Shares in Nortel Networks fell 20 per cent amid reports that North America’s biggest telephone equipment maker has sought bankruptcy protection advice.

A Nortel spokesman confirmed that the struggling company, once a technology powerhouse, had engaged advisors to help plot its way of financial trouble. "No bankruptcy filing is imminent," he added.

Shares in the Toronto-based company fell 13 Canadian cents to 51 cents on the Toronto Stock Exchange and fell 12 cents to 40 cents in New York.

Last month, Nortel reported a $3.4 billion quarterly loss, cut its 2008 outlook and announced 1,300 layoffs, about 5 per cent of its staff. It also said it would freeze salary increases, cut back on consultants and review its real estate portfolio.

Nortel has seen its market value plunge 97 per cent this year as customers reined in spending and switched to newer technology. It has faced intense competition from North American and European rivals such as Alcatel-Lucent, as well as low-cost Asian vendors such as Huawei Technologies. The company has also suffered as telecom companies scale back spending on the equipment that Nortel makes.

The global economic slowdown has made Nortel's problems much worse. As of September 30, Nortel's debt amounted to $6.3 billion, including adjustments for operating leases, pension deficits and other items.

The company has about $1 billion in bonds that come due in 2011.

"Nortel is a company that has more debt than it has cash, is cash flow negative, and whose pension obligations are almost certainly rising in current capital markets," said Duncan Stewart, analyst at DSAM Consulting in Toronto.

The company said it was focusing on bringing about cost reductions as soon as possible. A bankruptcy filing by Nortel would make it the first major technology company to take that route in the recent economic crisis, though its troubles precede the credit crunch by years. Former Chief Executive Frank Dunn and two other former executives face civil suits and criminal charges for allegedly misstating the company's financial results in 2002 and 2003.

The Wall Street Journal, which reported the exploratory bankruptcy advice, also said the company was seeking the possibility of aid from the Canadian government.

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