Going forward, Nortel will focus on Long Term Evolution, with WiMAX products dropped in favor of working with Israeli vendor Alvarion, the company announced.

The development of LTE high-speed wireless networks has accelerated and at the same time WiMAX hasn't evolved as quickly as Nortel had expected, according to Gerry Collins, director of wireless for Europe, the Middle East and Africa at Nortel.

"We looked at our portfolio and felt we hadn't addressed either segment very well," Collins said.

So instead of trying to do both, it will now spend the majority of its R&D budget on LTE, to be able to satisfy the demands of established operators like Verizon, according to Collins.

At least one industry observer says the move might not bode well for WiMAX.

"For someone like Nortel who was expected to be a major player in mobile WiMAX to abandon development raises questions about the overall market opportunity," states Ittai Kidron of Oppenheimer & Co. in a bulletin on the pact. "This could be viewed as a signal that Nortel doesn't expect the WiMAX market to develop as it once thought and that its efforts are better spent on LTE development."

Nortel has been hit hard by the downturn in the telecom sector, and wasn't able to afford spending the large amounts of money and resources it takes to remain competitive in both areas, according to Richard Webb, directing analyst at Infonetics.

"Nortel had to prioritize, and has decided that LTE was a bigger opportunity," said Webb.

But Nortel doesn't want to turn its back on WiMAX completely -- it still feels WiMAX will provide cost-effective coverage and mobile broadband capabilities for early movers in the wireless broadband market, especially in parts of the world where broadband is a scarce resource, according to a statement. Hence the deal with Alvarion.

The two companies will integrate Alvarion's radio access network technology, with Nortel's core network and backhaul products. Nortel will also resell Alvarion's WiMAX products, which will help the Israeli company extend its coverage, according to Webb. (Compare WiMAX products.)

Because Nortel's WiMAX products will be discontinued, existing customers will be transitioned to Alvarion base stations. Collins didn't want to elaborate on possible discounts, but said "customers' faith" in Nortel will be rewarded.

The IDG News Service is a Network World affiliate.