Nortel Outlines Action Plan to Improve Operating Margins and Business Performance

Toronto, Canada (ots/PRNewswire) -

- Mix of Cost Reduction Strategies and New Business Initiatives to
Increase Competitiveness

TORONTO, Canada, June 27 /PRNewswire/ --

In connection with its previously announced Business
Transformation plan to increase competitiveness by improving
operating margins and overall business performance, Nortel(x) (NYSE:
NT, TSX: NT) today announced significant changes to its North
American pension programs as well as a net reduction of
approximately 1,100 positions globally. Nortel also announced a
series of new initiatives to create a world-class Operations
organization. Today's announcement is the latest in a series of
actions Nortel is taking to achieve a targeted operating-margin
expansion in excess of US$1.5 billion in 2008.

"I am confident in the progress we are making in turning around
Nortel and recreating a great company," said Mike Zafirovski, Nortel
president and CEO. "In the past few months we've taken important
steps, some with near- term impact, and others with longer-term
benefits, toward transforming our operations to be more efficient
and customer-focused. Today's announcements continue our efforts to
increase competitiveness, better manage our costs, and secure the
resources to fuel Nortel's innovation."

Key Company actions announced today include:

- Pension Plan: changes to control costs and align with
industry-benchmarked companies. These changes are expected to
result in an estimated annual reduction of US$100 million in
pension expense starting in 2008 and savings of more than
US$400 million in cash by the year 2012. This will reduce the
Company's unfunded pension liability deficit by approximately
US$400 million.
- Global Operations: initiatives designed to create a world-class
Operations organization to speed customer responsiveness and to
instill process excellence while reducing costs.
- Organizational Simplification: flatten the organization and shift
to a culture marked by agility and accountability.

The latter two actions result in a reduction of approximately
1,900 positions globally and the creation of approximately 800 new
positions in Operations Centers of Excellence. Total cost, both the
charge to the income statement and cash, for the Global Operations
restructuring and the organizational simplification, is estimated to
be approximately US$100 million over the next two years, of which
approximately US$35 million of the charge to the income statement is
expected to be taken in the second quarter of 2006. The cash cost is
expected to be incurred equally over a two-year period. Annual
savings from these actions is targeted to be approximately US$100
million in 2007 and approximately US$175 million by 2008.

Pension Plan Changes

Beginning January 1, 2008, Nortel will introduce key changes to
the current Nortel Capital Accumulation and Retirement Program in
the United States and Canada. Employees currently in defined benefit
pension plans will be moved to defined contribution retirement
programs. Employees already in defined contribution programs will
stay in defined contribution programs. The defined contribution
programs will have a new formula which is comprised of an automatic
employer contribution equal to two percent of employees' eligible
earnings. In addition, Nortel will provide a 50 percent match on
employee contributions of up to six percent of eligible earnings,
for a total maximum five percent employer contribution.

Current post-retirement healthcare benefits will be eliminated for
employees who are not age 50 with five years of service on July 1,
2006. All future retirees who do not meet this age and service
criteria will continue to have access to healthcare coverage at
their own cost through Nortel's preferred provider, given they meet
eligibility requirements when they retire.

"With these changes, we are redesigning our pension plans to
reduce the overall cost of the program while still ensuring we offer
a competitive pension plan and overall benefits program in alignment
with industry- benchmarked companies," said Dennis Carey, Nortel
executive vice president, Corporate Operations.

These changes will not go into effect for 18 months. Between now
and then employees will continue to earn benefits under the current
plans. Also , employees will keep their rights to all benefits
already earned in their current plans. Those benefits will be
available when they retire or leave Nortel. The Company will provide
financial education and modeling assistance to help employees
through the transition.

Current retirees in both the U.S. and Canada will not see any
change to their pension income benefit. Some retirees in the U.S.
will see a change in the cost-sharing formula for medical benefits.

Creating a World-Class Operations Organization

To realize the vision of a world-class Operations organization
that delivers high quality service at low cost to customers, Nortel
is also announcing a number of actions designed to increase customer
responsiveness , as well as product and service reliability. The
action plan to deliver these savings and transform Nortel's Global
Operations includes:

- Operations Centers of Excellence: The creation of two new
world-class Nortel Operations Centers of Excellence in Mexico and
Turkey powered by state-of-the-art tools, Six Sigma processes and
Nortel's own technology. These locations were selected for a
number of reasons including Nortel's established operations in
these countries, a strong labor pool, cost competitiveness, and
proximity to major customers based in these regions. The long-term
plan is to consolidate more than 100 sites globally into fewer
operations centers of excellence focused on delivering
engineering, product and technical support, order management,
purchasing and data analysis, among other functions. As Nortel
consolidates these sites, the company will eliminate approximately
1,200 Operations positions globally, in part through attrition.
Nortel expects to create approximately 800 new Operations
positions for these and other centers of excellence by 2008.
- High-Touch Customer Centers: An increased focus on
high-customer-interaction processes delivering strategic
capabilities such as network design, project engineering,
consulting and advisory work to support Nortel's new Services
strategy. These activities will be led out of major Nortel
locations including Ottawa, Ontario; Richardson, Texas; and
Research Triangle Park, North Carolina, as well as locations
supporting Europe, the Middle East and Africa (EMEA), Caribbean
and Latin America (CALA) and Asia Pacific.
- Procurement Effectiveness: Driving process excellence through the
implementation of three major initiatives: supplier life-cycle
management, which maps supplier capabilities including agility,
volume and capacity to the different stages in a product's life
cycle; smart, simple design or parts standardization; and Clean
Sheet Analysis, a data-intensive best practice that enables Nortel
to identify what a product, or component "should" cost and then
use that data in supplier negotiations.

Organizational Simplification

In addition to the actions taken to create a world-class
Operations organization, Nortel will eliminate approximately 350
middle management positions throughout the company and through
business unit efficiencies approximately 350 additional positions
globally.

About Nortel

Nortel 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.

Certain statements in this press release may contain words such as
" could", "expects", "may", "anticipates", "believes", "intends",
"estimates ", "targets", "envisions", "seeks" and other similar
language and are considered forward-looking statements or
information under applicable securities legislation. These
statements are based on Nortel's current expectations, estimates,
forecasts and projections about the operating environment, economies
and markets in which Nortel operates. These statements are subject
to important assumptions, risks and uncertainties, which are
difficult to predict and the actual outcome may be materially
different. Nortel has made various assumptions in the preparation of
the forward looking information in this press release related to the
following matters: (1) Global Operations, and (2) Organizational
Simplification: the total expected costs to be incurred related to
this restructuring is based on current estimated employee headcount
reductions included within restructuring activities set forth in
this press release; annualized cost savings are based on an average
per headcount cost savings (actual cost savings realized will be
dependent on an individual employee's salary, fringe and other
related costs); all charges and timing impact of charges are based
on the relevant FASB guidance for exit activities; and annual cost
savings are based on completion of the restructuring referenced in
this press release by the end of 2007; and (3) post-retirement
benefits: that the methodology for calculating pension and
post-retirement expenses and liabilities is consistent with that
used in Nortel's recently filed 2005 Annual Report on Form 10-K/A
("2005 10-K/A"); that the management assumptions set forth in the
2005 10-K/A remain valid, including, without limitation, that the
expected long-term rate of return on plan assets used to estimate
pension expenses is 7.4% on a weighted average basis; that the
discount rates used to estimate the net pension obligations and
expenses is 5.1%; that the assumption used to estimate the
post-retirement benefit obligations and cost was an expected
discount rate of 5.4%, respectively, both on a weighted average
basis; that there is no demographic shift in Nortel's work force;
that the pension and post-retirement benefits projections are
consistent with those set out in the 2005 10-K/A; and that there are
no changes in accounting standards with respect to the accounting
for pension and post-retirement benefits under US or Canadian GAAP.
The above assumptions, although considered reasonable by Nortel at
the date of this press release, may prove to be inaccurate and
consequently Nortel's actual results could differ materially from
its expectations set out in this press release.

Further, actual results or events could differ materially from
those contemplated in forward-looking statements as a result of the
following (i) risks and uncertainties relating to Nortel's
restatements and related matters including: Nortel's most recent
restatement and two previous restatements of its financial
statements and related events; the negative impact on Nortel and NNL
of their most recent restatement and delay in filing their financial
statements and related periodic reports; legal judgments, fines,
penalties or settlements, or any substantial regulatory fines or
other penalties or sanctions, related to the ongoing regulatory and
criminal investigations of Nortel in the U.S. and Canada; any
significant pending civil litigation actions not encompassed by
Nortel's proposed class action settlement; any substantial cash
payment and/or significant dilution of Nortel's existing equity
positions resulting from the finalization and approval of its
proposed class action settlement, or if such proposed class action
settlement is not finalized, any larger settlements or awards of
damages in respect of such class actions; any unsuccessful
remediation of Nortel's material weaknesses in internal control over
financial reporting resulting in an inability to report Nortel's
results of operations and financial condition accurately and in a
timely manner; the time required to implement Nortel's remedial
measures; Nortel's inability to access, in its current form, its
shelf registration filed with the United States Securities and
Exchange Commission (SEC), and Nortel's below investment grade
credit rating and any further adverse effect on its credit rating
due to Nortel's restatements of its financial statements; any
adverse affect on Nortel's business and market price of its publicly
traded securities arising from continuing negative publicity related
to Nortel's restatements; Nortel's potential inability to attract or
retain the personnel necessary to achieve its business objectives;
any breach by Nortel of the continued listing requirements of the
NYSE or TSX causing the NYSE and/or the TSX to commence suspension
or delisting procedures; (ii) risks and uncertainties relating to
Nortel's business including: yearly and quarterly fluctuations of
Nortel's operating results; reduced demand and pricing pressures for
its products due to global economic conditions, significant
competition, competitive pricing practice, cautious capital spending
by customers, increased industry consolidation, rapidly changing
technologies, evolving industry standards, frequent new product
introductions and short product life cycles, and other trends and
industry characteristics affecting the telecommunications industry;
the sufficiency of the restructuring actions announced in this press
release, including the potential for higher actual costs to be
incurred in connection with restructuring actions compared to the
estimated costs of such actions and the ability to achieve the
targeted cost savings and reductions of Nortel's unfunded pension
liability deficit; any material and adverse affects on Nortel's
performance if its expectations regarding market demand for
particular products prove to be wrong or because of certain barriers
in its efforts to expand internationally; any reduction in Nortel's
operating results and any related volatility in the market price of
its publicly traded securities arising from any decline in its gross
margin, or fluctuations in foreign currency exchange rates; any
negative developments associated with Nortel's supply contract and
contract manufacturing agreements including as a result of using a
sole supplier for key optical networking solutions components, and
any defects or errors in Nortel's current or planned products; any
negative impact to Nortel of its failure to achieve its business
transformation objectives; additional valuation allowances for all
or a portion of its deferred tax assets; Nortel's failure to protect
its intellectual property rights, or any adverse judgments or
settlements arising out of disputes regarding intellectual property;
changes in regulation of the Internet and/or other aspects of the
industry; Nortel's failure to successfully operate or integrate its
strategic acquisitions, or failure to consummate or succeed with its
strategic alliances; any negative effect of Nortel's failure to
evolve adequately its financial and managerial control and reporting
systems and processes, manage and grow its business, or create an
effective risk management strategy; and (iii) risks and
uncertainties relating to Nortel's liquidity, financing arrangements
and capital including: the impact of Nortel's most recent
restatement and two previous restatements of its financial
statements; any inability of Nortel to manage cash flow fluctuations
to fund working capital requirements or achieve its business
objectives in a timely manner or obtain additional sources of
funding; high levels of debt, limitations on Nortel capitalizing on
business opportunities because of credit facility covenants, or on
obtaining additional secured debt pursuant to the provisions of
indentures governing certain of Nortel's public debt issues and the
provisions of its credit facilities; any increase of restricted cash
requirements for Nortel if it is unable to secure alternative
support for obligations arising from certain normal course business
activities, or any inability of Nortel's subsidiaries to provide it
with sufficient funding; any negative effect to Nortel of the need
to make larger defined benefit plans contributions in the future or
exposure to customer credit risks or inability of customers to
fulfill payment obligations under customer financing arrangements;
any negative impact on Nortel's ability to make future acquisitions,
raise capital, issue debt and retain employees arising from stock
price volatility and further declines in the market price of
Nortel's publicly traded securities, or any future share
consolidation resulting in a lower total market capitalization or
adverse effect on the liquidity of Nortel's common shares. For
additional information with respect to certain of these and other
factors, see Nortel's 2005 10-K/A, Quarterly Report on Form 10-Q and
other securities filings with the SEC. Unless otherwise required by
applicable securities laws, Nortel disclaims any intention or
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.

(x) Nortel, the Nortel logo and the Globemark are trademarks of
Nortel Networks.

ots Originaltext: Nortel Networks
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Contact:
For further information: Patricia Vernon, +1-(905)-863-1035,
patricve@nortel.com; Jay Barta, +1-(972)-685-2381, jbarta@nortel.com