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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

	Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2001
	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from                               to

Commission file number 001-07260

NORTEL NETWORKS CORPORATION
(Exact name of registrant as specified in its charter)

Registrant’s telephone number including area code: (905) 863-0000

Securities registered pursuant to Section 12(b) of the Act:

The common shares are also listed on The Toronto Stock Exchange in Canada

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days.

Yes      No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

At February 28, 2002, 3,204,652,807 common shares of Nortel Networks Corporation were issued and outstanding. Non-affiliates of the registrant held 3,189,916,346 common shares having an aggregate market value of $16,172,875,874.22 based upon the last sale price on the New York Stock Exchange on February 28, 2002, of $5.07 per share; for purposes of this calculation, shares held by directors and executive officers have been excluded.

Listed hereunder is the document to be incorporated by reference and the Parts of the Form 10-K into which the document will be incorporated:

TABLE OF CONTENTS

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All dollar amounts in this document are in United States dollars unless otherwise stated.

BAYSTACK, CONTIVITY, DMS, DMS-HLR, DMS-MSC, DMS-MTX, EPICON, MERIDIAN, MERIDIAN 1, NORSTAR, NORTEL NETWORKS, OPTERA, OPTIVITY, PASSPORT, PERIPHONICS, PRESIDE, S/DMS TRANSPORTNODE, SHASTA, SUCCESSION, and SYMPOSIUM are trademarks of Nortel Networks.

ALTEON is a trademark of Alteon WebSystems.

ACCESSNODE and UNIVERSAL EDGE are trademarks of Zhone Technologies, Inc.

CLARIFY is a trademark of Amdocs Software Systems Limited.

JUNGLEMUX is a trademark of GE Industrial Systems Technology Management Inc.

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PART I

ITEM 1. BUSINESS

Overview

     Nortel Networks Corporation is a leading global supplier of products and services that support the Internet and other public and private data, voice, and multimedia communications networks using terrestrial and wireless technologies which we refer to as “networking solutions.” Our networking solutions generally bring together diverse networking products from our various product families, and related services, to create either a customized or “off the shelf” solution for our customers. Our business consists of the design, development, manufacture, assembly, marketing, sale, licensing, financing, installation, servicing, and support of networking solutions. Our networking solutions include network equipment, software, and other technologies that enable local and long-distance telephone companies, Internet service providers, and other communications service providers to provide their customers with the ability to communicate locally or globally, through the use of data, voice, and multimedia communications. Our networking solutions also provide enterprises, such as large and small businesses, governments, and other organizations, with the ability to communicate locally or globally within their organization and with other individuals and organizations through the use of data, voice, and multimedia communications. With our networking solutions, we are focused on providing the infrastructure and applications for high-performance networks, as technology transforms the way we communicate and conduct business.

     In the fourth quarter of 2001, we reorganized our operations and evolved the way we manage our business to focus on providing seamless networking products and service capabilities across three core business areas. We now conduct business in three operating segments: Metro and Enterprise Networks, Wireless Networks, and Optical Long-Haul Networks. Accordingly, our financial information by operating segment and product category have been modified and reported on a new basis commencing with the year ended December 31, 2001. We refer you to the descriptions of our “Metro and Enterprise Networks Segment,” our “Wireless Networks Segment,” and our “Optical Long-Haul Networks Segment” below. For financial information by operating segment and product category, we refer you to note 17 to the Consolidated Financial Statements, and to “Results of operations – continuing operations – Revenues – Segment revenues” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The Company’s principal executive offices are located at 8200 Dixie Road, Suite 100, Brampton, Ontario, Canada, L6T 5P6; telephone number (905) 863-0000. The Company was incorporated in Canada on March 7, 2000 under the name New Nortel Inc. On May 1, 2000, the Company participated in a Canadian court-approved plan of arrangement with Nortel Networks Limited, previously known as Nortel Networks Corporation, and BCE Inc., the largest shareholder of Nortel Networks Limited prior to the plan of arrangement. In connection with the plan of arrangement on May 1, 2000:

	•	the Company changed its name to Nortel Networks Corporation;
	•	the holders of the outstanding publicly traded common shares of Nortel Networks Limited became common shareholders of the Company;
	•	common shares of the Company were distributed to the common shareholders of BCE; and
	•	Nortel Networks Limited became the principal operating subsidiary of the Company.

The Company also assumed Nortel Networks Limited’s financial reporting history as of May 1, 2000, the date of the plan of arrangement, for financial reporting purposes. As a result, management deems Nortel Networks Limited’s consolidated business activities prior to May 1, 2000 to represent the Company’s consolidated business activities as if the Company and Nortel Networks Limited had historically been the same entity. References to “the Company” mean Nortel Networks Corporation without its subsidiaries. References to “we,” “our,” “us,” or “Nortel Networks” mean the Company and its subsidiaries.

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Developments in 2001

     In 2001, the telecommunications industry underwent a period of significant adjustment. During 2001, industry demand for networking equipment slowed significantly in response to the rapid and severe industry and economic downturn in the United States, Europe, and other parts of the world and the related decline in the global capital markets. As a result of this adjustment and the difficulties in obtaining financing for capital expenditures, the business marketplace in the telecommunications industry has changed. Significant excess network capacity now exists as a result of the pace of new network construction during 1999 and 2000 and also due to the financial difficulties now being experienced by a number of communications service providers around the world. Service provider customers are no longer investing in new networks or equipment based primarily on potential future demand. Customers, now focused on reducing their costs and exhausting existing network capacity, have returned to more conservative capital spending strategies and generally require current demand for network capacity prior to investing in new network expansions and equipment. This resulted in a significant reduction in 2001 in the levels of capital spending by communications service providers around the world.

     In light of the significant downturn in both the telecommunications industry and the economic environment, and capital market trends impacting our operations and expected future growth rates, we engaged in a number of activities in 2001 to streamline operations and activities around our core markets and leadership strategies. Some of our activities in 2001 include:

	•	substantial workforce reductions;
	•	amendment of certain credit agreements;
	•	discontinuance of our access solutions operations;
	•	divestitures and outsourcing transactions; and
	•	write down of intangible assets.

The primary focus of these activities in 2001 was to reposition Nortel Networks from a financial perspective. As a result of these initiatives, we have substantially reduced our fixed costs and have created a business organization that we believe is better aligned to the new industry and economic environment. For information on these and other developments in 2001, see “Developments in 2001” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and notes 4, 7, and 8 to the Consolidated Financial Statements.

Networking Solutions

     Our networking solutions include network equipment, software, and other technologies that enable communications locally or globally through the use of data, voice, and multimedia networking. In our industry, networking refers to:

	•	the connecting of two or more communications devices, such as telephones for voice communications, and personal computers for data communications, across short or long distances to create a “network”;
	•	the connecting of two or more networks; or
	•	the connecting of equipment used in a network.

A telecommunications network generally consists of network access equipment, network transport equipment, and core networking equipment.

     Network access – Network access refers to the portion of a network that runs from an end user to the network access equipment that resides in locations between the end user’s site and the interior, or “core,” areas of a network. We do not offer network access solutions for wireline networks, also known as terrestrial networks, or for fixed wireless networks. For

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our network access solutions for mobile communications networks, we refer you to our “Wireless Networks Segment” description below.

     Network transport – Network transport refers to the portion of a network that runs from network access equipment to core networking equipment, or from core networking equipment in one location to core networking equipment in another location. Network transport may be over wireline cabling (copper wire, fiber optic, or coaxial), or over wireless radio signals transmitted through the air between locations using antennas. Network transport by wireless radio signals is also known as digital radio transport. We do not offer digital radio transport products. The most common method for long-distance network transport is optical networking, which uses light particles/waves to transmit communications signals through fiber optic cables. For our long-distance optical transport products, we refer you to our “Optical Long-Haul Networks Segment” description below. For our other optical transport products, we refer you to our “Metro and Enterprise Networks Segment” description below.

     Core networking – Core networking refers to the apparatus and workings of the interior areas of a network. Core networking equipment directs, routes, or “switches” the data, voice, and multimedia communications signals from one part of the network to another. For our general core networking products, we refer you to our “Metro and Enterprise Networks Segment” description below. For our specialized core networking products designed for wireless communications networks, we refer you to our “Wireless Networks Segment” description below.

Metro and Enterprise Networks Segment

     Products

     Our Metro and Enterprise Networks portfolio of wireline products provide data, voice, and multimedia communications for our customers. Our service provider customers include local and long-distance telephone companies, Internet service providers, and other communications service providers. Our enterprise customers include large businesses and their branch offices, small businesses, and home offices, as well as government, education, and utility organizations. We refer you to “Metro and Enterprise Networks Segment – Customers” below. We offer our Metro and Enterprise Networks customers a range of Optical Ethernet solutions, packet switching and routing solutions, and circuit to packet network solutions. We also provide our customers with related professional services, including: strategic planning and network design services; operations planning and consulting services; technology and process outsourcing services; network applications and network content services; and installation and ongoing technical support.

          Optical Ethernet

     We offer our Metro and Enterprise Networks customers a broad range of solutions for metropolitan optical, or “Optical Ethernet,” networks. Optical Ethernet networks transport data, voice, and multimedia communications between locations within a city or between cities of close range by transmitting communications signals in the form of light particles/waves through fiber optic cables. Our customers use optical networking solutions to deliver customized services that include high-speed Internet access, network connections between offices within a city and between cities of close range, and support for the transport and storage of large amounts of data. We offer a suite of Optical Ethernet solutions designed to reduce the congested and complex metropolitan networking bottleneck created by the wide range of users and services that exist within cities (such as businesses, banks, schools, and home users all using the Internet and phone lines). Our Optical Ethernet networking products support data, voice, video, Ethernet, and other types of protocols (such as those used for data backup and storage), and are designed to be expandable, contractible, and generally flexible in order to support the dynamic communications traffic patterns that exist within cities. Our Optical Ethernet product portfolio for metropolitan optical networks consists primarily of the OPTera Metro 3000 series, the OPTera Metro 4000 series, and the OPTera Metro 5000 series.

          Packet Switching and Routing

     We offer a broad range of packet switching and routing solutions for our customers. Packet networking involves the partitioning of a data, voice, or multimedia communications signal into pieces, or “packets,” that are directed or routed through the network independently and then re-assembled at the destination, enabling large numbers of communications

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signals to be directed or routed simultaneously and more efficiently than in circuit networking, which requires a separate network circuit to be maintained for each communications signal for the duration of the call. Our packet switching and routing systems include data switching systems, aggregation products, virtual private network gateways, and routers.

	•	Our Alteon Web products provide data switching designed to allow service providers and enterprises to provide Internet data security, to manage and prioritize the Internet content that is provided to end users, and to balance the amount of communications traffic on multiple Internet servers.
	•	Our Passport family of multi-service switching products offers high-speed, high-capacity data switching to support a wide range of data communications technologies, including multi-protocol label switching, asynchronous transfer mode, Internet protocol, and frame relay services. These products are also key components of our Succession solution, Internet protocol virtual private network services, and third generation, or 3G, wireless network data switching solutions. Our Passport Ethernet Routing Switch delivers Internet protocol routing and switching.
	•	Our Baystack and Business Policy Switch 2000 portfolio is a series of high performance data switches for our enterprise customers’ small to large local area computer networks that use the Ethernet, a standard computer networking protocol for local area networks. These switching systems are designed to allow the prioritization of communications traffic to ensure network integrity for certain applications, such as systems for voice communications over the Internet.
	•	Our Shasta Broadband Service Node aggregation products are designed to give service providers the ability to logically group tens of thousands of residential and business subscribers in order to re-direct them to various Internet service providers, or to centrally apply value added data network services, such as Internet security, on a per subscriber basis. These products support a wide range of data network access technologies, including standard dial-up over copper telephone wire, digital subscriber line, asynchronous transfer mode, wireless, frame relay, and coaxial cable technologies.
	•	Our Contivity portfolio of data switching platforms for Internet-based virtual private networks is designed to enable service providers and enterprises to offer secure Internet access for remote users, corporate intranets and corporate extranets. These products are also designed to enable secure enterprise site-to-site communications.
	•	Our Bay router portfolio is a family of routers that work with a variety of data networking protocols to offer expandable, contractible, and cost-effective connections for use in our enterprise customers’ local area networks, campus networks, and wide area networks. These solutions use the Internet protocol standard to route data communications traffic from one corporate site to another within an enterprise’s network.

          Circuit to Packet Voice Networks

     Circuit switching systems enable communications signals to be selectively directed or “switched” from one network circuit to another. Our circuit to packet voice network solutions include our combined voice and data communications systems, our Meridian and Norstar enterprise telephone systems, our digital switching systems, our business solutions and applications, and our network management software. Our business solutions and applications include call centers, interactive voice response systems, web-response centers, and advanced speech recognition systems, all of which are designed to enable organizations to integrate customers into their electronic business processes.

	•	Our Succession solutions are combined voice and data communications systems for service providers and large enterprises. These solutions are designed to give our customers the ability to support data and large enterprises networking without replacing their existing voice networks, or the ability to add voice services to existing data networks. Our Succession solutions support customers building new networks, and customers who want to transform their existing voice communications network into a cost effective packet network supporting data, voice, and multimedia communications.
	•	Our Business Communications Manager is a combined voice and data communications system for branch offices and small to medium-sized businesses that uses both digital and Internet protocol technologies. This solution allows

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		migration from an enterprise’s separate voice and data communications infrastructures to a combined next generation Internet-based system. Available applications include voice messaging, cordless phones, contact center software, and data communications routing.
	•	Our CentrexIP system provides a suite of business services to residential and business customers over a packet-based network. It is fully scalable and enables new applications such as multimedia conferencing, unified messaging, and file sharing to be integrated with traditional business voice services.
	•	Our Meridian digital telephone switching systems are designed for small, medium, and large commercial enterprises, and government environments. These telephone systems provide voice communications features, such as voice messaging, call waiting and call forwarding, as well as advanced voice services, multimedia applications, and other networking capabilities. Our customers can also configure their Meridian 1 systems to send voice communications over the Internet with our Internet Telephony Gateway products and our i2004 Internet telephones.
	•	Our Norstar digital telephone switching systems are designed for small to medium-sized businesses, and branch offices of large organizations. These telephone systems can be configured with a suite of applications, such as voice messaging, cordless phones, contact center software, and interactive voice response systems.
	•	Our digital switching system—called DMS, for Digital Multiplex System—provides local, toll, long-distance, operator services, and international gateway solutions. The primary function of our DMS systems is to enable service providers to connect people making local and long-distance telephone calls. Our DMS systems also provide for a broad range of service capabilities, including advanced functions such as caller identification and call waiting, to be offered to the service provider’s residential and business customers.
	•	Our Periphonics interactive voice response systems automate functions often conducted by a company’s telephone agents. Our interactive voice response systems answer the telephone, greet callers, offer menu options, and provide information to the caller in a consistent, accurate manner. These systems use advanced speech recognition systems to allow a caller to interact with the system by orally responding to questions or prompts presented to the caller by the system.
	•	Our Directory Assistance systems incorporate an interactive voice response system to automate the identification of a caller’s requested directory listing and provide playback.
	•	Our Symposium call center portfolio of products provides call center solutions for small, medium, and large organizations. Our Symposium call center solutions can provide either a standard circuit-switched voice system or an Internet-based call center solution.
	•	Our Unified Payment products provide near real time billing data to customers’ billing systems. These products enable service providers to operate both pre-paid and post-paid subscription services. These products also provide interfaces to e-commerce and voice recognition platforms that allow service providers to implement end-to-end billing solutions.
	•	Our network management software provides management, surveillance, and alarm reporting and networking statistical reporting to ensure a network is operating in the manner expected by service providers and end users. These systems are designed to give our customers the ability to monitor the performance of their network and to make changes to the performance of the network, including the provisioning of new services for end users. Our network management software includes our Preside carrier-class network management software products, and our Optivity network management software products for enterprises.

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     Product Development

     We are currently focused on developing products that support the continuing evolution of voice and data communications systems toward converged or combined voice and data networks.

	•	Our OPTera Metro 8000 Services Switch is designed to enable service providers to offer Optical Ethernet networks cost-effectively to tens of thousands of enterprise customers in a city. We currently expect the OPTera Metro 8000 Services Switch to be commercially available in the second quarter of 2002.
	•	Our Passport 20000 is an extension and evolution of the Passport multiservice series of switches targeted at the core of service provider networks for applications that require increased capacity or increased speeds. The Passport 20000 has been in customer trials since the fourth quarter of 2001, and we currently expect it to become commercially available in the second quarter of 2002.
	•	Our Interactive Multimedia Server is a suite of application servers that provides next generation multimedia services within both packet-based data networks and circuit-switched voice networks, and is an integral component of both our wireless and wireline Succession solutions. The Interactive Multimedia Server is currently in multiple customer trials and is expected to be commercially available in the second quarter of 2002.

     Markets

     We offer our Metro and Enterprise Networks products to service providers and enterprises around the world. With the growth of voice and data communications over the public telephone network, the public Internet, and private voice and data communications networks, there is an increasing opportunity to converge disparate networks towards a single, high performance network that can support most types of communications traffic and applications. This convergence of voice and data communications, and public and private communications, began with the common use of local and long-distance fiber optic communications networks to transport local and long-distance, public and private, and business and residential voice and data communications. Voice and data communications systems generally continued to use circuit-based technologies for voice communications, and more cost-effective packet-based technologies for data communications. As data, voice, and multimedia communications technologies continue to converge, we anticipate that in the future all communications networks will be able to carry data, voice, and multimedia communications effectively, and we anticipate that these networks will use packet-based technologies.

     Historically, voice communications and data communications have operated on separate networks. Voice communications infrastructures transitioned from analog circuit switching systems to digital circuit switching systems during the 1980s and early 1990s. The demand for digital circuit-based voice communications equipment is now mature. During the mid to late 1990s, demand for data communications infrastructure equipment grew substantially, driven by the growth in data communications and the growth of the Internet. Although consumer use of existing voice communications infrastructures continues to grow, the per-minute rates that local and long-distance telephone companies can charge for these services have been declining due to competitive market forces. To meet the growing demand for increased capacity at lower per-minute rates, we anticipate that over the next five to 10 years service providers will transition their digital circuit-based voice communications infrastructures to more cost effective packet-based infrastructure technologies with the ability to carry data, voice, and multimedia communications. As a result, we anticipate growth over the same period in demand for packet networking equipment that supports the convergence of data, voice, and multimedia communications over a single communications network and that provides greater network capacity, reliability, speed, quality, and performance.

     The market for our Metro and Enterprise Networks products is a global one, covering the United States and Canada, the Caribbean and Latin America region, the Europe, Middle East and Africa region, and the Asia Pacific region. Network security and resiliency has become a significant focus for enterprise customers worldwide, particularly in the aftermath of the September 11th terrorist attacks on the United States. In the United States and Canada, although most service providers are focused on reducing their capital spending in response to the industry and economic slowdown, many service providers continue to modernize their networks in response to the convergence of voice and data communications networks. Enterprise customers in the United States and Canada continue to invest in equipment for their communications networks, primarily for network security and resiliency, for voice communications over the Internet, and for virtual private networks. In the

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Caribbean and Latin America region, enterprises are continuing to drive demand for networking equipment that supports the growing use of the Internet in the region. In the Europe, Middle East, and Africa region, we continue to see market demand for certain networking products, including metropolitan optical networking products, equipment for voice communications over the Internet, and equipment for virtual private networking. Service providers in Europe are also focused on reducing their capital spending, and we anticipate that a higher proportion of network infrastructure capital spending in Europe in 2002 will come from the leading national public telephone companies, as opposed to alternative service providers. In the Asia Pacific region, demand for networking equipment has slowed, but is continuing, largely due to the significant deployments of wireless communications services and the growing use of the Internet. In addition, enterprise customers in the Asia Pacific region are continuing to invest in networking equipment to improve the connections among their regional sites and branch offices.

     Customers

     We offer our Metro and Enterprise products and services to a wide range of service providers and enterprises around the world. Our service provider customers include:

	•	incumbent local telephone companies and new competitive local telephone companies (also known as incumbent local exchange carriers, or ILECs, and competitive local exchange carriers, or CLECs);
	•	long-distance telephone companies (also known as interexchange carriers);
	•	service providers with global businesses;
	•	Internet service providers;
	•	service providers that sell shared use of business software applications (also known as application service providers);
	•	resellers of communications network services;
	•	public utilities;
	•	cable television companies; and
	•	service providers that sell web hosting services (also known as hosting service providers).

We also offer our products and services to a broad range of enterprise customers around the world, including large businesses and their branch offices, small businesses, and home offices, as well as government, education, and utility organizations. Key industry sectors for our business customers include the telecommunications, high-technology manufacturing, and financial services sectors. We also serve business customers in the healthcare, retail, hospitality, services, transportation, and other industry sectors. We are currently focused on increasing our market presence with key global service provider and enterprise customers. In particular, we intend to focus on certain large service providers who we currently expect to account for a substantial proportion of service provider capital spending in 2002 and beyond, and leading enterprise customers with high performance networking needs. None of our Metro and Enterprise Networks customers represented more than 10 percent of Nortel Networks consolidated revenues in 2001.

     Competition

     Our principal competitors in the sale of our Metro and Enterprise Networks products to service providers are large communications companies, such as Alcatel S.A., Fujitsu Limited, Telefonaktiebolaget LM Ericsson, Lucent Technologies Inc., and Siemens Aktiengesellschaft. In addition, we compete with smaller companies that address specific niches within this market, such as Ciena Corporation and ONI Systems Corp. (who recently announced their intention to combine their companies) in metropolitan optical networking solutions, Sonus Systems Limited in Internet-based voice communications solutions, and Redback Networks Inc. in aggregation products. Certain competitors also are strong on a regional basis, such as Nippon Denki Kabushiki Kaisha (also known as NEC) and Huawei Technologies Co., Ltd. in Asia. No one competitor is dominant in this market. We expect competition to increase in intensity given the significant decline in 2001 in market demand, the substantially reduced availability of capital, the continued consolidation in the service provider industry, and the renewed focus by suppliers on selling to the remaining large service providers with financial resources.

     Our principal competitors in the sale of our Metro and Enterprise Networks solutions to enterprises are Alcatel, Avaya Inc., Cisco Systems, Inc., Ericsson and Siemens. Cisco Systems is our most significant competitor in the sale of networking equipment to enterprises. We also compete with smaller companies that address specific niches, such as Foundry

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Networks, Inc., Extreme Networks, Inc., and Enterasys Networks, Inc. in Ethernet switching, 3Com Corporation in Internet-based voice communications solutions, and Genesys Telecommunications Laboratories, Inc. in call centers. We expect competition to remain intense as corporate information technology spending continues to be affected by global and regional economies and the state of the global capital markets.

     The principal global factors of competition in the sale of our Metro and Enterprise Networks products include:

	•	technology leadership, product features and availability;
	•	product quality and reliability;
	•	conformity to existing and emerging regulatory and industry standards;
	•	warranty and customer support;
	•	price and cost of ownership;
	•	interoperability with other networking products; and
	•	installed base of product.

The principal competitive factors for the sale of our products to service providers also include the leveraging of existing customer-supplier relationships, and the provision of customer financing. The principal competitive factors for the sale of our products to enterprises also include distribution channels.

Wireless Networks Segment

     Products

     Wireless networking, also known as mobility networking, refers to communications networks that enable end users to be mobile while they send and receive voice and data communications using a wireless device, such as a cellular telephone. These networks use specialized network access equipment and specialized core networking equipment that enable an end user to be connected and identified despite the lack of a fixed location. The technology for wireless communications networks has evolved, and continues to evolve, through various technology “generations.” First generation (1G) wireless technology refers to analog wireless communications networks based on circuit switching technology that are limited to voice communications; second generation (2G) wireless technology refers to digital wireless networks based on circuit switching technology with very limited data transmission capabilities; and third generation (3G) wireless technology refers to digital wireless communications networks based on packet networking technology with voice, high-speed data, and multimedia transmission capabilities. Our existing wireless network solutions span all generations and most major global digital standards for mobile networks. The majority of wireless networks existing today are based on 2G wireless technologies.

     There are several international standards for wireless communications networks. The main standards used today are Time Division Multiple Access (TDMA) supported mainly in North and South America, Code Division Multiple Access (CDMA) supported in both the Americas and Asia Pacific, and Global System for Mobile communications (GSM) supported all over the world. Universal Mobile Telecommunications System (UMTS) is the emerging standard for 3G networks with a European focus. TDMA is a 2G wireless standard that uses timeslots within a radio frequency channel to separate users’ conversations. CDMA is a 2G wireless standard that uses codes, much like encryption, to distinguish one call from another, with all calls in a given cell transmitted over the entire range of radio frequencies assigned to the network operator within the cell. CDMA networks are evolving to 3G according to the CDMA 3G (1xRTT) standard, also known as cdma2000, for voice and high-speed data mobility. 1xEV and 1xDV are also emerging CDMA 3G standards for high speed wireless networks for data, voice, and multimedia communications. GSM is a 2G wireless standard that, like TDMA, uses time slots within a specified radio frequency channel to distinguish one call from another. GSM networks are evolving to carry data, as well as voice, with the introduction of General Packet Radio Standard (GPRS). GPRS is viewed as a “2.5G” technology that provides an intermediate step between 2G and 3G wireless networks. UMTS is a 3G wireless standard that combines CDMA-based radio access with advanced switching techniques to yield high capacity, high speed wireless networks for data, voice, and multimedia communications.

     We offer a broad portfolio of solutions for wireless communications networks. Our wireless networking products support the TDMA, CDMA, GSM, GPRS, and UMTS standards. We also offer a range of related professional services to

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our customers, including: business planning services; network design services; site acquisition and installation services; network optimization services; and technical operations and maintenance services.

     Radio network access equipment uses radio waves to provide wireless access to the subscriber’s handset, enabling the wireless subscriber to connect to the network to send and receive data, voice, and multimedia communications. The key network elements in radio access are (i) base station transceivers, and (ii) base station controllers. As a mobile subscriber moves away from the area covered by a base station transceiver, also known as a cell site, the subscriber will lose the call unless an adjacent cell site provides the coverage. This requires that an active wireless call be transferred from one cell to another cell without breaking or disconnecting the call in progress, also known as a “hand-off.” Base station transceivers and base station controllers work together with core network equipment to perform a call hand-off. We offer our customers a wide range of base station transceivers and base station controllers for TDMA, CDMA, GSM, GPRS, and UMTS standards, supporting a wide variety of network requirements, including metropolitan and dense urban networks, which are generally available in micro, macro, and mini base station transceiver packages. We do not manufacture or sell cellular phones.

	•	Our TDMA radio network access portfolio supports wireless service providers with licensed radio spectrum at 800 megahertz and/or 1900 megahertz.
	•	Our CDMA base station transceivers support CDMA 2G (IS-95) and CDMA 3G (1xRTT) transmission standards at 800 megahertz and/or 1900 megahertz, and are expected to be upgradeable to support emerging CDMA 3G (1xEV and 1xDV) standards in the future.
	•	Our GSM base station products support wireless service providers with licensed radio spectrum at 900 megahertz, 1800 megahertz, and/or 1900 megahertz, and can be upgraded to support GPRS (2.5G).
	•	Our UMTS 3G Access Network (UTRAN) radio network access equipment is currently in customer trials.

     Core networking equipment directs, routes, or “switches” communications signals within a service providers’ wireless communications network. The primary functions of core networking equipment in wireless communications networks are: identifying and authenticating the called party; locating the called party; directing the call through the system; and generating call detail records for billing purposes. The key network elements in the core part of a wireless communications network are: (i) mobile switching centers, and (ii) home location registers. Mobile switching centers direct or “switch” data, voice, and multimedia communications signals from one network circuit to another. A home location register is a database that contains permanent subscriber data, such as provisioning and service information, and dynamic information, such as the wireless handset’s current location. We offer mobile switching centers and home location registers that support TDMA, CDMA, and GSM core networks. Our Serving GPRS Support Node, which connects the GPRS “backbone” network to the base station transceiver and the home location register, registers and tracks mobile users and delivers data communications to cellular phones and other mobile devices in a given service area. Our GPRS Gateway Support Node routes data communications and connects the GPRS backbone network to external data networks. Our UMTS 3G core networking equipment, including our UMTS Serving Support Node and our UMTS Gateway Support Node, are currently in customer trials.

     Product Development

     Our wireless networking products in development include our UMTS 3G products, the next evolution of our CDMA 3G products, and our GSM/EDGE (Enhanced Data rates for GSM Evolution) products.

	•	Our UMTS 3G radio network access and core network products are currently in customer trials. We currently expect to launch these products on a limited commercial basis by the third quarter of 2002, with a commercial release launch expected to take place by the end of 2002.
	•	Our CDMA 3G (1xRTT) products are generally available. Our other CDMA 3G (1x-EV-DO and DV) products are in development, with customer trials of 1x-EV-DO products expected to begin by the end of 2002.

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	•	Our GSM/EDGE products, which allow GSM operators to offer higher data rates on existing GSM spectrum allocations, are expected to be in field demonstration by the end of 2002, with customer trials planned for 2003.

In addition, our Adaptive MultiRate technology, which is designed to reduce the cost of existing GSM network ownership for wireless service providers by increasing capacity and radio spectrum efficiency of existing GSM base station transceivers without adding new equipment, is currently expected to be in customer trials in the second half of 2002. We also currently anticipate that the enhanced version of our GSM base station controller, the GSM BSC e3, will be commercially available in the first half of 2002.

     Markets

     The original wireless communications networks were built using 1G analog technology. In the early 1990s, advanced 2G digital technology based systems, including TDMA, CDMA, and GSM, were introduced. Over the next couple of years, we expect most of the remaining analog wireless networks to migrate to digital technologies. Since the beginning of 2000, many wireless service providers have been upgrading their GSM and TDMA (2G) wireless networks to a higher speed technology called GPRS (2.5G). In the next few years, we anticipate that new network construction and network upgrades will focus on the evolution to UMTS 3G systems, the evolution path for GSM and GPRS networks, and to CDMA 3G (1xRTT) systems, the evolution path for CDMA networks. Wireless service providers operating TDMA networks are expected to choose either UMTS 3G or CDMA 3G (1xRTT) systems based on their business strategies.

     The global market for wireless networking equipment increased substantially from 1995 to 2000. However, in 2001, although our Wireless Networks revenues grew, growth in the global wireless networking market remained essentially flat. We believe that this was largely due to the weakening of global economic conditions and capital markets, and the decision of many wireless service providers to delay certain capital expenditures, given the high costs of 3G licences, particularly in Europe, and the significant decline in available financing. TDMA is a mature technology, and demand for TDMA networking equipment declined in 2001. Demand for GSM networking equipment is expected to decline over the next few years, even though GSM-based systems continue to represent more than half of the global market for wireless networking products. Demand for CDMA 2G (IS-95) technology is also expected to decline over the next few years. Our customers are wireless service providers, and their customers are the subscribers of wireless communications services. In 2001, we believe that global economic uncertainties, as well as high penetration rates in Europe, contributed to slower wireless subscriber growth. In addition, we expect that wireless subscriber growth rates for 2G technologies, including TDMA, CDMA 2G (IS-95), and GSM, to continue to slow in the future, given existing subscriber penetration rates and user migration to the newer 2.5G technologies (GPRS) and 3G technologies (CDMA 3G (1xRTT), and UMTS).

     There are two key aspects to the migration from 2G wireless communications technologies to 2.5G and 3.G wireless communications technologies. The first is that all current 3G technologies, including UMTS and CDMA (1xRTT), are based on code division (CDMA) technology. The second is that the migration from 2G to 2.5G and 3G technologies is largely based on a transition from circuit switching technologies in 2G core networks to packet networking technologies in 3G core networks. We believe that our extensive experience in deploying CDMA 2G (IS-95) wireless communications networks, combined with our expertise in packet networking for wireline networks, will be a competitive strength for our business during the expected market transition from 2G wireless communications networks to 2.5G and 3G wireless communications networks. However, the timing of changes in revenues in the short term from the different wireless technologies has become increasingly difficult to predict as a result of the continuing industry and capital markets adjustment and the complexities and potential for delays in implementation of 3G network deployments.

     Over the next two to three years, we anticipate that demand for wireless networking equipment will be driven primarily by the growth of 2.5G and 3G wireless networking systems. GPRS networks have already been launched in Europe, while some North American wireless service providers are currently building their GPRS networks. Some Korean wireless service providers have already commercially launched CDMA 3G (1xRTT) networks. UMTS network deployment has been delayed, generally due to economic uncertainties, capital market constraints, delays in UMTS cellular phone availability, and the high license fees that must be paid by UMTS wireless service providers. However, we currently expect a number of European UMTS networks to be launched by the end of the second half of 2002, with mass-market take-up beginning in 2003.

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     The market for our Wireless Networks products is a global one, covering the United States and Canada, the Caribbean and Latin America region, the Europe, Middle East and Africa region, and the Asia Pacific region. In the United States and Canada, usage rates of wireless communications services continue to increase, and we anticipate that capital spending decisions by wireless service providers will be driven by capacity requirements, new wireless subscribers, increased use of wireless devices for Internet access, and technology migration from 2G wireless technologies to 2.5G and 3G wireless technologies. We also anticipate that in the United States and Canada the transition from 2G to 2.5G and 3G technologies will be driven by CDMA 3G (1xRTT) deployment for CDMA-based networks, and by GPRS/UMTS deployment for GSM and TDMA-based networks. In the Caribbean and Latin America, wireless subscriber growth continues at a high rate, largely due to the popularity and increased affordability of wireless communications services. In Brazil, capital spending by service providers has begun to shift from wireline communications networks to wireless communications networks. However, we anticipate a slowdown in wireless infrastructure investments in the C