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NII HOLDINGS INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations
[November 08, 2012]

NII HOLDINGS INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations


(Edgar Glimpses Via Acquire Media NewsEdge) INDEX TO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction 28 Business Overview 28 Handsets and Devices in Commercial Service 32 Critical Accounting Policies and Estimates 32 Results of Operations 33 a. Consolidated 35 b. Nextel Brazil 38 c. Nextel Mexico 40 d. Nextel Argentina 42 e. Nextel Peru 43 f. Corporate and other 44 Liquidity and Capital Resources 45 Future Capital Needs and Resources 46 Effect of New Accounting Standards 48 Forward-Looking Statements 48 27 --------------------------------------------------------------------------------Introduction The following is a discussion and analysis of: • our consolidated financial condition as of September 30, 2012 and December 31, 2011 and our consolidated results of operations for the nine- and three-month periods ended September 30, 2012 and 2011; and • significant factors which we believe could affect our prospective financial condition and results of operations.



You should read this discussion in conjunction with our annual report on Form 10-K and our quarterly reports on Form 10-Q for the three months ended March 31, 2012 and June 30, 2012, including, but not limited to, the discussion regarding our critical accounting policies and estimates, as described below. Historical results may not indicate future performance. See "Forward Looking Statements" and "Item 1A. - Risk Factors" in our annual report on Form 10-K for risks and uncertainties that may impact our future performance.

We refer to our operating companies by the countries in which they operate, such as Nextel Brazil, Nextel Mexico, Nextel Argentina, Nextel Peru and Nextel Chile.


Business Overview We provide wireless communication services under the NextelTM brand, primarily targeted at meeting the needs of customers who use our services to improve the productivity of their businesses and customers who make the individual decision to use our service for both professional and personal needs. Our customers generally value our broad set of value-added services, including our Nextel Direct Connect® feature, and our high level of customer service. As we deploy our next generation networks using wideband code division multiple access, or WCDMA, technology in our markets, we plan to extend our target market to include additional business customers and high-value consumers who exhibit above average usage, revenue and loyalty characteristics and who we believe will be attracted to the services supported by our new networks and the quality of our customer service.

We provide our services through operating companies located in Brazil, Mexico, Argentina, Peru and Chile with our principal operations located in major business centers and related transportation corridors of these countries. We provide our services in major urban and suburban centers with high population densities where we believe there is a concentration of the country's business users and economic activity. We believe that the growing economic base, increase in the middle and upper classes, lower wireline service penetration and the expanded coverage of wireless networks in these business centers encourage the use of the mobile wireless communications services that we offer and plan to offer in the future. Our new WCDMA-based networks are expected to serve these major business centers and, in some instances, a broader geographic area in order to meet the requirements of our spectrum licenses.

Our original networks utilize integrated digital enhanced network, or iDEN, technology developed by Motorola, Inc. to provide our mobile services on our 800 MHz spectrum holdings in all of our markets. Our current and planned next generation networks utilize WCDMA technology, which is a standards-based technology that is being deployed by carriers throughout the world. These technologies allow us to use our spectrum efficiently and offer multiple wireless services integrated into a variety of handset and data devices.

The services we currently offer include: • mobile telephone service; • Nextel Direct Connect® and International Direct Connect® service, which allows subscribers to talk to each other instantly, on a "push-to-talk" basis, for private one-to-one calls or group calls; • value-added services, including text messaging services; mobile internet services; e-mail services; location-based services, which include the use of Global Positioning System, or GPS, technologies; digital media services; and a wide ranging set of applications available via our content management system, as well as the Android open application market; • business solutions, such as security, work force management, logistics support and other applications that help our business customers improve their productivity; and • international roaming services.

We have begun offering services on our new WCDMA-based networks in Mexico, Peru and Chile, and we are currently in the process of designing and building a new WCDMA-based network in Brazil. We expect to begin offering data services supported by this new network in select cities in Brazil later this year and to offer voice and data services more broadly in 2013.

In September 2012, the Argentine government announced its decision to cancel the auction of PCS and 850 band cellular spectrum and that this spectrum would be awarded to ARSAT, a government-owned telecommunications company. We are continuing to evaluate our spectrum options and response to this decision.

28 -------------------------------------------------------------------------------- Our goal is to generate increased revenues and grow our subscriber base, or the number of handsets and devices on our networks, by providing differentiated wireless communications services that are valued by our customers while improving our profitability and cash flow over the long term. Our strategy for achieving this goal is based on several core principles, including: • focusing on higher value customer segments such as segments that comprise the small, medium and large business markets, as well as certain targeted consumer market segments that value our differentiated wireless communications services; • offering a broad array of differentiated services and devices that build upon and complement our Nextel Direct Connect® service, the long range walkie-talkie service that allows instantaneous communication at the touch of a button; • building on the strength of the unique positioning of the Nextel brand; • capitalizing on the effectiveness and efficiency of our focused and dedicated distribution channels; and • offering a superior customer experience.

In pursuit of this goal, we are expanding our distribution and service channels to create more accessible and efficient ways for our customers to purchase our services and utilize our customer support teams.

We may also explore financially attractive opportunities to expand our network coverage in areas that we do not currently serve or plan to serve, for example by entering into roaming agreements with other wireless carriers and by participating in future spectrum auctions.

We believe that the wireless communications industry in the markets in which we operate has been and will continue to be highly competitive on the basis of price, the types of services offered, the diversity of handsets offered, speed of data access and the quality of service. In each of our markets, we compete with at least two large, well-capitalized competitors with substantial financial and other resources. Our competitors typically have more extensive distribution channels than ours or are able to use their scale advantages to acquire subscribers at a lower cost than we can, and most of them have implemented network technology upgrades that support high speed internet access and video telephony services, making it more difficult for us to compete effectively in areas where our new networks have not been fully deployed. Some of these competitors also have the ability to offer bundled telecommunications services that include local, long distance, subscription television and data services, and can offer a larger variety of handsets with a wide range of prices, brands and features. In addition, the financial strength and operating scale of some of these competitors allows them to offer aggressive pricing plans, including those targeted at attracting our existing customers.

We compete with other communications service providers, including other wireless communications companies and wireline telephone companies, based primarily on our high quality customer service and differentiated wireless service offerings and products, including our Direct Connect services that make it easier for our customers to communicate quickly and efficiently. Historically, our largest competitors have focused their marketing efforts on customers in the mass market retail and consumer segments who purchase services largely on the basis of price rather than quality of service, but recently those competitors have placed more emphasis on attracting postpaid customers within our target segments, which are considered the premium customer segments in our markets because they typically generate higher average monthly revenue per subscriber. Although competitive pricing of services and the variety and pricing of handsets are often important factors in a customer's decision making process, we believe that the users who primarily make up our targeted customer base are also likely to base their purchase decisions on quality of service and customer support, as well as on the availability of differentiated features and services, like our Direct Connect services, that make it easier for them to communicate quickly, efficiently and economically.

We have implemented a strategy that we believe will position us to achieve our long-term goal of generating profitable growth. Some of the key components of that strategy are as follows: Targeting High Value Customers. Our main focus is on high value customer segments such as segments that comprise the small, medium and large business markets, as well as certain targeted consumer market segments that value our differentiated wireless communications services, including our Direct Connect feature and our high level of customer service. As we deploy our planned WCDMA-based networks, we plan to extend our target market to additional corporate customers and high-value consumers who exhibit above average usage, revenue and loyalty characteristics and who we believe will be attracted to the services supported by our new networks and the quality of our customer service.

Providing Differentiated Services. We differentiate ourselves from our competitors by offering unique services like our "push-to-talk" service, which we refer to as Direct Connect. This service, which is available throughout our service areas, provides significant value to our customers by allowing instantaneous communication at the touch of a button and the ability to communicate on a one-to-many basis. In 2011, we launched Direct Connect services utilizing our WCDMA-based network in Peru, and in 2012, we began offering these services on our WCDMA-based networks in Mexico and Chile as part of our effort to maintain this key point of differentiation. Our competitors have introduced competitive push-to-talk over cellular products, and while we do not 29 -------------------------------------------------------------------------------- believe that these services offer the same level of performance as our Direct Connect service in terms of latency, quality, reliability or ease of use, our competitors could deploy new or upgraded technologies in their networks that could enable them to implement new features and services that compete more effectively with our Direct Connect service. We add further value by designing customized business solutions that enhance the productivity of our customers based on their individualized business needs. These business solutions include fleet and workforce management services that utilize the unique capabilities of our data network, such as vehicle and delivery tracking, GPS technology, order entry processing and workforce monitoring applications.

Building on the Strength of the Nextel Brand. Since 2002, we have offered services under the Nextel brand. As a result of our efforts, the Nextel brand is recognized across our markets as standing for both quality of service and the differentiated services and customer support we provide. This positioning of our brand allowed us to successfully build our subscriber base of high value customers who are attracted to our differentiated services and our reputation for providing a high quality customer experience. To expand the value of that positioning, in 2011 we launched a new brand identity in each of our markets and at the corporate level, which we believe will enhance the recognition of our brand and unify our brand identity across our markets as we seek to expand our target market to include new customer segments.

Capitalizing on our Distribution Channels. We use a variety of distribution channels that include direct sales representatives, indirect sales agents, retail stores and kiosks, and other customer-convenient sales channels such as online purchasing, and we are targeting those channels at specific customer segments to deliver our service more efficiently and economically. Our direct sales channel primarily focuses on businesses that value our industry expertise and differentiated services, including our ability to design customized business solutions that meet their specific business needs. As we extend our target market to include more high-value consumers, we are expanding our distribution channels to make our services more widely accessible. Our distribution channel expansion will include more retail points-of-sales, including new Nextel stores that will provide not only sales, but also serve as additional points of customer care, collections and brand promotion. We are also expanding our other customer-convenient channels, which include telesales and online channels, to give our prospective and existing customers easier ways to purchase our services. We are making these investments to more efficiently serve our customers and improve the overall productivity of all of our distribution channels, and we expect to see our average sales and related costs to acquire customers decline over time.

Delivering a Superior Customer Experience. In addition to our unique service offerings, we seek to further differentiate ourselves by providing a higher level of customer service than our competitors. We work proactively with our customers to match them with service plans that offer greater value based on the customer's usage patterns. After analyzing customer usage and expense data, we strive to minimize a customer's per minute costs while increasing overall usage of our array of services, thereby providing higher value to our customers while increasing our monthly revenues. This goal is also furthered by our efforts during and after the sales process to educate customers about our services, the features and services supported by our multi-function handsets and rate plans.

We have also implemented proactive customer retention programs in an effort to increase customer satisfaction and retention. In addition, we are currently making investments to improve the quality and scalability of our customer relationship management systems as part of our ongoing effort to provide a simple, reliable and superior customer service to our growing customer base.

Focusing on Major Business Centers. Because we target high value customers, our operations have focused primarily on large urban markets, which have a concentration of medium to high usage business customers and consumers and account for a high proportion of total economic activity in each of their respective countries. We believe these markets offer favorable long-term growth prospects for our wireless communications services while offering the cost benefits associated with providing services in more concentrated population centers. Our new WCDMA-based networks are expected to serve both these major business centers and, in some instances, a broader geographic area in order to meet the requirements of our spectrum licenses.

Deploying our New Networks. Another key component in our overall strategy is to continue to expand and improve the innovative and differentiated services we offer, which requires that we continue to invest in, evaluate and, if appropriate, deploy new services and enhancements to our existing services. To support this effort, we have acquired additional spectrum rights and are deploying our new WCDMA-based networks that will enable us to offer a wider variety of applications and services, particularly applications and services that are supported by high speed internet access. Use of the WCDMA technology will also increase our network capacity and will reduce the cost of supporting the services we offer when compared to second generation and other prior technologies. These new networks will allow us to continue to offer the differentiated services that our current customers rely on while using the new handsets and devices, service offerings, applications and pricing plans made possible by the new networks to target an expanded customer base.

During 2009 and 2010, we participated in spectrum auctions in Chile, Mexico and Brazil and acquired spectrum required to support our planned next generation networks. We have begun offering services on our new networks in Mexico, Peru and Chile and are currently in the process of building our WCDMA-based network in Brazil using spectrum licensed to us. We expect to begin offering data services supported by this new network in select cities in Brazil later this year and to offer voice and data services more broadly in 2013.

30 --------------------------------------------------------------------------------The following chart details our current material next generation spectrum holdings in each of our markets.

Country Spectrum Band Amount/Coverage 20 MHz in 11 of 13 regions (includes all Brazil 1.9 GHz/2.1 GHz major metropolitan areas) Mexico 1.7 GHz/2.1 GHz 30 MHz nationwide Peru 1.9 GHz 35 MHz nationwide Chile 1.7 GHz/2.1 GHz 60 MHz nationwide In the future, we will consider opportunities to acquire additional next generation spectrum in our current markets. Our decision whether to acquire rights to use additional spectrum would likely be affected by a number of factors, including the spectrum bands available for purchase, the expected cost of acquiring that spectrum and the availability and terms of any financing that we would be required to raise in order to acquire the spectrum and build the networks that will provide services that use that spectrum.

Additionally, we have significant spectrum holdings in the 800 MHz specialized mobile radio, or SMR, spectrum band that support our iDEN networks. Our 800 MHz holdings in each of our markets are as follows: Country Amount/Coverage (1) Brazil 15 MHz nationwide weighted average Mexico 20 MHz nationwide weighted average Argentina 20 - 22 MHz nationwide weighted average Peru 22 MHz nationwide weighted average Chile 15 MHz nationwide weighted average _______________________________________ (1) Weighted average coverage is a function of the population in each country, as well as the amount of spectrum. Spectrum amounts vary greatly across regions and cities.

As we make the transition from our iDEN networks to our new WCDMA-based networks, we will evaluate ways in which we can use our 800 MHz spectrum to support existing or new services. In Brazil and Argentina, some of our current 800 MHz spectrum holdings are contiguous, making it possible to use that spectrum to support future technologies if certain technical, operational and regulatory requirements are met, including, for example, the availability of compatible network and subscriber equipment. The availability of that equipment will likely depend upon a number of things, including the technology decisions made by other wireless carriers and the willingness of infrastructure and device manufacturers to produce the required equipment. In Mexico, Chile and Peru, our 800 MHz spectrum is either partially contiguous or non-contiguous. As a result, while it may be feasible to use a portion of the spectrum that is contiguous to support future technologies, it will be necessary to reconfigure the spectrum band to increase the amount of contiguous spectrum for it to be used to efficiently support those technologies. It is likely that the implementation of such a reconfiguration would require support from and actions by the regulators in those markets to be effective.

Preserving Support for iDEN. The iDEN networks that we operate allow us to offer differentiated services like Direct Connect and International Direct Connect while offering high quality voice telephony and other innovative services. The iDEN technology is unique in that it is the only widespread, commercially available technology that operates on non-contiguous spectrum and is optimal for operating efficiently on the 800 MHz SMR spectrum that we currently own. Because Motorola is the sole supplier of iDEN technology, we are dependent on Motorola's support of the evolution of the iDEN technology. In the past, we relied heavily on the development of new features for our iDEN networks and handsets and introduced updates and enhanced capabilities on a regular basis. In recent years, we have slowed the introduction of new updates, thereby relying less on new features and technology to support our iDEN business.

Sprint Nextel, which has historically been one of the largest purchasers of iDEN technology and provided significant support with respect to new product development for that technology, has announced plans to decommission its iDEN network in the United States in mid-2013. In October 2012, SoftBank Corp.

announced that it entered into a series of definitive agreements to acquire about 70% of Sprint Nextel. At this point, we do not believe this acquisition will have any impact on Sprint Nextel's plans to decommission its iDEN network.

Sprint Nextel's decision to deactivate its iDEN network could affect Motorola Mobility's ability or willingness to provide support for the development of new iDEN handset models or Motorola Solutions' ability or willingness to provide support for enhancements to the features and functionality of our iDEN networks outside of their contractual obligations. In the last several years, we have led the majority of all iDEN product and handset development activity in support of our customers' needs and therefore have limited the impact of declining iDEN purchases by Sprint Nextel.

When roaming in the United States, our existing iDEN subscribers currently have access to voice, data and Direct Connect 31 -------------------------------------------------------------------------------- services on Sprint Nextel's iDEN network pursuant to roaming arrangements we have with Sprint Nextel. In addition, our iDEN subscribers have the ability to use our International Direct Connect service to communicate with Sprint Nextel's customers in the United States who purchase services supported by Sprint Nextel's iDEN network and customers who purchase Sprint Nextel's Direct Connect services supported by their code division multiple access, or CDMA, network.

Once Sprint Nextel completes the deactivation of its iDEN network, our existing iDEN customers will no longer have the ability to use their iDEN handsets in the United States and may have access to a smaller number of Sprint Nextel customers using our International Direct Connect services, although they will continue to be able to communicate with customers who use Direct Connect services on Sprint Nextel's CDMA-based network. This deactivation could affect the willingness of existing Nextel Mexico customers to remain on our network and negatively impact the willingness of potential customers to choose Nextel Mexico's service. We are continuing to review the impact of Sprint Nextel's deactivation plans.

In 2011, Motorola completed a separation of its mobile devices and home division into two separate public entities: Motorola Mobility, Inc., to which our iDEN handset supply agreements have been assigned; and Motorola Solutions, Inc., to which our iDEN network infrastructure supply agreements have been assigned. In addition, we have entered into arrangements with Motorola that have now been assigned to and assumed by Motorola Solutions and Motorola Mobility and that are designed to provide us with a continued source of iDEN network equipment and handsets. In May 2012, Google, Inc. completed its acquisition of Motorola Mobility, which is our primary supplier of iDEN handsets. We do not currently expect any change to Motorola's commitment to deliver iDEN handsets as a result of Google's acquisition of Motorola Mobility. Examples of our existing arrangements with both Motorola entities include: • Agreements for the supply of iDEN network infrastructure, which are now held by Motorola Solutions, Inc. and are effective through December 31, 2014. Under these agreements, Motorola agreed to maintain an adequate supply of the iDEN equipment used in our business for the term of the agreement and to continue to invest in the development of new iDEN infrastructure features.

• Agreements for the supply of iDEN handsets, which are now held by Motorola Mobility, Inc. and are effective through December 31, 2014. Under these agreements, Motorola agreed to maintain an adequate supply of the iDEN handsets used in our business and to continue to invest in the development of new iDEN devices. In addition, we agreed to handset volume purchase commitments with respect to certain handset models and pricing parameters linked to the volume of our handset purchases, and Motorola agreed to continue to develop and deliver new handsets using the iDEN platform as we develop our WCDMA-based networks in coming years.

The obligations of both Motorola entities under our existing agreements, including the obligation to supply us with iDEN handsets and network equipment, remain in effect.

Handsets and Devices in Commercial Service The table below provides an overview of our total handsets and other devices in commercial service in the countries indicated as of September 30, 2012 and December 31, 2011. For purposes of the table, handsets and devices in commercial service represent all handsets and other devices with active customer accounts on the networks in each of the listed countries.

Brazil Mexico Argentina Peru Chile Total (in thousands) Handsets and devices in commercial service - December 31, 2011 4,115 3,696 1,388 1,435 78 10,712 Net additions 23 165 304 80 75 647 Handsets and devices in commercial service - September 30, 2012 4,138 3,861 1,692 1,515 153 11,359 Critical Accounting Policies and Estimates The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the condensed consolidated financial statements and accompanying notes. Although we believe that our estimates, assumptions and judgments are reasonable, they are based upon presently available information. Due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates.

As described in more detail in our annual report on Form 10-K under "Management's Discussion and Analysis of Financial Condition and Results of Operations," we consider the following accounting policies to be the most important to our financial position and results of operations or policies that require us to exercise significant judgment and/or estimates: 32 --------------------------------------------------------------------------------• revenue recognition; • allowance for doubtful accounts; • depreciation of property, plant and equipment; • amortization of intangible assets; • asset retirement obligations; • foreign currency; • loss contingencies; and • income taxes.

There have been no material changes to our critical accounting policies and estimates during the nine or three months ended September 30, 2012 compared to those discussed under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K.

Results of Operations Operating revenues primarily consist of wireless service revenues and revenues generated from the sale of handsets and accessories. Service revenues primarily include fixed monthly access charges for mobile telephone service and two-way radio and other services, including revenues from calling party pays programs and variable charges for airtime and two-way radio usage, long-distance charges, international roaming revenues derived from calls placed by our customers and revenues generated from broadband data services we provide on our next generation networks. Handset and accessory revenues represent revenues we earn on the sale of handsets and accessories to our customers.

In addition, we also have other less significant sources of revenues. These revenues primarily include revenues generated from our handset maintenance programs, roaming revenues generated from other companies' customers that roam on our networks and co-location rental revenues from third-party tenants that rent space on our towers.

Cost of revenues primarily includes the cost of providing wireless service and the cost of handset and accessory sales. Cost of providing service consists of: • costs of interconnection with local exchange carrier facilities; • costs relating to terminating calls originated on our network on other carriers' networks; • direct switch, transmitter and receiver site costs, including property taxes; • expenses related to our handset maintenance programs; and • insurance costs, utility costs, maintenance costs, spectrum license fees and rent for the network switches and transmitter sites used to operate our mobile networks.

Interconnection costs have fixed and variable components. The fixed component of interconnection costs consists of monthly flat-rate fees for facilities leased from local exchange carriers, primarily for circuits required to connect our transmitter sites to our network switches, to connect our switches and to connect our networks with those of other carriers and with internet service providers. The variable component of interconnection costs, which fluctuates in relation to the volume and duration of wireless calls, generally consists of per-minute use fees charged by wireline and wireless carriers relating to wireless calls from our handsets that terminate on their networks. Cost of handset and accessory sales consists largely of the cost of the handset and accessories, order fulfillment and installation-related expenses, as well as write-downs of handset and related accessory inventory for shrinkage or obsolescence.

Our service and other revenues and the variable component of our cost of service are primarily driven by the number of handsets in service. Our handset and accessory revenues and cost of handset and accessory sales are primarily driven by the number of new handsets placed into service, as well as handset upgrades provided to existing customers.

Selling and marketing expenses include all of the expenses related to acquiring subscribers to our services.

General and administrative expenses include expenses related to revenue-based taxes, billing, customer care, collections including bad debt, repairs and maintenance of management information systems, spectrum license fees, corporate overhead and share-based payment for stock options and restricted stock.

In accordance with accounting principles generally accepted in the United States, we translated the results of operations of our operating segments into U.S. dollars using the average exchange rates for the nine and three months ended September 30, 2012 and 2011. The following table presents the average exchange rates we used to translate the results of operations of our operating segments, as well as changes from the average exchange rates utilized in prior periods. Because the U.S. dollar is the functional currency in Peru, Nextel Peru's results of operations are not significantly impacted by changes in the U.S. dollar to 33 --------------------------------------------------------------------------------Peruvian sol exchange rate.

Nine Months Ended September 30, 2012 2011 Percent Change Brazilian real 1.92 1.63 (18 )% Mexican peso 13.24 12.02 (10 )% Argentine peso 4.47 4.09 (9 )% Three Months Ended September 30, 2012 2011 Percent Change Brazilian real 2.03 1.64 (24 )% Mexican peso 13.19 12.25 (8 )% Argentine peso 4.61 4.17 (11 )% Late in 2011 and continuing into 2012, foreign currency exchange rates in the countries where we operate depreciated in value relative to the U.S. dollar. The following table presents the currency exchange rates in effect at the end of each of the quarters in 2011, as well as at the end of the first three quarters of 2012. If the values of these exchange rates remain at levels similar to the end of the third quarter of 2012 or depreciate further relative to the U.S.

dollar, our future operating results and the values of our assets held in local currencies will be adversely affected.

2012 2011 March June September March June September December Brazilian real 1.82 2.02 2.03 1.63 1.56 1.85 1.88 Mexican peso 12.80 13.67 12.92 11.97 11.84 13.42 13.99 Argentine peso 4.38 4.53 4.70 4.05 4.11 4.21 4.30 To provide better insight into the results of our operating segments, we present the year-over-year percentage change in total operating revenues and operating income before depreciation and amortization expense on a consolidated basis and the year-over-year percentage change in total operating revenues and segment earnings for Nextel Brazil, Nextel Mexico and Nextel Argentina on a constant currency basis in the "Constant Currency Change from Previous Year" columns in the tables below. The comparison of results for these line items on a constant currency basis shows the impact of changes in foreign currency exchange rates (i) by adjusting the relevant measures for the nine and three months ended September 30, 2011 to amounts that would have resulted if the average foreign currency rates for the nine and three months ended September 30, 2011 were the same as the average foreign currency exchange rates that were in effect for the nine and three months ended September 30, 2012; and (ii) by comparing the constant currency financial measures for the nine and three months ended September 30, 2011 to the actual financial measures for the nine and three months ended September 30, 2012. This constant currency comparison applies consistent exchange rates to the operating revenues earned in foreign currencies and to the other components of operating income before depreciation and amortization expense and segment earnings for the nine and three months ended September 30, 2011, other than certain components of those measures consisting of U.S. dollar-based operating expenses, which were not adjusted. The constant currency information reflected in the tables below is not a measurement under accounting principles generally accepted in the United States and should be considered in addition to, but not as a substitute for, the information contained in our results of operations.

34 -------------------------------------------------------------------------------- a. Consolidated Constant Currency Change from Actual Change from Previous September 30, % of Consolidated September 30, % of Consolidated Previous Year Year 2012 Operating Revenues 2011 Operating Revenues Dollars Percent Percent (Restated) Nine Months Ended (dollars in thousands) Operating revenues Service and other revenues $ 4,383,935 95 % $ 4,884,114 95 % $ (500,179 ) (10 )% Handset and accessory revenues 236,934 5 % 251,498 5 % (14,564 ) (6 )% 4,620,869 100 % 5,135,612 100 % (514,743 ) (10 )% 2% Cost of revenues Cost of service (exclusive of depreciation and amortization included below) 1,263,069 27 % 1,359,498 26 % (96,429 ) (7 )% Cost of handset and accessory sales 695,892 15 % 643,356 13 % 52,536 8 % 1,958,961 42 % 2,002,854 39 % (43,893 ) (2 )%Selling and marketing expenses 593,527 13 % 617,465 12 % (23,938 ) (4 )% General and administrative expenses 1,284,285 28 % 1,217,851 24 % 66,434 5 % Operating income before depreciation and amortization 784,096 17 % 1,297,442 25 % (513,346 ) (40 )% (25)% Depreciation and amortization 527,999 11 % 492,853 9 % 35,146 7 % Operating income 256,097 6 % 804,589 16 % (548,492 ) (68 )% Interest expense, net (274,389 ) (6 )% (272,837 ) (5 )% (1,552 ) 1 % Interest income 25,556 - 24,969 - 587 2 % Foreign currency transaction losses, net (42,199 ) (1 )% (39,826 ) (1 )% (2,373 ) 6 % Other expense, net (21,486 ) - (16,767 ) - (4,719 ) 28 % (Loss) income before income tax provision (56,421 ) (1 )% 500,128 10 % (556,549 ) (111 )% Income tax provision (115,919 ) (3 )% (278,097 ) (6 )% 162,178 (58 )% Net (loss) income $ (172,340 ) (4 )% $ 222,031 4 % $ (394,371 ) (178 )% Three Months Ended Operating revenues Service and other revenues $ 1,419,093 95 % $ 1,667,428 95 % $ (248,335 ) (15 )% Handset and accessory revenues 72,803 5 % 86,785 5 % (13,982 ) (16 )% 1,491,896 100 % 1,754,213 100 % (262,317 ) (15 )% (2)% Cost of revenues Cost of service (exclusive of depreciation and amortization included below) 398,735 27 % 465,887 26 % (67,152 ) (14 )% Cost of handset and accessory sales 232,905 15 % 225,144 13 % 7,761 3 % 631,640 42 % 691,031 39 % (59,391 ) (9 )% Selling and marketing expenses 202,760 14 % 254,338 15 % (51,578 ) (20 )% General and administrative expenses 439,591 29 % 422,936 24 % 16,655 4 % Operating income before depreciation and amortization 217,905 15 % 385,908 22 % (168,003 ) (44 )% (26)% Depreciation and amortization 185,368 13 % 168,893 10 % 16,475 10 % Operating income 32,537 2 % 217,015 12 % (184,478 ) (85 )% Interest expense, net (104,447 ) (7 )% (94,890 ) (5 )% (9,557 ) 10 % Interest income 13,324 1 % 9,158 - 4,166 45 % Foreign currency transaction gains (losses), net 10,811 - (63,926 ) (4 )% 74,737 (117 )% Other expense, net (7,003 ) - (8,409 ) - 1,406 (17 )% (Loss) income before income tax provision (54,778 ) (4 )% 58,948 3 % (113,726 ) (193 )% Income tax provision (27,640 ) (2 )% (59,251 ) (3 )% 31,611 (53 )% Net loss $ (82,418 ) (6 )% $ (303 ) - $ (82,115 ) NM _______________________________________ NM-Not Meaningful 35 -------------------------------------------------------------------------------- Our consolidated subscriber base continued to grow, leading to an 11% increase at the end of the third quarter of 2012 compared to the end of the same period in 2011. However, consolidated operating revenues on a reported basis for the nine and three months ended September 30, 2012 decreased 10% and 15% compared to the same periods in 2011, primarily due to the declines in local currency values relative to the U.S. dollar as described further below. On a constant currency basis, consolidated operating revenues increased 2% from the nine months ended September 30, 2011 compared to the same period in 2012 and decreased 2% from the third quarter of 2011 to the third quarter of 2012.

On a consolidated basis, our average revenue per subscriber on a constant currency basis declined for the nine and three months ended September 30, 2012 compared to the same periods in 2011. During the third and fourth quarters of 2011, Nextel Brazil responded to an increasingly competitive environment by offering lower priced plans and implementing more aggressive customer retention programs. The combination of these factors, along with increased levels of migrations by our existing customers to lower rate service plans, resulted in a reduction in average revenue per subscriber in Brazil and on a consolidated basis that continued into the first nine months of 2012. Beginning in the second quarter of 2012, Nextel Brazil reduced its customer retention initiatives and modified its credit policy to better align its subscriber base with our value proposition, which resulted in an increase in customer turnover in Brazil and on a consolidated basis in the third quarter of 2012 compared to the same period in 2011. Nextel Brazil is taking additional actions to more quickly realign its customer base, and these actions are expected to result in a significant increase in customer turnover and bad debt expense in Brazil and on a consolidated basis in the fourth quarter of 2012.

As we continue to build our WCDMA-based networks, we are incurring incremental expenses, particularly related to cost of service. We believe that our planned deployment of these networks will enable us to offer new and differentiated services to a larger base of customers, but we do not expect a significant increase in operating revenues until after the deployment phases are completed.

As a result of the additional expenses related to building our WCDMA-based networks, weaker average foreign currency exchange rates, lower average revenue per subscriber and other factors described below, our consolidated cost of revenues and general and administrative expenses for the nine and three months ended September 30, 2012 increased as a percentage of consolidated operating revenues compared to the same periods in 2011, and our consolidated operating income margin declined from 16% and 12% in the nine and three months ended September 30, 2011 to 6% and 2% in the nine and three months ended September 30, 2012.

During the first nine months of 2012, we continued to make investments to build our WCDMA-based networks, resulting in consolidated capital expenditures of $980.4 million, which represents a 15% increase from the same period in 2011.

Under our current business plan, we will invest more in capital expenditures for the remainder of 2012 as we continue to build our new network in Brazil and deploy and expand our WCDMA-based networks in Mexico, Chile and Peru. We also expect to continue to incur capital expenditures related to the improvement of the quality and capacity of our iDEN networks.

The average values of the local currencies in Brazil, Mexico and Argentina depreciated relative to the U.S. dollar during the nine and three months ended September 30, 2012 compared to the same periods in 2011. As a result, the components of our consolidated results of operations for the nine and three months ended September 30, 2012, after translation into U.S. dollars, reflect lower U.S. dollar revenues and expenses than would have occurred if these currencies had not depreciated relative to the U.S. dollar. Late in 2011 and continuing into 2012, uncertainty in worldwide economic conditions drove a significant decline in the value of currencies relative to the U.S. dollar in the markets where we operate. Volatility in the global market persists, and current foreign currency exchange rates in effect at the end of the nine and three months ended September 30, 2012 reflect a reduction in value from those experienced in the same periods in 2011. If the values of local currencies in the countries in which our operating companies conduct business remain at levels similar to the end of the third quarter of 2012 or depreciate further relative to the U.S. dollar, our future reported operating results may be adversely affected.

1. Operating revenues The $500.2 million, or 10%, and $248.3 million, or 15%, decreases in consolidated service and other revenues on a reported basis in the nine of three months ended September 30, 2012 compared to the same periods in 2011 resulted from weaker average foreign currency exchange rates.

On a constant currency basis, consolidated operating revenues increased by 2% from the nine months ended September 30, 2011 to the same period in 2012 as a result of additional revenues generated from an 11% increase in our consolidated subscriber base, partially offset by a decrease in average revenue per subscriber due to an increase in the number of subscribers on lower rate service plans, as well as adjustments to commercial offers and increased retention efforts in Brazil in response to a more competitive environment.

2. Cost of revenues Consolidated cost of service decreased $96.4 million, or 7%, and $67.2 million, or 14%, in the nine and three months ended September 30, 2012 compared to the same periods in 2011 as a result of the following factors: 36 --------------------------------------------------------------------------------• $90.8 million, or 13%, and $44.1 million, or 19%, decreases in consolidated interconnect costs related to weaker average foreign currency exchange rates and reductions in mobile termination rates in Mexico and Brazil; • $39.0 million, or 18%, and $14.6 million, or 21%, decreases in consolidated service and repair costs resulting from weaker average foreign currency exchange rates, the utilization of more refurbished handsets and a lower number of overall repaired handsets; and • a $27.1 million refund of excess fees recognized by Nextel Mexico in the third quarter of 2012 due to the government's delay in granting spectrum license renewals.

Consolidated cost of handset and accessory sales increased in the nine months ended September 30, 2012 compared to the same period in 2011 resulting from higher handset subsidies and, to a lesser extent, an increase in handset sales to new subscribers. The increase in consolidated cost of handset and accessory sales in the third quarter of 2012 compared to the same period in 2011 was not material.

Consolidated cost of revenues as a percentage of consolidated operating revenues increased from 39% in the nine and three months ended September 30, 2011 to 42% in the same periods in 2012 primarily as a result of the year-over-year decline in operating revenues described above.

3. Selling and marketing expenses Significant factors contributing to the $23.9 million, or 4%, and $51.6 million, or 20%, decreases in consolidated selling and marketing expenses in the nine and three months ended September 30, 2012 compared to the same periods in 2011 included $10.9 million, or 7%, and $18.1 million, or 26%, decreases in consolidated advertising costs, primarily in Brazil, resulting from fewer advertising campaigns launched in 2012 compared to 2011, the launch of our new brand design across all markets in the third quarter of 2011 and weaker average foreign currency exchange rates.

4. General and administrative expenses Significant factors contributing to the $66.4 million, or 5%, increase in consolidated general and administrative expenses in the nine months ended September 30, 2012 compared to the same period in 2011 included: • a $23.1 million, or 17%, increase in consolidated information technology expenses, principally related to the development and deployment of systems to support our WCDMA-based networks and other related technology initiatives; • $14.0 million in expenses related to the write-off of one of our web-based technology systems in the third quarter of 2012; and • an $11.1 million, or 9%, increase in consolidated bad debt expense, largely related to lower collection rates in Brazil resulting from an increase in the number of customers with weaker credit profiles and whose credit histories are less established; partially offset by • weaker average foreign currency exchange rates.

Consolidated general and administrative expenses as a percentage of consolidated operating revenues increased from 24% in the nine and three months ended September 30, 2011 to 28% and 29% in the same periods in 2012 primarily as a result of the year-over-year decline in operating revenues described above.

5. Foreign currency transaction gains (losses), net Foreign currency transaction losses of $42.2 million for the nine months ended September 30, 2012 were principally the result of the impact of the depreciation in the values of the Brazilian real and the Mexican peso relative to the U.S.

dollar on Nextel Brazil's and Nextel Mexico's U.S. dollar-denominated net liabilities.

Foreign currency transaction losses of $39.8 million and $63.9 million during the nine and three months ended September 30, 2011 were largely the result of the impact of the depreciation in the value of the Brazilian real relative to the U.S. dollar on Nextel Brazil's U.S. dollar-denominated net liabilities, primarily its syndicated loan facility.

37 -------------------------------------------------------------------------------- 6. Income tax provision The $162.2 million, or 58%, and $31.6 million, or 53%, decreases in the consolidated income tax provision in the nine and three months ended September 30, 2012 compared to the same periods in 2011 primarily related to $556.5 million and $113.7 million decreases in consolidated income before income tax provision. These decreases were partially offset by increases in the U.S., Chilean and foreign holding companies' valuation allowances.

Segment Results We evaluate performance of our segments and provide resources to them based on operating income before depreciation and amortization and impairment, restructuring and other charges, which we refer to as segment earnings. The results of Nextel Chile are included in "Corporate and other." A discussion of the results of operations in each of our reportable segments is provided below.

b. Nextel Brazil Constant Currency Change % of % of from Nextel Nextel Actual Change from Previous Brazil's Brazil's Previous Year Year September 30, Operating September 30, Operating 2012 Revenues 2011 Revenues Dollars Percent Percent (Restated) (dollars in thousands) Nine Months Ended Operating revenues Service and other revenues $ 2,116,143 95 % $ 2,518,748 95 % $ (402,605 ) (16 )% Handset and accessory revenues 113,867 5 % 122,366 5 % (8,499 ) (7 )% 2,230,010 100 % 2,641,114 100 % (411,104 ) (16 )% (1)% Cost of revenues Cost of service (exclusive of depreciation and amortization) 699,137 32 % 778,375 29 % (79,238 ) (10 )% Cost of handset and accessory sales 163,950 7 % 188,131 7 % (24,181 ) (13 )% 863,087 39 % 966,506 36 % (103,419 ) (11 )% Selling and marketing expenses 197,320 9 % 262,847 10 % (65,527 ) (25 )% General and administrative expenses 587,682 26 % 570,857 22 % 16,825 3 % Segment earnings $ 581,921 26 % $ 840,904 32 % $ (258,983 ) (31 )% (13)% Three Months Ended Operating revenues Service and other revenues $ 660,585 95 % $ 871,206 95 % $ (210,621 ) (24 )% Handset and accessory revenues 32,604 5 % 41,739 5 % (9,135 ) (22 )% 693,189 100 % 912,945 100 % (219,756 ) (24 )% (6)% Cost of revenues Cost of service (exclusive of depreciation and amortization) 222,661 32 % 270,990 30 % (48,329 ) (18 )% Cost of handset and accessory sales 49,907 7 % 62,693 7 % (12,786 ) (20 )% 272,568 39 % 333,683 37 % (61,115 ) (18 )% Selling and marketing expenses 61,698 9 % 116,466 12 % (54,768 ) (47 )% General and administrative expenses 198,225 29 % 210,990 23 % (12,765 ) (6 )% Segment earnings $ 160,698 23 % $ 251,806 28 % $ (91,108 ) (36 )% (12)% Nextel Brazil contributed 48% of our consolidated operating revenues for the nine months ended September 30, 2012 compared to 51% in the same period in 2011, and represented 36% of our consolidated subscriber base as of September 30, 2012.

Late in 2011 and continuing into 2012, Nextel Brazil experienced an increase in promotional activity, including price reductions, by its competitors. In response to these actions, Nextel Brazil made adjustments to some of its commercial offers in an effort to compete more effectively. These adjustments, along with increased retention efforts and increased levels of migrations by our existing customers to lower rate service plans, resulted in a reduction in Nextel Brazil's average revenue per subscriber in the first nine months of 2012 compared to the same period in 2011. In addition, during the first three quarters of 2012, Nextel Brazil incurred increased expenses associated with the deployment phase of its WCDMA-based network. These factors resulted 38 -------------------------------------------------------------------------------- in a reduction in Nextel Brazil's segment earnings margin from 32% and 28% in the nine and three months ended September 30, 2011 to 26% and 23% in the same periods in 2012.

Beginning in the second quarter of 2012, Nextel Brazil reduced its customer retention initiatives, modified its commission structure and focused on better aligning its subscriber base with our value proposition, which resulted in an increase in customer turnover that continued into the third quarter of 2012.

Nextel Brazil is taking additional actions to more quickly realign its customer base, and these actions are expected to result in a significant increase in customer turnover and bad debt expense in Brazil in the fourth quarter of 2012.

Nextel Brazil has introduced new rate plans designed to improve its average revenue per subscriber and made adjustments to its credit procedures, including the implementation of more stringent credit policies for new customers. As a result of these actions, Nextel Brazil's average revenue per subscriber began to stabilize in the third quarter of 2012. We expect Nextel Brazil's average revenue per subscriber to remain relatively stable throughout the remainder of 2012. In addition, we expect the incremental expenses relating to the deployment of the WCDMA-based network to continue, but we do not expect a corresponding increase in operating revenues until the deployment phase is completed and we begin to offer services using the new network.

During the third quarter of 2012, we continued to invest in the development of our planned WCDMA-based network and to improve the capacity and quality of our existing iDEN network in Brazil. As a result, Nextel Brazil's capital expenditures were $396.5 million and $171.5 million for the nine and three months ended September 30, 2012, which represented 40% and 44% of our consolidated capital expenditures, respectively. We will continue to make investments in capital expenditures in Brazil to build our planned WCDMA-based network. See "Future Capital Needs and Resources - Capital Expenditures" for more information.

The average value of the Brazilian real during the nine and three months ended September 30, 2012 depreciated relative to the U.S. dollar by 18% and 24% compared to the average rate that prevailed during the same periods in 2011. As a result, the components of Nextel Brazil's results of operations for the nine and three months ended September 30, 2012, after translation into U.S. dollars, reflect lower revenues and expenses in U.S. dollars than would have occurred if the Brazilian real had not depreciated relative to the U.S. dollar. If the value of the Brazilian real remains at levels similar to the end of the third quarter of 2012 or depreciates further relative to the U.S. dollar, Nextel Brazil's future results of operations may be adversely affected.

Nextel Brazil's segment earnings decreased $259.0 million, or 31%, and $91.1 million, or 36%, in the nine and three months ended September 30, 2012 compared to the same periods in 2011 and 13% and 12% on a constant currency basis over the same periods as a result of the following: 1. Operating revenues The $402.6 million, or 16%, and $210.6 million, or 24%, decreases in service and other revenues in the nine and three months ended September 30, 2012 compared to the same periods in 2011 are principally the result of weaker foreign currency exchange rates and lower average revenues per subscriber resulting from adjustments to commercial offers, migrations to lower rate service plans and increased retention expenses in response to the competitive environment in Brazil. These decreases were partially offset by additional revenues generated by Nextel Brazil's larger subscriber base.

2. Cost of revenues The $79.2 million, or 10%, and $48.3 million, or 18%, decreases in cost of service in the nine and three months ended September 30, 2012 compared to the same periods in 2011 are primarily due to decreases in service and repair costs caused by the utilization of more refurbished handsets in 2012 compared to 2011, decreases in interconnect costs related to lower mobile termination rates in 2012 compared to 2011 and weaker foreign currency exchange rates.

3. Selling and marketing expenses The $65.5 million, or 25%, and $54.8 million, or 47%, decreases in selling and marketing expenses in the nine and three months ended September 30, 2012 compared to the same periods in 2011 are largely due to the launch of Nextel Brazil's new brand design in the third quarter of 2011, decreases in commissions and payroll expenses as a result of lower gross subscriber additions, lower advertising costs and weaker foreign currency exchange rates.

4. General and administrative expenses Nextel Brazil's general and administrative expenses as a percentage of its operating revenues increased from 22% and 23% in the nine and three months ended September 30, 2011 to 26% and 29% in the nine and three months ended September 30, 2012 primarily as a result of the year-over-year decline in operating revenues described above.

39 -------------------------------------------------------------------------------- c. Nextel Mexico Constant Currency Change % of % of from Nextel Nextel Change from Previous Mexico's Mexico's Previous Year Year Operating September 30, Operating September 30, 2012 Revenues 2011 Revenues Dollars Percent Percent (dollars in thousands) Nine Months Ended Operating revenues Service and other revenues $ 1,528,044 96 % $ 1,667,114 96 % $ (139,070 ) (8 )% Handset and accessory revenues 60,741 4 % 65,402 4 % (4,661 ) (7 )% 1,588,785 100 % 1,732,516 100 % (143,731 ) (8 )% 1% Cost of revenues Cost of service (exclusive of depreciation and amortization) 290,130 18 % 338,431 20 % (48,301 ) (14 )% Cost of handset and accessory sales 389,495 25 % 331,532 19 % 57,963 17 % 679,625 43 % 669,963 39 % 9,662 1 % Selling and marketing expenses 221,251 14 % 217,073 12 % 4,178 2 % General and administrative expenses 243,211 15 % 255,014 15 % (11,803 ) (5 )% Segment earnings $ 444,698 28 % $ 590,466 34 % $ (145,768 ) (25 )% (15)% Three Months Ended Operating revenues Service and other revenues $ 503,890 96 % $ 553,922 96 % $ (50,032 ) (9 )% Handset and accessory revenues 19,330 4 % 23,280 4 % (3,950 ) (17 )% 523,220 100 % 577,202 100 % (53,982 ) (9 )% (2)% Cost of revenues Cost of service (exclusive of depreciation and amortization) 83,347 16 % 110,494 19 % (27,147 ) (25 )% Cost of handset and accessory sales 128,540 25 % 120,737 21 % 7,803 6 % 211,887 41 % 231,231 40 % (19,344 ) (8 )% Selling and marketing expenses 79,160 15 % 74,261 13 % 4,899 7 % General and administrative expenses 84,546 16 % 84,854 15 % (308 ) - Segment earnings $ 147,627 28 % $ 186,856 32 % $ (39,229 ) (21 )% (13)% Nextel Mexico comprised 34% of our consolidated operating revenues for the first nine months of 2012 and represented 34% of our consolidated subscriber base as of September 30, 2012.

In September 2012, we began offering a variety of services on our WCDMA-based network in Mexico City and related cities across the country. Development and deployment of this new network and investments that we are making in improvements to the capacity and quality of our existing iDEN network in Mexico resulted in capital expenditures of $337.4 million and $137.8 million for the nine and three months ended September 30, 2012, which represented 34% and 35% of our consolidated capital expenditures, respectively. Continued deployment of the new network and other planned network expansions, including investments in other cities in Mexico where we currently only offer iDEN services, will require us to make additional investments in capital expenditures. See "Future Capital Needs and Resources - Capital Expenditures" for more information.

We also expect to continue to incur operating expenses in connection with the deployment of our new WCDMA-based network, including cost of service, general and administrative and selling and marketing expenses, but we do not expect a significant increase in operating revenues until the deployment phase is completed. As a result of these additional expenses, weaker average foreign currency exchange rates, higher cost of handset and accessory sales and other factors described below, Nextel Mexico's segment earnings margin declined from 34% and 32% in the nine and three months ended September 30, 2011 to 28% during each of the same periods in 2012.

The average value of the Mexican peso depreciated relative to the U.S. dollar by about 10% and 8% during the nine and three months ended September 30, 2012 compared to the average rates that prevailed during the same periods in 2011. As a result, the components of Nextel Mexico's results of operations for the nine and three months ended September 30, 2012 after translation into U.S. dollars reflect lower U.S. dollar-denominated revenues and expenses than would have occurred if it were not for the impact of the depreciation in the average values of the peso relative to the U.S. dollar. If the value of the Mexican peso remains 40 -------------------------------------------------------------------------------- at levels similar to the end of the third quarter of 2012 or depreciates further relative to the U.S. dollar, Nextel Mexico's results of operations may be adversely affected.

On a constant currency basis, Nextel Mexico's segment earnings decreased 16% and 13% in the nine and three months ended September 30, 2012 compared to the same periods in 2011. Including the impact of the depreciation in the average values of the peso relative to the U.S. dollar, Nextel Mexico's segment earnings decreased $145.8 million, or 25%, and $39.2 million, or 21%, over the same periods as a result of the following: 1. Operating revenues The $139.1 million, or 8%, and $50.0 million, or 9%, decreases in service and other revenues in the nine and three months ended September 30, 2012 compared to the same periods in 2011 are primarily due to the depreciation of the Mexican peso and slightly lower average revenue per subscriber resulting from the implementation of lower rate service plans in response to the competitive environment in Mexico. The decreases attributable to the decline in average revenue per subscriber were partially offset by additional revenues generated from Nextel Mexico's larger subscriber base. On a constant currency basis, Nextel Mexico's total operating revenues increased 1% from the nine months ended September 30, 2011 to the same period in 2012, primarily due to 7% growth in its subscriber base offset by a decline in average revenue per subscriber.

2. Cost of revenues The $48.3 million, or 14%, and $27.1 million, or 25%, decreases in cost of service in the nine and three months ended September 30, 2012 compared to the same periods in 2011 are primarily the result of a $27.1 million refund of excess fees recognized in the third quarter of 2012 due to the government's delay in granting spectrum license renewals. These decreases were partially offset by increases in cost of service related to a higher level of interconnect minutes of use.

The $58.0 million, or 17%, and $7.8 million, or 6%, increases in cost of handset and accessory sales in the nine and three months ended September 30, 2012 compared to the same periods in 2011 are primarily the result of increases in handset subsidies associated with promotions that use high-tier handset models to attract and retain customers, as well as increases in handset sales and upgrades to new and existing subscribers.

41 -------------------------------------------------------------------------------- d. Nextel Argentina Constant Currency Change from % of % of Actual Change from Previous September 30, Nextel Argentina's September 30, Nextel Argentina's Previous Year Year 2012 Operating Revenues 2011 Operating Revenues Dollars Percent Percent (dollars in thousands) Nine Months Ended Operating revenues Service and other revenues $ 476,550 93 % $ 439,640 92 % $ 36,910 8 % Handset and accessory revenues 35,603 7 % 39,056 8 % (3,453 ) (9 )% 512,153 100 % 478,696 100 % 33,457 7 % 17% Cost of revenues Cost of service (exclusive of depreciation and amortization) 144,475 28 % 138,696 29 % 5,779 4 % Cost of handset and accessory sales 59,317 12 % 65,044 14 % (5,727 ) (9 )% 203,792 40 % 203,740 43 % 52 - Selling and marketing expenses 50,982 10 % 45,868 9 % 5,114 11 % General and administrative expenses 125,410 24 % 101,914 21 % 23,496 23 % Segment earnings $ 131,969 26 % $ 127,174 27 % $ 4,795 4 % 23% Three Months Ended Operating revenues Service and other revenues $ 166,697 93 % $ 153,364 92 % $ 13,333 9 % Handset and accessory revenues 11,808 7 % 13,768 8 % (1,960 ) (14 )% 178,505 100 % 167,132 100 % 11,373 7 % 18% Cost of revenues Cost of service (exclusive of depreciation and amortization) 46,497 26 % 47,108 28 % (611 ) (1 )% Cost of handset and accessory sales 18,951 11 % 23,950 15 % (4,999 ) (21 )% 65,448 37 % 71,058 43 % (5,610 ) (8 ) Selling and marketing expenses 16,374 9 % 19,462 12 % (3,088 ) (16 )% General and administrative expenses 46,638 26 % 35,712 21 % 10,926 31 % Segment earnings $ 50,045 28 % $ 40,900 24 % $ 9,145 22 % 50% Nextel Argentina comprised 11% of our consolidated operating revenues for the first nine months of 2012 and as of September 30, 2012, represented 15% of our consolidated subscriber base. Nextel Argentina generated a segment earnings margin of 26% in the first nine months of 2012, which is slightly lower than the segment earnings margin of 27% in the first nine months of 2011. Over the last several years, the inflation rate in Argentina has risen significantly, and we expect that it may continue to rise in future years. The higher inflation rate has affected costs that are incurred in Argentine pesos. If the higher inflation rates in Argentina continue, Nextel Argentina's results of operations may be adversely affected.

The average value of the Argentine peso for the nine and three months ended September 30, 2012 depreciated relative to the U.S. dollar by 9% and 11% compared to the same periods in 2011. As a result, the components of Nextel Argentina's results of operations for the nine and three months ended September 30, 2012 after translation into U.S. dollars reflect lower U.S. dollar-denominated revenues and expenses than would have occurred if the Argentine peso had not depreciated relative to the U.S. dollar.

Nextel Argentina's segment earnings increased $4.8 million, or 4%, and $9.1 million, or 22%, in the nine and three months ended September 30, 2012 compared to the same periods in 2011 primarily as a result of the following: • increases in service and other revenues of $36.9 million, or 8%, and $13.3 million, or 9%, in the nine and three months ended September 30, 2012, primarily resulting from additional revenues generated from an increase in Nextel Argentina's subscriber base; partially offset by 42 --------------------------------------------------------------------------------• increases in general and administrative expenses of $23.5 million, or 23%, and $10.9 million, or 31%, in the nine and three months ended September 30, 2012, primarily resulting from higher inflation rates, which are causing increased costs, as well as increases in both customer care and billing operations expenses and bad debt expense largely related to Nextel Argentina's larger subscriber base.

On a constant currency basis, Nextel Argentina's segment earnings increased 24% and 50% from the nine and three months ended September 30, 2011 to the same periods in 2012.

e. Nextel Peru % of % of Nextel Peru's Change from September 30, Nextel Peru's September 30, Operating Previous Year 2012 Operating Revenues 2011 Revenues Dollars Percent (dollars in thousands) Nine Months Ended Operating revenues Service and other revenues $ 237,050 91 % $ 239,487 91 % $ (2,437 ) (1 )% Handset and accessory revenues 22,668 9 % 24,584 9 % (1,916 ) (8 )% 259,718 100 % 264,071 100 % (4,353 ) (2 )% Cost of revenues Cost of service (exclusive of depreciation and amortization) 86,231 33 % 80,166 30 % 6,065 8 % Cost of handset and accessory sales 61,802 24 % 55,404 21 % 6,398 12 % 148,033 57 % 135,570 51 % 12,463 9 % Selling and marketing expenses 49,896 19 % 46,805 18 % 3,091 7 % General and administrative expenses 64,505 25 % 55,297 21 % 9,208 17 % Segment (losses) earnings $ (2,716 ) (1 )% $ 26,399 10 % $ (29,115 ) (110 )% Three Months Ended Operating revenues Service and other revenues $ 77,612 92 % $ 82,282 91 % $ (4,670 ) (6 )% Handset and accessory revenues 6,917 8 % 7,962 9 % (1,045 ) (13 )% 84,529 100 % 90,244 100 % (5,715 ) (6 )% Cost of revenues Cost of service (exclusive of depreciation and amortization) 28,675 34 % 27,808 31 % 867 3 % Cost of handset and accessory sales 23,626 28 % 16,892 19 % 6,734 40 % 52,301 62 % 44,700 50 % 7,601 17 % Selling and marketing expenses 17,431 21 % 15,432 17 % 1,999 13 % General and administrative expenses 21,530 25 % 18,766 20 % 2,764 15 % Segment (losses) earnings $ (6,733 ) (8 )% $ 11,346 13 % $ (18,079 ) (159 )% During the first nine months of 2012, Nextel Peru comprised 6% of our consolidated operating revenues and as of September 30, 2012, represented 13% of our consolidated subscriber base.

During the second quarter of 2012, we proceeded with a broader launch of our WCDMA-based services in Peru, including the launch of push-to-talk Android-based smartphones. This launch contributed to a 10% increase in Nextel Peru's subscriber base from the end of the third quarter of 2011 to the same period in 2012. A substantial portion of this subscriber growth related to promotional data card plans that were offered to facilitate subscriber growth on Nextel Peru's WCDMA-based network consistent with our regulatory commitments.

Because the U.S. dollar is Nextel Peru's functional currency, results of operations are not significantly impacted by changes in the U.S. dollar to Peruvian sol exchange rate.

Nextel Peru generated a 1% segment loss margin in the first nine months of 2012 compared to the 10% earnings margin reported in the first nine months of 2011.

Segment earnings decreased $29.1 million, or 110%, and $18.1 million, or 159%, for the nine and three months ended September 30, 2012 compared to the same periods in 2011, primarily due to the costs associated with the launch of Nextel Peru's WCDMA-based services, and increases in information technology costs necessary to support these new services.

43 -------------------------------------------------------------------------------- f. Corporate and other % of % of Corporate and Corporate and Change from other other Previous Year September 30, Operating September 30, Operating 2012 Revenues 2011 Revenues Dollars Percent (Restated) (dollars in thousands) Nine Months Ended Operating revenues Service and other revenues $ 29,734 82 % $ 22,552 100 % $ 7,182 32 % Handset and accessory revenues 6,481 18 % 90 - 6,391 NM 36,215 100 % 22,642 100 % 13,573 60 % Cost of revenues Cost of service (exclusive of depreciation and amortization) 44,378 123 % 24,953 110 % 19,425 78 % Cost of handset and accessory sales 23,695 65 % 3,245 15 % 20,450 NM 68,073 188 % 28,198 125 % 39,875 141 % Selling and marketing expenses 74,086 205 % 44,872 198 % 29,214 65 % General and administrative expenses 272,451 NM 244,479 NM 27,972 11 % Segment losses $ (378,395 ) NM $ (294,907 ) NM $ (83,488 ) 28 % Three Months Ended Operating revenues Service and other revenues $ 11,805 76 % $ 7,734 100 % $ 4,071 53 % Handset and accessory revenues 3,627 24 % 36 - 3,591 NM 15,432 100 % 7,770 100 % 7,662 99 % Cost of revenues Cost of service (exclusive of depreciation and amortization) 18,283 119 % 9,799 126 % 8,484 87 % Cost of handset and accessory sales 13,305 86 % 872 11 % 12,433 NM 31,588 205 % 10,671 137 % 20,917 196 % Selling and marketing expenses 28,105 182 % 28,717 NM (612 ) (2 )% General and administrative expenses 91,710 NM 76,355 NM 15,355 20 % Segment losses $ (135,971 ) NM $ (107,973 ) NM $ (27,998 ) 26 % _______________________________________ NM-Not Meaningful The "Corporate and other" segment includes our Chilean operations and our corporate operations in the U.S. Corporate and other operating revenues and cost of revenues primarily represent the results of operations reported by Nextel Chile. Earlier this year, we began offering services on a WCDMA-based network in Chile, which is enabling us to offer new and differentiated services to a larger base of potential customers, and in July 2012, we began offering voice services on this network, which include Direct Connect services. Deployment and expansion of this network in Chile resulted in capital expenditures totaling $82.8 million for the nine months ended September 30, 2012, which represented 8% of our consolidated capital expenditures. We may make additional investments in capital expenditures as we expand our subscriber base in Chile.

Segment losses increased in the nine and three months ended September 30, 2012 compared to the same periods in 2011 primarily due to: • $39.9 million, or 141%, and $20.9 million, or 196%, increases in cost of revenues primarily as a result of higher handset and accessory costs in connection with the launch of Nextel Chile's WCDMA-based services, and higher direct switch and transmitter and receiver site costs resulting from a 77% increase in transmitter and receiver sites in service in Chile from September 30, 2011 to September 30, 2012; • $28.0 million, or 11%, and $15.4 million, or 20%, increases in general and administrative expenses largely due to the write-off of one of our web-based technology systems in the third quarter of 2012, as well as increases in information technology costs at the corporate level related to the planned launch of the new WCDMA-based networks and supporting systems in our markets; and • a $29.2 million, or 65%, increase in selling and marketing expenses from the nine months ended September 30, 2011 to 44 -------------------------------------------------------------------------------- the same period in 2012 primarily resulting from higher commissions and payroll expenses due to an increase in gross subscriber additions by Nextel Chile's sales personnel and higher advertising costs in Chile in connection with service offerings on its WCDMA-based network. Selling and marketing expenses remained relatively stable from the third quarter of 2011 to the third quarter of 2012.

Liquidity and Capital Resources We derive our liquidity and capital resources primarily from a combination of cash flows from our operations and cash we raise in connection with external financings. As of September 30, 2012, we had working capital, which is defined as total current assets less total current liabilities, of $1,849.2 million, a $368.1 million decrease compared to working capital of $2,217.3 million as of December 31, 2011. As of September 30, 2012, our working capital includes $1,568.0 million in cash and cash equivalents, of which $204.4 million was held in currencies other than U.S. dollars, with 49% of that amount held in Mexican pesos and 44% of that amount held in Argentine pesos. As of September 30, 2012, our working capital also includes $117.1 million in short-term investments. A substantial portion of our cash, cash equivalents and short-term U.S. dollar investments are held in money market funds, bank deposits and U.S. treasury securities, and our cash, cash equivalents and short-term investments held in local currencies are typically maintained in a combination of money market funds, highly liquid overnight securities and fixed income investments. The values of our cash, cash equivalents and short-term investments that are held in the local currencies of the countries in which we do business will fluctuate in U.S. dollars based on changes in the exchange rates of these local currencies relative to the U.S. dollar.

Our current sources of funding include our cash, cash equivalent and investment balances, our equipment financing facilities in Brazil, Mexico and Chile, and other anticipated future cash flows from our operations. In addition, in October 2012, we entered into a local currency financing in Brazil for the equivalent of approximately $196.9 million. We plan to continue to evaluate funding opportunities and, if appropriate, access the credit and capital markets in order to support our business plans, reduce our capital costs, optimize our capital structure, and maintain or enhance our liquidity position.

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