Creates New Internet Services Powerhouse

TORONTO - Nortel Networks*[NYSE: NT/TSE: NTL] announced that it completed its acquisition of Shasta Networks, Inc., a Sunnyvale, California company that has developed a new class of gateways and systems for value-added services for Internet Protocol (IP) public data networks. The acquisition will enable Nortel Networks to bring to market the next generation of IP Internet services for Carriers and the mass business market.

Nortel Networks acquired 100 percent of the share capital of Shasta Networks for an aggregate purchase price of up to US$340 million, comprised of up to US$22 million in cash and the remainder in common shares. The cash element of the transaction is subject to Shasta meeting certain operational milestones.

The addition of Shasta's value-added IP services to Nortel Networks' full portfolio of high-speed access solutions enables the company to lead the way to the full integration of data and Internet services on the public network.

Defining A New Generation Of Internet Services

Nortel Networks' portfolio of IP services will enable valuable new Internet-based services to be delivered in ways that are impossible with today's Internet. Services such as Virtual Private Networks (VPNs), e-commerce, managed security, inexpensive wide area networking and performance control can now be provided to the mass business market simply and quickly by Carriers and Service Providers. Until now businesses have to manage this complex service themselves, often at a high initial and ongoing cost.

"Service Providers are troubled with cost-effectively supporting a scalable solution for addressing the US$20 billion market for advanced IP services," said Christine Heckart, vice president of Consulting for TeleChoice, a Boston, Massachusetts industry analyst firm. "Today's solutions require them to use a variety of disparate boxes, including aggregators, routers, servers, and middleware. Shasta's aim is to integrate these solutions into one elegant solution delivered in a single wire-speed routing platform. The projected advantages include greater scalability, lower cost of ownership, and faster delivery of new services.

"These are powerful tools in the fast-paced and highly competitive Internet marketplace."

Continuing Internet Investment

With this acquisition, Nortel Networks becomes the first major networking company to enable both high-speed Internet access and a new class of network-based IP services.

"Nortel Networks is the new IP networking powerhouse", said John Roth, Nortel Networks vice chairman and CEO. "Of our US$2.5 billion investment in R&D last year, US$1.5 billion was in IP projects, and that trend continues. Our investment in Shasta is another milestone as we set the standard for a new era of networking."

Shasta was selected by Data Communications Magazine as one of its "Hot Startups" of 1998. Its approximately 70 employees will continue to be based in Sunnyvale, California and will report into Nortel Networks' Carrier Packet Solutions group.

Nortel Networks delivers value to customers around the world through Unified Networks* solutions, spanning mission-critical telephony and IP-optimized networks. Customers include public and private enterprises and institutions; Internet service providers; local, long-distance, cellular and PCS communications companies, cable television carriers, and utilities.

Nortel Networks' common shares are listed on the New York, Toronto, Montreal, Vancouver, and London stock exchanges. Nortel Networks had 1998 revenues of US$17.6 billion and has approximately 75,000 employees worldwide.

* Nortel Networks, the Nortel Networks Globemark, Unified Networks and How the world shares ideas are trademarks of Northern Telecom Limited

View Media & Analyst Contacts