Nortel

(NT)

on Tuesday agreed to sell $1 billion worth of optical-networking equipment to closely held

Aerie Networks

.

Nortel It On the Mountain
Equipment maker's stock over a year

Terms of the deal limit Nortel to no more than 50% of the financing for the duration of the four-year contract. The fact that Nortel included that bit of information in the opening paragraph of the Aerie press release is telling. Investors have become concerned with the amount of debt the equipment makers are accumulating as funding for new networks continues to

get tight.

Vendor financing essentially means the seller extends a loan to the buyer for the purchase of the equipment. This is a common practice among some of the larger equipment makers such as

Lucent

(LU)

and

Cisco

(CSCO) - Get Report

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. The practice has come under fire recently because of its inherent risk.

A Nortel spokesman declined to comment.

Last week, for example, Lucent

warned it wouldn't meet fourth-quarter earnings estimates, in part because it had to cover bad debt from financing deals that had soured.

Last month, Cisco said it was actually

increasing its financing activity, which represents about 10% of its total sales.

Aerie is a Denver-based, wholesale-bandwidth carrier backed by a handful of oil and electric companies, along with venture capital firm

VantagePoint Venture Partners

. The company has acquired rights-of-way routes over some 20,000 miles in the U.S. Its CEO, Peter Geddis, was formerly chief operating officer at

Qwest Communications

.

Aerie's contract is for what is known as long-haul, fiber-optic equipment developed in part by

Qtera

, a company Nortel acquired last year. This equipment shoots laser light more than 2,000 miles down fiber-optic cables, helping to reduce the need to regenerate the signals. The commonly held belief is that the longer the signal travels without regeneration, the cheaper and quicker that traffic will move.