Nortel Demonstrates World's First Integrated Data Encryption for 10 Gbps Networks

Nortel (NYSE:NT)(TSX:NT), in collaboration with global research institutions, has demonstrated the world's first successful prototype of an optical switch with integrated encryption, securing information from intrusion and theft as it is transmitted at the speed of light among users around the world.

Nortel is the first to achieve integrated data encryption for 10 Gbps optical networks using the Advanced Encryption Standard (AES) approved by the U.S. National Security Agency to ensure that the highest levels of security are met for confidential and sensitive communications. Institutions collaborating on the demonstration with Nortel included CANARIE, the International Center for Advanced Internet Research at Northwestern University, SURFnet, the University of Amsterdam, and the University of Illinois at Chicago.

"Security has become one of the world's greatest challenges in the new information age, and the advanced technology Nortel is demonstrating has the potential to revolutionize the way networks are secured," said Brian McFadden, chief research officer, Nortel. "Providing a global-scale approach to security that is transparent to users has the potential to make the integration of encryption security a standard component of tomorrow's transport networks."

The ability to use real-time encryption to secure the transport of large amounts of time sensitive information has applications in many industries, providing the potential to fuel growth of optical networks. Potential applications include media distribution in the entertainment industry, global scientific collaboration using grid computing by the research community, and real-time data back-up for the financial industry. The U.S. National Security Agency has already approved AES for the transport of all 'Top Secret' information.

"As sensitive information and intellectual property become more distributed across multiple networks through VPNs and applications like grid computing, concerns arise about ensuring security across these networks," said Tom DeFanti, professor of Computer Science and director of Electronic Visualization Laboratory (EVL) at the University of Illinois at Chicago, and research scientist and director of visualization, California Institute for Telecommunications and Information Technology (Calit2) at the University of California, San Diego. "The security of the network is critical, and the encryption technology that Nortel is demonstrating today can provide a significant step in this direction."

Nortel is demonstrating its integrated encryption technology for super-fast optical networks this week at iGrid in San Diego, an event showcasing ongoing global collaborations in grid computing. The demonstration transmits real-time encrypted data from an electronic visualization application over a 10 Gbps SONET network that spans thousands of fiber miles. Application data is encrypted from source locations in Amsterdam, Chicago, and Ottawa and transported to the iGrid show floor in San Diego where the data is viewed and manipulated on an integrated 55 screen, 100 million pixel video display.

To enable this proof of concept demonstration, hardware capable of 256-bit AES encryption at 10 Gbps line speeds has been integrated into a standard Nortel Optical Multiservice Edge (OME) 6500 switch. By encrypting the application data payload before packaging it into a SONET envelope for transport, the encrypted traffic can travel across today's standards-based SONET networks to be decrypted on the other side. This integration of encryption functionality into the optical switch enables reduced network complexity, lower operational expenses through reduced power and space requirements, and higher network reliability through the inherent carrier-grade attributes of the optical switch.

The live demonstration uses an electronic visualization application provided by the University of Illinois at Chicago. Network connectivity for the demonstration is being provided by CANARIE and SURFnet through international peering points on Northwestern's Chicago campus (StarLight) and in Amsterdam (NetherLight). Facilities participating in the demonstration include the University of Illinois at Chicago, the University of Amsterdam, the Calit2 facility at the University of California, San Diego, and the Nortel research and development lab in Ottawa.

About the Advanced Encryption Standard

The Advanced Encryption Standard is a globally-accepted standard for encryption adopted by the U.S. National Institute of Standards and Technologies (NIST) as an improvement and replacement for its predecessor, the Data Encryption Standard (DES). AES has also been approved by the U.S. National Security Agency as strong enough to protect 'Top Secret' information for the U.S. government.

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. Serving both service provider and enterprise customers, Nortel delivers innovative technology solutions encompassing end-to-end broadband, Voice over IP, multimedia services and applications, and wireless broadband designed to help people solve the world's greatest challenges. 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 information included in this press release is forward-looking and is subject to important risks and uncertainties. The results or events predicted in these statements may differ materially from actual results or events.

Factors which could cause results or events to differ from current expectations include, among other things: the outcome of regulatory and criminal investigations and civil litigation actions related to Nortel's restatements and the impact any resulting legal judgments, settlements, penalties and expenses could have on Nortel's results of operations, financial condition and liquidity, and any related potential dilution of Nortel's common shares; the findings of Nortel's independent review and implementation of recommended remedial measures; the outcome of the independent review with respect to revenues for specific identified transactions, which review will have a particular emphasis on the underlying conduct that led to the initial recognition of these revenues; the restatement or revisions of Nortel's previously announced or filed financial results and resulting negative publicity; the existence of material weaknesses in Nortel's internal control over financial reporting and the conclusion of Nortel's management and independent auditor that Nortel's internal control over financial reporting is ineffective, which could continue to impact Nortel's ability to report its results of operations and financial condition accurately and in a timely manner; the impact of Nortel's and NNL's failure to timely file their financial statements and related periodic reports, including Nortel's inability to access its shelf registration statement filed with the United States Securities and Exchange Commission (SEC); ongoing SEC reviews, which may result in changes to Nortel's and NNL's public filings; the impact of management changes, including the termination for cause of Nortel's former CEO, CFO and Controller in April 2004; the sufficiency of Nortel's restructuring activities, including the work plan announced on August 19, 2004 as updated on September 30, 2004 and December 14, 2004, including the potential for higher actual costs to be incurred in connection with restructuring actions compared to the estimated costs of such actions;

cautious or reduced spending by Nortel's customers; increased consolidation among Nortel's customers and the loss of customers in certain markets; fluctuations in Nortel's operating results and general industry, economic and market conditions and growth rates; fluctuations in Nortel's cash flow, level of outstanding debt and current debt ratings; Nortel's monitoring of the capital markets for opportunities to improve its capital structure and financial flexibility; Nortel's ability to recruit and retain qualified employees; the use of cash collateral to support Nortel's normal course business activities; the dependence on Nortel's subsidiaries for funding; the impact of Nortel's defined benefit plans and deferred tax assets on results of operations and Nortel's cash flow; the adverse resolution of class actions, litigation in the ordinary course of business, intellectual property disputes and similar matters; Nortel's dependence on new product development and its ability to predict market demand for particular products; Nortel's ability to integrate the operations and technologies of acquired businesses in an effective manner; the impact of rapid technological and market change; the impact of price and product competition; barriers to international growth and global economic conditions, particularly in emerging markets and including interest rate and currency exchange rate fluctuations; the impact of rationalization and consolidation in the telecommunications industry; changes in regulation of the Internet; the impact of the credit risks of Nortel's customers and the impact of customer financing and commitments; stock market volatility generally and as a result of acceleration of the settlement date of Nortel's forward purchase contracts; negative developments associated with Nortel's supply contracts and contract manufacturing agreements, including as a result of using a sole supplier for a key component of certain optical networks solutions; the impact of Nortel's supply and outsourcing contracts that contain delivery and installation provisions, which, if not met, could result in the payment of substantial penalties or liquidated damages; any undetected product defects, errors or failures; and the future success of Nortel's strategic alliances.

For additional information with respect to certain of these and other factors, see the most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed by Nortel 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.

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