China Telecom, Nortel Networks to Boost Network Capacity to Meet Growing Demand in Eastern, Southern China.

BEIJING -- Advanced Optical, Data Solutions Will Enable High Speed, High Reliability Services for Broadband Subscribers in Region

China Telecom, one of the country's largest fixed-line carriers, has selected optical and data solutions from Nortel Networks (NYSE:NT) (TSX:NT) to expand its networks across Southern and Eastern China. The additional network capacity will provide a flexible and reliable platform for China Telecom to drive new revenue opportunities by offering advanced IP (Internet Protocol) data services.

China Telecom will deploy Nortel Networks Optical Long Haul 1600 Optical Line Systems to expand its optical backbone networks in the cities of Wuhan, Guangzhou, Changsha, Fuzhou, Shanghai, Nanjing, Hangzhou, Hefei, Chongqing, and Chengdu. The expansion, scheduled for completion by the end of 2004, will boost transmission capacity to approximately 10 gigabits per second (Gbps) x 30 wavelengths, ensuring fast data communications for business and consumers.

In addition, China Telecom's Shanghai Telecom and Zhejiang Telecom branches will use Nortel Networks Services Edge Router (SER) 5500 to expand their data networks. The expansions will enable the two branches to serve an additional 500,000 and 1.8 million broadband subscribers, respectively, with enhanced delivery of advanced IP broadband services like high-speed Internet access, IP virtual private networks (VPNs) and 'Green Internet,' a special content filtering and blocking service for parents to monitor children's activities on the Internet.

"China presents one of the fastest growing IP markets in the world," said Bob Mao, president and chief executive officer, Greater China, Nortel Networks. "We are delighted to be able to support China Telecom in delivering innovative services to the businesses and residential customers in this market. Our selection once again by China Telecom further demonstrates our leadership in China's broadband market, and our commitment to helping Chinese carriers address the fast growing need for high-performance Internet with solutions designed to enhance security, productivity and profitability."

In the nine months ending June 30, 2004, the number of China's fixed line and mobile users combined increased from 500 million to 600 million, while broadband Internet subscribers hit 17 million with a monthly growth rate of eight percent, according to China's Ministry of Information Industries. This has created huge demand for high capacity, high performance network infrastructure across the country.

Nortel Networks has been working closely with China Telecom on building high performance optical backbone and data networks. Nortel Networks deployed the 15,000 kilometer national optical long haul network for China Telecom. The US$100 million network, among the longest in the world, was put into commercial operation in January 2002. In addition, Nortel Networks also participated in the deployment and expansion of a number of regional/provincial optical and data networks for China Telecom.

Optical Long Haul 1600 is a 10 Gbps platform that uses DWDM (dense wavelength division multiplexing) to split light into as many as 160 channels to maximize capacity on each fiber. This enables up to 28 million simultaneous Internet connections on a single strand of fiber, and increases by 640 times the Internet's backbone speed and capacity to carry data, video and voice services.

Nortel Networks Services Edge Router 5500 (formerly known as Shasta 5000 Broadband Service Node) enables service providers to transition from the simple connectivity model enabled by first generation subscriber management systems to a cost-effective, network-based, value-added broadband services model. By combining cost-reducing efficiencies with incremental services revenue potential, it offers a powerful tool for operators seeking to boost profitability by addressing high-growth business and residential segments from a single network.

Nortel Networks was the leader in the optical transport equipment market for five consecutive years as of February 2004, according to the Dell'Oro Group. Nortel Networks was #1 worldwide in market share for the long haul DWDM segment of the optical market in 2003, according to Dell'Oro and RHK. In China, Nortel Networks has announced more than 50 contracts for 10 gigabit and DWDM optical solutions covering more than 60,000 kilometers.

Nortel Networks is also a global market share leader in several key segments of the carrier data network market, including the IP Services Router and Multiservice WAN Switch segments. According to Synergy Research Group, Nortel Networks has been #1 worldwide in market share for IP services routers for 19 consecutive quarters and #1 in market share for multiservice WAN switches for 13 consecutive quarters, as of the second quarter of 2004.

About China Telecom

Officially established in May 2002, China Telecom is among the country's largest telecommunications operators with businesses covering domestic and international fixed line networks and various value-added Internet services. The corporation has 21 provincial branches, holding 70% of the national trunk-line transmission network assets. As of the end of 2003, China Telecom's broadband Internet subscribers reached 5.63 million, and its fixed line subscribers hit 118 million. A Fortune 500 company, it is publicly listed on the New York and Hong Kong Stock Exchanges. More information about China Telecom can be found at www.chinatelecom.com.cn.

About Nortel Networks

As a global innovation leader, Nortel Networks enriches consumer and business communications worldwide by offering converged multimedia networks that eliminate the boundaries among voice, data and video. These networks use innovative packet, wireless, voice and optical technologies and are underpinned by high standards of security and reliability. For both carriers and enterprises, these networks help to drive increased profitability and productivity by reducing costs and enabling new business and consumer services opportunities. Nortel Networks does business in more than 150 countries. For more information, visit Nortel Networks on the Web at www.nortelnetworks.com or www.nortelnetworks.com/media_center.

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 Nortel Networks independent review and planned restatement or revisions of its previously announced or filed financial results; the impact of the management changes announced on April 28, 2004 and August 19, 2004; the impact of the inability to meet Nortel Networks filing obligations on support facilities and public debt obligations; the sufficiency of Nortel Networks restructuring activities, including the potential for higher actual costs to be incurred in connection with restructuring actions compared to the estimated costs of such actions; continued reductions in spending by Nortel Networks customers; fluctuations in Nortel Networks operating results and general industry, economic and market conditions and growth rates; the communication by Nortel Networks auditors of the existence of material weaknesses in internal controls; Nortel Networks ability to recruit and retain qualified employees; fluctuations in Nortel Networks cash flow, level of outstanding debt and current debt ratings; the use of cash collateral to support Nortel Networks normal course business activities; the dependence on Nortel Networks subsidiaries for funding; the impact of Nortel Networks defined benefit plans and deferred tax assets on results of operations and Nortel Networks cash flows; Nortel Networks dependence on new product development and its ability to predict market demand for particular products; Nortel Networks 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 in the telecommunications industry; changes in regulation of the Internet; the impact of the credit risks of Nortel Networks customers and the impact of customer financing and commitments; stock market volatility generally and as a result of acceleration of the settlement date or early settlement of Nortel Networks purchase contracts; the impact of Nortel Networks 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; the future success of Nortel Networks strategic alliances; and the adverse resolution of litigation, investigations, intellectual property disputes and similar matters.

For additional information with respect to certain of these and other factors, see the most recent Form 10-Q/A and Form 10-K/A filed by Nortel Networks with the United States Securities and Exchange Commission. Unless otherwise required by applicable securities laws, Nortel Networks 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 Networks, the Nortel Networks logo, the Globemark, Business Without Boundaries and Shasta are trademarks of Nortel Networks.