Subject: [NEXTEL-1] Charles Schwab Says: "It is our opinion that at this valuation level, Nextel may walk away from the transaction and pursue offering wireless data with its 90 MHz of spectrum in the 2.5 GHz frequency band."

From: [email-masked]
Date: Wed, 14 Apr 2004 21:17:16 -0400

Charles Schwab Says: "It is our opinion that at this valuation level,
Nextel may walk away from the transaction and pursue offering wireless
data with its 90 MHz of spectrum in the 2.5 GHz frequency band."

<SNIP>

Price Target Valuation and Risks

We remain positive relative to the 12-month share performance for
Nextel and maintain our $33 12-month price target. However, we also
recognize
that shares may come under near-term pressure as the FCC works to
determine a suitable
outcome for the consensus plan. We do not expect a decision to be made
at the April 15 FCC
commission meeting, but rather expect perhaps a decision in late
May.

Regardless, investors should also recognize that the FCC will
remain under increasing pressure to perhaps hold a public auction for
the
1900 MHz spectrum, to which Verizon has asserted that it would bid more
than
$5 billion. However, it remains at issue whether improved filters by a
third- party bidder such as Verizon will solve the interference issues
in
the 800 MHz frequency band for the benefit of the public safety
organizations.

===================================================================
Charles Schwab Soundview Report

09:58pm EST 13-Apr-04 SCHWAB SOUNDVIEW CAPITAL MKTS (Michael Bowen)
NXTL ATAWE
Schwab SoundView: NXTL: Strong Gross Subs and Churn Uptick, but We
See E
Part 1

April
13,
2004
Equity Research                            Sector: Wireline/Wireless
Services

-
Nextel (Outperform)
NXTL : Strong Gross Subs and Churn Uptick, but We See End to Near-term
Weakness
* Company Update

-

Michael G. Bowen
Sales and Trading

-
Stock Net:

We are increasing gross subscribers and monthly churn due to stronger
handset sales at Nextel, the result of increased subscribers from its
NASCAR
relationship, Boost, and WLNP. We believe there now exists an equal
chance Nextel may roll out Flarion nationwide, or perhaps forge a
relationship with another carrier such as Sprint. In addition, we have
lowered FCF
estimates in 2004--2006.

-

| Fiscal Year Dec      Fiscal Year        Last Qtr.  Curr Qtr.  Next
Qtr.|
|                      F03A  F04E  F05E   4Q03A      1Q04E
2Q04E    |
| Revenue(Current$)    10.8B 12.8B 14.3B  3.0B       3.0B
3.1B     |
| Revenue(Previous$)   10.8B 12.8B 14.3B  3.0B       3.0B
3.1B     |
| Revenue(Consensus$)  10.8B 12.5B 13.8B  3.0B       3.0B
3.1B     |
| EPS(Current$)        1.25  2.00  2.32   0.46       0.46
0.49     |
| EPS(Previous$)       1.25  2.00  2.33   0.46       0.46
0.49     |
| EPS(Consensus$)      1.41  1.99  2.16   0.48       0.44
0.49     |
| P/S(Current)         2.5   2.1   1.9    --         --         --
|
| P/E(Current)         19.8  12.4  10.7   --         --         --
|
| P/E(Consensus)       17.6  12.4  11.5   --         --         --
|
|
|

|                                  |
| Ticker:             NXTL         |
| Price (04/13/2004): $24.75       |
| 52-Wk. Range:       $29.37-$11.83|
| Market Cap (B):     $27.4        |
| Shares Out. (M):    1,052        |
| Rating:             Outperform   |
| Price Target:       $33          |
|                                  |

PLEASE REFER TO END OF THIS REPORT FOR ANALYST CERTIFICATION AND
OTHER IMPORTANT DISCLOSURES Additionally, important disclosure
information can
also be accessed at http://www.soundview.com/Research/ConflictDisclosure

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

* Our previous assertions regarding strength from NASCAR have been
bolstered by Boost and WLNP, and we have increased our gross subscriber
and churn assumptions for 1Q04.

* We believe the FCC will delay a decision until mid-late May regarding
the spectrum swap, but if the total cost rises above $2.0--$2.3 billion,
Nextel may threaten to walk away or forge a more substantial
relationship with Sprint.

* Irrespective of technology platform, we have reduced our free cash
flow assumption in 2004--2006 by a total of $1.4 billion due to
increased capital expenditure. As a result, we anticipate near-term
pressure on shares of Nextel over the next six to eight weeks.

* However, Nextel continues to generate the best operating metrics in
the group, and we believe our 12-month $33 price target is achievable.
We reiterate our Outperform and would take opportunities of weakness in
the low $20s to purchase shares.

--
What's Next for Nextel?

Clearly the spectrum swap consensus plan has taken on somewhat of a
life of its own in recent months, and we believe it is prudent to clear
up
at least some of the confusion. First, we feel it is important for
investors
to remember that Nextel first filed its proposal with the Federal
Communications Commission (FCC) on Nov. 21, 2001 in which it offered
$500 million
to $850 million to re-band, re-tune and swap frequency bands through a
reallocation
of spectrum via the FCC. It now appears that the spectrum reallocation,
popularly known as the consensus plan, may cost Nextel much more than it

originally offered. Last week, the Washington Post reported that three
of the
five FCC commissioners had voted to allow Nextel to swap the interleafed
800
MHz spectrum for an incremental $1.3 billion to $1.5 billion over and
above the $850 million offered by Nextel net of the value received for
its 700 MHz,
800 MHz and 900 MHz spectrum. While none of this has been verified, nor
confirmed or denied by Nextel, we do believe the FCC will recommend a
higher
price to be paid by Nextel.

However, it is our opinion that at this valuation level, Nextel may walk
away from the transaction and pursue offering wireless data with its 90
MHz of spectrum in the 2.5 GHz frequency band. This appears entirely
plausible, as the FCC wireless bureau has indicated that rewriting the
rules in the 2.5 GHz band in the coming months is entirely possible in
order to enable voice and data transmission. It is also this spectrum
frequency, of which Nextel currently has in possession sufficient
quantity to cover two-thirds of the United States, which has fueled some
speculation that Nextel may partner or combine forces with Sprint.
Sprint possesses spectrum in the 2.5 GHz band in the northwest and
southeast (approximately one-third of the country), complementary to
Nextel's spectrum in the 2.5 GHz band in the other parts of the country.

We believe that ultimately, the technology migration path that Nextel
chooses may hinge on the success of, and the cost to build out, a
nationwide Flarion FLASH-OFDM technology platform. Our sources continue
to indicate that the Flarion trials of 8,000 users are progressing
successfully in North Carolina on balance; however, we estimate the cost
to build out a nationwide network could be $1.6 billion to $2.2 billion
excluding the desired 10 MHz of contiguous 1900 MHz spectrum frequency.
Given this, were the FCC to require the company to pay upward of $2.0
billion to $2.3 billion for the right to swap out its spectrum for the
1900 MHz band, it is possible that Nextel may consider other
alternatives.

Increasing Capital Investment in 2004--2006, Reducing FCF Technology
migration path alternatives could include, but may not be limited to,
merging or an attempt to acquire Sprint Corporation. Other than the
near-term stress that this would place on a combined balance sheet of
Nextel and Sprint, the alternative for Nextel may only be for it to
invest heavily in rolling out the Flarion platform, which is as of yet
still untested on a nationwide basis. Regardless, it appears that free
cash flow for
Nextel may be reduced substantially during the next few years as the
company determines which technology migration path it will pursue. While
the company has indicated it anticipates $1.6 billion in free cash flow
or more for 2004, our current estimated free cash flow stands at $2.0
billion. In order to take into account the company's required investment
over the next two to two and one- half years, we have increased our
capital expenditures by $1.4 billion during the period 2004 through
2006. The bulk of the increase is in 2005 and 2006, with an increase of
$700 million in 2005 and $600 million in 2006.
Therefore, we have reduced free cash flow in 2005 and 2006 by the
amounts that capital expenditures increase, and we have lowered our free
cash flow estimates in 2005 and 2006. Investors should recognize that a
large majority of the company's investing base has derived comfort from
the company's ability to increase free cash flow, though we still
estimate that Nextel will generate $2.0 billion in 2005 and $1.85
billion in 2006. Regardless, these have been lowered from $2.7 billion
in 2005 and $2.35 billion in 2006, and we expect this will cause some
increase in levels of discomfort with shares of Nextel, as this could
dampen share momentum even though from an operating perspective Nextel
should remain the best of its peers.

Handset Sales Strong, but Churn May Tick Up

We continue to believe that wireless local number portability (WLNP)
will impact the wireless sector by approximately 30--50 basis points. We

have estimated that churn for Nextel will increase to 1.7% in 1Q04
compared to 1.5% in 4Q03. However, it appears that iDen handset demand
at Nextel has
been stronger than we anticipated during the first quarter, and we
remind
investors that perhaps the first indication of this was referred to in
our
March 18, 2004 research note which highlighted strength in the company's
NASCAR
relationship. We believe that early success in the company's NASCAR
relationship may have generated more than the incremental 20,000 net
subscribers we predicted in mid-March. Further, we had indicated at that
time
that perhaps more than 40,000 new handsets had been sold as a result of
the new NASCAR relationship through a combination of new net subscribers
and existing subscribers purchasing the new driver-theme phones. As a
result, while we have left our net new subscribers for 1Q04 unchanged at
464,000, we have increased our gross subscribers to 1.17 million from
1.13 million, and our churn rate moves to 1.8% from 1.7% in the quarter.

In addition, we believe the incremental increase in demand may also
be a direct result of success of the company's Boost Mobile service. At
the close of 2003, there were more than 400,000 Boost Mobile
subscribers, and
we believe this may have increased dramatically in 1Q04 and also note
that the
company plans to increase its markets for Boost by at least six to seven
in
2004 from its present two markets. Nextel added 161,000 Boost
subscribers in 4Q03 and
102,000 in 3Q03, and we also note that Boost estimates are not included
in the
company's guidance of 1.8 million net new subscribers or more in 2004.
We
believe the company may have added incremental Boost subscribers in
excess
of 250,000 during 1Q04.

Price Target Valuation and Risks

We remain positive relative to the 12-month share performance for
Nextel and maintain our $33 12-month price target. However, we also
recognize
that shares may come under near-term pressure as the FCC works to
determine a suitable
outcome for the consensus plan. We do not expect a decision to be made
at the April 15 FCC
commission meeting, but rather expect perhaps a decision in late
May.

Regardless, investors should also recognize that the FCC will
remain under increasing pressure to perhaps hold a public auction for
the
1900 MHz spectrum, to which Verizon has asserted that it would bid more
than
$5 billion. However, it remains at issue whether improved filters by a
third- party bidder such as Verizon will solve the interference issues
in
the 800 MHz frequency band for the benefit of the public safety
organizations.

--
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