OVERVIEW
Business Strategies and Key Priorities
Sprint 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, government subscribers and resellers. The communications industry has been and will continue to be highly competitive on the basis of the quality and types of services and devices offered, as well as price. We are currently undergoing a significant multi-year program, Network Vision, to upgrade our existing wireless communication network, including the decommissioning of our Nextel platform for which we expect to re-purpose valuable spectrum resources that currently support that network (see "Overview - Network Vision"). To support our business strategy and expected capital requirements associated with Network Vision, as well as take advantage of a favorable interest rate environment to refinance a portion of existing debt, we raised debt financing of approximately $8.9 billion during 2012 in addition to executing a $1.0 billion secured equipment credit facility with remaining availability of up to $704 million as of December 31, 2012 (see "Liquidity and Capital Resources").
Wireless segment earnings represented approximately 86% of our total consolidated segment earnings as of December 31, 2012. Within the Wireless segment, postpaid wireless voice and data services represent the most significant contributors to earnings and are driven by the number of postpaid subscribers to our services, as well as the average revenue per user (ARPU). The following table shows our trend of end of period postpaid subscribers by platform for the past five years.

                                                       As of December 31,
                                          2012      2011      2010      2009      2008
                                                         (in thousands)
Sprint platform                          30,245    28,729    27,446    26.712    27,068
Nextel platform                           1,632     4,285     5,666     7.255     9,610

In the first quarter of 2012, we formalized our plans to decommission the Nextel platform and ceased using approximately one-third, or 9,600, of the Nextel platform cell sites in the middle of 2012 as part of Network Vision. We expect the remainder of the Nextel platform, or approximately 20,000 sites, to be shut-down on June 30, 2013. During the Network Vision modernization program, as we execute on the planned shut-down of the Nextel platform, we expect continued losses on the Nextel platform; however, we intend to achieve subscriber growth on the Sprint platform by focusing on the addition of profitable subscribers as well as the recapture of subscribers from the Nextel platform. Despite the overall reduction in postpaid subscribers, primarily as a result of our action to shut-down the Nextel platform, we experienced growth in net operating revenue during the twelve month period ended 2012 as compared to 2011, related primarily to the continued adoption of smartphones and the premium data add-on charge. During 2012, we achieved approximately 1.5 million net postpaid subscriber additions on the Sprint platform, of which substantially all represented postpaid subscribers that deactivated service on the Nextel platform, while the Nextel postpaid platform incurred approximately 2.7 million net postpaid subscriber losses.
During the year ended December 31, 2012, we achieved an annual recapture rate of approximately 55% of the Nextel platform postpaid subscribers, based on net postpaid subscribers that terminated service on the Nextel platform during that same period and activated service on the Sprint platform. In addition, recaptured Nextel platform subscribers, on average, carry a slightly higher average revenue per subscriber on the Sprint platform as compared to the Nextel platform as a result of smartphone adoption by such subscribers. At December 31, 2012, there were approximately 2.1 million Nextel platform subscribers, of which approximately 1.6 million and 454,000 represent postpaid and prepaid, respectively. More than 80% of the remaining 1.6 million Nextel platform postpaid subscribers represent business accounts. Although we will continue to pursue the recapture of these subscribers, we expect the level of competition for these subscribers as well as the timing of business customer decisions to cause the rate of recapture to decline to 30-40% during the six-month period ended June 30, 2013. Despite the continued reduction of Nextel platform subscribers as we shut-down the Nextel platform in 2013, we expect consolidated net operating revenue to benefit from Sprint platform growth in 2013. Prospectively, our efforts are expected to continue

to focus on profitable growth through service provided on an enhanced wireless network on the Sprint platform while continuing to achieve our key priorities. Our business strategy is to be responsive to changing customer mobility demands by being innovative and differentiated in the marketplace. Our future growth plans and strategy revolve around achieving the following three key priorities:
• Improve the customer experience;

• Strengthen our brands; and

• Generate operating cash flow.

To simplify and improve the customer experience, we continue to offer Ready Now, which trains our customers before they leave the store on how to use their mobile devices. For our business customers, we aim to increase their productivity by providing differentiated services that utilize the advantages of combining IP networks with wireless technology. This differentiation enables us to retain and acquire both wireline, wireless and combined wireline-wireless subscribers on our networks. We have also continued to focus on further improving customer care. We implemented initiatives that are designed to improve call center processes and procedures, and standardized our performance measures through various metrics, including customer satisfaction ratings with respect to customer care, first call resolution, and calls per subscriber.
We distinguish ourselves from the other wireless providers through our truly unlimited offerings of data, text and calling to any mobile, any time. We are rated one of the highest in satisfaction of purchase experience for full-service wireless providers and have been named one of the nation's greenest companies. In addition to our improvements in the customer experience, we continue to strengthen our brand through offering a broad selection of some of the most desired and iconic devices while focusing on continued enhancements to our network and our upgrade to LTE.
In addition to our brand and customer-oriented goals, we continue to focus on generating increased operating cash flow through competitive rate plans for postpaid and prepaid subscribers, multi-branded strategies, and effectively managing our cost structure. Certain of our strategic decisions, such as Network Vision and the introduction of the iPhone®, which on average carries a higher equipment net subsidy, will result in a reduction in cash flows from operations in the near term. However, we believe these actions will generate long-term benefits, including growth in valuable postpaid subscribers, a reduction in variable cost of service per unit and long-term accretion to cash flows from operations. See "Liquidity and Capital Resources" for more information. Proposed Business Transactions
On October 15, 2012 we entered into an Agreement and Plan of Merger (Merger Agreement) with SOFTBANK CORP., a kabushiki kaisha organized and existing under the laws of Japan, and certain of its wholly-owned subsidiaries (together, "SoftBank"). Upon consummation of the merger (SoftBank Merger), (i) Sprint will become a wholly-owned subsidiary of a subsidiary of SoftBank (New Sprint), (ii) New Sprint will be a publicly traded company, (iii) SoftBank will indirectly own approximately 70% of New Sprint on a fully diluted basis, and (iv) the former stockholders and other equityholders of Sprint will own approximately 30% of the fully diluted equity of New Sprint. The SoftBank merger is subject to various conditions, including receipt of required regulatory approvals and approval of Sprint's stockholders, and is expected to close in mid-2013.
In addition, on October 15, 2012, Sprint and SoftBank entered into a Bond Purchase Agreement (Bond Agreement), an on October 22, 2012, Sprint issued a convertible bond (Bond) under the Bond Agreement to New Sprint with a face amount of $3.1 billion, stated interest rate of 1%, and maturity date of October 15, 2019. The Bond is convertible into approximately 590 million shares of Sprint common stock, subject to adjustment. The Bond will convert into shares of Sprint common stock immediately prior to consummation of the SoftBank Merger and may not otherwise be converted prior to the termination of the Merger Agreement. On November 6, 2012, Sprint entered into a definitive agreement with United States Cellular Corporation (U.S. Cellular) to acquire personal communications services (PCS) spectrum and approximately 585,000 customers in parts of Illinois, Indiana, Michigan, Missouri and Ohio, including the Chicago and St. Louis markets, for $480 million in cash. Sprint has agreed, in connection with the acquisition, to reimburse U.S. Cellular for certain network shut-down costs in these markets. These costs are expected to range from $130 million to $150 million on a net present value basis, but in no event will Sprint's reimbursement obligation exceed $200 million on an undiscounted basis. The additional spectrum will be used to supplement Sprint's coverage in these areas.

On December 11, 2012, Sprint purchased the equity holdings of one of Clearwire's equityholders, Eagle River Holdings, LLC (Eagle River) comprised of 30.9 million shares of Class A Common Stock and 2.7 million shares of Class B Interests, for a total purchase price of $100 million in cash.
In addition, on December 17, 2012, Sprint entered into a merger agreement with Clearwire Corporation to acquire all of the remaining equity interests in Clearwire Corporation that we do not currently own for approximately $2.2 billion in cash, or $2.97 per share (Clearwire Acquisition). In connection with the Clearwire Acquisition, Clearwire Corporation and Sprint have entered into agreements that provide up to $800 million of additional financing for Clearwire in the form of exchangeable notes, which will be exchangeable for Clearwire common stock at $1.50 per share, subject to certain conditions and subject to adjustment. Under the financing agreements, Sprint has agreed to purchase $80 million of exchangeable notes per month for up to ten months beginning in January 2013, with some of the monthly purchases subject to certain funding conditions, including conditions relating to approval of the Clearwire Acquisition by Clearwire's shareholders and the parties agreeing to a network build out plan. On January 31 2013 Sprint and Clearwire entered into an amendment to the financing agreement which extended the date the parties were to agree to a network build out plan from January 31, 2013 to February 28, 2013. On February 26, 2013, Sprint and Clearwire amended the exchangeable notes agreement to remove the network build out condition to Sprint's obligation to provide financing for the last three draws (in August, September and October 2013). Accordingly, Clearwire, at its option, is eligible for the last three draws, totaling $240 million. In addition, Clearwire provided its first notification to Sprint of its election to draw $80 million, under the terms of the financing agreements, in March 2013. Network Vision
Network Vision will encompass approximately 38,000 cell sites. We had approximately 6,000 sites on air and had launched LTE in 49 markets as of December 31, 2012. Further deployments of Network Vision technology, including LTE market launches and enhancements of our 3G technology, are expected to continue through the middle of 2014. We expect Network Vision to bring financial benefit to the Company through migration to one common network, which is expected to reduce network maintenance and operating costs through capital efficiencies, reduced energy costs, lower roaming expenses, backhaul savings, and reduction in total cell sites. Our expectation of financial savings is affected by multiple variables, including our expectation of the timeliness of deployment across our existing network footprint. We revised our plan to bring 12,000 multi-mode base stations on-air by the end of 2012 to the first quarter of 2013. The deployment of multi-mode technology is managed by Sprint but dependent upon three primary OEMs, each of which has responsibility for a geographical territory across the United States. During the second half of 2012, we experienced delays with vendor execution, backhaul connectivity delays, shortages in equipment such as fiber cable and antennas, as well as other regulatory and environmental issues. However, we expect that we will recover from these delays and we are still forecasting to have the majority of the sites on-air by the end of 2013 with expected completion of Network Vision deployment by the middle of 2014.
The deployment related to changes in technology have resulted in incremental charges during the period of implementation of our multi-mode technology and Nextel platform decommissioning including, but not limited to, an increase in depreciation associated with existing assets related to both the Nextel and Sprint platforms due to changes in our estimates of the remaining useful lives of long-lived assets, changes in the expected timing and amount of asset retirement obligations, and lease exit and other contract termination costs. In the first quarter of 2012, we formalized our plans to take off-air roughly one-third, or 9,600 cell sites, of our total Nextel platform by the middle of 2012 with the remaining sites to be taken off-air on June 30, 2013. As a result, in the first quarter 2012, we revised our estimates to shorten the expected useful lives of Nextel platform assets through the expected benefit period of the underlying assets through 2013 and also revised the expected timing and amount of our asset retirement obligations. During the second quarter 2012, as a result of progress in taking Nextel platform sites off-air and progress toward notifying and transitioning customers off the Nextel platform, we further reduced our estimated benefit period for the remaining Nextel platform assets through the middle of 2013 resulting in incremental depreciation expense. The amounts reflected as depreciation expense are dependent upon the expected useful lives of assets, which includes our expectation of the timing of assets to be phased out of service, and could result in further revision during the decommissioning period. The remaining net book value of Nextel platform assets as of December 31, 2012 was approximately $1.0 billion, which we expect to recognize as depreciation expense on an approximately ratable basis through June 30, 2013. We took approximately 9,600 cell sites off-air in 2012 which

resulted in lease exit costs totaling approximately $196 million as of December 31, 2012. We expect to complete our shutdown of the Nextel platform on June 30, 2013. As a result, we expect to incur significant additional charges in the future under other tower lease agreements as we continue to take off-air Nextel platform sites as well as transition our existing backhaul architecture to a replacement technology for our remaining network sites.
We are also experiencing increased data usage driven by more subscribers on the Sprint platform and a continuing shift in our subscriber base to smartphones, which has required additional capital expenditures of legacy 3G Sprint platform equipment (legacy equipment). As we deploy Network Vision, we intend to maximize the use of previously deployed legacy equipment when possible; however, based on our capacity needs during the implementation period of Network Vision, we expect additional legacy equipment expenditures that will not be utilized beyond the final deployment of Network Vision's multi-mode technology, which is expected to continue through the middle of 2014. As a result, the estimated useful lives of such equipment have been shortened, as compared to similar prior capital expenditures, which we also expect will contribute to an increase in depreciation expense. There is approximately $1.3 billion in net book value of legacy equipment currently in-service with shortened estimated useful lives, which is resulting in accelerated depreciation as of December 31, 2012. In addition, capital expenditures of approximately $205 million related to legacy equipment are included in construction in progress as of December 31, 2012, which we also expect to have a shortened estimated useful life when placed in-service. Furthermore, based on current estimates of increased data usage, we expect additional capital expenditures of legacy equipment until Network Vision is substantially complete.

RESULTS OF OPERATIONS

                                                          Year Ended December 31,
                                                       2012         2011         2010
                                                               (in millions)
Wireless segment earnings                           $  4,147     $  4,267     $  4,531
Wireline segment earnings                                649          800        1,090
Corporate, other and eliminations                          7            5           12
Consolidated segment earnings                          4,803        5,072        5,633
Depreciation and amortization                         (6,543 )     (4,858 )     (6,248 )
Other, net                                               (80 )       (106 )         20
Operating (loss) income                               (1,820 )        108         (595 )
Interest expense                                      (1,428 )     (1,011 )     (1,464 )
Equity in losses of unconsolidated investments, net   (1,114 )     (1,730 )     (1,286 )
Other income (expense), net                              190           (3 )         46
Income tax expense                                      (154 )       (254 )       (166 )
Net loss                                            $ (4,326 )   $ (2,890 )   $ (3,465 )

Consolidated segment earnings decreased $269 million, or 5%, in 2012 compared to 2011 and $561 million, or 10%, in 2011 compared to 2010. Consolidated segment earnings consist of our Wireless and Wireline segments, which are discussed below, and Corporate, other and eliminations. Depreciation and Amortization Expense
Depreciation expense increased $1.8 billion, or 40%, in 2012 compared to 2011. The Network Vision deployment is resulting in incremental charges during the period of implementation including, but not limited to, an increase in depreciation associated with existing assets related to both the Nextel and Sprint platforms, due to changes in our estimates of the remaining useful lives of long-lived assets, and the expected timing and amount of asset retirement obligations, which we expect to continue to have a material impact on our results of operations during 2013. In 2012, the incremental effect of accelerated depreciation due to the implementation of Network Vision was approximately $2.1 billion, of which the majority related to the Nextel platform. The increase related to accelerated depreciation was slightly offset by a net decrease in depreciation as a result of assets that became fully depreciated or were retired. We expect that the amount of accelerated depreciation in 2013 will be lower than 2012, primarily as a result of our initial phase of taking Nextel platform sites off-air which occurred within the first two quarters of 2012. Although we expect the amount of accelerated depreciation related to the Nextel platform to

decline in 2013, we expect an increase in capital expenditures during the period of implementation of Network Vision, which is expected to result in an increase in depreciation expense over the next several years as those assets are placed in service. Depreciation expense decreased $619 million, or 12%, in 2011 compared to 2010 primarily due to the estimated useful life study of depreciable assets which reflected a reduction in the replacement rate of capital additions. This decline is partially offset by an increase due to assets placed in service as a result of capital expenditures related to capacity to support increased data usage by our subscribers.
Amortization expense declined $100 million, or 25%, in 2012 compared to 2011 primarily due to the absence of amortization for customer relationship intangible assets related to the 2006 acquisition of Nextel Partners, Inc. and the 2009 acquisition of Virgin Mobile USA, Inc. (Virgin Mobile), which became fully amortized in the second quarter 2011. Amortization expense declined $771 million, or 66%, in 2011 as compared to 2010, primarily due to the absence of amortization for customer relationship intangible assets related to the 2005 acquisition of Nextel which became fully amortized in the second quarter 2010 and Nextel Partners, Inc. and Virgin Mobile impacting 2011 as discussed above. Our remaining customer relationships are amortized using the sum-of-the-months'-digits method, resulting in higher amortization rates in early periods that decline over time.
Other, net
The following table provides additional information of items included in "Other, net" for the years ended December 31, 2012, 2011 and 2010.

                                                 Year Ended December 31,
                                                2012          2011      2010
                                                      (in millions)
Severance and exit costs                    $    (196 )     $  (28 )   $  (8 )
Asset impairments                                (102 )        (78 )    (125 )
Spectrum hosting contract termination             236            -         -
Gains from asset dispositions and exchanges        29            -        69
Other                                             (47 )          -        84
Total                                       $     (80 )     $ (106 )   $  20

Other, net changed $26 million, or 25%, in 2012 compared to 2011 and $126 million, or 630%, in 2011 compared to 2010. During 2012, we recognized severance and exit costs of $196 million as a result of lease exit costs associated with taking certain Nextel platform sites off-air in the second and third quarter 2012. We did not accrue lease exit costs for certain sites taken off-air in the second and third quarter of 2012 as these sites are subject to agreements under which we expect to continue to receive economic benefit for the remaining term. As a result of this factor, as well as the variability of factors that are used in the estimate of lease exit costs, the relationship of the costs recognized in the current quarter to the number of sites taken off-air is not necessarily indicative of future per-site charges as we complete our transition of Nextel customers and continue to take sites off-air. During 2011 we recognized severance and exit costs of $28 million associated with actions in the fourth quarter of 2011. During 2010 we recognized $8 million of severance and exit costs primarily related to exit costs incurred in the second and fourth quarter 2010 associated with vacating certain office space which is no longer being utilized. Asset impairments increased by $24 million, or 31%, in 2012 compared to 2011 and decreased $47 million, or 38%, in 2011 compared to 2010. Asset impairments in the first quarter 2012, consisted of $18 million of assets associated with a decision to utilize fiber backhaul, which we expect to be more cost effective, rather than microwave backhaul and $66 million of capitalized assets that we no longer intend to deploy as a result of the termination of a spectrum hosting arrangement in the first quarter 2012. Asset impairments of $18 million in the fourth quarter 2012 and all asset impairments in 2011 and 2010 primarily relate to assets that are no longer necessary for management's strategic plans and were primarily related to network asset equipment. Spectrum hosting contract termination is due to the recognition of $236 million of the total $310 million paid by LightSquared in 2011 as operating income in "Other, net" due to the termination of our spectrum hosting arrangement with LightSquared. Additional information related to these items can be found in the Notes to the

Consolidated Financial Statements. Gains from asset dispositions and exchanges for 2012 and 2010 are primarily related to spectrum exchange transactions. The amounts reflected in Other for 2012 consist of $45 million of hurricane-related costs and $19 million of expenses associated with business combinations offset by $17 million in benefits resulting from favorable developments relating to access cost disputes with certain exchange carriers. The amounts reflected in "Other" in 2010 were primarily related to benefits resulting from favorable developments relating to access cost disputes with certain exchange carriers.
Interest Expense
Interest expense increased $417 million, or 41%, in 2012 as compared to 2011, primarily due to increased weighted average long-term debt balances as a result of 2011 and 2012 debt issuances partially offset by 2011 and 2012 debt repayments (see Notes to the Consolidated Financial Statements for details on debt issuances and repayments), in addition to increased effective interest rates combined with reductions in the amount of interest capitalized primarily related to spectrum licenses. We expect interest capitalization related to spectrum licenses not previously utilized to continue to decline as a substantial portion of the value of our spectrum licenses used for Network Vision are now ready for use. Interest expense decreased $453 million, or 31%, in 2011 as compared to 2010 primarily due to a $400 million increase in the amount of interest capitalized. The increase in capitalized interest was related to our plan to deploy certain spectrum licenses as part of Network Vision that were not previously utilized. The reduction in interest expense also includes a decrease of $115 million as a result of the repayment of $1.65 billion of Sprint Capital Corporation 7.625% senior notes in January 2011. The decrease was partially offset by increases in interest expense of $54 million as a result of the November 2011 Sprint Nextel Corporation issuance of $1 billion in principal of 11.50% senior notes due 2021 and $3 billion in principal of 9.00% guaranteed notes due 2018. The effective interest rate, which includes capitalized interest, on the weighted average long-term debt balance of $22.0 billion, $19.1 billion, and $20.6 billion was 7.8%, 7.4%, and 7.2% for 2012, 2011 and 2010, respectively. See "Liquidity and Capital Resources" for more information on the Company's financing activities.
Equity in Losses of Unconsolidated Investments, net Clearwire owns and operates a next generation mobile broadband network that provides high-speed residential and mobile Internet access services and residential voice services in communities throughout the country. On December 17, 2012, Sprint entered into a definitive agreement with Clearwire Corporation to acquire the remaining interest Sprint does not currently own for $2.97 per . . .