June 29 (Bloomberg) -- Bankrupt Nortel Networks Corp. won permission to sell its primary wireless carrier business at an auction in which Nokia Siemens Networks would make the opening bid of $650 million.

U.S. Bankruptcy Judge Kevin Gross in Wilmington, Delaware today approved the sale over objections from bondholders and other creditors who accused Nortel of tilting the auction in favor of Nokia. Gross said he would modify the rules governing the auction to address some of the creditor concerns after Nokia agreed to the changes.

Nortel’s biggest customers, including Verizon Wireless, have said they fear buying its most promising new technology because of the company’s financial troubles, Chief Strategy Officer George Riedel said in court today.

The major wireless phone providers told Nortel “we love your technology, but we are concerned about your balance sheet,” Riedel said. “Unfortunately for us, we will win the technology prize, but not the commercial business.”

Bids for the business are due July 21 and the auction is scheduled for July 24 in New York. In a joint hearing held simultaneously in Wilmington and in Toronto, where the company is based, Gross said he would sign an order authorizing the auction once final wording is worked out by Nortel.

Older Products

The sale includes older products that are in decline, and so-called long-term-evolution technology that Toronto-based Nortel has spent as much as $200 million annually developing, Riedel said.

Gross declined a request by bondholders to delay the auction by two weeks so they could have time to try to put together an alternative proposal.

Bondholder attorney Jennifer Feldsher told Gross that her client has said it is “highly likely that it will put in a bid that is higher in value.” That could include a proposal to reorganize the entire company instead of selling off its major units.

Feldsher represents MatlinPatterson Global Advisors LLC who own $400 million of Nortel bonds, according to court records.

The main panel representing unsecured creditors whose claims aren’t backed by any collateral complained the rules as originally proposed favored Nokia. For example, Nokia could have won the auction just by matching a rival offer. The rival however, would have been required to offer at least $5 million more than Nokia.

Nokia attorney Anthony Clark said the company would agree to pay whatever so-called overbid amount was required at the auction.

The case is Nortel Networks Inc., 09-10138, U.S. Bankruptcy Court, District of Delaware (Wilmington).

To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net.

Last Updated: June 29, 2009 18:50 EDT