Nortel has long been a technology powerhouse, with an unparalleled history of innovation in the design, development, and deployment of products, systems, and solutions that have helped shape the very nature of modern communications and have delivered true value to our carrier and enterprise customers around the globe. This innovation has come through ground-breaking technology advances — many of them industry firsts — in such fundamental technologies as digital, optical, wireless, IP, VoIP, broadband, multimedia, and Ethernet.

Innovation is the force that changes the future and is the foundation for creating the value Nortel brings to customers around the world. Without innovation, the evolutionary path of most products, systems, and solutions can be predicted because it follows the line of natural progression. Maintaining that line takes good engineering and good management, but natural progression is not what will give our customers competitive advantage. Five years from now, the world's leading companies will not be on that line of natural progression. The leading companies — by putting together new combinations of technology — will be those who radically shift the natural evolutionary path to achieve quantum leaps in cost and performance benefits. That's the innovation Nortel strives for.

Through its internal R&D initiatives and external R&D partnerships, Nortel continues to invest in the technologies that help make business simple in the era of Hyperconnectivity and that address its customers' needs to reduce operating and capital expenses, transition gracefully to next-generation networks, and deploy new revenue-generating, differentiated services that enhance the end-user experience.

Most of Nortel's more than 10,000 R&D employees (who represent about one-third of the company) are located in key centers of R&D excellence around the world. Each center of excellence is focused on one or more of the skills competencies that Nortel has identified as being essential for the future. This global R&D framework ensure we have the right people, with the right skills, at the right locations, to provide our customers with best-in-class solutions around the globe.

Most of these resources are focused on software development, which reflects today's reality that the majority of differentiation and value is found in services and applications. Nortel also continues to invest in custom hardware for competitive differentiation or when needed technologies or products are not available commercially.

Nortel's breadth of R&D investment in technology innovation is reflected in the company's patents portfolio. A strong patents portfolio is not only essential for protecting the company's position but also for staking its claim in the future. Nortel's strong history of innovation has resulted in the issuance of numerous and significant patents in areas key to the future.

At year end 2007, Nortel had approximately 3,650 US patents and approximately 1,650 patents in other countries. It has been reported by industry analyst IFI Plenum that, in 2006, Nortel ranked 69th in terms of number of patents granted by the U.S. Patent & Trademark Office. Nortel has ranked in the top 70 in terms of number of granted U.S. patents since 1998.

Nortel's patent portfolio extends across wireline, wireless, datacom, enterprise and optical technologies and services. Nortel has received patents in the U.S. and elsewhere covering standards-essential, standards-related and other fundamental and core solutions, including patents directed to CDMA, UMTS, 3GPP, 3GPP2, GSM, OFDM/MIMO, ATM, MPLS, GMPLS, Ethernet, IEEE 802.3, NAT, VoIP, SONET, RPR, GFP, DOCSIS, IMS, Call-Waiting Caller ID and many other areas.

Nortel also invests in approximately 50 technology innovation initiatives with more than 20 major universities around the world. This investment provides the company with access to fundamental research and patents in emerging technologies and solutions as well as access to roughly 450 leading technology futurists, senior researchers, and post graduates, including Andy Lippman* and Nicholas Negroponte* at MIT, Ted Rappaport* at the University of Texas, and Ted Sargent* at the University of Toronto. As a result of Nortel's relationship with MIT, Dr. Andrew Lippman, a well-known industry thought leader and founding director of the MIT Media Lab, also became Nortel's first visiting fellow, taking a year-long sabbatical in 2008 to join Nortel to mentor and challenge Nortel's R&D teams to find new and better ways to use technology to improve communications.

Other universities Nortel is engaged with include: Cal-Berkeley*, Georgia Tech*, Harvard*, University of Waterloo*, Carleton University*, and Beijing University of Post and Telecommunications (BUPT)*. The projects cover a broad range of topics, including storage area networks, peer-to-peer networking, grid networks, sensor networks, adaptive radio technologies, meta-materials, and advanced antenna technologies.

Nortel has formed new research activities with government organizations and government-sponsored entities, including the National Science Foundation and the Defense Advanced Research Projects Agency ((DARPA). These join an existing external reasarch partner network that includes Canadian National Research Network* (CANARIE); the Global Lambda Integrated Facility* (GLIF); Internet2*, and SURFnet*.

Nortel also complements its in-house R&D through strategic alliances, partners, and joint ventures with other best-in-class companies, in order to:

• gain access to technical expertise;
• expand product offerings;
• access new platform technologies;
• increase R&D productivity;
• gain more cost-effective time-to-market; and/or
• increase the company's access to markets and customers.

Among Nortel's most recent partnering initiatives are relationships with:

• Microsoft, to accelerate the implementation of voice technology into software and to open new markets for Nortel
• LG Electronics, for access to the "early-adopter" Korean market; and
• IBM for time to market advantages

Nortel participates in more than 80 global, regional, and national standards organizations, forums, and consortia worldwide — spanning IT and telecom. Nortel plays an active role in helping to guide the evolution of emerging standards for information and communication technologies (ICT) through this extensive standards participation and through leadership positions Nortel currently holds in standards-setting organizations such as ATIS, ETSI, IEEE, IETF, ITU-T and OASIS.

The company has contributed to the development of such standards as IEEE 802.16e (which forms the basis of WiMAX), IEEE 802.1ah (Carrier Ethernet), global next-generation network standards within ATIS, ETSI, and ITU-T, Session Initiation Protocol (SIP) in the IETF, various security standards (IPsec, NAT, PKI, SYSLOG, PKCS) and the ITU-T's Next Generation Network Management Focus Group. In addition, the company's participation in the OASIS open standards consortium and the Open Management Group (OMG) is focusing on extending the full advantages of Service Oriented Architecture (SOA) - related frameworks and standards to better suit telecom requirements.

Today, Nortel is focusing its technology investments to make business made simple in this era of Hyperconnectivity. The company is working not only on ensuring today's infrastructure can continue to support the insatiable demand for connectivity and bandwidth, but also on the applications, services and solutions side. Together, these areas of focus will revolutionize the end-user experience. When fully realized, individuals will be able to access any application (including very high-bandwidth-intensive multi-media applications), from any device (including wireless devices), from any location.

Achieving this vision requires extensive knowledge of different products, technologies, and capabilities because the challenges that must be overcome (including fixed-mobile convergence, real-time communications handoff, true presence, the extension of enterprise applications to mobile devices, and carrier-grade enterprise mobility) are multi-dimensional, spanning the domains of wireless and wireline, carrier and enterprise, and infrastructure and applications.

To drive the transformation of today's networks, Nortel is investing in a variety of innovative technologies, primarily focused in the areas of 4G broadband wireless, Carrier Ethernet, optical, next-generation services and applications, unified communications, and secure networking.

Nortel is one of the few vendors with the knowledge and expertise to build the networks of the future. The company has a history of deploying mission-critical networks, a culture of real-world problem solving, and unique knowledge and expertise across public and private networks, fixed and mobile networks, and voice, data, and multimedia.