Photonic Technologies is a world leader in the development of optical component technology for the manipulation and control of the polarization of light. Photonic Technologies' circulators and dynamic gain flattening filters are critical technologies for high-speed optical networks and Dense Wavelength Division Multiplexing (D-WDM) networks. Photonic Technologies' solutions will accelerate Nortel Networks lead as the industry moves from 10 Gigabits per second (Gbps) systems to 40 and 80 Gbps systems.

"This acquisition brings to Nortel Networks another disruptive technology which will enable us to push the frontiers of optical networks and deliver a High-Performance Internet with the speed, reliability, performance, and economics needed by our customers and the millions of businesses and consumers using the Internet for commerce, collaboration, and communication," said Greg Mumford, president, Nortel Networks Optical Networks.

Photonic Technologies will become part of Nortel Networks High Performance Optical Component Solutions (HPOCS), the unit recently formed to bring together all Nortel Networks businesses serving optical systems producers with strategic optoelectronic and microelectronic components. HPOCS offers one of the broadest ranges of strategic optical components in the industry and works closely with Nortel Networks Optical Networks to develop the world's leading systems for the Optical Internet.

"This acquisition, coming two years after our initial investment in Photonic Technologies, is an outstanding example of our strategy of scouring the world for leading technologies, and our success at working closely with strategic partners towards shared objectives," said Barbara Callaghan, president, Nortel Networks High Performance Optical Component Solutions.

Founded in 1993 in Sydney, Australia by Ralph Betts and Steven Frisken, Photonic Technologies employs 70 people. Photonic Technologies develops and manufactures at its Sydney facilities and had revenue last year of US$2.5 million. Photonic Technologies will continue to be led by managing director Betts and technical director Frisken.

"Joining forces with Nortel Networks, the world leader in the Optical Internet, is a logical next step for us after our successful relationship," said Photonic Technologies managing director Ralph Betts. "We are looking forward to the opportunity to demonstrate the power of our pioneering technology on a global scale."

Nortel Networks first formed an alliance with Photonic Technologies in 1998, took an approximate one third stake in the company, and worked closely with its team to develop their leading-edge technology. A portion of the US$35.5 million consideration is contingent upon Photonic Technologies meeting certain business objectives. The acquisition is expected to be neutral with respect to Nortel Networks earnings per share from operations this year (excluding acquisition-related charges). The optical components market is expected to grow to US$23 billion in 2003, from US$6.6 billion last year, a growth rate of 37% a year, according to analyst firm RHK.

Nortel Networks was ranked number one globally in Optical Internet solutions for 1999, according to recent reports from the Dell'Oro Group, RHK, and Warburg Dillon Read. The global Optical Internet market is expected to grow from US$19.4 billion in 1999 to US$52.3 billion in 2003, a compound annual growth rate of 28%, according to RHK.

Nortel Networks is a world leader in the Optical Internet. More than 75 percent of North American Internet backbone traffic travels across Nortel Networks systems. In 1999, Nortel Networks set the standard for speed with its 80 Gbps line rate OPTera technology, and for bandwidth with the OPTera 1600G, which will transmit 160 colors of light across a 10 Gbps system, for total capacity of 1.6 terabits per second (Tbps).

Nortel Networks is a global leader in telephony, data, eBusiness, and wireless solutions for the Internet. The Company had 1999 U.S. GAAP revenues of US$21.3 billion and serves carrier, service provider and enterprise customers globally. Today, Nortel Networks is creating a high-performance Internet that is more reliable and faster than ever before. It is redefining the economics and quality of networking and the Internet through Unified Networks* that promise a new era of collaboration, communications and commerce. Visit us at www.nortelnetworks.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 impact of price and product competition; the dependence on new product development; the impact of rapid technological and market change; the ability of Nortel Networks to make acquisitions and/or integrate the operations and technologies of acquired businesses in an effective manner; general industry and market conditions and growth rates; international growth and global economic conditions, particularly in emerging markets and including interest rate and currency exchange rate fluctuations; the impact of consolidations in the telecommunications industry, the uncertainties of the Internet; stock market volatility; the ability of Nortel Networks to recruit and retain qualified employees; and the impact of increased provision of customer financing by Nortel Networks. For additional information with respect to certain of these and other factors, see the reports filed by Nortel Networks with the United States Securities and Exchange Commission. 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.