Subject: [NEXTEL-1] iDEN technology is approaching the end of its technological life / Nextel Admits New Vocoder Increases Call Connect Delay

From: [email-masked]
Date: Thu, 21 Aug 2003 00:29:02 -0400

SoundView Technology Corp. iDEN technology is approaching the end of its technological life,
Nextel Admits New Vocoder Increases Call Connect Delay.

* iDEN technology is approaching the end of its technological life.

* Consenus Plan- It appears that for the plan to be completed, Nextel may have to
pay more than it originally proposed.

* New Vocoder- In preparation for continued growth of subscribers and minutes of
  use (MOU), Nextel is implementing a 6:1 vocoder. However, the company found that technologically a 6:1 vocoder has more
  call connect delay than its current 3:1vocoder.
=========================================================================
FIRST CALL RESEARCH NETWORK
06:28am EST 20-Aug-03 SoundView Technology Corp. (Michael Bowen)
NXTL T FON VZ
SoundView: NXTL: Initiating Coverage With an Outperform Rating and
$26 P Part 1

SoundView Technology Group                               August 20, 2003 Equity
Research                                    Sector: Wireless Services:

Nextel (Outperform)
NXTL : Initiating Coverage With an Outperform Rating and $26 Price
Target

* Initiation of Coverage

Michael G. Bowen

Stock Net:  A greater than 85% business mix and the higher relative sector margins
make the company an attractive investment. We believe Nextel's enterprise base of
subscribers is more insulated regarding WLNP than other business-focused carriers
or consumer subscriber bases. While valuation has increased recently, we expect
Nextel to generate sector-leading margins to expand valuation.

| Fiscal Year Dec      Fiscal Year         Last Qtr.  Curr Qtr.
Next Qtr.|
|                      F02A   F03E  F04E   2Q03A      3Q03E
4Q03E    |
| Revenue(Current$)    8.7B   10.3B 11.6B  2.6B       2.6B
2.8B     |
| Revenue(Previous$)   --     --    --     --         --         --
       |
| Revenue(Consensus$)  8.7B   10.2B 11.3B  2.6B       2.6B
2.7B     |
| EPS(Current$)        (0.05) 1.12  1.51   0.27       0.31
0.32     |
| EPS(Previous$)       --     --    --     --         --         --
       |
| EPS(Consensus$)      (0.05) 1.08  1.43   0.27       0.31
0.29     |
| P/S(Current)         2.2    1.9   1.7    --         --         --
       |
| P/E(Current)         NM     16.8  12.5   --         --         --
       |
| P/E(Consensus)       NM     17.4  13.2   --         --         --
       |
  |                                 |
  | Ticker:             NXTL        |
  | Price (08/19/2003): $18.81      |
  | 52-Wk. Range:       $20.53-$6.67|
  | Market Cap (B):     $19.4       |
  | Shares Out. (M):    1,052       |
  | Rating:             Outperform  |
  | Price Target:       $26         |
  |                                 |

IMPORTANT DISCLOSURE AND CONFLICT INFORMATION IS CONTAINED AT THE
END OF THIS
REPORT

Industry Opinion:  U.S. wireless subscribers will grow 6.9%/year and take share
from wireline providers. Business and data growth will drive margins, though churn
from WLNP will increase 30--50 basis points in 2004.  U.S. wireless revenue will
grow 8.2%/year vs. -2%--4% for wireline.

Company Description:  Nextel Communications provides wireless services over an
all-digital packet data network based on Motorola's iDEN technology. The company
differentiates itself through Nextel Direct Connect, a long-range walkie-talkie
service.

 * We are initiating coverage of Nextel Communications with an  Outperform rating
and 12-month price target of $26. Nextel's business model offers substantial
upside leverage from stronger ARPU, lower churn and  higher margins.

 * Nextel's subscriber mix is 85%-plus business, and 30% of its traffic is derived
from push-to-talk (PTT), which uses one-half  the capacity of wireless voice
calls.

 * While Nextel's iDEN services platform will likely require technology migration
by 2006, Nextel's current deployment of a split 3:1 vocoder (essentially a 6:1
vocoder that doubles bandwidth) should suffice until then.

 * We expect Nextel's net subscriber five-year growth CAGR of 11.5% to exceed both
the Americas (+8.5%) and the United States (+6.8%), and its proportion of business
customer mix positions it better than its peers.

Investment Thesis

We are initiating coverage of Nextel with a rating of Outperform and a 12-month
price target of $26. Nextel focuses primarily on the business market, and we
estimate that more than 85% of its 11.7 million subscriber base are currently
business customers. This is at least one reason Nextel is able to generate the
highest average revenue per user (ARPU) in the industry. We believe Nextel's
business and financial model provide more leverage than that of the other
carriers, and while competitors are moving to offer push-to-talk (PTT) capability,
latency and call-setup times with CDMA and GSM platforms continue to plague
competing carriers' PTT offerings, and we do not foresee a truly competitive
offering in 2003.

While the company remains highly levered, with debt to capitalization of 73.1%,
the company has retired $4.3 billion in debt, convertibles, and preferred stock
since the first quarter of 2002. The company currently carries $2.4 billion in
cash, and the debt retirements have enabled it to avoid approximately $7.1 billion
in principal, interest and dividend obligations. We expect the company will
continue to opportunistically retire several billion in debt over the next few
years, though this may be at least partly dependent on the strength of the bond
market.

Nextel currently has approximately 2.4 million government and enterprise
customers, 6.0 million general business users, and 3.4 million individual
subscribers. The company's heavier focus on business customers relative to the
other carriers has helped it to generate higher margins that its competitors.

In addition to generating higher margins compared to its peers, Nextel has
continued to outpace its peers based on operating margins and has consistently
added more net subscribers than Sprint PCS and AT&T Wireless over the past several
quarters.

While competing carriers are moving to provide CDMA and GSM versions of PTT, we do
not believe equivalent PTT service will be available in 2003.  Nextel has
engendered a loyal base of subscribers for its PTT service, and 94% of the
company's subscribers currently are PTT users. Contrary to our initial thoughts
that direct connect services might not be as well received nationally as
regionally, we believe user preferences and the evolution of user patterns will
result in national, and perhaps, even global popularity of PTT.

Company Overview

Nextel Communications provides a unique long-range digital walkie-talkie wireless
service under the brand name Nextel Direct Connect, and its subscriber base is
more than 85% business. Nextel's data network, which was designed by Motorola, is
based on integrated Digital Enhanced Network or iDEN technology. On this platform,
the company offers not only wireless voice services, but also wireless data
services such as e-mail, text messaging and Internet connection. Nextel's national
wireless network covers 240 million POPs, including 198 of 200 metropolitan
statistical areas (MSAs).

Equity Ownership Interests: Nextel owns approximately 32% of Nextel Partners and
approximately 36% of NII, Inc., formerly Nextel International, which provides
wireless service in Latin America.

Nextel Partners is an affiliate that uses the Nextel brand name in rural tier II
and III markets and provides service in 57 of the 200 largest metropolitan
statistical areas in the United States. Nextel has roaming agreements with Nextel
Partners, of which Nextel provided the spectrum to Nextel Partners covering 40
million POPs. Nextel and Nextel Partners pay roaming fees to each other, though
Nextel does not include the fees from Nextel Partners' one million subscribers in
its ARPU. Nextel Partners' roaming payments to Nextel were approximately $16
million in 2Q03.

Nextel International filed for Chapter 11 on May 24, 2002 and emerged on Nov.
12, 2002. Prior to restructuring, Nextel International was a wholly owned
subsidiary of Nextel. Nextel has retained a 35% ownership interest in NII (NIHD).
Nextel's ownership share of both entities is accounted for using the equity
method, and is accounted for in the equity in net income of affiliates category in
the company's income statement.

Network Model: Nextel targets small, medium and large businesses that depend on
data-driven communications and are willing to pay a premium for enhanced wireless
services. Nextel's high-end customer focus results in loyal customers, highest
average revenue per customer in the industry and the highest lifetime revenue per
customer.

Nextel's all-packet platform provides a foundation for sending and receiving
wireless e-mail and communicating through other sophisticated business
applications. All Nextel handsets use Motorola iDEN technology and support digital
wireless service, Nextel Direct Connect walkie-talkie service, wireless Internet
connection and two-way messaging features. Nextel was the first domestic wireless
provider to offer subscribers color screen phone service and handsets with
location-based services through global positioning satellite (GPS) technology. The
Nextel Direct Connect walkie-talkie service operates with a push-button feature
and allows business customers to set up conference calls in a private (one to one)
or group (one to many) setting.

Currently, the direct connect feature is offered in the local calling area, but
near-term network upgrades will enable Nextel National Direct Connect to be
functional across the United States. Additional upgrades are expected to be
implemented in the second half of 2003 to allow nationwide Direct Connect service,
which is currently offered regionally. Nextel also plans to eventually offer
global direct connect sometime in 2004 or beyond.

Integrated Dispatch Enhanced Network or iDEN is a wireless technology developed by
Motorola, and it operates in the 800MHz, 900MHz and 1.5GHz radio bands. iDEN
operates on blocks of non-contiguous frequencies, which have historically been
used only by two-way radio calls due to their fragmented nature. iDEN technology
connects the frequencies for digital calls to be made, similar to how GSM in
Europe was designed. Through a combination of base stations and switching centers
that receive and hand-off calls in addition to certain dispatch equipment, calls
travel through a packet-based interface.  iDEN is based on the TDMA (time division
multiple access) technology format.

However, iDEN technology is approaching the end of its technological life, and we
expect Nextel will be forced to upgrade to an entirely new platform around 2006.
Until then, its new vocoder will increase voice capacity of the existing network.

Nextel has roaming agreements with NII Holdings and TELUS in Canada as well as 80
other countries. The handset is dual mode and can operate on the iDEN technology
or GSM 900MHz (European standard). Nextel maintains a total of 17,000 sites, 22MHz
of spectrum in 800--900MHz bands in 100 U.S.  MSAs and 4MHz in 700MHz band in
major U.S. markets.

Network Expansion

In preparation for continued growth of subscribers and minutes of use (MOU),
Nextel is implementing a 6:1 vocoder. However, the company found that
technologically a 6:1 vocoder has more call connect delay than its current 3:
1 vocoder. A 6:1 vocoder means that six cellular calls are able to occur
concurrently over a single radio channel, which effectively doubles network
capacity. The problem has been that the 6:1 vocoder caused 90 millisecond
roundtrip delays per call, which was unacceptable.

Nextel uses split 3:1 channels, which use 7.5 millisecond slots compared to 15
millisecond slots used in both 3:1 and 6:1 channels. The result is that bandwidth
has been doubled, or conversely the bandwidth required has been reduced by 50%.

Nextel added approximately 800 cell sites in 2002, and currently has about 17,000
cell sites in total. On average, these cell sites have 15 radios each, though
Nextel could increase the number of radios in each cell site to 36 and, when
combined with the company's use of split channels or the 6:1 vocoder, could
quadruple network capacity. It appears that many of the technological issues
surrounding the 6:1 vocoder have been solved, and Nextel plans to roll out use of
the 6:1 vocoder in 3Q03.

Spectrum Reallocation

Nextel currently owns 26MHz of spectrum license bandwidth across several frequency
bands. The company's spectrum ownership is spread across the 700MHz, 800MHz, and
900MHz frequency bands in contiguous and non-contiguous blocks.

Source: SoundView Technology Group, 2003

Because Nextel's wireless service operates in the same frequency spectrum as used
by commercial, business, and public safety organizations, Nextel's system has
caused interference with older analog networks within those frequencies.
Therefore, on Nov. 21, 2001, Nextel filed its proposal with the FCC to reallocate
its ownership across the frequency bands. In March 2002, the FCC issued a notice
of proposed rulemaking (NPRM) in consideration of the proposal.

On Aug. 7, 2002 in response to the NPRM, a consensus proposal by the major
licensees within the 800MHz and 1.9GHz frequency bands was submitted to the FCC
under which 800MHz spectrum would be re-banded, providing Nextel with 16MHz of
contiguous spectrum in the 800MHz frequency band. In addition, Nextel would
receive 10MHz of contiguous spectrum in the 1.9GHz frequency band (1910/ 1915 MHz
and 1990/1995 MHz bands). The contiguous reallocation will cordon off the spectrum
for future public safety, current public safety, industrial, land and
transportation to alleviate interference issues.

However, the plan has not been without its issues, as on Dec. 24, 2002 the 800MHz
licensees filed a petition to increase the fees that Nextel would be required to
contribute in order to move current users of the spectrum from $500 million to
approximately $850 million over the next few years.  A notice for proposed rule
making was issued in Feb. 2003. However, Cingular and other carriers have also
filed alternative petitions relative to Nextel receiving 10MHz of contiguous
spectrum in the 1.9GHz frequency band. It is not surprising that competing
carriers are concerned that as Nextel works to move customers from one frequency
band to another, it offers the opportunity to sell Nextel service to that
enterprise. It appears that for the plan to be completed, Nextel may have to pay
more than it originally proposed.

Nextel Timeline

Source: SoundView Technology Group, 2003

July 28, 1995: Nextel Communications was formed as the result of the merger
between a newly formed corporation and ESMR, a wholly owned subsidiary of
Motorola.

Dec. 8, 1997: The FCC concluded the 800Mhz auctions, and Nextel submitted the
highest bids for 475 of 525 EA licenses for rights to almost 10Mhz of spectrum
covering 50 states.

Jan. 29, 1999: Nextel, Motorola and Eagle River Investments entered into an
agreement relating to the formation of Nextel Partners.  Subsequent to the
agreement, Nextel effectively owned 29% of Nextel Partners.

Dec. 8, 1997: The FCC concluded the 800Mhz auctions and Nextel submitted the
highest bids for 475 of 525 EA licenses for rights to almost 10Mhz of spectrum
covering 50 states.

Jan. 29, 1999: Nextel, Motorola and Eagle River Investments entered an agreement
relating to the formation and capitalization of Nextel Partners.
Post-transaction, Nextel effectively owned 29% of Nextel Partners.

Feb. 19, 1999: Nextel and SpectraSite entered into an agreement whereby Nextel
sold SpectraSite some of Nextel's towers and leased them back from SpectraSite.

May 27, 1999: Microsoft purchased 17 million shares of Nextel for $600 million.
Agreements related to the transaction included provisions whereby Microsoft
provided Internet services to support Nextel's Online service.

July 15, 1999: Daniel Ackerson steps down from the CEO position, and Tim Donahue
subsequently becomes president and CEO in September 1999.

Nov. 5, 1999: Nextel completed its initial public offering and sold 33.8 million
shares of stock at $83.8125 per share, realizing proceeds of $2.8 billion.

Feb. 2, 2000: SpectraSite completed its initial public offering subsequent to
which Nextel beneficially owned 11%.

Feb. 25, 2000: Nextel Partners completed its initial public offering.
Post-transaction, Nextel owned 33% of the company.

January 2001: The FCC reclaimed all C and F block PCS licenses including those
awarded to NextWave Communications.

July 2001: Nextel launched an enhanced version of Nextel Direct Connect, which
allowed local customers to communicate instantly.

December 2001: Nextel entered into a five-year information technology outsourcing
agreement with EDS under which EDS would be responsible for managing Nextel's
corporate data center, database administration, helpdesk, desktop services and
other technical functions.

July 2002: NII Holdings (formerly Nextel International) filed Chapter 11.

December 2002: Nextel sold its equity stake in SpectraSite and terminated all
related tower services.

January 2003: Nextel began Phase I of its National Direct Connect service.

Management Team

Timmy M. Donahue, Chief Executive Officer -- Nextel, has been in several senior
leadership roles with the company since February 1996. Prior to his current
position of chief executive officer, starting in July 1999, Mr.
Donahue served as president and chief operating officer. He also served as a
director since June 1996. Prior to Nextel, Mr. Donahue began his career at AT&T
Wireless where he was in various management positions from 1986--1996.

.  Paulee N. Saleh, Executive Vice President and Chief Financial Officer - -
Nextel, since September 2001. Before this role, Mr. Saleh was senior vice
president and chief financial officer of Disney International from April 1997 to
June 1999. Mr. Saleh also held a position as senior vice president and treasurer.
Prior to Walt Disney, he spent 12 years with Honeywell Inc. as vice president and
treasurer, among various other senior roles.

Thomas N. Kelly, Jr., Executive Vice President and Chief Operating
Officer -
- Nextel, since February 2003 and had previously been chief operating officer.
Prior to his tenure at Nextel, Mr. Kelly was regional vice president of marketing
for AT&T Wireless. He also worked, earlier in his career, with the marketing
consulting firm of Howard Bedford Nolan as executive vice president.

Financial Model

Our financial model reflects slightly above consensus revenue and earnings per
share estimates for the company. Nextel provided updated and increased financial
and operating guidance on its 2Q03 earnings call for 2003.

Guidance for 2003 earnings per share is currently $1.00 or more, increased from
prior guidance of $0.75, and compares to our EPS estimate of $1.12. We estimate
Nextel to produce $4.0 billion in EBITDA, or OIBDA, in 2003. While the company has
switched to the acronym of OIBDA (operating income before depreciation and
amortization) due to prodding by the SEC, the calculation is exactly as we have
always derived EBITDA. Due to the fact that EBITDA is a non-GAAP measure, the SEC
had grown uncomfortable with the derivation of EBITDA and its supposed implication
that GAAP earnings were embedded in the figure.

The company anticipates free cash flow of $600 million or more using a free cash
flow definition of operating cash flow less interest expense, spectrum purchases,
and working capital. We use a more traditional definition of free cash flow
measured across our coverage universe of operating cash flow (which already
includes net income and therefore takes into account interest expense and taxes)
plus depreciation and amortization, less additions to working capital, less
capital expenditures. Therefore, the primary difference in our free cash flow
calculation is not subtracting spectrum purchases. We estimate Nextel to generate
approximately $1.4 billion in free cash flow in 2003.

Net subscriber addition expectations were increased to 1.9 million or more, up
from 1.7 million, though we believe Nextel will generate 2.06 million net
subscriber additions with a monthly churn rate of 1.8% for 2003, including 1.7%
and 1.9% in 3Q03 and 4Q03, respectively. While we expect Nextel's higher
proportion of enterprise customers exposes it to some of the negative effects of
WLNP, its push to talk service should offset this to a degree. We estimate an
increase in monthly churn rates in the first half of 2004 to 2.1% in 1Q04 and 2Q04
from 1.7% and 1.9% in 3Q03 and 4Q03, respectively.

We assume for all our companies that average revenue per user (ARPU) may decline
over the forecast period despite a degree of offsetting data revenue.
Capital expenditure guidance in 2003 is $1.8 billion or less, which is unchanged
from prior guidance, and we currently estimate $1.73 billion.

Price Target Valuation and Risks

We are initiating coverage of Nextel Communications with an Outperform rating and
a 12-month price target of $26 based on our 10-year discounted cash flow (DCF)
model using a weighted average cost of capital (WACC) of 10%, which places its
discount rate slightly higher than our 9.5% discount rate for Sprint PCS but lower
than the 10.5% discount rate applied to AT&T Wireless.

Compared to AT&T Wireless and Sprint PCS, we believe Nextel's valuation model
based on unlevered free cash flows offers the most potential upside to our target.
While wireless local number portability poses a threat to the sector, Nextel has a
solid base of customers and we believe it will be a net subscriber taker in a post
wireless porting environment.

It is important to recognize that shares of Nextel do not appear inexpensive
relative to its peers based on an enterprise value multiple to revenue or price to
sales in the period 2003--2005. However, Nextel currently trades at a discount to
AT&T Wireless measured by enterprise value multiples of EBITDA during the same
period. We also note that Nextel's price to earnings ratio looks attractive
relative to AT&T Wireless (Sprint PCS is not expected to generate positive EPS
until 2005 by our estimates), and while both companies benefit from net operating
loss carry forwards which lower their effective tax rates, Nextel anticipates a
lower tax rate for the next six quarters due to its larger net operating loss
carry forward than that for AT&T Wireless. We believe Nextel's focus on business
enterprise customers and higher associated margins and earnings may enable the
company's valuation to expand further to our price target.

|
         |
|SoundView
Conflicts                                                     |
|Historical Rating and Price Target information for stocks covered
by         |
|SoundView as well as important information about conflicts is
available at   |
|www.soundview.com/Research/ConflictDisclosure
         |
| - Michael Bowen initiated coverage of AT&T Wireless on August 20,
2003 |
| - Michael Bowen initiated coverage of Nextel on August 20,
2003        |
| - SoundView makes a market in the securities of
NXTL                   |
|
         |

I, Michael Bowen, hereby certify that all of the views expressed in the research
report accurately reflect my personal views about any and all of the subject
securities or issuers. I also certify that no part of my compensation was, is, or
will be, directly or indirectly, related to the specific recommendations or views
expressed in this research report, except as the recommendations pertain to my
stock picking performance.

SOUNDVIEW TECHNOLOGY GROUP - DESCRIPTION OF RESEARCH RATING SYSTEM

(implemented week of June 17, 2002):

- OUTPERFORM (OP): We expect this stock to outperform the SoundView

100 benchmark by more than 10 percentage points over the next 12 months.

- NEUTRAL (N): We expect this stock to perform within a range of +/-
10 percentage points of the SoundView 100 benchmark over the next 12 months.

- UNDERPERFORM (UN): We expect this stock to underperform the
SoundView 100 benchmark by more than 10 percentage points over the next 12 months.

- The construction and components of the SoundView 100 benchmark can be found at
http://www.soundview.com. Our expectations as to the likely performance of the
SoundView 100 over the next 12 months are published every 6 months. Over the next
12 months we expect the SoundView 100 benchmark to rise by approximately 10%. This
implies we expect a stock with an Outperform rating to rise in excess of 20% in
absolute terms over the next 12 months and that we expect an Underperform rated
stock to be flat to down. Our share price targets indicate our expectation of
where the stock will trade over the next 12 months.

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---

From: Rick Parrish <[email-masked]>
Date: Thu, 21 Aug 2003 04:38:07 -0500

[email-masked] wrote:

>* New Vocoder- In preparation for continued growth of subscribers and minutes of use (MOU), Nextel is implementing a 6:1 vocoder. However, the company found that technologically a 6:1 vocoder has more call connect delay than its current 3:1 vocoder.
>  
>
Are they referring to call setup time or just plain time latency? The 
vocoder should have no effect on the time it takes a call to connect.

-rick