Alcatel is to buy Nortel's third-generation mobile phone network unit for $320 million as it aims to achieve greater scale amid price competition.
The deal, which will help the French communications network provider push into tough markets such as China, comes as it tries to drum up investor support for its acquisition of US rival Lucent. Shareholders are to vote on the Lucent deal on Thursday.
Alcatel, which is looking at how it will combine its mobile operations with those of Lucent, said it had signed a non-binding memorandum of understanding to buy Nortel's UMTS radio access business and related assets.
It expected a significant majority of employees of Nortel's business to be transferred to Alcatel and said the acquisition would give it 14 new UMTS customers.
Alcatel said the deal remained subject to the execution of a definitive agreement and closing conditions but that it expected to complete it in the fourth quarter, the period during which it plans to wrap up its merger with Lucent.
Shares in Alcatel were down 0.8 per cent at €9.71 by 8.30am, while the DJ Stoxx European technology index was down 0.7 per cent.