June 10, 2002

BY E-MAIL: [email protected] and REGULAR MAIL

Mr. Michael Helm Director General Telecommunications Policy Industry Canada 300 Slater Street Ottawa, Ontario K1A 0C8

Re : Canada Gazette Notice DGTP-003-02, "Consultation on a Request to Modify the Treatment of Enhanced Specialized Mobile Radio Systems under the Mobile Spectrum Cap Policy"

Dear Mr. Helm:

You will find attached the comments of Microcell Telecommunications Inc. (“Microcell”) in response to Canada Gazette Notice DGTP-003-02.

As discussed further in the comments, Microcell cannot accept Telus’ proposal to modify treatment of Enhanced Specialized Mobile Radio (“ESMR”) spectrum under the spectrum cap policy. To adopt the Telus request, as proposed, would bestow an enormous preference on Telus, it would work to the detriment of other cellular and PCS operators, and it would run contrary to sound public policy.

To effect proper overall policy, the Department needs to initiate and complete a number of other reviews either as part of, or prior to, consideration of the Telus request. These involve reviews into foreign ownership restrictions, the current licence fee regime for mobile services, the ability to disaggregate mobile spectrum holdings, and more generally the validity of current spectrum cap policy.

We appreciate the opportunity to provide our views to the Department, and look forward to filing reply comments on June 25.

Yours very truly,

Microcell Telecommunications Inc.

(SGD) Dean Proctor ______Dean Proctor Vice-President, Regulatory Affairs /des enc. Microcell Telecommunications Inc. Page 2 Comments in Response to DGTP-003-02

Comments in Response to Canada Gazette Notice DGTP-003-02

Consultation on a Request to Modify the Treatment of Enhanced Specialized Mobile Radio Systems under the Mobile Spectrum Cap Policy

Microcell Telecommunications Inc.

June 10, 2002 Microcell Telecommunications Inc. Page 1. Comments in Response to DGTP-003-002

1.0 Introduction

These are the comments of Microcell Telecommunications Inc. (“Microcell”), filed in response to Canada Gazette Notice DGTP-003-02, “Consultation on a Request to Modify the Treatment of Enhanced Specialized Mobile Radio Systems under the Mobile Spectrum Cap Policy” (the “Consultation Notice”).

The Consultation Notice seeks comment on a request submitted to Industry Canada on November 27, 2001 by TELUS Mobility (“Telus”), asking for a modification of the mobile spectrum cap policy with respect to spectrum used by Enhanced Specialized Mobile Radio (“ESMR”) systems.

2.0 Summary of Conclusions

Industry Canada must recognize that the Telus request is not a simple technical adjustment to the spectrum cap rules. It would bring about a profound change to spectrum cap policy which, if adopted as proposed, would have a highly prejudicial impact on the competitive position of other industry players.

For the reasons expanded upon in these comments, Microcell unequivocally believes the Department must reject the Telus request. No amount of technical rationale or verbal gymnastics can hide the simple facts: i) The Telus request is, quite simply, one for Telus to leverage – with official sanction – their incumbent status and “first-mover advantage” in order to acquire mobile spectrum beyond the 55 MHz spectrum cap. ii) The Telus request, as proposed, would allow Telus to exceed the 55 MHz spectrum cap in the acquisition of additional spectrum for advanced mobile systems, while constraining other operators from doing the same. This would bestow an undue preference on Telus, and would clearly not amount to sound policy. iii) The Telus request necessarily entails a review of the principle and role of the mobile spectrum cap policy. As such, the request deals with matters that affect all mobile carriers and all mobile spectrum, not just Telus, and not just ESMR spectrum. iv) Other more pressing proceedings affecting related policy issues have been announced by and recommended to Industry Canada, but not yet initiated. These include matters such as: spectrum licence fees; cellular and PCS licence conditions, including spectrum aggregation; and foreign ownership Microcell Telecommunications Inc. Page 2. Comments in Response to DGTP-003-002

restrictions. As each of these matters is integrally tied to the Telus request, they should be reviewed before considering the Telus request. v) Microcell would not oppose a complete lifting of the spectrum cap for all players. However, coming when and as it does, Microcell fundamentally opposes the Telus request, which would confer an enormous preference upon Telus, while prejudicially maintaining significant constraints on Telus’ principal competitors.

3.0 Ad Hoc Policymaking and Competitive Equity Don’t Mix

The Department suggests the intent behind the Consultation Notice is not to launch into “… a review of the principle and role of the mobile spectrum cap policy”. With all respect to Industry Canada, Microcell profoundly disagrees with such an assessment.

At the core of the Telus request is, in fact, a proposed change to the very substance of the mobile spectrum cap policy. And, through a modification of the treatment of ESMR spectrum as proposed, Telus would be conferred an enormous benefit unavailable to competitors, specifically the ability to acquire spectrum in excess of the 55 MHz cap, which spectrum can be used for advanced mobile systems.

Special treatment vis-à-vis spectrum caps would have a negative and unfair impact on Telus’ competitors, including Microcell. As such, the process initiated by the Consultation Notice is not dealing with simple technical differences between how slices of the mobile spectrum band have been allocated in the past. It is a review into competitive equity, into “one-off” advantages issued on an ad hoc basis, and into the very principle and role of the mobile spectrum cap policy.

- The Telus request

Telus has attempted to argue that spectrum used for ESMR systems is not equivalent to cellular and PCS spectrum, and therefore need not be subject to the same mobile spectrum cap rules. In their November 2001 letter, Telus argues this to be the case because:

“Even though ESMR networks use digital technology with a cellular deployment, access to ESMR spectrum and its properties, namely narrowband non-contiguous channels, make this spectrum different from PCS and cellular spectrum.”

Telus further claims support for their argument comes from the policy of the U.S. Federal Communications Commission (“FCC”), and recommends: Microcell Telecommunications Inc. Page 3. Comments in Response to DGTP-003-002

“… that the Department adopt the FCC approach to attribute the amount of ESMR spectrum deployed up to a maximum of 10 MHz under the cap regardless of the amount of ESMR spectrum deployed.”

Telus focuses on one selective snippet from the overall FCC spectrum cap policy. The policy as a whole, and the American industry structure which both influenced and was influenced by the policy, are ignored.

- Selective snippets do not a whole policy make

Given that Telus has supposedly based support for their request on American spectrum cap policy, Microcell’s comments make several references both to FCC policy, and to the U.S. industry structure which is an integral part of that policy.

When setting public policy for Canada, it is neither wise nor appropriate for Industry Canada to hone in on one or two aspects of U.S. spectrum cap policy – as the Telus request would have the Department do – and ignore the rest of the policy and the context in which it was made.

- The Telus request cannot be dealt with in isolation from other, more pressing policy reviews that are still pending

The Consultation Notice was issued by Industry Canada despite there being other outstanding public policy reviews which affect the whole industry. In Microcell’s view, the policy implications of the Telus request, as explored below, are such that the Department should not contemplate granting Telus’ request unless and until it has completed its review of related matters still outstanding.

Noteworthy in this respect are: i) the Department’s still pending review into spectrum licence fees and the licence conditions applicable to PCS and cellular mobile operators, which affect matters such as spectrum disaggregation. Despite the Department’s March 2001 announcement of its intention to undertake a review, nothing has happened since. This is important, because the Department’s eventual policies on both licence fees and licence conditions directly impact how the Department should deal with Telus’ ESMR request. ii) On another matter, the need to revisit, on a priority basis, the current foreign ownership restrictions, was raised over one year ago by the Broadband Task Force struck by Industry Canada. This recommendation has still not been acted upon. The review of ownership restrictions is important because the Microcell Telecommunications Inc. Page 4. Comments in Response to DGTP-003-002

competitive structure of the industry will undoubtedly be affected, whatever the eventual outcome of the review. iii) The Telus request for anomalous treatment of its ESMR spectrum will also have significant implications for competition between mobile telecommunications carriers. For this reason, the Telus request must be dealt with as part of an open review into the spectrum cap policy as a whole.

We urge the Department not to accede to Telus’ request and give in to the temptation to make important policy decisions piecemeal, without considering the other, necessarily related, pieces of the policy puzzle.

4. Response to Specific Questions

Set out in this section are Microcell’s comments on each of the specific questions raised in the Consultation Notice.

(a) Is ESMR sufficiently different from cellular and PCS service to warrant a special treatment of the spectrum use under the spectrum cap?

Absolutely not. This question needs to be reviewed in terms of Telus’ (and Clearnet’s) current and historical approach to ESMR spectrum, Nextel’s evolution and plans for ESMR spectrum, and the current and future uses for ESMR spectrum.

- If at first you don’t succeed …

After years of trying without success to convince Industry Canada to remove the mobile spectrum cap altogether, Telus has now shifted their strategy.

The latest attempt is to frame the issue as a narrow technical one, rather than a competitive matter, and rely on one narrow aspect of the overall 1994 FCC spectrum cap policy to justify changes. To make their argument, Telus must ignore the whole of the FCC spectrum policy, the American mobile industry structure, FCC policy evolution, and their own approach to ESMR spectrum.

- Telus, Clearnet and ESMR

The Department will remember that, in the mid-1990s, in order to obtain a “better deal” on [E]SMR licence fees, Clearnet successfully convinced the Department that [E]SMR spectrum would be used for services competitive with cellular and PCS, and therefore the cellular licence fee model should apply to SMR. Microcell Telecommunications Inc. Page 5. Comments in Response to DGTP-003-002

Once their ESMR service was launched, Clearnet, in a practice continued by Telus, made claims to the consuming public and to financial markets that the Mike ESMR services were, in fact, PCS.

Telus now abandons the arguments they have made for many years to the Government, to consumers and to the financial industry. Eight years after the introduction of a narrow aspect of FCC spectrum cap policy (which policy is now, ironically, being phased out completely), Telus has awoken to argue that, because ESMR channels are assigned on a station-by-station basis rather than on an area basis, this means that ESMR is not in fact like cellular or PCS. Therefore, preferential treatment for Telus and ESMR is justified under the spectrum cap rules.

- What about the U.S. spectrum cap?

In making their policy assessments, the Department needs to consider the whole of the FCC spectrum cap policy, not just the self-serving excerpts identified by Telus.

In this regard, it is worth citing from the FCC’s November 8, 2001 press release, “FCC Announces Wireless Spectrum Cap to Sunset Effective January 1, 2003”:

“Prior to today’s actions, no entity could have an attributable interest in more than 45 MHz (or 55 MHz in rural areas) of licensed broadband PCS, cellular, or SMR spectrum with significant overlap in any geographic area. … The FCC will sunset the spectrum cap rule effective January 1, 2003. The transition period between and the sunset date will afford an opportunity for the markets to prepare for the FCC’s shift from an inflexible spectrum cap rule to reliance on case-by-case review of CMRS spectrum aggregation.

… The FCC eliminated the cellular cross-interest rule in MSAs in recognition that the cellular carriers in these areas no longer enjoy significant first-mover advantages. The FCC retained the cellular cross-interest rule in RSAs because cellular incumbents generally continue to dominate the market in those areas.”

The following investment analysis also provides a good summary of the evolution of the spectrum cap rules in the U.S.:

“The FCC spectrum cap, which was yet another obstacle to 3G reaching its full potential in the United States, will be eliminated by 2003. In order to promote competition in the mobile telephony industry, in 1994 the FCC created a random spectrum cap to limit the amount of cellular, PCS, and specialized mobile radio (SMR) spectrum a given wireless carrier could hold in any specific market. This cap, instituted when there were only two carriers in the market, limits wireless carriers to 45 MHz of spectrum in urban areas and 55 MHz in rural areas. … Microcell Telecommunications Inc. Page 6. Comments in Response to DGTP-003-002

On November 8, 2001, the FCC announced it will abolish the current limits on spectrum ownership, to be effective 2003. … This was the FCC’s short-term solution to increasing spectrum in a given market, as they have not yet identified additional spectrum to be auctioned off for 3G services.”1

These passages are provided to place the American policy in a proper perspective. It is not appropriate for Telus to propose – nor for the Department to consider – adopting selected snippets from the spectrum cap policy in the United States without looking at the overall picture. Consider the following points:

- As part of the 1994 spectrum cap policy, a cap of 45 MHz was placed in urban areas (the very areas where Telus is seeking out more spectrum).

- In 1994, no operator in the U.S. held over 10 MHz of SMR spectrum – the effective cap.

- In 1996, Nextel, America’s largest ESMR-operator, had less than 9 MHz of ESMR spectrum. Since then, Nextel has accumulated upwards of 26 MHz of ESMR spectrum across the United States.

- Nextel continues to be an independent operator. Had there been an attempt in the past to merge the company with another national operator, particularly an incumbent cellular operator, one could expect questions to arise from anti-trust authorities and, indeed, with respect to the amount of spectrum held by the merged entity, irrespective of the 1994 policy.

- Effective January 1, 2003, the FCC has completely eliminated the spectrum cap policy. This is seen as a short-term move by the FCC to increase spectrum availability for all carriers, and this in advance of identifying new 3G spectrum. This new FCC policy runs completely contrary to the Department’s suggested intent in the Consultation Notice that a general review of spectrum caps will only be undertaken in conjunction with identifying additional spectrum for advanced mobile systems.

- Nextel and contiguous spectrum

In their November 2001 letter, Telus provides a chart indicating that in four of Canada’s largest CMAs (Vancouver, Toronto, Montreal, Calgary), Telus is utilizing between 7.9 to 14.3 MHz of ESMR spectrum. What Telus has not highlighted is how much additional spectrum would be available or sought if their proposal is accepted.

1 Alex Rygiel and Min Cho, “Going Wireless”, Friedman, Billings, Ramsey and Co. Inc. Technology Research, January 2002, page 34. Microcell Telecommunications Inc. Page 7. Comments in Response to DGTP-003-002

Given the Nextel experience, one can assume that Telus policy is driven, or at least influenced, by Nextel’s moves – if for no other reason than because the Mike technology is Nextel’s, and therefore where Nextel sees their evolution to be and to go will obviously be of great interest to Telus.

As mentioned, since 1996, Nextel has increased their ESMR spectrum position from under 9 MHz to some 26 MHz.

Moreover, on November 21, 2001 (one week before the Telus request was filed), Nextel proposed a spectrum swap with the FCC in order to augment the amount of contiguous ESMR spectrum held by them:

“Under the proposal, Nextel would exchange a total of 16 MHz of its current licensed spectrum, specifically Nextel would exchange 4 MHz in the 700 MHz band, 8 MHz of EMSR spectrum in the lower 800 MHz band, and approximately 4 MHz in the 900 MHz band.

In exchange, Nextel would receive a total of 16 MHz of spectrum, 6 MHz in the upper 800 MHz band, and 10 MHz in the 2.1 GHz band. This would not affect Nextel’s current 10 MHz of contiguous spectrum in the upper 800 MHz band, giving them a total of 22 MHz of spectrum on a nationwide basis.”2

Clearly, if the ESMR spectrum cap were lifted, then Telus, like Nextel in the U.S., would be able to purchase the totality, or quasi-totality, of ESMR spectrum in Canada. Telus moreover holds a significant “first-mover advantage” in this regard, and the Telus request is itself an indication that they have every intention to leverage that advantage.

Once additional spectrum were acquired, we could then expect to see – based on the argument that North American spectrum alignment is a cornerstone of Industry Canada policy – a similar “spectrum swap” proposal from Telus, similar to what Nextel currently has pending.

Providing unfettered access to all ESMR spectrum would effectively lift the mobile spectrum cap for Telus from 55 MHz to 75 MHz or more. At the same time, because of their current spectrum holdings and operations, the other Canadian mobile operators would remain effectively frozen at the 55 MHz cap. Such an outcome would be wholly untenable and unacceptable from a public policy perspective. It would provide a blatant undue preference to one incumbent operator, to the detriment of competitive equity.

2 Ned Zachar, “Nextel Proposes a Spectrum Swap with the FCC”, Thomas Weisel Partners, November 27, 2001, page 2 – attached at Schedule 1. Microcell Telecommunications Inc. Page 8. Comments in Response to DGTP-003-002

- ESMR services are not unique to the spectrum

Any idea that ESMR spectrum deserves special treatment under the spectrum cap rules because of the types of services currently offered by Telus needs to be dispelled very quickly. Two specific ESMR services offered by Telus were mentioned in the Consultation Notice, web browsing and dispatch-type services.

- Data services beget advanced mobile systems

Industry Canada knows that web browsing is not unique to ESMR. In fact, it is currently offered by all other major wireless operators in Canada, including Microcell. And, as the market for advanced mobile services evolves, the web browsing and other data capabilities of ESMR will only accentuate the competitive nature of this spectrum vis-à-vis other mobile offerings.

To be clear: Industry Canada suggests that it intends to review the overall spectrum cap policy as part of a review into the allotment and licensing of additional advanced mobile spectrum. However, ESMR spectrum is currently and will continue to be available for advanced mobile services. A review into the implications of the Telus request, therefore, cannot be divorced from a review of the general spectrum cap policy.

Again, in order to understand clearly the impact the Telus proposal can have on competitive equity in Canada, it is illuminating to review Nextel’s activities in the United States. Whatever technical arguments Telus may try to muster in an attempt to convince the Department of the differences between ESMR and other mobile spectrum, Nextel does the exact opposite. Nextel regularly discusses technology road maps and plans to go head-to-head with other mobile spectrum operators.

In numerous reports, analysts review the migration plan of Nextel from their 2nd generation (“2G”) ESMR services towards 3rd generation advanced mobile systems (“3G”).

Thomas Lee of J.P. Morgan has prepared a chart outlining possible migration paths for Nextel from their current 2G technology to 3G.3 It needs to be emphasized that this is 3G using the exact same technologies as other mobile operators in the 800 and 1900 MHz bands (or, for that matter, in the 1700 or 2100 MHz bands).

Ned Zachar suggests the spectrum swap proposed by Nextel with the FCC (described above) will even further “increase Nextel’s ability to easily transition to new, or different, technologies”.4

3 Thomas Lee, “Nextel Communications: Reach Out and Push (To Talk To) Someone”, J.P. Morgan Securities, August 14, 2001, page 29 - attached at Schedule 2. 4 See Ned Zachar, op. cit, page 2. Microcell Telecommunications Inc. Page 9. Comments in Response to DGTP-003-002

- On dispatch services

In terms of the “dispatch” type functions offered by Clearnet in Canada and Nextel in the United States, these services are not exclusive to ESMR.

On January 11 of this year, William Crawford wrote:

“Yesterday, Nextel announced that it was jointly working with Qualcomm and Motorola to extend direct connect over CDMA wireless networks using voice- over-IP architecture, subsequently helping Qualcomm further develop and deploy its Q-chat push-to-talk software. … The eight year agreement grants Nextel exclusive licensing rights in the U.S. and certain other international markets including Canada.”5

In other words, the Telus “push-to-talk” dispatch service is not exclusive or unique to technologies operating in ESMR spectrum. Indeed, Nextel even holds the rights to guide the service evolution to CDMA in Canada, which will impact role and usage of push-to-talk by Telus.

In terms of GSM technology, which has been deployed by Microcell, there already is a “push-to-talk” dispatch and group calling service available. Microcell is not offering the service, but has the ability to do so.

- Additional spectrum for advanced mobile services

While the following point has been made already in these comments, we believe it is worth repeating. Industry Canada has suggested in the Consultation Notice that:

“At this time, the Department is not launching a review of the principle and role of the mobile spectrum cap policy.”

Rather, the Consultation Notice indicates,

5 William Crawford, “Nextel Protects Direct Connect and Will Migrate It to CDMA, but Sprint PCS Covets Nextel Subscriber Base”, U.S. Bancorp Piper Jaffray, January 11, 2002, page 22, attached at Schedule 3. Microcell Telecommunications Inc. Page 10. Comments in Response to DGTP-003-002

“The Department does not intend to launch a full review of the existing 55 MHz mobile spectrum cap until the consultation process begins for the allocation and licensing of additional spectrum for advanced mobile services."6

As Nextel’s planned evolution to 3G makes abundantly clear, the Consultation Notice does indeed deal with a request to modify the mobile spectrum cap to accommodate advanced mobile services. It is imperative that Telus not be given preferential treatment in this regard.

With the possibility that the identification of additional 3G spectrum will be moved even further into the future – particularly given the (lack of) activities in the United States – it is not only possible but, as the Telus request makes clear, essential that the Department undertake a review on the spectrum cap policy as a whole, in other words as it affects all carriers, and this be done before ruling on the Telus request.

(b) Would modifying the treatment of the ESMR spectrum under the spectrum cap undermine the role and competition objectives of the spectrum cap, which are to ensure Canadians have a range of services and a choice of service providers?

In Microcell’s view, the answer to this question is an unambiguous “yes”.

The Canadian spectrum cap was initially set in place at 40 MHz, as part of the 1995 Call for Licence Proposals for Wireless Personal Communications Services in the 2 GHz Range. The Department made it very clear at that time (and has repeated many times since) that spectrum included within the cap was that designated for PCS in the 2 GHz range, for cellular mobile radiotelephony service in the 800 MHz band, and for

6 We note that elsewhere in the Consultation Notice, Industry Canada alters this intent, indicating for example that the review of the mobile spectrum cap policy “… will be addressed in a full review of the mobile spectrum cap intended at the time of consultation on new spectrum allocations for additional spectrum in the 1700/2100 MHz band.” We assume that the narrowing of the spectrum cap review to issues related only to 1700/2100 MHz was not meant to be a new statement of policy. Indeed, it is possible that additional spectrum identified for 3G could be at other frequency ranges or, like the FCC, a complete review of the spectrum cap could be carried out prior to any identification of additional 3G spectrum. In the November 1999 “Revision to the PCS Spectrum Cap and Timing for Licensing Additional PCS Spectrum”, it was noted that “… the Department is of the view that raising the Spectrum Cap to address the needs of current service providers must be linked to a process for licensing additional spectrum.” In the 1999 policy, there were no specifics given as to what that additional spectrum might be. It was also highlighted in the 1999 policy that the additional spectrum licensing could take place as early as 2001 - which meant that the general spectrum cap would have been already reviewed and perhaps revised by now. Microcell Telecommunications Inc. Page 11. Comments in Response to DGTP-003-002 similar public radiotelephony services other than air-to-ground telephony and mobile satellite services, including ESMR.

The Department also made it clear that the spectrum cap was in place to ensure that competition, not re-monopolization, would develop in these services, so that Canadians would enjoy a range of services and a choice of service providers.

As part of the Department’s 1999 spectrum cap review, all respondents – including Microcell – agreed that the mobile industry’s continued growth would depend on the ability of service providers to implement and grow advanced mobile systems. In order for this to be technically and economically feasible, individual service providers would need additional radio spectrum.

In an industry where limited spectrum resources are required as an input, incumbent and dominant firms have an economic incentive to acquire as much additional spectrum as possible in order to thwart competitive entry. However, once this additional spectrum has been acquired, there is no particular incentive to use if efficiently. For example, an incumbent firm may be reluctant to deploy new or innovative technologies until it is certain that it has extracted the maximum possible cash flow from its existing technologies.

It is important to note in this regard and in light of the Telus request that simple use of spectrum does not equate to efficient use of spectrum. An incumbent dominant firm may want to make use of its newly acquired spectrum, if for no other reason than to forestall accusations of anti-competitive warehousing, but it has no particular incentive to make efficient or innovative use of this spectrum.

The pertinent question for the Department, therefore, is whether modifying the treatment of the ESMR spectrum under the spectrum cap rules would undermine competition objectives by allowing Telus – an incumbent cellular operator and the dominant ESMR operator in Canada – to gain an artificial advantage over their competitors. Microcell believes that this is exactly what Telus would obtain, and furthermore, that this would give Telus an unacceptable head-start in preparing their evolution path to 3G technologies and services. Anti-competitive advantages such as this one would ultimately reduce Canadians’ choice of service providers and of mobile wireless services.

(c) Would the public interest be served by permitting more spectrum flexibility for the ESMR service to expand and continue to provide high quality service to its users?

The public interest would be served – and proper public policy followed – only if all carriers are treated equitably vis-à-vis spectrum caps. The Telus proposal, as filed, does not allow for this. In addition, even under the current spectrum cap rules, Telus Microcell Telecommunications Inc. Page 12. Comments in Response to DGTP-003-002 has options available “… to expand and continue to provide high quality [ESMR] service to its users”.

The first option, which Telus has rejected, is to implement cell splitting to enhance the efficiency of ESMR spectrum usage. Instead, Telus would prefer simply to acquire additional ESMR spectrum.

As a second option, even under the current spectrum cap policy, Telus could acquire additional ESMR spectrum, simply by divesting some of their current mobile spectrum holdings so as to remain within the 55 MHz spectrum cap. For example, the company could give back or sell off the 10 MHz of additional PCS spectrum they bought in the 2001 PCS spectrum auction.

Policymaking cannot be made in a vacuum, nor with blinkers on, when considering the overall impact of a change in policy. Industry Canada must apply the spectrum cap recognizing the current holdings and operations of other operators in Canada.

By lifting the spectrum cap on ESMR, the Department would allow Telus, for all intents and purposes, to be alone (or at least very dominant) as an acquirer of ESMR spectrum. Telus could then build up additional spectrum holdings in the ESMR bands, thereby beefing up their advanced mobile spectrum holdings.

(d) Would limiting the amount of ESMR spectrum calculated under the cap, or eliminating it altogether from under the cap, provide a reasonable balance for the public interest? If limiting the amount of spectrum calculated under the cap is the preferred outcome, what approach among the following should be used and for what reason:

(i) Include ESMR spectrum to a maximum of 10 MHz (ii) Include ESMR spectrum at a discounted rate of X % (e.g. at a 25% discount rate, 12 MHz of ESMR spectrum results in 9 MHz being counted); what would be a reasonable discount rate? (iii) Other approach?

In Microcell’s view, it is not in the public interest either to limit the amount of ESMR spectrum considered under the cap or to eliminate it from under the cap. These solutions do not provide a reasonable balance. Rather, taken alone, they would be means to give Telus an advantage not available to competitors in the race to acquire spectrum for the evolution to advanced mobile systems.

Telus is already the dominant holder of ESMR spectrum in the country. No matter how many different ways Telus tries to argue technical differences between ESMR spectrum and other mobile spectrum, the bottom line is that if spectrum caps were lifted for ESMR spectrum, it would allow Telus a free reign to accumulate spectrum Microcell Telecommunications Inc. Page 13. Comments in Response to DGTP-003-002 which could be used and most likely would be used for advanced mobile systems, in full competition with the spectrum used by other carriers in providing comparable services.

Again, if the Department wishes to change the spectrum cap rules, change must be effected in a manner that treats all parties fairly. One way to do this would be to eliminate the spectrum caps for all parties, not just for Telus.

(e) What other matters are relevant to this request?

The Consultation Notice was issued by Industry Canada despite there being other outstanding public policy reviews which affect the whole industry. In Microcell’s view, the policy implications of the Telus request are such that the Department should not contemplate granting Telus’ request unless and until it has completed its review of related matters still outstanding.

- Licence fees and spectrum disaggregation

On March 29, 2001, Microcell and the other mobile licensees, including Telus, received a letter from Industry Canada confirming their five-year licence renewal for PCS licences in the 1900 MHz range. In the letter, it was indicated that the conditions attached to the original five-year authorization would remain unchanged for the time being. The Department also noted the following:

“There is an interest among some of the PCS and cellular providers in securing terms and conditions similar to those associated with recently auctioned spectrum licences. Interest has been expressed in enhanced privileges such as transferability and divisibility as well as in a longer licence term. The Department intends to engage in a public consultation on the use and other matters such as fees and other licence terms and conditions within the coming year.”

A number of matters that are expected to be dealt with as part of the public consultation relating to cellular and PCS licensing, particularly the issues of licence fees and spectrum disaggregation, have a direct impact on the Telus ESMR spectrum request. As a simple example, how does Telus propose to pay spectrum licence fees if there were a modified spectrum cap for ESMR?

If Telus were to hold 25 or 30 MHz of ESMR spectrum, for example, would they only pay licence fees on 10 MHz, the conceptual amount of ESMR spectrum considered under the revised spectrum cap? Such a result would clearly be inappropriate. Microcell Telecommunications Inc. Page 14. Comments in Response to DGTP-003-002

If not, if Telus were to pay licence fees on all the ESMR spectrum that they hold (like PCS does today), or that they actually use (like cellular and ESMR do today), then that would be a clear indication of the value attached to the ESMR spectrum beyond the 10 MHz. How can there be a policy justifying removing or modifying treatment of the ESMR spectrum vis-à-vis the spectrum cap policy, while continuing to impose fees for spectrum held in excess of 10 MHz? Merely asking the question exposes the inherent inconsistency of the Telus request.

On the issue of spectrum disaggregation, if the outcome of the consultation referred to in the Department’s March 29, 2001 letter were to allow disaggregation of existing mobile spectrum holdings, it would permit Telus to have additional flexibility in “selling off” or otherwise disposing of certain spectrum holdings to allow for the acquisition of additional ESMR spectrum, while remaining within the existing 55 MHz spectrum cap.

- On foreign ownership and access to capital

We note that the Federal Government has still not acted upon a key recommendation of the Broadband Task Force made in the spring of 2001 that a review be initiated, on an urgent basis, into foreign ownership restrictions in the telecommunications sector.

The foreign ownership issue goes to the very heart of access to capital. The reason why this is relevant to the current consultation is that, to the extent additional spectrum resources become available through any changes to the spectrum cap rules, in the absence of better access to capital for all players in the Canadian market, incumbent cellular operators and dominant providers – such as Telus in the ESMR market – would have significant advantages in acquiring additional spectrum. This in turn would have a distortionary and negative impact on an efficient competitive marketplace, which ultimately would work to the detriment of consumers.

- On the principle and role of spectrum cap policy

As mentioned above, the Telus request for anomalous treatment of their ESMR spectrum will also have significant implications for competition between mobile telecommunications carriers. For this reason, the Telus request must be dealt with in an open review into the spectrum cap policy as a whole.

We urge the Department not to accede to Telus’ request and give in to the temptation to make important policy decisions piecemeal, without considering other, necessarily related, pieces to the overall policy.

All of which is respectfully submitted.

November 27, 2001

1 Telecom Services - Wireless NEXTEL COMMUNICATIONS, INC. —BUY

Ned P. Zachar, CFA NEXTEL PROPOSES A SPECTRUM SWAP WITH THE FCC 212.271.3838 [email protected] Company Update NASDAQ: NXTL-$10.99

John Sharko, CFA 212.271.3759 Key Data FY 2000 2001 2002 [email protected] Price: $10.99 EBITDA (mn) 52-Week Range: $7-$39 Q1 $228.0A $318.0A NE Market Cap.(mn): $8,605.2 Q2 $290.0A $450.0A NE Sophia C. Hardy Shares Out.(mn): 783.0 Q3 $359.0A $497.0A NE 212.271.3799 Avg Daily Vol.: 16,351,656 Q4 $388.0A $521.0E NE [email protected] Fiscal Year End: 31-Dec Year $1265.0A $1786.0E $2548.8E P/EBITDA 0.01x 0.01x 0.00x

Nextel Communications Inc. (NXTL) Nov 24, 2000 - Nov 26, 2001 High: 36.75 Debt/Total Capital: NM Revenue (mn) U.S. Dollar Low: 7.17 Last: 11.25 40 Price/TTM Sales: 1.2x Q1 $1175.0A $1742.0A NE 35 30 25 Net Cash/Share: NM Q2 $1365.0A $1881.0A NE 20

15 Book Value/Share: NA Q3 $1528.0A $1992.0A NE

10 Price/Book Value: NM Q4 $1647.0A $2105.0E NE Secular Growth: 20% Year $5715.0A $7720.0E $9408.5E Volume in Millions (max/avg) 84 12 TEV/Sales 4.3x 3.2x 2.6x Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

Source: FactSet Executive Summary • NXTL has filed a proposal with the FCC that would help eliminate some interference with spectrum used for public safety. The FCC retains non-contiguous spectrum in the high 800MHz frequency that experiences some interference with NXTL's frequencies.

• In order to eliminate the interference and to streamline both of their spectrum positions, NXTL offered to exchange 16MHz of non-contiguous spectrum with the FCC. The swap would give both NXTL and the FCC more contiguous spectrum.

• If accepted, NXTL would still own a total of 26MHz of spectrum nationwide. Most importantly, NXTL would own 16 contiguous MHz of spectrum in the 800MHz frequency if the proposal is accepted, as opposed to its current total of 22MHz of non-contiguous spectrum in the 800MHz and 900MHz frequencies. In addition, NXTL would own 10Mhz in the 2.1GHz frequency instead of 4MHz in the 700MHz frequency.

• We believe that the swap would substantially improve the attractiveness of NXTL's spectrum holdings. Both TDMA and CDMA require contiguous spectrum (Nextel's iDen does not), therefore, better spectrum increases the feasibility of migrating NXTL to a competing technology.

• NXTL has also offered up to $500mn in cash and services to retune public services operators to the new frequencies. The company said the expense of retuning its network, which would require only a software upgrade, would be immaterial. Company Description: Nextel based in Reston, Virginia, is a leading provider of fully integrated wireless communications services. Nextel, and its affiliate Nextel Partners, Inc., currently serve 182 of the top-200 U.S. markets, covering approximately 220 million people. Nextel offers a fully integrated wireless communications tool with digital cellular, text/numeric paging, wireless Internet access and Direct Connectr - a two-way radio feature. In addition, through Nextel International, Inc., Nextel has wireless operations and investments in Latin America and Asia.

THE DETAILS OF THE SWAP

On a nationwide basis, Nextel currently owns an average of 22MHz of mostly non- contiguous spectrum in the 800MHz and 900MHz frequencies. Under the proposal, Nextel would exchange a total of 16MHz of its current licensed spectrum. Specifically, NXTL would exchange 4MHz in the 700MHz band, 8MHz of current SMR spectrum in the lower 800MHz band and approximately 4MHz in the 900MHz band.

In exchange, NXTL would receive a total of 16MHz of spectrum, 6MHz in the upper 800MHz band and 10MHz in the 2.1GHz band. This would not affect Nextel's current 10MHz of contiguous spectrum in the upper 800MHz band, giving them a total of 22MHz of spectrum on a nationwide basis.

WHY DID NEXTEL FILE THIS PROPOSAL AND WHAT ARE THE BENEFITS? In order to proactively resolve the service issues, Nextel offered a proposal that benefits both parties. In addition to addressing the interference issues, both Nextel and the FCC would gain flexibility by increasing the amount of contiguous spectrum they own.

WHAT ARE THE BENEFITS OF CONTIGUOUS SPECTRUM?

Nextel’s proprietary iDEN technology is the only wireless technology (TDMA and CDMA are the other prominent technologies) that does not require contiguous spectrum. Therefore, the increase in contiguous spectrum in the 800MHz band increases NXTL’s ability to easily transition to new, or different, technologies. The spectrum in the 2.1GHz band gives NXTL added clean spectrum it could eventually use to offer 3G services. In addition, the 2.1GHz band is better for urban areas with dense coverage, further enhancing NXTL’s ability to smoothly transition to 3G in key markets.

Additional information is available upon request. Thomas Weisel Partners LLC ("TWP") may from time to time perform investment banking or other services for or solicit investment banking or other business from, any company mentioned in this report. For the securities discussed in this report, TWP may make a market and may sell to or buy from customers on a principal basis. TWP, or any individuals preparing this report, may at any time have a position in any securities or options of any of the issuers in this report. Although the statements of facts in this report have been obtained from and are based upon sources TWP believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. All opinions and estimates included in this report constitute TWP's judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of a security. This report does not take into account the investment objective, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this report. In the UK this document is not intended for and may not be distributed to or passed on, directly or indirectly, to Private Customers. Thomas Weisel Partners International Limited, regulated by SFA, is the issuer and approver of this document. 1 Thomas Weisel Partners makes a market in the security mentioned in this report. 2 Thomas Weisel Partners was a manager or comanager (within three years) of the most recent public offering of the company mentioned in this report. 3 Thomas Weisel Partners may have a position or own options in the security; or any individuals preparing this communication have a position or own options in the security. 4 Thomas Weisel Partners, a member, allied member, or employee is a director of the issuer. Thomas Weisel Partners LLC, 2001. All rights reserved. Any unauthorized use, duplication or disclosure is prohibited by law and will result in prosecution.

Ned P. Zachar, CFA 212.271.3838 2

Thomas Weisel Partners LLC

WHAT IS THE TIMING AND COST TO NEXTEL?

The FCC will now take roughly a month to review the paper and determine how long it will take to actually make a decision on whether it will adopt the proposal. To be conservative, we expect the timing of an FCC decision to be in a year’s time and then the actual implementation of the proposal over the next couple of years. Therefore, the benefits of this proposal, if accepted, could take a couple of years before bearing fruit.

As we have previously stated, Nextel has also offered up to $500mn of cash and services to help the public safety commission retune its radios to its new frequency. This money would be spent gradually as the migration happens. In addition, NXTL stated the expense to retune its radios is just a software change and, therefore, the expense would be immaterial. The bottom line is that Nextel’s stated proposal, if accepted, would not change its claim that it is fully funded. Based on our EBITDA estimates, NXTL has a cushion of $500mn before hitting free cash flow positive in 2005.

We believe that NXTL’s offer is a reasonable proposition and has a good chance of acceptance. However, given that the timing of the FCC action and subsequent implementation are unclear, it is difficult to estimate the exact potential benefits to the company at this time.

Ned P. Zachar, CFA 212.271.3838 3

Thomas Weisel Partners LLC

600 468 2000 2001 2001 2001 2001E 2001E 2002E 520,376 513,460 499,275 578,951 2,112,063 2,733,293 (g,h) 2000 (h) 2000 (h) 2000 (e,f,h) Mar. 1Q Jun. 2Q Sept. 3Q Dec. 4Q Mar. 1Q Jun. 2Q Sept. 3Q Dec. 4Q 2000 Domestic Subscriber Additions, GrossDomestic Churn Rate (%)Domestic Churn (000s) 827,451 880,778 893,608 2.0% 954,388 287,151 3,556,225 320,178 2.0% 1,041,126 353,208 1,016,560 2.0% 433,188 982,825 1,044,551 433,188 2.3% 4,085,063 2.1% 4,495,793 2.5% 2.3% 2.1% 2.3% 2.3% 2.4% Domestic Subscriber Additions, Net 540,300 560,600 540,400 521,200 2,162,500 520,300 485,900 481,200 450,000 1,937,400 1,750,000 Growth Q/QInternational Subscriber Additions, NetGrowth Q/Q 93,700 12.0% 81,300Nextel Partners Proportionate Net Adds 11.1% 141,000Growth Q/Q 150,900 9.6% 466,900 9,405 8.5% 23.2% 155,200 14,592Growth Q/Q 47.9% 150,900 16.4% 16,448 145,000 7.8% 28.0% 17,800 50,000 6.8% 19.1% 58,245 60.9% 501,100 19,900 6.3% 58.7% NA 200,000 21,800 41.7% 5.5% 18.0% 13.1% 23,500 31.8% 29.0% 14.5% 11.8% 25,280 376.9% 12.2% 20.3% 11.2% 90,480 27.0% 3.7% 10.0% 120,320 23.3% 54.5% NA 20.4% 9.1% 18.2% 14.4% 122.8% 7.9% 7.2% 73.3% 5.2% 32.9% 19.3% Source: Company reports and Thomas Weisel Partners LLC estimates 11/27/01 estimates LLC Partners Weisel Thomas and reports Company Source: Nextel Communications Quarterly Operating Statistics Data in millions POPs Total Licensed PopsCovered PopsPenetration Covered POPsDomestic Subscribers Domestic BOP Subscriber 230,000 2.9% 230,000 4,515,700 171,883 5,056,000 3.1% 230,000 179,256 5,616,600 230,000 3.3% 6,157,000 186,628 230,000 4,515,700 193,000 3.5% 6,678,200 230,000 193,000 7,198,500 230,000 3.5% 7,684,400 196,000 8,165,600 230,000 196,000 3.7% 6,678,200 230,000 199,920 8,615,600 230,000 3.9% 203,918 203,918 230,000 4.1% 212,198 4.2% 4.2% 4.9% Total Domestic EOP Subscribers 5,056,000 5,616,600 6,157,000 6,678,200 6,678,200 7,198,500 7,684,400 8,165,600 8,615,600 8,615,600 10,365, Ratio Analysis SG&A Per Gross AddSG&A Per Average SubscriberCPGALifetime Revenue Per Domestic SubscriberRelevant Disclosures (e) 1Q 00 excludes a $23 million expense related to debt conversion (f) 1Q 00 excludes a $104 million loss on early retirement of debt. $3,600(g) 4Q 00 excludes a $275 million pre-tax gain on exchange of investments (h) 1999, 1Q00, 2Q00, 3Q00, and 4Q00 results are pro forma for SAB 101 which went into effect in 4Q 00. $390 $3,700 $555 $3,750 $374 $571 $3,244 $356 $3,574 $563 $415 $352 $2,840 $575 $420 $366 $3,130 $641 $425 $3,333 $368 $607 $3,087 $450 $349 $3,087 $640 $428 $332 $677 $2,917 $475 $337 $750 $430 $345 $667 $445 $322 $440 $752 $448 $440 Average Domestic SubscribersDomestic ARPUDomestic Lifetime Revenues Per SubInternational Proportionate Subscribers International BOP Subscribers 4,785,850Total International EOP Subscribers $3,600 5,336,300Average International Subscribers 5,886,800International ARPU (1 Month Lag) $3,700Effective ARPU (For Modeling) 6,417,600 403,500Nextel Partners Proportionate Sunscribers 5,606,638 $3,750 497,200 $72.00Nextel Partners BOP Proportionate Subscribers 6,938,350 497,200 578,500 $3,244Nextel Partners EOP Proportionate Subscribers 450,350 7,441,450 $74.00 15,455 578,500 7,925,000Average Nextel Partners Prop. Subs Over Period 740,400 537,850 $3,564 NA $75.00 24,860 8,390,600 740,400 $38.49 24,860Total Subcriber Information 881,700 659,450 20,158Total BOP Subscribers 7,673,850 $2,840 $51.00 $73.00 403,500 39,452Total Subscriber Net Additions $42.76 881,700 39,452 811,050Total EOP Subscribers 32,156 $3,130 9,490,600 881,700 1,040,000 $73.50 55,900 $46.00Average Total Subs Over Period 55,900 NA 614,675 1,040,000 1,190,900 47,676 $3,333 $71.00 73,700 1,190,900 1,335,900 960,850 $48.50 15,455 64,800 NA 1,335,900 1,385,900 1,115,450 $3,087 $72.00 73,700 4473.9% 643,405 73,700 1,385,900 1,263,400 881,700 4,929,123 41,197 $3,087 5,250,826 $48.22 $70.00 1,360,900 93,600 NA 656,492 5,572,528 93,600 5,572,528 1,585,900 1,385,900 5,900,774 1,175,150 83,650 6,229,020 115,400 $48.11 $71.00 $52.00 6,229,020 697,848 115,400 $2,917 6,577,944 6,926,868 104,500 6,926,868 1,485,900 138,900 7,271,818 689,900 $47.49 $71.00 138,900 4,929,123 7,616,768 127,150 6,250,340 2,687,645 164,180 7,616,768 7,616,768 $45.00 73,700 7,964,468 151,540 695,400 8,312,168 $70.00 164,180 8,312,168 8,641,468 8,970,768 $47.07 116,710 8,970,768 658,600 164,180 9,295,618 9,620,468 9,620,468 284,500 9,870,468 649,700 10,120,468 7,616,768 222,580 $47.03 8,943,006 10,120,468 500,000 10,120,468 11,095, 2,503,700 12,070,468 1,950,000

Ned P. Zachar, CFA 212.271.3838 4

Thomas Weisel Partners LLC

1,773.5 1,852.0 2000 2001 2001 2001 2001E 2001E 2002E (g,h) 2000 (h) 2000 (h) 2000 (e,f,h) Mar. 1Q Jun. 2Q Sept. 3Q Dec. 4Q Mar. 1Q Jun. 2Q Sept. 3Q Dec. 4Q 2000 % Of SalesOperating Profit Margin% Of Sales% Of SalesPretax Margin (4.4)%Tax Rate 23.8% (1.0)% 22.2% 2.9% 20.6% 1.3% 0.0% 22.3% (0.4)% (24.4)% (0.4)% 0.0% 22.1% 0.2% (18.2)% (4.4)% 0.2% 22.6% 2.8% (12.6)% 1.2% 1.2% 22.7% 0.0% (17.6)% 3.2% (1.8)% 22.5% (17.8)% (0.1)% 2.4% (0.2)% 4.2% (22.2)% 23.9% 0.0% 0.8% (0.6)% (19.1)% 3.1% 31.0% (2.4)% 0.2% (32.1)% (0.6)% 3.2% (0.8)% (17.3)% (16.0)% 19.7% 7.4% 3.6% (22.7)% 0.4% 1.0% 3.6% (0.7)% (4.4)% (6.7)% 3.2% 0.0% 0.9% 3.2% 3.4% 3.5% Domestic Service RevenuesEquipment Revenues (Back Into) % Of Domestic Service RevenuesInternational Revenues (1 Month Lag)% Of Sales 1,027.0Gross Profit Margin 96.0 9.3% 52.0% Of Sales 1,191.0 105.0 8.8% 69.0Domestic EBITDA 1,325.0 % Of Domestic SalesInternational EBITDA 112.0 8.5% 1,405.5 % Of International Sales 91.0 123.5 4,948.5EBITDA Margin 8.8% 118.0 1,477.9 62.9% 37.1% 436.5 8.8% 330.0 1,607.4 61.5% 38.5% 125.1 23.3% 8.5% 43.5% 139.0 262.0 1,664.3 (65.4)% 61.6% 38.4% (34.0) 112.6 24.9% (47.8)% 1,787.2 40.2% 161.0 323.0 7.0% 62.2% 37.8% (33.0) (36.3)% 155.3 6,536.7 27.3% 38.1% 180.0 392.0 19.4% 7.5% 62.0% 38.0% (28.0)% (33.0) 134.0 27.5% 38.6% 7,972.1 21.2% 183.7 421.0 59.9% (40.3)% 7.5% 40.1% (33.0) 26.0% 527.1 39.9% 1,398.0 (24.5)% 23.5% 63.6% 663.7 36.4% (133.0) 8.1% 22.0% 41.7% (20.5)% 23.6% 352.0 63.3% 597.9 36.7% (34.0) 838.5 (16.1)% 28.1% 39.7% 7.5% 22.1% 63.8% 483.0 36.3% (33.0) (17.0)% 28.9% 38.3% 18.3% 62.7% 526.0 50.3% (19.2)% (29.0) 28.7% 39.0% 23.9% 552.2 64.6% (31.2) 35.4% (6.7)% 27.1% 39.6% 24.9% 1,913.2 (127.2) 24.8% 30.4% 37.6% 2,604.8 (56.0) 23.1% 27.1% Source: Company reports and Thomas Weisel Partners LLC estimates 11/27/01 estimates LLC Partners Weisel Thomas and reports Company Source: Nextel Communications Quarterly Income Statement Data in millions EBITInterest IncomeInterest (Expense)Equity In Losses Of Unconsolidated AffiliatesForeign Currency Transaction Gains (Losses)Other Income (35.0)Pretax Income (Loss) 0.0Tax Expense (benefit) (36.0)Net Income (Loss) (6.0) (35.0)Preferred Stock Dividend (278.0)Net Income (Loss) To Common 83.0 3.0 (52.0)Basic And Diluted EPS (46.0) (301.0)Basic And Diluted Shares Outstanding 104.0 (152.0) (13.0) (287.0) (333.0) 0.0Relevant Disclosures (5.0) 111.0(e) 1Q 00 excludes a $23 million expense related to debt conversion (21.0) (249.0) (333.0)(f) 1Q 00 excludes a $104 million loss on early retirement of debt. 44.0 (8.0) (331.0)(g) 4Q 00 excludes a $275 million pre-tax gain on exchange of investments (3.0) 742.0 (1,245.0)(h) 1999, 1Q00, 2Q00, 3Q00, and 4Q00 results are pro forma for SAB 101 which went into effect in 4Q 00. 3.0 (192.0) 98.0 (24.0) 52.0 (279.0) (292.0) 21.0 (8.0) (358.0) 760.0 0.0 (290.0) ($0.45) (241.0) 396.0 (24.0) (236.0) 18.0 51.0 (1,018.0) (359.0) (8.0) 0.0 ($0.38) (184.0) 761.0 (45.0) (335.0) 79.0 (30.0) 0.0 52.0 (386.0) (354.0) ($0.31) (1,194.0) (281.0) (9.0) (76.0) 764.0 (16.0) (14.0) (360.0) (381.3) (69.0) 56.0 ($0.44) (428.0) 54.0 (985.0) (33.0) 23.0 756.8 (1,452.3) (639.0) 8.4 (10.0) ($1.58) (404.0) (372.0) 43.0 209.0 (14.0) 0.0 765.0 (1,488.5) (365.0) 48.0 ($0.56) (11.0) (52.6) (678.0) (347.0) (29.7) (1,750.0) (13.0) 56.0 765.0 ($0.53) (336.0) (407.4) (619.0) 17.5 148.3 (20.0) (1,917.4) 0.0 (631.4) 57.0 ($0.87) 783.0 (353.4) 20.0 12.5 (1,691.4) (11.7) ($0.52) (831.3) 790.6 59.0 73.2 (337.0) ($2.47) (58.7) 696.8 (609.3) 775.9 54.0 87.1 ($1.02) (22.1) 215.5 813.6 241.4 Segment Revenues Total RevenuesCost Of Goods Sold (ex D&A)Gross ProfitSelling General & AdministrativeSegment EBITDA 436.0Total EBITDA 1,175.0 526.0 511.0Depreciation & Amortization 1,365.0 587.0 549.0 1,528.0 739.0 623.0 582.0 1,647.0 228.0 839.0 2,172.0 5,715.0 636.0 290.0 941.0 698.0 280.0 1,742.0 2,278.0 1,024.0 359.0 228.0 1,881.0 684.0 303.0 726.0 3,543.0 388.0 1,992.0 290.0 732.0 315.0 1,044.0 747.0 1,265.0 2,105.0 359.0 1,197.0 763.0 367.0 763.0 7,720.0 318.0 1,260.0 2,877.0 388.0 1,265.0 820.9 450.0 9,408.5 1,341.9 1,265.0 394.0 3,326.3 3,056.9 4,842.9 497.0 318.0 427.0 3,533.4 521.0 6,082.2 450.0 449.0 1,786.0 497.0 503.5 2,548.8 521.0 1,786.0 2,548.8

Ned P. Zachar, CFA 212.271.3838 5

Thomas Weisel Partners LLC

36,500 85,900 750,000 ,284,500 1,332,500 00 1,046,000 68 22,872,468 900 3,285,900 468 23,918,468 600 18,615,600 5,900 3,385,900 ,222,180 6,447,180 ,240,600 18,990,600 8 22,349,468 23,395,468 0 18,615,600 19,365,600 2000 2001E 2002E 2003E 2004E 2005E 2006E 2007E 2008E 2009E 2010E 2011E (e,f,g,h) 2,112,063 2,733,293 3,334,680 3,747,180 4,122,180 4,459,680 4,759,680 5,022,180 5,247,180 5,472,180 5,697,180 Growth Q/Q 54.5% 32.9% 19.3% 15.1% 11.4% 10.2% 7.8% 7.2% 5.4% 5.1% 4.8% 4.6% Growth Q/QNextel Partners Proportionate Net AddsGrowth Q/Q 58,245 90,480 NA 120,320 128,000 NA 128,000 14.4% 128,000 376.9% 12.6% 128,000 122.8% 11.2% 120,000 73.3% 112,000 10.1% 112,000 45.0% 9.1% 96,000 31.0% 8.4% 96,000 23.7% NA 19.1% 15.1% NA 12.2% NA 10.9% NA 8.4% 7.8% Domestic Subscriber Additions, GrossDomestic Churn Rate (%)Domestic Churn (000s)Domestic Subscriber Additions, Net 3,556,225Growth Q/Q 4,085,063 4,495,793 4,834,680 2,162,500 1,937,400 4,997,180 1,750,000 5,372,180 2.1% 433,188 1,500,000 5,459,680International Subscriber Additions, Net 1,250,000 5,759,680 2.3% 1,250,000 5,772,180 1,000,000 5,997,180 2.4% 1,000,000 6 466,900 47.9% 750,000 501,100 2.5% 750,000 200,000 29.0% 2.5% 200,000 750,000 20.3% 200,000 2.5% 14.5% 200,000 2.5% 10.5% 200,000 200,000 2.5% 9.5% 200,000 2.5% 200,000 7.0% 200,000 2.5% 6.5% 200,000 2.5% 4.6% 2.5% 4.4% 4.2% 4.0% Nextel Communications Annual Operating Statistics Data in millions Average Total Subs Over Period 6,250,340 8,943,006 11,095,468 12,984,468 14,687,468 16,265,468 17,718,468 19,042,468 20,233,468 21,295,46 Ratio Analysis SG&A Per Gross AddSG&A Per Average SubscriberCPGALifetime Revenue Per Domestic SubscriberRelevant Disclosures (e) 1Q 00 excludes a $23 million expense related to debt conversion (f) 1Q 00 excludes a $104 million loss on early retirement of debt. $3,574(g) 4Q 00 excludes a $275 million pre-tax gain on exchange of investments (h) 1999, 1Q00, 2Q00, 3Q00, and 4Q00 results are pro forma for SAB 101 which went into effect in 4Q 00. $3,087 $366 $2,917 $641 $345 $2,780 $667 $322 $2,760 $752 $302 $428 $2,740 $800 $2,720 $298 $448 $825 $2,700 $299 $440 $2,680 $850 $435 $280 $2,660 $850 $276 $430 $2,640 $850 $261 $425 $2,620 $850 $259 $420 $850 $415 $256 $850 $410 $254 $850 $405 $400 $395 Average International Subscribers 614,675Nextel Partners EOP Proportionate Subscribers 1,175,150Average Nextel Partners Prop. Subs Over Period 1,485,900 73,700 1,685,900 41,197 164,180 1,885,900 2,085,900 116,710 284,500 2,285,900 222,580 412,500 2,485,900 348,500 2,685,900 540,500 2,885,900 476,500 668,500 3,085, 604,500 796,500 732,500 916,500 1,028,500 856,500 1,140,500 972,500 1,236,500 1,084,500 1,188,500 1 International ARPU (1 Month Lag)Effective ARPU (For Modeling)Nextel Partners Proportionate Sunscribers Nextel Partners BOP Proportionate Subscribers 15,455 NA 4473.9% 73,700Total Subcriber Information $47.07 164,180Total BOP SubscribersTotal Subscriber Net Additions 284,500 $47.03Total EOP Subscribers 412,500 $47.50 540,500 $48.00 668,500 2,687,645 $48.50 796,500 2,503,700 4,929,123 1,950,000 7,616,768 $48.75 916,500 10,120,468 7,616,768 1,828,000 10,120,468 1,028,500 12,070,468 12,070,468 1,578,000 $49.00 13,898,468 1,140,500 13,898,468 15,476,468 1,578,000 15,476,468 17,054,468 1,2 $49.25 1,328,000 17,054,468 18,382,468 18,382,468 19,702,468 1,320,000 19,702,468 $49.50 20,764,468 1,062,000 20,764,468 21,826,4 21,826,468 1,062,000 $49.75 22,872, 1,046,0 $50.00 Average Domestic Subscribers 5,606,638Total International EOP Subscribers 7,673,850 9,490,600 11,115,600 12,490,600 13,740,600 14,865,600 15,865,600 881,700 16,740,600 1,385,900 17,490,600 1,585,900 18 1,785,900 1,985,900 2,185,900 2,385,900 2,585,900 2,785,900 2,985,900 3,18 Total Domestic EOP SubscribersDomestic ARPUDomestic Lifetime Revenues Per SubInternational Proportionate Subscribers 6,678,200International BOP Subscribers 8,615,600 10,365,600 11,865,600 13,115,600 $3,564 14,365,600 15,365,600 $3,087 16,365,600 17,115,600 17,865,60 $2,917 403,500 $73.50 $2,780 881,700 1,385,900 $71.00 $2,760 1,585,900 $70.00 1,785,900 $2,740 1,985,900 $69.50 2,185,900 $2,720 2,385,900 $69.00 2,585,900 $2,700 $68.50 2,785,900 $2,680 2,985,900 $68.00 3,1 $2,660 $67.50 $2,640 $67.00 $2,620 $66.50 $66.00 $65.50 Domestic Subscribers Domestic BOP Subscriber 4,515,700 6,678,200 8,615,600 10,365,600 11,865,600 13,115,600 14,365,600 15,365,600 16,365,600 17,115,600 17,865, Source: Company reports and Thomas Weisel Partners LLC estimates 11/27/01 estimates LLC Partners Weisel Thomas and reports Company Source:

Ned P. Zachar, CFA 212.271.3838 6

Thomas Weisel Partners LLC

2000 2001E 2002E 2003E 2004E 2005E 2006E 2007E 2008E 2009E 2010E 2011E (e,f,g,h) Domestic Service RevenuesEquipment Revenues (Back Into) % Of Domestic Service RevenuesInternational Revenues (1 Month Lag)% Of Sales 4,948.5 436.5 330.0Gross Profit Margin 8.8% 6,536.7 527.1% Of Sales 663.7 8.1% 7,972.1Domestic EBITDA 597.9 838.5 9,270.4 % Of Domestic Sales 7.5%International EBITDA 10,342.2 695.3 % Of International Sales 961.0 7.5% 11,294.8 1,086.3 775.7EBITDA Margin 12,130.3 7.5% 62.0% 38.0% 1,214.0% Of Sales 12,851.1 847.1 13,459.4 62.7% 1,337.3 50.3% 7.5%Operating Profit Margin 909.8 13,957.5 1,398.0 26.0% 1,461.7 64.6% 39.9% 35.4% (40.3)% 7.5% (133.0) 14,446.6 1,913.2 963.8 1,587.4 27.1% (19.2)% 39.6% 64.4% 35.6% 14,926.6 (127.2)% Of Sales 2,604.8 7.5% 1,009.5 1,714.2 (6.7)% 30.4% 37.6% 65.4% 34.6%% Of Sales 3,189.0 (56.0) 1,046.8 1,842.3 22.1% 7.5% (1.6)% 32.0% 35.4% 66.9%Pretax Margin 33.1% 3,668.9 (15.0) 1,083.5 1,971.5 23.1% 0.0% 33.0% 7.5% 35.1%Tax Rate 2.3% 4,128.2 22.1% 65.9% 34.1% 1,119.5 25.0 27.1% 0.2% 34.0% 4,564.0 35.5% 31.0% 66.2% 7.5% 5.4% 33.8% 29.0% 4,904.3 65.0 7.4% 35.0% 19.7% 33.5% 65.2% 34.8% 7.9% 7.5% 30.3% 5,208.8 10.9% 35.5% 105.0 18.1% 33.2% (0.1)% 65.6% 34.4% 5,476.6 9.9% 31.4% 14.1% 36.0% (0.2)% 16.2% (0.7)% 31.6% 145.0 66.0% 34.0% (17.8)% 5,746.1 11.7% 32.5% (4.4)% 17.0% 36.5% 31.5% 14.4% (22.7)% 0.0% 185.0 66.4% 6,017.3 33.6% 13.1% 33.1% 19.5% 0.9% 37.0% 13.0% (6.7)% 31.4% 3.2% 225.0 0.4% 33.6% 14.4% 21.3% (1.0)% 11.7% 37.5% 1.0% 31.4% 3.4% 265.0 0.4% 34.1% 15.5% 22.9% 10.6% 3.2% 1.0% 3.5% 305.0 0.4% 34.6% 24.4% 9.7% 7.2% 1.1% 0.0% 35.1% 0.4% 25.8% 10.9% 8.8% 1.1% 0.0% 0.4% 27.1% 15.2% 8.0% 1.1% 0.0% 0.4% 18.8% 10.0% 1.1% 0.4% 22.1% 15.0% 1.1% 25.1% 0.4% 20.0% 1.1% 28.0% 0.4% 25.0% 1.1% 30.0% 35.0% Source: Company reports and Thomas Weisel Partners LLC estimates 11/27/01 estimates LLC Partners Weisel Thomas and reports Company Source: Nextel Communications Annual Income Statement Data in millions Segment Revenues Total RevenuesCost Of Goods Sold (ex D&A)Gross ProfitSelling General & AdministrativeSegment EBITDA 2,172.0 2,877.0 5,715.0 2,278.0Total EBITDA 3,326.3 7,720.0 3,056.9Depreciation & Amortization 3,885.0 9,408.5 3,533.4 3,543.0 4,222.7EBIT 10,926.7 3,867.7 4,842.9 4,426.4Interest Income 1,265.0 12,204.2Interest (Expense) 4,287.7 6,082.2 13,355.9 4,897.7Equity In Losses Of Unconsolidated Affiliates 1,786.0Foreign Currency Transaction Gains (Losses) 7,041.8 4,736.4 14,377.4 2,548.8 5,161.7 1,265.0Other Income 15,276.8 7,981.6 4,810.7 (152.0) 3,174.0 5,586.2 1,773.5 1,265.0 16,056.3 (3.0)Pretax Income (Loss) 5,065.7 8,929.6 3,693.9 5,749.4 (69.0) 1,852.0 16,718.6 1,786.0Tax Expense (benefit) 5,076.4 9,479.8 (52.6) 4,193.2 1,977.9 17,372.4 5,902.4 2,548.8 10,115.0 0.0 5,267.6Net Income (Loss) 4,669.0 18,017.7 1,972.4 (1,245.0) 3,174.0Preferred Stock Dividend 6,045.3 0.0 10,470.2 396.0 5,458.9 (1,452.3)Net Income (Loss) To Common 5,049.3 1,925.7 10,969.2 0.0 3,693.9 0.0 (1,488.5)Basic And Diluted EPS 148.3 5,650.1 0.0 5,393.8 11,470.0Basic And Diluted Shares Outstanding 1,867.6 4,193.2 (1,418.8) (1,018.0) 0.0 12.5 11,972.4 5,701.6Relevant Disclosures 1,792.0 (1,451.2) 73.2 4,669.0 (1,750.0) (14.0)(e) 1Q 00 excludes a $23 million expense related to debt conversion 0.0 (1,446.9)(f) 1Q 00 excludes a $104 million loss on early retirement of debt. 6,011.1 1,709.5 (33.0) (1,194.0) 696.8 5,049.3 (631.4) (337.0)(g) 4Q 00 excludes a $275 million pre-tax gain on exchange of investments 0.0 (1,398.5) 4.6 (1,917.4)(h) 1999, 1Q00, 2Q00, 3Q00, and 4Q00 results are pro forma for SAB 101 which went into effect in 4Q 00. 756.8 1,616.3 1,196.2 6,322.3 209.0 5,393.8 (108.8) (58.7) 0.0 (1,111.1) (985.0) 87.1 (831.3) (1,691.4) 1,721.5 1,520.7 5,701.6 775.9 0.0 215.5 (847.4) 392.4 (22.1) 0.0 ($1.58) 109.3 (371.7) 0.0 (609.3) 2,267.5 1,441.0 6,011.1 813.6 (574.8) ($2.47) 241.4 967.6 0.0 0.0 127.7 122.0 (108.8) 0.0 2,801.4 6,322.3 ($1.02) 0.0 (325.3) 839.6 1,564.0 262.9 3,257.3 392.4 702.9 146.9 ($0.44) 0.0 0.0 2,317.2 3.0 (43.5) 833.6 3,684.3 264.7 0.0 1,142.9 967.6 158.2 3,013.5 $0.15 4,085.3 0.0 859.6 1,705.0 0.0 264.7 3.0 1,407.6 3,694.4 0.0 168.0 $0.82 4,490.4 2,146.1 853.6 1,969.7 156.4 264.7 4,356.2 0.0 0.0 176.6 2,506.1 4,881.2 $1.34 2,410.8 0.0 879.6 5,050.7 347.6 264.7 2,784.7 183.9 2,770.8 $1.94 0.0 0.0 873.6 602.7 264.7 0.0 3,018.3 3,049.4 $2.46 191.1 899.6 923.6 0.0 264.7 3,283.0 $2.79 198.2 1,306.9 893.6 264.7 14.7 $3.12 1,767.8 919.6 264.7 $3.28

Ned P. Zachar, CFA 212.271.3838 7

Thomas Weisel Partners LLC

/ (c) 3 (b) 153 $522 $236 $131 $362 POP TEV 11/27/01 7 $291 1 $188 3Q01 Covered Covered / (b) TEV 1 $336 7.1 $337 9.9 $399 8.9 $443 5.0 $195 183.8 $218 3Q01 80 13.0 $284 12.9 $286 /Subs (b) /EBITDA TEV (b) /Revs TEV (b) TEV 3.6x 3.0x 2.6x 3.6x 3.0x 10.0x 9.4x 8.1x $2,966 $2,604 $2,342 $301 $335 4.9x 3.5x 2.8x 22.2x 18.1x 11.7x $3,5673.5x 4.9x $2,709 $2,247 $164 $195 70.2x 8.7x 3.8x 8.7x 70.2x (43.2)x (39.4)x (24.4)x $32,123 $5,862 $2,834 $126 $222 10.8x 6.1x 4.6x 10.8x 6.1x (65.6)x 9.3x NM $6,578 $4,380 $3,237 $261 $272 Debt/ Rev. EBITDA Subs (b) TEV Cash (a) Debt Market Total ’02e Net’00-’05e ’00-’05e ’00-’05e Market Total ’02e Closing Shares Cap AWE ANXTL $14.84 B 2684.5 $39,838 $6,000 $10.99 $3,000TLCP 783.0 $39,238 A $8,605 $18,708 $4,227 2.8x 16.2% $13.08 $26,178PCSA 31.1% 194.0 BAPCS 6.3x $2,538 18.5% 13.0% $3,756 BUPCS2.6x 23.8x 14.4x 11.0x 27.1% $2,588 $3602.9x $55.08 SB 3.8x UNWR $2,160 $15.09 16.6% 28.0 $5,933 B $1,8832.8x $10.05 $1,54220.7x 14.7x 10.3x $3,9203.4x 184.2x 42.9% 92.0 4.6x 216.0NXTP $3,038 $656 $10.69 73.3 $1,389 $182 $1,012 NM B $2,525 $14 $736 84.2 $103(42.3)x 230.0NM(46.5)x $362 32.4% 166.0 5.4x $2,184 $900 $9.11 $114 $2,2988.0x $8,903 $31 $330 17.4x (39.5)x 114.1% 244.4 $5,718 16.1x 72.1% $161 199.9 $2,226 $1,068 NM $3,922$17,285 $1,104$38,527(161.3)x NM59.0x $1,069 (14.5)x (39.8)x 149.1% $4,427(41.8)x 36.7 $463 $9,293 89.6%(43.0)x 4.8x (44.5)x 13.0x 41.0%12.7x $2,6443.5x $3,324 $162 64.9% NM $2,867 89.1x 6.4x 15.6 NM 27.9x 14.5$8,480 (67.5)x 66.1%40.2x 120.7%(54.0)x 31.04.2x $14711.6x $3,844 $151 (48.3)x (22.0)x (35.6)x (37.0)x $64,202 154.4x 46.9%2.8x NM $2,412 $5,881 $191 4.2x (33.5)x 10.8 9.4x $2,954NM(30.6)x 55.8% 6.0 4.4x 9.87.7x $12,610 11.1 21.1x $109 $21 $5,587 $96 $3,225 6.7 51.0 7.0 $159 $56 $ 29.0 $99 1(A) 1 2 1 1 1† 1 1 Company Name Ticker Rating 11/27/01 Out (mn) (mn) (mn) (mn) ’02e EBITDA CAGR CAGR CAGR 00 A 01 E 02 E 00 A 01 E 02 E 00 A 01 E 02 E POPs POP POPs NEXTEL PARTNERS INC* AIRGATE PCS INC* US UNWIRED INC* TRITON PCS HLDGS INC* TPC B $32.50 Average 78.0 $2,536 $1,576CORP $418ALLTEL $3,694 7.0x 27.3% AT NM NR 28.7% $62.84 10.3x 310.2 $19,495 6.7x $3,805 5.0x (164.3)x $44 61.0x $23,256 23.9x 1.0x 8.0% $8,276 $5,264 10.1% $3,8 7.2%2.8x $3,6918.6x 8.2x 7.1x 3.0x $3,402 3.3x $3,120 49.5 $470 44.6 Average UBIQUITEL INC* ROGERS WIRELESSRURAL CELLULARUS CELLULAR CORPWESTERN WIRELESS CORP RCN Average NR RCCC WWCA USM NR NR $13.80 NR 133.7 $24.90 $24.35 $1,845 $44.30 78.7 $2,250 11.9 $1,959 86.4 $115 $289 $2,075 $3,827 $1,379 $3,979 $91 $520 $11 NA $3,943 $7 $1,657 3.8x $4,340 5.6x NA 14.9% 0.5x 13.3% NA 22.3% 16.4% 7.8% 11.0% NA 11.3% 13.0% 4.7x 11.3% 4.7x 4.0x 2.6x 3.5x 3.3x 2.3x 3.2x 2.5x 1.9x 12.6x 2.3x 11.6x 2.1x 9.3x 9.6x 8.4x 14.3x 7.8x 7.7x 12.6x 7.4x 6.6x $3,757 $2,998 $3,246 5.6x $2,531 NA $2,879 $1,418 $2,259 $1,236 NA 6.3 $1,110 NA $262 25.7 19.3 $169 $206 5. 23. 17.4 $229 SPRINT PCS GROUP*NEXTEL COMMUNICATIONS* Average PCS SBTELECORP PCS INC* $27.04 993.0 $26,851 $13,310 $141ALAMOSA PCS HOLDINGS* $40,020 6.4x 26.0% 40.8% 22.4% 6.3x 4.1x 3.2x NM 25.2x 14.0x $4,194 $2,928 $2,331 20 DOBSON COMMUNICATIONS DCEL NR $9.72 94.2 $916 $1,677 $215 $2,378 7.9x 12.6% 23.9% 11.5% 4.6x 3.7x 3.3x 14.1x 9.3x 7.6x $2,554 $2,160 $1,908 7. AT&T WIRELESS GROUP* TEV for NXTL does not inlude cash of $4.3 billion. Adjusted for non-cash generating assets. Figures are pro-forma pending acquisition of iPCS. Wireless Services Comparative Analysis Nextel Affiliate Sprint PCS Affiliates Independents TOTAL Industry MEDIANTOTAL INDUSTRY MEAN $2,093 $7,218 34.1% 47.4% 16.4% 17.2% 30.6% 40.9% 9.9x 27.4x 5.2x 5.9x 3.4x 3.6x (33.8)x (27.3)x (8.0)x 7.4x (3.0)x 7.6x $14,331 $8,276 $4,369 $4,380 $2,797 $2,879 $212 $166 $260 $225 AT&T Affiliates National Service Providers SB - Strong Buy B - Buy A - Attractive MP - Market Perform MU - Market Underperform Source: Company data, First Call, and (*) Thomas Weisel Partners LLC estimates (a) (b) †

Ned P. Zachar, CFA 212.271.3838 8

Thomas Weisel Partners LLC

EQUITY RESEARCH DIRECTORY

Mark Manson • Director of Research • [email protected] • 212.271.3815 or 415.364.6954 H. Perry Boyle, Jr., CFA • Deputy Director of Research • [email protected] • 212.271.3750

Economic and Market Strategy Electronics & Power Technology Media & Telecom Services

Growth Stock Strategy Electronic Components & SATS Media & Broadcasting David Readerman, CFA, Partner Eric Gomberg, Vice President Gordon Hodge, Partner Equity Growth Strategist [email protected] 212.271.3765 [email protected] 415.364.2575 [email protected] 415.364.2573 Jason Pflaum, CFA 212.271.3583 Christa Sober 415.364.7154 Sanjay Puri 415.364.7039 Lauren Grismanauskas 415.364.2607 Jeff Gregor 415.364.2757 EMS Telecom Services – Long Haul / Hosting Erika Henik, Vice President Jim Savage, Partner [email protected] 415.364.5990 [email protected] 212.271.3756 James J. Linnehan, Principal Abel Beyene 212.271.3763 [email protected] 212.271.3751 Mat Johnson, Vice President Kevin Monroe 212.271.3767 Economist Energy & Power Technology John Sharko, CFA 212.271.3759 [email protected] 415.364.2769 Tim Fogarty, Vice President PT Luther 212.271.3752 Business Services & Consumer [email protected] 212.271.3809 Telecom Services - Wireless Stephen G. Kawaja 212.271.3593 Ned P. Zachar, CFA, Partner Business & Technology Services Semiconductors [email protected] 212.271.3838 David Grossman, Partner John Sharko, CFA 212.271.3759 [email protected] 415.364.2541 Eric M. Ross, Principal [email protected] 212.271.3846 Sophia Hardy 212.271.3799 Alice Manard 415.364.2913 Robert J. Burleson 212.271.3590 Telecom Services - Wireline Education & Market Research Michael McConnell 415.364.5979 Alan Curry 212.271.3852 Peter DeCaprio, Principal Fred McCrea [email protected] 617.488.4103 [email protected] 415.364.2660 Technology Distribution James D. Breen, Jr. 617.488.4107 Paige Prichard 415.364.2995 Matt Sheerin, Vice President Brendan Donoghue 617.488.4191 Financial Services [email protected] 212.271.3753 Towers / DBS / Cable Matthew Park, Vice President Mark W. Bachman 415.364.3586 [email protected] 212.271.3818 Ray Schleinkofer, CFA, Vice President [email protected] 212.271.3595 Michael Maestas, CFA 415.364.6063 Healthcare Matt Nemer 212.271.3703 Food & Beverage Diagnostics Skip Carpenter 212.271.3808 Wireless Software & Infrastructure David Lewis [email protected] [email protected] 415.364.2939 Matt Finick, Vice President Cynthia Miller 212.271.3760 [email protected] 415.364.2577 Jennifer Haroon 415.364.2666 Vince Carey 415.364.5959 Hospitality & Leisure Genomics & Proteomics Jake Fuller, Vice President Software [email protected] 212.271.3821 Scott R. Greenstone, CFA, Vice President [email protected] 212.271.3766 Business Analytics Software Specialty Retail & Branded Consumer Healthcare IT & Services Tom Ernst Anne-Marie Peterson, CFA, Vice President [email protected] 415.364.2789 [email protected] 617.488.4177 Steve P. Halper, Principal Allison Ruckey 415.364.5952 Hil Davis 415.364.2996 [email protected] 212.271.3807 Megan Hall 415.364.2641 Eric Percher 212.271.3806 Content Management Applications & Infrastructure Communications & Computing LifeScience Technology Systems R. Keith Gay, Partner Paul Knight, CFA, Partner [email protected] 415.364.2582 Co-Director, Healthcare Research Brian Neigut 415.364.7106 Broadband Access [email protected] 212.271.3757 Kerry O’Connor 415.364.2855 Jason Ader, CFA David P. Parsekian 212.271.3764 [email protected] 617.488.4621 Erick Noensie, PhD 212.271.3591 Enterprise Applications Allyson Cuccia 212.271.3769 Alex Kurtz 617.488.4116 Robert J. Schwartz, PhD, Principal Communications Components Medical Devices [email protected] 617.488.4625 Jeremy Bunting, PhD, Principal Lynn C. Pieper, CFA, Vice President Kevin McGuire 415.364.2656 Daniel Halsey, CFA 617.488.4125 [email protected] 415.364.2610 [email protected] 415.364.5999

Neville Shah 415.364.2856 Jason R. Mills 415.364.6975 David Gremmels, CFA Ruben Roy 415.364.2759 [email protected] 617.488.4630 Jane Ngo 415.364.2583 Specialty Pharmaceuticals Enterprise Systems & Storage / Rich Media Donald B. Ellis, PharmD, Partner Platform & Infrastructure Software [email protected] 415.364.7038 Doug van Dorsten, CFA, Partner Tim Klasell, Principal [email protected] 415.364.2574 Adam Walsh, MD 415.364.5934 [email protected] 415.364.2949 Cory Gaffney 415.364.5692 Patrick Franke 415.364.6019 Derek Chen 415.364.7072

Kevin Hunt, CFA [email protected] 415.364.2674

Wireline Equipment Hasan Imam, PhD, Principal [email protected] 212.271.3698 Bobby Sarkar 212.271.3582 Michael DeMichele 212.271.3798

Thomas Weisel Partners LLC • One Montgomery Street • San Francisco CA 94104 • tel 415.364.2500 • fax 415.364.2695 • www.tweisel.com

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August 14, 2001 J.P. Morgan Securities Inc. New York Equity Research Thomas J. Lee (1-212) 622-6505 [email protected]

Company Report Nextel Communications Reach Out and Push (to Talk to) Someone

Initiating Nextel has the highest NPV customer base. Nextel has gained market share primarily by Coverage targeting business customers requiring group communications. By focusing on this segment, we think Nextel owns one of the most attractive customer bases in the wireless industry: the company’s average revenue per user is $74 per month, well above the industry average of $55 and higher than any national carrier. Even as the company’s churn rate has increased to 2.5%, BUY which is still below the industry average of 2.8%, we believe Nextel’s overall quality of its existing user base is one of the highest in the industry, especially as half of its customer base uses the unique Direct Connect feature.

The subscriber base is still achieving double-digit growth, despite slowing growth in the business segment. Businesses were early adopters for wireless, driving the industry, but for the past three years the vast majority of incremental wireless growth has been driven by consumer Wireless Services and Mobile demand, and incremental penetration of wireless (from 30% to 60-70%) should come entirely Data Equity Research from consumer growth. While the growth rate of Nextel is slowing, we believe the company

Thomas J. Lee, CFA will nevertheless continue to grow. Our conservative modeling, relative to Street consensus, (1-212) 622-6505 suggests that even with a deceleration of net adds through 2004, Nextel will still post 13% Jonathan B. Levine subscriber growth and 30% EBITDA growth to $4.2 billion. (1-212) 622-6511 A scarce national wireless asset in a capacity-constrained industry. Nextel is a beneficiary of any consolidation of the national landscape. There is little excess capital in the ground, and available spectrum is barely adequate to meet current wireless demand. The industry’s PP&E/sub has been fairly consistent at around $800 per sub as carriers have barely been able to keep up with the growing capacity requirements stemming from a 30%-plus CAGR growth in subscribers. The lifting of the spectrum caps should positively set the stage for significant industry consolidation for obvious reasons. The combined implication for any existing national carrier today is that the invested plant in the ground is not “stranded” or idle. Moreover, we believe that in the context of global wireless and the removal of spectrum caps, there are arguably more companies looking for acquisitions than there are potential targets.

In our view, equity valuation leaves little downside risk. We believe Nextel’s valuation is compelling as wireless investors have soured on Nextel in the past year, radically reevaluating their stance on the company. As a result, the stock has plunged, dropping over 75% in the past year, and currently trades close to its 52-week low. We used the average of our sum-of-the- pieces calculation ($31) and discounted cash flows model ($27) to derive our 12- to 18-month target price of $29 per share which we believe the company can achieve by the end of the 2002. This represents 103% potential upside. While we have stronger conviction on fundamentals for Sprint PCS, frankly, we believe the equity upside on Nextel is compelling.

Common Stock (Nasdaq: NXTL) Revenues ($MM) EPS Price 13 Aug 01* $14.59 2000 $5,288 $(1.35) Nasdaq 1982.25 52-Week Range $11-70 2001E 7,189 (2.37) Market Cap. $14.2B Dividend Nil 2002E 8,710 (2.08) Shares Out. 971.7MM Insider Ownership 10% *Data in this table reflect 13 Aug 01’s closing price; all other data and valuation reflect 9 Aug 01’s close of $14.29. J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 thomas.lee@ jpmorgan.com 2

TABLE OF CONTENTS Investment Thesis...... 3 Earnings Outlook...... 5 Valuation: Equity Valuation Leaves Little Downside Risk...... 7 The Basics of Nextel...... 16 Moving Beyond iDEN: Possible Transition to CDMA2000 1x ...... 28 Ownership and Management Structure...... 35 Financial Analysis ...... 37 Funding...... 42 Franchise Market Profile and Competition...... 46

FIGURES See page 66 for a list of Figure 1: Year-to-Date Price Performance ...... 7 tables. Figure 2: Net Wireless Value/EBITDA, 2002E-2003E...... 11 Figure 3: Net Wireless Value/Revenue, 2002E-2003E ...... 12 Figure 4: Net Wireless Value/Subscriber, 2001E-2002E ...... 12 Figure 5: Net Wireless Value/2001E Pop...... 13 Figure 6: Average Monthly Revenue per User and Monthly Churn (2000) ...... 16 Figure 7: Operating Cash Flow per Subscriber (2000)...... 17 Figure 8: Nextel Net Adds and Percent of Industry Net Adds (1997 to 2001E)...... 18 Figure 9: National Carriers’ Points of Distribution ...... 19 Figure 10: 2001E Gross Adds per Total Points of Distribution...... 20 Figure 11: Nextel Gross Adds, Net Adds, and Churn (2000 to 2004E)...... 21 Figure 12: Nextel’s Annual Market Share...... 21 Figure 13: Property, Plant & Equipment per Subscriber: U.S. Wireless Industry...... 22 Figure 14: Nextel’s Frequency Ownership...... 26 Figure 15: Potential Transition Paths to 3G Technologies ...... 29 Figure 16: Current Capex Forecasts ...... 31 Figure 17: Modified Capex Forecasts for 1xRTT Migration...... 32 Figure 18: Cumulative Capex Savings ...... 33 Figure 19: iDEN and 1xRTT Forecast Capex as Percent of Forecast Revenues ...... 33 Figure 20: Management Structure ...... 36 Figure 21: Net Additions ...... 37 Figure 22: Ending Subscribers...... 38 Figure 23: Service Revenues ...... 38 Figure 24: Average Revenues per User ...... 39 Figure 25: Operating Cash Flow...... 39 Figure 26: Gross Cash Flow ...... 40 Figure 27: Capital Expenditures ...... 40 Figure 28: Capital Expenditures per Net Addition ...... 41 Figure 29: Nextel Funding vs. Free Cash Flow Losses to FCF Positive ...... 42 Figure 30: Nextel Debt Maturity Schedule...... 43 Figure 31: Profile of Launched Markets...... 47

APPENDIXES Appendix I: Company Profile...... 48 Appendix II: Financial Models...... 49 Appendix III: Nextel International Discounted Cash Flow Valuation...... 57 Appendix IV: Consolidated Funding Requirements & Availability...... 58 Appendix V: Nextel’s Detailed Debt Maturity Schedule ...... 60 Appendix VI: Nextel Competition in Launched Markets...... 61 Nextel Communications August 14, 2001 3 New York

INVESTMENT THESIS

Nextel is a provider of fully integrated wireless communications. Using iDEN technology, the company has built an all-digital wireless network covering thousands of communities across the United States, including 92 of the top 100 markets. The Nextel national network offers a fully integrated wireless communications tool with digital cellular service, text/numeric messaging, Nextel Direct Connect (a digital two-way radio feature), and Nextel Online Wireless Internet service. Through Nextel International, Nextel has wireless operations and investments in Argentina, Brazil, Canada, Japan, Mexico, Peru, Chile, and the Philippines.

Positives A High NPV Customer Base Nextel has gained share primarily by targeting a specific wireless market segment—business customers requiring group communications—and leveraging its proprietary network protocol and service feature (Direct Connect). Business users make up most of Nextel’s base as its product appeals to users who rely on group communications, such as field and construction workers, IT professionals, and even white collar workers. Nextel owns one of the most attractive customer bases in the industry: Its 2000 ARPU came to $74 per month, well above the $55 industry average and any national carrier’s. Even as Nextel’s churn rate has risen to 2.5%, which is still below the industry average of 2.8%, we believe the overall quality of its existing user base is one of the highest in the industry, especially as half of the base uses the unique Direct Connect feature.

Business Segment Slowing, But Subscriber Base Still Achieving Double-Digit Growth Businesses were early adopters of wireless, but for the past three years the vast bulk of incremental growth has come from consumer demand, and as demonstrated worldwide, incremental penetration of wireless (from 30% to 60-70%) should come entirely from consumer growth. Investors have expressed concern about Nextel’s ability to keep growing. Although its growth rate is slowing, we believe it will continue to grow. We conservatively estimate, relative to the street, that even with a slowing in net adds through 2004 (peaking at 2.1 million in 2000), Nextel will still post 13% compound annual subscriber growth and 30% EBITDA growth to $4.2 billion. As a check on our forecast, our gross add estimates for Nextel translate into an 8-9% share of industry gross adds, about in line with its historical share and consistent with its distribution mix.

A Scarce National Wireless Asset in a Capacity-Constrained Industry Nextel should be a beneficiary of any consolidation of the national landscape. As competitive as the industry is today, there is surprisingly little excess capacity in the ground, and available spectrum is barely adequate to meet current demand. Anybody using a cellular or PCS phone in the United States sees this, with congestion and capacity problems particularly acute in metropolitan markets. The industry’s PP&E/sub has been fairly consistent around $800 as carriers have only barely kept up with the rising capacity needs owing to 30%-plus subscriber growth. The FCC is reviewing spectrum caps and could make a decision in the next three months. Lifting caps would set the stage for significant industry consolidation. A leading law firm, working with JPMorgan, that specializes in telecom practices believes there is growing likelihood that spectrum caps will be lifted. The implication for existing national carriers is that invested plant in the ground is not “stranded” or idle: If Nextel’s 7 million subscribers were acquired by another carrier, that carrier would have to spend $6 billion in PP&E to provide adequate capacity. Moreover, we believe that in the context of global wireless and the removal of spectrum caps, there are more companies looking for acquisition targets than there are companies available to be acquired. J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 thomas.lee@ jpmorgan.com 4

Valuation Appears Compelling Wireless investors have soured on Nextel in the past year, radically reevaluating their assessment from “industry darling with the highest-value customer” to a company with a troubled future plagued by slowing growth and costly network evolution. The stock has dropped more than 75% in the past year (versus a 70% slump in the Nasdaq) and now trades close to its 52-week low. We used the average of our sum-of-the-pieces calculation ($31) and discounted cash flows model ($27) to derive our 12- to 18-month target price of $29 per share, 103% above the current price. Fully Financed Nextel currently has total available funding of $7.3 billion: cash of $3.38 billion and bank lines of $1.5 billion. We forecast that its cumulative free cash losses through 2005 will total $6.5 billion (including capex, cash interest, working capital) and therefore estimate its excess funding (on an operational basis) at $800 million (see Figure 29 on page 42). If the company modifies its network configuration to 1xRTT, however, the funding gap through 2005 could swing to a negative $1.7 billion ($4 billion of 1xRTT less $1.5 billion in iDEN capex). In other words, Nextel could require additional funding in 2004. Risks Network Evolution for iDEN Is Costly Nextel faces a major network evolution issue. It indeed faces a major capital cycle in the area of $4 billion ($20 per Pop) during 2002-2003 (associated with reconfiguring its current 2G iDEN network to a future 3G platform, probably 1xRTT, also known as CDMA2000), which is not reflected in our current model, though the company has a request for proposals (RFP) out to price this evolution. The payback for Nextel (compared with our model) is improved “unit cost of capacity,” which we estimate would amount to $3.0-3.5 billion in capex savings during 2003- 2007, so the $4 billion investment should virtually be recouped within four years. Limited Spectrum and Therefore Capacity The company has a total of about 20 MHz of spectrum in the top 50 markets versus approximately 25 MHz for the other leading national carriers. In other words, Nextel has about 25% less spectrum than other carriers, and it faces even greater capacity constraints than its competitors owing to its smaller spectrum inventory. Nextel hopes to be able to offer an exchange of spectrum with operators owning spectrum in the lower 150 and lower 80 channels in the 800 MHz band and relocate them to the recently acquired 700 MHz spectrum. The Economy To believe that the wireless industry is immune to a slowing economy is unrealistic, but we expect wireless to demonstrate its relative resiliency in a weak economy. A slowing economy would affect business demand, particularly in the channels focused on by Nextel. The company has already experienced a rise in customer churn, which reduced net adds while operating costs rose simultaneously. It has been exceptionally focused on cost control (as it has been so focused on growth), and we expect these efforts to lead to operating margin improvement. Industry Health Risks The possible link between microwave radiation from wireless phone antennae and health risks poses two key questions: (1) what effect will this have on consumer demand (subs growth or usage levels) and (2) can handsets be changed to reduce radiation risk (shielding and “Bluetooth”)? The former is the trickier question given the unpredictable response to publicity, but a look at Europe can provide some insight. Mobile-telephone-related health concerns have run rampant in Europe for most of 2001. Many subscribers have adopted “safer” ways of using wireless phones (using ear pieces, for example). Even with a high level of concern, Europe is set to post record wireless growth, at 55 million net adds or 15% incremental penetration versus 6% in the United States With regard to modifications to phones, such as shielding or moving the antenna, using an earpiece does appear to reduce radiation exposure; also, Bluetooth, an open short-range wireless standard, should lead to the development of mobile phones where the transmitter, an antenna that communicates to the cellular/PCS network, is physically separate from the earpiece and handset. Nextel Communications August 14, 2001 5 New York

EARNINGS OUTLOOK

We project domestic wireless industry penetration to reach 47.7% by 2001 and 70% by 2007. Within Nextel’s territory, this represents a future subscriber base of 148.3 million. We forecast Nextel to capture 9.0% of industry gross additions in 2001, 8.7% in 2002, and 10.0% in 2007, representing 4.2 million gross adds in 2001 and 4.3 million in 2007. We expect the company to have 29.1 million cumulative gross adds from 2001 through 2007. The subscriber base therefore is expected to grow 9.3% annually from 8.6 million in 2001 to 14.7 million in 2007. Our forecast implies 2.0 million net adds in 2001, 1.9 million in 2002, and 770,000 in 2007.

We project Nextel International to have 1 million gross adds in 2001 and 2002 and reach 1.3 million in 2007. We expect the company to have 8.0 million cumulative gross adds between 2001 through 2007. The proportionate subscriber base therefore is expected to grow 18.9% annually from 1.5 million in 2001 to 4.2 million in 2007. Our forecast implies 636,000 net adds in 2001, 600,000 in 2002, and 300,000 in 2007.

Our forecast for Nextel’s revenues consists of domestic and international access and usage revenues (the service revenues generated from Nextel’s customer base). We project revenues to grow 10.9% annually, reaching $13.4 billion in 2007. We forecast domestic revenues to grow 9.5% annually, reaching $11.3 billion in 2007, while international revenues grow 22.1% annually, reaching $2.0 billion in 2007. We project Nextel Domestic to have access and usage ARPUs of $71.42 in 2001, $68.00 in 2002, and $66.00 in 2007. We project Nextel International to have access and usage ARPUs for managed properties of $46 in 2001, $50 in 2002 and $54 in 2007.

Nextel Domestic currently generates positive operating cash flow. Nextel generated EBITDA of $1.4 billion in 2000 (EBITDA margin of 28.0%), forecast to grow at a 18.5% CAGR from 2001 through 2007, reaching $5.3 billion in 2007. The company is expected to become unleveraged free cash flow (EBITDA minus capex) positive in 2002. Nextel International EBITDA losses peaked in 1999 at $164 million, and we forecast EBITDA losses to decrease to $125 million in 2001. We believe the International segment will become EBITDA positive in 2002 (generating a 6% EBITDA margin) and then grow at a 72.2% CAGR from 2002 through 2007. We forecast the company to become unleveraged free cash flow (EBITDA minus capex) positive in 2004. A summary of our operating forecasts are in Table 1. J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 thomas.lee@ jpmorgan.com 6

Table 1: Summary of Operating Forecasts CAGR 2000 2001E 2002E 2003E 2004E 2005E 2006E 2007E 2001-2007E Domestic Launched Pops 198 204 206 208 210 212 214 216 1.0% Net adds 2,163 1,956 1,872 1,315 729 579 786 770 -14.4% Ending subs 6,678 8,634 10,506 11,821 12,550 13,129 13,915 14,685 9.3% Avg. monthly bills $74.00 $71.42 $68.00 $67.60 $67.20 $66.80 $66.40 $66.00 -1.3% Service revenues (MM) $4,979 $6,577 $7,809 $9,056 $9,826 $10,292 $10,774 $11,326 9.5% Premarketing cash flow (MM) $3,026 $4,172 $4,920 $5,714 $6,210 $6,515 $6,831 $7,192 9.5% EBITDA (MM) $1,395 $1,901 $2,544 $3,471 $4,201 $4,601 $4,866 $5,267 18.5% EBITDA margin 28% 29% 33% 38% 43% 45% 45% 47% 8.3% Capex (MM) $2,976 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 0.0% Capex as % of svc revenues 59.8% 38.0% 32.0% 27.6% 25.4% 24.3% 23.2% 22.1% -8.7%

International Proportionate Pops 198 200 202 205 207 209 211 213 1.0% Net prop adds 502 636 600 540 480 420 360 300 -11.8% Ending prop subs 882 1,479 2,079 2,619 3,099 3,519 3,879 4,179 18.9% Avg. monthly bills (Mngd props) $42.00 $45.87 $49.89 $51.70 $52.77 $53.47 $53.94 $54.28 2.8% Service revenues (MM)) $309 $611 $897 $1,184 $1,441 $1,668 $1,864 $2,031 22.1% Premarketing cash flow (MM) $92 $210 $386 $542 $700 $857 $1,010 $1,157 33.0% EBITDA (MM) ($133) ($125) $52 $190 $335 $484 $635 $784 nmf EBITDA margin -43% -20% 6% 16% 23% 29% 34% 39% nmf Capex (MM) $567 $710 $450 $410 $370 $330 $290 $250 -16.0% Capex as % of svc revenues 183.4% 116.1% 50.2% 34.6% 25.7% 19.8% 15.6% 12.3% -31.2% Source: Company reports and JPMorgan estimates.

Nextel Communications August 14, 2001 7 New York

VALUATION: EQUITY VALUATION LEAVES LITTLE DOWNSIDE RISK

The most compelling case for our Buy recommendation is Nextel’s valuation. Wireless investors have soured on Nextel in the past year, radically reevaluating their stance on the company from “industry darling with the highest value customer” to a company with a troubled future plagued by slowing growth and costly network evolution. As a result, the stock has plunged, dropping over 75% in the past year (versus a 70% decline in the Nasdaq), and currently trades close to its 52-week low. We have calculated our 12- to 18-month target price of $29 based on the average of our DCF calculation ($27, see Table 5 on page 10) and our sum of the parts calculation ($31, see Table 7 on page 24).

Figure 1: Year-to-Date Price Performance (share price, $) (Nasdaq)

$80 NXTL PCS AWE AT NASDAQ 3000

$64

2500

$48

$32 (NASDAQ)

(NXTL, PCS, AWE, AT) AWE, PCS, (NXTL, 2000

$16

$- 1500 12/26/00 1/20/01 2/14/01 3/11/01 4/5/01 4/30/01 5/25/01 6/19/01 7/14/01 8/8/01

Source: JPMorgan estimates. PCS = Sprint PCS; AWE = AT&T Wireless; AT = ALLTEL.

Discounted Cash Flows Value Our discounted cash flows valuation for Nextel is $27 per share, based on a 12% cost of capital and discounting free cash flows through 2007 (Table 5 on page 10). This value, incidentally, is consistent with our 2002 modified book value analysis (Table 7 on page 24).

• Domestic Valuation. We apply a 12% asset cost of capital, which implies a 15% equity cost of capital, assuming a 40%:60% equity to debt ratio and 11% debt cost of capital. • Nextel International. We estimate the equity value of International at $2.1 billion (see Appendix III for Nextel International’s discounted cash flow valuation).

In addition, Nextel also has investments in three publicly traded companies: Nextel Partners, SpectraSite, and Telus.

• Investment in Nextel Partners. Nextel owns 78 million shares of Nextel Partners (NXTP- OTC), valued at about $1.0 billion. • Investment in Spectrasite. Nextel owns 13.2 million shares of SpectraSite (SITE-OTC), valued at about $66 million. J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 thomas.lee@ jpmorgan.com 8

• Investment in Telus. Nextel owns 13.2 million shares of Telus (TU-TSE), valued at about $219 million.

Table 2: Key Operating Assumptions 2001E 2002E 2007E Market Penetration (Domestic) 47.7% 55.5% 70.0% Consolidated Wireless Statistics Share of gross adds (Domestic) 9.0% 8.7% 10.0% Ending subs (Domestic) 8,634 10,506 14,685 Ending prop subs (Int’l) 1,479 2,079 4,179 Average monthly bill (Domestic) $71.42 $68.00 $66.00 Service revenues $7,189 $8,706 $13,356 EBITDA $1,776 $2,596 $6,051 EBITDA margin 24.7% 29.8% 45.3% Valuations Discount rate 12% Terminal EBITDA multiple 11.1x Source: JPMorgan estimates.

As highlighted in Table 2, we forecast total wireless penetration to reach 70% by 2007 in Nextel’s territory. We believe the company will capture 10% of the domestic activations (gross adds) by 2007 versus an estimated 9.0% this year (2001). The 10% share of gross additions in its markets, net of churn, calculates to a domestic subscriber base of 14.7 million by 2007. We also forecast domestic service revenues of $11.3 billion and domestic operating cash flows of $5.3 billion (46.5% margin) by 2007. We believe capex going forward will be driven less by subscriber growth and more by increased usage. We expect domestic capex to be $2.5 billion, or 22.1% of revenues, in 2007, translating into capital expenditures per net addition of approximately $3,247.

In our discounted cash flows valuation, we use a 12% weighted average cost of capital; see Table 3 for the inputs of our WACC calculation.

Table 3: Weighted Average Cost of Capital Calculation Measure Proxy Value Risk-free rate 30-year T-bond 5.52% Equity Premium Historical 5.6% Company Beta Barra 1.516 Cost of Equity Calculated 14.0% Avg. Cost of Debt Calculated 9% Tax Rate Statutory NA Equity to Capital Calculated 56% Debt to Capital Calculated 44% WACC Calculated 12.0% Source: Barra and JPMorgan estimates.

In addition, we use a terminal multiple of 11 based on the following calculation: [1/(r-g)] = terminal multiple. We assume a 12% cost of capital (r) and approximately a 3% perpetual growth rate of EBITDA (g).

We subjected our DCF valuation to a sensitivity analysis reflecting various terminal multiple and discount rate assumptions (see Table 4). Nextel Communications August 14, 2001 9 New York

Table 4: DCF Sensitivity Analysis Terminal Multiple WACC 9.1x 10.1x 11.1x 12.1x 13.1x 10.0% $ 24.21 $ 27.58 $ 30.94 $ 34.31 $ 37.67 11.0% $ 22.64 $ 25.86 $ 29.07 $ 32.29 $ 35.51 12.0% $ 21.15 $ 24.23 $ 27.30 $ 30.38 $ 33.45 13.0% $ 19.74 $ 22.68 $ 25.62 $ 28.56 $ 31.50 14.0% $ 18.39 $ 21.21 $ 24.02 $ 26.84 $ 34.82 Source: JPMorgan estimates.

Public Market Multiples As for comparable public multiples, we believe investors are focused on both FV/2002E sub and FV/2002E EBITDA. We have highlighted Nextel and its comparable peers, AT&T Wireless and Sprint PCS below.

• FV/2002E sub—Currently Nextel trades at $2,523/2002E sub, about in line with the $2,273 FV/2002E sub of Sprint PCS but a premium to AWE’s $1,860/sub. We believe that AWE’s value is currently suppressed due to the overhang from its major share distribution (see Figure 4 on page 12). • FV/2002E EBITDA—Nextel trades at 10.4 times FV/2002E EBITDA, a discount to the 12.1 times multiple of Sprint PCS but a premium to a technically depressed 9.8 times multiple for AWE (see Figure 2 on page 11).

Wireless stocks in general have been plagued by poor investor sentiment, driven by concerns over 3G license costs (in Europe), the tremendous equity supply (in the second half of 2001), as well as the overall telecom malaise (emerging telecom problems). Nextel’s shares, in particular, have underperformed other national carriers year to date, down 73%, dramatically underperforming other national carriers AT&T Wireless (down 4%) and Sprint PCS (up 16%).

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 10

Table 5: Discounted Cash Flow Valuation Enterprise Valuation Present Value/Share End of 2002E Valuation Summary

Discount rate 12.0% YE 2002E 2000 2001E 2002E 2003E 07E Terminal multiple 11.1x NPV Domestic (mm) $39,968 NPV—Enterprise / Revs 7.6x 5.6x 4.6x 3.9x Plus: NXTL Partners 1,011 NPV—Enterprise / Sub $5,985/sub $4,629/sub $3,804/sub $3,381/sub NPV — Dom. Enterprise (in mm's) YE 2002E Plus: Nextel Int'l 2,066 NPV—Enterprise / Pop $174 /pop $174 /pop $174 /pop $174 /pop NPV Free Cash Flows 00-07E 6,792 Plus: SITE 66 NPV—Enterprise / EBITDA 31.7x 22.5x 15.4x 10.9x NPV Terminal Value 07E 33,176 Plus: Telus 219 NPV Enterprise (end of year) 39,968 Less: LTD–YE (18,479) Pops Summary Core Pops (mils) 230.0 Less: pfd stock–YE (1,881) Gross (mm) %-owned Net Pops Implied value / Pop $174/pop Plus: net cash–YE 3,558 Domestic (mm) 230.0 100% 230.0 % owned—consolidated opns 100% Plus: cash–options 0 NXTL partners (mm) 40.0 100% 40.0 NPV—Equity (mm) $26,528 • Shares owned by NXTL (mm) 77.8 <— 32.4% of NXTP Domestic Summary Statistics—2007E • NXTP price $13.00 Subs (000) 14,685 Primary S/O 764,371 International (mm) 390.0 62% 243.6 Core Penetration 6.80% Conv. Pfd Shares 123,378 Spectrasite (SITE) ARPU $66 Options/Warrants 83,929 • Shares owned by NXTL (mm) 13.2 <— 9.4% of SITE Svc Revs (mm) 13,356 Fully diluted S/O (000) 971,677 • SITE price $5.00 EBITDA (mm) 6,051 Telus (TU) NPV—share $27.30 • Shares owned by NXTL Intl. (mm) 13.7 <— 5% of TU Public trading discount 0% • TU price $16.00 Target price $27.30 Total Pops (mm) 660.0 78% 513.6 Source: Company reports and JPMorgan estimates.

Nextel Communications August 14, 2001 11 New York

Comparable Trading Values In Figure 2 through Figure 5 we highlight comparable public trading values for Nextel. Specifically we focus on net wireless value (enterprise value less non-wireless assets) per Pop (2001E), per subscriber (2001E and 2002E subs), as a multiple of revenues (2002E and 2003E revenues), and as a multiple of EBITDA (2002E and 2003E EBITDA).

For comparative purposes, we have listed the trading multiples of the public national carriers (Nextel, AT&T Wireless, and Sprint PCS) and the wireless index average.

Over time, we believe investors will primarily focus on EBITDA multiples when looking at comparative public multiples. We still, however, believe DCF is the appropriate method to derive target prices.

Based on our estimates, Nextel is currently trading at a lower FV/2001E Pop value ($115/Pop) and FV/2003E revenues (2.9 times) than the wireless industry average.

Figure 2: Net Wireless Value/EBITDA, 2002E-2003E

15.0 x 2002E 2003E

12.1 x 11.8 x 12.0 x

10.4 x 9.8 x

9.0 x 8.6 x 8.2 x 7.6 x 7.4 x

6.0 x

3.0 x

0.0 x NXTL AWE PCS Wireless Carriers

Source: JPMorgan estimates. Note: Wireless Carriers: AT&T Wireless, Nextel, Sprint PCS, ALLTEL, Centennial Cellular, Leap Wireless, Price Communications, US Cellular, Western Wireless, AirGate PCS, Nextel, UbiquiTel, US Unwired TeleCorp PCS, Triton PCS, Nextel Partners, Telephone and Data Systems, Dobson Cellular, Rural Cellular.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 12

Figure 3: Net Wireless Value/Revenue, 2002E-2003E

4.4 x 2002E 2003E

3.6 x 3.4 x 3.4 x 3.3 x 3.0 x 3.1 x 2.9 x 2.8 x

2.5 x

2.2 x

1.1 x

0.0 x NXTL AWE PCS Wireless Carriers

Source: JPMorgan estimates. Note: Wireless Carriers: AT&T Wireless, Nextel, Sprint PCS, ALLTEL, Centennial Cellular, Leap Wireless, Price Communications, US Cellular, Western Wireless, AirGate PCS, Nextel, UbiquiTel, US Unwired TeleCorp PCS, Triton PCS, Nextel Partners, Telephone and Data Systems, Dobson Cellular, Rural Cellular.

Figure 4: Net Wireless Value/Subscriber, 2001E-2002E

$3,500/Sub 2001E 2002E

$3,070/Sub $2,919/Sub $2,779/Sub $2,800/Sub

$2,523/Sub

$2,273/Sub $2,275/Sub $2,169/Sub $2,100/Sub $1,860/Sub

$1,400/Sub

$700/Sub

$0/Sub NXTL AWE PCS Wireless Carriers

Source: JPMorgan estimates. Note: Wireless Carriers: AT&T Wireless, Nextel, Sprint PCS, ALLTEL, Centennial Cellular, Leap Wireless, Price Communications, US Cellular, Western Wireless, AirGate PCS, Nextel, UbiquiTel, US Unwired TeleCorp PCS, Triton PCS, Nextel Partners, Telephone and Data Systems, Dobson Cellular, Rural Cellular.

Nextel Communications August 14, 2001 13 New York

Figure 5: Net Wireless Value/2001E Pop

$200/Pop

$179/Pop

$157/Pop $154/Pop $150/Pop

$115/Pop

$100/Pop

$50/Pop

$0/Pop NXTL AWE PCS Wireless Carriers

Source: JPMorgan estimates. Note: Wireless Carriers: AT&T Wireless, Nextel, Sprint PCS, ALLTEL, Centennial Cellular, Leap Wireless, Price Communications, US Cellular, Western Wireless, AirGate PCS, Nextel, UbiquiTel, US Unwired TeleCorp PCS, Triton PCS, Nextel Partners, Telephone and Data Systems, Dobson Cellular, Rural Cellular.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 14

Table 6: Summary of Wireless Market Valuations

Current Values (mm) Operating Statistics - Yr. 2002E Net Wireless Value Per ----- 2002E EPS and FCF/share 52 Wk $ Daily Subs Recent Price high/ S / O Vol. Mkt Float Enterprise Net Wireless Core Pops Subs Revs EBITDA CAGR NWV/ NWV/ NWV/ NWV/ FCF/ Ticker Rating Price Target low (mm) (mm)_aCap Cap_bValueValue (mm) (000s) (mm) (mm) (01-03) Pops Subs Revs EBITDA EPS P/EPS shr.

Domestic Large Cap (>$5 billion) ALLTEL total AT $59.64 $105 69/48 324.2 $41.7 $19,334 $16,388 $22,463 $21,683 — — $8,303 $3,239 — — — 2.6x 6.7x $3.31 18.0x $3.32 cellular — - — — — — — — — — $9,606 50.0 7,184 $3,965 $1,536 6% $192 $1,340 2.4x 6.3x — — — AT&T Wireless AWE BUY $16.57 $39 27/15 2,604.1 $33.1 $43,150 $34,506 $45,902 $39,472 220.9 21,223 $13,954 $4,009 12% $179 $1,860 2.8x 9.8x $0.22 75.1x ($1.02) Nextel NXTL BUY $14.29 $25 59/11 971.7 $64.3 $13,885 $6,179 $28,870 $26,510 230.0 10,506 $7,809 $2,544 17% $115 $2,523 3.4x 10.4x ($2.08) nmf ($2.90) Sprint PCS PCS BUY $24.25 $47 56/16 1,097.5 $169.8 $26,614 $8,366 $42,030 $38,917 253.5 17,123 $10,856 $3,206 20% $154 $2,273 3.6x 12.1x ($0.33) nmf ($1.17) TDS TDS – $104.20 — 123/81 65.8 $31.3 $6,856 $3,574 $9,026 $9,026 — — $2,697 — — — — — — — — — US Cellular USM - $57.15 — 78/50 88.2 $7.4 $5,041 $560 $5,491 $5,491 26.3 4,045 $2,097 $799 11% $209 $1,357 2.6x 6.9x $2.61 21.9x $2.42

Mid Cap (<$5 billion) AirGate PCSA BUY $58.85 $90 71/22 13.5 $13.2 $796 $394 $1,011 $1,011 7.3 396 $266 $17 50% $138 $2,550 3.8x 60.0x ($3.87) nmf nmf Alamosa APCS BUY $17.15 $21 28/6 98.7 $3.9 $1,693 $206 $2,466 $2,466 15.6 696 $479 $25 39% $158 $3,543 5.1x 100.1x ($1.91) nmf ($1.52) Centennial Cellular Total CYCL – $13.55 — 23/8 99.5 $0.1 $1,348 $108 $2,924 $2,924 19.0 1,089 $811 $327 18% $154 $2,667 3.6x 8.9x $0.19 72.7x ($0.52) Cellular — – — — — — — — — — $1,984 7.1 597 $353 $180 7% $280 $3,287 5.6x 10.9x — — — PCS — – — — — — — — — — $937 12.9 491 $255 $87 33% $73 $1,906 3.7x 10.8x — — — Dobson Communications DCEL – $16.10 — 23/10 106.7 $2.4 $1,718 $435 $3,735 $3,000 7.1 1,029 $776 $317 23% $424 $3,733 5.0x 12.1x ($0.46) nmf ($0.27) Leap Wireless_d LWIN – $20.33 — 82/21 51.5 $4.1 $1,047 $274 $2,786 $2,786 48.8 1,934 $616 ($9) 53% $57 $1,440 4.5x nmf — — — Nextel Partners NXTP BUY $12.17 $26 35/10 265.9 $24.3 $3,236 $329 $3,971 $3,971 50.6 816 $626 $41 47% $78 $4,869 6.3x 96.6x ($0.89) nmf ($1.14)

Price Communications PR – $19.10 — 23/16 59.6 $4.2 $1,138 $793 $1,633 $1,633 3.3 629 $0 $171 9% $499 $2,595 9.5x — — — Rural Cellular RCCC - $34.80 — 80/22 12.9 $1.0 $448 $122 $2,074 $2,074 6.5 695 $566 $295 3% $321 $2,984 3.7x 7.0x $7.30 4.8x $3.52 TeleCorp — proforma TTEL TLCP BUY $13.16 $69 40/12 210.0 $5.3 $2,764 $211 $5,717 $5,325 36.7 1,679 $1,019 $44 49% $145 $3,172 5.2x 122.1x ($3.58) nmf ($1.79) Triton PCS_g TPC – $38.61 — 44/38 78.5 $7.7 $3,031 $444 $4,093 $4,093 13.4 962 $695 $159 32% $306 $4,252 5.9x 25.7x ($1.73) nmf ($2.07) US Unwired UNWR LTB $10.84 $14 18/4 90.9 $2.2 $985 $119 $1,157 $1,132 10.2 421 $309 $8 55% $111 $2,689 3.7x 150.0x ($0.86) nmf ($0.78) UbiquiTel UPCS BUY $8.03 $15 12/3 72.6 $1.6 $583 $115 $744 $744 11.1 287 $162 ($37) 77% $67 $2,593 4.6x nmf ($0.91) nmf ($0.88) Western Wireless WWCA BUY $31.85 $72 55/30 81.5 $13.7 $2,595 $1,449 $4,749 $4,081 10.3 1,374 $1,040 $466 15% $397 $2,979 3.9x 8.8x $0.65 48.7x ($0.15)

Canada Bell Canada Int'l._d BCICF – $8.64 — 29/7 78.8 $0.1 $681 $170 $921 $921 170.6 — — — — $5 — — — — — — Microcell MICT – $7.75 — 41/6 55.3 $0.8 $429 $153 $1,190 $1,190 29.7 — — — — $40 — — — — — — Rogers Cantel RCN – $18.10 — 33/11 93.0 $1.6 $1,683 $319 $3,059 $3,059 29.7 — — — — $103 — — — — — — Telesystem Int'l. Wireless_d TIWI – $2.34 — 92/2 73.3 $0.0 $172 $134 $1,226 $1,226 524.9 — — — — $2 — — — — — —

Total North American Wireless Operators $434 $139,227 $75,348 $197,237 $170,657 1,079.9 72,088 $48,744 $13,918 — $158 $2,367 3.5x 12.3x — — —

Source: Company reports; JPMorgan estimates, and company guidance for companies not covered by JPMorgan. Note: An affiliate of JPMorgan has an investment position in Triton PCS (TPC). This research commentary or information provided herein does not constitute an offer, solicitation and/or recommendation for the purchase or sale of any securities or financial instruments issued by TPC. Priced as of close on August 9, 2001.

Nextel Communications August 14, 2001 15 New York

Table 6: Summary of Wireless Market Valuations (Cont’d)

Current Values (mm) Operating Statistics - Yr. 2002E Net Wireless Value Per ----- 2002E EPS and FCF/share 52 Wk $ Daily Subs Recent Price high/ S / O Vol. Mkt Float Enterprise Net Wireless Core Pops Subs Revs EBITDA CAGR NWV/ NWV/ NWV/ NWV/ FCF/ Ticker Rating Price Target low (mm) (mm)_a Cap Cap_bValueValue (mm) (000s) (mm) (mm) (01-03) Pops Subs Revs EBITDA EPS P/EPS shr. Mobile Data • Jonathan B. Levine (212-622-6511) / Thomas J. Lee (212-622-6505) @Road ARDI LTB $2.25 $15 9/1 51.5 $0.2 $116 $16 $10 $10 — 70 $20 ($36) 85% — $148 0.5x nmf ($0.95) nmf ($0.87) GoAmerica GOAM LTB $1.52 $20 12/1 60.0 $0.6 $91 $15 ($62) ($62) — 200 $38 ($64) 135% — NegEv NegEv NegEv ($1.09) nmf ($1.30) i3 Mobile IIIM LTB $3.08 $25 11/1 22.9 $0.6 $71 $16 $14 $14 — 2,803 $5 ($23) 132% — $5 2.9x nmf ($1.00) nmf ($1.17) Omnisky OMNY BUY $1.17 $23 24/1 89.4 $0.2 $105 $11 ($46) ($46) — 165 $28 ($112) 112% — NegEv NegEv NegEv ($2.28) nmf ($1.89) TeleCommunication Systems TSYS BUY $1.66 $26 32/1 31.9 $0.2 $53 $8 $8 $8 — — $89 ($11) — — — 0.1x nmf ($1.22) nmf ($1.15) • Paul Coster (212-648-6780) Aether Technologies AETH BUY** $10.16 $38 160/7 29.9 $3.0 $304 $61 $201 $201 — — $101 ($113) — — — 2.0x nmf ($10.38) nmf ($3.35) Avantgo AVGO LTB** $2.09 $4 28/1 40.9 $0.2 $85 $11 ($42) ($42) — — $20 — — — — NegEv — ($1.79) nmf — Research in Motion RIMM BUY** $23.01 $52 133/16 79.5 $36.9 $1,830 $1,217 $1,594 $1,594 — — $209 $3 — — — 7.6x nmf $0.07 nmf — SignalSoft SGSF LTB** $5.09 $17 51/4 24.4 $0.5 $124 $49 $32 $32 — — $29 ($14) — — — 1.1x nmf ($0.79) nmf — • Edward F. Snyder (415-371-4065) Openwave Systems OPWV LTB** $20.01 $80 127/14 190.0 $58.6 $3,802 $2,171 $3,459 $3,459 — — $576 — — — — 6.0x — ($6.14) nmf — • Jack R. Ripsteen (415-439-3858) InfoSpace INSP LTB** $2.04 NE 45/2 345.3 $7.2 $704 $350 $1,614 $1,614 — — $361 $48 — — — 4.5x 33.6x $0.12 17.0x — • Rai Archibold (212-648-6231) 724 Solutions SVNX BUY** $5.51 $32 55/5 42.9 $0.7 $237 $45 $59 $59 — — $75 ($52) — — — 0.8x nmf ($0.96) nmf — • Companies Not Under Coverage Motient Corp MTNT – $0.57 — 14/0 59.3 $0.1 $34 $8 $410 $10 220.0 260 — — — $0 $39 — — ($1.17) — — Metricom MCOMQ – $1.82 — 43/1 87.0 $0.3 $158 $21 $144 $144 100.8 1,107 $224 ($255) 91% $1 $130 0.6x nmf — — —

Total Mobile Data $109 $7,713 $3,999 $7,393 $6,993

2002E per Share Data & Current Values (mm) Operating Statistics - Yr. 2002E Firm Value Per ----- Ratios 52 Wk $ Daily EBITDA Recent Price high/ S / O Vol. Mkt Float Firm Firm Comm. Revs EBITDA TCF CAGR FV/ FV/ FV/ Interest Ticker Rating Price Target low (mm) (mm)_a Cap Cap_bValueValueSites(mm) (mm) (mm)_h (01-03) Revs EBITDA TCF EPS FCF_iCoverage Tower Operators • Thomas J. Lee (212-622-6505) / Jonathan B. Levine (212-622-6511) American Tower AMT BUY $16.68 $43 46/14 240.4 $17.7 $4,010 $1,801 $6,071 $6,071 17,257 $1,360 $450 $359 48% 5.4x 22.2x 25.9x ($2.42) ($2.88) 1.2x Crown Castle International CCI BUY $9.50 $37 26/9 241.6 $11.6 $2,295 $1,123 $5,509 $5,509 17,413 $1,101 $405 $443 32% 6.7x 19.2x 17.7x ($1.44) ($3.31) 1.2x Pinnacle BIGT - $3.34 NA 50/3 53.0 $4.2 $177 $134 $1,006 $1,006 3,980 $244 $137 $158 25% 4.8x 9.4x 7.5x ($1.94) $0.94 2.2x SBA Commuincations SBAC - $19.24 NA 55/13 50.0 $6.9 $963 $367 $1,803 $1,803 4,681 $326 $112 $118 60% 7.3x 30.4x 26.6x ($0.86) ($2.53) 1.6x Spectrasite SITE - $3.65 NA 25/3 157.4 $3.8 $575 $208 $2,779 $2,779 9,623 $656 $198 $236 74% 5.8x 27.7x 21.2x ($1.49) ($1.92) 0.9x

$44 $8,020 $3,634 $17,168 $17,168 52,954 $3,686 $1,302 $1,313 4.7x 13.2x 13.1x — — —

_a Average dollar volume traded is the approximate 30 day average volume x recent price. _g An affiliate of JPMorgan has an investment position in Triton PCS (TPC). This research commentary or information provided herein does _b Float is determined by taking float shares outstanding (based on Bloomberg and Yahoo!) x share price. not constitute an offer, solicitation and/or recommendation for the purchase or sale of aany securities or financial instruments issued by TPCS. _c Omnipoint and Aerial are being acquired by VoiceStream. _h TCF (Tower Cash Flow) = Site rental revenues less site rental costs _d Includes international operations. Leap Wireless Core Pops are US (domestic) only. _i FCF = EBITDA + Working (capital)/deficit - Int. Exp. + Taxes benefit/(paid) - Capeex - Prfd. Dividends _f Price target reflects VSTR value as a result of the Deutsche Telekom merger (3.2 x current DT price + $30). "nmf" = not meaningful ** Covered by other analysts at JPMorgan. Source: Company reports; JPMorgan estimates, and company guidance for companies not covered by JPMorgan. Note: An affiliate of JPMorgan has an investment position in Triton PCS (TPC). This research commentary or information provided herein does not constitute an offer, solicitation and/or recommendation for the purchase or sale of any securities or financial instruments issued by TPC. Priced as of close on August 9, 2001.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 16

THE BASICS OF NEXTEL

Nextel is one of six major national carriers, and besides AT&T Wireless, it is the only truly independent carrier—other competitors such as Sprint PCS, Verizon Wireless, Cingular, and the former VoiceStream are all consolidated by a larger telecom entity.

A High-Value Customer Base The company has gained market share primarily by targeting a specific segment of the wireless market—business customers requiring group communications (between each other)—and leveraging its proprietary network protocol and service feature (Direct Connect).

Historically, Nextel’s virtual sole focus on the blue collar and business markets (primarily small to medium businesses and the IT departments of Fortune 500 companies) has been a virtue, generating high ARPUs (revenue per user) and low churn, although with the trade-off of slightly lower growth. Moreover, the multiline nature of its many accounts has made customer service issues relatively more manageable.

NXTL’s customers spend an average of $74 per month (2000), the highest among the wireless carriers. The company has captured about 10% of the industry’s EBITDA while only having 7% of the industry’s customers. As highlighted below, Nextel’s installed base benefits from the attractive blend of high ARPU and low churn.

Figure 6: Average Monthly Revenue per User and Monthly Churn (2000)

$80 ARPU Churn 5.0% $74

4.26% $66

$64 $60 4.0%

$55 $53

$47 $48 2.85% 2.85% 3.0% 2.73% 2.48%

2.00% $32 2.0%

$16 1.0%

$0 0.0% Nextel AT&T Wireless Sprint PCS VoiceStream Cingular Verizon

Source: JPMorgan estimates and company documents and JPMorgan calculations.

Nextel Communications August 14, 2001 17 New York

nextel’s installed base also generates the highest EBITDA per sub among the national carriers.

Figure 7: Operating Cash Flow per Subscriber (2000)

$32.00

$20.73 $18.06 $16.88

$16.00 $12.94

$0.00 ($0.30)

($16.00)

($20.49)

($32.00) Nextel Cingular Verizon AT&T Wireless Sprint PCS VoiceStream

Source: JPMorgan estimates and company reports and JPMorgan calculations for Verizon and Cingular. Notes: Operating Cash Flow per Sub calculation: (ARPU) x (EBITDA Margin).

Growth Is Slowing, But Subscriber Base Should Still See Double-Digit Growth Nextel is experiencing a deceleration of growth in its subscriber base. Our modeling suggests that even with a sharp deceleration of net adds through 2004, Nextel will still post 13% subscriber growth (CAGR) and 30% EBITDA growth to $4.2 billion. This is a major downtick from the CAGR of its subscriber base in 1998-2001 of 46%, but wireless industry growth rates are slowing in general.

Nextel’s projected subscriber growth rate is about in line with our forecast for the overall wireless industry (CAGR of 12%), but we believe the company is no longer increasing its market share relative to other operators.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 18

Figure 8: Nextel Net Adds and Percent of Industry Net Adds (1997 to 2001E)

2,400 Net Adds (Left Side) % of Industry (Right Side) 14% 12.7% 2,163

11.6% 2,000

1,800 1,726

1,520 9.2% 10.5% 10% 8.6%

1,200 970

6%

600

0 2% 1997 1998 1999 2000 2001E Source: Company reports and JPMorgan estimates.

The obvious question is why investors are pessimistic about the company’s growth rate? We would distill investors’ concerns about the company’s future growth prospects as follows:

• Focus on a mature segment (but key is growing market share). The company focuses primarily on business users while consumers have driven growth in the past few years. On the other hand, we would probably agree with the company that it should gain market share in the segments that it focuses on, even if the growth of the total number of users on those targeted segments trails the wireless industry. • Motorola-only handsets. Motorola (MOT/$18.89/Market Performer) is currently the sole supplier of infrastructure and handsets for Nextel. While Motorola’s quality is excellent, the obvious issue is whether wireless users “all want to eat the same flavor of vanilla.” In other words, would Nextel have a broader user base if it offered Nokia (NOK/$35.92/Buy), Ericsson (ERICY/$9.28/Market Performer), and other handsets. While an increased variety would undoubtedly help in broadening Nextel’s appeal to consumer, we believe that a greater leverage of resources would be for Nextel and Motorola to collaborate on developing units specifically appealing to consumers. • Limited Distribution. See page 20.

Business Markets Of the issues cited above, we believe the real challenge for the company in terms of accelerating its growth is expanding distribution, but it is acknowledged (by the company and investors) that the company’s business-centric focus is leading to slowing growth.

Nextel has focused nearly exclusively on business users rather than the consumer market. By business, what we really mean is that Nextel’s product appeals to any organization that relies on group communications—the definition is broad but encompasses field workers, fleet users, construction, farming, IT professionals, and even white collar workers. Businesses, in general, were early adopters of wireless, driving the industry in the first 10 years (1986 to 1996), and today we estimate that businesses represent about 40-45 million users (40% of the base), and modestly higher in absolute numbers compared to 1996. For the past three years, the vast majority of incremental wireless growth has been driven by growth in consumer demand, and as demonstrated worldwide, the incremental penetration for wireless from 30% to 60-70% will be entirely represented by consumer growth. As we noted above, the company’s net adds peaked in second quarter 2000, indicating that the company’s incremental share gains have been eroding for the past three quarters.

Nextel Communications August 14, 2001 19 New York

Nextel has even noted that more than 90% of its new customer accounts already used mobile communications, and about one-third of its net adds are existing customers signing up new users. If business markets are maturing, especially compared with the consumer market (which we estimate expanded by over 35% last year), then Nextel’s growth was driven primarily by incremental market share in business markets. We believe growing incremental market share is increasingly challenging, especially as the incremental user would want to leverage Nextel’s differentiated feature—Direct Connect, a walkie-talkie feature—to justify the higher cost and bulk of Nextel’s handsets and service.

Expanding Distribution Requires Extensive Resources Of course, Nextel could always rapidly enhance its growth rate by focusing on the consumer market; however, the shift to a consumer focus is not simply a matter of placing advertisements on Survivor. Developing a consumer strategy requires a substantial investment by Nextel in infrastructure (customer care, billing, handsets, etc) and distribution (building beyond business-focused channels) as well a change in the company’s operating focus.

Looking purely at the distribution issue, as shown on Figure 9 below, Nextel’s total points of distribution today number 6,000, a fraction of the 12,000-31,000 points of distribution owned by the other national players. Nextel’s particular shortfall in points of distribution are indirect locations and to a certain extent company-owned stores—building additional stores is an expensive proposition—for instance, to achieve a total of 500 stores (an additional 300 stores would be required) at a cost of $300,000-500,000 per location would amount to $90-100 million. As for indirect locations, which are the national chains, regional stores, dealers, etc., Nextel has a fraction of the distribution of the other carriers.

Figure 9: National Carriers’ Points of Distribution

35,000 Indirect Locations Direct Sales Reps Company Owned

31,000 520 1,000 28,000

21,000

16,250 15,000 1,250 14,500 29,480 1,000 375 14,000 1,000 1,200 12,000 1,600 700 1,000

7,000 14,000 13,625 6,000 11,700 200 10,300 3,800

2,000 0 AT&T Wireless Verizon Sprint PCS Cingular VoiceStream Nextel

Source: JPMorgan survey results during 2001. Note: Bold numbers represent total points of distribution. AWE and VZ Direct Sales Reps are JPMorgan estimates based on survey data. VSTR Direct Locations, Indirect Locations, and Direct Sales Reps are JPMorgan estimates based on survey data.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 20

Nextel’s mix of distribution does produce above average productivity. As highlighted on Figure 10 below, when looking at annual activations per location (defined as a point of distribution), Nextel produced 718, above the average of 551 and bested only by Verizon.

Figure 10: 2001E Gross Adds per Total Points of Distribution

900

734 718 716 720

540 478

375 360 287

180

0 Verizon Nextel Cingular Sprint PCS VoiceStream AT&T Wireless

Source: JPMorgan estimates and company documents and JPMorgan calculations for Verzion and Cingular.

Economically, the profile of Nextel’s business will also change—the consumer market is exceptionally competitive today, with churn rates and customer care requirements higher than its installed base. We also believe Nextel would have a less competitive product in these segments. That is, we think the incremental wireless user is fashion-oriented, taking into account acquiring the most attractive handsets. Nextel still sources its handsets solely from Motorola (discussed above).

Still, We Are Confident Nextel Can Continue to Grow Its Base 10%-Plus Investors have expressed concerns about the company’s ability to continue to grow. While Nextel’s growth rate is slowing, whether measured in terms of subscriber net adds or percentage increase in the base, we do not believe the company will cease to grow.

Our modeling forecasts Nextel’s gross adds to remain around 4.0 – 4.3 million gross activations annually, in line with the productivity produced by their distribution channels. With a growing base and higher absolute churn (even with constant churn rates), net adds should decline each year from 2.2 million net adds in 2000, leveling out at 700,000 net adds per year in 2004.

Nextel Communications August 14, 2001 21 New York

Figure 11: Nextel Gross Adds, Net Adds, and Churn (2000 to 2004E)

4,800 Gross Adds (Left Scale) Net Adds (Left Scale) Monthly Churn (Right Scale) 3.0%

4,359 4,265 4,165 3,963 3,840 2.7% 3,508

2.4% 2,880 2.3% 2.4% 2.3% 2.3% 2,163 1,956 1,872 1,920 2.0% 2.1% Monthly Churn

Gross & Net Adds (000s) 1,315

960 729 1.8%

0 1.5% 2000 2001E 2002E 2003E 2004E

Source: Company reports and JPMorgan estimates.

The forecast compound annual growth rate of the subscriber base is still expected to expand 13% annually from 8.6 million users at the end of 2001 to 12.6 million users by 2004.

As a sanity check on our forecast, our gross adds forecasts for Nextel translate into an estimated 8-9% share of forecast industry gross adds, about in line with its historical share and consistent with its mix of distribution. Incidentally, this also works out to about a 9-10% share of net additions as the company’s churn is still slightly below industry averages.

Figure 12: Nextel’s Annual Market Share

25.0%

20.0%

15.0%

10.0% 10.9%

9.1% 9.0% 8.7% 8.5% 8.4% 8.3%

5.0%

0.0% 1999 2000 2001E 2002E 2003E 2004E 2005E

Source: Company reports and JPMorgan estimates. Note: NXTL’s market share is calculated as follows: NXTL Gross Penetration Gain / Aggregate Gross Penetration Gain.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 22

A Scarce National Wireless Asset in a Capacity-Constrained Industry Nextel Should Be a Beneficiary of Any Consolidation of the National Landscape As competitive as the wireless industry is today, with six to seven players per major market and six national players, we think the wireless industry is not over capitalized. That is, we believe the current infrastructure and spectrum are barely adequate to meet current wireless demand. Anybody using a cellular or PCS phone in the United States experiences this, with congestion and capacity problems particularly acute in metropolitan markets.

A way to gain a perspective on this is to look at the industry’s PP&E/sub—the total industry gross PP&E divided by the current industry subscribers. As highlighted in Figure 13, the industry’s PP&E/sub has been fairly consistent at around $800 per sub, despite proliferation of competition in the past few years. The reason for this (rather than a dramatic rise in PP&E/sub) is that the wireless carriers have been only barely able to keep up with the growing capacity requirements stemming from a 30%-plus CAGR growth in subscribers. In our view, the wireless industry is not creating any excess capacity today.

Figure 13: Property, Plant & Equipment per Subscriber: U.S. Wireless Industry

$2,500 PP&E/Sub (left scale) ARPU (right scale) $120

$102

$100 $2,000 $86

$74 $80 $72 $68 $1,500 $1,277 $60 $1,189 $56 $56 $55 $54 $1,147 $52 $54 $60 $50 $1,021 $1,000 $871 $875 $833 $828 $785 $814 $819 $711 $735 $40

$500 $20

$0 $0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001E

Source: CTIA and JPMorgan calculations. Note: Average monthly bill (ARPU) from 1989 to 1995 is CTIA calculated data; from 1996 to 2001E ARPU is JPM calculated data.

Frankly, we would also say that there is probably no room for an additional player or new entrant, with the exception of virtual operators, which do not build networks. We believe a real issue is that the major national players are increasingly playing “shelf” space marketing and distribution against each other. To be realistic—how many wireless service provider choices do we need as consumers? Many of the structural challenges of having too many players were masked by the explosive growth of wireless as 23 million net adds in 2000 supplied each carrier with a sufficient number of new users.

In other words, the U.S. wireless industry arguably has too many players from a distribution and marketing standpoint but is severely constrained from a network capacity (spectrum) or even PP&E standpoint.

Nextel Communications August 14, 2001 23 New York

Spectrum Caps The obvious solution is therefore to allow national carriers to merge with other national carriers—that is, reduce the number of players but not the level of infrastructure. Currently, contemplating these types of mergers—a national carrier merging with another national carrier—is only an academic exercise since current spectrum caps limit these transactions.

Any carrier today is limited to owning 45 MHz of spectrum in a market, and, additionally, cellular carriers are not allowed to acquire another cellular operator (A-side cannot buy the B- side). The average operator owns 25-30 MHz, and therefore any such proposed transaction would exceed spectrum caps.

The FCC is undergoing its review of spectrum caps and could make a decision sometime in the next three months. A leading law firm, working with JPMorgan, that specializes in telecom practices believes there is growing likelihood that spectrum caps will be lifted for the following reasons: (1) the PCIA (the Personal Communications Industry Association), which was the only major party to oppose lifting the cap two years ago, no longer objects; (2) the FCC has been more market responsive; and (3) we believe FCC Chairman Powell leans toward liberalization as one of his first actions. Lifting the spectrum caps (or even increasing them) could positively set the stage for significant industry consolidation for obvious reasons (both in-region and out of region)—a major positive for wireless equities.

Implication for Nextel: Its Infrastructure Adds Positive to Industry Capacity The implication for any existing national carrier today is that the invested plant in the ground is not “stranded” or idle. We think of it this way, if Nextel’s 7 million subscribers were acquired by another carrier, that carrier would need to spend $5-6 billion in PP&E (at $800 per sub) to provide adequate capacity. In other words, Nextel’s current infrastructure adds to the industry’s capacity and therefore still has value, regardless of the technology. Moreover, we believe that, in the context of global wireless and the possible removal of spectrum caps, there are arguably more companies looking for acquisition targets than there are companies seeking to be acquired.

Ultimately, we believe the value of national carriers will rise if spectrum caps are removed. This is even heightened given the lack of additional frequencies available (delay of 700 MHz and the NextWave uncertainty).

We have done a quick analysis below to highlight the component values of Nextel in the context of hypothetical consolidation using estimated balance sheet and subscriber data at the end of 2002 (assuming that such in-region mergers could occur at that time). We believe the three component values (we have also referred to this as modified book value) are:

• Subscriber value of $20 per share—the cumulative EBITDA generated by the existing subscriber base as the base dwindles to zero. As shown in Table 7 on page 24, the cumulative EBITDA of the 10.6 million subscribers is $19.7 billion, or $20 per Nextel share.

• Recovery value of PP&E of $13 per share (at only $0.75 on the dollar)—assuming the gross PP&E has only a residual value of $0.75 on the dollar, which we believe is very conservative considering the discussion above on capacity constraints and also that in the troubled emerging telecom space, recovery values are 50%. In any case, at this ratio, the value of PP&E in the ground is $12.8 billion, or $13 per share.

• License value of $13 per share—The FCC reauction of C- and F-block licenses (Auction 35) values an unbuilt and undeployed license at $4.00 per MHz Pop and, assuming Nextel has only 15 contiguous MHz, values its spectrum at $12.2 billion (201.5 million Pops x $4.02/MHz Pop x 15 MHz), or $13 per share.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 24

Subtracting out estimated net debt of $16.8 billion (end of 2002) and adding in an estimated aggregate $2 billion equity value for international and other investments leads to a component or intrinsic value of $31 per share.

Table 7: Nextel 2002E Intrinsic Value ($ in millions, except per share data) Aggregate Value / share

A. Value of Subs 2002E Subscribers 10.6 Lifetime EBITDA / Sub $1,854 — Value of Existing Sub Base $19,656 $20.23

B. Recovery of PP&E 2002E Gross PP&E (@ 75% of Book Value) $12,831 $13.21

C. License 2000 Core and Built Pops 201.5 — Auction 35 Bid / MHz / Pop $4.02 — Average contiguous MHz 15.0 — License Value / Pop $60/pop — License Value $12,155 $12.51

Total Enterprise Value $44,642 $45.94 Plus: Baseline equity value of International $2,000 $2.06 Modified Book Value Less: Net Debt 2002E ($16,804) ($17.29) A + B + C less net debt Equity Value $29,838 $30.71

Fully Diluted Shares 971.7

Intrinsic Value / Share $30.71

Recent Price $14.29 Potential Upside/Downside 114.9%

Source: JPMorgan estimates. Note: Lifetime EBITDA calculation: ([{1 / Monthly Churn Rate} + {(1 / Monthly Churn Rate) * 0.5} / 2] x ARPU) x (0.67). Low value of Existing Sub Base Calculation: (2002 Subs) x (Lifetime EBITDA / Sub). We use 50% of Gross PP&E to reflect the recovery value of the wireless assets. License value calculation: (2000 Consolidated Pops) x (Auction 35 Bid / MHz / Pop) x (Average MHz). Auction 35 Bid / MHz / Pop equals $4.02. Average MHz is weighted MHz ownership per market. Total Enterprise Value: (Low Value of Existing Sub Base) + (2002E Gross PP&E) + (License Value). Net Debt Calculation: (Long Term Debt) + (Preferred Stock) - (Options/Cash) - (Working Capital).

As a reminder, we believe that wireless carriers have component intrinsic or modified book value—that is, the (1) subscriber-based services (long duration revenues) and (2) asset-based infrastructure coupled with (3) licenses imply that the worst-case enterprise value for a business is not zero but rather the sum of the intrinsic value of the three above-mentioned components. Based on our calculations, private market value (PMV) is a much higher number and reflects the present value of future growth.

Nextel Communications August 14, 2001 25 New York

A Closer Look at Nextel’s Spectrum Ownership Pro forma for pending Pro forma for pending acquisitions, Nextel has approximately 20 MHz of spectrum in 52 of acquisitions, Nextel has the top 100 U.S. markets and approximately 4 MHz of spectrum in most major markets in the approximately 20 MHz of United States. Since 1996 Nextel has increased its spectrum position from approximately spectrum in 52 of the top 9 MHz, all of which was located on the 800 MHz channels, to 25MHz today (pending 100 U.S. markets and transactions), including 17-18 MHz in the 800 MHz band, 4 MHz in the 700 MHz band, and approximately 4 MHz of 3 MHz in the 900MHz band. spectrum in most major markets in the United 800 MHz Spectrum States. In 1997 the FCC began allocating spectrum in the 800 MHz band. The upper 200 channels were broken into three blocks of 20, 60, and 120 channels in each “economic area” (EA) and are in the 861-866 MHz band. Nextel won the bidding process on 475 of the 525 EAs, giving Nextel coverage in each of the 50 states. Nextel was permitted to relocate the incumbent license holders and has been actively doing so. These channels (also known as the A, B, and C block licenses) are contiguous and provide Nextel with a total of 10 MHz of spectrum— 5 MHz for receive channels and 5 MHz for send channels. The company intends to use this spectrum for its 1xRTT deployment.

The FCC also auctioned off the 800 MHz spectrum for SMR (specialized mobile radio) in the lower 150 and lower 80 channels in December 2000, located in the 851-855 MHz band. The channels were broken into groups of five and 25 channel blocks and are not contiguous. The company paid an aggregate of $259 million for 3,300 licenses in these two auctions. The company does not have the right to clear the spectrum of the present incumbents, but it has a strong spectrum position, including a geographic license, which precludes an incumbent operator from expanding its spectrum position and footprint without dealing with Nextel. The company hopes to be able to offer an exchange of spectrum with these operators and relocate them to the recently acquired 700 MHz spectrum in exchange for spectrum in the lower 150 and lower 80 channels.

Finally, Nextel recently won the right to acquire the Business and Industrial/Land/ Transportation pools of spectrum in the 855-860 MHz spectrum band. The company plans to use this increased spectrum to increase its capacity for its 3G solution. Nextel currently owns 17-18 MHz of spectrum in the 800 MHz band.

900 MHz Spectrum The 900 MHz spectrum is divided into send and receive channel groupings. The send channels are located in the 935-940 MHz band while the receive channels in the 896 MHz and 901 MHz bands. The spectrum is noncontiguous and split 5 MHz up/down each for SMR and Business and Industrial/Land/Transportation. The company expects the FCC to allow Nextel access to the 5 MHz available to Business and Industrial/Land/Transportation in the 900 MHz band. Nextel currently owns 3 MHz of spectrum in the 900 MHz band.

700 MHz Spectrum Nextel won the Guard Band manager auction in the 700 MHz band in February 2001. Nextel paid approximately $346 million for 40 licenses, each with 4 MHz. This purchase gave the company 2 MHz in the 762-764 MHz range and an additional 2 MHz in the 792-794 MHz range. The recently acquired 4 MHz in the 700 MHz band can be used by Nextel for a spectrum trade to obtain additional spectrum in the 800/900 bands for in-building solutions and finally to minimize interference.

In summary, Nextel currently has approximately 20 MHz in the 800/900 MHz SMR band (including pending transactions). Nextel purchased 4 MHz in the 700 MHz band that can be used to trade for 800/900 channels. The FCC is allowing Nextel access to 5 MHz of additional spectrum in the 800 MHz band (Business and Industrial/Land/Transportation), which enables Nextel to purchase and use up to 31.5 MHz in the 800 and 900 MHz bands.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 26

Finally, Nextel expects the FCC to also allow it access to another 5 MHz of Business and Industrial/Land/Transportation channels in the 900 MHz band. This would increase the spectrum availability to 36.5 MHz.

Figure 14: Nextel’s Frequency Ownership

30 800 MHz 700 MHz 900 MHz

24 3MHz in the 900 MHz band. To be used for SMR.

18 4MHz in the 700 MHz band. Expected to be used to swap for additional 800/900 MHz spectrum. 12

6

17-18MHz in the 800 MHz band. Currently, used for SMR service.

0

Source: Company reports and JPMorgan estimates.

Nextel International: Progress and Virtues Nextel has a growing international portfolio, including over 1 million proportionate subscribers and over 240 million proportionate Pops, and we expect these operations to be EBITDA positive during 2002. We estimate that Nextel’s international portfolio is worth approximately $2 billion or roughly $2 per share (see

Nextel Communications August 14, 2001 27 New York

Appendix III for Nextel International’s discounted cash flow valuation).

Nextel’s international footprint comprises eight countries. The most significant group of this footprint is Nextel’s Latin American properties. The markets in the Latin American footprint include Brazil, Mexico, Argentina, Peru, and Chile. The Brazil operations are performed through an operating company, Nextel Telecomunicaco, which provides services to approximately 383,000 subscribers and covers 62 million Pops. The Brazilian operations has the lowest ARPU of Nextel’s major Latin American markets, in the mid to high $30 range. The second largest market is Mexico, where Nextel provides service under the name Comunicaciones Nextel de Mexico. The Mexican operation has approximately 273,000 subscribers and covers 50 million Pops. The Mexican market has the highest ARPU of the region, with an ARPU over $70. The third largest Latin American market is Argentina, where Nextel provides service under the Nextel Argentina name to 153,000 subscribers and covers 23 million Pops. Argentina has the second highest ARPU (at the $60 level) after Mexico. In the Peru market, Nextel provides service under the Nextel del Peru brand. The company covers 7 million Pops in this market and provides service to approximately 81,000 subscribers who generate ARPUs in the mid to high $50 range. Finally, Nextel operates three analog companies in Chile, which were acquired from Motorola, covering 15 million Pops with 5,000 analog subscribers.

In May 2000 the company consolidated its ownership in these markets by acquiring the minority ownership outstanding, primarily from Motorola and other minority owners. Today, all of the companies in these five respective markets are 100% owned by Nextel International and all have digital capability except Chile. The wireless services are provided on the 800 MHz spectrum in all of the Latin American markets.

Nextel also has a controlling interest in its Philippines operations, with a 59.1% interest and 44 million proportionate Pops, and provides service to approximately 27,000 proportional subscribers. The network is digital and uses the 800 MHz spectrum. Finally, the company also has two minority stakes in carriers in Japan (32.1%) and in Canada (4.8%) representing 40.8 million and 1.5 million proportional Pops, respectively, as well 16,000 and 108,000 proportional subscribers. The Canadian network uses 800 MHz spectrum while the Japanese network uses 1.5 GHz spectrum. The company has reduced the cost basis ($21 million in fourth quarter 2000) of its investment in Japan to zero as it believes that a network buildout using existing specialized mobile radio technology would be costly and inefficient.

Table 8: Nextel International Pops Market Proportionate Subs Proportionate Commenced Country (MM) Share % Pops (MM) (000) Subs (000) Technology Digital Op’s Brazil 62 100.0% 62.0 383 383 analog/digital May-98 Mexico 50 100.0% 50.0 273 273 analog/digital Sep-98 Argentina 23 100.0% 23.0 153 153 digital Jun-98 Peru 7 100.0% 7.0 81 81 analog/digital Jun-99 Chile 15 100.0% 15.0 5 5 analog NA Total Latin America 157 100.0% 157.0 895 895

Philippines 75 59.1% 44.3 45 27 digital Jul-98

Total Managed/Operating Companies 232 86.8% 201.3 940 922

Japan 127 32.1% 40.8 50 16 digital Jul-98 Canada 31 4.8% 1.5 2,257 108 analog/digital/PCS Oct-96

Grand Total 390 62.5% 243.6 3,247 1,046 Source: Company reports.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 28

MOVING BEYOND IDEN: POSSIBLE TRANSITION TO CDMA2000 1X

Nextel faces a major network evolution issue as does every major carrier in the United States. The driver in moving beyond current 2G technologies is twofold—to reduce the current capital cost of delivering service (i.e., capex/net add or capex/MOU) and to enhance network features (higher speed packet data). See Figure 15 for an overview of potential technology migration paths.

Of the national carriers, we believe Nextel’s transition to a next generation network is among the costliest, especially since the company has both spectrum and technology choice issues. On the spectrum side (as mentioned previously), the real issue for Nextel is finding contiguous spectrum on which to deploy a 3G solution. On the infrastructure side, Figure 15 shows Nextel’s technology transition choices.

The Choice Is Probably 1xRTT Nextel is exploring CDMA2000 1x (hereafter 1xRTT) as a 3G upgrade path and could begin deploying 1xRTT in 2002 and launch a 1xRTT overlay to its iDEN network in 2003— 18 months behind current IS-95 CDMA operators such as Sprint PCS or Verizon Wireless. This overlay would integrate 1xRTT technology into Nextel’s existing iDEN network. Nextel has submitted an RFP to several vendors and will require the winning vendor to engineer a new version of 1xRTT that will offer Direct Connect and re-band CDMA handset technology from 1900 MHz to 800 MHz where Nextel operates. It is unclear at this point whether this reengineered version of 1xRTT would be proprietary to Nextel.

• Cost to 3G is $4 billion plus. In any case, Nextel does indeed face a major capital cycle in the $4 billion range (or $20 per Pop) to be spent during 2002-2003 associated with reconfiguring its current 2G iDEN network to a future 3G platform (probably 1xRTT), which is not reflected in our current model (the company has an RFP out to price this evolution). As we discuss later in this report, the payback for Nextel (compared with our model) would be improved “unit cost of capacity,” which we estimate amounts to $3.0-3.5 billion in capex savings between 2003-2007, and therefore the $4 billion investment would likely be virtually recouped within four years.

• Goodbye iDEN—Direct Connect would be built into a 1xRTT network. Except for structure-related assets, the 1xRTT network will not use iDEN equipment. Broadly, Nextel will maintain its iDEN network and move subscribers to the 1xRTT overlay incrementally.

Nextel Communications August 14, 2001 29 New York

Figure 15: Potential Transition Paths to 3G Technologies

TDMA No IS-136 Upgrade 30 KHz channels divided into 3 calls Path

$20 per Pop

EDGE Ÿ max 384 GSM Kbps= eight WCDMA

Analog AMPS (Advanced Mobile Phone Service) Analog Phone Mobile AMPS (Advanced GPRS time slots each max 19.2 Kbps, avg. 9.6 Kbps via CDPD (Cellular Digital Packet Data) Packet Digital CDPD (Cellular via Kbps 9.6 avg. Kbps, 19.2 max Ÿ 200 KHz (UMTS) Ÿ packet-switched @ 48 Kbps channels divided Ÿ nearly 5MHz per data (not voice) Ÿ changes into 8 time slots channel $2 per Pop Ÿ 50-86 Kbps modulation to Ÿ 9.6 Kbps data Ÿ data rate 2 Mbps Ÿ new handsets 8 phase shift rates Ÿ code-division needed keying Ÿ requires new phones

Unlikely due to greater bandwidth needs than CDMA

iDEN Ÿ 4x AMPS voice capacity Ÿ Packet data @ 17 Kbps $20 per Pop 5 x AMPS 1xEV voice capacity EV-DO Packet-switched CDMA2000 3x voice and data on Ÿ seperate RF Three 1.25 channels. MHz channels wide, used independently (multi-carrier) cdmaOne CDMA2000 1x or together EV-DV (direct-spread) IS-95 (1xRTT) Packet data & voice Ÿ Max data on same carrier w/ Ÿ Data up to 14.4 Ÿ One 1.25 MHz 2Mbps $5-$6 per Pop option for data on Kbps channel wide Voice Capacity Doubles seperate carrier. Ÿ 3 x TDMA capacity Ÿ max data 614 Kbps

1G 2G 2.5G/Narrow Channel 3G/Wide Channel

iDEN Technology Migration Path

Source: JPMorgan.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 30

1xRTT Pays for Itself: Why 3G Technology Makes Sense Cost savings are driving Nextel’s interest in a 1xRTT network overlay. We believe the move to 1xRTT, in Nextel’s case, has a positive net present value impact on the company. That is, our current model reflects the high capex costs associated with sustaining iDEN (adding iDEN capacity to meet growth through 2007). Transitioning to 1xRTT would indeed require a major up-front investment, but the investment should be quickly recouped through lower capacity spending (compared with our model) in 2003-2007.

A 1xRTT network would increase the efficiency of Nextel’s spectrum and allow Nextel to choose among a group of competing vendors for the lowest priced contracts. 1xRTT is estimated to offer roughly three times the capacity of iDEN (13 times AMPS capacity). In other words, 1xRTT capacity would cost a third of the cost of iDEN capacity.

Reduced Cost of Capacity Nextel believes that increased spectrum efficiency (fewer cell sites, saving significantly on cell site builds and tower expansion) combined with a reduction in variable costs (electronics are cheaper) on a 1xRTT network add up to roughly 40% lower costs of capacity and equipment for 1xRTT relative to iDEN. Also, Motorola is Nextel’s only iDEN vendor, and Nextel, therefore (also because it and its affiliate are the only U.S. carriers using iDEN), pays a premium for equipment and handsets. Nextel estimates that a 1xRTT network with Direct Connect would be 10% more expensive than a 1xRTT network without Direct Connect.

Nextel estimates that CDMA2000 1x (1xRTT) will offer three times the capacity of iDEN, meaning that 1xRTT capacity will cost one-third the cost of iDEN capacity. This implies 67% savings. Equipment cost will be three-fourth the cost of iDEN equipment, implying 25% savings. The company estimates that cost of capacity and equipment cost factor equally into the total cost to provide service, implying 33% and 13% savings, respectively, or, conservatively, 40% total savings over iDEN (see Table 9). Still, Nextel expects a 1xRTT version of Direct Connect to be cheaper than iDEN Direct Connect.

Table 9: Projected Cost Savings from 1xRTT Transition % of iDEN Costs Implied Savings % of Total Cost Savings Cost of Capacity 33% 67% 50% 33% Equipment Cost 75% 25% 50% 13% Discount -6% Total 40% Source: Company estimates. Note: Implied savings = (1- percentage of iDEN costs). Savings = Implied savings * percentage of total cost. Discount represents a reduction of savings total to produce a more conservative estimate.

The payback for Nextel (compared with our model) would be improved “unit cost of capacity,” which we estimate amounts to annual capacity capex savings of $800-900 million annually (compared with our iDEN only model) and therefore cumulative capex savings in 2003-2007 would virtually recoup the 1xRTT transition.

Looking at the Payback We have illustrated below how the huge transition investment from iDEN to 1xRTT would be recouped by lowering Nextel’s future capital expenditures. These are illustrative only as the company would today be unable to quantify either the up-front investment (to 1xRTT) or even quantify the savings. Still, we would note the following points. iDEN Is Forecast to Require $2.25 Billion per Year for Capacity—First, iDEN is a higher cost technology and requires significant capital expenditures each year to meet current capacity requirements. As shown in Figure 16, we estimate that Nextel would spend about

Nextel Communications August 14, 2001 31 New York

$2.5 billion annually, of which 90% is capacity related. This is the level of capex currently reflected in our DCF model, which drives our target price.

Figure 16: Current Capex Forecasts ($ in billions)

$3,000 Maintenance Capex Capacity Capex

$2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500

$2,400

$1,800

$2,250 $2,250 $2,250 $2,250 $2,250 $2,250 $2,250 $1,200

$600

$250 $250 $250 $250 $250 $250 $250 $0 2001E 2002E 2003E 2004E 2005E 2006E 2007E

Source: JPMorgan estimates. 1xRTT Would Require an Estimated $4 Billion Up Front—We have only estimated the up- front investment in 1xRTT since, as we noted previously, the company is still in the process of getting final vendor figures. In any case, we believe migrating from iDEN to 1xRTT (CDMA) is significantly more costly than a migration from IS-95 to 1X ($0.75-1.00 billion), GSM to GPRS ($100 million), or TDMA to GPRS ($3 billion). We therefore estimate $4 billion (basically, 25% higher than the TDMA to GPRS transition). Incidentally, most of the cost of a 1xRTT installation would be electronic versus hard assets; that is, we do not believe Nextel would require more cell sites since we believe the propagation of CDMA is probably better than iDEN, given CDMA’s leveraging of multipath signals.

While we believe capacity capex costs would theoretically drop by 40%, we use a more conservative 30% savings estimate in Figure 17 to illustrate the value under a more conservative scenario. These modified projections show that Nextel would be required to spend around $4 billion over the course of 2002 and 2003, reflecting a sharp incremental cost associated with 1xRTT (and offset slightly by the savings in capacity spending those years).

In future years, we estimate annual capex would drop to $1.8 billion, or savings of almost $700 million per year, reflecting the lower capacity costs of 1xRTT.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 32

Figure 17: Modified Capex Forecasts for 1xRTT Migration ($ in billions)

$5,000 Maintenance Transition Capacity

$4,250

$4,000 $3,750

$1,750

$3,000 $1,750

$1,938 $2,000 $1,825 $1,825 $1,825 $1,825 $1,825

$2,250 $1,750 $1,688 $1,000 $1,575 $1,575 $1,575 $1,575 $1,575

$250 $250 $250 $250 $250 $250 $250 $250 $- 2002E 2003E 2004E 2005E 2006E 2007E 2008E 2009E

Source: JPMorgan estimates.

1xRTT Costs Recovered by 2007—As shown in Figure 18, we believe the investment in 1xRTT would be recovered by 2007 as the up-front investment to 1xRTT would be recouped through the 30% drop in capacity capex per year. This also suggests that a migration to 1xRTT on cost issues alone (ignoring any potential top-line benefits) would be NPV neutral to positive (since the terminal multiple should technically be higher).

Capital expenditures should also reach more reasonable levels. As shown in Figure 19 below, we estimate that Nextel’s capex as a percentage of revenues would drop closer to 16.1% by 2007 versus 22.1% under iDEN only.

Nextel Communications August 14, 2001 33 New York

Figure 18: Cumulative Capex Savings ($ in billions)

$1,500 Savings Cumulative Savings

$675 $675 $675 $563 $500

$(500) -$413

-$1,088 -$1,250 -$1,250 $(1,500)

-$1,750 -$1,763

$(2,500) -$2,438

-$3,000 $(3,500) 2002E 2003E 2004E 2005E 2006E 2007E

Source: JPMorgan estimates.

Figure 19: iDEN and 1xRTT Forecast Capex as Percent of Forecast Revenues

55.0% iDEN/ Revs 1XRTT/Revs

48.0% 46.9%

44.0%

32.0% 33.0% 27.6% 25.4% 24.3% 23.2% 22.1% 22.0% 19.7% 17.7% 16.9% 16.1%

11.0%

0.0% 2002E 2003E 2004E 2005E 2006E 2007E

Source: JPMorgan estimates.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 34

Implementation Issues: Adding Direct Connect to 1xRTT Adding Direct Connect push-to-talk functionality to a 1xRTT phone requires development work to standard 1xRTT phones, including an additional vocoder, quicker call setup, and a Direct Connect button on the side of the phone. Nextel’s handset manufacturer will need to add a vocoder to the 1xRTT phone to enable 1xRTT Direct Connect to work with iDEN Direct Connect. The vocoder translates between the two technologies, encoding and decoding their signals as needed. Direct Connect requires a quicker call setup than an interconnect-only handset. For example, Nextel’s standard is 200 milliseconds whereas Sprint PCS has a five second call setup. The handset vendor must also add a Direct Connect button to the phone.

Handsets Nextel’s 1xRTT handsets will offer interconnect (regular cellular talk) and Direct Connect functionality. Although the phones haven’t yet been developed, Nextel believes (based on prototypes) that its 1xRTT handsets will be comparable in size to 1xRTT handsets without Direct Connect. Some models may include color screens.

These new handsets will be interoperable with iDEN users but not interoperable with the existing iDEN network. That is, a Nextel 1xRTT user could Direct Connect with an existing iDEN workgroup, but this 1xRTT user could not use any existing iDEN network when roaming. Obviously, this becomes an issue when Nextel customers “roam” out of their home markets.

Bandwidth Nextel owns licenses for an average of 21 MHz of frequency across the United States, except for its markets that border Canada and Mexico. However, 1xRTT can only operate on contiguous spectrum, and much of this 21 MHz is noncontiguous. Accordingly, Nextel has secured the right to clear the upper 200 channels of the SMR band and has succeeded in clearing 10 contiguous MHz in most of its markets.

Nextel has been using this spectrum for cell site fill-ins that require additional frequency, until the network is “retuned,” freeing the extra spectrum again. Nextel will retune its network again in the near future, making this upper 200 contiguous spectrum available for a 1xRTT deployment. Nextel will initially need 4 MHz for the first 1xRTT carrier (1.25 MHz channel plus 2 times 1.38 MHz guardband) and, eventually, 10 MHz for a fully loaded 1xRTT network.

The up-front investment for 1xRTT is estimated to be approximately $4 billion (or $20 per Pop), which we expect will be spent during 2002-2003 associated with reconfiguring its current 2G iDEN network to a future 3G platform (probably 1xRTT), which is not reflected in our current model (the company has an RFP out to price this evolution).

Enhancing iDEN’s Current Capacity Nextel is taking steps to improve capacity and data speeds between now and 2003, when it plans to launch a 1xRTT network overlay. Nextel is currently working on a software upgrade called Release 9.6 that will allow it to offer up to 50% greater capacity where needed, such as in high-density markets. This software is deployed at the integrated site controller (ISC), which manages radio resources. It allows the use of 36 base radios per tower versus the current 24 maximum. It allows the company to increase a cell site’s capacity from 11.5 MHz to 14 MHz. This theoretical capacity increase would apply to Direct Connect, interconnect, and data transmissions.

Nextel is also testing a 2 KB vocoder that would replace the 4 KB vocoders currently in use for Direct Connect. In theory, this change would improve direct connect capacity by 100% without deteriorating call clarity. There is not yet a launch date for a 2 KB vocoder.

Nextel Communications August 14, 2001 35 New York

OWNERSHIP AND MANAGEMENT STRUCTURE

As of July 16, 2001, 827 Table 10: Management and Board Stock Ownership institutions held Name Age Position Shares Owned Options Total Value 405 million shares, or Management 42% of Nextel’s Timothy M. Donahue * 52 President and CEO 28,668 1,500,000 $1,617,900 Jim Mooney Executive VP and COO 0 0 $0 outstanding shares. John Brittain 42 VP and Acting CFO 0 0 $0 Additionally, management Thomas N. Kelly, Jr. 53 Executive VP and Chief Mkting Officer 0 415,500 $13,183 and directors held Barry J. West 55 Executive VP and CTO 0 0 $0 100 million shares, or Cathy L. Bradley Senior VP and Chief Service Officer 0 0 $0 Leonard Kennedy 49 Senior VP and General Counsel 0 0 $0 11% of outstanding Steven M. Shindler 38 CEO, Nextel International 0 664,000 $686,6695 shares. Board of Directors William E. Conway, Jr. 51 Chairman 193,730 28,668 $2,768,402 Morgan E. O’Brien 56 Vice Chairman 492,808 800,000 $7,042,226 Craig O. McCaw 51 Director 90,713,876 12,000,000 $1,348,031,288 Keith J. Bane 61 Director 0 0 $0 Dennis Weibling 49 Director 4,614 0 $65,934 Daniel F. Akerson 52 Director 200,000 4,610,001 $2,858,000 Frank M. Drendel 56 Director 17,000 0 $242,930 V. Janet Hill 53 Director 3,500 10,001 $50,015

Other Executives & Directors 8,761,216 1,501,500 $125,197,777

Total Executive Shares 100,415,412 Total Shares Outstanding 971,676,730 Total Mang/Total Shares 10.3% Source: JPMorgan estimates and company reports. Note: * = Also on Board of Directors NXTL closing price as of August 9, 2001- $14.29 Total Value calculation: ([Shares Owned] * [NXTL Stock Price]) + ([Stock Price] – [Option Strike Price]) *(Option Shares). If strike price is greater than the stock price the option value is $0. Officer: Number of Options/ Strike Price: Timothy Donahue: 450,000/$11.61; 1,050,000/$18.77 Thomas N. Kelly, Jr.: 40,500/$13.96; 375,000/$19.77 Steven M. Shindler: 251,501/$11.56; 412,499/$18.42 Morgan E. O’Brien: 450,000/$17.00; 350,000/$19.85 Craig O. McCaw: 10,000,000/$10.75; 2,000,000/$6.13 Strike price used for all other NXTL options is the average of all options, $32.89.

Nextel’s management team has considerable experience in the telecom industry.

Timothy M. Donahue was appointed the president and chief executive officer of Nextel Communications in August 1999. Mr. Donahue started with Nextel in January 1996 as president and chief operating officer. Prior to Nextel, Mr. Donahue was the regional president for AT&T Wireless’s northeast region from 1991 to 1996. Mr. Donahue graduated from John Carroll University with B.A. in English literature.

Nextel’s management Jim Mooney is the executive vice president and chief operating officer of Nextel team has considerable Communications. Previously, Mr. Mooney was the chief financial officer of IBM, Americas. experience in the telecom Mr. Mooney worked at IBM for a total of 19 years. Also, Mr. Mooney served as senior vice industry. president and chief financial officer of BAAN Company and chief executive officer of Tradeout. Mr. Mooney graduated from the University of Notre Dame with a B.A. in finance and received an MBA from New York University.

John Brittain is a vice president and is currently acting chief financial officer of Nextel. Mr. Brittain started with Nextel as vice president and treasurer in early 1999. Previously, Mr. Brittain was senior vice president and worldwide treasurer of Sotheby’s Holdings, Inc., from

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 36

1994 through 1999. Prior to Sotheby’s, Mr. Brittain was the assistant corporate treasurer of The Great Atlantic & Pacific Tea Company.

Thomas N. Kelly Jr. is the executive vice president of Marketing & Strategic Planning and has been with the company since April 1996. Prior to Nextel, Mr. Kelly was the vice president of marketing for AT&T Wireless. Mr. Kelly was at Howard, Bedford, and Nolan, a consulting practice focused on providing marketing and new product consulting to Fortune 100 companies, for 12 years as the vice president of business development. Mr. Kelly graduated from Wofford College with an economics degree.

Barry West is the executive vice president and chief technology officer for Nextel Communications. Previously, Mr. West worked 25 years for British Telecom and has considerable experience in successful engineering and marketing initiatives. While at British Telecom, Mr. West was the director of value-added services and corporate marketing at BT Cellnet, and he led the rollout of a GSM digital cellular network.

Cathy L. Bradley is the senior vice president and chief service officer of Nextel and is responsible for customer care. Prior to Nextel, Ms. Bradley was the president of SNET Teleservices, which is a wholesale business subsidiary of Southern New England Telecommunications (SNET). Also, Ms. Bradley was the vice president of sales and service and worked with the launch of its long distance telephone subsidiary, SNET America. Ms. Bradley graduated from the University of Connecticut with a B.S. in economics and received an MBA from the University of New Haven.

Leonard Kennedy is the senior vice president and general counsel of Nextel and joined the company in January 2001. Prior to Nextel, Mr. Kennedy was partner at Dow, Lohnes & Albertson, P.L.L.C., and advised clients on telecommunications law, regulation, and policy. From 1980 to 1988, Mr. Kennedy was a legal advisor at the Federal Communications Commission and worked with Commissioner Ervin S. Duggan on FCC actions relating to various wireless issues. Mr. Kennedy graduated from Cornell University with a B.A. in economics in 1974 and a J.D. in 1977.

As of July 16, 2001, 827 holders held 405.5 million shares, or 41.7% of Nextel’s outstanding shares. Additionally, management and directors held 100.4 million shares, or 10.3% of outstanding shares.

Other significant shareholders include Motorola, which holds 108.2 million shares, or 11.1% of shares outstanding, and Microsoft (MSFT/$xx/Buy), which owns 33.3 million shares, or 3.4% of shares outstanding.

Figure 20: Management Structure Timothy M. Donahue President & CEO

Jim Mooney John Brittain Barry J. West Steven M. Shindler Executive VP & COO Executive VP & CTO CEO, Nextel International VP & Acting CFO

Source: Company reports.

Nextel Communications August 14, 2001 37 New York

FINANCIAL ANALYSIS

Figure 21 to Figure 28 provide our operating forecasts for several key long-term assumptions that drive our model. These metrics are easy to manipulate in our models and are generally highlighted with a dashed box titled “driver.”

Subscribers In the long term, we forecast Nextel to capture 10% of all future wireless gross additions within its domestic launched markets, equating to 14.7 million subs by 2007. As shown in Figure 21, we forecast net additions for Nextel to peak at 2.6 million in 2001 and decrease to 1.1 million by 2007. In 2001 we expect the International segment to add 650,000 proportionate subscribers.

Figure 21: Net Additions (in millions)

4 Total Domestic Intl

3 2.7 2.6 2.5 2.2 2.0 1.9 2 1.9

1.3 1.2 1.2 1.0 1.1 1 0.8 0.8 0.6 0.7 0.6 0.5 0.6 0.5 0.5 0.4 0.4 0.3

0 2000 2001E 2002E 2003E 2004E 2005E 2006E 2007E

Source: Company reports and JPMorgan estimates. As shown in Figure 22, we expect Nextel to reach 18.9 million subscribers in 2007 (14.7 million subs in the Domestic segment and 4.2 million proportionate subs in the International segment, which includes all international properties). This equates to a penetration of 6.80% and 1.96% of its core consolidated domestic and proportionate International Pops, respectively, by 2007. The domestic monthly churn levels of 2.4% (2001 estimate) are below the industry average of 2.8%. The company is focused on maintaining low customer churn levels, and we expect monthly churn to decrease further to 2.1% in the domestic segment by 2007. In addition, we expect churn in the International segment to remain at 2.0% from 2002 through 2007.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 38

Figure 22: Ending Subscribers (in millions)

20 Total Domestic Intl 18.9 17.8 16.6 15.7 14.5 14.7 15 13.9 13.1 12.6 12.6 11.8 10.5 10.1 10 8.6 7.6 6.7

5 3.9 4.2 3.1 3.5 2.6 2.1 1.5 0.9 0 2000 2001E 2002E 2003E 2004E 2005E 2006E 2007E

Source: Company reports and JPMorgan estimates.

Service Revenues As illustrated in Figure 23, service revenues are expected to grow approximately 10.9% annually to $13.4 billion in 2007, up from an estimated $7.2 billion in 2001. The main driver for this revenue growth is annual subscriber growth of approximately 9.3% in the United States and 18.9% internationally. The majority (about 94%) of the service revenues in 2000 are generated from the Domestic segment. However, by 2007, this is expected to decline to about 85% of revenues.

Figure 23: Service Revenues ($ in billions)

$15 Total Domestic Intl 13.4 12.6 12.0 11.3 11.3 $12 10.8 10.3 10.3 9.8 8.7 9.1 $9 7.8 7.2 6.6 5.3 $6 5.0

$3 1.9 2.0 1.4 1.7 0.9 1.2 0.3 0.6 $- 2000 2001E 2002E 2003E 2004E 2005E 2006E 2007E

Source: Company reports and JPMorgan estimates.

Domestic average monthly revenues per user (ARPUs) are forecast to ease approximately 1.3% annually from $74 in 2000 to $66 in 2007. International ARPUs for managed properties are forecast to increase from $42 to $54 from 2000 to 2007.

Nextel Communications August 14, 2001 39 New York

Nextel’s ARPUs are Figure 24: Average Revenues per User substantially higher than the industry average of $90 Domestic Intl $55, which reflects the $74.00 $71.42 high-end business users. $72 $68.00 $67.60 $67.20 $66.80 $66.40 $66.00

$51.70 $52.77 $53.47 $53.94 $54.28 $54 $49.89 $45.87 $42.00

$36

$18

$- 2000 2001E 2002E 2003E 2004E 2005E 2006E 2007E

Source: Company reports and JPMorgan estimates. Operating Cash Flow (EBITDA) Nextel is currently generating positive operating cash flows (EBITDA). As shown in Figure 25, we expect EBITDA to increase 22.7% annually from $1.3 billion in 2000 to $6.1 billion in 2007. In addition, we forecast Domestic EBITDA to increase 18.5% annually to $5.3 billion in 2007. The International segment is expected to generate an EBITDA loss of $125 million in 2001 (turning positive in 2002 and onward).

Figure 25: Operating Cash Flow ($ in billions)

$7 Total Domestic Intl 6.06 5.49 5.28 $6 5.09 4.85 4.55 4.61 4.22 $4 3.66 3.47

2.59 2.54 $3 1.78 1.90 1.26 1.40 0.78 $1 0.63 0.34 0.48 0.05 0.19

$(1) -0.13 -0.12 2000 2001E 2002E 2003E 2004E 2005E 2006E 2007E

Source: Company reports and JPMorgan estimates.

As illustrated in Figure 26, gross cash flow (premarketing cash flow) is also expected to increase 11.3% annually to $8.3 billion in 2007 from $3.1 billion in 2000 (marketing costs including equipment subsidies). We forecast Domestic gross cash flow to increase 9.5% annually to $7.2 billion in 2007. In addition, we forecast International gross cash flow to increase 33% annually to $1.2 billion in 2007.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 40

Figure 26: Gross Cash Flow ($ in billions)

$10 Total Domestic Intl 8.35 7.84 $8 7.37 7.20 6.92 6.83 6.51 6.27 6.22 5.72 $6 5.31 4.92 4.38 4.17 $4 3.12 3.03

$2 1.01 1.16 0.70 0.86 0.39 0.54 0.09 0.21 $- 2000 2001E 2002E 2003E 2004E 2005E 2006E 2007E

Source: Company reports and JPMorgan estimates. Wireless carriers typically incur significant marketing costs, and we expect each customer activation (including equipment subsidy) for each of Nextel’s markets to average approximately $450 per add (Domestic) and $295 per add (International) by 2007. As a result, marketing costs as a percentage of total service revenues are forecast to be approximately 34.5% and 54.7% in 2001, and should decline to a more reasonable 17% and 18.4% by 2007 in the domestic and international markets, respectively. The reason for this decrease is the growth in the recurring revenue streams and a slowing in the subscriber growth rates.

Capital Expenditures We expect Nextel’s Domestic capex to remain flat at $2.5 billion from 2001 to 2007 while International capex will be in the $250-750 million range (see Figure 27).

We forecast Domestic capital expenditures per net addition to be $1,336 in 2002, peak at $4,318 peak in 2005, and decrease to $3,247 in 2007. In addition, we forecast International capital expenditures per net addition to decrease to $750 in 2002, from a peak of $1,129 in 2000, and trend toward $833 by 2007.

Figure 27: Capital Expenditures ($ in billions)

$4.0 Total Domestic Intl 3.54 3.21 2.98 $3.2 2.95 2.91 2.87 2.83 2.79 2.75 2.50 2.50 2.50 2.50 2.50 2.50 2.50 $2.4

$1.6

0.71 $0.8 0.57 0.45 0.41 0.37 0.33 0.29 0.25

$- 2000 2001E 2002E 2003E 2004E 2005E 2006E 2007E

Source: Company reports and JPMorgan estimates.

Nextel Communications August 14, 2001 41 New York

Figure 28: Capital Expenditures per Net Addition

$5,400 Domestic Intl

$4,458

$3,533 $3,600 $3,298 $3,070

$1,879 $1,800 $1,376 $1,278 $1,328 $1,129 $1,116 $833 $750 $759 $771 $786 $806

$- 2000 2001E 2002E 2003E 2004E 2005E 2006E 2007E

Source: Company reports and JPMorgan estimates.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 42

FUNDING

Fully Funded We believe that Nextel is fully funded, with a maximum funding of $7.3 billion ($3.38 billion in cash, $1.44 billion in short-term investments, $1.5 billion in available credit facilities, and $1 billion received from their convertible debt issuance on May 29, 2001) at the end of the We estimate that Nextel first quarter (see Appendix IV for Nextel’s funding analysis). We forecast Nextel to have can sufficiently fund its sufficient funding up to when it becomes free cash flow positive in 2007. cumulative free cash flow losses and that it is over We forecast Nextel’s cumulative free cash losses through 2005 to total $6.5 billion (including funded by approximately capex, cash interest, working capital), which means that on an operational basis it has excess $700 million. funding of about $800 million. If the company modifies its network configuration to 1xRTT, however, the funding gap through 2005 swings to a negative $1.7 billion (the $4 billion of 1xRTT less $1.5 billion in iDEN capex). In other words, Nextel would require additional funding in 2004 (see Figure 29).

Figure 29: Nextel Funding vs. Free Cash Flow Losses to FCF Positive

8,000 '01E '02E '03E '04E '05E Avail. Funding

$7,319 '05 6,000 '04 '04

'03 '03 '03

4,000 '02 '02

$Millions '02 '02

2,000

'01 '01 '01 '01 '01 '01 0 2001E 2002E 2003E 2004E 2005E

Source: JPMorgan estimates.

Nextel Communications August 14, 2001 43 New York

See Figure 30 for Nextel’s debt maturity schedule. In addition, see Appendix V for a detailed breakout of Nextel’s debt maturity schedule.

Figure 30: Nextel Debt Maturity Schedule

$18,000 $16,984

$2,250

$14,400 $1,800

$3,000 $10,800

$4,157 $7,200 Cumulative DebtMaturity (in millions) $3,600 $5,220

$56 $28 $71 $43 $43 $86 $230 $0 2000 2001E 2002E 2003E 2004E 2005E 2006E 2007E 2008E 2009E 2010E 2011E Total

Source: Company reports and JPMorgan estimates.

Available Facilities Nextel currently has the following available and outstanding credit facilities:

Domestic Credit Facilities At the end of first quarter 2001, Nextel had $4.5 billion in outstanding credit facilities and $1.5 billion available. Of the $4.5 billion, two equal term loans of $900 million mature on December 31, 2007, a $1.7 billion term loan matures on December 31, 2007, and a $1 billion term loan matures on March 31, 2009. The $1.5 billion revolving facility, which is fully available, matures on December 31, 2007.

International Credit Facilities At the end of the first quarter 2001, Nextel International had $557 million of outstanding credit facilities and none available for funding. McCaw International (Brazil) borrowed $125 million in multidraw term loans (maturing on June 30, 2005) from Motorola Credit Corporation to purchase network infrastructure. Nextel International obtained a vendor facility with Motorola for $225 milion of secured term loans, which mature June 30, 2006. In addition, Nextel International obtained vendor financing from Motorola for $57 million in incremental term loans, which mature on June 30, 2003. Nextel International Argentina obtained $100 million in term loans and $50 million in incremental term loans, which mature on March 31, 2003.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 44

Outstanding Long-Term Debt Nextel currently has the following outstanding long-term debt:

13% Senior Redeemable Discount Notes On March 3, 1997, Nextel International issued 10-year senior redeemable discount notes due 2007. Cash interest is payable semiannually beginning October 15, 2002. The notes may be redeemed starting April 15, 2002, at a redemption price of 106.5% of the aggregate principal amount, plus accrued and unpaid interest.

10.65% Senior Redeemable Discount Notes On September 17, 1999, Nextel issued eight-year senior redeemable discount notes due 2007. Cash interest is payable semiannually starting on March 15, 2003. The notes may be redeemed starting September 15, 2002, at a redemption price of 105.325% of the aggregate principal amount, plus accrued and unpaid interest.

9.75% Senior Serial Redeemable Discount Notes On October 22, 1997, Nextel issued 10-year senior serial redeemable discount notes for net proceeds of $682 million. Cash interest on this note is payable semiannually beginning April 30, 2003. The notes are redeemable starting October 31, 2002, at a redemption price of 104.875% of the aggregate principal amount, plus accrued and unpaid interest.

9.95% Senior Serial Redeemable Discount Notes On February 11, 1998, Nextel issued 10-year senior serial redeemable discount notes for net proceeds of $ $976 million (face value of $1.63 billion). Cash interest is payable semiannually beginning August 15, 2003. The notes are redeemable starting February 15, 2003, at a redemption price of 105.5625% of the aggregate principal amount, plus accrued and unpaid interest.

12.125% Senior Serial Redeemable Discount Notes On March 12, 1998, Nextel International issued 10-year senior serial redeemable discount notes for net proceeds of $387 million (face value of $730 million). Cash interest is payable semiannually beginning October 15, 2003. The notes are redeemable starting April 15, 2003, at a redemption price of 106.063% of the aggregate principal amount, plus accrued and unpaid interest. In addition, prior to April 15, 2001, the company may redeem up to 35% of the aggregate accreted value of the notes from the proceeds of the sale Nextel International’s equity securities at 112.125%.

12% Senior Serial Redeemable Notes On November 4, 1998, Nextel issued 10-year senior serial redeemable notes for net proceeds of $289 million (face value of $300 million). The notes are redeemable starting November 1, 2003, at a redemption price of 106% of the aggregate principal amount, plus accrued and unpaid interest. In addition, prior to November 1, 2001, the company can redeem up to 35% of the original principal amount from the proceeds of an equity offering at 112%.

9.375% Senior Serial Redeemable Notes On November 12, 1999, Nextel issued 10-year senior serial redeemable notes for net proceeds of $1.96 billion (face value of $2 billion). The notes are redeemable starting November 15, 2004, at a redemption price of 104.688% of the aggregate principal amount, plus accrued and unpaid interest. In addition, prior to November 15, 2002, the company may redeem up to 35% of the original principal amount of the notes from the proceeds of an equity offering at 109.375%.

12.75% Senior Serial Redeemable Notes. In August 2000, Nextel International issued 10-year senior serial redeemable notes for net proceeds of $624 million (face value of $650 million). The company may redeem these notes

Nextel Communications August 14, 2001 45 New York

starting August 1, 2005, at a redemption price of 106.375%. In addition, prior to August 1, 2003, the company may redeem up to 35% of the aggregate principal amount using the proceeds of an equity offering at 112.75%.

4.75% Convertible Senior Notes In June 1999, Nextel issued eight-year convertible senior notes for net proceeds of $588 million (principal amount of $600 million). The company may redeem the notes starting July 6, 2002, at a redemption price of 102.714%. These holders may convert these notes into NXTL class A common stock at any point prior to their redemption, repurchase, or maturity at a conversion price of $23.654 per share (which is adjustable). In March 2000, Nextel issued 10.4 million shares for the conversion of $246 million of these notes at a conversion price of $23.654.

5.25% Convertible Senior Notes In the first quarter of 2000, Nextel issued 10-year convertible senior notes for net proceeds of $1.13 billion (face value of $1.15 billion). The company may redeem these notes starting January 18, 2003, at a redemption price of 103.5%. The holders may convert these notes into NXTL class A common stock at any point before their redemption, repurchase, or maturity at a conversion price of $74.40 (which is adjustable).

9.50% Senior Serial Redeemable Notes In January 2001, Nextel issued 10-year senior serial redeemable notes for net proceeds of $1.245 billion (face value of $1.25 billion) in a private placement. The company may convert all of the notes starting February 1, 2006, at a redemption price of 104.75%. In addition, prior to February 1, 2004, the company may redeem up to 35% of the aggregate principal amount using the proceeds of an equity offering at 109.5%.

6.00% Senior Convertible Notes On May 29, 2001, Nextel issued 10-year convertible senior notes of $1 billion in a private placement. The holders may convert these notes into NXTL common stock at any point before their redemption, repurchase, or maturity at a conversion price of $23.84 (which is adjustable).

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 46

FRANCHISE MARKET PROFILE AND COMPETITION

Domestic 87% of Nextel’s pro Nextel has a nationwide footprint and operates in 182 of the top 200 U.S. markets. Its top 20 forma markets have five markets represent 42.1% of its total licensed Pops and cover 21,776 highway miles (see Table or more total active 11). In addition, the company’s top 20 markets have an average density of 621 people per operators, which is square mile and an average median household income of $41,616. significantly higher than the industry average of Table 11: Nextel’s Top 20 Markets 70%. Pops/ Hway Int Median Markets BTA Pops Sq Miles Sq Mile Miles Miles Hshold Inc New York, NY 321 18,872 9,186 2,054 3,721 685 $47,004 Los Angeles, CA 262 16,811 44,231 380 4,926 1,003 36,095 Chicago, IL 78 8,886 7,258 1,224 2,212 610 45,268 Philadelphia, PA 346 5,995 5,350 1,121 1,798 333 46,104 Detroit, MI 112 4,996 6,171 810 1,626 407 41,297 Boston, MA 51 4,311 3,498 1,232 1,592 290 45,793 San Francisco, CA 404 7,484 13,565 552 1,700 323 42,077 Washington, DC 461 4,686 5,844 802 1,045 275 48,311 Dallas, TX 101 5,409 18,548 292 1,751 730 33,628 Houston, TX 196 4,975 19,163 260 1,405 395 30,584 Nassau-Suffolk, NY 394 2,862 13,310 215 1,166 455 31,557 Miami, FL 293 3,844 4,200 915 691 111 33,167 Pittsburgh, PA 350 2,446 5,860 417 1,010 288 32,036 Baltimore, MD 29 2,578 3,156 817 758 204 41,854 Minneapolis-St. Paul, MN 298 3,212 15,290 210 805 416 35,633 Cleveland, OH 84 2,956 3,901 758 1,056 386 39,213 Atlanta, GA 24 4,266 10,988 388 1,315 468 32,722 San Diego, CA 402 2,959 4,212 702 569 225 36,296 Denver, CO 110 2,629 47,388 55 1,206 586 33,213 Seattle, WA 413 3,245 8,027 404 995 210 40,487 Top 10 Markets’ Totals 82,427 132,814 621 21,776 5,051 $41,616

Total Licensed Pops 195,683 Top 20 Mkts / Total Pops 42.1% Source: Kagan’s Telecom Atlas & Databook and JPMorgan estimates. Note: Market Pops data source: Kagan’s Wireless Telecom Atlas & Databook. Total Licensed Pops source: JPMorgan estimates. BTA = basic trading area. The following is an analysis of the competitive profile of Nextel’s launched footprint. By launched we refer to the markets in which the carrier has actually launched service (measuring the size of the market based on the basic trading area (BTA). We also reflect the active competition in those markets (launched competitors) rather than simply list the other wireless licensees in those markets.

Generally, we believe markets become significantly competitive when there are five or more total active operators (including Nextel). As shown in Figure 31, 87% of Nextel’s pro forma markets have five or more total active operators, which is significantly higher than the industry average of 70%.

Nextel Communications August 14, 2001 47 New York

Figure 31: Profile of Launched Markets

45% Industry Nextel

39%

36% 33% 32%

27% 27%

18% 16%

12% 10%

9% 7% 6% 4% 2% 1% 0% 0% 0% 8 players 7 players 6 players 5 players 4 players 3 players 2 players

Source: JPMorgan estimates. Note: Percentage of Pops categorized by total number of operators.

Table 12 illustrates the wireless competitors in Nextel’s launched and licensed markets. Specifically, the Table focuses on (1) the total number of Pops that overlap in Nextel’s markets and (2) the percentage of Pops that Nextel is directly competing for with other wireless carriers. For example, Nextel competes with Verizon for subscribers on 100% of its launched Pops, making Verizon Nextel’s largest competitor, with an overlap of 195 million Pops.

Table 12: Wireless Competition in Nextel’s Pro Forma Markets Pops Overlap Overlap % Pops Overlap Overlap % Prof orma Overlap Verizon 195,683,204 100.0% Cingular (SBC/BellSouth) 139,487,119 71.3%

Wireless Competitors Wireless Competitors Cont’d Sprint PCS 157,340,629 80.4% TeleCorp PCS 6,733,787 3.4% AT&T (800MHz Cellular) 95,359,730 48.7% Comcast Corp. Cingular* 6,701,228 3.4% BEL (Old GTE) VZ* 59,970,621 30.6% Alamosa 6,219,415 3.2% AT&T (1900MHz PCS) 53,120,282 27.1% Tritel PCS 6,002,477 3.1% Bell Atlantic Mobile VZ 51,412,318 26.3% SNET Cingular 5,002,386 2.6% OmniPoint – Core 20/30 MHz 48,654,341 24.9% Ameritech PCS Cingular 4,938,915 2.5% AirTouch VZ 47,076,766 24.1% AirGate PCS 4,915,271 2.5% VoiceStream 39,961,475 20.4% UbiquiTel 4,190,608 2.1% SBC Comm. (cellular) Cingular 35,246,289 18.0% US Unwired (PCS) 4,123,808 2.1% PrimeCo PCS VZ 33,195,048 17.0% Century Telephone 3,566,630 1.8% PacBell GSM (30) Cingular 30,061,974 15.4% CinBell 3,446,260 1.8% ALLTEL (Cellular only) 27,655,936 14.1% BellSouth PCS (TDMA) Cingular 2,914,619 1.5% BellSouth Cellular Cingular 27,415,397 14.0% Centennial Cellular 1,897,852 1.0% Aerial Communications 17,747,607 9.1% ALLTEL (PCS) 1,201,340 0.6% Ameritech Corp. Cingular 17,202,203 8.8% Dobson Cellular 976,624 0.5% Qwest Wireless 16,011,746 8.2% SBC Comm. PCS (TDMA) Cingular 901,461 0.5% Leap Wireless 16,002,860 8.2% Price Comm. (Palmer Wireless ) 679,071 0.3% Powertel – 20/30 MHz 12,033,310 6.1% ChaseTel 550,494 0.3% BellSouth PCS (GSM) Cingular 9,102,645 4.7% American Cellular 457,720 0.2% US Cellular 7,366,339 3.8% Western Wireless – cellular 401,826 0.2% APC (d.b.a. Sprint in D.C.) 7,057,294 3.6% PCS ONE 362,631 0.2% GTE Wireless – PCS VZ 7,025,785 3.6% CommNet Cellular VZ 286,638 0.1% Triton PCS 6,885,337 3.5% Source: JPMorgan estimates and company documents and JPMorgan calculations for companies not covered. Note: JPMorgan rates SBC Communications (SBC/$40.80) and Qwest Communications (Q/$27.45) as Buys. *This column identifies the companies that make up Verizon and Cingular.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 48

APPENDIX I: COMPANY PROFILE

Competitive Profile Operating Forecasts Quarterly –2000 Quarterly –2001E Overlap Overlap Domestic Market Data 1999 FY 1Q 2Q 3Q 4Q FY 1QA 2QA 3Q 4Q 2002E 2003E 2004E 2007E # competitors Pops % Total Significant Competitors Pops % Total Launched Pops 167,680 177,680 187,680 197,680 197,680 197,680 202,008 202,513 203,019 203,526 205,562 207,617 209,693 211,790 8 players 3,470 2% VoiceStream 39,961 20% Penetration 31.75% ————39.86% ————55.65% 60.11% 62.57% 70.07% 7 31,232 16% Aerial Communications 17,748 9% Penetration Gain 6.21% ————8.69% ————8.21% 4.95% 2.98% 3.08% 6 64,923 33% SBC Comm. (cellular) 35,246 18% Ending Subs 53,241 ————78,798 ————114,402 124,806 131,212 148,392 5 76,821 39% Ameritech Corp. 17,202 9% Net Adds 10,418 ————17,181 ————16,867 10,278 6,248 6,515 4 11,312 6% Qwest Wireless 16,012 8% 3 7,925 4% BellSouth PCS (GSM) 9,103 5% Domestic Carrier Statistics 2 0 0% Net Adds 1,726 540 561 540 521 2,163 520 486 475 475 1,882 1,330 708 758 Total Launched 195,683 100% • Share of Net Adds 17% ————13% ————11% 13% 11% 12% Ending Subs 4,516 5,056 5,617 6,157 6,678 6,678 7,199 7,684 8,159 8,634 10,516 11,847 12,554 14,687 Avg Subs 3,612 4,786 5,336 5,887 6,418 5,607 6,938 7,441 7,922 8,397 9,575 11,182 12,201 14,308 Balance Sheet 1999 2000 Penetration Gain 1.03% 0.30% 0.30% 0.27% 0.26% 1.09% 0.26% 0.24% 0.23% 0.23% 0.92% 0.64% 0.34% 0.36% Penetration 2.69% 2.85% 2.99% 3.11% 3.38% 3.38% 3.56% 3.79% 4.02% 4.24% 5.12% 5.71% 5.99% 6.93%

Working capital (deficit 3,838 3,838 Long term debt 13,865 13,865 Preferred stock 1,881 1,881 ARPU $74.37 $71.87 $74.71 $75.31 $73.81 $74.00 $71.82 $71.97 $71.00 $71.00 $68.00 $67.60 $67.20 $66.00 Options/cash 00 • Incremental ARPU $74.85 $70.94 $72.15 $75.55 $74.34 $73.34 $71.72 $65.02 $58.53 $61.90 $54.19 $65.22 $62.81 $59.12 Service Revs $3,223.7 $1,031.8 $1,196.0 $1,330.0 $1,421.0 $4,978.8 $1,495.0 $1,606.6 $1,687.4 $1,788.5 $7,813.5 $9,070.4 $9,838.5 $11,332.3 Premarketing EBITDA $1,862.7 $624.8 $714.0 $809.0 $878.0 $3,025.8 $902.1 $1,047.0 $1,076.4 $1,146.8 $4,922.5 $5,723.4 $6,217.9 $7,196.0 Premarketing margin 58% 61% 60% 61% 62% 61% 60% 65% 64% 64% 63% 63% 63% 64% • Market cost / gross add $448.9 $438.4 $443.9 $466.6 $507.6 $464.9 $527.6 $564.4 $545.0 $545.0 $545.0 $526.0 $507.0 $450.0 EBITDA $698.9 $262.0 $323.0 $392.0 $418.0 $1,395.0 $353.0 $483.0 $506.7 $558.4 $2,541.6 $3,470.4 $4,215.9 $5,275.3 • Increm. EBITDA margin 56% 47% 39% 39% 35% 40% 20% 39% 32% 38% 52% 74% 97% 75% EBITDA Margin 22% 25% 27% 29% 29% 28% 24% 30% 30% 31% 33% 38% 43% 47% Capex- Domestic $1,887.0 $661.0 $686.0 $666.0 $963.0 $2,976.0 $660.0 $616.0 $620.0 $604.0 $2,500.0 $2,500.0 $2,500.0 $2,500.0

Consolidated Carrier Stats Service Revs $3,326.0 $1,079.0 $1,260.0 $1,416.0 $1,533.0 $5,288.0 $1,626.0 $1,756.0 $1,842.5 $1,964.5 $8,710.0 $10,254.2 $11,279.3 $13,362.8 Premarketing EBITDA $1,810.8 $631.0 $733.0 $838.0 $916.0 $3,118.0 $947.0 $1,092.0 $1,129.2 $1,213.7 $5,308.0 $6,265.6 $6,918.2 $8,353.4 Premarketing margin 54% 58% 58% 59% 60% 59% 58% 62% 61% 62% 61% 61% 61% 63% • Market cost / gross add $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 EBITDA $534.8 $228.0 $290.0 $359.0 $385.0 $1,262.0 $318.0 $450.0 $473.2 $534.9 $2,593.4 $3,660.5 $4,551.1 $6,059.0 • Increm. EBITDA margin 51% 47% 39% 35% 31% 37% 16% 32% 27% 35% 54% 69% 87% 79% EBITDA Margin 16% 21% 23% 25% 25% 24% 20% 26% 26% 27% 30% 36% 40% 45% EPS ($2.40) ($0.57) ($0.38) ($0.31) ($0.08) ($1.35) ($0.56) ($0.56) ($0.64) ($0.61) ($2.08) ($1.34) ($0.66) $1.12 Capex- Consolidated $2,032.0 $777.0 $823.0 $806.0 $1,137.0 $3,543.0 $880.0 $779.0 $783.0 $768.0 $2,950.0 $2,910.0 $2,870.0 $2,750.0

Source: Company reports and JPMorgan estimates, company documents for Aerial, SBC, and Ameritech.

Nextel Communications August 14, 2001 49 New York

APPENDIX II: FINANCIAL MODELS

Table 13: Nextel Consolidated Subscriber Statistics (units in millions except where otherwise noted) Annual Terminal Year Domestic 1998 1999 1Q00 2Q00 3Q00 4Q00 2000 1Q01 2Q01 3Q01E 4Q01E 2001E 2002E 2003E 2007E Launched Pops 166 168 178 188 198 198 198 202 203 203 204 204 206 208 216 Total Wireless Penetration 25.54% 31.75% ———— 39.86% ———— 47.88% 55.65% 60.11% 70.07% Company % share of gross 3.5% 10.0% ———— 9.6% ———— 8.9% 8.7% 9.5% 10.0%

Net internal adds 1,520 1,726 540 561 540 521 2,163 520 486 475 475 1,956 1,882 1,330 758 Subs, ending (000s) 2,790 4,516 5,056 5,617 6,157 6,678 6,678 7,199 7,684 8,159 8,634 8,634 10,516 11,847 14,687 Launched penetration gain 0.92% 1.03% 0.30% 0.30% 0.27% 0.26% 1.09% 0.26% 0.24% 0.23% 0.23% 0.96% 0.92% 0.64% 0.35% Launched Penetration 1.68% 2.69% 2.85% 2.99% 3.11% 3.38% 3.38% 3.56% 3.79% 4.02% 4.24% 4.24% 5.12% 5.71% 6.80%

Avg monthly revenue $74 $74 $72 $75 $75 $74 $74 $72 $72 $71 $71 $71 $68 $68 $66 EBITDA margin -5.5% 21.7% 25.4% 27.0% 29.5% 29.4% 28.0% 23.6% 30.1% 30.0% 31.2% 28.9% 32.5% 38.3% 46.6% Capex 2,281 1,887 661 686 666 963 2,976 660 616 620 604 2,500 2,500 2,500 2,500 Capex as % revenue 126.4% 58.5% 64.1% 57.4% 50.1% 67.8% 59.8% 44.1% 38.3% 36.7% 33.8% 38.0% 32.0% 27.6% 22.1% Capex/net added sub $1,501 $1,093 $1,223 $1,224 $1,232 $1,848 $1,376 $1,268 $1,268 $1,305 $1,272 $1,278 $1,328 $1,879 $3,298

International Launched Pops 133 133 197 197 198 198 198 199 199 200 200 200 202 205 213 Net internal prop adds 167 237 94 116 141 151 502 155 151 165 165 636 600 540 300 Prop subs, ending (000s) 167 404 497 579 740 882 882 1,037 1,149 1,314 1,479 1,479 2,079 2,619 4,179 Launched penetration gain 0.13% 0.18% 0.05% 0.06% 0.07% 0.08% 0.25% 0.08% 0.08% 0.08% 0.08% 0.32% 0.30% 0.26% 0.14% Launched Penetration 0.13% 0.30% 0.25% 0.29% 0.37% 0.44% 0.44% 0.52% 0.58% 0.66% 0.74% 0.74% 1.03% 1.28% 1.96% EBITDA Margin -268.2% -160.3% -72.1% -51.6% -38.4% -29.5% -43.0% -26.7% -22.1% -21.6% -13.4% -20.4% 5.8% 16.1% 38.6% Capex - 145 116 137 140 174 567 220 163 163 164 710 450 410 250 Capex as % revenue 0.0% 141.7% 245.9% 214.1% 162.8% 155.4% 183.4% 167.9% 109.1% 105.1% 93.2% 116.1% 50.2% 34.6% 12.3% Capex/net added sub $0 $612 $1,238 $1,177 $993 $1,153 $1,129 $1,418 $1,080 $988 $994 $1,116 $750 $759 $833

Source: Company reports and JPMorgan estimates.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 50

Table 14: Nextel Consolidated Income Statement ($ in millions) Annual Terminal Year Income Statement 1998 1999 1Q00 2Q00 3Q00 4Q00 2000 1Q01 2Q01 3Q01E 4Q01E 2001E 2002E 2003E 2007E Domestic 1,805 3,224 1,032 1,196 1,330 1,421 4,979 1,495 1,607 1,687 1,789 6,577 7,813 9,070 11,332 International 42 102 47 64 86 112 309 131 149 155 176 611 897 1,184 2,031 Other - - - - Total Service Revenues 1,847 3,326 1,079 1,260 1,416 1,533 5,288 1,626 1,756 1,843 1,964 7,189 8,710 10,254 13,363 % chg—y-t-y 80.1% 62.5% 58.9% 59.3% 56.4% 59.0% 50.7% 39.4% 30.1% 28.1% 35.9% 21.2% 17.7% 5.7% Domestic 788 1,863 625 714 809 878 3,026 902 1,047 1,076 1,147 4,172 4,922 5,723 7,196 International (49) (52) 6 19 29 38 92 45 45 53 67 210 386 542 1,157 Other - - - - Total Pre-marketing EBITDA 739 1,811 631 733 838 916 3,118 947 1,092 1,129 1,214 4,382 5,308 6,266 8,353 Pre-mkt CFLO margins 40.0% 54.4% 58.5% 58.2% 59.2% 59.8% 59.0% 58.2% 62.2% 61.3% 61.8% 61.0% 60.9% 61.1% 62.5% % chg—y-t-y 145.0% 97.8% 72.1% 66.3% 63.0% 72.2% 50.1% 49.0% 34.7% 32.5% 40.5% 21.1% 18.0% 6.5% Domestic 888 1,164 363 391 417 460 1,631 549 564 570 588 2,271 2,381 2,253 1,921 International 64 112 40 52 62 71 225 80 78 86 90 335 334 352 374 Other - - - - Total marketing costs 951 1,276 403 443 479 531 1,856 629 642 656 679 2,606 2,715 2,605 2,294 Total mkting as % revs 51.5% 38.4% 37.3% 35.2% 33.8% 34.6% 35.1% 38.7% 36.6% 35.6% 34.6% 36.2% 31.2% 25.4% 17.2%

Domestic (99) 699 262 323 392 418 1,395 353 483 507 558 1,901 2,542 3,470 5,275 International (113) (164) (34) (33) (33) (33) (133) (35) (33) (33) (24) (125) 52 190 784 Other - - - -

Total EBITDA (212) 535 228 290 359 385 1,262 318 450 473 535 1,776 2,593 3,660 6,059 OCF margins -- svc revs -11.5% 16.1% 21.1% 23.0% 25.4% 25.1% 23.9% 19.6% 25.6% 25.7% 27.2% 24.7% 29.8% 35.7% 45.3% % chg—y-t-y NM 551.4% 166.5% 105.1% 78.2% 136.0% 39.5% 55.2% 31.8% 38.9% 40.7% 46.0% 41.1% 10.4% Domestic 776 896 247 271 277 309 1,104 338 369 391 408 1,506 1,786 2,005 2,694 International 56 108 33 32 38 58 161 56 58 70 77 261 334 387 500 Dep. & amortization 832 1,004 280 303 315 367 1,265 394 427 461 484 1,766 2,120 2,391 3,195 Dep. & amort. as % revs 45.1% 30.2% 25.9% 24.0% 22.2% 23.9% 23.9% 24.2% 24.3% 25.0% 24.7% 24.6% 24.3% 23.3% 23.9% Operating income (1,045) (470) (52) (13) 44 18 (3) (76) 23 12 51 10 473 1,269 2,864 Op. income margin -56.6% -14.1% -4.8% -1.0% 3.1% 1.2% -0.1% -4.7% 1.3% 0.7% 2.6% 0.1% 5.4% 12.4% 21.4%

Interest income 17 96 83 104 111 98 396 79 56 37 30 201 92 92 92 Interest expense (675) (878) (278) (301) (333) (333) (1,245) (358) (359) (377) (394) (1,488) (1,623) (1,848) (1,518) Equity affiliates, net - - - - Other 2 (47) (17) (36) (35) (46) (134) (21) (102) (102) (102) (327) (327) (327) (327) Minority interest - One-time gains (loss) (133) (68) (127) (3) 21 245 136 (10) (10) Tax benefit (expense) 192 28 8 8 8 9 33 14 13 27 Convertible divs (149) (192) (52) (51) (52) (54) (209) (56) (57) (57) (57) (227) (227) (227) (227) Net Income (Loss) (1,791) (1,531) (435) (292) (236) (63) (1,026) (428) (426) (487) (472) (1,814) (1,611) (1,041) 885 Shares outstanding 557 648 758 760 761 762 760 764 765 767 769 766 775 776 791 EPS (loss) ($3.22) ($2.40) ($0.57) ($0.38) ($0.31) ($0.08) ($1.35) ($0.56) ($0.56) ($0.64) ($0.61) ($2.37) ($2.08) ($1.34) $1.12

Free cash flow / share ($4.16) ($3.92) ($0.81) ($1.77) ($2.28) ($0.70) ($5.55) ($0.15) ($0.92) ($0.94) ($0.86) ($2.86) ($2.91) ($1.77) $1.81 EBITDA / share ($0.39) $0.80 $0.30 $0.38 $0.47 $0.51 $1.66 $0.42 $0.59 $0.62 $0.70 $2.32 $3.35 $4.72 $7.66 $104m extinguishment of debt; $23m debt conv exp. Source: Company reports and JPMorgan estimates.

Nextel Communications August 14, 2001 51 New York

Table 15: Nextel Domestic Subscriber Statistics (Pops in millions, subs. data in thousands) Annual Terminal Year

Top-Down Statistics 1998 1999 1Q00 2Q00 3Q00 4Q00 2000 1Q01 2Q01 3Q01E 4Q01E 2001E 2002E 2003E 2007E Launched Pops 166 168 177.7 187.7 197.7 197.7 198 202.0 202.5 203.0 203.5 204 206 208 216 Total Wireless Penetration 25.54% 31.75% ———— 39.86% ————47.88% 55.65% 60.11% 70.07% Total Wireless Churn Rates 2.60% 2.70% 2.75% 2.75% 2.75% 2.75% 2.75% 2.90% 2.90% 2.90% 2.90% 2.90% 2.70% 2.50% 2.10% Company % share of gross 3.5% 10.0% ———— 9.6% ———— 8.9% 8.7% 9.5% 10.0%

Subscriber Data Internal gross added 1,956 2,593 827 881 894 906 3,508 1,041 999 1,045 1,080 4,165 4,369 4,283 4,268 Customer churn / month 1.79% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.50% 2.30% 2.40% 2.40% 2.34% 2.40% 2.34% 2.10% Internal subs disconnects (436) (867) (287) (320) (353) (385) (1,346) (520) (497) (553) (587) (2,158) (2,487) (2,953) (3,510) Acquisition subs ------Net internal adds 1,520 1,726 540 561 540 521 2,163 520 486 475 475 1,956 1,882 1,330 758 % chg—y-t-y 13.5% 48.8% 27.4% 18.0% 12.1% 25.3% -3.7% -13.3% -12.1% -8.9% -9.5% -3.8% -29.3% -6.9% Subs, ending (000s) 2,790 4,516 5,056 5,617 6,157 6,678 6,678 7,199 7,684 8,159 8,634 8,634 10,516 11,847 14,687 % chg—y-t-y 61.9% 60.4% 56.3% 52.0% 47.9% 47.9% 42.4% 36.8% 32.5% 29.3% 29.3% 21.8% 12.7% 5.4% Average subs 2,033 3,612 4,786 5,336 5,887 6,418 5,607 6,938 7,441 7,922 8,397 7,675 9,575 11,182 14,308 Launched penetration gain 0.92% 1.03% 0.30% 0.30% 0.27% 0.26% 1.09% 0.26% 0.24% 0.23% 0.23% 0.96% 0.92% 0.64% 0.35% Launched Penetration 1.68% 2.69% 2.85% 2.99% 3.11% 3.38% 3.38% 3.56% 3.79% 4.02% 4.24% 4.24% 5.12% 5.71% 6.80% Core Consol. Pops 199 200 200 201 201 202 202 202 203 203 204 204 206 208 216 Core penetration gain 0.76% 0.86% 0.27% 0.28% 0.27% 0.26% 1.07% 0.26% 0.24% 0.23% 0.23% 0.96% 0.92% 0.64% 0.35% Core ending penetration 1.40% 2.26% 2.53% 2.80% 3.06% 3.31% 3.31% 3.56% 3.79% 4.02% 4.24% 4.24% 5.12% 5.71% 6.80%

Usage and Cost Statistics Avg monthly revenue $73.99 $74.37 $71.87 $74.71 $75.31 $73.81 $74.00 $71.82 $71.97 $71.00 $71.00 $71.42 $68.00 $67.60 $66.00 % chg—y-t-y 0.5% -0.8% -2.0% 0.2% 0.4% -0.5% -0.1% -3.7% -5.7% -3.8% -3.5% -4.8% -0.6% -0.6% Access revs/month/sub $73.99 $74.37 $71.87 $74.71 $75.31 $73.81 $74.00 $71.82 $71.97 $71.00 $71.00 $71.42 $68.00 $67.60 $66.00 Est. Minutes of use / mth #DIV/0! 356/mth 325/mth 480/mth 485/mth 480/mth 443/mth 510/mth 580/mth 580/mth 580/mth 563/mth 510/mth 510/mth 510/mth % chg—y-t-y 0.0% 37.1% 38.6% 20.0% 24.2% 56.9% 20.8% 19.6% 20.8% 27.1% 6.3% 5.2% 0.0% PPE / Annual MOU #DIV/0! $0.493 $0.444 $0.292 $0.281 $0.287 $0.356 $0.265 $0.229 $0.227 $0.224 $0.253 $0.262 $0.249 $0.265 Capex (in 000's) 2,281 1,887 661 686 666 963 2,976 660 616 620 604 2,500 2,500 2,500 2,500 Capex as % revenue 126.4% 58.5% 64.1% 57.4% 50.1% 67.8% 59.8% 44.1% 38.3% 36.7% 33.8% 38.0% 32.0% 27.6% 22.1% Capex/net added sub $1,501 $1,093 $1,223 $1,224 $1,232 $1,848 $1,376 $1,268 $1,268 $1,305 $1,272 $1,278 $1,328 $1,879 $3,298 Source: Company reports and JPMorgan estimates.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 52

Table 16: Nextel Domestic Income Statement (units in millions) Annual Terminal Year Income Statement 1998 1999 1Q00 2Q00 3Q00 4Q00 2000 1Q01 2Q01 3Q01E 4Q01E 2001E 2002E 2003E 2007E Access and usage 1,805 3,224 1,032 1,196 1,330 1,421 4,979 1,495 1,607 1,687 1,789 6,577 7,813 9,070 11,332 Total Service Revenues 1,805 3,224 1,032 1,196 1,330 1,421 4,979 1,495 1,607 1,687 1,789 6,577 7,813 9,070 11,332 % chg—y-t-y 78.6% 59.8% 55.1% 54.3% 50.4% 54.4% 44.9% 34.3% 26.9% 25.9% 32.1% 18.8% 16.1% 5.2% Cost of services 496 657 200 245 263 249 957 297 262 282 302 1,143 1,328 1,587 2,210 Cost of svc as % svc rev. 27.5% 20.4% 19.4% 20.5% 19.8% 17.5% 19.2% 19.9% 16.3% 16.7% 16.9% 17.4% 17.0% 17.5% 19.5% General & administrative 520 704 207 237 258 294 996 296 298 329 340 1,263 1,563 1,760 1,926 G&A as a % of svc revenue 28.8% 21.8% 20.1% 19.8% 19.4% 20.7% 20.0% 19.8% 18.5% 19.5% 19.0% 19.2% 20.0% 19.4% 17.0% Monthly G&A/avg sub $21.33 $16.23 $14.42 $14.80 $14.61 $15.27 $14.80 $14.22 $13.34 $13.85 $13.49 $13.71 $13.60 $13.11 $11.22 Pre-mkt cash flow 788 1,863 625 714 809 878 3,026 902 1,047 1,076 1,147 4,172 4,922 5,723 7,196 Pre-mkt CFLO margins 43.7% 57.8% 60.6% 59.7% 60.8% 61.8% 60.8% 60.3% 65.2% 63.8% 64.1% 63.4% 63.0% 63.1% 63.5% % chg—y-t-y 136.3% 83.1% 59.9% 57.7% 56.3% 62.4% 44.4% 46.6% 33.1% 30.6% 37.9% 18.0% 16.3% 5.3% Equip. revs 440 440 91 100 107 108 406 108 113 105 108 434 437 428 427 Eq. rev/gross sub added $225/add $170/add $110/add $114/add $120/add $119/add $116/add $104/add $113/add $100/add $100/add $104/add $100/add $100/add $100/add Cost of equip. 696 827 205 245 274 310 1,034 330 338 340 351 1,359 1,398 1,354 1,280 Est. wholesale phone cost $356/add $319/add $248/add $278/add $307/add $342/add $295/add $317/add $338/add $325/add $325/add $326/add $320/add $316/add $300/add Equip. subsidy (profit) 256 387 114 145 167 202 628 222 225 235 243 925 961 925 854 Mktg. is plug for Direct marketing costs 1Q99-4Q00 632 777 249 246 250 258 1,003 327 339 335 345 1,346 1,420 1,328 1,067 Direct mkting/gross add $323/add $300/add $301/add $279/add $280/add $285/add $286/add $314/add $339/add $320/add $320/add $323/add $325/add $310/add $250/add Total Mkt/gross $454/add $449/add $438/add $444/add $467/add $508/add $465/add $528/add $564/add $545/add $545/add $545/add $545/add $526/add $450/add Total mkting as % revs 49.2% 36.1% 35.2% 32.7% 31.4% 32.4% 32.8% 36.7% 35.1% 33.8% 32.9% 34.5% 30.5% 24.8% 16.9%

Operating Cash Flow (99) 699 262 323 392 418 1,395 353 483 507 558 1,901 2,542 3,470 5,275 OCF margins -- svc revs -5.5% 21.7% 25.4% 27.0% 29.5% 29.4% 28.0% 23.6% 30.1% 30.0% 31.2% 28.9% 32.5% 38.3% 46.6% % chg—y-t-y NM 221.7% 108.0% 86.7% 65.8% 99.6% 34.7% 49.5% 29.3% 33.6% 36.3% 33.7% 36.5% 8.7%

License amortization 171 176 45 45 45 45 180 55 56 56 56 223 223 223 223 Depreciation 605 720 202 226 232 264 924 283 313 335 352 1,283 1,563 1,782 2,471 Dep. & amortization 776 896 247 271 277 309 1,104 338 369 391 408 1,506 1,786 2,005 2,694 Dep. & amort. as % revs 43.0% 27.8% 23.9% 22.7% 20.8% 21.7% 22.2% 22.6% 23.0% 23.2% 22.8% 22.9% 22.9% 22.1% 23.8% Operating income (875) (197) 15 52 115 109 291 15 114 116 151 395 755 1,466 2,581 Op. income margin -48.5% -6.1% 1.5% 4.3% 8.6% 7.7% 5.8% 1.0% 7.1% 6.9% 8.4% 6.0% 9.7% 16.2% 22.8%

Source: Company reports and JPMorgan estimates.

Nextel Communications August 14, 2001 53 New York

Table 17: Nextel International Subscriber Statistics (Pops in millions, subs data in thousands) Annual Terminal Year Top-Down Statistics 1998 1999 1Q00 2Q00 3Q00 4Q00 2000 1Q01 2Q01 3Q01E 4Q01E 2001E 2002E 2003E 2007E Proportionate Pops 133 133 197 197 198 198 198 199 199 200 200 200 202 205 213 The company reduced ownership in Wrote-down of approx. 39k subs in Proportionate Subs Data Canada- dilution of sub bas e Brazil. Internal gross added 187 316 127 157 190 212 686 227 233 257 270 987 1,027 1,104 1,267 Customer churn / month 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.4% 2.0% 2.0% 2.0% Internal PCS subs disconnects (20) (79) (34) (40) (49) (61) (184) (72) (78) (86) (99) (334) (355) (499) (931) Acquisition PCS subs - - China Subs (35) 21 (10) (24) (39) (39) - Net internal prop adds 167 237 94 116 141 151 502 155 151 165 165 636 600 540 300 % chg—y-t-y 42.3% 133.7% 181.2% 98.0% 79.0% 111.8% 65.6% 29.6% 17.0% 9.3% 26.7% -5.7% -10.0% -16.7% Prop subs, ending (000s) 167 404 497 579 740 882 882 1,037 1,149 1,314 1,479 1,479 2,079 2,619 4,179 % chg—y-t-y 142.3% 140.7% 133.3% 132.0% 118.5% 118.5% 108.5% 98.6% 77.4% 67.7% 67.7% 40.6% 26.0% 7.7% Average PCS subs 67 265 450 538 659 811 615 959 1,093 1,231 1,396 1,170 1,779 2,349 4,029 Net adds - Managed 104 119 119 342 432 389 216 Ending Managed Subs 940 1,044 1,163 1,282 1,282 1,714 2,102 3,226 Average Managed Subs 992 1,103 1,222 1,111 1,498 1,908 3,118 Launched penetration gain 0.13% 0.18% 0.05% 0.06% 0.07% 0.08% 0.25% 0.08% 0.08% 0.08% 0.08% 0.32% 0.30% 0.26% 0.14% Launched Penetration 0.13% 0.30% 0.25% 0.29% 0.37% 0.44% 0.44% 0.52% 0.58% 0.66% 0.74% 0.74% 1.03% 1.28% 1.96% Core Consol. Pops 133 133 197 197 198 198 198 199 199 200 200 200 202 205 213 Core penetration gain 0.13% 0.18% 0.05% 0.06% 0.07% 0.08% 0.25% 0.08% 0.08% 0.08% 0.08% 0.32% 0.30% 0.26% 0.14% Core ending penetration 0.13% 0.30% 0.25% 0.29% 0.37% 0.44% 0.44% 0.52% 0.58% 0.66% 0.74% 0.74% 1.03% 1.28% 1.96%

Usage and Cost Statistics Avg monthly revenue - Prop. $52 $32 $35 $40 $43 $46 $42 $46 $46 $42 $42 $44 $42 $42 $42 % chg—y-t-y -38.5% 6.5% 22.9% 37.0% 42.6% 30.1% 30.4% 14.9% -3.4% -8.8% 3.9% -3.6% 0.0% 0.0% ARPU - Managed Properties $50 $47 $48 $46 $50 $52 $54 Access revs/month/sub $52 $32 $35 $40 $43 $46 $42 $46 $46 $42 $42 $44 $42 $42 $42 Est. Minutes of use / mth 0/mth 356/mth 400/mth 400/mth 400/mth 400/mth 400/mth 400/mth 400/mth 400/mth 400/mth 400/mth 400/mth 400/mth 400/mth % chg—y-t-y NM 23.1% 14.3% 14.3% 0.0% 12.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% PPE / Annual MOU #DIV/0! $0.561 $0.347 $0.344 $0.325 $0.309 $0.407 $0.309 $0.302 $0.296 $0.285 $0.340 $0.272 $0.232 $0.169 Capex (in 000's) 0 145 116 137 140 174 567 220 163 163 164 710 450 $410 $250 Capex as % revenue 0.0% 141.7% 245.9% 214.1% 162.8% 155.4% 183.4% 167.9% 109.1% 105.1% 93.2% 116.1% 50.2% 34.6% 12.3% Capex/net added sub $0 $612 $1,238 $1,177 $993 $1,153 $1,129 $1,418 $1,080 $988 $994 $1,116 $750 $759 $833 Source: Company reports and JPMorgan estimates.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 54

Table 18: Nextel International Income Statement (units in millions) Annual Terminal Year Income Statement 1998 1999 1Q00 2Q00 3Q00 4Q00 2000 1Q01 2Q01 3Q01E 4Q01E 2001E 2002E 2003E 2007E Access and usage 42 102 47 64 86 112 309 131 149 155 176 611 897 1,184 2,031 Total Service Revenues 42 102 47 64 86 112 309 131 149 155 176 611 897 1,184 2,031 % chg—y-t-y 142.7% 157.1% 190.9% 218.5% 220.0% 202.1% 177.8% 133.4% 80.4% 57.1% 97.8% 46.6% 32.0% 8.9% Cost of services 14 40 14 15 23 27 79 30 42 42 44 158 224 291 467 Cost of svc as % svc rev. 33.8% 39.1% 29.6% 23.4% 26.7% 24.1% 25.5% 23.0% 28.2% 27.0% 25.0% 25.9% 25.0% 24.6% 23.0% General & administrative 77 114 27 30 34 47 138 56 62 61 65 244 287 350 406 G&A as a % of svc revenue 183.1% 111.6% 57.2% 46.9% 39.5% 42.0% 44.6% 42.7% 41.7% 39.0% 37.0% 39.9% 32.0% 29.6% 20.0% Monthly G&A/avg sub $95.92 $35.97 $19.98 $18.59 $17.19 $19.32 $18.71 $19.46 $18.99 $16.38 $15.54 $17.37 $13.44 $12.43 $8.40 Pre-mkt cash flow (49) (52) 6 19 29 38 92 45 45 53 67 210 386 542 1,157 Pre-mkt CFLO margins -116.9% -50.7% 13.2% 29.7% 33.7% 33.9% 29.8% 34.3% 30.1% 34.0% 38.0% 34.3% 43.0% 45.8% 57.0% % chg—y-t-y 5.3% NM NM NM 10819.5% NM 623.3% 136.9% 81.9% 75.9% 127.2% 84.0% 40.6% 14.5% Equip. revs 8 20 555 6 21 8121313 46 51 55 63 Eq. rev/gross sub added $42/add $63/add $38/add $32/add $26/add $28/add $30/add $35/add $50/add $50/add $50/add $47/add $50/add $50/add $50/add Cost of equip. 6 55 17 21 27 38 103 41 42 46 49 178 180 193 222 Est. wholesale phone cost $31/add $174/add $134/add $134/add $142/add $179/add $150/add $180/add $180/add $180/add $180/add $180/add $175/add $175/add $175/add Equip. subsidy (profit) Mktg. is plug for (2) 35 12 16 22 32 82 33 30 33 35 132 128 138 158 1Q99-4Q00 Direct marketing costs 66 77 28 36 40 39 143 47 48 53 55 203 205 214 215 Direct mkting/gross add $353/add $243/add $220/add $230/add $210/add $184/add $208/add $207/add $205/add $205/add $205/add $205/add $200/add $194/add $170/add Total Mkt/gross $342/add $354/add $315/add $332/add $326/add $335/add $328/add $352/add $335/add $335/add $335/add $339/add $325/add $319/add $295/add Total mkting as % revs 151.3% 109.5% 85.2% 81.3% 72.1% 63.4% 72.8% 61.0% 52.2% 55.6% 51.4% 54.7% 37.2% 29.7% 18.4%

Operating Cash Flow (113) (164) (34) (33) (33) (33) (133) (35) (33) (33) (24) (125) 52 190 784 OCF margins -- svc revs -268.2% -160.3% -72.1% -51.6% -38.4% -29.5% -43.0% -26.7% -22.1% -21.6% -13.4% -20.4% 5.8% 16.1% 38.6% % chg—y-t-y 45.0% -26.8% -28.9% -5.7% -8.7% -18.9% 2.9% 0.0% 1.4% -28.8% -6.0% NM 267.3% 23.4%

License amortization 16 16 4 4 4 4 16 4 4 4 4 16 16 16 16 Depreciation 40 92 29 28 34 54 145 52 54 66 73 245 318 371 484 Dep. & amortization 56 108 33 32 38 58 161 56 58 70 77 261 334 387 500 Dep. & amort. as % revs 132.9% 105.6% 70.0% 50.0% 44.2% 51.8% 52.1% 42.7% 38.8% 45.2% 43.5% 42.6% 37.2% 32.7% 24.6% Operating income (169) (272) (67) (65) (71) (91) (294) (91) (91) (104) (100) (386) (282) (196) 284 Op. income margin -401.1% -265.9% -142.0% -101.6% -82.6% -81.3% -95.1% -69.4% -60.9% -66.7% -56.9% -63.1% -31.4% -16.6% 14.0%

Source: Company reports and JPMorgan estimates.

Nextel Communications August 14, 2001 55 New York

Table 19: Nextel Statement of Cash Flows (units in millions) Annual Terminal Year Cash Flow Model 1998 1999 1Q00 2Q00 3Q00 4Q00 2000 1Q01 2Q01 3Q01E 4Q01E 2001E 2002E 2003E 2007E EBITDA (212) 535 228 290 359 385 1,262 318 450 473 535 1,776 2,593 3,660 6,059 Change W/C 291 (570) 133 (581) (1,031) 529 (950) 682 (88) (92) (98) 404 (435) (103) (134) Interest expense (675) (878) (278) (301) (333) (333) (1,245) (358) (359) (377) (394) (1,488) (1,623) (1,848) (1,518) Add Back Non-cash Interest Charge 505 520 126 117 117 70 429 169 115 118 121 523 387 55 0 Taxes benefit (paid) 192 28 8889 33 14 13 0 0 27 00 0 Capital expenditures (2,281) (2,032) (777) (823) (806) (1,137) (3,543) (880) (779) (783) (768) (3,210) (2,950) (2,910) (2,750) Pfd dividends (149) (192) (52) (51) (52) (54) (209) (56) (57) (57) (57) (227) (227) (227) (227) Discretionary cash flow (2,329) (2,590) (612) (1,342) (1,739) (531) (4,223) (111) (705) (718) (661) (2,195) (2,255) (1,372) 1,431

Equity sold / IPO 00 0 0 Assets acquired/ cap. calls 00 0 0

Net Cash flow (2,329) (2,590) (612) (1,342) (1,739) (531) (4,223) (111) (705) (718) (661) (2,195) (2,255) (1,372) 1,431

B/S Schedules Cash, beginning 0 321 4,701 5,200 4,749 3,657 4,701 2,609 3,382 3,677 2,959 2,609 2,298 2,298 2,298 Change in cash 321 4,380 499 (451) (1,092) (1,048) (2,092) 773 295 (718) (661) (311) 0 0 0 Cash Ending 321 4,701 5,200 4,749 3,657 2,609 2,609 3,382 3,677 2,959 2,298 2,298 2,298 2,298 2,298

Total debt, beginning 0 7,717 10,951 11,903 12,900 13,955 10,951 13,865 15,227 16,227 16,227 13,865 16,227 18,482 20,351 Net debt added (retired) 7,717 3,234 952 997 1,055 (90) 2,914 1,362 1,000 2,362 2,255 1,372 (1,431) Total debt, ending 7,717 10,951 11,903 12,900 13,955 13,865 13,865 15,227 16,227 16,227 16,227 16,227 18,482 19,854 18,920 Est. interest rate 8.7% 8.0% 9.7% 9.7% 9.9% 9.6% 9.0% 9.8% 10.0% 9.3% 9.7% 9.2% 10.0% 10.0% 7.5%

Gross PP&E, beginning 4,112 6,215 7,839 8,619 9,422 10,290 7,839 11,273 12,117 12,896 13,679 11,273 14,447 17,108 24,498 + Capex 2,281 2,032 777 823 806 1,137 3,543 880 779 783 768 3,210 2,950 2,910 2,750 - Retirements (178) (408) 3 (20) 62 (154) (109) (36) 000(36) (289) (855) (1,225) Gross PP&E, ending 6,215 7,839 8,619 9,422 10,290 11,273 11,273 12,117 12,896 13,679 14,447 14,447 17,108 19,163 26,023 Annualized dep. rate 16% 14% 14% 13% 13% 14% 13% 13% 14% 14% 14% 14% 12.0% 12.0% 12.0%

W/C (excl. cash & curr LTD), beg. 0 (291) 279 146 727 1,758 279 1,229 547 635 727 1,229 825 1,261 1,722 W/C (excl. cash & curr LTD) added (ret (291) 570 (133) 581 1,031 (529) 950 (682) 88 92 98 (404) 435 103 134 W/C (excl. cash & curr LTD) (291) 279 146 727 1,758 1,229 1,229 547 635 727 825 825 1,261 1,363 1,856

NOL, beginning 0 945 1,777 1,961 2,138 2,312 1,777 2,511 2,773 3,047 3,355 2,511 3,667 4,833 8,243 + accum. losses 945 832 184 177 174 199 734 262 274 308 312 1,156 1,166 1,028 (445) - drawdown 0 0 0 0 0 NOL, ending 945 1,777 1,961 2,138 2,312 2,511 2,511 2,773 3,047 3,355 3,667 3,667 4,833 5,861 7,799 Effective tax rate 0.5% -3.5% 40.0% 40.0% 40.0% 40.0% -6.2% 40.0% 40.0% 40.0% 40.0% -10.6% 40.0% 40.0% 40.0% Source: Company reports and JPMorgan estimates.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 56

Table 20: Nextel Balance Sheet (units in millions) Annual Terminal Year Cash Flow Model 1998 1999 1Q00 2Q00 3Q00 4Q00 2000 1Q01 2Q01 3Q01E 4Q01E 2001E 2002E 2003E 2007E Cash 321 4,701 5,200 4,749 3,657 2,609 2,609 3,382 3,677 2,959 2,298 2,298 2,298 2,298 2,298 Other current 709 1,919 2,017 2,640 3,788 3,849 3,849 3,028 3,116 3,208 3,306 3,306 3,742 3,844 4,337 Current assets 1,030 6,620 7,217 7,389 7,445 6,458 6,458 6,410 6,793 6,167 5,604 5,604 6,040 6,142 6,634

Gross PP&E (w/CIP) 6,215 7,839 8,619 9,422 10,290 11,273 11,273 12,117 12,896 13,679 14,447 14,447 17,108 19,163 26,023 Acc. depreciation (1,300) (1,687) (1,901) (2,127) (2,365) (2,482) (2,482) (2,814) (2,872) (2,942) (3,019) (3,019) (3,352) (3,739) PP&E, net 4,915 6,152 6,718 7,295 7,925 8,791 8,791 9,303 10,024 10,737 11,428 11,428 13,756 15,424 20,416 Intangibles, license, etc 4,937 4,551 4,549 4,597 4,851 5,982 5,982 6,024 6,024 6,024 6,024 6,024 6,024 6,024 6,024 Inv. in unconsolidated 000000 0 0000 0 00 0 Deferred & other 000000 0 0000 0 00 0 Other assets 691 1,087 1,112 1,011 1,625 1,455 1,455 1,525 1,525 1,525 1,525 1,525 1,526 1,527 1,531 Total Assets 11,573 18,410 19,596 20,292 21,846 22,686 22,686 23,262 24,366 24,452 24,581 24,581 27,345 29,117 34,606

Current debt 7 1,191 63 99 142 102 102 106 106 106 106 106 106 106 106 Other current liabs 1,000 1,640 1,871 1,913 2,030 2,620 2,620 2,481 2,481 2,481 2,481 2,481 2,481 2,481 2,481 Current liabs 1,007 2,831 1,934 2,012 2,172 2,722 2,722 2,587 2,587 2,587 2,587 2,587 2,587 2,587 2,587

Debt, long term 7,710 9,760 11,840 12,801 13,813 13,763 13,763 15,121 16,121 16,121 16,121 16,121 18,376 19,748 18,814 Other liabilities/net 1,049 1,431 1,465 1,448 1,575 2,292 2,292 2,236 2,822 3,396 3,997 3,997 6,117 7,558 13,910 Minority interest 04444 20 20 0 0 0000 0 00 0 Conv. Pfd Stock 1,578 1,770 1,751 1,775 1,827 1,881 1,881 1,937 1,881 1,881 1,881 1,881 1,881 1,881 1,881 Total liabilities 11,344 15,836 17,034 18,056 19,407 20,658 20,658 21,881 23,411 23,985 24,586 24,586 28,961 31,774 37,192 Common S/H Equity 230 2,574 2,562 2,236 2,439 2,028 2,028 1,381 955 468 (5) (5) (1,616) (2,657) (2,587) Total liabilities & S/E 11,573 18,410 19,596 20,292 21,846 22,686 22,686 23,262 24,366 24,452 24,581 24,581 27,345 29,117 34,606

Source: Company reports and JPMorgan estimates.

Nextel Communications August 14, 2001 57 New York

APPENDIX III: NEXTEL INTERNATIONAL DISCOUNTED CASH FLOW VALUATION

1998 1999 2000 2001E 2002E 2003E 2004E 2005E 2006E 2007E

EBITDA (mm) (113) (164) (133) (125) 52 190 335 484 635 784 Less: taxes (mm) 22 17 0 0 0 0 0 0 0 0 Less: capex (mm) 0 (145) (567) (710) (450) (410) (370) (330) (290) (250) Unlevered Free Cash Flows (mm) (91) (292) (700) (835) (398) (220) (35) 154 345 534

Enterprise Valuation International Markets Summary (000) End of 2002E Valuation Summary

Discount rate 30% Gross Pops %-owned Net Pops 2000 2001E 2002E 2003E 07E Terminal multiple 7.0x Brazil (McCaw Int'l) 62,000 100.00% 62,000 NPV—Enterprise / Revs 6.7x 3.4x 2.3x 1.7x Mexico (Mobilcom) 50,000 100.00% 50,000 NPV—Enterprise / Sub $2,343/sub $1,397/sub $994/sub $789/sub Present Value—Enterprise (mm) YE 2000 YE 2001E YE 2002E Argentina (Com Contro 23,000 100.00% 23,000 NPV—Enterprise / Pop $10 /pop $10 /pop $10 /pop $10 /pop NPV Free Cash Flows 00-07E (792) (195) 145 Peru 7,000 100.00% 7,000 NPV—Enterprise / EBITDA -15.5x -16.5x 39.9x 10.9x NPV Terminal Value 07E 1,136 1,477 1,921 Chile 15,000 100.00% 15,000 NPV Enterprise (end of year) 344 1,283 2,066 Canada (Clearnet) 31,000 4.80% 1,488 Core Pops (mm) 133 197 197 Japan (––) 127,000 32.10% 40,767 Pops Summary Implied value / Pop $3/pop $7/pop $10/pop Phillipines (Infocom) 75,000 59.10% 44,325 % owned—consolidated opns 100% 100% 100% Gross %-owned Net Pops $ EV/Pop Total International Po 390,000 62.46% 243,580 Core Pops (mm) 133 100% 133 Summary Statistics—2007E JV Core Pops (mm) 0 0% 0 Subs (000) 4,179 Non-core Pops (mm) 0 0% 0 Core Penetration 1.96% Churn 2.0% Total Pops (mm) 133 100% 133 ARPU $42 Svc Revs (mm) 2,031 EBITDA (mm) 784 Source: Company reports and JPMorgan estimates.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 58

APPENDIX IV: CONSOLIDATED FUNDING REQUIREMENTS & AVAILABILITY

Table 21: Nextel Funding Analysis Annuals Credit Facility 1Q01 2Q01 3Q01E 4Q01E 2001E 2002E 2003E 2004E 2005E 2006E 2007E $1,700mm Term Loan Tot. Facility (mm) $1,700 $1,700 $1,700 $1,700 $1,700 $1,700 $1,700 $1,700 $1,700 $1,700 $1,700 Beg. Balance (mm) ------Drawn in period (mm) - Available (mm) ------Avail. Subj. to Restrict. (mm) ------

$900mm Term Loan Tot. Facility (mm) $900 $900 $900 $900 $900 $900 $900 $900 $900 $900 $900 Beg. Balance (mm) ------Drawn (mm) - Available (mm) ------Avail. Subj. to Restrict. (mm) ------

$900mm Term Loan Tot. Facility (mm) $900 $900 $900 $900 $900 $900 $900 $900 $900 $900 $900 Beg. Balance (mm) ------Drawn (mm) - Available (mm) ------Avail. Subj. to Restrict. (mm) ------

$1,000mm Term Loan Tot. Facility (mm) $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 Beg. Balance (mm) ------Drawn (mm) - Available (mm) ------Avail. Subj. to Restrict. (mm) ------

$1,500mm Term Loan Tot. Facility (mm) $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 Beg. Balance (mm) 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 954 812 812 Drawn (mm) - (546) (142) - Available (mm) 1,500 1,500 1,500 1,500 1,500 1,500 1,500 954 812 812 812 Avail. Subj. to Restrict. (mm) 1,500 1,500 1,500 1,500 1,500 1,500

$125mm MOT Multi-Draw Term Loan- INTL Tot. Facility (mm) $125 $125 $125 $125 $125 $125 $125 $125 $125 $125 $125 Beg. Balance (mm) 125 ------Drawn (mm) (125) (125) Available (mm) ------Avail. Subj. to Restrict. (mm) ------

$225mm MOT Secured Term Loan- INTL Tot. Facility (mm) $225 $225 $225 $225 $225 $225 $225 $225 $225 $225 $225 Beg. Balance (mm) 225 ------Drawn (mm) (225) (225) Available (mm) ------Avail. Subj. to Restrict. (mm) ------

$57mm MOT Increm Term Loan- INTL Tot. Facility (mm) $57 $57 $57 $57 $57 $57 $57 $57 $57 $57 $57 Beg. Balance (mm) 57 ------Drawn (mm) (57) (57) Available (mm) ------Avail. Subj. to Restrict. (mm) ------

$100mm Chase/MOT Term Loan- INTL Tot. Facility (mm) $100 $100 $100 $100 $100 $100 $100 $100 $100 $100 $100 Beg. Balance (mm) 100 ------Drawn (mm) (100) (100) Available (mm) ------Avail. Subj. to Restrict. (mm) ------

$50mm Chase/MOT Term Loan- INTL Tot. Facility (mm) $50 $50 $50 $50 $50 $50 $50 $50 $50 $50 $50 Beg. Balance (mm) 50 ------Drawn (mm) (50) (50) Available (mm) ------Avail. Subj. to Restrict. (mm) ------Source: Company reports and JPMorgan estimates.

Nextel Communications August 14, 2001 59 New York

Table 21: Nextel Funding Analysis (Cont’d)

Annuals Total Credit Facilities 1Q01 2Q01 3Q01E 4Q01E 2001E 2002E 2003E 2004E 2005E 2006E 2007E Tot. Facility (mm) $6,557 $6,557 $6,557 $6,557 $6,557 $6,557 $6,557 $6,557 $6,557 $6,557 $6,557 Beg. Balance (mm) $2,057 1,500 1,500 1,500 2,057 1,500 1,500 1,500 954 812 812 Drawn in period (mm) ($557) - - - (557) - - (546) (142) - -

Available (mm) 1,500 1,500 1,500 1,500 1,500 1,500 1,500 954 812 812 812 Total facility drawn 557 557 557 557 557 557 557 1,103 1,245 1,245 1,245 Avail. Subj. to Restrict. (mm) 1,500 1,500 1,500 1,500 1,500 1,500 1,500 954 812 812 812

Credit and Debt Funding Availablity Hi-Yield and other 10,890 11,005 11,123 11,244 11,244 11,631 11,686 11,686 11,686 11,686 11,686 Credit Facility 6,557 6,557 6,557 6,557 6,557 6,557 6,557 6,557 6,557 6,557 6,557 Current Maximum Debt and Credit Facility $17,447 $17,562 $17,680 $17,801 $17,801 $18,188 $18,243 $18,243 $18,243 $18,243 $18,243

Cash Cash, beginning (mm) 5,819 $5,114 $4,396 $0 $3,735 $1,483 $112 $0 $0 $0 Cash, added (mm) Cash, drawn (mm) (705) (718) (661) (2,084) (2,252) (1,371) (112) - - - Cash, ending (mm) 4,819 5,114 4,396 3,735 3,735 1,483 112 - - - -

Tot. Available Funding, beginning (mm) 7,319 6,614 5,896 2,057 5,235 2,983 1,612 954 812 812 Net FCF (mm) (705) (718) (661) (2,195) (2,252) (1,371) (658) (142) 293 1,422 Drawn (mm) (705) (718) (661) (2,084) (2,252) (1,371) (658) (142) - - Tot. Available Funding, ending (mm) 6,614 5,896 5,235 5,235 2,983 1,612 954 812 812 812

Period Unfunded (mm) (0) (0) 0 (0) 0 (0) (0) (0) 293 1,422 Cumulative Unfunded (mm) (0) (0) (0) (0) (0) (0) (1) (1) 292 1,714 Implied End of Period Debt 11,447 11,562 11,680 11,801 11,801 12,188 12,243 12,789 12,931 12,639 11,217

Source: Company reports and JPMorgan estimates. Notes: Beginning Cash 2Q01 includes: $3,382 million cash, $1,437 million short-term investments, & $1,000 million received on 5/29/01 from Convertible Debt.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 60

APPENDIX V: NEXTEL’S DETAILED DEBT MATURITY SCHEDULE

Table 22: Nextel’s Detailed Debt Maturity Schedule ($ Millions) Interest Rate 2000 2001E 2002E 2003E 2004E 2005E 2006E 2007E 2008E 2009E 2010E 2011E Long-Term Notes Snr Redeemable Discount 13.00% ------$951.00---- Snr Convert 4.75% ------$600.00---- Snr Redeemable Discount 10.65% ------$840.00---- Snr Serial Redeemable Discount 9.75% ------$1,129.00---- Snr Serial Redeemable Discount 9.95% ------$1,627.00- - - Snr Serial Redeemable Discount 12.13% ------$730.00- - - Snr Serial Redeemable 9.38% ------$2,000.00 - - Snr Convert 5.25% ------$1,150.00- Snr Serial Redeemable 12.75% ------$650.00- Snr Serial Redeemable 9.50% ------$1,250.00 Snr Convert 6.00% ------$1,000.00

Credit Facilities Domestic: $1.7B ------$1,700.00---- Domestic: $900mm ------$900.00- - - Domestic: $900mm ------$900.00- - - Domestic: $1B ------$1,000.00 - -

International: $125mm $35.71$14.88$29.76$29.76$14.88------International: $225mm --$28.13$56.25$56.25$56.25$28.13----- International: $57mm ---$57.00------International: $150mm $7.06$28.22$28.22$86.50------Annual Totals $42.77 $43.10 $86.11 $229.51 $71.13 $56.25 $28.13 $5,220.00 $4,157.00 $3,000.00 $1,800.00 $2,250.00

Source: Company reports and JPMorgan estimates.

Nextel Communications August 14, 2001 61 New York

APPENDIX VI: NEXTEL COMPETITION IN LAUNCHED MARKETS

Table 23: Nextel Competition in Launched Markets Launch MSA/ No. of Launched PCS Competition_a Cellular Competition Markets Date RSA POPs BTA Carriers GSM CDMA TDMA A Carrier B Carrier

New York, NY 1 19,451,028 321 5 Omnipoint (40) Sprint PCS (30) – AT&T Wireless Bell Atlantic Corp. Los Angeles-Long Beach, CA 2 15,678,621 262 5 PacBell GSM (30) Sprint PCS (30) – AT&T Wireless BEL (Old GTE) Chicago, IL 3 8,816,862 78 7 VoiceStream Wireless (30) PrimeCo PCS (30), Sprint PCS (10) AT&T (30) – SBC Comm. BEL (Old GTE) Philadelphia, PA-NJ 4 6,357,031 346 6 Omnipoint (30) Sprint PCS (30) AT&T (30) – Comcast Corp. Bell Atlantic Corp. Detroit, MI 5 5,070,203 112 6 Omnipoint (20) Sprint PCS (30) AT&T (30) – AirTouch Comm. Ameritech Corp. Boston-Wrcstr-Lwrnce-Lowll-Brcktn 6 4,454,613 51 6 Omnipoint (20) Sprint PCS (30) AT&T (30) – SBC Comm. Bell Atlantic Corp. San Francisco, CA 7 6,919,140 404 5 PacBell GSM (30) Sprint PCS (30) – AT&T Wireless BEL (Old GTE) Washington, DC-MD-VA-WV 8 4,438,162 461 7 APC (dba Sprint) (15), VoiceStrSprint PCS (15) AT&T (30) – SBC Comm. Bell Atlantic Corp. Dallas, TX 9 4,665,851 101 6 VoiceStream Wireless (30) PrimeCo PCS (30), Sprint PCS (30) – AT&T Wireless SBC Comm. Houston, TX 10 4,368,792 196 5 Aerial Comm. (30) – AT&T (30) – BellSouth Corp. BEL (Old GTE) Nassau-Suffolk, NY 11 2,954,854 394 5 – Sprint PCS (30) AT&T (30) – Ameritech Corp. SBC Comm. Miami, FL 12 3,524,348 293 6 Omnipoint (20) PrimeCo PCS (30), Sprint PCS (30) – AT&T Wireless BellSouth Corp. Pittsburgh, PA 13 2,702,404 350 6 Aerial Comm. (30) Sprint PCS (30), Leap Wireless (10) – AT&T Wireless Bell Atlantic Corp. Baltimore, MD 14 2,619,132 29 7 APC (dba Sprint) (15), VoiceStrSprint PCS (15) AT&T (30) – SBC Comm. Bell Atlantic Corp. Minneapolis-St. Paul, MN-WI 15 3,060,939 298 6 Aerial Comm. (30) Sprint PCS (30), Qwest Wireless (10) – AT&T Wireless AirTouch (UMG) Cleveland-Lorain-Elyria, OH 16 3,118,667 84 6 – Ameritech (30), Sprint PCS (30) AT&T (30) – AirTouch Comm. ALLTEL Corp. Atlanta, GA 17 3,445,216 24 6 Powertel (30) Sprint PCS (30) AT&T (30) – AirTouch Comm. BellSouth Corp. San Diego, CA 18 2,691,818 402 5 PacBell GSM (30) Sprint PCS (30) – AT&T Wireless AirTouch Comm. Denver, CO 19 2,234,854 110 6 VoiceStream Wireless (30) Sprint PCS (30), Qwest Wireless (10) – AT&T Wireless AirTouch (UMG) Seattle-Bellevue-Everett, WA 20 2,919,116 413 7 VoiceStream Wireless (30) GTE Wireless (20), Sprint PCS (30), Qwest – AT&T Wireless BEL (Old GTE) Milwaukee-Waukesha, WI 21 1,887,413 297 6 – PrimeCo PCS (30), Sprint PCS (30) Telecorp PCS (30) US Cellular Ameritech Corp. Oakland, CA 22 2,423,920 440 7 Aerial Comm. (30) PrimeCo PCS (30), Sprint PCS (10) BellSouth (10) – AT&T Wireless ALLTEL Corp. Cincinnati, OH-KY-IN 23 2,144,875 81 6 – GTE Wireless (30), Sprint PCS (10) CinBell (20) – AirTouch Comm. Ameritech Corp. Kansas City, MO-KS 24 1,982,287 226 5 Aerial Comm. (30) Sprint PCS (30) – AirTouch Comm. SBC Comm. Phoenix-Mesa, AZ 26 2,591,327 347 7 VoiceStream Wireless (20) Sprint PCS (30), Qwest Wireless (10) AT&T (30) – ALLTEL Corp. AirTouch (UMG) Indianapolis, IN 28 1,424,468 204 5 – Sprint PCS (30), Ameritech (30) – AT&T Wireless BEL (Old GTE) New Orleans, LA 29 1,473,237 320 6 – PrimeCo PCS (30), Sprint PCS (30) Telecorp PCS (35) ALLTEL Corp. BellSouth Corp. Portland-Vancouver, OR-WA 30 1,822,117 358 6 VoiceStream Wireless (30) Sprint PCS (30), Qwest Wireless (10) – AT&T Wireless AirTouch (UMG) Columbus, OH 31 1,592,550 95 6 Aerial Comm. (30) Sprint PCS (20) AT&T (30) – AirTouch Comm. Ameritech Corp. Hartford, CT 32 1,210,856 184 5 Omnipoint (30) Sprint PCS (30) – Bell Atlantic Corp. SNET San Antonio, TX 33 1,649,729 401 6 VoiceStream Wireless (10) PrimeCo PCS (30), Sprint PCS (30) – AT&T Wireless SBC Comm. Sacramento, CA 35 1,785,103 389 5 PacBell GSM (30) Sprint PCS (30) – AT&T Wireless AirTouch Comm. Memphis, TN-AR-MS 36 1,504,725 290 7 Powertel (30) Sprint PCS (10), Leap Wireless (15) Telecorp PCS (30) BEL (Old GTE) BellSouth Corp. Providence-Warwick-Pawtucket, RI 38 1,626,922 364 5 Omnipoint (30) Sprint PCS (30) – SNET Bell Atlantic Corp. Salt Lake City-Ogden, UT 39 1,409,516 399 6 VoiceStream Wireless (30) Sprint PCS (30), Leap Wireless (30) – AT&T Wireless AirTouch (UMG) Dayton-Springfield, OH 40 1,301,385 106 5 – GTE Wireless (30) CinBell (20) – AirTouch Comm. Ameritech Corp. Birmingham, AL 41 1,293,461 44 6 Powertel (30) Sprint PCS (30) Tritel PCS (25) –BEL (Old GTE) BellSouth Corp. Norfolk-Virginia Bch-Newport News 43 1,762,166 324 6 – PrimeCo PCS (30), Airgate PCS (10) Triton PCS (20) –ALLTEL Corp. BEL (Old GTE) Oklahoma City, OK 45 1,406,754 329 6 VoiceStream Wireless (30) Sprint PCS (30), Alamosa (30) – AT&T Wireless SBC Comm. Nashville, TN 46 1,540,198 314 8 Powertel (20) Sprint PCS (30), Leap Wireless (15), US Un Tritel PCS (35) –BEL (Old GTE) BellSouth Corp. Greensboro-Winston Salem-High P 47 1,337,656 174 6 BellSouth PCS (30) Sprint PCS (10), Leap Wireless (10) – BEL (Old GTE) ALLTEL Corp. Toledo, OH 48 842,868 444 5 Omnipoint (20) Sprint PCS (30) – AirTouch Comm. ALLTEL Corp. New Haven-Brdgprt-Stmfrd-Dnbry-W 49 1,054,211 318 5 Omnipoint (30) Sprint PCS (30) – Bell Atlantic Corp. SNET Jacksonville, FL 51 1,201,340 212 7 Powertel (30) PrimeCo PCS (30), Alltel (10), Sprint PCS (1 – AT&T Wireless BellSouth Corp. Tulsa, OK 57 901,461 448 7 – Sprint PCS (30), Leap Wireless (15), Alamo SBC Comm (30) AT&T Wireless US Cellular Allentown-Bethlehem-Easton, PA 58 739,963 10 4 Omnipoint (30) – – AT&T (Vanguard) Bell Atlantic Corp. Richmond-Petersburg, VA 59 1,175,501 374 5 – PrimeCo PCS (30) Triton PCS (20) –BellSouth Corp. BEL (Old GTE) Orlando, FL 60 1,353,906 336 6 Aerial Comm. (30) PrimeCo PCS (30), Sprint PCS (10) – AT&T Wireless BellSouth Corp. Charlotte-Gastonia-Rock Hill, NC-S 61 1,800,680 74 7 BellSouth PCS (30) Sprint PCS (10), Leap Wireless (10) AT&T (30) – Bell Atlantic Corp. ALLTEL Corp. Springfield, MA 63 725,181 427 4 – Sprint PCS (30) – Bell Atlantic Corp. SNET Grand Rapids-Muskegon-Holland, 64 987,130 169 4 Omnipoint (20) – – AirTouch Comm. Century Telephone Youngstown-Warren, OH 66 530,838 484 3 – – – Dobson Comm. ALLTEL Corp. Flint, MI 68 539,038 145 5 Omnipoint (20) Sprint PCS (30) – AirTouch Comm. Ameritech Corp. Source: Company reports and JPMorgan estimates.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 62

Table 23: Nextel Competition in Launched Markets (Cont’d) Launch MSA/ No. of Launched PCS Competition_a Cellular Competition Markets Date RSA POPs BTA Carriers GSM CDMA TDMA A Carrier B Carrier

Raleigh-Durham-Chapel Hill, NC 71 1,173,943 368 5 BellSouth PCS (30) Sprint PCS (10) – BEL (Old GTE) ALLTEL Corp. West Palm Beach-Boca Raton, FL 72 962,437 469 5 Omnipoint (10) Sprint PCS (30) – AT&T Wireless BellSouth Corp. Fresno, CA 74 814,200 157 5 – Sprint PCS (30), Ubiquitel (30) – AT&T Wireless BEL (Old GTE) Austin-San Marcos, TX 75 969,136 27 6 VoiceStream Wireless (10) PrimeCo PCS (30), Sprint PCS (30) – AT&T Wireless BEL (Old GTE) Tucson, AZ 77 718,618 447 8 VoiceStream Wireless (20) Sprint PCS (30), Qwest Wireless (10), Leap AT&T (30) – ALLTEL Corp. AirTouch (UMG) Lansing-East Lansing, MI 78 527,690 241 4 Omnipoint (20) – – AirTouch Comm. Century Telephone Knoxville, TN 79 1,021,608 232 7 BellSouth PCS (30) Sprint PCS (10), Leap Wireless (15) Tritel PCS (20) –BEL (Old GTE) US Cellular Baton Rouge, LA 80 672,042 32 5 – US Unwired (30) Telecorp PCS (20) ALLTEL Corp. BellSouth Corp. El Paso, TX 81 700,278 128 5 VoiceStream Wireless (30) Alamosa (10) – ALLTEL Corp. BEL (Old GTE) Albuquerque, NM 86 742,036 8 6 VoiceStream Wireless (30) Alamosa (10), Leap Wireless (15) – ALLTEL Corp. AirTouch (UMG) Canton-Massillon, OH 87 553,471 65 4 – – AT&T (30) – AirTouch Comm. ALLTEL Corp. Chattanooga, TN-GA 88 550,494 76 8 Powertel (30) ChaseTel (30), Sprint PCS (10), Leap WireleTritel PCS (35) –BEL (Old GTE) BellSouth Corp. Wichita, KS 89 643,849 472 6 VoiceStream Wireless (10) Sprint PCS (30), Leap Wireless (30) – AirTouch Comm. SBC Comm. Charleston-North Charleston, SC 90 672,809 72 6 BellSouth PCS (30) Airgate PCS (10) Triton PCS (20) –BEL (Old GTE) ALLTEL Corp. Las Vegas, NV-AZ 93 924,411 245 5 PacBell GSM (30) Sprint PCS (30) – AT&T Wireless (MW) Bell Atlantic Corp. Saginaw-Bay City-Midland, MI 94 663,106 390 3 – – – AirTouch Comm. Century Telephone Columbia, SC 95 612,879 91 6 BellSouth PCS (30) Airgate PCS (10) Triton PCS (20) –Bell Atlantic Corp. ALLTEL Corp. Bakersfield, CA 97 585,641 28 5 PacBell GSM (30) Ubiquitel (20) – BellSouth Corp. BEL (Old GTE) Jackson, MI 106 663,275 209 3 – – – Century Telephone BellSouth Corp. Stockton-Lodi, CA 107 552,397 434 5 PacBell GSM (30) Ubiquitel (30) – AT&T Wireless (MW) AirTouch Comm. Flagstaff, AZ 319 104,085 144 4 – Alamosa (30) – XX (was Centennial CAirTouch (UMG) Spokane, WA 109 660,409 425 8 VoiceStream Wireless (30) Ubiquitel (30), GTE Wireless (30), Qwest (1 – AT&T Wireless AirTouch (UMG) Madison, WI 113 639,163 272 6 Airadigm Comm. (30) PrimeCo PCS (30), Sprint PCS (30) – US Cellular Ameritech Corp. Lakeland-Winter Haven, FL 114 436,833 239 4 – PrimeCo PCS (30) – AT&T Wireless ALLTEL Corp. Colorado Springs, CO 117 441,251 89 5 – Qwest Wireless (10), Sprint PCS (30) – AT&T Wireless (MW) AirTouch (UMG) Reading, PA 118 362,631 370 4 PCS ONE (OMPT & D&E) (15) – – AT&T (Vanguard) Bell Atlantic Corp. Huntsville, AL 120 473,955 198 6 Powertel (30) US Unwired (30) Tritel PCS (15) –BEL (Old GTE) BellSouth Corp. Salinas, CA 126 383,253 397 3 – – – AT&T Wireless BEL (Old GTE) South Bend, IN 129 356,487 424 4 Omnipoint (10) – – Centennial Cellular Bell Atlantic Corp. Rockford, IL 131 444,093 380 3 – – – US Cellular BEL (Old GTE) Kalamazoo-Battle Creek, MI 132 379,723 223 3 – – – Centennial Cellular Century Telephone Atlantic-Cape May, NJ 134 344,197 25 4 Omnipoint (30) – – Comcast Corp. Bell Atlantic Corp. Eugene-Springfield, OR 135 304,861 133 4 – Sprint PCS (30) – AT&T Wireless AirTouch (UMG) Melbourne-Titusville-Palm Bay, FL 137 429,932 289 4 – PrimeCo PCS (30) – AT&T Wireless BellSouth Corp. Modesto, CA 142 451,483 303 5 PacBell GSM (30) Ubiquitel (30) – AT&T Wireless (MW) AirTouch Comm. Daytona Beach, FL 146 430,400 107 3 – – – AT&T Wireless (MW) BellSouth Corp. Salem, OR 148 474,203 395 5 – Sprint PCS (30), Qwest Wireless (10) – AT&T Wireless AirTouch (UMG) Fayetteville, NC 149 615,653 141 5 BellSouth PCS (30) – Triton PCS (20) –BEL (Old GTE) ALLTEL Corp. Visalia-Tulare-Porterville, CA 150 445,462 458 4 – Ubiquitel (30) – AT&T Wireless BEL (Old GTE) Dutchess County, NY 151 457,720 361 3 – – – American Cellular Bell Atlantic Corp. Portland, ME 152 508,203 357 4 – Sprint PCS (30) – AT&T (Vanguard) XX (was US Cellular New London-Norwich, CT 154 385,216 319 4 Omnipoint (30) – – Bell Atlantic Corp. SNET Savannah, GA 155 679,071 410 7 Powertel (30), BellSouth PCS ( Airgate PCS (10) Triton PCS (35) –Price Comm. ALLTEL Corp. Lima, OH 158 269,109 255 3 – – – AirTouch Comm. ALLTEL Corp. Provo-Orem, UT 159 290,308 365 5 – Sprint PCS (30), Leap Wireless (30) – AT&T Wireless AirTouch (UMG) Myrtle Beach, SC 629 155,229 312 6 BellSouth PCS (30) Airgate PCS (10) Triton PCS (45) –Triton PCS ALLTEL Corp. Springfield, MO 163 574,222 428 4 – Alamosa (30) – AT&T Wireless ALLTEL Corp. Fort Myers-Cape Coral, FL 164 516,649 151 3 – – – Fmt, Ltd. ALLTEL Corp. Hickory-Morganton-Lenoir, NC 166 315,095 189 7 BellSouth PCS (30) Airgate PCS (10), Leap Wireless (10) Triton PCS (20) –Bell Atlantic Corp. ALLTEL Corp. Sarasota-Bradenton, FL 167 553,175 408 4 – PrimeCo PCS (30) – AT&T Wireless ALLTEL Corp. Reno, NV 171 473,359 372 5 PacBell GSM (30) Ubiquitel (30) – AT&T Wireless AirTouch Comm. Lafayette, IN 174 535,105 236 5 – US Unwired (30) Telecorp PCS (20) Centennial Cellular BellSouth Corp. Rocky Mount, NC 572 214,758 382 6 BellSouth PCS (30) Airgate PCS (10) Triton PCS (20) –US Cellular ALLTEL Corp. Topeka, KS 179 264,739 445 4 – Sprint PCS (30) – AirTouch Comm. SBC Comm. Source: Company reports and JPMorgan estimates.

Nextel Communications August 14, 2001 63 New York

Table 23: Nextel Competition in Launched Markets (Cont’d) Launch MSA/ No. of Launched PCS Competition_a Cellular Competition Markets Date RSA POPs BTA Carriers GSM CDMA TDMA A Carrier B Carrier

Grand Junction, CO 350 201,575 168 4 – NTCH Inc. (10), Alamosa (30) – AT&T Wireless AirTouch (UMG) Houma, LA 184 284,138 195 5 – US Unwired (30) Telecorp PCS (25) Houma/Thibodaux Ce Mobiletel, Inc. Goldsboro, NC 574 234,179 165 6 BellSouth PCS (30) Airgate PCS (10) Triton PCS (20) –US Cellular ALLTEL Corp. Naples, FL 191 232,271 482 4 – Alamosa (30) – AT&T Wireless US Cellular Gainesville, FL 192 280,751 159 6 Powertel (30) Sprint PCS (10) BellSouth (10) – US Cellular ALLTEL Corp. Benton Harbor, MI 193 173,898 39 3 – – – Centennial Cellular Century Telephone St. Cloud, MN 198 262,809 391 5 Aerial Comm. (30) Qwest Wireless (10) – AT&T Wireless Cellular Mobile Syste Steubenville-Weirton, OH-WV 199 153,580 431 3 – – – AT&T Wireless ALLTEL Corp. Fort Pierce-Port St. Lucie, FL 208 367,756 152 3 – – – AT&T Wireless (MW) US Cellular Clarksville-Hopkinsville, TN-KY 209 237,574 83 5 – Leap Wireless (15) Tritel PCS (35) –BEL (Old GTE) BellSouth Corp. Fort Collins-Loveland, CO 210 200,577 149 6 VoiceStream Wireless (30) Qwest Wireless (10), Sprint PCS (30) – AT&T Wireless AirTouch (UMG) Bremerton, WA 212 204,451 55 4 – Qwest Wireless (10) – AT&T Wireless BEL (Old GTE) Jonesboro, AR 326 171,809 219 4 – – Telecorp PCS (20) SBC Comm. Century Telephone Richland-Kennewick-Pasco, WA 214 161,673 228 4 – Alamosa (30) – AT&T Wireless US Cellular Chico-Paradise, CA 215 222,971 79 3 – – – AT&T Wireless AirTouch Comm. Janesville-Beloit, WI 216 231,152 216 3 – – – US Cellular Ameritech Corp. Wilmington, NC 218 269,084 478 6 BellSouth PCS (30) Airgate PCS (10) Triton PCS (20) –BEL (Old GTE) ALLTEL Corp. Tuscaloosa, AL 222 256,376 450 6 Powertel (30) US Unwired (30) Tritel PCS (25) –BEL (Old GTE) BellSouth Corp. Elkhart-Goshen, IN 223 253,396 126 3 – – – Centennial Cellular Bell Atlantic Corp. Cheyenne, WY 721 112,003 77 4 VoiceStream Wireless (30) – – Sagir, Inc. AirTouch (UMG) Decatur, AL 230 266,818 108 5 Powertel (30) – Tritel PCS (15) –SBC Comm. Ameritech Corp. Mansfield, OH 231 238,700 278 3 – – – AirTouch Comm. ALLTEL Corp. Athens, GA 234 178,911 22 5 Powertel (30) – Triton PCS (20) –AirTouch Comm. BellSouth Corp. Muncie, IN 236 196,536 309 4 – Ameritech (30) – BellSouth Corp. BEL (Old GTE) Pueblo, CO 241 286,638 366 6 VoiceStream Wireless (30) Alamosa (30), Leap Wireless (30) – Western Wireless CommNet Cellular In Olympia, WA 242 279,026 331 5 – Sprint PCS (30), Qwest Wireless (10) – AT&T Wireless AirTouch (UMG) Greeley, CO 243 142,048 172 6 VoiceStream Wireless (30) Qwest Wireless (10), Sprint PCS (30) – AT&T Wireless AirTouch (UMG) Ocala, FL 245 209,949 326 4 – – BellSouth (10) – AT&T Wireless ALLTEL Corp. Anniston, AL 249 174,457 17 6 Powertel (30) US Unwired (30) Tritel PCS (15) –BEL (Old GTE) BellSouth Corp. Bloomington, IN 250 232,537 46 4 – PrimeCo PCS (30) – SBC Comm. Ameritech Corp. Redding, CA 254 272,903 371 3 – – – AT&T Wireless AirTouch Comm. Hagerstown, MD 257 353,116 179 3 – – – Dobson Comm. US Cellular Lawton, OK 260 191,627 248 4 – Alamosa (30) – AT&T Wireless US Cellular Bellingham, WA 270 137,693 36 3 – – – AT&T Wireless AirTouch (UMG) Kokomo, IN 271 199,244 233 4 – Ameritech (30) – Centennial Cellular BEL (Old GTE) Gadsden, AL 272 187,536 158 6 Powertel (30) US Unwired (30) Tritel PCS (15) –BEL (Old GTE) BellSouth Corp. Kankakee, IL 273 136,898 225 3 – – – Kankakee Cellular L.LAmeritech Corp. Yuba City, CA 274 132,158 485 3 – – – AT&T Wireless AirTouch Comm. St. Joseph, MO 275 206,345 393 4 – Alamosa (30) – AT&T Wireless SBC Comm. Columbia, MO 278 205,318 90 5 – Alamosa (30) Telecorp PCS (30) Ameritech Corp. US Cellular Las Cruces, NM 285 212,463 244 5 VoiceStream Wireless (30) Alamosa (10) – ALLTEL Corp. BEL (Old GTE) Sherman-Denison, TX 292 163,700 418 3 – – – AT&T Wireless SBC Comm. Lawrence, KS 301 88,144 247 4 – Sprint PCS (30) – AirTouch Comm. SBC Comm. Enid, OK 302 92,670 130 4 – Alamosa (30) – Dobson Comm. Enid Msa Partnershi Yuma, AZ 321 115,188 486 3 – – – Western Wireless AirTouch (UMG) Merced, CA 338 207,656 291 4 – Ubiquitel (30) – AT&T Wireless (MW) BEL (Old GTE) San Luis Obispo-Antascadro-Paso 340 234,010 405 3 – – – SLO Cellular, Inc. BEL (Old GTE) Barnstable-Yarmouth, MA 471 220,103 201 5 Omnipoint (10) – AT&T (20) – SBC Comm. Bell Atlantic Corp. Total Launched and Licensed Markets 195,683,204

_a number in parentheses indicates amount of spectrum in MHz. Source: Company reports and JPMorgan estimates.

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 64

Table 23: Nextel Competition in Launched Markets (Cont’d) Markets w/ Pops Mkts 8 players 3,469,720 4 7 players 31,232,499 13 6 players 64,922,967 40 5 players 76,820,765 40 4 players 11,311,966 33 3 players 7,925,287 25 2 players 0 0 Total Net Launched Pops 195,683,204 155 157,884,076 177,357,093 80,004,224 195,683,204 Avg competitors 5.6 80.7% 90.6% 40.9% 100.0%

Source: Company reports and JPMorgan estimates.

Nextel Communications August 14, 2001 65 New York

J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 66

TABLES Table 1: Summary of Operating Forecasts ...... 6 Table 2: Key Operating Assumptions...... 8 Table 3: Weighted Average Cost of Capital Calculation...... 8 Table 4: DCF Sensitivity Analysis ...... 9 Table 5: Discounted Cash Flow Valuation...... 10 Table 6: Summary of Wireless Market Valuations...... 14 Table 7: Nextel 2002E Intrinsic Value ...... 24 Table 8: Nextel International...... 27 Table 9: Projected Cost Savings from 1xRTT Transition...... 30 Table 10: Management and Board Stock Ownership ...... 35 Table 11: Nextel’s Top 20 Markets ...... 46 Table 12: Wireless Competition in Nextel’s Pro Forma Markets...... 47 Table 13: Nextel Consolidated Subscriber Statistics...... 49 Table 14: Nextel Consolidated Income Statement...... 50 Table 15: Nextel Domestic Subscriber Statistics...... 51 Table 16: Nextel Domestic Income Statement ...... 52 Table 17: Nextel International Subscriber Statistics...... 53 Table 18: Nextel International Income Statement ...... 54 Table 19: Nextel Statement of Cash Flows ...... 55 Table 20: Nextel Balance Sheet...... 56 Table 21: Nextel Funding Analysis ...... 58 Table 22: Nextel’s Detailed Debt Maturity Schedule...... 60 Table 23: Nextel Competition in Launched Markets...... 61

Nextel Communications August 14, 2001 67 New York

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J.P. Morgan Securities Inc. Equity Research Thomas J. Lee (1-212) 622-6505 [email protected] 68

JPMorgan Global Telecommunications Equity Research Telecommunications Strategist Europe Asia Pacific Tod A. Jacobs (New York) Iain M. Johnston (London) Jake Lynch (Hong Kong) Global Sector Coordinator Team Head Team Head (1-212) 622-6488 (44-20) 7325-5056 (852) 2840-6712 [email protected] [email protected] [email protected] Eric Ikauniks (Hong Kong) Incumbents Lynn Canalese (Sydney) Associate Global Coordinator Christopher Wood (London) (61-2) 9220-1585 (852) 2978-7047 (44-20) 7325-9263 [email protected] [email protected] [email protected] David Wilson (Sydney) Michael Rees (London) (61-2) 9220-1607 North America (44-20) 7325-8331 [email protected] Competitive Telecoms Services [email protected] Saqib Masood (Hong Kong) David Barden (New York) Jelena Olman (London) (852) 2840-6713 (1-212) 622-6393 (44-20) 7325-4927 [email protected] [email protected] [email protected] Richard Wu (Hong Kong) Aditya Narayanan (New York) Wireless Services (852) 2843-8330 (1-212) 622-6549 John Jensen (London) [email protected] [email protected] (44-20) 7325-0366 Prabhat Awasthi (Mumbai) Nirvaer Sidhu (New York) [email protected] (91-22) 283-5841, ex. 525 (1-212) 622-6602 Leila Ghachem (London) [email protected] [email protected] (44-20) 7325-4376 Verdi Budiman (Jakarta) Internet Infrastructure [email protected] (62-21) 523-2251 Jason Bazinet (New York) Matthew Edge (London) [email protected] (1-212) 622-6395 (44-20) 7325-1273 Hironobu Sawake (Tokyo) [email protected] [email protected] (81-3) 5545-8840 Terence Holtz (New York) Juliet Telford (London) [email protected] (1-212) 622-6479 (44-20) 7325-4638 Keiichi Yoneshima (Tokyo) [email protected] [email protected] (81-3) 5545-8628 Darren Pinsker (New York) Alternative Carriers [email protected] (1-212) 622-6476 Paul Sharma (London) David Wallace (Wellington) [email protected] (44-20) 7325-4779 (64-4) 495-0362 Wireless Data and Devices [email protected] [email protected] Paul Coster (New York) Joel Ripley (London) Tien Xuan Doe (Singapore) (1-212) 622-6425 (44-20) 7325-4428 (65) 882-2378 [email protected] [email protected] [email protected] Sheena Shen (New York) Alex Latham (London) Paul Kim (Seoul) (1-212) 622-6597 (44-20) 7325-9396 (82-2) 758-5701 [email protected] [email protected] [email protected] Wireless Services CEEMEA Bruce B. Warden (Taipei) Thomas J. Lee (New York) Robin McCartney (London) (886-2) 2755-9556 (1-212) 622-6505 (44-20) 7325-3989 [email protected] [email protected] [email protected] Susheel Narula (Bangkok) Jonathan Levine (New York) Igor Semenov (London) (66-2) 231-3777, ex. 2418 (1-212) 622-6511 (44-20) 7325-3514 [email protected] [email protected] [email protected] Specialist Sales Lindsey Eka (New York) Specialist Sales Ed Bell (Hong Kong) (1-212) 622-622-6439 Silje Augustson (London) (852) 2843-8496 [email protected] (44-20) 7325-5847 [email protected] Wireline Services [email protected] Marc Crossman (New York) Latin America (1-212) 622-6477 José M. Linares (New York) [email protected] Africa (1-212) 622-6740 Steve O’Brien (New York) Gillian Marcelle (Johannesburg) [email protected] (1-212) 622-6554 (27-11) 507-0364 Georgina Ferro (New York) [email protected] [email protected] (1-212) 622-6746 Jonathan Chaplin (New York) [email protected] (1-212) 622-6413 Jean-Charles Lemardeley (New York) [email protected] (1-212) 622-6743 [email protected] Tobias Stingelin (Sao Paulo) (55-11) 3048-3427 [email protected]

Company Note January 11, 2002 William G. Crawford Senior Research Analyst Nextel Communications, Inc. (NXTL–$10.19) 212-284-9305, [email protected] Market Perform Volatility: High Darren P. Aftahi Research Analyst Nextel Protects Direct Connect And Will Migrate It To 212-284-9580, [email protected] CDMA, But Sprint PCS Covets Nextel’s Subscriber

Reason for Report: Base. Company Update

From To KEY POINTS: Changes (Previous) (Current) · Nextel announced an agreement with Qualcomm (QCOM #) and Rating -- Mkt Perform Motorola (MOT #) to extend Direct Connect to CDMA wireless Price Tgt -- NA networks and further develop Qualcomm’s QChat push-to-talk software. FY01E EPS -- ($2.40) FY02E EPS -- ($1.17) FY01E Rev (mil) -- $7,714 · Nextel retains exclusive rights to license CDMA Direct Connect. But FY02E Rev (mil) -- $9,361 Sprint (#) management affirmed the company would offer push-to-talk by September or October 2002, shortly after the summer launch of its Price: $10.19 1xRTT network. 52-Wk Range: $38.63 - $6.87 Price Target: NA · We believe that Nextel’s decision to migrate Direct Connect to CDMA Shares Out (mil): 798.3 1x puts it in position for a potential marriage with Verizon Wireless. Market Cap (mil): $8,134.7 Avg Daily Vol (000): 10,790 Book Value/Share: $4.13 INVESTMENT RECOMMENDATION: Cash Per Share: $3.88 Debt to Total Capital: 83.3% Div (ann) - Yield: NA Competition for Direct Connect Supports Our Investment Thesis. Est LT EPS Growth NM Yesterday’s announcement serves as a positive for Nextel in the near-term. P/E to LT Growth (2002): NM However, Sprint’s announcement to introduce a competitive push-to-talk Est Next Rep Date: Feb. 2002 feature in late fall poses a serious risk for Nextel investors in the long-term. FY End: December This supports our investment thesis that competition for push-to-talk would adversely impact Nextel’s premium ARPU, which could lead to stretched Rev (mil) 2000A 2001E 2002E coverage ratios and further exploitation of the Company’s highly levered Mar $1,175 $1,742A $2,201 balance sheet. Jun $1,365 $1,881A $2,300 Sep $1,528 $1,992A $2,395 Dec $1,646 $2,102 $2,464 Furthermore, Nextel’s current spectrum has limited use to other carriers FY $5,714 $7,714 $9,361 unless they choose to run iDEN. A favorable ruling from the FCC on CY $5,714 $7,714 $9,361 Nextel’s proposed spectrum swap could lead to a marriage with another domestic CDMA carrier, most likely Verizon Wireless (#). We maintain our CY RM 1.4x 1.1x 0.9x current estimates and ‘Market Perform’ rating.

EPS 2000A 2001E 2002E Mar ($0.31) ($0.56)A ($0.34) Jun ($0.38) ($0.56)A ($0.31) Sep ($0.31) ($0.87)A ($0.27) Dec ($0.08) ($0.41) ($0.21) COMPANY DESCRIPTION: FY ($1.08) ($2.40) ($1.17) CY ($1.08) ($2.40) ($1.17) Nextel Communications, Inc. (#) is a domestic and international wireless service provider with over 9 million subscribers to date. Nextel, who operates CY P/E NM NM NM an all-digital network in the specialized mobile radio (SMR) frequency range, is the only wireless carrier to offer direct connect (push-to-talk) and Note: EPS are fully diluted. interconnect (cellular service) on the same device. Users can immediately Disclosures (see last page for details): contact colleagues with Nextel's Direct Connect feature with the simple press (#) Market Maker of a button. Nextel is headquartered in Reston, VA. (^) Beneficial Interest (>) Beneficial Interest/Pre-IPO (@) Underwriter (~) Employee/Director

Nextel Communications, Inc. Page 1 of 3 Company Note January 11, 2002

Highlights:

Nextel’s Direct Connect Goes CDMA, Filling In The Missing Holes For Qualcomm’s QChat. Yesterday, Nextel announced that it was jointly working with Qualcomm and Motorola to extend Direct Connect over CDMA wireless networks using voice-over-IP architecture, subsequently helping Qualcomm further develop and deploy its QChat ™ push-to-talk software. Motorola will supply the infrastructure solution providing enhancements to CDMA2000 allowing for quick call set up time and iDEN interoperability for Direct Connect.

The eight-year agreement grants Nextel exclusive licensing rights in the U.S. and certain other international markets including Canada. Both Qualcomm and Nextel will share licensing fees inside and outside the U.S. Motorola will have marketing rights for CDMA Direct Connect outside the U.S., subject to a definitive agreement. Current Direct Connect intellectual property belongs to Motorola, but will be shared with Qualcomm for CDMA Direct Connect service.

Nextel Retains Exclusive Rights To CDMA Direct Connect But Sprint Is Adding Its Own Push-To-Talk Feature. Under the agreement, Nextel will most likely not license Direct Connect to a competitive CDMA carrier unless it is under favorable terms to Nextel. As such, it would appear that current domestic CDMA carriers, Sprint PCS and Verizon Wireless, and eventual domestic WCDMA carriers would not be able to offer push-to-talk service for eight years.

Sprint PCS had originally talked about offering push-to-talk service using Qualcomm’s QChat software but backed off of the statement at its analyst day in early December. However, yesterday, CEO of Sprint PCS, Bill Esrey told us directly that the company would indeed have a non-QChat push-to-talk product three to four months after launch of its 1xRTT network slated for the summer of 2002. Sprint previously hesitated on stating a date during its analyst day because it did not want to put too much on its plate with the pending national launch of its 1x network.

We feel this is a positive step for Sprint and could have an adverse impact on Nextel’s business. Push-to-talk users, now beholden to Nextel, would have a competitive option with Sprint PCS. Mr. Esrey addressed Nextel’s view that other push-to- talk services would have long latencies (wait times before using). He indicated the service would require an average of three seconds latency at the beginning of a push-to-talk session, but no latency once the session begins. Without the statement by Sprint’s CEO, we would have been unabashedly positive on the Nextel/Qualcomm/Motorola agreement.

Nextel’s Announcement Positions It To Potentially Tango With Verizon Wireless. Given that Sprint PCS has already stated it will have push-to-talk by late fall 2002, we believe that Nextel’s decision to go down the CDMA path puts it in position for a potential marriage with Verizon Wireless for a number of reasons. One, Nextel will have control over domestic licensing of Direct Connect to CDMA carriers for the next eight years. Two, Verizon Wireless would be the largest domestic CDMA carrier without push-to-talk functionality. And three, Nextel would be able to leverage its CDMA Direct Connect offering to Verizon’s 29.4 million wireless subscribers. The Nextwave settlement debacle leaves Verizon Wireless hungry for spectrum. If Nextel’s spectrum swap is approved by the FCC, Nextel could be much more appealing to Verizon as an acquisition play.

Mr. Esrey looks past current soft demand to focus on the 1x rollout. We pressed Mr. Esrey on the current softening demand picture, highlighted by Verizon’s recent preannouncment and the soft Radio Shack numbers. He responded by suggesting that the June/July rollout of the company’s CDMA2000/1x network upgrade would provide sufficient differentiation to make the current environment a non-issue. We believe Sprint PCS will have a 1-3 year lead over other U.S. carriers in having a 3G-lite network. Having push-to-talk and high-speed data will allow the company to go after the high-end corporate customers which are far more attractive than the broader credit-challenged market served by the ClearPay offering.

Nextel Communications, Inc. Page 2 of 3 Company Note January 11, 2002

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