Nortel, IBM Sign Strategic Development Agreement to Establish Joint Development Center.

ARMONK, N.Y. & TORONTO -- Initial Focus on Business Transformation, Focused Research, and Collaborative Innovation

Nortel (NYSE: NT)(TSX: NT) and IBM (NYSE: IBM) today announced the signing of an agreement designed to support customized products across a range of market segments. As the first step in this technology, research and services relationship, the companies will establish a Nortel-IBM Joint Development Center in Research Triangle Park, NC to collaborate on the design and development of new products and services.

"This agreement with IBM is a critical component of our strategy to partner for growth," said Bill Owens, Vice Chairman and Chief Executive Officer, Nortel. "Working with IBM, as one of their key partners, is a bold step forward in our efforts to transform our business by reaching an entirely new level of R&D collaboration while reducing our R&D costs, introducing products at a faster pace and serving a broad range of customers more rapidly."

At the Nortel-IBM Joint Development Center, personnel from both companies will:

--work together to enhance and extend current products, drawing from various divisions within Nortel and IBM, to drive new revenue growth while reducing R&D costs

--collaborate on focused research on a project-by-project basis, enabling a new level of product creation by tapping the deep skills of each firm to introduce solutions more rapidly

--work together on technology, initially, a new class of blade servers - bringing together IBM's Server Technology and Nortel's carrier-grade communications expertise - that would meet the specific and demanding data flow, reliability and security needs required by the network equipment marketplace embracing next generation network solutions.

Nortel expects to utilize IBM engineering and technical services, for a number of projects, all aimed at broadening Nortel end-to-end broadband, Voice over IP, multimedia services and applications and wireless broadband offerings.

"Nortel is a company with a strong history of innovation. Together, we are working to reduce complexity and cost of service delivery while enabling innovation for a new set of on-demand services. This is at the core of what we do," said Bill Zeitler, Senior Vice President and Group Executive, IBM Systems and Technology Group.

Mr. Zeitler said this agreement reinforces IBM's strength and ability to address the Business Performance Transformation Services market opportunity on a wide range of business services across many industries, areas that IBM can address based on its unique portfolio of technology design, system, software and consulting capabilities.

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.

About IBM

IBM is the world's largest information technology company, with 80 years of leadership in helping businesses innovate. Drawing on resources from across IBM and key IBM Business Partners, IBM offers a wide range of services, solutions and technologies that enable clients, large and small, to take full advantage of the new era of e-business. For more information about IBM, visit www.ibm.com.

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 breach of its support facility and public debt obligations and 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 our public filings; the potential delisting or suspension of Nortel's and NNL's publicly traded securities; 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 or early settlement, which is currently not available, 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; 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.

Use of the terms "partner" and "partnership" does not imply a legal partnership between Nortel and any other party.

Nortel, the Nortel logo and the Globemark are trademarks of Nortel Networks.