                                                                |                                                             |       |       |      |   |       |      
|                                                     | Cost of service (exclusive of depreciation included below)     |                                                             |       | 552   |      |   |       | 436   |    
|                                                     | Cost of handset and accessory revenues                         |                                                             |       | 532   |      |   |       | 489   |    
|                                                     | Selling, general and administrative                            |                                                             |       | 1,200 |      |   |       | 971   |    
|                                                     | Depreciation                                                   |                                                             |       | 503   |      |   |       | 432   |    
|                                                     | Amortization                                                   |                                                             |       | 4     |      |   |       | 11    |    
|                                                     |                                                                |                                                             |       |       |      |  
|                                                     |                                                                |                                                             | 2,791 |       |      |   | 2,339 |      
|                                                     |                                                                |                                                             |       |       |      |  
|Operating income                                     |                                                                |                                                             | 817   |       |      |   | 764   |      
|                                                     |                                                                |                                                             |       |       |      |  
|Other (expense) income                               |                                                                |                                                             |       |       |      |   |       |      
|                                                     | Interest expense                                               |                                                             |       | (128  | )    |   |       | (154  | )  
|                                                     | Interest income                                                |                                                             |       | 13    |      |   |       | 8     |    
|                                                     | Loss on retirement of debt                                     |                                                             |       | (37   | )    |   |       | (17   | )  
|                                                     | Equity in earnings of unconsolidated affiliates, net           |                                                             |       | 17    |      |   |       |      |    
|                                                     | Realized gain on sale of investment                            |                                                             |       |      |      |   |       | 26    |    
|                                                     | Other, net                                                     |                                                             |       | 2     |      |   |       | 1     |    
|                                                     |                                                                |                                                             |       |       |      |  
|                                                     |                                                                |                                                             | (133  | )     |      |   | (136  | )    
|                                                     |                                                                |                                                             |       |       |      |  
|Income before income tax provision                   |                                                                |                                                             | 684   |       |      |   | 628   |      
|Income tax provision                                 |                                                                |                                                             | (89   | )     |      |   | (33   | )    
|                                                     |                                                                |                                                             |       |       |      |  
|Net income                                           |                                                                |                                                             | 595   |       |      |   | 595   |      
|                                                     | Mandatorily redeemable preferred stock dividends and accretion |                                                             |       | (6    | )    |   |       | (2    | )  
|                                                     |                                                                |                                                             |       |       |      |  
|Income available to common stockholders              |                                                                | $                                                           | 589   |       |      | $ | 593   |      
|                                                     |                                                                |                                                             |       |       |      |  
|Earnings per common share                            |                                                                |                                                             |       |       |      |   |       |      
|                                                     | Basic                                                          |                                                             | $     | 0.53  |      |   | $     | 0.54  |    
|                                                     |                                                                |                                                             |       |       |      |  
|                                                     | Diluted                                                        |                                                             | $     | 0.52  |      |   | $     | 0.52  |    
|                                                     |                                                                |                                                             |       |       |      |  
|Weighted average number of common shares outstanding |                                                                |                                                             |       |       |      |   |       |      
|                                                     | Basic                                                          |                                                             |       | 1,121 |      |   |       | 1,106 |    
|                                                     |                                                                |                                                             |       |       |      |  
|                                                     | Diluted                                                        |                                                             |       | 1,139 |      |   |       | 1,172 |    
|                                                     |                                                                |                                                             |       |       |      |  
|Comprehensive income, net of income tax              |                                                                |                                                             |       |       |      |   |       |      
|                                                     | Unrealized gain on available-for-sale securities:              |                                                             |       |       |      |   |       |       |    
|                                                     |                                                                | Net unrealized holding gains arising during the period      |       | $     | 76   |   |       | $     | 77  |  
|                                                     |                                                                | Reclassification adjustment for gain included in net income |       |       |     |   |       |       | (12 | )
|                                                     | Foreign currency translation adjustment                        |                                                             |       |      |      |   |       | 2     |    
|                                                     |                                                                |                                                             |       |       |      |  
|                                                     | Other comprehensive income                                     |                                                             |       | 76    |      |   |       | 67    |    
|                                                     | Net income                                                     |                                                             |       | 595   |      |   |       | 595   |    
|                                                     |                                                                |                                                             |       |       |      |  
|Comprehensive income, net of income tax              |                                                                | $                                                           | 671   |       |      | $ | 662   |      
|                                                     |                                                                |                                                             |       |       |      |  





4



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##### 



NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES


Condensed Consolidated Statement of Changes in
Stockholders Equity


For the Three Months Ended March 31, 2005


(in millions)


Unaudited


|                         |                                                                                |              |       |   |              |   |         |        |  |             |                |  |         |   |   |                      |  |   |            |                   |   |             |        |     |              |  |   |             |  |   |            |   |  |       |     |     |   |   |     |    |  |   |    |   |  |   |        |     |  
|------------------------ | ------------------------------------------------------------------------------ | ------------ | ----- | - | ------------ | - | ------- | ------ |  | ----------- | -------------- |  | ------- | - | - | -------------------- |  | - | ---------- | ----------------- | - | ----------- | ------ | --- | ------------ |  | - | ----------- |  | - | ---------- | - |  | ----- | --- | --- | - | - | --- | -- |  | - | -- | - |  | - | ------ | --- | -
|                         |                                                                                |              |       |   |              |   |         |        |  |             |                |  |         |   |   |                      |  |   |            | Accumulated Other |   |             |       
|                         |                                                                                |              |       |   |              |   |         |        |  |             |                |  |         |   |   | Comprehensive Income |  |   |           
|                         |                                                                                | Class A      |       |   | Class B      |   |         |        |  |             |                |  |         |   |   |                      |  |  
|                         |                                                                                | Common Stock |       |   | Common Stock |   |         |        |  |             | Treasury Stock |  |         |   |   | Unrealized           |  |   | Cumulative |                   |   |            
|                         |                                                                                |              |       |   |              |   | Paid-in |        |  | Accumulated |                |  |         |   |   | Deferred             |  |   | Gain on    |                   |   | Translation |        |     |             
|                         |                                                                                | Shares       |       |   | Amount       |   |         | Shares |  |             | Amount         |  | Capital |   |   | Deficit              |  |   | Shares     |                   |   | Amount      |        |     | Compensation |  |   | Investments |  |   | Adjustment |   |  | Total |    
|                         |                                                                                |              |       |   |              |   |         |        |  |             |                |  |         |   |   |                      |  |   |            |                   |   |             |        |     |              |  |   |             |  |   |            |   |  |       |    
|Balance, January 1, 2005 |                                                                                |              | 1,088 |   |              | $ | 1       |        |  |             | 30             |  |         | $ |  |                      |  | $ | 12,610     |                   |   | $           | (3,363 | )   |              |  | 6 |             |  | $ | (141       | ) |  | $     | (33 | )   |   | $ | 337 |    |  | $ | (3 | ) |  | $ | 9,408  |    
|                         | Net income                                                                     |              |       |   |              |   |         |        |  |             |                |  |         |   |   |                      |  |   |            |                   |   |             |        | 595 |              |  |   |             |  |   |            |   |  |       |     |     |   |   |     |    |  |   |    |   |  |   |        | 595 |  
|                         | Other comprehensive income                                                     |              |       |   |              |   |         |        |  |             |                |  |         |   |   |                      |  |   |            |                   |   |             |        |     |              |  |   |             |  |   |            |   |  |       |     |     |   |   |     | 76 |  |   |    |   |  |   |        | 76  |  
|                         | Common stock issued under equity plans and other                               |              |       | 5 |              |   |         |       |  |             |                |  |         |   |   |                      |  |   |            | 67                |   |             |        |     |              |  |   |             |  |   |            |   |  |       |     |     |   |   |     |    |  |   |    |   |  |   |        | 67  |  
|                         | Deferred compensation                                                          |              |       |   |              |   |         |        |  |             |                |  |         |   |   |                      |  |   |            | 13                |   |             |        |     |              |  |   |             |  |   |            |   |  |       |     | (10 | ) |   |     |    |  |   |    |   |  |   |        | 3   |  
|                         | Release of valuation allowance attributable to stock options                   |              |       |   |              |   |         |        |  |             |                |  |         |   |   |                      |  |   |            | 21                |   |             |        |     |              |  |   |             |  |   |            |   |  |       |     |     |   |   |     |    |  |   |    |   |  |   |        | 21  |  
|                         | Zero coupon mandatorily redeemable preferred stock dividends and
    accretion |              |       |   |              |   |         |        |  |             |                |  |         |   |   |                      |  |   |            | (6                | ) |             |        |     |              |  |   |             |  |   |            |   |  |       |     |     |   |   |     |    |  |   |    |   |  |   |        | (6  | )
|                         |                                                                                |              |       |   |              |   |         |        |  |             |                |  |         |   |   |                      |  |   |            |                   |   |             |        |     |              |  |   |             |  |   |            |   |  |       |     |    
|Balance, March 31, 2005  |                                                                                |              | 1,093 |   |              | $ | 1       |        |  |             | 30             |  |         | $ |  |                      |  | $ | 12,705     |                   |   | $           | (2,768 | )   |              |  | 6 |             |  | $ | (141       | ) |  | $     | (43 | )   |   | $ | 413 |    |  | $ | (3 | ) |  | $ | 10,164 |    
|                         |                                                                                |              |       |   |              |   |         |        |  |             |                |  |         |   |   |                      |  |   |            |                   |   |             |        |     |              |  |   |             |  |   |            |   |  |       |     |    





5



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##### 



NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES


Condensed Consolidated Statements of Cash Flows


For the Three Months Ended March 31, 2005 and 2004


(in millions)


Unaudited


|                                               |                                                                                           |                                                                         |                                              |                                           |      |      |       |      |     |      |       |  
|---------------------------------------------- | ----------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------- | ---- | ---- | ----- | ---- | --- | ---- | ----- | -
|                                               |                                                                                           | 2005                                                                    |                                              |                                           | 2004 |     
|                                               |                                                                                           |                                                                         |                                              |                                           |      |     
|Cash flows from operating activities           |                                                                                           |                                                                         |                                              |                                           |      |      |       |     
|                                               | Net income                                                                                |                                                                         | $                                            | 595                                       |      |      | $     | 595  |    
|                                               | Adjustments to reconcile net income to net cash provided by
    operating activities:     |                                                                         |                                              |                                           |      |      |       |      |    
|                                               |                                                                                           | Amortization of debt financing costs and accretion of senior
    notes  |                                              |                                           | 6    |      |       |      | 5   |     
|                                               |                                                                                           | Provision for losses on accounts receivable                             |                                              |                                           | 35   |      |       |      | 34  |     
|                                               |                                                                                           | Amortization of deferred gain from sale of towers                       |                                              |                                           | (20  | )    |       |      | (26 | )   
|                                               |                                                                                           | Depreciation and amortization                                           |                                              |                                           | 507  |      |       |      | 443 |     
|                                               |                                                                                           | Loss on retirement of debt                                              |                                              |                                           | 37   |      |       |      | 17  |     
|                                               |                                                                                           | Equity in earnings of unconsolidated affiliates, net                    |                                              |                                           | (17  | )    |       |      |    |     
|                                               |                                                                                           | Realized gain on investment                                             |                                              |                                           |     |      |       |      | (26 | )   
|                                               |                                                                                           | Net tax benefit from the release of valuation allowance                 |                                              |                                           | (178 | )    |       |      |    |     
|                                               |                                                                                           | Deferred income tax provision                                           |                                              |                                           | 245  |      |       |      | 16  |     
|                                               |                                                                                           | Other, net                                                              |                                              |                                           | 11   |      |       |      | 4   |     
|                                               |                                                                                           | Change in assets and liabilities, net of effects from
    acquisitions: |                                              |                                           |      |      |       |      |     |     
|                                               |                                                                                           |                                                                         | Accounts and notes receivable                |                                           |      | (34  | )     |      |     | (5   | )    
|                                               |                                                                                           |                                                                         | Handset and accessory inventory              |                                           |      | 3    |       |      |     | (87  | )    
|                                               |                                                                                           |                                                                         | Prepaid expenses and other assets            |                                           |      | (137 | )     |      |     | (130 | )    
|                                               |                                                                                           |                                                                         | Accounts payable, accrued expenses and other |                                           |      | 152  |       |      |     | 404  |      
|                                               |                                                                                           |                                                                         |                                              |                                           |      |     
|                                               |                                                                                           |                                                                         |                                              | Net cash provided by operating activities |      |      | 1,205 |      |     |      | 1,244 |  
|                                               |                                                                                           |                                                                         |                                              |                                           |      |     
|Cash flows from investing activities           |                                                                                           |                                                                         |                                              |                                           |      |      |       |     
|                                               | Capital expenditures                                                                      |                                                                         |                                              | (619                                      | )    |      |       | (684 | )  
|                                               | Purchases of short-term investments                                                       |                                                                         |                                              | (254                                      | )    |      |       | (553 | )  
|                                               | Proceeds from maturities and sales of short-term investments                              |                                                                         |                                              | 323                                       |      |      |       | 695  |    
|                                               | Payments for purchases of licenses, investments and other, net
    of cash acquired       |                                                                         |                                              | (24                                       | )    |      |       | (56  | )  
|                                               | Proceeds from sale of investments and other                                               |                                                                         |                                              |                                          |      |      |       | 77   |    
|                                               |                                                                                           |                                                                         |                                              |                                           |      |     
|                                               |                                                                                           |                                                                         |                                              | Net cash used in investing activities     |      |      | (574  | )    |     |      | (521  | )
|                                               |                                                                                           |                                                                         |                                              |                                           |      |     
|Cash flows from financing activities           |                                                                                           |                                                                         |                                              |                                           |      |      |       |     
|                                               | Borrowings under long-term credit facility                                                |                                                                         |                                              | 2,200                                     |      |      |       |     |    
|                                               | Repayments under long-term credit facility                                                |                                                                         |                                              | (2,178                                    | )    |      |       | (48  | )  
|                                               | Proceeds from issuance of debt securities                                                 |                                                                         |                                              |                                          |      |      |       | 494  |    
|                                               | Purchase and retirement of debt securities and mandatorily
    redeemable preferred stock |                                                                         |                                              |                                          |      |      |       | (191 | )  
|                                               | Proceeds from issuance of stock                                                           |                                                                         |                                              | 68                                        |      |      |       | 68   |    
|                                               | Payment for capital lease buy-out                                                         |                                                                         |                                              |                                          |      |      |       | (156 | )  
|                                               | Repayments under capital lease and finance obligations                                    |                                                                         |                                              |                                          |      |      |       | (9   | )  
|                                               | Preferred stock dividends and other                                                       |                                                                         |                                              | (5                                        | )    |      |       |     |    
|                                               |                                                                                           |                                                                         |                                              |                                           |      |     
|                                               |                                                                                           |                                                                         |                                              | Net cash provided by financing activities |      |      | 85    |      |     |      | 158   |  
|                                               |                                                                                           |                                                                         |                                              |                                           |      |     
|Net increase in cash and cash equivalents      |                                                                                           |                                                                         | 716                                          |                                           |      |      | 881   |     
|Cash and cash equivalents, beginning of period |                                                                                           |                                                                         | 1,479                                        |                                           |      |      | 806   |     
|                                               |                                                                                           |                                                                         |                                              |                                           |      |     
|Cash and cash equivalents, end of period       |                                                                                           | $                                                                       | 2,195                                        |                                           |      | $    | 1,687 |     
|                                               |                                                                                           |                                                                         |                                              |                                           |      |     





6



---



##### 



NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES


Notes to Condensed Consolidated Financial Statements


Unaudited


Note 1.     Basis of Presentation




Earnings Per Common Share.


|                                                                   |                                                                                               |                                                                         |       |      |      |   |       |      |    | 
|------------------------------------------------------------------ | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ----- | ---- | ---- | - | ----- | ---- | -- | 
|                                                                   |                                                                                               | Three Months Ended                                                      |      
|                                                                   |                                                                                               | March 31,                                                               |      
|                                                                   |                                                                                               |                                                                         |      
|                                                                   |                                                                                               | 2005                                                                    |       |      | 2004 |  
|                                                                   |                                                                                               |                                                                         |       |      |      |  
|                                                                   |                                                                                               | (in millions, except                                                    |      
|                                                                   |                                                                                               | per share amounts)                                                      |      
|Income available to common stockholders  basic                    |                                                                                               | $                                                                       | 589   |      |      | $ | 593   |     
|                                                                   | Interest expense and preferred stock accretion eliminated upon
    the assumed conversion of: |                                                                         |       |      |      |   |       |      |   
|                                                                   |                                                                                               | 6% convertible senior notes due 2011                                    |       |      |     |   |       |      | 10 | 
|                                                                   |                                                                                               | Zero coupon convertible preferred stock mandatorily redeemable
    2013 |       |      |     |   |       |      | 2  | 
|                                                                   |                                                                                               |                                                                         |       |      |      |  
|Income available to common stockholders 
    diluted              |                                                                                               | $                                                                       | 589   |      |      | $ | 605   |     
|                                                                   |                                                                                               |                                                                         |       |      |      |  
|Weighted average number of common shares
    outstanding  basic   |                                                                                               |                                                                         | 1,121 |      |      |   | 1,106 |     
|                                                                   | Effect of dilutive securities:                                                                |                                                                         |       |      |      |   |       |      |   
|                                                                   |                                                                                               | Equity plans                                                            |       |      | 18   |   |       |      | 35 | 
|                                                                   |                                                                                               | 6% convertible senior notes due 2011                                    |       |      |     |   |       |      | 26 | 
|                                                                   |                                                                                               | Zero coupon convertible preferred stock mandatorily redeemable
    2013 |       |      |     |   |       |      | 5  | 
|                                                                   |                                                                                               |                                                                         |       |      |      |  
|Weighted average number of common shares
    outstanding  diluted |                                                                                               |                                                                         | 1,139 |      |      |   | 1,172 |     
|                                                                   |                                                                                               |                                                                         |       |      |      |  
|Earnings per common share                                          |                                                                                               |                                                                         |       |      |      |   |       |     
|                                                                   | Basic                                                                                         |                                                                         | $     | 0.53 |      |   | $     | 0.54 |   
|                                                                   |                                                                                               |                                                                         |       |      |      |  
|                                                                   | Diluted                                                                                       |                                                                         | $     | 0.52 |      |   | $     | 0.52 |   
|                                                                   |                                                                                               |                                                                         |       |      |      |  





7



---



##### 



NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)




Stock-Based Compensation.




|                                                     |                                                                                                                |                      |     |     |      |   |     |     |      | 
|---------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | -------------------- | --- | --- | ---- | - | --- | --- | ---- | 
|                                                     |                                                                                                                | Three Months Ended   |    
|                                                     |                                                                                                                | March 31,            |    
|                                                     |                                                                                                                |                      |    
|                                                     |                                                                                                                | 2005                 |     |     | 2004 |  
|                                                     |                                                                                                                |                      |     |     |      |  
|                                                     |                                                                                                                | (in millions, except |    
|                                                     |                                                                                                                | per share amounts)   |    
|Income available to common stockholders, as reported |                                                                                                                | $                    | 589 |     |      | $ | 593 |    
|                                                     | Stock-based compensation expense included in reported net
    income, net of income tax of $2 and $0           |                      |     | 3   |      |   |     | 1   |     
|                                                     | Stock-based compensation expense determined under fair value
    based method, net of income tax of $28 and $0 |                      |     | (44 | )    |   |     | (55 | )   
|                                                     |                                                                                                                |                      |     |     |      |  
|Income available to common stockholders, pro forma   |                                                                                                                | $                    | 548 |     |      | $ | 539 |    
|                                                     |                                                                                                                |                      |     |     |      |  
|Earnings per common share                            |                                                                                                                |                      |     |     |      |   |     |    
|                                                     | As reported                                                                                                    |                      |     |     |      |   |     |     |     
|                                                     |                                                                                                                | Basic                |     | $   | 0.53 |   |     | $   | 0.54 | 
|                                                     |                                                                                                                |                      |     |     |      |  
|                                                     |                                                                                                                | Diluted              |     | $   | 0.52 |   |     | $   | 0.52 | 
|                                                     |                                                                                                                |                      |     |     |      |  
|                                                     | Pro forma                                                                                                      |                      |     |     |      |   |     |     |     
|                                                     |                                                                                                                | Basic                |     | $   | 0.49 |   |     | $   | 0.49 | 
|                                                     |                                                                                                                |                      |     |     |      |  
|                                                     |                                                                                                                | Diluted              |     | $   | 0.48 |   |     | $   | 0.47 | 
|                                                     |                                                                                                                |                      |     |     |      |  

8



---



##### 



NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)


Supplemental
Cash Flow Information.


|                                                     |                                                             |                    |     |     |      |   |     |      |  
|---------------------------------------------------- | ----------------------------------------------------------- | ------------------ | --- | --- | ---- | - | --- | ---- | -
|                                                     |                                                             | Three Months Ended |    
|                                                     |                                                             | March 31,          |    
|                                                     |                                                             |                    |    
|                                                     |                                                             | 2005               |     |     | 2004 |  
|                                                     |                                                             |                    |     |     |      |  
|                                                     |                                                             | (in millions)      |    
|Capital expenditures, including capitalized interest |                                                             |                    |     |     |      |   |     |     
|                                                     | Cash paid for capital expenditures                          |                    | $   | 619 |      |   | $   | 684  |  
|                                                     | Changes in capital expenditures accrued, unpaid or financed |                    |     | 157 |      |   |     | (144 | )
|                                                     |                                                             |                    |     |     |      |  
|                                                     |                                                             | $                  | 776 |     |      | $ | 540 |     
|                                                     |                                                             |                    |     |     |      |  
|Interest costs                                       |                                                             |                    |     |     |      |   |     |     
|                                                     | Interest expense                                            |                    | $   | 128 |      |   | $   | 154  |  
|                                                     | Interest capitalized                                        |                    |     | 2   |      |   |     | 3    |  
|                                                     |                                                             |                    |     |     |      |  
|                                                     |                                                             | $                  | 130 |     |      | $ | 157 |     
|                                                     |                                                             |                    |     |     |      |  
|Cash paid for interest, net of amounts capitalized   |                                                             | $                  | 157 |     |      | $ | 169 |     
|                                                     |                                                             |                    |     |     |      |  
|Cash received for interest                           |                                                             | $                  | 13  |     |      | $ | 6   |     
|                                                     |                                                             |                    |     |     |      |  
|Cash paid for income taxes                           |                                                             | $                  | 27  |     |      | $ | 7   |     
|                                                     |                                                             |                    |     |     |      |  

New Accounting Pronouncements.






9



---



##### 



NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)




Note 2.     Intangible
Assets


|                              |                                                      |              |  |                |       |   |                   |              |     |          |       |       |          |       |       |             |              |   |          |       |  |   |    |    |  |   |       |       | 
|----------------------------- | ---------------------------------------------------- | ------------ |  | -------------- | ----- | - | ----------------- | ------------ | --- | -------- | ----- | ----- | -------- | ----- | ----- | ----------- | ------------ | - | -------- | ----- |  | - | -- | -- |  | - | ----- | ----- | 
|                              |                                                      |              |  | March 31, 2005 |       |   | December 31, 2004 |             
|                              |                                                      |              |  |                |       |   |                   |             
|                              |                                                      |              |  | 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        |       |   | $                 | 8            |     |          | $     | 8     |          |       | $     |            |              |   | $        | 40    |  |   | $  | 38 |  |   | $     | 2     | 
|                              | Spectrum sharing and noncompete agreements and other |              |  | Up to 10 years |       |   |                   | 72           |     |          |       | 21    |          |       |       | 51          |              |   |          | 77    |  |   |    | 24 |  |   |       | 53    | 
|                              |                                                      |              |  |                |       |   |                   |              |     |          |       |       |          |       |       |             |              |   |          |       | 
|                              |                                                      |              |  |                |       |   | 80                |              |     |          | 29    |       |          |       | 51    |             |              |   | 117      |       |  |   | 62 |    |  |   | 55    |      
|                              |                                                      |              |  |                |       |   |                   |              |     |          |       |       |          |       |       |             |              |   |          |       | 
|Unamortized intangible assets |                                                      |              |  |                |       |   |                   |              |     |          |       |       |          |       |       |             |              |   |          |       |  |   |    |    |  |   |       |      
|                              | FCC licenses                                         |              |  | Indefinite     |       |   |                   | 7,591        |     |          |       |       |          |       |       | 7,591       |              |   |          | 7,140 |  |   |    |    |  |   |       | 7,140 | 
|                              | Goodwill                                             |              |  | Indefinite     |       |   |                   | 28           |     |          |       |       |          |       |       | 28          |              |   |          | 28    |  |   |    |    |  |   |       | 28    | 
|                              |                                                      |              |  |                |       |   |                   |              |     |          |       |       |          |       |       |             |              |   |          |       | 
|                              |                                                      |              |  |                |       |   | 7,619             |              |     |          |       |       |          |       | 7,619 |             |              |   | 7,168    |       |  |   |    |    |  |   | 7,168 |      
|                              |                                                      |              |  |                |       |   |                   |              |     |          |       |       |          |       |       |             |              |   |          |       | 
|Total intangible assets       |                                                      |              |  |                |       | $ | 7,699             |              |     | $        | 29    |       |          | $     | 7,670 |             |              | $ | 7,285    |       |  | $ | 62 |    |  | $ | 7,223 |      
|                              |                                                      |              |  |                |       |   |                   |              |     |          |       |       |          |       |       |             |              |   |          |       | 







10



---



##### 



NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)






Note 3.     Long-Term Debt and
Mandatorily Redeemable Preferred Stock


|                                                                                                                                                                                                                  |                      |                       |       |       |             |             |               |           |   |           |         |       |  |   |       |       |   | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | --------------------- | ----- | ----- | ----------- | ----------- | ------------- | --------- | - | --------- | ------- | ----- |  | - | ----- | ----- | - | 
|                                                                                                                                                                                                                  |                      |                       |       |       |             | Borrowings, |               |           |  
|                                                                                                                                                                                                                  |                      | December 31,          |       |       |             |             | Debt-for-Debt |           |   | March 31, |        
|                                                                                                                                                                                                                  |                      | 2004                  |       |       |             |             | Exchanges     |           |   | 2005      |        
|                                                                                                                                                                                                                  |                      | Balance               |       |       | Retirements |             |               | and Other |   |           | Balance |      
|                                                                                                                                                                                                                  |                      |                       |       |       |             |             |               |           |   |           |         |      
|                                                                                                                                                                                                                  |                      | (dollars in millions) |      
|5.25% convertible senior notes due 2010                                                                                                                                                                           |                      | $                     | 607   |       |             | $           |              |           |   | $         |        |       |  | $ | 607   |      
|9.5% senior serial redeemable notes due 2011,including a
    deferred premium of $7 and $3                                                                                                                        |                      |                       | 214   |       |             |             |               |           |   |           | (126    | )     |  |   | 88    |      
|6.875% senior serial redeemable notes due 2013,including
    a deferred premium of $5 and $7 and net of an unamortized
    discount of $58 and $61                                                                |                      |                       | 1,364 |       |             |             |              |           |   |           | 55      |       |  |   | 1,419 |      
|5.95% senior serial redeemable notes due 2014,including
    a deferred premium of $12 and $14 and net of unamortized
    discount of $59 and $64                                                                  |                      |                       | 1,046 |       |             |             |              |           |   |           | 74      |       |  |   | 1,120 |      
|7.375% senior serial redeemable notes due 2015,net of
    unamortized discount of $3 and $3                                                                                                                       |                      |                       | 2,134 |       |             |             |              |           |   |           |        |       |  |   | 2,134 |      
|Bank credit facility                                                                                                                                                                                              |                      |                       | 3,178 |       |             |             | (2,178        | )         |   |           | 2,200   |       |  |   | 3,200 |      
|Other                                                                                                                                                                                                             |                      |                       | 6     |       |             |             |              |           |   |           |        |       |  |   | 6     |      
|                                                                                                                                                                                                                  |                      |                       |       |       |             |             |               |           |   |           |         |      
|                                                                                                                                                                                                                  | Total long-term debt |                       |       | 8,549 |             |             | $             | (2,178    | ) |           | $       | 2,203 |  |   |       | 8,574 |  
|                                                                                                                                                                                                                  |                      |                       |       |       |             |             |               |           |   |           |         |      
|                                                                                                                                                                                                                  |                      | Less current portion  |       |       | (22         | )           |               |           |   |           |         |       |  |   |       |       |  | 
|                                                                                                                                                                                                                  |                      |                       |       |       |             |             |               |           |   |           |         |      
|                                                                                                                                                                                                                  |                      | $                     | 8,527 |       |             |             |               |           |   |           |         |       |  | $ | 8,574 |      
|                                                                                                                                                                                                                  |                      |                       |       |       |             |             |               |           |   |           |         |      
|Zero coupon convertible preferred stock mandatorily
    redeemable 2013,no dividend; stated at accreted liquidation
    preference value at 9.25% compounded quarterly; 245,245 shares
    issued and outstanding |                      | $                     | 108   |       |             | $           |              |           |   | $         | 2       |       |  | $ | 110   |      
|                                                                                                                                                                                                                  |                      |                       |       |       |             |             |               |           |   |           |         |      

Senior Notes.




11



---



##### 



NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)




Bank Credit Facility.






Zero Coupon Convertible Preferred Stock.




12



---



##### 



NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)






Note 4.     Income Taxes






Note 5.     Related Party
Transactions






13



---



##### 



NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)






Note 6.     Commitments and
Contingencies












14



---



##### 



Report of Independent Registered Public Accounting Firm



















15



---



##### 



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


A. Overview


Company Overview.




SM SM












16



---



##### 





Managements Summary.






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







| |   |                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we placed nearly 500 transmitter and receiver sites in service
    in the three months ended March 31, 2005 to accommodate the
    800 megahertz, or MHz, band spectrum reconfiguration discussed
    below and to both improve the geographic coverage of our network
    and to meet the capacity needs of our growing customer base;
|
| |  | we continue to develop customized solutions that support a broad
    range of applications including Group
    ConnectSM
    walkie-talkie applications and a variety of location-based
    services that allow business users to more effectively and
    efficiently manage their business; and                                      

17



---



##### 





| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we have developed an enhancement to our existing iDEN
    technology, known as
    WiDENSM,
    designed to increase the data speeds of our network by up to
    four times the current speeds.

tm










18



---



##### 











Enhanced 911 Services.




Critical Accounting Policies and Estimates.




Revenue Recognition.


19



---



##### 





Cost of Handsets.


Allowance for Doubtful Accounts.


Valuation and Recoverability of Long-Lived Assets.


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



20



---



##### 









Valuation and Recoverability of Intangible Assets.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | start-up model assumption with FCC licenses as the only asset
    owned by us;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | cash flow assumptions with respect to the construction of, and
    investment in, a related network, the development of
    distribution channels and a customer base and other critical
    activities that would be required to make the business
    operational. The assumptions underlying these inputs to the cash
    flow model are based upon a combination of our historical
    results and trends, our business plans and market participant
    data since these factors are included in our determination of
    free cash flows of the business, the present value of the free
    cash flows of the business after investment in the network and
    customers attributable to the FCC licenses;
|
| |  | weighted average cost of capital for a start-up asset; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | the rate of growth for a start-up business over the long term.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

21



---



##### 





Recoverability of Capitalized Software.


Income Tax Valuation Allowance.


B. Results of Operations








| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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

22



---



##### 



| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |   | providers for calls terminating on their networks and fluctuates
    in relation to the level and duration of those terminating calls;
|
| |  | costs to operate our handset service and repair program; and                                                                          
|
| |  | costs to activate service for new subscribers.                                                                                        







Selected Financial and Operating Data.


|                                                         |                                                   |                    |        |        |      |  |        |        |  
|-------------------------------------------------------- | ------------------------------------------------- | ------------------ | ------ | ------ | ---- |  | ------ | ------ | -
|                                                         |                                                   | Three Months Ended |       
|                                                         |                                                   | March 31,          |       
|                                                         |                                                   |                    |       
|                                                         |                                                   | 2005               |        |        | 2004 | 
|                                                         |                                                   |                    |        |        |      | 
|Nextel branded service:                                  |                                                   |                    |        |        |      |  |        |       
|                                                         | Handsets in service, end of period (in thousands) |                    |        | 15,543 |      |  |        | 13,356 |  
|                                                         | Net handset additions (in thousands)              |                    |        | 496    |      |  |        | 474    |  
|                                                         | Average monthly minutes of use per handset        |                    |        | 820    |      |  |        | 750    |  
|                                                         | Customer churn rate                               |                    |        | 1.5    | %    |  |        | 1.7    | %
|Boost Mobile branded prepaid service:                    |                                                   |                    |        |        |      |  |        |       
|                                                         | Handsets in service, end of period (in thousands) |                    |        | 1,474  |      |  |        | 537    |  
|                                                         | Net handset additions (in thousands)              |                    |        | 314    |      |  |        | 132    |  
|                                                         | Customer churn rate                               |                    |        | 5      | %    |  |        | NM     |  
|System minutes of use (in billions)                      |                                                   |                    | 39.3   |        |      |  | 30.3   |       
|Net transmitter and receiver sites placed in service     |                                                   |                    | 500    |        |      |  | 400    |       
|Transmitter and receiver sites in service, end of period |                                                   |                    | 20,250 |        |      |  | 17,900 |       
|Nextel stores in service, end of period                  |                                                   |                    | 797    |        |      |  | 649    |       




NM  Not Meaningful




23



---



##### 







Service Revenues and Cost of Service.


|                                            |                                 |                       |       |       |           |  |    |           |      |             |           |               |   |         |    |   |         |   |     |     |  |  |    |    |  
|------------------------------------------- | ------------------------------- | --------------------- | ----- | ----- | --------- |  | -- | --------- | ---- | ----------- | --------- | ------------- | - | ------- | -- | - | ------- | - | --- | --- |  |  | -- | -- | -
|                                            |                                 |                       |       |       |           |  |    |           |      | Change from |          
|                                            |                                 |                       |       | % of  |           |  |    |           | % of |             |           | Previous Year |  
|                                            |                                 | March 31,             |       |       | Operating |  |    | March 31, |      |             | Operating |               |   |         |   
|                                            |                                 | 2005                  |       |       | Revenues  |  |    | 2004      |      |             | Revenues  |               |   | Dollars |    |   | Percent |  
|                                            |                                 |                       |       |       |           |  |    |           |      |             |           |               |   |         |    |   |         |  
|                                            |                                 | (dollars in millions) |      
|Three Months Ended                          |                                 |                       |       |       |           |  |    |           |      |             |           |               |   |         |    |   |         |   |     |     |  |  |    |   
|Service revenues                            |                                 | $                     | 3,256 |       |           |  | 90 | %         |      | $           | 2,776     |               |   |         | 89 | % |         | $ | 480 |     |  |  | 17 | % 
|Cost of service (exclusive of depreciation) |                                 |                       | 552   |       |           |  | 15 | %         |      |             | 436       |               |   |         | 14 | % |         |   | 116 |     |  |  | 27 | % 
|                                            |                                 |                       |       |       |           |  |    |           |      |             |           |               |   |         |    |   |         |  
|                                            | Service gross margin            |                       | $     | 2,704 |           |  |    |           |      |             | $         | 2,340         |   |         |    |   |         |   | $   | 364 |  |  |    | 16 | %
|                                            |                                 |                       |       |       |           |  |    |           |      |             |           |               |   |         |    |   |         |  
|                                            | Service gross margin percentage |                       |       | 83    | %         |  |    |           |      |             |           | 84            | % |         |    |   |         |   |     |     |  |  |    |    |  
|                                            |                                 |                       |       |       |           |  |    |           |      |             |           |               |   |         |    |   |         |  

Service Revenues.




| |   |                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increased brand name recognition as a result of increased
    advertising and marketing campaigns, including advertising and
    marketing related to our sponsorship of NASCAR;                                                             
|
| |  | our differentiated products and services, including our Direct
    Connect walkie-talkie features and our Nextel Online services;                                                                                                            
|
| |  | the market expansion of our Boost Mobile branded prepaid service
    during 2004 and 2005;                                                                                                                                                   
|
| |  | increased market penetration as a result of the opening of
    additional Nextel stores and selling efforts targeted at
    specific vertical markets;                                                                                       
|
| |  | 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;                                                                                                                                                                            
|
| |  | the high quality of our network; and                                                                                                                                                                                                         
|
| |  | add-on subscribers from existing customer accounts.                                                                                                                                                                                          

24



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##### 







| |   |                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we continue to offer more competitive service pricing plans,
    including lower priced plans, plans with a higher number of
    bundled minutes included in the fixed monthly charge for the
    plan, plans that offer the ability to share minutes among a
    group of related customers, or a combination of these features;
    and
|
| |  | the number of handsets in service associated with our Boost
    Mobile branded prepaid service, which generates lower service
    revenues per handset, became a larger component of our overall
    customer base.                                                                                                                      



Cost of Service.




| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | a 32% net increase in costs incurred in the operation and
    maintenance of our network and fixed interconnection costs; and
|
| |  | an 18% increase in our handset service and repair program costs.                                                             





| |   |                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase in transmitter and receiver and switch related
    operational costs and fixed interconnection costs due to a 13%
    increase in transmitter and receiver sites placed into service
    from the three months ended March 31, 2004 to the three
    months ended March 31, 2005;
|
| |  | an increase in headcount and related employee costs to support
    our expanding network; and                                                                                                                                                                                                
|
| |  | an increase in royalties paid to online service providers as we
    increase the data services available to subscribers, such as
    wireless email, ring-tones and wallpaper applications.                                                                                                  







Service Gross Margin.


25



---



##### 



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


|                                             |  |                       |     |      |           |  |    |           |      |             |           |               |  |         |    |   |         |   |    |  |  |  |    |  
|-------------------------------------------- |  | --------------------- | --- | ---- | --------- |  | -- | --------- | ---- | ----------- | --------- | ------------- |  | ------- | -- | - | ------- | - | -- |  |  |  | -- | -
|                                             |  |                       |     |      |           |  |    |           |      | Change from |          
|                                             |  |                       |     | % of |           |  |    |           | % of |             |           | Previous Year | 
|                                             |  | March 31,             |     |      | Operating |  |    | March 31, |      |             | Operating |               |  |         |   
|                                             |  | 2005                  |     |      | Revenues  |  |    | 2004      |      |             | Revenues  |               |  | Dollars |    |   | Percent |  
|                                             |  |                       |     |      |           |  |    |           |      |             |           |               |  |         |    |   |         |  
|                                             |  | (dollars in millions) |    
|Three Months Ended                           |  |                       |     |      |           |  |    |           |      |             |           |               |  |         |    |   |         |   |    |  |  |  |    |  
|Handset and accessory revenues               |  | $                     | 352 |      |           |  | 10 | %         |      | $           | 327       |               |  |         | 11 | % |         | $ | 25 |  |  |  | 8  | %
|Cost of handset and accessory revenues       |  |                       | 532 |      |           |  | 15 | %         |      |             | 489       |               |  |         | 16 | % |         |   | 43 |  |  |  | 9  | %
|                                             |  |                       |     |      |           |  |    |           |      |             |           |               |  |         |    |   |         |  
|Handset and accessory net subsidy            |  | $                     | 180 |      |           |  |    |           |      | $           | 162       |               |  |         |    |   |         | $ | 18 |  |  |  | 11 | %
|                                             |  |                       |     |      |           |  |    |           |      |             |           |               |  |         |    |   |         |  
|Handset and accessory net subsidy percentage |  |                       | 51  | %    |           |  |    |           |      |             | 50        | %             |  |         |    |   |         |   |    |  |  |  |    |  
|                                             |  |                       |     |      |           |  |    |           |      |             |           |               |  |         |    |   |         |  

Handset and Accessory Revenues.


Cost of Handset and Accessory Revenues.


Handset and Accessory Net Subsidy.






Selling, General and Administrative Expenses.


|                           |                                     |                       |     |       |           |  |    |           |      |             |           |               |  |         |    |    |         |   |     |     |  |  |    |    |  
|-------------------------- | ----------------------------------- | --------------------- | --- | ----- | --------- |  | -- | --------- | ---- | ----------- | --------- | ------------- |  | ------- | -- | -- | ------- | - | --- | --- |  |  | -- | -- | -
|                           |                                     |                       |     |       |           |  |    |           |      | Change from |          
|                           |                                     |                       |     | % of  |           |  |    |           | % of |             |           | Previous Year | 
|                           |                                     | March 31,             |     |       | Operating |  |    | March 31, |      |             | Operating |               |  |         |   
|                           |                                     | 2005                  |     |       | Revenues  |  |    | 2004      |      |             | Revenues  |               |  | Dollars |    |    | Percent |  
|                           |                                     |                       |     |       |           |  |    |           |      |             |           |               |  |         |    |    |         |  
|                           |                                     | (dollars in millions) |    
|Three Months Ended         |                                     |                       |     |       |           |  |    |           |      |             |           |               |  |         |    |    |         |   |     |     |  |  |    |   
|Selling and marketing      |                                     | $                     | 595 |       |           |  | 16 | %         |      | $           | 495       |               |  |         | 16 | %  |         | $ | 100 |     |  |  | 20 | % 
|General and administrative |                                     |                       | 605 |       |           |  | 17 | %         |      |             | 476       |               |  |         | 15 | %  |         |   | 129 |     |  |  | 27 | % 
|                           |                                     |                       |     |       |           |  |    |           |      |             |           |               |  |         |    |    |         |  
|                           | Selling, general and administrative |                       | $   | 1,200 |           |  |    | 33        | %    |             | $         | 971           |  |         |    | 31 | %       |   | $   | 229 |  |  |    | 24 | %
|                           |                                     |                       |     |       |           |  |    |           |      |             |           |               |  |         |    |    |         |  

26



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##### 



Selling and Marketing.




| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $53 million increase in dealer commission expenses in the
    first quarter 2005 as compared to the same period in 2004
    primarily due to:



| |   |                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | with respect to our Nextel branded service, a significant
    increase in the rate of commissions earned by indirect dealers
    and distributors and an increase in volume of handset sales
    delivered outside of our direct handset fulfillment system which
    results in increased commissions; and
|
| |  | commission expenses associated with the increase in Boost Mobile
    branded prepaid service subscribers;                                                                                                                                                                                                  



| |   |                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $22 million increase in sales payroll and related
    expenses primarily associated with a 23% increase in the number
    of Nextel stores between March 31, 2004 and March 31,
    2005, and                                                                                           
|
| |  | a $15 million increase in advertising expenses primarily as
    a result of advertising and promotional costs related to the
    national expansion of our Boost Mobile branded prepaid service
    beginning in the first quarter 2005 and various other new
    advertising initiatives.

General and Administrative.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $66 million increase in customer care costs, including
    costs related to billing, collection and customer retention
    activities, primarily due to the costs to support a larger
    customer base, including customers of our Boost Mobile branded
    prepaid service, costs related to our customer Touch Point
    strategy and costs related to an upgrade and retention dealer
    compensation plan implemented during the third quarter 2004; and
|
| |  | a $62 million increase in personnel, facilities,
    professional fees and general corporate expenses due to
    technology initiatives, primarily related to product development
    and costs related to our proposed merger with Sprint.                                                                                                                                                                                                                     







| |   |                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increased costs to support a growing customer base, including
    costs associated with billing, collection, customer retention
    and customer care activities;                                                                
|
| |  | increased marketing and advertising expenses in connection with
    sponsorships and branding and promotional initiatives that are
    designed to increase brand awareness in our markets, including
    our NASCAR sponsorship;
|
| |  | increased costs relating to the national expansion of our Boost
    Mobile branded prepaid service;                                                                                                                              
|
| |  | costs relating to the proposed merger with Sprint; and                                                                                                                                                                           
|
| |  | increased costs associated with opening additional Nextel stores.                                                                                                                                                                

27



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##### 



Depreciation and Amortization.


|                   |                               |                       |     |      |           |  |    |           |      |             |           |               |  |         |    |    |         |   |    |    |  |  |     |    |  
|------------------ | ----------------------------- | --------------------- | --- | ---- | --------- |  | -- | --------- | ---- | ----------- | --------- | ------------- |  | ------- | -- | -- | ------- | - | -- | -- |  |  | --- | -- | -
|                   |                               |                       |     |      |           |  |    |           |      | Change from |          
|                   |                               |                       |     | % of |           |  |    |           | % of |             |           | Previous Year | 
|                   |                               | March 31,             |     |      | Operating |  |    | March 31, |      |             | Operating |               |  |         |   
|                   |                               | 2005                  |     |      | Revenues  |  |    | 2004      |      |             | Revenues  |               |  | Dollars |    |    | Percent |  
|                   |                               |                       |     |      |           |  |    |           |      |             |           |               |  |         |    |    |         |  
|                   |                               | (dollars in millions) |    
|Three Months Ended |                               |                       |     |      |           |  |    |           |      |             |           |               |  |         |    |    |         |   |    |    |  |  |     |   
|Depreciation       |                               | $                     | 503 |      |           |  | 14 | %         |      | $           | 432       |               |  |         | 14 | %  |         | $ | 71 |    |  |  | 16  | % 
|Amortization       |                               |                       | 4   |      |           |  |   |           |      |             | 11        |               |  |         |   |    |         |   | (7 | )  |  |  | (64 | )%
|                   |                               |                       |     |      |           |  |    |           |      |             |           |               |  |         |    |    |         |  
|                   | Depreciation and amortization |                       | $   | 507  |           |  |    | 14        | %    |             | $         | 443           |  |         |    | 14 | %       |   | $  | 64 |  |  |     | 14 | %
|                   |                               |                       |     |      |           |  |    |           |      |             |           |               |  |         |    |    |         |  





Interest and Other.


|                                                     |  |                       |      |             |               |   |      |         |  |   |         |   |  |  |      |   
|---------------------------------------------------- |  | --------------------- | ---- | ----------- | ------------- | - | ---- | ------- |  | - | ------- | - |  |  | ---- | --
|                                                     |  |                       |      | Change from |              
|                                                     |  | March 31,             |      |             | Previous Year |  
|                                                     |  |                       |      |             |               |  
|                                                     |  | 2005                  |      |             | 2004          |   |      | Dollars |  |   | Percent |  
|                                                     |  |                       |      |             |               |   |      |         |  |   |         |  
|                                                     |  | (dollars in millions) |     
|Three Months Ended                                   |  |                       |      |             |               |   |      |         |  |   |         |   |  |  |      |   
|Interest expense                                     |  | $                     | (128 | )           |               | $ | (154 | )       |  | $ | 26      |   |  |  | 17   | % 
|Interest income                                      |  |                       | 13   |             |               |   | 8    |         |  |   | 5       |   |  |  | 63   | % 
|Loss on retirement of debt                           |  |                       | (37  | )           |               |   | (17  | )       |  |   | (20     | ) |  |  | (118 | )%
|Equity in earnings of unconsolidated affiliates, net |  |                       | 17   |             |               |   |     |         |  |   | 17      |   |  |  | NM   |   
|Realized gain on sale of investment                  |  |                       |     |             |               |   | 26   |         |  |   | (26     | ) |  |  | (100 | )%
|Other, net                                           |  |                       | 2    |             |               |   | 1    |         |  |   | 1       |   |  |  | 100  | % 
|Income tax provision                                 |  |                       | (89  | )           |               |   | (33  | )       |  |   | (56     | ) |  |  | (170 | )%
|Income available to common stockholders              |  |                       | 589  |             |               |   | 593  |         |  |   | (4      | ) |  |  | (1   | )%




NM  Not Meaningful


Interest Expense.




| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $64 million decrease in interest expense attributable to
    the reductions in the aggregate outstanding principal amount of
    our senior notes, as discussed below; partially offset by
|
| |  | a $38 million increase in interest expense attributable to
    our 5.95%, 6.875% and 7.375% senior notes issued in 2004 and
    2005.                                                       



28



---



##### 





Interest Income.


Loss on Retirement of Debt.


Equity in Earnings of Unconsolidated Affiliates.


Realized Gain on Investment.


Income Tax Provision.


C. Liquidity and Capital Resources




29



---



##### 







Cash Flows.


|                                          |  |                       |       |   |               |   |       |         |  |   |         |   |  |  |     |   
|----------------------------------------- |  | --------------------- | ----- | - | ------------- | - | ----- | ------- |  | - | ------- | - |  |  | --- | --
|                                          |  | Three Months          |       |   | Change from   |  
|                                          |  | Ended March 31,       |       |   | Previous Year |  
|                                          |  |                       |       |   |               |  
|                                          |  | 2005                  |       |   | 2004          |   |       | Dollars |  |   | Percent |  
|                                          |  |                       |       |   |               |   |       |         |  |   |         |  
|                                          |  | (dollars in millions) |      
|Net cash provided by operating activities |  | $                     | 1,205 |   |               | $ | 1,244 |         |  | $ | (39     | ) |  |  | (3  | )%
|Net cash used in investing activities     |  |                       | (574  | ) |               |   | (521  | )       |  |   | (53     | ) |  |  | (10 | )%
|Net cash provided by financing activities |  |                       | 85    |   |               |   | 158   |         |  |   | (73     | ) |  |  | (46 | )%







| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | a $73 million decrease in net proceeds from short-term
    investments;                                                     
|
| |  | a $77 million decrease in proceeds from sale of a portion
    of our investment in NII Holdings in 2004; partially offset by
|
| |  | a $65 million decrease in cash paid for capital
    expenditures; and                                                       
|
| |  | a $32 million decrease in cash paid for licenses,
    acquisitions, investments and other, net of cash acquired.            







30



---



##### 





D. Future Capital Needs and Resources


Capital Resources.








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



31



---



##### 











Capital Needs.






| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | operating expenses relating to our network;                                                                                                                                        
|
| |  | capital expenditures, as discussed immediately below under
     Capital Expenditures;                                                                                           
|
| |  | potential investments in new business opportunities and spectrum
    purchases, including amounts required to be expended in
    connection with the Report and Order;             
|
| |  | potential material increases in the cost of compliance with
    regulatory mandates, particularly the requirement to deploy
    location-based Phase II E911 capabilities;         
|
| |  | interest payments, and, in future periods, scheduled principal
    payments, related to our long-term debt, and any of our
    securities that we choose to purchase or redeem; and
|
| |  | other general corporate expenditures including the anticipated
    impact on our available cash of becoming a full federal cash
    taxpayer.                                      





| |   |                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Sprint Nextels long-term debt is rated investment grade by
    either Standard & Poors Rating Services or
    Moodys Investors Service, Inc. for at least 90
    consecutive days from the completion of the merger, or

32



---



##### 





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | with respect to three series of our notes (of which there was
    $4,780 million in principal amount outstanding as of
    March 31, 2005), both S&P and Moodys reaffirm or
    increase the rating of all of our senior notes within
    30 days from the completion of the merger or, with respect
    to any one of the three series, that series is rated investment
    grade by both S&P and Moodys. As of March 31,
    2005, both S&P and Moodys have rated Sprints
    long-term debt as investment grade. These repurchase obligations
    do not apply if the merger with Sprint is not completed.





Capital Expenditures.




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



Future Contractual Obligations.


33



---



##### 





|                                  |  |               |        |           |         |   |       |      |  |   |       |  |  |      |          |  |      |   |       |            |  |   |       |  |  |   |        | 
|--------------------------------- |  | ------------- | ------ | --------- | ------- | - | ----- | ---- |  | - | ----- |  |  | ---- | -------- |  | ---- | - | ----- | ---------- |  | - | ----- |  |  | - | ------ | 
|Future                            |  |               |        | Remainder |         |   |       |      |  |   |       |  |  |      | 2010 and | 
|Contractual Obligations           |  | Total         |        |           | of 2005 |   |       | 2006 |  |   | 2007  |  |  | 2008 |          |  | 2009 |   |       | Thereafter | 
|                                  |  |               |        |           |         |   |       |      |  |   |       |  |  |      |          |  |      |   |       |            | 
|                                  |  | (in millions) |       
|Public senior notes               |  | $             | 8,871  |           |         | $ | 235   |      |  | $ | 368   |  |  | $    | 368      |  |      | $ | 368   |            |  | $ | 368   |  |  | $ | 7,164  | 
|Bank credit facility(1)           |  |               | 4,123  |           |         |   | 138   |      |  |   | 196   |  |  |      | 204      |  |      |   | 200   |            |  |   | 1,173 |  |  |   | 2,212  | 
|Preferred stock cash payments     |  |               | 245    |           |         |   |      |      |  |   |      |  |  |      |         |  |      |   |      |            |  |   |      |  |  |   | 245    | 
|Operating leases                  |  |               | 3,058  |           |         |   | 387   |      |  |   | 542   |  |  |      | 507      |  |      |   | 452   |            |  |   | 380   |  |  |   | 790    | 
|Purchase obligations and other(2) |  |               | 2,976  |           |         |   | 603   |      |  |   | 707   |  |  |      | 553      |  |      |   | 313   |            |  |   | 277   |  |  |   | 523    | 
|                                  |  |               |        |           |         |   |       |      |  |   |       |  |  |      |          |  |      |   |       |            | 
|Total                             |  | $             | 19,273 |           |         | $ | 1,363 |      |  | $ | 1,813 |  |  | $    | 1,632    |  |      | $ | 1,333 |            |  | $ | 2,198 |  |  | $ | 10,934 | 
|                                  |  |               |        |           |         |   |       |      |  |   |       |  |  |      |          |  |      |   |       |            | 






|    |                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | These amounts include principal amortization and estimated
    interest payments based on managements expectation as to
    future interest rates, assume the current payment schedule and
    exclude any additional drawdown under the revolving loan
    commitment.
|   
|(2) | These amounts do not take into account costs to be paid over the
    next three years in connection with the Report and Order, which
    will be at least $2,801 million.                                                                                               







34



---



##### 







Future Outlook.






| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | the anticipated level of capital expenditures related to our
    existing iDEN network;
|
| |  | our scheduled debt service requirements;                                               
|
| |  | anticipated payments under the Report and Order;                                       
|
| |  | costs associated with the proposed merger with Sprint; and                             
|
| |  | other future contractual obligations.                                                  







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





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

35



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##### 





Regulatory Update


Truth in Billing and Consumer Protection.


Local Number Portability.


Forward-Looking Statements


Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995.


36



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##### 







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the uncertainties related to our proposed merger with Sprint;                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | the success of efforts to improve, and satisfactorily address
    any issues relating to, our network performance, including any
    performance issues resulting from the reconfiguration of the
    800MHz band as contemplated by the FCCs Report and Order;                                                                                                                                                                                                                
|
| |  | the timely development and availability of new handsets with
    expanded applications and features;                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | market acceptance of our data service offerings, including our
    Nextel Online services;                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | the timely delivery and successful implementation of new
    technologies deployed in connection with any future enhanced
    iDEN or next generation or other advanced services we may offer;                                                                                                                                                                                                                                                                                  
|
| |  | the absence of any significant adverse change in Motorolas
    ability or willingness to provide handsets and related equipment
    and software applications or to develop new technologies or
    features for us;                                                                                                                                                                                                                                                           
|
| |  | the ability to achieve market penetration and average subscriber
    revenue levels sufficient to provide financial viability to our
    network business;                                                                                                                                                                                                                                                                                                                      
|
| |  | our ability to successfully scale our business and support
    operations in order to meet our goals for subscriber and revenue
    growth, 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;
|
| |  | the quality and price of similar or comparable wireless
    communications services offered or to be offered by our
    competitors, including providers of cellular and personal
    communication services including, for example, two-way
    walkie-talkie features that have been introduced by several of
    our competitors;                                                                                                                                            
|
| |  | future legislation or regulatory actions relating to specialized
    mobile radio services, other wireless communications services or
    telecommunications generally;                                                                                                                                                                                                                                                                                                         
|
| |  | the costs of compliance with regulatory mandates, particularly
    requirements related to the FCCs Report and Order and to
    deploy location-based E911 capabilities;                                                                                                                                                                                                                                                                                                       
|
| |  | access to sufficient debt or equity capital to meet any
    operating and financing needs; 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, 2004.                                                                                                                                                                                                                                                          

Item 3.     Quantitative and
Qualitative Disclosures About Market Risk.






37



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##### 









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



|                                                                                  |                       |                       |   |   |      |  |   |      |      |  |      |   |   |      |   |   |            |  |   |       |   |  |       |       |   |  |   |       |   |  |   |       | 
|--------------------------------------------------------------------------------- | --------------------- | --------------------- | - | - | ---- |  | - | ---- | ---- |  | ---- | - | - | ---- | - | - | ---------- |  | - | ----- | - |  | ----- | ----- | - |  | - | ----- | - |  | - | ----- | 
|                                                                                  |                       | Year of Maturity      |   |   |      |  |   |      |     
|                                                                                  |                       |                       |   |   |      |  |   |      | Fair | 
|                                                                                  |                       | 2005                  |   |   | 2006 |  |   | 2007 |      |  | 2008 |   |   | 2009 |   |   | Thereafter |  |   | Total |   |  | Value |      
|                                                                                  |                       |                       |   |   |      |  |   |      |      |  |      |   |   |      |   |   |            |  |   |       |   |  |       |      
|                                                                                  |                       | (dollars in millions) |  
|I.  Interest Rate Sensitivity                                                     |                       |                       |   |   |      |  |   |      |      |  |      |   |   |      |   |   |            |  |   |       |   |  |       |       |   |  |   |       |   |  |   |      
|Mandatorily Redeemable Preferred Stock, Long-term Debt and
    Finance Obligation |                       |                       |   |   |      |  |   |      |      |  |      |   |   |      |   |   |            |  |   |       |   |  |       |       |   |  |   |       |   |  |   |      
|                                                                                  | Fixed Rate(1)         |                       | $ |  |      |  | $ |     |      |  | $    |  |   |      | $ |  |            |  | $ |      |   |  | $     | 5,723 |   |  | $ | 5,723 |   |  | $ | 5,805 | 
|                                                                                  | Average Interest Rate |                       |   | 8 | %    |  |   | 8    | %    |  |      | 8 | % |      |   | 8 | %          |  |   | 8     | % |  |       | 7     | % |  |   | 7     | % |  |   |       | 
|                                                                                  | Variable Rate         |                       | $ |  |      |  | $ |     |      |  | $    |  |   |      | $ |  |            |  | $ | 1,000 |   |  | $     | 2,200 |   |  | $ | 3,200 |   |  | $ | 3,190 | 
|                                                                                  | Average Interest Rate |                       |   |  |      |  |   |     |      |  |      |  |   |      |   |  |            |  |   | 4     | % |  |       | 4     | % |  |   | 4     | % |  |   |       | 






|    |                                                                                               
|--- | ----------------------------------------------------------------------------------------------
|(1) | Amounts individually round to less than $1 million
    annually, except where otherwise noted.

Item 4.     Controls and
Procedures.






38



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##### 



PART II  OTHER INFORMATION.


Item 1.     Legal
Proceedings.






Item 6.     Exhibits.


|        |    |    |                     |                                            
|------- | -- | -- | ------------------- | -------------------------------------------
|Exhibit |    |    |                    
|Number  |    |    | Exhibit Description
|        |    |    |                    
|        | 15 |    |                     | Letter in Lieu of Consent for Review Report
|        | 31 | .1 |                     | Rule 13a-14(a)/15d-14(a) Certifications    
|        | 31 | .2 |                     | Rule 13a-14(a)/15d-14(a) Certifications    
|        | 32 | .1 |                     | Section 1350 Certifications                
|        | 32 | .2 |                     | Section 1350 Certifications                

39



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##### 



SIGNATURE






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



| |     |                      
| | --- | ---------------------
| | By: | /s/ William G. Arendt

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



40



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##### 



EXHIBIT INDEX


|        |    |    |                     |                                            
|------- | -- | -- | ------------------- | -------------------------------------------
|Exhibit |    |    |                    
|Number  |    |    | Exhibit Description
|        |    |    |                    
|        | 15 |    |                     | Letter in Lieu of Consent for Review Report
|        | 31 | .1 |                     | Rule 13a-14(a)/15d-14(a) Certifications    
|        | 31 | .2 |                     | Rule 13a-14(a)/15d-14(a) Certifications    
|        | 32 | .1 |                     | Section 1350 Certifications                
|        | 32 | .2 |                     | Section 1350 Certifications