Sprint - Nextel 2010 Annual Report Download - page 83

The minimum cash obligation is approximately $2.8 billion under the Report and Order. We are, however, obligated to
pay the full amount of the costs relating to the reconfiguration plan, even if those costs exceed $2.8 billion. As required under
the terms of the Report and Order, a letter of credit has been secured to provide assurance that funds will be available to pay the
relocation costs of the incumbent users of the 800 MHz spectrum. We submit the qualified 800 MHz relocation costs to the
FCC for review for potential letter of credit reductions on a periodic basis. As a result of these reviews, our letter of credit was
reduced from $2.5 billion at the start of the project to $1.3 billion as of December 31, 2010, as approved by the FCC.
The following table represents payments directly attributable to our performance under the Report and Order from
the inception of the program:
FCC licenses
Property, plant and equipment(1)
Costs not benefiting our infrastructure or spectrum positions
Through
December 31, 2009
(in millions)
$ 1,956
157
275
$ 2,388
Net Additions
$ 414
—
35
$ 449
Through
December 31, 2010
$ 2,370
157
310
$ 2,837
_______________
(1) Excluded from the table above are reconfiguration costs incurred to date which are based on allocations between
reconfiguration activities and our normal network improvements. The methodology with which we have calculated these
costs has not been approved by the independent Transition Administrator designated by the FCC to review our
expenditures. As a result, the amount allocated to reconfiguration activity is subject to change based on additional
assessments made over the course of the reconfiguration program.
When expended, these costs are generally accounted for either as property, plant and equipment or as additions to the
FCC licenses intangible asset. Costs expended to date have exceeded $2.8 billion; however, not all of those costs have been
reviewed and accepted as eligible by the Transition Administrator. Regardless, we continue to estimate that total direct costs
attributable to the spectrum reconfigurations will exceed the minimum cash obligation of $2.8 billion. This estimate is
dependent on significant assumptions including the final licensee costs and costs associated with relocating licensees in the
Canadian border region under the border plan that was adopted by the FCC and the Mexican border region for which there is
currently no approved border plan. In addition, we are entitled to receive reimbursement from the mobile satellite service
(MSS) entrants for their pro rata portion of our costs (approximately $200 million) of clearing a portion of the 1.9 GHz
spectrum. On September 29, 2010, the FCC affirmed the obligation of the MSS entrants to reimburse us and we are pursuing
expeditious implementation of the FCC's decision, although there is uncertainty around the MSS entrants' ability to reimburse.
However, the FCC's decision recognizes that uncertainty and allows us to pursue other avenues to obtain reimbursement from
those entrants or their affiliates.
Completion of the 800 MHz band reconfiguration was initially required by June 26, 2008. The FCC continues to
grant 800 MHz public safety licensees additional time to complete their band reconfigurations which, in turn, delays Sprint's
access to some of our 800 MHz replacement channels. Under an October 2008 FCC Order, March 31, 2010 was the target date
for us to begin to relinquish some of our 800 MHz channels on a region-by-region basis prior to receiving all of our FCC-
designated 800 MHz replacement channels. On March 31, 2010, however, the FCC granted Sprint's request that it delay the
March 31, 2010 deadline for one year until March 31, 2011 in 21 markets where public safety licensees have not yet moved off
most of Sprint's replacement channels. We have requested an additional extension of the deadline in a small subset of the 21
markets where public safety licensees have not yet moved off of Sprint's replacement channels. Accordingly, we will continue
to transition to our 800 MHz replacement channels consistent with public safety licensees' reconfiguration progress. We
completed all of our 1.9 GHz incumbent relocation and reimbursement obligations in the second half of 2010.
Operating Leases
We lease various equipment, office facilities, retail outlets and kiosks, switching facilities and cell sites under
operating leases. The non-cancelable portion of these leases ranges from monthly up to 20 years. These leases, with few
exceptions, provide for automatic renewal options and escalations that are either fixed or based on the consumer price index.
Any rent abatements, along with rent escalations, are included in the computation of rent expense calculated on a straight-line
basis over the lease term. Our lease term for most leases includes the initial non-cancelable term plus at least one renewal
period, as the exercise of the related renewal option or options is reasonably assured. Our cell site leases generally provide for
an initial non-cancelable term of five to seven years with up to five renewal options for five years each.
Table of Contents SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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