Verizon Selects Nortel Networks to Accelerate Building of Nation's Largest Converged, Packet-Switched Wireline Network Using Voice-Over-IP Technology

NEW YORK - Verizon Communications (NYSE:VZ) this year will dramatically accelerate the evolution of its nationwide wireline network to packet-switching technology and has selected Nortel Networks [NYSE/TSX: NT] as its Voice Over Internet Protocol (VoIP) equipment provider.

Verizon will begin deployment of the new Nortel Networks equipment in its local and long-distance voice wireline networks later this year. Verizon plans to offer one of the industry's most comprehensive suites of VoIP and multimedia services, providing consumers and businesses in markets throughout the United States with communications capabilities that dramatically increase functionality, mobility and productivity. Verizon expects that its next-generation network will be the nation's largest converged network, capable of simultaneously handling voice, data and video transmissions.

Nortel Networks and Verizon have executed an interim letter of agreement (LOA) covering the initial terms of the arrangement. The parties expect to replace this LOA with a five-year agreement within the next few months.

"Construction of this next-generation wireline network will drive new revenue growth for us as we expand the services we can offer to customers nationwide, as well as make our existing network more efficient while maintaining our high level of network reliability," said Lawrence T. Babbio Jr., Verizon vice chairman and telecom president. "This move is as significant as when the industry began moving from analog to digital technology in the 1980s."

Paul Lacouture, Verizon president-Network Services Group, said, "We are literally taking what is known in the industry as the Public Switched Telephone Network and transforming it. The time is right for this move."

Verizon began deploying similar technology in its network in 1999, with VoIP gateway switches for some long-distance companies. In 2002, Verizon began installing similar technology from Nortel Networks in parts of the company's inter-city network and a year later deployed the technology in segments of the company's long-distance network.

This arrangement with Verizon represents one of Nortel Networks' most comprehensive converged-network wins to date. Verizon plans to deploy Nortel Networks Succession* carrier VoIP solutions and Multimedia Communications Portfolio as the backbone of its national network migration. In addition, Verizon will continue to market and sell Nortel Networks enterprise IP Telephony portfolio to business customers nationwide. Key elements of Verizon's arrangement with Nortel Networks are:

  • Begin the replacement of a number of Verizon's traditional local switches with Nortel Networks softswitches (the industry term for VoIP packet switches) and VoIP gateways, in what is expected to represent the largest conversion of its kind in the nation. In addition, Verizon will begin using the Nortel Networks switches to expand the company's long-distance network.

  • Nortel Networks will be the exclusive provider of Verizon's local and long-distance Class 4 (tandem) and Class 5 (local) VoIP switches in new offices over the next 18 months,

  • Nortel Networks will be the exclusive supplier of Verizon's VoIP and multimedia services infrastructure over the next 18 months.

  • Verizon and Nortel Networks will engage in collaborative selling initiatives aimed at upgrading Verizon's enterprise (PBX) customers to VoIP and interconnecting these PBXs via Verizon's converged network. Together, Nortel Networks and Verizon will target the 13,000 Nortel Networks Meridian* PBX systems and 150,000 Norstar* key systems utilized by Verizon's enterprise customers in Verizon's territory.

"This is an aggressive move by Verizon to deliver on the industry's vision of convergence, and a testament to Nortel Networks' global vision of transforming networks, eliminating boundaries, and offering service providers a foundation for value-rich services prized by both consumers and businesses," said Sue Spradley, president, Wireline Networks, Nortel Networks. "We are on the edge of a new era in telecommunications - one in which superior delivery of integrated voice, video, and data will enhance how, when and where people communicate with full mobility. Our VoIP and multimedia technology will enable Verizon's customers to make a video call, share electronic documents and send text messages in one environment with ease."

The launch of network-based VoIP services enhances Verizon's strong position in the Enterprise market for converged solutions and completes the advanced services portfolio created as part of the successful Enterprise Advance initiative. For business customers nationwide, Verizon plans to offer bundled local and long-distance voice, data and new productivity-enhancing multimedia services and applications. Enterprise customers will be able to augment traditional dial-tone services with more flexible IP services such as instant video-calling, unified messaging, Web-based call screening and routing and address book integration. Nortel Networks VoIP solutions and Multimedia Communications Portfolio, which include VoIP Virtual Private Networks (VPNs), Centrex IP and converged multimedia services, will enable Verizon to offer enterprise customers the ability to efficiently connect multiple sites as well as link telecommuters and mobile workers nationwide via a single high-speed packet network.

This initiative builds upon Verizon's Enterprise Advance, a nationwide network buildout announced in December 2002 and now operational in 56 markets. Verizon will leverage Enterprise Advance to offer voice, data and multimedia services both within and outside its traditional serving territory.

For residential customers, Verizon will be able to offer a complete suite of affordable bundled services, including local and long-distance VoIP service, as well as Internet access -- all over a single broadband connection. Residential and enterprise customer traffic will share Verizon's common packet network. When combined with Verizon's previously announced fiber to the premises (FTTP) project, customers will utilize the greater bandwidth and quality of service for seamless and simultaneous voice, multimedia and video services.

Verizon's initial service deployment is scheduled for mid-2004 and is expected to include hosted VoIP and multimedia services for business and consumers.

Nortel Networks has already begun shipping softswitch equipment for Verizon's long-distance, tandem, and end-office networks, including Succession Communication Server (CS) 2000 Superclass softswitches and local and long-distance access gateways. Other Nortel Networks equipment expected to be deployed by Verizon includes Nortel Networks Passport* Packet Voice Gateway, Succession Multiservice Gateway 4000, Succession Media Gateway 9000, and the Multimedia Communication Server 5200. Verizon also plans to deploy and distribute numerous Enterprise IP Telephony products from Nortel Networks.

A Fortune 10 company, Verizon Communications (NYSE:VZ) is one of the world's leading providers of communications services, with approximately US$67 billion in revenues. Verizon companies are the largest providers of wireline and wireless communications in the United States, with more than 139 million access line equivalents and 36 million Verizon Wireless customers. Verizon is the third largest long-distance carrier for U.S. consumers, with nearly 16 million long-distance lines. The company is also the largest directory publisher in the world, as measured by directory titles and circulation. Verizon's international presence includes wireline and wireless communications operations and investments, primarily in the Americas and Europe. For more information, visit www.verizon.com.

Nortel Networks is an industry leader and innovator focused on transforming how the world communicates and exchanges information. The Company is supplying its service provider and enterprise customers with communications technology and infrastructure to enable value-added IP data, voice and multimedia services spanning Wireless Networks, Wireline Networks, Enterprise Networks, and Optical Networks. As a global company, Nortel Networks does business in more than 150 countries. More information about Nortel Networks can be found on the Web 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 sufficiency of our restructuring activities, including the potential for higher actual costs to be incurred in connection with restructuring actions compared to the estimated costs of such actions; continued reductions in spending by our customers; fluctuations in operating results and general industry, economic and market conditions and growth rates; the communication by our auditors of the existence of material weaknesses in internal control; the ability to recruit and retain qualified employees; fluctuations in cash flow, the level of outstanding debt and our current debt ratings; the ability to meet the financial covenant in our credit facilities; the use of cash collateral to support our normal course business activities; the dependence on our subsidiaries for funding; the impact of our defined benefit plans and our deferred tax assets on our results of operations, cash flows and compliance with our financial covenant; the dependence on new product development and our ability to predict market demand for particular products; the ability to integrate the operations and technologies of acquired businesses in an effective manner; the impact of rapid technological and market change; the impact of price and product competition; barriers to international growth and global economic conditions, particularly in emerging markets and including interest rate and currency exchange rate fluctuations; the impact of rationalization in the telecommunications industry; changes in regulation of the Internet; the impact of the credit risks of our customers and the impact of customer financing and commitments; stock market volatility generally and as a result of acceleration of the settlement date or early settlement of our purchase contracts; risks associated with a consolidation of our common shares; the impact of supply and outsourcing contracts that contain delivery and installation provisions, which, if not met, could result in the payment of substantial penalties or liquidated damages; the future success of our strategic alliances; and the adverse resolution of litigation, intellectual property disputes and similar matters. For additional information with respect to certain of these and other factors, see the most recent Form 10-Q and Form 10-K filed by Nortel Networks with the United States Securities and Exchange Commission. Unless otherwise required by applicable securities laws, 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, Business Without Boundaries, Succession and Passport, Meridian and Norstar are trademarks of Nortel Networks.