Subject: [NEXTEL-1] 23-Apr-03 CIBC World Markets Corp. (Cannon Carr) NXTL AWE BLS NXTP

From: Marcel <[email-masked]>
Date: Wed, 23 Apr 2003 21:11:01 -0400

23-Apr-03 CIBC World Markets Corp. (Cannon Carr) NXTL AWE BLS NXTP

NXTL: Reports Mixed 1Q03
Cannon Carr             Gregor Dannacher, CFA
Earnings Update                                 Sector Performer
(Speculative)
Underweight
Reports Mixed 1Q03
Telecommunications Services

NXTL-OTC (4/22/03)        $13.06
Key Indices:              S&P 500, NASDAQ
3-5-Yr. EPS Gr. Rate (E): 10.0%
52-week Range             $14.67-$2.50
Shares Outstanding        1,095M
Float                     760.0M shrs
Avg. Daily Trading Vol.   20,000,000
Market Capitalization     $14.3B
Dividend/Yield            $0.00/0.0%
Fiscal Year Ends          December
Book Value                $2.81 per Shr
 ROE                      NM
LT Debt                   $12,025.0
Preferred                 $947.00M
Common Equity             $3,078.00M
Convertible Available     Yes

Company Description
Nextel offers unique push-to-talk as well as traditional cellular services throughout the
United States.
Earnings per Share   P/E
2002        ($0.05A) 2002       NM
2003 $0.75E $0.80E   2003 17.4x 16.3x
2004        $0.92E   2004       14.2x

          Prev Current

Key Operating Metrics
2001 EBITDA $1.9BN
2002 EBITDA $3.2BN
2003E EBITDA $3.8BN

 - Nextel reported mixed 1Q results, in our view.  Several metrics including net additions
of 480k, churn of 1.9%, EBITDA of $906MM, EBITDA margin of 41% and receivables trends were
better than expected. NXTL continues to post some of the best operating metrics among its
peers.

 - We are concerned with long term trends particularly in light of weak ARPU of $67 and a
doubling of subscriber retention costs. We believe NXTL has reasonable visibility into 2Q
however, longer term execution & ability to expand margins beyond 41% could be difficult
over time.

 - NXTL reiterated 2003 guidance. We remain on the conservative side of guidance and
maintain our EBITDA estimate of $3.8BN. We raised '03 EPS to $0.80 from $0.75, reflecting
better 1Q performance and lower interest expense associated with debt buybacks.

 - We continue to expect NXTL will perform well near term however, we believe most
reasonable scenarios are reflected in NXTL's current valuation.  Upside potential should
come from visibility into 2H03 ARPU trends, favorable spectrum swap ruling and debt
buybacks.

I n v e s t m e n t   S u m m a r y
Nextel reported mixed 1Q results in our view.  The market overall will likely be pleased
with the near-term results however, we are more concerned about emerging longer term
trends.  We are worried about the company's ability to expand EBITDA margins given the
lower ARPU trend trajectory and cash outlays associated with subscriber retention efforts.

Nextel reiterated 2003 guidance. We remain on the conservative side of guidance and
maintain our EBITDA estimate of $3.8 billion. We raised our 2003 EPS estimate to $0.80
from $0.75, reflecting better 1Q performance and lower interest expense associated with
debt buybacks. We maintain our Sector Performer (Speculative) rating, since we believe
most reasonable scenarios are reflected in Nextel's valuation. Upside potential should
come from visibility into 2H03 ARPU trends, a favorable spectrum swap ruling and further
debt buybacks.

Q u a r t e r l y   H i g h l i g h t s

ARPU Weak ARPU of $67 was below our $69 estimate.  We believe part of the weakness was due
to seasonality. With minutes of use up 2% sequentially to 650 minutes, it appears that
recent plan rate cuts and less overage are having a bigger impact. In addition, while
overall minutes are still growing, the ARPU weakness may indicate that the MOU growth may
be coming from low margin off-peak usage.  The company saw improving ARPU trends in March
and April and expects ARPU to increase about $1 in 2Q.  We remain concerned about ARPU
visibility into 2H03 and will continue to monitor it closely as it remains a critical
EBITDA driver.

Retention and CPGA up QoQ We calculate that retention costs doubled QoQ to approximately
$65 million.  While the retention costs paid helped to lower churn to a four year low of
1.9% we remain concerned about the ongoing impact on the company's ability to expand
EBITDA margins. The higher retention costs may indicate that the company is having to
subsidize its service and/or handsets in order to keep existing clients.  Retention costs
will likely continue to be a key barometer to monitor in 2003, particularly as competition
for its valuable subscribers remains fierce.  CPGA (excluding retention costs) increased
$10 sequentially to $450.

Market Segmentation Detail Nextel updated its market segment breakdown of its subscriber
base. The individual segment continues to make up the majority (60% in 1Q) of recent
customer additions.  The company expects that the profitability of this segment is
comparable to its core small business segment.

We believe the profitability dynamics of this segment may become more challenged as the
company infringes more and more into other carriers consumer segments.

Attributes      Enterprise/Govt     Small Business
Individual          Total
4Q Subscribers  2.2MM               5.7MM
2.7MM               10.6MM
1Q Net Adds     0.1MM               0.1MM
0.3MM               0.5MM
1Q Subscribers  2.3MM               5.8MM
3.0MM               11.1MM
ARPU            Lower than average  Above average  Above
average       $67
Churn           Better than average Average        Higher than
average 1.9%
CPGA            Higher than average Reasonable     Lower than
average  $450

Debt/preferred buy back Nextel retired $568 million of debt and preferred securities in
exchange for approximately $570 million in cash. Over the last year, the company retired
$3.8 billion of debt and preferred securities that eliminated more than $6.3 billion in
principal and interest over the life of the securities. Nextel recently filed a $5 billion
shelf that could be used to advantageously refinance parts of its capital structure as
nearly all of it securities become callable over the next two years.
Churn of 1.9%, At Four Year Low Churn shrank 20 bps sequentially to 1.9% and is the lowest
among its peers.  We believe part of the company's success is related to the increase in
retention subsidies mentioned above.

2 0 0 3   G u i d a n c e   a n d   M o d e l   R e v i s i o n s

Nextel maintained its 2003 guidance.  We are making only modest changes to our model. Our
2003 earning per share estimate improves to $0.80 from $0.75, largely due to better 1Q
performance and lower interest expense associated with the recent debt/preferred buybacks.

Exhibit 1.  2003 Guidance and CIBC Estimates
                 As of Jan'03       As of 4/23       CIBC Est
 Net Additions   1.7MM or more      Same             1.59MM
 ARPU            High $60s          $67+             $67
 EBITDA          $3.8BN or more     Same             $3.79BN
 EBITDA          Above 40%          Same             41%
Margins
 Cap-ex          $1.8Bn or less     Same             $1.74BN
 Free Cash       $500MM or more     Same             $600MM
Flow
EPS             At least $0.75     $0.75 or more    $0.80 Source:  CIBC World Markets
Corp.

Price Target and Risks on NXTL

Our $11 price target is based on a discounted cash flow valuation method using the
following assumptions: WACC of 13%, terminal multiple of 9.0X and terminal year of 2006.

The price target for Nextel might not be realized, due to the following negative factors:
1) continued price erosion due to an extremely competitive market; 2) the company is a net
user of cash, which may ultimately increase its debt levels; 3) technology upgrades and
spectrum acquisitions may require additional capital to complete; 4) customer acquisition
costs and churn may rise; 5) technological substitution and/or obsolescence; 6) ability to
repay debt and on-going liquidity/funding position and 7) regulatory rulings that may
limit compensation for certain services or increase operating costs.  Even if none of the
above negative factors arise, the price target may still not be realized, due to events
pertaining to the overall wireless industry, the telecom industry and/or the broader
market.

Exhibit 2.

Source:  Company reports; CIBC World Markets Corp.
Our EPS estimates are shown below:
                            1 Qtr.      2 Qtr.      3 Qtr.      4 Qtr.
Yearly
2002 Actual    ($0.35A)    ($0.05A)      $0.14A      $0.21A    ($0.05A)
2003 Prior      $0.17E      $0.21E      $0.19E      $0.18E      $0.75E 2003 Current
$0.21A      $0.22E      $0.19E      $0.19E      $0.80E 2004 Current          --
--          --          --
$0.92E

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