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Nortel Reports Q4 2005

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TORONTO -- Nortel Networks(x) Corporation (NYSE/TSX:NT) announced that today it has completed the filing of its audited financial statements for the year 2005 prepared in accordance with United States generally accepted accounting principles in U.S. dollars, and related Annual Report on Form 10-K and corresponding Canadian filings. The filings reflect the restatement of the years ended 2003 and 2004, and the first nine months of 2005. The filing of the 2005 audited financial statements and related filings of the Company's principal operating subsidiary, Nortel Networks Limited("NNL"), are in process. Annexed to this press release is certain selected financial information.

"The restatements have been completed and we have filed the Company's 2005 Annual Report on Form 10-K. I now look forward to completing our first quarter 2006 reporting and moving back to being a timely filer," said Mike Zafirovski, president and chief executive officer, Nortel. "Despite this delay, we have remained focused on our short term priorities of business transformation, integrity renewal, growth imperatives and on re-creating a great company, and I look forward to updating you on our progress in a planned mid-May business update."

Restatement Impacts

Revisions to the Company's previously reported 2003 and 2004 financial results reflect negative impacts on revenue of $261 million and $312 million and on net earnings/loss of $141 million and $156 million, respectively, as well as revisions to the Company's previously reported 2005 nine month results reflecting negative impacts on revenue of $520 million and on net earnings/loss of $164 million in the aggregate. With respect to financial results prior to 2003, the revisions reflect negative impacts on revenue of $384million and on net earnings/loss of $70 million in the aggregate. These revenue adjustments resulted in the deferral to later periods of revenue that was previously recognized in prior periods.

Fourth Quarter 2005 Results

Revenues were $3.00 billion for the fourth quarter of 2005 compared to $2.51 billion for the fourth quarter of 2004. Nortel reported a net loss in the fourth quarter of $2.30 billion, or $0.53 per common share on a diluted basis, compared to net earnings of $102 million, or $0.02 per common share on a diluted basis, in the fourth quarter of 2004. The fourth quarter of 2005 results included a litigation expense of $2,474 million, as a result of the agreement reached in principle for the proposed settlement of certain shareholder class action litigation, a tax benefit of approximately $140million related to a liability release as a result of new information regarding transfer pricing issues, special charges of $25 million related to restructuring activities and $11 million of costs related to the sale of businesses and assets.

Year 2005 Results

For the year 2005, revenues were $10.52 billion compared to $9.52 billion for the year 2004. Nortel reported a net loss of $2.58 billion, or $0.59 per common share on a diluted basis, for the year 2005, compared to a net loss of $207 million, or $0.05 per common share on a diluted basis, for the year 2004. The year 2005 results included a litigation expense of $2,474 million, as a result of the agreement reached in principle for the proposed settlement of certain shareholder class action litigation, special charges of $170 million related to restructuring activities and $47 million of costs related to the sale of businesses and assets.

As previously announced, the Company expects to file its and NNL's first quarter 2006 Quarterly Reports on Form 10-Q, and the corresponding filings under Canadian securities laws, no later than the week of June 5, 2006.

The Company plans to hold a teleconference/audio webcast on May 16, 2006 at 8:30 am EDT to provide a business update. Details of the call will be disclosed in advance of the event.

Nortel Networks Ltd.

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