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 and currently is focused on specific steps to reduce such losses.

Description of the Company

Sprint is 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 networks that utilize CDMA, iDEN and internet protocol (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 Company which include improving the customer experience, rebuilding our brand and increasing profitability. We plan to differentiate our services through providing customers with value and simplicity and by helping customers to be more productive. Through our partnership with Clearwire and their development of a 4G network, we are establishing ourselves as a leader in the deployment of next-generation wireless broadband services.

We believe that our value-driven wireless price plans are very competitive. 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 Sprint® 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 on 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 service is expected to be available in Portland, Las Vegas and Atlanta in August with at least six more markets expected to follow in 2009. We also support the open development of applications and content on our network platforms. We offer multi-functional devices, such as the Palm® PreTM, Samsung® Instinct and Blackberry® devices including the new Blackberry® Tour TM as well as the Novatel® Wireless MiFi 2200 intelligent mobile hotspot device. 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 open device initiative. The open device initiative incorporates selling, marketing, product development, and operations resources to address growing non-traditional data needs. It covers a wide variety of products and services including telematics, in-vehicle devices, e-readers, specialized medical devices, and other Original Equipment Manufacturer 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 announcement of cost reductions through which we reduced our labor and other costs by approximately $1.2 billion annually. These actions included a workforce reduction of about 8,000 positions which was completed as of June 30, 2009. We believe these actions, as well as our continued efforts to reduce 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 post-paid service revenue declines discussed below in "Effects on our Wireless Business of Post-paid 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, are experiencing strong demand as our simple, no long-term contract solution provides good service and value.

Effects on our Wireless Business of Post-paid Subscriber Losses

As shown by the table below under "Results of Operations," Wireless segment earnings represent approximately 80% of Sprint's total consolidated 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 post-paid subscribers to our services, as well as the average revenue per subscriber, or user (ARPU).

Beginning in mid-2006, Sprint 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 second 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 significant net post-paid 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 during 2007 and early 2008 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 device 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 and, in May 2009 we repaid the only scheduled long-term debt maturing in 2009. We also improved financial flexibility through renegotiation in 2008 of Sprint's revolving bank credit facility. The credit quality mix of our subscriber base has significantly improved. In addition, beginning in 2008 and continuing in 2009, Sprint has undertaken increased marketing initiatives, including media advertising, to increase market awareness of the improvements that have been achieved in the customer experience, including the speed and dependability of our network. Sprint introduced the Palm®Pre™ on June 6, 2009, as well as the Blackberry® Tour™ on July 12, 2009.

We expect these actions will have a favorable impact on net subscriber losses. Net post-paid subscriber losses did not improve through the first quarter of 2009, in part due to circumstances in the general economy, including higher deactivations of business customer accounts as companies reduced wireless service lines resulting from their own workforce reductions. However, net post-paid subscriber losses of 991,000 for the second quarter 2009 improved by approximately 259,000 compared to first quarter 2009 net post-paid subscriber losses.

As discussed below under "Results of Operations-Segment Earnings-Wireless Business-Service Revenue", the net loss of post-paid subscribers in the first half of 2009 can be expected to cause wireless service revenue in the second half of 2009 to be approximately $720 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 second 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.

During the first half of 2009, wireless industry trends included a significant industry-wide shift for new accounts from post-paid wireless accounts to prepaid accounts. Sprint's successful prepaid wireless offerings, as well as the cost controls that have been implemented, will partially offset the effects of post-paid subscriber losses, 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, device offerings, and network quality, should reduce the number of net post-paid and total subscriber losses during 2009 as compared to 2008.

RESULTS OF OPERATIONS



                                                Three Months Ended                       Six Months Ended
                                                     June 30,                                June 30,
                                             2009                2008                2009                2008
                                                                      (in millions)
Wireless segment earnings                 $    1,413          $    1,868          $    2,862          $    3,669
Wireline segment earnings                        352                 299                 638                 586
Corporate and other earnings                       4                 (71 )                (8 )              (150 )

Consolidated segment earnings                  1,769               2,096               3,492               4,105
Depreciation and amortization                 (1,911 )            (2,156 )            (3,794 )            (4,358 )
Severance and exit costs                          29                (106 )              (298 )              (325 )
Merger and integration expenses                   -                  (44 )                -                 (130 )

Operating loss                                  (113 )              (210 )              (600 )              (708 )
Interest expense, net                           (350 )              (320 )              (702 )              (633 )
Equity in losses of unconsolidated
investments and other, net                      (146 )               (21 )              (431 )               (25 )
Income tax benefit                               225                 207                 755                 517

Net loss                                  $     (384 )        $     (344 )        $     (978 )        $     (849 )

Consolidated segment earnings decreased $327 million, or 16%, and $613 million, or 15%, for the three and six-month periods ended June 30, 2009 compared to the same periods in 2008. Consolidated segment earnings consist of our Wireless and Wireline segments, which are discussed below, and corporate and other earnings. Corporate and other earnings improved $75 million, or 106%, and $142 million, or 95%, for the three and six-month periods ended June 30, 2009 as compared to the same periods in 2008 primarily as a result of costs incurred related to the build-up of 4G WiMAX in 2008 that are no longer being incurred in 2009 due to the close of the transaction with Clearwire in late 2008 (See Note 3 to the Consolidated Financial Statements).

Depreciation and Amortization Expense

Depreciation expense decreased $14 million, or 1%, and $102 million, or 3%, for the three and six-month periods ended June 30, 2009 compared to the same periods in 2008, primarily due to reduced capital expenditures for the three and six-month periods ended June 30, 2009 as compared to the same periods in 2008 (See Note 14 to the Consolidated Financial Statements). Amortization expense declined $231 million, or 34%, and $462 million, or 33%, for the three and six-month periods ended June 30, 2009 as compared to the same periods in 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.

Severance and Exit Costs

On January 26, 2009, Sprint 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, which was completed, as expected, by June 30, 2009. In the second quarter 2009, we reduced the estimate of total severance and lease exit costs associated with our workforce reduction announced in January 2009 by $29 million. For the six-month period ended June 30, 2009, total severance and lease exit costs associated with the January announcement were $298 million. In total, severance and lease exit costs decreased by $135 million, or 127%, and $27 million, or 8%, for the three and six-month periods ended June 30, 2009 compared to the same periods in 2008 for the separation of employees and continued organizational realignment initiatives.

Interest Expense, Net

Interest expense increased $6 million, or 2%, and $28 million, or 4%, for the three and six-month periods ended June 30, 2009 compared to the same periods in 2008. For the three-month period ended June 30, 2009, the interest expense increase as compared to the same period in 2008 is primarily due to a decrease of $24 million of capitalized interest as a result of fewer capital projects and $19 million of other interest credits, which was partially offset by a decrease of $31 million in interest expense related to the $2.6 billion decline in average long-term debt balance between the comparative periods. For the six-month period ended June 30, 2009, the interest expense increase as compared to the same period in 2008 is primarily due to a decrease

of $69 million in capitalized interest as a result of fewer capital projects, which was partially offset by a decrease of $45 million in interest expense related to the $2.0 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 $21.3 billion and $23.9 billion was 6.6% and 6.4% for the three-month periods ended June 30, 2009 and 2008, respectively. The effective interest rate on the average long-term debt balance of $21.4 billion and $23.4 billion was 6.7% and 6.5% for the six-month periods ended June 30, 2009 and 2008, respectively. See "Liquidity and Capital Resources" for more information on the Company's financing activities. Interest income decreased $24 million, or 75%, in the three-month period ended June 30, 2009, and $41 million, or 71%, for the six-month period ended June 30, 2009 as compared to the same periods in 2008, primarily due to lower interest rates and interest income from 2008 tax refunds received.

Equity in Losses 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 also includes other miscellaneous income/(expense). Equity losses associated with the investment in Clearwire represent the Company's proportionate share of Clearwire's net loss, plus 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. We expect Clearwire to continue to generate a net loss as it continues build out of its 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 44% and 38% for the six-month periods ended June 30, 2009 and 2008, respectively. The effective tax rate for the six-month period ended June 30, 2009 was 9% 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 10 to the Consolidated Financial Statements.

Net Loss

We recognized net losses of $384 million and $978 million for the three and six-month periods ended June 30, 2009 compared to $344 million and $849 million for the same periods in 2008. Our three and six-month period 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, partially offset by the reduction in expenses in 2009.

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 devices, referred to as 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 and six-month periods ended June 30, 2009 and 2008, respectively.

                                                 Three Months Ended                     Six Months Ended
                                                      June 30,                              June 30,
Wireless Earnings                         2009                 2008                 2009                 2008
                                                                     (in millions)
Post-paid                              $    5,897           $    6,614           $   11,960           $   13,347
Prepaid                                       469                  391                  826                  781

Retail service revenue                      6,366                7,005               12,786               14,128
Wholesale, affiliate and other
revenue                                       141                  252                  303                  505

Total service revenue                       6,507                7,257               13,089               14,633
Cost of services (exclusive of
depreciation and amortization)             (2,113 )             (2,207 )             (4,185 )             (4,321 )

Service gross margin                        4,394                5,050                8,904               10,312

Service gross margin percentage                68 %                 70 %                 68 %                 70 %
Equipment revenue                             497                  479                  950                1,066
Cost of products                           (1,342 )             (1,176 )             (2,633 )             (2,441 )

Equipment net subsidy                        (845 )               (697 )             (1,683 )             (1,375 )

Equipment net subsidy percentage             (170 )%              (146 )%              (177 )%              (129 )%
Selling, general and administrative
expense                                    (2,136 )             (2,485 )             (4,359 )             (5,268 )

Wireless segment earnings(1)           $    1,413           $    1,868           $    2,862           $    3,669

(1) Excluded from Wireless segment earnings for the three and six-month periods ended June 30, 2008 are $35 million and $101 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 devices and accessories and the sale of wholesale 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; and

• number of subscribers that we serve, which in turn is a function of our ability to acquire new and retain existing subscribers.

The table below summarizes average number of retail subscribers and average revenue per subscriber for the three and six-month periods ended June 30, 2009 and 2008. Retail, previously referred to as direct, comprises those subscribers to whom Sprint directly provides wireless services on our networks, whether those services are provided on a prepaid or a post-paid basis. Wholesale and affiliate are those subscribers who are served through MVNO and affiliate relationships, and other arrangements through which wireless services are sold by Sprint to other companies that resell those services to their subscribers. More information about the number of subscribers, net additions to subscribers, and average rates of monthly post-paid and prepaid customer churn for each quarter since the first quarter 2008 may be found in the table on page 25.

                                           Three Months Ended                   Six Months Ended
                                                June 30,                            June 30,
                                         2009              2008              2009              2008
                                                         (subscribers in thousands)
Average post-paid subscribers             34,874            39,286            35,462            39,726
Average prepaid subscribers                4,670             4,292             4,231             4,372
Average monthly service
revenue per subscriber:
Post-paid                             $       56        $       56        $       56        $       56
Prepaid                                       34                30                33                30
Average retail post-paid and
prepaid                                       54                54                54                54

Retail service revenue decreased $639 million and $1.3 billion, or 9%, respectively, for the three and six-month periods ended June 30, 2009, as compared to the same periods in 2008. The majority of the decline is due to a $717 million and $1.4 billion decrease in retail post-paid service revenue driven by a reduction of approximately 4.4 million and 4.3 million, or 11%, respectively, in the Company's average number of retail post-paid subscribers for the three and six-month periods ended June 30, 2009 as compared to the same periods in 2008. The decline in retail post-paid service revenue is partially offset by an increase of $78 million and $45 million in retail prepaid revenue for the three and six-month periods ended June 30, 2009 as compared to the same periods in 2008, driven by attracting subscribers to the Company's National Boost Monthly Unlimited plan.

Wholesale, affiliate and other revenues, in total, decreased $111 million, or 44%, and $202 million, or 40%, for the three and six-month periods ended June 30, 2009 compared to the same periods in 2008, primarily due to a decrease in the number of subscribers with one of our large wholesale carrier customers, partially offset by service revenue from an increase in machine-to-machine subscribers. Wholesale revenues include a growing number of devices under our open-device initiative, including machine-to-machine services through devices that utilize our network. Average revenue per subscriber for our open-device machine-to-machine services is significantly lower than revenue from other wholesale and affiliate subscribers; however, the cost to service these customers is also lower resulting in a higher profit margin as a percent of revenue.

Average Monthly Service Revenue per Subscriber

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



                                March 31,     June 30,     September 30,     December 31,     March 31,     June 30,
                                  2008          2008           2008              2008           2009          2009
Average monthly service
revenue per subscriber
Post-paid                      $        56   $       56   $            56   $           56   $        56   $       56
Prepaid                        $        29   $       30   $            31   $           30   $        31   $       34

Average monthly retail post-paid service revenue per subscriber has been stable throughout the periods shown as we have continued to improve the retention of our higher revenue subscribers. Average monthly retail prepaid service revenue per subscriber for the three-month period ended June 30, 2009 increased compared to the three-month period ended June 30, 2008 and the first quarter 2009 due to higher access fees from our National Boost Monthly Unlimited users.

Net Additions to (Losses of) Subscribers . . .