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A few years ago one of the bear stories on telecommunications equipment makers was the efforts of a Chinese company, Huawei Technologies, to enter that space with—no surprise—extremely cheap product.

Testosterone-rich Silicon Valley largely laughed off the threat. After all, Huawei traces its roots to the Chinese Army—not exactly the fountain of technological ingenuity that its Israeli counterpart has proven to be. And despite being China’s largest telecom vendor, it was hard to envision a Western newcomer like Huawei creating, selling, installing and supporting complex, mission-critical systems around the world.

But things got serious in 2003, when Cisco sued Huawei for allegedly copying Cisco router technology—so closely that an index to the Huawei user’s manual was distinguishable from Cisco’s only because of “a slightly more frequent use of decorative stars on the paper,” according to a Forbes story at the time.

The lawsuit was settled, however, and Huawei has wasted no time: just yesterday British Telecom selected Huawei to supply routers and access equipment as part of an eight-member consortium handling a $19 billion upgrade of the UK’s phone network.

Marconi Corp, which had been a huge BT vendor, was shut out of the deal, and its stock fell 38% yesterday.

For Marconi, not to mention Cisco, Alcatel, Nortel and all the other “tels” out there, it only gets harder from here.

Jeff Matthews I Am Not Making This Up

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.