Subject: [NEXTEL-1] Thomas Weisel On Nexthell

From: Marcel <[email-masked]>
Date: Thu, 07 Nov 2002 18:09:36 -0500

Nextel Communications (NXTL; $12.77; Cap $13bn; Buy) - On the road w/ management.

• We were on the road with Nextel Communications yesterday in San Francisco and our
comments below hit the highlights of the meetings. Yesterday's meetings follow several
East Coast investor meetings last week. Nextel was represented by Paul Saleh, CFO, and Joe
Wilkinson of IR. Overall, the tone of the meetings was quite positive (not surprisingly
and the turnout within accounts was good to excellent.

• Most meetings focused on the relevant key issues: pricing in the industry, competitive
walky talky products, network transition and capex levels. There were few questions on
current business conditions in this quarter (more questions on industry/strategic
considerations) though the company indicated recent business trends remain good.

• On pricing, the company was frustrated with the recent moves by AT&T and T-Mobile
(formerly Voicestream) to reduce pricing for certain regional plans to roughly 4 cents per
minute. The company believed that the plans would eventually be dropped as it is not
possible to generate reasonable EBITDA margins at that yield per minute.

• With regard to walky-talky competition, the CDMA players are handicapped to some degree
by the inherent latency of their networks. The GSM network providers (VSTR, AWE, Cingular)
have not talked about this product at all. We do expect VZ, AT, and PCS to trial products
in 2003 though, We have heard little, if any, noise from the handset vendors on this
topic; thus, we think it’s unlikely to see a meaningful product introduction by NXTL’s
competition within the next twelve months.

• With regard to a network transition, Nextel does not intend to move to a CDMA network
and all technical efforts are focused on making the 6 to 1 compression (up from 3 to 1
now) vocoder product from Motorola work by next August -- which would double voice
capacity once the subscriber base has been populated with new handsets.

• The company repeatedly stressed that capex is coming down overall and should be
approximately $1B in 2004, down from the $1.9B level of 2002. Based on our subscriber adds
in 2004, capex per net add would still be approximately $1000 per net add (or $1.3b total)
which is ample based on historical trends and industry comparisons
.
• The company believes a decision from the FCC regarding Nextel’s spectrum swap will be
forthcoming in the 1Q03. While the company’s technology does not need contiguous spectrum,
the spectrum swap would enhance the attractiveness of NXTL as an acquisition target by an
existing wireless provider.

• So, while there was not a ton of new information that came out the meetings, Nextel
management indicated that recent operating trends remain intact which is obviously
important in maintaining financial and market momentum. We expect the company to report
450k net adds (compared to 481k in 2q) in what should be a seasonally slower quarter with
revenues of $2.3 bill and EBITDA of $858mm, fractionally below last quarter’s $878mm.There
is probably more upside potential to our EBITDA figure than our subscriber estimate.

• While we believe the stock is not as obviously mispriced as it was three months ago, it
remains a very good opportunity, in our view. As we have said previously, if the company
continues on its current trends, there is a good shot it could earn $1 next year in
contrast to our $0.68 estimate. Should the company hit the $1 figure and trade at a market
multiple, that implies 30-40% appreciation potential. We note that some Street estimates
are creeping toward the magical $1 level. In addition, the stock is now trading just under
7.8x/6.8x TEV to 02/03E EBITDA versus 7.7x/7.0x for PCS and 6.9x/6.1x for AWE. Thus, NXTL
looks inexpensive versus the comps when factoring in operating momentum. Maintain Buy
rating at current levels as we think the stock will continue to grind north.

Estimates: Dec’02 Net Adds 1,903,000, Rev. $8.7bn, EBITDA $3.2bn, EPS $0.29; Dec’03 Net
Adds 1,500,000, Rev.$9.6bn, EBITDA $3.6 bn, EPS $0.68
Analyst: Ned P. Zachar, CFA 212-271-3838

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