Nortel Focus on Integrating Networks Allows Customers to Focus on Business

Global Services Business Establishes New Operational Model, Microsoft Alliance

JULY 18, 2006, TORONTO - Enterprises and communications service providers can bring their communications challenges to Nortel* [NYSE/TSX: NT] and expect tailored solutions without worrying about the nuts and bolts of their networks. That’s the key message behind Nortel’s new services-led business focus, Dietmar Wendt said today in outlining the progress made since his appointment nearly two months ago as president of Nortel’s Global Services business.

“We want to be the ’partner of choice’ and the number one network services and solutions provider in all segments where we choose to compete,” Wendt said. “To achieve this, we plan to relieve our customers of network concerns by ensuring they have the right hardware, software and configurations for maximizing interaction of networks and components from multiple vendors, integrators and services. Nortel can take over these time-consuming details for customers, freeing valuable resources to focus on their businesses, not their networks.”

“Key next steps include building on our base of qualified resources in the regions through hiring and by establishing additional delivery partner relationships,” Wendt said. “We also need to improve our partner incentive plans, establish competitive pricing, and execute on our new relationship with Microsoft.”

Nortel has leveraged its extensive expertise in real-time voice and multimedia integration to become a strategic partner to Microsoft* for advanced unified communications solutions and systems integration, the companies announced today.

“Restoring Nortel to a position of leadership and growth requires a more services and solutions-led approach,” said Mike Zafirovski, president and CEO, Nortel. “We are making rapid progress toward a services business that will align Nortel with the industry’s best.”

Picking up the pace in its move to a more services-led approach, Nortel has also:

* Established a new operational model for the Global Services business unit more suitable for competing in this market space. The model features four Service Product Groups focused on global business development - Network Implementation Services, Network Support Services, Network Managed Services and Network Applications Services. It also includes two Business Solutions Groups to drive vertical market solutions and to create new services capabilities through Nortel’s expanding services partner ecosystem - Network Business Solutions and Network Partner Solutions. Nortel is also investing in the evolution of its services tools and core processes using a Lean Six Sigma approach.
* Strengthened regional services execution and delivery by establishing local accountability for resource planning, skills development and acquisition, cost management, sales effectiveness, and customer satisfaction. This is expected to make Nortel more nimble in responding to the needs of global enterprises like London-based Rolls-Royce and service providers like India’s Bharti Airtel Limited, each of which recently signed long-term managed services agreements with Nortel.
* Defined a ’go-to-market’ model that delivers Nortel-branded services and solutions directly or through channel partners and systems integrators based on customer requirements.

About Nortel

Nortel is a recognized leader in delivering communications capabilities that enhance the human experience, ignite and power global commerce, and secure and protect the world’s most critical information. Our next-generation technologies, for both service providers and enterprises, span access and core networks, support multimedia and business-critical applications, and help eliminate today’s barriers to efficiency, speed and performance by simplifying networks and connecting people with information. Nortel does business in more than 150 countries. For more information, visit Nortel on the Web at www.nortel.com. For the latest Nortel news, visit www.nortel.com/news.

Certain statements in this press release may contain words such as “could”, “expects”, “may”, “anticipates”, “believes”, “intends”, “estimates”, “targets”, “envisions”, “seeks” and other similar language and are considered forward-looking statements or information under applicable securities legislation. These statements are based on Nortel’s current expectations, estimates, forecasts and projections about the operating environment, economies and markets in which Nortel operates. These statements are subject to important assumptions, risks and uncertainties, which are difficult to predict and the actual outcome may be materially different. In preparation of its financial outlook in this press release, Nortel has made various assumptions related to its potential additional services revenues generated from its strategic alliance with Microsoft including: a lack of competitive technologies to displace or diminish the revenue potential of the joint unified communications solution; stable regional market dynamics for this solution, with the greatest revenue opportunities existing in North America and Europe; primary focus of future services revenues on integration and network monitoring, and a market stable hourly service rate of $US225 in 2007; Nortel capturing 1/3 of the revenue associated with the service revenue generated from any Converged Office deployment where Nortel is involved; successful evolution of Exchange and associated software from Microsoft to a Unified Messaging platform; ability to leverage Nortel’s existing installed base market and capture 30 - 40% of the IP conversion market for this installed base by 2009; and sustained dedication of the parties to grow aggressively this market opportunity. The above assumptions, although considered reasonable by Nortel at the date of this press release, may prove to be inaccurate and consequently Nortel’s actual results could differ materially from its expectations set out in this press release.

Further, actual results or events could differ materially from those contemplated in forward-looking statements as a result of the following (i) risks and uncertainties relating to Nortel’s restatements and related matters including: Nortel’s most recent restatement and two previous restatements of its financial statements and related events; the negative impact on Nortel and NNL of their most recent restatement and delay in filing their financial statements and related periodic reports; legal judgments, fines, penalties or settlements, or any substantial regulatory fines or other penalties or sanctions, related to the ongoing regulatory and criminal investigations of Nortel in the U.S. and Canada; any significant pending civil litigation actions not encompassed by Nortel’s proposed class action settlement; any substantial cash payment and/or significant dilution of Nortel’s existing equity positions resulting from the finalization and approval of its proposed class action settlement, or if such proposed class action settlement is not finalized, any larger settlements or awards of damages in respect of such class actions; any unsuccessful remediation of Nortel’s material weaknesses in internal control over financial reporting resulting in an inability to report Nortel’s results of operations and financial condition accurately and in a timely manner; the time required to implement Nortel’s remedial measures; Nortel’s inability to access, in its current form, its shelf registration filed with the United States Securities and Exchange Commission (SEC), and Nortel’s below investment grade credit rating and any further adverse effect on its credit rating due to Nortel’s restatements of its financial statements; any adverse affect on Nortel’s business and market price of its publicly traded securities arising from continuing negative publicity related to Nortel’s restatements; Nortel’s potential inability to attract or retain the personnel necessary to achieve its business objectives; any breach by Nortel of the continued listing requirements of the NYSE or TSX causing the NYSE and/or the TSX to commence suspension or delisting procedures; (ii) risks and uncertainties relating to Nortel’s business including: yearly and quarterly fluctuations of Nortel’s operating results; reduced demand and pricing pressures for its products due to global economic conditions, significant competition, competitive pricing practice, cautious capital spending by customers, increased industry consolidation, rapidly changing technologies, evolving industry standards, frequent new product introductions and short product life cycles, and other trends and industry characteristics affecting the telecommunications industry; the sufficiency of the restructuring actions announced in this press release, including the potential for higher actual costs to be incurred in connection with restructuring actions compared to the estimated costs of such actions and the ability to achieve the targeted cost savings and reductions of Nortel’s unfunded pension liability deficit; any material and adverse affects on Nortel’s performance if its expectations regarding market demand for particular products prove to be wrong or because of certain barriers in its efforts to expand internationally; any reduction in Nortel’s operating results and any related volatility in the market price of its publicly traded securities arising from any decline in its gross margin, or fluctuations in foreign currency exchange rates; any negative developments associated with Nortel’s supply contract and contract manufacturing agreements including as a result of using a sole supplier for key optical networking solutions components, and any defects or errors in Nortel’s current or planned products; any negative impact to Nortel of its failure to achieve its business transformation objectives; additional valuation allowances for all or a portion of its deferred tax assets; Nortel’s failure to protect its intellectual property rights, or any adverse judgments or settlements arising out of disputes regarding intellectual property; changes in regulation of the Internet and/or other aspects of the industry; Nortel’s failure to successfully operate or integrate its strategic acquisitions, or failure to consummate or succeed with its strategic alliances; any negative effect of Nortel’s failure to evolve adequately its financial and managerial control and reporting systems and processes, manage and grow its business, or create an effective risk management strategy; and (iii) risks and uncertainties relating to Nortel’s liquidity, financing arrangements and capital including: the impact of Nortel’s most recent restatement and two previous restatements of its financial statements; any inability of Nortel to manage cash flow fluctuations to fund working capital requirements or achieve its business objectives in a timely manner or obtain additional sources of funding; high levels of debt, limitations on Nortel capitalizing on business opportunities because of credit facility covenants, or on obtaining additional secured debt pursuant to the provisions of indentures governing certain of Nortel’s public debt issues and the provisions of its credit facilities; any increase of restricted cash requirements for Nortel if it is unable to secure alternative support for obligations arising from certain normal course business activities, or any inability of Nortel’s subsidiaries to provide it with sufficient funding; any negative effect to Nortel of the need to make larger defined benefit plans contributions in the future or exposure to customer credit risks or inability of customers to fulfill payment obligations under customer financing arrangements; any negative impact on Nortel’s ability to make future acquisitions, raise capital, issue debt and retain employees arising from stock price volatility and further declines in the market price of Nortel’s publicly traded securities, or any future share consolidation resulting in a lower total market capitalization or adverse effect on the liquidity of Nortel’s common shares. For additional information with respect to certain of these and other factors, see Nortel’s 2005 10-K/A, Quarterly Report on Form 10-Q and other securities filings with the SEC. Unless otherwise required by applicable securities laws, Nortel disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

*Nortel, the Nortel logo and the Globemark are trademarks of Nortel Networks. Microsoft and Exchange are trademarks of Microsoft.
Use of the terms “partner” and “partnership” does not imply a legal partnership between Nortel and any other party.

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