Fletch

For Release 6:29 a.m. PDT
July 18, 2006


REDMOND, Wash., and TORONTO — July 18, 2006— The convergence of the communications and IT industries took a significant step forward today as Microsoft Corp. and Nortel announced a strategic alliance based on a shared vision for unified communications. By engaging the companies at the technology, marketing and business levels, the alliance will allow both companies to drive new growth opportunities and has the potential to ultimately transform businesses communications, reducing costs and complexity and improving productivity for customers.

By combining Nortel’s world-class network quality and reliability with Microsoft® software’s ease of use, the alliance will accelerate the availability of unified communications — an industry concept that uses advanced technologies to break down today’s device- and network-centric silos of communication (such as e-mail, instant messaging, telephony and multimedia conferencing) and makes it easy and efficient for workers to reach colleagues, partners and customers with the devices and applications they use most.

Taking a decisive step further, Nortel and Microsoft will transition traditional business phone systems into software, with a Microsoft unified communications software platform and Nortel software products to provide further advanced telephony functionality. This software-centric approach will provide the easiest transition path for businesses, helping enable them to reduce the total cost of ownership and better protect current and future investments. It will also more quickly enable the creation of new, innovative applications.

“Nortel and Microsoft have each led fundamental transformations in their own market — Nortel’s digital innovation and Microsoft’s software on every desktop,” said Mike Zafirovski, president and CEO of Nortel. “By combining our unique strengths, Microsoft and Nortel will accelerate the delivery of unified communications — delivering to our customers a higher-quality user experience, with greater reliability and lower total cost of ownership. That’s where we can make a real difference.”

“We are investing together because the communications industry is at an inflection point,” said Steve Ballmer, CEO of Microsoft. “We will have deep collaboration in product development with Nortel, allowing us to rapidly deliver high-quality, highly reliable solutions that will support mission-critical communications. The opportunity for our customers is fantastic. We will enable them to realize tremendous economic and business benefits from unified communications.”

“This is a gutsy play for Nortel — accelerating the move of our voice technology into software and working with the world’s software leader as part of our broader business strategy to transform the company into a software and services leader,” Zafirovski said. “From this transaction, Nortel we believes we can capture well beyond $1 billion in new revenue,ramping up with increased momentum through 2009 overin a three-year periodthrough via professional services, voice products and applications, ands well as data pull-through in the enterprise.”

“Unified communications will drive the next major advance in individual, team and organizational productivity in today’s 24x7, always-connected and increasingly mobile work environment,” said Jeff Raikes, president of the Business Division at Microsoft. “Our software-based approach puts people at the center of communications through a single identity across e-mail, voice mail, voice over Internet protocol (VoIP) call processing, instant messaging and video, and intuitively embeds communications capabilities into people’s everyday work processes, including the Microsoft Office system and third-party software applications.”

Components of the Agreement

Strategic alliance
The companies will enter into a four-year alliance agreement, with provisions for its extension.
Nortel will be Microsoft’s strategic partner for advanced unified communications solutions and systems integration.
The two companies will form the Innovative Communications Alliance as a go-to-market vehicle.
Microsoft and Nortel will deploy the other’s technologies in their enterprise networks.
Solutions and systems integration
Nortel becomes a strategic systems integration partner for the advanced unified communications solution.
Nortel believes it can capture substantial new revenue through service offerings such as convergence planning, integration, optimization, monitoring and managed services.
Joint product development
Nortel and Microsoft will form joint teams to collaborate on product development that spans enterprise, mobile and wireline carrier solutions.
The two companies will cross-license intellectual property.
Nortel and Microsoft will engage in early-stage integration and testing.
Nortel will deliver solutions that complement Microsoft’s unified communications platform, including enterprise contact center applications, mission-critical telephony functions, advanced mobility capabilities and data networking infrastructure.
Go-to-market initiatives
Microsoft and Nortel will jointly sell the advanced unified communications solution and integration services. The plan is to develop a training and incentive program for the companies’ sales teams.
Both companies will invest substantial resources in marketing, business development and delivery.
Microsoft and Nortel will build a joint channel ecosystem using both companies’ systems integrator, reseller, and service provider relationships.
The two companies will develop a series of compelling solutions for a range of customers, including small and medium-sized business, large corporations and service providers.

About Nortel
Nortel (NYSE/TSX “NT”) 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. Our next-generation technologies, for both service providers and enterprises, span access and core networks, support multimedia and business-critical applications, and help eliminate today’s barriers to efficiency, speed and performance by simplifying networks and connecting people with information. 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 Microsoft
Founded in 1975, Microsoft (Nasdaq “MSFT”) is the worldwide leader in software, services and solutions that help people and businesses realize their full potential.

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Fletch
Visit Nortel Support on web at http://nortel.com/support