Alcatel (NYSE: ALA; Paris: CGEP:PA) is poised to buy wireless assets from Nortel Networks Ltd. in a deal potentially worth $1.9 billion, according to a Paris-based analyst.

Oddo Securities analyst Vincent Maulay, citing contacts at Nortel's French business, stated in a research note issued Tuesday that talks between Alcatel and Nortel regarding a potential acquisition are already at an advanced stage.

Maulay tells Light Reading that it's unclear at present whether the proposed deal is for Nortel's UMTS (3G) business alone, or for the Canadian vendor's complete GSM infrastructure business, which would include GSM, GPRS, EDGE, and 3G equipment, though the most recent speculation concern the UMTS business only.

The Oddo analyst puts a price tag of around €1 billion ($1.28 billion) on the standalone UMTS/3G business, and around €1.5 billion ($1.92 billion) on the entire GSM/3G business.

Alcatel would not confirm or deny any talks with Nortel, saying only that "we are open to any options that would increase our leadership in this market." Nortel described the news as "pure rumor and speculation."

Maulay believes such a deal would make sense for both parties, and would significantly boost Alcatel's position in the 3G market. Currently, Alcatel has about a 4 percent share of the UMTS equipment market, its bride-to-be Lucent Technologies Inc. (NYSE: LU) has 2 percent, and Nortel has about 10 percent. (See Alcatel, Lucent Seal Deal.)

Buying Nortel's business, which includes a major deal at Orange France (Paris: OGE), would give Lucatel (the combined Alcatel/Lucent) a 16 percent share, pulling it much closer to the 30 percent share enjoyed by the market's giants -- Ericsson AB (Nasdaq: ERIC), and a combined Nokia Corp. (NYSE: NOK) and Siemens Communications Group . (See Nokia, Siemens Create Networks Giant, Emerging Markets Boost Ericsson, Orange Trials Nortel, and Nortel Wins Orange 3G Deal.)

The exit would also fit with Nortel's new stated strategy of exiting sectors where it does not have a 20 percent market share, noted Maulay. (See Nortel CEO Maps Out His Vision.)

Jefferies & Co. Inc. analyst George Notter says rumors of Nortel selling its GSM/UMTS business have been "around for many months," and "while our industry contacts can't confirm or dispel the rumors, we wouldn't be surprised to see such a deal occur," he adds in a research note issued today.

"Any sale of that business for $1.9 billion would be a positive," writes the analyst.

He agrees that the deal makes sense, noting that "Clearly, Nortel lacks critical mass in the [GSM/UMTS] business," where it is ranked 5th and 8th in terms of global market share respectively.

"Given recent consolidation in the wireless equipment space, it's tough to see how Nortel could achieve critical mass through an acquisition or a JV [joint venture]. A deal with Alcatel may really be the company's only strategic option for creating value in this business right now," writes Notter, who reckons a $1.9 billion price for the whole GSM plus UMTS business would be fair, as it is about the same as current annual revenues from the business, which has only "marginal profitability."

The resulting cash from a sale could help reduce debt or be used for acquisitions, reckons Notter.

In addition to Orange France, other Nortel UMTS customers include Telefónica Europe plc (O2) , T-Mobile International AG in Germany, Telefónica Móviles SA , Israel's Partner Communications Co. Ltd. (Nasdaq: PTNR; London: PCCD), Mobilkom Austria AG & Co. KG , Orange Slovensko a.s. , Canada's Microcell Telecommunications Inc. , and Poland's Centertel . (See Nortel Upgrades OS, Centertel Selects Nortel , Nortel Wins Expansion Deals, Partner Picks Nortel For UMTS, and Mobilkom Austria Intros UMTS.)

— Ray Le Maistre, International News Editor, Light Reading