Oct. 6 (Bloomberg) -- Ciena Corp., the maker of fiber-optic gear for the biggest U.S. phone companies, offered $550 million to buy most of Nortel Networks Corp.’s optical networking and carrier Ethernet assets, said a person familiar with the matter.

Yesterday, Ciena said it was in talks to buy the business, broadening its product range. Ciena counts AT&T Inc., Verizon Communications Inc. and Sprint Nextel Corp. among its customers.

Ciena, whose equipment helps speed up data downloads, could use the Ethernet business to provide new ways to transmit video and other Web traffic within cities. Ciena has purchased eight companies in the past decade, and investors may be worried that the Nortel assets prove to be too big an acquisition, said Nikos Theodosopoulos, an analyst at UBS AG. The shares slid the most in five months today.

“People view this as a risk to the company,” said Theodosopoulos, who is based in New York and has a “neutral” rating on Ciena. “It doesn’t have a history of trying to be a company of scale.”

Ciena dropped $1.12, or 7.9 percent, to $13.05 at 4 p.m. New York time in Nasdaq Stock Market trading, the biggest decline since May 7. The stock has almost doubled this year.

Ciena declined to comment, said Nicole Anderson, a company spokeswoman. Nortel spokesman Jay Barta declined to comment.

Nortel, once the biggest maker of communications equipment in North America, is selling businesses piecemeal since filing for bankruptcy protection in January. The company has raised more than $2 billion from those auctions.

Competitive Bidding

Any agreement would face competitive bidding, Linthicum, Maryland-based Ciena said yesterday. 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.

Avaya Inc. won an auction last month for Nortel’s phone- equipment unit with a bid of $915 million, while Ericsson AB bought some of Toronto-based Nortel’s wireless assets for $1.13 billion earlier this year.

To contact the reporters on this story: Serena Saitto in New York at ssaitto@bloomberg.net

Last Updated: October 6, 2009 16:11 EDT