TORONTO (Reuters) - Nortel Networks Corp , North America's biggest telephone equipment maker, filed for bankruptcy yesterday, hoping to save a once high-flying business whose decade-long decline has accelerated with the global economic crisis.

The filing marks a crucial stage in the slow deterioration of one Canada's most prominent companies. Nortel, a stock market darling before the tech bubble burst at the start of the decade and still one of the country's largest employers, has struggled for years in an industry that has changed radically since its heyday in the late 1990s.

Despite its woes, Nortel is still a big part of Corporate Canada, with 32,000 employees and major operations in Ottawa, considered the country's high-tech hub. Its payroll has also reflected its fortunes, shrinking from 90,000 in 2000.

A sharp slowdown in many of Nortel's major markets, especially the United States, has exacerbated its problems, leading the company to warn last month that its business was under increased pressure and its cash position and liquidity were deteriorating.

"It's obviously a remarkable transformation from where it was as the largest company in Canada worth about 35 percent of the (Toronto Stock Exchange) in 2000," said Gavin Graham, director of investments at BMO Asset Management in Toronto.

"But this is a reflection of the way that the telecommunications industry has changed."

Telecom companies have scaled back spending on the equipment that Nortel makes in a bid to clamp down on costs amid the global downturn. At the same time, the company has faced intense competition from North American and European rivals such as Alcatel-Lucent and Ericsson. "They're avoiding a slow death by doing this," UBS analyst Nikos Theodosopoulos. "The company is going to have to sell assets and change its focus. It's not going to be the same company."

The filing came a day before the Toronto-based company was due to make an interest payment of about $107 million. "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.