Bay Networks Brings Quality IP Voice to the Cable Local Loop.

SANTA CLARA, Calif.--(BUSINESS WIRE)--July 8, 1998--

NetServe acquisition accelerates the availability of

voice service via cable modems; addresses the "last mile" bottleneck

Bay Networks(R), Inc. (NYSE:BAY) today announced a three-phased plan to quickly bring to market the first voice-over-IP products that enable high quality and highly reliable voice communications over the cable infrastructure. The solutions will allow businesses and consumers to use a standard telephone handset to connect to the PSTN via a Hybrid Fiber Coaxial (HFC) based cable infrastructure, resulting in expanded revenue opportunities for cable operators and significant cost savings for consumers and businesses.

The first phase of this strategy includes the acquisition of NetServe, GmbH, a company based in Berlin, Germany that specializes in providing packet-based voice technology. NetServe has developed and deployed the VoiceHub and VoiceServer products that together represent a software-based distributed PBX system that is ideal for provisioning voice services over cable networks. The client device in the home or office converts the analog telephone signals to data packets and forwards these over the HFC data network to a server, located at the cable operator's head end. The server functions as a gateway to the Public Switched Telephone Networks (PSTN) and provides control, management and billing functions for the telephone service. Bay Networks will optimize Netserve's products for use in IP environments.

The NetServe business will become part of the Bay Networks Broadband Technology Division. "Bay Networks has leveraged over a decade of experience in cable modem technology to create a broadband IP pipe into homes and businesses. To add value to our products and increase opportunities for our customers, we are delivering high quality IP voice capabilities well ahead of market expectations," said Karl May, vice president and general manager of the Broadband Technology Division at Bay Networks. "Leveraging Netserve's proven packet-based voice technology in Bay Networks' Business Class IP Services and Quality of Service (QoS) developments is just one step in our plan to continue delivering value-added business class services to our cable platforms."

The widespread availability of toll high quality IP voice communications over cable gives cable operators the opportunity to pursue competitive local loop business and a wider range of services. Businesses and consumers benefit from the bandwidth and cost-efficiencies, as well as the convenience associated with using one packet-based broadband network for both voice and data.

If the cable operator provides a global data backbone capable of offering an adequate QoS level for voice traffic, then telephone calls may be carried within the data network to the point of presence (POP) closest to the final PSTN destination. This bypasses both local loop and long distance voice circuits, resulting in significant cost savings.

Integration Roadmap

Phase two of this strategy provides the initial integration of voice-over-IP for cable networks, with product scheduled to ship in CY Q4 1998. Phase two includes the development of an IP-based VoiceHub internal card for the Bay Networks third generation LANcity(TM) cable modems; and an IP-based VoiceServer gateway for the cable operator's head end to enable connection to the PSTN. The cable modems will be fixed with RJ-11 jacks to leverage broadband data service over HFC for voice communications.

Full integration is the third and final phase of this plan. Scheduled to ship in Q2 CY 1999, all VoiceHub features will be integrated into a low-cost Data Over Cable System Interface Specification (DOCSIS) based cable modem, the Bay Networks fourth generation VersalarO cable modems. This will provide the industry's first standards-based low-cost solution for broadband voice-over-IP.

About NetServe's VoiceHub and VoiceServer

Founded in 1993, NetServe has extensive experience deploying packet-based voice communications over all types of networks. The company has further focused on delivering these capabilities over the cable infrastructure, with its client/server products the VoiceHub and VoiceServer.

--The VoiceHub client connects telephone instruments to the Local Area Network (LAN) with all the functions needed for high quality voice (i.e. interfaces, analog conversion, audio processing, call signaling and control)

--The VoiceServer product provides the connection from the data network to the PSTN, with call signaling and control, Computer-Telephony Integration (CTI), billing and management features

About Bay Networks Broadband Services

With more than 190,000 cable modems deployed around the world and over 4 million homes passed, Bay Networks is establishing a trend that allows a growing number of companies and individuals to access the Internet more quickly, easily and securely than many other solutions. As MSO's begin to provide their customers with new services such as Internet access, video-conferencing, voice-over-IP and telecommuting applications, Bay Networks' commitment to advancing this industry is evident, having emerged as the market leader in providing access solutions to this technology.

Bay Networks offers MSOs a cable modem that has an open scalable architecture ideal for small, medium and large networks. With a symmetric 10Mbps maximum, Bay Networks' cable modems allows end users to work at a speed 50-100 times faster than conventional dial-access methods including 56K and ISDN, commonly used in networks today.

About Bay Networks

Bay Networks - Where Information Flows(TM). Bay Networks, Inc. (NYSE:BAY) is a leader in the worldwide networking market, providing a complete line of products that serve corporate enterprises, service providers and telecommunications carriers. The company offers frame and ATM switches, routers, shared media, remote and Internet access solutions, IP services and network management applications, all integrated by Bay Networks' Adaptive Networking strategy. With headquarters in Santa Clara, California, Bay Networks markets its products and services around the world, providing 7x24 support coverage. For additional information visit the company's World Wide Web site at http://www.baynetworks.com or call 800-8-BAYNET.

Bay Networks is a registered trademark of Bay Networks, Inc. Bay Networks - Where Information Flows, Versalar and LANcity are trademarks of Bay Networks, Inc. Other brand and product names are registered trademarks or trademarks of their respective holders.

This release, other than historical financial information, may consist of forward-looking statements that involve risks and uncertainties. These statements may differ materially from actual future events or results. For instance, factors which could cause results to differ from future events include the rate of adoption of new technology, competitive pricing actions and marketing programs, among others. Readers are referred to the documents filed by Bay Networks with the S.E.C., specifically the most recent reports on forms 10-K and 10-Q, which identify important risk factors which could cause actual results to differ from those contained in the forward-looking statements.

COTNACT: Bay Networks Inc. Media Relations Don Gross 210-979-2155 [e-mail] or Investor Relations Sandra Toms 408-495-1181

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