Sprint - Nextel 2007 Annual Report Download - page 43

provides that qualifying costs we incur as part of the reconfiguration plan, including costs to reconfigure our own
infrastructure and spectrum positions, can be used to offset the minimum obligation of $2.8 billion; however, we
are obligated to pay the full amount of the costs relating to the reconfiguration plan, even if those costs exceed
that amount.
In addition, a financial reconciliation is required to be completed at the end of the reconfiguration
implementation to determine whether the value of the spectrum rights received exceeds the total of (i) the value
of spectrum rights that are surrendered and (ii) the qualifying costs referred to above. If so, we will be required to
pay the difference to the U.S. Treasury, as described above. Based on the FCC’s determination of the values of
the spectrum rights received and surrendered by Nextel, the minimum obligation to be incurred under the Report
and Order is $2.8 billion. The Report and Order also provides that qualifying costs we incur as part of the
reconfiguration plan, including costs to reconfigure our own infrastructure and spectrum positions, can be used to
offset the minimum obligation of $2.8 billion; however, we are obligated to pay the full amount of the costs
relating to the reconfiguration plan, even if those costs exceed that amount. From the inception of the program
and through December 31, 2007, we have incurred approximately $1.1 billion of costs directly attributable to the
spectrum reconfiguration program. This amount does not include any of our internal network costs that we have
preliminarily allocated to the reconfiguration program for capacity sites and modifications for which we may
request credit under the reconfiguration program. If we are successful in our appeal of the Third MO&O, we
estimate, based on our experience to date with the reconfiguration program and on information currently
available, that our total direct costs attributable to complete the spectrum reconfiguration will range between $2.7
billion and $3.4 billion. This estimate is dependent on significant assumptions including the final licensee costs,
and costs associated with relocating licensees in the Canadian and Mexican border regions for which there are
currently no approved border plans. In addition, the above range does not include any of our apportioned internal
network costs. Actual results could differ from such estimates. In addition, we are entitled to receive
reimbursement from the mobile-satellite service licensees for their pro rata portion of our costs of clearing a
portion of the 1.9 GHz spectrum. Those licensees may be unable or unwilling to reimburse us for their share of
the costs, which we estimate to be approximately $200 million. If we are unsuccessful in our appeal of the Third
MO&O, we anticipate that our costs could exceed $3.4 billion by an amount that would likely be material.
However, we believe that it is unlikely we will be required to make a payment to the U.S. Treasury.
As required under the terms of the Report and Order, we delivered a $2.5 billion letter of credit to provide
assurance that funds will be available to pay the relocation costs of the incumbent users of the 800 MHz
spectrum. Although the Report and Order provides for the possibility of periodic reductions in the amount of the
letter of credit, no reductions have been requested or made as of December 31, 2007.
Wireline
Through our Wireline segment, we provide a broad suite of wireline voice and data communications
services targeted to domestic business customers, multinational corporations and other communications
companies. These services include domestic and international data communications using various protocols, such
as MPLS technologies, IP, asynchronous transfer mode, or ATM, frame relay, managed network services and
voice services. We also provide services to the cable MSOs that resell our local and long distance service or use
our back office systems and network assets in support of their telephone service provided over cable facilities
primarily to residential end-user customers. We are one of the nation’s largest providers of long distance services
and operate all-digital long distance and Tier 1 IP networks.
For several years, our long distance voice services have experienced an industry-wide trend of lower
revenue from lower prices and competition from other wireline and wireless communications companies, as well
as cable MSOs and Internet service providers. Growth in voice services provided by cable MSOs is accelerating
as consumers use cable MSOs as alternatives to local and long distance voice communications providers. We
continue to assess the portfolio of services provided by our Wireline segment and are focusing our efforts on
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