Wojtek Dabrowski

TORONTO: Nortel Networks Corp. and Microsoft Corp. are expanding their existing partnership and will sell jointly developed products to telephone companies that serve business clients, the two companies said on Wednesday.

Software giant Microsoft and Nortel, North America's biggest maker of telephone equipment, first announced in July that they would work together on making telephone service, e-mail, instant messaging, video conferencing and other communications services simpler and more convenient to use by linking office phones and computers.

The products announced on Wednesday will allow telephone companies to provide this kind of "unified" service to business customers. Microsoft and Nortel expect to start field trials of the new offering in the second half of 2007, with general availability by year-end.

Having phone companies host the combined communications services means that small and medium-sized business clients won't have to buy, install and manage their own networks to have access, the companies say.

"If you're small, you really don't want to be tied up to all of the capital expenditure investment, nor do you really want to manage this yourself," Richard Lowe, Nortel's president of carrier networks, said in an interview.

The two companies say the new products will also benefit phone companies because it will let them squeeze more value from existing networks.

"I'm quite optimistic that, as part of our overall carrier (voice over Internet protocol) strategy, this is going to play very well," Lowe said.

He would not elaborate on the revenue Toronto-based Nortel hopes to capture from sales to carriers. In July, chief executive Mike Zafirovski said he saw more than $1 billion in new revenue over the four-year lifespan of the original deal with Microsoft.

At the time, Microsoft chief executive Steve Ballmer predicted that within 10 years all business communications would be Web-based.

Under the July pact, the two companies are working on big-business, mobile and wireline carrier products and have also agreed to cross-license intellectual property.

Nortel's shares were down 30 Canadian cents at C$28.31 in morning trade on the Toronto Stock Exchange. In New York, they fell 27 cents to $24.45.

Microsoft shares were up 5 cents to $27.77 on the Nasdaq.