Nortel and a number of its affiliates filed for Chapter 11 bankruptcy protection in the United States, according to a court filing.

"Based on this filing, the board of directors must believe that not only is the fourth quarter bad, but that the first quarter is going to be just as bad or worse," said Duncan Stewart, an analyst at DSAM Consulting in Toronto.

"Although they have cash in the short term, even the medium-term outlook is not enough to make the company viable as a going concern."

Nortel's shares have tumbled along with the company's fortunes, sinking into penny-stock territory in recent months. In mid-2000, at the zenith of the company's success, they were worth more than C$1,100 each, adjusted for a stock consolidation that took place in late 2006.

RBC Capital Markets analyst Mark Sue had said previously that bankruptcy was a "distinct possibility" for Toronto-based Nortel and that it could collapse under its debt load before 2011.

Nortel has faced intense competition from North American and European rivals such as Alcatel-Lucent, as well as low-cost Asian vendors such as Huawei Technologies.

The company has also suffered as telecom companies scale back spending on the equipment that Nortel makes.

The global economic slowdown has exacerbated Nortel's problems, leading it to warn last month that because of current conditions, its business is under pressure and its cash and liquidity are deteriorating.

In November, it reported a $3.4 billion quarterly loss, cut its 2008 outlook and announced 1,300 layoffs, or about 5 percent of its staff.

It also said it would freeze salary increases, cut back on consultants and review its real estate portfolio.

($1=$1.22 Canadian)

(Reporting by Wojtek Dabrowski; editing by Frank McGurty)