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MONTREAL - BCE Inc. (TSX:BCE) may be forced to break up if weakened banks walk away from funding the $52-billion leverage buyout of the telecommunications giant, a telecom analyst said yesterday.

Carmi Levy of AR Communications says dramatic action will be required to help Bell Canada thrive amidst intensifying cellphone competition if the purchase led by the Ontario Teachers' Pension Plan ultimately fails.

"If the deal actually collapses and there is nothing, then really the only future for BCE lies in break up," he said in an interview.

Levy said Bell Canada desperately requires cash to invest in a wireless network upgrade and make the changes envisaged by the prospective new owners.

Bell is increasingly lagging behind national carriers such as Rogers Communications (TSX:RCI.B) and Telus (TSX:T). It also faces the prospect of competition from new entrants such as Quebecor's Videotron (TSX:QBR.B), Globalive and others.

And while its legacy wireline business generates strong free cash, the business is continually bleeding customers to cable companies.

Long-term strategic decisions are needed to build on the strong start initiated by new CEO George Cope, Levy added.

"We've only just seen a taste of what BCE needs to do to remain competitive."

Although the Teachers' and BCE would like to close the deal as planned Dec. 11, they may have no choice but to delay for several months to salvage the world's largest leveraged takeover, he added.

Some observers have suggested that Teachers may cough up more money to solidify the deal as several of the global banks funding the BCE purchase are facing unprecedented financial problems of their own.

The Royal Bank of Scotland has received a British government bailout and questions have been raised about Citibank's ability to maintain billions of dollars of loans on its balance sheet if it is unable to sell the BCE debt this month.