Fitch Places Sprint & Nextel on Watch Positive Following Merger Announcement

Business Wire, Dec 15, 2004

NEW YORK -- Fitch Ratings has placed the 'BBB' senior unsecured debt rating of Sprint Corporation (Sprint) and Sprint Capital Corporation on Rating Watch Positive. Additionally Fitch has placed Nextel Communications, Inc. (Nextel) 'BB ' senior unsecured debt rating and the 'BB' preferred stock rating along with the 'BBB-' senior secured rating of Nextel Finance Company on Rating Watch Positive. Fitch's action follows the announcement of the companies' intent to combine in a merger of equals. The transaction is expected to close during the second half of 2005 subject to the receipt of customary approvals of a transaction of this nature. A total of $25.8 billion of debt as of the end of the third quarter (adjusted for the redemption of Nextel's 9.375% senior notes in November) is affected by Fitch's action.

Pursuant to the merger agreement, the shareholders of Sprint and Nextel will receive stock in the new company (Nextel holders will also receive a nominal amount of cash consideration) called Sprint Nextel and will share the value at closing of Sprint Nextel on a 50%/50% basis. Following the completion of the merger, Sprint Nextel intends to spin off Sprint's local telephone division (LTD) structured as a tax free dividend to the shareholders of Sprint Nextel.

Fitch's rating action recognizes the potential for the combined company to more effectively compete within the wireless industry, the expectation that the combined company through operating and capital expense synergies will be better suited to generate sustainable EBITDA and free cash flow growth as well as the initial financial profile of Sprint Nextel. The combination of Sprint and Nextel will create the third largest wireless company in the country with approximately 35 million subscribers.

In Fitch's opinion, the combination of Sprint's standing as a leader within the consumer data and wholesale markets and Nextel's strong business market position through its differentiated push to talk service will provide Sprint Nextel strong market positions across a broad segment of wireless subscribers to effectively compete with Verizon and Cingular. Fitch expects the combination of the strong subscriber portfolios to continue to generate market leading average revenue per user. From a spectrum position, the Sprint Nextel combination would have the deepest spectrum position of any nationwide operator including over 50 MHz of spectrum at 800/900 MHz and 1.9 GHz and approximately 60MHz of 2.5 GHz spectrum that covers 85% of the households in the top 100 markets. The 2.5 GHz spectrum offers the unique potential for Sprint Nextel to deploy 4G advanced wireless data services.

Sprint Nextel anticipates operating cost and capital expenditure synergies (net of integration costs) of approximately $12 billion on a net present value basis. While the Sprint Nextel combination involves two disparate technologies, it does offer numerous benefits including several technology and cost advantages, significant product differentiation and the scale necessary to compete effectively against Verizon Wireless and Cingular Wireless.

From a technical standpoint, with Sprint's current migration to a CDMA EV-DO network, Nextel will not have to proceed ahead with plans to build a wireless broadband data network, thus allowing for a significant avoidance in capital spending. In addition, Sprint's current deployment of CDMA EV-DO sets the stage for the migration of Nextel's push to talk services to CDMA. However, the actual migration of Nextel's subscriber base to CDMA will not occur for several years until new CDMA technology standards are deployed and other technical issues are addressed. As a result, Fitch believes other operators will not mount significant competitive push to talk offerings until the 2007 timeframe.

While Sprint Nextel can not combine their wireless networks in the near term, the companies can achieve network operating savings in areas where heavy overlap exists by moving equipment, combining transmission facilities and reducing the number of cell sites and switches as well as migrating Nextel's backhaul traffic to Sprint's infrastructure.

Pro forma for the proposed merger and including the results of LTD, Sprint Nextel generated approximately $40 billion of revenues, $13 billion of EBITDA and $4.1 billion of free cash flow (measured cash from operations less capital expenditures) for the LTM period ending Sept. 30, 2004. Pro forma leverage, based on total debt of approximately $25.8 billion, for the LTM period ended Sept. 30, 2004 was 2.0 times (x). On a pro forma basis, Sprint Nextel's leverage will improve during 2005 as Fitch expects Sprint to retire scheduled 2005 cash maturities totaling $1.1 billion with internally generated cash. Additionally after the merger is completed, the credit profile of Sprint Nextel could be enhanced through expected debt reduction in connection with the planned spin off of LTD.

In resolving the Rating Watch, Fitch will consider the final capital structure of Sprint Nextel, the integration and technology migration path issues, the potential for realization of operating and capital expense synergies and the prospects of the combined entity to generate sustainable revenue, EBITDA and free cash flow growth. Additionally Fitch will evaluate the potential impact to the Sprint Nextel credit profile from a contingent liability that may be triggered by the change of control provision contained in Nextel's agreement with Nextel Partners, Inc. Fitch expects that Sprint will also have to restructure its agreements with its PCS affiliates as a result of the proposed merger.