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Zhone Concentrates R&D, Manufacturing and Marketing on Pure-Play Access Strategy

Zhone's Focus on FTTx, EFM, and MSAP Underscored by Divestiture of Accessnode and Gigamux Product Lines

Oakland, CA — January 23, 2008 — Zhone Technologies, Inc. (NASDAQ: ZHNE), a global provider of advanced communications equipment and a leading supplier for VoIP, IPTV, and Ethernet over copper and fiber access lines, today announced the divestiture of the AccessNode and GigaMux product lines. The move solidly positions Zhone as a pure play in the access market, where the company is realizing strong growth in its multi-service access portfolio as the industry accelerates away from legacy infrastructures. Zhone will concentrate full R&D, manufacturing, and marketing resources on the growth core of its business, adding to its portfolio of high-demand access solutions — including Ethernet in the First Mile (EFM) and Gigabit Passive Optical Networks (GPON) — while continuing to introduce key multi-service access platform (MSAP) enhancements throughout the this year. This move targets Zhone's strategy exclusively on access solution markets that Broadbandtrends.com, Dell'Oro and Infonetics (the industry analysts following the segment in detail) are forecasting to continue on more than a 40% compound annual growth trajectory through 2010.

"As an innovation-driven organization, Zhone's expertise and enthusiasm have always been centered on new technologies that advance communications and move the access industry forward," said Mory Ejabat, Zhone's chairman and CEO. "These divestitures enable us to focus maximum resources on continuing to enhance and extend our unmatched portfolio of integrated multi-service access products, bringing ever greater efficiency, speed, and operational agility to the access network."

"The sharpening of Zhone's focus on pure IP-based access technologies is timed right and is in sync with the evolution of the market at large, particularly in EMEA and emerging markets where Zhone is realizing strong growth," said Teresa Mastrangelo, principal analyst for Broadbandtrends.com. "They will realize operational gains throughout their organization, which in combination with the strength of their current portfolio of access solutions will bolster their position among the first-tier suppliers in multi-service access."

Partners in the Divestitures
Communications Test Design, Inc. (CTDI) has acquired Zhone's AccessNodeTM product suite. The sale includes the AccessNode, AccessNode Express, and the Universal Edge 9000 (UE9000) products. As the current service and repair contractor for the AccessNode products, CTDI is uniquely qualified to provide continued sales and outstanding customer support for the product family. CTDI also purchased the eLuminant line of products from Zhone in September of 2005.

The GigaMux 50, 1600/3200 and 6400 products have been acquired by the new Sorrento Networks, a global provider of metro optical access solutions. The GigaMux acquisition provides Sorrento with a complete solution-based approach to metro/regional wavelength-division multiplexing (WDM). Sorrento will provide service and support to all existing GigaMux customers worldwide, and is focusing research and development efforts to expand its portfolio of edge-to-regional CWDM, DWDM and ROADM solutions for carriers and enterprises.

Zhone's customers will continue to benefit from both companies commitment and ongoing support to the AccessNode and GigaMux product lines.

"Zhone continues to experience strong growth in new product revenue from our market leading MSAP with next generation access capabilities like EFM and GPON," said Kirk Misaka, CFO for Zhone. "The divestitures enable Zhone to concentrate resources on the high-growth core of our business."

AccessNode
The AccessNode product suite supports a full range of narrowband, wideband and broadband services, from legacy voice-based switched and non-switched services to high speed SHDSL and ADSL2+ DSL services over field-proven TDM, SONET and ATM interfaces. Scalable from 24-line to 2,688-line remotes, the AccessNode, AccessNode Express, and Universal Edge 9000 systems can be deployed in central office, collocation, outside plant and customer premise locations. The AccessNode optimizes capital expenditures with cost-effective installation and delivers a comprehensive suite of services with carrier class reliability and quality.

GigaMux
The GigaMux products will enable Sorrento Networks customers to provide differentiated services from Ethernet to Sonet/SDH for Edge/Access/Regional and Metro WDM applications. Supporting CWDM, DWDM and ROADM in the same platform, the GigaMux products provide flexible deployment options over a wide range of topologies, enabling carriers and enterprises to expand their network capacity on a wavelength by wavelength basis.

About Communications Test Design, Inc. (CTDI)

CTDI, headquartered in West Chester Pennsylvania, has provided groundbreaking maintenance service solutions to the telecommunications industry since 1975. Over the years, CTDI has strategically diversified its service portfolio to include: wireline repair and logistics, wireless repair and logistics, engineering and installation services, global supply chain solutions, and product engineering and manufacturing. Today, CTDI services its global customers from 38 worldwide strategic repair and logistics locations supported by an experienced team of over 3,700 telecommunications professionals. www.ctdi.com

About Sorrento Networks

The original Sorrento Networks was founded in 1993, and acquired by Zhone Technologies in 2004. Today, the Sorrento brand and product line are being resurrected by co-founders Jim Nevelle and Tim Anderson, with financial support from CHB Capital Partners (http://www.chbcapital.com). The new Sorrento Networks will provide service and support to all existing GigaMux customers worldwide, and is focusing research and development efforts to expand its portfolio of edge-to-regional CWDM, DWDM and ROADM solutions for carriers and enterprises. Sorrento is headquartered in Denver, Colorado, with offices in Oakland, California and Stuttgart, Germany. For more information, visit www.sorrentonet.com.

About Zhone Technologies — Access for a Converging World

Zhone Technologies, Inc. (NASDAQ: ZHNE) is a provider of advanced communications equipment to more than 600 operators worldwide. The company's broad line of access networking solutions enables the full range of multi-play services, including residential and business broadband, VoIP, IPTV, and Ethernet. Zhone's converged access platform improves network agility and reduces costs, allowing operators to rapidly deploy premium services on their existing copper and fiber infrastructure while providing a seamless migration path to an efficient, all-IP network. www.zhone.com

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Forward-looking Statements
This press release contains forward-looking statements that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. Forward-looking statements include, among others, statements that refer to expected revenue and to anticipated growth and trends in Zhone's business or key markets. Readers are cautioned that actual results could differ materially from those expressed in or contemplated by the forward-looking statements. Factors that could cause actual results to differ include, but are not limited to, fluctuations in demand for network access products and general economic conditions as well as those specific to the communications, internet and related industries. In addition, please refer to the risk factors contained in Zhone's SEC filings available at www.sec.gov, including without limitation, Zhone's annual report on Form 10-K for the year ended December 31, 2006 and quarterly reports on Form 10-Q for the quarters ended March 31, 2007, June 30, 2007 and September 30, 2007 respectively. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date on which they are made. Zhone undertakes no obligation to update or revise any forward-looking statements for any reason.