Oct. 5 (Bloomberg) -- Ciena Corp., the maker of fiber- optic gear for telephone companies, said it’s in talks to buy almost all the optical networking and carrier Ethernet assets from Nortel Networks Corp. to broaden its product range.

While the talks are “advanced,” any agreement would be subject to competitive bidding, Linthicum, Maryland-based Ciena said today in a statement.

Ciena, whose equipment helps speed up data downloads, could use the Ethernet business to provide new ways to transmit video and other Internet traffic within cities. On the downside, the acquisition would be expensive and difficult to integrate, said Ari Bensinger, an analyst at Standard & Poor’s in New York. It may cost as much as $800 million, which would “materially weaken” Ciena’s balance sheet, he said.

He downgraded his rating on Ciena to “sell” from “hold” today. Bensinger cited the challenges of absorbing the Nortel unit, given its overlapping products and operating losses. Nicole Anderson, a spokeswoman for Ciena, declined to comment beyond the statement.

Ciena fell 49 cents, or 3.3 percent, to $14.17 at 4 p.m. New York time in Nasdaq Stock Market trading. The stock has more than doubled this year.

Nortel, once the biggest maker of communications equipment in North America, is selling off its businesses piecemeal since filing for bankruptcy protection in January. Avaya Inc. won an auction last month for Nortel’s phone-equipment unit with a bid of $915 million. Nortel, based in Toronto, has raised more than $2 billion from the asset sales.

Sales at Nortel’s Metro Ethernet networks business, which offers Internet service using the Ethernet networking technology, fell 27 percent to $333 million in the second quarter.

To contact the reporters on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net; Demian McLean in Washington at dmclean8@bloomberg.net

Last Updated: October 5, 2009 16:15 EDT