Israeli telecommunications equipment provider ECI Telecom (Nasdaq:ECIL) is in talks to merge its subsidiary Inovia Telecoms with a division of Finnish giant Nokia (NYSE:NOK), TheMarker has learned. No comment could be obtained from ECI.

The deal, for cash and shares, will leave ECI and Nokia with 50:50 control over the merged unit.

Inovia, previously ECI's access division, specializes in DSL technology used by communications companies to supply broadband, video-on-demand, point-to-multipoint and other advanced services.

Nokia is a global leader in supplying DSL equipment, including to China. The company recently won several Chinese deals of undisclosed scope to supply broadband equipment. To date, in any case, Nokia has invested some $2 billion in Chinese operations. It maintains 20 offices and two research centers in China alone.

Part of Nokia's advance in DSL has been fueled by acquisitions. In 1999 it acquired DSL equipment provider Diamond Lane for $125 million. A year and a half later it bought DiscoveryCom for €223 million.

Two weeks ago ECI reported that Inovia beat analyst expectations by achieving its first-ever operating profit, $292,000, in the first quarter. In the parallel quarter of last year the division's operating losses reached $8.5 million.

Inovia's first-quarter 2002 income sank to $67.5 million, after rising to $99.6 million in the fourth quarter of 2001, due to a seasonal surge in demand. Generally, Inovia is responsible for about a third of ECI's income.

Inovia's first-quarter operating profit comprised 25.2% of revenues in the first quarter, compared with 16.2% in the previous three months.

Shortly after ECI's first-quarter report, UBS Warburg assessed Inovia at $155 million, about half ECI's current market value.