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Nortel Networks Corp. is entertaining offers from at least three serious bidders for one of its units, and is considering selling more assets rather than seek bankruptcy protection.

Although the company confirmed last week that it has hired consultants to advise on creditor protection proceedings, Nortel still has a small window of time in which to come up with other solutions.

Mike Zafirovski, president and chief executive officer, has implemented more than $1.5-billion (U.S.) in cuts since he took the reins three years ago. But cutting costs is no longer sufficient because the firm is losing customers and cannot find ways to boost revenue.

Mr. Zafirovski was left with little option in September but to start selling assets and put one of four divisions, the Metro Ethernet unit, on the block.

Nortel has not updated the markets on efforts to sell the business since then and would not comment yesterday.

Analysts say the firms most likely to bid on the unit, which makes gear for carrying video and Internet data within cities, are Nokia Siemens Networks, Telefon AB LM Ericsson, Huawei Technologies Co. Ltd. and Cisco Systems Inc.

When Nortel announced plans to sell the unit, analysts estimated it would fetch between $800-million and $1-billion, but have since said valuations have dropped because of the economic climate.

One of the hurdles to overcome may not be just price, but how much of Nortel is actually for sale.

The company may also opt to sell its Carrier Networks unit, which supplies gear to phone companies. Such a move would leave Nortel greatly scaled-down and selling only networking gear to businesses and governments. It would also end the century-old relationship between the company and the telecommunications industry, on which Nortel was founded.

Nortel has revealed plans to reorganize itself into just three business units beginning in the new year: Metro Ethernet, Carrier Networks and Enterprise. The move splits the company into convenient slices for a sale and leaves its small but promising communications software section within the Enterprise division.

Even as a pared-down entity focusing just on the business market, however, Nortel will face the same core challenges it is wrestling with today: finding ways to stem losses and achieve profitability. It's still unclear whether the Enterprise division can generate enough cash from existing customers and service contracts to become profitable without the need to first find new customers.

If Nortel decides that it cannot, in fact, be viable as a much smaller operation serving enterprise, it may choose to use bankruptcy protection as a weapon to save the whole company.

Although none of its $4.5-billion of debt is due until July 11, Nortel is quickly burning through its approximately $2.6-billion of cash.

And analysts worry that if the company waits a year to seek bankruptcy protection, it may be unable to get the credit it needs at that time and would be forced to liquidate.

At the moment, none of Nortel's major suppliers or shareholders are pushing it to file. Bondholders have refrained too, although they have been hammered recently, with the company's benchmark 10.75-per-cent bonds due in 2016 trading at just 16 cents on the dollar yesterday, down from 27.5 cents a week ago.

Filing for bankruptcy protection would enable Nortel to renegotiate with suppliers and leaseholders and perhaps get a government waiver on funding a pension deficit. It would also let the company offer bondholders a deal where they receive a combination of cash and new equity, but common shareholders would be left out in the cold.

Filing for bankruptcy protection would raise the issue of where Nortel's fiduciary duties lie, Kris Thompson, an analyst for National Bank Financial, wrote in a report yesterday.

"Is Nortel's fiduciary duty to both equity and bond holders, or do bond holders become a priority when a company is faced with a likely bankruptcy? We don't recommend shareholders stick around to find out."

NORTEL NETWORKS (NT)

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