Subject: [NEXTEL-1] Goldman Sachs on Nextel-

From: Marcel <[email-masked]>
Date: Thu, 24 Apr 2003 16:44:56 -0400

Goldman Sachs
=================================================================================
WHAT TO LOOK OUT FOR.  We highlight three issues to focus on going forward:

(1) The spectrum swap process may be delayed and the decision may not include all that
NXTL proposed, especially in light of the new FCC  Wireless Bureau Chief, John Muleta.
Muleta may take more of an engineer's perspective, given his background, and so may raise
questions about the scope of NXTL's proposed returning;
=====================================================================================

24-Apr-03 Goldman Sachs (GOVERNALI NEWYORK NEWYORK) NXTL
NXTL: Solid 1Q Bolsters NXTL`s Defenses Against PTT, WLNP

* NXTL's 1Q03 results generally exceeded our ests. Net adds were 480K vs our
   448K due to a sizable churn reduction to 1.9% vs our 2.1% est.

* EBITDA was $906mn vs our $858mn est, despite CPGA of $adds to 1.9mn from
   1.7mn and our 03 EBITDA to $3.9bn from $3.8bn to reflect focused
   customer service improvements that are aiding churn and effective and
  innovative cost control efforts. That said, we feel NXTL shares are
  fully valued at current levels given future challenges, including

PTT  competition, WLNP, longer-term network upgrades and our view that the
spectrum swap may take longer and is more uncertain under new

FCC  wireless chief, John Muleta.  We maintain our IL/N rating.                   *

=======================  NOTE  7:55 AM  April 24, 2003

                              Stk Cvg   Latest  52 Week  Mkt Cap
YTD Pr   Cur
                              Rtg View  Close    Range     (mm)
Change  Yield
                              --- ----  ------  -------  --------  --
----  -----
Nextel Communications         IL   N    13.67    15-3    13720.7
18%    0.0%

NXTL                       -----------------Earnings Per Share-------
EPS*          (US$)        Mar      Jun      Sep      Dec
FY       CY
              2004  FY     NA       NA       NA       NA
1.07     NA
              2003  FY     0.20A    0.28     0.29     0.27
1.05     NA
              2002  FY(A)  -0.35    -0.05    0.14     0.21     -
0.05    NA

GSCOPE EPS*   (US$)        Mar      Jun      Sep      Dec
FY       CY
              2004  FY     NA       NA       NA       NA
NA       NA
              2003  FY     NA       NA       NA       NA
NA       NA
              2002  FY(A)  NA       NA       NA       NA
NA       NA

                       -Abs  P/E  on-   -Rel  P/E  on-   EV/NxtFY
LT EPS
Cur     Nxt      Cur     Nxt     EBITDA
Growth
                       ------  ------   ------  ------  ---------  --
EPS*             FY     13.0X   12.8X     0.6X    0.6X
NA       NA
                 CY        NA      NA       NA      NA
NA       NA
GSCOPE EPS*      FY
NA       NA
                 CY        NA      NA       NA      NA
NA       NA

* may differ from U.S. GAAP

WHAT TO DO WITH THE STOCK?

Operating assumption revisions to churn and EBITDA have raised our DCF value range for
NXTL to $13.85 from $12.60. This suggests fair value.  However, we derive greater
confidence in relative valuation to global peers as an indication of fair value.  NXTL and
other U.S. carriers trade at or slightly below foreign carriers. Given the decidedly less
attractive nature of the U.S. market, this leaves no upside opportunity in our view. On an
EV/EBITDA basis, using our 2003E EBITDA estimates, NXTL is trading at about 6.4x, a
premium both to PCS, which is at about 6.1x, and to AWE, which is at about 5.9x.

We think the company's competitive positioning has strengthened given its effectiveness at
continuing to show churn and cost improvements despite its smaller scale, pressured ARPUs
and a generally difficult wireless environment.  We continue to feel that push-to-talk
competition, WLNP, uncertainty about the true upside from the 6:1 vocoder, a likely CDMA
upgrade in the medium term and delays in the spectrum swap decision, limit the upside in
NXTL shares beyond current levels.

ACTUALS VS ESTIMATES.

NXTL delivered another strong quarter, exceeding our already strong expectations.
Particularly noteworthy is the churn reduction to a market leading 1.9%, which accounts
for net adds of 480K exceeding our 448K estimate.  Although,  we estimate gross adds were
slightly below our 1.13mn estimate.  We think a focus on retention is crucial at NXTL in
advance of push-to-talk competition, which we see arriving this summer. And as with all
carriers the arrival of WLNP in the fourth quarter customer retention efforts are
critically important.

ARPU declined to $67, in line with our estimate, from $68 in 1Q02.  Considering NXTL's
retail presence continued to expand (by 50 new stores in 1Q03) and how aggressive the
company has been on pricing, we are not surprised to see some ARPU weakness.  Re-rating to
enhance retention is likely also a factor.  EBITDA exceeded our expectations, coming in at
$906mn vs our $858mn estimate.  This was achieved despite the fact that CPGA of $450
exceeded our $440 estimate, largely due to bad debt expense reductions and network cost of
service (CoS) efficiencies.  NXTL, to its credit, has demonstrated an ongoing ability to
drive greater and greater efficiencies out of its iDEN network, though we expect there is
ultimately a limit to such efficiency improvements and so generally model slowing declines
in the cost of service per minute.

KEY METRICS
Actual      1Q02        4Q02        GS Estimate
Income Statement
Service revenue      $2,210      $1,831      $2,184      $2,174
EBITDA               $906        $586*       $886        $858

Other Metrics
ARPU                 $67.00      $68.00      $69.00      $66.88
Net additions        480k        502k        503k        448k
Churn                1.9%        2.1%        2.1%        2.1%
MOU                  650         590         640         649
CPGA                 $450        $460        $440        $430

Source: Goldman Sachs Research estimates

* 1Q02 EBITDA does not include $35 million charge for future lease payments on premises
vacated after signing new outsourcing agreements for IT and customer service with EDS and
IBM/Teletech, respectively.

RAISING ESTIMATES TO REFLECT CHURN AND COST IMPROVEMENTS.

HIGHER NET ADDS ON LOWER CHURN.

We are raising our 2003 net adds estimate to 1.9mn from 1.75mn to reflect improved
retention.  We are maintaining our gross additions estimate at about 4.7mn.  It will be
challenging for NXTL to keep churn at the 1.9% level throughout the year, especially given
the introduction of competing push-to-talk offerings this summer and the early impact of
WLNP beginning later in 4Q, though we have taken our chrn rate down slightly in 2Q and 3Q.

EXPECT CONTINUED ARPU PRESSURE.  We expect ARPU will continue to come under pressure
during the year, due to ongoing re-rating efforts, the continued push into the consumer
market, ongoing pricing pressure and slowing MOU growth.  The company is also likely to be
under intensified pricing pressure when competing push-to-talk offerings hit the market.
We are holding our 2003 service revenue estimate flat at $9.5bn, despite higher net
additions, to reflect heightened ARPU pressure.

SEE NET COST IMPROVEMENTS DESPITE HIGHER CPGA.

On the cost side, we expect continued improvements in G&A expense and cost of service
reductions.  Offsetting some of these gains will be higher customer acquisition and
retention costs, both in advance of WLNP and in response to competing push-to-talk
offerings.  The net impact is an increase in our 2003 EBITDA estimate to $3.9bn from
$3.8bn.

INDUSTRY IMPLICATIONS.

NXTL seems to be more aggressive than other carriers at driving costs down and improving
churn, despite a very challenging operating environment.  We attribute these results to
outsourcing arrangements, and an aggressive, methodical approach to improving customer
service.  We feel that as subscriber growth continues to slow, driven largely by
increasing penetration, it will become increasingly important for carriers to shift
strategies from top line growth to driving costs out of the system.

While most carriers have discussed this paradigm shift in strategic focus, NXTL seems to
have gotten an early lead in this regard and impresses us as being especially nimble when
it comes to thinking creatively about cost reduction initiatives.  We expect to see
additional outsourcing agreements and headcount reductions, in particular at many
carriers.  Offsetting some of these gains in the short term will be increased retention
spending.  We also feel the mindset of managers at some carriers may be an obstacle to
more aggressive cost cutting given the long legacy of top-line growth-focused decision
making.

WHAT TO LOOK OUT FOR.  We highlight three issues to focus on going forward:

(1) The spectrum swap process may be delayed and the decision may not include all that
NXTL proposed, especially in light of the new FCC  Wireless Bureau Chief, John Muleta.
Muleta may take more of an engineer's perspective, given his background, and so may raise
questions about the scope of NXTL's proposed returning;

(2) ARPU likely to continue to come under pressure as retail presence expands and NXTL
faces more broad based competition, especially as competing PTT offerings come onto the
market;

(3) Impact of PTT competitors, which we expect this summer. Likely impacts include higher
costs related to fending off competitors and retaining current users, and slower
subscriber growth.