Nortel Networks Corp, the telecom equipment maker that filed for bankruptcy protection earlier this year, said on Monday its quarterly loss widened as the global economic downturn contributed to a sharp drop in revenue.

Nortel, North America's biggest maker of telephone equipment, said it is completing its plans to decentralize some functions at each of its four main businesses to give it the more flexibility as it decides which divisions to sell.

The company lost $507 million, or $1.02 per share, in the three months ended March 31. That compares with a loss of $138 million, or 28 cents, a year earlier.

Revenue fell 37 percent to $1.73 billion with declines in all segments and regions, the company said. Analysts on average had expected Nortel to post revenue of $2.32 billion, according to Reuters Estimates.

The steep drop in sales was due to the severe economic downturn and our filings for creditor protection, Chief Executive Mike Zafirovski said in a statement.

Nortel filed for bankruptcy protection in January, blaming the economic crisis for derailing a turnaround effort that began in 2005.

Since then, there has been widespread speculation among analysts and in media reports that the company may be sold off in pieces rather than revived as a viable stand-alone entity.

Sources have said that Nortel rivals, including Nokia Siemens Networks, have approached the Canadian company with offers for key parts of its business. However, no deal has materialized so far.

(Reporting by Wojtek Dabrowski; Editing by Frank McGurty)