Others point out that even for Nortel's focus on wireless -- and recent obsession with IPTV -- Tellabs would work. The Tellabs 8600 and 8800 are used in various wireless network applications, with the former being used mostly as wireless backhaul. In Australia, Telstra has been deploying the 8800 as a replacement for Nortel's incumbent Passport switches: Nortel had been supplying Telstra with data switches since 1989. (See Telstra Unveils Next IP.)

    In the access technology market, sources say Tellabs could use Nortel's weight to ramp up its FTTH business, which has hit some speed bumps in the GPON races at AT&T Inc. (NYSE: T - message board) and Verizon Communications Inc. (NYSE: VZ - message board). (See AT&T Picks GPON Players.)

    Nortel, having backed away from the broadband access business years ago, could use Tellabs's gear to boost its IPTV applications story. (See Nortel Eyes IPTV Prospects, Sources: Nortel Planning IPTV Acquisitions, and Nortel CEO: We Blew It on DSL.)

    Examining Options

    Aside from the chatter on Wall Street, some options trading may provide another clue that investors believe Tellabs will be sold. Susquehanna Financial Group published a note Wednesday pointing out that Tellabs investors are "rolling a long call position from September to October." The move was a call option to buy 10,000 shares of Tellabs for $12.50 before October 20.

    The analysts at Susquehanna say the move implies the investor anticipates "increased volatility" in the stock before late October.