##### 



















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



NEXTEL COMMUNICATIONS, INC.


(Exact name of registrant as specified in its
charter)


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

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

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

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

|                                                     |  |                              |             | 
|---------------------------------------------------- |  | ---------------------------- | ----------- | 
|                                                     |  | Number of Shares Outstanding
|Title of Class                                       |  | on July 31, 2003            
|                                                     |  |                             
|Class A Common Stock, $0.001 par value               |  |                              | 999,877,572 | 
|Class B Nonvoting Common Stock, $0.001 par
    value |  |                              | 35,660,000  | 



---






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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

INDEX

| |          |  |  |                        |  |                                                                                                                                                   |  |  |    | 
| | -------- |  |  | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
| |          |  |  |                        |  | Page                                                                                                                                             
| |          |  |  |                        |  |                                                                                                                                                  
| | Part  I  |  |  | Financial Information.
| |          |  |  | Item 1.                |  | Financial Statements  Unaudited.                                                                                                                 |  |  |    | 
| |          |  |  |                        |  | Condensed Consolidated Balance Sheets As of
    June 30, 2003 and December 31, 2002                                                               |  |  | 3  | 
| |          |  |  |                        |  | Condensed Consolidated Statements of Operations
    and Comprehensive Income (Loss) For the Six and Three Months
    Ended June 30, 2003 and 2002 |  |  | 4  | 
| |          |  |  |                        |  | Condensed Consolidated Statement of Changes in
    Stockholders Equity
    For the Six Months Ended June 30, 2003                                |  |  | 5  | 
| |          |  |  |                        |  | Condensed Consolidated Statements of Cash
    Flows
    For the Six Months Ended June 30, 2003 and 2002                                           |  |  | 6  | 
| |          |  |  |                        |  | Notes to Condensed Consolidated Financial
    Statements                                                                                          |  |  | 7  | 
| |          |  |  |                        |  | Independent Accountants Review Report                                                                                                            |  |  | 18 | 
| |          |  |  | Item 2.                |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                                         |  |  | 19 | 
| |          |  |  | Item 3.                |  | Quantitative and Qualitative Disclosures about
    Market Risk                                                                                    |  |  | 40 | 
| |          |  |  | Item 4.                |  | Controls and Procedures                                                                                                                           |  |  | 42 | 
| | Part  II |  |  | Other Information.    
| |          |  |  | Item 1.                |  | Legal Proceedings                                                                                                                                 |  |  | 43 | 
| |          |  |  | Item 4.                |  | Submission of Matters to a Vote of Security
    Holders                                                                                           |  |  | 43 | 
| |          |  |  | Item 5.                |  | Other Information                                                                                                                                 |  |  | 44 | 
| |          |  |  | Item 6.                |  | Exhibits and Reports on Form 8-K                                                                                                                  |  |  | 45 | 



---



##### 



PART I  FINANCIAL INFORMATION.

Item 1.     Financial
Statements  Unaudited.

NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES



Condensed Consolidated Balance
Sheets


As of June 30, 2003 and December 31,
2002


(in millions)


Unaudited


|                                                                                       |                                                                                          |                            |        |        |        |   |        |        |        | 
|-------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | -------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                                       |                                                                                          | 2003                       |        | 2002  
|                                                                                       |                                                                                          |                            |        |       
|ASSETS                                                                                
|Current assets                                                                         |                                                                                          |                            |        |        |        |   |        |       
|                                                                                       | Cash and cash equivalents                                                                |                            | $      | 1,440  |        |   | $      | 1,846  |       
|                                                                                       | Short-term investments                                                                   |                            |        | 980    |        |   |        | 840    |       
|                                                                                       | Accounts and notes receivable, less allowance for
    doubtful accounts of $104 and $127 |                            |        | 1,162  |        |   |        | 1,077  |       
|                                                                                       | Due from related parties                                                                 |                            |        | 12     |        |   |        | 33     |       
|                                                                                       | Handset and accessory inventory                                                          |                            |        | 220    |        |   |        | 245    |       
|                                                                                       | Prepaid expenses and other current assets                                                |                            |        | 688    |        |   |        | 609    |       
|                                                                                       |                                                                                          |                            |        |        |        |   |        |       
|                                                                                       |                                                                                          | Total current assets       |        |        | 4,502  |   |        |        | 4,650  | 
|Investments                                                                            |                                                                                          |                            | 130    |        |        |   | 145    |       
|Property, plant and equipment,net of accumulated depreciation of
    $5,811 and $5,007 |                                                                                          |                            | 8,829  |        |        |   | 8,918  |       
|Intangible assets,net of accumulated amortization of $91
    and $76                   |                                                                                          |                            | 6,918  |        |        |   | 6,607  |       
|Other assets                                                                           |                                                                                          |                            | 1,158  |        |        |   | 1,164  |       
|                                                                                       |                                                                                          |                            |        |        |        |   |        |       
|                                                                                       |                                                                                          | $                          | 21,537 |        |        | $ | 21,484 |       
|                                                                                       |                                                                                          |                            |        |        |        |   |        |       
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                              
|Current liabilities                                                                    |                                                                                          |                            |        |        |        |   |        |       
|                                                                                       | Accounts payable                                                                         |                            | $      | 437    |        |   | $      | 515    |       
|                                                                                       | Accrued expenses and other                                                               |                            |        | 1,949  |        |   |        | 1,749  |       
|                                                                                       | Due to related parties                                                                   |                            |        | 283    |        |   |        | 241    |       
|                                                                                       | Current portion of long-term debt, capital lease
    and finance obligations             |                            |        | 280    |        |   |        | 251    |       
|                                                                                       |                                                                                          |                            |        |        |        |   |        |       
|                                                                                       |                                                                                          | Total current liabilities  |        |        | 2,949  |   |        |        | 2,756  | 
|Long-term debt                                                                         |                                                                                          |                            | 11,495 |        |        |   | 12,079 |       
|Capital lease and finance
    obligations                                              |                                                                                          |                            | 156    |        |        |   | 220    |       
|Deferred income taxes                                                                  |                                                                                          |                            | 1,648  |        |        |   | 1,619  |       
|Deferred revenues and other                                                            |                                                                                          |                            | 1,000  |        |        |   | 949    |       
|                                                                                       |                                                                                          |                            |        |        |        |   |        |       
|                                                                                       |                                                                                          | Total liabilities          |        |        | 17,248 |   |        |        | 17,623 | 
|                                                                                       |                                                                                          |                            |        |        |        |   |        |       
|Commitments and contingencies
    (note 6)                                             |                                                                                          |                            |        |        |        |   |        |       
|Mandatorily redeemable preferred
    stock                                             |                                                                                          |                            | 861    |        |        |   | 1,015  |       
|Stockholders equity                                                                   |                                                                                          |                            |        |        |        |   |        |       
|                                                                                       | Convertible preferred stock, 0 and 4 shares
    issued and outstanding                   |                            |        |       |        |   |        | 136    |       
|                                                                                       | Common stock, class A, 998 and 968 shares
    issued and outstanding                     |                            |        | 1      |        |   |        | 1      |       
|                                                                                       | Common stock, class B, nonvoting
    convertible, 36 shares issued and outstanding       |                            |        |       |        |   |        |       |       
|                                                                                       | Paid-in capital                                                                          |                            |        | 10,681 |        |   |        | 10,530 |       
|                                                                                       | Accumulated deficit                                                                      |                            |        | (7,244 | )      |   |        | (7,793 | )     
|                                                                                       | Deferred compensation, net                                                               |                            |        | (4     | )      |   |        | (7     | )     
|                                                                                       | Accumulated other comprehensive loss                                                     |                            |        | (6     | )      |   |        | (21    | )     
|                                                                                       |                                                                                          |                            |        |        |        |   |        |       
|                                                                                       |                                                                                          | Total stockholders equity |        |        | 3,428  |   |        |        | 2,846  | 
|                                                                                       |                                                                                          |                            |        |        |        |   |        |       
|                                                                                       |                                                                                          | $                          | 21,537 |        |        | $ | 21,484 |       
|                                                                                       |                                                                                          |                            |        |        |        |   |        |       

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

3



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES



Condensed Consolidated Statements of
Operations and Comprehensive Income (Loss)


For the Six and Three Months Ended
June 30, 2003 and 2002


(in millions, except per share
amounts)


Unaudited


|                                                         |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |       |     |  
|-------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ----- | ------------------ | -- | ---- | ----- | ----- | -- | - | ----- | ----- | - | - | ----- | ----- | --- | -
|                                                         |                                                                                                |                                                                                 |       |                   
|                                                         |                                                                                                | Six Months Ended                                                                |       | Three Months Ended
|                                                         |                                                                                                | June 30,                                                                        |       | June 30,          
|                                                         |                                                                                                |                                                                                 |       |                   
|                                                         |                                                                                                | 2003                                                                            |       | 2002               |    | 2003 |       | 2002 
|                                                         |                                                                                                |                                                                                 |       |                    |    |      |       |      
|Operating revenues                                       |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|                                                         | Service revenues                                                                               |                                                                                 | $     | 4,595              |    |      | $     | 3,863 |    |   | $     | 2,385 |   |   | $     | 2,032 |    
|                                                         | Handset and accessory revenues                                                                 |                                                                                 |       | 332                |    |      |       | 248   |    |   |       | 171   |   |   |       | 122   |    
|                                                         |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|                                                         |                                                                                                |                                                                                 | 4,927 |                    |    |      | 4,111 |       |    |   | 2,556 |       |   |   | 2,154 |      
|                                                         |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|Operating expenses                                       |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|                                                         | Cost of service (exclusive of depreciation
    included below)                                 |                                                                                 |       | 777                |    |      |       | 717   |    |   |       | 408   |   |   |       | 366   |    
|                                                         | Cost of handset and accessory revenues                                                         |                                                                                 |       | 625                |    |      |       | 524   |    |   |       | 315   |   |   |       | 219   |    
|                                                         | Selling, general and administrative                                                            |                                                                                 |       | 1,615              |    |      |       | 1,468 |    |   |       | 829   |   |   |       | 753   |    
|                                                         | Restructuring and impairment charge                                                            |                                                                                 |       |                   |    |      |       | 35    |    |   |       |      |   |   |       |      |    
|                                                         | Depreciation                                                                                   |                                                                                 |       | 807                |    |      |       | 761   |    |   |       | 408   |   |   |       | 390   |    
|                                                         | Amortization                                                                                   |                                                                                 |       | 28                 |    |      |       | 26    |    |   |       | 14    |   |   |       | 15    |    
|                                                         |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|                                                         |                                                                                                |                                                                                 | 3,852 |                    |    |      | 3,531 |       |    |   | 1,974 |       |   |   | 1,743 |      
|                                                         |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|Operating income                                         |                                                                                                |                                                                                 | 1,075 |                    |    |      | 580   |       |    |   | 582   |       |   |   | 411   |      
|                                                         |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|Other income (expense)                                   |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|                                                         | Interest expense                                                                               |                                                                                 |       | (444               | )  |      |       | (542  | )  |   |       | (219  | ) |   |       | (269  | )  
|                                                         | Interest income                                                                                |                                                                                 |       | 22                 |    |      |       | 31    |    |   |       | 10    |   |   |       | 16    |    
|                                                         | (Loss) gain on retirement of debt, net of debt
    conversion
    costs of $0, $47, $0 and $47 |                                                                                 |       | (7                 | )  |      |       | 139   |    |   |       | (2    | ) |   |       | 139   |    
|                                                         | Equity in losses of unconsolidated affiliates, net                                             |                                                                                 |       | (48                | )  |      |       | (275  | )  |   |       | (35   | ) |   |       | (123  | )  
|                                                         | Reduction in fair value of investments                                                         |                                                                                 |       | (2                 | )  |      |       | (35   | )  |   |       | (2    | ) |   |       | (35   | )  
|                                                         | Other, net                                                                                     |                                                                                 |       | 2                  |    |      |       | (1    | )  |   |       | 2     |   |   |       | (1    | )  
|                                                         |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|                                                         |                                                                                                |                                                                                 | (477  | )                  |    |      | (683  | )     |    |   | (246  | )     |   |   | (273  | )    
|                                                         |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|Income (loss) before income tax
    provision            |                                                                                                |                                                                                 | 598   |                    |    |      | (103  | )     |    |   | 336   |       |   |   | 138   |      
|Income tax provision                                     |                                                                                                |                                                                                 | (49   | )                  |    |      | (365  | )     |    |   | (27   | )     |   |   | (15   | )    
|                                                         |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|Net income (loss)                                        |                                                                                                |                                                                                 | 549   |                    |    |      | (468  | )     |    |   | 309   |       |   |   | 123   |      
|                                                         | (Loss) gain on retirement of mandatorily
    redeemable
    preferred stock                    |                                                                                 |       | (7                 | )  |      |       | 264   |    |   |       | (5    | ) |   |       | 264   |    
|                                                         | Mandatorily redeemable preferred stock dividends
    and accretion                             |                                                                                 |       | (53                | )  |      |       | (125  | )  |   |       | (23   | ) |   |       | (62   | )  
|                                                         |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|Income (loss) available to common
    stockholders       |                                                                                                | $                                                                               | 489   |                    |    | $    | (329  | )     |    | $ | 281   |       |   | $ | 325   |      
|                                                         |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|Earnings (loss) per common share                         |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|                                                         | Basic                                                                                          |                                                                                 | $     | 0.48               |    |      | $     | (0.40 | )  |   | $     | 0.27  |   |   | $     | 0.39  |    
|                                                         |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|                                                         | Diluted                                                                                        |                                                                                 | $     | 0.47               |    |      | $     | (0.40 | )  |   | $     | 0.27  |   |   | $     | 0.37  |    
|                                                         |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|Weighted average number of common shares
    outstanding |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|                                                         | Basic                                                                                          |                                                                                 |       | 1,020              |    |      |       | 821   |    |   |       | 1,029 |   |   |       | 841   |    
|                                                         |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|                                                         | Diluted                                                                                        |                                                                                 |       | 1,050              |    |      |       | 821   |    |   |       | 1,052 |   |   |       | 927   |    
|                                                         |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|Comprehensive income (loss), net of income
    tax       |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|                                                         | Unrealized gain (loss) on available-for-sale
    securities, net                               |                                                                                 | $     | 4                  |    |      | $     | (7    | )  |   | $     | 4     |   |   | $     | 13    |    
|                                                         | Foreign currency translation adjustment                                                        |                                                                                 |       | (3                 | )  |      |       | 44    |    |   |       | (4    | ) |   |       | 18    |    
|                                                         | Cash flow hedge:                                                                               |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |       |    
|                                                         |                                                                                                | Reclassification of transition adjustment
    included in
    net income (loss) |       |                    | 3  |      |       |       | 4  |   |       |       | 1 |   |       |       | 2   |  
|                                                         |                                                                                                | Unrealized gain (loss) on cash flow hedge                                       |       |                    | 11 |      |       |       | (7 | ) |       |       | 6 |   |       |       | (17 | )
|                                                         |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|                                                         | Other comprehensive income                                                                     |                                                                                 |       | 15                 |    |      |       | 34    |    |   |       | 7     |   |   |       | 16    |    
|                                                         | Net income (loss)                                                                              |                                                                                 |       | 549                |    |      |       | (468  | )  |   |       | 309   |   |   |       | 123   |    
|                                                         |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      
|Comprehensive income (loss), net of income
    tax       |                                                                                                | $                                                                               | 564   |                    |    | $    | (434  | )     |    | $ | 316   |       |   | $ | 139   |      
|                                                         |                                                                                                |                                                                                 |       |                    |    |      |       |       |    |   |       |       |   |   |       |      

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

4



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

Condensed Consolidated Statement of Changes in
Stockholders Equity


For the Six Months Ended June 30,
2003


(in millions)


Unaudited


|                         |                                                                       |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |   |   |        |     |  |   |    |   |  |   |     |    |  |   |       |     |  
|------------------------ | --------------------------------------------------------------------- | --------------- | - | ------------ | - | ------------ | --- | ------- | - | ----------- | --- | -------- |  | ------------- | - | ------- |  | ------------ | -- | ------------- |  | ----- | - |  |  | - | ------ | --- | - | - | ------ | --- |  | - | -- | - |  | - | --- | -- |  | - | ----- | --- | -
|                         |                                                                       |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |        
|                         |                                                                       | Convertible     |   | Class A      |   | Class B      |     |         |   |             |     |          |  | Accumulated   |   |        
|                         |                                                                       | Preferred Stock |   | Common Stock |   | Common Stock |     |         |   |             |     |          |  | Other         |   |        
|                         |                                                                       |                 |   |              |   |              |     | Paid-in |   | Accumulated |     | Deferred |  | Comprehensive |   |        
|                         |                                                                       | Shares          |   | Amount       |   | Shares       |     | Amount  |   | Shares      |     | Amount   |  | Capital       |   | Deficit |  | Compensation |    | (Loss) Income |  | Total
|                         |                                                                       |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |      
|Balance, January 1, 2003 |                                                                       |                 | 4 |              |   | $            | 136 |         |   |             | 968 |          |  | $             | 1 |         |  |              | 36 |               |  | $     |  |  |  | $ | 10,530 |     |   | $ | (7,793 | )   |  | $ | (7 | ) |  | $ | (21 | )  |  | $ | 2,846 |    
|                         | Net income                                                            |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |   |   |        | 549 |  |   |    |   |  |   |     |    |  |   |       | 549 |  
|                         | Other comprehensive income                                            |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |   |   |        |     |  |   |    |   |  |   |     | 15 |  |   |       | 15  |  
|                         | Conversion of preferred stock into common stock                       |                 |   | (4           | ) |              |     | (136    | ) |             |     | 22       |  |               |   |        |  |              |    |               |  |       |   |  |  |   |        | 136 |   |   |        |     |  |   |    |   |  |   |     |    |  |   |       |    |  
|                         | Common stock issued under equity plans                                |                 |   |              |   |              |     |         |   |             |     | 8        |  |               |   |        |  |              |    |               |  |       |   |  |  |   |        | 74  |   |   |        |     |  |   |    |   |  |   |     |    |  |   |       | 74  |  
|                         | Deferred compensation and other                                       |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        | 1   |   |   |        |     |  |   |    | 3 |  |   |     |    |  |   |       | 4   |  
|                         | Loss on retirement of mandatorily redeemable
    preferred stock      |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        | (7  | ) |   |        |     |  |   |    |   |  |   |     |    |  |   |       | (7  | )
|                         | Dividends and accretion on mandatorily redeemable
    preferred stock |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        | (53 | ) |   |        |     |  |   |    |   |  |   |     |    |  |   |       | (53 | )
|                         |                                                                       |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |   |   |        |     |  |   |    |   |  |   |     |    |  |   |       |    
|Balance, June 30, 2003   |                                                                       |                 |  |              |   | $            |    |         |   |             | 998 |          |  | $             | 1 |         |  |              | 36 |               |  | $     |  |  |  | $ | 10,681 |     |   | $ | (7,244 | )   |  | $ | (4 | ) |  | $ | (6  | )  |  | $ | 3,428 |    
|                         |                                                                       |                 |   |              |   |              |     |         |   |             |     |          |  |               |   |         |  |              |    |               |  |       |   |  |  |   |        |     |   |   |        |     |  |   |    |   |  |   |     |    |  |   |       |    

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

5



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

Condensed Consolidated Statements of Cash
Flows


For the Six Months Ended June 30, 2003
and 2002


(in millions)


Unaudited


|                                                   |                                                                                              |                                                                         |                                              |                                           |     |      |        |        |      |      |        |  
|-------------------------------------------------- | -------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------- | --- | ---- | ------ | ------ | ---- | ---- | ------ | -
|                                                   |                                                                                              | 2003                                                                    |                                              | 2002                                     
|                                                   |                                                                                              |                                                                         |                                              |                                          
|Cash flows from operating activities               |                                                                                              |                                                                         |                                              |                                           |     |      |        |       
|                                                   | Net income (loss)                                                                            |                                                                         | $                                            | 549                                       |     |      | $      | (468   | )   
|                                                   | Adjustments to reconcile net income (loss) to net
    cash provided by operating activities: |                                                                         |                                              |                                           |     |      |        |        |     
|                                                   |                                                                                              | Amortization of debt financing costs and
    accretion of senior notes  |                                              |                                           | 32  |      |        |        | 182  |     
|                                                   |                                                                                              | Provision for losses on accounts receivable                             |                                              |                                           | 81  |      |        |        | 173  |     
|                                                   |                                                                                              | Gain recognized from sale of towers                                     |                                              |                                           | (53 | )    |        |        |     |     
|                                                   |                                                                                              | Restructuring and impairment charge                                     |                                              |                                           |    |      |        |        | 29   |     
|                                                   |                                                                                              | Depreciation and amortization                                           |                                              |                                           | 835 |      |        |        | 787  |     
|                                                   |                                                                                              | Loss (gain) on retirement of debt                                       |                                              |                                           | 7   |      |        |        | (186 | )   
|                                                   |                                                                                              | Debt conversion expense                                                 |                                              |                                           |    |      |        |        | 47   |     
|                                                   |                                                                                              | Equity in losses of unconsolidated affiliates, net                      |                                              |                                           | 48  |      |        |        | 275  |     
|                                                   |                                                                                              | Reduction in fair value of investments                                  |                                              |                                           | 2   |      |        |        | 35   |     
|                                                   |                                                                                              | Income tax provision                                                    |                                              |                                           | 29  |      |        |        | 365  |     
|                                                   |                                                                                              | Other, net                                                              |                                              |                                           | 13  |      |        |        | 14   |     
|                                                   |                                                                                              | Change in assets and liabilities, net of effects
    from acquisitions: |                                              |                                           |     |      |        |        |      |     
|                                                   |                                                                                              |                                                                         | Accounts and notes receivable                |                                           |     | (140 | )      |        |      | (379 | )     
|                                                   |                                                                                              |                                                                         | Handset and accessory inventory              |                                           |     | 21   |        |        |      | 6    |       
|                                                   |                                                                                              |                                                                         | Prepaid expenses and other assets            |                                           |     | 9    |        |        |      | 3    |       
|                                                   |                                                                                              |                                                                         | Accounts payable, accrued expenses and other |                                           |     | 83   |        |        |      | 26   |       
|                                                   |                                                                                              |                                                                         |                                              |                                           |     |      |        |       
|                                                   |                                                                                              |                                                                         |                                              | Net cash provided by operating activities |     |      | 1,516  |        |      |      | 909    |  
|                                                   |                                                                                              |                                                                         |                                              |                                           |     |      |        |       
|Cash flows from investing activities               |                                                                                              |                                                                         |                                              |                                           |     |      |        |       
|                                                   | Capital expenditures                                                                         |                                                                         |                                              | (727                                      | )   |      |        | (1,041 | )   
|                                                   | Purchases of short-term investments                                                          |                                                                         |                                              | (1,191                                    | )   |      |        | (1,779 | )   
|                                                   | Proceeds from maturities and sales of short-term
    investments                             |                                                                         |                                              | 1,057                                     |     |      |        | 1,640  |     
|                                                   | Payments for purchase of licenses, investments
    and other net of cash acquired            |                                                                         |                                              | (238                                      | )   |      |        | (208   | )   
|                                                   | Payments for acquisitions net of cash acquired                                               |                                                                         |                                              |                                          |     |      |        | (109   | )   
|                                                   | Cash relinquished as a result of the
    deconsolidation of NII Holdings                     |                                                                         |                                              |                                          |     |      |        | (250   | )   
|                                                   |                                                                                              |                                                                         |                                              |                                           |     |      |        |       
|                                                   |                                                                                              |                                                                         |                                              | Net cash used in investing activities     |     |      | (1,099 | )      |      |      | (1,747 | )
|                                                   |                                                                                              |                                                                         |                                              |                                           |     |      |        |       
|Cash flows from financing activities               |                                                                                              |                                                                         |                                              |                                           |     |      |        |       
|                                                   | Purchase and retirement of debt securities and
    mandatorily redeemable preferred stock    |                                                                         |                                              | (707                                      | )   |      |        | (295   | )   
|                                                   | Borrowings under long-term credit facility                                                   |                                                                         |                                              | 69                                        |     |      |        |       |     
|                                                   | Repayments under long-term credit facility                                                   |                                                                         |                                              | (99                                       | )   |      |        |       |     
|                                                   | Payment for capital lease buy-out                                                            |                                                                         |                                              | (54                                       | )   |      |        |       |     
|                                                   | Repayments under capital lease and finance
    obligations                                   |                                                                         |                                              | (25                                       | )   |      |        | (49    | )   
|                                                   | Mandatorily redeemable preferred stock dividends
    paid                                    |                                                                         |                                              | (42                                       | )   |      |        |       |     
|                                                   | Other                                                                                        |                                                                         |                                              | 35                                        |     |      |        |       |     
|                                                   |                                                                                              |                                                                         |                                              |                                           |     |      |        |       
|                                                   |                                                                                              |                                                                         |                                              | Net cash used in financing activities     |     |      | (823   | )      |      |      | (344   | )
|                                                   |                                                                                              |                                                                         |                                              |                                           |     |      |        |       
|Net decrease in cash and cash
    equivalents      |                                                                                              |                                                                         | (406                                         | )                                         |     |      | (1,182 | )     
|Cash and cash equivalents, beginning of
    period |                                                                                              |                                                                         | 1,846                                        |                                           |     |      | 2,481  |       
|                                                   |                                                                                              |                                                                         |                                              |                                           |     |      |        |       
|Cash and cash equivalents, end of
    period       |                                                                                              | $                                                                       | 1,440                                        |                                           |     | $    | 1,299  |       
|                                                   |                                                                                              |                                                                         |                                              |                                           |     |      |        |       

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

6



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES



Notes to Condensed Consolidated Financial
Statements


Unaudited


Note 1.     Basis of
Presentation

Our unaudited condensed consolidated financial
statements have been prepared under the rules and regulations of
the Securities and Exchange Commission and reflect all
adjustments that are necessary for a fair presentation of the
results for interim periods. All adjustments made were normal
recurring accruals. You should not expect the results of
operations of interim periods to be an indication of the results
for a full year. You should read the condensed consolidated
financial statements in conjunction with the consolidated
financial statements and notes contained in our annual report on
Form 10-K for the year ended December 31, 2002 and our
subsequent quarterly report on Form 10-Q for the quarter
ended March 31, 2003.

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

|                                                                   |                                                                 |                                         |       |                    |    |      |      |       |   |   |       |      |    |   |     |      |    | 
|------------------------------------------------------------------ | --------------------------------------------------------------- | --------------------------------------- | ----- | ------------------ | -- | ---- | ---- | ----- | - | - | ----- | ---- | -- | - | --- | ---- | -- | 
|                                                                   |                                                                 |                                         |       |                   
|                                                                   |                                                                 | Six Months Ended                        |       | Three Months Ended
|                                                                   |                                                                 | June 30,                                |       | June 30,          
|                                                                   |                                                                 |                                         |       |                   
|                                                                   |                                                                 | 2003                                    |       | 2002               |    | 2003 |      | 2002 
|                                                                   |                                                                 |                                         |       |                    |    |      |      |      
|                                                                   |                                                                 |                                        
|                                                                   |                                                                 | (in millions, except per share amounts)
|Income (loss) available to common
    stockholders  basic         |                                                                 | $                                       | 489   |                    |    | $    | (329 | )     |   | $ | 281   |      |    | $ | 325 |     
|                                                                   | Interest expense eliminated upon the assumed
    conversion of: |                                         |       |                    |    |      |      |       |   |   |       |      |    |   |     |      |   
|                                                                   |                                                                 | 4.75% convertible senior notes due 2007 |       |                    |   |      |      |       |  |   |       |      |   |   |     |      | 4  | 
|                                                                   |                                                                 | 6% convertible senior notes due 2011    |       |                    |   |      |      |       |  |   |       |      |   |   |     |      | 15 | 
|                                                                   |                                                                 |                                         |       |                    |    |      |      |       |   |   |       |      |    |   |     |     
|Income (loss) available to common
    stockholders  diluted       |                                                                 | $                                       | 489   |                    |    | $    | (329 | )     |   | $ | 281   |      |    | $ | 344 |     
|                                                                   |                                                                 |                                         |       |                    |    |      |      |       |   |   |       |      |    |   |     |     
|Weighted average number of common shares
    outstanding  basic   |                                                                 |                                         | 1,020 |                    |    |      | 821  |       |   |   | 1,029 |      |    |   | 841 |     
|                                                                   | Effect of dilutive securities:                                  |                                         |       |                    |    |      |      |       |   |   |       |      |    |   |     |      |   
|                                                                   |                                                                 | Class A convertible preferred stock     |       |                    | 8  |      |      |       |  |   |       |      |   |   |     |      | 31 | 
|                                                                   |                                                                 | Equity plans                            |       |                    | 22 |      |      |       |  |   |       |      | 23 |   |     |      |   | 
|                                                                   |                                                                 | 4.75% convertible senior notes due 2007 |       |                    |   |      |      |       |  |   |       |      |   |   |     |      | 15 | 
|                                                                   |                                                                 | 6% convertible senior notes due 2011    |       |                    |   |      |      |       |  |   |       |      |   |   |     |      | 40 | 
|                                                                   |                                                                 |                                         |       |                    |    |      |      |       |   |   |       |      |    |   |     |     
|Weighted average number of common shares
    outstanding  diluted |                                                                 |                                         | 1,050 |                    |    |      | 821  |       |   |   | 1,052 |      |    |   | 927 |     
|                                                                   |                                                                 |                                         |       |                    |    |      |      |       |   |   |       |      |    |   |     |     
|Earnings (loss) per common share                                   |                                                                 |                                         |       |                    |    |      |      |       |   |   |       |      |    |   |     |     
|                                                                   | Basic                                                           |                                         | $     | 0.48               |    |      | $    | (0.40 | ) |   | $     | 0.27 |    |   | $   | 0.39 |   
|                                                                   |                                                                 |                                         |       |                    |    |      |      |       |   |   |       |      |    |   |     |     
|                                                                   | Diluted                                                         |                                         | $     | 0.47               |    |      | $    | (0.40 | ) |   | $     | 0.27 |    |   | $   | 0.37 |   
|                                                                   |                                                                 |                                         |       |                    |    |      |      |       |   |   |       |      |    |   |     |     

About 50 million shares issuable upon the
assumed conversion of our convertible senior notes and zero
coupon convertible preferred stock could potentially dilute
earnings per share in the future but were excluded from the
calculation of diluted earnings per common share for the six and
three months ended June 30, 2003 due to their antidilutive
effects. Additionally, about 72 million and 71 million
shares issuable under our incentive and other equity plans that
could also potentially dilute earnings per share in the future
were excluded from the calculation of diluted earnings per
common share for the six and three months ended

7



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

June 30, 2003 as the exercise prices
exceeded the average market price of our class A common
stock during those periods.

Because we reported a loss for the six months
ended June 30, 2002, the calculation of diluted earnings
per common share for the six months ended June 30, 2002
excludes the effects of all potentially dilutive common shares
due to their antidilutive effects. About 18 million shares
issuable upon the assumed conversion of our convertible senior
notes and zero coupon convertible preferred stock could
potentially dilute earnings per share in the future but were
excluded from the calculation of diluted earnings per common
share for the three months ended June 30, 2002 due to their
antidilutive effects. Additionally, about 101 million
shares issuable under our incentive and other equity plans that
could also potentially dilute earnings per share in the future
were excluded from the calculation of diluted earnings per
common share for the three months ended June 30, 2002 as
the exercise prices exceeded the average market price of our
class A common stock during that period.

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

During the six months ended June 30, 2003,
we acquired Federal Communications Commission, or FCC, licenses
at a cost of $331 million, which includes both licenses
acquired from NeoWorld Communications, Inc. and deposits for
licenses paid prior to 2003 that were recorded in other assets
until we acquired the relevant licenses. The table below
summarizes our intangible assets.

|                              |                                                          |               |                |               |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |    |    |  |   |       |       | 
|----------------------------- | -------------------------------------------------------- | ------------- | -------------- | ------------- | ----- | ----------------- |  | -------- | -- | -------- |  | ------------ | ----- | -------- |  | - | ----- | ----- |  | - | -- | -- |  | - | ----- | ----- | 
|                              |                                                          |               |                |               |       |                  
|                              |                                                          |               |                | June 30, 2003 |       | December 31, 2002
|                              |                                                          |               |                |               |       |                  
|                              |                                                          |               |                | Gross         |       |                   |  | Net      |    | Gross    |  |              |       | Net     
|                              |                                                          |               |                | Carrying      |       | Accumulated       |  | Carrying |    | Carrying |  | Accumulated  |       | Carrying
|                              |                                                          | Useful Lives  |                | Value         |       | Amortization      |  | Value    |    | Value    |  | Amortization |       | Value   
|                              |                                                          |               |                |               |       |                   |  |          |    |          |  |              |       |         
|                              |                                                          |              
|                              |                                                          | (in millions)
|Amortized intangible assets   |                                                          |               |                |               |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |    |    |  |   |       |      
|                              | Customer lists                                           |               | 2 to 3 years   |               | $     | 120               |  |          | $  | 77       |  |              | $     | 43       |  |   | $     | 129   |  |   | $  | 66 |  |   | $     | 63    | 
|                              | Noncompete and spectrum sharing agreements and
    other |               | Up to 20 years |               |       | 67                |  |          |    | 14       |  |              |       | 53       |  |   |       | 58    |  |   |    | 10 |  |   |       | 48    | 
|                              |                                                          |               |                |               |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |    |    |  |   |       |      
|                              |                                                          |               |                |               | 187   |                   |  |          | 91 |          |  |              | 96    |          |  |   | 187   |       |  |   | 76 |    |  |   | 111   |      
|                              |                                                          |               |                |               |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |    |    |  |   |       |      
|Unamortized intangible assets |                                                          |               |                |               |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |    |    |  |   |       |      
|                              | FCC licenses                                             |               | Indefinite     |               |       | 6,801             |  |          |    |          |  |              |       | 6,801    |  |   |       | 6,475 |  |   |    |    |  |   |       | 6,475 | 
|                              | Goodwill                                                 |               | Indefinite     |               |       | 21                |  |          |    |          |  |              |       | 21       |  |   |       | 21    |  |   |    |    |  |   |       | 21    | 
|                              |                                                          |               |                |               |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |    |    |  |   |       |      
|                              |                                                          |               |                |               | 6,822 |                   |  |          |    |          |  |              | 6,822 |          |  |   | 6,496 |       |  |   |    |    |  |   | 6,496 |      
|                              |                                                          |               |                |               |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |    |    |  |   |       |      
|Total intangible assets       |                                                          |               |                | $             | 7,009 |                   |  | $        | 91 |          |  | $            | 6,918 |          |  | $ | 6,683 |       |  | $ | 76 |    |  | $ | 6,607 |      
|                              |                                                          |               |                |               |       |                   |  |          |    |          |  |              |       |          |  |   |       |       |  |   |    |    |  |   |       |      

For intangible assets with finite lives, we
recorded aggregate amortization expense of $26 million for
the six months ended June 30, 2003 and $24 million for
the six months ended June 30, 2002. Based only on the
amortized intangible assets existing at June 30, 2003, we
estimate the amortization expense to be $22 million for the
remainder of 2003, $30 million during 2004, $6 million
during 2005, $2 million during 2006 and $1 million
during 2007. Actual amortization expense to be reported in
future periods could differ from these estimates as a result of
acquisitions of new intangible assets, changes in useful lives
or other relevant factors.

In connection with the adoption of SFAS
No. 142, we ceased amortizing FCC license costs, as we
believe that our portfolio of FCC licenses represents an
intangible asset with an indefinite useful life. As a result, in
the first quarter 2002, we incurred a one-time cumulative
non-cash charge to the income tax provision of

8



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

$335 million to increase the valuation
allowance related to our net operating losses. As these FCC
licenses are no longer amortized for book purposes but are
amortized for tax purposes, we are recording additional deferred
tax liabilities only as such licenses are amortized for tax
purposes. We have recorded income tax provision and deferred tax
liabilities of $29 million and $30 million for the six
months ended June 30, 2003 and 2002 related to these
temporary differences.

Accumulated
Other Comprehensive Loss.

|                                                               |  |               |     |              |  |   |     |  
|-------------------------------------------------------------- |  | ------------- | --- | ------------ |  | - | --- | -
|                                                               |  | June 30,      |     | December 31,
|                                                               |  | 2003          |     | 2002        
|                                                               |  |               |     |             
|                                                               |  |              
|                                                               |  | (in millions)
|Unrealized gain on available-for-sale securities,
    net      |  | $             | 11  |              |  | $ | 7   |  
|Cumulative foreign currency translation adjustment             |  |               | (4  | )            |  |   | (1  | )
|Cumulative effect of accounting change for cash
    flow hedge |  |               | (1  | )            |  |   | (4  | )
|Unrealized loss on cash flow hedge                             |  |               | (12 | )            |  |   | (23 | )
|                                                               |  |               |     |              |  |   |     |  
|                                                               |  | $             | (6  | )            |  | $ | (21 | )
|                                                               |  |               |     |              |  |   |     |  

Stock-Based Compensation.We account for stock-based
compensation for employees and non-employee members of our board
of directors in accordance with Accounting Principles Board, or
APB, Opinion No. 25, Accounting for Stock Issued to
Employees. Under APB Opinion No. 25, compensation
expense is based on the intrinsic value on the measurement date,
calculated as the difference between the fair value of the
class A common stock and the relevant exercise price. We
account for stock-based compensation for non-employees at fair
value using a Black-Scholes option-pricing model in accordance
with the provisions of SFAS No. 123 and other applicable
accounting principles. We recorded stock-based compensation
expense of $4 million and $9 million for the six
months ended June 30, 2003 and 2002, respectively, and
$2 million and $6 million for the three months ended
June 30, 2003 and 2002, respectively.

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

|                                                                |                                  |                                         |     |                    |      |      |      |      |       |   |     |     |      |   |     |     |      | 
|--------------------------------------------------------------- | -------------------------------- | --------------------------------------- | --- | ------------------ | ---- | ---- | ---- | ---- | ----- | - | --- | --- | ---- | - | --- | --- | ---- | 
|                                                                |                                  |                                         |     |                   
|                                                                |                                  | Six Months Ended                        |     | Three Months Ended
|                                                                |                                  | June 30,                                |     | June 30,          
|                                                                |                                  |                                         |     |                   
|                                                                |                                  | 2003                                    |     | 2002               |      | 2003 |      | 2002
|                                                                |                                  |                                         |     |                    |      |      |      |     
|                                                                |                                  |                                        
|                                                                |                                  | (in millions, except per share amounts)
|Income (loss) available to common
    stockholders, as reported |                                  | $                                       | 489 |                    |      | $    | (329 | )    |       | $ | 281 |     |      | $ | 325 |    
|                                                                | Stock-based compensation expense |                                         |     | (159               | )    |      |      | (172 | )     |   |     | (79 | )    |   |     | (85 | )   
|                                                                |                                  |                                         |     |                    |      |      |      |      |       |   |     |     |      |   |     |    
|Income (loss) available to common
    stockholders, pro forma   |                                  | $                                       | 330 |                    |      | $    | (501 | )    |       | $ | 202 |     |      | $ | 240 |    
|                                                                |                                  |                                         |     |                    |      |      |      |      |       |   |     |     |      |   |     |    
|Earnings (loss) per common share                                |                                  |                                         |     |                    |      |      |      |      |       |   |     |     |      |   |     |    
|                                                               
|                                                                | As reported                      |                                         |     |                    |      |      |      |      |       |   |     |     |      |   |     |     |     
|                                                                |                                  | Basic                                   |     | $                  | 0.48 |      |      | $    | (0.40 | ) |     | $   | 0.27 |   |     | $   | 0.39 | 
|                                                                |                                  |                                         |     |                    |      |      |      |      |       |   |     |     |      |   |     |    
|                                                                |                                  | Diluted                                 |     | $                  | 0.47 |      |      | $    | (0.40 | ) |     | $   | 0.27 |   |     | $   | 0.37 | 
|                                                                |                                  |                                         |     |                    |      |      |      |      |       |   |     |     |      |   |     |    
|                                                                | Pro forma                        |                                         |     |                    |      |      |      |      |       |   |     |     |      |   |     |     |     
|                                                                |                                  | Basic                                   |     | $                  | 0.32 |      |      | $    | (0.61 | ) |     | $   | 0.20 |   |     | $   | 0.29 | 
|                                                                |                                  |                                         |     |                    |      |      |      |      |       |   |     |     |      |   |     |    
|                                                                |                                  | Diluted                                 |     | $                  | 0.31 |      |      | $    | (0.61 | ) |     | $   | 0.19 |   |     | $   | 0.28 | 
|                                                                |                                  |                                         |     |                    |      |      |      |      |       |   |     |     |      |   |     |    

9



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

Supplemental
Cash Flow Information.

|                                                         |                                                                 |                  |     |      |  |   |     |       |  
|-------------------------------------------------------- | --------------------------------------------------------------- | ---------------- | --- | ---- |  | - | --- | ----- | -
|                                                         |                                                                 |                 
|                                                         |                                                                 | Six Months Ended
|                                                         |                                                                 | June 30,        
|                                                         |                                                                 |                 
|                                                         |                                                                 | 2003             |     | 2002
|                                                         |                                                                 |                  |     |     
|                                                         |                                                                 |                 
|                                                         |                                                                 | (in millions)   
|Capital expenditures, including capitalized
    interest |                                                                 |                  |     |      |  |   |     |      
|                                                         | Cash paid for capital expenditures                              |                  | $   | 727  |  |   | $   | 1,041 |  
|                                                         | Changes in capital expenditures accrued, unpaid
    or financed |                  |     |     |  |   |     | (94   | )
|                                                         |                                                                 |                  |     |      |  |   |     |      
|                                                         |                                                                 | $                | 727 |      |  | $ | 947 |      
|                                                         |                                                                 |                  |     |      |  |   |     |      
|Interest costs                                           |                                                                 |                  |     |      |  |   |     |      
|                                                         | Interest expense                                                |                  | $   | 444  |  |   | $   | 542   |  
|                                                         | Interest capitalized                                            |                  |     | 20   |  |   |     | 25    |  
|                                                         |                                                                 |                  |     |      |  |   |     |      
|                                                         |                                                                 | $                | 464 |      |  | $ | 567 |      
|                                                         |                                                                 |                  |     |      |  |   |     |      
|Cash paid for interest, net of amounts
    capitalized   |                                                                 | $                | 368 |      |  | $ | 373 |      
|                                                         |                                                                 |                  |     |      |  |   |     |      
|Cash received for interest                               |                                                                 | $                | 16  |      |  | $ | 29  |      
|                                                         |                                                                 |                  |     |      |  |   |     |      
|Cash paid for income taxes                               |                                                                 | $                | 47  |      |  | $ | 8   |      
|                                                         |                                                                 |                  |     |      |  |   |     |      

New
Accounting Pronouncements.

SFAS No. 143.In June 2001, the Financial
Accounting Standards Board, or FASB, issued SFAS No.143,
Accounting for Asset Retirement Obligations. We adopted
the provisions of SFAS No. 143 during 2003. Under the
provisions of SFAS No. 143, we record an asset retirement
obligation and an associated asset retirement cost when we have
a legal obligation in connection with the retirement of tangible
long-lived assets. Our obligations under SFAS No. 143 arise
from certain of our leases and relate primarily to the cost of
removing our equipment from such leased sites. The effect of
implementing the provisions of SFAS No. 143 was not
material.

FASB Interpretation No. 45.In November 2002, the FASB issued
FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. The
interpretation addresses disclosures to be made by a guarantor
in its interim and annual financial statements about its
obligations under guarantees and clarifies that a guarantor is
required to recognize a liability for the fair value of the
obligations undertaken in issuing certain guarantees at
inception. The initial recognition and measurement provisions of
the interpretation are applicable on a prospective basis to
certain guarantees issued or modified on or after
January 1, 2003. The provisions that require recognition of
a liability do not apply to guarantees by one member of a
consolidated group of entities of the debt of other members of
the same group to third parties. We currently do not guarantee
the debt of any entity outside our consolidated group and
therefore, the implementation of FASB Interpretation No. 45
did not have a material impact on our financial position or
results of operations. In certain limited circumstances, our
operating subsidiaries have entered into, and may from time to
time in the future, enter into, executory agreements with third
parties that may require a guarantee of Nextel Communications,
Inc. (NCI) and/or another of its subsidiaries. These
guarantees relate to certain equipment and facility leases and
vendor/ promotional arrangements and range in duration from two
to ten years. In addition, NCI and substantially all of its
operating subsidiaries are guarantors of the borrowings of
another of NCIs subsidiaries under our bank credit
facility, which obligations are secured by liens on
substantially all of our assets. As of June 30, 2003, these
guarantees aggregated about $5.1 billion, of which about
$4.5 billion related to our bank credit facility. We

10



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

believe that the likelihood of Nextel
Communications and/or another of its subsidiaries having to make
any payments under the guarantees is remote since our operating
subsidiaries have been, and we believe they will continue to be,
able to pay their obligations with cash flows from their
operations.

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

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

We adopted EITF Issue 00-21 on July 1, 2003
and elected to apply the provisions to our existing customer
arrangements. Accordingly, we reduced our total assets and total
liabilities by about $1.3 billion, representing
substantially all of the revenues and costs associated with the
original sale of handsets that were deferred under SAB 101.
The cumulative effect of adopting EITF 00-21 did not
materially impact the statement of operations. The remaining
deferred revenues and costs on the balance sheet represent the
unamortized portions of our one-time activation fees and an
equal amount of costs allocated to the service unit of
accounting, which we will recognize over the contract life in
the statement of operations.

FASB Interpretation No. 46.In January 2003, the FASB issued
FASB Interpretation No. 46, Consolidation of Variable
Interest Entities. The Interpretation clarifies the
application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to certain
entities in which the equity investors do not have the
characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support
from other parties. The Interpretation applies immediately to
variable interest entities created after January 31, 2003,
or in which we obtain an interest after that date. The
Interpretation is effective July 1, 2003 to variable
interest entities in which we hold a variable interest acquired
before February 1, 2003. We do not have any variable
interest entity arrangements as of June 30, 2003.

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

11



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

definition of an underlying to conform it to
language used in FASB Interpretation No. 45, and amends
certain other existing pronouncements. SFAS No. 149 is
applied prospectively to all contracts entered into or modified
after June 30, 2003, and for hedging relationships
designated after June 30, 2003. However, the provisions of
this statement that relate to SFAS 133 Implementation
Issues, which have been effective for fiscal quarters
beginning prior to June 15, 2003, continue to be applied in
accordance with their respective effective dates. The
implementation of SFAS No. 149 is not expected to have a
material impact on our financial position or results of
operations.

SFAS No. 150.In May 2003, the FASB issued SFAS
No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity. This
statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of
both liabilities and equity. It requires the issuer to classify
a financial instrument that is within the scope of the standard
as a liability if such financial instrument embodies an
obligation of the issuer. The adoption of SFAS No. 150 will
require us to reclassify and account for our series D and
series E mandatorily redeemable preferred stock as
liabilities on July 1, 2003 as these mandatorily redeemable
financial instruments embody an unconditional obligation that
requires us to redeem the instrument at a specified date and/or
upon an event certain to occur. As discussed in note 7, we
redeemed all of our series D preferred stock in July 2003
and expect to redeem all of our series E preferred stock in
August 2003. Accordingly, the implementation of SFAS
No. 150 is not expected to have a material impact on our
financial position or results of operations. The balance sheet
classification of our zero coupon convertible preferred stock
will remain the same, as this preferred stock is convertible
into a fixed number of shares of our common stock.

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

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

|                           |  |               |    |      |  |   |    | 
|-------------------------- |  | ------------- | -- | ---- |  | - | -- | 
|                           |  | 2003          |    | 2002
|                           |  |               |    |     
|                           |  |              
|                           |  | (in millions)
|Three months ended June 30 |  | $             | 6  |      |  | $ | 35 | 
|Six months ended June 30   |  |               | 20 |      |  |   | 85 | 

Note 2.     2003
Developments

Change in Asset Life.We shortened the estimated useful
lives of some of our network assets in the first quarter 2003.
As a result of these changes in estimates, we recorded about
$41 million or $0.04 per common share of additional
depreciation expense in the six months ended June 30, 2003.

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

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

12



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

primary mechanism for providing Digital Radio
with corporate governance rights associated with
Mr. McCaws 1995 investment in Nextel.



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

Long-Term
Debt.

|                                                                                                             |                      |                      |        |                       |      |       |     |          |  |   |     |      |   |   |        |        |      |  
|------------------------------------------------------------------------------------------------------------ | -------------------- | -------------------- | ------ | --------------------- | ---- | ----- | --- | -------- |  | - | --- | ---- | - | - | ------ | ------ | ---- | -
|                                                                                                             |                      |                      |        | Book and              |      |       |     |         
|                                                                                                             |                      | Balance              |        | Principal             |      |       |     | Balance 
|                                                                                                             |                      | December 31,         |        | Value of              |      |       |     | June 30,
|                                                                                                             |                      | 2002                 |        | Retirements           |      | Other |     | 2003    
|                                                                                                             |                      |                      |        |                       |      |       |     |         
|                                                                                                             |                      |                      |        |                       |      |      
|                                                                                                             |                      |                      |        | (dollars in millions) |      |      
|10.65% senior redeemable discount notes due
    2007                                                         |                      | $                    | 756    |                       |      | $     | 80  |          |  | $ |    |      |   | $ | 676    |       
|9.75% senior serial redeemable discount notes
    due 2007                                                   |                      |                      | 1,086  |                       |      |       | 174 |          |  |   |    |      |   |   | 912    |       
|4.75% convertible senior notes due
    2007                                                                  |                      |                      | 284    |                       |      |       |    |          |  |   |    |      |   |   | 284    |       
|9.95% senior serial redeemable discount notes
    due 2008, net of unamortized discount
    of $16 and $0    |                      |                      | 1,364  |                       |      |       | 87  |          |  |   | 16  | (a)  |   |   | 1,293  |       
|12% senior serial redeemable notes due
    2008, net of unamortized discount of
    $3 and $3                |                      |                      | 297    |                       |      |       | 26  |          |  |   |    |      |   |   | 271    |       
|9.375% senior serial redeemable notes due
    2009                                                           |                      |                      | 1,796  |                       |      |       | 126 |          |  |   |    |      |   |   | 1,670  |       
|5.25% convertible senior notes due
    2010                                                                  |                      |                      | 622    |                       |      |       | 15  |          |  |   |    |      |   |   | 607    |       
|9.5% senior serial redeemable notes due
    2011, including a fair value hedge
    adjustment of $58 and $65 |                      |                      | 948    |                       |      |       | 26  |          |  |   | 7   | (b)  |   |   | 929    |       
|6% convertible senior notes due 2011                                                                         |                      |                      | 608    |                       |      |       |    |          |  |   |    |      |   |   | 608    |       
|Bank credit facility                                                                                         |                      |                      | 4,500  |                       |      |       |    |          |  |   | (30 | )(c) |   |   | 4,470  |       
|Other                                                                                                        |                      |                      | 17     |                       |      |       |    |          |  |   |    |      |   |   | 17     |       
|                                                                                                             |                      |                      |        |                       |      |       |     |          |  |   |     |      |   |   |        |       
|                                                                                                             | Total long-term debt |                      |        | 12,278                |      |       | $   | 534      |  |   | $   | (7   | ) |   |        | 11,737 |     
|                                                                                                             |                      |                      |        |                       |      |       |     |          |  |   |     |      |   |   |        |       
|                                                                                                             |                      | Less current portion |        |                       | (199 | )     |     |          |  |   |     |      |   |   |        |        | (242 | )
|                                                                                                             |                      |                      |        |                       |      |       |     |          |  |   |     |      |   |   |        |       
|                                                                                                             |                      | $                    | 12,079 |                       |      |       |     |          |  |   |     |      |   | $ | 11,495 |       
|                                                                                                             |                      |                      |        |                       |      |       |     |          |  |   |     |      |   |   |        |       



---



|    |                                                              
|--- | -------------------------------------------------------------
|(a) | Represents accretion of unamortized discounts.               
|   
|(b) | Represents the non-cash increase to the fair
    value hedge.
|   
|(c) | Represents net payments under the bank credit
    facility.  

2002 Debt
Retirements.During the six months
ended June 30, 2002, we purchased and retired a total of
$653 million in aggregate principal amount at maturity of
our outstanding senior notes in exchange for 47 million
shares of class A common stock and $180 million in
cash. As a result of the early retirement of these senior notes,
we recognized a gain of $186 million in other income
(expense) in the accompanying statement of operations. In
accordance with SFAS No. 84, Induced Conversions of
Convertible Debt, the shares of our class A common
stock issued in excess of the shares that the holders would have
been entitled had they converted under the original terms of the
convertible notes are multiplied by the fair value of the shares
on the transaction date and the result is recorded as debt
conversion expense of $47 million in other income (expense)
in the accompanying condensed statement of operations.

2003 Debt
Retirements.During the six months
ended June 30, 2003, we purchased and retired a total of
$534 million in aggregate principal amount at maturity of
our outstanding senior notes in exchange for about
$536 million in cash. As a result of these senior note
transactions, we recognized a $7 million loss in other
income (expense) in the accompanying condensed statements of
operations. During the three months ended June 30, 2003, we
purchased and retired a total of $43 million in aggregate
principal amount at maturity of our outstanding senior notes in
exchange for about $45 million in cash. As a result of
these senior note

13



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

transactions, we recognized a $2 million
loss in other income (expense) in the accompanying condensed
statement of operations.

Capital Lease
and Finance Obligations.

|                          |                                                 |                       |     |              |     |   |     |     |     |  
|------------------------- | ----------------------------------------------- | --------------------- | --- | ------------ | --- | - | --- | --- | --- | -
|                          |                                                 | June 30,              |     | December 31,
|                          |                                                 | 2003                  |     | 2002        
|                          |                                                 |                       |     |             
|                          |                                                 |                      
|                          |                                                 | (dollars in millions)
|Capital lease obligations |                                                 | $                     | 184 |              |     | $ | 262 |    
|Finance obligation        |                                                 |                       | 10  |              |     |   | 10  |    
|                          |                                                 |                       |     |              |     |   |     |    
|                          | Total capital lease and finance
    obligations |                       |     | 194          |     |   |     | 272 |    
|                          |                                                 |                       |     |              |     |   |     |    
|                          |                                                 | Less current portion  |     |              | (38 | ) |     |     | (52 | )
|                          |                                                 |                       |     |              |     |   |     |    
|                          |                                                 | $                     | 156 |              |     | $ | 220 |    
|                          |                                                 |                       |     |              |     |   |     |    

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

Mandatorily
Redeemable Preferred Stock.

|                                                                                                                                                                                                                                                                                      |  |              |       |                       |  |           |     |          |  |   |    |  |  |   |     | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ----- | --------------------- |  | --------- | --- | -------- |  | - | -- |  |  | - | --- | 
|                                                                                                                                                                                                                                                                                      |  |              |       | Book and              |  |           |     |         
|                                                                                                                                                                                                                                                                                      |  | Balance      |       | Principal             |  |           |     | Balance 
|                                                                                                                                                                                                                                                                                      |  | December 31, |       | Value of              |  |           |     | June 30,
|                                                                                                                                                                                                                                                                                      |  | 2002         |       | Retirements           |  | Accretion |     | 2003    
|                                                                                                                                                                                                                                                                                      |  |              |       |                       |  |           |     |         
|                                                                                                                                                                                                                                                                                      |  |              |       |                       |  |          
|                                                                                                                                                                                                                                                                                      |  |              |       | (dollars in millions) |  |          
|Series D exchangeable preferred stock
    mandatorily redeemable 2009, 13%
    cumulative annual dividend; 470,753 and 375,111 shares issued;
    470,742 and 375,100 shares outstanding; stated at liquidation
    value                                                             |  | $            | 471   |                       |  | $         | 96  |          |  | $ |   |  |  | $ | 375 | 
|Series E exchangeable preferred stock
    mandatorily redeemable 2010, 11.125%
    cumulative annual dividend; 447,796 and 391,954 shares issued;
    447,782 and 391,940 shares outstanding; stated at liquidation
    value                                                         |  |              | 454   |                       |  |           | 69  |          |  |   | 7  |  |  |   | 392 | 
|Zero coupon convertible preferred stock
    mandatorily redeemable 2013, no
    dividend; convertible into 4,779,386 shares of class A
    common stock; 245,245 shares issued and outstanding; stated at
    accreted liquidation preference value at 9.25% compounded
    quarterly |  |              | 90    |                       |  |           |    |          |  |   | 4  |  |  |   | 94  | 
|                                                                                                                                                                                                                                                                                      |  |              |       |                       |  |           |     |          |  |   |    |  |  |   |     | 
|                                                                                                                                                                                                                                                                                      |  | $            | 1,015 |                       |  | $         | 165 |          |  | $ | 11 |  |  | $ | 861 | 
|                                                                                                                                                                                                                                                                                      |  |              |       |                       |  |           |     |          |  |   |    |  |  |   |     | 

2002 Preferred Stock
Retirements.During the six months
ended June 30, 2002, we purchased and retired a total of
$440 million in aggregate face amount of our outstanding
mandatorily redeemable preferred stock in exchange for
14 million shares of class A common stock and
$115 million in cash. As a result of these preferred stock
transactions, we recognized a gain of $264 million in the
accompanying condensed statement of operations.

2003 Preferred Stock
Retirements.During the six months
ended June 30, 2003, we purchased and retired a total of
$165 million in aggregate face amount of our outstanding
mandatorily redeemable preferred stock in exchange for about
$171 million in cash. As a result of these preferred stock
transactions, we recognized a $7 million loss. During the
three months ended June 30, 2003, we purchased and retired
a total of $88 million in aggregate face amount of our
outstanding mandatorily redeemable preferred stock in

14



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

exchange for about $92 million in cash. As a
result of these preferred stock transactions, we recognized a
$5 million loss in the accompanying condensed statement of
operations.

We may, from time to time, as we deem
appropriate, enter into similar or other repurchase or
retirement transactions of senior notes and preferred stock that
in the aggregate may be material. Additional information
regarding the purchase and retirement of our senior notes and
preferred stock and the issuance of our new senior serial notes
subsequent to June 30, 2003 can be found in note 7.

Note 4.     Related
Party Transactions

We consider Motorola, Inc., NII Holdings, Inc.
and Nextel Partners, Inc. to be related parties. For the six
months ended June 30, 2003, we paid a total of about
$1.1 billion to these related parties, net of discounts and
rebates, for infrastructure, handsets and related costs, roaming
charges and other costs. For the six months ended June 30,
2003, we received a total of $41 million from these related
parties for providing telecommunication switch, engineering and
technology, marketing and administrative services, and the sale
of FCC licenses. As of June 30, 2003, we had
$12 million due from these related parties and
$283 million due to these related parties. As of
December 31, 2002, we had $33 million due from these
related parties and $241 million due to these related
parties.

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

Upon NII Holdings emergence from bankruptcy
in November 2002, we began accounting for our new ownership
interest in NII Holdings using the equity method and resumed
recording our proportionate share of NII Holdings results
of operations. As of June 30, 2003, we owned about 35% of
the outstanding stock of NII Holdings. Summarized unaudited
financial information as provided by NII Holdings as of its
July 30, 2003 earnings release date is presented below.

|                       |  |               |       |              |  |   |     | 
|---------------------- |  | ------------- | ----- | ------------ |  | - | --- | 
|                       |  | June 30,      |       | December 31,
|                       |  | 2003          |       | 2002        
|                       |  |               |       |             
|                       |  |              
|                       |  | (in millions)
|Current assets         |  | $             | 512   |              |  | $ | 396 | 
|Noncurrent assets      |  |               | 529   |              |  |   | 453 | 
|Total assets           |  |               | 1,041 |              |  |   | 849 | 
|Current liabilities    |  |               | 299   |              |  |   | 252 | 
|Noncurrent liabilities |  |               | 625   |              |  |   | 505 | 

|                                             |  |                   |     |                     |  |   |      |  
|-------------------------------------------- |  | ----------------- | --- | ------------------- |  | - | ---- | -
|                                             |  | Successor Company |     | Predecessor Company
|                                             |  | Six Months Ended  |     | Six Months Ended   
|                                             |  | June 30, 2003     |     | June 30, 2002      
|                                             |  |                   |     |                    
|                                             |  |                  
|                                             |  | (in millions)    
|Operating revenues                           |  | $                 | 429 |                     |  | $ | 385  |  
|Cost of revenues                             |  |                   | 159 |                     |  |   | 155  |  
|Net income (loss) from continuing operations |  |                   | 51  |                     |  |   | (403 | )
|Net income (loss)                            |  |                   | 51  |                     |  |   | (392 | )

Note 5.     Derivative
Instruments and Hedging Activities

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

15



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

between a variable interest rate and either a
fixed or another variable interest rate, multiplied by a
notional principal amount.

In July 2001, we entered into three interest rate
swap agreements to hedge the risk of changes in fair value of a
portion of our long-term fixed rate debt, which are attributable
to changes in the London Interbank Offered Rate, or LIBOR, as
the benchmark interest rate. These fair value hedges qualify for
hedge accounting using the short-cut method since the swap terms
match the critical terms of the hedged debt. Accordingly, there
was no net effect on our results of operations for the six
months and three months ended June 30, 2003 and 2002
relating to the ineffectiveness of these fair value hedges. As
of June 30, 2003, we have recognized all of these interest
rate swaps at their fair values of $81 million, consisting
of $16 million in interest receivable and $65 million
in other assets, with an offsetting $65 million adjustment
to the carrying value of our hedged debt.

Additionally, we use interest rate swaps to hedge
the variability of future cash flows, which are caused by
changes in LIBOR, as the benchmark interest rate, associated
with some of our long-term variable rate debt. As of
June 30, 2003, we have one cash flow hedge remaining, which
is recorded at its fair value of $108 million in other
current liabilities on our balance sheet. Since this interest
rate swap qualifies for cash flow hedge accounting, an
unrealized loss of $12 million, representing the effective
portion of the change in its fair value as of June 30,
2003, is reported in accumulated other comprehensive loss. We
expect to reclassify this entire $12 million to interest
expense by the fourth quarter 2003 since this swap will
terminate pursuant to a mandatory cash settlement provision in
October 2003. The ineffective portion of the change in fair
value of this swap qualifying for cash flow hedge accounting is
recognized in our statement of operations in the period of the
change. Interest expense includes a loss of $8 million and
$6 million for the six and three months ended June 30,
2003, respectively and there was no net effect on interest
expense for the six and three months ended June 30, 2002
relating to the ineffective portion of the change in fair value
of this swap.

In February 2003, we terminated a
variable-to-variable interest rate swap in the notional amount
of $400 million in accordance with its original terms.
There was no realized gain or loss associated with this
termination. Since this swap did not qualify for cash flow hedge
accounting, changes in its fair value up to the termination date
were recognized in our statement of operations in the period of
the change. Interest expense includes a gain of $2 million
for the six months ended June 30, 2003 and a gain of
$3 million and $1 million for the six and three months
ended June 30, 2002, representing changes in the fair value
of this swap.

Interest expense related to the periodic net cash
settlements on all swaps was $9 million and $3 million
for the six months and three months ended June 30, 2003,
respectively, and $13 million and $6 million for the
six and three months ended June 30, 2002, respectively.

Note 6.     Commitments
and Contingencies

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

Beginning primarily in the spring of 2003, a
number of lawsuits have been filed against us in several state
and federal courts around the United States, challenging the
manner by which we recover the costs to us of federally mandated
universal service, Telecommunications Relay Service payment
requirements imposed by the FCC, and the costs (including costs
to implement changes to our network) to comply with federal
regulatory requirements to provide E911, telephone number
pooling and telephone number portability. In general, these
plaintiffs claim that our rate structure that breaks out and
assesses federal program cost

16



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

recovery fees on monthly customer bills is
misleading and unlawful. The plaintiffs generally seek
injunctive relief and damages on behalf of a class of customers,
including a refund of amounts collected under these regulatory
line item assessments. We have filed a petition with the Federal
Judicial Panel on Multi-District Litigation Panel seeking
consolidation of most of these purported class action suits, and
that request is pending.

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

Note 7.     Subsequent
Events

Shelf Registration
Statement.In July 2003, the
Securities and Exchange Commission declared effective our shelf
registration statement, under which we may offer from time to
time up to $5 billion of a variety of securities, including
debt securities, preferred stock and our class A common
stock. Of the $5 billion, we have designated
$500 million for issuance of shares of class A common
stock under our Direct Stock Purchase Plan. Details of the plan
are described in the related prospectus, included as part of the
shelf registration statement, that was distributed to our
existing stockholders in July 2003.

In addition, in July 2003, we completed the sale
of $1,000 million in principal amount of our 7.375% senior
serial redeemable notes due 2015, which generated about
$983 million in net cash proceeds to us. Cash interest on
these notes is payable semiannually in arrears on
February 1 and August 1 commencing February 1,
2004, at an annual rate of 7.375%. We may choose to redeem some
or all of these notes commencing on August 1, 2008 at an
initial redemption price of 103.688% of the aggregate principal
amount of these notes, plus accrued and unpaid interest. On or
before August 1, 2006, we may choose to redeem a portion of
the principal amount of the outstanding notes using the proceeds
of one or more sales of qualified equity securities at a
redemption price of 107.375% of the notes principal
amount, plus accrued and unpaid interest to the date of
redemption, so long as specified amounts of the principal amount
of notes remain outstanding immediately following the
redemption. These notes are senior unsecured indebtedness of
ours and rank equal in right of payment with all our other
unsubordinated, unsecured indebtedness.

Series D and Series E Preferred
Stock Retirements.In July 2003,
we redeemed $375 million in aggregate face amount of our
13% series D exchangeable preferred stock, representing all
of the shares outstanding, for $387 million in cash. In
July 2003, we also announced that in August 2003 we will redeem
for cash all of our outstanding 11.125% series E
exchangeable preferred stock. Based on the $392 million in
aggregate face amount of such stock outstanding as of
June 30, 2003, the redemption price will be
$414 million.

10.65% Senior Discount Notes
Retirement.In July 2003, we
commenced an offer to purchase any and all of our outstanding
10.65% senior redeemable discount notes due 2007, about
$676 million in aggregate principal amount of which was
outstanding at the time of such offer. The consideration payable
to the holders for accepting the offer is $1,036.25 per $1,000
principal amount of the notes, which includes a payment of
$20.00 per $1,000 of principal amount of the notes payable only
to holders who tendered their notes and consented to the
proposed amendments to the indenture on or prior to
July 30, 2003. As of July 30, 2003, holders of about
$414 million of the aggregate principal amount of notes had
tendered their notes, for which we paid such holders a total of
$429 million under the terms of the tender offer.

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

17



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##### 



Independent Accountants Review
Report

To the Board of Directors and Stockholders of

Nextel Communications, Inc.


Reston, Virginia


We have reviewed the accompanying condensed
consolidated balance sheet of Nextel Communications, Inc. and
subsidiaries (the Company) as of June 30, 2003,
and the related condensed consolidated statements of operations
and comprehensive income (loss) for the three-month and
six-month periods ended June 30, 2003 and 2002, and cash
flows for the six-month periods ended June 30, 2003 and
2002 and of the condensed consolidated statement of changes in
stockholders equity for the six-month period ended
June 30, 2003. These financial statements are the
responsibility of the Companys management.

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

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

We have previously audited, in accordance with
auditing standards generally accepted in the United States of
America, the consolidated balance sheet of Nextel
Communications, Inc. and subsidiaries as of December 31,
2002, and the related consolidated statements of operations,
stockholders equity, and cash flows for the year then
ended (not presented herein); and in our report dated
February 20, 2003; March 5, 2003 as to notes 11,
13 and 15, we expressed an unqualified opinion on those
consolidated financial statements (such report includes an
explanatory paragraph relating to the adoption of Statement of
Financial Accounting Standards (SFAS) No. 142
Goodwill and Other Intangible Assets, SFAS
No. 133 Accounting for Derivative Instruments and
Hedging Activities, as amended by SFAS No. 138
Accounting for Certain Derivative Instruments and Certain
Hedging Activities, and Staff Accounting Bulletin
No. 101 Revenue Recognition in Financial
Statements). In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of
December 31, 2002 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from
which it has been derived.

DELOITTE & TOUCHE LLP

McLean, Virginia

August 8, 2003


18



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##### 





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

Overview

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

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

As of June 30, 2003,



| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | we had about 11.7 million handsets in
    service; and                                                                    
|
| |  | our network or the compatible network of Nextel
    Partners, Inc. was operational in 198 of the top 200
    U.S. markets.

We owned about 31% of the common stock of Nextel
Partners as of June 30, 2003. Nextel Partners provides
digital wireless telecommunications services under the Nextel
brand name in mid-sized and tertiary U.S. markets. Nextel
Partners has the right to operate in 58 of the top 200
metropolitan statistical areas in the United States ranked by
population. In addition, as of June 30, 2003, we owned
about 35% of the outstanding common stock of NII Holdings, Inc.
NII Holdings provides wireless communications services primarily
in selected Latin American markets.

From 1987, when we began operations, through
2001, we were unable to generate sufficient cash flow from
operations to fund our business and its expansion. Due to our
history of losses and negative cash flow through 2001, we have
incurred substantial indebtedness to finance our operations.
While we had income available to common stockholders of
$489 million for the six months ended June 30, 2003,
there can be no assurance that we will continue to operate
profitably, and if we cannot operate profitably, we may not be
able to meet our debt service, working capital, capital
expenditure or other cash needs. Our accumulated deficit was
$7,244 million at June 30, 2003.

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

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

Debt and Preferred Stock Retirements.During the six months ended
June 30, 2003, we purchased and retired a total of
$534 million in aggregate principal amount at maturity of
our outstanding senior notes and $165 million in aggregate
face amount of our outstanding mandatorily redeemable preferred
stock in exchange for about $707 million in cash.
Subsequently, in July 2003, we redeemed $375 million in
aggregate face amount of our 13% series D exchangeable
preferred stock, representing all the shares outstanding, for
$387 million in cash. In July 2003, we also announced that
in August 2003 we will redeem for cash all of our outstanding
11.125% series E exchangeable preferred stock. Based on the
$392 million in aggregate face

19



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##### 



amount of such stock outstanding as of
June 30, 2003, the redemption price will be
$414 million. Additionally, in July 2003, we commenced an
offer to purchase any and all of our outstanding 10.65% senior
redeemable discount notes due 2007, about $676 million in
aggregate principal amount of which was outstanding at the time
of such offer.


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

7.375% Senior Notes Offering.In July 2003, we completed the
sale of $1,000 million in principal amount of our 7.375%
senior serial redeemable notes due 2015, which generated about
$983 million in net cash proceeds to us.

Critical Accounting Policies and
Estimates

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

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

We recognize revenue from handset sales on a
straight-line basis over the expected customer relationship
period of 3.5 years starting when title to the handset
passes to the customer. Our wireless service is essential to the
functionality of our handsets due to the fact that the handsets
can, with very limited exceptions, only be used on our network.
Therefore, in accordance with Staff Accounting Bulletin, or SAB,
No. 101, Revenue Recognition in Financial
Statements, we do not account for our multiple element
arrangement separately. This estimate results in our amortizing
an equal amount of revenue and expense over the expected
customer relationship period and accordingly does not impact
operating income or net income. See
 Significant New Accounting
Pronouncements for discussion of Emerging Issues Task
Force, or EITF, Issue No. 00-21 Accounting for
Revenue Arrangements with Multiple Deliverables.

Allowance for Doubtful Accounts.We establish an allowance for
doubtful accounts receivable sufficient to cover probable and
reasonably estimated losses. Since we have well over one million
accounts, it is impracticable to review the collectibility of
all individual accounts when we determine the amount of our
allowance for doubtful accounts receivable each period.
Therefore, we consider a number of factors in establishing the
allowance for our portfolio of customers, including historical
collection experience, current economic trends, estimates of
forecasted write-offs, agings of the accounts receivable
portfolio and other factors. When collection efforts on
individual accounts have been exhausted, the account is written
off by reducing the allowance for doubtful accounts. Our
allowance for doubtful accounts was $104 million as of
June 30, 2003.

Valuation and Recoverability of Long-Lived
Assets.Long-lived assets such as
property, plant and equipment represented about
$8,829 million of our $21,537 million in total assets
as of June 30, 2003. Our nationwide network is highly
complex and, due to constant innovation and enhancements, some
network assets may lose their utility faster than anticipated.
We periodically reassess the economic lives of these components
and make adjustments to their expected lives after considering
historical experience and capacity

20



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##### 



requirements, consulting with the vendor and
assessing new product and market demands and other factors. When
these factors indicate network assets may not be useful for as
long as anticipated, we depreciate the remaining book values
over the remaining estimated useful lives. We currently
calculate depreciation using the straight-line method based on
estimated useful lives of up to 31 years for buildings, 3
to 20 years for network equipment and network software and
3 to 12 years for non-network internal use software, office
equipment and other assets. In the first quarter 2003, we
reassessed the estimated useful lives of some of our network
assets and have recorded about $41 million in additional
depreciation expense in the six months ended June 30, 2003
as a result of these changes in estimates.


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

Valuation and Recoverability of Intangible
Assets.Intangible assets with
indefinite useful lives represented about $6,822 million of
our $21,537 million in total assets as of June 30,
2003. Intangible assets with indefinite useful lives consist of
our FCC licenses and goodwill. In 2002, we ceased amortizing our
FCC licenses and goodwill in accordance with Statement of
Financial Accounting Standards, or SFAS, No.142 Goodwill
and Other Intangible Assets, and we performed initial and
annual impairment tests of these assets as of January 1,
2002 and October 1, 2002, respectively. We concluded that
there was no impairment as the fair values of these intangible
assets were greater than their carrying values. Using a residual
value approach, we measured the fair value of our 800 MHz and
900 MHz licenses by deducting the fair values of our net assets
as well as the fair values of certain unrecorded identified
intangible assets, other than these FCC licenses, from our
reporting units fair value, which was determined using a
discounted cash flow analysis. The analysis was based on our
long-term cash flow projections, discounted at our corporate
weighted average cost of capital.

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

Recoverability of Capitalized Software to
be Sold, Leased, or Otherwise Marketed.As of June 30, 2003, we have
about $52 million in unamortized costs for software that
will be sold, leased, or otherwise marketed. We begin amortizing
costs when the software is ready for its intended use. Our
current plans indicate that we will recover the value of the
assets; however, to the extent there are changes in economic
conditions, technology or the regulatory environment, or our
strategic partners associated with the development and marketing
of the software elect not to participate to the extent we
expect, our plans could change and some or all of these assets
could become impaired.

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

Significant New Accounting
Pronouncements

In November 2002, the EITF issued a final
consensus on EITF Issue No. 00-21, Accounting for
Revenue Arrangements with Multiple Deliverables. EITF
Issue No. 00-21 provides guidance on when and how an
arrangement involving multiple deliverables should be divided
into separate units of accounting. EITF Issue No. 00-21 is
effective prospectively for arrangements entered into in fiscal
periods beginning after

21



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##### 



June 15, 2003, and may be applied to
existing arrangements, with any impact recorded as a cumulative
effect of a change in accounting principle in the statement of
operations.


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

We adopted EITF Issue 00-21 on July 1, 2003
and elected to apply the provisions to our existing customer
arrangements. Accordingly, we reduced our total assets and total
liabilities by about $1.3 billion, representing
substantially all of the revenues and costs associated with the
original sale of handsets that were deferred under SAB 101.
The cumulative effect of adopting EITF 00-21 did not
materially impact the statement of operations. The remaining
deferred revenues and costs on the balance sheet represent the
unamortized portion of our one-time activation fees and an equal
amount of costs allocated to the service unit of accounting,
which we will recognize over the contract life in the statement
of operations.

Results of Operations

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

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

Cost of providing wireless service consists
primarily of:



| |   |                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | costs to operate and maintain our network,
    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 and fluctuates in
    relation to the number of                                                                                                                                                                      

22



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| |   |                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | transmitter and receiver sites and switches in
    service and the related equipment installed at each site, and
    the variable component of which generally consists of per-minute
    use fees charged by wireline and wireless providers for wireless
    calls terminating on their networks and fluctuates in relation
    to the level and duration of wireless calls;
|
| |  | costs to operate our handset service and repair
    program; and                                                                                                                                                                                                                                                                                                              
|
| |  | the cost of activation which we recognize over
    the expected customer relationship period of 3.5 years in
    amounts equivalent to revenues recognized from activation fees.                                                                                                                                                                                              

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

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

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

Selected Operating Data.

|                                                             |  |                  |        |                    |  |      |        |      |  |  |        |  |  |  |        | 
|------------------------------------------------------------ |  | ---------------- | ------ | ------------------ |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|                                                             |  |                  |        |                   
|                                                             |  | Six Months Ended |        | Three Months Ended
|                                                             |  | June 30,         |        | June 30,          
|                                                             |  |                  |        |                   
|                                                             |  | 2003             |        | 2002               |  | 2003 |        | 2002
|                                                             |  |                  |        |                    |  |      |        |     
|Handsets in service, end of period (in
    thousands)(1)     |  |                  | 11,683 |                    |  |      | 9,636  |      |  |  | 11,683 |  |  |  | 9,636  | 
|Net handset additions (in thousands)(1)                      |  |                  | 1,071  |                    |  |      | 973    |      |  |  | 591    |  |  |  | 471    | 
|Average monthly minutes of use per handset (1)               |  |                  | 680    |                    |  |      | 620    |      |  |  | 720    |  |  |  | 650    | 
|System minutes of use (in billions)(1)                       |  |                  | 45.7   |                    |  |      | 34.2   |      |  |  | 24.5   |  |  |  | 18.3   | 
|Net transmitter and receiver sites placed in
    service     |  |                  | 270    |                    |  |      | 450    |      |  |  | 170    |  |  |  | 50     | 
|Transmitter and receiver sites in service, end of
    period |  |                  | 16,570 |                    |  |      | 15,950 |      |  |  | 16,570 |  |  |  | 15,950 | 
|Switches in service, end of period                           |  |                  | 82     |                    |  |      | 84     |      |  |  | 82     |  |  |  | 84     | 
|Nextel stores in service, end of period                      |  |                  | 501    |                    |  |      | 267    |      |  |  | 501    |  |  |  | 267    | 



---



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

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

Our average monthly customer churn rate during
the quarter ended June 30, 2003 was about 1.6% as compared
to about 1.9% during the quarter ended March 31, 2003,
which we attribute to our ongoing focus on customer retention.
We have implemented a customer touch-point strategy to
proactively identify and address major points of potential
customer dissatisfaction over the customer life cycle. These
initiatives include such programs as strategic care provided to
customers with certain attributes and efforts to migrate
customers to more optimal service pricing plans. The improvement
also reflects the strengthening of our

23



---



##### 



credit policies and procedures and the completion
of our integrated billing, customer care and collections system
in 2002, which allow us to better manage our customer
relationships. Finally, we believe that our rate of customer
churn reflects our focus on acquiring high quality subscribers,
including add-on subscribers from existing customer accounts,
and the attractiveness of our differentiated products and
services.


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

Service Revenues and Cost of
Service.

|                                            |                                 |          |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |    |    |  
|------------------------------------------- | ------------------------------- | -------- | ----- | --------- | - | --------------------- | -- | --------- |  | ------------- | ----- | ------- | - |  | -- | - |  | - | --- | --- |  |  | -- | -- | -
|                                            |                                 |          |       |           |   |                       |    |           |  |              
|                                            |                                 |          |       |           |   |                       |    |           |  | Change from  
|                                            |                                 |          |       | % of      |   |                       |    | % of      |  | Previous Year
|                                            |                                 | June 30, |       | Operating |   | June 30,              |    | Operating |  |              
|                                            |                                 | 2003     |       | Revenues  |   | 2002                  |    | Revenues  |  | Dollars       |       | Percent
|                                            |                                 |          |       |           |   |                       |    |           |  |               |       |        
|                                            |                                 |          |       |           |   |                       |    |           |  |              
|                                            |                                 |          |       |           |   | (dollars in millions) |    |           |  |              
|Six Months Ended                            |                                 |          |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |    |   
|Service revenues                            |                                 | $        | 4,595 |           |   |                       | 93 | %         |  | $             | 3,863 |         |   |  | 94 | % |  | $ | 732 |     |  |  | 19 | % 
|Cost of service (exclusive of depreciation) |                                 |          | 777   |           |   |                       | 16 | %         |  |               | 717   |         |   |  | 17 | % |  |   | 60  |     |  |  | 8  | % 
|                                            |                                 |          |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |    |   
|                                            | Service gross margin            |          | $     | 3,818     |   |                       |    |           |  |               | $     | 3,146   |   |  |    |   |  |   | $   | 672 |  |  |    | 21 | %
|                                            |                                 |          |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |    |   
|                                            | Service gross margin percentage |          |       | 83        | % |                       |    |           |  |               |       | 81      | % |  |    |   |  |   |     |     |  |  |    |    |  
|                                            |                                 |          |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |    |   
|Three Months Ended                          |                                 |          |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |    |   
|Service revenues                            |                                 | $        | 2,385 |           |   |                       | 93 | %         |  | $             | 2,032 |         |   |  | 94 | % |  | $ | 353 |     |  |  | 17 | % 
|Cost of service (exclusive of depreciation) |                                 |          | 408   |           |   |                       | 16 | %         |  |               | 366   |         |   |  | 17 | % |  |   | 42  |     |  |  | 11 | % 
|                                            |                                 |          |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |    |   
|                                            | Service gross margin            |          | $     | 1,977     |   |                       |    |           |  |               | $     | 1,666   |   |  |    |   |  |   | $   | 311 |  |  |    | 19 | %
|                                            |                                 |          |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |    |   
|                                            | Service gross margin percentage |          |       | 83        | % |                       |    |           |  |               |       | 82      | % |  |    |   |  |   |     |     |  |  |    |    |  
|                                            |                                 |          |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |     |     |  |  |    |   

Service revenues.Service revenues increased 19%
from the six months ended June 30, 2002 to the six months
ended June 30, 2003 and 17% from the three months ended
June 30, 2002 to the three months ended June 30, 2003.
This increase was attributable to the increase in the number of
handsets in service (volume), partially offset by the decline in
the average monthly service revenue per handset in service
(rate) in 2003.

From a volume perspective, our service revenues
increased in 2003 principally as a result of a 21% increase in
handsets in service from June 30, 2002 to June 30,
2003. We believe that the growth in the number of handsets in
service is the result of a number of factors, including
principally:



| |   |                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our differentiated products and services,
    including Nextel Direct Connect and Nextel Online;                                                                                                                                             
|
| |  | increased brand name recognition through
    increased advertising and marketing campaigns;                                                                                                                                                  
|
| |  | the 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;
|
| |  | the increase in subscriber retention that we
    attribute to our ongoing focus on customer retention and
    attracting high quality subscribers;                                                                                           
|
| |  | selected handset pricing promotions and improved
    handset choices; and                                                                                                                                                                    
|
| |  | increased sales force and marketing staff,
    including staff associated with our Nextel stores, and selling
    efforts targeted at specific vertical markets.                                                                             

From a rate perspective, our average monthly
service revenue per handset decreased 2% from the six months
ended June 30, 2002 to the six months ended June 30,
2003 and decreased 3% from the three months

24



---



##### 



ended June 30, 2002 to the three months
ended June 30, 2003. We attribute the slight decrease in
average monthly service revenue per handset to:




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

Cost of service.Cost of service increased 8% from
the six months ended June 30, 2002 to the six months ended
June 30, 2003 and 11% from the three months ended
June 30, 2002 to the three months ended June 30, 2003,
primarily due to increased minutes of use resulting from the
combined effect of the increase in handsets in service and an
increase in the average monthly minutes of use per handset.
Specifically, from the six and three months ended June 30,
2002 to the six and three months ended June 30, 2003, we
experienced:



| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | a 9% and 13% net increase in costs incurred for
    the operation and maintenance of our network and fixed
    interconnection fees; and
|
| |  | a 6% and 5% increase in variable interconnection
    fees.                                                                              

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase in costs to operate our handset
    service and repair program;                                                                                                                                                                                                                                                                                                                                            
|
| |  | an increase in frequency leasing costs and
    roaming fees paid to Nextel Partners;                                                                                                                                                                                                                                                                                                                                   
|
| |  | an increase in transmitter and receiver and
    switch related operational costs due to an increase in
    transmitter and receiver sites placed into service from
    June 30, 2002 to June 30, 2003; and                                                                                                                                                                                                             
|
| |  | charges recorded in the second quarter 2003 for
    obsolete network equipment and accretion expense related to
    certain asset retirement obligations; partially offset by                                                                                                                                                                                                                                          
|
| |  | a decrease in fixed interconnection costs as a
    result of initiatives implemented over the past year to gain
    efficiencies in our network by taking advantage of lower
    facility fees and more technologically advanced network
    equipment that provides for additional capacity but requires
    less leased facilities; and                                                                              
|
| |  | a net benefit recorded in 2003 in connection with
    the towers leased from SpectraSite Holdings, Inc. In 2003, tower
    lease payments, previously recorded as a reduction of financing
    obligation, are now classified as tower rent expense. This tower
    rent expense is more than offset by the deferred gain
    amortization recorded in connection with the tower sale
    transaction with SpectraSite.

The increase in variable interconnection fees was
due to an increase in total system minutes of use, partially
offset by a lower cost per minute of use. Total system minutes
of use increased 34% from the six months ended June 30,
2002 to the six months ended June 30, 2003 due to a 21%
increase in the number of handsets in service as well as a 10%
increase in the average monthly minutes of use per handset over
the same period. Total system minutes of use also increased 34%
from the three months ended June 30, 2002 to the three
months ended June 30, 2003 due to a 21% increase in the
number of handsets in service as well as an 11% increase in the
average monthly minutes of use per handset over the same period.
Our lower variable

25



---



##### 



interconnection cost per minute of use was
primarily the result of rate savings achieved through efforts
implemented beginning in the second quarter 2002 to move long
distance traffic to lower cost carriers.


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

Service gross margin.Service gross margin, exclusive of
depreciation expense, as a percentage of service revenues
increased from 81% for the six months ended June 30, 2002
to 83% for the six months ended June 30, 2003 and from 82%
for the three months ended June 30, 2002 to 83% for the
three months ended June 30, 2003. Our service gross margin
percentage improved primarily due to the combination of
increased service revenues due to subscriber growth and
achievement of economies of scale, such as our interconnection
fee rate savings, and network operating efficiencies.

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

During the six and three months ended
June 30, 2003, we recorded $332 million and
$171 million of handset and accessory revenues, an increase
of $84 million and $49 million over the comparable
periods in 2002. During the six and three months ended
June 30, 2003, we recorded $625 million and
$315 million of cost of handset and accessory revenues, an
increase of $101 million and $96 million over the
comparable periods in 2002. These results are summarized in the
table below.

|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    |  
|-------------------------------------------------- | ------------------------------------------ | --------------------- | ---- | --------- |  | -------- | -- | --------- | - | ------------- | ---- | ------- |  |  | -- | -- | - | - | --- | --- |  |  | --- | -- | -
|                                                   |                                            |                       |      |           |  |          |    |           |   |              
|                                                   |                                            |                       |      |           |  |          |    |           |   | Change from  
|                                                   |                                            |                       |      | % of      |  |          |    | % of      |   | Previous Year
|                                                   |                                            | June 30,              |      | Operating |  | June 30, |    | Operating |   |              
|                                                   |                                            | 2003                  |      | Revenues  |  | 2002     |    | Revenues  |   | Dollars       |      | Percent
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |        
|                                                   |                                            |                      
|                                                   |                                            | (dollars in millions)
|Six Months Ended                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |   
|Current period handset and accessory sales         |                                            | $                     | 502  |           |  |          | 10 | %         |   | $             | 413  |         |  |  | 10 | %  |   | $ | 89  |     |  |  | 22  | % 
|Net effect of SAB No. 101 handset deferrals        |                                            |                       | (170 | )         |  |          | (3 | )%        |   |               | (165 | )       |  |  | (4 | )% |   |   | (5  | )   |  |  | (3  | )%
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |   
|                                                   | Handset and accessory revenues             |                       |      | 332       |  |          |    | 7         | % |               |      | 248     |  |  |    | 6  | % |   |     | 84  |  |  |     | 34 | %
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |   
|Current period cost of handset and accessory sales |                                            |                       | 795  |           |  |          | 16 | %         |   |               | 689  |         |  |  | 17 | %  |   |   | 106 |     |  |  | 15  | % 
|Net effect of SAB No. 101 handset deferrals        |                                            |                       | (170 | )         |  |          | (3 | )%        |   |               | (165 | )       |  |  | (4 | )% |   |   | (5  | )   |  |  | (3  | )%
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |   
|                                                   | Cost of handset and accessory
    revenues |                       |      | 625       |  |          |    | 13        | % |               |      | 524     |  |  |    | 13 | % |   |     | 101 |  |  |     | 19 | %
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |   
|Handset and accessory net subsidy                  |                                            | $                     | (293 | )         |  |          |    |           |   | $             | (276 | )       |  |  |    |    |   | $ | (17 | )   |  |  | (6  | )%
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |   
|Three Months Ended                                 |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |   
|Current period handset and accessory sales         |                                            | $                     | 252  |           |  |          | 10 | %         |   | $             | 230  |         |  |  | 11 | %  |   | $ | 22  |     |  |  | 10  | % 
|Net effect of SAB No. 101 handset deferrals        |                                            |                       | (81  | )         |  |          | (3 | )%        |   |               | (108 | )       |  |  | (5 | )% |   |   | 27  |     |  |  | 25  | % 
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |   
|                                                   | Handset and accessory revenues             |                       |      | 171       |  |          |    | 7         | % |               |      | 122     |  |  |    | 6  | % |   |     | 49  |  |  |     | 40 | %
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |   
|Current period cost of handset and accessory sales |                                            |                       | 396  |           |  |          | 15 | %         |   |               | 327  |         |  |  | 15 | %  |   |   | 69  |     |  |  | 21  | % 
|Net effect of SAB No. 101 handset deferrals        |                                            |                       | (81  | )         |  |          | (3 | )%        |   |               | (108 | )       |  |  | (5 | )% |   |   | 27  |     |  |  | 25  | % 
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |   
|                                                   | Cost of handset and accessory
    revenues |                       |      | 315       |  |          |    | 12        | % |               |      | 219     |  |  |    | 10 | % |   |     | 96  |  |  |     | 44 | %
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |   
|Handset and accessory net subsidy                  |                                            | $                     | (144 | )         |  |          |    |           |   | $             | (97  | )       |  |  |    |    |   | $ | (47 | )   |  |  | (48 | )%
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |   

26



---



##### 



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

|                                             |                                                 |               |      |             |   |               |      |      |   |   |     |    |  
|-------------------------------------------- | ----------------------------------------------- | ------------- | ---- | ----------- | - | ------------- | ---- | ---- | - | - | --- | -- | -
|                                             |                                                 |               |      |            
|                                             |                                                 | June 30,      |      |            
|                                             |                                                 |               |      | Change from
|SAB No. 101 Effect                           |                                                 | 2003          |      | 2002        |   | Previous Year
|                                             |                                                 |               |      |             |   |              
|                                             |                                                 |              
|                                             |                                                 | (in millions)
|Six Months Ended                             |                                                 |               |      |             |   |               |      |      |   |   |     |   
|Handset sales deferred                       |                                                 | $             | (420 | )           |   | $             | (361 | )    |   | $ | (59 | ) 
|Previously deferred handset sales recognized |                                                 |               | 250  |             |   |               | 196  |      |   |   | 54  |   
|                                             |                                                 |               |      |             |   |               |      |      |   |   |     |   
|                                             | Net effect of SAB No. 101 handset
    deferrals |               | $    | (170        | ) |               | $    | (165 | ) |   | $   | (5 | )
|                                             |                                                 |               |      |             |   |               |      |      |   |   |     |   
|Three Months Ended                           |                                                 |               |      |             |   |               |      |      |   |   |     |   
|Handset sales deferred                       |                                                 | $             | (219 | )           |   | $             | (208 | )    |   | $ | (11 | ) 
|Previously deferred handset sales recognized |                                                 |               | 138  |             |   |               | 100  |      |   |   | 38  |   
|                                             |                                                 |               |      |             |   |               |      |      |   |   |     |   
|                                             | Net effect of SAB No. 101 handset
    deferrals |               | $    | (81         | ) |               | $    | (108 | ) |   | $   | 27 |  
|                                             |                                                 |               |      |             |   |               |      |      |   |   |     |   

Current period handset and accessory sales
increased $89 million, or 22%, for the six months ended
June 30, 2003 compared to the same period in 2002. This
increase reflects an increase in the number of handsets sold of
about 18% and to a lesser extent, an increase in revenues from
accessory sales due to the accessory needs of a larger
subscriber base and average handset sales prices that remained
relatively flat. This increase in handset and accessory sales
was partially offset by the increase in the SAB No. 101 net
deferrals of $5 million. The slight increase in the SAB
No. 101 net deferrals reflects increasing deferred revenues
from 2003 handset sales, mostly offset by increased handset
sales deferred in previous periods that are now being recognized
as revenue.

Current period handset and accessory sales
increased $22 million, or 10%, for the three months ended
June 30, 2003 compared to the same period in 2002. This
increase reflects an increase of about 22% in the number of
handsets sold and, to a lesser extent, an increase in revenues
from accessory sales due to the accessory needs of a larger
subscriber base, offset by about a 15% decrease in the average
sales price of the handsets. The SAB No. 101 net deferrals
decrease of $27 million reflects the increased handset
sales deferred in previous periods that are now being recognized
as revenue.

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

|                                                         |                                                 |               |      |             |   |               |      |      |   |   |     |    |  
|-------------------------------------------------------- | ----------------------------------------------- | ------------- | ---- | ----------- | - | ------------- | ---- | ---- | - | - | --- | -- | -
|                                                         |                                                 |               |      |            
|                                                         |                                                 | June 30,      |      |            
|                                                         |                                                 |               |      | Change from
|SAB No. 101 Effect                                       |                                                 | 2003          |      | 2002        |   | Previous Year
|                                                         |                                                 |               |      |             |   |              
|                                                         |                                                 |              
|                                                         |                                                 | (in millions)
|Six Months Ended                                         |                                                 |               |      |             |   |               |      |      |   |   |     |   
|Cost of handset sales deferred                           |                                                 | $             | (420 | )           |   | $             | (361 | )    |   | $ | (59 | ) 
|Previously deferred cost of handset sales
    recognized |                                                 |               | 250  |             |   |               | 196  |      |   |   | 54  |   
|                                                         |                                                 |               |      |             |   |               |      |      |   |   |     |   
|                                                         | Net effect of SAB No. 101 handset
    deferrals |               | $    | (170        | ) |               | $    | (165 | ) |   | $   | (5 | )
|                                                         |                                                 |               |      |             |   |               |      |      |   |   |     |   
|Three Months Ended                                       |                                                 |               |      |             |   |               |      |      |   |   |     |   
|Cost of handset sales deferred                           |                                                 | $             | (219 | )           |   | $             | (208 | )    |   | $ | (11 | ) 
|Previously deferred cost of handset sales
    recognized |                                                 |               | 138  |             |   |               | 100  |      |   |   | 38  |   
|                                                         |                                                 |               |      |             |   |               |      |      |   |   |     |   
|                                                         | Net effect of SAB No. 101 handset
    deferrals |               | $    | (81         | ) |               | $    | (108 | ) |   | $   | 27 |  
|                                                         |                                                 |               |      |             |   |               |      |      |   |   |     |   

27



---



##### 



Current period cost of handset and accessory
sales increased $106 million, or 15%, for the six months
ended June 30, 2003 compared to the same period in 2002.
This increase primarily reflects an increase in the number of
handsets sold of about 18%, partially offset by a slight
reduction in the average cost we paid for handsets. This
increase in the cost of handset and accessory sales was
partially offset by the increase in the SAB No. 101 net
deferrals of $5 million.

Current period cost of handset and accessory
sales increased $69 million, or 21%, for the three months
ended June 30, 2003 compared to the same period in 2002.
This increase primarily reflects an increase in the number of
handsets sold of about 22%, partially offset by a slight
reduction in the average cost we paid for handsets. The
additional increase in the cost of handset and accessory sales
was also due to the decrease in the SAB No. 101 net
deferrals of $27 million as we recognize the costs
associated with handset sales deferred in previous periods that
are now being recognized as revenue.

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

Handset and accessory net subsidy increased 6%
from the six months ended June 30, 2002 to the six months
ended June 30, 2003. We attribute the increase in handset
and accessory net subsidy to:



| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | an increase in the number of handsets sold of
    about 18%; partially offset by
|
| |  | a decrease in the average subsidy per handset of
    about 6%; and              
|
| |  | an increase in the gross margin from accessory
    sales.                       

Handset and accessory net subsidy increased 48%
from the three months ended June 30, 2002 to the three
months ended June 30, 2003. We attribute the increase in
handset and accessory net subsidy to:



| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | an increase in the number of handsets sold of
    about 22%; and                    
|
| |  | an increase in the average subsidy per handset of
    about 24%; partially offset by
|
| |  | an increase in the gross margin from accessory
    sales.                           

We expect handset revenues and cost of handset
revenues to increase beginning in the third quarter 2003 upon
our adoption of EITF Issue No. 00-21. See
 Significant New Accounting
Pronouncements for a discussion of the impact of our
adoption of EITF Issue No. 00-21.

Selling, General and
Administrative.

|                           |                                     |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |    |  
|-------------------------- | ----------------------------------- | --------------------- | --- | --------- |  | -------- | -- | --------- | - | ------------- | --- | ------- |  |  | -- | -- | - | - | --- | --- |  |  | -- | -- | -
|                           |                                     |                       |     |           |  |          |    |           |   |              
|                           |                                     |                       |     |           |  |          |    |           |   | Change from  
|                           |                                     |                       |     | % of      |  |          |    | % of      |   | Previous Year
|                           |                                     | June 30,              |     | Operating |  | June 30, |    | Operating |   |              
|                           |                                     | 2003                  |     | Revenues  |  | 2002     |    | Revenues  |   | Dollars       |     | Percent
|                           |                                     |                       |     |           |  |          |    |           |   |               |     |        
|                           |                                     |                      
|                           |                                     | (dollars in millions)
|Six Months Ended           |                                     |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   
|Selling and marketing      |                                     | $                     | 855 |           |  |          | 17 | %         |   | $             | 726 |         |  |  | 18 | %  |   | $ | 129 |     |  |  | 18 | % 
|General and administrative |                                     |                       | 760 |           |  |          | 15 | %         |   |               | 742 |         |  |  | 18 | %  |   |   | 18  |     |  |  | 2  | % 
|                           |                                     |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   
|                           | Selling, general and administrative |                       | $   | 1,615     |  |          |    | 32        | % |               | $   | 1,468   |  |  |    | 36 | % |   | $   | 147 |  |  |    | 10 | %
|                           |                                     |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   
|Three Months Ended         |                                     |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   
|Selling and marketing      |                                     | $                     | 444 |           |  |          | 17 | %         |   | $             | 380 |         |  |  | 18 | %  |   | $ | 64  |     |  |  | 17 | % 
|General and administrative |                                     |                       | 385 |           |  |          | 15 | %         |   |               | 373 |         |  |  | 17 | %  |   |   | 12  |     |  |  | 3  | % 
|                           |                                     |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   
|                           | Selling, general and administrative |                       | $   | 829       |  |          |    | 32        | % |               | $   | 753     |  |  |    | 35 | % |   | $   | 76  |  |  |    | 10 | %
|                           |                                     |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   

28



---



##### 



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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $77 million and $52 million increase
    in marketing payroll and related expenses primarily associated
    with our opening an additional 234 Nextel stores between
    June 30, 2002 and June 30, 2003, and increased
    employee commissions and other marketing activities, especially
    during the second quarter 2003;                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | a $27 million and $13 million increase
    in advertising expenses as a result of our marketing campaigns
    directed at increasing brand awareness and promoting our
    differentiated services, including Nationwide Direct Connect, as
    well as advertising costs related to the Boost Mobile test
    program, which launched in the quarter ended September 30,
    2002; and                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | a $25 million increase and $1 million
    decrease in dealer compensation. The $25 million increase
    for the six months ended June 30, 2003 as compared to the
    same period in 2002 is due to increased dealer residuals, higher
    levels of commissions paid to dealers for new subscriber
    activations and the impact of the change in dealer compensation
    plans implemented in the second quarter 2002. Under the dealer
    compensation plan, dealers were charged higher handset prices
    for higher commissions to be paid upon activation of handsets
    for new subscribers. Because this program was in effect the
    entire second quarter 2002 and 2003, there was no material
    impact to the second quarter 2003 as compared to the second
    quarter 2002.

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $47 million and $26 million increase
    in expenses related to billing, collection, customer retention
    and customer care activities primarily due to the costs to
    support a larger customer base; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | a $63 million and $41 million increase
    in personnel, facilities and general corporate expenses due to
    increases in headcount and employee compensation costs, and to a
    lesser extent, professional fees, our financial systems software
    upgrade initiatives and other expenses relating to our public
    safety and technology initiatives; partially offset by                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | a $92 million and $55 million decrease
    in bad debt expense. Bad debt expense decreased $92 million
    from $173 million, or 4.2% of operating revenues, for the
    six months ended June 30, 2002, to $81 million, or
    1.6% of operating revenues, for the six months ended
    June 30, 2003. Bad debt expense decreased $55 million
    from $80 million, or 3.7% of operating revenues for the
    three months ended June 30, 2002 to $25 million, or
    1.0% of operating revenues, for the three months ended
    June 30, 2003. The decrease in both bad debt expense and
    bad debt expense as a percentage of operating revenues reflects
    the results of system and strategic initiatives implemented over
    the last year. With the completion of our integrated billing,
    customer care and collections system in 2002, productivity of
    various departments, including collections, has improved.
    Further, we made strategic decisions to strengthen our credit
    policies and procedures specifically in the area of compliance
    with our deposit policy, limiting the account sizes for high
    risk accounts and fraud pre-screening. The credit and collection
    software tools that we implemented now enable us to better
    screen and monitor the credit quality and delinquency levels of
    our customers. We have also benefited from improvements in
    recoveries of past due accounts handled by third party agencies.
    These factors and others have resulted in increasing
    collections, an improvement in the accounts receivable agings
    and a reduction in the write-offs for fraud-related accounts.
    Therefore, our allowance for doubtful accounts as a percentage
    of accounts receivable has also improved from December 31,
    2002 to June 30, 2003. If these trends continue, bad debt
    expense could continue to improve; however bad debt expense in
    the future could be adversely affected by general economic and
    business conditions and other factors such as the effect of the
    implementation of number portability in the fourth quarter 2003.
    See  Forward-Looking Statements.

Selling, general and administrative.Our selling, general and
administrative expenses as a percentage of operating revenues
decreased from the six months ended June 30, 2002 to the
six months ended June 30,

29



---



##### 



2003 primarily as a result of increased service
revenues due to subscriber growth and improvement in bad debt
expense as described above.


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



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

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

Depreciation and
Amortization.

|                   |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |    |    |  
|------------------ | ----------------------------- | --------------------- | --- | --------- |  | -------- | -- | --------- | - | ------------- | --- | ------- |  |  | -- | -- | - | - | -- | -- |  |  | -- | -- | -
|                   |                               |                       |     |           |  |          |    |           |   |              
|                   |                               |                       |     |           |  |          |    |           |   | Change from  
|                   |                               |                       |     | % of      |  |          |    | % of      |   | Previous Year
|                   |                               | June 30,              |     | Operating |  | June 30, |    | Operating |   |              
|                   |                               | 2003                  |     | Revenues  |  | 2002     |    | Revenues  |   | Dollars       |     | Percent
|                   |                               |                       |     |           |  |          |    |           |   |               |     |        
|                   |                               |                      
|                   |                               | (dollars in millions)
|Six Months Ended   |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |    |   
|Depreciation       |                               | $                     | 807 |           |  |          | 16 | %         |   | $             | 761 |         |  |  | 18 | %  |   | $ | 46 |    |  |  | 6  | % 
|Amortization       |                               |                       | 28  |           |  |          | 1  | %         |   |               | 26  |         |  |  | 1  | %  |   |   | 2  |    |  |  | 8  | % 
|                   |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |    |   
|                   | Depreciation and amortization |                       | $   | 835       |  |          |    | 17        | % |               | $   | 787     |  |  |    | 19 | % |   | $  | 48 |  |  |    | 6  | %
|                   |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |    |   
|Three Months Ended |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |    |   
|Depreciation       |                               | $                     | 408 |           |  |          | 16 | %         |   | $             | 390 |         |  |  | 18 | %  |   | $ | 18 |    |  |  | 5  | % 
|Amortization       |                               |                       | 14  |           |  |          | 1  | %         |   |               | 15  |         |  |  | 1  | %  |   |   | (1 | )  |  |  | (7 | )%
|                   |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |    |   
|                   | Depreciation and amortization |                       | $   | 422       |  |          |    | 17        | % |               | $   | 405     |  |  |    | 19 | % |   | $  | 17 |  |  |    | 4  | %
|                   |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |    |   

Depreciation expense increased $46 million
and $18 million from the six and three months ended
June 30, 2002 to the six and three months ended
June 30, 2003. During the six months ended June 30,
2003, we recorded $41 million, or $0.04 per common share,
in depreciation expense as a result of shortening the estimated
useful lives of some of our network assets in the first quarter
2003. Further, depreciation increased primarily as a result of a
4% increase in transmitter and receiver sites in service, as
well as costs to modify existing switches and transmitter and
receiver sites in existing markets primarily to enhance the
capacity of our network. We periodically review the useful lives
of our fixed assets as circumstances warrant. Events that would
likely cause us to review the useful lives of our fixed assets
include decisions made by regulatory agencies and our decisions
surrounding strategic or technology matters. It is possible that
depreciation expense may increase in future periods as a result
of one or a combination of these decisions. Depreciation expense
recorded in a period can also be impacted by several factors,
including the effect of fully depreciated assets, the timing
between when capital assets are purchased and when they are
deployed into service which is when depreciation commences,
company-wide decisions surrounding levels of capital spending
and the level of

30



---



##### 



spending on non-network assets which generally
have much shorter depreciable lives as compared to network
assets.


Restructuring and Impairment Charge,
Interest and Other.

|                                                   |  |                       |      |          |  |               |      |         |  |   |      |   |  |  |     |   
|-------------------------------------------------- |  | --------------------- | ---- | -------- |  | ------------- | ---- | ------- |  | - | ---- | - |  |  | --- | --
|                                                   |  |                       |      |          |  |              
|                                                   |  |                       |      |          |  | Change from  
|                                                   |  |                       |      |          |  | Previous Year
|                                                   |  | June 30,              |      | June 30, |  |              
|                                                   |  | 2003                  |      | 2002     |  | Dollars       |      | Percent
|                                                   |  |                       |      |          |  |               |      |        
|                                                   |  |                      
|                                                   |  | (dollars in millions)
|Six Months Ended                                   |  |                       |      |          |  |               |      |         |  |   |      |   |  |  |     |   
|Restructuring and impairment charge                |  | $                     |     |          |  | $             | (35  | )       |  | $ | 35   |   |  |  | NM  |   
|Interest expense                                   |  |                       | (444 | )        |  |               | (542 | )       |  |   | 98   |   |  |  | 18  | % 
|Interest income                                    |  |                       | 22   |          |  |               | 31   |         |  |   | (9   | ) |  |  | (29 | )%
|(Loss) gain on retirement of debt, net             |  |                       | (7   | )        |  |               | 139  |         |  |   | (146 | ) |  |  | NM  |   
|Equity in losses of unconsolidated affiliates, net |  |                       | (48  | )        |  |               | (275 | )       |  |   | 227  |   |  |  | 83  | % 
|Reduction in fair value of investments             |  |                       | (2   | )        |  |               | (35  | )       |  |   | 33   |   |  |  | 94  | % 
|Other, net                                         |  |                       | 2    |          |  |               | (1   | )       |  |   | 3    |   |  |  | NM  |   
|Income tax provision                               |  |                       | (49  | )        |  |               | (365 | )       |  |   | 316  |   |  |  | 87  | % 
|Income (loss) available to common stockholders     |  |                       | 489  |          |  |               | (329 | )       |  |   | 818  |   |  |  | NM  |   
|Three Months Ended                                 |  |                       |      |          |  |               |      |         |  |   |      |   |  |  |     |   
|Interest expense                                   |  | $                     | (219 | )        |  | $             | (269 | )       |  | $ | 50   |   |  |  | 19  | % 
|Interest income                                    |  |                       | 10   |          |  |               | 16   |         |  |   | (6   | ) |  |  | (38 | )%
|(Loss) gain on retirement of debt, net             |  |                       | (2   | )        |  |               | 139  |         |  |   | (141 | ) |  |  | NM  |   
|Equity in losses of unconsolidated affiliates      |  |                       | (35  | )        |  |               | (123 | )       |  |   | 88   |   |  |  | 72  | % 
|Reduction in fair value of investments             |  |                       | (2   | )        |  |               | (35  | )       |  |   | 33   |   |  |  | 94  | % 
|Other, net                                         |  |                       | 2    |          |  |               | (1   | )       |  |   | 3    |   |  |  | NM  |   
|Income tax provision                               |  |                       | (27  | )        |  |               | (15  | )       |  |   | (12  | ) |  |  | (80 | )%
|Income available to common stockholders            |  |                       | 281  |          |  |               | 325  |         |  |   | (44  | ) |  |  | (14 | )%



---

NM  Not Meaningful

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

Interest expense.The $98 million and
$50 million decrease in interest expense from the six and
three months ended June 30, 2002 to the six and three
months ended June 30, 2003 relates to:



| |   |                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $74 million and $39 million decrease
    primarily resulting from the purchase and retirement of our
    senior notes, as discussed below;                                                                                                                   
|
| |  | a $24 million and $13 million decrease
    due to a reduction in the weighted average interest rates
    related to our bank credit facility from 5.1% during the six
    months ended June 30, 2002 to 4.1% during the six months
    ended June 30, 2003; and
|
| |  | an $8 million and $4 million decrease
    related to the SpectraSite tower lease agreements, accounted for
    as a financing obligation prior to 2003; partially offset by                                                                                    
|
| |  | an $8 million and $6 million increase
    due to the ineffective portion of the change in fair value of
    the derivative qualifying for hedge accounting.                                                                                                    

Interest expense related to our senior notes
decreased from the six and three months ended June 30, 2002
to the six and three months ended June 30, 2003 primarily
due the purchase and retirement of $2,462 million

31



---



##### 



in aggregate principal amount at maturity of our
senior notes since the beginning of the second quarter 2002. We
expect our interest expense to continue to decrease as a result
of the debt refinancings consummated in the second quarter 2003
and to date in the third quarter 2003. See
 Forward-Looking Statements.


Interest income.The $9 million and
$6 million decrease in interest income from the six months
and three months ended June 30, 2002 to the six months and
three months ended June 30, 2003 is due to a decrease in
the average cash and short-term investments balances and lower
average interest rates in the first half of 2003 as compared to
the same period in 2002.

(Loss) gain on retirement of debt.The (loss) gain on retirement of
debt, net of debt conversion costs, relates to the purchase and
retirement of some of our senior notes during 2003 and 2002.

Equity in losses of unconsolidated
affiliates.The $48 million
and $35 million in equity in losses of unconsolidated
affiliates for the six and three months ended June 30, 2003
is due to losses attributable to our equity method investment in
Nextel Partners of $64 million and $48 million
partially offset by our equity in earnings of NII Holdings of
$16 million and $13 million. As of June 30, 2003
our investments in Nextel Partners common stock and
preferred securities has been written down to zero through the
application of the equity method of accounting. Therefore, we do
not expect to record any material charges associated with losses
that may be reported by Nextel Partners in the foreseeable
future. See  Forward-Looking Statements.
The $275 million and $123 million equity in losses of
unconsolidated affiliates for the six and three months ended
June 30, 2002 includes a $226 million and
$99 million loss representing our share through May 2002 of
NII Holdings operating results before it emerged from
bankruptcy and a $49 million and $24 million loss
attributable to our equity method investment in Nextel Partners.

Reduction in fair value of investments.The decrease of $33 million
in the reduction in fair value of investments is primarily due
to the $35 million charge recognized on June 30, 2002
when we determined the decline in fair value of our investment
in SpectraSite to be other-than-temporary.

Income tax provision.The decrease in the income tax
provision of $316 million from the six months ended
June 30, 2002 to the six months ended June 30, 2003 is
primarily attributable to the adoption of SFAS No. 142,
Goodwill and Other Intangible Assets in the first
quarter 2002. As a result of this adoption, we incurred a
one-time cumulative non-cash charge to the income tax provision
of $335 million resulting in an increase in the valuation
allowance related to our net operating losses. We have provided
a full reserve against our net operating loss carryforwards as
of June 30, 2003. This reserve was established because we
do not have a sufficient history of taxable income to conclude
that it is more likely than not that the net operating losses
will be realized. To the extent that we have taxable income in
future periods, we will realize the benefits of at least some of
the net operating loss carryforwards. The increase of
$12 million from the three months ended June 30, 2002
to the three months ended June 30, 2003 is primarily due to
an increase in our provision for state taxes because various
states have suspended or limited the utilization of our net
operating losses.

Liquidity and Capital Resources

As of June 30, 2003, we had total liquidity
of about $3.7 billion available to fund our operations
including $2.4 billion of cash, cash equivalents and
short-term investments and about $1.3 billion available
under the revolving loan commitment of our bank credit facility.
Until the third quarter 2002, total cash used in investing
activities, primarily for capital expenditures and spectrum
acquisitions associated with developing, enhancing and operating
our network, more than offset our cash flows provided by
operating activities. For the six months ended June 30,
2003, total cash provided by operating activities exceeded cash
flows used in investing activities by $417 million as
compared to a deficit of $838 million for the same period
in 2002. We have historically used external sources of funds,
primarily from debt incurrences and equity issuances, to fund
capital expenditures, acquisitions and other nonoperating needs.

32



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##### 



Cash Flows.

|                                      |  |                  |        |                       |  |         |        |         |  |   |      |   |  |  |      |   
|------------------------------------- |  | ---------------- | ------ | --------------------- |  | ------- | ------ | ------- |  | - | ---- | - |  |  | ---- | --
|                                      |  |                  |        |                      
|                                      |  | Six Months Ended |        | Change from          
|                                      |  | June 30,         |        | Previous Year        
|                                      |  |                  |        |                      
|                                      |  | 2003             |        | 2002                  |  | Dollars |        | Percent
|                                      |  |                  |        |                       |  |         |        |        
|                                      |  |                  |        |                       |  |        
|                                      |  |                  |        | (dollars in millions) |  |        
|Cash provided by operating activities |  | $                | 1,516  |                       |  | $       | 909    |         |  | $ | 607  |   |  |  | 67   | % 
|Cash used in investing activities     |  |                  | (1,099 | )                     |  |         | (1,747 | )       |  |   | 648  |   |  |  | 37   | % 
|Cash used in financing activities     |  |                  | (823   | )                     |  |         | (344   | )       |  |   | (479 | ) |  |  | (139 | )%

Net cash provided by operating activities for the
six months ended June 30, 2003 improved by
$607 million over the same period in 2002 primarily
reflecting the improved performance of our operations from our
achievement of certain economies of scale and from the growth in
our customer base.

Net cash used in investing activities for the six
months ended June 30, 2003 decreased by $648 million
over the same period in 2002 due to:



| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | a $314 million decrease in cash paid for
    capital expenditures;                                                
|
| |  | a $79 million decrease in cash paid for
    purchases of licenses, acquisitions, investments and other;           
|
| |  | a $5 million decrease in net cash purchases
    of short-term investments; and                                    
|
| |  | the relinquishment of $250 million of NII
    Holdings cash upon the deconsolidation of NII Holdings in
    2002.

Capital expenditures to fund the ongoing
investment in our network continued to represent the largest use
of our funds for investing activities. Cash payments for capital
expenditures totaled $727 million for the six months ended
June 30, 2003 and $1,041 million for the six months
ended June 30, 2002. Capital expenditures decreased for the
six months ended June 30, 2003 compared with the same
period in 2002 primarily due to several factors, including:



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

We expect that our site development activities
and related capital expenditures will be higher for the second
half 2003 as compared to the first half 2003 now that our
outsourcing agreements have been consummated. See
 Forward-Looking Statements.

We made cash payments during the six months ended
June 30, 2003 totaling $238 million for licenses,
investments and other, including $201 million related to
the acquisition of FCC licenses from NeoWorld Communications. We
made cash payments during the six months ended June 30,
2002 totaling $317 million for acquisitions, licenses,
investments and other, including $109 million for the
assets of Chadmoore Wireless Group, Inc.

Net cash used in financing activities of
$823 million during six months ended June 30, 2003
consisted primarily of:



| |   |                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $707 million paid for the purchase and
    retirement of $534 million in aggregate principal amount at
    maturity of our outstanding senior notes and $165 million
    in aggregate face amount of our outstanding mandatorily
    redeemable preferred stock;

33



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##### 





| |   |                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $79 million for repayments under capital
    lease and finance obligations, including a payment of
    $54 million associated with the early buy-out option under
    one of our capital lease agreements;
|
| |  | $42 million paid for mandatorily redeemable
    preferred stock dividends; and                                                                                                                            
|
| |  | $30 million of net payments under the
    long-term credit facility; partially offset by                                                                                                                  
|
| |  | $35 million of proceeds received in
    connection with the exercise of stock options granted under our
    incentive equity plan.                                                                        

Net cash used in financing activities of
$344 million during the six months ended June 30, 2002
consisted primarily of cash paid for the purchase and retirement
of debt securities and mandatorily redeemable preferred stock of
$295 million and repayments of $49 million under capital
lease and finance obligations.

Future Capital Needs and Resources

Capital Resources.

As of June 30, 2003, our capital resources
included $2.4 billion of cash, cash equivalents and
short-term investments and about $1.3 billion of the
revolving loan commitment under our credit facility, as
discussed below. Therefore, our resulting total amount of
liquidity to fund our operations was about $3.7 billion as
of June 30, 2003.

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



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

As of June 30, 2003, our credit facility
provided for total secured financing capacity of up to
$5.7 billion, subject to the satisfaction or waiver of
applicable borrowing conditions. As of June 30, 2003, this
facility consisted of a $1.4 billion revolving loan
commitment, of which $116 million has been borrowed, and
about $4.3 billion in term loans, all of which have been
borrowed. We made mandatory principal repayments on the term
loans in the amount of $99 million for six months ended
June 30, 2003. The term loan commitment levels will
continue to be reduced every quarter until the term loans
mature, which occurs over a period from December 31, 2007
to March 31, 2009. On June 30, 2003, the amount of the
revolving loan commitment available to us was reduced by
$38 million and will continue to be reduced by
$38 million every quarter through March 31, 2004. The
reductions in the revolving loan commitment will increase to
$75 million every quarter beginning April 1, 2004 and
continuing through March 31, 2005. Starting April 1,
2005, the reductions become more significant until 2007 when no
amounts will be available under the revolving credit facility.

The credit facility requires compliance with
financial ratio tests, including total indebtedness to operating
cash flow, secured indebtedness to operating cash flow,
operating cash flow to interest expense and operating cash flow
to specified charges, each as defined under the credit facility.
Some of these ratios became more

34



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##### 



stringent effective March 31, 2003, at
which time they became fixed. As of June 30, 2003, we were
in compliance with all financial ratio tests under our credit
facility, and we expect to remain in full compliance with these
ratio tests. See  Forward-Looking
Statements. Borrowings under the credit facility are
secured by liens on substantially all of our assets, and are
guaranteed by our parent company and substantially all of our
subsidiaries. The maturity dates of the loans may accelerate if
we do not comply with the financial ratio tests, which could
have a material adverse effect on our financial condition.


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

Our ability to borrow additional amounts under
the credit facility may be restricted by provisions included in
some of our public notes and mandatorily redeemable preferred
stock that limit the incurrence of additional indebtedness in
certain circumstances. The availability of borrowings under this
facility also is subject to the satisfaction or waiver of
specified borrowing conditions. As of June 30, 2003, the
applicable provisions of our senior notes and mandatorily
redeemable preferred stock did not restrict our ability, and we
had satisfied the borrowing conditions under this facility, to
borrow substantially all of the remaining $1.3 billion
revolving credit commitment that is currently available.

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

Additionally, during the six months ended
June 30, 2003, we purchased and retired $699 million
in principal amount of long-term debt and in face amount of
mandatorily redeemable preferred stock in exchange for cash on
hand, resulting in the avoidance of principal, interest, and
dividend payments of about $1.1 billion over the life of
these securities. From April 1, 2002 to June 30, 2003,
we have purchased and retired about $3.9 billion in
principal amount of long-term debt and in face amount of
mandatorily redeemable preferred stock in exchange for cash and
shares of our class A common stock. Subsequently, in July
2003, we redeemed about $375 million in aggregate face
amount of our 13% series D exchangeable preferred stock,
representing all of the shares outstanding, for
$387 million in cash. As a result of these transactions, we
will avoid net principal, interest and dividend payments of
about $7.1 billion over the life of these securities,
$6.9 billion of which will be avoided subsequent to
June 30, 2003. See  Future contractual
obligations for further information about future cash
payments related to our long-term debt and preferred securities.

We also announced that in August 2003 we will
redeem for cash all of our 11.125% series E exchangeable
preferred stock. Based on the $392 million in aggregate
face amount outstanding on June 30, 2003, the redemption
price will be $414 million. Additionally, in July 2003, we
commenced an offer to purchase any and all of our outstanding
10.65% senior redeemable discount notes due 2007, about
$676 million in aggregate principal amount of which was
outstanding at the time of such offer. As of July 30, 2003,
holders of about $414 million of the aggregate principal
amount of notes had tendered their notes, for which we paid such
holders a total of $429 million under the terms of the
tender offer. We will finance these redemptions through the sale
of our $1,000 million principal amount of 7.375% senior
serial redeemable notes which was completed in July 2003. We
may, from time to time, as we deem appropriate, enter into
similar or other repurchase or retirement transactions that in
the aggregate may be material.

35



---



##### 



Capital Needs.

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



| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | capital expenditures, as discussed immediately
    below under  Capital expenditures;                                                                                                          
|
| |  | operating expenses relating to our network;                                                                                                                                                       
|
| |  | future investments, including the purchase of
    certain of WorldComs FCC licenses and other network
    assets, potential spectrum purchases and investments in new
    business opportunities;
|
| |  | potential substantial payments in connection with
    the Consensus Plan relating to the proposed public safety
    spectrum realignment (see Part II, Item 5. Other
    Information);          
|
| |  | purchase and retirement of our 13% series D
    exchangeable preferred stock, 11.125% series E exchangeable
    preferred stock and 10.65% senior redeemable discount notes;                      
|
| |  | debt service requirements related to our
    long-term debt, capital lease and financing obligations and zero
    coupon convertible preferred stock;                                             
|
| |  | potential material increases in the cost of
    compliance with regulatory mandates; and                                                                                                          
|
| |  | other general corporate expenditures.                                                                                                                                                             

Capital expenditures.Our capital expenditures during
the six months ended June 30, 2003 were $727 million,
including capitalized interest. In the future, we expect our
capital spending to be driven by several factors including:



| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the construction of additional transmitter and
    receiver sites to maintain system quality and the installation
    of related switching equipment in existing market coverage areas;
|
| |  | the enhancement of our network coverage;                                                                                                                                               
|
| |  | the enhancements to our existing iDEN technology
    to increase voice capacity;                                                                                                       
|
| |  | any potential future enhancement of our network
    through the deployment of next generation technologies; and                                                                        
|
| |  | capital expenditures required to support our back
    office operations and additional Nextel stores.                                                                                  

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

Future contractual obligations.The table below sets forth our
best estimates as to the amounts and timing of future
contractual payments for our most significant contractual
obligations as of June 30, 2003. The information in the
table reflects future unconditional payments and is based upon,
among other things, the terms of the relevant agreements,
appropriate classification of items under generally accepted
accounting principles currently in effect and certain
assumptions, such as future interest rates. Future events,
including

36



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##### 



additional purchases of our securities and
refinancing of those securities, could cause actual payments to
differ significantly from these amounts. See
 Forward-Looking Statements. Except as
required by applicable law, we disclaim any obligation to modify
or update the information contained in the table.


|                                      |  |       |        |           |  |      |       |               |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|------------------------------------- |  | ----- | ------ | --------- |  | ---- | ----- | ------------- |  | ---- | ----- | ---- |  | ---------- | ----- |  |  | - | ----- |  |  | - | ----- |  |  | - | ------ | 
|                                      |  |       |        | Remainder |  |      |       |               |  |      |       |      |  | 2008 and  
|Future Contractual Obligations        |  | Total |        | of 2003   |  | 2004 |       | 2005          |  | 2006 |       | 2007 |  | Thereafter
|                                      |  |       |        |           |  |      |       |               |  |      |       |      |  |           
|                                      |  |       |        |           |  |      |       |               |  |      |       |     
|                                      |  |       |        |           |  |      |       | (in millions) |  |      |       |     
|Public senior notes (1)(2)            |  | $     | 10,985 |           |  | $    | 321   |               |  | $    | 643   |      |  | $          | 643   |  |  | $ | 643   |  |  | $ | 2,514 |  |  | $ | 6,221  | 
|Bank credit facility (3)              |  |       | 5,797  |           |  |      | 190   |               |  |      | 520   |      |  |            | 672   |  |  |   | 707   |  |  |   | 748   |  |  |   | 2,960  | 
|Capital lease and finance obligations |  |       | 223    |           |  |      | 23    |               |  |      | 49    |      |  |            | 51    |  |  |   | 53    |  |  |   | 47    |  |  |   |       | 
|Preferred stock cash payments (4)     |  |       | 1,332  |           |  |      | 421   |               |  |      | 44    |      |  |            | 44    |  |  |   | 44    |  |  |   | 44    |  |  |   | 735    | 
|Operating leases                      |  |       | 1,520  |           |  |      | 234   |               |  |      | 423   |      |  |            | 321   |  |  |   | 210   |  |  |   | 130   |  |  |   | 202    | 
|Other                                 |  |       | 2,312  |           |  |      | 318   |               |  |      | 462   |      |  |            | 379   |  |  |   | 316   |  |  |   | 214   |  |  |   | 623    | 
|                                      |  |       |        |           |  |      |       |               |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|Total                                 |  | $     | 22,169 |           |  | $    | 1,507 |               |  | $    | 2,141 |      |  | $          | 2,110 |  |  | $ | 1,973 |  |  | $ | 3,697 |  |  | $ | 10,741 | 
|                                      |  |       |        |           |  |      |       |               |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 



---



|    |                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | These amounts do not include the sale of our
    7.375% senior notes, which was completed in July 2003.                                                                                                                                                                
|   
|(2) | These amounts do not include the effect of any
    10.65% senior notes purchased and retired after June 30,
    2003.                                                                                                                                                  
|   
|(3) | These amounts include principal and estimated
    interest payments based on managements expectation as to
    future interest rates, assume the current payment schedule and
    exclude any additional future drawdown under the revolving loan
    commitment.     
|   
|(4) | These amounts include the effect of our June 2003
    announcement to redeem our 13% series D exchangeable
    preferred stock in July 2003, but do not include the effect of
    our July 2003 announcement to redeem our series E preferred
    stock in August 2003.

The above table excludes amounts that may be paid
or will be paid in connection with interest rate swap agreements
that do not have mandatory cash settlement provisions prior to
maturity and spectrum acquisitions. We have committed, subject
to certain conditions which may not be met, to pay up to about
$308 million for spectrum acquisitions, including about
$144 million for the pending acquisition of certain FCC
licenses and other network assets of WorldCom, and leasing
agreements entered into and outstanding as of June 30,
2003. Included in the Other caption are minimum
amounts due under our most significant service contracts,
including agreements for telecommunications and customer billing
services, advertising services and contracts related to our
information and technology and customer care outsourcing
arrangements. Amounts actually paid under some of these
Other agreements will likely be higher due to
variable components of these agreements. The more significant
variable components that determine the ultimate obligation owed
include items such as hours contracted, subscribers, interest
rates and other factors. In addition, we are party to various
arrangements that are conditional in nature and obligate us to
make payments only upon the occurrence of certain events, such
as the delivery of functioning software or products. Because it
is not possible to predict the timing or amounts that may be due
under these conditional arrangements, no amounts have been
included in the table above. Significant amounts expected to be
paid to Motorola for infrastructure, handsets and related
services are not shown above due to the uncertainty surrounding
the timing and extent of these payments and because minimum
contractual amounts under our agreements with Motorola are not
significant. See note 15 of the consolidated financial
statements contained in our 2002 annual report on Form 10-K.

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

37



---



##### 



limitations and conditions, including possible
deferrals by Nextel Partners, we will have the right to purchase
the outstanding shares of Nextel Partners class A
common stock on January 29, 2008.


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



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

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

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

In making this assessment, we have considered:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the anticipated level of capital expenditures,
    including an expected positive impact associated with the 6:1
    voice coder software upgrade which Motorola is developing for
    our expected deployment beginning in the third quarter 2003;                                                                                                                                                                               
|
| |  | our scheduled debt service requirements; and                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | cash used or required, subsequent to
    June 30, 2003, to purchase and retire our 13% series D
    exchangeable preferred stock, 11.125% series E exchangeable
    preferred stock and 10.65% senior redeemable discount notes, to
    the extent that cash requirement exceeds the net proceeds
    available from the sale of our $1,000 million principal
    amount of 7.375% senior notes, which was completed in July 2003.

Additionally, we have the ability to use existing
cash, cash equivalents and short-term investments on hand and
available of $2.4 billion as of June 30, 2003, or
drawdown on the available revolving loan commitment under our
credit facility of about $1.3 billion as of June 30,
2003 to fund our capital needs.

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

38



---



##### 



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



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

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



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

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

Forward-Looking Statements

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



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

39



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##### 





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

Item 3.     Quantitative
and Qualitative Disclosures about Market Risk.

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

As of June 30, 2003, we held
$980 million of short-term investments consisting of debt
securities in the form of commercial paper and corporate bonds.
As the weighted average maturity from the date of purchase was
less than five months, these short-term investments do not
expose us to a significant amount of interest rate risk.

40



---



##### 



As of June 30, 2003, the fair value of our
investment in NII Holdings 13% senior secured notes, which
was determined based on quoted market prices of the notes,
totaled $60 million. This investment is reported at its
fair value in our financial statements.

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



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

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

|                                                                                                         |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |       |   |  |   |       |   |  |   |       |   |  |   |       |  
|-------------------------------------------------------------------------------------------------------- | --------------------- | --------------------- | - | ---- | - | ---- | - | ---- | - | ---- | - | ---------- | - | ----- | - | ----- | - |  | - | ----- | - |  | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|                                                                                                         |                       |                       |   |      |   |      |   |     
|                                                                                                         |                       | Year of Maturity      |   |      |   |      |   |     
|                                                                                                         |                       |                       |   |      |   |      |   | Fair
|                                                                                                         |                       | 2003                  |   | 2004 |   | 2005 |   | 2006 |   | 2007 |   | Thereafter |   | Total |   | Value
|                                                                                                         |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |      
|                                                                                                         |                       |                       |   |     
|                                                                                                         |                       | (dollars in millions) |   |     
|I. Interest Rate Sensitivity                                                                             |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |       |   |  |   |       |   |  |   |       |   |  |   |      
|Mandatorily Redeemable Preferred Stock,
    Long-term Debt and Capital Lease and Finance
    Obligations |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |       |   |  |   |       |   |  |   |       |   |  |   |      
|                                                                                                         | Fixed Rate            |                       | $ | 18   |   |      | $ | 39   |   |      | $ | 43         |   |       | $ | 48    |   |  | $ | 1,916 |   |  | $ | 6,329 |   |  | $ | 8,393 |   |  | $ | 8,713 |  
|                                                                                                         | Average Interest Rate |                       |   | 10   | % |      |   | 10   | % |      |   | 10         | % |       |   | 10    | % |  |   | 9     | % |  |   | 9     | % |  |   | 9     | % |  |   |       |  
|                                                                                                         | Variable Rate         |                       | $ | 100  |   |      | $ | 327  |   |      | $ | 433        |   |       | $ | 466   |   |  | $ | 505   |   |  | $ | 2,656 |   |  | $ | 4,487 |   |  | $ | 4,402 |  
|                                                                                                         | Average Interest Rate |                       |   | 3    | % |      |   | 3    | % |      |   | 3          | % |       |   | 3     | % |  |   | 3     | % |  |   | 5     | % |  |   | 4     | % |  |   |       |  
|                                                                                                        
|Interest Rate Swaps                                                                                      |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |       |   |  |   |       |   |  |   |       |   |  |   |      
|                                                                                                         | Variable to Fixed (1) |                       | $ |     |   |      | $ |     |   |      | $ |           |   |       | $ | 570   |   |  | $ |      |   |  | $ |      |   |  | $ | 570   |   |  | $ | (108  | )
|                                                                                                         | Average Pay Rate      |                       |   |     |   |      |   |     |   |      |   |           |   |       |   | 8     | % |  |   |      |   |  |   |      |   |  |   | 8     | % |  |   |       |  
|                                                                                                         | Average Receive Rate  |                       |   |     |   |      |   |     |   |      |   |           |   |       |   | 1     | % |  |   |      |   |  |   |      |   |  |   | 1     | % |  |   |       |  
|                                                                                                         | Fixed to Variable     |                       | $ |     |   |      | $ |     |   |      | $ |           |   |       | $ |      |   |  | $ |      |   |  | $ | 500   |   |  | $ | 500   |   |  | $ | 81    |  
|                                                                                                         | Average Pay Rate      |                       |   |     |   |      |   |     |   |      |   |           |   |       |   |      |   |  |   |      |   |  |   | 4     | % |  |   | 4     | % |  |   |       |  
|                                                                                                         | Average Receive Rate  |                       |   |     |   |      |   |     |   |      |   |           |   |       |   |      |   |  |   |      |   |  |   | 10    | % |  |   | 10    | % |  |   |       |  



---



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

41



---



##### 



Item 4.     Controls
and Procedures.

We maintain a set of disclosure controls and
procedures that are designed to ensure that information relating
to Nextel Communications, Inc. (including its consolidated
subsidiaries) required to be disclosed in our periodic filings
under the Securities Exchange Act is recorded, processed,
summarized and reported in a timely manner under the Securities
Exchange Act of 1934. We carried out an evaluation, under the
supervision and with the participation of management, including
our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of
June 30, 2003. There have been no changes in our internal
control over financial reporting that occurred during the
quarter ended June 30, 2003 that has materially affected,
or is reasonably likely to materially affect, Nextels
internal control over financial reporting.

42



---



##### 



PART II  OTHER INFORMATION.

Item 1.     Legal
Proceedings.

We are involved in certain legal proceedings that
are described in our annual report on Form 10-K for the
year ended December 31, 2002 and quarterly report on
Form 10-Q for the quarterly period ended March 31,
2003. During the three months ended June 30, 2003, there
were no material developments in the status of those legal
proceedings that have not been previously disclosed in those
reports.

Beginning primarily in the spring of 2003, a
number of lawsuits have been filed against us in several state
and federal courts around the United States, challenging the
manner by which we recover the costs to us of federally mandated
universal service, Telecommunications Relay Service payment
requirements imposed by the FCC, and the costs (including costs
to implement changes to our network) to comply with federal
regulatory requirements to provide E911, telephone number
pooling and telephone number portability. In general, these
plaintiffs claim that our rate structure that breaks out and
assesses federal program cost recovery fees on monthly customer
bills is misleading and unlawful. The plaintiffs generally seek
injunctive relief and damages on behalf of a class of customers,
including a refund of amounts collected under these regulatory
line item assessments. We have filed a petition with the Federal
Judicial Panel on Multi-District Litigation Panel seeking
consolidation of most of these purported class action suits, and
that request is pending.

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

Item 4.     Submission
of Matters to a Vote of Security Holders.

On May 29, 2003, we held our 2003 annual
meeting of stockholders in Reston, Virginia. Only holders of
record of our class A common stock on the record date of
April 4, 2003 were entitled to vote at the annual meeting.
As of the record date, there were 991,888,538 shares of
class A common stock outstanding.

The following matters were submitted for a vote
at our annual meeting:

Proposal 1To elect directors to hold
office for a three-year term ending on the date of our annual
meeting of stockholders in 2006.

Set forth below is information regarding the
862,680,899 shares of class A common stock voted in the
election of the following three directors.

|                       |  |     |             |          |  |  |            | 
|---------------------- |  | --- | ----------- | -------- |  |  | ---------- | 
|Name                   |  | For |             | Withheld
|                       |  |     |             |         
|William E. Conway, Jr. |  |     | 797,373,252 |          |  |  | 65,307,647 | 
|Morgan E. OBrien      |  |     | 851,888,700 |          |  |  | 10,792,199 | 
|Stephanie M. Shern     |  |     | 855,607,408 |          |  |  | 7,073,491  | 

The following are the names of each of our other
directors whose term of office continued after the annual
meeting:

Directors Holding Office Until 2005:Timothy M. Donahue, Frank M.
Drendel, William E. Kennard and Dennis M. Weibling*

Directors Holding Office Until 2004:Keith J. Bane, V. Janet Hill and
Craig O. McCaw*



---



|  |                                                
|- | -----------------------------------------------
|* | See Proposal 2  Ratification of
    Directors.

43



---



##### 



Proposal 2To ratify the appointment of
Craig O. McCaw as director for a term ending 2004 and Dennis M.
Weibling as a director for a term ending 2005.

Set forth below is information regarding the
862,680,899 shares of class A common stock voted in the
ratification of the following two directors.

|      |  |     |             |         |  |                |            |            |  |  |   |  |  |  |           | 
|----- |  | --- | ----------- | ------- |  | -------------- | ---------- | ---------- |  |  | - |  |  |  | --------- | 
|      |  | For |             | Against |  | Broker Nonvote |            | Abstention
|      |  |     |             |         |  |                |            |           
|Total |  |     | 840,275,222 |         |  |                | 13,412,143 |            |  |  | 0 |  |  |  | 8,993,534 | 

Proposal 3To approve an amendment to our
certificate of incorporation to eliminate provisions relating to
three classes of preferred stock, of which no shares are
outstanding.

Set forth below is information regarding the
862,680,899 shares of class A common stock voted on this
matter.

|      |  |     |             |         |  |                |            |            |  |  |             |  |  |  |           | 
|----- |  | --- | ----------- | ------- |  | -------------- | ---------- | ---------- |  |  | ----------- |  |  |  | --------- | 
|      |  | For |             | Against |  | Broker Nonvote |            | Abstention
|      |  |     |             |         |  |                |            |           
|Total |  |     | 663,452,847 |         |  |                | 27,091,360 |            |  |  | 166,748,786 |  |  |  | 5,387,906 | 

Proposal 4To ratify the appointment of Deloitte & Touche LLP as our
independent auditors to audit our consolidated financial
statements for fiscal year ending December 31, 2003.

Set forth below is information regarding the
862,680,899 shares of class A common stock voted on this
matter.

|      |  |     |             |         |  |                |            |            |  |  |   |  |  |  |           | 
|----- |  | --- | ----------- | ------- |  | -------------- | ---------- | ---------- |  |  | - |  |  |  | --------- | 
|      |  | For |             | Against |  | Broker Nonvote |            | Abstention
|      |  |     |             |         |  |                |            |           
|Total |  |     | 782,319,237 |         |  |                | 74,652,779 |            |  |  | 0 |  |  |  | 5,708,883 | 

Item 5.     Other
Information.

800 MHz Realignment
Plan.We, along with the leading
public safety and private wireless organizations, have proposed
a comprehensive Consensus Plan for mitigating interference to
800 MHz public safety licensees through realigning the
800 MHz land mobile radio spectrum to create separate
blocks for public safety and commercial operations. In May 2003,
Motorola submitted an ex parte letter to the FCC stating
that it is making progress with technical advances in receiver
design that may be effective in mitigating public safety
interference and that it believes that these advances, together
with other methods, may be a solution to the interference issue.
We have submitted a response to Motorolas letter to the
FCC, in which we dispute a number of Motorolas assumptions
and findings. In addition, in May 2003, a group of large utility
companies, cellular competitors of Nextel and small specialized
mobile radio providers, filed an alternative proposal to the
Consensus Plan. Rather than realigning the 800 MHz spectrum
band to separate commercial and public safety operations, the
utility/ cellular submission proposes to solve ongoing public
safety interference through best practices and
technical measures among 800 MHz licensees. It is uncertain what
solutions, if any, may be adopted by the FCC.

Truth in billing and consumer protection.In July 2003, Nextel settled a
lawsuit with the Missouri Attorney General with respect to
allegations regarding our billing and advertising practices. As
part of the settlement, we agreed to explain to customers that
certain added federal program cost recovery fees that appear on
our bills are not taxes or government required fees.

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

44



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##### 



California Telecommunications Consumer Bill
of Rights.In July 2003, the
California Public Utility Commission released a new set of draft
rules and regulations that, if enacted, would impact nearly
every aspect of our relationship with our customers in
California, resulting in potentially significant implementation
costs and affecting the means by which we market our services.

Hearing Aid
Compatibility.In July 2003, the
FCC announced that it had adopted a yet-to-be issued order
modifying the exemption for wireless phones under the Hearing
Aid Compatibility Act of 1988. As a result, wireless
manufacturers and service providers will be required to make
digital wireless phones accessible to a greater number of
hearing aid users. Within two years, we will be required to
offer at least two handset models that meet a certain standard
of compatibility with hearing aids and by 2008, half of our
handset models must be hearing aid compatible. The FCC will also
require certain other steps, including consumer information on
the packaging of our handsets. We together with Motorola, our
handset supplier, are actively participating in various industry
efforts to arrive at an acceptable solution to help meet the
policy goals of the FCC in this arena. Any such solution could
result in significant costs to us.

Overhaul of MDS and MMDS Spectrum.In April 2003, the FCC proposed
comprehensive overhaul of certain wireless spectrum, including
Multipoint Distribution Service (MDS) and
Multichannel Multipoint Distribution Service (MMDS),
the spectrum currently held by WorldCom that we successfully bid
to acquire pursuant to WorldComs bankruptcy proceeding.

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

(a) List of Exhibits.

|        |      |                     |  |                                                                                                                                                                                                     
|------- | ---- | ------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                    
|Number  |      | Exhibit Description
|        |      |                    
|        | 4.1  |                     |  | Indenture, dated as of July 31, 2003,
    between Nextel Communications, Inc. and BNY Midwest Trust
    Company, as Trustee, relating to Nextels 7.375% senior
    serial redeemable notes due 2015
|        | 4.2  |                     |  | Form of Series A 7.375% senior serial redeemable
    note due 2015                                                                                                                                  
|        | 10.1 | *                   |  | Employment Agreement, effective as of
    July 1, 2003, by and between Nextel Communications, Inc.
    and Timothy M. Donahue                                                                       
|        | 15   |                     |  | Letter in Lieu of Consent for Review Report                                                                                                                                                         
|        | 31   |                     |  | Rule 13a-14(a)/15d-14(a) Certifications                                                                                                                                                             
|        | 32   |                     |  | Section 1350 Certifications                                                                                                                                                                         



---

* Management Contract.

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



| |    |                                                                                                                                                                                                                                                                                
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Current report on Form 8-K dated and filed
    on April 23, 2003, reporting under Item 5, and
    furnishing under Item 9, our financial results and other
    data for the quarter ended March 31, 2003, as amended by
    current report on Form 8-K/A filed on June 4, 2003.
|
| | 2. | Current report on Form 8-K dated
    May 19, 2003, and filed on May 20, 2003, furnishing
    under Item 9 a press release that announced that our Chief
    Executive Officer would be re-affirming financial guidance at a
    conference.                                    
|
| | 3. | Current report on Form 8-K dated and filed
    on June 26, 2003 furnishing under Item 9 a press
    release that announced that our Chief Executive Officer would be
    re-affirming financial guidance at a conference.                                                      

45



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##### 



SIGNATURE

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



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



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

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

Date: August 8, 2003


46



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##### 





EXHIBIT INDEX

|        |      |                     |  |                                                                                                                                                                                                     
|------- | ---- | ------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                    
|Number  |      | Exhibit Description
|        |      |                    
|        | 4.1  |                     |  | Indenture, dated as of July 31, 2003,
    between Nextel Communications, Inc. and BNY Midwest Trust
    Company, as Trustee, relating to Nextels 7.375% senior
    serial redeemable notes due 2015
|        | 4.2  |                     |  | Form of Series A 7.375% senior serial redeemable
    note due 2015                                                                                                                                  
|        | 10.1 | *                   |  | Employment Agreement, effective as of
    July 1, 2003, by and between Nextel Communications, Inc.
    and Timothy M. Donahue                                                                       
|        | 15   |                     |  | Letter in Lieu of Consent for Review Report                                                                                                                                                         
|        | 31   |                     |  | Rule 13a-14(a)/15d-14(a) Certifications                                                                                                                                                             
|        | 32   |                     |  | Section 1350 Certifications                                                                                                                                                                         



---

* Management Contract.