Alcatel has reached a preliminary agreement to buy Nortel Network's 3G mobile phone network business for $US320 million.

Under terms of the proposed deal, Alcatel will acquire Nortel's (Universal Mobile Telecommunications Business UMTS) radio access business, including 14 Nortel customer contractsy. UMTS is a 3G telecoms standard used in Europe based on Wideband Code Division Multiple Access (W-CDMA).

The deal would make Alcatel one of the biggest suppliers of UMTS gear worldwide, giving it contracts with one in four UMTS operators, it said.

The companies have signed a nonbinding agreement to merge and hope to close the deal by the end of the year. Closing the merger depends on arriving at a final acquisition agreement, negotiations with works councils, and securing regulatory and other approvals, they said.

Asignificant majority of Nortel's employees in the UMTS division would be transferred to Alcatel, the companies said.

The deal appears not to affect Alcatel's proposed merger with Lucent, announced in April. That deal is due to be voted on by shareholders of both companies on September 7, although some Lucent shareholders opposed the deal and are trying to block the vote in court. Alcatel said it would involve Lucent in the integration of the UMTS business.

The Nortel deal made sense for Alcatel, since Lucent had only one major UMTS customer, Cingular Wireless LLC, an analyst with Ovum in London, Julien Grivolas, said. It would also build up Alcatel's operations in North America, he noted.

There was also plenty of competition in the UMTS field, however. Sony Ericsson Mobile Communications led the pack, and other companies have allied to shore up their strengths, Grivolas said.

Nokia and Siemens said in June that they would merging their telecommunication infrastructure operations. The other major players, Motorola and Huawei Technologies, are establishing a joint research lab for 3G.

Smaller players would have to find a niche to survive, which was difficult in a market where equipment must use the same standards to operate, Grivolas said.

The sale by Nortel continues a restructuring plan at the company that has included 1,900 job cuts over the next year. The Canadian company said in a statement its UMTS access business "lacks the scale and momentum needed to become profitable".

Nortel said it will continue to develop Global System for Mobile Communications (GSM) and other mobile technologies, as the company focuses on emerging 4G mobile video and multimedia services.

Alcatel sees the acquisition as a way to build on an expanding UMTS market and increase it technology portfolio for major operators such as Orange PLC and Vodafone PLC.