BOSTON - Nortel Networks* Corporation [NYSE/TSE: NT] announced a definitive agreement to acquire Sonoma Systems -- a leader in delivering high-speed integrated video, data and voice communications, simultaneously over a single connection - for up to US$540 million in Nortel Networks common shares, a portion of which is contingent upon Sonoma Systems achieving certain business objectives.

The acquisition will enable Nortel Networks to effectively tie the bandwidth and power of the high-performance Optical Internet to the access solutions of the Local Internet. This will allow service providers to deliver high-speed managed services to their business customers. The Yankee Group estimates that the market for delivering these carrier-managed services will reach more than US$18 billion globally by 2002, up from US$10 billion this year.

Sonoma Systems integrated access devices, which are installed at customer premises, allow service providers to efficiently and profitably extend new services to business customers, including high-speed Local Internet access, video services and Internet Telephony. The acquisition will enable Nortel Networks customers to offer comprehensive managed services via a network architecture that brings broadband content and high-bandwidth capabilities to the edge of the network.

"We are taking our leadership in the high-performance Optical Internet and extending it to the Local Internet," said Steve Schilling, President, Access Networks, Nortel Networks. "This acquisition represents another building block in our Local Internet capabilities that will enable service providers to offer new, profitable services directly to businesses and consumers."

Under the existing OEM relationship between Nortel Networks and Sonoma Systems, work is already underway to incorporate Sonoma Systems network management capabilities into Nortel Networks network management system. In addition, verification of product interworking with Nortel Networks Passport* core and edge ATM-based multiservice switches has been conducted. Sonoma Systems products also integrate as an edge device with Nortel Networks OPTera-Metro* solutions, which was demonstrated in June 2000 at Supercomm in Atlanta. The Sonoma Systems products have been incorporated into Nortel Networks Universal Edge* 600 Series of products. Nortel Networks has already announced general availability of the Universal Edge 610 Series, 624 Series and 640 Series. These products are being branded, marketed, sold and supported by Nortel Networks, and the collaboration has already resulted in a joint customer win with Madison River.

"Nortel Networks is leading the charge in delivering the high-performance Internet," said Gregory Koss, president and chief executive officer, Sonoma Systems. "Sonoma Systems integrated access solutions will extend Nortel Networks leadership in the Local Internet, giving service providers the infrastructure to deliver high-performance Internet and converged services to business customers of all sizes, while allowing Sonoma Systems to leverage Nortel Networks market presence, resources and sales channel around the globe."

Sonoma Systems customer base includes leading-edge service providers, Integrated Communications Providers (ICPs) and ISPs such as SAVVIS Communications, Electric Lightwave, Telecom Soluciones, SoftAware, FiberNet, Madison River and Stream.

The transaction, which is expected to close in the fourth quarter of 2000, is subject to customary regulatory and Sonoma Systems shareholder approvals. Of the purchase price, an estimated US$480 million will be paid in Nortel Networks common shares at closing on a fully diluted basis. Up to an additional US$60 million in common shares is payable subject to the fulfillment of certain business performance objectives in the first year after closing. Based on a US$78.13 price per Nortel Networks common share, the transaction would result in Nortel Networks issuing approximately 6.9 million common shares for the shares of Sonoma Systems on a fully diluted basis. The acquisition (excluding acquisition related costs) is expected to be neutral in calendar year 2000 and slightly accretive in calendar year 2001 to Nortel Networks earnings per share from operations.

Sonoma Systems develops Carrier-Class Broadband Integrated Access Devices that allow Service Providers to deliver integrated services (Internet, voice, data and video) with Class of Service guarantees over a single, cost-effective access network. Sonoma Systems is headquartered in Marina del Rey, California with a technology center located in Marlborough, Massachusetts, and sales and support offices located throughout North America and in the UK. Additional information on products is available on the Sonoma Systems website at www.sonoma-systems.com.

Nortel Networks is a global Internet and communications leader with capabilities spanning Optical, Wireless, Local Internet and eBusiness. 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, promising 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.

*Nortel Networks, the Nortel Networks logo, the Globemark, OPTera, Passport and Universal Edge are trademarks of Nortel Networks.