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UNITED STATES

FORM 10-K

NII HOLDINGS, INC.

Registrant’s telephone number, including area code: (703) 390-5100

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

      Indicate by check mark whether the registrant (1) has filed all report required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:  Yes  x     No  o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

      The registrant’s common equity securities are not publicly traded, and accordingly, no aggregate market value of the registrant’s common equity is available.

      On March 15, 2002, the number of shares outstanding of the registrant’s (1) class A common stock, par value $0.001 per share, was 0, and (2) class B common stock, par value $0.001 per share, was 270,382,103.

Documents Incorporated by Reference: None

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NII HOLDINGS, INC.

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NII HOLDINGS, INC.

PART I

FORWARD LOOKING STATEMENTS

      This annual report on Form 10-K contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These include forward looking statements concerning expected operating results, cost savings, liquidity levels, restructuring strategies, political and economic developments in the various markets in which we operate, as well as technological improvements and new products and services, each of which are based on the expectations of our management as of the date of this filing. However, there may be events in the future that we are not able to predict or over which we have no control. We caution investors that actual results may differ materially from those contained in the forward looking statements as a result of uncertainties and risks, including the risk factors identified in this annual report on Form 10-K. More information about potential factors that could affect our business and financial results is set forth under Part I, “Item 1. Business — L. Risk Factors” and Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Item 1. Business

A. Introduction

      Unless the context requires otherwise, “NII Holdings, Inc.,” “we,” “our” and “us” refer to the combined businesses of NII Holdings, Inc. and its consolidated subsidiaries. NII Holdings, Inc., formerly known as Nextel International, Inc., was incorporated in 1996 and is a substantially wholly owned subsidiary of Nextel Communications, Inc., which owns about 99% of our outstanding common stock. Nextel Communications provides digital wireless communications services throughout the United States. Nextel Communications files periodic and other reports with the Securities and Exchange Commission under the Securities Exchange Act of 1934. More detailed and specific information concerning Nextel Communications is contained in those reports.

      Except as otherwise indicated, all dollar amounts are expressed in U.S. dollars and references to “dollars” and “$” are to U.S. dollars. All consolidated historical financial statements contained in this report are prepared in accordance with U.S. generally accepted accounting principles.

      Our principal executive office is located at 10700 Parkridge Boulevard, Suite 600, Reston, Virginia 20191. Our telephone number at that location is (703) 390-5100.

      “Nextel,” “Nextel Direct Connect,” “Nextel Online” and “Nextel Worldwide” are trademarks or service marks of Nextel Communications. “Motorola,” “iDEN,” “i2000” and “i2000plus” are trademarks or service marks of Motorola, Inc.

B. Overview

      We provide wireless communication services targeted at meeting the needs of business customers in selected international markets. Our principal operations are in major business centers and related transportation corridors of Brazil, Mexico, Argentina and Peru. We also provide analog specialized mobile radio services in Chile. In addition, we own an interest in a digital mobile services provider in the Philippines. Our markets are generally characterized by high population densities and, we believe, a concentration of the country’s business users and economic activity. In addition, vehicle traffic congestion, low landline penetration and unreliability of the land-based telecommunications infrastructure encourage the use of mobile wireless communications services in these areas.

      We use a transmission technology called integrated digital enhanced network, or iDEN, technology developed by Motorola to provide our digital mobile services on 800 MHz spectrum holdings in all of our digital markets. This technology allows us to use our spectrum more efficiently and offer multiple digital

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      Our customers may roam throughout the iDEN 800 MHz markets we currently serve, as well as those of Nextel Communications and Nextel Partners, Inc. To further enhance our roaming services, during the second quarter of 2000, we launched Nextel Worldwide with the introduction of the i2000 digital handset. This digital dual-mode handset, manufactured by Motorola, operates on networks using either iDEN 800 MHz or Global System for Mobile Communications, or GSM, 900 MHz technologies. This service allows our customers to roam internationally when traveling between our markets and other cities or countries in which either iDEN 800 MHz or GSM 900 MHz networks are operating and which are covered by our roaming arrangements. We currently have about 125 roaming agreements with operators of iDEN 800 MHz and GSM 900 MHz networks in about 68 countries and territories. After we enter into roaming agreements, we and our roaming partners must undertake testing and implementation procedures before roaming can begin. In addition, each operator with whom we enter into a roaming agreement in any given country may have varying service coverage areas; some may operate in metropolitan areas while others may have nationwide service.

      The table below provides an overview of the mobile wireless voice communications systems operated by our operating companies in the countries indicated. For purposes of the table, total digital handsets in service represent all digital handsets in use on the digital mobile networks of each of our operating companies. Proportionate digital handsets in service represents our proportionate share of that total, based on our direct and indirect percentage equity ownership interest of our operating company in the relevant country. System type indicates whether the local wireless communications system is based on an analog specialized mobile radio system or a digital enhanced specialized mobile radio system.

[Additional columns below]

[Continued from above table, first column(s) repeated]

      For additional information concerning our market segments, see note 14 to our audited consolidated financial statements appearing at the end of this annual report on Form 10-K.

      In the fourth quarter of 2001, we sold our minority interest in NEXNET Co. Ltd., our Japanese operating company, to Motorola. We received a $6.5 million credit for equipment purchases from Motorola and cash proceeds of $3.5 million from a partner in NEXNET, in exchange for the forgiveness of our loans to NEXNET. We also sold our investment in TELUS Corporation, a Canadian wireless company, for cash proceeds of $196.5 million, of which $57.4 million was placed in escrow to secure an outstanding loan from Motorola Credit Corporation that had been secured by our TELUS shares.

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      In the latter half of 2000, we began a process to complete an initial public offering to raise funds to support the continued expansion and enhancement of our digital wireless networks. In March 2001, due to adverse market conditions, we announced our decision to discontinue our initial public offering at that time and withdrew our registration statement. In the first quarter of 2001, we also amended the terms of our vendor financing agreements with Motorola to extend the maturities and modify the covenants under those facilities. The downturn in the global capital markets, among other things, has made it impossible for us to obtain significant new financing from third parties through the issuance of our equity or debt securities.

      During the third quarter of 2001, following our review of the economic conditions, operating performance and other relevant factors in the Philippines, we decided to discontinue funding to our Philippine operating company. In view of the capital constrained environment and our lack of funding sources, during the fourth quarter of 2001, we undertook an extensive review of our business plan and determined to pursue a less aggressive growth strategy that targets conservation of cash resources by slowing enhancement and expansion of our networks and reducing subscriber growth and operating expenses. In connection with the implementation of this plan and our decision to discontinue funding to our Philippine operating company, during 2001 we recorded non-cash pre-tax impairment charges and pre-tax restructuring and other charges of about $1.75 billion, resulting from the write-down of the carrying values of our long-lived assets and the restructuring of some of our operations to reduce our operating costs and improve our operating efficiencies.

      Our limited sources of available funding will require us to cease providing significant financing to stimulate operating growth in most of our markets. We intend to focus substantially all of our available funding towards continuing the growth of our Mexican operations. We made this decision based on our Mexican operating company’s operating performance, future prospects and economic conditions in Mexico, as well as other relevant factors. We plan to provide substantially less funding to our other markets, including Brazil, Argentina and Peru. As a result, we expect the growth in these markets will slow considerably compared to past growth levels. Our primary objectives with respect to our markets other than Mexico are to minimize operating costs and capital expenditures and maximize cash resources and segment earnings. However, if our funding needs are not met on a timely basis, or at all, we may not be able to provide our Mexican operating company with sufficient financing to continue the growth of its operations as currently planned. As a result, actual results for our Mexican operations could differ significantly from current expectations.

      Since debt service payments are a significant portion of our current and future commitments and because we do not believe that funds generated from our operating activities or realistically available from other sources will be sufficient to meet our expected commitments, we have been reviewing various alternatives to restructure our currently outstanding indebtedness. On December 31, 2001, our Argentine operating company failed to make a scheduled principal payment of $8.3 million to the lenders under our $108.3 million Argentine credit facilities. This caused a cross-default on $381.7 million in aggregate borrowings under our equipment financing facilities with Motorola Credit. We entered into forbearance agreements with respect to these defaults that expired on January 22, 2002. On February 1, 2002, we did not make our scheduled $41.4 million interest payment due on our 12.75% senior serial redeemable notes due 2010, of which $650.0 million in aggregate principal amount is outstanding. We decided not to make these payments as part of the cash preservation initiative associated with our undertaking to restructure our debts and implement a revised business plan. We do not intend to make additional principal or interest payments on any of our outstanding debt while we continue our restructuring activities. In addition, the entire balance of unpaid principal under our 13.0% senior redeemable discount notes due 2007 and our 12.125% senior redeemable discount notes due 2008 is subject to being declared immediately due and payable, together with accrued interest, thirty days after an acceleration has been declared under any of our other significant indebtedness, all of which is currently in default. No such acceleration has yet occurred.

      As a result of our defaults, our lenders under the affected facilities are each free to pursue the respective remedies available to them, including, in the case of our vendor and bank financing facilities, seizing our assets and the assets of our subsidiaries that are pledged as collateral. Pledged assets include

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      We are currently in discussions with our various creditors regarding the restructuring of our debt obligations, which total about $2.67 billion. If we are unable to obtain additional funding and negotiate a successful debt restructuring, we may have to further write down assets, sell strategic assets, reorganize under Chapter 11 of the United States Bankruptcy Code or take other measures, which could include liquidation of our assets. Additionally, we could experience adverse impacts to our business, including but not limited to, losses of customer accounts, top sales agents, indirect dealers and key management personnel. We may also lose government and regulatory support for various initiatives that we believe are critical to our success. We have retained the investment banking firm of Houlihan Lokey Howard and Zukin Capital to assist us in exploring various strategic alternatives.

C. Wireless Technology

      Currently, most mobile wireless communications services in our markets are either specialized mobile radio, cellular or personal communications services, or PCS, systems. Our operating companies offer analog or digital specialized mobile radio services, or a combination of both.

      Our digital mobile networks combine the advanced iDEN technology developed and designed by Motorola with a low-power, multi-site transmitter and receiver configuration that permits frequency reuse. The iDEN technology shares many common components with GSM technology, which has been established as the current digital wireless communications standard in Europe and elsewhere. The iDEN technology is a variant of the GSM technology that is being deployed by some personal communications services operators in the United States. The design of our existing and proposed digital mobile networks currently is premised on dividing a service area into multiple sites. These sites have a typical coverage area ranging from less than one mile to thirty miles in radius, depending on the terrain and the power setting. Each site contains a low-power transmitter, receiver and control equipment referred to as the base station. The base station in each site is connected by microwave, fiber optic cable or telephone line to a computer controlled switching center. The switching center controls the automatic transfer of wireless calls from site to site as a subscriber travels, coordinates calls to and from a digital handset and connects wireless calls to the public switched telephone network. In the case of two-way radio, a piece of equipment called a dispatch application processor provides a call setup, identifies the target radio and connects the subscriber initiating the call to other targeted subscribers. These two-way radio calls can be connected to one or several other subscribers and can be made without interconnecting to the public switched telephone network.

      Nortel Networks Corporation has supplied most of the mobile telephone switches for our digital networks. At December 31, 2001, our operating companies had 13 operational switches and about 2,050 transmitter and receiver sites constructed and in operation in our digital mobile networks.

      Currently, there are three principal digital technology formats used by providers of cellular telephone service or personal communications services:

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      Although TDMA, CDMA and GSM-PCS are digital transmission technologies that share basic characteristics and areas of contrast to analog transmission technology, they are not compatible or interchangeable with each other. Although Motorola’s proprietary iDEN technology is based on the TDMA technology format, it differs in a number of significant respects from the versions of this technology used by cellular and personal communications services providers.

      The implementation of a digital mobile network using iDEN technology significantly increases the capacity of our existing channels and permits us to utilize our current holdings of specialized mobile radio spectrum more efficiently. This increase in capacity is accomplished in two ways.

      Unlike other digital transmission technologies, iDEN can be deployed on non-contiguous frequency holdings. This benefits us because our 800 MHz channel holdings are, in large part, composed of non-contiguous channels. Further, iDEN technology allows us to offer our multi-functional package of digital mobile services. While iDEN offers a number of advantages in relation to other technology platforms, unlike other wireless technologies, it is a proprietary technology that relies solely on the efforts of Motorola and any future licensees of this technology for further research, and for technology and product development and innovation. Motorola is also the sole source supplier of iDEN infrastructure and digital handsets. Our agreements with Motorola impose limitations and conditions on our ability to use other technologies. These agreements may delay or prevent us from employing new or different technologies that perform better or are available at a lower cost. Furthermore, iDEN technology is not as widely adopted in relation to other wireless technologies and currently has fewer subscribers on a worldwide basis.

D. Network Implementation, Design and Construction

      After obtaining necessary regulatory authorizations to develop and deploy our networks, we undertake a careful frequency planning and system design process. Our sites have been selected on the basis of their proximity to targeted customers, the ability to acquire and build the sites and frequency propagation characteristics. Site procurement efforts include obtaining leases and permits and, in many cases, zoning approvals. Once the requisite governmental approvals are obtained, the preparation of each site, including grounding, ventilation, air conditioning and construction, typically takes three months. We must also obtain all equipment necessary for the site. Equipment installation, testing and optimization generally takes at least an additional four weeks. Any scheduled build-out or expansion may be delayed due to typical construction and other delays as well as the need to obtain additional financing, which may not be available due to our current financial condition.

E. Marketing

      Our operating companies market their wireless communications services primarily to business customers and mobile work forces, such as service companies, security firms, contractors and delivery services. Companies with mobile work forces often need to provide their personnel with the ability to

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F. Competition

      In each of the markets where our operating companies operate, we compete with other communications services providers, based primarily on our differentiated product offerings and price. Our competitors include landline telephone companies and other wireless communications companies. Many of our competitors are well-established companies with substantially greater financial and marketing resources, larger customer bases, better name recognition, bundled service offerings, larger spectrum positions and larger coverage areas than we have. In addition, many existing telecommunications enterprises in the markets in which our operating companies conduct business have successfully attracted significant investments from multinational communications companies. Because of their financial resources, these competitors may be able to reduce prices to gain market share. We expect that the prices we charge for our products and services will decline over the next few years as competition intensifies in our markets.

      In addition, the iDEN technology we deploy is not compatible with other wireless technologies such as digital cellular or personal communications services or with other iDEN networks not operating in the 800 MHz spectrum. Therefore, our customers will not be able to roam on non-GSM 900 MHz or non-iDEN 800 MHz cellular or personal communications services systems or any system for which we do not have a roaming agreement. Further, they will not be able to roam on GSM 900 MHz systems unless they elect to purchase dual-band handsets that are compatible both with iDEN 800 MHz and GSM 900 MHz. At present, the i2000 and i2000plus digital handsets developed by Motorola, which enable our customers to roam on other providers’ GSM 900 MHz cellular systems, are the only dual-band handsets that we expect will be available to our customers in the foreseeable future. Consequently, our customers will only be able to roam on specified systems, which may place us at a disadvantage relative to our competitors who do not have similar technological constraints or who have more roaming arrangements in place. Furthermore, we use specialized mobile radio technology, which subjects us to uncertainty in some jurisdictions where our operating companies may not be considered operators of public communications networks. Differences in the regulatory framework applicable to companies who are and are not deemed to be operators of public communications networks may place us at a competitive disadvantage with respect to requirements under our licenses and our ability to interconnect with public switched telephone networks, provide services to all segments of the population and provide services under particular programs, such as calling party pays programs.

      For a more detailed description of the competitive factors affecting each managed operating company, see the “Competition” discussion for each of those operating companies under “— J. Operating Companies.”

G. Regulation

      The licensing, construction, ownership and operation of wireless communications systems are regulated by governmental entities in the markets in which our operating companies conduct business. The grant, maintenance, and renewal of applicable licenses and radio frequency allocations are also subject to regulation. In addition, these matters and other aspects of wireless communications system operations, including rates charged to customers and the resale of wireless communications services, may be subject to public utility regulation in the jurisdiction in which service is provided. Further, statutes and regulations in some of the markets in which our operating companies conduct business impose limitations on the ownership of telecommunications companies by foreign entities. Changes in the current regulatory environments, the interpretation or application of current regulations or future judicial intervention in those

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H. Foreign Currency Controls and Dividends

      In some of the countries in which we operate, the purchase and sale of foreign currency is subject to governmental control. Additionally, local law in some of these countries may limit the ability of our operating companies to declare and pay dividends. Local law may also impose a withholding tax in connection with the payment of dividends. For a more detailed description of the foreign currency controls and dividend limitations and taxes in each of the countries in which our managed operating companies conduct business, see the “Foreign Currency Controls and Dividends” discussion for each of those operating companies under “— J. Operating Companies.”

I. Operating Company Ownership

      We currently own 100% of our operating companies in Brazil, Mexico, Argentina, Peru and Chile and, directly and indirectly, through minority ownership interests in other shareholders, a proportionate 59.1% interest in our Philippine operating company. We have entered into arrangements that provide us with influence over key business and strategic decisions involving our Philippine operating company through board representation rights and other corporate governance protections. For a description of other stockholders of our Philippine operating company, see “— J. Operating Companies — 6. Philippines.”

J. Operating Companies

  1. Mexico

      Operating Company Overview. We refer to our wholly owned Mexican operating company, Comunicaciones Nextel de México S.A. de C.V., as Nextel Mexico. Several wholly owned subsidiaries of Nextel Mexico provide analog and digital mobile services under the tradename “Nextel” in the following major business centers with populations in excess of 1 million and along related transportation corridors, as well as in a number of smaller markets:

We are currently offering digital networks in a number of smaller markets, including Querétaro, Celaya, Irapuato, Salamanca, Guanajuato, Nuevo Laredo, Cuernavaca, La Piedad, Tlaxcala, San Juan del Río, Lagos de Moreno, Cuautla, Chilpancingo and Acapulco. Nextel Mexico continues to offer analog services in several smaller markets.

      Nextel Mexico has licenses in markets covering more than 50 million people. As of December 31, 2001, Nextel Mexico provided service to about 400,400 digital handsets.

      Nextel Mexico is headquartered in Mexico City and has regional offices in Guadalajara, Monterrey, Tijuana, Toluca, Puebla and Querétaro. As of December 31, 2001, Nextel Mexico had about 1,130 employees.

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      Marketing. Nextel Mexico offers its digital and analog services primarily to business customers, offering a broad range of services and pricing plans designed to meet their specific needs.

      Nextel Mexico offers integrated services, including interconnect services, digital two-way radio and paging in its digital markets and analog two-way radio in its analog markets.

      Nextel Mexico markets its services through a distribution network that includes a variety of direct sales representatives and independent dealers. The development of alternate distribution channels has been a key factor in its commercial performance. Additionally, Nextel Mexico has used an advertising campaign supported by press, radio, magazines, television and direct marketing to develop brand awareness.

      Nextel Mexico spectrum acquisitions. Nextel Mexico, through its affiliate Inversiones Nextel de México, S.A. de C.V., entered into agreements with license holders to purchase additional spectrum in different parts of Mexico. These agreements were executed as follows: (i) in January 2001, Nextel Mexico, through its affiliate Inversiones Nextel de México, completed the purchase of a license, also known as a concession under Mexican law, of Radiocom del Pacífico, S.A. de C.V.; (ii) in January 2001, Nextel Mexico, through its affiliate Inversiones Nextel de México, completed the purchase of a concession of Telecomunicaciones Móviles de México, S.A. de C.V.; (iii) in August 2001, Nextel Mexico, through its affiliate Inversiones Nextel de México, completed the purchase of a concession of FM 500, S.A. de C.V. and (iv) in November 2001, Nextel Mexico, through its affiliate Inversiones Nextel de México, completed the purchase of a concession of Internacional Lamothe, S.A. de C.V. As a result of these transactions, Nextel Mexico acquired a total of 630 channels covering 52 cities.

      Nextel Mexico potential spectrum acquisitions. On September 25, 2001, Nextel Mexico, through its affiliate Inversiones Nextel de México, entered into a license purchase agreement with a license holder for the purchase of 240 channels covering 12 cities. On October 15, 2001, Inversiones Nextel de México entered into a license purchase agreement for the purchase of 10 channels in the city of Guadalajara. On February 27, 2002, Inversiones Nextel de México entered into a license purchase agreement for the purchase of 20 channels covering 23 cities, including new cities in Zihuatanejo and Valle de Bravo. These three agreements are subject to pre-closing conditions, including receipt of required regulatory approvals. These transactions may not be completed in a timely manner or at all.

      Competition. Nextel Mexico’s analog operations compete with those of Delta Comunicaciones Digitales, S.A. de C.V., one of the largest analog operators in Mexico, and with other analog system operators in its markets. Nextel Mexico’s digital mobile networks compete with analog system providers and also with cellular and personal communications services system operators in its market areas.

      The Mexican cellular market is divided into nine regions. The Secretary of Communications and Transportation of Mexico has divided the cellular telephone system in each region into the Cellular A-Band and the Cellular B-Band. In each region, Radiomóvil Dipsa, S.A. de C.V., known as Telcel, and a subsidiary of American Móvil, S.A. de C.V., in turn a subsidiary of Carso Global Telecom, S.A. de C.V., the holding company controlling Teléfonos de México, S.A. de C.V., known as Telmex, holds the Cellular B- Band concession. Its cellular competitor in each region holds the Cellular A-Band concession. Iusacell, S.A. de C.V., a joint venture controlled by Verizon Communications, holds the right to provide cellular service in the greater Mexico City area, as well as in the regions covering most of the central and southern areas of Mexico. In the northern region of Mexico, cellular service is provided by Movitel del Norroeste, S.A. de C.V., Celular de Telefonía, S.A. de C.V., Telefonía Celular del Norte, S.A. de C.V. and Baja Celular Mexicana, S.A. de C.V., currently owned by Telefonica of Spain. On March 7, 2002, Telefonica of Spain signed a memorandum of understanding to acquire a 65% stake in Mexican cellular operator Pegaso PCS, S.A. de C.V.

      Pegaso is a joint venture among Grupo Pegaso, Leap Wireless International Inc. and Sprint Corporation that provides personal communications services and wireless local loop commercial services in Tijuana, Monterrey, Guadalajara and Mexico City, among other cities. Cellular service in the southeast region of Mexico is provided by Portatel del Sureste, S.A. de C.V. In October 1999, Sistemas Profesionales de Comunicaciones, S.A. de C.V., referred to as Unefon, obtained a nationwide concession in

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      Regulatory and Legal Overview. The Secretary of Communications and Transportation of Mexico, known as the SCT, regulates the telecommunications industry in Mexico. The Comisión Federal de Telecomunicaciones, known as COFETEL, oversees specific aspects of the telecommunications industry on behalf of the SCT.

      Since early 1994, the Mexican government has been deregulating the telecommunications industry to improve the quality and expand the coverage of telecommunications services. The Mexican government has stated its intention to increase competition within the telecommunications industry. It has also stated its desire to attract foreign investment to improve Mexico’s telecommunications infrastructure. Mexico’s Federal Telecommunications Law, which became effective in June 1995, outlines the broad rules for opening the local and long distance service markets to competition.

      The Mexican Federal Telecommunications Law requires that all telecommunications concessions must be owned by Mexican individuals or entities that do not have more than 49% of their voting equity interest owned by foreign entities. Although the foreign ownership limitation existed before the enactment of the Mexican Federal Telecommunications Law for specific types of telecommunications licenses, the Mexican Foreign Investment Law effective as of December 28, 1993, deleted the reference to this rule. It also allowed up to a 100% foreign ownership participation in entities involved in specialized mobile radio services. Due to this change, the foreign participation in Nextel Mexico and its subsidiaries was increased to become a majority foreign-owned corporation. However, the Mexican Federal Telecommunications Law enacted on June 8, 1995, reinstituted the former 49% foreign ownership limitation. This did not affect Nextel Mexico and its subsidiaries since they became majority foreign owned companies during the time that this level of ownership was legally permitted. For this reason, in May 1996, Nextel Mexico and its subsidiaries applied for and obtained a modification of all of their then-owned 800 MHz licenses. These modifications deleted, among other things, all conditions that related to the 49% foreign ownership limitation. As a result, all of the 800 MHz licenses in which Nextel Mexico had an interest as of January 1, 2000, except for one license covering 10 channels along a major highway from Mexico City to Guadalajara, are not subject to the foreign ownership limitation. To comply with the 49% foreign ownership limitation, all of the licenses acquired by Nextel Mexico after January 1, 2000, are held through a neutral stock corporation, Inversiones Nextel de México, in which Nextel Mexico has about 99% of the economic interest but only 49% of the voting interest. All of the interests in Inversiones Nextel de México, however, are subject to a voting trust agreement between Nextel Mexico and the other shareholders, as well as a shareholders’ agreement under which Nextel Mexico has limited corporate governance rights. The terms of these agreements are described below under “— Corporate Governance.” Although licenses to provide cellular services are also subject to the 49% foreign ownership limitation, the Mexican Federal Telecommunications Law explicitly provides a waiver for cellular providers. This waiver is granted upon receipt of a favorable opinion from the Mexican National Foreign Investments Commission.

      The Mexican Federal Telecommunications Law provides all wireless communications services providers with the right to interconnect to the public switched telephone network operated by Telmex. Some of these telecommunications companies have had difficulty obtaining interconnect services from Telmex, despite having interconnection agreements with Telmex. Because Nextel Mexico operates under specialized mobile radio licenses, it is not deemed to be a local telecommunications services provider in Mexico. As a result, it is unclear whether Nextel Mexico is entitled to interconnection. For assurance, Nextel Mexico entered into a commercial agreement with Telmex providing for interconnection between its networks and the public switched telephone network, effective through August 4, 2001. Nextel Mexico and Telmex continue their commercial relationship under this agreement and are currently negotiating its renewal, however, Nextel Mexico may not be able to renew this agreement or otherwise obtain interconnect services. In addition, Nextel Mexico must rely on arrangements with local telecommunications providers for numbering.

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      To become a concessionaire, a provider must apply to and receive the approval of the Secretary and COFETEL. To acquire spectrum, a provider must participate in an auction process. Awarded concessions contain requirements regarding build-out and loading that, if not complied with, can lead to sanctions, including revocation of the concession.

      In October 2000, Pegaso filed a complaint with COFETEL, alleging that Nextel Mexico was violating the terms of its specialized mobile radio license by providing local and long distance telephony as well as paging services. In March 2001, Nextel Mexico was notified that this competitor was seeking an injunction against the SCT to require COFETEL to respond to the complaint. Although Nextel Mexico believes this complaint and related lawsuit to be without merit, Nextel Mexico cannot be sure of the outcome of the claims or their current impact on its operations.

      In addition, Nextel Mexico was notified in April, May and December 2001 that Pegaso had also filed before Mexican courts three different claims seeking to obtain injunctions against Mexico’s federal competition commission, Comisión Federal de Competencia, known as COFECO. These claims allege that COFECO had granted on three different occasions authorizations with respect to specified spectrum acquisitions by Nextel Mexico, violating this competitor’s constitutional right to be heard. Although Nextel Mexico believes these claims to be without merit, Nextel Mexico cannot be sure of the outcome of these claims or their current impact on its operations.

      Foreign Currency Controls and Dividends. Because there are no foreign currency controls in place, Mexican currency is convertible into foreign currency without restrictions. Mexican companies may distribute dividends and profits outside of Mexico if the Mexican company meets specified distribution and legal reserve requirements. A Mexican company must distribute 10% of its pretax profits to employees and allocate 5% of net profits to the legal reserve until 20% of the stated capital is set aside. Under Mexican corporate law, approval of a majority of stockholders of a corporation is required to pay dividends. Dividends paid by Nextel Mexico to any U.S. stockholder are subject to a 5% withholding tax. Interest payments to U.S. residents are subject to a 15% withholding tax; interest payments to a U.S. financial institution registered with the Mexican tax authorities are subject to a 5% withholding tax; and interest payments to a U.S. fixed asset or machinery supplier registered with the Mexican tax authorities are subject to a 10% withholding tax.

      Corporate Governance. To comply with the restrictions on foreign ownership interests under Mexican law, Inversiones Nextel de México holds the licenses and telecommunications assets acquired in 2000 and 2001. Inversiones Nextel de México is authorized to issue two classes of stock: (i) common voting stock, no more than 49% of which can be held directly or indirectly by foreign investors, and (ii) “neutral” or preferred stock, which has only limited voting rights, but with respect to which foreign ownership is not limited. Nextel Mexico owns 49% of the common stock and all of the neutral stock of Inversiones Nextel de México, giving Nextel Mexico about 99% of the economic interest but only 49% of the voting interest in Inversiones Nextel de México. The remaining 51% of the voting interest and 1% of the economic interest are owned by three Mexican nationals.

      As a holder of common stock, Nextel Mexico is entitled to vote on all matters submitted to a vote of the shareholders of Inversiones Nextel de México. Further, Nextel Mexico and the three other shareholders have entered into a trust agreement and a shareholders agreement. The shareholders’ agreement gives Nextel Mexico substantial rights concerning the corporate governance of Inversiones Nextel de Mexico, including:

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  2. Brazil

      Operating Company Overview. We refer to our wholly owned Brazilian operating company, Nextel Telecomunicações Ltda., as Nextel Brazil. Nextel Brazil provides analog and digital mobile services under the tradename “Nextel” in the following major business centers with populations in excess of 1 million and along related transportation corridors, as well as in a number of smaller markets:

      We recently constructed a digital network in Belo Horizonte, but we have not yet launched our services in that market. We are currently constructing a digital network in Porto Alegre.

      Nextel Brazil has licenses in markets covering about 62 million people. As of December 31, 2001, Nextel Brazil provided service to about 446,800 digital handsets.

      Nextel Brazil’s operations are headquartered in São Paulo, with branch offices in Rio de Janeiro and other cities. As of December 31, 2001, Nextel Brazil had about 1,200 employees.

      Marketing. Nextel Brazil offers both a broad range of service options and pricing plans designed to meet the specific needs of its targeted business customers. It currently offers digital two-way radio only plans and integrated service plans, including two-way radio and interconnect, in its digital markets. Nextel Brazil also offers analog two-way radio in its analog markets. Nextel Brazil’s target customers are businesses with mobile work forces, as well as utilities and government agencies. Nextel Brazil uses a direct sales force, as well as dealers and independent agents.

      Competition. Nextel Brazil competes with other analog specialized mobile radio and cellular service providers in Brazil. Other specialized mobile radio service providers of analog services include Splice do Brasil Telecomunicações e Eletrônica Ltda., Teleglobal Representações Ltda. and Rádio Móvel Digital S.A. Nextel Brazil competes with the following cellular and wireless operators nationally and in various states: Telesp Celular S.A, BCP S.A., TESS S.A., ATL Algar Telecom Leste S.A., Telefônica Celular, Telemig Celular S.A., Maxitel S.A., Global Telecom S.A., TIM Sul, Tele Centro Oeste Celular Participações S.A. and Americel S.A.

      Regulatory and Legal Overview. On April 27, 2000, Brazil’s telecommunications regulatory agency, Agência Nacional de Telecomunicações, known as Anatel, approved new rules relating to specialized mobile radio services in Brazil. These regulations were supplemented on September 26, 2001 with regulations relating to new areas of authorization and on October 17, 2001, with new regulations relating to calling party pays. As a result, Brazil has begun to open its markets to wider competition in the mobile wireless communications segment where we operate. The former regulations imposed various restrictions that significantly limited the ability of Nextel Brazil to provide digital mobile services to all potential customer groups. The former regulations also limited Nextel Brazil’s ability to be fully responsive to customers’ demands and needs for mobile wireless communications services. The new regulations, as supplemented, are expected to have a significant positive impact on our ability to operate in Brazil, principally by:

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      The new regulations now permit affiliated companies to hold more than one license in the same service area. Additionally, specialized mobile radio licensees and their affiliates are still limited to a maximum holding of 10 MHz of spectrum in the same service area, unless the licensee can prove that it needs additional spectrum. Moreover, the regulations approved by Anatel on September 26, 2001, provide specifically for specialized mobile radio companies to request extension of their current coverage areas. Under the new regulations, Anatel may also lift the spectrum restriction from 10 MHz up to 15 MHz in localities where the need for more spectrum is duly justified. In the case of São Paulo and Rio de Janeiro, major cities in Brazil, Anatel has already acknowledged in writing that Nextel Brazil may increase its spectrum up to 15 MHz.

      Although we believe that the new regulations give us significantly greater flexibility to provide digital mobile services, we are still required to provide two-way radio as a basic service before we can provide any other service. For example, we cannot offer interconnection to the public telephone system without providing two-way radio. In addition, we are required to provide services to similarly situated customers on a similar basis.

      The new regulations published on October 17, 2001, also allow for implementation of a calling party pays program. In these regulations, Anatel clarifies, among other things, how specialized mobile radio companies, like Nextel Brazil, would be paid by other companies if they wished to interconnect with Nextel Brazil’s network. These rules also allowed Nextel Brazil to amend its interconnection agreements to reflect this additional payment. We believe that calling party pays will eventually be fully implemented in Brazil. However, although we are actively negotiating with the fixed line and wireless operators in Brazil, we cannot predict when this will happen.

      No material changes were introduced under the new regulations in regard to the grant of new licenses. Any company interested in obtaining new specialized mobile radio licenses from Anatel must apply and present documentation demonstrating the technical, legal and financial qualifications. Anatel may communicate its intention to grant new licenses, as well as the terms and conditions applicable, such as the relevant price. If it intends to grant a license, Anatel is required to publish an announcement in the official gazette. Any company willing to respond to Anatel’s invitation, or willing to render the applicable service in a given area claimed by another interested party, may have the opportunity to obtain a license. Whenever the number of claimants is larger than the available spectrum, Anatel is required to conduct competitive bidding to determine which interested party will be granted the available licenses.

      A license for the right to provide specialized mobile radio services is granted for an undetermined period of time. While the associated radio frequencies are licensed for a period of 15 years, they are renewable only once for an additional 15-year period. Renewal of the license is subject to rules established by Anatel. The renewal process must be filed at least three years before the expiration of the original term and must be decided by Anatel within 12 months. Anatel may deny a request for renewal of the license only if the applicant is not making rational and adequate use of the frequency, the applicant has committed repeated breaches in the performance of its activities, or there is a need to modify the radio frequency allocation.

      The new rules require that Nextel Brazil’s services comply with the terms and minimum coverage and signal requirements detailed in the regulations. Failure to meet Anatel’s requirements may lead to repossession of the channels by Anatel and forfeiture of Nextel Brazil’s license. We believe that Nextel Brazil is currently in compliance with the operational requirements of its licenses in all material respects.

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      Foreign Currency Controls and Dividends. The purchase and sale of foreign currency in Brazil is subject to governmental control. There are two foreign exchange markets in Brazil that are subject to Central Bank of Brazil regulations. The first is the commercial/financial floating exchange rate market. This market is reserved generally for trade-related transactions such as import and export, registered foreign currency investments in Brazil, and other specific transactions involving remittances abroad. The second foreign exchange market is the tourism floating exchange rate market. The commercial/financial exchange rate market is restricted to transactions that require prior approval of the Brazilian monetary authorities. Both markets operate at floating rates freely negotiated between the parties. The purchase of currency for repatriation of capital invested in Brazil and for payment of dividends to foreign stockholders of Brazilian companies is made in the commercial/financial floating exchange rate market. Purchases for these purposes may only be made if the original investment of foreign capital and capital increases were registered with the Central Bank of Brazil. There are no significant restrictions on the repatriation of registered share capital and remittance of dividends.

      Nextel S.A., the Brazilian subsidiary through which any dividend is expected to flow, has applied to the Central Bank of Brazil for registration of its investments in foreign currency. Nextel S.A. intends to structure future capital contributions to Brazilian subsidiaries to maximize the amount of share capital and dividends that can be repatriated through the commercial/financial exchange rate market. However, Nextel S.A. may not be able to repatriate through the commercial/financial exchange rate market share capital and dividends on foreign investments that have not been registered.

      Brazilian law provides that the Brazilian government may, for a limited period of time, impose restrictions on the remittance by Brazilian companies to foreign investors of the proceeds of investments in Brazil. These restrictions may be imposed whenever there is a material imbalance or a serious risk of a material imbalance in Brazil’s balance of payments. The Brazilian government may also impose restrictions on the conversion of Brazilian currency into foreign currency. These restrictions may hinder or prevent us from purchasing equipment required to be paid for in any currency other than Brazilian reais. Under current Brazilian law, a company may pay dividends from current or accumulated earnings and dividend payments from current earnings are not subject to withholding tax. Payments of foreign loans are generally subject to a 15% withholding tax.

  3. Argentina

      Operating Company Overview. We refer to our wholly owned Argentine operating company, Nextel Communications Argentina S.A. (formerly, Nextel Argentina S.R.L.), as Nextel Argentina. Nextel Argentina provides digital mobile services under the tradename “Nextel” in the following major business centers with populations in excess of 1 million and along related transportation corridors, as well as in a number of smaller markets:

Digital

Buenos Aires

      Nextel Argentina has licenses in markets covering about 23 million people. As of December 31, 2001, Nextel Argentina provided service to about 205,200 digital handsets.

      Nextel Argentina is headquartered in Buenos Aires and has regional offices in Mar del Plata, Rosario, Mendoza and Cordoba, and seven branches in Buenos Aires. As of December 31, 2001, Nextel Argentina had about 700 employees.

      Marketing. Nextel Argentina’s digital mobile service offerings include telephone interconnect, digital two-way radio, paging, and data and Internet applications.

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      Nextel Argentina markets its services through a direct sales force and employs independent dealers. Nextel Argentina provides extensive training to each of its distribution channels to ensure a high level of customer satisfaction.

      Competition. Nextel Argentina’s major competitors among the other specialized mobile radio providers, as measured by the number of subscribers, are Movilink, which is owned by CRM S.A., a joint venture that includes BellSouth Corporation and Motorola, and Unifon Team, which is owned by Telefónica de Argentina S.A. Movicom/ Movilink holds channels in Buenos Aires and in each of Argentina’s three other major cities. In addition to operating various analog networks, Movilink also operates an iDEN based digital mobile system in Buenos Aires, Cordoba, Mendoza and Rosario. Unifon Team operates analog networks in Buenos Aires and other major cities.

      There are four cellular service providers in Argentina with which Nextel Argentina also competes: Movicom, Unifon, Compañia de Teléfonos del Interior S.A., which is owned by a joint venture between Verizon Communications Inc. and Clarin Group S.A., and Telecom Personal S.A., which is owned by Telecom Argentina STET-France Telecom S.A. All of these companies or their subsidiaries also hold personal communications services licenses that were auctioned in 1999. The cellular and personal communication services licenses each cover only a specific geographic area, but together the licenses provide each company with national coverage. In addition, these competitors operate in our primary markets in Argentina. The grant of personal communication services licenses did not result in the entry of new competitors to the market because the licenses were awarded only to the existing providers of cellular telephone services. The licenses and associated frequencies provide existing cellular companies with increased spectrum capabilities and the ability to launch a new range of wireless products. The four holders of cellular and personal communication services licenses also hold wireline local and long distance telephone licenses.

      New regulations aimed at opening the Argentine market to wider competition went into effect in November 2000. As a result, a number of new companies have applied for licenses to offer a variety of services, some of which have already started operations.

      Regulatory and Legal Overview. The Comisión Nacional de Comunicaciones, referred to as the Argentina CNC, and the Secretary of Communications of Argentina are the Argentine telecommunications authorities responsible for the administration and regulation of the specialized mobile radio industry.

      Specialized mobile radio licenses have an indefinite term but are subject to revocation for violation of applicable regulatory rules. Depending on the type of network configuration, analog and digital mobile service must begin within six months to one year after receipt of channel assignment. Failure to meet service or loading requirements can result in revocation of the channel authorizations. The Argentina CNC will revoke specialized mobile radio licenses upon the occurrence of a third breach by the licensee of service requirements. Specialized mobile radio licenses and channel authorizations also may be revoked for violation of other regulatory authority rules and regulations. All analog and digital channel holders that received their channel authorizations in the November 1995 auction, including Nextel Argentina, were granted an extension to meet initial loading requirements. This extension provided for one additional year, to December 1997, to meet the requirements. Nextel Argentina believes it has satisfied all of its loading requirements. Argentina does not impose any limitation on foreign ownership of specialized mobile radio licenses.

      Specialized mobile radio providers are assured interconnection with the public switched telephone network according to the terms of the rules under which the channels were awarded, as well as under other applicable laws. Furthermore, interconnection with the public switched telephone network must be on a nondiscriminatory basis. Nextel Argentina provides interconnect services to its subscribers under interconnection agreements with Telefónica de Argentina S.A. and Telecom Argentina STET-France Telecom S.A. In May 1999, the Argentina CNC authorized Nextel Argentina to implement a calling party pays program with the fixed line carriers with whom it interconnects, which it has since implemented.

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      In September 2000, Argentina’s president signed a decree that put into effect new telecommunications regulations. The purpose of the new regulations is to guarantee the complete deregulation and free competition of the telecommunications industry in Argentina. The rules cover the following:

      All interconnection agreements entered into must be registered with the Secretary. Additional requirements are imposed on all dominant carriers to ensure opening up of the Argentine telecommunications market to competition. The referential prices included in the new regulations for various interconnection services, such as local termination and transit fees, represent a reduction of more than 50% from current prices.

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      In July 2001, the Secretary of Communications issued Resolution No. 235/01 establishing the rules under which new spectrum is awarded. New spectrum authorizations expire in 10 years. In April and October of each year, authorizations to operate channels are granted directly or by auction, depending on the number of available channels existing in each city. No auction has taken place as of January 31, 2002, since no minimum price payable for spectrum has been set.

      Foreign Currency Controls and Dividends. On January 7, 2002, the Argentine Emergency Law No. 25,651 was published in the Official Gazette, which formally declares a public emergency in economic, administrative, financial, and exchange control matters. Based on Section 76 of the Argentine National Constitution, this law empowers the Federal Executive Power to regulate those areas until December 10, 2003, subject to control by the National Congress. The Emergency Law amends several provisions of the 1991 Convertibility Law No 23,928, the most significant of which is the repeal of the exchange rate of one Argentine peso to one US dollar. The Emergency Law provides that the Federal Executive Power will set the exchange rate between the peso and the dollar. Decree No. 71/2002 states that the purchase and sale of dollars to be carried out by the Argentine Central Bank will be set at 1.40 pesos for each dollar. This rate will be used to liquidate foreign currency resulting from exports and other export-related transactions, as well as for those imports regarded as essential or critical by the Secretariat of Industry and Commerce. All other transactions will be carried out at the price set daily in the free market. The Argentine Central Bank will issue the resolutions regulating the purchase and sale of foreign currency. The provisions of the Emergency Law are public policy and therefore no one may allege pre-existing rights against them. However, this declaration may affect constitutional rights.

      The Federal Executive Power is also empowered to take measures to preserve deposits in pesos or dollars that have been subject to restrictions since November 30, 2001, in accordance with decree No. 1570/2001. Resolutions No. 6/2002 and No. 9/2002, as amended by Resolutions No. 10, 18, 23 and 46, of the Ministry of Economy provide the schedule for the reimbursement of deposits and the restrictions relating to the operation of both banking and savings accounts of Argentine and U.S. currency. Generally, new deposits are not subject to these restrictions.

      Utility tolls and other government contracts priced or calculated in foreign currency, or providing readjustment clauses related to foreign currency exchange rates or the inflation index of foreign countries such as the United States, have been repealed and converted into pesos at a one-to-one exchange rate. The Federal Executive Power is vested with authority to re-negotiate these contracts based on the criteria established in the Emergency Law.

      The obligations arising from private contracts not related to the financial system which provide for payments in dollars are payable in pesos at the exchange rate of one peso to one dollar. The law provides that parties will re-negotiate to ensure that the impact of the new exchange rate is shared equitably. Once the parties have agreed the new conditions, any resulting differences between the payments already made by the debtor and the values finally agreed upon will be offset. If the parties do not reach an agreement, mediation, litigation or arbitration procedures can be implemented, in accordance with the relevant agreements.

      As a consequence of decree No. 214/2002, published on February 4, 2002, the dollar began to float freely in the Argentine exchange market. Therefore, all foreign trade transactions will be made at the prevailing market exchange rate with the Argentine Central Bank’s intervention at its discretion, and all other foreign financial transactions such as loan repayments, utilities, royalties, etc. will be subject to clearance, and most likely approval, by the Argentine Central Bank. Currently the Argentine Central Bank has not issued any communication regarding these issues, although the implementive regulations have been in place since February 11, 2002.

      All obligations existing before January 6, 2002 denominated in U.S. dollars or any other foreign currency are converted into pesos at a one dollar to one peso ratio. Beginning February 4, 2002, the

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      Future contracts could still provide for payment in foreign currency since the decree has not amended Sections 617 and 619 of the Argentine Civil Code, which governs payments in foreign currencies. In any event, payments over 1,000 pesos, or its equivalent in foreign currency, must be made by deposit in financial entities, banking transfers, checks or credit cards. Currently, Nextel Argentina has no banking accounts in a currency other than pesos. Therefore, only payments by Nextel Argentina made using foreign banking services are subject to these obligations.

      All existing deposits in financial entities in foreign currency are converted to pesos at a 1.4 pesos to one dollar ratio plus the adjustment coefficient from February 4, 2002. All debts in foreign currency with financial entities are converted to pesos at a one dollar to one peso ratio plus the adjustment coefficient from February 4, 2002. Savings accounts holders in foreign currency will have the option to convert up to $ 30,000 into a dollar denominated government bond with terms and conditions yet to be determined. Amounts due in foreign currency with financial entities which are payable in installments will remain fixed for the next six months; after this period, the installments will be adjusted based on the adjustment coefficient and will incorporate the balance corresponding to the adjustment coefficient for the first six months. All other debts in foreign currency with financial entities will be placed on hold for a six month period, except for credit card balances.

      All legal actions and proceedings for debt collection, injunctions and foreclosures, related to credits, debts, obligations, deposits and financial restructuring are temporarily suspended for a 180-day period beginning February 4, 2002. This measure includes claims against financial institutions.

      Dividends. Under applicable Argentine corporate law, a company may pay dividends only from liquid and realized profits as shown on the company’s financial statements prepared in accordance with Argentine generally accepted accounting principles. Of those profits, 5% must be set aside until a reserve of 20% of the company’s capital stock has been established. Subject to these requirements, the balance of profits may be declared as dividends and paid in cash upon a majority vote of the stockholders. Under current law, dividend payments are not subject to withholding tax, except when the dividend payments are the result of profits paid out in excess of the profits computed for income tax purposes. If paid in this manner, a 35% withholding tax applies on the amount of the surplus. Interest payments are subject to withholding taxes ranging from 15% to 35%.

  4. Peru

      Operating Company Overview. We refer to our wholly owned Peruvian operating company, Nextel del Perú, S.A., as Nextel Peru. Nextel Peru provides analog and digital mobile services under the tradename “Nextel” in the following major business centers with a population in excess of 1 million and along related transportation corridors:

Digital

Department of Lima

      Nextel Peru operates some parallel analog and digital mobile networks in the metropolitan areas of Lima and Arequipa. Nextel Peru launched digital mobile service in the greater Lima area in June 1999,

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      Nextel Peru has licenses in markets covering about 8 million people. As of December 31, 2001, Nextel Peru provided service to about 110,200 digital handsets.

      Nextel Peru is headquartered in Lima. As of December 31, 2001, Nextel Peru had about 385 employees.

      Marketing. Nextel Peru’s digital mobile service offerings include interconnect services, two-way radio, short messaging services, and data and Internet applications on its digital mobile network. To establish brand identity for its digital mobile services, Nextel Peru has undertaken a promotional advertising campaign that targets the business segment of the market. In addition to advertising, Nextel Peru relies heavily on its direct sales force to educate potential customers on the benefits of using its digital mobile services and has built an indirect sales channel to increase presence and sales.

      Competition. Nextel Peru competes with all other providers of mobile services in Peru, including cellular operators. BellSouth Peru S.A., formerly Tele2000, a BellSouth subsidiary, and Telefónica Móviles S.A.C., a subsidiary of Telefónica del Perú S.A.A., and personal communications services provider TIM Peru S.A.C., a subsidiary of Italian STET. Telefónica Móviles S.A.C. provides nationwide coverage and operates under the brand name “MoviStar.” BellSouth Perú offers cellular service in the greater Lima area and 13 other major cities and has nationwide roaming agreements with Telefónica del Perú. TIM Perú also has coverage in the greater Lima area and 10 other major cities nationwide.

      Regulatory and Legal Overview. The Organismo Supervisor de Inversión Privada en Telecomunicaciones of Peru, known as OSIPTEL, and the Ministry of Transportation, Communications, Housing and Construction of Peru, referred to as the Peruvian Ministry of Communications, regulate the telecommunications industry in Peru. OSIPTEL oversees private investments and competition in the telecommunications industry. The Peruvian Ministry of Communications grants telecommunications licenses and issues regulations governing the telecommunications industry. In 1991, the Peruvian government began to deregulate the telecommunications industry to promote free and open competition. The Telecommunications Law of Peru, the general regulations under that law and the regulations issued by OSIPTEL govern the operation of specialized mobile radio services in Peru.

      In Peru, specialized mobile radio service providers are granted 20-year licenses, which may be extended for an additional 20-year term, subject to compliance with the terms of the license. Licenses may be revoked before their expiration for violations of applicable regulatory rules. Licensees must also comply with a five-year minimum expansion plan that establishes the minimum loading requirements for the licensees, as well as spectrum targets under the licenses. Nextel Peru has met its loading requirements and has reached its spectrum targets.

      Under the general regulations of Peru’s telecommunications law, all public telecommunications service providers have the right to interconnect to the networks of other providers of public telecommunications services. Furthermore, interconnection with these networks must be on an equal and nondiscriminatory basis. The terms and conditions of interconnection agreements must be negotiated in good faith between the parties in accordance with the interconnect regulations and procedures issued by OSIPTEL. In February 1999, Nextel Peru executed an interconnection agreement with Telefónica del Perú S.A., which was approved by OSIPTEL and became effective in June 1999, to interconnect with Telefónica del Perú’s public switched telephone network, as well as to its cellular and long distance networks. In August 1999, Nextel Peru executed an agreement to interconnect to the cellular network of BellSouth Peru, which was approved by OSIPTEL and became effective in September 1999. Beginning in April 2000, the interconnection agreement between Telefónica del Perú and Nextel Peru was amended to offer a calling party pays program to fixed line users of Telefónica del Perú. Nextel Peru is presently interconnected with all major telecommunications operators in Peru, including a calling party pays program with AT&T Perú

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      Foreign Currency Controls and Dividends. Under current law, Peruvian currency is convertible into U.S. dollars without restrictions. Peru has a free exchange market for all foreign currency transactions. On October 1, 1998, Nextel Peru executed a legal stability agreement with the Peruvian government, which, among other things, guarantees free conversion of foreign currency for Nextel Peru and its stockholders for a term of 10 years.

      The payment and amount of dividends on Nextel Peru’s common stock is subject to the approval of a majority of the stockholders at a mandatory meeting of its stockholders. According to Peruvian corporate law, the stockholders may decide on the distribution of interim dividends or, alternatively, delegate the decision to the board of directors. Dividends are also subject to the availability of earnings, determined in accordance with Peruvian generally accepted accounting principles. Earnings are available for distribution only after 10% of pre-tax profits have been allocated for mandatory employee profit sharing and 10% of the net profits have been allocated to a legal reserve. This reserve is not available for use except to cover losses in the profit and loss statement. This reserve obligation remains until the legal reserve constitutes 20% of the capital stock. After the legal reserve has been allocated, the stockholders may act at a meeting to allocate any portion of the net profits to any special reserve. The remaining amount of the net profits is available for distribution.

      Dividends paid by Nextel Peru to its U.S. stockholders are not subject to withholding tax. Interest paid by Nextel Peru to U.S. residents is subject to a 30% withholding tax, unless they qualify for a reduced rate.

  5. Chile

      Operating Companies Overview. We own 100% of the equity interests in two analog companies in Chile, Centennial Cayman Corp. Chile S.A. and Multikom S.A. These operating companies provide analog services in the following major business centers with populations in excess of 1 million and along related transportation corridors:

Analog

Santiago

Our Chilean companies have licenses in markets covering about 15 million people. As of December 31, 2001, these companies in Chile provided services to about 4,500 analog handsets.

      These companies are headquartered in Santiago de Chile and have regional offices in Valparaíso and Concepción. As of December 31, 2001, these companies had about 62 employees.

      Marketing. Our Chilean companies currently offer exclusively analog two-way radio services, focusing on small and medium size companies. We have not yet received the regulatory approvals to deploy a digital mobile network.

      Competition. Presently, there are no providers of digital specialized mobile radio services in Chile. Competitors in the analog specialized mobile radio business in Chile are Gallyas S.A., CTC Comunicaciones Móviles S.A. and Sharfstein, S.A.

      There are also five mobile telephone service providers authorized to operate throughout Chile, three of which are in the personal communications services 1,900 MHz band and two of which are in the cellular 800 MHz band. These mobile telephone service providers are Entel PCS Telecomunicaciones S.A., a personal communications services concessionaire controlled by Entel Chile, a Chilean corporation controlled in turn by Stet-Telecom Italia; Entel Telefonía Móvil S.A., another personal communications services concessionaire controlled by Entel Chile; Smartcom PCS, a personal communications services concessionaire controlled by Endesa España; CTC Comunicaciones Móviles S.A., a corporation controlled

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      Regulatory and Legal Overview. The main regulatory agency of the Chilean telecommunication sector is the Ministry of Transportation and Telecommunications, which acts primarily through the Undersecretary of Telecommunications. The application, control and interpretation of the provisions of the General Telecommunications Law and other applicable regulations is, subject to review by the courts and the Chilean antitrust commissions, the responsibility of the Ministry which, for these purposes, acts through the Undersecretary.

      Telecommunications concessions, including specialized mobile radio concessions, may be granted only to legal entities duly incorporated and domiciled in Chile. However, there is no restriction or limitation on the participation or ownership of foreign investors in Chilean telecommunications concessionaires.

      As a general rule, telecommunications concessions are granted in Chile without any initial payment of fees. However, telecommunication concessionaires that use the radioelectric spectrum for the operation of their respective concessions, such as specialized mobile radio concessionaires, are subject to an annual fee. The amount of the fee is based on the size of the applicable system, the portion of the spectrum utilized and the service area that has been authorized.

      Telecommunications concessions are not limited as to their number, type of service or geographical area. Therefore, it is possible to grant two or more concessions for the provision of the same service on the same location, except where technical limitations exist. Concessions for the provision of public telecommunication services are generally granted for a 30-year period. These concessions may be renewed for additional 30-year periods if requested by the concessionaire. There are a number of regulatory issues, some of which have recently been addressed by the Chilean regulatory authorities, including issues relating to interconnection, numbering and routing plans, and access charges.

      In Chile, concessionaires of public telecommunications services and concessionaires of intermediate services of telecommunications that render long distance telephonic services are required to establish and accept interconnections with each other. These interconnections permit subscribers and users of public telecommunications services of the same type to be interconnected with each other inside or outside Chile. Telecommunications services of the same type are those which are technically compatible with each other. The Undersecretary determines which telecommunications services are technically compatible. The interconnection must be performed according to the technical rules, procedures and terms established by the Undersecretary. The Undersecretary has issued regulations relating to the interconnection of public telephone networks with other public telecommunications services of the same type. On January 31, 2001, the Undersecretary approved a new technical rule related to the provision of digital specialized mobile radio services. However, Asociación de Empresas de Telefonía Móvil, a trade association known as ATELMO, initiated a claim before the General Comptrollership office challenging the legality of this new technical rule. This claim was rejected by the General Comptrollership in September 2001. However, under these regulations, even if services are determined to be of the same type, providers of public telecommunications services may not interconnect with the public telephone networks unless the concessions held by these other providers expressly authorize interconnection, which in many cases, including ours, will require an amendment to the concession. If we are not able to amend our concessions to obtain these interconnection authorizations, we will not be able to enjoy the interconnection benefits of these new regulations. Currently, there are no specialized mobile radio concessionaires in Chile effectively interconnected to the public switched telephone network or to other public telecommunications services established in Chile.

      Additionally, under new regulations, providers of public telecommunication services of the same type that are authorized to be interconnected with public telephone networks will also be able to request the assignment of specific numbering blocks for their subscribers. New rules governing routing procedures have also been adopted. As with interconnection, a provider of public telecommunications services of the same

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      Specialized mobile radio concessionaires may freely determine the fees charged to their subscribers. However, the fees and tariffs charged by a telecommunications concessionaire to another telecommunications concessionaire for the services rendered through interconnection, specifically the access charges, must be fixed by the authorities. The authorities fix the charges in accordance with a tariff setting procedure based upon, among other things, the cost structure of the respective concessionaire, as set forth in the General Telecommunications Law. This procedure is necessary for the mandatory application of the calling party pays system among the telecommunications concessionaires. To date, this procedure has never been applied to any specialized mobile radio concessionaire.

      Finally, in order to provide digital mobile services in Chile and incorporate digital technology to the networks of our Chilean operating companies, our Chilean operating companies have filed for the amendment of a group of specialized mobile radio concessions totaling 130 channels according to the procedures established in the General Telecommunications Law. In accordance with these procedures, third parties have exercised the right to file oppositions against the corresponding concession’s amendment applications. These oppositions have delayed the necessary amendments to these specialized mobile radio concessions.

      Foreign Currency Controls and Dividends. The purchase and sale of foreign currency in Chile is subject to governmental control. There are two foreign exchange markets in Chile that are subject to regulations of the Chilean Central Bank. The first is the formal exchange market, which consists of banks and other entities authorized to participate in the market by the Central Bank. This market is generally used for trade-related transactions, such as import and export transactions, registered foreign currency investments and other transactions, such as remittances abroad. Other purchases and sales of foreign exchange may be effected in the informal exchange market by entities not expressly authorized to operate in the formal exchange market, such as foreign exchange houses and travel agencies. Both markets operate at floating rates freely negotiated between the participants. There are no limits imposed on the extent to which the informal exchange rate can fluctuate above or below the formal exchange rate or the observed exchange rate. The observed exchange rate is the official exchange rate determined each day based on the average exchange rates observed in the formal exchange market.

      Foreign investments in Chile are subject to exchange controls. Appropriate registration of a foreign investment in Chile, among other things, grants investors access to the formal exchange market. Registration also provides specified guaranties with respect to the ability to repatriate funds and the stability of the applicable tax regime. Foreign investments can be registered with the Chilean Foreign Investment Committee under Decree Law No. 600 of 1974 or with the Central Bank of Chile under the Chapter XIV of the Compendium of Foreign Exchange Regulations issued by the Central Bank of Chile under the Central Bank Act.

      The foreign investment regulations permit the foreign investor to access the formal exchange market to repatriate their investments and profits. They do not, however, necessarily guarantee that foreign currency will be available in the market.

      Under Chilean corporate law, corporations, such as our Chilean companies, may distribute dividends among their stockholders only from the net profits of that fiscal year or from retained profits recognized by balance sheets approved by the stockholders meeting. However, if the company has accumulated losses, profits of that corporation must first be allocated to cover the losses. Losses in a specific fiscal year must be offset with retained profits, if any.

      Unless otherwise agreed at a stockholders meeting by the unanimous vote of all issued shares, publicly traded corporations must annually distribute at least 30% of the net profits of each fiscal year. This distribution must be in the form of a cash dividend to their stockholders in proportion to their ownership or as otherwise stated in the bylaws. Privately held corporations must follow the provisions of their bylaws;

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      In any event, the board of directors may distribute provisional dividends if the corporation has no accumulated losses, subject to the personal responsibility of the directors approving the distributions.

  6. Philippines

      Operating Company Overview. We refer to our Philippine operating company, Nextel Communications Philippines, Inc., as Nextel Philippines. Our current aggregate proportionate equity interest in Nextel Philippines, which includes our direct and indirect holdings, is about 59.1%. We directly hold, through subsidiaries, an aggregate of about 40% and indirectly hold, through minority interests in other shareholders, about 19% of the outstanding shares of capital stock of Nextel Philippines. The stockholders that hold our indirect interest in Nextel Philippines are:

The remaining 12% interest in Nextel Philippines is held by an unrelated Philippine corporation.

      Nextel Philippines provides digital mobile services under the tradename “Nextel” in the following major business centers with populations in excess of 1 million and along related transportation corridors, as well as in a number of smaller markets:

Digital

Metropolitan Manila

      Nextel Philippines’ licenses cover about 75 million people. As of December 31, 2001, Nextel Philippines provided service to about 53,800 digital handsets.

      Nextel Philippines is headquartered in the Ortigas business district of metropolitan Manila. As of December 31, 2001, Nextel Philippines had about 245 employees.

      Marketing. Nextel Philippines markets its digital mobile services primarily to business customers. Nextel Philippines sells its digital handsets in eight business centers and sales outlets that exclusively carry Nextel Philippines’ products. To target business customers, Nextel Philippines employs a direct sales force, as well as independent dealers and agents.

      Competition. We are one of two specialized mobile radio license holders in the Philippines. The other license holder has not yet begun operations. There are also currently five cellular telephone providers with nationwide licenses in the Philippines. SMART Communications, Inc. is the largest cellular telephone provider. Other competitors include Globe Telecom, Inc.; Pilipino Telecom Corporation; Isla Communications Co., Inc.; and Express Telecommunications Co., Inc.

      Regulatory and Legal Overview. The Philippines telecommunications industry is principally governed by Republic Act No. 7925, enacted on March 1, 1995. Under the Philippines telecommunications law, the National Telecommunications Commission, an agency under the Department of Transportation and Communications, regulates the telecommunications industry.

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      Engaging in telecommunications operations requires a Congressional franchise. After securing a Congressional franchise, a franchise holder must apply to the National Telecommunications Commission for an operating license called a Certificate of Public Convenience and Necessity, following public notice and a hearing. After receipt of an application for a Certificate for a particular telecommunications service, and after the applicant presents its evidence of legal, technical and financial capability to operate the services at a public hearing, the National Telecommunications Commission initially issues a provisional authority. The provisional authority serves as a temporary operating permit and allows the applicant to begin construction and commercial operations. Nextel Philippines’ provisional authority is subject to revocation for failure to operate continuously for two years.

      Nextel Philippines’ provisional authority is scheduled to expire on March 6, 2004. Nextel Philippines has met the conditions required to avoid revocation of its provisional authority and has applied for a Certificate of Public Convenience and Necessity.

      The Philippines telecommunications law provides that a telecommunications entity with regulated types of services must make a public offering of at least 30% of its aggregate common stock. This offering must occur within a period of five years from the later of the effective date of the law or the entity’s commencement of commercial operations. Since Nextel Philippines began commercial operations in February 1995 and the Philippines telecommunications law became effective on March 22, 1995, the relevant five-year period within which Nextel Philippines must undertake a public offering expired on March 22, 2000. As a result, on March 20, 2000, Nextel Philippines submitted to the Philippines Securities and Exchange Commission its application for registration of its public offering. On November 21, 2000, the Philippine Stock Exchange denied Nextel Philippines’ application for listing due to Nextel Philippines’ failure to comply with the three-year profitability requirement. A number of telecommunications companies in the Philippines have been granted a period of ten years from the start of commercial operations within which to undertake an initial public offering. On April 3, 2000, the Office of the President issued an opinion stating that we should be subject to the ten-year period by virtue of the fact that other franchises have been allowed ten years from the start of commercial operations. Based on this opinion, and the advice of our other advisors, we believe that Nextel Philippines is not in violation of the public offering requirement.

      Under Philippine law, direct ownership of a telecommunications company by a foreign entity is limited to 40% of the company’s voting stock. Philippine law also limits the participation of foreign investors in the governing body of any telecommunications enterprise to their proportionate share in its capital. Therefore, a foreign investor’s participation in the management of a telecommunications company is limited solely to participation as members of its board of directors and committees of the board of directors, including the executive committee. Further, all the executive and managing officers, including the president, chief executive officer and treasurer, are required to be citizens of the Philippines.

      Presidential Executive Order No. 59 (1993) prescribes, as a matter of national policy, the compulsory and nondiscriminatory interconnection of authorized public telecommunications carriers. Interconnection allows the subscribers of one telecommunications company to place and receive calls from the subscribers of another telecommunications company. Interconnection is negotiated and effected through bilateral agreements between the parties involved, subject to specified technical, operational and traffic settlement rules of the National Telecommunications Commission. Nextel Philippines has entered into interconnection agreements with the public telecommunications carriers in the Philippines, except Express Telecommunications.

      As part of its effort to improve teledensity, the Philippine government requires cellular telephone providers to meet specified landline buildout requirements, including installation of 400,000 telephone lines by each cellular telephone operator. The installation represents a significant investment for each of these providers. The National Telecommunications Commission has determined that this requirement is not applicable to trunked radio networks like that of Nextel Philippines.

      On July 17, 2001, a Philippine attorney representing a former president of Nextel Philippines filed a letter-complaint with the National Telecommunications Commission, or NTC, alleging that Nextel

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      On March 11, 2002, a former director of Jetcom, Inc. filed a complaint with the Philippine Department of Justice alleging a criminal violation of the Philippines’ Anti-Dummy Law and naming certain officers and directors of Nextel Philippines and its shareholders. These allegations are similar to those raised in the complaints filed with the NTC.

      We are vigorously contesting these claims and believe them to be without merit.

      Foreign Currency Control and Dividends. Under current regulations of the Central Bank of the Philippines, foreign exchange may be freely sold and purchased outside the Philippine banking system. Restrictions exist on the sale and purchase of foreign exchange in the banking system. The Central Bank, with the approval of the President of the Philippines, has the statutory authority, during a foreign exchange crisis or in times of national emergency, to temporarily suspend or restrict sales of foreign exchange, require licensing of foreign exchange transactions or require delivery of foreign exchange to the Central Bank or its designee.

      Foreign investments do not need to be registered with the Central Bank. The registration of a foreign investment with the Central Bank is only required if the foreign exchange needed to service the repatriation and the remittance of capital and dividends are to be sourced from the Philippine banking system. Foreign exchange needed for capital repatriation and remittance of dividends of unregistered investments can be sourced lawfully outside of the Philippine banking system. Under current law, there is a 15% withholding tax on dividends and a 20% withholding tax on interest payments.

      Corporate Governance. We have the right to designate four of the 11 members of the board of directors of Nextel Philippines and two of the five members of the executive committee of that board. In addition, the presence of one member nominated by us is required to satisfy the minimum quorum requirement for meetings of the executive committee. Further, the affirmative vote of our nominee is required for decisions involving the following significant corporate actions:

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K. Employees

      As of December 31, 2001, we had about 150 employees at the corporate level, and our operating companies had about 3,720 employees. As of February 28, 2002, we had about 120 employees at the corporate level, and our operating companies had about 3,465 employees. Neither we nor any of our operating companies is a party to any collective bargaining agreement. We believe the relationship between us and our employees, and between each of our operating companies and its employees, is good.

L. Risk Factors

  1. We are in default under certain of our debt agreements and are reviewing alternatives to restructure our indebtedness, which may not be successful.

      We currently have outstanding an aggregate of about $2.67 billion of indebtedness that we incurred to construct our digital mobile networks and fund our operations. Since debt service payments are a significant portion of our current and future commitments and because we do not believe that funds generated from our operating activities or realistically available from other sources will be sufficient to meet our expected commitments, we have been reviewing various alternatives to restructure our currently outstanding indebtedness and are in discussions with our various creditors. We have failed to make a scheduled principal payment of $8.3 million to the lenders under our $108.3 million Argentine credit facilities and a $41.4 million interest payment due on our 12.75% senior serial redeemable notes due 2010, of which $650.0 million in aggregate principal amount is outstanding. We decided not to make these payments as part of the cash preservation initiative associated with our undertaking to restructure our debts and implement a revised business plan. We do not intend to make additional principal or interest payments on any of our outstanding debt while we continue our restructuring activities. Our defaults under our Argentine credit facilities caused a cross-default on $381.7 million in aggregate borrowings under our equipment financing facilities with Motorola Credit. In addition, the entire balance of unpaid principal under our 13.0% senior redeemable discount notes due 2007 and our 12.125% senior redeemable discount notes due 2008 is subject to being declared immediately due and payable together with accrued interest, thirty days after an acceleration has been declared under any of our other significant indebtedness, all of which is currently in default. No such acceleration has yet occurred. As a result of our defaults, our lenders under the affected facilities are each free to pursue the respective remedies available to them, including, in the case of our vendor and bank financing facilities, seizing our assets and the assets of our subsidiaries that are pledged as collateral.

      If any of our lenders accelerates our indebtedness to them, as a result of cross-default provisions we would be in default with respect to substantially all of our indebtedness. If we are unable to obtain additional funding and negotiate a successful debt restructuring, we may have to further write down our assets, sell strategic assets, reorganize under Chapter 11 of the United States Bankruptcy Code or take other measures, which could include liquidation of our assets. Additionally, we could experience adverse impacts to our business, including but not limited to, losses of customer accounts, top sales agents, indirect dealers and key management personnel. We may also lose government and regulatory support for various initiatives critical to our success.

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  2. We have a history of net losses and negative cash flow, which we expect to continue, and have taken significant restructuring changes.

      We have never been profitable, and we have never generated sufficient cash flows from operations to fund our operations. In view of the capital constrained environment and our lack of funding sources, during the fourth quarter of 2001, we undertook an extensive review of our business plan and determined to pursue a less aggressive growth strategy that targets conservation of cash resources by slowing enhancement and expansion of our networks and reducing subscriber growth and operating expenses. In connection with the implementation of this plan and our decision to discontinue funding to our Philippine operating company, during 2001 we recorded non-cash pre-tax impairment charges and pre-tax restructuring and other charges of about $1.75 billion, resulting from the write-down of the carrying values of our long-lived assets and the restructuring of some of our operations to reduce our operating costs and improve our operating efficiencies. Notwithstanding the pursuit of this revised business plan, we expect losses and negative cash flow after capital expenditures to continue for the foreseeable future. Even assuming we can successfully restructure our indebtedness and obtain additional financing, we do not know when, if ever, our cash flows from operations will support our growth and continued operations. Our accumulated deficit was about $3.8 billion at December 31, 2001 and our net losses for 2001 were about $2.5 billion. For the year ended December 31, 2001, we had operating losses before depreciation, amortization and impairment, restructuring, and other charges of $99.9 million, and our earnings, which include about $1.75 billion in non-cash pre-tax impairment charges and pre-tax restructuring and other charges, were insufficient to cover our fixed charges by about $2.6 billion.

  3. We must obtain additional funds when needed to implement our revised business plan.

      Under our revised business plan, we will need substantial amounts of additional financing for the foreseeable future to expand our digital mobile network in Mexico, maintain and enhance our digital mobile networks in most of our remaining markets, fund operating losses of our operating companies and for general corporate purposes. Our revised business plan depends on obtaining adequate capacity in our digital mobile networks to accommodate new customers and increased usage. If we are unable to obtain financing for the acquisition of additional spectrum, equipment or handsets, when and as required, we may not be able to adequately service new or existing customers, which would hurt our business. It is unlikely that we will be able to obtain additional financing through the issuance of debt or equity securities to third parties in the absence of a restructuring of our current indebtedness. Further, our ability to incur additional indebtedness is limited by restrictions in our existing financing arrangements.

      In the past, we have relied upon capital contributions from our parent, Nextel Communications. We have been advised by Nextel Communications that it is reviewing a possible investment of up to $250.0 million, but that any such investment will be conditioned on, among other matters, our ability to complete a satisfactory restructuring of our indebtedness and other financial obligations, as well as other specified conditions. Nextel Communications has no legal obligation to make any investments or to otherwise advance or make available any funds to us. In addition, some of the agreements to which Nextel Communications currently is a party restrict the amount available to Nextel Communications and its relevant subsidiaries for specified purposes, including investments in and advances to us. We may not be able to obtain the funds necessary to pursue our revised business plan on satisfactory terms, if at all, or if we are able to obtain funds, they may not be sufficient to meet our funding requirements.

  4. We have significant intangible assets, which are not likely to generate adequate value to satisfy our obligations in the event of liquidation.

      If we were liquidated, the value of our assets likely would not be sufficient to satisfy our obligations. We have a significant amount of intangible assets, such as licenses. The value of these licenses will depend significantly upon the success of our digital mobile network business and the growth of the specialized mobile radio and wireless communications industries in general. We had a net tangible book value deficit of about $2.2 billion as of December 31, 2001.

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  5. Government regulations determine how we operate in various countries, which could limit our growth and strategy plans.

      In each market in which we operate, one or more regulatory entities regulate the licensing, construction, acquisition, ownership and operation of our wireless communications systems. Adoption of new regulations, changes in the current telecommunications laws or regulations or changes in the manner in which they are interpreted or applied could adversely affect our operations. Because of the uncertainty as to the interpretation of regulations in some countries in which we operate, we may not always be able to provide the services we have planned in each market. In some markets, we are unable, or have limitations on our ability, to offer some services, such as interconnection to other telecommunications networks and participation in calling party pays programs. Further, the regulatory schemes in the countries in which we operate allow third parties, including our competitors, to challenge our actions. For instance, some of our competitors have challenged and are currently challenging the validity of some of our licenses or the scope of services we provide under those licenses, in administrative or judicial proceedings, particularly in Chile and Mexico. It is possible that, in the future, we may face additional regulatory prohibitions or limitations on our services. Inability to provide planned services could make it more difficult for us to compete in the affected markets. Further, some countries in which we conduct business impose foreign ownership limitations upon telecommunications companies. These issues affect our ability to operate in each of our markets, and therefore impact our business strategies. We have provided a detailed description of the regulatory environment in each of the countries in which our operating companies conduct business under the “Regulatory and Legal Overview” discussion for each operating company under “— J. Operating Companies.”

  6. If our licenses to provide mobile services are not renewed, or are modified or revoked, our business may be restricted.

      Wireless communications licenses and spectrum allocations are subject to ongoing review and, in some cases, to modification or early termination for failure to comply with applicable regulations. If our operating companies fail to comply with the terms of their licenses and other regulatory requirements, including installation deadlines and minimum loading or service availability requirements, their licenses could be revoked. Further, compliance with these requirements is a condition for eligibility for license renewal. Most of our wireless communications licenses have fixed terms and are not renewed automatically. Because governmental authorities have discretion as to the grant or renewal of licenses, our licenses may not be renewed or, if renewed, renewal may not be on acceptable economic terms. For example, under existing regulations, our licenses in Brazil and Peru are renewable once, but no regulations presently exist regarding how or whether additional renewals will be granted.

  7. If we are not able to compete effectively in the highly competitive wireless communications industry, our future growth and operating results will suffer.

      Our success will depend on the ability of our operating companies to compete effectively with other telecommunications services providers, including wireline companies and other wireless telecommunications companies, in the markets in which they operate.

      a. Some of our competitors are financially stronger than we are, which may limit our ability to compete based on price.

      Because of their resources, and in some cases, ownership by larger companies, some of our competitors may be able to offer services to customers at prices that are below the prices that our operating companies can offer for comparable services. If we cannot compete effectively based on the price of our service offerings, our revenues may be adversely affected. For example, many of our competitors are well-established companies that have:

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      Further, significant price competition could negatively impact our operating results and our ability to attract and retain customers. In addition, we anticipate that our operating companies will continue to face future market pressure to reduce the prices charged for their products and services because of increased competition in our markets.

      b. Our operating companies may face disadvantages when competing against government-owned or affiliated telecommunications companies and wireline monopoly operators.

      In some markets, our operating companies may not be able to compete effectively against an incumbent government-owned telecommunications company, or a formerly government-owned company in which the government may or may not retain a significant interest. Our operating companies may be at a competitive disadvantage in these markets because government-owned or affiliated competitors may have:

      To the extent government-owned wireline companies are privatized or join with an established foreign telecommunications partner, competition from these companies may increase due to infusions of capital and managerial and technical talent. These companies may also continue to enjoy the legacy of their pre-privatization privileges. Our operating companies may encounter obstacles and setbacks if local governments adopt policies favoring these competitors or otherwise afford them preferential treatment.

      In some markets, our operating companies compete against an incumbent monopoly wireline company in the provision of some services. In most of these markets, the monopoly wireline provider is also a wireless operator competing directly with the wireless operations of our operating companies. Often, the monopoly provider enjoys competitive advantages similar to the advantages described above that government-owned and affiliated providers may enjoy. As a result, our operating companies may be at a competitive disadvantage to monopoly providers, particularly as our operating companies seek to offer new telecommunications services.

      c. Our coverage is not as extensive as those of other wireless service providers in our markets, which may limit our ability to attract and retain customers.

      Since our digital mobile networks do not offer nationwide coverage in the countries in which we operate and our technology limits our potential roaming partners, we may not be able to compete effectively with cellular and personal communications services providers in our markets. Many of the cellular and personal communications services providers in our markets have entered into roaming agreements with each other, which permit these providers to offer coverage to their subscribers in each other’s markets. The iDEN technology that we deploy is not compatible with other wireless technologies such as digital cellular or personal communications services technologies or with other iDEN networks not operating in the 800 MHz spectrum. As a result, with the exception of GSM 900 MHz systems, we cannot enter into roaming agreements with the operators of these other networks. Although the i2000 digital phone is compatible with both iDEN 800 MHz or GSM 900 MHz systems, our customers will not be able to roam on other iDEN 800 MHz or GSM 900 MHz systems where we do not have a roaming

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      Under our revised business plan, we do not expect any significant expansion of the network coverage area of our digital mobile systems to occur over the next few years, except for certain market areas targeted for expansion in Mexico.

      d. If we do not keep pace with rapid technological changes, we may not be able to attract and retain customers.

      The wireless telecommunications industry is experiencing significant technological change. Future technological advancements may enable other wireless technologies to equal or exceed our current level of service and render iDEN technology obsolete. If Motorola is unable to upgrade or improve iDEN technology or develop other technology to meet future advances in competing technologies on a timely basis, or at an acceptable cost, we will be less able to compete effectively and could lose customers to our competitors. In addition, competition among the differing wireless technologies could;

      e. If our wireless communications technology does not perform in a manner that meets customer expectations, we will be unable to attract and retain customers.

      Customer acceptance of the services we offer is and will continue to be affected by technology-based differences and by the operational performance and reliability of system transmissions on our digital mobile networks. We may have difficulty attracting and retaining customers if we are unable to address and resolve satisfactorily performance or other transmission quality issues as they arise or if these issues:

      f. Our equipment is more expensive than that of some competitors, which may affect our ability to establish and maintain a significant subscriber base.

      We currently market multi-function digital handsets. The higher cost of our equipment, as compared to analog handsets and some digital handsets that do not incorporate a comparable multi-function capability, may make it more difficult for us to attract customers. In addition, the higher cost of our handsets requires us to absorb part of the cost of offering handsets to new and existing customers. These increased costs may reduce our growth and profitability.

      g. We have launched new wireless data and Internet connectivity services, and if these new services do not prove to be successful, our operations and growth could be adversely affected.

      In 2001, we began to offer our subscribers access to digital two-way mobile data and Internet connectivity, that we market under the brand name Nextel Online. We cannot be sure that these services will perform satisfactorily, be utilized by a sufficient number of our subscribers or produce sufficient levels of customer satisfaction or revenue. Because we have less spectrum than some of our competitors, any digital two-way mobile data and Internet connectivity services that we may offer could be significantly limited compared to those services that may be offered by other wireless communications providers with larger spectrum positions.

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      We expect that this wireless data capability and Internet connectivity will allow us to perform support services more economically, to differentiate ourselves from our competitors and to realize a source of future incremental revenue to counter the impact of increasing competition in our markets on the pricing of our basic wireless voice services packages. We may not successfully realize these goals if:

      Any resulting customer dissatisfaction, or failure to realize cost reductions or incremental revenue, could have an adverse impact on our results of operations, future growth prospects and perceived value.

      h. If competitors provide two-way radio dispatch services, we will lose a competitive advantage.

      We differentiate ourselves by providing two-way radio dispatch services that are currently not available through traditional cellular or personal communication services providers. If either personal communication services or cellular operators provide two-way radio dispatch or comparable services in the future, our competitive advantage may be impaired.

  8. We operate exclusively in foreign markets, and our assets, customers and cash flows are concentrated in Latin America, which presents risks to our operating and financing plans.

      a. We face political and economic risks in our markets, which may limit our ability to implement our strategy and our financial flexibility and may disrupt our operations.

      Most of our markets are considered to be emerging markets. Although political, economic and social conditions differ in each country in which we currently operate, political and economic developments in one country may affect our business as a whole, including our access to international capital markets. In Peru, for example, there was significant terrorist activity in the 1980s and the early 1990s. During that time anti-government groups escalated violence against the government, the private sector and Peruvian residents. Incidents of terrorist activity continue to occur. Similar outbreaks of terrorism or political violence have occurred in the Philippines, Mexico and other countries in which we operate. In addition, we are unable to predict the impact that presidential or other contested local or national elections and the associated transfer of power from incumbent officials or political parties to elected victors, may have on the local economy or the growth and development of the local telecommunications industry. For example, Peru’s president was dismissed in November 2000, and the former president of the Philippines was replaced in January 2001. Since late December 2001, there have been four presidents of Argentina that have resigned or been replaced in connection with the political and economic upheaval in that country. Changes in the leadership or in the ruling party in the countries in which we operate may affect the economic programs developed under the prior administration, which in turn may adversely affect our business, operations and prospects in these countries.

      The countries in which we operate have a history of economic instability, including defaults on their indebtedness and significant devaluation of their currencies. For example, in the 1990s, both Mexico and Brazil suffered significant devaluations of their local currencies against the U.S. dollar. Most recently, in Argentina, after a long period of a recessionary environment following the hyperinflation of the 1980s, the Argentine government defaulted on its outstanding indebtedness and repealed the former exchange rate of one Argentine peso to one U.S. dollar and, in subsequent decrees, provided for full floating of the two currencies. The devaluation of the currencies in the countries in which we operate and resulting inflationary pressures have adversely affected our business, operations and prospects in those countries and may continue to do so.

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      b. Because wireless telecommunications services companies have a limited history in our markets, acceptance of our services is uncertain, and we may not be able to successfully implement our business plan.

      Due, in part, to the limited history of wireless communications services in our existing and targeted markets, we face many uncertainties in our markets that may affect our ability to grow or implement our business plan. These uncertainties include:

      As a result of these uncertainties, we may make significant investments in developing a network and promoting our digital mobile services in markets where we may not achieve significant market acceptance for our services. If this occurs we may be unable to recover our investment in these markets, which could harm our financial condition and results of operations.

      c. We are subject to fluctuations in currency exchange rates and limitations on the expatriation or conversion of currencies, which may result in significant financial charges, increased costs of operations or decreased demand for our products and services.

      Substantially 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 phones, and substantially all of our outstanding debt, are 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 or assets. For example, the economic turmoil in Asia in the late 1990s resulted in a significant devaluation of the currencies in several countries in Asia and caused fluctuations in the currencies of other emerging countries, particularly in Latin America. Further, the 1999 currency devaluation in Brazil resulted in a significant charge against our earnings in 1999 and a negative adjustment to the carrying value of our assets in Brazil. More recently, the economic upheaval in Argentina led to the unpegging of the Argentine peso to the U.S. dollar exchange rate and the subsequent significant devaluation of the Argentine peso. In addition, the restrictive limitations placed on financial transactions by the Argentine government may further contribute to the future devaluation of the peso.

      Any devaluation of local currencies in the countries in which our operating companies conduct business may result in increased costs for imported goods and services and may, as a result, decrease demand for our products and services in the affected markets. If our operating companies distribute dividends in local currencies in the future, the amount of cash we receive will also be affected by fluctuations in exchange rates and currency devaluations. In addition, some of the countries in which we have operations do or may restrict the expatriation or conversion of currency. We have not entered into any hedging transactions to limit our foreign currency exposure.

      d. Our operating companies are subject to fluctuating economic conditions in the local markets in which they operate, which could hurt their performance.

      Our operations depend on the economies of the markets in which our operating companies conduct business. These markets are in countries with economies in various stages of development or structural reform, some of which are subject to rapid fluctuations in terms of consumer prices, employment levels, gross domestic product, interest rates and inflation rates.

      If these fluctuations have an effect on the ability of customers to pay for our products and services, our business may be adversely affected. For example, several countries in Asia, including the Philippines,

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      Some of our operating companies conduct business in countries where the rate of inflation is significantly higher than in the United States. For instance, as a result of its recent economic turmoil, Argentina has been subject to significant inflationary pressures, which are expected to continue. Any significant increase in the rate of inflation in any of these countries may not be completely or partially offset by corresponding price increases implemented by our operating companies, even over the long term.

      e. We pay significant import duties on our network equipment and handsets, and any increases could impact our financial results.

      Our operations are highly dependent upon the successful and cost-efficient importation of network equipment and handsets from North America and, to a lesser extent, from Europe and Japan. Any significant increase in import duties in the future could significantly increase our costs. To the extent we cannot pass these costs on to our customers, our financial results will be negatively impacted. In the countries in which our operating companies conduct business, network equipment and handsets are subject to significant import duties and other taxes that can be as high as 50% of the purchase price.

      f. We are subject to foreign taxes in the countries in which we operate, which may reduce amounts we receive from our operating companies or may increase our tax costs.

      Many of the foreign countries in which we operate have increasingly turned to new taxes as a method of increasing revenue. For instance, in 2001, Brazil adopted a new tax on financial transactions and certain provinces in Argentina adopted new taxes on telecommunications services. Further in 2002, Mexico adopted a new tax on telecommunications services. In addition, the provisions of the new tax laws may prohibit us from passing these taxes on to our customers. These taxes may reduce the amount of earnings that we can generate from our services.

      Distributions of earnings and other payments, including interest, received from our operating companies may be subject to withholding taxes imposed by some countries in which these entities operate. Any of these taxes will reduce the amount of after-tax cash we can receive from those operating companies.

      In general, a U.S. corporation may claim a foreign tax credit against its federal income tax expense for foreign withholding taxes and for foreign income taxes paid directly by foreign corporate entities in which the company owns 10% or more of the voting stock. Our ability to claim foreign tax credits and to utilize net foreign losses is, however, subject to numerous limitations, and we may incur incremental tax costs as a result of these limitations or because we do not have U.S. federal taxable income.

      We may also be required to include in our income for U.S. federal income tax purposes our proportionate share of specified earnings of our foreign corporate subsidiaries that are classified as controlled foreign corporations, without regard to whether distributions have been actually received from these subsidiaries.

      g. We have entered into a number of agreements that are subject to enforcement in foreign countries, which may limit efficient dispute resolution.

      A number of the agreements that we and our operating companies enter into with third parties are governed by the laws of, and are subject to dispute resolution in the courts of or through arbitration proceedings in, the countries or regions in which the operations are located. We cannot accurately predict whether these forums will provide effective and efficient means of resolving disputes that may arise. Even if we are able to obtain a satisfactory decision through arbitration or a court proceeding, we could have difficulty enforcing any award or judgment on a timely basis. Our ability to obtain or enforce relief in the United States is also uncertain.

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  9. Nextel Communications is able to influence our business and affairs and can be influenced by its significant stockholders.

      Nextel Communications beneficially owns about 99% of our outstanding common stock. As a result of this ownership, Nextel Communications is able to influence our business and affairs and is able to unilaterally determine the outcome of any matter submitted to a vote of our stockholders. Further, Nextel Communications has the power to elect all of the members of our board of directors.

      Additionally, based on the ownership information relating to Nextel Communications as of December 31, 2001, Motorola beneficially owned about 14% of the outstanding Nextel Communications stock. Motorola is entitled to nominate two directors to the board of directors of Nextel Communications and may exert influence over our affairs. In addition, as of December 31, 2001, entities controlled by Mr. Craig O. McCaw beneficially owned about 8% of the outstanding Nextel Communications stock. Digital Radio L.L.C., which is controlled by Mr. McCaw, may designate at least one fourth of the board of directors of Nextel Communications. In addition, Digital Radio may select, from its representatives on the board of directors, a majority of the operations committee of Nextel Communications’ board of directors, which has significant authority relating to Nextel Communications’ business strategy, budgets and financing arrangements and in the nomination and oversight of specified executive officers. As a result, Digital Radio may exert significant influence over our affairs as well.

  10. Nextel Communications’ significant stockholders may or do compete with us.

      Motorola and its affiliates engage in wireless communications businesses, and may in the future engage in additional businesses, that do or may compete with some or all of the services that we offer. The potential conflict of interest may adversely affect us in the future. In addition, Motorola is a significant stockholder of Nextel Communications, and indirectly of us, which creates potential conflicts of interest, particularly with regard to significant transactions.

      Digital Radio, Mr. McCaw and their affiliates have and, subject to the terms of agreements between Digital Radio and Nextel Communications, may have other investments or interests in entities that provide wireless telecommunications services that could potentially compete with Nextel Communications and with us. Under the agreements, Mr. McCaw, Digital Radio and their controlled affiliates may not, until one year after termination of the operations committee of the board of directors of Nextel Communications, participate in other two-way terrestrial-based mobile wireless communications systems in the region that includes any part of North America or South America unless these opportunities have first been presented to and waived or rejected by Nextel Communications. We do not have similar arrangements with these entities, and Nextel Communications may waive or reject these opportunities, even if they are in our best interests.

  11. Our right of first opportunity agreement with Nextel Communications may limit future growth.

      We have entered into an agreement with Nextel Communications that provides us with a right of first opportunity to pursue business opportunities outside the United States before Nextel Communications may pursue them. If we do not pursue a given opportunity, Nextel Communications may make other investments that could compete with us. Additionally, we have agreed that neither we nor any of our controlled affiliates will participate in the ownership or management of any wireless communications service business in the United States without the consent of Nextel Communications, which may limit our future growth. This agreement terminates upon specified change of control events.

  12. Any modification or termination of our license or roaming agreements with Nextel Communications could increase our costs.

      Although Nextel Communications has licensed us the right to use the “Nextel” tradename on a royalty-free basis, this license may be terminated by either party upon 180 days’ notice or less in the event of a change in control of us. Nextel Communications could determine to terminate the license for any reason. In addition, it may elect to charge us royalties upon 180 days’ notice. As a result, our right to use

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  13. Increased overhead costs to Nextel Communications or increased allocations to us of those costs could negatively impact our financial results.

      Pursuant to an overhead services agreement, Nextel Communications provides us many services typically performed by in-house personnel, including various financial, human resources, audit, legal, engineering and marketing functions. We are charged for these services based on the actual costs incurred by Nextel Communications, and increases in these charges could negatively impact our financial results. In the event that Nextel Communications no longer provides these services, we could be adversely affected to the extent that we cannot replace these services at a comparable cost. While we have the right to review and discuss the amounts charged by Nextel Communications, Nextel Communications’ determination is final and binding. Our allocations under this agreement may increase as we grow or as a result of changes in the remaining business of Nextel Communications. For example, if we grow significantly faster than Nextel Communications’ remaining business, our allocation would be increased to reflect our growth. Further, if the costs to Nextel Communications increase, our allocated costs could also increase. In addition, if Nextel Communications’ equity interest in us decreases in the future, we would likely have more limited access, if any, to its employees, services and expertise.

  14. We are a party to a tax sharing agreement with Nextel Communications, which is not favorable to us.

      We file and will continue to file consolidated tax returns with Nextel Communications and have entered into a tax sharing agreement with Nextel Communications. Under this agreement, we and each of our U.S. subsidiaries must pay Nextel Communications an amount equal to our tax liability as if we and each of our U.S. subsidiaries filed separate tax returns, which may result in higher tax payments by us than if our tax liability was computed on the basis of joint tax filings with Nextel Communications. In addition, Nextel Communications is entitled under this agreement to utilize our unused tax attributes, including items of income, gain, loss, deduction, expense, credit and similar treatments, on behalf of other members of the consolidated Nextel Communications group, and we are not entitled to any compensation for this utilization. Under this agreement, we may be required to pay Nextel Communications even if Nextel Communications does not have a separate tax liability.

  15. Because we rely on one supplier to implement our digital mobile networks, any failure of that supplier to perform could adversely affect our operations.

      Motorola is currently our sole source for most of the digital network equipment and all of the handsets used throughout our markets. If Motorola fails to deliver system infrastructure equipment and handsets or enhancements on a timely, cost-effective basis, we may not be able to adequately service our existing customers or add new customers. Furthermore, in the event Motorola determines not to continue manufacturing, supporting or enhancing our iDEN based infrastructure and handsets, we may be materially adversely affected. We expect to continue to rely principally on Motorola for the manufacture of a substantial portion of the equipment necessary to construct, enhance and maintain our digital mobile networks and for the manufacture of handsets for the next several years.

  16. Agreements with Motorola reduce our operational flexibility and may adversely affect our growth or operating results.

      We have entered into agreements with Motorola that impose limitations and conditions on our ability to use other technologies that would displace our existing iDEN digital mobile networks. These agreements may delay or prevent us from employing new or different technologies that perform better or are available at a lower cost because of the additional economic costs and other impediments to change arising under the Motorola agreements. For example, our equipment purchase agreements with Motorola provide that we

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      In addition, if Motorola manufactures, or elects to manufacture, the equipment utilizing the alternate technology that we elect to deploy, we must give Motorola the opportunity to supply 50% of our infrastructure requirements for the equipment utilizing the alternate technology for three years. This may limit our ability to negotiate with an alternate equipment supplier. Finally, if we do switch to an alternate technology and we do not maintain Motorola infrastructure equipment at the majority of our transmitter and receiver sites that are deployed at the time the switch is first publicly announced, Motorola may require that all financing provided by Motorola to us be repaid. If these amounts became payable, we would be required to seek alternative financing which might not be available, or be required to curtail our operations.

  17. Concerns about health risks associated with wireless equipment may reduce the demand for our services.

      Portable communications devices have been alleged to pose health risks, including cancer, due to radio frequency emissions from these devices. The actual or perceived risk of mobile communications devices could adversely affect us through increased costs of doing business, a reduction in subscribers, reduced network usage per subscriber or through reduced financing available to the mobile communications industry. Further research and studies are ongoing, and we cannot be sure that these studies will not demonstrate a link between radio frequency omissions and health concerns.

  18. Our forward-looking statements are subject to a variety of factors that could cause actual results to differ materially from current beliefs.

      “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: A number of the statements made in this report are not historical or current facts, but deal with potential future circumstances and developments. They can be identified by the use of forward-looking words such as “believes,” “expects,” “plans,” “may,” “will,” “would,” “could,” “should” or “anticipates” or other comparable words, or by discussions of strategy that involve risks and uncertainties. We caution you that these forward-looking statements are only predictions, which are subject to risks and uncertainties, including technical uncertainty, financial variations, changes in the regulatory environment, industry growth and trend predictions. 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 operation and results of our wireless communications business also may be subject to the effects of other risks and uncertainties in addition to the other qualifying factors identified in the “Risk Factors” section above and elsewhere in this annual report, including, but not limited to:

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Item 2. Properties

      Our principal executive and administrative offices are located in Reston, Virginia, where we lease about 16,900 square feet of office space under a lease expiring in December 2011 and about 27,000 additional square feet at the same location under a lease expiring in January 2009. In addition, our operating companies lease office space and transmitter and receiver sites in each of the countries where they conduct business.

      Each operating company leases transmitter and receiver sites for the transmission of radio service under various individual site leases. Most of these leases are for terms of five years or less, with options to renew. As of December 31, 2001, our operating companies had constructed sites at leased locations for their digital mobile business, as shown below:

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Item 3. Legal Proceedings

      We are subject to claims and legal actions that may arise in the ordinary course of business. We do not believe that any of these pending claims or legal actions will have a material effect on our business or results of operation. In addition, some of our competitors and others are currently challenging in administrative or judicial proceedings the validity of some of our licenses or the scope of services we provide under those licenses, particularly in Mexico and Chile. While we believe that our licenses are valid and that our services are within the scope of our licenses, any revocation of our licenses or limitation of our services would adversely affect our business.

Item 4. Submission of Matters to a Vote of Security Holders

      On December 5, 2001, a wholly-owned subsidiary of Nextel Communications, which owns about 99% of our outstanding common stock, executed a written consent under the laws of the state of Delaware approving an amendment to our certificate of incorporation changing the name of the corporation from Nextel International, Inc. to NII Holdings, Inc.

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PART II

Item 5. Market for Our Common Equity and Related Stockholder Matters

 1. Market Information

      There is no public trading market for our common stock. There were 21 holders of our class B common stock as of March 15, 2002.

 2. Dividends

      We have not paid any dividends on our common stock and do not plan to pay dividends on our common stock for the foreseeable future. Some of our financing documents prohibit, and are expected to continue to prohibit, us from paying dividends, except in compliance with specified financial covenants. In addition, some of the collateral security mechanisms and related provisions associated with our financing agreements limit the amount of cash available to make dividends, loans and cash distributions to us from our subsidiaries. Accordingly, while these restrictions are in place, any profits generated by our subsidiaries will not be available to us for, among other things, payment of dividends.

      We anticipate that for the foreseeable future any cash flow generated from our operations will be used to develop and expand our business and operations in accordance with our revised business plan. Any future determination as to the payment of dividends on our common stock will be at the discretion of our board of directors and will depend upon our operating results, financial condition and capital requirements, contractual restrictions, general business conditions and other factors as our board of directors deems relevant. There can be no assurance that we will pay dividends on our common stock at any time in the future.

Item 6. Selected Financial Data

      Impairment, Restructuring and Other Charges. During the third quarter of 2001, following our review of the economic conditions, operating performance and other relevant factors in the Philippines, we decided to discontinue funding to Nextel Philippines. In view of the capital constrained environment and our lack of funding sources, during the fourth quarter of 2001, we undertook an extensive review of our business plan and determined to pursue a less aggressive growth strategy that targets conservation of cash resources by slowing enhancement and expansion of our networks and reducing subscriber growth and operating expenses. In connection with the implementation of this plan and our decision to discontinue funding to Nextel Philippines, during 2001, we recorded non-cash pre-tax impairment charges and pre-tax restructuring and other charges of about $1.75 billion. For more information about these charges see note 2 to our consolidated financial statements appearing at the end of this annual report on Form 10-K.

      Realized losses (gains) on investments. Losses on investments in 2001 primarily consist of a $188.4 million pre-tax loss realized during the third quarter of 2001 on our investment in TELUS Corporation due to an other-than-temporary decline in fair value, offset by a $41.6 million pre-tax gain realized during the fourth quarter of 2001 on the sale of our investment in TELUS. Gains on investments in 2000 represent a pre-tax gain realized during the fourth quarter of 2000 from the exchange of our stock in Clearnet Communications, Inc. for stock in TELUS as the result of the acquisition of Clearnet by TELUS for cash and stock.

      Foreign currency transaction (losses) gains, net. Foreign currency transaction losses in 2001 and 1999 are primarily due to decreases in the value of the Brazilian real compared to the U.S. dollar in those years. Foreign currency transaction losses in 2000 are primarily due to a decrease in the value of the Brazilian real and the Philippine peso compared to the U.S. dollar in that year.

      Equity in (gains) losses of unconsolidated affiliates. Equity in gains of unconsolidated affiliates for 2001 represents a $9.6 million gain realized during the fourth quarter of 2001 on the sale of our minority interest investment in NEXNET. Prior to 2001, we recorded equity in gains (losses) of unconsolidated

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      Change in Accounting Principle. On January 1, 2000, we changed our revenue recognition policy in accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin, or SAB, No. 101, “Revenue Recognition in Financial Statements.” We accounted for the adoption of SAB No. 101 as a change in accounting principle effective January 1, 2000, and therefore did not restate the financial statements for years prior to 2000. Additional information regarding this accounting change can be found in note 1 to the consolidated financial statements appearing at the end of this annual report on Form 10-K.

      For all periods presented, we classified revenues from digital handset and accessory sales within operating revenues and the related costs of digital handset and accessory sales within cost of revenues. We had previously classified these amounts within selling, general and administrative expense.

      Income Tax Benefit (Provision). We recognized an income tax benefit during 2001 of $85.9 million due primarily to the reduction of estimated future tax effects of temporary differences related to the value of our licenses held by our operating companies, offset by taxes incurred by our U.S. corporate entities related to interest income and services provided to our markets. The income tax provision for 2000 primarily resulted from the taxable gain from the exchange of our stock in Clearnet for stock of TELUS, as more fully described in note 5 to the audited consolidated financial statements appearing at the end of this annual report on Form 10-K. Changes in tax legislation in Argentina and Mexico, and depletion of temporary differences in Brazil, contributed to the decrease in the income tax benefit for 1999 for our operating companies in those countries. During 1998, we recognized an income tax benefit of $22.4 million related to net operating losses of our operating companies in Brazil, Mexico and Argentina.

      Stock Splits. The financial information below and elsewhere in this annual report on Form 10-K reflects a 100,000-for-1 common stock split effective March 6, 1997, a 3.65-for-1 common stock split effective August 25, 1997, a 4-for-1 common stock split effective June 20, 2000 and a 3-for-2 common stock split effective October 23, 2000.

      The table below sets forth selected consolidated financial data for the periods indicated and should be read in conjunction with our audited consolidated financial statements, related notes and other financial information appearing at the end of this annual report on Form 10-K.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

A. Overview

      The following is a discussion and analysis of:

      Historical results may not indicate future performance. See “Part I — Item 1. — L. Risk Factors — 18. Our forward-looking statements are subject to a variety of factors that could cause actual results to differ materially from current beliefs.”

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     Recent Developments

      In the latter half of 2000, we began a process to complete an initial public offering to raise funds to support the continued expansion and enhancement of our digital wireless networks. In March 2001, due to adverse market conditions, we announced our decision to discontinue our initial public offering at that time and withdrew our registration statement. In the first quarter of 2001, we also amended the terms of our vendor financing agreements with Motorola to extend the maturities and modify the covenants under those facilities.

      During the third quarter of 2001, following our review of the economic conditions, operating performance and other relevant factors in the Philippines, we decided to discontinue funding to our Philippine operating company. As a result, during the third quarter of 2001 we wrote-down the carrying values of our long-lived assets related to our Philippine operating company to their estimated fair market values in accordance with Statement of Financial Accounting Standards, or SFAS, No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and recorded a $147.1 million non-cash pre-tax impairment charge. For more information abut this charge, see note 2 to our consolidated financial statements appearing at the end of this annual report on Form 10-K.

      The downturn in the global capital markets, among other things, has made it impossible to obtain significant new financing from third parties through the issuance of our equity or debt securities. In view of the capital constrained environment and our lack of funding sources, during the fourth quarter of 2001, we undertook an extensive review of our business plan and determined to pursue a less aggressive growth strategy that targets conservation of cash resources by slowing enhancement and expansion of our networks and reducing subscriber growth and operating expenses.

      In connection with the implementation of our revised business plan, we reviewed the long-lived assets, including property, plant and equipment, intangible assets and other long-term assets, held by each of our operating companies in accordance with SFAS No. 121. Since our receipt of additional funding is uncertain, we did not consider in our analysis the future cash flows expected to be generated by any additional funding. Our analysis indicated that, assuming we could not meet our funding needs, all of the long-lived assets held by each of our operating companies were impaired, primarily due to our curtailed growth projections. Based on the estimated fair values of the long-lived assets that we reviewed, we recorded non-cash pre-tax impairment charges of $1,593.9 million during the fourth quarter of 2001. We also recorded pre-tax restructuring and other charges of $5.9 million during the fourth quarter of 2001 related to the restructurings of some of our operations. For more information about these charges, see note 2 to our consolidated financial statements appearing at the end of this annual report on Form 10-K.

      Our limited sources of available funding will require us to cease providing significant financing to stimulate operating growth in most of our markets. We intend to focus substantially all of our available funding towards continuing the growth of our Mexican operations. We made this decision based on our Mexican operating company’s operating performance, future prospects and economic conditions in Mexico, as well as other relevant factors. We plan to provide substantially less funding to our other markets, including Brazil, Argentina and Peru. As a result, we expect the growth in these markets will slow considerably compared to past growth levels. Our primary objectives with respect to our markets other than Mexico are to minimize operating costs and capital expenditures and maximize cash resources and segment earnings. However, if our funding needs are not met on a timely basis, or at all, we may not be able to provide our Mexican operating company with sufficient financing to continue the growth of its operations as currently planned. As a result, actual results for our Mexican operations could differ significantly from current expectations.

      Since debt service payments are a significant portion of our current and future commitments and because we do not believe that funds generated from our operating activities or realistically available from other sources will be sufficient to meet our expected commitments, we have been reviewing various alternatives to restructure our currently outstanding indebtedness. On December 31, 2001, our Argentine operating company failed to make a scheduled principal payment of $8.3 million to the lenders under our $108.3 million Argentine credit facilities. This caused a cross-default on $381.7 million in aggregate

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      As a result of our defaults, our lenders under the affected facilities are each free to pursue the respective remedies available to them, including, in the case of our vendor and bank credit facilities, seizing our assets and the assets of our subsidiaries that are pledged as collateral. Pledged assets include cash balances in collateral accounts. As of December 31, 2001, we had cash balances in collateral accounts of $84.0 million. In addition, under our Argentine capital subscription agreement, we are required to make contributions to our Argentine operating company. As of December 31, 2001, we had $9.8 million in a cash collateral account that was available for future equity contributions to our Argentine operating company. In February 2002, one of our creditors seized the full cash balance in the account of $7.9 million. In addition, our independent auditors have issued a “going concern” opinion with respect to our financial statements, which indicates that, in their opinion, substantial doubt exists about our ability to continue operating.

      We are currently in discussions with our various creditors regarding the restructuring of our debt obligations, which total about $2.67 billion. If we are unable to obtain additional funding and negotiate a successful debt restructuring, we may have to further write down assets, sell strategic assets, reorganize under Chapter 11 of the United States Bankruptcy Code or take other measures, which could include liquidation of our assets. Additionally, we could experience adverse impacts to our business, including but not limited to, losses of customer accounts, top sales agents, indirect dealers and key management personnel. We may also lose government and regulatory support for various initiatives that we believe are critical to our success. We have retained an investment banking firm to assist us in exploring various strategic alternatives.

      Our operations in Argentina and Brazil have been negatively affected by the adverse economic conditions that have existed in those countries over the past several years. Recent economic and political developments in Argentina include the following:

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      These events have deepened unfavorable economic conditions in Argentina, which could result in financial difficulties for our customers and increased credit risk of our Argentine operating company, including the potential for slower receivables turnover, an increase in uncollectible accounts receivable and higher associated bad debt expense. Further, during the first quarter of 2002, as a result of devaluation of the Argentine peso due to the recent adverse economic developments in Argentina, we expect to record significant foreign currency transaction losses as well as a significant foreign currency translation adjustment. Since all of our sales are legally required to be transacted in Argentine pesos, we expect that our results of operations in 2002, after translating our Argentine peso based amounts into U.S. dollars, will be significantly negatively impacted as compared to prior periods.

      The significant economic downturn in Brazil has had a number of unfavorable consequences for us, including a 22% decline in value of the Brazilian real relative to the U.S. dollar during 2001. As a result, we recognized foreign currency transaction losses of $62.6 million during 2001. While the exchange rate has not significantly declined in value subsequent to the end of the year, any future declines could have an adverse impact on our operating revenues in future periods and could trigger further foreign currency transaction losses.

      During the first quarter of 2002, our Argentine operating company, our Brazilian operating company and our corporate headquarters further restructured their operations, which included reductions in workforces. We anticipate that we will record a restructuring charge related to these actions in the first quarter of 2002.

     Critical Accounting Policies

      We consider the following accounting policies to be the most important to our financial position and results of operations or policies which require the exercise of significant judgment and/or estimates.

      Going Concern. A fundamental principle of the preparation of financial statements in accordance with accounting principles generally accepted in the United States is the assumption that an entity will continue in existence as a going concern, which contemplates continuity of operations and the realization of assets and settlement of liabilities occurring in the ordinary course of business. This principle is applicable to all entities except for entities in liquidation or entities for which liquidation appears imminent. In accordance with this requirement, our policy is to prepare our consolidated financial statements on a going concern basis unless we intend to liquidate or have no other alternative but to liquidate. As a result of our defaults under some of our senior notes and bank credit facilities and cross-default provisions included in all of our senior notes and bank and vendor credit facilities, our current liabilities significantly exceed our current assets, raising substantial doubt about our ability to continue as a going concern. While we have prepared our financial statements on a going concern basis, if we are unable to successfully restructure our debt and we do not receive additional funding, our ability to continue as a going concern will be impacted. Therefore, we may not be able to realize our assets and settle our liabilities in the ordinary course of business. While we have written down the carrying values of our long-lived assets in accordance with SFAS No. 121, our consolidated financial statements appearing at the end of this annual report on Form 10-K do not reflect any adjustments that might specifically result from the outcome of this uncertainty or our debt restructuring activities.

      Consolidation. Our consolidated financial statements include the accounts of our wholly owned and majority owned operating companies. We own 100% of our operating companies in Brazil, Mexico, Argentina, Peru and Chile. As a result of an additional investment in our Philippine operating company, we began consolidating the results of this company in the third quarter of 2000. We refer to our operating companies with reference to the countries in which they operate, such as Nextel Argentina, Nextel Brazil, Nextel Mexico, Nextel Peru and Nextel Philippines.

      Our determination of which subsidiaries to consolidate requires us to make judgments and assumptions. Our decision to consolidate an entity is based on our direct and indirect ownership of a majority interest in the entity. While we owned a direct and indirect majority interest in all of our operating companies as of December 31, 2001, as a result of our defaults under our debt obligations,

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      The accounts of our consolidated non-U.S. subsidiaries are presented utilizing accounts as of a date one month earlier than the accounts of our U.S. subsidiaries to ensure timely reporting of consolidated results.

      Revenue Recognition. While our revenue recognition policy does not require the exercise of significant judgment or the use of significant estimates, we believe that our policy is significant as revenue is a key component of our results of operations.

      Operating revenues primarily consist of wireless service revenues and revenues generated from the sale of digital handsets and accessories. Service revenues primarily include fixed monthly access charges for digital mobile telephone service and digital two-way radio and other services, and variable charges for airtime and digital two-way radio usage in excess of plan minutes and long-distance charges derived from calls placed by our customers.

      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. We recognize excess usage and long distance revenue at contractual rates per minute as minutes are used. We recognize revenues from accessory sales when title passes, upon delivery of the accessory to the customer.

      We recognize revenue from handset sales on a straight-line basis over the expected customer relationship periods of up to four years, starting when the customer has taken title. Our wireless service is essential to the functionality of our handsets due to the fact that the handsets can, with very limited exceptions, only be used on our digital mobile networks. Accordingly, this multiple element arrangement is not accounted for separately.

      Allowance for Doubtful Accounts. We establish an allowance for doubtful accounts receivable sufficient to cover probable and reasonably estimated losses. Our methodology for determining our allowance for doubtful accounts receivable requires significant estimates. Since we have several hundred thousand accounts, it is impractible to review the collectibility of all individual accounts when we determine the amount of our allowance for doubtful accounts receivable each period. Therefore, we consider a number of factors in establishing the allowance, including historical collection experience, current economic trends, estimates of forecasted write-offs, agings of the accounts receivable portfolio and other factors. While we believe that the estimates we use are reasonable, actual results could differ from those estimates.

      Valuation of Long-Lived Assets. We review long-lived assets such as property, plant and equipment, identifiable intangibles and goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

      Our review of our long-lived assets during 2001 required us to make estimates of our undiscounted future cash flows in order to determine whether our long-lived assets were impaired. If the total of the expected undiscounted future cash flows is less than the carrying amount of the assets, we are required to make estimates of the fair value of our long-lived assets in order to calculate the loss, if any, equal to the difference between the fair value and carrying value of the assets. We make significant assumptions and estimates in this process regarding matters that are inherently uncertain, such as future cash flows, remaining useful lives, discount rates and growth rates. The resulting cash flows are computed over an extended period of time, which subjects those assumptions and estimates to an even larger degree of uncertainty. When known and available, we also use comparable values of similar businesses in lieu of or to corroborate the results from the discounted cash flows approach, although this is generally not entirely comparable since our network technology is proprietary, not widely adopted and relies on the efforts of primarily one vendor for infrastructure, handsets, development and maintenance activities. While we believe that the estimates used were reasonable, different assumptions regarding these future cash flows, discount rates and growth rates could materially affect our valuations.

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      Depreciation of Property, Plant and Equipment. Our business is capital intensive because of our digital mobile networks. We record at cost our digital network assets and other improvements, that in management’s opinion, extend the useful life of the underlying assets, and depreciate the assets over their estimated useful lives. Our digital mobile networks are highly complex and, due to constant innovation and enhancements, certain components of the networks may lose their utility faster than anticipated. We periodically reassess the economic life of these components and make adjustments to their expected lives after considering historical experience and capacity requirements, consulting with the vendor and assessing new product and market demands and other factors. When these factors indicate network components may not be useful for as long as anticipated, we depreciate the remaining book value over the remaining useful lives. Further, the timing and deployment of any new technologies could affect the estimated remaining useful lives of our digital network assets, which could have a significant impact on our results of operations in the future.

      Amortization of Licenses. Our licenses are recorded at historical cost and are amortized using the straight-line method based on estimated useful lives of 20 years. Our licenses and the requirements to maintain the licenses are subject to renewal after the initial term, provided that we have complied with applicable rules and policies. We intend to comply and believe we have complied with these rules and policies in all material respects. However, because governmental authorities have discretion as to the grant or renewal of licenses, our licenses may not be renewed, which could have a significant impact on our estimated useful lives. This would effect our results of operations in the future.

      Foreign Currency. Results of operations for our non-U.S. subsidiaries and affiliates are translated from the designated functional currency to the U.S. dollar using average exchange rates during the period, while assets and liabilities are translated at the exchange rate in effect at the reporting date. Resulting gains or losses from translating foreign currency financial statements are reported as other comprehensive (loss) income.

      The effects of changes in exchange rates associated with U.S. dollar denominated intercompany loans to our foreign subsidiaries that are of a long-term investment nature are reported as part of the cumulative foreign currency translation adjustment in our consolidated financial statements. We currently view a portion of the intercompany loans to Nextel Brazil as of a long-term investment nature. The effects of exchange rates associated with U.S. dollar denominated intercompany loans to our foreign subsidiaries that are due, or for which repayment is anticipated, in the foreseeable future, are reported as foreign currency transaction (losses) gains, net in our consolidated statements of operations. All of our U.S. dollar denominated intercompany loans to Nextel Mexico and Nextel Philippines, and a portion of our U.S. dollar denominated loans to Nextel Brazil, will be due or are expected to be repaid in the foreseeable future. Our determination of whether intercompany loans are of a long-term investment nature can have a significant impact on the calculation of foreign currency transaction losses (gains) and the foreign currency translation adjustment.

      Related Party Transactions

      We have had and expect to continue to have significant transactions with Motorola, Nextel Communications’ largest stockholder. As of December 31, 2001, Motorola was the beneficial owner of about 14% of the common equity of Nextel Communications, assuming the conversion of shares of its class B nonvoting common stock, all of which are owned by Motorola. We have a number of important strategic and commercial relationships with Motorola. Motorola, as our sole supplier, provides most of the infrastructure equipment and handsets used throughout our markets. During 2001, we purchased about $397.1 million in digital infrastructure equipment, handsets and related services from Motorola and have continued these purchases in 2002. At December 31, 2001, we had accounts payable due to Motorola of $108.1 million and had debt due to Motorola of $417.8 million, all of which is currently in default. We also work closely with Motorola to improve existing products and develop new technologies for use in our digital mobile networks.

      We have had and expect to continue to have significant transactions with Nextel Communications, which owns about 99% of our common equity. Nextel Communications also holds about $856.7 million in

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      In addition, access to the technology, supplier relationships, and network development and marketing expertise of Nextel Communications has afforded us significant competitive advantages. We also benefit from Nextel Communication’s relationship with Motorola, which supplies us with network equipment, digital handsets and related services, generally at the same basic prices extended to Nextel Communications.

B. Results of Operations

      Operating revenues primarily consist of wireless service revenues and revenues generated from the sale of digital handsets and accessories. Service revenues primarily include fixed monthly access charges for digital mobile telephone service and digital two-way radio and other services, and variable charges for airtime and digital two-way radio usage in excess of plan minutes and long distance charges derived from calls placed by our customers. See “Item 6. Selected Financial Data” for a description of a change in our revenue recognition method related to digital handsets.

      Cost of revenues primarily includes the cost of providing wireless service and the cost of digital handset and accessory sales. Cost of providing service consists primarily of costs of interconnection with local exchange carrier facilities and direct switch and transmitter and receiver site costs, such as property taxes, insurance costs, utility costs and rent for the network switches and sites used to operate our digital 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. The variable component of interconnection costs, which fluctuates in relation to the level of wireless calls, generally consists of per-minute use fees charged by wireline and wireless providers for wireless calls terminating on their networks. Cost of digital handset and accessory sales consists primarily of the cost of the handset and accessories, order fulfillment and installation related expenses and write-downs of digital handset and related accessory inventory for shrinkage.

      Our operating revenues and the variable component of our cost of handset and accessory sales are primarily driven by the number of digital handsets sold and not necessarily by the number of customers, as one customer may purchase one or many digital handsets.

      Since our revised business plan contemplates a less aggressive growth strategy that targets conservation of cash resources by slowing enhancement and expansion of our networks and reducing subscriber growth and operating expenses, our consolidated revenues and operating expenses will not continue to grow at the same rate as they have in the past. In addition, our plan to focus substantially all of our available funding towards continuing growth of our Mexican operations will significantly reduce the growth of our other operations. As a result, our revenues and operating expenses in 2002 for all segments, with the possible exception of Nextel Mexico, are expected to be less than amounts reported in 2001. Further, although one of the primary objectives of our revised business plan is to maximize segment earnings, we cannot be sure that we will be successful in effectively implementing our revised business plan.

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     1. Year Ended December 31, 2001 vs. Year Ended December 31, 2000

      The table below provides a summary of the components of our consolidated segments for the year ended December 31, 2001.

      A discussion of the results of operations in each of our consolidated segments is provided below.

      a. Mexico

1.     Operating revenues

      The 158% increase in operating revenues for 2001 compared to 2000 consists of a $173.1 million or 161% increase in wireless service and other revenues to $280.3 million and a $3.9 million or 75% increase in digital handset and accessory sales revenues to $9.1 million.

      The 162% increase in wireless service and other revenues was primarily the result of the following:

      Nextel Mexico continues to subsidize handset sales to attract and retain new customers and to offer handset upgrades and retention inducements to existing customers. Digital handset and accessory sales revenues increased primarily due to an increase in the number of handsets sold to new and existing customers. Digital handset subsidies result from offering various customer inducements such as reductions in the sales prices of handsets and volume-based handset promotions.

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2.     Cost of revenues

      The 105% increase in cost of revenues for 2001 compared to 2000 consists of a $32.2 million or 130% increase in cost of providing wireless services to $57.0 million and a $28.7 million or 87% increase in cost of digital handset and accessory sales to $61.6 million.

      The 130% increase in cost of providing wireless service revenues is primarily attributable to the following factors:

      As described above, costs of digital handset and accessory sales increased primarily due to an increase in the number of handsets sold to new and existing customers.

3.     Selling and marketing expenses

      The 93% increase in selling and marketing expenses for 2001 compared to 2000 reflects higher costs incurred in connection with increased digital handset sales, including:

4.     General and administrative expenses

      The 77% increase in general and administrative expenses for 2001 compared to 2000 is primarily a result of the following:

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      b. Brazil

1.     Operating revenues

      The 65% increase in operating revenues for 2001 compared to 2000 consists of a $67.5 million or 73% increase in wireless service and other revenues to $159.8 million and a $0.2 million or 2% decrease in digital handset and accessory sales revenues to $11.3 million.

      The 73% increase in wireless service and other revenues was primarily the result of the following:

These increases were partially offset by the effect of translating our Brazilian real-based revenues into U.S. dollars during a period when the U.S. dollar to Brazilian real exchange rate declined about 22% in value.

      Nextel Brazil continues to subsidize handset sales to attract and retain customers and to offer handset upgrades and retention inducements to existing customers. Digital handset and accessory revenues decreased primarily due to the currency translation effect previously described, offset by an increase in the number of handsets sold to new and existing customers. Digital handset subsidies result from offering various customer inducements such as reductions in the sales prices of handsets and volume-based handset promotions.

2.     Cost of revenues

      The 77% increase in cost of revenues for 2001 compared to 2000 consists of a $41.3 million or 144% increase in cost of providing wireless services to $70.0 million and a $9.3 million or 25% increase in cost of digital handset and accessory sales to $46.5 million.

      The 144% increase in cost of providing wireless service revenues is primarily attributable to the following factors:

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These increases were partially offset by the effect of translating our Brazilian real-based cost of revenues into U.S. dollars during a period when the U.S. dollar to Brazilian real exchange rate declined about 22% in value.

      We recently renegotiated one of our interconnect contracts with a large local handset carrier in Brazil to provide reduced capacity levels that more closely reflect our capacity needs and thereby partially reduce our total interconnect costs. The impact of the revised contract was reflected in the fourth quarter of 2001.

      As described above, the increase in cost of digital handset and accessory sales is primarily due to the increase in the number of handsets sold to new and existing customers.

3.     Selling and marketing expenses

      The 22% increase in selling and marketing expenses for 2001 compared to 2000 reflects higher costs incurred in connection with increased digital handset sales, including:

4.     General and administrative expenses

      The 90% increase in general and administrative expenses for 2001 compared to 2000 is primarily a result of the following:

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      c. Argentina