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

[February 28, 2013]

NII HOLDINGS INC - 10-K - 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 Forward Looking and Cautionary Statements 40 Introduction 41 A. Executive Overview 41 B. Results of Operations 50 1. Year Ended December 31, 2012 vs. Year Ended December 31, 2011 52 a. Consolidated 52 b. Nextel Brazil 55 c. Nextel Mexico 57 d. Nextel Argentina 58 e. Nextel Peru 59 f. Corporate and other 60 2. Year Ended December 31, 2011 vs. Year Ended December 31, 2010 61 a. Consolidated 61 b. Nextel Brazil 63 c. Nextel Mexico 65 d. Nextel Argentina 66 e. Nextel Peru 66 f. Corporate and other 67 C. Liquidity and Capital Resources 67 D. Future Capital Needs and Resources 68 E. Effect of Inflation and Foreign Currency Exchange 73 F. Effect of New Accounting Standards 73 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 73 39 -------------------------------------------------------------------------------- Forward-Looking and Cautionary Statements This annual report on Form 10-K includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Statements regarding expectations, including forecasts regarding operating results, performance assumptions and estimates relating to capital requirements, as well as other statements that are not historical facts, are forward-looking statements. When used in this annual report on Form 10-K, these forward-looking statements are generally identified by the words or phrases "would be," "will allow," "expects to," "will continue," "is anticipated," "estimate," "project" or similar expressions.



While we provide forward-looking statements to assist in the understanding of our anticipated future financial performance, we caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date that we make them. Forward-looking statements are based on current expectations and assumptions that are subject to significant risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Except as otherwise required by law, we undertake no obligation to publicly release any updates to forward-looking statements to reflect events after the date of this report, including unforeseen events.

We have included risk factors and uncertainties that might cause differences between anticipated and actual future results in Part I, Item 1A. "Risk Factors" of this annual report on Form 10-K. We have attempted to identify, in context, some of the factors that we currently believe may cause actual future experience and results to differ from our current expectations regarding the relevant matter or subject area. The operations and results of our wireless communications business also may be subject to the effects of other risks and uncertainties, including, but not limited to: • our ability to attract and retain customers; • our ability to meet the operating goals established by our business plan and generate cash flow; • general economic conditions in the U.S. or in Latin America and in the market segments that we are targeting for our services, including the impact of the current uncertainties in global economic conditions; • the political and social conditions in the countries in which we operate, including political instability, which may affect the economies of our markets and the regulatory schemes in these countries; • the impact of foreign currency exchange rate volatility in our markets when compared to the U.S. dollar and related currency depreciation in countries in which our operating companies conduct business; • our ability to access sufficient debt or equity capital to meet any future operating and financial needs; • reasonable access to and the successful performance of the technology being deployed in our service areas, and improvements thereon, including technology deployed in connection with the introduction of digital two-way mobile data or internet connectivity services in our markets; • the availability of adequate quantities of system infrastructure and subscriber equipment and components at reasonable pricing to meet our service deployment and marketing plans and customer demand; • Motorola's ability and willingness to provide handsets and related equipment and software applications or to develop new technologies or features for us for use on our iDEN network, including the timely development and availability of new handsets with expanded applications and features; • the risk of deploying next generation networks, including the potential need for additional funding to support that deployment, delays in deployment, cost over-runs, the risk that new services supported by the new networks will not attract enough subscribers to support the related costs of deploying or operating the new networks, the need to significantly increase our employee base and the potential distraction of management; • our ability to successfully scale our billing, collection, customer care and similar back-office operations to keep pace with customer growth, increased system usage rates and growth or to successfully deploy new systems that support those functions; • our ability to resolve our material weaknesses in internal control over financial reporting in Brazil; • the success of efforts to improve and satisfactorily address any issues relating to our network performance; • future legislation or regulatory actions relating to our SMR services, other wireless communications services or telecommunications generally and the costs and/or potential customer impacts of compliance with regulatory mandates; • the ability to achieve and maintain market penetration and average subscriber revenue levels sufficient to provide financial viability to our network business; 40--------------------------------------------------------------------------------• the quality and price of similar or comparable wireless communications services offered or to be offered by our competitors, including providers of cellular services and personal communications services; • market acceptance of our new service offerings; • equipment failure, natural disasters, terrorist acts or other breaches of network or information technology security; and • other risks and uncertainties described in this annual report on Form 10-K, including in Part I, Item 1A. "Risk Factors," and, from time to time, in our reports filed with the SEC.

Introduction The following is a discussion and analysis of: • our consolidated financial condition for the years ended December 31, 2012 and 2011 and our consolidated results of operations for the years ended December 31, 2012, 2011 and 2010; and • significant factors which we believe could affect our prospective financial condition and results of operations.

Historical results may not indicate future performance. See "Item 1A. - Risk Factors" 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.

A. Executive Overview Business Overview We provide wireless communication services under the NextelTM brand, primarily targeted at meeting the needs of subscribers who use our services to improve the productivity of their businesses and subscribers who make the individual decision to use our service for both professional and personal needs. Our subscribers 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 subscribers 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 and lower wireline service penetration 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 subscribers improve their productivity; and • international roaming services.

41 -------------------------------------------------------------------------------- Our deployment of WCDMA-based networks will enable us to offer a wider range of products and services that are supported by that technology, including data services provided at substantially higher speeds than can be delivered on our original networks. These new networks will also support our unique push-to-talk services that provide significant differentiation from our competitors' offerings. We are currently offering services on our new WCDMA-based networks in Mexico, Peru and Chile, and we are in the process of designing and building a new WCDMA-based network in Brazil. We began offering services supported by this new network in select cities in Brazil during the fourth quarter of 2012. We expect to expand the coverage of our new networks, particularly in Brazil and Mexico, and to offer a broader set of voice and data services on those networks during 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 were previously expecting to participate in that auction and to use any spectrum we acquired in the auction to support a WCDMA-based network in Argentina. We are continuing to evaluate our spectrum options in Argentina and our response to this decision. As a result of this decision by the Argentine government, Nextel Argentina does not currently hold spectrum that would support the deployment of a WCDMA-based network nor are there any current proposals by the Argentine government to make spectrum of that type available to Nextel Argentina or to other carriers via auction or otherwise. As a result, we expect to continue to use the iDEN technology and are currently considering other strategic approaches that could support our transition to new technologies.

Our goal is to generate increased revenues and increase the number of handsets and devices operating on our networks, which we refer to as our subscriber base, by providing differentiated wireless communications services that are valued by our existing and potential 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 subscribers to purchase our services and utilize our subscriber 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 subscribers.

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 subscribers to communicate quickly and efficiently. We expect to continue to focus on this differentiated approach as we offer services on our new WCDMA-based networks and pursue our plans to extend our target market.

Historically, our largest competitors have focused their marketing efforts on subscribers 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 subscribers within our target segments, which are considered the premium segments in our markets because they typically generate higher average monthly revenue per subscriber. With this shift in focus, some of our largest competitors have recently begun to concentrate on enhancing their customer service and customer care functions, which may minimize the value of the quality of our customer service as a point of differentiation and enable those competitors to compete more effectively with us. Although competitive pricing of services and the variety and 42 -------------------------------------------------------------------------------- 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 subscriber 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: Deploying Our New Networks. We strive 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 subscribers rely on while expanding our products and services using the new handsets and devices, service offerings, applications and pricing plans made possible by the new networks to target an expanded subscriber base.

We are currently offering services on WCDMA-based networks in Mexico, Peru and Chile, and we are in the process of designing and building a new WCDMA-based network in Brazil. We began offering services supported by this new network in select cities in Brazil during the fourth quarter of 2012. We expect to expand the coverage of our new networks, particularly in Brazil and Mexico, and to offer a broader set of voice and data services on those networks during 2013.

The following chart details our significant spectrum holdings in each of our markets in spectrum bands that support the WCDMA technology: 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 may consider opportunities to acquire additional spectrum in our current or other 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, 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 and the availability and cost of compatible network and subscriber equipment.

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.

We also have additional spectrum holdings in some of our markets, including 20 MHz of 1.8 GHz in Brazil, 10 MHz of 1.9 GHz and 50 MHz of 3.5 GHz in Mexico and 54 MHz of 2.5 GHz and 50 MHz of 3.5 GHz in Peru.

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, our current 800 MHz spectrum holdings are largely 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 factors, including the technology decisions made by other wireless carriers and the willingness of infrastructure and device manufacturers to produce the required equipment.

43 -------------------------------------------------------------------------------- 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.

Focusing on Our Core Markets. We operate our business with a focus on generating growth in operating income and cash flow over the long term and enhancing our profitability by attracting and retaining high value wireless customers while maintaining appropriate controls on costs. To support this goal, we plan to continue to expand the coverage of our WCDMA-based networks in our markets, focusing particularly on our key markets in Brazil and Mexico, and to increase our existing subscriber base while managing our costs in a manner designed to support that growth and improve our operating results. We have also made significant capital and other investments as we pursue our plans to deploy new networks that utilize WCDMA technology, and we expect those investments to continue, particularly in Brazil and Mexico. While these investments are expected to increase our costs and negatively impact our profitability in the near term as we incur the costs of our new networks while building the subscriber base served by them, we believe that over the long term these investments in our new networks will enhance the competitiveness of our service offerings while continuing to support the differentiated services and superior customer service that have historically been significant factors supporting our growth.

Consistent with this strategy, we have implemented and will continue to implement changes in our business to support our planned growth and to better align our organization and costs with our operational and financial goals. These changes have included reductions in our headquarters staff in connection with the reorganization of the roles and responsibilities of our headquarters and market teams and staff reductions in our market operations designed to reduce costs while maintaining the support necessary to meet our customers' needs. We are also taking steps to improve the performance and efficiency of our supporting systems and functions, including implementing improvements to our information technology and related supporting systems and processes, and modifications to some of our key vendor relationships that are designed to improve the overall quality and efficiency of the service provided and enhance the quality of the service we provide our customers.

Finally, as we make the transition to our new networks and implement changes to our business strategy that are designed to improve our operating results while expanding our subscriber base and profitably growing our business, we expect that we will allocate more of our financial and other resources to our operations in Brazil and Mexico, which in 2012 collectively produced about 82% of our total consolidated operating revenues and about $550.0 million in operating income. While we will also continue to support our operations in Argentina, Peru and Chile, this change in emphasis makes it appropriate for us to consider and explore a variety of strategic options for these markets, such as partnerships, service arrangements and asset sales in an effort to maximize the value of those businesses.

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 include 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 and a Superior Customer Experience. 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 subscribers 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 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 have also historically added further value by designing customized business solutions that enhance the productivity of our subscribers 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.

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 44 -------------------------------------------------------------------------------- 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.

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 subscriber 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 subscriber 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 enhances the recognition of our brand and unifies our brand identity across our markets as we deploy our WCDMA-based networks and seek to expand our target market to include new customer segments.

Expanding and Focusing 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 subscriber-convenient sales channels such as online purchasing, and we are targeting those channels at specific subscriber 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 subscriber-convenient channels, which include telesales and online channels, to give our prospective and existing subscribers easier ways to purchase our services. We are making these investments to more efficiently serve our subscribers and improve the overall productivity of all of our distribution channels and, therefore, we expect to see our average sales and related costs to acquire subscribers decline over time.

Focusing on Major Business Centers. Because we target high value subscribers, our operations have focused primarily on large urban markets, which have a concentration of medium to high usage business subscribers 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.

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 Mobility and Motorola Solutions are the sole suppliers of iDEN technology, we are dependent on their support of the evolution of the iDEN technology. In the past, we relied heavily on Motorola Solutions and Motorola Mobility for the development of new features for our iDEN networks and handsets.

In recent years, we have slowed the introduction of new updates, thereby relying less on new features and device functionality to support our iDEN business.

Historically, Sprint Nextel has been one of the largest purchasers of iDEN technology and provided significant support with respect to new product development for that technology, but that support has declined in recent years as Sprint Nextel's sales of iDEN-based services and their purchase of iDEN handsets and network equipment have declined. As a result, in recent years, we have led the majority of all iDEN product and handset development activity in support of our subscribers' needs limiting the impact of declining iDEN purchases by Sprint Nextel, particularly since Sprint Nextel's announcement of its plans to decommission its iDEN network in the U.S., which is scheduled to occur in mid-2013.

As we make the transition to our new WCDMA-based networks, and as Sprint Nextel proceeds with its planned deactivation of its iDEN network, the significant reduction in demand for iDEN network equipment and handsets may make it uneconomic for Motorola Solutions to continue to provide the same level of ongoing support for our iDEN networks, and we expect that it will become more costly for us to continue to support those networks. We also expect that this transition could affect Motorola Mobility's ability or willingness to provide support for the development of new iDEN handsets beyond their contractual obligations and may also result in an increase in our costs for those handsets, including handsets that are capable of operating on both our iDEN and WCDMA networks.

When roaming in the U.S., our existing iDEN subscribers currently have access to voice, data and Direct Connect 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 subscribers in the U.S. who purchase services supported by Sprint Nextel's iDEN network and subscribers 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 subscribers will no longer have the ability to use their iDEN handsets in the U.S. and may have access to a smaller number of Sprint Nextel subscribers using International Direct Connect services. We have implemented network 45 -------------------------------------------------------------------------------- gateways that enable our subscribers who use services supported by our iDEN networks to use our International Direct Connect service to communicate with subscribers of Sprint Nextel's QChat service in the U.S. and for those subscribers to communicate to our iDEN subscribers anywhere in Latin America. In addition, we plan to implement similar gateways that will enable our subscribers who use our services supported by our WCDMA-based networks to communicate with subscribers of Sprint Nextel's QChat service in the U.S. Nonetheless, Sprint Nextel's decision to deactivate its iDEN network may have a negative impact on the willingness of existing Nextel Mexico subscribers to remain on our iDEN network and on the willingness of potential subscribers to choose Nextel Mexico's service on our WCDMA-based network if we are unable to provide services that are comparable to those that have been available on our iDEN network, particularly in the area near the border with the U.S.

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 are parties to arrangements and agreements 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.

Impairment and Restructuring Charges In 2013, we plan to continue to invest in the deployment of our WCDMA-based networks with a particular focus on building those networks and improving results in our core markets in Brazil and Mexico. We plan to continue to support our operations in Argentina, Peru and Chile while also exploring strategic options for these markets, such as partnerships, service arrangements and asset sales to maximize the value of those businesses and generate additional liquidity. Due in part to this change in focus, in December 2012, we determined that the carrying value of the asset group within our Nextel Chile operating segment, which includes all operating assets and liabilities held at our Chilean operating segment, was not recoverable. As a result, we recorded a non-cash asset impairment charge of $298.8 million to reduce the carrying amount of the asset group to its fair value. During the year ended December 31, 2012, we recognized $322.7 million in non-cash impairment charges, $298.8 million of which related to the asset impairment recognized by our Nextel Chile operating segment described above. The remainder of our impairment charges related to the write-off of certain information technology projects in 2012, the majority of which was at the corporate level. In addition, during the fourth quarter of 2012, we recognized $7.6 million in restructuring charges at the corporate level, primarily related to the separation of employees in conjunction with certain actions taken to realign resources and roles between our corporate headquarters and operating segments.

Recent Economic Trends Late in 2011 and continuing throughout 2012, uncertainty in worldwide economic conditions drove a significant decline in the value of the currencies relative to the U.S. dollar in the markets where we operate. This and other periods of high volatility in foreign currency exchange rates that have occurred in the past have had a significant effect on our reported results as nearly all of our revenues are earned in non-U.S. currencies, and a significant portion of our capital and operating expenditures, including imported network equipment and handsets, and a substantial portion of our outstanding debt, is denominated in U.S. dollars. Significant volatility in the global market persists, and foreign currency exchange rates in effect in Brazil and Argentina at the end of 2012 reflect a reduction in value from those experienced earlier in the year. If the values of local currencies in the countries in which our operating companies conduct business depreciate further relative to the U.S. dollar, our future operating results and the value of our assets held in local currencies will be adversely affected.

46 -------------------------------------------------------------------------------- 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 December 31, 2012 and 2011.

For purposes of the table, handsets and devices in commercial service represent all handsets and other devices with active subscriber accounts on the networks in each of the listed countries.

Brazil Mexico (1) Argentina Peru (1) Chile (1) Total (in thousands) Handsets and devices in commercial service - December 31, 2011 4,115 3,696 1,388 1,435 78 10,712 Net subscriber additions (269 ) 206 368 225 120 650 Handsets and devices in commercial service - December 31, 2012 3,846 3,902 1,756 1,660 198 11,362 _______________________________________ (1) Includes handset and other devices on both our iDEN and next generation networks.

Foreign Currency Exposure Nearly all of our revenues are denominated in non-U.S. currencies, although a significant portion of our capital and operating expenditures, including imported network equipment and handsets, and a substantial portion of our outstanding debt, is denominated in U.S. dollars. Accordingly, fluctuations in exchange rates relative to the U.S. dollar could have a material adverse effect on our earnings and assets. Historically, the values of the currencies of the countries in which we do business in relation to the U.S. dollar have been volatile. Recent volatility in the worldwide economy and in the economies of some of those countries has led to increased volatility in these currencies. We translate the results of operations for our non-U.S. subsidiaries and affiliates from the designated functional currency to the U.S. dollar using average exchange rates during the relevant period. In addition, changes in exchange rates associated with U.S. dollar-denominated assets and liabilities result in foreign currency transaction gains or losses.

Brazilian Contingencies Nextel Brazil has received various assessment notices from state and federal Brazilian authorities asserting deficiencies in payments related primarily to value-added taxes, excise taxes on imported equipment and other non-income based taxes. Nextel Brazil has filed various administrative and legal petitions disputing these assessments. In some cases, Nextel Brazil has received favorable decisions, which are currently being appealed by the respective governmental authority. In other cases, Nextel Brazil's petitions have been denied, and Nextel Brazil is currently appealing those decisions. Nextel Brazil also has accrued liabilities related to certain civil and labor-related contingencies as of December 31, 2012 and 2011.

As of December 31, 2012 and 2011, Nextel Brazil had accrued liabilities of $73.0 million and $60.0 million, respectively, related to contingencies, all of which were classified in accrued contingencies reported as a component of other long-term liabilities, and $20.7 million and $27.4 million of which related to unasserted claims, respectively. We currently estimate the range of reasonably possible losses related to matters for which Nextel Brazil has not accrued liabilities, as they are not deemed probable, to be between $300.1 million and $304.1 million as of December 31, 2012. We are continuing to evaluate the likelihood of probable and reasonably possible losses, if any, related to all known contingencies. As a result, future increases or decreases to our accrued liabilities may be necessary and will be recorded in the period when such amounts are determined to be probable and reasonably estimable.

Critical Accounting Policies and Estimates The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes. We consider the accounting policies and estimates addressed below to be the most important to our financial position and results of operations, either because of the significance of the financial statement item or because they require the exercise of significant judgment and/or use of significant estimates. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates. For additional information, see Note 1 to our consolidated financial statements included at the end of this annual report on Form 10-K.

Revenue Recognition. Operating revenues primarily consist of revenues generated from multiple-deliverable arrangements in which we bundle handsets with service contracts. We allocate total consideration on multiple-deliverable arrangements based on the relative selling prices of each element. For purposes of this allocation, excise, value-added, and other revenue-based taxes are excluded from the values of each element. We present our operating revenues net of value-added taxes, but we include certain revenue-based taxes that are our primary obligation. Service revenues primarily consist of fixed monthly access charges and 47 -------------------------------------------------------------------------------- variable excess usage charges for mobile telephone service and two-way radio service. Other components of service revenue include revenues from calling party pays programs where applicable and variable charges for airtime and two-way radio usage in excess of plan minutes, long-distance charges, international roaming revenues derived from calls placed by our subscribers on other carriers' networks and revenues generated from broadband data services we provide on our next generation networks.

We recognize service revenue when the service is provided. We recognize handset revenue ratably as service is provided against the related service contract. We recognize revenue for access charges and other services charged at fixed amounts ratably over the service period, net of credits and adjustments for service discounts and value-added taxes. We recognize excess usage, local, long distance and calling party pays revenue at contractual rates per minute as minutes are used. We record cash received in excess of revenues earned as deferred revenues.

We bill excess usage to certain of our subscribers in arrears. In order to recognize the revenues originating from excess usage subsequent to subscriber invoicing, we estimate the unbilled portion based on the usage that the handset had during the part of the month already billed, and we use this actual usage to estimate the unbilled usage for the rest of the month taking into consideration working days and seasonality. Our estimates are based on our experience in each market. We periodically evaluate our estimates by comparing them to actual excess usage revenue billed the following month. While our estimates have been consistent with our actual results, actual usage in future periods could differ from our estimates.

Other revenues primarily include amounts generated from our handset maintenance programs, roaming revenues generated from other companies' subscribers that roam on our networks and co-location rental revenues from third party tenants that rent space on our towers. We recognize revenue generated from our handset maintenance programs on a monthly basis at fixed amounts over the service period. We recognize roaming revenues at contractual rates per minute as minutes are used. We recognize co-location revenues from third party tenants on a monthly basis based on the terms set by the underlying agreements.

We recognize revenue from handset and accessory sales when title and risk of loss passes upon delivery of the handset or accessory to the subscriber as this is considered a separate earnings process from the sale of wireless services.

Accounts Receivable. Accounts receivable represents amounts due from subscribers net of an allowance for doubtful accounts. Trade accounts receivable consist of fixed monthly charges, as well as charges for excess and roaming minutes used in arrears.

Allowance for Doubtful Accounts. We establish an allowance for doubtful accounts receivable sufficient to cover probable and reasonably estimated losses. We estimate this allowance based on historical experience, aging of accounts receivable and individual subscriber payment history. Actual write-offs in the future could be impacted by general economic and business conditions that are difficult to predict and therefore may differ from our estimates.

Depreciation of Property, Plant and Equipment. We record at cost our network assets and other improvements that in our opinion, extend the useful lives of the underlying assets, and depreciate those assets over their estimated useful lives. We calculate depreciation using the straight-line method based on estimated useful lives ranging from 3 to 20 years for mobile network equipment and network software and 3 to 10 years for office equipment, furniture and fixtures, and other, which includes non-network internal use software. We depreciate our corporate aircraft under a capital lease using the straight-line method based on the lease term of 10 years. We amortize leasehold improvements over the shorter of the lease terms or the useful lives of the improvements. Our networks are highly complex and, due to constant innovation and enhancements, certain components of those networks may lose their utility sooner than anticipated. We periodically reassess the economic life of these components and make adjustments to their useful lives after considering historical experience and capacity requirements, consulting with the vendor and assessing new product and market demands and other factors. When our assessment indicates that the economic life of a network component is shorter than originally anticipated, we depreciate its remaining book value over its revised useful life. Further, the deployment of any new technologies could adversely affect the estimated remaining useful lives of our network assets, which could significantly impact future results of operations.

Amortization of Intangible Assets. Intangible assets primarily consist of our telecommunications licenses. We calculate amortization on our licenses using the straight-line method based on estimated useful lives of 3 to 20 years. While the terms of our licenses, including renewals, range from 10 to 40 years, the political and regulatory environments in the markets we serve are continuously changing and, as a result, the cost of renewing our licenses could be significant. Therefore, we do not view the renewal of our licenses to be perfunctory. In addition, the wireless telecommunications industry is experiencing significant technological change, and the commercial life of any particular technology is difficult to predict. Many of our licenses give us the right to use 800 MHz spectrum that is non-contiguous, and the iDEN technology is the only widespread, commercially available technology that operates on non-contiguous spectrum. As a result, our ability to deploy new technologies using 800MHz spectrum may be limited. In light of these uncertainties we classify our licenses as finite lived intangible assets. Many of our licenses are subject to renewal after the initial term, provided that we have complied with applicable rules and policies in each of our markets. We intend to comply, and believe we have complied, with these rules and policies in all material respects as they relate to licenses that are material to our business. However, because governmental authorities have discretion as to the renewal of licenses, our 48 -------------------------------------------------------------------------------- licenses may not be renewed or we may be required to pay significant renewal fees, either of which could have a significant impact on the estimated useful lives of our licenses, which could significantly impact future results of operations.

Asset Retirement Obligations. We record an asset retirement obligation, or ARO, and an associated asset retirement cost, or ARC, when we have a legal obligation in connection with the retirement of tangible long-lived assets. Our obligations under the FASB's authoritative guidance on asset retirement obligations arise from certain of our leases and relate primarily to the cost of removing our network infrastructure and administrative assets from the leased space where these assets are located at the end of the lease. Estimating these obligations requires us to make certain assumptions that are highly judgmental in nature.

The significant assumptions used in estimating our asset retirement obligations include the following: the expected settlement dates that coincide with lease expiration dates plus estimates of lease extensions; removal costs that are indicative of what third party vendors would charge us to remove the assets; expected inflation rates; and credit-adjusted risk-free rates that approximate our incremental borrowing rates. We periodically review these assumptions to ensure that the estimates are reasonable. Any change in the assumptions used could significantly affect the amounts recorded with respect to our asset retirement obligations.

Foreign Currency. We translate the results of operations for our non-U.S. subsidiaries from the designated functional currency to the U.S. dollar using average exchange rates for the relevant period. We translate assets and liabilities using the exchange rate in effect at the relevant reporting date. We report the resulting gains or losses from translating foreign currency financial statements as other comprehensive income or loss. Because we translate the operations of our non-U.S. subsidiaries using average exchange rates, our operating companies' trends may be impacted by the translation.

We report the effect of changes in exchange rates on U.S. dollar-denominated assets and liabilities as foreign currency transaction gains or losses. We report the effect of changes in exchange rates on intercompany transactions of a long-term investment nature as part of the cumulative foreign currency translation adjustment in our consolidated financial statements. The intercompany transactions that, in our view, are of a long-term investment nature include certain intercompany loans and advances from our U.S. subsidiaries to Nextel Brazil and Nextel Chile. In contrast, we report the effect of exchange rates on U.S. dollar-denominated intercompany loans and advances to our foreign subsidiaries that are due, or for which repayment is anticipated in the foreseeable future, as foreign currency transaction gains or losses in our consolidated statements of operations. As a result, our determination of whether intercompany loans and advances are of a long-term investment nature can have a significant impact on how we report foreign currency transaction gains and losses in our consolidated financial statements.

Loss Contingencies. We account for and disclose loss contingencies such as pending litigation and actual or possible claims and assessments in accordance with the FASB's authoritative guidance on accounting for contingencies. We accrue for loss contingencies if it is probable that a loss will occur and if the loss can be reasonably estimated. We disclose, but do not accrue for, loss contingencies if it is reasonably possible that a loss will occur or if the loss cannot be reasonably estimated. We do not accrue for or disclose loss contingencies if there is only a remote possibility that the loss will occur.

The FASB's authoritative guidance requires us to make judgments regarding future events, including an assessment relating to the likelihood that a loss may occur and an estimate of the amount of such loss. In assessing loss contingencies, we often seek the assistance of our legal counsel and in some instances, of third party legal counsel. As a result of the significant judgment required in assessing and estimating loss contingencies, actual losses realized in future periods could differ significantly from our estimates.

Income Taxes. We account for income taxes using the asset and liability method, under which we recognize deferred income taxes for the tax consequences attributable to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities, as well as for tax loss carryforwards and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable or settled. We recognize the effect on deferred taxes of a change in tax rates in income in the period that includes the enactment date. We provide a valuation allowance against deferred tax assets if, based upon the weight of available evidence, we do not believe it is "more-likely-than-not" that some or all of the deferred tax assets will be realized. We report remeasurement gains and losses related to deferred tax assets and liabilities in our income tax provision.

Realization of deferred tax assets in any of our markets depends on various factors, including continued future profitability in these markets. Our ability to generate the expected amounts of taxable income from future operations is dependent upon general economic conditions, technology trends, political uncertainties, competitive pressures and other factors beyond management's control. We will continue to evaluate the deferred tax asset valuation allowance balances in all of our foreign and U.S. companies throughout 2013 to determine the appropriate level of valuation allowances.

We continued to assert our prior position regarding the repatriation of historical foreign earnings back to the U.S. During the first quarter of 2010, we determined that we will repatriate an additional amount of $200.0 million of 2010 undistributed earnings back to the U.S. in a taxable manner over the next three years. This amount was in addition to the $26.3 million that remained to be repatriated in accordance with our 2007 decision to repatriate foreign earnings to the U.S., for a total of $226.3 million to be repatriated. As of December 31, 2011, we included an $88.0 million provision in deferred tax liability for U.S. federal, state and foreign taxes with respect to future remittances of certain undistributed earnings (other than income that has been previously taxed in the U.S. under the subpart F rules) of certain of our foreign subsidiaries. This deferred tax liability decreased 49 -------------------------------------------------------------------------------- by a net tax effect of $33.6 million in 2012 due to a repatriation of earnings, leaving a $54.4 million deferred tax liability for future remittances of undistributed earnings as of December 31, 2012. Except for the earnings associated with this provision and income that has been previously taxed in the U.S. under the subpart F rules and can be remitted to the U.S. without incurring additional income taxes, we currently have no intention to remit any additional undistributed earnings of our foreign subsidiaries in a taxable manner. Should additional amounts of our foreign subsidiaries' undistributed earnings be remitted to the U.S. as dividends, we may be subject to additional U.S. income taxes (net of allowable foreign tax credits) and foreign withholding taxes. It is not practicable to estimate the amount of any additional taxes which may be payable on the remaining undistributed earnings.

We are subject to income taxes in both the U.S. and the non-U.S. jurisdictions in which we operate. Certain of our entities are under examination by the relevant taxing authorities for various tax years. We regularly assess the potential outcome of current and future examinations in each of the taxing jurisdictions when determining the adequacy of the provision for income taxes.

We have only recorded financial statement benefits for tax positions which we believe reflect the "more-likely-than-not" criteria of the FASB's authoritative guidance on accounting for uncertainty in income taxes, and we have established income tax reserves in accordance with this guidance where necessary. Once a financial statement benefit for a tax position is recorded or a tax reserve is established, we adjust it only when there is more information available or when an event occurs necessitating a change. While we believe that the amount of the recorded financial statement benefits and tax reserves reflect the more-likely-than-not criteria, it is possible that the ultimate outcome of current or future examinations may result in a reduction to the tax benefits previously recorded on our consolidated financial statements or may exceed the current income tax reserves in amounts that could be material.

B. 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 subscribers and revenues generated from broadband data services we provide on our WCDMA-based networks. Digital handset and accessory revenues represent revenues we earn on the sale of handsets and accessories to our subscribers.

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' subscribers that roam on our networks and co-location rental revenues from third-party tenants that rent space on our towers.

See "Revenue Recognition" above and Note 1 to our consolidated financial statements included at the end of this annual report on Form 10-K for a description of our revenue recognition methodology.

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. 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 digital 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 digital 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 digital handset and accessory revenues and cost of digital handset and accessory sales are primarily driven by the number of new handsets placed into service, as well as handset upgrades provided to existing subscribers.

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, maintenance of management information systems, spectrum license fees, corporate overhead and share-based payments for stock options and restricted stock.

50 -------------------------------------------------------------------------------- In accordance with accounting principles generally accepted in the U.S., we translated the results of operations of our operating segments using the average exchange rates for the years ended December 31, 2012, 2011 and 2010. 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 Nuevo sol exchange rate.

2011 to 2012 2010 to 2011 2012 2011 2010 Percent Change Percent Change Brazilian real 1.95 1.67 1.76 (16.8 )% 5.1 % Mexican peso 13.17 12.42 12.64 (6.0 )% 1.7 % Argentine peso 4.55 4.13 3.91 (10.2 )% (5.6 )% Chilean peso 486.49 483.67 510.24 (0.6 )% 5.2 % Late in 2011 and throughout 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 2011, as well as the end of each of the quarters in 2012. If the values of these exchange rates remain at levels similar to the end 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.

2011 2012 December March June September December Brazilian real 1.88 1.82 2.02 2.03 2.04 Mexican peso 13.99 12.80 13.67 12.92 13.01 Argentine peso 4.30 4.38 4.53 4.70 4.92 Chilean peso 519.20 487.44 501.84 473.77 479.96 To provide better insight into the results of some of our operating segments, we present the year-over-year percentage change in total operating revenues on a consolidated basis and 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 year ended December 31, 2011 to amounts that would have resulted if the average foreign currency rates for the year ended December 31, 2011 were the same as the average foreign currency exchange rates that were in effect for the year ended December 31, 2012; and (ii) by comparing the constant currency financial measures for the year ended December 31, 2011 to the actual financial measures for the year ended December 31, 2012.

This constant currency comparison applies consistent exchange rates to the operating revenues earned in foreign currencies and to the other components of segment earnings for the year ended December 31, 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 U.S. and should be considered in addition to, but not as a substitute for, the information contained in our results of operations.

51 --------------------------------------------------------------------------------1. Year Ended December 31, 2012 vs. Year Ended December 31, 2011 a. Consolidated Constant Currency Change from Change from Previous Year Ended % of Consolidated Year Ended % of Consolidated Previous Year Year December 31, 2012 Operating Revenues December 31, 2011 Operating Revenues Dollars Percent Percent (dollars in thousands) Operating revenues Service and other revenues $ 5,779,159 95 % $ 6,403,519 95 % $ (624,360 ) (10 )% Handset and accessory revenues 307,304 5 % 331,427 5 % (24,123 ) (7 )% 6,086,463 100 % 6,734,946 100 % (648,483 ) (10 )% 1 % Cost of revenues Cost of service (exclusive of depreciation and amortization included below) 1,690,464 28 % 1,789,402 26 % (98,938 ) (6 )% Cost of handset and accessory sales 915,120 15 % 855,929 13 % 59,191 7 % 2,605,584 43 % 2,645,331 39 % (39,747 ) (2 )% Selling and marketing expenses 799,562 13 % 859,303 13 % (59,741 ) (7 )% General and administrative expenses 1,524,860 25 % 1,483,820 22 % 41,040 3 % Provision for doubtful accounts 220,597 4 % 161,853 2 % 58,744 36 % Impairment and restructuring charges 330,340 5 % - - 330,340 NM Depreciation and amortization 728,780 12 % 653,087 10 % 75,693 12 % Operating (loss) income (123,260 ) (2 )% 931,552 14 % (1,054,812 ) (113 )% Interest expense, net (373,253 ) (6 )% (322,111 ) (5 )% (51,142 ) 16 % Interest income 34,143 - 34,224 1 % (81 ) - Foreign currency transaction losses, net (53,415 ) (1 )% (36,975 ) (1 )% (16,440 ) 44 % Other expense, net (27,355 ) - (37,305 ) (1 )% 9,950 (27 )% (Loss) income before income tax provision (543,140 ) (9 )% 569,385 8 % (1,112,525 ) (195 )% Income tax provision (222,109 ) (4 )% (344,189 ) (5 )% 122,080 (35 )% Net (loss) income $ (765,249 ) (13 )% $ 225,196 3 % $ (990,445 ) NM _______________________________________ NM-Not Meaningful Our consolidated subscriber base continued to grow in 2012, leading to a 6% increase in our subscriber base as of December 31, 2012 compared to December 31, 2011. However, consolidated operating revenues on a reported basis for 2012 decreased 10% compared to 2011, primarily due to declines in local currency values relative to the U.S. dollar as described further below. On a constant currency basis, consolidated operating revenues increased 1% from 2011 to 2012.

On a consolidated basis, our average revenue per subscriber on a constant currency basis declined in 2012 compared to 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 subscriber retention programs. The combination of these factors, along with increased levels of migrations by our existing subscribers to lower rate service plans, resulted in a reduction in average revenue per subscriber in Brazil and on a consolidated basis that continued into 2012. Beginning in the second quarter of 2012, Nextel Brazil modified its subscriber retention initiatives, changed its commission structure and focused on better aligning its subscriber base with our value proposition. In the fourth quarter of 2012, Nextel Brazil took steps to accelerate the deactivation of certain subscribers who were identified as being unprofitable, which included the implementation of changes to Nextel Brazil's credit policy and other processes designed to accelerate the deactivation of certain subscribers who had not made timely payments for services. The combined impact of these actions resulted in an increase in both customer turnover and bad debt expense in Brazil and on a consolidated basis in 2012 compared to 2011.

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 subscribers, but we do not expect a significant increase in operating revenues for services provided using the networks 52 -------------------------------------------------------------------------------- until after the deployment phases are completed. These additional expenses related to building our WCDMA-based networks, combined with the impact of weaker average foreign currency exchange rates and lower average revenue per subscriber, led to an increase in our consolidated cost of revenues and general and administrative expenses for 2012 as percentages of consolidated operating revenues compared to 2011.

In 2013, we plan to continue to invest in the deployment of our WCDMA-based networks, with a particular focus on building those networks and improving results in our core markets in Brazil and Mexico. We plan to continue to support our operations in Argentina, Peru and Chile while also exploring strategic options for these markets, such as partnerships, service arrangements and asset sales to maximize the value of those businesses and generate additional liquidity. Due in part to this change in focus and as a result of the review of our long-lived assets, in December 2012, we determined that the carrying value of the asset group within our Nextel Chile operating segment, which includes all operating assets and liabilities held at our Chilean operating segment, was not recoverable. As a result, we recorded a non-cash asset impairment charge of $298.8 million to reduce the carrying amount of the asset group to its fair value. As a result of this impairment charge and the other factors described above, we experienced a reduction in our consolidated operating income margin from 14% in 2011 to a 2% operating loss margin in 2012.

During 2012, we continued to make investments to build our WCDMA-based networks in our markets other than Argentina, resulting in consolidated capital expenditures of $1,498.8 million, which represents a 3% increase from 2011. We expect our consolidated capital expenditures for 2013 to decrease from 2012 levels.

The average values of the local currencies in Brazil, Mexico and Argentina depreciated relative to the U.S. dollar during the year ended December 31, 2012 compared to 2011. As a result, the components of our consolidated results of operations for the year ended December 31, 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 throughout 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 when compared to the relative values in early 2011. As a result, the foreign currency exchange rates in effect at the end of 2012 in Brazil and Argentina reflect a reduction in value from those experienced in 2011. If the values of the local currencies in the countries in which our operating companies conduct business remain at levels similar to the end of 2012 or depreciate further relative to the U.S. dollar, our future reported operating results may be adversely affected.

1. Operating revenues The $624.4 million, or 10%, decrease in consolidated service and other revenues on a reported basis from 2011 to 2012 was due to weaker average foreign currency exchange rates.

On a constant currency basis, consolidated operating revenues increased by 1% from 2011 to 2012 as a result of additional revenues generated from a 6% increase in our consolidated ending 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 in response to a more competitive environment and customer retention efforts in Brazil.

2. Cost of revenues Consolidated cost of service decreased $98.9 million, or 6%, in 2012 compared to 2011 as a result of a $123.5 million, or 14%, decrease in consolidated interconnect costs related to weaker average foreign currency exchange rates, reductions in mobile termination rates in Mexico and Brazil and a $45.1 million, or 16%, decrease 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. This decrease was also partially attributable to 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 us spectrum license renewals. These decreases were partially offset by a $64.9 million, or 14%, increase in consolidated direct switch and transmitter and receiver site costs resulting from a 20% increase in consolidated transmitter and receiver sites in service from December 31, 2011 to December 31, 2012 as a result of the deployment of our WCDMA networks.

Consolidated cost of handset and accessory sales increased $59.2 million, or 7%, from 2011 to 2012 resulting from higher handset subsidies and, to a lesser extent, an increase in handset sales to new subscribers.

Consolidated cost of revenues as a percentage of consolidated operating revenues increased from 39% in 2011 to 43% in 2012 primarily as a result of the decline in operating revenues over the same period, as well as higher direct switch and transmitter and receiver site costs resulting from the deployment of our WCMDA-based networks described above.

53 --------------------------------------------------------------------------------3. Selling and marketing expenses Significant factors contributing to the $59.7 million, or 7%, decrease in consolidated selling and marketing expenses in 2012 compared to 2011 included a $38.6 million, or 17%, decrease in consolidated advertising costs, primarily in Brazil, resulting from fewer advertising campaigns launched in 2012 compared to 2011 and a $35.6 million, or 15%, decrease in consolidated indirect commissions, primarily in Brazil, resulting mostly from lower commissions per gross subscriber addition. These decreases were partially offset by an increase in consolidated direct commissions and payroll expenses.

4. General and administrative expenses The $41.0 million, or 3%, increase in consolidated general and administrative expenses from 2011 to 2012 was primarily attributable to an increase in consolidated customer care expenses necessary to support a larger subscriber base and an increase in information technology expenses, principally related to the development and deployment of systems to support our WCDMA-based networks and other related technology initiatives. Each of these increases was partially offset by weaker average foreign currency exchange rates.

Consolidated general and administrative expenses as a percentage of consolidated operating revenues increased from 22% in 2011 to 25% in 2012 primarily as a result of the decline in operating revenues over the same period described above, while consolidated customer care and information technology expenses increased.

5. Provision for doubtful accounts The $58.7 million, or 36%, increase in the consolidated provision for doubtful accounts is largely related to changes made to Nextel Brazil's credit policy and other processes in connection with efforts to deactivate unprofitable customers during the fourth quarter of 2012, as well as lower collection rates in Brazil throughout 2012 resulting from an increase in the number of customers with weaker credit profiles and whose credit histories were less established.

6. Impairment and restructuring charges The $330.3 million impairment and restructuring charge primarily relates to the $298.8 million non-cash asset impairment charge we recognized in December 2012 to reduce the carrying amount of Nextel Chile's assets to their fair value described above.

7. Depreciation and amortization The $75.7 million, or 12%, increase in consolidated depreciation and amortization from 2011 to 2012 is the result of an increase in consolidated property, plant and equipment in service resulting from investments in our new WCDMA-based networks, as well as from investments in our iDEN networks to increase capacity in order to meet the needs of our growing subscriber base.

8. Interest expense, net The $51.1 million, or 16%, increase in consolidated net interest expense from 2011 to 2012 is primarily related to higher interest incurred in connection with the issuance of an additional $700.0 million in 7.625% senior notes in December 2011, as well as higher interest incurred under certain of our bank loans in Brazil. These increases were partially offset by higher consolidated capitalized interest related to the construction of our WCDMA-based networks, primarily in Brazil, and a reduction in interest in connection with the maturity of our 3.125% convertible notes in June 2012.

9. Income tax provision The $122.1 million, or 35%, decrease in the consolidated income tax provision from 2011 to 2012 is primarily due to a significant decrease in the pre-tax book income in Brazil and Mexico, partially offset by an increase in the pre-tax book losses incurred in the U.S., Chile, Peru and certain holding companies for which no tax benefit can be recorded.

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 our Nextel Chile operating segment are included in "Corporate and other." A discussion of our segment results is provided below.

54 -------------------------------------------------------------------------------- b. Nextel Brazil Constant Currency Change from % of % of Change from Previous Year Ended Nextel Brazil's Year Ended Nextel Brazil's Previous Year Year December 31, 2012 Operating Revenues December 31, 2011 Operating Revenues Dollars Percent Percent (dollars in thousands) Operating revenues Service and other revenues $ 2,756,167 95 % $ 3,293,921 95 % $ (537,754 ) (16 )% Handset and accessory revenues 146,183 5 % 162,837 5 % (16,654 ) (10 )% 2,902,350 100 % 3,456,758 100 % (554,408 ) (16 )% (2 )% Cost of revenues Cost of service (exclusive of depreciation and amortization) 909,908 32 % 1,024,685 30 % (114,777 ) (11 )% Cost of handset and accessory sales 210,294 7 % 254,767 7 % (44,473 ) (17 )% 1,120,202 39 % 1,279,452 37 % (159,250 ) (12 )% Selling and marketing expenses 262,620 9 % 365,791 11 % (103,171 ) (28 )% General and administrative expenses 658,630 23 % 630,439 18 % 28,191 4 % Provision for doubtful accounts 186,266 6 % 133,779 4 % 52,487 39 % Segment earnings $ 674,632 23 % $ 1,047,297 30 % $ (372,665 ) (36 )% (20 )% Nextel Brazil contributed 48% of our consolidated operating revenues for 2012 compared to 51% in 2011 and 34% of our consolidated subscriber base at the end of 2012 and 38% in 2011.

Beginning late in 2011 and continuing throughout 2012, Nextel Brazil operated in a competitive environment that reflected a significant increase in promotional activity, including price reductions and other special offers, 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 and maintain its subscriber growth. These adjustments, along with price adjustments made in connection with customer retention efforts and increased levels of migrations by our existing subscribers to lower rate service plans, resulted in a reduction in Nextel Brazil's average revenue per subscriber in 2012 compared to 2011 both in U.S. dollars and on a local currency basis. In addition, Nextel Brazil incurred increased expenses associated with the deployment of its WCDMA-based network, including a significant increase in transmitter and receiver site costs. These factors led to a reduction in Nextel Brazil's segment earnings margin from 30% in 2011 to 23% in 2012. We expect the incremental expenses relating to the deployment of the WCDMA-based network in Brazil to continue in 2013, but we do not expect a corresponding increase in operating revenues until the deployment phase is completed and we begin to offer services using this new network.

Beginning in the second quarter of 2012, Nextel Brazil modified its subscriber retention initiatives, changed its commission structure and focused on better aligning its subscriber base with our value proposition. Nextel Brazil also 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 subscribers. As a result of these actions, Nextel Brazil's average revenue per subscriber stabilized in the second half of 2012. In the fourth quarter of 2012, Nextel Brazil took steps to accelerate the deactivation of certain subscribers who were identified as being unprofitable, which resulted in about a 292,000 net subscriber loss during the fourth quarter of 2012. These steps included the implementation of changes to Nextel Brazil's credit policy and other processes designed to accelerate the deactivation of certain subscribers who had not made timely payments for services. The combined impact of these actions resulted in a significant increase in both customer turnover and bad debt expense in Brazil in the second half of 2012.

We continued to invest in the development of our planned WCDMA-based network throughout 2012 and to improve the capacity and quality of our existing iDEN network in Brazil. As a result, Nextel Brazil's capital expenditures were $632.8 million for 2012, which represented 42% of our consolidated capital expenditures. We will continue to make investments in capital expenditures in Brazil to build our planned WCDMA-based network in 2013.

55 -------------------------------------------------------------------------------- The average value of the Brazilian real during the year ended December 31, 2012 depreciated relative to the U.S. dollar by 17% compared to the average rate that prevailed during the same period in 2011. As a result, the components of Nextel Brazil's results of operations for 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 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 $375.1 million, or 36%, on a reported basis, and 20% on a constant currency basis, in 2012 compared to 2011, as a result of the following: 1. Operating revenues The $537.8 million, or 16%, decrease in service and other revenues from 2011 to 2012 is primarily 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. On a constant currency basis, Nextel Brazil's total operating revenues decreased 2% from 2011 to 2012.

2. Cost of revenues The $114.8 million, or 11%, decrease in cost of service from 2011 to 2012 is largely due to an $88.6 million, or 15%, decrease in interconnect costs related to lower mobile termination rates in 2012 compared to 2011, a decrease in service and repair costs caused by the utilization of more refurbished handsets in 2012 compared to 2011 and weaker foreign currency exchange rates. In addition, in November 2012, Brazil's telecommunications regulatory agency approved the transition to a cost-based model for determining mobile termination rates beginning in 2016 and additional reductions in those rates for 2013 through 2015 as part of the transition to the cost-based rates. We expect these changes will reduce the cost to provide wireless services to our customers over time as we transition subscribers to our new WCDMA-based network in Brazil.

The $44.5 million, or 17%, decrease in cost of handset and accessory sales from 2011 to 2012 is primarily the result of fewer handset sales to new subscribers over the same period.

3. Selling and marketing expenses The $103.2 million, or 28%, decrease in selling and marketing expenses from 2011 to 2012 is mostly due to significantly lower advertising costs and decreases in commissions and payroll expenses that resulted from lower gross subscriber additions and weaker foreign currency exchange rates.

4. General and administrative expenses The $28.2 million, or 4%, increase in general and administrative expenses from 2011 to 2012 is principally the result of an increase in customer care expenses due to an increase in customer care personnel, as well as an increase in information technology costs principally related to the development and deployment of systems to support our new WCDMA-based network in Brazil.

5. Provision for doubtful accounts The $52.5 million, or 39%, increase in provision for doubtful accounts from 2011 to 2012 is principally a result of the changes made to Nextel Brazil's credit policy and other processes during the fourth quarter of 2012 in connection with the deactivation of unprofitable customers described above, as well as lower collection rates throughout 2012 resulting from an increase in the number of customers with weaker credit profiles and whose credit histories were less established.

56 -------------------------------------------------------------------------------- c. Nextel Mexico Constant Currency % of % of Change from Nextel Nextel Change from Previous Mexico's Mexico's Previous Year Year Year Ended Operating Year Ended Operating December 31, 2012 Revenues December 31, 2011 Revenues Dollars Percent Percent (dollars in thousands) Operating revenues Service and other revenues $ 2,033,255 96 % $ 2,165,575 96 % $ (132,320 ) (6 )% Handset and accessory revenues 76,318 4 % 83,872 4 % (7,554 ) (9 )% 2,109,573 100 % 2,249,447 100 % (139,874 ) (6 )% - Cost of revenues Cost of service (exclusive of depreciation and amortization) 413,457 19 % 435,964 19 % (22,507 ) (5 )% Cost of handset and accessory sales 504,962 24 % 436,246 20 % 68,716 16 % 918,419 43 % 872,210 39 % 46,209 5 % Selling and marketing expenses 299,022 14 % 287,519 13 % 11,503 4 % General and administrative expenses 315,325 15 % 325,228 14 % (9,903 ) (3 )% Provision for doubtful accounts 15,748 1 % 17,243 1 % (1,495 ) (9 )% Segment earnings $ 561,059 27 % $ 747,247 33 % $ (186,188 ) (25 )% (19 )% Nextel Mexico comprised 35% of our consolidated operating revenues for 2012 compared to 33% for 2011, and represented 34% of our consolidated subscriber base as of both December 31, 2012 and 2011.

In September 2012, we began offering services utilizing our WCDMA-based network in Mexico City and certain other large cities in Mexico, including Guadalajara, Monterrey, León, Cancún and Cozumel. 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 $523.6 million for 2012, which represented 35% of our consolidated capital expenditures. 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 increased 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 from services on the new network until the coverage of that network is similar to that provided by our iDEN network. 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 33% in 2011 to 27% in 2012.

The average value of the Mexican peso depreciated relative to the U.S. dollar by about 6% during 2012 compared to the average rates that prevailed during 2011.

As a result, the components of Nextel Mexico's results of operations for 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 at levels similar to the end of 2012 or depreciates further relative to the U.S. dollar, Nextel Mexico's results of operations may be adversely affected.

Nextel Mexico's segment earnings decreased $186.6 million, or 25%, on a reported basis, and 19% on a constant currency basis, in 2012 compared to 2011, as a result of the following: 1. Operating revenues The $132.3 million, or 6%, decrease in service and other revenues from 2011 to 2012 is primarily due to the depreciation of the Mexican peso. On a constant currency basis, Nextel Mexico's total operating revenues remained flat from 2011 to 2012 due to a decline in average revenue per subscriber resulting from the implementation of lower rate service plans in response to the competitive environment in Mexico, offset by additional revenues generated from Nextel Mexico's larger subscriber base.

57 -------------------------------------------------------------------------------- 2. Cost of revenues The $22.5 million, or 5%, decrease in cost of service from 2011 to 2012 is 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 and a decrease in mobile termination rates in Mexico. This decrease was partially offset by an increase in cost of service related to a higher level of interconnect minutes of use.

The $68.7 million, or 16%, increase in cost of handset and accessory sales from 2011 to 2012 is primarily the result of an increase in handset subsidies associated with promotions that use high-tier handset models to attract and retain subscribers, as well as an increase in handset sales and upgrades to new and existing subscribers.

d. Nextel Argentina Constant Currency Change from % of % of Change from Previous Year Ended Nextel Argentina's Year Ended Nextel Argentina's Previous Year Year December 31, 2012 Operating Revenues December 31, 2011 Operating Revenues Dollars Percent Percent (dollars in thousands) Operating revenues Service and other revenues $ 636,807 93 % $ 596,566 92 % $ 40,241 7 % Handset and accessory revenues 48,394 7 % 52,360 8 % (3,966 ) (8 )% 685,201 100 % 648,926 100 % 36,275 6 % 16 % Cost of revenues Cost of service (exclusive of depreciation and amortization) 187,641 27 % 186,744 29 % 897 - Cost of handset and accessory sales 79,563 12 % 88,060 13 % (8,497 ) (10 )% 267,204 39 % 274,804 42 % (7,600 ) (3 )% Selling and marketing expenses 68,754 10 % 64,332 10 % 4,422 7 % General and administrative expenses 155,847 23 % 134,492 21 % 21,355 16 % Provision for doubtful accounts 12,440 2 % 6,508 1 % 5,932 91 % Segment earnings $ 180,956 26 % $ 168,790 26 % $ 12,166 7 % 29 % Nextel Argentina comprised 11% of our consolidated operating revenues for 2012 compared to 10% for 2011 and represented 15% of our consolidated subscriber base in 2012 compared to 13% in 2011. Nextel Argentina generated a segment earnings margin of 26% in both 2012 and 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 year ended December 31, 2012 depreciated relative to the U.S. dollar by 10% compared to the same period in 2011. As a result, the components of Nextel Argentina's results of operations for year ended December 31, 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 $12.1 million, or 7%, on a reported basis, and 30% on a constant currency basis, in 2012 compared to 2011, primarily as a result of the following: • an increase in service and other revenues of $40.2 million, or 7%, primarily resulting from additional revenues generated from Nextel Argentina's larger subscriber base; partially offset by • an increase in general and administrative expenses of $21.4 million, or 16%, primarily resulting from higher inflation rates, which are causing increased costs, as well as an increase in customer care expenses, an increase in the turnover tax rate and slightly higher bad debt expense related to Nextel Argentina's larger subscriber base.

58-------------------------------------------------------------------------------- e. Nextel Peru % of % of Nextel Peru's Change from Year Ended Nextel Peru's Year Ended Operating Previous Year December 31, 2012 Operating Revenues December 31, 2011 Revenues Dollars Percent (dollars in thousands) Operating revenues Service and other revenues $ 314,039 91 % $ 321,942 91 % $ (7,903 ) (2 )% Handset and accessory revenues 29,302 9 % 32,187 9 % (2,885 ) (9 )% 343,341 100 % 354,129 100 % (10,788 ) (3 )% Cost of revenues Cost of service (exclusive of depreciation and amortization) 116,137 34 % 107,710 31 % 8,427 8 % Cost of handset and accessory sales 85,261 25 % 71,857 20 % 13,404 19 % 201,398 59 % 179,567 51 % 21,831 12 % Selling and marketing expenses 69,093 20 % 63,575 18 % 5,518 9 % General and administrative expenses 83,549 24 % 73,021 20 % 10,528 14 % Provision for doubtful accounts 3,282 1 % 2,651 1 % 631 24 % Segment (losses) earnings $ (13,981 ) (4 )% $ 35,315 10 % $ (49,296 ) (140 )% Nextel Peru comprised 6% of our consolidated operating revenues for 2012 and represented 15% of our consolidated subscriber base as of December 31, 2012. In addition, Nextel Peru generated a 4% segment loss margin in 2012 compared to the 10% segment earnings margin reported in 2011.

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 16% increase in Nextel Peru's subscriber base from the end of 2011 to the end of 2012. In addition, 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.

Segment earnings decreased $49.9 million, or 141%, from 2011 to 2012, primarily due to a $10.8 million, or 3%, decrease in operating revenues resulting from a decrease in average revenue per subscriber, as well as higher costs associated with the launch of Nextel Peru's WCDMA-based services and an increase in information technology costs necessary to support these new services.

59 -------------------------------------------------------------------------------- f. Corporate and other % of % of Corporate and Corporate and Change from other other Previous Year Year Ended Operating Year Ended Operating December 31, 2012 Revenues December 31, 2011 Revenues Dollars Percent (dollars in thousands) Operating revenues Service and other revenues $ 43,426 82 % $ 30,005 99 % $ 13,421 45 % Handset and accessory revenues 9,533 18 % 171 1 % 9,362 NM 52,959 100 % 30,176 100 % 22,783 76 % Cost of revenues Cost of service (exclusive of depreciation and amortization) 64,784 122 % 35,717 118 % 29,067 81 % Cost of handset and accessory sales 37,466 71 % 4,999 17 % 32,467 NM 102,250 193 % 40,716 135 % 61,534 151 % Selling and marketing expenses 100,081 189 % 78,113 259 % 21,968 28 % General and administrative expenses 324,475 NM 335,043 NM (10,568 ) (3 )% Provision for doubtful accounts 2,861 5 % 1,672 6 % 1,189 71 % Segment losses $ (476,708 ) NM $ (425,368 ) NM $ (51,340 ) 12 % _______________________________________ NM-Not Meaningful The "Corporate and other" segment includes our Chilean operating segment 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 subscribers. 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 $115.4 million for 2012, which represented 8% of our consolidated capital expenditures.

Segment losses increased in 2012 compared to 2011 primarily due to: • a $61.5 million, or 151%, increase 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 54% increase in transmitter and receiver sites in service in Chile from December 31, 2011 to December 31, 2012; and • a $22.0 million, or 28%, increase in selling and marketing expenses from 2011 to 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.

These segment losses were partially offset by a $22.8 million, or 76%, increase in operating revenues primarily resulting from additional revenues generated from Nextel Chile's larger subscriber base.

60 --------------------------------------------------------------------------------2. Year Ended December 31, 2011 vs. Year Ended December 31, 2010 a. Consolidated Change from Year Ended % of Consolidated Year Ended % of Consolidated Previous Year December 31, 2011 Operating Revenues December 31, 2010 Operating Revenues Dollars Percent (dollars in thousands) Operating revenues Service and other revenues $ 6,403,519 95 % $ 5,348,400 95 % $ 1,055,119 20 % Handset and accessory revenues 331,427 5 % 257,407 5 % 74,020 29 % 6,734,946 100 % 5,605,807 100 % 1,129,139 20 % Cost of revenues Cost of service (exclusive of depreciation and amortization included below) 1,789,402 26 % 1,504,603 27 % 284,799 19 % Cost of handset and accessory sales 855,929 13 % 719,219 13 % 136,710 19 % 2,645,331 39 % 2,223,822 40 % 421,509 19 % Selling and marketing expenses 859,303 13 % 680,434 12 % 178,869 26 % General and administrative expenses 1,483,820 22 % 1,190,368 21 % 293,452 25 % Provision for doubtful accounts 161,853 2 % 75,904 1 % 85,949 113 % Depreciation and amortization 653,087 10 % 554,886 10 % 98,201 18 % Operating income 931,552 14 % 880,393 16 % 51,159 6 % Interest expense, net (322,111 ) (5 )% (344,999 ) (6 )% 22,888 (7 )% Interest income 34,224 1 % 28,841 - 5,383 19 % Foreign currency transaction (losses) gains, net (36,975 ) (1 )% 52,374 1 % (89,349 ) (171 )% Other expense, net (37,305 ) (1 )% (18,686 ) - (18,619 ) 100 % Income before income tax provision 569,385 8 % 597,923 11 % (28,538 ) (5 )% Income tax provision (344,189 ) (5 )% (259,465 ) (5 )% (84,724 ) 33 % Net income $ 225,196 3 % $ 338,458 6 % $ (113,262 ) (33 )% The average values of the local currencies in Brazil and Mexico appreciated relative to the U.S. dollar during the year ended December 31, 2011 compared to 2010. As a result, the components of our consolidated results of operations for the year ended December 31, 2011, after translation into U.S. dollars, reflect slightly more significant increases in U.S. dollar revenues and expenses than would have occurred if these currencies had not appreciated relative to the U.S.

dollar.

1. Operating revenues The $1,055.1 million, or 20%, increase in consolidated service and other revenues in 2011 compared to 2010 is principally the result of a 20% increase in the average number of total handsets in service, resulting from a continued demand for our services, as well as balanced growth and expansion strategies in the markets in which we operate. Consolidated average revenue per subscriber remained relatively stable over the same period.

The $74.0 million, or 29%, increase in consolidated handset and accessory revenues in 2011 compared to 2010 is largely due to an increase in handset sales in connection with our growing subscriber base, a shift to sales of higher priced handsets such as smartphones, primarily in Brazil, and an increase in handset upgrades for existing subscribers.

2. Cost of revenues The $284.8 million, or 19%, increase in consolidated cost of service in 2011 compared to 2010 was driven by the following: • a $118.2 million, or 15%, increase in consolidated interconnect costs, primarily attributable to our operations in Brazil, which resulted from an increase in our subscriber base and a larger number of minutes of use associated with calls that terminate on other carriers' networks that require us to pay call termination charges. These increased costs were partially offset by lower interconnect costs in Mexico resulting from a reduction in mobile termination rates effective January 1, 2011; and 61--------------------------------------------------------------------------------• a $93.7 million, or 25%, increase in consolidated transmitter and receiver site costs, attributable to a 20% increase in transmitter and receiver sites placed on air by the end of 2011 and a reduction in costs in 2010 associated with a one-time $22.4 million refund of excess fees paid for spectrum use that Nextel Mexico received.

The $136.7 million, or 19%, increase in consolidated cost of handset and accessory revenues in 2011 compared to 2010 is primarily due to an increase in handset sales in connection with our growing subscriber base, an increase in handset upgrades for existing subscribers and, to a lesser extent, an increase in the sale of higher cost handsets to new subscribers.

3. Selling and marketing expenses Significant factors contributing to the $178.9 million, or 26%, increase in consolidated selling and marketing expenses in 2011 compared to 2010 include: • a $70.4 million, or 45%, increase in consolidated advertising costs, mostly in Brazil, related to new advertising campaigns launched in an effort to promote growth in Nextel Brazil's subscriber base and address a more competitive landscape, as well as the launch of our new brand identity across all of our markets in 2011; • a $66.4 million, or 25%, increase in consolidated direct commissions and payroll expenses, largely due to an increase in gross subscriber additions generated by internal sales personnel, as well as an increase in the number of sales and marketing personnel; and • a $31.1 million, or 109%, increase in consolidated other marketing expenses, principally related to the launch of our new brand identity in 2011, which included remodeling our stores and other sales outlets.

4. General and administrative expenses Significant factors contributing to the $293.5 million, or 25%, increase in consolidated general and administrative expenses in 2011 compared to 2010 include: • a $144.4 million, or 22%, increase in consolidated general corporate costs, mostly related to an increase in revenue-based taxes in Brazil, as well as higher personnel and consulting costs related to the development and deployment of our new WCDMA-based networks and related initiatives; • an $86.6 million, or 26%, increase in consolidated customer care and billing operations expenses, mostly in Brazil, as a result of an increase in customer care personnel necessary to support larger subscriber bases in our markets; and • a $60.0 million, or 45%, increase in consolidated information technology expenses, principally related to the development and deployment of our WCDMA-based networks and other related initiatives.

5. Provision for doubtful accounts The $85.9 million, or 113%, increase in consolidated provision for doubtful accounts is largely related to Nextel Brazil's revenue growth and lower collection rates in Brazil resulting from changes to our credit procedures that resulted in the addition of some subscribers whose credit histories were less established.

6. Depreciation and amortization The $98.2 million, or 18%, increase in consolidated depreciation and amortization in 2011 compared to 2010 is the result of an increase in consolidated property, plant and equipment in service resulting from investments in our iDEN network to increase capacity to meet the needs of our growing subscriber base and the investment in our new WCDMA-based networks.

7. Interest expense, net The $22.9 million, or 7%, decrease in consolidated net interest expense in 2011 compared to 2010 is primarily the result of a $76.2 million increase in consolidated capitalized interest related to the construction of our WCDMA-based networks, primarily in Brazil, partially offset by higher interest incurred in connection with the issuance of our 7.625% senior notes in March 2011.

62 --------------------------------------------------------------------------------8. Foreign currency transaction (losses) gains, net Foreign currency transaction losses of $37.0 million during 2011 are primarily 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.

Foreign currency transaction gains of $52.4 million during 2010 are mostly the result of the impact of the appreciation in the value of the Mexican peso relative to the U.S. dollar on certain peso-denominated receivables due from Nextel Mexico, as well as the impact of the appreciation 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.

9. Income tax provision The $84.7 million, or 33%, increase in the consolidated income tax provision in 2011 compared to 2010 is primarily due to a significant increase in 2011 pre-tax book losses incurred in the U.S., Chile and certain holding companies for which no tax benefit can be recorded, the 2011 reversal of a $14.5 million Mexico income tax benefit recognized on the sale of certain fixed assets, and the 2010 tax benefit from the reversal of a $5.5 million income tax reserve for uncertain tax positions that did not occur again in 2011.

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 our Nextel Chile operating segment are included in "Corporate and other." A discussion of our segment results is provided below.

b. Nextel Brazil % of % of Nextel Nextel Change from Brazil's Brazil's Previous Year Year Ended Operating Year Ended Operating December 31, 2011 Revenues December 31, 2010 Revenues Dollars Percent (dollars in thousands) Operating revenues Service and other revenues $ 3,293,921 95 % $ 2,505,145 97 % $ 788,776 31 % Handset and accessory revenues 162,837 5 % 90,616 3 % 72,221 80 % 3,456,758 100 % 2,595,761 100 % 860,997 33 % Cost of revenues Cost of service (exclusive of depreciation and amortization) 1,024,685 30 % 820,903 31 % 203,782 25 % Cost of handset and accessory sales 254,767 7 % 173,261 7 % 81,506 47 % 1,279,452 37 % 994,164 38 % 285,288 29 % Selling and marketing expenses 365,791 11 % 273,816 11 % 91,975 34 % General and administrative expenses 630,439 18 % 461,399 18 % 169,040 37 % Provision for doubtful accounts 133,779 4 % 52,181 2 % 81,598 156 % Segment earnings $ 1,047,297 30 % $ 814,201 31 % $ 233,096 29 % The average value of the Brazilian real during 2011 appreciated relative to the U.S. dollar by 5% compared to the average rate that prevailed during 2010. As a result, the components of Nextel Brazil's results of operations for 2011, after translation into U.S. dollars, reflect higher increases in U.S. dollar revenues and expenses than would have occurred if the Brazilian real had not appreciated relative to the U.S. dollar. Although the average value of the Brazilian real appreciated for the full year, the value experienced significant depreciation compared to the U.S. dollar late in the third quarter and for the remainder of 2011. The foreign currency exchange rates in effect at the end of 2011 reflect a substantial reduction in the value of the real from those experienced earlier in 2011 and is lower than the average value for the full year.

Nextel Brazil's segment earnings increased $233.1 million, or 29%, in 2011 compared to 2010 as a result of the following: 63 -------------------------------------------------------------------------------- 1. Operating revenues The $788.8 million, or 31%, increase in service and other revenues in 2011 compared to 2010 is primarily the result of an increase in the average number of handsets in service resulting from growth in Nextel Brazil's existing markets and was also affected by the higher average value of the real in 2011 compared to 2010.

2. Cost of revenues The $203.8 million, or 25%, increase in cost of service in 2011 compared to 2010 is primarily due to the following: • a $115.1 million, or 25%, increase in interconnect costs related to higher minutes of use for calls that terminate on other carriers' networks resulting from a larger subscriber base; • a $37.8 million, or 19%, increase in direct switch and transmitter and receiver site costs due to an increase in the number of cell sites placed in service during 2011; and • a $23.9 million, or 20%, increase in service and repair costs due primarily to the growth in Nextel Brazil's subscriber base, leading to a higher number of overall repaired handsets.

Despite these increases, Nextel Brazil's cost of service as a percentage of its total operating revenues decreased from 39% in 2010 to 37% in 2011, primarily due to an increase in less costly mobile-to-mobile minutes of use as a result of Nextel Brazil's implementation of rate plans that encouraged more in-network calling.

The $81.5 million, or 47%, increase in cost of handset and accessory revenues in 2011 compared to 2010 is primarily due to an increase in the sale of higher cost handsets to new subscribers, as well as an increase in handset upgrades for existing subscribers.

3. Selling and marketing expenses The $92.0 million, or 34%, increase in selling and marketing expenses in 2011 compared to 2010 is primarily due to the following: • a $43.2 million, or 57%, increase in advertising expenses as a result of new advertising campaigns launched in an effort to promote growth in Nextel Brazil's subscriber base and address the more competitive landscape, as well as the launch of our new brand identity in 2011; • a $28.4 million, or 24%, increase in direct commissions and payroll expenses due to an increase in gross subscriber additions by internal sales personnel and more selling and marketing personnel necessary to support Nextel Brazil's growing subscriber base; and • a $17.5 million, or 25%, increase in indirect commissions due to an increase in new handset sales by third-party dealers.

4. General and administrative expenses The $169.0 million, or 37%, increase in general and administrative expenses in 2011 compared to 2010 is primarily due to the following: • a $103.0 million, or 43%, increase in general corporate costs due to an increase in revenue-based taxes and higher payroll and related expenses associated with an increase in general and administrative personnel; and • a $60.8 million, or 37%, increase in customer care and billing operations due to higher payroll and related expenses associated with an increase in customer care personnel necessary to support a larger subscriber base in Brazil.

5. Provision for doubtful accounts The $81.6 million, or 156%, increase in provision for doubtful accounts is primarily related to Nextel Brazil's revenue growth and lower collection rates resulting from changes to its credit procedures that resulted in the addition of some subscribers whose credit histories were less established. The higher level of bad debt expense reflects the impact of these changes and, relative to operating revenues, represents an increase from historical levels.

64 -------------------------------------------------------------------------------- c. Nextel Mexico % of % of Nextel Nextel Change from Mexico's Mexico's Previous Year Year Ended Operating Year Ended Operating December 31, 2011 Revenues December 31, 2010 Revenues Dollars Percent (dollars in thousands) Operating revenues Service and other revenues $ 2,165,575 96 % $ 2,023,128 96 % $ 142,447 7 % Handset and accessory revenues 83,872 4 % 90,634 4 % (6,762 ) (7 )% 2,249,447 100 % 2,113,762 100 % 135,685 6 % Cost of revenues Cost of service (exclusive of depreciation and amortization) 435,964 19 % 391,671 19 % 44,293 11 % Cost of handset and accessory sales 436,246 20 % 402,687 19 % 33,559 8 % 872,210 39 % 794,358 38 % 77,852 10 % Selling and marketing expenses 287,519 13 % 275,513 13 % 12,006 4 % General and administrative expenses 325,228 14 % 283,898 13 % 41,330 15 % Provision for doubtful accounts 17,243 1 % 14,838 1 % 2,405 16 % Segment earnings $ 747,247 33 % $ 745,155 35 % $ 2,092 - % The average value of the Mexican peso appreciated relative to the U.S. dollar by about 2% during 2011 compared to the average rate that prevailed during 2010. As a result, the components of Nextel Mexico's results of operations for 2011 after translation into U.S. dollars reflect higher U.S. dollar-denominated revenues and expenses than would have occurred if it were not for the impact of the appreciation in the average value of the peso relative to the U.S. dollar.

Although the average value of the Mexican peso appreciated for the full year, that value experienced significant depreciation compared to the U.S. dollar late in the third quarter and for the remainder of 2011. The foreign currency exchange rate in effect at the end of 2011 reflects a substantial reduction in value of the peso from those experienced earlier in the year and is lower than the average value for the full year.

Nextel Mexico's segment earnings increased $2.1 million in 2011 compared to 2010 as a result of the following: 1. Operating revenues The $142.4 million, or 7%, increase in service and other revenues from 2010 to 2011 is primarily due to an increase in the average number of handsets in service resulting from subscriber growth across Nextel Mexico's markets, partially offset by a slightly lower average revenue per subscriber compared to 2010 resulting from the implementation of lower priced rate plans in response to the competitive environment in Mexico.

2. Cost of revenues The $44.3 million, or 11%, increase in cost of service from 2010 to 2011 resulted from a reduction in costs in 2010 associated with a one-time $22.4 million refund in excess fees paid for spectrum use that Nextel Mexico received, an increase in site and switch costs due to an increase in the number of cell sites in service in Mexico and an increase in interconnect costs related to more minutes of use, partially offset by the reduction in mobile termination rates that was implemented in Mexico for 2011.

The $33.6 million, or 8%, increase in cost of handset and accessory revenues from 2010 to 2011 is primarily the result of an increase in handset costs associated with promotions that use high-tier handset models to attract and retain subscribers, as well as an increase in the sale of handsets to new subscribers.

3. General and administrative expenses The $41.3 million, or 15%, increase in general and administrative expenses from 2010 to 2011 is primarily the result of higher payroll and related expenses associated with an increase in general and administrative personnel, as well as legal and other expenses relating to Nextel Mexico's acquisition of its 30 MHz nationwide spectrum license in 2010 and the defense and resolution of certain lawsuits relating to that license in 2011.

65 -------------------------------------------------------------------------------- d. Nextel Argentina % of % of Change from Year Ended Nextel Argentina's Year Ended Nextel Argentina's Previous Year December 31, 2011 Operating Revenues December 31, 2010 Operating Revenues Dollars Percent (dollars in thousands) Operating revenues Service and other revenues $ 596,566 92 % $ 517,431 92 % $ 79,135 15 % Handset and accessory revenues 52,360 8 % 46,028 8 % 6,332 14 % 648,926 100 % 563,459 100 % 85,467 15 % Cost of revenues Cost of service (exclusive of depreciation and amortization) 186,744 29 % 178,276 32 % 8,468 5 % Cost of handset and accessory sales 88,060 13 % 74,781 13 % 13,279 18 % 274,804 42 % 253,057 45 % 21,747 9 % Selling and marketing expenses 64,332 10 % 51,259 9 % 13,073 26 % General and administrative expenses 134,492 21 % 104,633 19 % 29,859 29 % Provision for doubtful accounts 6,508 1 % 5,586 1 % 922 17 % Segment earnings $ 168,790 26 % $ 148,924 26 % $ 19,866 13 % The average value of the Argentine peso for 2011 depreciated relative to the U.S. dollar by 6% compared to the same period in 2010. As a result, the components of Nextel Argentina's results of operations for 2011 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 $19.9 million, or 13%, in 2011 compared to 2010 primarily due to a $79.1 million, or 15%, increase in service and other revenues resulting from an increase in the average number of handsets in service. This increase was partially offset by higher selling and marketing costs necessary to expand Nextel Argentina's subscriber base and higher general and administrative expenses related to an increase in salaries, an increase in the turnover tax rate in Buenos Aires city, which became effective in January 2011, and an increase in sales by indirect dealers, resulting in higher commissions expense.

e. Nextel Peru % of % of Nextel Peru's Nextel Peru's Change from Year Ended Operating Year Ended Operating Previous Year December 31, 2011 Revenues December 31, 2010 Revenues Dollars Percent (dollars in thousands) Operating revenues Service and other revenues $ 321,942 91 % $ 281,996 90 % $ 39,946 14 % Handset and accessory revenues 32,187 9 % 30,020 10 % 2,167 7 % 354,129 100 % 312,016 100 % 42,113 13 % Cost of revenues Cost of service (exclusive of depreciation and amortization) 107,710 31 % 100,048 32 % 7,662 8 % Cost of handset and accessory sales 71,857 20 % 62,810 20 % 9,047 14 % 179,567 51 % 162,858 52 % 16,709 10 % Selling and marketing expenses 63,575 18 % 55,783 18 % 7,792 14 % General and administrative expenses 73,021 21 % 68,705 22 % 4,316 6 % Provision for doubtful accounts 2,651 - 2,407 1 % 244 10 % Segment earnings $ 35,315 10 % $ 22,263 7 % $ 13,052 59 % 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.

66 -------------------------------------------------------------------------------- Segment earnings increased $13.1 million, or 59%, in 2011 compared to 2010, primarily due to a $39.9 million, or 14%, increase in service and other revenues, which was largely attributable to a 33% increase in average subscribers, partially offset by a decrease in average revenue per subscriber attributable, in part, to an increase in the number of subscribers purchasing prepaid service plans, which generally produce lower monthly recurring revenues.

The increase in Nextel Peru's service and other revenues was partially offset by an increase in both cost of handset and accessory sales and selling and marketing expenses.

f. Corporate and other % of % of Corporate and Corporate and Change from other other Previous Year Year Ended Operating Year Ended Operating December 31, 2011 Revenues December 31, 2010 Revenues Dollars Percent (dollars in thousands) Operating revenues Service and other revenues $ 30,005 99 % $ 24,383 100 % $ 5,622 23 % Handset and accessory revenues 171 1 % 109 - 62 57 % 30,176 100 % 24,492 100 % 5,684 23 % Cost of revenues Cost of service (exclusive of depreciation and amortization) 35,717 118 % 15,084 62 % 20,633 137 % Cost of handset and accessory sales 4,999 17 % 5,680 23 % (681 ) (12 )% 40,716 135 % 20,764 85 % 19,952 96 % Selling and marketing expenses 78,113 259 % 24,087 98 % 54,026 224 % General and administrative expenses 335,043 NM 281,432 NM 53,611 19 % Provision for doubtful accounts 1,672 6 % 892 4 % 780 87 % Segment losses $ (425,368 ) NM $ (302,683 ) NM $ (122,685 ) 41 % _______________________________________ NM-Not Meaningful The "Corporate and other" segment includes our Chilean operating segment and our corporate operations in the U.S. For 2011, corporate and other operating revenues and cost of revenues primarily represent the results of operations reported by Nextel Chile.

Segment losses increased in 2011 compared to 2010 primarily due to the following: • a $53.6 million, or 19%, increase in general and administrative expenses, largely due to an increase in corporate information technology costs, as well as an increase in consulting expenses, both of which were primarily incurred at the corporate level and are largely related to the planned launch of the new WCDMA-based networks and supporting systems in our markets, as well as other technology-related initiatives; and • a $54.0 million increase in selling and marketing expenses, partially related to the launch of our new brand identity in 2011.

C. 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 December 31, 2012, we had working capital, which is defined as total current assets less total current liabilities, of $1,575.0 million, a $642.3 million decrease compared to working capital of $2,217.3 million as of December 31, 2011. As of December 31, 2012, our working capital included $1,383.5 million in cash and cash equivalents, of which $219.0 million was held in currencies other than U.S. dollars, with 50% of that amount held in Mexican pesos and 40% of that amount held in Argentine pesos. As of December 31, 2012, our working capital also included $204.8 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 short-term investment balances, up to $532.6 million available under our equipment financing facilities in Brazil and Mexico and other anticipated future cash flows from our operations.

67 -------------------------------------------------------------------------------- Our cash and cash equivalents balance as of December 31, 2012 does not reflect the approximate $734.1 million in net proceeds from the offering of the 11.375% senior notes that was completed in February 2013. We plan to continue to evaluate funding opportunities, including the potential sale of towers or other transmitter and receiver sites in Brazil and Mexico planned for 2013, 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.

Cash Flows Year Ended December 31, Change from Change from 2012 2011 2010 2011 to 2012 2010 to 2011 (in thousands) Cash and cash equivalents, beginning of year $ 2,322,919 $ 1,767,501 $ 2,504,064 $ 555,418 $ (736,563 ) Net cash provided by operating activities 353,183 982,391 890,102 (629,208 ) 92,289 Net cash used in investing activities (1,055,160 ) (910,283 ) (1,176,025 ) (144,877 ) 265,742 Net cash (used in) provided by financing activities (238,295 ) 525,003 (461,163 ) (763,298 ) 986,166 Effect of exchange rate changes on cash and cash equivalents 844 (41,693 ) 10,523 42,537 (52,216 ) Cash and cash equivalents, end of year $ 1,383,491 $ 2,322,919 $ 1,767,501 $ (939,428 ) $ 555,418 The following is a discussion of the primary sources and uses of cash in our operating, investing and financing activities.

Our operating activities provided us with $353.2 million of cash during 2012, a $629.2 million, or 64%, decrease from 2011, primarily due to a significant decrease in operating income in 2012 compared to 2011. Our operating activities provided us with $982.4 million of cash during 2011, a $92.3 million, or 10%, increase from 2010, primarily due to higher operating income, partially offset by an increase in working capital investments due to the continued growth of our business, as well as higher interest payments associated with debt we issued in 2010 and 2011.

We used $1,055.2 million of cash in our investing activities during 2012, a $144.9 million, or 16% increase from 2011, driven by $1,108.0 million in cash capital expenditures, partially offset by $134.9 million in net proceeds received from maturities of our short-term investments in Brazil and at the corporate level.

We used $910.3 million of cash in our investing activities during 2011, including $1,064.8 million in cash capital expenditures and $138.7 million for the purchase of licenses, the majority of which was related to a 10% down payment for spectrum licenses that Nextel Brazil was granted in June 2011, partially offset by $178.6 million in net proceeds received from maturities of our short-term investments in Brazil and at the corporate level, resulting from a reduction in our overall level of investments, and the return of $77.2 million in cash that secured performance bonds related to our spectrum acquisition in Chile.

We used $1,176.0 million of cash in our investing activities during 2010, primarily due to a $418.5 million increase in cash used to purchase investments, net of proceeds from sales.

We used $238.3 million of cash in our financing activities during 2012, primarily due to the principal repayment of $194.2 million under our syndicated loan facilities in Brazil and Peru, and the repayment of $212.8 million face amount of our 3.125% convertible notes in the U.S., partially offset by $212.8 million in borrowings under a Brazilian real-denominated loan agreement.

Our financing activities provided us with $525.0 million of cash during 2011, including $1,439.5 million in gross proceeds that we received from the issuance of our 7.625% senior notes and $693.0 million in borrowings from two Brazilian banks that we used to repay the remainder of the original spectrum license financing with the Brazilian telecommunications regulator, partially offset by the purchase of $890.2 million face amount of our 3.125% convertible notes, the repayment of $683.9 under our Brazil spectrum license financing, the principal repayment of $264.9 million under our syndicated loan facilities in Mexico, Brazil and Peru and debt financing costs related to our 7.625% senior notes.

We used $461.2 million of cash in our financing activities during 2010 due primarily to $443.0 million in purchases of our convertible notes, as well as repayments of our short-term financings in Brazil, partially offset by $130.0 million in borrowings under Nextel Peru's syndicated loan facility and borrowings under our short-term financings in Brazil.

D. Future Capital Needs and Resources Our business strategy contemplates the deployment and expansion of new WCDMA-based networks and the ongoing expansion of the capacity of our iDEN networks. Consistent with this strategy, we are currently offering services on our new 68 -------------------------------------------------------------------------------- WCDMA-based networks in Mexico, Peru and Chile, and we are in the process of designing and building a new WCDMA-based network in Brazil. We began offering services supported by this new network in select cities in Brazil during the fourth quarter of 2012. We expect to expand the coverage of our new networks, particularly in Brazil and Mexico, and to offer a broader set of voice and data services on those networks during 2013. We have also expanded the capacity of our iDEN networks, particularly in Brazil, and expect to continue to make investments to improve the quality and capacity of those networks. We also expect our consolidated capital expenditures for 2013 to decrease from 2012 levels.

Capital Resources. Our ongoing capital resources depend on a variety of factors, including our existing cash, cash equivalents and investment balances, our equipment financing agreements in Brazil and Mexico, cash flows generated by our operating companies and external financial sources.

Our ability to generate sufficient net cash from our operating activities is dependent upon, among other things: • the amount of revenue we are able to generate and collect from our subscribers; • the amount of operating expenses required to provide our services; • the cost of acquiring and retaining customers, including the subsidies we incur to provide handsets to both our new and existing subscribers; • our ability to continue to increase the size of our subscriber base; and • changes in foreign currency exchange rates.

Financing Activities. Over the last two years, we have been pursuing various financing alternatives, including U.S. capital market transactions, equipment financing and local bank financing, to provide funding both to support our planned deployment of new WCDMA-based networks, to pay for cash taxes and working capital and to meet our scheduled debt service obligations.

The following is a summary of the significant financing transactions we have executed over this time period. We currently intend to use the proceeds we raised from these transactions to support the continued growth of our business and to fund our business plan.

In March 2011 and December 2011, we issued senior notes with $750.0 million and $700.0 million, respectively, aggregate principal amounts due at maturity for total cash proceeds of $1,424.9 million, after deducting original issue and underwriting discounts, commissions and offering expenses. The notes bear interest at a rate of 7.625% per year, which is payable semi-annually in arrears on April 1 and October 1. The notes will mature on April 1, 2021 when the entire principal amount of $1,450.0 million will be due.

In June 2011, Nextel Brazil was granted spectrum licenses in the 1.8 GHz and 1.9/2.1 GHz spectrum bands in connection with its successful bids in the spectrum auction held in December 2010. The total purchase price of this spectrum, which was paid in Brazilian currency, was the equivalent of $910.5 million. Nextel Brazil paid 10% of the purchase price upon the grant of the license and financed the remaining amount through deferred payment terms made available by the Brazilian telecommunications regulator as part of the auction.

In December 2011, Nextel Brazil borrowed funds from two Brazilian banks and utilized the proceeds of those borrowings to repay the remaining unpaid purchase price relating to the spectrum acquired in Brazil. Both of the loans from the Brazilian banks are denominated in Brazilian reais. In the first of the two spectrum financing transactions, we issued the equivalent of $351.8 million in obligations that are required to be repaid semi-annually over a five-year period. Principal of the borrowings under the first transaction is payable beginning in May 2014. In the second transaction, we issued the equivalent of $341.2 million in obligations that are required to be repaid quarterly over a seven-year period. Principal of the borrowings under the second transaction is payable beginning in March 2014. Borrowings under the first transaction mature on November 11, 2016, and borrowings under the second transaction mature on December 8, 2018.

In July 2011, Nextel Mexico entered into a $375.0 million U.S. dollar-denominated loan agreement with the China Development Bank, under which Nextel Mexico will finance infrastructure equipment and certain other costs related to the deployment of its WCDMA-based network in Mexico. This financing has a final maturity of ten years, with a three-year borrowing period and a seven-year repayment term commencing in 2014. As of December 31, 2012, Nextel Mexico had borrowed $134.7 million under this facility.

In December 2011, Nextel Mexico entered into a Mexican peso-denominated term loan facility providing for borrowings of up to an equivalent of $300.0 million with three Mexican banks. Principal under this loan agreement is payable in one lump sum in December 2016. As of December 31, 2012, Nextel Mexico had borrowed all amounts available under this loan facility.

In April 2012, Nextel Brazil entered into a U.S. dollar-denominated loan agreement with the China Development Bank, under which Nextel Brazil is able to borrow up to $500.0 million to finance infrastructure equipment and certain other costs related 69 -------------------------------------------------------------------------------- to the deployment of its WCDMA-based network in Brazil. This financing has a final maturity of ten years, with a three-year borrowing period and a seven-year repayment term commencing in 2015. As of December 31, 2012, Nextel Brazil had borrowed $207.6 million under this facility.

In October 2012, Nextel Brazil entered into a Brazilian real-denominated bank loan agreement, under which Nextel Brazil borrowed the equivalent of approximately $196.9 million. Borrowings under this loan agreement have a three-year borrowing period, a two-year repyament term beginning in 2015 and a final maturity of October 2017.

We have also entered into a number of less significant local financing arrangements, including an equipment financing facility in Chile and various other financings in Brazil.

Subsequent Financing Activities. In February 2013, we issued $750.0 million aggregate principal amount of a new series of senior notes, which we refer to as the 11.375% notes, and received net cash proceeds of approximately $734.1 million, after deducting commissions and offering expenses. The 11.375% notes, which were issued by NII International Telecom S.C.A., an indirect subsidiary of NII Holdings, Inc., are guaranteed by NII Holdings, Inc. and bear interest at a rate of 11.375% per year, which is payable semi-annually in arrears on February 15 and August 15, beginning on August 15, 2013. The 11.375% notes will mature on August 15, 2019 when the entire principal amount of $750.0 million will become due. In addition, the 11.375% notes include a covenant that should we be unable to refinance or repay our existing 10.0% senior notes due August 15, 2016 on or before May 15, 2016, we will be required to make an offer to repurchase the 11.375% notes at par.

Capital Needs and Contractual Obligations. We currently anticipate that our future capital needs will principally consist of funds required for: • operating expenses and capital expenditures relating to the deployment of our WCDMA-based networks; • operating expenses and capital expenditures relating to our existing iDEN networks; • payments in connection with spectrum purchases, including ongoing spectrum license fees and the repayment of financing incurred in connection with spectrum purchases; • debt service requirements and obligations relating to our tower financing and capital lease obligations; • cash taxes; and • other general corporate expenditures.

In making assessments regarding our capital needs and the capital resources available to meet those needs, we do not consider events that have not occurred, and we do not assume the availability of external sources of funding that may be available for these future events, including potential equity investments, equipment financing or other available financing; although in making these assessments, we did consider the senior note financing transaction that was completed in February 2013.

The following table sets forth the amounts and timing of contractual payments for our most significant contractual obligations determined as of December 31, 2012. The information in the table reflects future unconditional payments and is based upon, among other things, the current terms of the relevant agreements and certain assumptions, such as future interest rates. Future events could cause actual payments to differ significantly from these amounts. See "Forward-Looking and Cautionary Statements." Payments due by Period Less than More than Contractual Obligations 1 Year 1-3 Years 3-5 Years 5 Years Total (in thousands) Senior notes (1) $ 234,938 $ 469,875 $ 1,189,875 $ 2,425,719 $ 4,320,407 Spectrum fees (2) 129,438 258,877 257,119 1,377,286 2,022,720 Purchase obligations (3) 1,703,724 97,949 3,896 3,896 1,809,465 Operating leases (4) 266,456 494,563 404,707 240,240 1,405,966 Bank loans (5) 97,843 612,925 776,540 85,769 1,573,077 Capital leases and tower financing obligations (6) 170,827 337,516 332,095 482,393 1,322,831 Equipment financing (7) 45,378 130,018 166,818 295,877 638,091 Import financing (8) 37,422 - - - 37,422 Other long-term obligations (9) 71,790 59,843 59,965 392,847 584,445 Total contractual commitments $ 2,757,816 $ 2,461,566 $ 3,191,015 $ 5,304,027 $ 13,714,424 _______________________________________ 70 -------------------------------------------------------------------------------- (1) These amounts include estimated principal and interest payments over the full term of the obligation, assuming the current payment schedule. These amounts do not include principal and interest payments related to the 11.375% notes that were issued in February 2013.

(2) These amounts are subject to increases in the Mexican Consumer Pricing Index.

(3) These amounts include maximum contractual purchase obligations under various agreements with our vendors.

(4) These amounts principally include future lease costs related to our transmitter and receiver sites and switches and office facilities.

(5) These amounts represent principal and interest payments associated with certain banks loans in Brazil and Mexico.

(6) These amounts represent principal and interest payments due under our co-location agreements, including with American Tower Corporation, or American Tower, our tower financing arrangements with American Tower and our corporate aircraft lease. The amounts related to our aircraft lease exclude amounts that are contingently due in the event of our default under the lease, but do include remaining amounts due under the letter of credit provided for our corporate aircraft.

(7) These amounts include loan agreements with the China Development Bank in Brazil, Mexico and Chile to finance infrastructure equipment and assist in the deployment of the new WCDMA-based networks in these markets. The aggregate amount available for borrowing under these loan agreements in Brazil and Mexico is $532.6 million.

(8) This amount represents principal and interest payments due under our import financing agreements in Brazil.

(9) These amounts include our current estimates of asset retirement obligations based on our expectations as to future retirement costs, inflation rates and timing of retirements, as well as amounts related to our uncertain income tax positions.

Capital Expenditures. Our capital expenditures, including capitalized interest, were $1,498.8 million for 2012, $1,450.2 million for 2011 and $871.5 million for 2010. In 2010, a substantial portion of our capital expenditures was invested in the expansion of the coverage of our iDEN networks, and in each of the past three years, a substantial portion of our capital expenditures went to the deployment of our existing and planned WCDMA-based networks in Peru (primarily in 2010) and in Brazil, Mexico and Chile (primarily in 2011 and 2012) and to the improvement of the quality and capacity of our iDEN networks in Brazil and Mexico.

Our business strategy contemplates the deployment of new WCDMA-based networks, and, to a lesser degree, the ongoing expansion of the capacity and enhancement of the quality of our iDEN networks. Consistent with this strategy, we are currently offering services on our new WCDMA-based networks in Mexico, Peru and Chile, and we are in the process of designing and building a new WCDMA-based network in Brazil. We began offering services supported by this new network in select cities in Brazil during the fourth quarter of 2012. We expect to expand the coverage of our new networks, particularly in Brazil and Mexico, and to offer a broader set of voice and data services on those networks during 2013. We also expect our consolidated capital expenditures for 2013 to decrease from 2012 levels. The amount and timing of those additional capital expenditures is dependent on, among other things, our business plans and the nature and extent of any regulatory requirements that may be imposed regarding the timing and scope of the deployment of the new networks.

We expect to finance our capital spending for our existing and future network needs using the most effective combination of cash from operations, cash on hand, cash from the sale or maturity of our short-term investments, borrowings under equipment financing facilities, including our financing facilities in Brazil, Mexico and Chile and proceeds from external funding sources that are or may become available, including the proceeds from the issuance of the 11.375% notes. We may also consider entering into strategic relationships with third parties that will provide additional funding to support our business plans. Our capital spending is expected to be driven by several factors, including: • the amount we spend to deploy our WCDMA-based networks; • the extent to which we expand the coverage of our networks in new or existing market areas; • the number of additional transmitter and receiver sites we build in order to increase system coverage and capacity and to maintain system quality and meet the demands of our growing subscriber base, as well as the costs associated with the installation of network infrastructure and switching equipment; and • the costs we incur in connection with non-network related information technology projects.

Our future capital expenditures may also be affected by future technology improvements and technology choices.

Future Outlook. As of December 31, 2012, our current sources of funding include $1,383.5 million in cash and cash equivalents, $204.8 million in short-term investments and $532.6 million in additional availability under our existing equipment financing facilities. We plan to use our available funding, together with cash provided by our operations, to finance our current business plan. In addition, in February 2013, we issued $750.0 million aggregate principal amount of our 11.375% notes and received net cash proceeds of $734.1 million, after deducting commissions and offering expenses.

71 -------------------------------------------------------------------------------- Recently, our results of operations, including our operating cash flows, have been negatively affected by the depreciation of local currencies and continued competitive pressures. While we believe our current sources of funding will be adequate to allow us to execute our business plan for the next several years, if we are unable to significantly improve our operating cash flows over the long term, we will need to seek additional sources of financing to fund our operations and execute our business strategy as contemplated by our business plan. The timing and amount of our future funding needs will also be affected by the need to repay or refinance our existing indebtedness.

To meet our future funding needs and maintain or enhance our liquidity position, we will continue to evaluate and pursue, various financing alternatives, including the potential sale of certain towers and other transmitter and receiver sites in Brazil and Mexico and strategic transactions with respect to our operations in Argentina, Peru and Chile, as well as proceeds from potential debt and equity offerings. We expect to continue to obtain additional funding using one or more of these alternatives. Some of the agreements relating to our existing financing arrangements include terms that impose restrictions relating to, among other things, our ability to incur additional debt financing, and require us to maintain specified financial ratios that could affect the financing alternatives available to us at any given time. These restrictions may limit our ability to incur additional indebtedness in the future depending upon our operating results and the levels of financing that we have outstanding. If that were to occur, we would need to consider changes to our business plan or other strategic alternatives in order to raise additional funding or reduce our funding needs, including by limiting our capital expenditures. In those circumstances, we would also consider seeking modifications to our financing agreements that would allow us to incur additional indebtedness. Any indebtedness that we may incur in the coming years may be significant.

In making the assessment of our funding needs under our current business plans and the adequacy of our current sources of funding, we have considered: • cash and cash equivalents on hand and short-term investments available to fund our operations; • expected cash flows from our operations; • the net proceeds we received as a result of the issuance of the 11.375% notes that was completed in February 2013; • the cost and timing of spectrum payments, including ongoing fees for spectrum use; • the anticipated level of capital expenditures required to meet both minimum build-out requirements and our business plans for our planned deployment of new WCDMA-based networks; • our scheduled debt service and other contractual obligations; and • income taxes.

In addition to the factors described above, the anticipated cash needs of our business, as well as the conclusions presented herein regarding our liquidity needs, could change significantly: • if our plans change; • if we decide to expand into new markets or expand our geographic coverage or network capacity in our existing markets beyond our current plans, as a result of the construction of additional portions of our networks or the acquisition of competitors or others; • if currency values in our markets depreciate relative to the U.S. dollar in a manner that is more significant than we currently expect and assume as part of our plans; • if economic conditions in any of our markets change; • if competitive practices in the mobile wireless telecommunications industry in our markets change materially from those currently prevailing or from those now anticipated; or • if other presently unexpected circumstances arise that have a material effect on the cash flow or profitability of our business.

Any of these events or circumstances could result in significant funding needs beyond those contemplated by our current plans as described above, and could require us to raise even more capital than currently anticipated to meet those needs. Our ability to seek additional capital is subject to a variety of additional factors that we cannot presently predict with certainty, including: • the commercial success of our operations; • the volatility and demand of the capital markets; and • the future market prices of our securities.

From time to time in recent years, volatile market conditions in debt and equity markets in the U.S. and global markets have had an adverse impact on the amount of funding available to corporate borrowers as the global economic downturn affected both 72 -------------------------------------------------------------------------------- the availability and terms of financing. Volatility in the capital markets could result in declines in the availability of funding, which could make it more difficult or more costly for us to raise additional capital in order to meet our future funding needs, and the related additional costs and terms of any financing we raise could impose restrictions that limit our flexibility in responding to business conditions and our ability to obtain additional financing. If new indebtedness is added to our current levels of indebtedness, the related risks that we now face could intensify. See Item 1A. Risk Factors "1. Because our capital expenditures exceed our cash flows from operations, and are expected to remain this way for the next few years, we will need to service our indebtedness, pay our taxes and fund our working capital with cash on hand and proceeds from existing amounts available under our equipment financing facilities," "4. We are dependent on external financing to meet our future funding needs and debt service requirements, and adverse changes in economic conditions could negatively impact our access to funding. If we are unable to obtain financing when needed and on terms acceptable to us, our business and liquidity may be adversely affected." and "5. Our current and future debt may limit our flexibility and increase our risk of default." E. Effect of Inflation and Foreign Currency Exchange Our net assets are subject to foreign currency exchange risks since they are primarily maintained in local currencies. Additionally, a significant portion of our long-term debt, including some long-term debt incurred by our operating subsidiaries, is denominated entirely in U.S. dollars, which exposes us to foreign currency exchange risks. We conduct business in countries in which the rate of inflation has historically been significantly higher than that of the U.S. We seek to protect our earnings from inflation and possible currency depreciation by periodically adjusting the local currency prices charged by each operating company for sales of handsets and services to its subscribers. We routinely monitor our foreign currency exposure and the cost effectiveness of hedging instruments.

Inflation is not currently a material factor affecting our business, although rates of inflation in some of the countries in which we operate have been historically volatile. In the last several years, the inflation rate in Argentina has risen significantly, and we expect that it may continue to rise, which will increase our costs and could reduce our profitability in Argentina.

General operating expenses such as salaries, employee benefits and lease costs are, however, subject to normal inflationary pressures. From time to time, we may experience price changes in connection with the purchase of system infrastructure equipment and handsets, but we do not currently believe that any of these price changes will be material to our business.

F. Effect of New Accounting Standards In June 2011, the FASB issued authoritative guidance surrounding the presentation of comprehensive income, which revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the previously allowed presentation options and requires entities to report components of comprehensive income in either a continuous statement of comprehensive income or in two separate but consecutive statements. This guidance does not change the items that must be reported in other comprehensive income. We adopted this new authoritative guidance on January 1, 2012 by presenting consolidated net income and consolidated comprehensive income in a continuous statement of operations and comprehensive income.

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