The news could lead to job losses

The UK company generates about 25% of its work from BT but it was not among the eight named preferred suppliers for a new �10bn ($19bn) network.

The news could lead to job losses. Marconi has 10,000 global employees and 4,500 in the UK at sites in Coventry, Liverpool, Basildon and Beeston.

The news is likely to be seen as a setback to the firm's recovery.

"We have to recognise there is likely to be a jobs impact but we cannot quantify that at this stage," Marconi spokesman David Beck said.

Shares in Marconi closed down 184 pence, or 38.1%, at 298p on Thursday.

Rescue package

Marconi secured a life-saving financial rescue package in 2003.

The company, which formed itself from the once-mighty UK industrial giant GEC, was on the verge of collapse in 2000 when the bottom fell out of the telecoms and technology markets.

We have been unable to meet BT's commercial requirements Mike Parton, Marconi CEO Check Marconi's share price

It had suffered a sharp drop in orders following a switch of focus from electronics to telecoms.

Since its restructuring, the company has made steady progress, wiping out its �669.5m debt mountain ahead of schedule.

It recently clinched a major deal with Huawei Technologies, giving it an inroad into China and the rest of Asia.

On Thursday, Marconi said it will continue to supply equipment and services to BT under existing contracts which include a �90m-a-year deal that runs until 2008.

"This is a disappointing outcome from a very competitive tender process," said Marconi's chief executive Mike Parton.

"Our products performed extremely well technically, but we have been unable to meet BT's commercial requirements."

Marconi spokesman Mr Beck said the company could not match the prices others were prepared to bid.

"If we had gone any lower we would not have made any return on the price we were quoting," he said.

BT shift

BT plans to transform its UK network in order to provide new services and cut costs.

BT said it had selected Fujitsu, Huawei, Alcatel, Cisco, Siemens, Lucent, Ericsson and Ciena after two years of negotiations with more than 300 potential technology suppliers.

It said dozens of smaller subcontractors in the UK will also become involved in the work.

The technical work involved includes a gradual closing down of the old Public Switched Telephone network (PSTN) to make way for an internet protocol (IP) network by 2010.

BT hopes to boost revenues by carrying voice, internet and television services on one network and marketing phones capable of working over both fixed and mobile networks.