Sprint and Nextel Communications, Inc. recently announced that their boards of directors have unanimously approved a definitive agreement for a merger of equals. The combination will create a wireless carrier augmented by a global IP network that will offer consumer, business and government clients new broadband wireless and integrated communications services. The new company, which will be called Sprint Nextel, also intends to spin off to its shareholders Sprint’s local telecommunications business following the merger.

Sprint and Nextel currently have a combined total equity value of approximately $70 billion and serve more than 35 million wireless subscribers on their networks and 5 million additional subscribers through affiliates and partners. The two companies, along with their affiliates and partners, operate networks that directly cover nearly 262 million people, more of the U.S. population than any other carrier.

The new company will be well positioned in the fastest-growing areas of the telecommunications industry, including mobile data and push-to-talk services. With Sprint’s global Internet network, the new company will be positioned to provide differentiated communications solutions through integrated applications for business and government and new broadband wireless services for consumers.

Sprint Nextel will have its executive headquarters in Reston, Va., and its operational headquarters in Overland Park, Kan. The new company’s common stock will be listed on the New York Stock Exchange. The merger is expected to close in the second half of 2005 and is subject to shareholder and regulatory approvals, as well as other customary closing conditions.

Spin-Off of Local Telecommunications

Following the close of the merger, Sprint Nextel intends to separate Sprint’s local telecommunications business, such as the unit headquartered in Poulsbo, including consumer, business and wholesale operations from its other businesses and then spin this separated company off to the Sprint Nextel shareholders in a transaction that is expected to be tax free. The inclusion of Sprint’s North Supply business in the spin-off will be determined at a later date.

The local telecommunications business will have its own management team and board of directors, consisting of an equal number of designees from Sprint and Nextel. The local telecommunications business, which has 7.7 million local access lines in 18 states and had revenues of more than $6 billion over the past four quarters, will be the largest independent local telephone company in the United States. It will have commercial operating relationships with Sprint Nextel for mobile and long-distance network services and will receive certain transitional services, including corporate support functions. Completion of the spin-off is subject to certain conditions, including regulatory approvals. Following the spin-off, its common stock is expected to be listed on the New York Stock Exchange.

Sprint expects to continue to pay dividends at current levels through the closing of the merger. The spun off local telecommunications business is expected to pay quarterly dividends consistent with its financial prospects. Following the completion of the merger and until completion of the spin-off, it is contemplated that Sprint Nextel will pay a reduced quarterly dividend to shareholders in amounts consistent with the dividends that the spun-off local telecommunications business expects to pay. Following completion of the spin-off, it is anticipated that Sprint Nextel will cease paying dividends.