Nortel Networks Ltd. is on the verge of garnishing its VOIP equipment business by taking a controlling stake in hosted VOIP systems specialist Sylantro Systems Corp. , according to industry sources.

The Canadian giant's new management wants to invest about $30 million in the IP centrex firm to gain a stronger foothold in a fast-growing market, according to one source, who requested anonymity. Nortel's recently-appointed Chief Strategy Officer George Riedel is believed to be spearheading the giant vendor's investment effort.

The source says the investment would give Nortel a controlling stake in the company, enable it to advance its position in the IP centrex market, and allow the carrier to scale back internal R&D on its own technology. That source also says Nortel approached other IP centrex players about potential relationships.

Another industry executive, who also spoke on condition of anonymity, says Sylantro has been actively seeking a major partner to help it take its hosted PBX technology to the next level and provide additional capital backing. Sylantro recently raised $11 million from its existing investors, and had tried to keep the funding quiet. (See Sylantro Raises Another $11M.)

Sylantro executives weren't immediately available and had not returned calls as this article was published. Nortel says it never comments on industry rumor and speculation.

Nortel and Sylantro are not currently partners, though the two did announce technical compatibility, following SIP interoperability testing between Sylantro's feature server and Nortel's Communications Server, in September 2005. Nortel has had some success with its hosted IP applications platform, notably at BT Group plc (NYSE: BT; London: BTA), but is believed to want to ramp up its activities in this sector. (See BT Picks Nortel for 21CN Centrex.)

Sylantro does have a number of equipment vendor partners, though, including Alcatel (NYSE: ALA; Paris: CGEP:PA), Siemens Communications Group , Cisco Systems Inc. (Nasdaq: CSCO), and Juniper Networks Inc. (NYSE: JNPR) -- Riedel's former employer before he joined Nortel. Riedel's current role at the Canadian vendor includes responsibility "for leading the Company's corporate strategy including business development and mergers and acquisitions." (See Nortel Poaches Juniper Strategist.)

Nortel's CEO Mike Zafirovski has been shaking up the vendor since he joined late last year, employing new senior people, such as Riedel, and implementing a new strategy that, he has stated, would include M&A activity. (See Nortel CEO: We're Ready to Deal.)

Zafirovski has also stated he wants Nortel to have a 20 percent stake in the sectors where it does business –- a controlling stake in Sylantro would, in an indirect way, give Nortel that position. He has also identified IMS (IP Multimedia Subsystem) as a key market for Nortel: Sylantro has developed its technology for IMS and Web services environments. (See Sylantro Unveils App Server.)

Sylantro is regarded as one of the leading independent vendors in the hosted VOIP applications market, along with some time rival BroadSoft Inc. . Sylantro names AT&T Inc. (NYSE: T), China Unicom Ltd. (NYSE: CHU), Qwest Communications International Inc. (NYSE: Q), and Swisscom AG (NYSE: SCM) among its big name customers.

— Ray Le Maistre, International News Editor, Light Reading