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( NT) didn't have enough to fret about with cash-starved customers on this side of the ocean, a host of worries are sprouting anew in Europe's wireless market.

Nortel made a

big splash in late 2000 by offering lavish financing terms to win key wireless-infrastructure gear-supply contracts. Those high-speed network upgrades cover what's known as third-generation, or 3G, wireless; at the time industry observers waxed at length to the effect that a lead in the lucrative 3G market would surely make Nortel a profit machine many years hence.

But now industry analysts say the long-term health of that market is looking shakier, as are Nortel's claims on it. While Nortel disputes recent reports that suggest it is in jeopardy of losing a $780 million contract with 3G network builder

BT Cellnet

, the grinding cash crunch among big European telcos underscores the growing uncertainty surrounding wireless telecom, which only a year ago appeared to be the financially troubled sector's strongest area.

Blinders On

The worst part for Nortel investors might well be the Toronto-based gear seller's apparent obliviousness to its plight. Earlier this month Nortel hosted an analyst conference that painted Europe in only the brightest colors. In fact, to the bewilderment of some observers, Nortel proudly offered up market-share figures that showed it as the No. 2 wireless gear supplier in the world.

Long Ago
Two years of trauma at Nortel

"Their wireless presentation at the analyst meeting was oddly rah-rah," says Sanford Bernstein analyst Paul Sagawa, who has an outperform rating on the stock. "They put up ludicrous market-share charts, and I don't think anyone there was buying it."

By Sagawa's count, which other analysts largely concur with, Nortel is at best a distant No. 4, behind




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( LU). And depending on who you talk to, there's a chance the company also trails


( MOT).

Nortel's big plans to ride its momentum in optical networking sales seamlessly into the ultrahot wireless Internet market faltered not long after the company proclaimed to analysts in late 2000 that it had set aside as much as $2 billion to help bankroll 3G efforts, primarily in Europe. Of course, Nortel famously missed early warning signs on the impending collapse of its optical sales. Needless to say, some observers are saying the company has misjudged the wireless opportunity as well.

Cap'n Crunch

All that said, the big worry for Nortel investors in Europe has less to do with market share and more to do with a cash crunch consuming big players such as

British Telecom

( BTY) and

Deutsche Telekom

( DT). The squeeze, much like what we've witnessed here in the U.S., threatens to slow the pace of equipment spending, especially on speculative investments in fancy network-expansion projects.

Lehman Brothers analyst Tim Luke has been sounding these warnings in his reports to clients in recent weeks. Luke stresses that the launch of 3G could well be delayed far beyond 2004 as the debt-heavy telcos attempt to shore up their balance sheets and conserve cash.

Two years ago, Nortel promised about $1 billion in loans to two Spanish wireless telcos, Airtel and Xfera. A Nortel spokesman said there has been no change to those contracts, and declined to comment on any other financing deals.

Now, Nortel is in a tenuous position. Having stuck its neck out in the form of loans to support 3G phone companies before curtailing that practice to appease Wall Street, Nortel apparently faces the prospect of losing whatever sales edge it may have had in the wireless supplier race.

Even if Nortel had the cash to reprime the vendor-financing pump, it's not clear the company would try it at this point. After getting stuck in financing hell last year with some $3 billion in loan promises to outfits like Aerie Networks and

Leap Wireless

( LWIN), investors might take leave from the stock if Nortel decided to play lender to the flimsy telcos again.

"They were in an underdog position in wireless, with a relatively poor performance in 1999 and 2000," says Sagawa. "Then they looked to re-energize the business through investment in 3G, and were eager to do vendor financing. But they soon had to back away from that financing, and they haven't signed many deals since."