Facing a slowdown in demand and tougher competition, Nortel has also been exploring potential assistance from the Canadian government, the newspaper reported.

Shares in the Toronto-based company fell 20 percent to 51 Canadian cents on the Toronto Stock Exchange in early trade on Wednesday and 21 percent to 41 cents in New York.

In mid-2000, they were worth more than C$1,100 each, adjusted for a stock consolidation that took place in late 2006.

The Wall Street Journal cited people familiar with the situation for its report on the bankruptcy protection study, and it cited a person familiar with the situation for its report on the possibility of seeking government aid.

The paper quoted a Nortel spokesman as saying no bankruptcy filing was imminent although the company has engaged several advisers to plan ahead.

A Nortel spokesman told Reuters the company had no debt maturity until 2011 and was preserving and strengthening its cash position.

Last month, Nortel reported a $3.4 billion quarterly loss, cut its 2008 outlook and announced 1,300 layoffs, about 5 percent of its staff. It also said it would freeze salary increases, cut back on consultants and review its real estate portfolio.

Nortel has lost billions of dollars and cut tens of thousands of jobs since the technology bubble burst at the beginning of this decade.

It has been unable to recover since then, with its problems exacerbated by the global economic slowdown.

RBC Capital Markets analyst Mark Sue said in November the company faced significant liquidity concerns, with bankruptcy a distinct possibility before 2011.

($1=$1.26 Canadian)

(Reporting by Susan Taylor and Eric Yep in Bangalore; editing by Peter Galloway)