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. 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 have established key priorities for our Company which include improving the customer experience, rebuilding our brand and generating operating cash flow. We plan to differentiate our services through providing customers with value and simplicity and by helping customers to be more productive.

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. The addition of Any Mobile, AnytimeSM to Everything Data plans provides customers unlimited mobile-to-mobile calling from the Sprint Network to any wireless phone on any U.S. wireless carrier network at no additional charge. New Business Advantage pricing plans provide value, flexibility and simplicity to our business customers who can also take advantage of Any Mobile, AnytimeSM with certain plans. Our Boost Mobile® brand prepaid price plans include unique nationwide monthly unlimited, pay as you go, and $1 per day text and 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 our national push-to-talk network and our 3G network. Through our relationship with Clearwire, we are also the first and only nationwide wireless carrier to offer 4G services. Sprint 4G is available in 17 markets and we expect to offer Sprint 4G service to 120 million people in 80 markets by the end of 2010. 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® HD, Blackberry ® devices, and the Novatel® Wireless MiFi 2200 intelligent mobile hotspot device. In October, our first AndroidTM device-the HTC HeroTM with GoogleTM became available and we have announced a second AndroidTM device, the Samsung Moment® and the new Palm®PixiTM will be available in the upcoming months. 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 steps 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 decline in cash provided by operating activities expected because of our lower number of post-paid subscribers as discussed below in "Effects on our Wireless Business of Post-paid Subscriber Losses." We believe that customer spending will continue to be negatively impacted as the U.S. economy begins to recover and market conditions improve. We will continue to take actions designed to manage the impact of these market conditions. Consistent with the

changing economic environment, the Company's prepaid plans, primarily through the National Boost Monthly Unlimited offering, are continuing to experience 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 contributors 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 third 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) 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 reduced the Sprint brand's effectiveness in attracting and retaining customers.

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 the credit quality mix of our subscriber base and 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. 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 has also introduced new handsets improving our overall lineup and providing a competitive mix for customer selection, as well as competitive new rate plans providing simplicity and value.

We expect these actions will have a favorable impact on net subscriber losses. Net post-paid subscriber losses had not improved sustainably 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 and 801,000 for the third quarter 2009 reflect sequential improvements of approximately 20% per quarter. Sprint expects that net post-paid subscriber losses will continue to improve during the fourth quarter of 2009.

As discussed below under "Wireless Business-Service Revenue", the net loss of post-paid subscribers in the first nine months of 2009 can be expected to cause wireless service revenue in the last quarter of 2009 to be approximately $481 million lower and in 2010 to be approximately $1.9 billion lower than it would have been had those subscribers not been lost. If we continue to experience a significant loss of post-paid subscribers in the fourth quarter 2009 and in 2010, it would have a significant negative impact on Sprint's financial condition, results of operations and liquidity in 2010 and beyond.

During 2009, wireless industry trends have 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 net 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 further 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 for 2009 as compared to 2008.

RESULTS OF OPERATIONS



                                                Three Months Ended                      Nine Months Ended
                                                  September 30,                           September 30,
                                             2009                2008                2009                2008
                                                                      (in millions)
Wireless segment earnings                 $    1,184          $    1,646          $    4,046          $    5,315
Wireline segment earnings                        324                 263                 962                 849
Corporate, other and eliminations                 (2 )               (85 )               (10 )              (235 )

Consolidated segment earnings                  1,506               1,824               4,998               5,929
Depreciation and amortization                 (1,820 )            (2,057 )            (5,614 )            (6,415 )
Merger and integration expenses                   -                   -                   -                 (130 )
Other, net                                        60                  28                (238 )              (297 )

Operating loss                                  (254 )              (205 )              (854 )              (913 )
Interest expense, net                           (355 )              (318 )            (1,057 )              (951 )
Equity in losses of unconsolidated
investments and other, net                      (156 )                 8                (587 )               (17 )
Income tax benefit                               287                 189               1,042                 706

Net loss                                  $     (478 )        $     (326 )        $   (1,456 )        $   (1,175 )

Consolidated segment earnings decreased $318 million, or 17%, and $931 million, or 16%, for the three and nine-month periods ended September 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, other and eliminations. Corporate, other and eliminations improved $83 million and $225 million for the three and nine-month periods ended September 30, 2009, respectively, 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 $12 million, or 1%, and $114 million, or 3%, for the three and nine-month periods ended September 30, 2009 compared to the same periods in 2008, primarily due to reduced levels of capital expenditures in 2009 and 2008 compared to prior periods. Amortization expense declined $225 million, or 40%, and $687 million, or 35%, for the three and nine-month periods ended September 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.

Other, Net

Other, net improved by $32 million and $59 million for the three and nine-month periods ended September 30, 2009 compared to the same periods in 2008. Other, net consists primarily of severance and exit costs, gains from asset dispositions and exchanges and a reduction in expected access costs associated with prior periods. Severance and exit costs increased by $15 million and decreased $12 million for the three and nine-month periods ended September 30, 2009, respectively compared to the same periods in 2008 for the separation of employees and continued organizational realignment initiatives. Gains from asset dispositions and exchanges increased by $19 million for each of the three and nine-month periods ended September 30, 2009 compared to the same periods in 2008 primarily due to a spectrum exchange transaction in the third quarter 2009. A favorable development during the third quarter 2009 relating to disagreements with local exchange carriers resulted in a reduction of $25 million in expected access costs associated with prior periods.

Interest Expense, Net

Interest expense increased $24 million, or 7%, and $52 million, or 5%, for the three and nine-month periods ended September 30, 2009 compared to the same periods in 2008. For the three-month period ended September 30, 2009, the interest expense increase as compared to the same period in 2008 is primarily attributed to fewer capital projects resulting in a decrease of capitalized interest. For the nine-month period ended September 30, 2009, the interest expense increase as compared to the same period in 2008 is primarily due to a decrease of $98 million in capitalized interest as a result of fewer capital projects, partially

offset by a decrease of $44 million in interest expense related to the approximate $1.7 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 $21.5 billion and $22.8 billion was 6.8% and 6.4% for the three-month periods ended September 30, 2009 and 2008, respectively. The effective interest rate on the average long-term debt balance of $21.5 billion and $23.2 billion was 6.7% and 6.5% for the nine-month periods ended September 30, 2009 and 2008, respectively. See "Liquidity and Capital Resources" for more information on the Company's financing activities. Interest income decreased $13 million, or 65%, in the three-month period ended September 30, 2009, and $54 million, or 69%, for the nine-month period ended September 30, 2009 as compared to the same periods in 2008, primarily due to lower interest rates.

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). In 2009, 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 to 51% during the first quarter 2009. We expect Clearwire to continue to generate net losses as it continues the 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 42% and 38% for the nine-month periods ended September 30, 2009 and 2008, respectively. The effective tax rate for the nine-month period ended September 30, 2009 was 7% 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 $478 million and $1.5 billion for the three and nine-month periods ended September 30, 2009 compared to $326 million and $1.2 billion for the same periods in 2008. Our three and nine-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 operating 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 equipment net 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 nine-month periods ended September 30, 2009 and 2008, respectively.

                                             Three Months Ended                         Nine Months Ended
                                                September 30,                             September 30,
Wireless Earnings                         2009                 2008                 2009                 2008
                                                                     (in millions)
Post-paid                              $    5,699           $    6,423           $   17,659           $   19,770
Prepaid                                       562                  380                1,388                1,161

Retail service revenue                      6,261                6,803               19,047               20,931
Wholesale, affiliate and other
revenue                                       141                  241                  444                  746

Total service revenue                       6,402                7,044               19,491               21,677
Cost of services (exclusive of
depreciation and amortization)             (2,164 )             (2,268 )             (6,349 )             (6,589 )

Service gross margin                        4,238                4,776               13,142               15,088

Service gross margin percentage                66 %                 68 %                 67 %                 70 %
Equipment revenue                             529                  492                1,479                1,558
Cost of products                           (1,482 )             (1,181 )             (4,115 )             (3,622 )

Equipment net subsidy                        (953 )               (689 )             (2,636 )             (2,064 )

Equipment net subsidy percentage             (180 )%              (140 )%              (178 )%              (132 )%
Selling, general and administrative
expense                                    (2,101 )             (2,441 )             (6,460 )             (7,709 )

Wireless segment earnings              $    1,184           $    1,646           $    4,046           $    5,315

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 nine-month periods ended September 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 26.

                                          Three Months Ended                  Nine Months Ended
                                            September 30,                       September 30,
                                        2009              2008              2009              2008
                                                        (subscribers in thousands)
Average post-paid
subscribers                              34,009            38,346            34,978            39,266
Average prepaid subscribers               5,397             4,074             4,619             4,272
Average monthly service
revenue per subscriber:
Post-paid                            $       56        $       56        $       56        $       56
Prepaid                                      35                31                33                30
Average retail post-paid
and prepaid                                  53                53                53                53

Retail service revenue decreased $542 million, or 8%, and $1.9 billion, or 9%, respectively, for the three and nine-month periods ended September 30, 2009, as compared to the same periods in 2008. The majority of the decline is due to a $724 million and $2.1 billion decrease in retail post-paid service revenue driven by a reduction of approximately 4.3 million, or 11%, in the Company's average number of retail post-paid subscribers for each of the three and nine-month periods ended September 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 $182 million and $227 million in retail prepaid revenue for the three and nine-month periods ended September 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 $100 million, or 41%, and $302 million, or 40%, for the three and nine-month periods ended September 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. 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,     September 30,
                                  2008          2008           2008              2008           2009          2009           2009
Average monthly service
revenue per subscriber
Post-paid                      $        56   $       56   $            56   $           56   $        56   $       56   $            56
Prepaid                        $        29   $       30   $            31   $           30   $        31   $       34   $            35

Average monthly retail post-paid service revenue per subscriber has been stable throughout the periods shown as a result of improved retention of our higher revenue subscribers on bundled rate plans offset by lower overage and roaming . . .