Subject: [NEXTEL-1] ThomasWeisel on Nextel-

From: Marcel <[email-masked]>
Date: Mon, 06 Jan 2003 12:19:57 -0500

ThomasWeisel on Nextel-

Nextel Communications (NXTL; $12.46; Cap $12.3bn; Buy) - Differentiated product,
reasonable valuation, potential for upward est revisions set stage for growth in '03.

?1.) Reasons To Own in 2003: Our enthusiasm for Nextel Communications stems from the
company’s differentiated product, much improved balance sheet, positive free cash flow
status and inexpensive valuation relative to growth prospects. The wireless industry is
obviously a crowded, competitive space but one where we believe Nextel (and itsaffiliate
Nextel Partners) is likely to standout over the course of 2003.

?What’s New: A) Last week, Nextel announced that it would pay $850 mn (up from its prior
offer of $500 mn) to upgrade public safety communications in exchange for a clear band of
800 MHz spectrum. Nextel has also offered to return 4MHz of its 700 MHz band license and 4
MH z of its 900 MHz spectrum license to the FCC in exchange for 10 MHz block on the 1.9
GHz band (see also Catalysts). B) Nextel recently announced a new contract with the
federal government’s General Service Administration (GSA). The latest GSA contract is for
two-years with three one-year option periods and the estimated value of the contract is
$200 million per year. C) Nextel and Motorola hosted an analyst meeting on December 17 th.
Nextel took the opportunity to illustrate how it plans to grow voice capacity, dispelling
the notion that Nextel’s capacity could be constrained in the next few years. D) The
company recently introduced traveling Direct Connect enabling customers to use Direct
Connect while traveling in certain markets, without making any changes to their phones.

?2.) Upcoming Potential Catalysts: In 1H03, we expect the company to receive approval from
the FCC for its license swap proposal. While the swap would not result in Nextel receiving
more spectrum, the company’s spectrum position would become more contiguous, thereby
enhancing its strategic value. From a product standpoint, the company will offer national
(rather than the current regional) Direct Connect service beginning in mid-2003, which
could expand its target market especially in the government and transportation sectors.
Also, we note that Nextel remains a reasonably controversial name; thus, solid operating
improvement could translate into share price momentum. Longer term, we think data revenue
possibilities are substantial using the megabit speed Flarion Technology.

?3.) Valuation: Nextel Communications is trading at 7.6x our 2002 EBITDA estimate and 6.4x
our 2003 EBITDA estimate, in line with the national service provider average. On a P/E
basis, Nextel (estimated to grow EPS at 26.7% compounded beginning in 2003) is trading at
14.8x our 2003 estimate of $0.84 and 9.7x 2004 estimated EPS of $1.28. Though the stock
has moved substantially, we believe that Nextel Communications remains a key telecom stock
to watch in 2003, given what we view as its reasonable valuation, emergence as a free cash
flow/EPS story, and potential for further upward estimate revisions.

?Key risks: A) A faster than expected decrease in ARPU and B) the development of a
competitive push-to-talk product by Verizon and Sprint PCS. We think a truly comparable
product is at least two years away though we note that headline risk is not
inconsequential if and when other carriers introduce PTT products.
Estimates: Dec '02 Net Adds 1.878 mn, Rev. $8.7 bn, EBITDA $3.2 bn, EPS $0.29; Dec '03 Net
Adds 1.625 mn, Rev. $9.9 bn, EBITDA $3.8 bn, EPS $0.84

Analyst: Ned P. Zachar, CFA 212-271-3838

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