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Ciena buys Nortel's Metro Ethernet business

Nortel Networks will sell another piece of its business for $769 million as part of its bankruptcy proceedings, which require it to dismantle its business.

Telecommunications equipment maker Ciena won an auction to acquire a division of Nortel Networks that develops equipment for transmitting data and voice traffic for about $769 million in cash and stock.

Ciena outbid Nokia Siemens Networks, a joint venture between Nokia of Finland and Siemens of Germany. The auction, which started Friday, was part of Nortel's bankruptcy proceedings, and its goal was to sell Nortel's Metro Ethernet division.

Metro Ethernet is a technology that is used to provide communications companies with more capacity in what is called a backhaul network. This is a part of the network that links a communications provider's local network, which delivers service directly to consumers and businesses, to the backbone network, which shuttles traffic between regions and across the country.

As the demand for Internet capacity rises, particularly in the wireless market, operators must upgrade these backhaul networks. For example, wireless operators are about to begin a cycle of major backhaul upgrades as they move toward deploying faster 4G technology.

Nortel has been considered a leader in this market. And its Metro Ethernet business already has more than 1,000 customers spread across 65 countries. Its customers include some of the largest service providers in the U.S., including AT&T, Verizon Communications, and Comcast.

Even though big opportunity for the Metro Ethernet business lies ahead, recently Nortel's business has not performed well. Revenue for the business unit for the first three quarters of this year fell about 21 percent from a year ago. Nortel's bankruptcy filing and the economic downturn contributed to the decline.

Ciena hopes that it can capitalize on future demand for the technology with Nortel's assets. The company plans to retain about 85 percent of Nortel's employees working on Metro Ethernet to help it keep the business on track.

A decade ago, it would have been hard to predict that Nortel would be dismantling its business. Then, the company was a high-flying tech giant and leader in optical networking, the technology that helped Internet service providers double, triple, and quadruple capacity and speeds on their networks.

But Nortel was hit hard when the telecommunications investment bubble burst in the early part of this decade. Then a massive accounting scandal, which forced out the company's CEO and several executives, unfolded. And the company never recovered. The global recession that swept through the industry starting more than a year ago only exacerbated Nortel's problems. Business slowed considerably and its debts mounted.

The company in January filed for bankruptcy protection. And the sale of the Metro Ethernet business is part of these proceedings.

Nortel has already sold other businesses. Nokia Siemens, which lost its bid for the Metro Ethernet assets, also tried to acquire some of Nortel's wireless assets, including a business unit that developed CDMA and LTE equipment. LTE, or long term evolution, is the technology that most operators around the globe will use to build their 4G or next generation wireless networks. Nokia Siemens lost its bid in July to Swedish competitor Ericsson, which offered to pay Nortel $1.13 billion.