Business desires

Nortel chief executive, Mike Zafirovski, said the firm expected to see sales of more than $1bn between 2007 and 2009 as a result of the deal.

The agreement, he said, would give the Canadian firm a head start over other companies looking at more software-based communications.

The project is based on the premise that businesses want products which allow people to communicate, whatever their location and device they are using.

For instance, they might want to ensure that when staff are on the move, calls to the office are automatically routed via an employee's laptop rather than a phone.

Microsoft's chief executive, Steve Ballmer, said the move signalled the firm's serious involvement in voice-over-internet protocol "quite clearly".

He predicted that all business communications would become web-based.

"It's 100% that it's going to happen and happen quickly. The only question is how quickly in business."

The two firms have struck a four-year deal drawing on Nortel's experience of digital innovation and Microsoft's wide-reaching computer software.

Both will contribute to development and marketing costs, as well as cross-licensing each other's patents.