Nii 10Q 2011 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended June 30, 2011
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission filenumber: 0-32421

NII HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Delaware		91-1671412
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
1875 Explorer Street, Suite 1000 Reston, Virginia (Address of Principal Executive Offices)		20190 (Zip Code)

(703) 390-5100

(Registrant’s telephone number, including area code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports 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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


		Number of Shares Outstanding
Title of Class		on July 29, 2011

Common Stock, $0.001 par value per share		171,108,520

NII HOLDINGS, INC. AND SUBSIDIARIES

INDEX


			Page

Part I. Financial Information
	Item 1.	Financial Statements (Unaudited)		2
		Condensed Consolidated Balance Sheets — As of June 30, 2011 and December 31, 2010		2
		Condensed Consolidated Statements of Operations and Comprehensive Income — For the Six and Three Months Ended June 30, 2011 and 2010		3
		Condensed Consolidated Statement of Changes in Stockholders’ Equity — For the Six Months Ended June 30, 2011		4
		Condensed Consolidated Statements of Cash Flows — For the Six Months Ended June 30, 2011 and 2010		5
		Notes to Condensed Consolidated Financial Statements		6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		51
	Item 4.	Controls and Procedures		52
Part II. Other Information
	Item 1.	Legal Proceedings		53
	Item 1A.	Risk Factors		53
	Item 6.	Exhibits		53

PART I — FINANCIAL INFORMATION


Item 1.	Financial Statements.

NII HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par values)
Unaudited


	June 30,		December 31,
	2011		2010

ASSETS
Current assets
Cash and cash equivalents	$	2,533,753	$	1,767,501
Short-term investments		408,652		537,539
Accounts receivable, less allowance for doubtful accounts of $64,183 and $41,282		967,988		788,000
Handset and accessory inventory		234,603		227,191
Deferred income taxes, net		250,213		186,988
Prepaid expenses and other		313,986		393,658

Total current assets		4,709,195		3,900,877
Property, plant and equipment, less accumulated depreciation of $2,427,926 and $2,028,266		3,318,245		2,960,046
Intangible assets, less accumulated amortization of $151,711 and $130,847		1,370,976		433,208
Deferred income taxes, net		450,501		486,098
Other assets		396,979		410,458

Total assets	$	10,245,896	$	8,190,687


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	216,773	$	300,030
Accrued expenses and other		973,416		827,253
Deferred revenues		177,830		158,690
Current portion of long-term debt		1,413,614		446,995

Total current liabilities		2,781,633		1,732,968
Long-term debt		3,360,681		2,818,423
Deferred revenues		19,900		20,476
Deferred credits		81,127		88,068
Other long-term liabilities		240,351		211,179

Total liabilities		6,483,692		4,871,114

Commitments and contingencies (Note 5)
Stockholders’ equity
Undesignated preferred stock, par value $0.001, 10,000 shares authorized — 2011 and 2010, no shares issued or outstanding — 2011 and 2010		—		—
Common stock, par value $0.001, 600,000 shares authorized — 2011 and 2010, 171,019 shares issued and outstanding — 2011, 169,661 shares issued and outstanding — 2010		170		169
Paid-in capital		1,419,296		1,364,705
Retained earnings		2,226,327		2,015,950
Accumulated other comprehensive income (loss)		116,411		(61,251	)

Total stockholders’ equity		3,762,204		3,319,573

Total liabilities and stockholders’ equity	$	10,245,896	$	8,190,687

The accompanying notes are an integral part of these condensed consolidated financial statements.

NII HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
Unaudited


	Six Months Ended,						Three Months Ended,
	June 30,						June 30,
	2011			2010			2011			2010

Operating revenues
Service and other revenues	$	3,216,655		$	2,498,302		$	1,670,327		$	1,280,632
Digital handset and accessory revenues		156,295			136,765			79,786			71,289

		3,372,950			2,635,067			1,750,113			1,351,921

Operating expenses
Cost of service (exclusive of depreciation and amortization included below)		893,656			695,876			448,779			346,351
Cost of digital handsets and accessories		421,655			354,936			210,152			182,108
Selling, general and administrative		1,153,649			894,684			618,092			475,258
Depreciation		308,623			247,824			161,827			127,084
Amortization		19,416			16,053			10,293			8,097

		2,796,999			2,209,373			1,449,143			1,138,898

Operating income		575,951			425,694			300,970			213,023

Other expense
Interest expense, net		(176,874	)		(179,000	)		(95,715	)		(93,274	)
Interest income		15,811			13,922			9,600			8,323
Foreign currency transaction gains (losses), net		24,100			(1,052	)		15,606			24,031
Other expense, net		(8,358	)		(7,863	)		(3,991	)		(3,505	)

		(145,321	)		(173,993	)		(74,500	)		(64,425	)

Income before income tax provision		430,630			251,701			226,470			148,598
Income tax provision		(220,253	)		(127,748	)		(112,851	)		(73,107	)

Net income	$	210,377		$	123,953		$	113,619		$	75,491

Net income, per common share, basic	$	1.24		$	0.74		$	0.67		$	0.45

Net income, per common share, diluted	$	1.22		$	0.73		$	0.66		$	0.44

Weighted average number of common shares outstanding, basic		170,038			167,341			170,381			167,859

Weighted average number of common shares outstanding, diluted		172,752			170,834			172,963			171,186

Comprehensive income (loss), net of income taxes
Foreign currency translation adjustment	$	178,127		$	(49,396	)	$	103,377		$	(78,188	)
Other		(465	)		(1,466	)		(977	)		257

Other comprehensive income (loss)		177,662			(50,862	)		102,400			(77,931	)
Net income		210,377			123,953			113,619			75,491

Total comprehensive income (loss)	$	388,039		$	73,091		$	216,019		$	(2,440	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

NII HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Six Months Ended June 30, 2011
(in thousands)
Unaudited


										Accumulated
										Other			Total
	Common Stock					Paid-in		Retained		Comprehensive			Stockholders’
	Shares			Amount		Capital		Earnings		(Loss) Income			Equity

Balance, January 1, 2011		169,661		$	169	$	1,364,705	$	2,015,950	$	(61,251	)	$	3,319,573
Net income		—			—		—		210,377		—			210,377
Other comprehensive income, net of taxes		—			—		—		—		177,662			177,662
Exercise of stock options		1,368			1		22,239		—		—			22,240
Share-based payment expense for equity-based awards		—			—		30,757		—		—			30,757
Other		(10	)		—		1,595		—		—			1,595

Balance, June 30, 2011		171,019		$	170	$	1,419,296	$	2,226,327	$	116,411		$	3,762,204

The accompanying notes are an integral part of these condensed consolidated financial statements.

NII HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2011 and 2010
(in thousands)
Unaudited


	2011			2010

Cash flows from operating activities:
Net income	$	210,377		$	123,953
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of debt discount and financing costs		28,504			33,098
Depreciation and amortization		328,039			263,877
Provision for losses on accounts receivable		73,421			37,655
Foreign currency transaction (gains) losses, net		(24,100	)		1,052
Share-based payment expense		30,758			36,890
Other, net		11,903			(4,020	)
Change in assets and liabilities:
Accounts receivable, gross		(212,241	)		(108,041	)
Handset and accessory inventory		30,491			48,764
Prepaid expenses and other		13,195			(15,592	)
Other long-term assets		(51,183	)		(61,868	)
Accounts payable, accrued expenses and other		165,084			44,454

Net cash provided by operating activities		604,248			400,222

Cash flows from investing activities:
Capital expenditures		(452,542	)		(335,871	)
Purchase of long-term and short-term investments		(1,237,593	)		(1,209,455	)
Proceeds from sales of short-term investments		1,373,700			668,969
Payments for purchases of licenses		(94,222	)		(6,722	)
Transfer from restricted cash		89,360			—
Transfer to restricted cash		(4,675	)		(89,135	)
Other, net		479			(22,166	)

Net cash used in investing activities		(325,493	)		(994,380	)

Cash flows from financing activities:
Proceeds from issuance of senior notes		750,000			—
Purchases of convertible notes		—			(124,342	)
Borrowings under syndicated loan facilities		—			80,000
Repayments under syndicated loan facilities and other transactions		(308,030	)		(112,258	)
Other, net		46,752			59,044

Net cash provided by (used in) financing activities		488,722			(97,556	)

Effect of exchange rate changes on cash and cash equivalents		(1,225	)		7,585

Net increase (decrease) in cash and cash equivalents		766,252			(684,129	)
Cash and cash equivalents, beginning of period		1,767,501			2,504,064

Cash and cash equivalents, end of period	$	2,533,753		$	1,819,935

The accompanying notes are an integral part of these condensed consolidated financial statements.

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited


Note 1.	Basis of Presentation

General. Our unaudited condensed consolidated financial statements have been prepared under the rules and regulations of the Securities and Exchange Commission, or the SEC. While they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements, they reflect all adjustments that, in the opinion of management, are necessary for a fair presentation of the results for interim periods. In addition, the year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

You should read these condensed consolidated financial statements in conjunction with the consolidated financial statements and notes contained in our annual report onForm 10-K for the year ended December 31, 2010 and our quarterly report onForm 10-Q for the three months ended March 31, 2011. You should not expect results of operations for interim periods to be an indication of the results for a full year.

Accumulated Other Comprehensive Income (Loss). The components of our accumulated other comprehensive income (loss), net of taxes, are as follows:


	June 30,			December 31,
	2011			2010
	(in thousands)

Cumulative foreign currency translation adjustment	$	121,794		$	(56,333	)
Other		(5,383	)		(4,918	)

	$	116,411		$	(61,251	)

Supplemental Cash Flow Information.


	Six Months Ended June 30,
	2011		2010
	(in thousands)

Capital expenditures
Cash paid for capital expenditures, including interest capitalized on property, plant and equipment	$	452,542	$	335,871
Change in capital expenditures accrued and unpaid or financed, including accreted interest capitalized		69,304		28,683

	$	521,846	$	364,554

Interest costs
Interest expense, net	$	176,874	$	179,000
Interest capitalized		20,954		4,396

	$	197,828	$	183,396

In June 2011, Nextel Brazil was granted spectrum licenses in the 1.8 GHz and 1.9/2.1 GHz spectrum bands in connection with its successful bids in the spectrum auction held in December 2010. The total purchase price of this spectrum was the equivalent of $910.5 million. Nextel Brazil paid 10% of the purchase price upon the grant of the license and financed the remaining amount through deferred payment terms made available by the Brazilian telecommunications regulator as part of the auction rules. See Note 3 for further information related to this financing. As interest is capitalized during the construction of our third generation network in Brazil, we expect that

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

beginning in the third quarter of 2011, capitalized interest will increase significantly until construction of our network is complete.

For the three months ended June 30, 2011 and 2010, we had $937.5 million and $66.6 million, respectively, in non-cash financing, primarily related to the long-term financing of the spectrum that was awarded to Nextel Brazil in June 2011 as described above and in Note 3, the short-term financing of imported handsets and infrastructure in Brazil and co-location capital lease obligations on our communication towers.

Revenue-Based Taxes. We record revenue-based taxes and other excise taxes on a gross basis as a component of both service and other revenues and selling, general and administrative expenses in our condensed consolidated statement of operations. For the six and three months ended June 30, 2011, we had $122.9 million and $64.3 million, respectively, in revenue-based taxes and other excise taxes. For the six and three months ended June 30, 2010, we had $87.8 million and $44.9 million, respectively, in revenue-based taxes and other excise taxes.

Net Income Per Common Share, Basic and Diluted. Basic net income per common share includes no dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted net income per common share reflects the potential dilution of securities that could participate in our earnings, but not securities that are antidilutive, including stock options with an exercise price greater than the average market price of our common stock.

As presented for the six and three months ended June 30, 2011, our calculations of diluted net income per share include common shares issuable upon the potential exercise of stock options under our stock-based employee compensation plans and restricted common shares issued under those plans. We did not include the common shares that could be issued upon conversion of our 3.125% convertible notes in our calculations of diluted net income per common share because their effect would have been antidilutive to our net income per common share for those periods. Further, for the six and three months ended June 30, 2011, we did not include 9.6 million common shares issuable upon exercise of stock options or an immaterial amount of our restricted common shares in our calculations of diluted net income per common share because their effect would also have been antidilutive to our net income per common share for those periods.

As presented for the six and three months ended June 30, 2010, our calculations of diluted net income per share include common shares issuable upon the potential exercise of stock options under our stock-based employee compensation plans and restricted common shares issued under those plans. We did not include the common shares that could be issued upon conversion of our 3.125% convertible notes or our 2.75% convertible notes in our calculations of diluted net income per common share because their effect would have been antidilutive to our net income per common share for those periods. Further, for the six and three months ended June 30, 2010, we did not include 10.1 million common shares issuable upon exercise of stock options or an immaterial amount of restricted common shares in our calculations of diluted net income per common share because their effect would also have been antidilutive to our net income per common share for those periods.

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following tables provide a reconciliation of the numerators and denominators used to calculate basic and diluted net income per common share as disclosed in our condensed consolidated statements of operations for the six and three months ended June 30, 2011 and 2010:


	Six Months Ended June 30, 2011						Six Months Ended June 30, 2010
	Income		Shares		Per Share		Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount
	(in thousands, except per share data)

Basic net income per common share:
Net income	$	210,377		170,038	$	1.24	$	123,953		167,341	$	0.74

Effect of dilutive securities:
Stock options		1		2,406				—		3,074
Restricted stock		—		308				—		419

Diluted net income per common share:
Net income on which diluted earnings per share is calculated	$	210,378		172,752	$	1.22	$	123,953		170,834	$	0.73


	Three Months Ended June 30, 2011						Three Months Ended June 30, 2010
	Income		Shares		Per Share		Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount
	(In thousands, except per share data)

Basic net income per common share:
Net income	$	113,619		170,381	$	0.67	$	75,491		167,859	$	0.45

Effect of dilutive securities:
Stock options		—		2,318				—		2,976
Restricted stock		—		264				—		351

Diluted net income per common share:
Net income on which diluted earnings per share is calculated	$	113,619		172,963	$	0.66	$	75,491		171,186	$	0.44

Reclassifications. We have reclassified some prior period amounts in our condensed consolidated financial statements to conform to our current year presentation.

New Accounting Pronouncements. In October 2009, the Financial Accounting Standards Board, or the FASB, updated its authoritative guidance for accounting for multiple deliverable revenue arrangements. The new guidance revises the criteria used to determine the separate units of accounting in a multiple deliverable arrangement and requires that total consideration received under the arrangement be allocated over the separate units of accounting based on their relative selling prices. This guidance also clarifies the methodology used in determining our best estimate of the selling price used in this allocation. The applicable revenue recognition criteria will be considered separately for the separate units of accounting. We adopted this new guidance on its effective date of January 1, 2011. Consistent with this guidance, we allocate revenue from transactions in which we offer wireless service in conjunction with the sale or rental of a handset between the two separate units of accounting. We base this allocation on the relative selling prices of the handset and the wireless service plan when sold separately. The amount of revenue that can be allocated to the handset is limited to amounts that are not contingent on our future provision of wireless service. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In May 2011, the FASB updated its authoritative guidance on fair value measurement and disclosure. The updated guidance limits the use of valuation assumptions based on the highest and best use of an asset or liability to non-financial assets and liabilities. Financial assets and liabilities are presumed to derive their value from exchange transactions. In addition, the updated guidance clarifies that the principal market for an asset or liability is the market which has the greatest volume and level of activity for that asset or liability, which is not necessarily the market in which the reporting entity would be expected to engage in transactions with respect to that asset or liability. This updated guidance also requires additional quantitative and qualitative disclosures concerning Level 3 fair value measurement categories, disclosure of the reasoning for and impact of transfers of assets between Level 1 and Level 2 fair value measurements and disclosure of the reasons why a non-financial asset is not being used by the reporting entity in its highest and best use, if applicable. In addition, the updated guidance requires that all fair value measurements, whether recognized on the balance sheet or included in disclosures, be categorized in the fair value hierarchy with disclosure of that categorization. This updated authoritative guidance will become effective for fiscal periods beginning after December 15, 2011. Early adoption is not permitted. We do not expect the adoption of this guidance to have a material impact on our condensed consolidated financial statements.

In June 2011, the FASB updated its authoritative guidance on the presentation of comprehensive income. This standard requires public companies to report other comprehensive income and its components either together with the presentation of net income in its statement of operations or as a separate statement of comprehensive income. The updated guidance eliminates the option to report other comprehensive income and its components within the statement of changes in stockholders’ equity. This updated authoritative guidance will become effective for fiscal periods beginning after December 15, 2011. Because we currently report other comprehensive income and its components together with the presentation of net income in our condensed consolidated statement of operations, we do not expect the adoption of this guidance to have a material impact on our condensed consolidated financial statements.


Note 2.	Intangible Assets

In June 2011, Nextel Brazil was granted spectrum licenses in the 1.8 GHz and 1.9/2.1 GHz spectrum bands in connection with its successful bids in the spectrum auction held in December 2010. The total purchase price of this spectrum was the equivalent of $910.5 million. We expect to begin amortizing these spectrum licenses in the second half of 2012 over 15 years, which is the estimated useful life of the licenses. As a result, we anticipate that amortization expense will increase significantly in connection with the expected regulatory launch of our third generation network in Brazil.


Note 3.	Debt


	June 30,			December 31,
	2011			2010
	(in thousands)

Senior notes, net	$	2,030,785		$	1,279,524
Convertible notes, net		1,062,639			1,043,236
Brazil spectrum license financing		819,413			—
Syndicated loan facilities		249,687			458,964
Tower financing obligations		180,811			175,932
Capital lease obligations		144,006			114,303
Brazil import financing		170,367			128,094
Other		116,587			65,365

Total debt		4,774,295			3,265,418
Less: current portion		(1,413,614	)		(446,995	)

	$	3,360,681		$	2,818,423

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Brazil Spectrum License Financing. As discussed above, in June 2011, Nextel Brazil was granted spectrum licenses in the 1.8 GHz and 1.9/2.1 GHz spectrum bands in connection with its successful bids in the spectrum auction held in December 2010. The total purchase price of this spectrum was the equivalent of $910.5 million. Nextel Brazil paid 10% of the purchase price upon the grant of the license and financed the remaining amount through deferred payment terms made available by the Brazilian telecommunications regulator as part of the auction terms. The amount borrowed under the spectrum license financing is payable in six annual installments beginning in May 2014. Beginning June 1, 2011, interest accrues on the spectrum license financing at a rate of 1% per month, plus the Brazilian telecommunications industry index rate. Interest is not required to be paid until May 2014. Because the spectrum license financing is denominated in Brazilian reais, the payments for principal and interest will fluctuate in U.S. dollars based on changes in the exchange rate of the Brazilian real relative to the U.S. dollar.

7.625% Senior Notes due 2021. In March 2011, we issued $750.0 million aggregate principal amount of senior notes for which we received about $735.6 million in cash proceeds, after deducting underwriting fees, commissions and offering expenses. We are amortizing the $14.4 million we incurred in underwriting discounts and offering expenses into interest expense over the ten-year term of the notes. The notes are senior unsecured obligations of NII Capital Corp., a domestic subsidiary that we wholly own, and are guaranteed by us and by certain of our other domestic wholly-owned subsidiaries. The notes bear interest at a rate of 7.625% per year, which is payable semi-annually in arrears on April 1 and October 1, beginning on October 1, 2011 and will mature on April 1, 2021.

The notes are not entitled to any mandatory redemption or sinking fund. Prior to April 1, 2014, up to 35% of the aggregate principal amount of the notes may be redeemed with the net cash proceeds from specified equity offerings at a redemption price of 107.625% of their principal amount, plus accrued and unpaid interest. Such redemption may only be made if, after the redemption, at least 65% of the aggregate principal amount of the notes issued remains outstanding. In addition, prior to April 1, 2016, NII Capital Corp. may redeem the notes, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus a “make-whole” premium and accrued and unpaid interest. At any time on or after April 1, 2016 and prior to maturity, the notes will be redeemable, in whole or in part, at the redemption prices presented below (expressed as percentages of principal amount), plus accrued and unpaid interest to the redemption date if redeemed during the12-month period beginning on April 1 of the applicable year:


	Redemption
Year	Price

2016		103.813	%
2017		102.541	%
2018		101.271	%
2019 and thereafter		100.000	%

Upon the occurrence of specified events involving a change of control, holders of the notes may require us to purchase their notes at a purchase price equal to 101% of the principal amount of the notes, plus accrued and unpaid interest. The indenture pursuant to which the notes were issued includes covenants that are substantially similar to the covenants (including the related qualifications and exceptions) contained in the indentures governing NII Capital Corp.’s 10.0% senior notes due 2016 and 8.875% senior notes due 2019.

Convertible Notes.

3.125% Convertible Notes. If certain events occur, the 3.125% notes will be convertible into shares of our common stock at a conversion rate of 8.4517 shares per $1,000 principal amount of notes, or 9,296,870 aggregate common shares, representing a conversion price of about $118.32 per share. For the fiscal quarter ended June 30, 2011, the closing sale price of our common stock did not exceed 120% of the conversion price of $118.32 per share

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

for at least 20 trading days in the 30 consecutive trading days ending on June 30, 2011. As a result, the conversion contingency was not met as of June 30, 2011.

Adoption of Authoritative Guidance on Convertible Debt Instruments. As a result of adopting the FASB’s authoritative guidance on convertible debt instruments on January 1, 2009, we were required to separately account for the debt and equity components of our 3.125% convertible notes in a manner that reflects our nonconvertible debt (unsecured debt) borrowing rate. The debt and equity components recognized for our 3.125% convertible notes were as follows (in thousands):


	June 30, 2011		December 31, 2010
	3.125% Notes		3.125% Notes
	due 2012		due 2012

Principal amount of convertible notes	$	1,100,000	$	1,100,000
Unamortized discount on convertible notes		37,361		56,764
Net carrying amount of convertible notes		1,062,639		1,043,236
Carrying amount of equity component		193,941		193,941

As of June 30, 2011, the unamortized discount on our 3.125% convertible notes had a remaining recognition period of about 11 months.

The amount of interest expense recognized on our 3.125% convertible notes and our 2.75% convertible notes and effective interest rates for the six and three months ended June 30, 2011 and 2010 were as follows (dollars in thousands):


	Six Months Ended June 30,
	2011			2010
	3.125% Notes			3.125% Notes			2.75% Notes
	due 2012			due 2012			due 2025

Contractual coupon interest	$	17,188		$	18,595		$	4,786
Amortization of discount on convertible notes		19,404			19,813			6,058

Interest expense, net	$	36,592		$	38,408		$	10,844

Effective interest rate on convertible notes		7.15	%		7.15	%		6.45	%


	Three Months Ended June 30,
	2011			2010
	3.125% Notes			3.125% Notes			2.75% Notes
	due 2012			due 2012			due 2025

Contractual coupon interest	$	8,594		$	9,220		$	2,380
Amortization of discount on convertible notes		9,730			9,964			3,045

Interest expense, net	$	18,324		$	19,184		$	5,425

Effective interest rate on convertible notes		7.15	%		7.15	%		6.45	%

Mexico Equipment Financing. In July 2011, Nextel Mexico entered into a U.S. dollar-denominated loan agreement with the China Development Bank, under which Nextel Mexico will receive up to $375.0 million to finance infrastructure equipment and assist in the deployment of its third generation network in Mexico. As of June 30, 2011, this loan agreement was not yet finalized.

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 4.	Fair Value Measurements

The following tables set forth the classification within the fair value hierarchy of our financial instruments measured at fair value on a recurring basis in the accompanying condensed consolidated balance sheet as of June 30, 2011 and December 31, 2010 (in thousands):


	Fair Value Measurements as of
	June 30, 2011						Fair Value as of
	Using the Fair Value Hierarchy						June 30,
Financial Instruments	Level 1		Level 2		Level 3		2011

Short-term investments:
Available-for-sale securities — Nextel Brazil investments	$	155,836	$	—	$	—	$	155,836


	Fair Value Measurements as of
	December 31, 2010						Fair Value as of
	Using the Fair Value Hierarchy						December 31,
Financial Instruments	Level 1		Level 2		Level 3		2010

Short-term investment:
Available-for-sale securities — Nextel Brazil investments	$	50,778	$	—	$	—	$	50,778

Other Financial Instruments.

We estimate the fair value of our financial instruments other than ouravailable-for-sale securities, including cash and cash equivalents,held-to-maturity investments, accounts receivable, accounts payable, derivative instruments and debt. The carrying value of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings contained in the condensed consolidated balance sheets approximate their fair values due to the short-term nature of these instruments. The fair values of our derivative instruments are immaterial.

Held-to-Maturity Investments.

We periodically invest some of our cash holdings in certain securities that we intend to hold to maturity. Theseheld-to-maturity securities include investments in U.S. treasury securities, as well as investments in corporate bonds, which consist of securities issued by U.S. government agencies and corporate debt securities backed by the U.S. government with maturities ranging from one to fourteen months. We account forheld-to-maturity securities at amortized cost. We determined the fair value of ourheld-to-maturity investments in U.S. treasury securities based on quoted market prices for the individual instruments. In our judgment, these securities trade with sufficient daily observable market activity to support a Level 1 classification within the fair value hierarchy. We determined the fair value of our investments in corporate bonds based on reported trade data in a broker dealer market for the individual instruments. We consider these measurements to be Level 2 in the fair value hierarchy. The gross unrecognized holding gains and losses as of June 30, 2011 were immaterial. The carrying amounts and estimated fair values of ourheld-to-maturity investments as of June 30, 2011 and December 31, 2010 are as follows:


	June 30, 2011				December 31, 2010
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
	(in thousands)				(in thousands)

Short-term investments:
Held-to-maturity securities — U.S. Treasuries	$	152,385	$	153,164	$	421,653	$	423,613
Held-to-maturity securities — corporate bonds		100,431		100,811		65,108		65,392

	$	252,816	$	253,975	$	486,761	$	489,005

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Long-Term Debt Instruments.

The carrying amounts and estimated fair values of our long-term debt instruments as of June 30, 2011 and December 31, 2010 are as follows:


	June 30, 2011				December 31, 2010
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
			(In thousands)

Senior notes	$	2,030,785	$	2,263,575	$	1,279,524	$	1,428,000
Convertible notes		1,062,639		1,101,430		1,043,236		1,078,000
Brazil license financing		819,413		1,097,275		—		—
Syndicated loan facilities		249,687		249,873		458,964		457,187
Other		76,342		42,296		193,460		195,620

	$	4,238,866	$	4,754,449	$	2,975,184	$	3,158,807

We estimated the fair values of our senior notes using quoted market prices in a broker dealer market and the fair values of our convertible notes using quoted prices in a traded exchange market, which may be adjusted for certain factors such as historical trading levels and market data for our senior notes, credit default spreads, stock volatility assumptions with respect to our convertible notes and other corroborating market or internally generated data. Because our fair value measurements include assumptions based on market data, corroborating market data and some broker internally generated information, we consider these estimates Level 2 in the fair value hierarchy.

We estimated the fair values of our syndicated loan facilities and Nextel Brazil’s spectrum license financing using primarily Level 3 inputs such as U.S. Treasury yield curves, prices of comparable bonds, LIBOR and zero-coupon yield curves, U.S. treasury bond rates and credit spreads on comparable publicly traded bonds.

Other debt consists primarily of Brazilian credit paper and import financing agreements. We estimated the fair value of the Brazilian credit paper utilizing primarily Level 3 inputs such as U.S. treasury security yield curves, prices of comparable bonds, LIBOR and zero-coupon yield curves, Treasury bond rates and credit spreads on comparable publicly traded bonds. We believe that the fair value of our short-term, import financing agreements approximate their carrying value primarily because of the short maturities of the agreements prior to realization and consider these measurements to be Level 3 in the fair value hierarchy.


Note 5.	Commitments and Contingencies

Brazilian Contingencies.

Nextel Brazil has received various assessment notices from state and federal Brazilian authorities asserting deficiencies in payments related primarily to value-added taxes, excise taxes on imported equipment and other non-income based taxes. Nextel Brazil has filed various administrative and legal petitions disputing these assessments. In some cases, Nextel Brazil has received favorable decisions, which are currently being appealed by the respective governmental authority. In other cases, Nextel Brazil’s petitions have been denied, and Nextel Brazil is currently appealing those decisions. Nextel Brazil is also disputing various other claims. Nextel Brazil did not reverse any material accrued liabilities related to contingencies during the second quarter of 2011.

As of June 30, 2011 and December 31, 2010, Nextel Brazil had accrued liabilities of $61.6 million and $56.8 million, respectively, related to contingencies, all of which were classified in accrued contingencies reported as a component of other long-term liabilities and none of which related to unasserted claims. We currently estimate the range of reasonably possible losses related to matters for which Nextel Brazil has not accrued liabilities, as they are not deemed probable, to be between $230.7 million and $234.7 million as of June 30, 2011. We are continuing to evaluate the likelihood of probable and reasonably possible losses, if any, related to all known contingencies. As a

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

result, future increases or decreases to our accrued liabilities may be necessary and will be recorded in the period when such amounts are determined to be probable and reasonably estimable.

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, financial condition, results of operations or cash flows.


Note 6.	Income Taxes

We are subject to income taxes in both the United States and thenon-U.S. jurisdictions in which we operate. Certain of our entities are under examination by the relevant taxing authorities for various tax years. The earliest years that remain subject to examination by jurisdiction are: Chile — 1993; U.S.— 1999; Mexico — 2003; Argentina — 2004; Peru and Brazil — 2006; Luxembourg, Netherlands and Spain — 2009. We regularly assess the potential outcome of current and future examinations in each of the taxing jurisdictions when determining the adequacy of the provision for income taxes.

The following table shows a reconciliation of our unrecognized tax benefits according to the FASB’s authoritative guidance on accounting for uncertainty in income taxes, for the six months ended June 30, 2011 (in thousands):


Unrecognized tax benefits — December 31, 2010	$	102,880
Additions for current year tax positions		1,431
Additions for prior year tax positions		—
Reductions for current year tax positions		—
Reductions for prior year tax positions		(70,653	)
Lapse of statute of limitations		(1,392	)
Settlements with taxing authorities		—
Foreign currency translation adjustment		2,585

Unrecognized tax benefits — June 30, 2011	$	34,851

The unrecognized tax benefits as of June 30, 2011 and December 31, 2010 include $6.2 million and $75.7 million, respectively, of tax benefits that could potentially reduce our future effective tax rate, if recognized.

We record interest and penalties associated with uncertain tax positions as a component of our income tax provision. During the first quarter of 2011, we reduced the amount of our unrecognized tax benefits by $70.2 million due to the March 2011 decision by a Mexico court to deny our administrative petition related to the Federal income tax law covering deductions and gains from the sale of property.

We assessed the realizability of our deferred tax assets during the second quarter of 2011, consistent with the methodology we employed for 2010. In that assessment, we considered the reversal of existing temporary differences associated with deferred tax assets and liabilities, future taxable income, tax planning strategies and historical and future pre-tax book income (as adjusted for permanent differences between financial and tax accounting items) in order to determine if it is “more-likely-than-not” that the deferred tax asset will be realized. As a result of this assessment, we increased the valuation allowance on our U.S. companies’ deferred tax assets by $46.0 million, which we recorded as an increase to income tax expense. For our foreign companies, we determined that the realizability of their deferred assets had not changed. We will continue to evaluate the amount of the valuation allowance for all of our foreign and U.S. companies throughout the remainder of 2011 to determine the appropriate level of valuation allowance.

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During 2004, Nextel Mexico amended its Mexican Federal income tax returns in order to reverse a benefit previously claimed for a disputed provision of the Federal income tax law covering deductions and gains from the sale of property. We filed the amended returns in order to avoid potential penalties, and we also filed administrative petitions seeking clarification of our right to the tax benefits claimed on the original income tax returns. The tax authorities constructively denied our administrative petitions in January 2005, and in May 2005, we filed an annulment suit challenging the constructive denial. In March 2011, we were officially notified that the courts denied our petition based on the economic substance of our interpretation. Therefore, during the first quarter of 2011, we reversed the income tax receivable on the financial statements and recorded a $14.5 million increase in income tax expense with respect to this item.


Note 7.	Segment Reporting

We have determined that our reportable segments are those that are based on our method of internal reporting, which disaggregates our business by geographical location. Our reportable segments are: (1) Brazil, (2) Mexico, (3) Argentina and (4) Peru. The operations of all other businesses that fall below the segment reporting thresholds are included in the “Corporate and other” segment below. This segment includes our Chilean operating companies and our corporate operations in the U.S. We evaluate performance of these segments and provide resources to them based on operating income before depreciation and amortization and impairment, restructuring and other charges, which we refer to as segment earnings.

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


									Corporate			Intercompany
	Brazil		Mexico		Argentina		Peru		and other			Eliminations			Consolidated
	(in thousands)

Six Months Ended June 30, 2011
Operating revenues	$	1,719,720	$	1,155,314	$	311,563	$	173,827	$	14,873		$	(2,347	)	$	3,372,950

Segment earnings (losses)	$	578,344	$	403,610	$	86,274	$	15,053	$	(183,724	)	$	4,433		$	903,990
Less:
Depreciation and amortization																(328,039	)
Foreign currency transaction gains, net																24,100
Interest expense and other, net																(169,421	)

Income before income tax provision															$	430,630

Capital expenditures	$	214,930	$	130,570	$	29,347	$	46,466	$	100,533		$	—		$	521,846

Six Months Ended June 30, 2010
Operating revenues	$	1,174,366	$	1,033,590	$	268,922	$	149,197	$	10,407		$	(1,415	)	$	2,635,067

Segment earnings (losses)	$	350,400	$	389,162	$	68,573	$	10,242	$	(128,806	)	$	—		$	689,571
Less:
Depreciation and amortization																(263,877	)
Foreign currency transaction losses, net																(1,052	)
Interest expense and other, net																(172,941	)

Income before income tax provision															$	251,701

Capital expenditures	$	207,354	$	49,835	$	22,305	$	30,951	$	54,109		$	—		$	364,554

Three Months Ended June 30, 2011
Operating revenues	$	906,382	$	588,308	$	160,849	$	88,170	$	7,468		$	(1,064	)	$	1,750,113

Segment earnings (losses)	$	295,343	$	223,263	$	42,323	$	7,875	$	(99,027	)	$	3,313		$	473,090
Less:
Depreciation and amortization																(172,120	)
Foreign currency transaction gains, net																15,606
Interest expense and other, net																(90,106	)

Income before income tax provision															$	226,470

Capital expenditures	$	117,342	$	93,188	$	17,176	$	23,524	$	52,712		$	—		$	303,942

Three Months Ended June 30, 2010
Operating revenues	$	610,539	$	524,166	$	136,165	$	76,318	$	5,803		$	(1,070	)	$	1,351,921
Segment earnings (losses)	$	173,691	$	204,778	$	31,974	$	6,019	$	(68,258	)	$	—		$	348,204
Less:
Depreciation and amortization																(135,181	)
Foreign currency transaction gains, net																24,031
Interest expense and other, net																(88,456	)

Income before income tax provision															$	148,598

Capital expenditures	$	122,262	$	32,662	$	13,490	$	22,957	$	38,706		$	—		$	230,077

June 30, 2011
Identifiable assets	$	4,386,694	$	2,077,214	$	419,250	$	553,818	$	2,809,207		$	(287	)	$	10,245,896

December 31, 2010
Identifiable assets	$	3,036,106	$	2,019,550	$	393,246	$	556,752	$	2,185,320		$	(287	)	$	8,190,687

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 8.	Condensed Consolidating Financial Statements

In March 2011, we issued $750.0 million in aggregate principal amount of 7.625% senior notes due 2021. In addition, during 2009, we issued senior notes totaling $1.3 billion in aggregate principal amount comprised of our 10.0% senior notes due 2016 and our 8.875% senior notes due 2019. We refer to the senior notes issued in 2011 and 2009 collectively as the “notes.” All of these notes are senior unsecured obligations of NII Capital Corp., our wholly-owned subsidiary, and are guaranteed on a senior unsecured basis by NII Holdings and all of its current and future first tier and domestic restricted subsidiaries, other than NII Capital Corp. No foreign subsidiaries will guarantee the notes unless they are first tier subsidiaries of NII Holdings. These guarantees are full and unconditional, as well as joint and several.

As a result of the issuance of the notes and the related guarantees, we are required to provide certain condensed consolidating financial information. Included in the tables below are condensed consolidating balance sheets as of June 30, 2011 and December 31, 2010, as well as condensed consolidating statements of operations and cash flows for the six and three months ended June 30, 2011 and 2010, of: (a) the parent company, NII Holdings, Inc.; (b) the subsidiary issuer, NII Capital Corp.; (c) the guarantor subsidiaries on a combined basis; (d) the non-guarantor subsidiaries of NII Holdings, Inc. on a combined basis; (e) consolidating adjustments; and (f) NII Holdings, Inc. and subsidiaries on a consolidated basis. The condensed consolidating statements of operations for the six and three months ended June 30, 2010 and the condensed consolidating statement of cash flows for the six months ended June 30, 2010 presented below were revised to reflect the proper classification of certain intercompany balances. These revisions were not material to our financial statements taken as a whole.

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING BALANCE SHEET
As of June 30, 2011
(in thousands)


	NII Holdings,		NII Capital		Guarantor		Non-Guarantor		Consolidating
	Inc. (Parent)		Corp. (Issuer)(1)		Subsidiaries(2)		Subsidiaries		Adjustments			Consolidated

ASSETS
Current assets
Cash and cash equivalents	$	1,461,180	$	1	$	9,234	$	1,063,338	$	—		$	2,533,753
Short-term investments		252,816		—		—		155,836		—			408,652
Accounts receivable, net		15,666		54,070		116,049		973,315		(191,112	)		967,988
Handset and accessory inventory		—		—		—		234,603		—			234,603
Deferred income taxes, net		—		—		4,599		254,519		(8,905	)		250,213
Prepaid expenses and other		1,842		—		8,899		303,257		(12	)		313,986

Total current assets		1,731,504		54,071		138,781		2,984,868		(200,029	)		4,709,195
Property, plant and equipment, net		—		—		160,247		3,158,285		(287	)		3,318,245
Investments in and advances to affiliates		3,541,898		3,382,737		3,465,035		—		(10,389,670	)		—
Intangible assets, net		—		—		—		1,370,976		—			1,370,976
Deferred income taxes, net		6,005		—		—		450,501		(6,005	)		450,501
Other assets		2,413,080		3,055,279		577,507		537,683		(6,186,570	)		396,979

Total assets	$	7,692,487	$	6,492,087	$	4,341,570	$	8,502,313	$	(16,782,561	)	$	10,245,896


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	—	$	—	$	2,544	$	214,229	$	—		$	216,773
Accrued expenses and other		632,264		170,135		1,597,942		1,292,395		(2,719,320	)		973,416
Deferred revenues		—		—		—		177,830		—			177,830
Current portion of long-term debt		1,062,639		—		12,079		338,896		—			1,413,614

Total current liabilities		1,694,903		170,135		1,612,565		2,023,350		(2,719,320	)		2,781,633
Long-term debt		23		2,030,785		63,908		1,265,965		—			3,360,681
Deferred revenues		—		—		—		19,900		—			19,900
Deferred credits		—		—		14,900		72,232		(6,005	)		81,127
Other long-term liabilities		2,235,357		—		10,042		1,655,831		(3,660,879	)		240,351

Total liabilities		3,930,283		2,200,920		1,701,415		5,037,278		(6,386,204	)		6,483,692

Total stockholders’ equity		3,762,204		4,291,167		2,640,155		3,465,035		(10,396,357	)		3,762,204

Total liabilities and stockholders’ equity	$	7,692,487	$	6,492,087	$	4,341,570	$	8,502,313	$	(16,782,561	)	$	10,245,896


(1)		NII Capital Corp. is the issuer of our 7.625% senior notes due 2021, our 10.0% senior notes due 2016 and our 8.875% senior notes due 2019.

(2)		Represents our subsidiaries that have provided guarantees of the obligations of NII Capital Corp. under our 7.625% senior notes due 2021, our 10.0% senior notes due 2016 and our 8.875% notes due 2019.

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2010
(in thousands)


	NII Holdings,		NII Capital		Guarantor		Non-Guarantor		Consolidating
	Inc. (Parent)		Corp. (Issuer)		Subsidiaries		Subsidiaries		Adjustments			Consolidated

ASSETS
Current assets
Cash and cash equivalents	$	548,197	$	28	$	122,186	$	1,097,090	$	—		$	1,767,501
Short-term investments		486,761		—		—		50,778		—			537,539
Accounts receivable, net		—		—		—		797,421		(9,421	)		788,000
Handset and accessory inventory		—		—		—		227,191		—			227,191
Deferred income taxes, net		—		—		4,202		182,786		—			186,988
Prepaid expenses and other		2,776		—		5,439		385,477		(34	)		393,658

Total current assets		1,037,734		28		131,827		2,740,743		(9,455	)		3,900,877
Property, plant and equipment, net		—		—		107,030		2,853,303		(287	)		2,960,046
Investments in and advances to affiliates		2,962,830		2,905,655		2,925,907		—		(8,794,392	)		—
Intangible assets, net		—		—		—		433,208		—			433,208
Deferred income taxes, net		7,712		—		—		486,098		(7,712	)		486,098
Other assets		2,414,774		2,256,448		667,301		588,572		(5,516,637	)		410,458

Total assets	$	6,423,050	$	5,162,131	$	3,832,065	$	7,101,924	$	(14,328,483	)	$	8,190,687


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	1,295	$	—	$	2,314	$	296,421	$	—		$	300,030
Accrued expenses and other		637,597		173,263		1,599,378		1,117,481		(2,700,466	)		827,253
Deferred revenues		—		—		—		158,690		—			158,690
Current portion of long-term debt		—		—		1,729		445,266		—			446,995

Total current liabilities		638,892		173,263		1,603,421		2,017,858		(2,700,466	)		1,732,968
Long-term debt		1,043,258		1,279,524		39,334		456,307		—			2,818,423
Deferred revenues		—		—		—		20,476		—			20,476
Deferred credits		—		—		21,427		74,352		(7,711	)		88,068
Other long-term liabilities		1,421,327		—		9,773		1,607,024		(2,826,945	)		211,179

Total liabilities		3,103,477		1,452,787		1,673,955		4,176,017		(5,535,122	)		4,871,114

Total stockholders’ equity		3,319,573		3,709,344		2,158,110		2,925,907		(8,793,361	)		3,319,573

Total liabilities and stockholders’ equity	$	6,423,050	$	5,162,131	$	3,832,065	$	7,101,924	$	(14,328,483	)	$	8,190,687

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2011
(in thousands)


	NII Holdings,			NII Capital			Guarantor			Non-Guarantor			Consolidating
	Inc. (Parent)			Corp. (Issuer)			Subsidiaries			Subsidiaries			Adjustments			Consolidated

Operating revenues	$	—		$	—		$	1,536		$	3,372,950		$	(1,536	)	$	3,372,950

Operating expenses
Cost of revenues (exclusive of depreciation and amortization included below)		—			—			85			1,315,226			—			1,315,311
Selling, general and administrative		1,776			178			136,839			1,020,825			(5,969	)		1,153,649
Management fee and other		(41,799	)		—			(64,550	)		101,916			4,433			—
Depreciation and amortization		—			—			4,740			323,299			—			328,039

		(40,023	)		178			77,114			2,761,266			(1,536	)		2,796,999

Operating income (loss)		40,023			(178	)		(75,578	)		611,684			—			575,951
Other income (expense)
Interest expense, net		(111,936	)		(75,210	)		(1,437	)		(97,832	)		109,541			(176,874	)
Interest income		9,206			101,832			103			14,211			(109,541	)		15,811
Foreign currency transaction gains, net		—			—			—			24,100			—			24,100
Equity in income of affiliates		253,215			337,911			340,081			—			(931,207	)		—
Other income (expense), net		40			—			(6	)		(8,392	)		—			(8,358	)

		150,525			364,533			338,741			(67,913	)		(931,207	)		(145,321	)

Income before income tax benefit (provision)		190,548			364,355			263,163			543,771			(931,207	)		430,630
Income tax benefit (provision)		19,829			(9,026	)		(19,627	)		(203,690	)		(7,739	)		(220,253	)

Net income	$	210,377		$	355,329		$	243,536		$	340,081		$	(938,946	)	$	210,377

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2010
(in thousands)


	NII Holdings,			NII Capital			Guarantor			Non-Guarantor			Intercompany
	Inc. (Parent)			Corp. (Issuer)			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Operating revenues	$	—		$	—		$	768		$	2,634,299		$	—		$	2,635,067

Operating expenses
Cost of revenues (exclusive of depreciation and amortization included below)		—			—			52			1,050,760			—			1,050,812
Selling, general and administrative		2,214			7			100,543			791,920			—			894,684
Management fee and other		(37,753	)		—			(46,440	)		84,193			—			—
Depreciation and amortization		—			—			3,492			260,385			—			263,877

		(35,539	)		7			57,647			2,187,258			—			2,209,373

Operating income (loss)		35,539			(7	)		(56,879	)		447,041			—			425,694
Other income (expense)
Interest expense, net		(144,672	)		(63,508	)		(583	)		(75,962	)		105,725			(179,000	)
Interest income		6,269			98,604			388			14,386			(105,725	)		13,922
Foreign currency transaction losses, net		—			—			—			(1,052	)		—			(1,052	)
Equity in income of affiliates		165,909			218,253			269,319			—			(653,481	)		—
Other income (expense), net		4			—			155			(8,013	)		(9	)		(7,863	)

		27,510			253,349			269,279			(70,641	)		(653,490	)		(173,993	)

Income before income tax benefit (provision)		63,049			253,342			212,400			376,400			(653,490	)		251,701
Income tax benefit (provision)		60,904			(18,827	)		(47,787	)		(116,929	)		(5,109	)		(127,748	)

Net income	$	123,953		$	234,515		$	164,613		$	259,471		$	(658,599	)	$	123,953

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2011
(in thousands)


	NII Holdings,			NII Capital			Guarantor			Non-Guarantor			Consolidating
	Inc. (Parent)			Corp. (Issuer)			Subsidiaries			Subsidiaries			Adjustments			Consolidated

Operating revenues	$	—		$	—		$	768		$	1,750,113		$	(768	)	$	1,750,113

Operating expenses
Cost of revenues (exclusive of depreciation and amortization included below)		—			—			40			658,891			—			658,931
Selling, general and administrative		865			14			73,047			548,247			(4,081	)		618,092
Management fee and other		(21,296	)		—			(35,075	)		53,058			3,313			—
Depreciation and amortization		—			—			2,657			169,463			—			172,120

		(20,431	)		14			40,669			1,429,659			(768	)		1,449,143

Operating income (loss)		20,431			(14	)		(39,901	)		320,454			—			300,970
Other income (expense)
Interest expense, net		(63,258	)		(44,500	)		(777	)		(49,360	)		62,180			(95,715	)
Interest income		4,755			58,221			52			8,752			(62,180	)		9,600
Foreign currency transaction gains, net		—			—			—			15,606			—			15,606
Equity in income of affiliates		139,431			186,683			187,726			—			(513,840	)		—
Other expense, net		—			—			(6	)		(3,985	)		—			(3,991	)

		80,928			200,404			186,995			(28,987	)		(513,840	)		(74,500	)

Income before income tax benefit (provision)		101,359			200,390			147,094			291,467			(513,840	)		226,470
Income tax benefit (provision)		12,260			(4,680	)		(12,462	)		(103,741	)		(4,228	)		(112,851	)

Net income	$	113,619		$	195,710		$	134,632		$	187,726		$	(518,068	)	$	113,619

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2010
(in thousands)


	NII Holdings,			NII Capital			Guarantor			Non-Guarantor			Intercompany
	Inc. (Parent)			Corp. (Issuer)			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Operating revenues	$	—		$	—		$	768		$	1,351,153		$	—		$	1,351,921

Operating expenses
Cost of revenues (exclusive of depreciation and amortization included below)		—			—			17			528,442			—			528,459
Selling, general and administrative		1,754			3			54,481			419,020			—			475,258
Management fee and other		(19,197	)		—			(23,220	)		42,417			—			—
Depreciation and amortization		—			—			1,812			133,369			—			135,181

		(17,443	)		3			33,090			1,123,248			—			1,138,898

Operating income (loss)		17,443			(3	)		(32,322	)		227,905			—			213,023
Other income (expense)
Interest expense, net		(119,582	)		(31,750	)		(279	)		(43,979	)		102,316			(93,274	)
Interest income		3,352			98,604			(145	)		8,828			(102,316	)		8,323
Foreign currency transaction gains, net		—			—			—			24,031			—			24,031
Equity in income of affiliates		130,733			121,278			152,148			—			(404,159	)		—
Other income (expense), net		4			—			40			(3,544	)		(5	)		(3,505	)

		14,507			188,132			151,764			(14,664	)		(404,164	)		(64,425	)

Income before income tax benefit (provision)		31,950			188,129			119,442			213,241			(404,164	)		148,598
Income tax benefit (provision)		43,541			(18,827	)		(30,112	)		(62,395	)		(5,314	)		(73,107	)

Net income	$	75,491		$	169,302		$	89,330		$	150,846		$	(409,478	)	$	75,491

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2011
(in thousands)


	NII Holdings,			NII Capital			Guarantor			Non-Guarantor			Consolidating
	Inc. (Parent)			Corp. (Issuer)			Subsidiaries			Subsidiaries			Adjustments			Consolidated

Cash flows from operating activities:
Net income	$	210,377		$	355,329		$	243,536		$	340,081		$	(938,946	)	$	210,377
Adjustments to reconcile net income to net cash provided by operating activities		(115,342	)		(332,946	)		(230,792	)		357,283			715,668			393,871

Net cash provided by operating activities		95,035			22,383			12,744			697,364			(223,278	)		604,248
Cash flows from investing activities:
Capital expenditures		(61,444	)		—			—			(391,098	)		—			(452,542	)
Purchase of long-term and short-term investments		(329,292	)		—			—			(908,301	)		—			(1,237,593	)
Proceeds from sales of short-term investments		560,000			—			—			813,700			—			1,373,700
Payments for purchases of licenses		—			—			—			(94,222	)		—			(94,222	)
Transfers from restricted cash		—			—			—			89,360			—			89,360
Intercompany borrowings		(111,486	)		(736,860	)		—			—			848,346			—
Other, net		—			—			—			(4,196	)		—			(4,196	)

Net cash provided by (used in) investing activities		57,778			(736,860	)		—			(494,757	)		848,346			(325,493	)
Cash flows from financing activities:
Proceeds from issuance of senior notes		—			750,000			—			—			—			750,000
Repayments under syndicated loan facilities		—			—			—			(209,408	)		—			(209,408	)
Proceeds from intercompany long-term loan		736,860			—			—			27,396			(764,256	)		—
Intercompany dividends		—			(84,139	)		(139,139	)		—			223,278			—
Other, net		23,310			48,589			13,443			(53,122	)		(84,090	)		(51,870	)

Net cash provided by (used in) financing activities		760,170			714,450			(125,696	)		(235,134	)		(625,068	)		488,722
Effect of exchange rate changes on cash and cash equivalents		—			—			—			(1,225	)		—			(1,225	)

Net increase (decrease) in cash and cash equivalents		912,983			(27	)		(112,952	)		(33,752	)		—			766,252
Cash and cash equivalents, beginning of period		548,197			28			122,186			1,097,090			—			1,767,501

Cash and cash equivalents, end of period	$	1,461,180		$	1		$	9,234		$	1,063,338		$	—		$	2,533,753

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2010
(in thousands)


	NII Holdings,			NII Capital			Guarantor			Non-Guarantor			Intercompany
	Inc. (Parent)			Corp. (Issuer)			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Cash flows from operating activities:
Net income	$	123,953		$	234,515		$	164,613		$	259,471		$	(658,599	)	$	123,953
Adjustments to reconcile net income to net cash (used in) provided by operating activities		(196,662	)		(234,515	)		(161,042	)		276,978			591,510			276,269

Net cash (used in) provided by operating activities		(72,709	)		—			3,571			536,449			(67,089	)		400,222
Cash flows from investing activities:
Capital expenditures		(10,874	)		—			—			(324,997	)		—			(335,871	)
Proceeds from sales of short-term investments		—			—			—			668,969			—			668,969
Proceeds from intercompany long-term loan		15,645			—			64,355			—			(80,000	)		—
Transfers to restricted cash		—			—			—			(89,135	)		—			(89,135	)
Purchase of long-term and short-term investments		(630,930	)		—			—			(578,525	)		—			(1,209,455	)
Other, net		(59,904	)		—			—			(28,888	)		59,904			(28,888	)

Net cash (used in) provided by investing activities		(686,063	)		—			64,355			(352,576	)		(20,096	)		(994,380	)
Cash flows from financing activities:
Borrowings under syndicated loan facilities		—			—			—			80,000			—			80,000
Repayments under syndicated loan facilities and other transactions		—			—			—			(40,519	)		—			(40,519	)
Repayments under import financing		—			—			—			(50,786	)		—			(50,786	)
Purchases of convertible notes		(124,342	)		—			—			—			—			(124,342	)
Proceeds from intercompany long-term loan		—			��			—			(24,370	)		24,370			—
Other, net		28,331			—			(67,926	)		14,871			62,815			38,091

Net cash used in financing activities		(96,011	)		—			(67,926	)		(20,804	)		87,185			(97,556	)
Effect of exchange rate changes on cash and cash equivalents		—			—			—			7,585			—			7,585

Net (decrease) increase in cash and cash equivalents		(854,783	)		—			—			170,654			—			(684,129	)
Cash and cash equivalents, beginning of period		1,702,191			28			—			801,845			—			2,504,064

Cash and cash equivalents, end of period	$	847,408		$	28		$	—		$	972,499		$	—		$	1,819,935


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.

INDEX TO MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Introduction			27
Business Overview			27
Handsets in Commercial Service			31
Critical Accounting Policies and Estimates			31
Results of Operations			32
a. Consolidated			34
b. Nextel Brazil			37
c. Nextel Mexico			40
d. Nextel Argentina			42
e. Nextel Peru			43
f. Corporate and other			44
Liquidity and Capital Resources			45
Future Capital Needs and Resources			46
Effect of New Accounting Standards			49
Forward Looking Statements			49

Introduction

The following is a discussion and analysis of:


	•	our consolidated financial condition as of June 30, 2011 and December 31, 2010 and our consolidated results of operations for the six- and three-month periods ended June 30, 2011 and 2010; and

	•	significant factors which we believe could affect our prospective financial condition and results of operations.

You should read this discussion in conjunction with our annual report onForm 10-K and our quarterly report onForm 10-Q for the three months ended March 31, 2011, including, but not limited to, the discussion regarding our critical accounting policies and estimates, as described below. Historical results may not indicate future performance. See “Forward Looking Statements” and “Item 1A. — Risk Factors” in our annual report onForm 10-K for risks and uncertainties that may impact our future performance.

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

Business Overview

We provide wireless communication services, primarily targeted at meeting the needs of customers who use our services in their businesses and individuals that have medium to high usage patterns, both of whom value our multi function handsets, including our Nextel Direct Connect^® feature, and our high level of customer service. As we deploy our planned third generation networks using wideband code division multiple access, or WCDMA, technology in our markets, we plan to extend our target market to additional corporate customers and high-value consumers who exhibit above average usage, revenue and loyalty characteristics and who we believe will be attracted to the services supported by our new networks and the quality of our customer service.

We provide our services under the Nextel^tm brand through operating companies located in selected Latin American markets, with our principal operations located in major business centers and related transportation corridors of Brazil, Mexico, Argentina, Peru and Chile. We provide our services in major urban and suburban centers with high population densities where we believe there is a concentration of the country’s business users and economic activity. We believe that vehicle traffic congestion, low wireline service penetration and the expanded coverage of wireless networks in these major business centers encourage the use of the mobile wireless communications services that we offer. Our planned third generation networks are expected to serve both these major business centers and a broader geographic area in order to reach more potential customers and to meet the requirements of our spectrum licenses.

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

The services we offer include:


	•	mobile telephone service;

	•	mobile broadband services in markets where we have deployed third generation networks;

	•	Nextel Direct Connect^® service, which allows subscribers who use our iDEN network to talk to each other instantly, on a“push-to-talk” basis, for privateone-to-one calls or group calls;

	•	International Direct Connect^® service, which allows subscribers who use our iDEN network to talk to each other instantly across national borders, including Sprint Nextel subscribers using compatible handsets in the United States and with TELUS Corporation subscribers using compatible handsets in Canada;


	•	data services, including text messaging services, mobile internet services,e-mail services, an Android-based open operating system, location-based services, which include the use of Global Positioning System, or GPS, technologies, digital media services and advanced Java^tm enabled business applications; and

	•	international roaming services.

We plan to offer similar and additional voice and data services and applications on our planned third generation networks. We currently provide services on iDEN networks in the largest metropolitan areas in each of Mexico, Brazil, Argentina, Peru and Chile, as well as in various other cities in each of these countries. In addition, we also provide services on WCDMA networks in various metropolitan areas in Peru.

Our goal is to generate increased revenues in our Latin American markets by providing differentiated wireless communications services that are valued by our customers while improving our profitability and cash flow over the long term. Our strategy for achieving that goal is based on several core principles, including targeting high value customers, providing differentiated services and delivering superior customer service. We will also achieve this goal by offering new and expanded products and services supported by our existing and planned third generation networks and by expanding our distribution channels by opening new, more cost effective points of sales and service.

We commercially launched our third generation network in Peru in 2010 and are currently in the process of designing and building third generation networks in Brazil, Chile and Mexico using spectrum licensed to us in Chile and Mexico in 2010 and spectrum licensed to us in Brazil in 2011. We expect to begin offering third generation services in Chile later this year and in Brazil and Mexico in 2012.

We may also explore financially attractive opportunities to expand our network coverage in areas that we do not currently serve or plan to serve. Based on market data that continues to show lower wireless penetration in our markets relative to other regions of the world and our current market share in those markets, we believe that we can continue to generate growth in our subscriber base and revenues while improving our profitability and cash flow over the long term.

We believe that the wireless communications industry in the markets in which we operate has been and will continue to be highly competitive on the basis of price, the types of services offered, the diversity of handsets offered, speed of data access and the quality of service. In each of our markets, we compete with at least two large, well-capitalized competitors with substantial financial and other resources. Some of these competitors have the ability to offer bundled telecommunications services that include local, long distance and data services, and can offer a larger variety of handsets with a wide range of prices, brands and features. Although competitive pricing of services and the variety and pricing of handsets are often important factors in a customer’s decision making process, we believe that the users who primarily make up our targeted customer base are also likely to base their purchase decisions on quality of service and customer support, as well as on the availability of differentiated features and services, like our Direct Connect services, that make it easier for them to communicate quickly, efficiently and economically.

We have implemented a strategy that we believe will position us to achieve our long-term goal of generating profitable growth. The key components of that strategy are as follows:

Focusing on Major Business Centers in Key Latin American Markets. We operate primarily in large urban markets, including five of the six largest cities in Latin America, which have a concentration of medium to high usage business customers and consumers. We target these markets because we believe they have favorable long-term growth prospects for our wireless communications services while offering the cost benefits associated with providing services in more concentrated population centers. Our planned third generation networks are expected to serve both these major business centers and a broader geographic area in order to reach more potential customers and to meet the requirements of our spectrum licenses. In addition, the cities in which we operate account for a high proportion of total economic activity in each of their respective countries and provide us with a large prospective market. We believe that there are significant opportunities for growth in these markets due to the high demand for wireless communications services and the large number of potential customers within our targeted customer groups.

Targeting High Value Customers. Our main focus is on customers who purchase services under contract and primarily use our services in their businesses and on individuals that have medium to high usage patterns, both of whom value our multi-function handsets, including our Nextel Direct Connect feature and our high level of customer service. In our current customer base, our typical customer has between 3 and 30 handsets, and some of our largest customers have over 500 handsets; however, new customers that we have recently acquired generally have a lower number of handsets per customer, and we expect this trend to continue. As we deploy our planned third generation networks using WCDMA technology in our markets, we plan to extend our target market to additional corporate customers and high-value consumers who exhibit above average usage, revenue and loyalty characteristics and who we believe will be attracted to the services supported by our new networks and the quality of our customer service.

Providing Differentiated Services. We differentiate ourselves from our competitors by offering unique services like our“push-to-talk” service, which we refer to as Direct Connect. This service, which is available throughout our service areas, provides significant value to our customers by eliminating the long distance and domestic roaming fees charged by other wireless service providers, while also providing added functionality due to the near-instantaneous nature of the communication and the ability to communicate on aone-to-many basis. In addition, we are in the process of completing our testing of a high performancepush-to-talk service that utilizes WCDMA technology in an effort to continually provide differentiated service to our customers as we deploy our planned WCDMA-based networks. Our competitors have introduced competitivepush-to-talk over cellular products, but we believe that the quality of our Direct Connect service is superior at this time. We add further value by customizing data applications that enhance the productivity of our business customers, such as vehicle and delivery tracking, order entry processing and workforce monitoring applications.

Delivering Superior Customer Service. In addition to our unique service offerings, we seek to further differentiate ourselves by providing a higher level of customer service than our competitors. We work proactively with our customers to match them with service plans that offer greater value based on the customer’s usage patterns. After analyzing customer usage and expense data, we strive to minimize a customer’s per minute costs while increasing overall usage of our array of services, thereby providing higher value to our customers while increasing our monthly revenues. This goal is also furthered by our efforts during and after the sales process to educate customers about our services, multi-function handsets and rate plans. We have also implemented proactive customer retention programs in an effort to increase customer satisfaction and retention. In addition, we are currently making investments to improve the quality and scalability of our customer relationship management systems as part of our effort to provide superior customer service to our growing customer base.

Selectively Expanding our Service Areas. We believe that we have significant opportunities to grow through selective expansion of our service into additional areas in some of the countries in which we currently operate, particularly in Brazil where we have made significant additional investments to expand our service areas, including expansion into the northeast region of the country, and to add more capacity to Nextel Brazil’s network to support its growth. Such expansion may involve building out certain areas in which we already have spectrum, obtaining additional spectrum in new areas which would enable us to expand our network service areas, and further developing our business in key urban areas. Our planned third generation networks are expected to serve both our existing major business centers and a broader geographic area in order to reach more potential customers and to meet the requirements of our spectrum licenses. We may also consider selectively expanding into other Latin American countries where we do not currently operate. See “Future Capital Needs and Resources — Capital Expenditures” for a discussion of the factors that drive our capital spending.

Preserving the iDEN Opportunity. The iDEN networks that we operate allow us to offer differentiated services like Direct Connect while offering high quality voice telephony and other innovative services. The iDEN technology is unique in that it is the only widespread, commercially available technology that operates on non-contiguous spectrum, which is important to us because much of the spectrum that our operating companies currently utilize in each of the markets we serve is non-contiguous. Because Motorola is the sole supplier of iDEN technology, we are dependent on Motorola’s support of the evolution of the iDEN technology and of the development of new features, functionality and handset models.

In the past, Nextel Communications, a subsidiary of Sprint Nextel, was one of the largest purchasers of iDEN technology and provided significant support with respect to new product development for that technology. Sprint Nextel’s recently announced plans to decommission its iDEN network over the next several years could affect Motorola’s ability or willingness to provide support for the development of new iDEN handset models or enhancements to the features and functionality of our iDEN networks without us funding that development or agreeing to significant purchase commitments. We have increased our effort and support of iDEN handset product development and now lead the majority of that development activity in support of our customers’ needs. Motorola recently completed a separation of its mobile devices and home division into two separate public entities: Motorola Mobility, Inc., to which our iDEN handset supply agreements have been assigned; and Motorola Solutions, Inc., to which our iDEN network infrastructure supply agreements have been assigned. In addition, we have entered into arrangements with Motorola that are designed to provide us with a continued source of iDEN network equipment and handsets in an environment in which Sprint Nextel’s purchases and support of future development of that equipment have declined. Examples of these arrangements include:


	•	Agreements we entered into with Motorola in September 2006 to extend our relationship with Motorola for the supply of iDEN handsets and iDEN network infrastructure through December 31, 2011. Under these agreements, Motorola agreed to maintain an adequate supply of the iDEN handsets and equipment used in our business for the term of the agreement and to continue to invest in the development of new iDEN devices and infrastructure features. In addition, we agreed to annually escalating handset volume purchase commitments and certain pricing parameters for handsets and infrastructure linked to the volume of our purchases. If we do not meet the specified handset volume commitments, we would be required to pay an additional amount based on any shortfall of actual purchased handsets compared to the related annual volume commitment.

	•	An agreement we signed with Motorola, Inc., now Motorola Solutions, Inc., in October 2010, which provided for the extension of the terms of the iDEN network infrastructure agreement with Motorola until December 31, 2014. The extension of this infrastructure agreement will not impact any handset pricing terms or commitments.

	•	An agreement we entered into with Motorola Mobility, Inc. in March 2011, which provided for the extension of the agreement under which Motorola will supply iDEN handsets to NII Holdings through 2014. In addition, we agreed to handset volume purchase commitments with respect to certain handset models and pricing parameters linked to the volume of our handset purchases. This agreement provided that Motorola Mobility, Inc. will continue to develop and deliver new handsets using the iDEN platform as we develop our third generation networks over coming years.

In addition, in July 2010, Motorola Solutions announced that it reached an agreement to sell certain of its operations relating to the manufacture of network equipment to Nokia Siemens Networks. Motorola Solutions has announced that the sale does not include its iDEN business, but it is uncertain whether Motorola Solutions’ sale of its other network equipment businesses could affect its ability to support the iDEN infrastructure business. The obligations of both Motorola entities under our existing agreements, including the obligation to supply us with iDEN handsets and network equipment, remain in effect.

Planning for the Future. Another key component in our overall strategy is to expand and improve the innovative and differentiated services we offer and evaluate and deploy the technologies necessary to provide those services. One such initiative is to develop and offer a broader range of data services on our networks, including expanding our offering of third generation voice and broadband data services in the future. This focus on offering innovative and differentiated services makes it important that we continue to invest in, evaluate and, if appropriate, deploy new services and enhancements to our existing services.

During 2009 and 2010, we participated in spectrum auctions in Chile, Mexico and Brazil in order to acquire spectrum required to support our planned third generation networks. We commercially launched our third generation network in Peru in 2010 and are currently in the process of designing and building third generation networks in Brazil, Chile and Mexico using spectrum licensed to us. We expect to begin offering third generation services in Chile later this year and in Brazil and Mexico in 2012. In addition, the Argentine government has

announced plans to hold an auction of spectrum that would support a third generation network in December 2011, and we have notified the government of our interest in participating in this auction.

The following chart details our current material third generation spectrum holdings in each of our markets.


Country	Spectrum Band	Amount/Coverage

Brazil	1.9 GHz/2.1 GHz	20 MHz in 11 of 13 regions (includes all major metropolitan areas)
Mexico	1.7 GHz/2.1 GHz	30 MHz nationwide
Peru	1.9 GHz	35 MHz nationwide
Chile	1.7 GHz/2.1 GHz	60 MHz nationwide

We expect to pursue opportunities to acquire additional third generation spectrum in the future. Our decision whether to acquire rights to use additional spectrum would likely be affected by a number of factors, including the spectrum bands available for purchase, the expected cost of acquiring that spectrum and the availability and terms of any financing that we would be required to raise in order to acquire the spectrum and build the networks that will provide services that use that spectrum.

Handsets in Commercial Service

The table below provides an overview of our total handsets in commercial service in the countries indicated as of June 30, 2011 and December 31, 2010. For purposes of the table, handsets in commercial service represent all handsets with active customer accounts on the networks in each of the listed countries.


	Brazil		Mexico		Argentina		Peru		Chile		Total
	(handsets in thousands)

Handsets in commercial service — December 31, 2010		3,319		3,361		1,154		1,128		65		9,027
Net subscriber additions		394		142		65		178		6		785

Handsets in commercial service — June 30, 2011		3,713		3,503		1,219		1,306		71		9,812

Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the condensed consolidated financial statements and accompanying notes. Although we believe that our estimates, assumptions and judgments are reasonable, they are based upon presently available information. Due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates.

As described in more detail in our annual report onForm 10-K under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we consider the following accounting policies to be the most important to our financial position and results of operations or policies that require us to exercise significant judgmentand/or estimates:


	•	revenue recognition;

	•	allowance for doubtful accounts;

	•	depreciation of property, plant and equipment;

	•	amortization of intangible assets;

	•	asset retirement obligations;

	•	foreign currency;

	•	loss contingencies;


	•	stock-based compensation; and

	•	income taxes.

There have been no material changes to our critical accounting policies and estimates during the six months ended June 30, 2010 compared to those discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report onForm 10-K.

Results of Operations

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

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

Cost of revenues primarily includes the cost of providing wireless service and the cost of handset and accessory sales. Cost of providing service consists of:


	•	costs of interconnection with local exchange carrier facilities;

	•	costs relating to terminating calls originated on our network on other carriers’ networks;

	•	direct switch, transmitter and receiver site costs, including property taxes;

	•	expenses related to our handset maintenance programs; and

	•	insurance costs, utility costs, maintenance costs, spectrum license fees and rent for the network switches and transmitter sites used to operate our mobile networks.

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

Our service and other revenues and the variable component of our cost of service are primarily driven by the number of handsets in service and not necessarily by the number of customers, as one customer may purchase one or many handsets. Our digital handset and accessory revenues and cost of digital handset and accessory sales are primarily driven by the number of new handsets placed into service, as well as handset upgrades provided to existing customers.

Selling and marketing expenses include all of the expenses related to acquiring customers.

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

In accordance with accounting principles generally accepted in the United States, we translated the results of operations of our operating segments using the average currency exchange rates for the six and three months ended June 30, 2011 and 2010. The following table presents the average currency exchange rates we used to translate the

results of operations of our operating segments into U.S. dollars, as well as changes from the average exchange rates utilized in prior periods. Because we treat the U.S. dollar as the functional currency in Peru, Nextel Peru’s results of operations are not significantly impacted by changes in the U.S. dollar to Nuevo sol exchange rate.


	Six Months Ended June 30,
	2011		2010		Percent Change

Mexican peso		11.91		12.68		6	%
Brazilian real		1.63		1.80		9	%
Argentine peso		4.05		3.87		(5	)%


	Three Months Ended June 30,
	2011		2010		Percent Change

Mexican peso		11.73		12.55		7	%
Brazilian real		1.60		1.79		11	%
Argentine peso		4.08		3.90		(5	)%


a.	Consolidated


				% of						% of
				Consolidated						Consolidated
	June 30,			Operating			June 30,			Operating			Change from Previous Year
	2011			Revenues			2010			Revenues			Dollars			Percent
	(dollars in thousands)

Six Months Ended
Operating revenues
Service and other revenues	$	3,216,655			95	%	$	2,498,302			95	%	$	718,353			29	%
Digital handset and accessory revenues		156,295			5	%		136,765			5	%		19,530			14	%

		3,372,950			100	%		2,635,067			100	%		737,883			28	%

Cost of revenues
Cost of service (exclusive of depreciation and amortization included below)		(893,656	)		(26	)%		(695,876	)		(26	)%		(197,780	)		28	%
Cost of digital handset and accessory sales		(421,655	)		(13	)%		(354,936	)		(14	)%		(66,719	)		19	%

		(1,315,311	)		(39	)%		(1,050,812	)		(40	)%		(264,499	)		25	%
Selling and marketing expenses		(363,172	)		(11	)%		(315,814	)		(12	)%		(47,358	)		15	%
General and administrative expenses		(790,477	)		(23	)%		(578,870	)		(22	)%		(211,607	)		37	%
Depreciation and amortization		(328,039	)		(10	)%		(263,877	)		(10	)%		(64,162	)		24	%

Operating income		575,951			17	%		425,694			16	%		150,257			35	%
Interest expense, net		(176,874	)		(5	)%		(179,000	)		(7	)%		2,126			(1	)%
Interest income		15,811			—			13,922			1	%		1,889			14	%
Foreign currency transaction gains (losses), net		24,100			1	%		(1,052	)		—			25,152			NM
Other expense, net		(8,358	)		—			(7,863	)		—			(495	)		6	%

Income before income tax provision		430,630			13	%		251,701			10	%		178,929			71	%
Income tax provision		(220,253	)		(7	)%		(127,748	)		(5	)%		(92,505	)		72	%

Net income	$	210,377			6	%	$	123,953			5	%	$	86,424			70	%

Three Months Ended
Operating revenues
Service and other revenues	$	1,670,327			95	%	$	1,280,632			95	%	$	389,695			30	%
Digital handset and accessory revenues		79,786			5	%		71,289			5	%		8,497			12	%

		1,750,113			100	%		1,351,921			100	%		398,192			29	%

Cost of revenues
Cost of service (exclusive of depreciation and amortization included below)		(448,779	)		(26	)%		(346,351	)		(26	)%		(102,428	)		30	%
Cost of digital handset and accessory sales		(210,152	)		(12	)%		(182,108	)		(13	)%		(28,044	)		15	%

		(658,931	)		(38	)%		(528,459	)		(39	)%		(130,472	)		25	%
Selling and marketing expenses		(196,699	)		(11	)%		(165,425	)		(12	)%		(31,274	)		19	%
General and administrative expenses		(421,393	)		(24	)%		(309,833	)		(23	)%		(111,560	)		36	%
Depreciation and amortization		(172,120	)		(10	)%		(135,181	)		(10	)%		(36,939	)		27	%

Operating income		300,970			17	%		213,023			16	%		87,947			41	%
Interest expense, net		(95,715	)		(5	)%		(93,274	)		(7	)%		(2,441	)		3	%
Interest income		9,600			—			8,323			—			1,277			15	%
Foreign currency transaction gains, net		15,606			1	%		24,031			2	%		(8,425	)		(35	)%
Other expense, net		(3,991	)		—			(3,505	)		—			(486	)		14	%

Income before income tax provision		226,470			13	%		148,598			11	%		77,872			52	%
Income tax provision		(112,851	)		(7	)%		(73,107	)		(5	)%		(39,744	)		54	%

Net income	$	113,619			6	%	$	75,491			6	%	$	38,128			51	%

NM-Not Meaningful

During the first half of 2011, we expanded our subscriber base across all of our markets with much of this growth concentrated in Brazil, Mexico and Peru. We continued to invest in coverage expansion and network improvements during the first half of 2011, resulting in consolidated capital expenditures of $521.8 million, which represented a 43% increase from the first half of 2010. Almost half of this investment occurred in Brazil where we continued to expand our coverage areas and enhance the quality and capacity of our networks, consistent with our

plans to increase our customer base in that market, with a significant portion of the remainder invested in our development and deployment of third generation networks in both Brazil and Mexico. Under our current business plan, we expect to incur significant additional capital expenditures through the remainder of 2011, in 2012 and in 2013 as we pursue our strategy of building our planned third generation networks in Brazil, Mexico and Chile. In addition, we expect to continue to incur capital expenditures related to the expansion of the coverage and improvement of the quality and capacity of our iDEN networks. We may incur additional capital expenditures if we are able to acquire spectrum and deploy a third generation network in Argentina.

We believe that our planned deployment of third generation networks will enable us to offer new and differentiated services to a larger base of customers. We expect to incur significant expenses associated with the deployment phase of these networks, particularly general and administrative and selling and marketing expenses, but we do not expect a corresponding increase in operating revenues during the deployment phase. As a result, we anticipate our operating margins will likely be lower during the network deployment phase, particularly during the initial stages of deployment.

The average values of the local currencies in Brazil and Mexico appreciated relative to the U.S. dollar during the six and three months ended June 30, 2011 compared to the same periods in 2010. Conversely, the average value of the Argentine peso depreciated relative to the U.S. dollar during the six and three months ended June 30, 2011 compared to the same periods in 2010. As a result, the components of our consolidated results of operations for the six and three months ended June 30, 2011, after translation into U.S. dollar, reflect more significant increases in U.S. dollar revenues and expenses than would have occurred if these currencies had not appreciated relative to the U.S. dollar.


1.	Operating revenues

The $718.4 million, or 29%, and $389.7 million, or 30%, increases in consolidated service and other revenues in the six and three months ended June 30, 2011 compared to the same periods in 2010 are primarily the result of 21% increases in the average number of total handsets in service over both periods, which resulted from the continued demand for our services and the balanced growth and expansion strategies in our markets. These increases were also the result of increases in consolidated average revenue per subscriber, which resulted primarily from the appreciation in the average value of the Brazilian real and the Mexican peso, as well as from increases in average revenue per subscriber on a local currency basis in Brazil driven by higher usage and increases in the prices charged for various rate plans.


2.	Cost of revenues

Significant factors contributing to the $197.8 million, or 28%, and $102.4 million, or 30%, increases in consolidated cost of service in the six and three months ended June 30, 2011 compared to the same periods in 2010 included:


	•	$101.3 million, or 29%, and $36.9 million, or 20%, increases in consolidated interconnect costs, primarily in Brazil, resulting from increases in subscribers and the relative amount of minutes of use for calls that terminate on other carriers’ networks and require the payment of call termination charges, partially offset by a reduction in mobile termination rates in Mexico that was ordered by the Mexican regulatory authorities in May 2011 and applied retroactively to January 1, 2011;

	•	$48.9 million, or 28%, and $40.8 million, or 54%, increases in consolidated site and switch expenses, due to a one-time $22.4 million refund of excess fees paid for spectrum use that Nextel Mexico received in the second quarter of 2010;

	•	$30.3 million, or 163%, and $7.5 million, or 40%, increases in consolidated managed services costs, primarily in Brazil, related to certain engineering activities managed by third-party vendors; and

	•	$19.2 million, or 15%, and $11.9 million, or 19%, increases in consolidated service and repair costs, mostly in Brazil, resulting from increases in the number of customers participating in Nextel Brazil’s handset maintenance program.

The $66.7 million, or 19%, and $28.0 million, or 15%, increases in consolidated cost of digital handset and accessory revenues in the six and three months ended June 30, 2011 compared to the same periods in 2010 is principally due to increases in handset upgrades for existing subscribers and, to a lesser extent, increases in the sale of higher cost handsets to new subscribers.


3.	Selling and marketing expenses

The $47.4 million, or 15%, and $31.3 million, or 19%, increases in consolidated selling and marketing expenses in the six and three months ended June 30, 2011 compared to the same periods in 2010 principally as a result of $34.0 million, or 28%, and $21.6 million, or 34%, increases in consolidated direct commissions and payroll expenses, mostly in Brazil and Mexico, due to increases in gross subscriber additions by internal market sales personnel, as well as increases in the number of sales and marketing personnel.


4.	General and administrative expenses

Significant factors contributing to the $211.6 million, or 37%, and $111.6 million, or 36%, increases in consolidated general and administrative expenses in the six and three months ended June 30, 2011 compared to the same periods in 2010 included:


	•	$103.8 million, or 35%, and $56.0 million, or 36%, increases in consolidated general corporate costs, largely related to increases in revenue-based taxes in Brazil and higher personnel and consulting costs in some of our markets, which are primarily related to the development and deployment of our third generation networks and related initiatives;

	•	$46.3 million, or 30%, and $26.0 million, or 31%, increases in consolidated customer care and billing operations expenses, mostly in Brazil, as a result of increases in customer care personnel necessary to support larger customer bases in our markets; and

	•	$35.8 million, or 95%, and $23.5 million, or 130%, increases in consolidated bad debt expense, principally related to Nextel Brazil’s revenue growth and lower collection rates in Brazil resulting from changes to our credit procedures that resulted in the addition of some customers whose credit histories were less established.


5.	Depreciation and amortization

The $64.2 million, or 24%, and $36.9 million, or 27%, increases in consolidated depreciation and amortization in the six and three months ended June 30, 2011 compared to the same periods in 2010 are the result of increases in consolidated property, plant and equipment in service caused by the continued expansion of the capacity of our iDEN network, as well as the deployment of our third generation networks.


6.	Foreign currency transaction gains, net

Foreign currency transaction gains of $24.1 million and $15.6 million during the six and three months ended June 30, 2011 are primarily the result of the impact of the appreciation in the value of the Brazilian real relative to the U.S. dollar on Nextel Brazil’s net liabilities, primarily its syndicated loan facility.

Foreign currency transaction gains of $24.0 million during the second quarter of 2010 are largely the result of the impact of the appreciation in the value of the Mexican peso relative to the U.S. dollar on corporate peso-denominated receivables due from Nextel Mexico.


7.	Income tax provision

The $92.5 million, or 72%, and $39.7 million, or 54%, increases in the consolidated income tax provision in the six and three months ended June 30, 2011 compared to the same periods in 2010 are primarily due to $178.9 million and $77.9 million increases in consolidated income before tax provision and the reversal of a $14.5 million income tax benefit recognized on the sale of certain fixed assets based on an administrative ruling in Mexico, which we recorded entirely during the first quarter of 2011.

Segment Results

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


b.	Nextel Brazil


				% of						% of
				Nextel						Nextel
				Brazil’s						Brazil’s
	June 30,			Operating			June 30,			Operating			Change from Previous Year
	2011			Revenues			2010			Revenues			Dollars			Percent
	(dollars in thousands)

Six Months Ended
Operating revenues
Service and other revenues	$	1,647,511			96	%	$	1,116,433			95	%	$	531,078			48	%
Digital handset and accessory revenues		72,209			4	%		57,933			5	%		14,276			25	%

		1,719,720			100	%		1,174,366			100	%		545,354			46	%

Cost of revenues
Cost of service (exclusive of depreciation and amortization)		(507,429	)		(30	)%		(390,722	)		(33	)%		(116,707	)		30	%
Cost of digital handset and accessory sales		(128,881	)		(7	)%		(86,044	)		(8	)%		(42,837	)		50	%

		(636,310	)		(37	)%		(476,766	)		(41	)%		(159,544	)		33	%
Selling and marketing expenses		(146,426	)		(8	)%		(123,805	)		(10	)%		(22,621	)		18	%
General and administrative expenses		(358,640	)		(21	)%		(223,395	)		(19	)%		(135,245	)		61	%

Segment earnings	$	578,344			34	%	$	350,400			30	%	$	227,944			65	%

Three Months Ended
Operating revenues
Service and other revenues	$	869,177			96	%	$	578,383			95	%	$	290,794			50	%
Digital handset and accessory revenues		37,205			4	%		32,156			5	%		5,049			16	%

		906,382			100	%		610,539			100	%		295,843			48	%

Cost of revenues
Cost of service (exclusive of depreciation and amortization)		(266,782	)		(30	)%		(200,152	)		(33	)%		(66,630	)		33	%
Cost of digital handset and accessory sales		(64,305	)		(7	)%		(48,159	)		(8	)%		(16,146	)		34	%

		(331,087	)		(37	)%		(248,311	)		(41	)%		(82,776	)		33	%
Selling and marketing expenses		(82,734	)		(9	)%		(68,436	)		(11	)%		(14,298	)		21	%
General and administrative expenses		(197,218	)		(22	)%		(120,101	)		(20	)%		(77,117	)		64	%

Segment earnings	$	295,343			32	%	$	173,691			28	%	$	121,652			70	%

Over the last several years, Nextel Brazil’s subscriber base has grown as a result of its continued focus on customer service and the expansion of the geographic coverage of its network. As a result, Nextel Brazil contributed 51% of our consolidated operating revenues for the six months ended June 30, 2011 compared to 45% in the same period during 2010 and generated segment earnings margins of 34% in the first half of 2011 compared to 30% in the first half of 2010. Nextel Brazil has continued to experience growth in its existing markets and has continued to make investments in its newer markets as a result of increased demand for its services.

We continued to invest in Brazil throughout the first half of 2011 in order to expand the geographic coverage of Nextel Brazil’s existing iDEN network and to add capacity to and improve the quality of this network to support its growth. As a result of both Nextel Brazil’s iDEN network expansion and the development of its third generation

network mentioned below, Nextel Brazil’s capital expenditures represented 41% of consolidated total capital expenditures during the first half of 2011. We believe that the quality and capacity of Nextel Brazil’s network, as well as its expanded coverage are contributing factors to its low customer turnover rate and increased subscriber growth.

In late 2010, Nextel Brazil participated in a series of spectrum auctions and was the successful bidder for 20 MHz of spectrum in 1.9/2.1 GHz spectrum bands in 11 of the 13 auction lots covering approximately 98% of the Brazilian population for $714.4 million. Nextel Brazil also successfully bid on 20 MHz of spectrum in the 1.8 GHz band in Rio de Janeiro for a total bid price of approximately $121.7 million. Nextel Brazil plans to use the 1.9/2.1 GHz spectrum to support a third generation network that will utilize WCDMA technology and the 1.8 GHz spectrum to support its long-term strategy. The licenses relating to the spectrum won by Nextel Brazil in the auction were granted in June 2011. The development and deployment of a third generation network in Brazil using this spectrum will require us to make significant investments in capital expenditures. See “Future Capital Needs and Resources — Capital Expenditures” for more information.

We believe that our planned deployment of a third generation network will enable us to offer new and differentiated services to a larger base of customers in Brazil. We expect to incur significant expenses associated with the deployment phase of this network, particularly general and administrative and selling and marketing expenses, but do not expect a corresponding increase in operating revenues during the deployment phase. As a result, we anticipate that Nextel Brazil’s operating margins will be lower during the network deployment phase, particularly during the initial stages of deployment.

The average value of the Brazilian real for the six and three months ended June 30, 2011 appreciated relative to the U.S. dollar by 9% and 11%, respectively, compared to the average rate that prevailed during the six and three months ended June 30, 2010. As a result, the components of Nextel Brazil’s results of operations for the six and three months ended June 30, 2011, after translation into U.S. dollars, reflect more significant increases in U.S. dollar revenues and expenses than would have occurred if the Brazilian real had not appreciated relative to the U.S. dollar.

Nextel Brazil’s segment earnings increased $227.9 million, or 65%, and $121.7 million, or 70%, in the six and three months ended June 30, 2011 compared to the same periods in 2010 as a result of the following:


1.	Operating revenues

Significant factors contributing to the $531.1 million, or 48%, and $290.8 million, or 50%, increases in service and other revenues in the six and three months ended June 30, 2011 compared to the same periods in 2010 included increases in the average number of handsets in service, as well as increases in average revenues per subscriber, resulting from the combined effect of the appreciation of the Brazilian real and targeted price increases.


2.	Cost of revenues

The $116.7 million, or 30%, and $66.6 million, or 33%, increases in cost of service in the six and three months ended June 30, 2011 compared to the same periods in 2010 are primarily due to the $70.6 million, or 34%, and $38.6 million, or 36%, increases in interconnect costs due to an increase in the size of our subscriber base, as well as an increase in interconnect minutes of use for calls that terminate on other carriers’ networks. Despite these increases, Nextel Brazil’s cost of service as a percentage of its total operating revenues decreased from 33% in six and three months ended June 30, 2010 to 30% and 29% in the same periods in 2011, primarily due to increases in less costlymobile-to-mobile minutes of use as a result of Nextel Brazil’s implementation of rate plans that encouraged morein-network calling.

Increases in handset upgrades for existing subscribers and, to a lesser extent, increases in the number of handset sales to new subscribers were key factors that contributed to the $42.8 million, or 50%, and $16.1 million, or 34%, increases in cost of digital handset and accessory revenues in the six and three months ended June 30, 2011 compared to the same periods in 2010.


3.	General and administrative expenses

Significant factors contributing to the $135.2 million, or 61%, and $77.1 million, or 64%, increases in general and administrative expenses in the six and three months ended June 30, 2011 compared to the same periods in 2010 included:


	•	$61.4 million, or 60%, and $36.4 million, or 68%, increases in other general corporate costs due to increases in revenue-based taxes and general and administrative personnel;

	•	$30.1 million, or 40%, and $17.7 million, or 44%, increases in customer care and billing operations due to increases in customer care personnel; and

	•	$35.8 million, or 149%, and $21.9 million, or 181%, increases in bad debt expense related to Nextel Brazil’s operating revenue growth and decreases in collection rates resulting from changes to our credit procedures that resulted in the addition of some customers whose credit histories were less established. The higher levels of bad debt expense reflect the impact of these changes and, relative to operating revenues, represent increases from historic levels. We have made further adjustments to our credit procedures that are designed to address some of the factors that led to the increases in bad debt expense, but we do not expect future bad debt levels to return to those experienced in prior periods.

The changes in Nextel Brazil’s selling and marketing expenses in the six and three months ended June 30, 2011 compared to the same periods in 2010 were immaterial.


c.	Nextel Mexico


				% of						% of
				Nextel						Nextel
				Mexico’s						Mexico’s
	June 30,			Operating			June 30,			Operating			Change from Previous Year
	2011			Revenues			2010			Revenues			Dollars			Percent
	(dollars in thousands)

Six Months Ended
Operating revenues
Service and other revenues	$	1,113,192			96	%	$	990,719			96	%	$	122,473			12	%
Digital handset and accessory revenues		42,122			4	%		42,871			4	%		(749	)		(2	)%

		1,155,314			100	%		1,033,590			100	%		121,724			12	%

Cost of revenues
Cost of service (exclusive of depreciation and amortization)		(227,937	)		(20	)%		(161,956	)		(16	)%		(65,981	)		41	%
Cost of digital handset and accessory sales		(210,795	)		(18	)%		(200,909	)		(19	)%		(9,886	)		5	%

		(438,732	)		(38	)%		(362,865	)		(35	)%		(75,867	)		21	%
Selling and marketing expenses		(142,812	)		(12	)%		(134,148	)		(13	)%		(8,664	)		6	%
General and administrative expenses		(170,160	)		(15	)%		(147,415	)		(14	)%		(22,745	)		15	%

Segment earnings	$	403,610			35	%	$	389,162			38	%	$	14,448			4	%

Three Months Ended
Operating revenues
Service and other revenues	$	567,615			96	%	$	502,798			96	%	$	64,817			13	%
Digital handset and accessory revenues		20,693			4	%		21,368			4	%		(675	)		(3	)%

		588,308			100	%		524,166			100	%		64,142			12	%

Cost of revenues
Cost of service (exclusive of depreciation and amortization)		(101,134	)		(17	)%		(75,511	)		(15	)%		(25,623	)		34	%
Cost of digital handset and accessory sales		(103,709	)		(18	)%		(100,160	)		(19	)%		(3,549	)		4	%

		(204,843	)		(35	)%		(175,671	)		(34	)%		(29,172	)		17	%
Selling and marketing expenses		(74,380	)		(13	)%		(68,057	)		(13	)%		(6,323	)		9	%
General and administrative expenses		(85,822	)		(14	)%		(75,660	)		(14	)%		(10,162	)		13	%

Segment earnings	$	223,263			38	%	$	204,778			39	%	$	18,485			9	%

Nextel Mexico comprised 34% of our consolidated operating revenues and generated a 35% segment earnings margin for the first half of 2011, which is lower than the margin reported for the first half of 2010. Thisyear-over-year decrease in Nextel Mexico’s segment earnings margin is largely the result of an increase in Nextel Mexico’s cost of service, which reflects increases in interconnect minutes of use, as well as the impact on Nextel Mexico’s site and switch expenses of the receipt of a one-time refund of excess fees paid for spectrum use in the second quarter of 2010. In addition, during the second quarter of 2011, the Mexican Federal Commission of Telecommunications, or Cofetel, ordered a reduction in the rates that we pay to terminate calls on the networks of other mobile carriers. This reduction in mobile termination rates was made retroactive to January 1, 2011 and resulted in an additional $16.6 million reduction to interconnect expense in the second quarter of 2011 related to the application of the reduced rates to those paid in the first quarter of 2011. The Cofetel’s reduction in mobile termination rates could be contested by other mobile operators.

Coverage expansion and network improvements in Mexico resulted in capital expenditures of $130.6 million for the first half of 2011, which represents 25% of our consolidated total capital expenditures, a significant increase when compared to the same period in 2010. In 2010, Nextel Mexico was awarded a nationwide license for 30 MHz of spectrum in the 1.7 GHz and 2.1 GHz bands. We acquired this spectrum to enable Nextel Mexico to develop and deploy a third generation network in Mexico. We began offering limited services on our third generation network in

two cities in Mexico in early 2011, and we plan to begin providing third generation service offerings on a more widespread basis in Mexico in 2012. Continued development and deployment of a third generation network in Mexico will require significant investments in capital expenditures in Mexico. See “Future Capital Needs and Resources — Capital Expenditures” for more information.

We believe that our deployment of a third generation network will enable us to offer new and differentiated services to a larger base of customers in Mexico. We expect to incur significant expenses associated with the deployment phase of this network, particularly general and administrative and selling and marketing expenses, but do not expect a corresponding increase in operating revenues during the deployment phase. As a result, we anticipate that our operating margins will be lower during the network deployment phase, particularly during the initial stages of deployment.

The average value of the Mexican peso for the six and three months ended June 30, 2011 appreciated relative to the U.S. dollar by 6% and 7% compared to the average rate that prevailed during the six and three months ended June 30, 2010. As a result, the components of Nextel Mexico’s results of operations for the six and three months ended June 30, 2011 after translation into U.S. dollars reflect higher U.S. dollar-denominated revenues and expenses than would have occurred if it were not for the impact of the appreciation in the average value of the peso relative to the U.S. dollar.

Nextel Mexico’s segment earnings margin increased $14.4 million, or 4%, and $18.5 million, or 9%, in the six and three months ended June 30, 2011 compared to the same periods in 2010 as a result of the following:


1.	Operating revenues

The $122.5 million, or 12%, and $64.8 million, or 13%, increases in service and other revenues from the six and three months ended June 30, 2011 compared to the same periods in 2010 are primarily due to increases in the average number of handsets in service resulting from subscriber growth across Nextel Mexico’s markets and the overall improvement in Mexico’s economy, partially offset by slightly lower average revenue per subscriber compared to the six and three months ended June 30, 2010 caused by the implementation of lower cost rate plans in response to the competitive environment in Mexico.


2.	Cost of revenues

Significant factors contributing to the $66.0 million, or 41%, and $25.6 million, or 34%, increases in cost of service in the six and three months ended June 30, 2011 compared to the same periods in 2010 are primarily the result of higher interconnect minutes of use and increases in site and switch expenses due to a one-time $22.4 million refund of excess fees paid for spectrum use that Nextel Mexico received in the second quarter of 2010. These increases in cost of revenues in the six and three months ended June 30, 2011 were also driven by increases in interconnect minutes of use and related call termination charges, partially offset by a reduction in mobile termination rates in Mexico that was adopted in May 2011 but applied retroactively to January 1, 2011.

The changes in Nextel Mexico’s cost of digital handset and accessory revenues, selling and marketing expenses and general and administrative expenses in the six and three months ended June 30, 2011 compared to the same periods in 2010 were immaterial.


d.	Nextel Argentina


				% of						% of
				Nextel						Nextel
				Argentina’s						Argentina’s
	June 30,			Operating			June 30,			Operating			Change from Previous Year
	2011			Revenues			2010			Revenues			Dollars			Percent
	(dollars in thousands)

Six Months Ended
Operating revenues
Service and other revenues	$	286,275			92	%	$	247,716			92	%	$	38,559			16	%
Digital handset and accessory revenues		25,288			8	%		21,206			8	%		4,082			19	%

		311,563			100	%		268,922			100	%		42,641			16	%

Cost of revenues
Cost of service (exclusive of depreciation and amortization)		(91,588	)		(30	)%		(87,593	)		(33	)%		(3,995	)		5	%
Cost of digital handset and accessory sales		(41,094	)		(13	)%		(36,178	)		(13	)%		(4,916	)		14	%

		(132,682	)		(43	)%		(123,771	)		(46	)%		(8,911	)		7	%
Selling and marketing expenses		(26,406	)		(8	)%		(23,334	)		(9	)%		(3,072	)		13	%
General and administrative expenses		(66,201	)		(21	)%		(53,244	)		(20	)%		(12,957	)		24	%

Segment earnings	$	86,274			28	%	$	68,573			25	%	$	17,701			26	%

Three Months Ended
Operating revenues
Service and other revenues	$	147,699			92	%	$	125,837			92	%	$	21,862			17	%
Digital handset and accessory revenues		13,150			8	%		10,328			8	%		2,822			27	%

		160,849			100	%		136,165			100	%		24,684			18	%

Cost of revenues
Cost of service (exclusive of depreciation and amortization)		(46,711	)		(29	)%		(43,273	)		(32	)%		(3,438	)		8	%
Cost of digital handset and accessory sales		(21,673	)		(14	)%		(17,693	)		(13	)%		(3,980	)		22	%

		(68,384	)		(43	)%		(60,966	)		(45	)%		(7,418	)		12	%
Selling and marketing expenses		(14,706	)		(9	)%		(12,652	)		(9	)%		(2,054	)		16	%
General and administrative expenses		(35,436	)		(22	)%		(30,573	)		(23	)%		(4,863	)		16	%

Segment earnings	$	42,323			26	%	$	31,974			23	%	$	10,349			32	%

Over the course of the last several years, the inflation rate in Argentina has risen significantly, and we expect that it may continue to remain elevated in future years. The higher inflation rate has affected costs that are incurred in Argentine pesos, including personnel costs in particular. If the higher inflation rates in Argentina continue, Nextel Argentina’s results of operations may be adversely affected.

The average values of the Argentine peso for the six and three months ended June 30, 2011 depreciated relative to the U.S. dollar by 5% when compared to the same periods in 2010. As a result, the components of Nextel Argentina’s results of operations for the six and three months ended June 30, 2011 after translation into U.S. dollars reflect lower U.S. dollar-denominated revenues and expenses than would have occurred if the Argentine peso had not depreciated relative to the U.S. dollar.

Nextel Argentina’s segment earnings increased 26% and 32% in the six and three months ended June 30, 2011 compared to the same periods in 2010, primarily due to $38.6 million, or 16%, and $21.9 million, or 17%, increases in service and other revenues caused by increases in the average number of handsets in service, as well as increases in average revenue per subscriber, partially offset by increased general and administrative expenses caused by increases in salaries due to the higher rate of inflation in Argentina and a higher turnover tax rate.

The changes in Nextel Argentina’s cost of revenues and selling and marketing expenses in the six and three months ended June 30, 2011 compared to the same periods in 2010 were immaterial.


e.	Nextel Peru


				% of						% of
				Nextel						Nextel
				Peru’s						Peru’s
	June 30,			Operating			June 30,			Operating			Change from Previous Year
	2011			Revenues			2010			Revenues			Dollars			Percent
	(dollars in thousands)

Six Months Ended
Operating revenues								��
Service and other revenues	$	157,205			90	%	$	134,502			90	%	$	22,703			17	%
Digital handset and accessory revenues		16,622			10	%		14,695			10	%		1,927			13	%

		173,827			100	%		149,197			100	%		24,630			17	%

Cost of revenues
Cost of service (exclusive of depreciation and amortization)		(52,358	)		(30	)%		(50,089	)		(34	)%		(2,269	)		5	%
Cost of digital handset and accessory sales		(38,512	)		(22	)%		(29,789	)		(20	)%		(8,723	)		29	%

		(90,870	)		(52	)%		(79,878	)		(54	)%		(10,992	)		14	%
Selling and marketing expenses		(31,373	)		(18	)%		(24,907	)		(16	)%		(6,466	)		26	%
General and administrative expenses		(36,531	)		(21	)%		(34,170	)		(23	)%		(2,361	)		7	%

Segment earnings	$	15,053			9	%	$	10,242			7	%	$	4,811			47	%

Three Months Ended
Operating revenues
Service and other revenues	$	79,466			90	%	$	68,902			90	%	$	10,564			15	%
Digital handset and accessory revenues		8,704			10	%		7,416			10	%		1,288			17	%

		88,170			100	%		76,318			100	%		11,852			16	%

Cost of revenues
Cost of service (exclusive of depreciation and amortization)		(26,358	)		(30	)%		(24,432	)		(32	)%		(1,926	)		8	%
Cost of digital handset and accessory sales		(19,292	)		(22	)%		(14,905	)		(20	)%		(4,387	)		29	%

		(45,650	)		(52	)%		(39,337	)		(52	)%		(6,313	)		16	%
Selling and marketing expenses		(15,974	)		(18	)%		(12,342	)		(16	)%		(3,632	)		29	%
General and administrative expenses		(18,671	)		(21	)%		(18,620	)		(24	)%		(51	)		0	%

Segment earnings	$	7,875			9	%	$	6,019			8	%	$	1,856			31	%

In December 2009, we launched a third generation network in Peru using 1.9 GHz spectrum we acquired in 2007. We continue to develop and deploy transmitter and receiver sites in conjunction with the build-out of this network. Although we commercially launched voice service on this network in April 2010, we expect to incur significant expenses associated with our continued deployment, particularly general and administrative expenses, as we launch services in more markets and incorporate additional services in existing markets in Peru, including high performancepush-to-talk services; however, we do not expect a corresponding increase in operating revenues during this deployment phase. We believe that the deployment of this third generation network will enable us to offer new and differentiated services to a larger base of potential customers in Peru.

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

Segment earnings increased 47% and 31% in the six and three months ended June 30, 2011 compared to the same periods in 2010, primarily due to $22.7 million, or 17%, and $10.6 million, or 15%, increases in service and other revenues largely attributable to 35% increases in average digital subscribers for both periods, partially offset

by decreases in average revenues per subscriber. The increases in Nextel Peru’s service and other revenues were partially offset by slight increases to cost of digital handset and accessory sales, and selling and marketing expenses.


f.	Corporate and other


				% of						% of
				Corporate						Corporate
				and other						and other
	June 30,			Operating			June 30,			Operating			Change from Previous
	2011			Revenues			2010			Revenues			Dollars			Percent
	(dollars in thousands)

Six Months Ended
Operating revenues
Service and other revenues	$	14,819			100	%	$	10,347			99	%	$	4,472			43	%
Digital handset and accessory revenues		54			—			60			1	%		(6	)		(10	)%

		14,873			100	%		10,407			100	%		4,466			43	%

Cost of revenues
Cost of service (exclusive of depreciation and amortization)		(15,155	)		(102	)%		(6,163	)		(59	)%		(8,992	)		146	%
Cost of digital handset and accessory sales		(2,373	)		(16	)%		(2,016	)		(20	)%		(357	)		18	%

		(17,528	)		(118	)%		(8,179	)		(79	)%		(9,349	)		114	%
Selling and marketing expenses		(16,155	)		(109	)%		(9,620	)		(92	)%		(6,535	)		68	%
General and administrative expenses		(164,914	)		NM			(121,414	)		NM			(43,500	)		36	%

Segment losses	$	(183,724	)		NM		$	(128,806	)		NM		$	(54,918	)		43	%

Three Months Ended
Operating revenues
Service and other revenues	$	7,434			100	%	$	5,782			100	%	$	1,652			29	%
Digital handset and accessory revenues		34			—			21			—			13			62	%

		7,468			100	%		5,803			100	%		1,665			29	%

Cost of revenues
Cost of service (exclusive of depreciation and amortization)		(8,090	)		(108	)%		(3,285	)		(57	)%		(4,805	)		146	%
Cost of digital handset and accessory sales		(1,173	)		(16	)%		(1,191	)		(20	)%		18			(2	)%

		(9,263	)		(124	)%		(4,476	)		(77	)%		(4,787	)		107	%
Selling and marketing expenses		(8,905	)		(119	)%		(3,938	)		(68	)%		(4,967	)		126	%
General and administrative expenses		(88,327	)		NM			(65,647	)		NM			(22,680	)		35	%

Segment losses	$	(99,027	)		NM		$	(68,258	)		NM		$	(30,769	)		45	%

NM-Not Meaningful

For the six and three months ended June 30, 2011 and 2010, corporate and other operating revenues and cost of revenues primarily represent the results of operations reported by Nextel Chile. We are deploying a third generation network in Chile, which we believe will enable us to offer new and differentiated services to a larger base of potential customers. Deployment and expansion of this network in Chile resulted in capital expenditures totaling $42.6 million for the six months ended June 30, 2011, which represented 8% of our consolidated total capital expenditures for the first half of 2011. Deployment of our third generation network and other planned network expansions in Chile will require significant investments in capital expenditures over the next several years.

Segment losses increased from the six and three months ended June 30, 2010 to the same periods in 2011 primarily due to $43.5 million and $22.7 million increases in general and administrative expenses, largely due to increases in consulting expenses and, to a lesser extent, increases in corporate information technology costs, both of which are largely related to the planned launch of third generation networks and supporting systems in our markets, as well as other technology-related initiatives. We expect that corporate general and administrative expenses will

continue to increase along with other operating expenses as we progress with the expansion plans and new technology initiatives in some of our markets.

Liquidity and Capital Resources

We derive our liquidity and capital resources primarily from cash we raise in connection with external financings and cash flows from our operations. As of June 30, 2011, we had working capital, which is defined as total current assets less total current liabilities, of $1,927.6 million, a $240.3 million decrease compared to working capital of $2,167.9 million as of December 31, 2010. The decrease in working capital was primarily a result of the reclassification of $1.1 billion of our 3.125% convertible notes, which will mature in June 2012, as a current portion of long-term debt, partially offset by about $735.6 million in net proceeds received from the issuance of our 7.625% senior notes in March 2011. As of June 30, 2011, our working capital includes $2,533.8 million in cash and cash equivalents, of which $152.9 million was held in currencies other than U.S. dollars, with 55% of that amount held in Mexican pesos. As of June 30, 2011, our working capital also includes $408.7 million in short-term investments, the majority of which was held in U.S. dollars. A substantial portion of our cash, cash equivalents and short-term U.S. dollar investments are held in money market funds and U.S. treasury securities, and our cash, cash equivalents and short-term investments held in local currencies are typically maintained in a combination of money market funds, highly liquid overnight securities and fixed income investments.

We recognized net income of $210.4 million and $113.6 million for the six and three months ended June 30, 2011, respectively, compared to $124.0 million and $75.5 million for the six and three months ended June 30, 2010. During the six and three months ended June 30, 2011 and 2010, our operating revenues more than offset our operating expenses, excluding depreciation and amortization, and cash capital expenditures.

In March 2011, we issued senior notes with $750.0 million aggregate principal amount due at maturity that bear interest at a rate of 7.625% per year, which is payable semi-annually in arrears on April 1 and October 1, beginning on October 1, 2011. The notes will mature on April 1, 2021 when the entire principal amount will be due.

In June 2011, Nextel Brazil was granted spectrum licenses in the 1.8 GHz and 1.9/2.1 GHz spectrum bands in connection with its successful bids in the spectrum auction held in December 2010. The total purchase price of this spectrum was the equivalent of $910.5 million. Nextel Brazil paid 10% of the purchase price upon the grant of the license and financed the remaining amount through deferred payment terms made available by the Brazilian telecommunications regulator as part of the auction terms. The amount borrowed under the spectrum license financing is payable in six annual installments beginning in May 2014. Beginning June 1, 2011, interest accrues on the spectrum license financing at a rate of 1% per month, plus the Brazilian telecommunications industry index rate. Interest payments are not required to be paid until May 2014.

In addition, in July 2011, Nextel Mexico entered into a U.S. dollar-denominated loan agreement with the China Development Bank, under which Nextel Mexico will receive up to $375.0 million to finance infrastructure equipment and assist in the deployment of its third generation network in Mexico. This equipment financing has a final maturity of ten years, with a three-year drawdown period and a seven-year repayment term. To date, we have not borrowed any amounts under this facility.

We expect our current sources of funding, including our cash, cash equivalent and investment balances, our new equipment financing facility in Mexico, committed financings and other anticipated future cash flows will together be sufficient to meet our funding needs to support our current business and our planned deployment of third generation networks. Nonetheless, we plan to continue to evaluate funding opportunities and, if appropriate, access the credit and capital markets in order to reduce our capital costs, optimize our capital structure, and maintain or enhance our liquidity position. To meet these goals, we expect to pursue various financing alternatives, including U.S. capital market transactions, as well as locally-based vendor and bank financing opportunities. We would need to obtain additional funding beyond our current sources to fund the deployment of a third generation network in Argentina if we are able to acquire spectrum licenses there.

Cash Flows


	Six Months Ended
	June 30,
	2011			2010			Change
	(in thousands)

Cash and cash equivalents, beginning of period	$	1,767,501		$	2,504,064		$	(736,563	)
Net cash provided by operating activities		604,248			400,222			204,026
Net cash used in investing activities		(325,493	)		(994,380	)		668,887
Net cash provided by (used in) financing activities		488,722			(97,556	)		586,278
Effect of exchange rate changes on cash and cash equivalents		(1,225	)		7,585			(8,810	)

Cash and cash equivalents, end of period	$	2,533,753		$	1,819,935		$	713,818

As discussed above, one of the primary sources of our liquidity is our ability to generate positive cash flows from operations. The following is a discussion of the primary sources and uses of cash in our operating, investing and financing activities:

Our operating activities provided us with $604.2 million of cash during the first half of 2011, a $204.0 million, or 51%, increase from the first half of 2010, primarily due to higher operating income resulting from our profitable growth strategy and the impact of favorable changes in exchange rates.

We used $325.5 million of cash in our investing activities during the first half of 2011, a $668.9 million, or 67%, decrease from the first half of 2010, primarily due to a $676.6 million net decrease in the purchase of short-term investments in both Brazil and at the corporate level and the return of $77.2 million in cash that secured performance bonds related to our spectrum acquisition in Chile, partially offset by a $116.7 million increase in cash capital expenditures and $94.2 million in payments for the purchase of licenses, the majority of which was related to the spectrum licenses Nextel Brazil was granted in June 2011.

Our financing activities provided us with $488.7 million of cash during the first half of 2011, primarily due to $750.0 million in gross proceeds that we received from the issuance of our 7.625% senior notes, partially offset by the repayment of $209.4 million under our syndicated loan facilities in Mexico, Brazil and Peru and debt financing costs related to our 7.625% senior notes. We used $97.6 million of cash in our financing activities during the first half of 2010, primarily due to $124.3 million in purchases of our 3.125% convertible notes and our 2.75% convertible notes, as well as repayments of our short-term borrowings in Brazil, partially offset by $80.0 million in borrowings under Nextel Peru’s syndicated loan facility and borrowings under our short-term financings in Brazil.

Future Capital Needs and Resources

Our business strategy contemplates the ongoing expansion of the capacity of our iDEN networks and the deployment of new third generation networks. Consistent with this strategy, we have: substantially expanded the coverage of our iDEN network, particularly in Brazil; made significant capital investments to enhance the quality and capacity of our iDEN networks in all of our markets; and deployed and commercially launched services using a WCDMA-based third generation network in Peru. In addition, as discussed in more detail above, we plan to begin offering third generation services in Chile later this year and in Brazil and Mexico in 2012. We expect our capital expenditures will increase significantly in 2011, 2012 and 2013 as we invest in these networks.

Capital Resources. Our ongoing capital resources depend on a variety of factors, including our existing cash, cash equivalents and investment balances, our new equipment financing agreement in Mexico, committed financings, cash flows generated by our operating companies and external financial sources that may be available. Our ongoing capital resources may also be affected by the availability of funding from external sources, including the availability of funding from the U.S. capital markets and from local vendor and bank financing or similar arrangements.

Our ability to generate sufficient net cash from our operating activities is dependent upon, among other things:


	•	the amount of revenue we are able to generate and collect from our customers;


	•	the amount of operating expenses required to provide our services;

	•	the cost of acquiring and retaining customers, including the subsidies we incur to provide handsets to both our new and existing customers;

	•	our ability to continue to increase the size of our subscriber base; and

	•	changes in foreign currency exchange rates.

Capital Needs and Contractual Obligations. We currently anticipate that our future capital needs will principally consist of funds required for:


	•	operating expenses relating to our networks;

	•	capital expenditures to expand and enhance our networks, as discussed below under “Capital Expenditures;”

	•	operating expenses and capital expenditures related to the deployment of third generation networks in Brazil, Mexico, Peru and Chile and, if we are successful in acquiring spectrum, in Argentina;

	•	payments in connection with existing and future spectrum purchases, including ongoing fees for spectrum use;

	•	debt service requirements, including significant upcoming maturities on obligations such as our convertible notes that are due in 2012, as well as obligations relating to our tower financings and capital leases;

	•	cash taxes; and

	•	other general corporate expenditures.

In making assessments regarding our future capital needs and the capital resources available to meet those needs, we do not consider events that have not occurred like success in any particular auction and the costs of acquiring that spectrum or the costs of the related network deployment, other than in Brazil, Mexico, Peru and Chile, and we do not assume the availability of external sources of funding that may be available for these future events, including vendor financing or other available financing.

Other than Nextel Brazil’s spectrum license financing and the issuance of our 7.625% senior notes described above in the discussion of our capital resources, during the six months ended June 30, 2011, there were no material changes to our contractual obligations as described in our annual report onForm 10-K for the year ended December 31, 2010.

Capital Expenditures. Our capital expenditures, including capitalized interest, were $521.8 million for the six months ended June 30, 2011 and $364.6 million for the six months ended June 30, 2010. In both years, a substantial portion of our capital expenditures was invested in the expansion of the coverage and improvement of the quality and capacity of our iDEN networks in Brazil and Mexico, as well as for the deployment of our third generation networks in Peru (primarily in 2010) and in Mexico and Brazil (primarily in 2011).

Our business strategy contemplates the ongoing expansion of the capacity of our iDEN networks and the deployment of new third generation networks. Consistent with this strategy, we have made, and will continue to make, substantial capital investments in our iDEN networks in all of our markets. We also have deployed and launched services using a WCDMA-based third generation network in Peru and are in the process of deploying similar networks in Chile, Brazil and Mexico. In addition, we plan to participate in the spectrum auction that is expected to be conducted in Argentina, and if we are successful in acquiring spectrum in that auction, we plan to deploy a third generation network there consistent with applicable regulatory requirements and our business strategy. The purchase of spectrum and deployment of new third generation networks across our markets, as well as our expansion of the capacity of our iDEN networks, will result in a significant increase in our capital expenditures in the applicable markets throughout the remainder of 2011, in 2012 and in 2013, with the amount and timing of those additional capital expenditures dependent on, among other things, our business plans, the payment rules associated with the spectrum and the nature and extent of any regulatory requirements that may be imposed regarding the timing and scope of the deployment of the new networks.

We expect to finance our capital spending for our existing and future network needs using the most effective combination of cash from operations, cash on hand, cash from the sale or maturity of our short- and long-term investments, borrowings under our new equipment financing facility in Mexico and proceeds from external financing sources that are or may become available. We may also consider entering into strategic relationships with third parties that will provide additional funding to support our business plans. Our capital spending is expected to be driven by several factors, including:


	•	the extent to which we expand the coverage of our networks in new or existing market areas;

	•	the number of additional transmitter and receiver sites we build in order to increase system capacity and maintain system quality and the costs associated with the installation of related switching equipment in some of our existing market areas;

	•	the extent to which we must add capacity to our networks to meet the demand of our growing customer base;

	•	the amount we spend to deploy the third generation networks in Brazil, Mexico, Peru and Chile;

	•	the costs we incur in connection with future spectrum acquisitions and the development and deployment of any third generation networks in Argentina; and

	•	the costs we incur in connection withnon-network related information technology projects.

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

Future Outlook. Our long-term business strategy contemplates the ongoing expansion of the capacity of our iDEN networks and the deployment of new third generation networks in Brazil, Mexico, Peru and Chile. We expect our capital expenditures will increase materially during the remainder of 2011, in 2012 and in 2013 as we invest in these networks. We expect our current cash, cash equivalents and investment balances, our new equipment financing facility in Mexico, committed financings and other anticipated future cash flows will together be sufficient to meet our funding needs to support our current business and our planned deployment of third generation networks. However, we would need to obtain additional funding beyond our current sources to fund the deployment of a third generation network in Argentina if we are able to acquire spectrum licenses there.

The timing and amount of our future funding needs will also be affected by the need to repay or refinance our existing indebtedness, including $1.1 billion principal amount of our 3.125% convertible notes that mature in June 2012 and most of the $249.7 million in syndicated loan facilities due during the next five years.

We are evaluating and pursuing various financing alternatives, including U.S. capital market transactions, as well as locally-based vendor and bank financing opportunities, that can be used to reduce our capital costs, optimize our capital structure, and maintain or enhance our liquidity position. We expect to continue to raise additional funding using one or more of these alternatives. Any indebtedness that we may incur during the remainder of 2011 and in subsequent years may be significant.

In making this assessment of our funding needs under our current business plans, we have considered:


	•	cash and cash equivalents on hand and short- and long-term investments available to fund our operations;

	•	expected cash flows from operations;

	•	the cost and timing of spectrum payments, including ongoing fees for spectrum use;

	•	the anticipated level of capital expenditures required to meet both minimum build-out requirements and our business plans for our planned deployment of third generation networks in Brazil, Mexico, Peru and Chile;

	•	our assumption that there will not be significant fluctuations in values of the currencies in the countries in which we conduct business relative to the U.S. dollar;

	•	our scheduled debt service, which includes significant maturities in the next several years; and

	•	income taxes.

In addition to the factors described above, the anticipated cash needs of our business, as well as the conclusions presented herein as to the adequacy of the available sources of cash, could change significantly:


	•	if our plans change;

	•	if we decide to expand into new markets or expand our geographic coverage or network capacity in our existing markets beyond our current plans, as a result of the construction of additional portions of our networks or the acquisition of competitors or others;

	•	if currency values in our markets depreciate relative to the U.S. dollar in a manner contrary to our expectations;

	•	if economic conditions in any of our markets change;

	•	if competitive practices in the mobile wireless telecommunications industry in certain of our markets change materially from those currently prevailing or from those now anticipated; or

	•	if other presently unexpected circumstances arise that have a material effect on the cash flow or profitability of our business.

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


	•	the commercial success of our operations;

	•	the volatility and demand of the capital markets; and

	•	the future market prices of our securities.

Market conditions in debt and equity markets in the United States and global markets during 2008 and part of 2009 resulted in a substantial decline in the amount of funding available to corporate borrowers compared to prior periods as the global economic downturn affected both the availability and terms of financing. Although conditions in the debt and equity markets in the United States have improved, volatility in those markets could make it more difficult or more costly for us to raise additional capital in order to meet our future capital needs, and the related additional costs and terms of any financing we raise could impose restrictions that limit our flexibility in responding to business conditions and our ability to obtain additional financing. If new indebtedness is added to our current levels of indebtedness, the related risks that we now face could intensify. For more information, see “Item 1A. Risk Factors” included in our annual report onForm 10-K.

Effect of New Accounting Standards

There were no new accounting standards issued during the six months ended June 30, 2011 that materially impacted our condensed consolidated financial statements.

Forward-Looking Statements

We include certain estimates, projections and other forward-looking statements in our annual, quarterly and current reports, as well as in other publicly available material. Statements regarding expectations, including forecasts regarding operating results and performance assumptions and estimates relating to capital requirements, as well as other statements that are not historical facts, are forward-looking statements.

These statements reflect management’s judgments based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. With respect to these forward-looking statements, management has made assumptions regarding, among other things, customer and network usage, customer growth and retention, pricing, operating costs, the timing of various events, the economic and regulatory environment and the foreign currency exchange rates of currencies in the countries in which our operating companies conduct business relative to the U.S. dollar.

Future performance cannot be assured. Actual results may differ materially from those in the forward-looking statements. Some factors that could cause actual results to differ include:


	•	our ability to attract and retain customers;

	•	our ability to meet the operating goals established by our business plan;

	•	general economic conditions in the United States or in Latin America and in the market segments that we are targeting for our services, including the impact of the current uncertainties in global economic conditions;

	•	the political and social conditions in the countries in which we operate, including political instability, which may affect the economies of our markets and the regulatory schemes in these countries;

	•	the impact of foreign currency exchange rate volatility in our markets when compared to the U.S. dollar and related currency depreciation in countries in which our operating companies conduct business;

	•	our ability to access sufficient debt or equity capital to meet any future operating and financial needs;

	•	reasonable access to and the successful performance of the technology being deployed in our service areas, and improvements thereon, including technology deployed in connection with the introduction of digital two-way mobile data or Internet connectivity services in our markets;

	•	the availability of adequate quantities of system infrastructure and subscriber equipment and components at reasonable pricing to meet our service deployment and marketing plans and customer demand;

	•	Motorola’s ability and willingness to provide handsets and related equipment and software applications or to develop new technologies or features for us for use on our iDEN network, including the timely development and availability of new handsets with expanded applications and features;

	•	the risk of deploying new third generation networks, including the potential need for additional funding to support that deployment, the risk that new services supported by the new networks will not attract enough subscribers to support the related costs of deploying or operating the new networks, the need to significantly increase our employee base and the potential distraction of management;

	•	our ability to successfully scale our billing, collection, customer care and similar back-office operations to keep pace with customer growth, increased system usage rates and growth or to successfully deploy new systems that support those functions;

	•	the success of efforts to improve and satisfactorily address any issues relating to our network performance;

	•	future legislation or regulatory actions relating to our SMR services, other wireless communications services or telecommunications generally and the costsand/or potential customer impacts of compliance with regulatory mandates;

	•	the ability to achieve and maintain market penetration and average subscriber revenue levels sufficient to provide financial viability to our network business;

	•	the quality and price of similar or comparable wireless communications services offered or to be offered by our competitors, including providers of cellular services and personal communications services;

	•	market acceptance of our new service offerings;

	•	equipment failure, natural disasters, terrorist acts or other breaches of network or information technology security; and

	•	other risks and uncertainties described in this annual report onForm 10-K, including in Part I, Item 1A. “Risk Factors,” and in our other reports filed with the Securities and Exchange Commission, or the SEC.

The words “may,” “could,” “estimate,” “project,” “forecast,” “intend,” “expect,” “believe,” “target,” “plan,” “providing guidance” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are found throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report. The reader should not place undue reliance on forward-looking

statements, which speak only as of the date of this report. Except as otherwise provided by law, we are not obligated to publicly release any revisions to forward-looking statements to reflect events after the date of this report, including unforeseen events.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk.

In March 2011, we issued U.S. dollar-denominated fixed rate senior notes with $750.0 million aggregate principal amount due at maturity that bear interest at a rate of 7.625% per year, which is payable semi-annually in arrears on April 1 and October 1, beginning on October 1, 2011. The notes will mature on April 1, 2021 when the entire principal amount will be due.

In addition, in June 2011, Nextel Brazil was granted spectrum licenses in the 1.8 GHz and 1.9/2.1 GHz spectrum bands in connection with its successful bids in the spectrum auction held in December 2010. The total purchase price of this spectrum was the equivalent of $910.5 million. Nextel Brazil paid 10% of the purchase price upon the grant of the license and financed the remaining amount through deferred payment terms made available by the Brazilian telecommunications regulator as part of the auction terms. The amount borrowed under the spectrum license financing is payable in six annual installments beginning in May 2014. Beginning June 1, 2011, interest accrues on the spectrum license financing at a rate of 1% per month, plus the Brazilian telecommunications industry index rate. Interest is not required to be paid until May 2014. Because the spectrum license financing is denominated in Brazilian reais, the payments for principal and interest will fluctuate in U.S. dollars based on changes in the exchange rate of the Brazilian real relative to the U.S. dollar.

Other than Nextel Brazil’s spectrum license financing and the issuance of our 7.625% senior notes, during the six months ended June 30, 2011, there were no material changes to our market risk policies or our market risk sensitive instruments and positions as described in our annual report onForm 10-K for the year ended December 31, 2010.


Item 4.	Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods required by the SEC and that such information is accumulated and communicated to the Company’s management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

As of June 30, 2011, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was carried out under the supervision and with the participation of our management teams in the United States and in our operating companies, including our chief executive officer and chief financial officer. Based on and as of the date of such evaluation, our chief executive officer and chief financial officer concluded that the design and operation of our disclosure controls and procedures were not effective due to a material weakness in the Company’s internal controls over financial reporting. The material weakness we identified, which is more fully described in “Item 9A. Controls and Procedures” of our annual report onForm 10-K for the year ended December 31, 2010, related to the failure of the controls in our Brazil operating segment over the communication and incorporation of changes in Brazilian value-added tax laws into our reporting procedures. The underlying factors contributing to the control failure related to insufficient staffing, documentation and training, and underinvestment in systems, resulting in inappropriate reliance on manual procedures. The remediation plan that we have developed and are following addresses both the specific areas of the financial close process related to the errors that were identified in 2010, as well as the underlying factors contributing to the errors.

Changes in Internal Control over Financial Reporting

During the second quarter of 2011, management made significant progress with regard to its remediation of the material weakness in our Brazil operating segment discussed in more detail above and in our quarterly report onForm 10-Q for the three months ended September 30, 2010. We have redesigned the areas of the financial close

process related to the error identified in 2010, significantly increased our staffing levels, finalized documentation related to roles and responsibilities during the close process and provided training to facilitate our compliance with the ongoing and new procedures. We continue to develop and plan the implementation of system improvements that are expected to reduce our reliance on manual procedures. Until these system improvements can be finalized and implemented, we are using compensating controls, including additional validations and reviews performed on a monthly basis, to ensure the accuracy of our financial information. We plan to test these compensating controls in order to evaluate their reliability in upcoming quarters. Because the implementation of the remediation plan is ongoing, we have not remediated the material weakness as of the end of the period covered by this quarterly report onForm 10-Q. Other than as noted above, there have been no changes in the Company’s internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION


Item 1.	Legal Proceedings.

For information on our various loss contingencies, see Note 5 to our condensed consolidated financial statements above.


Item 1A.	Risk Factors.

There have been no material changes in our risk factors from those disclosed in our annual report onForm 10-K dated February 24, 2011.


Item 6.	Exhibits.


Exhibit
Number			Exhibit Description

	12	.1*	Ratio of Earnings to Fixed Charges.
	31	.1*	Statement of Chief Executive Officer Pursuant toRule 13a-14(a).
	31	.2*	Statement of Chief Financial Officer Pursuant toRule 13a-14(a).
	32	.1*	Statement of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
	32	.2*	Statement of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
	101*		The following materials from the NII Holdings, Inc. Quarterly Report onForm 10-Q for the quarter ended June 30, 2011 formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income, (iii) Condensed Consolidated Statement of Changes in Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements.


*		Submitted electronically herewith.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	By:	/s/ TERESA S. GENDRON

Teresa S. Gendron

Vice President and Controller

(on behalf of the registrant and as

chief accounting officer)

Date: August 4, 2011

EXHIBIT INDEX


Exhibit
Number			Exhibit Description

	12	.1*	Ratio of Earnings to Fixed Charges.
	31	.1*	Statement of Chief Executive Officer Pursuant toRule 13a-14(a).
	31	.2*	Statement of Chief Financial Officer Pursuant toRule 13a-14(a).
	32	.1*	Statement of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
	32	.2*	Statement of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
	101*		The following materials from the NII Holdings, Inc. Quarterly Report onForm 10-Q for the quarter ended June 30, 2011 formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income, (iii) Condensed Consolidated Statement of Changes in Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements.


*		Submitted electronically herewith.

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Good

Nii (NIHD) 10-Q2011 Q2 Quarterly report

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