OVERVIEW

Sprint Nextel Corporation ("Sprint," "we," "us," "our" or "the Company") is a communications company offering a comprehensive range of wireless and wireline communications products and services that are designed to meet the needs of individual consumers, businesses and government subscribers. The communications industry has been and will continue to be highly competitive on the basis of price, the types of services and devices offered and the quality of service. As discussed below, the Company has experienced significant losses of subscribers in the critical post-paid wireless market in recent periods, and currently is focused on specific steps to reduce such losses.

Description of the Company

We are the third largest wireless communications company in the United States based on the number of wireless subscribers. We also are one of the largest providers of wireline long distance services and one of the largest carriers of Internet traffic in the nation. We own extensive wireless networks and a global long distance, Tier 1 Internet backbone. We offer wireless and wireline voice and data transmission services on state-of-the-art networks that utilize CDMA, iDEN and IP technologies. We utilize these networks to offer our wireless and wireline customers differentiated products and services whether through the use of a single network or a combination of these networks. We have established key priorities for our Wireless business which include improving the customer experience, rebuilding our brand and increasing profitability. We plan to achieve these priorities by providing customers with value and simplicity and by helping them to be more productive.

We believe that our value-driven wireless price plans are very attractive. Our family of "Simply Everything" post-paid price plans bundle together popular data applications with traditional mobile voice calling at price points that can save customers hundreds of dollars annually compared with our largest competitors. Our Boost Mobile brand prepaid price plans include unique nationwide monthly unlimited, pay as you go, and $1 per day chat plan options.

To simplify the customer experience, we have introduced tools such as One Click that allows customers to access various software applications through a single click on their mobile devices. Our Ready Now program trains our subscribers before they leave the store in how to use their mobile devices to ensure subscribers are well informed and comfortable with the features and functions of their new devices.

We provide certain wireless services on the fastest guaranteed national push-to-talk network, as well as the nation's most dependable 3G network and offer new dual mode 3G/4G services in the Baltimore market. Additionally, Sprint's 4G WiMAX service is expected to be available in Portland this summer. We also support the open development of applications and content on our network platforms. We offer multi-functional devices, such as the Samsung Instinct and the iDEN Blackberry Curve. In addition to our traditional wholesale customers, we also enable a variety of third-party providers, location-based services, and consumer product providers through our bandwidth built-in open device initiative. The bandwidth built-in open device initiative incorporates selling, marketing, product development, and operations resources to address the growing need for non-traditional data needs. It covers a wide variety of products and services including telematics, in-vehicle, e-readers, Original Equipment Manufacturer, and specialized medical devices.

In addition to our customer oriented goals, we have also taken measures to reduce our cost structure to align with the reduced revenues expected from fewer subscribers. Our actions include our January 2009 workforce reduction announcement through which we plan to reduce our labor and related costs by approximately $1.2 billion through actions that include a workforce reduction of about 8,000 positions of which approximately 90% was completed as of March 31, 2009. We believe these actions, as well as our continued efforts to reduce our other operating expenses and capital spending, will allow us to maintain a strong cash position, although we do not expect that these measures will fully offset the reduced cash expected from our service revenue declines discussed below in "Effects on our Business of Subscriber Losses." We believe that given the recent deterioration in the U.S. economy coupled with short-term market illiquidity, consumer and business spending will continue to be negatively impacted. We will continue to take actions designed to manage the impact of these market conditions on our ability to collect from our subscribers and on other areas of our business. Consistent with the changing economic environment, the Company's prepaid plans, primarily through the National Boost Monthly Unlimited offering, is experiencing strong demand as our simple, no contractual obligation solution provides great service and value to sub-prime subscribers.

We are subject to substantial regulation including from the FCC, which regulates the licensing, operation, acquisition and sale of the licensed radio spectrum that is essential to our business. The FCC and state public utility commissions also regulate, in whole or in part, the provision of communications services. Future changes in regulations or legislation related to spectrum licensing or other matters related to our business could impose significant additional costs either in the form of direct out-of-pocket costs or additional compliance obligations.

Effects on our Business of Subscriber Losses

As shown by the table below under "Results of Operations," Wireless segment earnings represents over 80% of Sprint's total segment earnings. Within the Wireless segment, post-paid wireless voice and data services represent the most significant contributor to earnings, and are driven by the number of subscribers to our services and the average revenue per subscriber, or user (ARPU).

Beginning in mid-2006, we began to experience net losses of post-paid subscribers on the Nextel iDEN wireless network, which we acquired in 2005 in the Sprint-Nextel merger. Such net losses for the year ended December 31, 2007 exceeded the net additions of post-paid subscribers on Sprint's CDMA wireless network. Beginning in 2008 and continuing through the first quarter 2009, we have been experiencing net losses of post-paid subscribers on each of the iDEN and CDMA wireless networks.

We believe that these increasing net subscriber losses resulted from a number of historical factors, in addition to the competitive nature of the industry, including: 1) uncertainty in the marketplace as to our intentions for and commitment to the iDEN network 2) a high level of involuntary churn due to a relatively high mix of sub-prime credit subscribers 3) adverse perceptions among some of our subscribers about our customer care services 4) adverse perceptions among some of our subscribers about the quality of and our commitment to development of our networks 5) highly successful competitor devices 6) perception in the marketplace that the portfolio of Sprint handset offerings was not as desirable as those of some competitors 7) uncertainty about the financial strength and future reliability of Sprint and 8) perceptions in the marketplace, in part as a result of the subscriber losses themselves, as well as the other factors above, that the Sprint brand might not be the most desirable for wireless services.

Beginning in 2008, in conjunction with changes in senior management, Sprint undertook steps to address each of these factors. Before directly addressing brand perception, steps were taken to improve the quality of Sprint's customer care services and the Sprint networks, as confirmed by recent independent comparisons with competitors. Steps were also taken to improve our financial stability, including vigorous cost control actions, which have resulted in our continuing strong cash flow from operations. We also improved financial flexibility through renegotiation in 2008 of Sprint's revolving bank credit facility. The credit quality mix of our subscriber base was significantly improved. In addition, near the end of 2008, Sprint undertook increased marketing initiatives, including media advertising, to increase market awareness of the improvements that had been achieved in the customer experience, including the speed and reliability of our network. Also, several new competitive handsets were introduced during 2008, and in 2009, Sprint will introduce one of the most anticipated new handsets with the rollout of the Palm Pre.

We expect these actions will ultimately have a favorable impact on net subscriber losses. Net post-paid subscriber losses have not improved as expected through the first quarter 2009, in part due to circumstances in the general economy, including higher deactivations of business customer accounts as companies reduce wireless service lines resulting from their own workforce reductions. Specifically, during the first quarter 2009, wireless industry trends included a significant industry-wide shift for new accounts from post-paid wireless accounts to prepaid accounts. As a result, although Sprint's market share of post-paid gross subscriber additions increased during the first quarter 2009, the absolute number of net post-paid subscriber losses of 1,250,000 was slightly greater than those in the fourth quarter 2008. Conversely, Sprint's prepaid wireless brand Boost Mobile experienced higher than expected growth in net subscriber additions in the first quarter 2009, with net additions of 674,000 subscribers. The Company's National Boost Monthly Unlimited prepaid offering continues to experience favorable acceptance in the marketplace.

When considered in total, including Sprint's wholesale business for which monthly recurring revenues per subscriber are lower, total net subscriber losses in the first quarter 2009 fell to 182,000, compared to 1,273,000 in the fourth quarter 2008. However, as noted above, post-paid wireless subscribers, for which net subscriber losses remained high, have the greatest impact on wireless revenues. As discussed below under "Results of Operations -Segment Earnings - Wireless Business-Service Revenue", this net loss of post-paid subscribers in the first quarter 2009 can be expected to cause wireless service revenue in each of the remaining quarters in 2009 to be approximately $200 million lower than it would have been had those subscribers not been lost. If the net losses of post-paid subscribers continued at the rate experienced in the first quarter 2009 indefinitely into the future, it would have a significant negative impact on Sprint's financial condition, results of operations and liquidity in 2010 and beyond. The successful prepaid wireless offerings, as well as the successful wholesale offerings, will partially offset these effects, but are unlikely to be sufficient to sustain the Company's level of profitability and cash flows unless we are successful in reducing the decline in post-paid subscribers. The Company believes that the actions that have been taken, as described above, and that continue to be taken in marketing, customer service, and network quality, should reduce the number of net post-paid subscriber losses during 2009 as compared to 2008.

RESULTS OF OPERATIONS



                                                                     Quarter Ended
                                                                       March 31,
                                                                2009               2008
                                                                     (in millions)
Wireless segment earnings                                    $    1,449         $    1,801
Wireline segment earnings                                           286                287
Corporate and other earnings                                        (12 )              (79 )

Consolidated segment earnings                                     1,723              2,009

Depreciation and amortization                                    (1,883 )           (2,202 )
Severance and exit costs                                           (327 )             (219 )
Merger and integration expenses                                      -                 (86 )

Operating loss                                                     (487 )             (498 )

Interest expense, net                                              (352 )             (313 )
Equity in earnings of unconsolidated investments and
other, net                                                         (285 )               (4 )
Income tax benefit                                                  530                310

Net loss                                                     $     (594 )       $     (505 )

Consolidated segment earnings decreased $286 million, or 14%, in the three-month period ended March 31, 2009 as compared to the three-month period ended March 31, 2008. Consolidated segment earnings consist of our Wireless and Wireline segments (see "Segment Earnings - Wireless Business" and "Segment Earnings - Wireline Business" below), and corporate and other earnings. Corporate and other earnings increased $67 million, or 85%, in the three-month period ended March 31, 2009 as compared to the same period in 2008 primarily as a result of a decrease in selling, general and administrative expenses relating to the labor and cost reduction initiatives.

Depreciation and Amortization Expense

Depreciation expense decreased $88 million, or 6%, in the three-month period ended March 31, 2009 from the same period in 2008, primarily due to assets becoming fully depreciated as the Company has reduced capital expenditures. Amortization expense declined $231 million, or 33%, in the three-month period ended March 31, 2009 from the three-month period March 31, 2008, primarily due to the amortization of the customer relationships acquired as part of the Sprint-Nextel merger, which are amortized using the sum of the years' digits method, resulting in higher amortization rates in early periods that decline over time. See Note 5 in Notes to the Consolidated Financial Statements for additional information regarding intangible assets.

Severance and Exit Costs

On January 26, 2009, we announced a workforce reduction to reduce internal and external labor costs by $1.2 billion on an annualized basis in an effort to reduce our cost structure and align costs with our reduced level of revenues. As a result, severance and exit costs increased by $108 million, or 49%, in the three-month period ended March 31, 2009 compared to the three-month period ended March 31, 2008 related to the separation of employees and continued organizational realignment initiatives.

Interest Expense, Net

Interest expense increased $22 million, or 6%, in the three-month period ended March 31, 2009 as compared to the same period in 2008, due to a decrease of $45 million in capitalized interest which was partially offset by a decrease of $20 million in interest expense related to the $1.4 billion decline in the average long-term debt balance between the comparative periods. The effective interest rate on the average long-term debt balance of $21.6 billion in the first quarter 2009 was 6.8%. The effective interest rate on the average long-term debt balance of $23.0 billion in the first quarter 2008 was 6.6%. See "Liquidity and Capital Resources" for more information on the Company's financing activities. In the first quarter 2009, interest income decreased $17 million, or 65%, as compared to the first quarter 2008, primarily due to lower interest rates.

Equity in Earnings of Unconsolidated Investments and Other, Net

This item consists mainly of losses from our equity method investments (see Note 3 in Notes to the Consolidated Financial Statements) and other miscellaneous income/(expense). Equity losses associated with the investment in Clearwire represent the Company's proportionate share of Clearwire's net loss and a pre-tax loss of $154 million ($96 million after-tax) related to the dilution of our investment in Clearwire during the first quarter 2009. Clearwire is expected to continue to generate a net loss at least through 2009 during the build out phase of their next-generation wireless network.

Income Tax Benefit

As a result of our pre-tax losses, the consolidated effective tax rate was a benefit of approximately 47% and 38% for the three-month periods ended March 31, 2009 and 2008, respectively. The effective tax rate for the three-month period ended March 31, 2009 was 12% higher than the U.S. federal statutory rate of 35%. Information regarding the items that caused the effective income tax rate to vary from the U.S. federal statutory rate can be found in Note 8 in Notes to the Consolidated Financial Statements.

Net Loss

We recognized a net loss of $594 million and $505 million for the three-month periods ended March 31, 2009 and 2008, respectively. Our first quarter 2009 and 2008 net losses reflect the decreases in Wireless segment revenue due to net losses of subscribers, together with our severance and exit costs and costs incurred to offset the net losses of subscribers. See "Segment Earnings - Wireless Business" below.

Segment Earnings - Wireless Business

Wireless segment earnings are primarily a function of wireless service revenue, costs to acquire subscribers, network and interconnection costs to serve those subscribers and other Wireless segment operating expenses. The costs to acquire our subscribers include the net cost at which we sell our handsets, referred to as handset subsidies, as well as the marketing and sales costs incurred to attract those subscribers. Network costs primarily represent switch and cell site costs and interconnection costs which generally consist of per-minute usage fees and roaming fees paid to other carriers. The remaining costs associated with operating the Wireless segment include the costs to operate our customer care organization, and administrative support. Wireless service revenue, costs to acquire subscribers, and variable network and interconnection costs fluctuate with the changes in our subscriber base and their related usage, but some cost elements do not fluctuate in the short term with the changes in our subscriber usage. The following table provides an overview of the results of operations of our Wireless segment for the three-month periods ended March 31, 2009 and 2008, respectively.

                                                                  Quarter Ended
                                                                    March 31,
Wireless Earnings                                         2009                     2008
                                                              (dollars in millions)
Service                                                $    6,420               $    7,123
Wholesale, affiliate and other                                162                      253

Total service revenue                                       6,582                    7,376
Cost of services (exclusive of depreciation and
amortization)                                              (2,072 )                 (2,114 )

Service gross margin                                   $    4,510               $    5,262

Service gross margin percentage                                69 %                     71 %
Equipment revenue                                      $      453               $      587
Cost of products                                           (1,291 )                 (1,265 )

Equipment net subsidy                                  $     (838 )             $     (678 )

Equipment net subsidy percentage                             (185 )%                  (116 )%
Selling, general and administrative expense            $   (2,223 )             $   (2,783 )

Wireless segment earnings(1)                                1,449                    1,801

(1) Excluded from Wireless segment earnings for 2008 are $66 million of merger and integration expenses, which are classified as selling, general and administrative expense and cost of products as appropriate in the consolidated statement of operations.

Service Revenue

Our Wireless segment generates revenues from the sale of wireless services, the sale of wireless equipment and the sale of wholesale and other services. Service revenue consists of fixed monthly recurring charges, variable usage charges and miscellaneous fees such as activation fees, directory assistance, operator-assisted calling, equipment protection, late payment and early termination charges and certain regulatory related fees, net of service credits. The ability of our Wireless segment to generate service revenues is primarily a function of:

• revenue generated from each subscriber, which in turn is a function of the types and amount of services utilized by each subscriber and the rates charged for those services (see "Service Revenue - Average Monthly Service Revenue per Subscriber" below); and

• number of subscribers that we serve, which in turn is a function of our ability to acquire new and retain existing subscribers (see "Service Revenue - Net Additions to (Losses of) Subscribers" below).

The summary below provides information related to average subscribers and average revenue per subscriber for the quarters ended March 31, 2009 and 2008. A summary of changes in net additions to subscribers and average rates of monthly post-paid and prepaid customer churn since the first quarter 2008 may be found in the table on page 22.

                                                             Quarter Ended
                                                               March 31,
                                                           2009         2008
      Average post-paid subscribers(1)                      36,051       40,167
      Average prepaid subscribers                            3,791        4,452
      Average monthly service revenue per subscriber:
      Direct post-paid                                  $       56   $       56
      Direct prepaid                                            31           29
      Average direct post-paid and prepaid                      54           53

(1) Average subscribers represent the average number of direct subscribers included in our customer base during the period, net of deactivated subscribers.

Service revenue decreased $703 million, or 10%, for the three-month period ended March 31, 2009 as compared to the three-month period ended March 31, 2008. The majority of the decline is due to a decrease in post-paid service revenue driven by a reduction of approximately 4.1 million, or 10%, in the Company's average number of direct post-paid subscribers. Our net post-paid subscriber losses have principally been caused by our attracting fewer new subscribers on both the iDEN and CDMA networks in recent periods. See subscriber and related earnings effects discussed in "Service Revenue - Net Additions to (Losses of) Subscribers," "Wireless Segment Earnings," and "Future Outlook" below for the expected impact on future periods.

Wholesale, affiliate and other revenues consist primarily of revenues from the sale of wireless services to companies that resell those services to their subscribers, net revenues retained from wireless subscribers residing in PCS Affiliate territories and revenues from bandwidth built-in services predominately marketed through devices enabled to interact on our network. Wholesale, affiliate and other revenues decreased $91 million, or 36%, for the three-month period ended March 31, 2009 as compared to the three-month period ended March 31, 2008 due to rate declines, as well as the decreased usage primarily from one of our large carrier customers.

Service Revenue - Average Monthly Service Revenue per Subscriber

Below is a table showing average revenue per direct post-paid and prepaid
subscriber for each quarter beginning with the first quarter 2008.



                                   March 31,      June 30,      September 30,      December 31,      March 31,
                                     2008           2008            2008               2008            2009
Average monthly service
revenue per subscriber
Direct post-paid                  $        56    $       56    $            56    $           56    $        56
Direct prepaid                    $        29    $       30    $            31    $           30    $        31

Average monthly direct post-paid service revenue per subscriber for the three-month period ended March 31, 2009 was flat as compared to the same period of 2008 as we improved the retention of our higher revenue subscribers and lessened the impact of rate plan migrations. These improvements have been primarily offset by the decline in average monthly direct post-paid

service revenue per iDEN subscriber. Our retention efforts have been focused on improving the customer experience, including, but not limited to, our Simply Everything bundled plans that provide unlimited voice, data, text and Direct Connect services; improved service levels from our customer care centers; and our Ready Now program. Average monthly prepaid service revenue per subscriber for the three-month period ended March 31, 2009 increased compared to the same period in 2008 due to higher access fees from our National Boost Monthly Unlimited users.

Service Revenue - Net Additions to (Losses of) Subscribers

The wireless industry is subject to intense competition to acquire and retain subscribers of wireless services. Most markets in which we operate have high rates of penetration for wireless services. Wireless carriers accordingly must attract a greater proportion of new subscribers from competitors rather than from first time subscribers. As a result, wireless carriers have focused on retaining valued subscribers through various means including considerable efforts in customer care.

As discussed above in "Overview," we have endeavored to retain and attract subscribers by taking actions to improve our customer care, sales and distribution functions, and brand awareness. In addition, we took other actions in an effort to improve our subscribers' experience including improving our network performance by adding capacity to our networks, broadening our handset portfolio, and providing subscribers an excellent value proposition with our Simply Everything pricing plans. While certain indicators suggest that we are making progress with respect to these actions, we have continued to lose post-paid wireless subscribers.

The following table shows (a) net additions (losses) of subscribers for each quarter beginning with the first quarter 2008 excluding existing subscribers who have migrated between networks, (b) our total subscribers as of the end of each quarterly period, and (c) our average rates of monthly post-paid and prepaid customer churn.

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