Nortel Networks Corp., North America's biggest maker of telephone equipment, filed for bankruptcy protection Wednesday, as the global economic downturn further erodes its once high-flying business.The filing came a day before the Toronto-based company was due to make an interest payment of about $107 million.Nortel (NT) and a number of its affiliates filed for Chapter 11 bankruptcy protection in the United States, according to a court filing.Its shares plunged more than 76% to 7.5 cents in electronic pre-market trading."Based on this filing, the board of directors must believe that not only is the fourth quarter bad, but that the first quarter is going to be just as bad or worse," said Duncan Stewart, an analyst at DSAM Consulting in Toronto."Although they have cash in the short term, even the medium-term outlook is not enough to make the company viable as a going concern."According to the court filing in U.S. bankruptcy court for the district of Delaware, Nortel's major creditors include Bank of New York Mellon, with claims valued at nearly $4 billion.
Nortel's shares have tumbled along with the company's fortunes, sinking into penny-stock territory in recent months. In mid-2000, at the zenith of the company's success, they were worth more than C$1,100 each, adjusted for a stock consolidation that took place in late 2006."It's obviously a remarkable transformation from where it was as the largest company in Canada worth about 35% of the TSX in 2000," said Gavin Graham, director of investments at BMO Asset Management."But this is a reflection of the way that the telecommunications industry has changed."

Nortel 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.