Table of Contents

SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

NEXTEL COMMUNICATIONS, INC.

Registrant’s telephone number, including area code: (703) 433-4000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, $0.001 par value

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

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated herein by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [   ]

      Based on the closing sales price on March 17, 2000, the aggregate market value of the voting and non-voting common stock held by nonaffiliates of the registrant was $46,241,147,670.

      On March 17, 2000, the number of shares outstanding of the registrant’s Class A Common Stock and Class B Non-Voting Common Stock, $0.001 par value, was 357,213,460 and 17,830,000, respectively.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Proxy Statement relating to the Annual Meeting of Stockholders scheduled to be held on or about May 25, 2000 are incorporated in Part III, Items 10, 11, 12 and 13.

NEXTEL COMMUNICATIONS, INC.

Item 1.  Business

A.  Introduction

      Unless the context requires otherwise, references to “Nextel,” “us,” “our,” or “we” are intended to include Nextel Communications, Inc. and its consolidated subsidiaries. Our principal executive and administrative facility is located at 2001 Edmund Halley Drive, Reston, Virginia 20191, and our telephone number is (703) 433-4000.

B.  Overview

      We provide a wide array of digital wireless communications services throughout the United States. We offer a differentiated, integrated package of digital wireless communications services under the Nextel brand name, primarily to business users. Our digital mobile network constitutes one of the largest integrated wireless communications systems utilizing a single transmission technology in the United States. This digital technology, developed by Motorola, Inc., is referred to as the integrated Digital Enhanced Network or iDEN® technology.

      A customer using our digital mobile network is able to access:

	•	digital mobile telephone service;
	•	digital two-way radio dispatch service, which provides instant conferencing capabilities and is marketed as “Nextel Direct Connect®” service;
	•	paging; and
	•	short-messaging service.

We refer to the handset device on which we deliver these services as a subscriber unit. As of December 31, 1999:

	•	we provided service to about 4,515,700 digital subscriber units in the United States; and
	•	our digital mobile network or the compatible digital mobile network of Nextel Partners, Inc., a joint venture in which we are a participant, was operational in areas in and around 94 of the top 100 metropolitan statistical areas in the United States.

      The number of our digital subscriber units in service has increased significantly in recent years, reflecting increased sales in existing markets as well as the commencement of our digital mobile network service in new markets. The following table summarizes the approximate number of our digital subscriber units in service at the dates indicated:

      In 1999, we announced plans to provide our customers access to the Internet and new digital two-way mobile data services through our Nextel Online^SM service offering. The first steps in this program were undertaken in 1999 as three new subscriber units developed and manufactured by Motorola, the “i1000plus™,” the “i500plus™” and the “i700plus™,” were introduced. We expect these new subscriber units to be the first in a product line that incorporates micro-browsers and enables wireless Internet services, by supplying web-based applications and content directly to our subscribers. We currently plan to commercially launch Nextel Online service for Internet capable subscriber units in the second quarter of 2000.

1

Table of Contents

      In April 2000, we expect to launch our Nextel Worldwide ^SM service offering with the introduction of the i2000™ subscriber unit. The i2000, being manufactured by Motorola, is a dual mode subscriber unit that operates on both the iDEN technology used by Nextel and the Global System for Mobile Communications, referred to as GSM, digital wireless technology that has been established as the current digital cellular communications standard in Europe and elsewhere. The i2000 will allow seamless digital roaming in about 65 countries worldwide with the convenience of one phone, one number and one bill.

      In addition to our domestic operations, we have ownership interests in international wireless companies through our substantially wholly owned subsidiary, Nextel International, Inc. Nextel International, through its subsidiaries and affiliates, provides wireless communications services in and around various major metropolitan market areas in Latin America, Asia and Canada. Along with Nextel International, we provide our service in ten of the world’s 25 largest cities.

      As of December 31, 1999, Nextel International’s proportionate share of international digital subscriber units in service, based on its ownership interests in its subsidiaries and affiliates, was estimated to be about 403,500, which includes total international digital subscriber units on networks in operation in Argentina, Brazil, Canada, Japan, Mexico, Peru, the Philippines and Shanghai, People’s Republic of China. As of December 31, 1999, an estimated 1,245,600 total international digital subscriber units were in service on the commercial networks then being operated by Nextel International’s subsidiaries and affiliates.

      Our consolidated financial statements include financial information reflecting the assets, liabilities and results of operations relating to Nextel International and its consolidated subsidiaries as of the relevant dates and periods indicated in those statements. For selected financial information concerning our domestic operations, the operations of Nextel International and our operations on a consolidated basis, see Note 16 to the consolidated financial statements. Additional, more detailed and focused information relating to Nextel International may be found in the periodic and other reports filed by Nextel International with the Securities and Exchange Commission under the Securities Exchange Act of 1934 and the related rules. Except as noted above and as otherwise indicated, the description of our business in this document refers to our United States operations.

C.  1999 New Products, Customer Service Improvements and Network Enhancement

      In 1999, we set as our primary goals to (1) develop new and differentiated products and services, (2) improve the customer experience and (3) expand and improve the coverage of our digital mobile network with the objectives of:

	•	leveraging our new and differentiated products and services to achieve increased penetration in our targeted business customer base in markets where our digital mobile network was operating or was planned to be operating in early 1999;
	•	providing more rapid and consistent service to our growing customer base across a number of important areas of contact, thereby fostering enhanced customer satisfaction and addressing some of the controllable causes of customer turnover; and
	•	improving the quality and performance of our digital mobile network by providing:

	•	more comprehensive coverage within our markets;
	•	greater penetration in targeted business districts; and
	•	significant increases in system capacity while maintaining acceptable system performance metrics,

	enabling us to meet the growing system usage and communication needs of our customers on a cost-effective basis.

      In 1999, we announced our Nextel Online service offering. Nextel Online (1) will offer our customers access to the Internet through their subscriber units (currently expected to launch commercially in the second quarter of 2000), (2) will enable customers to use new digital two-way mobile data services

2

Table of Contents

      In preparation for the commercial launch of Nextel Online, we took steps to assure that many of our existing customers already would have subscriber units capable of accessing these services. We introduced three new Internet-ready subscriber units in 1999: the i1000plus, the i500plus, and the i700plus. Our new “plus” series subscriber units incorporate micro-browsers and enable wireless Internet services and other business applications. At the close of 1999, more than 1 million subscribers had Internet ready subscriber units, representing nearly 25 percent of the total domestic subscriber units. The new i1000plus, introduced in May 1999, combines all the features of the i1000™ subscriber unit — see-through flip cover, caller ID, and speakerphone — with web capability for access to Nextel Online services. The i500plus, introduced in August 1999, provides customers a less expensive alternative with enhanced voice features available on higher-end subscriber units. The i700plus, designed to be more rugged than our other subscriber units, was introduced in the Atlanta, Georgia, and Birmingham, Alabama, markets in late 1999, and became available nationally in January 2000.

      As part of our commitment to improving the customer experience, we opened a new customer care center in Hampton Roads, Virginia in 1999, for a total of four centers nationwide, which has helped us handle the core needs of our growing customer base. Additionally, in 1999 we expanded and improved the process of centralized activations of subscriber units purchased through our indirect dealers, thereby significantly reducing the time between a customer’s purchase of the subscriber unit and its activation for use, which both reduced fulfillment costs and resulted in increased revenue generating usage. Another of our newly developed customer care programs, Nextel Door-to-Door Express, which began as a pilot program in the summer of 1999, offers to repair or replace the subscriber units of customers in good standing, free of charge, with the convenience of an overnight pickup and a 48-hour turnaround back to the customer’s location. This program is designed to increase customer satisfaction with our repair and replacement processes, as well as to minimize the time that the customer is deprived of a functioning, revenue generating subscriber unit.

      The growth in our digital mobile network coverage and capacity, and the related significant increases in the number of our digital subscriber units in service and in system minutes of use, which began in 1997, continued and accelerated through 1998 and 1999. This growth contributed significantly to our achievement of positive operating income for our domestic operations during the fourth quarter of 1999. In particular, for the year ended December 31, 1999, we:

	•	increased our digital subscriber units in service from 2,789,900 to 4,515,700;
	•	increased our monthly total system minutes of use by about 94%, from about 9.3  billion during 1998 to about 18.0 billion during 1999;
	•	added almost 2,700 new cell sites, a 44% increase over the prior year, for a total of about 8,800 digital cell sites in operation on the digital mobile network at year end; and
	•	increased our switching capacity by 53%, adding 16 switches to our digital mobile network during 1999, for a total of 46 switches in service at December 31, 1999.

3

Table of Contents

To further expand our network, we also completed a transaction with SpectraSite Holdings, Inc. to purchase 2,000 of our towers and build up to 1,700 new towers, and established Nextel Partners as our exclusive provider of Nextel branded digital wireless communications services in targeted mid-sized and smaller-sized markets throughout the United States.

D.  Business Strategy

      For 2000, our principal business objectives are to:

	•	continue to offer high-capacity, high quality, advanced communications services on our digital mobile network to our customers in our metropolitan markets throughout the United States and provide more comprehensive coverage within these markets while expanding our coverage in ancillary markets and heavily traveled corridors between our markets;
	•	augment our digital mobile network by effectively implementing our Nextel Online service offering, providing customers with Internet access and business to business data applications;
	•	enhance our digital mobile network to assure the quality and performance of new service offerings and to strengthen our competitive position; and
	•	further progress toward becoming a major participant in the global wireless communications business.

      Our strategic efforts will continue to include the accelerated deployment of our digital mobile network and the aggressive marketing of digital wireless services.

      We believe that the following elements of our business strategy and characteristics of our business distinguish our wireless service offerings from those of our competitors in the wireless communications marketplace:

      1.  We Provide a Differentiated, Integrated Package of Wireless Services, Including Our Unique Nextel Direct Connect Feature. Our digital mobile network service provides a bundled product offering accessible through a single subscriber unit, currently consisting of:

	•	digital mobile telephone service;
	•	digital two-way radio dispatch service, which provides instant conferencing capabilities and is marketed as Nextel Direct Connect service;
	•	paging; and
	•	short-messaging services.

      We believe that, for customers who already subscribe to or who would benefit by access to multiple wireless services, the convenience of combining multiple wireless communications options in a single subscriber unit and of consolidating all wireless service charges into a single package price and billing statement are important features that distinguish us from many of our competitors.

      Our market research indicates that a sizeable portion of business users’ communications involves contacting others within the same organization. We believe that our Nextel Direct Connect service is especially well suited to address these intracompany wireless communications needs. The Nextel Direct Connect service, which gives customers the ability to instantly set up a conference on either a private (i.e., one-to-one) or group (i.e., one-to-many) basis, is a service that is not included in any integrated service package currently available from competing cellular and personal communications services, referred to as PCS, operators. To further expand the flexibility and convenience offered by our Nextel Direct Connect service to users outside a single organization but within a single industry or interest group in a particular dispatch service area, we pioneered the Nextel Business Network^SM concept. Nextel Business Networks extend Nextel Direct Connect service beyond a company’s employees to suppliers or other parties involved in the same industry. About 1.5 million domestic digital subscriber units in service as of December 31,

4

Table of Contents

      We expect to further differentiate our unique package of services with the anticipated addition of wireless Internet connectivity and new digital two-way mobile data services. Our new “plus” series subscriber units each incorporate micro-browsers and enable wireless Internet access and other business applications directly from the subscriber unit. We currently expect to commercially launch Nextel Online service for Internet capable subscriber units in the second quarter of 2000.

      In April 2000, we expect to launch our Nextel Worldwide service offering with the introduction of the i2000 subscriber unit. The i2000, being manufactured by Motorola, is a dual mode subscriber unit that operates on both the iDEN technology used by Nextel and the GSM digital wireless technology that has been established as the current digital cellular communications standard in Europe and elsewhere. The i2000 will allow seamless digital roaming in about 65 countries worldwide with the convenience of one phone, one number and one bill. International roaming charges will be billed to our customer’s Nextel bill, and customers will be supported while roaming by Nextel Customer Care which will be available 24 hours a day, 7 days a week, 365 days per year. To further our international reach, Nextel International has developed and is implementing marketing plans tailored to each country in which it does business. Nextel International is also continuing to expand its network coverage and capacity, which resulted in a 174% increase in digital subscriber units in service for its consolidated entities for 1999 over 1998.

      2.  We Focus on the Business Customer. Our corporate marketing strategy focuses on targeting business users that we believe will be likely to perceive and appreciate the potential for our wireless communication service capabilities to increase efficiencies and reduce costs in those users’ business activities. We originally concentrated our sales efforts on a number of distinct occupational groupings of mobile workers, but we have been broadening our primary targeted customer population to include a much wider group of business users, in particular focusing on white collar and professional occupations with the introduction of the compact, feature-rich i1000 and i1000plus subscriber units.

      3.  We Offer Innovative Pricing Features. We offer pricing that we believe differentiate our services from those of many of our competitors. Our pricing packages offer our customers simplicity and predictability on their wireless telecommunications billing by combining unlimited Direct Connect minutes with the following price features:

	•	a flat rate plan marketed as the Nextel National Business Plan SM, which offers a predetermined mix of cellular and long distance minutes for one flat rate;
	•	one airtime rate, regardless of the time of day a call is made;
	•	no roaming charges assessed for mobile telephone services provided to our customers traveling anywhere on our digital mobile network or the compatible digital mobile network of Nextel Partners outside the customer’s home market in the United States, and in some parts of Canada (through our roaming agreement with Clearnet Communications, Inc., which operates a digital network employing the iDEN technology in and around certain major metropolitan markets, including Toronto, Montreal and Vancouver);
	•	billing based on the actual number of seconds of airtime used after the first minute, in contrast to the common cellular industry practice of rounding all calls up to the next minute; and
	•	special pricing plans that allow some customers to aggregate the total number of account minutes for all subscriber units and reallocate the aggregate minutes among those subscriber units.

      4.  Our Marketing Program and Distribution Channels. Our marketing program and related advertising campaigns are designed to:

	•	enhance brand name awareness;
	•	stimulate additional interest in and demand for our services by stressing their versatility, value, simplicity and quality; and

5

Table of Contents

	•	expand our use of lower cost distribution channels, such as sales of our subscriber units through nextel.com.

      We use both direct and indirect sales forces as part of our strategy to increase the number of subscriber units placed in service on our digital mobile network. We expect to expand and enhance both direct and indirect distribution channels as we further penetrate existing markets, expand our geographic reach in those markets and expand our coverage in ancillary markets and heavily traveled corridors between markets. To further our international reach, Nextel International has developed and is implementing marketing plans tailored to each country in which it does business.

      5.  We have Strategic Relationships with Craig O. McCaw, Motorola and Microsoft. Through December 31, 1999, Craig O. McCaw and members of the McCaw family have invested more than $965 million in our stock through purchases of our equity securities from Nextel and Motorola. As of December 31, 1999, Mr. McCaw and his affiliates beneficially owned about 14% of our common equity, giving effect to the conversion of the preferred stock and the exercise of all presently exercisable options issued by us to, and held by, Digital Radio, L.L.C. or other controlled affiliates of Mr. McCaw. We also benefit from Mr. McCaw’s more than 25 years experience in the wireless communications business. Mr. McCaw currently serves as a member of our board of directors and also as Chairman of the operations committee of our board of directors, which is responsible for formulating key aspects of our business strategy. See “— J. Agreements with Significant Stockholders — 1.  McCaw Interests.”

      We have a number of important strategic and commercial relationships with Motorola. Motorola provides the iDEN infrastructure and subscriber unit equipment used throughout our domestic markets and in most of the international markets served by Nextel International’s subsidiaries and affiliates. We also work closely with Motorola to improve existing products and develop new technologies such as the iDEN technology that we use in our digital mobile network. As of December 31, 1999, Motorola was the beneficial owner of about 15% of our common equity, giving effect to the conversion of shares of our class B nonvoting common stock. See “— J. Agreements with Significant Stockholders — 2.  Motorola.”

      On May 27, 1999, Microsoft Corporation purchased about 17 million shares of our class A common stock for a cash investment of $600 million, representing a per share price of $36.00. In connection with this transaction, we entered into agreements under which Microsoft is to provide certain Internet portal services and related assistance in connection with our Nextel Online service offering. As of December 31, 1999, Microsoft was the beneficial owner of almost 5% of our common equity.

E.  Fiscal Year 1999 Domestic Transactions and Developments

      1.  Debt Extinguishment. During the fourth quarter of 1999, we utilized a portion of the proceeds from our 9.375% senior notes due 2009 to repurchase and redeem prior to final maturity $546 million of our outstanding notes issued prior to 1997. On December 30, 1999, we redeemed our outstanding 10.25% senior notes, 12.25% senior notes and 11.5% senior notes. In December 1999, we issued notices to redeem prior to final maturity all of our remaining outstanding senior notes issued prior to 1997. We completed these redemption transactions on January 15, 2000 for our 10.125% senior notes and February 15, 2000 for our 9.75% senior notes.

      2.  9.375% Senior Notes. In November 1999, we completed the issuance and sale in a private placement of $2.0 billion in principal amount of our 9.375% senior notes due 2009. These notes were subsequently exchanged for a series of notes with identical terms registered with the Securities and Exchange Commission in February 2000. The sale of these notes generated about $1.96 billion in net cash proceeds. Cash interest on these notes will be payable on May 15 and November 15 of each year commencing May 15, 2000. These notes are redeemable at our option at any time on or after November 15, 2004, at specified redemption prices plus accrued interest. Up to 35% of the original principal amount of these notes may be redeemed (using the proceeds of qualifying sales of our capital stock) on or prior to November 15, 2002, at our option under specified circumstances, at 109.375% of their principal amount plus accrued and unpaid interest to the date of redemption. These notes are senior

6

Table of Contents

      3.  New Bank Financing. Nextel, Nextel Finance Company, one of our wholly owned subsidiaries, and some of our other subsidiaries entered into definitive agreements effective November 12, 1999, with respect to an amended and restated secured bank credit facility that provided for up to $5.0 billion of secured financing, consisting of a $1.5 billion revolving loan and $3.5 billion of term loans. The maturity date of the $1.5 billion revolving loan and $1.7 billion portion of the term loans is December 31, 2007. The remaining $1.8 billion of term loans mature in equal $900 million portions on June 30, 2008, and December 31, 2008. The maturity dates of the loans can accelerate if our credit ratings are below specified levels and the aggregate amount of specified debt obligations that mature before June 30, 2009, and the redemption price of redeemable stock that is mandatorily redeemable before June 30, 2009, exceed specified amounts. Borrowings under this bank credit facility bear interest payable quarterly, at variable rates calculated based on either the U.S. prime rate or the London Interbank Offered Rate, referred to as LIBOR. At December 31, 1999, we had borrowed an aggregate of about $2.7 billion of the $5.0 billion in committed available financing under this bank credit facility. See “— G. Post Fiscal Year 1999 Transactions and Developments — 1. Incremental Bank Financing.”

      4.  Equity Offering. On November 5, 1999, we completed the public offering and sale of 33,781,785 shares of our class A common stock at a price of $83.8125 per share. All of the shares sold were offered by us and we received net proceeds of about $2.8 billion from this offering.

      5.  Board of Directors Developments. On October 15, 1999, Mr. Keisuke Nakasaki resigned from his position on our board of directors, reducing the board’s size to nine. Mr. Nakasaki had occupied his position on the board of directors as result of rights granted to an affiliate of Nippon Telegraph and Telephone Corp. in connection with and linked to that affiliate’s equity investment in Nextel. As a result of its reduced equity ownership, this affiliate no longer possesses these rights. Subsequently, on November 24, 1999, we announced the appointment of Janet Hill, Vice President of Alexander & Associates, Inc., a corporate consulting firm in Washington, D.C., to our board of directors, increasing the board’s size to ten.

      6.  Option Exercise by Digital Radio. On July 28, 1999, Digital Radio, L.L.C., an entity controlled by Mr. McCaw, exercised in full its option to purchase 15 million shares of our class A common stock for an aggregate cash purchase price of $278 million. See “— J. Agreements with Significant Stockholders — 1. McCaw Interests.”

      7.  Management Changes. On July 15, 1999, Daniel F. Akerson stepped down from his position as our Chief Executive Officer and Timothy M. Donahue, formerly our President and Chief Operating Officer, became our President and Chief Executive Officer. Mr. Akerson continues to serve as Chairman of our board of directors and also as a member of the operations committee of the board of directors. On September 22, 1999, Mr. Akerson became Chairman of the board of directors and Chief Executive Officer of NEXTLINK Communications, Inc., a publicly held competitive local exchange carrier controlled by Mr. McCaw.

      8.  4.75% Convertible Senior Notes. In June 1999, we completed the issuance and sale in a private placement of $600 million in principal amount of our 4.75% convertible senior notes due 2007, generating about $588 million of net cash proceeds. These notes, and the class A common stock underlying these securities, were subsequently registered with the Securities and Exchange Commission pursuant to an effective registration statement in December 1999. Cash interest is payable on these notes semi-annually on January 1 and July 1 of each year commencing on January 1, 2000. These notes are convertible at the option of the holders into class A common stock at any time prior to redemption, repurchase or maturity at a conversion price of $47.308 per share, subject to adjustment. These notes are redeemable at our option at any time on or after July 6, 2002 at specified redemption prices plus accrued interest. These notes are senior unsecured indebtedness of ours and rank equal in right of payment with all our other unsubordinated, unsecured indebtedness.

7

Table of Contents

      9.  Agreement with U.S. Department of Justice. On June 14, 1999, we reached an agreement with the U.S. Department of Justice regarding settlement of our challenges to the consent decree entered in 1995 by the United States District Court for the District of Columbia in the case, United States of America v. Motorola, Inc. and Nextel Communications, Inc. The consent decree prohibited us from owning or managing more than a limited amount of 900 MHz frequencies in thirteen of the largest markets in the United States. Under the terms of the modified final judgment relating to the settlement entered by the District Court for the District of Columbia in late 1999, we will, subject to specified limitations, be permitted to acquire ownership of or rights to use 108 of the 200 available channels in the 900 MHz frequency range allocated for specialized mobile radio and other uses, in most of the thirteen markets that were subject to restrictions in the consent decree. In some of those major markets located near national boundaries, where only 100 channels are available in the 900 MHz frequency range, we will be permitted to acquire up to 54 of those channels. Additionally, the consent decree and any related restrictions on our utilization of additional 900 MHz channels in those markets will terminate on October 30, 2000. As a component of the overall settlement, we were not permitted to complete our agreement to acquire the 900 MHz channels in the consent decree markets held by Geotek Communications, Inc. However, the Department of Justice withdrew its objections to our acquisition of Geotek’s 900 MHz channel holdings outside the thirteen markets subject to the restrictions of the consent decree, which we completed in February 2000.

      10.  NEXTBAND Transaction. On June 3, 1999, we sold our 50% interest in NEXTBAND Communications, L.L.C. to NEXTLINK Communications for about $138 million in cash and recognized a gain of about $70 million, which is included in other income (expense) in our statement of operations.

      11.  Microsoft Transaction. On May 27, 1999, Microsoft Corporation purchased about 17 million shares of our class A common stock for a cash investment of $600 million, representing a per share price of $36.00. The agreements related to the transaction establish certain transfer restrictions that apply to the shares purchased by Microsoft and include an investor standstill provision. Additionally, we agreed to provide specified registration rights that apply to those shares. In connection with this transaction, we entered into agreements under which Microsoft is to provide certain Internet portal services and related assistance in connection with our Nextel Online service offering.

      12.  Towers Transaction. On April 20, 1999, we and some of our subsidiaries and SpectraSite Holdings and some of its subsidiaries consummated agreements under which we transferred specified telecommunications towers and related assets to SpectraSite, which we then leased back. In the transaction, we received $560 million in cash, which we reflected as a finance obligation on our balance sheet at that time, and received about an 18% ownership interest in SpectraSite, which has since been reduced to about 11% as of February 29, 2000 as a result of the issuance of additional shares by SpectraSite, including in connection with their initial public offering. In connection with the transaction, we entered into an agreement for SpectraSite to construct additional towers in the United States to support expansion of our digital mobile network and the compatible digital mobile network of Nextel Partners. During the second half of 1999, we received about an additional $27 million for the transfer of additional towers which we then leased back.

      13.  Nextel Partners Transactions. On January 29, 1999, we entered into agreements with Nextel Partners and certain other parties, including Motorola and Eagle River Investments, L.L.C., an affiliate of Mr. McCaw, relating to the capitalization, governance, financing and operation of Nextel Partners. Nextel Partners is constructing and operating a digital mobile network utilizing the technology developed by Motorola employed in our digital mobile network. In connection with this transaction, we sold assets, and transferred certain Federal Communications Commission licenses, to Nextel Partners. In exchange, at the date of transfer Nextel Partners issued to us equity representing about a 29% voting interest in Nextel Partners and having an agreed value of $131 million and paid us about $132 million in cash related to the assets sold and the reimbursement of costs and net operating expenses. On September 9, 1999, pursuant to the agreements, Nextel Partners exercised its option to acquire specified additional territories and assets from us and related Federal Communications Commission licenses (which we are in the process of transferring), and we received an aggregate consideration of about $19 million consisting of approximately

8

Table of Contents

      The agreements with Nextel Partners establish circumstances in which Nextel Partners will have the option to acquire specified additional territories and related Federal Communications Commission licenses from us. In addition, these agreements also establish circumstances in which we will have the right or the obligation to purchase the remaining equity interests in Nextel Partners at specified prices.

F.  Fiscal Year 1999 International Transactions and Developments

      1.  Issuances of Preferred Stock. In a series of transactions during 1999, Nextel International received $200 million in proceeds from the issuance of 2,000 shares of its series A exchangeable redeemable preferred stock to a wholly owned subsidiary of Nextel.

      2.  Nextel International Motorola Incremental Facility. On December 16, 1999, Motorola Credit Corporation entered into a secured loan agreement under which Motorola Credit agreed to provide up to about $57 million in an incremental term loan to Nextel International for working capital purposes. The loan, fully drawn in January 2000, will mature December 31, 2001 and will bear interest at variable rates based upon either the U.S. prime rate or LIBOR. Borrowings under this facility are secured by a pledge of all the shares of stock of Clearnet Communications held by Nextel International.

      3.  Brazilian Motorola Financing. In 1999, Nextel International’s Brazilian subsidiary notified Motorola Credit of its noncompliance with some of the financial covenants under its $125 million equipment financing agreement. Motorola Credit agreed to waive compliance with the financial covenants. In March 2000, Motorola Credit and this subsidiary entered into an amendment to the equipment financing agreement. As of December 31, 1999, $104 million was outstanding under this facility and this subsidiary is in compliance with all financial covenants contained in the facility, as amended.

      4.  Argentina Bank Credit Facility. In 1999, Nextel International’s Argentine subsidiary, Nextel Argentina, S.R.L., notified the administrative agent under its $100 million bank credit facility of its anticipated noncompliance with some of the financial covenants under the facility. Nextel Argentina received waivers from the lenders under this facility and in December entered into an amended facility to modify several of the financial covenants. As of December 31, 1999, $100 million was outstanding under this facility and this subsidiary is in compliance with all financial covenants contained in the facility, as amended.

      In May 1999, Motorola Credit agreed to provide up to $50 million in loans to Nextel Argentina as incremental term loans under the bank credit facility described above for the purchase from Motorola of qualifying digital mobile network equipment and related services. As of December 31, 1999, $8 million of these incremental term loans had been borrowed under this facility.

      5.  Nextel International Financing. On February 4, 1999, Nextel International and Motorola Credit entered into definitive agreements providing for $225 million in secured financing. The loans under this facility are scheduled to be repaid in eight equal semi-annual installments beginning June 30, 2001, will mature December 31, 2004 and bear interest at variable rates based on either the U.S. prime rate or LIBOR. The facility is secured by, among other things, a pledge of the shares of stock of some of Nextel International’s direct and indirect subsidiaries and affiliates. The availability of borrowings under this facility is subject to the satisfaction or waiver of applicable borrowing conditions. In the fourth quarter of 1999, Nextel International notified Motorola Credit of its anticipated noncompliance with some of the financial covenants under this financing agreement. In December 1999, Motorola Credit agreed to waive compliance with the financial covenants. In March 2000, Motorola Credit and Nextel International entered into an amended and restated agreement. As of December 31, 1999, $139 million was outstanding under this facility and Nextel International is in compliance with all financial covenants contained in the facility, as amended.

      6.  Management Changes. On March 24, 2000, Steven M. Shindler was appointed Interim Chief Executive Officer of Nextel International. Mr. Shindler has been a director on Nextel International’s board

9

Table of Contents

      7.  Brazil Currency Devaluation. During 1999, there were significant fluctuations in the value of the Brazilian currency, the real, relative to the U.S. dollar due primarily to the devaluation of the real beginning in January 1999. As a result of the devaluation of the real, we recorded a negative cumulative translation adjustment of about $127 million as other comprehensive income (loss) in our consolidated statements of stockholders’ equity during 1999. We also recognized foreign currency transaction losses of $57 million principally related to these same factors in our statement of operations during 1999.

      For additional information concerning transactions and developments relating to Nextel International during 1999, including those summarized above, see Nextel International’s Annual Report on Form 10-K for the year ended December 31, 1999 filed with the Securities and Exchange Commission.

G.  Post Fiscal Year 1999 Transactions and Developments

      1.  Incremental Bank Financing. On March 15, 2000, we, some of our subsidiaries and some of our lenders established the $1.0 billion incremental senior secured term loan under our existing bank credit facility. As a result, the total amount of borrowings available under our bank credit facility increased from $5.0 billion to $6.0 billion. We borrowed the entire amount of this incremental $1.0 billion term loan on March 15, 2000. The maturity date of this loan is March 31, 2009, although the maturity date can accelerate if our credit ratings are below specified levels and the aggregate amount of specified debt obligations that mature before June 30, 2009, and the redemption price of redeemable stock that is mandatorily redeemable before June 30, 2009, exceed specified amounts. Loans under the bank credit facility bear interest payable quarterly, at variable rates calculated based on either the U.S. prime rate or LIBOR.

      2.  Announcement of Stock Split. On February 22, 2000, we announced a 2-for-1 common stock split to be effective upon stockholder approval of a proposed increase in our authorized equity capitalization at the annual stockholders meeting scheduled for May 25, 2000. Assuming receipt of required stockholder approval, we expect the new shares of common stock will be distributed on June 6, 2000 to stockholders of record as of May 26, 2000.

      3.  Initial Public Offerings of SpectraSite and of Nextel Partners. On February 4, 2000, SpectraSite consummated the initial public offering of its common stock. On February 25, 2000, Nextel Partners consummated the initial public offering of its common stock. After giving effect to these transactions (including the conversion of some shares of nonvoting stock we held into additional shares of voting common stock of Nextel Partners), we, through our subsidiaries, beneficially own about 11% of SpectraSite and about 33% of Nextel Partners.

      4.  5.25% Convertible Senior Notes. In February 2000, we completed the issuance and sale in a private placement of an aggregate of $1.15 billion in principal amount of our 5.25% convertible senior notes due 2010, generating about $1.13 billion of net cash proceeds. Cash interest is payable on these notes semi-annually on January 15 and July 15 of each year commencing July 15, 2000. These notes are convertible at the option of the holders into class A common stock at any time prior to redemption, repurchase or maturity at a conversion price of $148.80 per share, subject to adjustment. These notes are redeemable at our option at any time on or after January 18, 2003 at specified redemption prices plus accrued interest. These notes are senior unsecured indebtedness of ours and rank equal in right of payment with all our other unsubordinated, unsecured indebtedness.

10

Table of Contents

      Because these notes were issued in a private placement, they may not be offered or sold in the United States absent an effective registration statement or an applicable exemption from the registration requirements of the Securities Act. In the event that these notes are not registered with the Securities and Exchange Commission prior to August 31, 2000, additional incremental interest on the principal amount of these notes will accrue until they are registered or other requirements are met.

      5.  Purchase of Motorola International’s Common Equity Shares in Companies in Brazil, Peru and Chile. Nextel International recently has agreed in principle with Motorola International Development Corporation to purchase, for about $72.6 million in cash all of their shares in the following companies:

      •  Nextel del Peru, S.A.,

      •  Nextel S.A. (Brazil); and

	•	three analog SMR companies wholly owned by Motorola International Development Corporation and operating in Chile.

      If these transactions are completed, Nextel International would acquire 190 SMR channels in Chile and increase its equity ownership interest in Nextel Peru from 64% to 95% and in Nextel’s Brazilian operating subsidiary from 88% to 92%. Consummation of these transactions is subject to execution of definitive agreements and satisfaction or waiver of various conditions.

H.  Wireless Industry Overview

      1.  Development of the Wireless Communications Industry. Today’s wireless communications industry began in 1970 when the Federal Communications Commission, known as the FCC, reallocated 115 MHz of radio spectrum in the 800/900 MHz bands from the federal government and UHF television to land mobile service use to provide high-quality, high-capacity communications services to vehicle-mounted and hand-held portable telephones and other two-way radio units. The FCC has allocated 50 MHz for cellular service, which were allocated in equal blocks to two cellular operators in each metropolitan statistical area or rural statistical area, and 46 MHz for private radio services, including specialized mobile radio, otherwise known as SMR. The remaining 19 MHz are divided among six different services. Because of regulatory delays, the first commercial cellular systems were not operational until 1983. Since then, however, growth in the industry has been rapid, with about 76 million wireless phone units (consisting of analog cellular, digital cellular and PCS units) in service at June 30, 1999. The first SMR systems became operational in 1974, and SMR units in service had grown to about 6 million by December 31, 1999 (consisting of both analog and digital SMR units). The number of other private radio users is estimated to be about 16 million as of December 31, 1999.

      2.  SMR and Cellular/ PCS Telephony. The cellular telephone industry was created by the FCC as a regulated duopoly. The FCC awarded only two licenses to provide cellular service in the service area of any given metropolitan statistical area or rural statistical area. Subsequently, the FCC allocated 120 MHz of spectrum in the 1.8-2.2 GHz band for the provision of PCS, which include mobile wireless communications services similar to those provided over our digital mobile network. The FCC has awarded three 30 MHz and three 10 MHz PCS licenses for this PCS spectrum through a competitive bidding process. Since August 10, 1996, SMR operators have been subject to the same common carrier obligations as cellular and PCS operators, although a more limited amount of spectrum is assigned to a single SMR licensee as compared to cellular and PCS licensees. See “— K. Regulation” for additional information. Within the limitations of available spectrum and technology, SMR operators are authorized to provide mobile communications services to business and individual users, including the bundled products already offered by us, as well as wireless Internet connectivity and digital two-way mobile data services.

I.  Our Digital Mobile Network

      1.  Digital Mobile Network Services. We are designing and constructing our digital mobile network to support the full complement of digital wireless services described above. See “— B. Overview.” Additionally, we are scheduled to offer our customers wireless access to the Internet and new digital two-way mobile data services in the second quarter of 2000.

11

Table of Contents

      Our digital mobile network provides customers desiring mobile telephone service with access to features competitive with those offered by other current wireless communications services, such as the “hand-off” of calls from one site to another and “in-building” signal penetration for improved portable performance in selected high usage areas. In addition to the mobile telephone and two-way radio dispatch functions, our digital mobile network has been designed to include a signaling or paging capability, which also has been built into each subscriber unit, to enable a customer to receive alphanumeric short-text messages. In the fourth quarter of 1999, we delivered an average of more than 2.5 million text messages per month. Our digital mobile network offers customers additional features, such as voicemail, call hold, call waiting, no-answer or busy-signal transfer, call forwarding, three way calling and two lines. Working together with Motorola and others, we have adapted our iDEN-based packet data network to enable wireless Internet connectivity and new digital two-way mobile data services.

      Nextel International, through its subsidiaries and affiliates, is constructing and operating digital networks employing iDEN technology on 800 MHz spectrum holdings in major metropolitan market areas located in Argentina, Brazil, Mexico, Peru and the Philippines and on 1.5 GHz spectrum holdings in major Japanese market areas, including Tokyo. We have entered into interoperability agreements with Clearnet Communications and with Communiçaciones Nextel del Mexico S.A. de C.V., a subsidiary of Nextel International, to provide, among other things, for coordination of customer identification and validation necessary to facilitate cross-border roaming service in North America.

      We have roaming agreements currently in effect with Nextel Partners (covering all of the United States market areas in which Nextel Partners currently (or will in the future) provide iDEN-based digital mobile services) and Clearnet Communications (in Canadian market areas where Clearnet Communications offers iDEN-based digital mobile services). In April 2000, we plan to launch our Nextel Worldwide service offering with the introduction of Motorola’s i2000 subscriber unit. The i2000 is a dual mode subscriber unit that operates on both the iDEN technology used by Nextel and the GSM 900 standard and will allow seamless digital roaming in over 65 countries worldwide with the convenience of one phone, one number and one bill.

      2.  Digital Mobile Network Technology. Our digital mobile network, as currently deployed, combines the advanced iDEN technology developed and designed by Motorola, with a low-power, multi-site transmitter/receiver configuration that permits frequency reuse. The iDEN technology shares many common components with the GSM technology that has been established as the digital cellular communications standard in Europe and is a variant of the GSM technology that is being deployed by certain PCS operators in the United States. The design of our existing and proposed digital mobile network currently is premised on dividing a service area into multiple sites having a typical coverage area of from less than one mile to up to thirty miles in radius (depending on the terrain and the power setting). Each site contains a low-power transmitter, receiver and control equipment referred to as the base station. The base station in each site is connected by microwave, fiber optic or telephone line to a computer controlled switching center. The switching center controls the automatic hand-off of cellular calls from site to site as a subscriber travels, coordinates calls to and from a subscriber unit and connects cellular calls to the public switched telephone network. In the case of two-way dispatch, a dispatch application processor provides a call setup and identifies the target radio and connects the subscriber initiating the call to the other subscriber (in the case of a private call) or to a number of other subscribers (in the case of a group call) to whom the call is directed in the requested service areas. Northern Telecom, Inc. has supplied the mobile telephone switches for our digital mobile network. At December 31, 1999, we had 46 operational switches and about 8,800 cell sites constructed and in operation in our digital mobile network.

      Currently, there are three principal digital technology formats that are deployed by providers of cellular telephone service or by certain PCS providers or licensees in the United States. One such format is Time Division Multiple Access, referred to as TDMA, digital transmission technology, a version of which, known as “three-time slot TDMA,” has been and is expected to be deployed by certain cellular operators. The second principal format, known as Code Division Multiple Access, referred to as CDMA, digital transmission technology, has been and is expected to be deployed by certain other cellular and PCS operators. The third principal format, known as GSM-PCS, is an updated, up-banded, PCS-adapted

12

Table of Contents

      Although TDMA, CDMA and GSM-PCS are digital transmission technologies, and thus share certain basic characteristics and areas of contrast to analog transmission technology, these transmission technologies are not compatible or interchangeable with each other. Although Motorola’s proprietary iDEN technology is based on the TDMA technology format, it differs in a number of significant respects from the TDMA technology versions being assessed or deployed by cellular operators and PCS licensees in the United States, which differences may have important consequences.

      The implementation of digital mobile network design and technology significantly increases the capacity of our existing SMR channels. This increase in capacity is accomplished in two ways.

	•	First, each channel is capable of carrying (1) up to six voice and/or control paths by employing six-time slot TDMA digital technology or (2) up to three voice and control paths by employing the three-time slot TDMA digital technology. Each voice is converted into a stream of data bits that are compressed before being transmitted, allowing each of the time-slotted voice and control paths to be transmitted on the same channel without causing interference. Upon receipt of the coded voice data bits, the subscriber unit decodes the voice signal. Using the iDEN technology, we achieve about six times improvement in channel utilization capacity for channels used for two-way dispatch service and about three times improvement in channel utilization capacity for channels used for mobile telephone service.
	•	Second, a system design is employed that reuses each channel many times throughout the market area in a manner similar to that used in the cellular industry.

      The use of six-time slot TDMA technology for two-way dispatch service and three-time slot TDMA technology for mobile telephone service, in combination with reuse of our licensed frequencies in a cellular-type system design, permits us to utilize our current holdings of SMR spectrum more efficiently.

      3.  Technology Commitments. Pursuant to our equipment purchase agreements with Motorola first entered into in 1991, as subsequently amended, Motorola provides the iDEN infrastructure and subscriber unit equipment throughout our markets. In 1999, we and Motorola further memorialized our infrastructure and subscriber unit purchase arrangements by entering into several supply agreements. These agreements set forth the prices we must pay to purchase and license this equipment as well as a structure to develop new features and make long-term improvements to our network. Motorola is recognized as the overall integrator of our digital mobile network elements and has committed to make some components of our network available to us. We and Motorola have also agreed to warranty and maintenance programs and specified indemnity arrangements. We expect to rely principally on Motorola for the manufacture of a substantial portion of the equipment necessary to construct our digital mobile network and subscriber unit equipment for the next several years. See “— M.  Risk Factors — 5. We Rely on Motorola for Substantially All of Our Equipment and Technology, and Any Failure of Motorola To Perform Would Adversely Affect Our Operating Results.” In addition, under some circumstances, we have agreed to purchase 50% of our infrastructure equipment from Motorola.

      We continuously review alternate technologies as they are developed. To date, however, it has not been regarded as necessary or as a commercially feasible strategy to adapt currently available alternative technologies to operate on our present spectrum position. Having been the high bidder on 475 economic area licenses in the 800 MHz SMR auction held in 1997, we have the opportunity to operate on up to an average of 10 MHz of contiguous spectrum in nearly every major market in the United States. By relocating incumbent operators out of this spectrum, we have access to contiguous channel blocks, similar to our cellular and PCS competitors. We continue to pursue regulatory initiatives that would provide SMR operators, including us, with additional rights to use contiguous blocks of spectrum. See “— K. Regulation.” The availability of a significant block of contiguous spectrum would permit the introduction of a broader range of technology options not available on non-contiguous spectrum blocks.

13

Table of Contents

      4.  System Construction. The first step required to achieve the build-out of the digital mobile network in a market is the completion of the radio design plan, which typically takes about four months. This stage involves the selection of specific areas in the market for the placement of base station sites and the identification of specific frequencies that will be employed at each site in the initial configuration. Sites are selected on the basis of:

	•	their proximity to targeted customers;
	•	the ability to acquire and build the site; and
	•	frequency propagation characteristics.

      Site procurement efforts include obtaining leases and permits, and in many cases, zoning approvals. This site acquisition process for a system’s initial construction in a market, depending on the number of sites, typically takes from two to eighteen months. Preparation of each site for equipment installation, including construction of equipment shelters, towers and power systems, grounding, ventilation and air conditioning, typically takes six weeks, while equipment installation, testing and pre-operational systems optimization generally takes an additional six weeks prior to commencing system operation. Following commencement of system operations in a selected market, we expect to continually add new sites to this system in order to improve coverage and capacity. See “— M. Risk Factors — 16. Our Forward Looking Statements Are Subject to a Variety of Factors that Could Cause Actual Results to Differ Materially From Current Beliefs.” In an effort to improve our digital mobile network and expedite network deployment in existing markets, in new markets and in heavily traveled corridors between markets, we completed a transaction in 1999 for SpectraSite to purchase 2000 of our towers and build up to 1,700 new towers (See “— E. Fiscal Year 1999 Domestic Transactions and Developments — 12. Towers Transaction”) and signed a master lease agreement for the co-location of sites on Crown Castle International Corporation’s domestic communications towers.

      5.  Marketing. Our marketing strategy focuses principally on targeting business users that we believe will be likely to perceive and appreciate the potential for our wireless communication service capabilities to increase efficiencies and reduce costs in their business activities. We continue to believe that our ability to deliver a full line of integrated mobile communications services using a single, multi-function subscriber unit on our digital mobile network significantly differentiates us from other providers of wireless communications services. The progress of our digital mobile network services marketing efforts is and will continue to depend upon numerous factors, including:

	•	system performance;
	•	subscriber equipment performance; and
	•	the ability to deliver services that satisfy customer needs and expectations, including wireless Internet connectivity.

We review our business and marketing plans in light of:

	•	perceived opportunities;
	•	actual experiences in the marketplace;
	•	availability of financial and other resources; and
	•	overall economic and/or competitive considerations.

14

Table of Contents

As a result of these reviews, we may from time to time determine to change, refine or redirect our plans. See “— M.  Risk Factors — 16. Our Forward Looking Statements Are Subject to a Variety of Factors that Could Cause Actual Results to Differ Materially From Current Beliefs.”

      6.  Competition. We may compete with the two established cellular licensees and may compete with as many as six PCS licensees in each of the markets where our digital mobile network operates. Additional licensees may enter these markets operating systems utilizing frequencies obtained in contemplated FCC auction proceedings, including those involving 700 MHz frequency allocations and those involving auctions or re-auction of 1.9 GHz PCS frequency allocations, each of which is scheduled to occur later in 2000. A substantial number of the entities that have been awarded PCS licenses are current cellular communications service providers and joint ventures of current and potential wireless communications service providers, some of which have financial resources, subscriber bases and name recognition greater than we do. PCS operators currently compete and likely will continue to compete with us in providing some or all of the services available through our digital mobile network. Additionally, we expect that existing PCS and cellular service providers will continue to upgrade their systems to provide digital wireless communications services competitive with those available on our digital mobile network. Moreover, cellular companies have been granted authority to participate in dispatch services and wireline companies have been granted authority to participate in SMR services. We also expect our digital mobile network business to face competition from other technologies and services developed and introduced in the future. See “— M. Risk Factors — 3. Our Future Performance Will Depend on Our Ability to Succeed in the Highly Competitive Wireless Communications Industry” and “— 16. Our Forward Looking Statements Are Subject to a Variety of Factors that Could Cause Actual Results to Differ Materially From Current Beliefs.”

      The FCC has reallocated spectrum for use by “emerging telecommunications technologies,” such as PCS and satellite systems and has authorized a consortium of communications companies to provide telecommunications services from geo-stationary and low-earth-orbit satellites. We cannot predict how these technologies or future technologies will develop or what impact, if any, they will have on our ability to compete for wireless communications services customers.

J.  Agreements with Significant Stockholders

      1.  McCaw Interests. Under the terms of a securities purchase agreement dated as of April 4, 1995, as amended, among Nextel, Digital Radio, L.L.C. and Mr. McCaw and certain other related agreements:

	•	Digital Radio purchased on April 5, 1995 from us, about 1.2 million shares of our class A common stock for an aggregate purchase price of about $15 million; and
	•	Digital Radio purchased from us on July 28, 1995, for an aggregate purchase price of $300 million, an aggregate of 8.2 million units consisting of a total of:

	•	about 8.2 million shares of our class A convertible redeemable preferred stock, par value $0.01 per share, referred to as the “class A preferred stock”;
	•	82 shares of our class B convertible preferred stock, par value $0.01 per share, referred to by us as the “class B preferred stock”; and
	•	options to acquire an aggregate of up to 35 million shares of our class A common stock at exercise prices ranging from $15.50 to $21.50 per share (15 million, including 3.4 million shares transferred in November 1997, of which were purchased on July 28, 1999 for an aggregate cash purchase price of approximately $278 million, 15 million of which were purchased on July 28, 1997 for an aggregate cash purchase price of approximately $233 million and 5  million, including 1.5 million shares transferred in November 1997, exercisable through July 2001).

      In addition, in connection with the agreements relating to the exercise of the options exercised on July 28, 1997, an affiliate of Mr. McCaw, Option Acquisition, L.L.C., purchased options to acquire up to 25 million shares of our class A common stock at exercise prices of either $16.00 per share or $18.00 per

15

Table of Contents

      Additionally, in connection with these equity investments, we reached an agreement with Digital Radio and Mr. McCaw on a number of matters relating to the ownership, acquisition and disposition of the class A preferred stock and the class B preferred stock, including without limitation, the granting of registration and antidilutive rights to Digital Radio and specified affiliates and limitations on investments by Digital Radio and its affiliates in excess of about 45% of our voting securities. Finally, on July 28, 1995, pursuant to agreements between Digital Radio and Motorola entered into our connection with the original securities purchase agreement, Digital Radio purchased 4 million shares of our class A common stock from Motorola and Motorola granted to Digital Radio the option to purchase up to an additional 9 million shares of class A common stock held by Motorola. See “— 2. Motorola” for subsequent related events.

      Pursuant to the original securities purchase agreement, our certificate of incorporation and our by-laws, we, Digital Radio and Mr. McCaw have established certain arrangements relating to our corporate governance associated with those investments, including, without limitation, matters relating to Digital Radio’s right to elect a minimum of three representatives to our board of directors (or that number of directors representing not less than 25% of all of the members of the board of directors, if greater). We also agreed to create a five-member operations committee of the board of directors and Digital Radio is entitled to have a majority of the members of this committee selected from among its representatives on the board of directors.

      The operations committee has the authority to formulate key aspects of our business strategy, including decisions relating to the technology we use, acquisitions, operating and capital budgets, marketing and strategic plans, approval of financing plans and endorsement of nominees to the board of directors and its committees, as well as nomination and oversight of certain executive officers. Currently, the three Digital Radio designees on the board of directors also serve as members of the operations committee, of which Mr. McCaw is the Chairman. The board of directors, by a majority vote, may override actions taken or proposed by the operations committee, although doing so would give rise to a $25 million liquidated damages payment to Digital Radio and the commencement of the accrual of a 12% dividend payable on the stated value of all outstanding shares of class A preferred stock (an aggregate stated value of about $291 million). However, the board of directors, by a defined super-majority vote, retains the power to override actions taken or proposed by the operations committee without triggering these obligations. In addition, the board of directors also may act to terminate the operations committee, although this action by the board of directors would, in certain circumstances, result in the obligation to make the liquidated damages payment and result in the commencement of the dividend accrual.

      The securities purchase agreement with Mr. McCaw, our certificate of incorporation and our by-laws also delineate a number of circumstances, chiefly involving or resulting from certain events with respect to Digital Radio or Mr. McCaw, in which the operations committee could be terminated but the liquidated damages payment and dividend accrual would not be required.

      The shares of class A preferred stock are redeemable at our option, and the shares of class B preferred stock are mandatorily convertible, in the event of a change of control of our company (as defined in the terms of that stock). Further, Digital Radio has agreed that, subject to limited exceptions (including existing securities holdings and relationships), until one year after the termination of the operations committee, neither Digital Radio nor its controlled affiliates will participate in other two-way terrestrial-based mobile wireless communications systems in any part of North America or South America, unless those opportunities first have been presented to and waived or rejected by us in accordance with the provisions of the securities purchase agreement.

16

Table of Contents

      Pursuant to an agreement entered into by us and Motorola in connection with our securities purchase agreement with Digital Radio and Mr. McCaw, Motorola has agreed to support the decisions and recommendations of the operations committee and to vote the shares of common stock held by it accordingly, subject to:

	•	the right of any Motorola-designated members of the board of directors to vote in a manner consistent with their fiduciary duties; and
	•	the right of Motorola to vote its shares as it determines necessary with respect to issues that conflict with Motorola’s corporate ethics or that present conflicts of interest, or in order to protect the value or marketability of our common stock held by Motorola.

      Concurrently with the execution of the securities purchase agreement with Digital Radio and Mr. McCaw, we entered into a management support agreement with Eagle River, Inc., an affiliate of Digital Radio, pursuant to which Eagle River provides management and consulting services to us, the board of directors and the operations committee from time to time as requested. In consideration of the services to be provided to us under the management support agreement, we entered into an incentive option agreement granting to Eagle River the option to purchase an aggregate of 1 million shares of class A common stock at an exercise price of $12.25 per share. This option expires on April 4, 2005, and is presently exercisable with respect to 800,000 shares and becomes fully exercisable on April 4, 2000. Additionally, pursuant to the management support agreement, we agreed to reimburse Eagle River for all out-of-pocket costs, plus up to $200,000 per year for all allocable overhead costs reasonably incurred by Eagle River in connection with the performance of its obligations under this agreement. Payments in the amount of about $150,000 were made to Eagle River pursuant to this agreement during 1999.

      2.  Motorola. On July 28, 1995, we acquired all of Motorola’s 800 MHz SMR licenses in the continental United States in exchange for 41.7 million shares of class A common stock and 17.8 million shares of nonvoting class B common stock. As a result of the agreement relating to that acquisition, Motorola currently has the right to nominate two persons for election as members of our board of directors. Motorola has exercised this right only with respect to one director. We are also party to agreements with Motorola pursuant to which we purchase Motorola infrastructure equipment and digital subscriber units. See “— I.  Our Digital Mobile Network — 3. Technology Commitments.” The agreements relating to the acquisition of Motorola’s SMR licenses also provided for the purchase by us of a portion of Motorola’s equity interest in Clearnet Communications (which equity interest was purchased by us and is now held by Nextel International) in exchange for 2.5 million shares of our class A common stock.

      On July 28, 1995, Motorola sold to Digital Radio 4 million shares of our class A common stock at $12.25 per share and granted Digital Radio the option to purchase up to an additional 9 million shares of class A common stock, 2 million over two two-year periods and 5 million over the final two-year period. Digital Radio exercised the first tranche of this option on September 3, 1997, acquiring 2 million shares of our class A common stock at $15.50 per share. The second tranche of this option was fully exercised on August 28, 1999 at $18.50 per share, including options for 0.5 million shares transferred in November 1997. The third tranche of options for 5 million shares becomes exercisable at $21.50 per share during the 30-day period commencing July 28, 2001, including 1.1 million options for shares transferred in November 1997. In addition, Motorola has granted Digital Radio a right of first offer or a right of first refusal to purchase shares of common stock that are owned by Motorola.

K.  Regulation

      1.  Domestic Regulation. The licensing, operation, acquisition and sale of our SMR businesses are regulated by the FCC pursuant to the Communications Act of 1934, as amended. SMR regulations have undergone significant changes and continue to evolve as new FCC rules and regulations are adopted pursuant to the Omnibus Budget Reconciliation Act of 1993, referred to as OBRA ’93, and the Telecommunications Act of 1996, referred to as TCA ’96, each of which amended portions of the Communications Act. The rule changes have been intended to provide SMR operators with a regulatory

17

Table of Contents

      With regard to the licensing of our digital mobile network, our FCC licensing subsidiaries have held two kinds of licenses to deploy SMR radio channels in digital mode in each of their markets. The first type of SMR license is known as an economic area or “EA” license, which, like the spectrum licenses assigned to cellular and PCS providers, has been granted on a geographic-area basis. The other type of SMR license, known as a “wide-area” SMR license, has been granted on a site-by-site basis. We hold thousands of these licenses. In December of 1999, the FCC adopted new SMR wide-area construction rules in response to a federal court decision requiring the FCC to impose comparable construction requirements on both EA licensees and wide-area licensees. These new rules generally permit both types of licensees to meet their construction requirements using a common system of benchmark dates tied to their initial license grant dates: within three years of the license grant date the licensee must provide coverage to one third of the population in its licensed area, and within five years of the grant date it must cover two thirds of the population in its licensed area.

      This act of regulatory parity will eliminate our need to build out areas covered by numerous wide-area SMR licenses on a site-by-site basis. To the extent that our wide-area licenses authorize non-SMR channels, current rules require construction on a site-by-site basis, i.e., each and every site must be constructed and operational without regard for population coverage. On March 10, 2000, the FCC released a Public Notice seeking comment on whether wide-area licenses for non-SMR channels also should be subject to comparable population coverage requirements. Comments were due by March 27, 2000 and reply comments are due by April 6, 2000. These construction deadlines also may be impacted by the completion of the FCC’s current rulemaking implementing the Balanced Budget Act of 1997. This rulemaking may be adopted as soon as April 2000. In late 1999, we were granted a waiver of the FCC’s rules to permit us to integrate a limited number of business and industrial/land transportation channels into our digital mobile network. These channels, obtained via assignments from existing licensees as part of the relocation process described below, provide us additional capacity in some urban markets.

      The FCC began assigning EA licenses in 1997, when it auctioned the upper 200 800 MHz SMR channels in three blocks (20 channels, 60 channels and 120 channels) per EA throughout the U.S. in an auction referred to as the “Upper Channel Auction.” These licenses permit the licensee to construct and operate base stations on any authorized channel throughout the licensed geographic area and to make system modifications within the service area without prior FCC approval, thus providing the same operational flexibility provided to cellular and PCS licensees. We were the high bidder on 475 of the 525 EA licenses auctioned at the Upper Channel Auction, covering areas in all 50 states. As described above, our system must cover one-third of the population of each licensed EA within three years and two-thirds of the population of the economic area within five years, and we must construct 50% of our licensed channels in at least one location within each EA within three years. Given our existing constructed analog and digital footprint, these build-out requirements already have been achieved in a substantial number of the EAs, and we anticipate meeting all required benchmarks (which occur in 2001 and 2003).

      We are authorized to relocate incumbent providers out of our EA-licensed areas to the lower 800 MHz channels. Pursuant to the FCC’s relocation rules, we provided relocation notice to incumbent providers on or before March 4, 1999 and are now engaged in the relocation of numerous incumbent systems nationwide. Relocation of these incumbents will provide us the ability to reuse our EA channels more broadly throughout our licensed geographic areas. Any incumbents that are not relocated must be afforded co-channel interference protection.

      The FCC has announced that it will hold auctions of the lower 230 800 MHz SMR channels beginning on August 23, 2000 and September 13, 2000. Until the start of those auctions, the FCC has frozen all further awards of licenses on these channels. Although auctioned on an EA basis, these licenses will be for channel blocks of only five or 25 channels. After the auction of the lower 800 MHz channels, incumbents on those channels will not be subject to relocation, and EA licensees must provide co-channel protection to incumbents. Lower channel EA licensees will be required to construct systems adequate to

18

Table of Contents

      In 2000, the FCC is expected to auction additional spectrum that can be used for providing commercial mobile radio services, commonly know as CMRS, which includes SMR, cellular or PCS services. The FCC has scheduled July 26, 2000 as the start date for reauctioning reclaimed C and F block PCS licenses, including those initially awarded to NextWave Communications, Inc. and some of its affiliates which were cancelled by the FCC after NextWave failed to timely make payments as required by the terms of the license award. The NextWave licenses are the subject of ongoing legal challenges in bankruptcy court, and NextWave has challenged the FCC’s authority to cancel those licenses and re-auction the spectrum at the FCC, in the U.S. Court of Appeals for the District of Columbia Circuit, and in the U.S. Court of Appeals for the Second Circuit. We and other entities with significant business operations and net worth have expressed interests in acquiring this spectrum and have sought permission to participate in the re-auction through waivers or other similar relief from the application of the FCC’s current rules that restrict eligibility to participate in auctions for C and F block licenses to entities with total revenues and gross assets below specified limits. The FCC has solicited comment on various proposals on how it should re-auction this spectrum, including a proposal by us. At this time it is unclear whether the scheduled re-auction will be open to all interested parties or limited to small businesses, whether it will include all the licenses identified as candidates for re-auction by the FCC, and whether it will proceed on its currently announced timetable.

      Also scheduled for auction starting in June 2000 is the spectrum currently used by the television channels 60-69, which is located in the 700 MHz spectrum band and can be used for a broad variety of commercial applications. However, under the current rules the incumbent television licensees are not required to relinquish channels 60-69 until 2006, thus limiting the usefulness of this spectrum for other purposes, including wireless mobile communications, until that time.

      As a CMRS provider, our use and aggregation of radio spectrum, our technical operation and, in some cases, our relationships with third parties, are regulated by the FCC. Since the establishment of the CMRS regulatory framework, the FCC has permitted cellular licensees and wireline companies the authority to participate in dispatch and SMR services, respectively, and the FCC has imposed on us and other CMRS operators a 45 MHz CMRS spectrum cap in non-rural areas and a 55 MHz CMRS spectrum cap in rural areas, thus limiting the amount of CMRS spectrum (e.g., cellular, PCS, and SMR) any single provider can hold in any particular geographic area. However, no more than 10 MHz of SMR spectrum in the 800 and 900 MHz SMR service can be attributed to one entity under existing rules. Accordingly, only 10 MHz of SMR spectrum is attributed to us in any one geographic area for purposes of the cap.

      The FCC also requires us to permit our services to be resold. In 1998, the FCC initiated an investigation into our resale policies. We have provided timely responses to all FCC inquiries. The proceeding is pending. Additionally, the FCC requires wireless carriers to permit manual roaming by users with technically compatible equipment, to contribute to federal and state universal service funds, to comply with requirements under the Communications Assistance for Law Enforcement Act as well as the disability access provisions of Section 255 of the TCA ’96, and to comply with customer proprietary network information use restrictions. Local telephone number portability for wireless carriers was delayed until November 24, 2002. Furthermore, the FCC is considering the imposition of an automatic roaming obligation on all CMRS providers. In 1999, the FCC adopted rules governing how wireless and other carriers bill their customers and imposed on wireless carriers limited additional requirements for billing disclosures. The FCC in 1999 also adopted rules requiring wireless service providers like us to average, to some extent, the interstate long-distance rates charged to customers. Each of these existing and potential regulatory obligations could increase the costs of our and our competitors’ operations.

      The FCC requires that CMRS providers be capable of transmitting calls for 911 assistance from individuals using teletext devices, primarily people with speech or hearing disabilities. The obligation was

19

Table of Contents

      We and other CMRS providers are also required to make enhanced 911, or “E911”, service available to customers in cooperation with local rescue authorities. In the current phase, Phase I of the E911 mandate, wireless carriers must improve upon the traditional 911 emergency calling system by providing local authorities not only with the content of each emergency call but also the caller’s wireless phone number and approximate location. In Phase II, which was originally scheduled to start on October 1, 2001, wireless carriers must improve upon the accuracy of the location data. In late 1999, the FCC modified its E911 rules primarily to eliminate the right of CMRS carriers to recover from the responsible public authority the costs of providing E911 service in both Phase I and Phase II. In a separate action, the FCC increased the location accuracy requirements of Phase II and accelerated the implementation dates for certain carriers depending on their choice of Phase II technology. Many participants in the wireless industry, including service providers and handset manufacturers, are seeking reconsideration of the Phase II requirements. The FCC has yet to act on these petitions for reconsideration. These decisions could have a significant adverse financial impact on wireless carriers, including us.

      In addition, state commissions have become increasingly aggressive in their efforts to conserve numbering resources. These efforts may disproportionately impact wireless service providers by imposing additional costs or limiting access to numbering resources. The FCC recently granted a number of states additional authority to implement number conservation measures pending the adoption of FCC rules implementing number conservation guidelines. These rules were adopted on March 17, 2000. While the text of the order has not yet been released, press reports indicate that the FCC will require that telephone numbers be allocated to wireline carriers in smaller blocks and that all carriers will be held to higher standards to demonstrate their need for additional numbers. The FCC also indicated that wireless carriers, once they implement number portability in November 2002, will also be assigned smaller blocks of numbers. The FCC also initiated a rulemaking to examine aspects of its new rules, including cost recovery, appropriate carrier utilization thresholds and whether the FCC should charge carriers for telephone numbers. These actions may affect the ability of all carriers, including us, to access telephone numbers to assign to their customers.

      A number of states and localities also are considering banning or restricting the use of wireless phones while driving a motor vehicle. To date, no state has banned or limited wireless phone usage but three localities (two in Pennsylvania and one in Ohio) have mandated that drivers use hands-free accessories when using their wireless phones while driving.

      In its implementation of TCA ’96, the FCC established new federal universal service mechanisms that affect CMRS operators. Under the new rules, wireless service providers potentially are eligible to receive universal service subsidies for the first time; however, they also are required to contribute to both federal and state universal service funds. On October 8, 1999, in response to a ruling from U.S. Court of Appeals for the Fifth Circuit, the FCC revised its rules for determining federal universal service contributions to eliminate revenues from intrastate services from its calculations. This action increased the costs of providing interstate services, such as long distance for all telecommunications service providers.

      As is true for cellular and PCS operators, the interconnection of subscriber calls from our network with the public switched telephone network requires us to obtain certain exchange and interexchange services from telephone companies. In 1996, the FCC established, and the U.S. Supreme Court generally upheld, a national regulatory framework that sets pricing standards and negotiation and arbitration guidelines for interconnection agreements with incumbent local exchange carriers, known as ILECs. Most significantly, the agreements entitle interconnecting carriers such as us to “reciprocal compensation” for calls originated on an ILEC network and terminated on our network. Previously, we were forced to compensate the ILECs for their termination services but ILECs refused to pay us for terminations of their

20

Table of Contents

      A proceeding is pending at the FCC to determine how rate integration requirements apply to typical CMRS offerings, including single-rate plans. Until this proceeding is concluded, the FCC will enforce long distance rate integration on our services only where we separately state a long distance toll charge and bill those charges to our customers. Like other phone service providers, to the extent that we offer services subject to the FCC’s rate integration and averaging requirements, our pricing flexibility is generally reduced.

      Allegations of harmful effects from the use of cellular antenna structures and phones prompted an industry-funded study concerning the safety of the radio frequency energy emitted from these devices. In August of 1997, the FCC also took action to ensure radio frequency safety by updating and strengthening its standards governing radio frequency exposure for communications site workers and members of the general public. The updated rules also require FCC licensees, including us, to ensure that their sites comply with the new standards by September 1, 2000. In February 2000, these rules were upheld by the U.S. Court of Appeals for the District of Columbia Circuit. In addition, Congress preempted state and local regulation of radio frequency energy from facilities used to provide wireless services to the extent the facilities comply with the FCC’s radio frequency exposure limits. In late 1999, the FCC issued a news release re-emphasizing its concern for radio frequency safety, and called on certain expert standard-setting committees to develop uniform procedures for testing radio frequency exposure, and warning that in the absence of such private initiatives it will mandate further action on its own motion.

      We also are subject to limitations on foreign government investment as set forth in the Communications Act, which currently restricts foreign ownership or control over CMRS licenses, including SMR licenses. In February 1997, the United States entered into a World Trade Organization agreement with respect to telecommunications. The agreement requires the United States, among other things, to afford “national” treatment to foreign investors of World Trade Organization countries seeking indirect ownership of CMRS licenses in the United States. The FCC’s rules implementing the agreement, which became effective on February 9, 1998, permit additional foreign investment and participation in the United States’ wireless marketplace through ownership of FCC licenses.

      In October 1997, the FCC established uniform rules governing ILEC participation in broadband CMRS within each ILEC’s landline telephone region, addressing incentives ILECs may have to engage in anti-competitive practices against CMRS providers, such as discriminatory interconnection, cost-shifting and anti-competitive pricing. These rules will expire on January 1, 2002 unless extended by the FCC. The FCC also is considering new rules governing calling party pays, known as CPP, a mechanism that would allow CMRS providers to offer service plans under which callers to CMRS customers would pay for the calls that they make. Primarily at issue is whether ILECs should be required to perform the billing and collection function for CPP calls originated on their networks and whether CMRS carriers should be required to transmit recorded messages to callers notifying them that they may incur charges for originating the CPP-enabled calls. Some proponents believe CPP could increase traffic on wireless networks by encouraging wireless subscribers to give out their wireless phone numbers. Implementing CPP arrangements would create complicated billing and customer relations issues for all wireless carriers.

      January 28, 2000 was the effective date of new FCC rules implementing a provision of TCA ’96 that requires telecommunications carriers to make their services accessible to individuals with disabilities. The rules will require modifications to wireless phones prospectively to make them accessible to persons with disabilities. At this time, the extent to which we and our vendor Motorola will be required to make these modifications is unclear.

      In 1994, Congress enacted the Communications Assistance for Law Enforcement Act, known as CALEA. CALEA essentially requires telecommunications carriers, including us, to upgrade their networks so that the FBI and other law enforcement agencies can continue performing lawful wiretaps of suspects on the carriers’ networks as they transition from analog to digital technology. The statute spawned legal disputes over a host of issues, most centrally the issue of what technical capabilities CALEA requires. By

21

Table of Contents

      Future changes in regulation or legislation affecting digital mobile network service and any allocation of additional spectrum by Congress and the FCC could materially adversely affect our business.

      2.  Foreign Regulation. The licensing, construction, ownership and operation of wireless communications systems and radio frequency allocations are regulated by governmental entities in the countries in which Nextel International’s subsidiaries and affiliates conduct business. In addition, these matters and other aspects of wireless communication system operations may be subject to public utility regulation in the jurisdiction where service is provided. Changes in the current regulatory environments in such countries or future judicial or legislative intervention could have a material adverse affect on Nextel International and its business and results of operations.

L.  Employees

      At December 31, 1999, we had more than 15,000 full-time employees. None of our employees are covered by a collective bargaining agreement, and we believe that our relationship with our employees is good.

M.  Risk Factors

	1.	We Have a History of Net Losses and Negative Cash Flow and May Not Be Able to Satisfy Our Cash Needs from Operations.

      We have never been profitable and have experienced negative cash flow since our start in 1987. We had losses attributable to common stockholders of about $1.5 billion during 1999. Our accumulated deficit was about $5.7 billion at December 31, 1999. We expect that losses will continue over the next several years. We cannot know when, if ever, net cash generated by our internal business operations will support our growth and continued operations.

	2.	We Will Need Substantial Amounts of Additional Financing.

        a.  Reasons we will need cash.

      We anticipate that we will need substantial amounts of cash for:

	•	capital expenditures to build and enhance our digital mobile network, including those to construct or modify network elements required for Nextel Online or to enable wireless Internet connectivity and other digital two-way mobile data applications;
	•	operating expenses relating to our digital mobile network;
	•	potential acquisitions, including negotiated acquisitions of spectrum from third parties and any future FCC or other government-sponsored auctions of spectrum;
	•	debt service requirements; and

22

Table of Contents

	•	other general corporate expenditures.

      We expect our cash needs will exceed our cash flows from operating activities through 2000. In addition, we may need to revise our business plan to respond to competitive and other factors, so our need for cash may increase.

	b.	Our current financing agreements are limited and contain restrictions on additional financings that may restrict growth and adversely affect operations.

      Our long-term cash needs may be much greater than our cash on hand and availability under our existing financing agreements. As a result, in the future we may have to raise substantial amounts of additional funds, in the form of equity or debt, to support any significant acquisitions of additional spectrum, as well as our currently expected growth and operations. If we are unable to do so, we may not be able to pursue or consummate potential significant spectrum acquisitions or to expand the coverage and capacity of our network to meet the demands of our anticipated growth. Our inability to achieve contemplated levels of growth or to acquire additional spectrum required to support or provide contemplated “third generation” or “3G” mobile wireless service offerings could adversely affect our financial results.

      Our bank credit facility as in effect on December 31, 1999 provided for total secured financing capacity of up to $5.0 billion from our bank lenders, provided that we satisfy financial and other conditions. As of December 31, 1999, we had borrowed about $2.7 billion of this secured financing. As of March 15, 2000, the total credit available under this facility was increased from $5.0 billion to $6.0 billion, when we established and borrowed the $1.0 billion incremental senior secured term loan under the bank credit facility. The availability of additional financing under our bank credit facility is also subject to the satisfaction of covenants under indentures relating to our public notes. Our access to additional funds may be limited by the terms of our existing financing agreements, including:

	•	covenants that restrict the amount of additional borrowings, including additional borrowings under existing financing arrangements;
	•	covenants that restrict our grant of liens on assets that affect our ability to obtain new secured financing; and
	•	existing debt service requirements.

	c.	Funding requirements for our international operations and growth may cause even greater cash needs, which may result in less funding available for our domestic growth and operations.

      Based on Nextel International’s assessment of the business activity and related cash needs of its subsidiaries and affiliates that are controlled by or that rely substantially on Nextel International for further funding, Nextel International believes that it will have to rely on external sources of funding to supply the cash needed to implement its business plan and continue its operations through 2000. These external sources primarily include borrowings under Nextel International’s existing bank and vendor credit lines and issuances of its securities, including to us or our other subsidiaries. We, therefore, currently expect that we may need to fund a significant portion of Nextel International’s cash needs in 2000. This would increase our own cash needs, which could result in a lesser amount of cash available to us for domestic use.

	d.	To obtain additional spectrum, including spectrum that may be awarded in government-sponsored auctions, we may be required to raise additional capital.

      If we were to acquire additional spectrum, including through participation as a bidder or member of a bidding group in government-sponsored auctions of spectrum, we may need to raise significant amounts of additional capital for these purposes, as well as to finance the pursuit of any new business opportunities associated with our acquisitions of additional spectrum. The FCC has publicly stated that specified PCS spectrum licenses initially awarded to affiliates of NextWave Communications had automatically canceled and will be included in a re-auction of spectrum scheduled to occur in July 2000. The FCC also has publicly announced additional spectrum auctions scheduled to occur in 2000.

23

Table of Contents

      We cannot assure you:

	•	that any or all of these spectrum auctions will occur or, if so, on their currently announced schedules;
	•	in which auctions we will participate, alone or as a member of a bidding group;
	•	whether we or any bidding group in which we are a participant will be a successful bidder and will be awarded spectrum licenses in any of these auctions; or
	•	what amounts would be required to be bid to prevail in any of these auctions.

      We cannot assure you that we will be able to accomplish any spectrum acquisition or that the necessary additional capital for that purpose will be available to us on acceptable terms, or at all. If sufficient additional capital is not available, we may be unable to complete any spectrum acquisition or the amount of funding available to us for our existing businesses would be reduced.

	e.	Other factors may adversely affect our access to additional financing, and we may have to curtail our business if we cannot access additional financing.

      Our access to additional funds also may be limited by:

	•	general market conditions that adversely affect the availability or cost of financings;
	•	market conditions affecting the telecommunications industry in general; and
	•	specific factors affecting our attractiveness as a borrower or investment vehicle, including:

	(1)	the terms of our arrangements with Motorola that relate to Motorola’s ownership interest in us, and the terms of options and warrants issued to others, that may make equity financings more difficult;
	(2)	the ability to relocate current spectrum licensees from some frequencies in order to remove them from spectrum as to which we were the highest bidder at an auction;
	(3)	the potential commercial opportunities and risks associated with implementation of our business plan;
	(4)	the market’s perception of our performance and assets; and
	(5)	the actual amount of cash we need to pursue our business strategy.

	f.	Funding for our capital needs is not assured, and we may have to curtail our business if we cannot find adequate funding.

      Except as described in this annual report, we currently have no legally binding commitments or understandings with any third parties to obtain any material amount of additional equity or debt financing. We cannot assure you that we will be able to obtain any additional financing in the amounts or at the times that we may require the financing or, if we do obtain any financing, that it would be on acceptable terms. As a result, we cannot assure you that we will have adequate capital to implement future expansions and enhancements of our digital mobile network, to maintain our current levels of operation or to pursue strategic acquisitions or other opportunities to increase our spectrum holdings. Our failure to obtain sufficient additional financing could result in the delay or abandonment of some or all of our development, expansion and acquisition plans and expenditures, which could have an adverse effect on us.

	3.	Our Future Performance Will Depend on Our Ability to Succeed in the Highly Competitive Wireless Communications Industry.

      Our ability to compete effectively with established and prospective wireless communications service providers depends on many factors, including:

	•	If our wireless communications technology does not perform in a manner that meets customer expectations, we will be unable to attract and retain customers, which would adversely affect us.

24

Table of Contents

		Customer acceptance of the services we offer is and will continue to be affected by technology-based differences and by the operational performance and reliability of system transmissions on our digital mobile network. If we are unable to address and resolve satisfactorily performance or other transmission quality issues as they arise, or if these issues limit our ability to expand our network coverage or capacity as currently planned, or if these issues were to place us at a competitive disadvantage to other wireless service providers in our markets, we may have difficulty attracting and retaining customers, which would adversely affect us.
	•	If we cannot expand, provide and maintain our system coverage, then our growth and operations would be adversely affected. We will not be able to provide roaming system coverage comparable to that currently available through roaming arrangements from cellular and some PCS operators, unless and until a nationwide digital mobile network build-out is substantially completed. This places us at a competitive disadvantage, as some other providers currently have roaming agreements that provide coverage of each other’s markets throughout the United States, including areas where our network, or that of Nextel Partners, has not been or will not be built. In addition, some of our competitors provide their customers with subscriber units with both digital and analog capability, which expands their coverage, while we have only digital capability. We cannot assure you that we, either alone or together with Nextel Partners, will be able to achieve sufficient system coverage or that a sufficient number of customers or potential customers will be willing to accept system coverage limitations as a trade-off for the enhanced multi-function wireless communications package we provide on our nationwide digital mobile network.
	•	We do not have the extensive direct and indirect channels of distribution for our digital mobile network products and services that some of our competitors have, which may adversely affect our operating results. Many of our competitors have established extensive networks of retail locations and multiple distribution channels, and so enjoy a competitive advantage over us in these areas. We have increased the proportion of our digital mobile network customers that we obtain through our indirect distributor network, and we currently anticipate that we will continue to rely heavily on indirect distribution channels to achieve greater market penetration for our digital wireless service offerings. However, as we expand our retail subscriber base through increased reliance on indirect distribution channels, as price competition in the wireless industry intensifies, and as our product and service offerings begin to attract increasing numbers of individual and non-business users, our average revenue per digital subscriber unit may decrease and our customer retention may be adversely affected.
	•	Our inability to maintain pricing packages attractive to customers may adversely affect operating results.

	a.	Some of our competitors are financially stronger than we are, which allows them to price their service packages at levels below those that we can or are willing to match.

      Our ability to compete based on the price of our digital subscriber units and service offerings will be limited. This could adversely affect our growth.

	b.	Our equipment is more expensive than some competitors, which may adversely our affect growth and operating results.

      We currently market multi-function digital subscriber units, providing mobile telephone and private and group dispatch service, in addition to paging and alphanumeric short-text messaging. Our subscriber units are, and are likely to remain, significantly more expensive than analog subscriber units and are, and are likely to remain, somewhat more expensive than digital cellular or PCS subscriber units that do not incorporate a comparable multi-function capability. Although we believe that our multi-function subscriber units currently are competitively priced compared to multi-function digital cellular and PCS subscriber units, the higher cost of our equipment may make it more difficult or less profitable to attract customers who do not place a high value on our unique multi-service offering. This may reduce our growth opportunities or profitability.

25

Table of Contents

	c.	We may face continuing pressure to reduce prices.

      Over the past several years, as the number of wireless communications providers in our market areas has increased, our competitors’ prices in these markets have generally decreased. We may encounter further market pressures to:

	•	reduce our digital mobile network service offering prices;
	•	restructure our digital mobile network service offering packages to offer more value;
	•	respond to particular short term, market specific situations, for example, special introductory pricing or packages that may be offered by new providers launching their service in a particular market; or
	•	remain competitive if wireless service providers generally continue to reduce the prices charged to their customers.
	•	Our efforts to keep pace with technological change may be unsuccessful, which could adversely affect operating results. Our digital technology could become obsolete. We rely on digital technology that is not compatible with, and competes with, other forms of digital and non-digital voice communication technology. Competition among these differing technologies can:

	•	segment the user markets, which could reduce demand for specific technologies, including our technology;
	•	reduce the resources devoted by third party suppliers, including Motorola, which supplies all of our current digital technology, in developing or improving the technology for our systems; and
	•	adversely affect market acceptance of our services.

      We cannot assure you that our digital technology will successfully compete with the other forms of digital and non-digital communication systems. Further, new digital or non-digital communication transmission technology may develop that will cause our existing technology to be obsolete or otherwise impair market acceptance of our technology.

	•	Our growth may exceed the capabilities of our systems, hurting our performance.

	a.	We face limitations on our ability to increase subscribers, which can limit our growth and performance.

      Our ability to continue to increase the number of subscribers on our digital mobile network depends on a variety of factors, including:

	•	the ability to successfully plan for additional system capacity at levels needed to meet anticipated new subscribers and the related increases in system usage;
	•	the ability to obtain additional radio spectrum when and where required; and
	•	the availability of a sufficient quantity of cell sites, system infrastructure equipment and subscriber units, of the appropriate models and types, to meet the demands and preferences of potential subscribers to the digital mobile network.

	b.	We may face limitations on availability of cell sites and equipment, which can limit our growth and performance.

      Although we believe we have secured sufficient cell sites at appropriate locations in our markets to meet planned system coverage and capacity targets, we cannot assure you that we will meet those needs in the future. We generally have been able to obtain adequate quantities of base radios and other system infrastructure equipment from Motorola and other suppliers, and adequate volumes and mix of subscriber units and related accessories, to meet subscriber and system loading rates, but we cannot assure you that quantities will be sufficient in the future. Additionally, we have contractual arrangements with Nextel International and Nextel Partners that contemplate that, in the event of shortages of that equipment, available supplies would be allocated proportionately among us and those entities.

26

Table of Contents

	c.	We have potential systems limitations on adding customers, which can limit our growth and performance.

      Even if our system is technically functional, other factors may affect our ability to successfully add customers to our digital mobile network including:

	•	the adequacy and efficiency of our information systems, business processes and related support functions;
	•	the length of time between customer order to activation of service on the digital mobile network, which currently is longer than that of some of our competitors; and
	•	our ability to improve the efficiency and speed of the processes for our customer service and accounts receivable collection functions.

      Customer reliance on our customer service functions may increase as we add digital mobile network customers through indirect distribution channels and through direct sales channels not involving direct face-to-face contact with a sales representative, for example, phone order sales or sales through nextel.com. Our inability to timely and efficiently meet the demands for our services could decrease or postpone subscriber growth, or delay or otherwise impede billing and collection of amounts owed, which would adversely affect our growth and performance.

	•	If competitors provide two-way radio dispatch services, we will lose a competitive advantage. Our two-way radio dispatch services are currently not available through traditional cellular or PCS providers; however, if either PCS or cellular operators provide two-way radio dispatch or comparable services in the future, our competitive advantage may be impaired.

      We cannot predict the competitive effect that any of these factors, or any combination of these factors, will have on us, or whether we will compete successfully in the future.

	4.	Regulatory and Other Factors Could Delay or Prevent Us from Offering Services in New Market Areas.

      Before fully implementing our digital mobile network in a new market area or expanding coverage in an existing market area, we must complete systems design work, find appropriate sites and construct necessary transmission structures, receive regulatory approvals, obtain and free up frequency channels now devoted to non-digital transmissions and begin systems optimization. These processes take weeks or months to complete, and may be hindered or delayed by many factors, including unavailability of antenna sites at optimal locations, land use and zoning controversies and limitations of available frequencies. We cannot know when, if ever, our digital technology will be available for commercial use in new markets or can be expanded in existing markets.

	5.	We Rely on Motorola for Substantially All of Our Equipment and Technology, and Any Failure of Motorola To Perform Would Adversely Affect Our Operating Results.

      There is a risk that the failure by Motorola to deliver necessary technology improvements and enhancements and system infrastructure and subscriber equipment on a timely, cost-effective basis would have an adverse effect on our growth and operations. Motorola is currently our sole source for the digital mobile network and subscriber unit equipment we use throughout our markets. We expect to rely principally on Motorola for the manufacture of a substantial portion of the equipment necessary to construct, enhance and maintain our digital mobile network and subscriber unit equipment for the next several years. If Motorola does not provide the necessary equipment to us, then we may not be able to service our existing subscribers or add new subscribers. We expect that for the next few years, Motorola and competing manufacturers who are licensed by Motorola will be the only manufacturers of subscriber equipment that is compatible with our digital mobile network. In late 1999, we entered into a memorandum of understanding with Kyocera Corporation of Japan with the intent of having Kyocera supply us with a subscriber unit compatible with our digital mobile network. It is anticipated that Motorola will license its technology to Kyocera to enable Kyocera to supply those subscriber units. However, we

27

Table of Contents

	6.	Agreements With Motorola Reduce Our Operational Flexibility and May Adversely Affect Our Growth or Operating Results.

      Our agreements with Motorola impose limitations and conditions on our ability to use other technologies. These terms may operate to delay or prevent us from employing new or different technologies that perform better or are available at a lower cost because of the additional economic costs and other impediments to change arising under the Motorola agreements. For example, our equipment purchase agreement with Motorola provides that we must provide Motorola with notice of our determination that Motorola’s technology is no longer suited to our needs at least six months before publicly announcing or entering into a contract to purchase an alternate technology.

      In addition, if Motorola manufacturers, or elects to manufacture, the alternate technology that we elect to deploy, we must give Motorola the opportunity to supply 50% of our infrastructure requirements for the alternate technology for three years. Finally, if after a switch to an alternate technology we do not maintain operational Motorola infrastructure equipment at the majority of our cell sites that are deployed at the date the switch to an alternate technology is first publicly announced, Motorola may require that all financing provided by Motorola to us be repaid.

	7.	Our Interests May Conflict With Those of Motorola. Any Conflict Could Adversely Our Growth, Operating Results or Strategic Flexibility.

      Motorola and its affiliates engage in wireless communications businesses, and may in the future engage in additional businesses, which do or may compete with some or all of the services we offer through our digital mobile network. Although we believe that our relationship with Motorola reflects the realities of purchasing from a competitor, we cannot assure you that the potential conflict of interest will not adversely affect us in the future. Motorola’s right to nominate two people for election to our board of directors could give them additional leverage in the event any conflict of interest were to arise. In addition, Motorola is one of our significant stockholders, which creates potential conflicts of interest, particularly with regard to significant transactions.

	8.	Since We Operate in A Regulated Industry, We May Be Adversely Affected by Governmental Regulation.

      The FCC regulates the licensing, operation, acquisition and sale of our specialized mobile radio businesses. Future changes in regulation or legislation and Congress’ and the FCC’s continued allocation of additional commercial mobile radio services, which include SMR, cellular or PCS services, spectrum could impose significant additional costs on us either in the form of direct out of pocket costs or additional compliance obligations. See “— K. Regulation.” These regulations can also have the effect of introducing additional competitive entrants to the already crowded wireless communications marketplace.

      Nextel International’s operations are subject to similar effects caused by operating in a regulated industry, since its operations are regulated by the foreign countries in which its business is conducted and are also subject to regional and local regulation.

	9.	We have Significant Intangible Assets, Which May Not Be Adequate to Satisfy Our Obligations in the Event of a Liquidation.

      If we default on debt or if we were liquidated, the value of our assets may not be sufficient to satisfy our obligations. We have a significant amount of intangible assets, such as licenses granted by the FCC. The value of these licenses will depend significantly upon the success of our digital mobile network business and the growth of the specialized mobile radio and wireless communications industries in general. We had a net tangible book value deficit of about $2.3 billion as of December 31, 1999.

28

Table of Contents

	10.	We Are Susceptible to Control by Significant Stockholders.

      Motorola and entities controlled by Mr. McCaw hold significant blocks of our outstanding stock. In addition, an affiliate of Mr. McCaw may designate at least one fourth of our board of directors and may select, from these McCaw representatives on the board of directors, a majority of the operations committee of our board of directors, which has significant authority relating to our business strategy, budgets, financing arrangements and in the nomination and oversight of specified executive officers. As a result, Mr. McCaw may exert significant influence over our affairs. Presently, three of the ten members of our board of directors are designees of Mr. McCaw’s affiliates. In addition, Daniel F. Akerson, formerly one of our executive officers, currently holds positions with NEXTLINK Communications, which is controlled by Mr. McCaw. Mr. Akerson continues to serve as chairman of our board of directors and as a member of the operations committee of the board, but he is not a designee of Mr. McCaw’s affiliates. Under its agreements with us, Motorola may nominate two directors to our board of directors. In addition, Motorola has agreed to support the decisions and recommendations of the operations committee and to vote its shares of common stock accordingly, subject to specified limitations.

      If Mr. McCaw and Motorola choose to act together, they could have a sufficient number of members on our board of directors and voting interest in us to exert significant influence over, among other things:

	•	approval of amendments to our certificate of incorporation, mergers, sales of assets or other major corporate transactions as well as other matters submitted for stockholder vote;
	•	any takeover attempt; and
	•	whether particular matters are submitted for a vote of our stockholders.

      Mr. McCaw and his affiliates have and, subject to the terms of applicable agreements, may acquire an investment or other interest in entities that provide wireless telecommunications services that could potentially compete with us. Under the relevant agreements, Mr. McCaw and his controlled affiliates may not, for one year after the termination of the operations committee, participate in other two-way terrestrial-based mobile wireless communications systems in any part of North America or South America unless these opportunities have first been presented to and waived or rejected by us.

	11.	Our Commitments to Issue Additional Common Stock May Adversely Affect the Market Price of Our Common Stock and May Impair Our Ability to Raise Capital.

      We currently have outstanding commitments in various forms, including warrants, options and convertible securities, to issue a substantial number of new shares of our common stock. The shares subject to these issuance commitments, to some degree, will be issued in transactions registered with the Securities and Exchange Commission and thus will be freely tradeable. In many other instances, these shares are subject to grants of registration rights that, if and when exercised, would result in those shares becoming freely tradeable. We have also granted registration rights with respect to a significant number of our outstanding shares, including shares of common stock issuable upon conversion of securities issued in some transactions. The exercise of registration rights by persons holding those shares would permit those persons to sell those shares without regard to the limitations of Rule 144 under the Securities Act of 1933. An increase in the number of shares of our common stock that will become available for sale in the public market may adversely affect the market price of our common stock and, as a result, could impair our ability to raise additional capital through the sale of our equity securities or convertible securities.

	12.	Concerns About Health Risks Relating to the Use of Portable Handsets May Affect Our Prospects.

      Portable communications devices have been alleged to pose health risks, including cancer, due to radio frequency emissions from these devices. Studies performed by wireless telephone equipment manufacturers have investigated these allegations, and additional studies are ongoing. The actual or perceived risk of portable communications devices could adversely affect us through a reduced subscriber growth rate, a reduction in subscribers, reduced network usage per subscriber or through reduced financing available to the mobile communications industry.

29

Table of Contents

	13.	Risks Relating to Our Joint Investments May Adversely Affect Our Growth and Operating Results.

      We have entered into a contractual joint venture regarding our ownership interests in and arrangements with Nextel Partners, and may enter into other joint ventures or similar arrangements in the future. Outside the United States, several of our international operations are conducted through entities having one or more third-party owners, and some of these entities are not controlled by us. There are risks in participating in arrangements of these types, including the risk that the other participants may at any time have economic, business or legal interests or goals that are inconsistent with our goals or those of the joint enterprise. There also is the risk that a participant may be unable to meet its economic or other obligations to the joint enterprise and that we may be required to fulfill some or all of those obligations. We also may be or become obligated to acquire all or a portion of the ownership interest of some or all of the other participants in these joint enterprises. In addition, to the extent that we participate in international arrangements of these types, we will be subject to various additional risks not present in domestic joint enterprises.

	14.	Risks Relating to Our Foreign Operations May Adversely Affect Our Growth and Operating Results.

      We currently own interests in and operate international wireless companies through Nextel International. The risks that relate to these foreign operations include:

	•	political, economic and social conditions in the foreign countries where we conduct operations;
	•	currency risks and exchange controls;
	•	potential inflation in the applicable foreign economies;
	•	the impact of import duties on the cost or prices of infrastructure equipment and subscriber units;
	•	foreign taxation of earnings and payments received by Nextel International from its subsidiaries and affiliates; and
	•	regulatory changes affecting the telecommunications industry and wireless communications.

      We cannot assure that the risks associated with our foreign operations will not adversely affect our or Nextel International’s operating results or prospects, particularly as these operations expand in scope, scale and significance.

	15.	Our Nextel Online Services Offering Is a New Service and May Not Be Successful.

      Our Nextel Online services offering currently is nearing the end of its pre-commercialization testing phase. Although we are satisfied with the performance of the Nextel Online services offering during this testing phase, and are encouraged by the interest shown in this offering in controlled preliminary customer trials, we cannot assure you that the Nextel Online services offering will perform satisfactorily in full scale commercial usage, or that we will not encounter delays or difficulties in effecting the commercial launch of this offering, or that this offering will produce the levels of cost reduction or of customer acceptance and incremental revenue that we hope to achieve. We have devoted considerable time and resources to the development of the Nextel Online suite of wireless Internet services and data applications with several purposes in mind. First, we expect to use the resulting wireless data capability and Internet connectivity to allow us to perform fulfillment and other customer support services more economically, thereby reducing our cost of conducting business. Second, we believe that our Nextel Online services offering will provide us with another important point of differentiation from our competitors, thereby helping us to attract and retain more customers. Finally, we are looking to this new offering to be a source of future incremental revenue to counter the impact of increasing competition in our markets on the pricing of our basic wireless voice services packages.

      We may not realize some or all of the benefits that we expected in constructing and commercializing our Nextel Online services offering:

30

Table of Contents

	•	if we are unable to commercially implement and maintain this new services offering;
	•	if this new services offering produces adverse impacts on the performance or reliability of our digital mobile network;
	•	if we or third party developers fail to develop successfully value added data applications for our customers;
	•	if a sufficient portion of our customer base is not attracted to this new services offering; or
	•	if it otherwise does not achieve a satisfactory level of customer acceptance.

      Any resulting customer dissatisfaction, or failure to realize cost reductions or incremental revenue, could have an adverse impact on our results of operations, future growth prospects and perceived value.

	16.	Our Forward Looking Statements Are Subject to a Variety of Factors that Could Cause Actual Results to Differ Materially From Current Beliefs.

      “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Some of the statements made in this annual report are not historical or current facts, but deal with potential future circumstances and developments. They can be identified by the use of forward-looking words such as “believes,” “expects,” “plans,” “may,” “will,” “would,” “could,” “should” or “anticipates” or other comparable words, or by discussions of strategy that involve risks and uncertainties. We warn you that these forward-looking statements are only predictions, which are subject to risks and uncertainties including financial variations, changes in the regulatory environment, industry growth and trend predictions. We have attempted to identify, in context, some of the factors that we currently believe may cause actual future experience and results to differ from our current expectations regarding the relevant matter or subject area. The operation and results of our wireless communications business also may be subject to the effect of other risks and uncertainties in addition to the other qualifying factors identified in the above “Risk Factors” Section and elsewhere in this annual report, including, but not limited to:

	•	general economic conditions in the geographic areas and occupational market segments that we are targeting for our digital mobile network service;
	•	the availability of adequate quantities of system infrastructure and subscriber equipment and components to meet our service deployment and marketing plans and customer demand;
	•	the success of efforts to improve and satisfactorily address any issues relating to our digital mobile network performance;
	•	the continued successful performance of the technology being deployed in our various market areas and the success of technology deployed in connection with our Nextel Online services offering;
	•	market acceptance of our new service offerings, including Nextel Online and Nextel Worldwide;
	•	the ability to achieve and maintain market penetration and average subscriber revenue levels sufficient to provide financial viability to our digital mobile network business;
	•	our ability to timely and successfully accomplish required scale-up of our billing, collection, customer care and similar back-room operations to keep pace with customer growth, increased system usage rates and growth in levels of accounts receivables being generated by the digital mobile network customer base;
	•	access to sufficient debt or equity capital to meet our operating and financing needs;
	•	the quality and price of similar or comparable wireless communications services offered or to be offered by our competitors, including providers of cellular and personal communication services;
	•	successful implementation of any year 2000 solutions in systems that are critical to our business operations;

31

Table of Contents

	•	future legislation or regulatory actions relating to specialized mobile radio services, other wireless communications services or telecommunications generally; and
	•	other risks and uncertainties described from time to time in our reports and, with specific reference to risk factors relating to international operations, in Nextel International’s reports, filed with the Securities and Exchange Commission.

Item 2.  Properties

      We currently lease our principal executive and administrative offices, which are located at 2001 and 2003 Edmund Halley Drive, in Reston, Virginia. This facility is about 330,000 square feet, and the lease has an initial lease term of 10 years, expiring July 10, 2009, with four five-year renewal options. We also lease facilities for some of our administrative operations: about 249,000 square feet of space in Denver, Colorado, under leases expiring in 2004 and 2008; about 160,000 square feet of space in Hampton Roads, Virginia, under leases expiring in 2009 and 2010; about 116,000 square feet of space in Rutherford, New Jersey, under a lease expiring in 2008; about 108,000 square feet of office space in Farmington, Michigan, under a lease expiring in 2008; about 131,000 square feet of office space in Herndon, Virginia, under a lease expiring in 2013; about 116,000 square feet of office space in Irvine, California, under a lease expiring in 2005; and about 130,000 square feet of office space in McLean, Virginia, under a lease expiring in 2002. None of the expiration dates for these administrative space leases include extensions related to the exercise of renewal options. We also lease office facilities for sales, maintenance and administrative operations in our markets. We have about 200 office leases in effect at December 31, 1999, with terms ranging from 1 to 10 years (not including extensions related to the exercise of renewal options).

      We lease cell sites for the transmission of our radio service under various individual site leases as well as master site lease agreements. The terms of these leases generally range from month-to-month to 20 years. As of December 31, 1999, we had about 8,800 constructed sites at leased locations in the United States for our digital mobile network. We also own properties and a limited number of transmission towers, apart from those subject to our site lease and build arrangements with SpectraSite, where management considers it is in our best interest.

Item 3.  Legal Proceedings

      In 1995, a lawsuit titled In Re Nextel Communications Securities Litigation was filed in the United States District Court in the District of New Jersey. This litigation, which has been pursued as a class action suit, amends and consolidates three previously filed class action complaints and seeks damages allegedly incurred by some stockholders and claimed to result from defendants’ alleged violations of Section 10(b) of the Securities Exchange Act of 1934, as amended and Rule 10b-5 under that act. The litigation also makes claims of fraud and deceit. Specifically, the plaintiffs claim that these damages resulted from some defendants’ allegedly false and misleading statements regarding the digital communications technology developed by Motorola and deployed by us in our digital mobile network. We believe that the claims against us are without merit. On or about February 23, 2000, the court preliminarily approved an agreement among the parties pursuant to which the lawsuit would be settled and resolved on a classwide basis. Notice of the proposed settlement is expected to be sent to potential class members shortly, and a hearing to approve the settlement is scheduled for June 15, 2000. The terms of this proposed settlement will not have a material effect on our financial condition, results of operations or liquidity.

      In 1994, a lawsuit titled Charles Dascal v. Morgan O’Brien, Becker, Gurman, Lukas, Meyers, O’Brien and McGowan, P.C. and Nextel Communications, Inc., was filed in the Circuit Court of Dade County, Florida. The lawsuit, which was transferred to the United States District Court for the Southern District of Florida, sought compensatory damages, lost profits and special damages based on the defendants’ alleged breach of fiduciary duty, misappropriation of trade secrets, negligent misrepresentation, fraud, conversion, civil theft, breach of good faith and fair dealing and unjust enrichment. The claims, which primarily concerned alleged conduct by our current Vice Chairman and former Chairman of the Board, Morgan

32

Table of Contents

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

      No matters were submitted to a vote of our security holders during the fourth quarter of 1999.

Executive Officers of the Registrant

      The following provides information regarding those persons serving as our executive officers as of March 29, 2000. These executive officers were elected to their present positions by action of our board of directors to serve until their successors have been elected. There is no family relationship between any of our executive officers or between any of these officers and any of our directors of Nextel.

      Timothy M. Donahue. Mr. Donahue is 51 years old and has served as our President and Chief Executive Officer since July 1999. Mr. Donahue has served as President since joining us in February 1996 and also served as Chief Operating Officer from February 1996 until July 1999. Mr. Donahue has served as one of our directors since June 1996. From 1986 to January 1996, Mr. Donahue held various senior management positions with AT&T Wireless Services, Inc. including Regional President for the Northeast. Mr. Donahue serves as Chairman of the board of directors of Nextel International, and as a director of Nextel Partners and SpectraSite Holdings.

      Daniel F. Akerson. Mr. Akerson is 51 years old and has served as Chairman of our board of directors since joining us on March 6, 1996. Mr. Akerson served as our Chief Executive Officer from March 1996 until July 1999, when he stepped down from this position. In September 1999, Mr. Akerson became Chairman of the board of directors and Chief Executive Officer of NEXTLINK Communications, Inc., a publicly held competitive local exchange carrier controlled by Mr. McCaw. From June 1993 until March 5, 1996, Mr. Akerson served as a general partner of Forstmann Little & Co., a private investment firm. While serving as a general partner of Forstmann Little, Mr. Akerson also held the positions of Chairman of the Board and Chief Executive Officer of General Instrument Corporation, a technology company acquired by Forstmann Little. From 1983 to 1993, Mr. Akerson held various senior management positions with MCI Communications Corporation, including President and Chief Operating Officer. Mr. Akerson serves as a director of American Express Company, America OnLine, Inc. and Nextel International.

      Morgan E. O’Brien. Mr. O’Brien is 55 years old and has served as Vice Chairman of our board of directors since March 1996. Mr. O’Brien also has been one of our directors since co-founding Nextel in 1987. From 1987 to March 5, 1996, Mr. O’Brien served as Chairman of our board of directors, and from 1987 to October 1994, Mr. O’Brien also served as our General Counsel.

      Steven M. Shindler. Mr. Shindler is 37 years old, joined us in May 1996 and serves as Executive Vice President and Chief Financial Officer. As of March 24, 2000, Mr. Shindler was appointed to the additional post of Interim Chief Executive Officer of Nextel International. Between 1987 and 1996, Mr. Shindler was an officer with Toronto Dominion Bank, where most recently he was a Managing Director in its Communications Finance Group. Mr. Shindler serves as a director of Nextel International and SpectraSite Holdings.

      Steven P. Dussek. Mr. Dussek is 43 years old and as of March 24, 2000 was appointed as our Executive Vice President and Chief Operating Officer. From July 1999 until March 2000, Mr. Dussek

33

Table of Contents

      Thomas Kelly. Mr. Kelly is 52 years old, joined us in April 1996 and serves as Executive Vice President, Marketing & Strategic Planning. Between 1993 and 1996, Mr. Kelly was Regional Vice President of Marketing for AT&T Wireless. Prior to joining AT&T Wireless, Mr. Kelly worked for 12 years with the marketing consulting firm of Howard Bedford Nolan, where he was most recently an Executive Vice President.

      Barry West. Mr. West is 54 years old, joined us in March 1996 and serves as Senior Vice President and Chief Technology Officer. Previously, Mr. West served in various senior positions with British Telecom plc for more than five years, most recently as Director of Value-Added Services and Corporate Marketing at Cellnet, a cellular communications subsidiary of British Telecom. Mr. West serves as a director of U.S. Wireless Corp.

      Robert S. Foosaner. Mr. Foosaner is 57 years old, joined us in April 1992 and serves as our Senior Vice President and Chief Regulatory Counsel.

      Thomas J. Sidman. Mr. Sidman is 45 years old, joined us in October 1994 and serves as Senior Vice President and General Counsel. From January 1988 to October 1994, Mr. Sidman was a partner of the law firm Jones, Day, Reavis & Pogue, specializing in corporate and securities law and mergers and acquisitions.

      Lo van Gemert. Mr. van Gemert is 45 years old and has served as our Senior Vice President since July 1999 and as President and Chief Operating Officer of Nextel International since September 1999. From October 1996 to August 1999, Mr. van Gemert served as President of Nextel’s North Region. Before joining us in October 1996, Mr. van Gemert served as Executive Vice President at Rogers Cantel in Canada where he was responsible for PCS, paging, data and air-to-ground services. From 1980 to 1994, Mr. van Gemert held various senior management positions, domestically and abroad, at Sony Corporation and BellSouth Corporation.

      William G. Arendt. Mr. Arendt is 42 years old and has served as our Vice President and Controller since joining us in May 1997. From June 1996 until joining us, Mr. Arendt was Vice President and Controller for Pocket Communications, Inc., a personal communications services company. From September 1992 until June 1996, he was Controller for American Mobile Satellite Corporation.

      John S. Brittain, Jr. Mr. Brittain is 41 years old, joined us in March 1999 and serves as Vice President and Treasurer. From 1994 to March 1999, Mr. Brittain was Senior Vice President and Treasurer of Sotheby’s Holdings, Inc., an international art auction and related services firm. Prior to joining Sotheby’s, Mr. Brittain was the Assistant Corporate Treasurer of the Great Atlantic & Pacific Tea Company and was an officer of The Chase Manhattan Bank.

34

Table of Contents

PART II

Item 5.  Market for the Registrant’s Common Stock and Related Security Holder Matters

A.  Market for Common Stock

      Our class A common stock is traded on the Nasdaq National Market under the trading symbol “NXTL.” The following table lists, on a per share basis for the periods indicated, the high and low closing sale prices for the common stock as reported by the Nasdaq National Market for the periods indicated:

B.  Number of Stockholders of Record

      As of March 17, 2000, there were about 3,400 holders of record of our class A common stock. We have authority to issue shares of nonvoting common stock, which are convertible on a share-for-share basis into shares of class A common stock. As of March 17, 2000, there was a single stockholder of record holding all of the 17,830,000 outstanding shares of nonvoting common stock.

C.  Dividends

      We have not paid any dividends on our common stock and do not plan to pay dividends on our common stock for the foreseeable future. The indentures governing our public notes and our bank credit agreement and other financing documents prohibit, and are expected to continue to prohibit, us from paying dividends, except in compliance with specified financial covenants. In addition, some of the collateral security mechanisms and related provisions associated with our bank credit agreement limit the amount of cash available to make dividends, loans and cash distributions to us from our subsidiaries that operate the digital mobile network. Provisions in the indentures and loan agreements to which Nextel International is a party also place significant restrictions on our ability to receive cash from Nextel International or any of its subsidiaries. Accordingly, while these restrictions are in place, any profits generated by these subsidiaries will not be available to us for, among other things, payment of dividends.

      We anticipate that for the foreseeable future any cash flow generated from our operations will be used to develop and expand our business and operations. Any future determination as to the payment of dividends on our common stock will be at the discretion of our board of directors and will depend upon our operating results, financial condition and capital requirements, contractual restrictions, general business conditions and other factors that our board of directors deems relevant. There can be no assurance that we will pay dividends on our common stock at any time in the future. Under specific limited circumstances, we may be obligated to pay dividends on our class A preferred stock and, after specified dates, will be obligated to pay cash dividends on our series D preferred stock and series E preferred stock. See Part I, “Item 1. Business — J. Agreements with Significant Stockholders — 1. McCaw Interests.”

D.  Recent Sales of Unregistered Securities

      We sold securities that were not registered under the Securities Act of 1933 in the following transactions during the fourth quarter of 1999 and early portion of 2000:

      1.  Notes Offering. On November 12, 1999, we completed the issuance and sale in a private placement of $2.0 billion in principal amount of our 9.375% senior notes due 2009. Goldman, Sachs &

35

Table of Contents

      2.  Convertible Notes Offering. In February 2000, we completed the issuance and sale of about $1.2 billion in aggregate principal amount of our 5.25% convertible senior notes due 2010. These notes are convertible at the option of the holders into class A common stock at any time prior to redemption, repurchase or maturity at a conversion price of $148.80 per share, subject to adjustment. Morgan Stanley Dean Witter acted as placement agent and received about $23 million in fees in connection with the sale of these notes. Because these notes were issued in a private placement transaction, they may not be offered or sold in the United States absent an effective registration statement or an applicable exemption from the registration requirements of the Securities Act.

      These transactions were effected pursuant to the exemption of Section 4(2) of the Securities Act and Rule 144A and Regulation S under that act, in reliance upon the representations of the placement agents in each of the offerings described above.

Item 6.  Selected Financial Data

      The following table sets forth selected consolidated financial data for the periods indicated and should be read in conjunction with the consolidated financial statements, related notes and other financial information in this Form 10-K Annual Report.

      Acquisitions. Our results were affected by business combinations, acquisitions and investments involving both domestic and international companies. Additional information regarding acquisitions completed in 1997 and 1998 can be found in Note 2 to the consolidated financial statements appearing in Part II of this Form 10-K Annual Report.

      Income Tax Provision. As a result of operating results and the change in useful lives of some intangible assets, we increased our valuation allowance for deferred tax assets resulting in a tax provision of about $259 million in 1997.

36

Table of Contents

A.  Overview

      The following is a discussion and analysis of:

	•	our consolidated financial condition and results of operations for each of the three years in the period ended December 31, 1999; and
	•	significant factors that could affect our prospective financial condition and results of operations.

      Historical results may not indicate future performance. See Part I, “Item 1. Business — M. Risk Factors — 16. Our Forward Looking Statements Are Subject to a Variety of Factors that Could Cause Actual Results to Differ Materially From Current Beliefs.”

      Our consolidated financial statements include financial information reflecting the assets, liabilities and results of operations relating to Nextel International and its consolidated subsidiaries as of the relevant dates or for the relevant periods. However, additional more detailed and focused information relating to Nextel International may be found in the periodic and other reports filed by Nextel International with the Securities and Exchange Commission pursuant to the rules under the Securities Exchange Act of 1934.

B.  Results of Operations

      1.  Year Ended December 31, 1999 vs. Year Ended December 31, 1998

        a.  Operating Revenues.

      Operating revenues include service revenues, which consist primarily of charges for airtime usage and monthly network access fees from providing mobile wireless services.

      Domestic operating revenues increased principally as a result of a 62% increase in end-of-period domestic digital subscriber units in service from about 2,789,900 at December 31, 1998 to about 4,515,700 at December 31, 1999. In addition, we experienced a 94% increase in minutes of use along with an increase in the average monthly revenue per digital subscriber unit from about $69 during 1998 to about $73 during 1999. The growth in digital subscriber units in service is the result of a number of factors, principally:

	•	expanded network coverage and capacity;
	•	differentiated products and services including instant conferencing capabilities;
	•	the increased number of indirect distribution channels;

37

Table of Contents

	•	increased consumer awareness and acceptance of wireless communications;
	•	pricing plans targeted at particular market segments; and
	•	increased sales force and marketing staff.

      International operating revenues increased primarily as a result of a 174% increase in end-of-period digital subscriber units in service for its consolidated entities from about 101,900 at December 31, 1998 to about 279,300 at December 31, 1999, reflecting the launch of digital wireless communications services in major markets in Brazil, Argentina and Mexico in the second half of 1998 and in Peru in the second quarter of 1999.

        b.  Cost of Revenues.

      Cost of revenues consists primarily of network operating costs, including site rent and utilities, and interconnection fees assessed by local exchange carriers.

      Domestic cost of revenues increased primarily as a result of a 53% increase in the number of digital switches in service and a 44% increase in digital cell sites and related equipment we placed in service during 1999, as well as increases in airtime usage. Increased airtime usage resulted from increased subscriber units in service and increased average interconnect minutes of use per customer. Domestic cost of revenues as a percentage of consolidated operating revenues decreased due to the economies of scale achieved as a result of increases in system usage and digital subscriber units placed in service during 1999.

      The increase in international cost of revenues is attributable primarily to the increase in the number of cell sites and switches placed in service during 1999, as well as increases in international expenses associated with increased airtime usage resulting from additional subscriber units in service.

        c.  Selling, General and Administrative Expenses.

      The increase in selling, general and administrative expenses consisted of an increase in domestic expenses of $460 million and an increase in international expenses of $83 million for the year ended December 31, 1999 as compared to 1998.

      We include the loss generated from the sale of digital subscriber units and related accessories in selling and marketing expenses, as the loss primarily represents marketing costs. The increase in selling and marketing expenses primarily reflects increased costs incurred in connection with higher consolidated sales of digital subscriber units including:

	•	$168 million of increased losses generated from increased consolidated sales of digital subscriber units and related accessories, including losses of $24 million relating to international digital subscriber unit sales;

38

Table of Contents

	•	$111 million of increased domestic commissions and residuals earned by indirect dealers and distributors as a result of increased digital subscriber unit sales through indirect distribution channels; and
	•	$22 million of increased advertising and marketing expenses from international operations due to aggressive marketing campaigns directed at growing the customer base and increasing customer awareness of digital services primarily in major markets launched in 1998, as well as an increase in the size of the international sales force to support this growth.

      The increase in general and administrative expenses is primarily attributable to the following:

	•	$76 million of increased domestic expenses related to billing, collection and customer care activities as a result of a larger customer base;
	•	$85 million of increased domestic personnel, facilities and general corporate expenses primarily reflecting increased staffing for back-office activities required to serve the larger customer base;
	•	$44 million of increased domestic bad debt expense related to the larger customer base; and
	•	$37 million of increased international general and administrative expenses incurred to support the growth in our international markets, including a $26 million increase in bad debt expense resulting from a concerted program initiated in the first quarter of 1999 to enhance credit policies and aggressively review and take action on past due receivables. Following the institution of these initiatives, bad debt expense decreased $13 million from $23  million for the first half of 1999 to about $10 million for the second half of 1999.

      The aggregate amount of selling, general and administrative expenses are expected to increase both domestically and internationally as a result of a number of factors, including but not limited to:

	•	continuing aggressive marketing and advertising campaigns;
	•	increasing sales and marketing, customer care and back-office support staffing; and
	•	increasing aggregate amounts of subscriber unit subsidies as we sell additional digital subscriber units and related accessories.

        d.  Depreciation and Amortization

      Depreciation and amortization increased primarily due to the increase in depreciation as a result of placing into service, as well as modifying, additional cell sites and switches both in existing domestic markets (primarily to enhance the coverage and capacity of our digital mobile network) and in existing and new international markets launched in the second half of 1998. System assets relating to the development and expansion of the digital mobile networks, both domestically and internationally, represent the largest portion of capital expenditures during the period. Depreciation begins when system assets are placed into service in the relevant markets.

39

Table of Contents

        e.  Segment Earnings, Interest Expense, Interest Income and Other.

NM — change not meaningful

     We define segment earnings as earnings before interest, taxes, depreciation and amortization and other non-recurring charges. Domestic segment earnings are expected to grow due to an increasing customer base and decreasing operating expenses as a percentage of revenues due to the economies of scale achieved as a result of increases in system usage. We expect international segment losses to continue while we are building out our digital mobile networks and expanding our presence in international markets. Based on the current stage of development of each of our reportable segments, most of our operating revenues, identifiable assets and segment earnings pertain to our domestic operations.

      The increase in interest expense resulted from the issuance of senior notes during November 1998, June 1999 and November 1999, as well as a higher average level of borrowings under our domestic bank credit facility and Nextel International’s bank and vendor credit facilities.

      The increase in interest income is primarily due to income recognized on the investment of the net proceeds received in November 1999 from both the public offering of class A common stock and the issuance in a private placement of our 9.375% senior notes due 2009.

      The increase in equity in losses of unconsolidated affiliates is primarily due to our equity method investment in Nextel Partners and increased losses in Nextel Communications Philippines and Nexnet Co., Ltd. The increase in the foreign currency transaction loss is due primarily to the devaluation of the Brazilian real relative to the U.S. dollar during 1999. A $70 million gain was recognized in 1999 on the sale of our 50% ownership interest in NEXTBAND Communications.

      We recorded an income tax benefit of $28 million (an effective tax rate of about 2%) in 1999, compared to $192 million (an effective tax rate of about 11%) in 1998. The change in the effective tax rate primarily resulted from a change in the tax law in 1998 which extended the net operating loss carryforward period from 15 to 20 years for losses generated in or after 1998; therefore, in 1998, more income tax benefit was recorded reflecting the increase in the net operating loss carryforward period. In specified circumstances, Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” limits the recognition of income tax benefits for net operating losses to the amount of deferred tax liabilities that are expected to reverse within the statutory carryforward period. We increased the valuation allowance related to net operating losses by $448 million in 1999 and $487 million in 1998 since a significant portion of our deferred tax liabilities will reverse after existing net operating losses expire. The

40

Table of Contents

      During the fourth quarter of 1999, we utilized a portion of the proceeds from the 9.375% senior notes to repurchase and redeem $546 million of our outstanding notes issued prior to 1997. As a result of the early retirement of the senior notes repurchased and redeemed during the fourth quarter of 1999, we recognized an extraordinary loss of about $68 million, representing the excess of the purchase price over the carrying values of the repurchased and redeemed notes and the write-off of associated unamortized deferred financing costs.

     2.  Year Ended December 31, 1998 vs. Year Ended December 31, 1997

        a.  Operating Revenues.

      Domestic operating revenues for 1998 increased from 1997 principally as a result of a 120% increase in end-of-period domestic digital subscriber units in service from about 1,270,700 at December 31, 1997, to about 2,789,900 at December 31, 1998. The increase in operating revenues primarily reflects the increased number of subscriber units in service in both new and existing markets and an increase in minutes of use producing an increase in the average monthly revenue per digital subscriber unit from about $66 in 1997 to about $69 in 1998. The growth in digital subscriber units in service is the result of a number of factors, including principally our increased sales force and marketing staff, increased distribution channels, expanded network capacity, increased consumer awareness and acceptance of wireless communications and pricing plans targeted at particular market segments. International operating revenues increased primarily as a result of increased units in service in Brazil, Argentina and Mexico, chiefly due to the launch of digital services in major markets in those countries during the second half of 1998.

        b.  Cost of Revenues.

      Domestic cost of revenues for 1998 increased from 1997 primarily as a result of an 82% increase in the number of switches placed in service and a greater than 50% increase in cell sites and related equipment placed into service during 1998, as well as increases in airtime usage and digital subscriber units in service. The improvement in cost of revenues as a percentage of revenues primarily resulted from economies of scale achieved as a result of increases in system usage and digital subscriber units placed in service in 1998.

41

Table of Contents

        c.  Selling, General and Administrative Expenses.

      The increase in selling, general and administrative expenses for 1998 over 1997 consisted of an increase in domestic expenses of $573 million and an increase in international expenses of $116 million.

      We include the loss generated from the sale of digital subscriber units and related accessories in selling and marketing expenses, as the loss primarily represents marketing costs. The increase in selling and marketing expenses consisted primarily of increased costs incurred in connection with higher levels of consolidated sales of digital subscriber units, including:

	•	$121 million of increased domestic dealer commissions and residuals earned by indirect distributors as a result of increased unit sales through indirect distribution channels;
	•	$103 million of increased losses generated from consolidated sales of digital subscriber units and related accessories, including a loss of $12  million relating to international digital subscriber unit sales;
	•	$93 million of increased domestic salaries, commissions and related personnel costs associated with increased internal sales and marketing staffing;
	•	$68 million of increased domestic advertising, telemarketing and other marketing expenses attributable to the aggressive national and regional marketing campaigns that began in March 1997 and largely continued through most of 1998; and
	•	$54 million of increased advertising and marketing expenses related to international operations as a result of the launch of digital service in Brazil in the second quarter of 1998 and Argentina and Mexico in the third quarter of 1998.

      The loss on digital subscriber unit and related accessory sales for 1998 increased 68% to $254 million, compared to $151 million for 1997 and decreased as a percentage of revenue. The increase in the loss on digital subscriber unit and related accessory sales compares favorably to the 120% increase in ending domestic digital subscriber units in service due to decreases in subsidies and discounts on a per unit basis offered to customers purchasing digital subscriber units and related accessories.

      The increase in general and administrative expenses is attributable to the following:

	•	$94 million of increased personnel, facilities and general corporate expenses reflecting increased staffing for back-office activities;
	•	$44 million of increased general and administrative expenses to support the growth of international operations;
	•	$87 million of increased expenses related to billing and collection activities as a result of a larger customer base; and
	•	$25 million of increased consolidated bad debt expense.

      We recognized consolidated bad debt expense of $82 million for the year ended December 31, 1998 (of which $7 million was attributable to Nextel International) compared to $57 million for the year ended December 31, 1997 (of which $1 million was attributable to Nextel International). We initiated a comprehensive and aggressive program with respect to our domestic operations for more stringent credit reviews and the collection of past due receivables in the second half of 1997, including involuntarily

42

Table of Contents

        d.  Depreciation and Amortization.

      The increase in depreciation expense reflects:

	•	the effect of the placing into service during 1998 additional operational cell sites and switches in new and existing domestic and international markets; and
	•	the effect of business acquisitions completed during 1998 and the last quarter of 1997.

System assets relating to the development and expansion of the digital mobile network represented the largest portion of capital expenditures during the period. Depreciation begins when systems assets are placed into service in the relevant markets.

      Beginning in the fourth quarter of 1997, we extended the amortization period applicable to our FCC licenses and certain goodwill derived from our domestic acquisitions from 20 years to 40 years. We believe that some events occurred throughout 1997 and became specifically apparent during the fourth quarter of 1997 that supported the extension of the useful lives of both the FCC licenses and domestic goodwill. These events provided specific evidence that our long-term domestic business plan was more likely to be achieved, resulting in the ability to economically utilize these assets over a longer period (i.e., 40 years) than was originally foreseeable. Specifically, our technology was modified throughout 1995, 1996 and 1997 to resolve concerns regarding the performance of our wireless technology experienced when the technology was initially deployed. The new product and digital technology became firmly established in October 1997 when we reached 1 million domestic digital subscriber units in service and noted increases in average revenue per subscriber unit. Further, we raised substantial capital during 1996 and 1997, enhancing our ability to complete the domestic digital mobile network build-out in accordance with our then current business plan. The combination of our proven technology, customer acceptance and financial support have allowed us to build our digital mobile network and provide substantially more than the minimal level of service necessary to assure the renewal of our FCC licenses. The majority of our FCC licenses have been obtained through business acquisitions. Our experience is that the value attributed to the net assets acquired in these business acquisitions, excluding the FCC licenses, and liabilities assumed is generally small, reflecting the less significant value we attach to those net assets and liabilities. As a result, the purchase price offered to the seller reflects primarily the value of the licenses acquired. Any resulting goodwill is amortized over the same life as our FCC licenses because we believe the two are closely related and provide benefits to us over the same periods. Therefore, in the fourth quarter of 1997, we extended the life of goodwill to coincide to the life of our FCC licenses, and as a result, amortization expense for 1998 decreased 16%.

43

Table of Contents

        e.  Interest Expense, Interest Income and Other.

NM — change not meaningful

     The increase in interest expense for 1998 from 1997 resulted from the issuance of senior notes during 1997 and 1998, as well as a higher average level of borrowings under the domestic bank credit facility and Nextel International’s bank and vendor credit facilities. The increase was partially offset by a decrease in the weighted average interest rate on the total outstanding debt, which was a result of:

	•	the refinancing of the domestic vendor credit facility during the first quarter of 1998; and
	•	the retirement of a portion of the 11.5% senior notes due 2003 and the 12.25% senior notes due 2004 during the fourth quarter of 1997 and substantially all of the remaining amounts outstanding under these two senior notes series during the second quarter of 1998.

      The increase in interest income for 1998 from 1997 is primarily attributable to income recognized on the investment of the net proceeds received from our sale of the series E preferred stock and the senior notes issued in February 1998.

      In the fourth quarter of 1997, we entered into an interest rate protection agreement to lock in interest rates on 10-year U.S. Treasury notes in anticipation of a future debt issuance. During the quarter ended September 30, 1998, management determined that this anticipated transaction was not likely to occur before the interest rate protection agreement expiration date. The interest rate protection agreement was terminated on September 29, 1998 and we recognized approximately $47 million of other expense within the statement of operations for the quarter ended September 30, 1998.

      We recorded an income tax benefit of $192 million (an effective tax rate of 11%) in 1998, compared to a provision of $259 million (an effective tax rate of 20%) in 1997. A change in the tax law for 1998 extended the net operating loss carryforward period from 15 to 20 years for losses generated in or after 1998. Income tax benefits in 1998 were derived from the recognition of net operating losses generated in 1998 that can be carried forward twenty years and that can be recognized against existing deferred tax liabilities. In certain circumstances, Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” limits the recognition of income tax benefits for net operating losses to the amount of deferred tax liabilities that are expected to reverse within the statutory carryforward period. We increased the valuation allowance related to net operating losses by $487 million in 1998 and $767 million in 1997 since a significant portion of our deferred tax liabilities will reverse after existing net operating losses expire. The financial statement limitation on the recognition of income tax benefits for net operating losses will not have an impact on our ability to use our net operating losses for income tax purposes.

      In April 1998, we purchased $294 million in book value of our 11.5% senior notes due 2003 and $333 million in book value of our 12.25% senior notes due 2004 at a cost in excess of related carrying amounts. As a result, we recorded an extraordinary loss of $133 million related to the early retirement of debt. The extraordinary loss represented the difference between the purchase price and the book value of those two series of senior notes on the date of purchase plus unamortized deferred financing costs.

44

Table of Contents

C.  Liquidity and Capital Resources

      We had losses attributable to common stockholders of $1.5 billion for 1999 and $1.8 billion for 1998. The operating expenses and capital expenditures associated with developing, enhancing and operating the digital mobile network have more than offset operating revenues. Our operating expenses, debt service obligations and anticipated capital expenditures are expected to continue to more than offset operating revenues for the next several years. We have consistently used external sources of funds, primarily from equity issuances and debt incurrences, to fund operations, capital expenditures, acquisitions and other non-operating needs. For the next several years, we intend to use existing cash and short-term investments, anticipated available credit under the existing credit facilities, earnings before interest, taxes, depreciation and amortization from our domestic operations and externally generated funds from debt and equity sources, as discussed below, to cover our currently anticipated future needs.

        a.  Cash Flows

      During 1999, working capital increased by $3.9 billion to $3.8 billion primarily due to the receipt in November 1999 of $2.8 billion in proceeds from a public offering and sale of class A common stock and the private placement of $2.0 billion of senior notes.

      Net cash provided by operating activities of $324 million during 1999 improved by $660 million compared to net cash used in operating activities of $336 million during 1998. The improvement in net cash provided by operating activities is primarily attributable to domestic operations and reflects increasing operating revenues and improved domestic operating results.

      Capital expenditures to fund the continued expansion of our domestic digital mobile network continue to represent the largest use of funds for investing activities. Net cash used in investing activities during 1999 increased $367 million compared to 1998, primarily due to the $1.0 billion increase in purchases of short term investments offset by a $113 million decrease in cash paid for capital expenditures, a $243 million decrease in the payments for acquisitions and purchases of licenses, the receipt of $280 million related to both the sale of our interest in NEXTBAND Communications, L.L.C, a joint venture, and the sale of assets to Nextel Partners and reimbursement of costs and operating expenses by Nextel Partners. Cash payments for capital expenditures totaled $1.9 billion during 1999 and $2.1 billion during 1998, including $145 million during 1999 and $371 million during 1998 for international operations.

      Net cash provided by financing activities during 1999 consisted primarily of gross proceeds from:

	•	$2.8 billion in proceeds from the public offering of class A common stock;
	•	$2.6 billion in proceeds from the issuance of debt securities;
	•	$1.1 billion in borrowings under our bank and vendor credit facilities;
	•	$600 million in proceeds from the sale of restricted class A common stock to Microsoft; and
	•	$587 million in proceeds from SpectraSite Holdings, Inc. in connection with the transfer of specified telecommunications towers;

offset by the utilization of cash to retire $546 million in debt securities and to repay $423 million on the revolving line of credit under our domestic bank credit facility.

      In addition to the above financings, we raised about $1.2 billion in gross proceeds from the private placement in January 2000 of our 5.25% convertible senior notes due 2010.

D.  Future Capital Needs and Resources

      We anticipate that, for the foreseeable future, significant amounts of our available cash will be utilized for:

	•	capital expenditures for the construction and enhancement of our digital mobile network, both domestically and internationally;

45

Table of Contents

	•	operating expenses relating to our digital mobile network, both domestically and internationally;
	•	potential acquisitions including any negotiated acquisitions of spectrum from third parties and any future FCC auctions of spectrum;
	•	debt service requirements; and
	•	other general corporate expenditures.

      We anticipate that cash utilized for capital expenditures and other investing activities will continue to exceed our positive cash flows from domestic operating activities throughout 2000, as we build out, expand and enhance our digital mobile network. See Part I, “Item 1. Business — M. Risk Factors — 16. Our Forward Looking Statements Are Subject to a Variety of Factors that Could Cause Actual Results to Differ Materially From Current Beliefs.”

      As of December 31, 1999, our domestic bank credit facility provided for total secured financing capacity of up to $5.0 billion, subject to the satisfaction or waiver of applicable borrowing conditions. This facility consists of a $1.5 billion revolving loan and $3.5 billion in term loans that mature over a period from December 31, 2007 to December 31, 2008. The total credit available under the facility was increased effective March 15, 2000, from $5.0 billion to $6.0 billion, when we established the $1.0 billion incremental senior secured term loan under the existing bank credit facility. We borrowed the entire amount of this $1.0 billion incremental term loan on March 15, 2000. The maturity date of the $1.0 billion incremental term loan is March 31, 2009. At December 31, 1999, we had borrowed $2.7 billion of our then available financing under the bank credit facility. As of March 15, 2000, $3.7 billion of debt was outstanding under the amended and restated bank credit facility. Amounts outstanding under this bank credit facility are secured by liens on assets of substantially all of our domestic subsidiaries and bear interest payable quarterly at an adjustable rate calculated based either on the U.S. prime rate or LIBOR. The maturity dates of the loans can accelerate if our credit ratings are below specified levels and the aggregate amount of specified debt obligations that mature before June 30, 2009, and the redemption price of redeemable stock that is mandatorily redeemable before June 30, 2009, exceed specified amounts. The availability of financing under this bank credit facility is subject to requirements under the indentures governing our public notes and the terms applicable to some of our preferred stock. At December 31, 1999, we were able to access the entire $5.0 billion available under the bank credit facility in compliance with the debt incurrence covenants contained in our indentures and under the relevant terms of our applicable issues of preferred stock.

      As of December 31, 1999, $139 million had been borrowed by Nextel International under its equipment financing facility with Motorola Credit Corporation, leaving $86 million available for future borrowings under that facility. Additionally, as of December 31, 1999, $104 million had been borrowed by McCaw International (Brazil), Ltd. under its vendor financing agreement with Motorola Credit, leaving $21 million available for future borrowings. As of December 31, 1999, Nextel Argentina S.R.L. had borrowed $100 million under its original bank credit facility (representing all amounts available) and had borrowed $8 million of the $50 million in incremental term loans that are available under that facility as a result of amendments entered into in May 1999, leaving $42 million available for future borrowings. In January 2000, Nextel International borrowed the full $57 million in incremental term loans available under the loan agreement entered into with Motorola Credit.

      Currently, we expect to increase the level of our domestic and international capital expenditures during 2000. This increase is expected to be driven by several factors, including:

	•	the contemplated expansion of digital mobile network coverage around most major domestic and selected international market areas, as well as in heavily traveled corridors between markets;
	•	the contemplated construction of additional cell sites to increase system capacity and improve system quality, and the installation of related switching equipment, in existing markets of Nextel and Nextel International, including the installation of system infrastructure and cell sites sufficient to meet expected increases in system demand four to six months ahead of anticipated growth;  and

46

Table of Contents

	•	the installation of system capital hardware and software items in connection with the planned initial commercial launch of our wireless data service offerings nationwide in 2000.

      Taking these anticipated capital expenditures into account for both Nextel and Nextel International, and assuming that a significant amount of Nextel International’s funding needs for calendar year 2000 will be satisfied with funds invested or advanced by us, and based upon the combined anticipated operating cash flow of the existing and expected wireless businesses and currently available cash resources, we believe that we will be able to fully fund both our domestic and international operations through calendar year 2000. This conclusion is premised on the availability of funds from the following sources as of December 31, 1999 and thereafter:

	•	consolidated cash and short term investments on hand as of December 31, 1999 of $4.5 billion, excluding $1.3 billion then held in trust, and since paid out, for the redemption of two series of our notes issued before 1997;
	•	the availability of $3.3 billion of incremental funding over the amounts outstanding as of December 31, 1999 under our domestic bank credit facility, including the $1.0 billion of incremental term loan financing borrowed by us on March 15, 2000;
	•	the availability of approximately $206 million in funding under Nextel International’s financing agreements described above, including the $57 million of incremental term loans borrowed in January 2000;  and
	•	the gross proceeds of about $1.2 billion from the January 2000 private placement of our 5.25% convertible senior notes due 2010.

      If our or Nextel International’s business plans change, or if economic conditions in our or their markets generally or competitive practices in the mobile wireless telecommunications industry change materially from those currently prevailing or from those now anticipated in the next calendar year, or if other presently unexpected circumstances are encountered that have a material effect on the cash flow or profitability of the domestic or international mobile wireless businesses conducted by us or Nextel International, the anticipated cash needs of those businesses, and the conclusions as to the adequacy of the available sources, each also could change significantly. Finally, the above estimates and conclusions specifically exclude the impact of any significant acquisition transaction, or the pursuit of any significant new business opportunity not now contemplated, by us or Nextel International. Any acquisition or new business opportunity could involve significant additional funding needs in excess of the identified currently available sources, and could require us, Nextel International or both to raise additional equity and debt funding to meet those needs.

      The availability of borrowings under the domestic bank credit facility and Nextel International’s financing agreements is subject to certain conditions and limitations, and we cannot provide assurance that those conditions will continue to be met. The instruments relating to our financing arrangements and preferred stock contain provisions that operate to limit the amount of borrowings that we may incur. The terms of the domestic bank credit facility and Nextel International’s financing agreements also require us and our subsidiaries at specified times to maintain compliance with specified operating and financial covenants or ratios, including certain covenants and ratios specifically related to leverage, which become more stringent over time. In addition, our capital needs, and our ability to adequately address those needs through debt or equity funding sources, are subject to a variety of factors that cannot presently be predicted with certainty, for example, the commercial success of our domestic and international digital mobile networks, the amount and timing of our capital expenditures and operating losses, the volatility and demand of the equity and debt markets, and the market price of our common stock.

      We have had and may in the future have discussions with third parties regarding potential equity investments and debt financing arrangements to satisfy actual or anticipated financing needs. At present, other than the existing equity or debt financing arrangements that have been consummated or are described in this annual report, we have no legally binding commitments or understandings with any third parties to obtain any material amount of equity or debt financing. Under the terms of the agreements

47

Table of Contents

E.  Effect of Inflation and Foreign Currency Exchange

      Inflation is not a material factor affecting our business. General operating expenses such as salaries, employee benefits and lease costs are, however, subject to normal inflationary pressures. From time to time, we may experience price changes in connection with the purchase of certain system infrastructure and subscriber equipment, but we do not currently believe that any of these price changes will be material to our business.

      The net assets of the subsidiaries of Nextel International are subject to foreign currency exchange risks since they are primarily maintained in local currency. Additionally, the long-term debt of Nextel International and its subsidiaries is almost entirely in U.S. dollar denominated form, which also exposes such entities to local foreign exchange risks. Certain subsidiaries conduct business in countries in which the rate of inflation is significantly higher than that of the United States. Nextel International will seek to protect its earnings from inflation and possible currency devaluation by trying to periodically adjust the relevant subsidiaries’ prices in local currencies. However, we cannot provide assurance that any significant devaluation of a foreign currency against the U.S. dollar could be offset, in whole or in part, by a corresponding price increase. While Nextel International routinely assesses its foreign currency exposure, Nextel International has not entered into any hedging transactions.

F.  Year 2000 Issues

      We did not experience any significant malfunctions or errors in our operating or business systems when the date changed from 1999 to 2000. Based on operations since January 1, 2000, we do not expect any significant impact to our on-going business as a result of “Year 2000” issues. However, it is possible that the full impact of the date change, which was of concern due to the possibility that Nextel’s computer programs that had date-sensitive software may have recognized a date using “00” as the year 1900 rather than the year 2000, has not been fully recognized. For example, it could be possible that year 2000 or similar issues, such as leap year-related problems, may occur and impair our ability to process transactions, send invoices, maintain payroll or engage in similar normal business activities such as financial closings at month or quarterly end. We believe that any of these types of problems that may be encountered are likely to be minor and correctable. In addition, we could still be negatively affected if our customers or suppliers are adversely affected by year 2000 or similar issues. We are not currently aware of any significant year 2000 or similar problems that have arisen for our customers and suppliers.

G.  Effect of New Accounting Standards

      1.  Statement of Financial Accounting Standards No. 133

      In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which establishes accounting and reporting standards for derivative instruments (including certain derivatives embedded in other contracts) and for hedging activities by requiring that all derivatives be recognized in the balance sheet and measured at fair value. In June 1999, the FASB issued SFAS No. 137, “Deferral of the Effective Date of FASB Statement No. 133 — an Amendment of FASB Statement No. 133,” which

48

Table of Contents

      2.  Statement of Position 98-1

      In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” This statement establishes accounting standards for costs incurred in the acquisition or development and implementation of computer software. These new standards require the capitalization of certain software implementation costs relating to software acquired or developed and implemented for internal use. The adoption of this statement, effective January 1, 1999, had no impact on our financial position or results of operations.

      3.  Statement of Position 98-5

      In April 1998, the AICPA issued Statement of Position 98-5, “Reporting on the Costs of Start-Up Activities.” This statement requires costs of start-up activities and organization costs to be expensed as incurred. The adoption of this statement, effective January 1, 1999, had no impact on our financial position or results of operations.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

      We use mandatorily redeemable preferred stock, senior notes, finance obligations and bank and vendor credit facilities to finance our operations. These on-balance sheet financial instruments, to the extent they provide for variable rates of interest, expose us to interest rate risk. Our primary interest rate risk exposure results from changes in LIBOR or the U.S. prime rate which are used to determine the interest rates that are applicable to borrowings under our bank and vendor credit agreements. We use off-balance sheet derivative financial instruments, including interest rate swap and collar agreements, to partially hedge interest rate exposure associated with on-balance sheet financial instruments. All of our derivative financial instrument transactions are entered into for non-trading purposes. The terms and characteristics of the derivative instruments are matched with the existing on-balance sheet instruments and thus do not constitute speculative or leveraged positions independent of these exposures.

      Nextel International’s revenues are denominated in foreign currencies while a significant portion of its operations are financed through senior discount notes and bank and vendor credit facilities which are denominated in U.S. dollars. As a result, fluctuations in exchange rates relative to the U.S. dollar, primarily those related to the Brazilian real, Mexican peso and the Argentine peso, expose us to foreign currency exchange rate risk.

      As of December 31, 1999, we held about $1.1 billion of debt securities in the form of commercial paper and U.S. government securities as short-term investments classified as available-for-sale in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” As the weighted average maturity from the date of purchase was less than four months, these short-term investments do not expose us to a significant amount of interest rate risk.

      Nextel International holds an available-for-sale investment in the common stock of Clearnet Communications, Inc., a publicly traded company, that had a fair value of $288 million as of December 31, 1999. In accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” this investment is reported at its market value in our financial statements. Negative fluctuations in Clearnet Communications’ stock price expose us to equity price risk. A 10% decline in the stock price would result in a $29 million decrease in the fair value of our investment in Clearnet Communications, which would be recorded in other comprehensive income (loss) in stockholders’ equity.

      The information below summarizes our sensitivity to market risks associated with fluctuations in interest rates and foreign currency exchange rates as of December 31, 1999 in U.S. dollars. To the extent that our financial instruments expose us to interest rate and foreign currency exchange risk, these instruments are presented within each market risk category in the table below. The table presents principal

49

Table of Contents

	•	quoted market prices for mandatorily redeemable preferred stock and senior notes;
	•	carrying value for the bank and vendor credit facilities at December 31, 1999, as interest rates are reset periodically;
	•	estimates for the finance obligation based on interest rates for current term loans with similar terms; and
	•	estimates obtained from dealers to settle interest rate swap and collar agreements.

      Notes 8, 9 and 12 to the consolidated financial statements contain descriptions of our senior notes, bank and vendor credit facilities, interest rate risk management agreements and mandatorily redeemable preferred stock and should be read in conjunction with the table below. A description of significant changes in outstanding amounts of mandatorily redeemable preferred stock, senior notes, finance obligation and available bank borrowings that occurred in 1999 is included in Part I, “Item 1. Business — E. Fiscal Year 1999 Domestic Transactions and Developments” and “— F. Fiscal Year 1999 International Transactions and Developments.” The senior note issuances, finance obligation transaction and the increase in the amounts outstanding under the amended bank and vendor credit agreements increased the amount of fixed and variable obligations due in each period presented. The decrease in the notional amount maturing in 2001 for variable to fixed rate interest rate swaps is attributable to the termination of one swap in accordance with its original terms. There was not a realized gain or loss associated with this termination.