Nortel Noses Forward

A deal with Alcatel puts the focus on newer wireless gear.
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Failing at 3G,

Nortel

(NT)

sets its sights on the next generation of wireless gear.

Nortel's latest rebuilding, relaunching enterprise makeover headed by CEO Mike Zafirovski aims to cut the company's losses and potentially salvage a role in the future of wireless networks.

Acquisitive

Alcatel

(ALA)

, already adding

Lucent

(LU)

to its global networking empire,

agreed Friday to pay $320 million for Nortel's universal mobile telecom systems, or UMTS, unit.

The deal may help Alcatel win back lost customers, while allowing Nortel to walk away from a money-losing venture.

Oddly, both companies say the transaction will help with the transition to so-called fourth generation, or 4G, mobile communications technology.

On a conference call with analysts Friday, Nortel's mobility chief Richard Lowe saw the deal as a way to catapult the company forward to the next stage of wireless upgrades.

In a shortcut of sorts, Lowe said the deal now has Nortel "leapfrogging over the 3G step" into 4G.

Industry observers and investors cheered the deal. Nortel shares rose 2 cents to $2.11 in midday trading Friday.

"This was good for both companies," says Telecom Pragmatics analyst Sam Greenholtz. "Nortel needs the money, and Alcatel could use the product."

Greenholtz says Nortel was smart to cut and run, but he questions the immediate importance of 4G wireless technology.

Phone companies like

Verizon Wireless

-- co-owned by

Verizon

(VZ) - Get Report

and

Vodafone

(VOD) - Get Report

-- and

Cingular

-- a venture of

AT&T

(T) - Get Report

and

BellSouth

(BLS)

-- have been busy upgrading networks to third-generation technologies like UMTS and evolution-data only, or EV-DO. But returns on those billion-dollar investments have been slow in coming.

Despite the lack of blockbuster sales, gearmakers have touted the advantages of even faster wireless access tech like WiMax, a catchall name synonymous with 4G.

"I have a hard time getting excited about 4G when we haven't seen the 3G take off yet," says Greenholtz.